ING Direct 2008 Annual Report Download - page 263

1 The threshold amount varies per business unit, but generally is EUR 0 in the international units, and EUR 1 million in the ‘home markets’.
ING uses a common industry classification methodology based on the NAICS system (North American Industry Classification System).
This methodology has over 1,500 detailed industry descriptions, which are aggregated into 22 industry classes at the highest level.
Certain countries require ING to report locally based on other industry classification methodologies, which are generally derived from
the NAICS classifications presented here. Residential mortgages are generally only extended to private individuals.
Outstandings by Tenor Bucket (based on credit risk outstandings) per 31/12
2008
Central
governments
and central
banks Institutions Corporate
Residential
mortgages Other retail Total
Current Outstandings 80,020 117,066 250,413 266,918 34,795 749,212
1 month 73,841 107,314 233,559 266,346 33,676 714,736
3 month 47,681 88,317 218,945 265,805 33,069 653,817
6 month 47,469 82,899 209,209 264,981 31,982 636,540
1 year 52,289 70,942 167, 254 262,052 20,412 572,949
2 years 47,241 64,600 137,498 258,619 17,828 525,786
3 years 40,753 56,474 110,622 254,560 15,546 477,955
5 years 33,314 44,387 70,160 241,541 11,457 400,859
7 years 22,270 32,210 44,087 232,649 9,577 340,793
10 years 7,331 7,725 23,915 213,740 7,147 259,858
Includes both AIRB and SA portfolios; Excludes securitisations, equities and ONCOA.
Problem Loans (rating 20-22) are excluded in the figures above.
Basel II does not include a cash flow methodology that would look at future portfolio runoff. This table, therefore, presents figures that
are based on credit risk outstandings, and not EAD. Credit Risk outstandings include amounts associated with both on and off balance
sheet products, but exclude amounts related to unused limits. For derivatives and securities financing, the mark-to-market plus add-on
methodology is applied, but the add-ons are generally less conservative than the add-ons applied under the Basel II definitions.
The figures above assume that loans, money market and investments in fixed income securities are fully repaid at their maturity dates and
that limits are reduced in conjunction with repayment schedules contained in the associated loan documentation, without regard for
potential renewal or extension, or portfolio sales or acquisitions. Pre-Settlement risks are assumed to reduce over the legal maturity of the
underlying transactions. However, under mark-to-market plus add-on methodology, it is possible for exposures to increase in time, rather
than decrease. This is a function of ING’s estimates of future interest rates and foreign exchange rates, as well as potential changes in
future obligations that may be triggered by such events. Generally, credit risk outstandings are lower than EAD.
Further, all figures assume that no new credit risks are introduced into the portfolio and that there are no delays in repayments associated
with problem loans, nor are there write offs associated with provisions or impairments. The portfolio runoff is implied by the difference in
the figures between two periods.
LOAN LOSS PROVISIONS
There are three types of provisions that have to be made and accounted for:
Individually Significant Financial Asset (ISFA) Provisions• for those loans where specific, individualized provisions are still required. These
are generally loans that exceed the threshold amount.1 These provisions are made using an estimated future recovery methodology and
then applying a net present value concept. The future cash flows are based on the restructuring officers’ best estimate of when/if
recoveries will occur. Recoveries can be from any source, such as the sale of collateral, ongoing cash flows, sale of a business/subsidiary,
etc. ISFA provisions are all calculated using a common tool across ING Bank.
Incurred But Not Recognised (IBNR) Provisions:• are made for the ‘performing’ loan portfolio as an estimate or proxy for the losses/
defaults that may have already occurred in the portfolio, but which ING has not yet determined or recognised. These provisions are
based on a modified expected loss methodology. The primary modification is that the PD time horizon (12 months) is shortened to
periods of 3, 6, or 9 months, depending on the type of obligor. Generally, the larger the obligor, the shorter the PD time horizon.
IBNR provisions are calculated centrally using a common tool across ING Bank.
Individually Not Significant Financial Asset (INSFA) Provisions:• are made for acknowledged problem loans (ratings 20-22) that are below
the threshold amount. Due to their small size, the IFRS rules permit a statistical approach to measuring these provisions. Therefore, the
calculation is based on the same statistical formula that is used to determine IBNR Provisions and is also calculated centrally using a
common tool across ING Bank.
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ING Group Annual Report 2008