ING Direct 2008 Annual Report Download - page 267

Regional governments and local authorities
In many countries, exposures to provincial, regional and municipal governments are treated as exposures to the central government
in whose jurisdiction they are established.
Multilateral Development Banks
Exposures to certain specific multilateral development banks and other international organisations such as the International Bank
for Reconstruction and Development are risk weighted at 0%.
10% Risk Weighting
The 10% risk weighting is applied to covered bonds exposures under the standardised approach. All of ING’s covered bond positions
are measured under the AIRB.
20% Risk Weighting
20% Risk Weighting is applied to exposures based on their exposure class and external rating. These are generally high quality exposures.
35% Risk Weighting
Exposures secured by mortgages on residential real estate are assigned a risk weight of 35%. The risk weight is only reduced
for the part of the exposure that is fully secured.
50% Risk Weighting
50% Risk Weighting is applied to exposures based on their exposure class and external rating. These are generally not prime
grade exposures.
75% Risk Weighting
Retail exposures under the standardised approach are assigned a risk weight of 75%.
100% Risk Weighting
Under the standardised approach, exposures without external ratings that do not fall into one of the other categories are assigned
a risk weight of 100%.
150% Risk Weighting
Under the standardised approach, certain specified exposures, such as exposures to venture capital and private equity, as well
as the unsecured portion of any past due obligation is assigned a risk weighting of 150%.
200% Risk Weighting
The 200% risk weighting must be applied to collective investment undertakings which contain high risk equity investments.
PORTFOLIOS UNDER THE AIRB APPROACH
RISK RATING METHODOLOGY
In principle all Risk Ratings are based on a Risk Rating (PD) Model that complies with the minimum requirements detailed the CRD, the
DNB Supervisory Rules and CEBS guidelines. This concerns all Obligor Types and Segments, including Countries.
ING’s Probability of Default (PD) rating models are based on a 1-22 scale, which roughly corresponds to the same rating grades that are
assigned by external rating agencies, such as Standard & Poor’s and Fitch. For example, an ING rating of 1 would correspond to an S&P/
Fitch rating of AAA; an ING rating of 2 would correspond to an S&P/Fitch rating of AA+, and so on.
Risk Ratings from Rating Models:
Risk Rating processes take on several forms as described below:
Rating Models requiring manual interference:• these are Models that require manual interference from the User who has to answer
Rating Model based questions for each individual legal organisation in order to arrive at a Risk Rating. If not reviewed, the Risk Rating
will expire 18 months after the previous review. These models are typically used for Governments, Institutions and larger Corporates;
and
Automated Rating Models:• these are Models that do not require manual interference. Instead, data is automatically gathered and used
to determine the Risk Rating (this process is detailed further in the sections that describe ING’s Data Management and IT processes).
These models are typically used for small businesses, consumer loans, and residential mortgage exposures.
Risk Ratings from Appeals:• Rating Model outcomes that are perceived to be inaccurate can be appealed through the relevant Rating
Appeal Process, where this exists. The Rating Appeal Process applies to all Rating Models that require manual interference. It does not
apply to automated Rating Models developed for consumer lending and residential mortgage business.
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ING Group Annual Report 2008