ING Direct 2008 Annual Report Download - page 272

It includes qualitative and quantitative disclosures addressing both the exposure securitised as well as securitisations positions held. While
quantitative disclosures are limited to those securitisations that are used for the purpose of calculating the regulatory capital requirements
under the CRD, qualitative information have a broader scope and give a view on ING Bank’s entire securitisation activity.
Depending on ING’s role as investor, originator, or sponsor the objectives, the involvement and the rules applied may be different. ING is
primarily engaged in securitisation transactions in the role of investor (in securitisations arranged by others). To a lesser extent, ING is also
an originator or sponsor of securitisations that are usually traded in the public markets.
Valuation and accounting policies
ING’s activities regarding securitisations are described in Note 27 ‘Special Purpose Entities’ in the annual accounts. The applicable
accounting policies are included in the section ‘Accounting policies for the consolidated balance sheet and profit and loss account of ING
Group/Bank’ in the annual accounts. The most relevant accounting policies for ING’s own originated securitisation programmes are
‘derecognition of financial assets’ and ‘consolidation’. Where ING acts as investor in securitisation positions, the most relevant accounting
policy is ‘classfication of financial instruments’.
Regulatory capital method used and Rating Agencies
ING has implemented the AIRB approach for credit risk. As a consequence, ING uses the Rating Based Approach (RBA) for investments
in tranches of asset-backed securities (ABS) and mortgage-backed securities (MBS) which have been rated by external rating agencies.
Rating agencies which are used by ING under the RBA include: Standard & Poor’s, Fitch, Moody’s and DBRS.
Under the RBA, the risk-weighted assets (RWA) are determined by multiplying the amount of the exposure by the appropriate regulatory
risk weights, which depend on:
the external rating or an available inferred rating•
the seniority of the position.•
ING uses the Internal Assessment Approach (IAA) for the support facilities it provides to Asset Backed Commercial Paper (ABCP) conduit
Mont Blanc Capital Corp., based on externally published rating agency methodologies.
ING as Investor
ING Direct is the primary investor in securitisation transactions within ING Bank. ING Direct’s core strategy is gathering customer deposits
and reinvesting them in its investment portfolio and retail assets, mainly mortgages. The difference between retail liabilities (the savings
product is typically the first product to be launched in a country) and retail assets (the mortgage product is typically the second product
launched) is invested in high quality debt. The execution of this business model in a cost-efficient manner is ING Direct’s competitive
advantage. Given ING Direct’s business model as a liability driven operation with a focus on cost efficiency, ING Direct invests with a view
to minimise credit risk, while ensuring sufficient liquidity. Hence, ING Direct accumulates highly rated debt securities with minimal credit
risk thereby capitalising on its economies of scale.
Securitisation markets provide investment opportunities in highly rated (generally AAA), liquid and discountable bonds and are therefore
an important asset class in ING Direct’s investment portfolio. At ING Direct, the investment policies define eligible product types,
minimum ratings, maximum tenors and exposure amounts both at issue and issuer levels as well as for the portfolio. The dominant
product classes in the investment portfolio are RMBS, Agency RMBS, Covered Bonds, and Senior Unsecured Debt issued by Banks, Other
Financial Institutions as well as Sovereigns or Quasi-sovereign entities. Prior to purchase, each investment proposal from a Treasury Centre
is analysed by Credit Risk Management and decided upon at the appropriate level by a treasury officer and a credit risk manager under
delegated approval authorities.
Purchased Securitisation Exposures
The following table gives the break down of purchased exposures by weight bands. The amount of securitisation positions purchased from
third parties are based on the regulatory exposure values calculated according to the CRD after consideration of credit conversion factors
(CCFs) where applicable as used for the purpose of Pillar 1, but prior to the application of credit risk mitigants on securitisation positions.
Exposures per risk weight band (ING as Investor)
Purchased
Exposures
Risk weight band 1 <= 10% 64,678
Risk weight band 2 >10% and >= 18% 11,381
Risk weight band 3 >18% and >= 35% 1,008
Risk weight band 4 >35% and >= 75% 764
Risk weight band 5 >75% 933
Risk weight 1250% 1,336
Total 80,100
2.4 Additional information
Additional Pillar 3 information for ING Bank only (continued)
ING Group Annual Report 2008
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