ING Direct 2008 Annual Report Download - page 99

OFFSETTING OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Financial assets and financial liabilities are offset, and the net amount reported, in the balance sheet when the Group has a legally
enforceable right to set off the recognised amounts and intends to either settle on a net basis or to realise the asset and settle the
liability simultaneously.
REPURCHASE TRANSACTIONS AND REVERSE REPURCHASE TRANSACTIONS
Securities sold subject to repurchase agreements (‘repos’) are retained in the consolidated financial statements. The counterparty liability
is included in Amounts due to banks, Other borrowed funds or Customer deposits and other funds on deposit, as appropriate.
Securities purchased under agreements to resell (‘reverse repos’) are recognised as Loans and advances to customers or Amounts due
from banks, as appropriate. The difference between the sale and repurchase price is treated as interest and amortised over the life of the
agreement using the effective interest method.
IMPAIRMENTS OF LOANS AND ADVANCES TO CUSTOMERS (LOAN LOSS PROVISIONS)
The Group assesses periodically and at each balance sheet date whether there is objective evidence that a financial asset or group of
financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if,
there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, but
before the balance sheet date, (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the
financial asset or group of financial assets that can be reliably estimated. The following circumstances, among others, are considered
objective evidence that a financial asset or group of assets is impaired:
The borrower has sought or has been placed in bankruptcy or similar protection and this leads to the avoidance or delays repayment •
of the financial asset;
The borrower has failed in the repayment of principal, interest or fees and the payment failure has remained unsolved for a certain •
period;
The borrower has demonstrated significant financial difficulty, to the extent that it will have a negative impact on the expected future •
cash flows of the financial asset;
The credit obligation has been restructured for non-commercial reasons. ING has granted concessions, for economic or legal reasons •
relating to the borrower’s financial difficulty, the effect of which is a reduction in the expected future cash flows of the financial asset;
and
Historical experience, updated for current events where necessary, provides evidence that a proportion of a group of assets is impaired •
although the related events that represent impairment triggers are not yet captured by the Group’s credit risk systems.
The Group does not consider events that may be expected to occur in the future as objective evidence, and consequently they are not
used as a basis for concluding that a financial asset or group of assets is impaired.
In determining the impairment, expected future cash flows are estimated on the basis of the contractual cash flows of the assets in the
portfolio and historical loss experience for assets with credit risk characteristics similar to those in the portfolio. Historical loss experience
is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the
historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. Losses
expected as a result of future events, no matter how likely, are not recognised.
The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant,
and then individually or collectively for financial assets that are not individually significant. If the Group determines that no objective
evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of
financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed
for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of
impairment.
If there is objective evidence that an impairment loss on an asset carried at amortised cost has been incurred, the amount of the loss is
measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future
credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the
asset is reduced through the use of an allowance account (‘Loan loss provision’) and the amount of the loss is recognised in the profit and
loss account under ‘Addition to loan loss provision’. If the asset has a variable interest rate, the discount rate for measuring any
impairment loss is the current effective interest rate determined under the contract.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics.
Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’
ability to pay all amounts due according to the contractual terms of the assets being evaluated. The collective evaluation of impairment
includes the application of a ‘loss confirmation period’ to default probabilities. The loss confirmation period is a concept which recognises
that there is a period of time between the emergence of impairment triggers and the point-in-time at which those events are captured by
the Group’s credit risk systems. Accordingly, the application of the loss confirmation period ensures that impairments that are incurred
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ING Group Annual Report 2008