ING Direct 2009 Annual Report Download - page 105

or liabilities or firm commitments (fair value hedge), hedges of highly probable future cash flows attributable to a recognised asset or
liability or a forecast transaction (cash flow hedge), or hedges of a net investment in a foreign operation. Hedge accounting is used for
derivatives designated in this way provided certain criteria are met.
At the inception of the transaction ING Group documents the relationship between hedging instruments and hedged items, its risk
management objective, together with the methods selected to assess hedge effectiveness. The Group also documents its assessment,
both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in
offsetting changes in fair values or cash flows of the hedged items.
ING Group applies fair value hedge accounting to portfolio hedges of interest rate risk (macro hedging) under the EU ‘carve out’ of
IFRS-EU. The EU ‘carve-out’ macro hedging enables a group of derivatives (or proportions) to be viewed in combination and jointly
designated as the hedging instrument and removes some of the limitations in fair value hedge accounting relating to hedging core
deposits and under-hedging strategies. Under the IFRS-EU ‘carve-out’, hedge accounting may be applied to core deposits and
ineffectiveness only arises when the revised estimate of the amount of cash flows in scheduled time buckets falls below the designated
amount of that bucket.
ING Group applies fair value hedge accounting for portfolio hedges of interest rate risk (macro hedging) under the EU ‘carve-out’ to its
retail operations. The net exposures of retail funding (savings and current accounts) and retail lending (mortgages) are hedged. The
hedging activities are designated under a portfolio fair value hedge on the mortgages. Changes in the fair value of the derivatives are
recognised in the profit and loss account, together with the fair value adjustment on the mortgages (hedged items) insofar as attributable
to interest rate risk (the hedged risk).
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in the profit and loss account,
together with fair value adjustments to the hedged item attributable to the hedged risk. If the hedge relationship no longer meets the
criteria for hedge accounting, the cumulative adjustment of the hedged item is, in the case of interest bearing instruments, amortised
through the profit and loss account over the remaining term of the original hedge or recognised directly when the hedged item is
derecognised. For non-interest bearing instruments, the cumulative adjustment of the hedged item is recognised in the profit and loss
account only when the hedged item is derecognised.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in
equity. The gain or loss relating to the ineffective portion is recognised immediately in the profit and loss account. Amounts accumulated
in equity are recycled to the profit and loss account in the periods in which the hedged item affects net result. When a hedging instrument
expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that
time remains in equity and is recognised when the forecast transaction is ultimately recognised in the profit and loss account. When a
forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is transferred immediately to
the profit and loss account.
Net investment hedges
Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. Any gain or loss on the hedging
instrument relating to the effective portion of the hedge is recognised in equity and the gain or loss relating to the ineffective portion is
recognised immediately in the profit and loss account. Gains and losses accumulated in equity are included in the profit and loss account
when the foreign operation is disposed of.
Non-trading derivatives that do not qualify for hedge accounting
Derivative instruments that are used by the Group as part of its risk management strategies, but which do not qualify for hedge
accounting under ING Group’s accounting policies, are presented as non-trading derivatives. Non-trading derivatives are measured at fair
value with changes in the fair value taken to the profit and loss account.
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.
2.1 Consolidated annual accounts
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Accounting policies for the consolidated balance sheet and profit and loss account of ING Group (continued)