ING Direct 2009 Annual Report Download - page 153

2.1 Consolidated annual accounts
ING Group Annual Report 2009 151
Additional information to the consolidated balance sheet of ING Group (continued)
Cash flow hedge accounting
ING Group’s cash flow hedges principally consist of (forward) interest rate swaps and cross-currency interest rate swaps that are used to
protect against its exposure to variability in future interest cash flows on non-trading assets and liabilities that bear interest at variable rates
or are expected to be refunded or reinvested in the future. The amounts and timing of future cash flows, representing both principal and
interest flows, are projected for each portfolio of financial assets and liabilities, based on contractual terms and other relevant factors
including estimates of prepayments and defaults. The aggregate principal balances and interest cash flows for the respective portfolios
form the basis for identifying the notional amount subject to interest rate risk that is designated under cash flow hedge accounting.
Gains and losses on the effective portions of derivatives designated under cash flow hedge accounting are recognised in Shareholders’
equity. Interest cash flows on these derivatives are recognised in the profit and loss account in interest income consistent with the manner
in which the forecast cash flows affect net result. The gains and losses on ineffective portions of such derivatives are recognised
immediately in the profit and loss account.
For the year ended 31 December 2009, ING Group recognised EUR –805 million (2008: EUR 746 million) after tax in equity as effective fair
value changes on derivatives under cash flow hedge accounting. As a consequence, the balance of the cash flow hedge reserve in equity
as at 31 December 2009 was EUR 442 million (2008: EUR 1,457 million) gross and EUR 372 million (2008: EUR 1,177 million) after deferred
tax. This cash flow hedge reserve will fluctuate with the fair value changes of the underlying derivatives and will be reflected in the profit
and loss account under Interest income/expense over the remaining term of the underlying hedged items. The cash flow hedge reserve
relates to a large number of derivatives and hedged items with varying maturities, up to 44 years for insurance operations and 50 years for
banking operations, with the largest concentrations in the range of 4 to 9 years for insurance operations and 1 to 13 years for banking
operations. Accounting ineffectiveness on derivatives designated under cash flow hedge accounting of EUR –10 million (2008: EUR 22
million) was recognised in the profit and loss account.
As at 31 December 2009, the fair values of outstanding derivatives designated under cash flow hedge accounting was EUR –947 million
(2008: EUR –318 million), presented in the balance sheet as EUR 5,521 million (2008: EUR 5,771 million) positive fair values under assets
and EUR 6,468 million (2008: EUR 6,089 million) negative fair values under liabilities.
As at 31 December 2009 and 31 December 2008, there were no non-derivatives designated as hedging instruments for cash flow hedge
accounting purposes.
Included in Interest income and interest expense on non-trading derivatives is EUR 2,159 million (2008: EUR 3,082 million) and EUR 1,964
million (2008: EUR 2,744 million), respectively, relating to derivatives used in cash flow hedges.
Hedges of net investments in foreign operations
ING Group’s net investment hedges principally consist of derivatives (including currency forwards and swaps) and non-derivative financial
instruments such as foreign currency denominated funding that are used to protect against foreign currency exposures on foreign
subsidiaries.
Gains and losses on the effective portions of derivatives designated under net investment hedge accounting are recognised in
Shareholders’ equity. The balance in equity is recognised in the profit and loss account when the related foreign subsidiary is disposed. The
gains and losses on ineffective portions are recognised immediately in the profit and loss account.
As at 31 December 2009, the fair values of outstanding derivatives designated under net investment hedge accounting was EUR –278
million (2008: EUR 300 million), presented in the balance sheet as EUR 38 million (2008: EUR 670 million) positive fair values under assets
and EUR 316 million (2008: EUR 370 million) negative fair values under liabilities.
As at 31 December 2009, the fair values of outstanding non-derivatives designated under net investment hedge accounting was EUR 555
million, presented in the balance sheet as positive fair values under assets (2008: EUR –881 million presented as negative fair value under
liabilities). Non-derivatives designated as hedging instruments consist mainly of loan agreements.
Accounting ineffectiveness recognised in the profit and loss account for the year ended 31 December 2009 on derivatives and non-
derivatives designated under net investment hedge accounting was EUR 1 million (2008: EUR –6 million).