ING Direct 2009 Annual Report Download - page 222

ING Bank
Earnings Sensitivity banking books (1% instantaneous upward shock to interest rates)
2009 2008
By Business Line
ING Commercial Banking –44 –91
ING Retail Banking –115 –102
ING Direct –281 5
ING Bank Corporate Line 546
ING Bank Total –435 –142
By Currency
Euro –262 –220
US dollar –193 80
Pound sterling –26 5
Other 46 –7
Total –435 –142
Note: Compared to ES figures in the group risk dashboard, the above figures exclude diversification with other bank risk types and group/insurance risks.
The total ES figure increased from EUR –142 million to EUR –435 million. In 2008 interest rates decreased to exceptionally low levels in the
light of substantial rate cuts by central banks. Retail Banking and ING Direct in particular invested in more short term assets. This led to a
relatively low level ES figure at the end of 2008. In the course of 2009 the client coupons on savings accounts were lowered in line with
the development of market rates. Simultaneously, client rates became more sensitive to upward rate shocks, leading to a further increase
of the ES figure. This effect was magnified by the growth in savings volume. Moreover, the duration of mortgages of ING Direct US
increased significantly after the increase of long term interest rates by approx +1% in the course of 2009. Consequently, Earnings
Sensitivity further increased. The ES of Commercial Banking decreased following a reduction in the structural interest rate mismatch
position in the strategic ALM portfolio.
Net Present Value at Risk (NPV)
The Net Present Value (NPV) at Risk figures represent the full value impact (i.e. including convexity) on the banking books resulting from
changing interest rates. This full value impact cannot be linked directly to the balance sheet or profit and loss account as the fair value
movements in banking books are generally not reported through the profit and loss account or through equity. The largest part, namely
the value mutations of the amortised cost balances, is neither recognised in the balance sheet nor directly in the profit and loss account.
These mutations would be expected to materialise over time in e.g. the profit and loss account, if interest rates develop according to
forward rates throughout the remaining maturity of the portfolio. The NPV at Risk figures in the table below are determined on the basis
of an instantaneous upward 1% parallel shock of market rates in line with the ES calculations. For the ALM books the NPV at Risk figures
again capture the potential change of value due to the structural mismatch in interest rate positions. For the commercial banking books
the NPV at Risk calculations capture the convexity resulting from the optionality in the main mortgage portfolios, e.g. the option for clients
to prepay in case of moving house. In these calculations it is assumed that savings and other demand deposits of Retail and Commercial
Banking are perfectly represented via the replicating methods and therefore are fully hedged. The NPV at Risk of the Corporate Line again
only reflects the interest risk profile of the investments of the bank’s own funds.
NPV at Risk banking books (1% instantaneous upward shock to interest rates)
2009 2008
By Business Line
ING Commercial Banking –427 –674
ING Retail Banking –51 –100
ING Direct 49 –232
ING Bank Corporate Line –1,406 –1,388
ING Bank Total –1,835 –2,394
By Currency
Euro –1,811 –2,105
US dollar –39 –238
Pound sterling –53 –40
Other 68 –11
Total –1,835 –2,394
The end-of-year NPV at Risk decreased significantly by EUR 559 million to EUR –1,835 million. This change is mainly driven by ING Direct
where shortening of investments at certain units changed the NPV at Risk figure from a negative to a positive value. Within Commercial
Banking the structural interest rate mismatch position in the strategic ALM portfolio was reduced, leading to a reduction in NPV at Risk.
Risk management (continued)
2.1 Consolidated annual accounts
ING Group Annual Report 2009
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