ING Direct 2009 Annual Report Download - page 27

ING’s credit exposure is mainly related to traditional lending to
individuals and businesses followed by investments in bonds and
other securitised assets. Loans to individuals are mainly mortgage
loans secured by residential property. Loans (including guarantees
issued) to businesses are often collateralised, but can be unsecured
based on internal analysis of the borrowers’ creditworthiness.
Bonds in the investment portfolio are generally unsecured.
Securitised assets such as Mortgage Backed Securities (MBS)
and Asset Backed Securities (ABS) are secured by the pro rata
portion of the underlying diversified pool of assets (commercial
or residential mortgages, car loans and other assets) held by the
issuer of the security.
MARKET RISK MANAGEMENT AT ING BANK
Market risk is the risk that movements in market variables, such as
interest rates, equity prices, foreign exchange rates and real estate
prices, negatively impact the bank’s earnings, market value or
liquidity position. Market risk either arises through positions in
trading books or through the banking book positions. The trading
positions are held for the purpose of benefiting from short-term
price movements, while the banking book positions are intended
to be held in the long term (or until maturity) or for the purpose
of hedging other banking book positions.
Within ING Bank, market risk (including liquidity risk) falls under the
supervision of the Asset and Liability Committee (ALCO) function
with ALCO Bank as the highest approval authority. ALCO Bank
determines the overall risk appetite for market risk. The ALCO
function is regionally organised with the exception of ING Direct,
which has a separate ALCO. The business lines Retail Banking and
Commercial Banking are represented within the respective regional
and local ALCO’s. The ALCO structure within ING Bank facilitates
top-down risk management, limit setting and the monitoring and
control of market risk. This ensures a correct implementation of the
ING Bank risk appetite.
The Corporate Market Risk Management department (CMRM) is
the designated independent department that is responsible for the
design and execution of the bank’s market risk management
functions in support of the ALCO function. The CMRM structure
recognises that risk taking and risk management to a large extent
occurs at the regional/local level. Bottom-up reporting allows each
management level to fully assess the market risk relevant at the
respective levels.
CMRM is responsible for determining adequate policies and
procedures for managing market risk and for monitoring the
compliance with these guidelines. An important element of the
market risk management function is the assessment of market risk
in new products and businesses. Furthermore CMRM maintains an
adequate limit framework in line with ING Bank’s risk appetite. The
businesses are responsible for adhering to the limits that ultimately
are approved by ALCO Bank. Limit breaches are reported to senior
management on a timely basis and the business is required to take
the appropriate actions to reduce the risk position.
ING’S ASSET BASE
ING primarily collects retail savings around the world and invests
them in various assets. As one of the world’s largest savings banks,
ING’s substantial and high-quality balance sheet was EUR 1,164
billion at the end of 2009. Apart from financial assets at fair value
through the P&L, ING has two other main blocks of assets in its
balance sheet. There is EUR 579 billion consisting of well-rated or
collateralised corporate loans and mortgages. Another EUR 212
billion is in investments, 95.8% of which is invested in debt
securities and 4.2% in equity securities. Finally, ING has EUR 233
billion in financial assets at fair value through profit and loss.
LIQUIDITY RISK MANAGEMENT AT ING
The availability of liquidity in the markets significantly improved
over the course of 2009. Liquidity risk management remains a key
issue. ING’s approach to liquidity management requires a surplus
of liquid assets, liquidity contingency plans and close monitoring
of market conditions. ING Bank benefits from a diversified funding
base with customer deposits providing circa 60% of total funding.
These customer deposits from retail and corporate clients are
considered as relatively stable sources of funding.
As a consequence of the financial turmoil, bank regulators have
increasingly consulted the financial industry on tighter liquidity
regulations. Tighter regulations are expected to become operative
in the coming years. In anticipation thereof ING increased its liquidity
buffers.
CREDIT RISK MANAGEMENT
Credit risk is the risk of loss from default by debtors (including
bond issuers) or trading counterparties. Credit risks are split into
five principal risk categories:
•lendingrisk(includingguaranteesandlettersofcredit);
•investmentsrisk;
•pre-settlementrisk(derivatives,securitiesnancing
and foreign exchange trades);
•moneymarketrisk;
•settlementrisk.
Corporate Credit Risk Management (CCRM) is responsible for the
measurement and management of credit risk incurred by all ING
Group entities, including country-related risks. CCRM is organised
along the three business lines of ING Bank (e.g. Retail Banking,
Commercial Banking and ING Direct) and ING Insurance. The CCRM
General Manager is functionally responsible for the global network
of credit risk staff, while the heads of the credit risk management
functions for the business lines report directly to him.
ING Group’s credit policy is to maintain an internationally diversified
loan and bond portfolio, while avoiding large risk concentrations.
The emphasis is on managing business developments within the
business lines by means of top-down concentration limits for
countries, individual borrowers and borrower groups. The aim
within the banking sector is to expand relationship-banking
activities, while maintaining stringent internal risk/return guidelines
and controls.
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