ING Direct 2009 Annual Report Download - page 292

ING considers past due loans to be those loans where any payment of interest or principal is more than one day past due. The
methodology is principally extended to loans to private individuals, such as residential mortgage loans, car loans, and other consumer
loans. For business loans (governments, institutions, corporates), ING has adopted a policy to classify the obligor as a problem loan as
quickly as possible upon the occurrence of a payment default. Therefore, the concept of past due loans does not exist for these types
of obligors (and hence the reason why certain exposure classes show no figures).
The figures above are based on credit risk outstandings, and not EAD. Credit Risk outstandings include amounts associated with
both on and off balance sheet products, but exclude amounts related to unused limits. For derivatives and securities financing, the
mark-to-market plus add-on methodology is applied, but the add-ons are generally less conservative than the add-ons applied under
the Basel II definitions.
Loan Loss Provision Shortfall
The Loan Loss Provision Shortfall is the difference between the EL and loan loss provisions for AIRB exposures. This difference is caused by
the different PD time horizons that exist for IAS 39 Loan Provisioning (3, 6, and 9 months) and the 12 month time horizon used for EL and
regulatory capital calculation. Basel II requires that the shortfall is deducted from the regulatory capital, 50% from Tier 1 and 50% from
Tier 2 capital.
At December 31, 2009, the loan loss provision shortfall (before tax) was: EUR 1,579 million. The relative level of loan loss shortfall
compared to actual provisioning levels will generally increase in periods where loan loss provisions are decreasing and will decrease in
periods where loan loss provisions are increasing.
The Standardised Approach
Unlike the AIRB approach, the standardised approach applies a fixed risk weight to each asset as dictated by the Financial Supervisory
Authorities, and is based on the exposure class to which the exposure is assigned. As such, the Standardised Approach is the least
sophisticated of the Basel II methodologies and is not as sensitive as the risk-based approach. Where external rating agency ratings are
available, they may be used as a substitute to using the fixed risk weightings assigned by the Financial Supervisory Authorities. Because
the underlying obligors are relatively small, the underlying obligors tend not to have external ratings.
PORTFOLIOS UNDER THE STANDARDISED APPROACH
Exposures (EAD) and amounts deducted for standardised approach portfolios
Exposure before
risk mitigation
Exposure after
risk mitigation
Exposure before
risk mitigation
Exposure after risk
mitigation
2009 2008
Risk buckets used:
0% 4,722 5,055 6,881 7,072
10%
20% 9,012 9,029 4,240 4,414
35% 5,639 5,639 20,188 20,188
50% 6,802 7,217 4,131 4,200
75% 16,263 15,636 24,259 21,456
100% 30,808 29,852 35,081 33,947
150% 799 745 610 562
200%
1250%
* Includes only the SA Portfolios; excludes securitisations, equities and ONCOA.
* Excludes revaluations made directly through the equity account.
Under the standardized approach there are two principal methods for reducing or mitigating credit risk:
a) reduction of credit risk through the acceptance of pledged financial assets as collateral, such as marketable securities or cash; or
b) mitigation or shifting of credit risks to a lower risk weighting group by accepting guarantees from unrelated third parties.
ING Group Annual Report 2009
290
Additional Pillar 3 information for ING Bank only (continued)
2.4 Additional information