ING Direct 2011 Annual Report Download - page 160

Notes to the consolidated annual accounts of ING Group continued
Liabilities by maturity
2010
Less than
1 month (1)
1–3
months
3–12
months
1–5
years
Over 5
years
Maturity not
applicable Adjustment (2) Total
Subordinated loans 10,918 –273 10,645
Debt securities in issue 20,578 36,140 21,289 41,016 16,079 502 135,604
Other borrowed funds 3,969 2,055 1,289 3,600 9,785 1,121 472 22,291
Amounts due to banks 44,480 15,781 6,082 2,154 4,371 –16 72,852
Customer deposits and other funds
on deposit 451,425 25,142 20,690 12,376 1,729 511,362
Financial liabilities at fair value
through profit and loss
– other trading liabilities 46,084 5,329 1,182 9,377 3,779 534 66,285
– trading derivatives 3,096 3,255 9,615 27,747 18,930 –20,878 41,765
– non-trading derivatives 718 229 4,912 18,745 6,987 1,047 –14,856 17,78 2
– designated as at fair value
through profit and loss 260 472 1,014 6,094 4,996 –129 12,707
Financial liabilities 570,610 88,403 66,073 121,109 66,656 13,086 –34,644 891,293
Insurance and investment contracts 1,822 2,108 9,117 37, 0 45 97,918 123,118 271,128
Liabilities held for sale (3) 424 424
Other liabilities 11,787 2,513 9,855 7,516 4,458 1,398 37,527
Non-financial liabilities 13,609 4,621 19,396 44,561 102,376 124,516 309,079
Total liabilities 584,219 93,024 85,469 165,670 169,032 137, 6 02 –34,644 1,200,372
Coupon interest due on
financial liabilities 2,813 1,599 3,891 12,277 51,920 72,500
(1) Includes liabilities on demand.
(2) This column reconciles the contractual undiscounted cash flows on financial liabilities to the balance sheet values. The adjustments mainly relate to the impact
of discounting and, for derivatives, to the fact that the contractual cash flows are presented on a gross basis (unless the cash flows are actually settled net).
(3) Liabilities held for sale consist of the liabilities of the disposal groups classified as held for sale as disclosed in Note 11 ‘Assets and liabilities held for sale’.
The maturity is based on the classification as disposal group held for sale.
24 DERIVATIVES AND HEDGE ACCOUNTING
Use of derivatives and hedge accounting
As described in the ‘Risk management’ section, ING Group uses derivatives (principally interest rate swaps and cross currency interest rate
swaps) for economic hedging purposes in the management of its asset and liability portfolios and structural positions. The objective of
economic hedging is to enter into positions with an opposite risk profile to an identified exposure to reduce that exposure. The impact of
ING Group’s hedging activities is to optimise the overall cost to the Group of accessing debt capital markets and to mitigate the market risk
which would otherwise arise from structural imbalances in the duration and other profiles of its assets and liabilities. In addition, hedging
activities are undertaken to hedge against the interest rate risk in the mortgage offer period in relation to retail mortgages and to lock in
the interest margin in relation to interest bearing assets and the related funding.
The accounting treatment of hedge transactions varies according to the nature of the instrument hedged and whether the hedge qualifies
under the IFRS-EU hedge accounting rules. Derivatives that qualify for hedge accounting under IFRS-EU are classified and accounted for in
accordance with the nature of the instrument hedged and the type of IFRS-EU hedge model that is applicable. The three models applicable
under IFRS-EU are: fair value hedge accounting, cash flow hedge accounting and net investment hedge accounting. These are described
under the relevant headings below. The company’s detailed accounting policies for these three hedge models are set out in section
‘Principles of valuation and determination of results’.
To qualify for hedge accounting under IFRS-EU, strict criteria must be met. Certain hedges that are economically effective from a risk
management perspective do not qualify for hedge accounting under IFRS-EU. The fair value changes of derivatives relating to such
non-qualifying hedges are taken to the profit and loss account. However, in certain cases, the Group mitigates the profit and loss account
volatility by designating hedged assets and liabilities at fair value through profit and loss. If hedge accounting is applied under IFRS-EU, it is
possible that during the hedge a hedge relationship no longer qualifies for hedge accounting and hedge accounting cannot be continued,
even if the hedge remains economically effective. As a result, the volatility arising from undertaking economic hedging in the profit and loss
account may be higher than would be expected from an economic point of view.
With respect to exchange rate and interest rate derivative contracts, the notional or contractual amounts of these instruments is indicative
of the nominal value of transactions outstanding at the balance sheet date; however they do not represent amounts at risk. ING Group
uses credit derivatives to manage its exposure to credit risk, including total return swaps and credit default swaps, to sell or buy protection
for credit risk exposures in the loan, investment and trading portfolios. Hedge accounting is not applied in relation to credit derivatives.
158 ING Group Annual Report 2011