ING Direct 2011 Annual Report Download - page 243

Risk management continued
ING Bank
Core Tier 1 ratio sensitivity ING Bank
cTaR Stress Scenario
2011 2010 2011 2010
Currency
US dollar 0.12% 15% 15%
Pound sterling 0.04% 0.02% 15% 15%
Polish zloty 0.01% 0.01% –15% –15%
Australian dollar 0.00% 0.01% 20% –20%
Turkish lira 0.00% 25% 25%
ING Bank Equity price risk in banking books
Equity price risk arises from the possibility that equity security prices will fluctuate, affecting the value of equity securities and other
instruments whose value reacts similarly to a particular security, a defined basket of securities, or a securities index. ING Bank maintains
astrategic portfolio with substantial equity exposure in its banking books. This equity exposure mainly consists of the investments in
associates of EUR 827 million (2010: EUR 1,494 million) and equity securities held in the available-for-sale (AFS) portfolio of EUR 2,466
million (2010: EUR 2,741 million). The value of equity securities held in the available-for-sale portfolio is directly linked to equity security
prices with increases/decreases being recognised (except in the case of impairment) in the revaluation reserve. During the year ended
31December 2011 the revaluation reserve relating to equity securities held in the Available-for-Sale portfolio fluctuated between a
month-end low amount of EUR 1,226 million (2010: EUR 1,723 million) and a high amount of EUR 1,706 million (2010: EUR 2,370 million).
Investments in associates are measured in accordance with the equity method of accounting and the balance sheet value and therefore
not directly linked to equity security prices.
Equities Unrealised Gains and Losses in the AFS portfolio
2011 2010
Gross unrealised gains 1,292 1,728
Gross unrealised losses –45 –1
Total 1,247 1,727
Total capital requirement for equity price risk under the Simple Risk Weight Approach at 31 December 2011 results in EUR 207 million
(2010: EUR 310 million).
ING Bank Real Estate price risk in banking books
Real estate price risk arises from the possibility that real estate prices fluctuate. This affects both the value of real estate assets and
earnings related to real estate activities.
ING Bank has three main different categories of real estate exposure on its banking books. First, ING Bank owns buildings it occupies.
Second, ING Bank has a Real Estate Development company for which results are dependent on the overall real estate market. The general
policy is to mitigate this risk by pre-sale agreements where possible. Third, ING Bank has co-invested seed capital and bridge capital to
support the launch of various real estate funds included in the Real Estate Investment Portfolio (REIM). A decrease in real estate prices will
cause the value of this seed and bridge capital to decrease and will lower the level of third party assets under management, which in turn
will reduce the fee income from this activity. For the third category mentioned above, real estate price shocks will have a direct impact on
reported net profit and loss. Please note that exposures mentioned in this paragraph are shown from a risk perspective, which excludes
interests of third parties.
ING Bank’s real estate exposure (i.e. including leverage) is EUR 4.0 billion of which EUR 0.9 billion is recorded as fair value through P&L. The
remaining EUR 3.1 billion is booked at cost or is revalued through equity (with impairments going through P&L).
In total, Real Estate exposure decreased by EUR 1.1 billion mainly as a result of divestments in REIM (EUR –0.7 billion) and Real Estate
Development (EUR –0.2 billion).
ING Bank’s real estate exposure revaluing through P&L decreased significantly mainly caused by sales of American and Australian funds
(EUR –0.7 billion) and assets being revalued through equity instead (EUR –0.4 billion); the latter is a result of the fact that ING REIM is not
the manager of the real estate funds anymore.
For risk management purposes, the total real estate exposure amounts to EUR 4.0 billion since property from foreclosures and third party
interests is excluded. A split up on the real estate exposures per continent and sector is seen below.
1 Who we are 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information
241ING Group Annual Report 2011