ING Direct 2011 Annual Report Download - page 325

RISK-WEIGHTED ASSETS (‘RWA’ UNDER BASEL I)
Assets which are weighted for credit risk according to a formula
used by the Dutch central bank (De Nederlandsche Bank), which
conforms to the capital adequacy guidelines of the BIS (Bank of
International Settlements). On and off-balance-sheet items are
weighted for risk, with off-balance-sheet items converted to
balance-sheet equivalents (using credit-conversion factors) before
being allocated a risk weight.
RISK-WEIGHTED ASSETS (‘RWA’ UNDER BASEL II)
Assets which are weighted for credit and market risk in accordance
with the Basel II methodology. The risk-weighted assets are
calculated using internal models approved by The Dutch central
bank (De Nederlandsche Bank). Regulatory capital requirements for
operational risk are calculated without use of risk-weighted assets.
SETTLEMENT RISK
Settlement risk arises when there is an exchange of value (funds,
instruments or commodities) for the same or different value dates
and receipt is not verified or expected until ING Group has paid or
delivered its side of the trade. The risk is that ING Group delivers,
but does not receive delivery from the counterparty.
SIGNIFICANT INFLUENCE
The power to participate in the financial and operating policy
decisions of an entity, but not to have control over these policies.
Significant influence may be gained by share ownership, statute
or agreement.
SOLVENCY II
The fundamental reform of European insurance solvency and
risk governance legislation, which is expected to be effective
as of 1 January 2014.
SUB-PRIME MORTGAGES
Mortgage loans made to borrowers who cannot get a regular
mortgage because they have a bad credit history or limited income.
SUBSIDIARY
An entity that is controlled by another entity.
SURRENDER
The termination of a life or retirement contract at the request of the
policyholder after which the policyholder receives the cash
surrender value, if any, on the contract.
SWAP CONTRACTS
Commitments to settle in cash at a specified future date, based on
differentials between specified financial indices as applied to a
notional principal amount. Generally, no cash is exchanged at the
outset of the contract and no principal payments are made by
either party.
TIER 1 CAPITAL
Also referred to as the core capital of ING Bank. It comprises paid
up share capital, reserves excluding revaluation reserves, retained
earnings, minority interests and hybrid Tier 1.
TIER 1 RATIO
Reflecting the Tier 1 capital of ING Bank as a percentage of its total
risk weighted assets. The minimum set by the Dutch central bank
is 4%.
TOTAL AND UNDERLYING NET RESULT
The variance between Total and Underlying net result is caused
by divestments and special items.
TRADING PORTFOLIO
Comprises those financial instruments which are held to obtain
short-term transaction results, to facilitate transactions on behalf
of clients or to hedge other positions in the trading portfolio.
TRANSFER RISK
Probability of loss due to currency conversion (exchange)
restrictions imposed by a foreign government that make it
impossible to move money out of the country.
TREASURY BILLS
Generally short-term debt certificates issued by a central
government. Dutch Treasury Certificates are regarded as Dutch
Treasury bills.
TREASURY SHARES
An entity’s own equity instruments, held by the entity or other
members of the consolidated group.
VALUE AT RISK (VAR)
Quantifies, with a one-sided confidence level of at least 99%, the
maximum overnight loss in Net Present Value that could occur due
to changes in risk factors (e.g. interest rates, foreign exchange rates,
equity prices, credit spreads, implied volatilities) if positions remain
unchanged for a time interval of one day.
VALUE IN USE
The present value of estimated future cash flows expected to arise
from the continuing use of an asset and from its disposal at the end
of its useful life.
VARIANCE-COVARIANCE
A model to calculate Value at Risk, assuming that changes in risk
factors are (jointly) normally distributed and that the change in
portfolio value is linearly dependent on all risk factor changes.
WARRANT
A financial instrument that gives the holder the right to purchase
ordinary shares.
WEIGHTED AVERAGE COST OF CAPITAL (WACC)
The weighted average cost of capital is used as the discount rate
for calculating the present value of future cash flows.
Financial glossary continued
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
323ING Group Annual Report 2011