ING Direct 2013 Annual Report Download - page 227

Notes to the consolidated annual accounts of ING Group continued
1) Consolidated ING originated Credit management securitisation programmes
ING Group enters into synthetic securitisation programmes in order to reduce credit risk on certain assets. In synthetic securitisations, ING
Group enters into a credit default swap (‘CDS’) with securitisation Special Purpose Entities (’SPEs’), in relation to which ING Group
purchases credit protection in respect of residential mortgage loans and loans to corporates and small and medium-sized enterprises. The
SPEs have hedged their exposure with investors through the issue of credit-linked notes or credit-linked commercial paper. As a result of
these transactions, ING Group has transferred a part of its credit risk related to these loan portfolios to third-party investors.
As not substantially all risks and rewards of the assets are transferred to the third party investors of the SPEs, ING Group continues to
recognise these assets in the consolidated financial statements. Reference is made to Note 6 ‘Loans and advances to customers’.
Assets used in securitisation programmes
2013 2012
Loans to small and medium-sized enterprises 426 656
Residential mortgages 3,878
426 4,534
Since 2007, the most senior tranches of ING Group’s own securitisations have been called and are now retained by ING Group. ING Group
hedged the first loss tranches in 2009. The mezzanine tranches are transferred to third parties.
In 2012, two synthetic securitisation were unwound and in 2013 one synthetic securitisation is unwound. There was no impact on the
balance sheets and profit and loss accounts were not impacted by these unwinding. As at 31 December 2013, there is only one such
transaction remaining.
2) Consolidated ING originated Liquidity management securitisation programmes (Lions)
ING Group enters into liquidity management securitisation programmes in order to obtain funding and improve liquidity. Within the
programme ING Group sells ING originated assets to a structured entity. The underlying exposures include residential mortgages in the
Netherlands, Germany, Belgium, Spain, Italy and Australia.
The structured entity issues securitised notes (‘traditional securitisations’) which are eligible collateral for central bank liquidity purposes. In
most programmes ING Group acts as investor of the securitised notes. As there are limited transfer of risks and rewards, ING Group
continues to consolidate these structured entities.
The structured entity issues securitisation notes in two tranches, one subordinated tranche and one senior tranche, rated AAA by a rating
agency. The AAA tranche can subsequently be used by ING Group as collateral in the money market for secured borrowings.
ING Group originated a number of these securitisations with approximately EUR 76 billion of AAA rated notes and unrated subordinated
notes as at 31 December 2013.
ING Bank originated various securitisations with at 31 December 2013 approximately EUR 76 billion (2012: EUR 90 billion) of AAA rated
notes and subordinated notes, of which approximately EUR 6.7 billion (2012: EUR 3.5 billion) are held by third parties. The underlying
exposures are residential mortgages and SME loans. Apart from the third party funding, these securitisations did not impact ING Bank’s
consolidated balance sheet and profit and loss.
There are no minority interests as part of the securitisation structured entities that are significant to ING Group. ING Group for the majority
of the securitisation vehicles provides the funding for the entity except for EUR 5.2 billion which are funded by third parties.
In 2013, NN Bank (part of NN Group) originated a securitisation program of approximately EUR 2.1 billion mortgage loans (‘Hypenn’). The
related structured entity is consolidated by NN Bank and, therefore, the related mortgage loans continue to be recognised in the balance
sheet. The structured entity is partly funded through the issue of Residential Mortgage backed Securities to ING Bank (as at 31 December
2013: EUR 400 million).
3) Consolidated ING originated Covered bond programme
ING Group has entered into a covered bond programme. Under the covered bond programme ING issues bonds. The payment of interest
and principal is guaranteed by an ING administered structured entity, Covered Bond Company B.V. (‘CBC’). In order for CBC to fulfil its
guarantee, ING legally transfers mainly Dutch mortgage loans originated by ING to CBC. Furthermore ING offers CBC protection against
deterioration of the mortgage loans. CBC is consolidated by ING Group.
225ING Group Annual Report 2013
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