ING Direct 2013 Annual Report Download - page 261

Risk management continued ING Bank
Although not everything is known on the ECB AQR and the EU-wide stress test in terms of set-up and scope, ING Bank is already
preparing for this exercise. ING Bank gained experience with the Commercial Real Estate AQR organised by DNB that also focused on very
granular data requests and with the series of EU-wide and other stress tests which have been included in ING Bank’s risk management
framework.
Another important element of the regulatory reforms is the Bank Recovery and Resolution Directive (BRRD) which will enter into force on 1
January 2015. The aim of this directive is to make EU banks more resilient and to reduce the possibility of having bank bailed out using
public money, The new rules provide authorities with the means to intervene decisively both before problems occur and early on in the
process if they do. If, despite these preventive measures, the financial situation of a bank deteriorates beyond repair, the new law ensures
that shareholders and creditors of the banks have to pay their share, reflected via the bail-in requirements which will enter into force on 1
January 2016. ING supports the bail-in rules as they are an important component of the new regulatory framework, aimed at reducing the
possibility that tax payer money will be needed to bail-out institutions in future crises.
In response to the crisis ING Bank has set up an all-encompassing Recovery Plan to enhance the bank’s readiness and decisiveness to tackle
financial crises on its own strength. Furthermore, ING Bank is diligently working towards providing information on the basis of which the
Dutch Resolution Authorities will be able to develop a Resolution Plan.
In 2013, the Basel Committee published new requirements for effective risk data aggregation and risk reporting. The requirements aim to
strengthen risk data aggregation and risk reporting practices at banks to improve their risk management practices. Banks indicated as
global SIB – including ING Bank - are required to implement the Principles by 2016. As a first step of the implementation, ING performed a
‘stocktaking’ self-assessment survey in 2013 that displays that ING Bank is on track of fulfilling these requirements. These new principles
coincide with several projects and programs to strengthen risk data aggregation and risk reporting practices that were already underway
before these new requirements were published.
For a further update on the ongoing changes in the regulatory environment, refer to the Financial and Regulatory Environment Chapter.
RISK DEVELOPMENTS IN 2013
Risk developments listed below are defined as the risks which may have potentially a significant impact on our business and difficult to
quantify the impact on the organisation. They are triggered in general by unexpected events, and they may introduce volatility in earnings
or impact ING’s long-term strategy. The sequence in which the top risks are presented below is not indicative of their likelihood of
occurrence or the potential magnitude of their financial consequences.
Liquidity risk
Funding and liquidity risk management remained in 2013 an important topic for senior management and the Asset and Liability
Committee Bank. During the year further implementation steps were undertaken in implementing and finalising the funding and liquidity
risk management framework, whilst working in parallel on new regulatory requirements which were published in 2013 by the BCBS, EC
and EBA. External market developments improved in comparison with the previous year, but both in the Eurozone and globally economic
developments are sluggish and at times still volatile. Therefore, market developments, regulatory developments and internal financial
developments are closely monitored. Stress testing and measurement of early warning indicators are, among others, used to provide
additional management information. In 2013 the funding and liquidity risk appetite statements were reviewed and updated. The appetite
statement is set and allocated throughout ING Bank. In addition, funding and liquidity usage is steered by means of funds transfer pricing
thus embedding funding and liquidity risk management in the total organisation.
The Bank improved its funding profile and ensured its liquidity position stayed within regulatory and internal targets. The full-year 2013
long term debt issuance totalled EUR 25.7 billion compared with EUR 33.1 billion issued in 2012. The issuance volume was lower due to a
combination of an asset growth slowdown and increasing funds entrusted. As a result, ING Bank’s loan-to-deposit ratio, excluding
securities that are recognised at amortised costs in loans and advances and excluding the IABF government receivable, improved in 2013
from 1.13 at 2012 year-end to 1.04, thereby already complying with ING’s 2015 Ambition of below 1.10.
Dutch mortgages
In 2013 the Dutch housing market remained fragile due to the economic downturn, however a cautious recovery was observed towards
the end of the year. The stricter tax and acceptation rules seem to be accepted. The biggest change to the tax rules is that interest on new
mortgages is only tax deductible if there is at least an annuity repayment schedule. The Dutch housing market is historically characterised
by a housing shortage, high income tax with deductibility of interest on mortgages, and tax driven mortgage products.
Although the house prices decreased, the Dutch payment behaviour is good, reflected in a slightly elevated but still low percentage of
non-performing loans (NPL) by the end of 2013. Given the significant amount of mortgages in our credit portfolio, ING Bank closely
follows all developments related to the Dutch housing market and its mortgage portfolio.
Business lending Benelux
ING Bank’s Business Lending, defined as lending to corporates in the business line Retail Banking, is concentrated within the Benelux. The
weak economic environment was reflected by increased risk costs and elevated percentage of non-performing loans. The Netherlands
259ING 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