ING Direct 2013 Annual Report Download - page 281

Risk management continued ING Bank
As mentioned above, it is ING philosophy to be involved at an early stage in a troubled process to help assist clients and ultimately reduce
losses for all stakeholders. To signal the increased credit risk profile in these cases, ING distinguishes three marked categories:
I. Watch list: If at any time there is a (potential) deterioration in credit risk profile, which requires more than usual attention and/or
investigation or monitoring, the account is put on a Watch list. Accounts with a watch list status remain under responsibility of front
office but in active co-operation with their respective Credit Risk Management executives. Exceptionally, extraordinary circumstances
and not the probability of a financial loss, cause a client to be flagged Watch list. The Watch list process functions well for early
warning and there is very little corporate exposure that is transferred to a Restructuring Unit that has not been flagged under Watch
list status before such transfer.
II. Restructuring: The restructuring status applies to those Borrowers, where there are serious concerns over creditworthiness. The asset
may still be performing under all its financial obligations and towards all of its creditors, but to address the deterioration specific and
significant action by ING Bank is required. Borrowers with a restructuring status can be rated anywhere in the 1-19 ranges, but typically
carry a risk rating 18 or 19. Strategic management responsibility for a restructuring file will move to Global Credit Restructuring, but
front office remains fully involved, also as asset owner.
III. Non-performing loans: Non-performing loans are accounts, which are considered unlikely to service their obligations to ING Bank in
full. A successful turnaround is unlikely to happen, without a financial loss for the bank. Legal remedies for recovery are being
considered and liquidation of Collateral may become the primary source of repayment. The assessment of unlikelihood to pay in full,
results in an IFRS-EU impairment and these accounts hold risk rating 20. Also included in the Non-performing loan portfolio are
accounts that go into liquidation phase, and from liquidation ING expects to incur no credit loss (rating 21) or a credit loss if there is
insufficient collateral (rating 22). All files that are more than 90 days past due are part of the Non-performing loan portfolio.
Watch list, Restructuring and Non-performing loans are discussed at least on a quarterly basis between front office, respective Credit Risk
Management executives and GCR, at which time it may be decided to change the status of an account from Watch list to Restructuring or
Non-Performing loans or vice versa. Furthermore, all three are in scope for forbearance. For further details on forbearance please see the
‘Forbearance’ section below.
Regular Watch List Restructuring Non-performing
Possible ratings 1–19 1–19 15–19 20-22
Typical ratings 1–14 15 –17 18–19 20-22
Deterioration in risk Not significant Significant Significant Significant
Significant intervention Not required Not required Required Required
Impaired No No No Yes
Account Ownership Front Office Front Office Front Office Front Office
Credit Risk Management Regular Regular Credit Restructuring Credit Restructuring
Primary Manager Front Office Front Office Credit Restructuring Credit Restructuring
Accounting provisioning IBNR IBNR IBNR INSFA/ISFA
Credit quality: ING Bank portfolio, outstandings
2013 2012
Neither past due nor impaired 688,834 712,020
Consumer lending past due but not impaired (1–90 days) 6,810 6,579
Impaired (1) 15,921 14,928
Total 711,565 733,527
(1) Based on lending and investment activities.
The total ING portfolio decreased modestly by 3%, contrary to the limited increase of 6% in the combined non-performing and past due
but not impaired categories. Nevertheless, the overall credit risk profile of ING Bank remained fairly stable.
Non-performing loans
The ING Bank loan portfolio is under constant review. Generally, all loans with past due financial obligations of more than 90 days are
automatically reclassified as non-performing. For the wholesale lending portfolios there are generally reasons for declaring a loan non-
performing prior to being 90 days past due. These include, but are not limited to, ING Bank’s assessment of the customer’s perceived
inability to meet its financial obligations, or the customer filing for bankruptcy or bankruptcy protection. In some cases, a material breach
of financial covenants will also trigger a reclassification of a loan to the non-performing category. ING Bank identifies as non-performing
loans those loans for which it is probable, based on current information and events that the principal and interest amounts contractually
due will not be collected in accordance with the contractual terms of the loan agreements.
279ING 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