ING Direct 2013 Annual Report Download - page 282

Risk management continued ING Bank
The table below represents the economic sector breakdown of credit risk outstandings for loans and positions that have been
classified as non-performing loans.
Non-performing Loans: ING Bank portfolio, outstandings by economic sector
(1)
2013 2012
Private Individuals 4,939 4,371
Real Estate 4,302 3,723
Builders & Contractors 1,132 1,087
Transportation & Logistics 912 954
Food, Beverages & Personal Care 800 846
General Industries 730 649
Services 580 550
Natural Resources 526 339
Other 2,000 2,410
Total 15,921 14,928
(1) Economic sectors below EUR 500 million in both years are not shown separately but grouped in Other.
The composition and order of the non-performing loan portfolio remained unchanged over the year. The largest sector remained private
individuals and is a function of the large mortgage portfolio of ING Bank. The increase in this sector took place almost entirely in The
Netherlands. The increase in the real estate industry was the result of deteriorating markets in Spain, The Netherlands and Portugal. The
share of spanish real estate in the total ING Bank real estate portfolio, performing and non-performing, is 6%, which is unchanged
compared to 2012.
Loan loss provisions
Loan Loss provisions are calculated and accounted for in accordance with IFRS-EU. LLP are reported for financial assets that are measured
against amortised costs (Loans and Receivables, Held-to-Maturity Investments). There are three types of LLP:
• Individually Significant Financial Asset (ISFA) Provisions: when there is objective evidence that a financial asset is defaulted as
result of one or more prescribed events that trigger a default. ING assigns a risk rating 20, 21 or 22. Specific provisions are calculated if
the exposure to a Borrower exceeds the threshold amount. The threshold amount varies per business unit, but generally is nil in
Commercial Banking, and a maximum of EUR 1 million in the Retail ‘home markets’. A specific provision is calculated based on several
scenarios and assumptions. Provisions level is up to date given the quarterly reviews; DCF is measured when this is a significant risk
driver which can be calculated. The future cash flow is based on best estimate of when/if recoveries will occur. Recoveries can be from
any source, such as the sale of collateral, on-going cash flows, sale of a business/subsidiary, etc.
• Individually Not Significant Financial Asset (INSFA) Provisions: are made for acknowledged non-performing loans (ratings
20-22), if the exposure to a Borrower is below the threshold amount. Due to their small size, the IFRS-EU rules permit a collective
approach to measuring these provisions.
• Incurred But Not Recognised (IBNR) Provisions: are made for the ‘performing’ loan portfolio as an estimate or proxy for the losses/
defaults that may have already occurred in the portfolio, but which ING Bank has not yet determined or recognised. The PD time
horizon used in the calculation of IBNR provisions refers to the period during which an asset is impaired (in default), but not yet
recognised as such - due to lack of objective evidence – and the moment that objective evidence of impairment occurs and becomes
available to ING (‘response time’). The primary modification is that the PD time horizon (12 months) is shortened to periods of 3, 6, or 9
months, depending on the type of customer. The decision to differentiate the time horizon per customer segment was based on an
assessment of the average response time for specific customer types.
All ISFA, INSFA and IBNR provisions are reported and calculated by using a common tool across ING Bank. In case that there is objective
evidence that one of the default triggers is applicable, ISFA or INSFA provisions are calculated. An analysis takes place on a quarterly basis
in order to determine the appropriate level of LLP and Risk Costs. The ING Bank Provisioning Committee (IPC) discusses and approves the
LLP for ING Bank, on the basis of proposals originating from ING Business Units.
ING Bank holds specific and collective provisions of EUR 3,729 million and EUR 1,589 million, respectively (2012: EUR 3,415 million and
EUR 1,336 million respectively), representing the difference between the amortised cost of the portfolio and the estimated recoverable
amount discounted at the effective rate of interest. In addition, there is EUR 835 million (2012: EUR 753 million) in provisions against the
performing portfolio.
280 ING Group Annual Report 2013