ING Direct 2013 Annual Report Download - page 290

Risk management continued ING Bank
The downward impact of the Dutch portfolio on the coverage quality of the ING Bank’s mortgage portfolio was alleviated by the
improvement in the portfolio in Belgium, where the house price experienced an upward trend in 2013. This development was mirrored in
the 5.1% increase in the mortgages cover value whilst the outstandings increased by 3.3%. Beside the improved housing market, another
element ameliorating the collateralisation quality is the reduced presence of the bullet mortgages in the portfolio.
For the Residential Mortgages portfolio, the guarantees relate to mortgages covered by governmental insurers under the Nationale
Hypotheek Garantie (NHG) in the Netherlands. The NHG guarantees the repayment of a loan in case of a forced property sale.
Business Lending portfolio
Business Lending is an important business of ING Bank, accounting for 36.1% of the total ING Bank’s outstandings. In line with our
objective to give stakeholders insight into the portfolio, we present the Business Lending portfolio per Industry breakdown in accordance
with the NAICS definition and per Region and main market. Business Lending presented in this section does not include Pre-settlement
and Investment & Money Market exposures, which are separately exhibited in the next sections.
The table below provides the ING Bank’s portfolio broken down per NAICS Industry code. The Business Lending portfolio comprises for
16.5% of the Industry type Real Estate. This cannot be completely compared with ING Bank’s Real Estate Finance portfolio as the scope
and definition are differently determined.
The REF portfolio has not stabilised since the deterioration of the economic environment which started in 2008. As a result of this, in the
recent years, ING Bank aims to be more selective in the financing of Real Estate. As this sector has proven to be significantly impacted
during the crisis, the value of collaterals for this portfolio is of specific importance. The REF portfolio, which mostly focuses on the business
whereby ING Bank finances or refinances income producing real estate in office, retail, residential and industrial (logistics) segments or a
mix of commercial properties, presents approximately 56.4% of the Real Estate sector’s outstanding.
Cover valuation for REF portfolio
The cover valuation policy and governance within ING Bank ensures that the cover values reflect the current fair value on the date of the
valuation. All commercial properties financed by ING Bank need to be (re)-valued within three years’ period or more frequently if market
conditions or the risk profile deteriorates. Non-performing loans and high risk Watch-list REF files are re-valued at least annually.
The valuation of financed properties at origination of a REF deal or the revaluation is always performed by a real estate appraiser. For
commercial properties located in the Netherlands, an internal real estate appraiser (80% of the assets) or an external real estate appraiser
(20% of the assets) performs the (re)valuation while for properties outside the Netherlands, the (re)-valuation is always performed through
an external real estate appraiser.
During this three-year cycle, for properties located in the Netherlands, if the risk profile remains stable or improves, only yearly indexation
is performed. The indices used are from ROZ/IPD (Vereniging Raad voor Onroerende Zaken – Association of Real Estate Council/Investment
Property Databank). If the risk profile deteriorates, a revaluation is required.
The assessment of risk profile is performed based on certain defined factors, such as external drivers including macro developments (GDP,
unemployment rate, Consumer confidence rate, Interest rate) and meso indicators (Real Estate quarterly data from Real Estate institution)
and internal drivers including micro deteriorations (such as vacancy, weighted average lease expiry or WALE, and EBITDA) and individual
deteriorations (being Watch listed, Credit event, suspension of payments, bankruptcy of a major tenant, actual or expected increase in
vacancy level).
For financing properties outside the Netherlands, the revaluation cycle is also set to three years. In case the agreed LTV covenants are not
met, an annual or bi-annual revaluation will take place. The outcome of the re-valuation or indexed value is updated accordingly in the
cover REF database.
288 ING Group Annual Report 2013