ING Direct 2013 Annual Report Download - page 302

Risk management continued ING Bank
Equity price risk in banking books
Governance
ING Bank maintains a strategic portfolio with substantial equity exposure in its banking books. Local offices are responsible for the
management of the equity investments positions. Market risk is responsible for monitoring and reporting the regulatory capital for Equity
Investments on a monthly basis. Market risk acts independently from the management of the equity investments in monitoring and
reporting of the equity investments risk.
Risk Profile
Equity price risk arises from the possibility that equity security prices will fluctuate, affecting the value of equity securities and other
instruments whose value reacts similarly to a particular security, a defined basket of securities, or a securities index. This equity exposure
mainly consists of the investments in associates of EUR 707 million (2012: EUR 841 million) and equity securities held in the available-for-
sale (AFS) portfolio of EUR 1,645 million (2012: EUR 2,634 million). The value of equity securities held in the available-for-sale portfolio is
directly linked to equity security prices with increases/decreases being recognised in the revaluation reserve, except in the case of
impairment. Investments in associates are measured in accordance with the equity method of accounting and the balance sheet value and
therefore not directly linked to equity security prices.
Equities Unrealised Gains and Losses in the AFS portfolio
2013 2012
Gross unrealised gains 1,038 1,385
Gross unrealised losses
Total 1,038 1,385
Year-on-year variance analysis
During the year ended 31 December 2013 the revaluation reserve relating to equity securities held in the available-for-sale portfolio
fluctuated between a month-end low amount of EUR 1,038 million (2012: EUR 1,082 million) and a high amount of EUR 1,483 million
(2012: EUR 1,643 million).
Real Estate price risk in banking books
Real estate price risk arises from the possibility that real estate prices fluctuate. This affects both the value of real estate assets and
earnings related to real estate activities.
Governance
Real Estate and other is a run-off business consisting of and all Real Estate Development and Real Estate Investment Management activities
which are being wound down by sale of assets, strict execution of contract maturity, internal transfers to the local ING Bank branches or
through portfolio sales.
Risk profile
ING Bank has two main different categories of real estate exposure on its banking books: First, the own buildings ING Bank occupies, and
second - development assets, which mostly consists of former Real Estate Development and Real Estate Investment Management activities.
ING Bank’s real estate exposure in the banking books (i.e. including leverage and committed purchases) is EUR 2.6 billion. For market risk
management purposes, the total real estate exposure amounts to EUR 2.5 billion since property from foreclosures (EUR 0.07 billion) and
third party interest (EUR 0.04 billion) are excluded.
ING Bank has EUR 0.3 billion recognised at fair value through profit and loss and EUR 2.2 billion is recognised at cost or revalued through
equity (with impairments going through profit and loss).
A split on the real estate exposure per continent and sector based on the risk management view is shown below.
Real Estate market risk exposure in banking books (by geographic area and sector type)
2013 2012 2013 2012
Continent Sector
Europe 1,993 2,246 Residential 325 366
Americas 145 328 Office 1,241 1,14 4
Australia 94 159 Retail 661 1,281
Asia 135 271 Industrial 144 79
Other 115 165 Other 111 299
Total 2,482 3,169 Total 2,482 3,169
Main exposure arises from office buildings in own use located in Netherlands and Belgium (EUR 0.9 billion), as well as retail and residential
exposures in Europe (EUR 0.7 billion).
300 ING Group Annual Report 2013