ING Direct 2013 Annual Report Download - page 383

Additional Pillar 3 information continued
REGULATORY CAPITAL
Capital Adequacy Rules – Basel II Accord
The rules on capital adequacy, also referred to as Regulatory Capital (RC), express the regulators’ and legislators’ opinions of how much
capital a bank and other regulated credit institutions must retain in relation to the size and the type of risk taking expressed in the form of
risk-weighted assets. The most important part of the capital base is the shareholders’ equity. In addition to equity, the institution may issue
certain liabilities such as certain hybrid instruments to be included in the capital base. The legal minimum requirement stipulates that the
capital base must correspond to at least 8% of the Risk-Weighted Assets (RWA). The Dutch government adopted the Capital
Requirements Directive (CRD), the European reflection of the Basel II capital accord in December 2006.
The Pillar 3 information mostly relates to Credit Risk, but also to securitisations and Other Non-Credit Obligation Assets (ONCOA). The
requirements are mainly for underlying exposure, risk weighted assets and regulatory capital. As such it relates primarily to the first Basel II
pillar, the minimum capital requirement. These regulatory requirements are provided in the next section, including those for market risk
and operational risk. The second pillar concerns Economic Capital (EC) and the underlying models used internally by banks and reviewed
by supervisors. Economic Capital, and consequently Pillar 2, is disclosed extensively in the Risk Management section. As such, the text of
this Pillar 3 section should be read in conjunction with statements made in the Risk Management section and Capital Management section
of the annual accounts, where there is a comprehensive discussion of Risk Management and Capital Management.
Approaches applied by ING Bank
On 1 January 2008, ING Bank adopted the Advanced Internal Ratings Based (AIRB) approach for the majority of its significant portfolios
that contain credit risk in accordance with the approvals granted by DNB (Dutch Central Bank), and various local regulators, as required.
However, there remains a small portion of the portfolio that is subject to the Standardised Approach (SA). Unlike many regulators, DNB
requires institutions to aim for at least 85% (RWA weighted) of their portfolio on AIRB to qualify for the AIRB status. The majority of
SA portfolios at ING Bank relate to subsidiaries where the home regulator does not have a robust AIRB framework or requirement.
ING continues to explore opportunities to transition additional portfolios from SA to AIRB. ING Bank does not have any portfolios that use
the Foundation Internal Ratings Based (FIRB) Approach.
During 2013 ING Bank’s SA portfolio decreased in terms of Regulatory Exposure at Default (READ) by 20.5% as a result of mainly the
sale of ING Direct UK. At December 2013, the largest portfolios under SA are the Turkey, India (ING Vysya Bank) and part of the Poland
(ING Bank Slaski) portfolios. ING Bank continues to work with local regulators especially in Poland to bring more portfolios to AIRB.
The AIRB and SA approaches are explained in more detail in the Credit Risk Measurement section of the Risk Management paragraph.
An analysis on the AIRB and SA portfolios with their accompanying tables is provided in the SA and AIRB Approach sections of Pillar 3.
ING Bank uses the AIRB and the Internal Assessment Approach (IAA) for liquidity lines provided to Asset Backed Commercial Paper
programmes and this is explained in more detail in the securitisation section.
Basel III Accord
The Basel III Accord was adopted in 2010 and consequently translated into regulation by the EU in the Capital Requirement Regulation
(CRR) and a Capital Requirement Directive IV. The CRR is binding for all EU member states and became effective per 1 January 2014.
For more information, please refer to the chapter ‘Ongoing changes in the regulatory environment’.
381ING 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