ING Direct 2013 Annual Report Download - page 395

The sale of ING Direct UK was the main reason for the reduction of the SA portfolio. An insignificant part of the Dutch mortgage portfolio
was moved from SA to AIRB, while the only portfolio that shifted from AIRB to SA was the UK Lease portfolio which is in run-off mode.
Due to the model redevelopments undertaken during the course of the year to reflect continued economic deterioration and due to
negative risk migration seen in several portfolios, RWA density and risk weights increased compared to 2012. In terms of RWA density, the
most significant movement was in the Sovereigns and the Corporates which was driven by model redevelopments implemented for these
exposure classes.
STANDARDISED APPROACH
A subset of the ING portfolio is treated with the Standardized Approach The SA approach applies fixed risk weights to each exposure class,
split into credit quality steps (based on external ratings) as dictated by the Capital Requirement Directive (CRD). Because the underlying
obligors are relatively small, the underlying obligors tend not to have external ratings. As such, the SA Approach is the least sophisticated
of the Basel II methodologies and is not as risk sensitive as the risk-based AIRB Approach.
In order to calculate the regulatory capital requirements under the SA approach, ING Bank uses eligible external ratings from Standard &
Poor’s, Moody’s, Fitch Ratings and in some cases from DBRS. Ratings are applied to all relevant exposure classes in the standardized
approach.
Exposures before and after risk mitigation for the SA portfolio
The table below shows how credit risk mitigation in the SA portfolio is distributed over the risk weight buckets. ING Bank’s exposure
values in the SA approach by risk weight are shown before and after credit risk mitigation obtained in the form of eligible financial
collateral and guarantees. There are two principal methods for reducing or mitigating Credit Risk: 1. by reduction of Credit Risk through
the acceptance of pledged financial assets as collateral (such as marketable securities or cash) or 2. mitigation or shifting of credit risks to a
lower risk weighting group by accepting guarantees from unrelated third parties.
Exposures (EAD) before and after risk mitigation and (EAD) after conversion factors
2013 2012
Exposure
before risk
mitigation
Exposure after
conversion
factors *
Exposure before
risk mitigation
Exposure after
conversion
factors *
Risk Weight Buckets
0% 2 2
10%
20% 256 204 107 55
35% 5,218 5,177 11,671 11,629
50% 6,463 5,226 5,513 4,430
75% 16,566 10,447 16,788 11,173
100% 21,969 12,603 27,251 15,206
150% 444 302 371 205
200%
1250%
Total 50,918 33,961 61,700 42,699
* Includes the SA portfolio only; excludes securitisations, equities and ONCOA.
* Exposure after conversion factors is the net exposure or READ as commonly referenced. It is lower than the other exposures in the table mainly because it
does not take into account uncommitted limits. This column is provided for reference purposes only.
The sale of ING Direct UK was the main reason for the reduction seen in the 35% risk bucket. The migration of the legacy Postbank
consumer loan portfolio from SA to AIRB and the migration of the UK Lease portfolio from AIRB to SA were the primary reasons for the
decline in the 75% risk bucket. The decline in the 100% risk bucket is explained by the reductions in the Indian and Australian SA portfolios.
Additional Pillar 3 information continued
393ING 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