ING Direct 2013 Annual Report Download - page 396

THE ADVANCED INTERNAL RATING BASED APPROACH (AIRB)
The AIRB approach has five elements that drive the Basel II ‘risk-based approach’ for the determination of RWA. RWA times the BIS ratio of
8% leads to Regulatory Capital. The elements are: the Basel II exposure class, Probability of Default (PD), Exposure at Default (EAD), Loss
Given Default (LGD) and Maturity. Within ING Bank internal Basel models are used to determine the PD, EAD and LGD for regulatory and
economic capital. Bank wide, ING Bank has implemented more than 100 models, including various sub models that may be applicable for
a specific portfolio. This section has to be read in conjunction with the Risk Management paragraph.
AIRB credit exposures by rating model
The table below shows the AIRB portfolio per exposure class and the underlying rating models.
Exposures (READ) per AIRB rating model (1,2,3)
2013 2012
Sovereigns Government Central 44,154 45,463
Government Implied 24,884 26,525
Government Local 16,430 9,802
Other 2,907 2,673
Institutions Bank Commercial 46,189 54,784
Bank Implied 17,173 16,344
Government Local 11,472 12,186
Other 23,696 26,403
Corporate Corporates Large 60,352 70,700
Commercial Property Finance 28,267 29,509
SME Belgium 20,814 20,644
Other 96,142 108,076
Residential
mortgages
Mortgages (Residential) Holland 137,396 148,879
Mortgages (Residential) Germany 63,821 61,654
Mortgages (Residential) Australia 28,516 34,507
Other 48,999 47,609
Other retail SB NL Client - Credit Risk Products 6,441 6,785
Postbank Unsecured 4,452 2,275
SME Belgium 4,068 4,273
Other 20,348 23,090
Total 706,520 752,182
(1) Implied ratings are Risk Ratings derived from another organisation (usually from the same Legal or Economic One Obligor Group, but not always, for which
the appropriate Rating Model has been used) but not directly given.
(2) For comparison reasons, intercompany loans to ING Group and NN Group were included in the 2012 figures in this table.
(3) For comparison purposes, the 2012 exposure class structure have been aligned for corporate and institutions with 2013.
AIRB credit exposures by internal rating grade
The table below shows the AIRB portfolio per internal rating grade. Under Basel II rules, the nominal exposures are weighted to determine
the RWA (and regulatory capital) of a portfolio, under a ‘risk-based approach’. This approach dictates that less capital is required for credit
exposures which are well-rated, while progressively more capital is required as an obligor’s risk (rating) deteriorates. This effect can cause
RWA to increase or decrease together with risk rating migration without a significant change in the size of the underlying financial assets,
in terms of financial accounting. As such, rating migrations are closely monitored within ING Bank.
Additional Pillar 3 information continued
394 ING Group Annual Report 2013