ING Direct 2013 Annual Report Download - page 417

INVESTMENT RISK
Investment risk is the credit default and risk rating migration risk
that is associated with ING Group’s investments in bonds,
commercial paper, securitisations, and other similar publicly traded
securities. Investment risk arises when ING purchases a (synthetic)
bond with the intent to hold the bond for a longer period of time
(generally through maturity).
INVESTMENT PORTFOLIO
Comprises those assets which are intended for use on a continuing
basis, and have been identified as such. These investments are held
in order to cover the insurance provisions and to manage interest
rate, capital and liquidity risks.
IRREVOCABLE FACILITIES
Mainly constitute unused portions of irrevocable credit facilities
granted to corporate clients and commitments made to purchase
securities to be issued by governments and private issuers.
IRREVOCABLE LETTERS OF CREDIT
Concerns an obligation on behalf of a client to pay an amount of
money under submission of a specific document or to accept a bill
of exchange, subject to certain conditions. An irrevocable letter of
credit cannot be cancelled or adjusted by the bank that has granted
it during the duration of the agreement unless all those concerned
agree.
JOINT VENTURE
A contractual arrangement whereby two or more parties undertake
an economic activity which is subject to joint control.
LEGAL RISK
Legal risk is the risk related to:
• a failure (or perceived failure) to adhere to applicable laws,
regulations and standards;
• contractual liabilities or contractual obligations that are defaulted
or cannot be enforced as intended, or are enforced in an
unexpected or adverse way; and
• liability (tort) towards third parties due to an act or omission
contributable to ING; (potentially) resulting in impairment of
ING’s integrity, leading to damage to ING’s reputation, legal or
regulatory sanctions, or financial loss.
LENDING RISK
Lending risk arises when ING Group grants a loan to a customer, or
issues guarantees on behalf of a customer. This is the most
common risk category, and includes term loans, mortgages,
revolving credits, overdrafts, guarantees, letters of credit, etc. The
risk is measured at the notional amount of the financial obligation
that the customer has to repay to ING, excluding any accrued and
unpaid interest, or discount/premium amortisations or impairments.
LEVERAGE RATIO
Simple measure for the solvency of banks, introduced under Basel
III, defined as Total on balance sheet and off-balance sheet
exposure / Tier 1 Capital.
LIQUIDITY COVERAGE RATIO (LCR)
Regulatory measure for the liquidity of banks which compares the
amount of liquid assets with a potential outflow over a one month
period. The measure is introduced under Basel III. LCR is defined as:
stock of liquid assets / assumed 30-days cash outflow.
LIQUIDITY PREMIUM
In order to correct the value of the liabilities for their illiquidity a
premium is added to the risk free liability valuation curve. This
premium reflects the price of illiquid long term funding which
increases in stressed markets.
LIQUIDITY RISK
The risk that ING Group or one of its subsidiaries cannot meet its
financial liabilities when they fall due, at reasonable costs and in a
timely manner.
LOAN TO DEPOSIT RATIO (LTD RATIO)
Measure for the liquidity of banks. The LtD ratio is defined as: own
originated loans / own originated deposits.
LOSS GIVEN DEFAULT (LGD)
Anticipated percentage loss in the event of a default of a customer
of counterpart.
MARKET RISK
Market risk is the risk that movements in market variables, such as
interest rates, equity prices, implied volatilities, foreign exchange
rates, real estate prices negatively impact the earnings or market
value.
MARKED TO MARKET (MTM)
Valuing a security, portfolio or account against its market value
instead of its carrying value.
MASTER AGREEMENT
Contract between parties in which agreements are reached for
most of the terms and conditions of future transactions such that
negotiations only focus on deal-specific terms. Well known master
agreements are for example ISDA (for over-the-counter derivative
transactions), GMRA (for repo or repurchase transactions) and
GMSLA (for securities lending transactions).
MINIMUM CAPITAL REQUIREMENT (MCR)
Is defined in the Solvency II legislation and represents the absolute
minimum regulatory required capital for insurance companies.
MINORITY INTERESTS
The part of the profit and loss and net assets of a subsidiary
attributable to an interest which is not owned, directly or indirectly,
by the parent company.
MONETARY ASSETS AND LIABILITIES
Assets and liabilities which are fixed in terms of units of currency by
contract or otherwise. Examples are cash, short or long-term
accounts, notes receivable in cash and notes payable in cash.
MONEY MARKET RISK
Money market risk arises when ING Group places short term
deposits with a counterparty in order to manage excess liquidity, as
such, money market deposits tend to be short term in nature (1-7
days is common). In the event of a counterparty default, ING Group
may lose the deposit placed. Money market risk is therefore
measured simply as the notional value of the deposit, excluding any
accrued and unpaid interest or the effect of any impairment.
Financial glossary continued
415ING 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