ING Direct 2015 Annual Report Download - page 163

Contents
Who we are
Report of the
Management
Board
Corporate
Governance
Consolidated
annual accounts
Parent company
annual accounts
Other
information
Additional
information
Notes to the Consolidated annual accounts of ING Bank - continued
Risk developments in 2015
Risk developments listed below are defined as the risks that may have a potentially significant impact on our business and for which it
is difficult to quantify the impact on the organisation. They are triggered in general by unexpected events, and they may introduce
volatility in earnings or impact ING’s long-term strategy. The topics have emerged either as part of the annual Risk Assessment that is
performed as part of the Stress Testing Framework and the Risk Appetite Framework. The sequence in which the top risks are
presented below is not indicative of their likelihood of occurrence or the potential magnitude of their financial consequences.
Impact of low interest rate environment
In 2015, interest rates in the Eurozone and other main home countries continued to decrease. Central banks held their rates at very
low and even negative levels, thereby negatively impacting short-term as well as long-term market rates. The Eurozone crisis in
combination with uncertainty on the growth potential of the world economy and the geopolitical tensions are the main reasons for
this development.
The typical interest rate position for ING Bank is that the duration of the assets is slightly higher than the duration of the liabilities.
Given this mismatch, decreasing interest rates are under normal circumstances favourable for the interest income of ING Bank:
liabilities reprice more quickly than assets, and therefore the average interest rates paid on liabilities should adapt more quickly to
lower market interest rates. This would then support ING Bank’s net interest income.
However, given the current unusual situation with persistent low interest rates, the following may put the ING Bank’s Net Interest
Margin (NIM) and Net Interest Income (NII) under pressure:
• On mortgages, ING Bank could be confronted with higher than expected prepayment rates because of the difference between the
rates of the existing mortgage portfolio and the prevailing market rates.
• On savings, NII and NIM may decrease due to a further decline in yields on assets, while possibilities for further reduction of client
rates on savings deposits are limited.
Business lending Benelux
ING Bank’s Business Lending portfolio, defined as lending to corporates in the business line Retail Banking, is concentrated within the
Benelux. Due to its footprint, ING is an important lender to SME in the Benelux and exposed to risk in that sector. Following the gradual
improvement of the economic environment, the risk costs decreased materially compared to last year. The Netherlands showed a
decrease in the non-performing loan amounts, but still highly impacted by the sectors transportation & logistics - especially coastal
and deep sea freight transport -, services and Food, beverage & personal care. The non-performing loan amounts in Belgium and
Luxembourg increased over 2015. This increase is partly due to a deterioration of the credit quality and partly due to amended
forbearance policies.
Macroeconomic developments
Several geopolitical and macroeconomic topics impacted ING Bank’s operating environment in 2015, amongst others the ongoing
conflict in Ukraine, the re-emerged Greek crisis and impact of the low oil and gas price.
In the light of the ongoing conflict in Ukraine, ING continued the intensified monitoring processes and tightened acceptance criteria
that were already ignited in 2014. The economic outlook for both Russia and Ukraine is negative and reflects (i) the increasingly
subdued medium-term outlook, exacerbated by the prolongation of the Ukraine crisis, including the impact of expanded international
sanctions, (ii) the gradual but ongoing erosion of Russia's FX buffers, (iii) Russian borrower’s restricted international market access and
(iv) low oil prices. Our risk appetite will therefore remain limited and only new exposures with sufficient risk mitigation will be
considered. We will focus on international business clients and export-oriented companies.
In the course of 2015 the uncertainties around Greece emerged with a peak in the summer where bailout terms were rejected by the
Greek people via a referendum and the failure to make the IMF loan repayment in June 2015. In this situation, ING Bank closely
monitored its Greek exposure. ING has no banking activities in Greece, but we have a limited direct exposure on Greece and a
negligible sovereign exposure. Our Greek exposure consists of corporate lending, mainly to the shipping industry. Since the successful
renegotiations and the Greek parliament elections the situation improved and the debate on a potential Grexit has muted.
The oil price seemed to have reached a low early in the year and soon started to climb but it fell back midyear and remained low in
the second half of the year. ING has a well-diversified portfolio of clients active in the oil & gas markets and we service clients active in
upstream, midstream and downstream sectors. The part of the portfolio that faces direct exposure to oil & gas price-risk is limited.
Nevertheless, ING closely monitors the financial and operational performance of all its clients active in the oil & gas sector.
For additional information on macroeconomic developments in 2015 please see the ‘Market & regulatory context’ section in the report
of the Executive Board.
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