ING Direct 2015 Annual Report Download - page 168

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
A risk appetite statement in the context of a retail risk portfolio program is a pre-defined set of minimum performance criteria.
The Wholesale Banking risk program is a detailed analysis of a defined product and/or industry that identifies the major risk drivers
and mitigants, the internal business mandate, and proposes the minimum risk (including business) parameters – and potentially the
maximum product and/or portfolio limit - to undertake that business. A risk program is always prepared by the Front Office
responsible for the internal business mandate and requires an approval from the ING Bank Global Credit Committee (unless specifically
delegated to a different approval mandate).
Reference benchmarks
A Reference Benchmark is the maximum appetite for Credit Risk per Legal One Obligor Group. It is expressed as a (Benchmark)
Exposure at the Concentration Risk level, which corresponds to a (maximum) internal capital consumption for Credit Risk. It is used as a
reference amount tool in the credit approval process and can be waived on the basis of proper arguments.
Credit approval process
The credit approval process ensures that individual transactions are assessed on a name-by-name basis. For each type of
counterparty (corporate, banks/financial institution, structured products clients) there is a separate process. The line credit risk
managers are organised along the business lines of ING Bank and are specialised in the relevant area of expertise. The credit approval
process is supported by, amongst others, a credit approval system which ensures consistency and completeness; a risk rating system
which contains all the risk rating models to ensure a proper rating is given to a counterparty and a limit and exposure monitoring
system which subsequently feeds into the credit approval system. The rating model is used to indicate a counterparty’s
creditworthiness translated into a probability of default (PD), and to determine the maximum risk appetite that ING Bank may have for
a given type of counterparty (reference benchmark). The determination of the delegated authority (the amount that can be approved
at various levels of the organisation) also depends on the risk rating. ING Bank has a rating system with in total 22 grades (1=highest
rating; 22=lowest rating) and are split in the following categories:
• Investment grade (Risk Rating 1-10);
• Non-investment grade (Risk Rating 11-17);
• Sub-standard (Risk Rating 18-19);
• Non-performing (Risk Rating 20-22).
Credit risk capital and measurement
Credit risk capital
Regulatory Capital (RC) is a law based prudent measure defined by regulators and serves as the minimum amount of CET 1, Additional
Tier 1 and Tier 2 capital required to absorb unexpected losses. RC is the minimum amount of capital (based on 99.90% confidence
level) that ING Bank must hold from a regulatory perspective as a cushion to be able to survive large unexpected losses.
RWA comparison
Comparison of RWA and risk weights across institutions is inherently challenging. Differences in RWA among banks have been
classified by the Bank for International Settlements (BIS) in 3 categories:
1. Risk based drivers that stem from the differences in underlying risk at the exposure/ portfolio level and in business models/
strategies including asset class mix;
2. Practice-based drivers including approaches to risk management and risk measurement;
3. Regulating environment such as supervisory practices, implementing laws and regulations including national discretion and
accounting standards.
Risk based drivers
ING Bank’s portfolio is heavily dominated by secured lending especially in the areas of residential mortgages, leasing and commercial
real estate. Secured lending tends to have a much lower LGD, given the collateral involved, which is a key driver of RWA calculation.
Another important element of the ING business model is the focus on retail exposures collateralised by residential property. ING’s
retail portfolio is mainly comprised of residential mortgages. The regulatory formula for this exposure class tends to result in the
lowest RWA, all other factors being equal.
Practice based drivers
ING Bank tries to have an ‘early in early out’ approach to troubled exposures. This means that ING has a conservative default
definition. This will have a direct impact on the level of RWA. In addition to an impact on RWA, the conservative default definition
implies that many of both corporate and retail customers classified as non-performing are not overdue for more than 90 days in
either interest or principal. For most customers, ING uses a borrower rating which means that a customer will only have one PD
regardless of the type(s) of transactions done with ING Bank. This means that if one facility is in default, usually all facilities of the
client are in default. Once the customer is deemed performing, a non-default PD will be given to the borrower. Non-performing clients
which were granted forbearance measures need to stay non-performing for a minimum of one year starting from the moment they
are classified as forborne. Only after this probation period the clients may become eligible to be changed back to performing.
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