ING Direct 2015 Annual Report Download - page 174

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
Exposure to corporates has increased both in actual volume and as a proportion of the total portfolio with the depreciating Euro
having a significant contribution. Excluding the FX impact, lending exposure witnessed growth in Structured Finance, Real Estate
Finance and Corporate and FI Lending portfolios.
The investment portfolio decreased slightly in proportion as well as in absolute value and along with fulfilling liquidity requirements it
remains a source of supporting assets in Challenger and Growth markets with exposure primarily to European central governments
and central banks. Investor and sponsor securitisations comprise the shrinking portfolio of securitisations within ING Bank.
Models used for exposure classes
ING Bank has developed PD, EAD and LGD models for Wholesale Banking and Retail Banking portfolios. PD, EAD and LGD models are
subject to CRC (or in some delegated cases: MDC) approval and changes which significantly impact the results require approval from
the regulator before implementation. By nature, the above described exposure classes have different, specific characteristics. To
capture these specific characteristics and to have suitable valuations and analyses in place, CR is continuously updating and
developing models within each exposure class. In total, CR makes use of around 80 different internal models.
ING distinguishes four types of post default scenarios:
• No Loss – Cure: the Borrower pays all overdue amounts (to the extent ING Bank is legally entitled to) and the asset becomes non-
defaulted again. ING Bank does not experience any loss in the process. The relationship is not terminated. The borrower returns
back to performing.
• No Loss – Exit without loss: ING Bank (or the borrower) liquidates collaterals and calls guarantees in order to recover the exposure
or the Borrower fully repays. Thereafter the relationship is terminated. ING Bank does not experience any loss in the process.
• Loss – Exit with loss: ING Bank (or the borrower) liquidates collaterals and calls guarantees in order to recover the exposure.
Thereafter the relationship is terminated. ING Bank suffers loss in the process.
• Loss – Distressed Restructuring: ING Bank restructures the loan agreement so as to recover the exposure after allowing some
discount. The relationship with the borrower continues after the restructuring. ING Bank suffers some loss in the process.
Changes in 2015 to credit risk models
Introduction of the Single Supervisory Mechanism of the ECB has led to a change in the implementation timelines. Model updates
driven by regulatory guidance were undertaken towards the end of the year and increased RWA by EUR 5.6 billion. The Leveraged
Finance LGD model update was the main contributor increasing RWA by EUR 4.2 billion. The CPF LGD model update increased RWA by
EUR 1.1 billion. For further details regarding model changes and the subsequent RWA migration in 2015 we refer to the chapter Risk
Weighted Assets Migration Analysis in the Pillar III section.
Securitisations
ING Bank primarily plays three roles in its exposure to securitisations programs which are:
ING Bank as Investor
Retail Challengers & Growth Markets has been the primary investor in securitisation transactions within ING Bank. Its core strategy was
gathering customer deposits and providing lending products to its retail customers. The savings product is typically the first product to
be launched in a country followed by mortgages and other retail products (current accounts, unsecured loans, credit cards etc.). The
difference between retail liabilities and own originated retail assets is invested in high quality bonds and when appropriate in certain
internal assets originated by other ING Bank entities. The ING Bank strategy has evolved to create more universal banks from the retail
operations. In addition, the regulatory requirements for liquidity have become clarified over the last couple of years which decreases
the attractiveness of securitisations as a form of liquid buffer. Therefore, ING Bank has greatly reduced its securitisation portfolio over
the last years.
ING Bank as Originator
ING Bank occasionally originated own securitisation transactions for economic and regulatory capital purposes, as well as liquidity and
funding purposes. Securitisations originated by a company may only be considered for balance sheet de-recognition when the
requirements for significant credit risk transfer have been fulfilled. However, for a securitisation transaction to be recognised as for
RWA reduction, risk transfer alone may be insufficient due to the increasing impact of the maturity mismatch formula. As a
consequence, the RWA of the retained tranches for one of the transactions would be higher than the total RWA of the underlying pool
before securitisation. In such cases the RWA calculation for the transaction is performed as if it was not securitised. ING Bank has done
a very limited number of external transactions as originator.
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