ING Direct 2015 Annual Report Download - page 179

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
The improvement in past due obligations was mainly seen in Netherlands Retail (also by far the largest share of the portfolio), where
the improved economy and revival of the housing market were the big drivers. At the same time, local risk management actions
targeted at lowering arrears and enhancing early warning methodology clearly helped to improve the overall portfolio quality
Wholesale Banking: for business loans (governments, institutions, corporates); ING Bank has adopted a policy to classify the obligor as
a non-performing loan as quickly as possible upon the occurrence of a payment default or even before. These are the default triggers:
• Bankruptcy or financial reorganisation: The Borrower has sought or has been placed (or is likely to seek or be placed) in bankruptcy
or similar protection, where this would avoid or delay repayment of the financial asset;
• The Borrower has failed in the payment of principal or interest/fees and such payment failure has remained unresolved for the
following period:
• Corporates: more than 90 days;
• Financial Institutions and Governments: from day 1, however, a research period of 14 calendar days will be observed in order
for ING Bank to establish whether the payment default was due to non-operational reasons (i.e. the deteriorated credit quality
of the financial institution) or due to operational reasons. The latter does not trigger default;
• ING Bank thinks the Borrower is unlikely to pay: The Borrower has evidenced significant financial difficulty, to the extent that it will
have a negative impact on the future cash flows of the Financial Asset. The following events could be seen as examples of financial
difficulty indicators, but not as default triggers per se:
• a material breach of contract;
• the disappearance of an active market for a certain financial asset;
• the downgrading of a Borrower’s external rating;
• Restructuring of the credit obligation for non-commercial reasons: ING Bank has granted concessions, for economic or legal
reasons relating to the Borrower’s financial difficulty, the effect of which is a reduction in ING’s expectation of future cash flows of
the financial asset below current Carrying Amount.
As such, other than the arrear driven approach at Retail Banking, Wholesale Banking has a much more individual name approach,
using Early Warnings indicators to signal probable, upcoming, redemption breaches. As a general rule, in line with the Regulatory
definition (CRR/CRDIV), ING Bank considers all business loans as non-performing if they are 90 days past due.
Credit restructuring
Global Credit Restructuring (GCR) is the dedicated and independent corporate department that deals with non-performing loans and
loans that hold a reasonable probability that ING will end up with a loss, if no specific action is taken. GCR deals with accounts or
portfolios requiring an active approach, which may include renegotiation of terms & conditions and business or financial restructuring.
The loans are managed by GCR or by the Regional Restructuring Units in the various regions and business units.
ING uses three distinct statuses in categorizing the management of clients with (perceived) deteriorating credit risk profile, i.e. there is
doubt as to the performance and the collectability of the client’s contractual obligations:
• Watch List: Usually, but not necessarily, a client is first classified as Watch List when there are concerns of any (potential or
material) deterioration in the credit risk profile that is normally connected to the ability of the client to adhere to the repayment
obligations or to refinance the existing loan. The grounds for concern are usually caused by indication of Early Warning Signals.
Watch List status requires more than usual attention and increased monitoring by quarterly reviews. However at this stage, no
specific intervention from ING is deemed necessary and no significant restructuring is expected. Certain clients with a Watch List
status may develop into a Restructuring status or even a Recovery status.
• Restructuring: A client is classified as Restructuring when there are serious concerns of the client’s financial stability, credit
worthiness and/or its ability to repay, but where the situation does not call for recalling or acceleration of facilities or liquidating
the collateral. ING’s actions aim to maintain the going concern status of the client by:
• restoring the client’s financial stability;
• supporting the client’s turnaround in part or in whole;
• restoring the tension between debt and equity;
• restructuring the debt to a sustainable situation.
• Recovery: A client is classified as Recovery when ING decides that the client’s financial situation cannot be restored and wants to
end the (credit) relationship. In principle, the exit has to be at lowest risk cost possible. ING will prefer an amicable exit, but will
enforce and liquidate collateral or claim on the guarantees, when needed.
Additionally, ING uses three distinct reporting signs in identifying exposures for clients facing financial difficulties with the notion of:
Forbearance: For clients facing financial difficulties, ING might enter into a forbearance agreement with these clients in order to ease
the contractual debt service obligation. All ING Business Units/Lines are required to review the clients with Early Warning Signals,
Watch List, Restructuring and Recovery classification, to which extent Forbearance is applicable.
Default: For clients with non-performing loan(s) in accordance with the definition of the regulator (Basel/CRR/CRDIV).
Impairment: For clients with impaired loan(s) in accordance with the definition of accounting (IFRS/IAS).
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