ING Direct 2015 Annual Report Download - page 180

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
Watch list, Restructuring and Recovery are discussed at least on a quarterly basis between Front Office, respective Credit Risk
Management executives and GCR, at which time it may be decided to change the status of an account from Watch list to
Restructuring or Recovery or vice versa. Furthermore, all three categories Watch list, Restructuring and Recovery are in scope for
forbearance. For further details on forbearance we refer to the Forbearance section.
Non-performing loans
The ING Bank loan portfolio is under constant review. Generally, all loans with past due financial obligations of more than 90 days are
automatically reclassified as non-performing. For the commercial lending portfolios, there generally are reasons for declaring a loan
non-performing prior to being 90 days past due. These include, but are not limited to, ING Bank’s assessment of the customer’s
perceived inability to meet its financial obligations, or the customer filing for bankruptcy or bankruptcy protection. In some cases, a
material breach of financial covenants will also trigger a reclassification of a loan to the non-performing category. ING Bank identifies
non-performing loans as those loans for which it is probable, based on current information and events that the principal and interest
amounts contractually due will not be collected in accordance with the contractual terms of the loan agreements.
The table below represents the economic sector breakdown of credit risk outstandings for loans and positions that have been
classified as non-performing loans.
2015
2014
Private Individuals
5,580
6,308
Real Estate
2,562
3,279
Natural Resources
1,352
929
Builders & Contractors
1,037
1,119
Services
796
694
Other
3,999
4,560
Total
15,325
16,889
1 Economic sectors not in the top 5 are not shown separately but grouped in Other.
The overall amount of NPLs decreased in 2015, mainly witnessed in the Private Individuals and Real Estate sectors. The decrease in
NPLs for the Private Individuals segment is mainly due to the improved credit quality in the Dutch mortgage portfolio resulting from
the improved economic conditions in the Netherlands. The decline in NPLs in the real estate sector was driven by both cures as well as
write-offs. The most notable increase in NPLs was in the natural resources sector, where the global commodity prices and the ongoing
conflict in the Ukraine are impacting client performance and ratings.
Provisions
Loan Loss provisions are calculated and accounted for in accordance with International Financial Reporting Standards (IFRS-EU). LLP
are reported for financial assets that are measured against amortised costs (Loans and Receivables, Held-to-Maturity Investments).
There are three types of LLP:
• Individually Significant Financial Asset (ISFA) Provisions: when there is objective evidence that a financial asset is defaulted as
result of one or more prescribed events that trigger a default. In such case, ING assigns a risk rating 20, 21 or 22. Specific provisions
are calculated if the exposure to a Borrower exceeds the threshold amount. The threshold amount varies per business unit, but
generally is nil in Wholesale Banking, and a maximum of EUR 1 million in the Retail ‘home markets’. A provision is calculated based
on several scenarios and assumptions. Provisions level is up to date given the quarterly reviews; Discounted cash flow (DCF) is
measured when this is a significant risk driver which can be calculated. The future cash flow is based on best estimate of when/if
recoveries will occur. Recoveries can be from any source, such as the sale of collateral, on-going cash flows, sale of a
business/subsidiary, etc.
• Individually Not Significant Financial Asset (INSFA) Provisions: are made for acknowledged non-performing loans (ratings 20-22), if
the exposure to a Borrower is below the threshold amount. Due to their small size, the IFRS-EU rules permit a collective approach
to measuring these provisions.
• Incurred But Not Recognised (IBNR) Provisions: are made for the ‘performing’ loan portfolio as an estimate or proxy for the
losses/defaults that may have already occurred in the portfolio, but which ING Bank has not yet determined or recognised. The PD
time horizon used in the calculation of IBNR provisions refers to the period during which an asset is impaired (in default), but not
yet recognised as such - due to lack of objective evidence – and the moment that objective evidence of impairment occurs and
becomes available to ING (‘response time’). The primary modification is that the PD time horizon (12 months) is shortened to
periods of 4,6,7,8,9 or 12 months, depending on the type of customer. The decision to differentiate the time horizon per customer
segment was based on an assessment of the average response time for specific customer types and at least once a year, the PD
time horizon is validated.
Non-performing Loans: ING Bank portfolio, outstandings by economic sector1
ING Bank Annual Report 2015 178