ING Direct 2015 Annual Report Download - page 192

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 next table represents the different types of outstandings in 2015 and 2014. The ‘Gross MtM before netting and collateral’ is the
exposure calculated in accordance with the Current Exposure Method (CEM, which in the EU regulation is referred to as the Mark-to-
Market method) without accounting for any netting or collateral benefit. The ‘MtM after netting’ is the exposure, according to the CEM,
taking into account the benefit of legally enforceable netting agreements (e.g. ISDAs), but without considering the benefit of margin
collateral (e.g. CSAs). The ‘MtM after netting and collateral’ is the exposure according to the CEM, taking into account both the benefit
of netting and marginal collateral. In other words, the gap between the ‘MtM after netting’ and ‘MtM after netting and collateral’ is the
liquid collateral (cash and securities). The Outstandings column represents CEM exposure (MtM after netting and collateral) plus the
Potential Future Exposure (PFE) at a 97.5% confidence level for derivatives and securities.
Pre-settlement per region
2015
2014
Region
Gross MtM
before
netting and
collateral
MtM after
netting
MtM after
netting and
collateral
Out-
standings
Gross MtM
before
netting and
collateral
MtM after
netting
MtM after
netting and
collateral
Out-
standings
Africa
71
48
46
55
108
85
85
103
America
18,648
10,237
7,127
8,734
18,871
10,224
7,350
8,720
Asia
6,598
3,455
2,823
3,242
6,761
3,629
2,782
3,742
Australia
470
259
236
344
450
245
232
195
Europe
Belgium
5,343
3,875
3,360
2,507
6,955
4,704
4,187
2,572
Germany
7,216
3,783
2,486
5,038
8,589
4,673
2,468
3,639
Netherlands
10,256
5,842
4,385
5,138
12,466
6,767
4,924
5,475
Rest of Europe
118,919
34,762
28,211
27,504
129,451
31,986
26,818
27,146
Total Pre-settlement
167,522
62,261
48,675
52,562
183,651
62,313
48,846
51,593
of which Non-performing
52
52
52
55
101
101
101
100
1 Including transactions with ING Group (and NN Group in 2014).
2 Excluding intercompany positions.
During 2015 the Pre-Settlement portfolio increased slightly when expressed in outstandings, while the MtM before and after netting
and collateral remained relatively stable. However, there was a decrease in gross MTM, especially in the Rest of Europe region, due to a
15% decrease from exposures to commercial banks and a 9% decrease from exposure to central clearing houses. The increase
recorded in 2014 within interest rate derivatives, which now represent 67.1% of the total Pre-settlement portfolio, was partially
reversed in 2015. Rest of Europe forms majority of the Pre-settlement portfolio mainly due to exposures in UK and US which are
cleared through CCPs.
Market risk
Introduction
Market risk is the risk that movements in market variables, such as interest rates, equity prices, foreign exchange rates, credit spreads
and real estate prices, negatively impact the bank’s earnings, capital, market value or liquidity position. Market risk either arises
through positions in banking books or trading books. The banking book positions are intended to be held in the long-term (or until
maturity) or for the purpose of hedging other banking book positions, while the trading book positions are typically held with a short-
term intent.
ING Bank recognises the importance of sound market risk management and follows the approach to identify, assess, control and
manage market risks. The approach consists of a cycle of five recurrent activities: risk identification, risk assessment, risk control, risk
monitoring and risk reporting.
• Risk identification is a joint effort of the 1st and 2nd line of defence (the ‘three lines of defence governance’ model is explained in
the risk governance paragraph of the general risk management section). Its goal is to detect potential new risks and changes in
known risks.
• Identified risks are assessed to determine the importance of the risk for ING Bank and subsequently to identify the control
measures needed .
• Control measures used by ING Bank include policies, procedures, minimum standards, limit frameworks, buffers and stress tests.
• An important element of risk management is to continuously check if the implemented risk controls are executed and complied
with and monitor that the controls are effective.
• Results and findings are reported to the governing departments and approval bodies.
Pre-settlement portfolio1,2
ING Bank Annual Report 2015 190