ING Direct 2015 Annual Report Download - page 216

Contents
Report of the
Executive Board
Corporate
Governance
Consolidated
annual accounts
Parent company
annual accounts
Other
information
Additional
information
Notes to the Consolidated annual accounts of ING Group - continued
Capital management
Objectives
ING Group Capital Management (Capital Management) is responsible for the adequate capitalisation of ING Group and ING Bank
entities at all times in order to manage the risk associated with ING’s business activities. This involves not only the management,
planning and allocation of capital within ING Group and ING Bank, but also the necessary capital market transactions, term (capital)
funding and risk management transactions. ING takes an integrated approach to assess the adequacy of its capital position in relation
to its risk profile and its operating environment. This implies taking into account the interests of its various stakeholders. Capital
Management takes into account the metrics and requirements of regulators, rating agencies and internal risk based metrics such as
the Risk Appetite Framework.
ING applies the following main capital definitions:
• Common equity Tier 1 capital, Tier 1 capital and Total capital – Tier 1 capital is defined as shareholders’ equity plus Additional Tier
1 (hybrid) capital less regulatory adjustments. Common equity Tier 1, Tier 1 and Total capital divided by risk-weighted assets equal
the Common equity Tier 1, Tier 1 and Total capital ratios respectively. Common equity Tier 1 capital is equal to Tier 1 capital
excluding Additional Tier 1 (hybrid) capital;
• Common equity Tier 1 Risk Appetite – the solvency risk appetite statement is not only compared to the actual reported level, but
also includes the potential impact of a standardised and pre-determined 1-in-10-year stress event (i.e. at a 90% confidence level
with a 1-year horizon) as described in the Risk Management section;
• Overall Capital Requirement (OCR) that is introduced in the Supervisory Review and Evaluation Process (SREP) guidelines. The OCR
means that ING Bank’s own funds exceeds the sum of the total SREP capital requirement (wherein per risk type the maximum is
taken of Regulatory and Economic Capital requirements), capital buffer requirements and macro-prudential requirements.
Developments
ING Bank’s fully-loaded common equity Tier 1 ratio increased from 11.4% at 31 December 2014 to 11.6% at year-end 2015. The
increase in capital was driven by EUR 4.7 billion of net profits, which was to a large extent off-set by EUR 2.2 billion dividend up streams
from ING Bank to ING Group to support our dividend policy. The merger between ING Vysya Bank and Kotak Mahindra Bank, which was
completed on 7 April, had a positive impact on ING Bank’s common Equity Tier 1 capital. Over time we expect that the Banks
capitalisation will gradually migrate towards Group capital levels. ING Bank decreased Tier 2 capital by redeeming EUR 1.0 billion of
non-CRD IV eligible Tier 2 securities in September and EUR 20 million Tier 2 capital in December to align with earlier issued CRD IV
securities. As a result, ING Banks fully-loaded total capital ratio (including grandfathered securities) increased from 16.5% at year-end
2014 to 16.6% at 31 December 2015.
ING Group continued to optimise its capital structure by successfully issuing CRD IV eligible Additional Tier 1 securities (AT1 securities)
in April 2015. In total USD 2.25 billion of securities were issued in two tranches; USD 1 billion in a non-callable five-year tranche with a
coupon of 6% and a USD 1.25 billion in a non-callable 10-year tranche with a coupon 6.5%. These securities were on-lent to ING Bank
NV as CRR/CRD IV compliant instruments, partially replacing internal securities. In addition ING Group redeemed the remaining
outstanding amount of USD 364 million 5.775% Tier 1 securities on its first date call date in December 2015, which was fully on-lent to
Bank.
Throughout 2015 the regulatory landscape continued to change at an even faster pace. Multiple initiatives were launched on risk-
weighted asset harmonisation as well as initiatives to further increase the resilience of the financial sector. As such, the Financial
Stability Board finalised its work on Total Loss Absorbing Capital (TLAC), which is a framework for global systemically important banks
(G-SIBs). The TLAC standard has been designed so that failing G-SIBs will have sufficient loss-absorbing and recapitalisation capacity
available in resolution for authorities to implement an orderly resolution that minimises impacts on financial stability, maintains the
continuity of critical functions, and avoids exposing public funds to loss. The TLAC standard defines a minimum requirement for the
instruments and liabilities that should be readily available for bail-in within resolution at G-SIBs, but does not limit authorities’ powers
under the applicable resolution law to expose other liabilities to loss through bail-in or the application of other resolution tools.
G-SIBs will be required to meet the TLAC requirement alongside the minimum regulatory requirements set out in the Basel III
framework. Specifically, they will be required to meet a Minimum TLAC requirement of at least 16% of the resolution group’s risk-
weighted assets (TLAC RWA Minimum) as from 1 January 2019 and at least 18% as from 1 January 2022. Minimum TLAC must also be
at least 6% of the Basel III leverage ratio denominator (TLAC Leverage Ratio Exposure (LRE) Minimum) as from 1 January 2019, and at
least 6.75% as from 1 January 2022. Buffer requirements will come on top of the RWA requirement but not on top of the leverage
requirement. In addition, the Single Resolution Board has assumed full power as per 1 January 2016. The work plan for the SRB in 2016
will focus on determining the preferred resolution strategy, the resolution entity and the required amount of Minimum Required
Eligble Liabilities (MREL).
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