ING Direct 2015 Annual Report Download - page 248

Contents
Report of the
Executive Board
Corporate
Governance
Consolidated
annual accounts
Parent company
annual accounts
Other
information
Additional
information
Additional Pillar III information - continued
Credit Risk
Basis and scope of credit risk presentation
In the credit risk section of Pillar III, data included in tables are related to ING Bank’s core credit risk activities in the areas of: Lending
(both on- and off-balance); Securities Financing, Derivatives (collectively Counterparty Credit Risk); Money Market activities, and
Investment Risks. Equity Risk in the banking book is excluded and covered in the Market Risk section of the Annual Accounts.
The amounts presented in this section relate to amounts used for Credit Risk Management purposes, which follow ING Bank’s
interpretation of the definitions as prescribed under CRR/CRD IV. Therefore, the numbers can be different from the accounting
numbers as reported in the annual accounts under IFRS-EU. An example is the treatment of ONCOA items – while the accounting
numbers include ONCOA, they are excluded from the credit risk section of Pillar III.
Unless stated otherwise, the tables included in this section focus on the measurement of Regulatory Exposure at Default (READ) and
Credit Risk Weighted Assets (RWA) under the CRR/CRD IV definitions. READ is generally the sum of the on-balance and off-balance
sheet: Lending, Investment, Money Market and Counterparty activities plus an estimated portion of the unused credit facilities
extended to the obligor. The amounts associated with Investment and Lending activities are based on the original amount invested
less repayments. Multiplying RWA by 8% will result in the level of Regulatory Capital (RC) for these portfolios (for the Credit Risk portion
of the activities).
Figures for Derivatives and Securities Financing are based on the current exposure method, which generally is equal to the marked-to-
market value of the underlying trades plus a (regulatory defined) ‘add-on’ which represents estimated potential future exposure. The
amounts are then further modified by an adjustment that is related to the underlying collateral (market) values (after a haircut is
applied) and any legal netting or compensation that may be permitted under various master agreement arrangements such as
International Swaps and Derivatives Association (ISDA master agreements and Credit Support Annexes (CSAs).
Off-balance sheet exposures include letters of credit and guarantees, which are associated with the Lending Risk category.
Additionally, off-balance sheet exposures include a portion of the unused limits, associated with the unused portion of the limit
between the moment of measurement and the theoretical moment of statistical default. Collectively, these amounts are called ‘Credit
Risk outstandings’.
Exposures associated with Securitisations (Asset Backed Financing, Commercial / Residential Mortgage Backed Securities) are shown
separately. These amounts also relate to the amount invested prior to any impairment activity or mark-to-market adjustments. These
amounts are also considered to be ‘Credit Risk outstandings’.
Approaches applied
On 1 January 2008, ING Bank adopted the Advanced Internal Ratings Based (AIRB) approach for the majority of its significant portfolios
that contain credit risk in accordance with the approvals granted by ECB (European Central Bank) and various local regulators, as
required. However, there remains a small portion of the portfolio that is subject to the Standardised Approach (SA). The majority of SA
portfolios at ING Bank relate to subsidiaries where the home regulator does not have a robust AIRB framework or requirement.
Depending on the regulatory landscape, ING will continue to explore opportunities to transition additional portfolios from SA to AIRB.
ING Bank does not have any portfolios that use the Foundation Internal Ratings Based (FIRB) Approach. The AIRB and SA approaches
are explained in more detail in the Credit Risk Measurement section of the Risk Management paragraph. An analysis on the AIRB and
SA portfolios with their accompanying tables is provided in the SA and AIRB Approach sections of Pillar III.
CRR/CRD IV introduced an additional regulatory capital charge for material increases in the credit valuation adjustment (CVA), the
market price of the counterparty credit risk of derivatives. In particular, as credit spreads of ING Bank’s counterparties increase, CVA
will increase as well and ING Bank will incur a loss. ING Bank follows the standardised approach for calculation of the capital charge to
cover CVA Risk (CVA Capital) in accordance with the CRR/CRD IV. The scope of the products and counterparties that the CVA Capital
charge is applied to also follows those regulations.
ING Bank uses the AIRB and the Internal Assessment Approach (IAA) for liquidity lines provided to Asset Backed Commercial Paper
programmes and this is explained in more detail in the securitisation section.
Credit Risk Weighted Assets Migration Analysis
The table below explains the changes in Credit RWA during the reporting period and provides additional information by linking the
impact of changes in portfolio composition, model changes and shifts in the risk environment on Credit RWA. The table reconciles
movements in Credit RWA for the period for each Credit RWA risk type of ING Bank for the SA and AIRB portfolio including
securitisations.
ING Bank Annual Report 2015 246