ING Direct 2015 Annual Report Download - page 258

Contents
Report of the
Executive Board
Corporate
Governance
Consolidated
annual accounts
Parent company
annual accounts
Other
information
Additional
information
Additional Pillar III information - continued
Throughout 2015 the retail book showed solid business growth and lower risk costs. The decline in volumes within the Netherlands
was, aside from lower demand, mainly caused by the progressing transfer of WestlandUtrecht Bank (WUB) mortgages to NN Group
and the run-off in the WUB mortgage portfolio. The decreases were slightly offset by growth seen in Belgium, mainly driven by
residential mortgages and exposure to (small) Corporates. The improving Dutch economy resulted in lower arrears for the Dutch
portfolio which improved the PD’s and subsequently the non-performing portfolio. Additionally, increased house prices impacted the
LGD’s positively, reducing RWA. The READ for the retail franchise in Germany increased, driven by both higher mortgages and
consumer lending production. As a result of the improving economies in most of the key retail markets, the risk weights improved.
LTV Residential Mortgages per country
The table below shows the weighted average Loan-to-Value (LTV) ratio of the ING Bank Residential Mortgage portfolio per country. All
LTV figures are based on market values. In most portfolios, ING uses house price developments to index these market values. In several
markets, customers provide additional collateral or (government sponsored) mortgage insurance programs are used. None of these
additional covers are included in the LTV figures.
2015
2014
LTV
READ
LTV
READ
Netherlands1
83%
129,814
87%
134,526
Germany
70%
69,967
71%
64,530
Belgium, Luxembourg
72%
30,760
74%
29,509
Australia
62%
29,875
61%
29,577
Spain
64%
10,453
65%
9,653
Italy
59%
7,673
57%
7,747
Poland
61%
4,626
59%
3,828
Turkey
57%
1,472
54%
1,264
Romania
68%
870
67%
693
Total
74%
285,510
77%
281,328
Includes both AIRB and SA portfolios.
1 Netherlands includes Domestic Bank NL and WestlandUtrecht Bank.
The economic environment and the housing market in the Netherlands continued to improve in 2015. The average Dutch house price
increased from EUR 216k to EUR 227k from December 2014 to December 2015, which led to an improved LTV ratio through indexation.
The LTV for the Belux portfolio decreased mainly driven by the lower LTVs for new production at ING Belgium: around mid-year,
decision rules were updated in order to limit new production with high LTVs.
In Italy the house price index continued to decrease in 2015 resulting in an increase of the LTV from 57% to 59%.
Although the average LTV for the Polish mortgages portfolio is still relatively low at 61%, the LTV increased due to new production
which was targeted at younger customers. The current economic outlook is positive and the housing market is developing favourably,
with increasing house prices and transaction rates. However, the political climate could have adverse effects on the economy in the
longer run.
Although the LTV increased in 2015, Turkey still has a relatively low LTV. Increasing house prices, combined with the willingness of
customers to take up higher loans caused a higher LTV in the mortgage origination translating in an increase of the portfolio LTV.
The ING policy is to index property values on a quarterly basis. In some markets only annual figures are available while for others it is
more practical to index on an annual basis. Quarterly or annual indexing is done for the Netherlands, Belgium, Australia, Italy and
Spain covering 62% of the portfolio.
The Advanced Internal Rating Based approach (AIRB)
The AIRB approach has five main elements that drive the CRR/CRD IV ‘risk-based approach’ for the determination of RWA. The
elements are: the CRR/CRD IV Exposure Class, Probability of Default (PD), Exposure at Default (EAD), Loss Given Default (LGD) and
Maturity (M).
Probability of Default (PD): The first element is the counterparty’s probability of default, which measures counterparty’s
creditworthiness in terms of likelihood to go into default. The result of this calculation attempts to measure the senior, unsecured
standalone creditworthiness of an organisation without consideration of structural elements of the underlying transactions, such as
collateral, pricing or maturity. Each borrower should have a rating which translates into a PD.
Loan-to-Value Residential Mortgages per country
ING Bank Annual Report 2015 256