ING Direct 2015 Annual Report Download - page 271

Contents
Report of the
Executive Board
Corporate
Governance
Consolidated
annual accounts
Parent company
annual accounts
Other
information
Additional
information
Additional Pillar III information - continued
CVA risk
CRR/CRD IV introduced an additional regulatory capital charge for material increases in the CVA, the market price of the 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. The most important factors in the calculation of CVA Capital according to the standardised approach are the CVA
Exposure, the CVA Risk Weight and the Maturity. The CVA exposure is similar to the READ, but includes collateral held under collateral
agreements. The CVA Risk Weight is prescribed in regulation and depends directly on the risk rating of the counterparty. The Maturity
is similar to the Maturity used in the calculation of Counterparty Default Risk, but contrary to its use there not capped at 5 years.
CVA
Exposure
Average
CVA Risk
Weight
Average
Maturity CVA RWA
Interest Rate Derivatives
7,192
0.009
4.5
3,502
FX Derivative
2,351
0.009
1.8
515
Equity Derivative
1,619
0.010
3.7
764
Commodity Derivative
118
0.009
2.1
31
Credit Derivative
318
0.009
3.7
150
Derivatives Other
82
0.008
5.2
30
Securities Financing
Total 2015
11,680
0.009
3.8
5,005
Total 2014
21,648
0.009
2.8
6,412
Includes both AIRB and SA portfolios; excludes securitisations, equities and ONCOA.
The largest cause for the reduction of Capital for CVA over 2015 is that Securities Financing (repo-style) transactions were excluded
from the scope of the calculation.
Derivatives by product type
The table below is based on the mark-to-market (MtM) plus (regulatory) add-on methodology used for calculating CRR/CRD IV RWA for
determining the gross exposures. This means that the READ figure listed hereunder is significantly below the notional amount. The
mark-to-market plus (regulatory) add-on is recalculated daily to reflect both changes in the markets as well as portfolio composition.
The Current Exposure Method (the methodology to calculate the READ) together with the other building blocks (PD, LGD and Maturity),
allow ING Bank to classify a large part of its derivatives exposures under the AIRB approach.
2015
2014
Sovereigns Institutions Corporate
Secured by
Res. Mortgage Other retail Total Total
Interest Rate Derivatives
1,922
26,611
5,375
22
33,930
33,993
Foreign Exchange Derivatives
286
2,732
2,933
21
5,972
5,649
Equity Derivatives
2,043
126
7
2,176
2,668
Exchange Traded Products
2,094
2,094
1,901
Commodity Derivatives
21
163
813
997
1,327
Credit Derivatives
409
1
410
430
Derivatives
98
89
187
375
Total
2,229
34,150
9,337
50
45,766
46,343
Includes both AIRB and SA portfolios; excludes securitisations, equities and ONCOA.
The derivative portfolio of ING Bank primarily facilitates hedging mortgage portfolio and Lending portfolio facilities. Approximately 78%
of the derivatives portfolio is related to interest rate derivatives of which a large part is cleared via Central Clearing Parties (CCP) (see
table Credit risk derivatives table below). A majority of these institutions are based the United Kingdom, Netherlands, France, Germany
and the United States. The decrease in commodity derivatives is mainly caused by deteriorated market circumstances and maturing
petroleum gas commodity derivative contracts. The increase in Equity derivatives is due to strong equity price fluctuations on the
equity market this year.
CVA risk
Derivatives by product type in READ
ING Bank Annual Report 2015 269