ING Direct 2015 Annual Report Download - page 35

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
IFRS 9 Program
In 2015, ING focused on establishing the IFRS 9 program, the interpretation of key IFRS 9 concepts and the initiation of the impact
assessment. In 2016, ING Bank will start with the implementation of the IFRS 9 requirements in its models, systems, processes and
governance and will prepare for the parallel run in 2017. ING Bank’s implementation plan and key timelines are stated below.
The governance structure of the IFRS 9 Program has been set-up based on the three phases of IFRS 9: Classification and Measurement,
Impairments and Hedge Accounting. Each workstream consists of experts from Finance, Risk, Bank Treasury, Operations and the
business lines. The workstreams are supported by the Program Office. The Technical Board supports the Steering Committee by
reviewing the interpretations of IFRS 9 as prepared by the workstreams. The Steering Committee is the decision making body.
Additionally, an international IFRS 9 network has been created within ING Bank to connect all countries with the central project team
to ensure consistency, awareness and training.
Classification and measurement
ING Bank will apply a two-step approach to determine the classification and measurement of financial assets into one of the three
categories, being Amortised cost, Fair Value through Other Comprehensive Income (‘FVOCI’) or Fair value through profit and loss:
1. The Business Model test will be applied to determine how a portfolio of financial instruments is managed as a whole; and
2. The Solely Payments of Principle and Interest (‘SPPI’) test will be applied to determine the contractual cash flow characteristics of
financial assets in the Business Model.
In most instances, it is expected that the classification and measurement outcomes will be similar to IAS 39, although certain
differences will arise. The classification and measurement of financial liabilities remains essentially the same as under IAS 39.
In 2015, ING Bank has started the Business Model test and identified and described homogeneous portfolios across the business of ING
Bank. The implementation of the SPPI text will start in 2016.
Impairment
The recognition and measurement of impairment is intended to be more forward-looking, based on an expected credit loss (‘ECL’)
model, than under IAS 39 which is of an incurred loss model. The ECL model applies to on-balance financial assets accounted for at
amortised cost and FVOCI, such as loans, debt securities and trade receivables, and off-balance items such as lease receivables, and
certain loan commitments financial guarantee.
In 2015, ING Bank determined a number of key concepts and assumptions essential to the new impairment model, such as the
definition of significant deterioration and the approach how to measure ECL. In addition, ING Bank started with the financial impact
analysis on the level of impairment allowances under the new ECL approach.
Three stage approach
ING Bank will apply the IFRS 9 three stage approach to measure expected credit losses:
• Stage 1: 12 month ECL - performing
Financial instruments that have not had a significant increase in credit risk since initial recognition require, at initial recognition, a
provision for expected credit losses associated with the probability of default events occurring within the next 12 months (‘12
month ECL’).
• Stage 2: Lifetime ECL – under-performing
In the event of a significant increase in credit risk since initial recognition, a provision is required for ECL resulting from all possible
default events over the expected life of the financial instrument (‘Lifetime ECL’). ING Bank has defined triggers to move to Stage 2
depending on the type of asset/portfolio. Once the ECL models are available, further calibration of the triggers will be defined and
tested.
• Stage 3: Lifetime ECL – non-performing
Financial instruments will move into Stage 3 once defaulted. The aim is to align the default definition for IFRS 9 with the internal
definition of default for risk management purposes. Stage 3 requires a Lifetime ECL provision.
The calculation of ECL will be based on ING Bank’s expected loss models (PD, LGD, EAD) currently used for regulatory capital, economic
capital and IBNR and INSFA provisions in the current IAS 39 framework. The ECL models will follow the same model structure as applied
for the current expected loss models. The stress test methodology is used as a basis for including forward looking macro-economic
information in the expected loss parameters.
Hedge accounting
The IFRS 9 hedge accounting requirements aim to simplify general hedge accounting requirements. Furthermore, IFRS 9 aims to align
financial hedge accounting more closely with risk management strategies. All micro hedge accounting strategies as well as the macro
cash flow hedge are in scope of IFRS 9. Macro fair value hedging is currently outside the scope of IFRS 9.
ING Bank Annual Report 2015 33