ING Direct 2015 Annual Report Download - page 43

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
ING Bank applies fair value hedge accounting for portfolio hedges of interest rate risk (macro hedging) under the EU ‘carve-out’ to its
retail operations. The net exposures of retail funding (savings and current accounts) and retail lending (mortgages) are hedged. The
hedging activities are designated under a portfolio fair value hedge on the mortgages. Changes in the fair value of the derivatives are
recognised in the profit and loss account, together with the fair value adjustment on the mortgages (hedged items) insofar as
attributable to interest rate risk (the hedged risk).
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in the profit and loss
account, together with fair value adjustments to the hedged item attributable to the hedged risk. If the hedge relationship no longer
meets the criteria for hedge accounting, the cumulative adjustment of the hedged item is, in the case of interest bearing instruments,
amortised through the profit and loss account over the remaining term of the original hedge or recognised directly when the hedged
item is derecognised. For non-interest bearing instruments, the cumulative adjustment of the hedged item is recognised in the profit
and loss account only when the hedged item is derecognised.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in
equity. The gain or loss relating to the ineffective portion is recognised immediately in the profit and loss account. Amounts
accumulated in equity are recycled to the profit and loss account in the periods in which the hedged item affects net result. When a
hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss
existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the profit
and loss account. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity
is transferred immediately to the profit and loss account.
Net investment hedges
Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. Any gain or loss on the
hedging instrument relating to the effective portion of the hedge is recognised in equity and the gain or loss relating to the ineffective
portion is recognised immediately in the profit and loss account. Gains and losses accumulated in equity are included in the profit and
loss account when the foreign operation is disposed.
Non-trading derivatives that do not qualify for hedge accounting
Derivative instruments that are used by ING Bank as part of its risk management strategies, but which do not qualify for hedge
accounting under the Bank’s accounting policies, are presented as non-trading derivatives. Non-trading derivatives are measured at
fair value with changes in the fair value taken to the profit and loss account.
Offsetting of financial assets and financial liabilities
Financial assets and financial liabilities are offset, and the net amount reported, in the balance sheet when ING Bank has a current
legally enforceable right to set off the recognised amounts and intends to either settle on a net basis or to realise the asset and settle
the liability simultaneously. Offsetting is applied to certain interest rate swaps for which the services of a central clearing house are
used. Furthermore, offsetting is also applied to certain current accounts for which the product features and internal procedures allow
net presentation under IFRS-EU.
Repurchase transactions and reverse repurchase transactions
Securities sold subject to repurchase agreements (‘repos’) are retained in the consolidated financial statements. The counterparty
liability is included in Amounts due to banks, Other borrowed funds, Customer deposits and other funds on deposit or Trading, as
appropriate.
Securities purchased under agreements to resell (‘reverse repos’) are recognised as Loans and advances to customers, Amounts due
from banks, or Financial assets at fair value through profit and loss - Trading assets, as appropriate. The difference between the sale
and repurchase price is treated as interest and amortised over the life of the agreement using the effective interest method.
ING Bank Annual Report 2015 41