ING Direct 2015 Annual Report Download - page 44

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
Impairments of loans and advances to customers (loan loss provisions)
ING Bank assesses periodically and at each balance sheet date whether there is objective evidence that a financial asset or group of
financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only
if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset,
but before the balance sheet date, (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of
the financial asset or group of financial assets that can be reliably estimated. The following circumstances, among others, are
considered objective evidence that a financial asset or group of assets is impaired:
• The borrower has sought or has been placed in bankruptcy or similar protection and this leads to the avoidance of or delays in
repayment of the financial asset;
• The borrower has failed in the repayment of principal, interest or fees and the payment failure has remained unsolved for a
certain period;
• The borrower has demonstrated significant financial difficulty, to the extent that it will have a negative impact on the expected
future cash flows of the financial asset;
• The credit obligation has been restructured for non-commercial reasons. ING Bank has granted concessions, for economic or legal
reasons relating to the borrower’s financial difficulty, the effect of which is a reduction in the expected future cash flows of the
financial asset; and
• Historical experience, updated for current events where necessary, provides evidence that a proportion of a group of assets is
impaired although the related events that represent impairment triggers are not yet captured by ING Bank’s credit risk systems.
In certain circumstances ING grants borrowers postponement and/or reduction of loan principal and/or interest payments for a
temporary period of time to maximise collection opportunities and, if possible, avoid default, foreclosure or repossession. When such
postponement and/or reduction of loan principal and/or interest payments is executed based on credit concerns it is also referred to
as ‘forbearance’. In general, forbearance represents an impairment trigger under IFRS-EU. In such cases, the net present value of the
postponement and/or reduction of loan and/or interest payments is taken into account in the determination of the appropriate level
of Loan loss provisioning as described below. If the forbearance results in a substantial modification of the terms of the loan, the
original loan is derecognised and a new loan is recognised at its fair value at the modification date.
ING Bank does not consider events that may be expected to occur in the future as objective evidence, and consequently they are not
used as a basis for concluding that a financial asset or group of assets is impaired.
In determining the impairment, expected future cash flows are estimated on the basis of the contractual cash flows of the assets in
the portfolio and historical loss experience for assets with credit risk characteristics similar to those in the portfolio. Historical loss
experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period
on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently
exist. Losses expected as a result of future events, no matter how likely, are not recognised.
ING Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually
significant, and then individually or collectively for financial assets that are not individually significant. If ING Bank determines that no
objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a
group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are
individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective
assessment of impairment.
If there is objective evidence that an impairment loss on an asset carried at amortised cost has been incurred, the amount of the loss
is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding
future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying
amount of the asset is reduced through the use of an allowance account (‘Loan loss provision’) and the amount of the loss is
recognised in the profit and loss account under ‘Addition to loan loss provision’. If the asset has a variable interest rate, the discount
rate for measuring any impairment loss is the current effective interest rate determined under the contract.
ING Bank Annual Report 2015 42