ING Direct 2015 Annual Report Download - page 45

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
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics.
Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’
ability to pay all amounts due according to the contractual terms of the assets being evaluated. The collective evaluation of
impairment includes the application of a ‘loss confirmation period’ to default probabilities. The loss confirmation period is a concept
which recognises that there is a period of time between the emergence of impairment triggers and the point in time at which those
events are captured by ING Bank’s credit risk systems. Accordingly, the application of the loss confirmation period ensures that
impairments that are incurred but not yet identified are adequately reflected in ING Bank’s loan loss provision. Although the loss
confirmation periods are inherently uncertain, ING Bank applies estimates to sub-portfolios (e.g. large corporations, small and medium
size enterprises and retail portfolios) that reflect factors such as the frequency with which customers in the sub-portfolio disclose
credit risk sensitive information and the frequency with which they are subject to review by ING Bank’s account managers. Generally,
the frequency increases in relation to the size of the borrower. Loss confirmation periods are based on historical experience and are
validated, and revised where necessary, through regular back-testing to ensure that they reflect recent experience and current events.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised
impairment loss is reversed by adjusting the provision. The amount of the reversal is recognised in the profit and loss account.
When a loan is uncollectable, it is written off against the related loan loss provision. Such loans are written off after all the necessary
procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously
written off are recognised in the profit and loss account.
In most Retail portfolios, ING Bank has a write-off policy that requires 100% provision for all retail exposure after 2 years (3 years for
mortgages) following the last default date.
Impairment of other financial assets
At each balance sheet date, ING Bank assesses whether there is objective evidence that a financial asset or a group of financial assets
is impaired. In the specific case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value
of the security below its cost is considered in determining whether the assets are impaired. ‘Significant’ and ‘prolonged’ are interpreted
on a case-by-case basis for specific equity securities; generally 25% and 6 months are used as triggers. If any objective evidence exists
for available-for-sale debt and equity investments, the cumulative loss – measured as the difference between the acquisition cost and
the current fair value, less any impairment loss on that financial asset previously recognised in net result – is removed from equity and
recognised in the profit and loss account. Impairment losses recognised on equity instruments can never be reversed. If, in a
subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively
related to an event occurring after the impairment loss was recognised in the profit and loss account, the impairment loss is reversed
through the profit and loss account.
Investments in associates and joint ventures
Associates are all entities over which ING Bank has significant influence but not control. Significant influence generally results from a
shareholding of between 20% and 50% of the voting rights, but also is the ability to participate in the financial and operating policies
through situations including, but not limited to one or more of the following:
• Representation on the board of directors;
• Participation in the policymaking process and
• Interchange of managerial personnel.
Joint ventures are entities over which ING Bank has joint control. Joint control is the contractually agreed sharing of control over an
arrangement or entity, which exists only when decisions about the relevant activities require the unanimous consent of the parties
sharing control. Joint control means that no party to the agreement is able to act unilaterally to control the activity of the entity. The
parties to the agreement must act together to control the entity and therefore exercise the joint control.
Investments in associates and joint ventures are initially recognised at cost and subsequently accounted for using the equity method
of accounting.
ING Bank’s investment in associates and joint ventures (net of any accumulated impairment loss) includes goodwill identified on
acquisition. ING Bank’s share of its associates and joint ventures post-acquisition profits or losses is recognised in the profit and loss
account, and its share of post-acquisition changes in reserves is recognised in equity. The cumulative post-acquisition changes are
adjusted against the carrying amount of the investment. When ING Bank’s share of losses in an associate or joint venture equals or
exceeds its interest in the associate or joint venture, including any other unsecured receivables, ING Bank does not recognise further
losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture.
ING Bank Annual Report 2015 43