ING Belgium SA/NV 2009 Financial Report 1 TABLE OF CONTENTS ...... 2 2 KEY FIGURES...... 4 2.1 INCOME STATEMENT...... 4 2.2 BALANCE SHEET ...... 4 3 REPORT OF THE BOARD OF DIRECTORS ON THE CONSOLIDATED ACCOUNTS OF ING BELGIUM SA/NV...... 5 3.1 COMMENTS ON FINANCIAL STATEMENTS...... 5 3.1.1 Changes in the consolidation scope ...... 5 3.1.2 Consolidated income statement...... 5 3.1.3 Consolidated balance sheet...... 7 3.2 PROFILE:ING IN BELGIUM...... 9 3.3 SOCIAL REPORT ...... 9 3.4 RISK MANAGEMENT ...... 9 3.5 POST-BALANCE-SHEET EVENTS ...... 9 3.6 INFORMATION ON BRANCHES ...... 10 3.7 RESEARCH AND DEVELOPMENT...... 10 3.8 INFORMATION CONCERNING THE USE OF FINANCIAL INSTRUMENTS ...... 10 3.9 OUTLOOK...... 10 3.10 LEGAL STIPULATIONS REGARDING THE COMPOSITION OF THE AUDIT COMMITTEE ...... 10 4 ING BELGIUM SA AND THE RULES OF CORPORATE GOVERNANCE...... 11 4.1 CURRENT STATE OF AFFAIRS ...... 11 4.2 ING BELGIUM'S POSITION REGARDING THE BELGIAN CORPORATE GOVERNANCE CODE ...... 11 4.3 BOARD OF DIRECTORS ...... 12 4.4 EXECUTIVE COMMITTEE ...... 14 5 ING BELGIUM’S SUPERVISORY, EXECUTIVE AND EXTERNAL AUDIT BODIES ...... 15 5.1 BOARD OF DIRECTORS ...... 15 5.2 STATUTORY AUDITOR...... 16 5.3 EXECUTIVE COMMITTEE ...... 16 6 INFORMATION ABOUT THE COMPANY ...... 17 7 CONSOLIDATED ANNUAL ACCOUNTS...... 19 7.1 CONSOLIDATED BALANCE SHEET ...... 20 7.2 CONSOLIDATED INCOME STATEMENT...... 21 7.3 STATEMENT OF CASH FLOW...... 22 7.4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ...... 25 7.5 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ...... 27 7.6 INFORMATION ON THE CONSOLIDATED ACCOUNTS...... 30 7.6.1 Statement of compliance with IFRS...... 30 7.6.2 Corporate information ...... 30 7.6.3 Basis of presentation ...... 30 7.6.4 Accounting policies ...... 36 7.6.5 Risk management...... 48 7.6.6 Capital management ...... 64
ING Belgium SA/NV – Financial Report 2009 2 7.7 NOTES TO THE CONSOLIDATED ACCOUNTS...... 71 7.7.1 Notes to the consolidated balance sheet...... 71 Note 1: Cash and balances with central banks ...... 71 Note 2: Financial assets held for trading...... 71 Note 3: Financial assets designated at fair value through profit or loss ...... 71 Note 4: Financial assets available for sale ...... 72 Note 5: Loans and receivables ...... 72 Note 6: Derivatives used for hedging...... 73 Note 7: Property, plant and equipment ...... 73 Note 8: Investment property ...... 75 Note 9: Goodwill and other intangible assets...... 75 Note 10: Deferred tax assets ...... 76 Note 11: Investments in associates, subsidiaries and joint ventures ...... 78 Note 12: Other assets...... 79 Note 13: Disposal Group ...... 80 Note 14: Financial liabilities held for trading ...... 81 Note 15: Financial liabilities designated at fair value through profit or loss...... 81 Note 16: Financial liabilities measured at amortised cost...... 81 Note 17: Financial liabilities associated with transferred assets ...... 82 Note 18: Derivatives used for hedging...... 83 Note 19: Provisions...... 83 Note 20: Deferred tax liabilities...... 86 Note 21: Other liabilities...... 87 Note 22: Share capital repayable on demand...... 87 Note 23: Equity attributable to equity holders of the company...... 87 7.7.2 Notes to the consolidated income statement...... 88 Note 24: Net interest income ...... 88 Note 25: Net fee and commission income ...... 88 Note 26: Realised gains and losses on financial assets & liabilities not measured at fair value through profit or loss ...... 89 Note 27: Net gains and losses on financial assets and liabilities held for trading ...... 89 Note 28: Net gains and losses on financial assets and liabilities designated at fair value through profit or loss...... 89 Note 29: Fair value adjustments in hedge accounting...... 90 Note 30: Exchange differences revaluations...... 90 Note 31: Gains and losses on derecognition of assets other than held for sale ...... 90 Note 32: Other net operating income...... 91 Note 33: Staff expenses ...... 92 Note 34: General and administrative expenses ...... 92 Note 35: Impairment...... 93 Note 36: Income tax expenses related to profit and loss from continuing operations...... 93 7.7.3 Additional information ...... 95 7.7.4 Remuneration of the members of the Board of Directors and Executive Committee ...... 107 7.8 VERSLAG VAN DE COMMISSARIS AAN DE ALGEMENE VERGADERING DER AANDEELHOUDERS VAN ING BELGIË NV OVER DE GECONSOLIDEERDE JAARREKENING OVER HET BOEKJAAR AFGESLOTEN OP 31 DECEMBER 2009...... 110 7.9 RAPPORT DU COMMISSAIRE A L’ASSEMBLEE GENERALE DES ACTIONNAIRES DE LA SOCIETE ING BELGIQUE SA SUR LES COMPTES CONSOLIDES POUR L’EXERCICE CLOS LE 31 DECEMBRE 2009...... 114
ING Belgium SA/NV – Financial Report 2009 3 2.1 Income Statement
In EUR millions FY2009 FY2008 % Total income 3.513 3.160 +11% Total operating expenses -1.817 -1.887 -4%
Total loan loss provisions -217 -100 +118%
Group overhead -31 -25 +22%
Taxation -206 -242 -15% Third party interest -2 0
2.2 Balance Sheet
In EUR millions FY2009 FY2008 % Banks 24.940 32.228 -23% Loans and advances 61.152 62.894 -3% Investment securities 24.133 27.009 -11% Financial assets at fair value through P&L 27.388 39.203 -30% Assets held for sale 1.703 - Other assets 14.270 14.596 -2%
% -8%
+5% +7% -73% +16%
ING Belgium SA/NV – Financial Report 2009 4 Brussels 22 March 2010 Financial Report 2009
3.1 Comments on Financial Statements
The activities of ING Private Portfolio Management SA are directly integrated within ING Belgium NV, without any impact on the consolidation scope. In January 2010, ING Bank (Switzerland) leaves our consolidation scope; this had no impact on the 2009 figures for the income statement. However, the assets and liabilities in 2009 of ING Bank (Switzerland) have been transferred to assets & liabilities held for sale.
3.1.2.1 Globally ING Belgium earned a profit before tax of EUR 1.447 million. This translates into a profit after tax of EUR 1.239 million. These excellent results have mainly been achieved thanks to the strong and coherent commercial strategies in all business lines, efficient cost management and a proactive and disciplined risk management. The strong performance is also reflected in the balance sheet, with a liquidity surplus and solvency ratios (Core Tier 1 at 15.9%) that substantially exceed the required regulatory minimum.
ING Belgium did not modify its credit policy in 2009 and more than EUR 4 billion of new loans were granted to private persons and companies active in Belgium during the year under review. During the year, ING Belgium worked hard to establish a real dialogue with companies and entrepreneurs to help them weather the financial and economic crisis in the best possible way. A dedicated team proactively approaches those clients in sectors hit hardest by the crisis and helps companies restructure their debts. Alternative financing solutions are proposed to free up working capital, from leasing, direct market access to the hedging of financial markets volatility. ING Commercial Finance also proposes debt management solutions.
ING Belgium SA/NV – Financial Report 2009 5 3.1.2.2 Analysis per segment Remark: The following analyses also include the activities of ING Group in Italy, as well as the leasing activities in South West Europe, figures are in management accounting.
The commercial performance and strong commitment of the thousands of people working in Retail banking for ING Belgium, combined with ING Belgium’s strong and cohesive commercial strategy contributed to a 19% growth in income compared with 2008. This positive trend was reinforced by an efficient cost management (down 7% compared with 2008) and some non-recurring items. The additions to loan loss provisions increased considerably in 2009 in the wake of the economic downtown but remained within expected limits. The development of the loan loss provisions is closely and proactively monitored by the risk management department. The combination of these positive effects translated into a profit before tax of EUR 627 million, up 77% compared with the previous year. More specifically, in traditional retail banking, ING Belgium's transformation programme is evolving according to plan. The use of direct channels continues to grow. Over 86% of all transactions are now conducted through direct channels. In addition, at the end of December 2009, more than 400,000 products had already been sold online since the launch of the transformation programme two years ago. More than 139,000 ING Lion Accounts and more than 162,000 Lion Deposits have been opened. Customers have also signed up for more than 107,000 ING Auto.be insurance policies already. These products and ING Belgium’s commercial approach, which is centred around our clients’ needs, enabled us to increase funds entrusted by 8% (EUR +3,2 billion) and mortgages lending by 7% (EUR +1,4 billion) in 2009. For its part, private banking in Belgium expanded its product range to better tailor its offering to its clients’ needs. It intensified its cooperation with the commercial teams from other business segments (branch network, MidCorp, SMEs, professionals, corporate finance). The combination of these factors led to a substantially higher contribution to the overall result. The MidCorp segment, which focuses on midsized companies and institutionals, increased its revenue by 28% compared with the previous year to EUR 587 million thanks to a substantial increase in volumes end of 2008 and the steepening of the yield curve.
The profit before tax of Commercial Banking in Belgium – Luxembourg (BeLux) rose 19% in 2009 to reach EUR 342 million. These excellent results were helped by a 22% increase in income in General Banking & PCM to EUR 253 million, mainly thanks to the product Payments & Cash Management, thereby confirming ING's position of being one of the most important providers of payment solutions on the European market. Commercial Banking’s strong results are also attributable to an efficient operational expenses management and certain non-recurring items compared with 2008, together resulting in a cost decrease of 9% versus 2008. The additions to loan loss provisions remained very limited and were mainly affected by a provision release of EUR 14 million in the first quarter of 2009. Income from Financial Markets Products, which amounted to EUR 342 million, decreased compared with the excellent financial year 2008, but remains at a good level. Income from Leasing & Factoring and Structured Finance was impacted by the uncertainties of the economic environment and decreased, respectively, by 13% and 44%. In the other countries in South West Europe, income was up +13%. Combined with good cost management (-20%), this income increase led to an increase in profit before tax of 84% to reach EUR 212 million.
ING Belgium SA/NV – Financial Report 2009 6 In EUR millions FY2009 FY2008 % Due to banks 20.476 32.666 -37% Due to customers 81.773 81.887 -0% Financial liabilities at fair value through P&L 29.814 40.999 -27% Liabilities held for sale 1.469 - Other liabilities 9.355 10.761 -13% Shareholders' equity 10.699 9.617 +11% Capital and reserves 9.314 8.579 +9% Result of the year 1.239 905 +37% Dividend - - Subordinated debts 146 133 +10%
The total liabilities and equity decreased by 13%, or EUR -22 billion. This was entirely due to substantial decreases in “due to banks and financial liabilities at fair value through the profit & loss account”. This decline is mainly due to the strategy of deleveraging the balance sheet. The decrease in due to banks of EUR -12.2 billion is mainly linked to the decline in one-month to one-year term accounts (EUR -7.3 billion) and, to a lesser extent, overnight interbank deposits (EUR -2.3 billion) and repo activities (EUR -1.6 billion). Financial liabilities at fair value through P&L dropped by EUR -11.2 billion, mainly attributable to marked- to-market trading derivatives (similar evolution on assets side) but also to a lesser extent saving bonds at market value and subordinated certificates. The liabilities of ING Bank (Switzerland) (customer deposits) have been transferred to Liabilities held for sale (EUR 1.5 billion) in line with the divestment (application of IFRS 5). Due to customers remained stable at EUR -0.1 billion (see next table). Due to customers in fact increased by EUR +1.4 billion as the deposits of ING Bank (Switzerland) by EUR 1.5 billion are now in ‘Liabilities held for sale’. Shareholders’ equity rose by EUR 1.1 billion (increases in retained earnings and net profit) whereas Other liabilities fell by EUR -1.4 billion (mainly due to accruals non-trading derivatives).
In EUR millions FY2009 FY2008 % Savings accounts 31.070 26.383 +18% Customer accounts 36.083 33.932 +6% Corporate time deposits 8.177 14.712 -44% Debt securities 6.443 6.860 -6%
The limited decrease in due to customers (EUR -0.1 billion; economically an increase of EUR +1.4 billion: see above) is a combination of the following factors: - Increase in savings accounts of 18%, or EUR +4.7 billion, following a rise in the regulated saving deposits (supported by online offerings such as Lion Deposits and the attraction of new money) and non- regulated savings which in turn were partially offset by a decrease of one-month to one-year deposits; - Customer accounts increased by 6%, or almost EUR +2.2 billion thanks to current accounts (supported by the online offering: see Lion Accounts) and partly offset by a decrease in special current accounts. Excluding the transfer for ING Bank (Switzerland) to Liabilities held for sale, customer accounts increased by even EUR +3.7 billion; - Corporate time deposits, by contrast, decreased by -44%, or EUR -6.6 billion, entirely due to less-than- one-year deposits (companies holding money at very short term); - Slight decrease in debt securities by -6% or EUR -0.4 billion.
ING Belgium SA/NV – Financial Report 2009 7 In EUR millions FY2009 FY2008 % Banks 24.940 32.228 -23% Loans and advances 61.152 62.894 -3% Investment securities 24.133 27.009 -11% Financial assets at fair value through P&L 27.388 39.203 -30% Assets held for sale 1.703 - Other assets 14.270 14.596 -2% j The 13% decrease in total assets (or EUR -22 billion) is mainly due to a decrease in financial assets at fair value through the P&L and in bank assets but there are also decreases in loans and advances to customers and in other assets. All assets of ING Bank (Switzerland) have been transferred to “assets held for sale”. Here too, the decrease is to a large part due to the strategy of deleveraging the balance sheet. Financial assets at fair value through P&L decreased by EUR -11.8 billion or -30% mainly due to a decrease in marked-to-market trading (compensation in liabilities) but also in non trading derivatives, trading bonds, investment bonds and shares. The decrease in due from banks (-23% or EUR -7.3 billion; EUR -6.9 billion when eliminating the transfer for ING Bank (Switzerland) to Assets held for sale) is linked to a decrease in interbank receivables on one- month to one-year term accounts but also to fewer reverse repos. The variation of loans and advances is explained below. Iinvestment securities decreased by EUR -2.9 billion. This is attributable to fewer borrowings (bonds) of public administration and credit institutions. In Assets held for sale, the assets of ING Bank (Switzerland) are booked (EUR 1.7 billion) in line with the divestment (application of IFRS 5). Other assets remained rather stable (-2% or EUR -0.3 billion). This was almost entirely due to transfer of ING Bank (Switzerland) – mainly current accounts with central banks - to “Assets held for sale”).
In EUR millions FY2009 FY2008 % Straight loans + rollover 33.602 36.379 -8% Reverse repos - - Mortgage loans 22.470 21.382 +5% Overdrafts 5.491 5.150 +7% Other loans 119 439 -73% - Loan loss provision -530 -456 +16%
The credit policy of ING Belgium has not changed during the crisis, a reflection of ING Belgium’s commitment to take its responsibility as a major domestic bank. In 2009, EUR 4 billion of new loans were granted to private individuals and companies active in Belgium. The combination of an increase in lending in retail banking (mortgages) with a decrease for large corporates (which diversified their financing sources to avoid relying too heavily on bank loans) led to lending volumes remaining on balance almost flat for the year. Total loans and advances decreased by 3%, or EUR -1.7 billion (this is -1% or EUR -0.9 billion in the situation before the reclassification of EUR 0.8 billion loans & advances ING Bank (Switzerland) to “Assets held for sale”). This was mainly due to a decrease in straight loans and rollover loans (EUR -2.8 billion) combined with an increase in mortgage loans (EUR +1.1 billion). The decrease in straight loans and rollover loans by 8% was mainly concentrated in loans with terms of less than one year (EUR -3.2 billion) and partly offset by an increase in term loans of more than one year (EUR +0.6 billion). Mortgage lending developed positively during the year (+5% or EUR +1.1 billion; despite the EUR -0.4 billion of ING Bank (Switzerland) now in Assets held for sale). Due to the financial crisis, there are no more reverse repos activities. The overdrafts have slightly increased (EUR +0.3 billion) while other loans show the inverse effect (EUR -0.3 billion).
ING Belgium SA/NV – Financial Report 2009 8 3.2 Profile: ING in Belgium
With its approximately 110.000 employees, ING Group serves 85 million customers in over 40 countries in Europe, North America, Latin America, Asia and Australia. This makes ING Group the 8th largest company in the world according to the Fortune Global 500 magazine and the only financial institution in the top 10 1 . In March 2009, ING Group was also ranked sixth in Fortune’s list of “World’s most admired financial companies2 “.
The Belgian and South West Europe business units, grouped around ING Belgium, offer a complete range of financial activities, from banking to insurance and leasing. The products and services are offered to individuals, SMEs and multinational companies or institutional customers through all available distribution channels, including bank branches, call centres and the internet. Since 1 January 2009, the activities of commercial banking in France, Italy, Portugal, Spain and Switzerland have been grouped in one single specific region, improving the cohesion of the region Belgium-Luxembourg (BeLux) in which all entities are universal banks offering full banking services. For consistency reasons, Private Banking in Switzerland is also included in the BeLux region.
Activities of ING Group in Belgium / South West Europe
Belgiumxxxx x x xxxx* x* Luxembourgxxxx x xxx Switzerland x
France x x* x x x x* x* x* Italy x x* Portugal x Spain x x* x x x* x* x* Switzerland x * not included in ING Belgium Reporting Scope
3.3 Social report
Compared with year-end 2008, the total number of FTEs (Full Time Equivalent) for all entities of ING in Belgium / South West Europe decreased from 13,193 to 12,796 (- 3%), mainly through natural attrition.
ING remains a major employer in Belgium. In 2009 735 persons were recruited. In 2010 more than 700 new employees will be hired, mainly in sales and IT teams.
3.4 Risk management
See the ad hoc chapter in the information on the consolidated accounts
3.5 Post-balance-sheet events No events other than those already communicated by ING Group and likely to have an impact on the information contained in this report occurred between the close of the financial year and the date of going to press. The sale of ING (Bank) Switzerland closed in January 2010.
1 Fortune Global 500 classification World largest companies, July 2009. 2 Fortune World Most Admired Companies, category MegaBanks, March 2009. ING Belgium SA/NV – Financial Report 2009 9 3.6 Information on branches ING Belgium has branches in the Netherlands (Breda), France (Paris), Switzerland (Geneva, with a representative office in Zurich), Spain (Madrid) and Portugal (Lisbon).
3.7 Research and development Not applicable.
3.8 Information concerning the use of financial instruments See the ad hoc chapter in the information on the consolidated accounts.
3.9 Outlook ING Belgium complied with the position adopted since 2004 by ING Group’s Executive Board: the Board decided not to formulate any further results forecasts.
3.10 Legal stipulations regarding the composition of the Audit Committee In compliance with article 526bis of the company Code, at least one member of the Audit Committee of ING Belgium should be an independent director (according to the definition in article 526ter). This person is Mr. Philippe de Buck van Overstraeten. His curriculum vitae and active participation for ING Belgium’s Board of Directors over the last several years demonstrate his capabilities in accounting and audit.
ING Belgium SA/NV – Financial Report 2009 10 4.1 Current state of affairs In Belgium, corporate governance is partly regulated by the law and partly by the Circular PPB-2007- 6CPB-CPA of the Banking, Financial and Insurance Commission that describes the prudential expectation of the CBFA regarding good governance of a financial institution. In addition, the "Belgian Corporate Governance Code", in force since 1 January 2005, applies to all listed companies. In accordance with the "comply or explain" approach adopted in the English-speaking world, the Code's recommendations lack binding force, although companies are urged to provide reasons if they refuse to comply. In the case of banks, specific measures aimed at keeping major shareholders separate from the decision-making processes are added.
4.2 ING Belgium's position regarding the Belgian Corporate Governance Code The shares representing ING Belgium's share capital have not been listed on the Brussels Stock Exchange since 1 July 1998. They have also been held in their entirety by ING Group since 2004. However, ING Belgium continues to engage in all the activities permitted to Belgium-based financial institutions, including public issues. It is also responsible for steering ING Group's development in the seven countries that make up the South West Europe region. This is why the bank continues to meet the requirements applicable for listed companies, notably as regards corporate communication and governance. Therefore, the bank continued the action it started in 2005 to comply with the Belgian Corporate Governance Code. The Board of Directors: - changed the Remuneration Committee into a Remuneration and Appointment Committee and issued for it a charter whose terms were approved on 9 March 2006; - approved the Executive Committee's charter on the same date. Charters have also been established to regulate the operation of the main committees reporting directly to the Executive Committee. ING Belgium currently satisfies the main recommendations of the Belgian Corporate Governance Code. The bank diverges from the Code on the following points: 1. Its internal governance charter is mainly based on the Circular PPB-2007-6CPB-CPA of the Banking, Financial and Insurance Commission related to the prudential expectation of CBFA regarding good governance of a financial institution. 2. The term of mandates to the Board of Directors remains uniformly fixed at six years, including for independent Directors. In that respect, the bank believes it is essential that an external key figure to keep a sufficient distance in order to obtain an overall picture of its activities. 3. The bank also believes it should not have to personalise information concerning the remuneration it pays to its leading managers. An analysis of the breakdown of remuneration paid to the executive and non-executive members of the Board of Directors, together with overall figures for each of the items in the budget, is provided below.
ING Belgium SA/NV – Financial Report 2009 11 4.3 Board of Directors
Composition Under the terms of Article 13 of the Articles of Association, the ING Belgium Board of Directors must comprise at least twelve members. As at the date of drafting of this document, the Board had a total of fourteen members. There are no corporate bodies on the Board.
Responsibilities The main responsibility of the Board of Directors is to define the bank's general policy and to supervise the Executive Committee. It appoints and dismisses the Chief Executive Officer and the members of the Executive Committee, after having consulted the Executive Committee and obtained the approval of the Banking, Financial and Insurance Commission. It delegates day-to-day management to the Executive Committee, ensures that this is carried out and oversees the general state of affairs. The Board of Directors convenes general meetings and decides on their agenda. It sets the date for payment of dividends. The Board may decide to pay interim dividends for the current period, subject to the conditions laid down by law. It also sets the amounts and dates of such payments.
Provisions in the Articles of Association relating to terms of office The General Meeting of Shareholders appoints Directors to sit on the Board and may dismiss them at any time. In accordance with Article 13 of the Articles of Association, the term of office of outgoing Directors expires at the end of the Annual General Meeting. Outgoing Directors are eligible to stand for re-election. The order of rotation of mandates is decided by the Board of Directors in order to ensure that no term of office exceeds six years, and that at least one member of the Board has to be (re)-elected each year. As stated in Article 15 of the Articles of Association, the Board of Directors chooses a Chairman from among Directors who are no members of the Executive Committee, after having consulted the Banking, Financial and Insurance Commission and obtained its approval.
Age limit Article 13 of the Articles of Association stipulates that the term of office of a Director expires at the end of the Annual General Meeting held the year following the year in which the Director in question reaches the age of 70. An ordinary or extraordinary General Meeting of Shareholders may, on the proposal of the Chairman of the Board, extend or renew for one additional term, not exceeding two years, the mandate of a Director who has reached the age limit. Under Article 18 of the Articles of Association, the term of office of a Managing Director expires at the end of the calendar year in which the person concerned reaches the age of 65 2 .
Board decisions The Board's decision-making powers are laid down in Article 16 of the Articles of Association. Except for in the case of force majeure, resulting from war, unrest or other disasters affecting public life, the Board may only deliberate and reach valid decisions if most of its members are present or represented, on the understanding that any Director present may not exercise more than two mandates by delegation. However, where the Board fails to reach a quorum at a meeting, it may duly deliberate on the items on the agenda for the previous meeting, regardless of the number of members present or represented, at a follow-up meeting held within two weeks at the latest. Board decisions are taken by simple majority vote. Where there is a requirement, under Articles 523 and 529 of the Belgian Companies Code, for one or more members to abstain from voting, resolutions may be validly decided upon by a simple majority vote of all eligible members present or represented. In the event of a tied vote, the presiding member has the casting vote.
2 In practice, an internal regulation requires Managing Directors to step down from the Board at the end of the calendar year in which they reach the age of 62. ING Belgium SA/NV – Financial Report 2009 12 Remuneration Under Article 14 of the Articles of Association, the General Meeting of Shareholders determines the amount of the remuneration of the members of the Board of Directors until a new decision is taken by such a meeting. 3
Special committees The Board of Directors has set up from among its members an Audit Committee and a Remuneration and Appointment Committee. The Audit Committee’s remit extends to all the South West Europe entities reporting to ING Belgium's Executive Committee. It met four times during 2009. Matters it dealt with included examination of the bank's financial statements for 2008 and the interim results for 2009. The Committee deliberated on risk management and the external functions exercised by Directors and senior managers of the bank. The Committee also analysed the reports prepared by the General Auditor and the Global Compliance Officer. It reviewed the loans placed under special surveillance and legal disputes. The Audit Committee reports to the Board of Directors at the Board meeting following each of its own meetings. The Remuneration and Appointment Committee is responsible for presenting the Board of Directors with proposals concerning the appointment of Board members, the Chief Executive and the members of the Executive Committee. It is also responsible for making recommendations to the Board of Directors concerning: - the principles governing the terms and conditions for appointing Executive Committee members, including their remuneration; - the objectives and performance of Executive Committee members 4 ; - the succession planning of Executive Committee members 5 . The Remuneration and Appointment Committee holds at least two meetings a year, one of which precedes the meeting during which the Board of Directors prepares the annual accounts and decides on the agenda for the Annual General Meeting of Shareholders.
3 For more information, refer to 7.7.4 Remuneration of the members of the Board of Directors and Executive Committee. 4 This performance is evaluated once a year by the Remuneration and Appointment Committee. 5 The plans in question include a crisis scenario. They must therefore be reviewed once a year. ING Belgium SA/NV – Financial Report 2009 13 4.4 Executive Committee
Composition and responsibility Currently comprising six members, the Executive Committee is responsible for conducting the bank's day- to-day management in line with the general policy set by the Board of Directors. Its members are Managing Directors and its president is the bank's Chief Executive Officer.
Assignment of responsibilities & decision-making Each member of the Executive Committee is directly in charge of a number of the bank's entities. These responsibilities are detailed in the section "ING Belgium's Supervisory, Executive and External Audit bodies" in the next chapter. All decisions of the Executive Committee are, however, taken on a collective basis; each decision is binding on all members of the Committee. The Executive Committee in turn delegates the management of areas of the bank's business to a number of individuals whose rank, responsibilities, authority and remuneration are determined by the Committee. As mentioned above, the activities of the Executive Committee have been governed by a charter since 9 March 2006. This also applies to the main committees, which report directly to the Executive Committee and whose powers are specified below.
Remuneration Article 18 of the bank's Articles of Association stipulates that the Board of Directors determines, on the advice of the Chief Executive Officer, the remuneration of the Executive Committee members. The Board of Directors has delegated this responsibility to the Remuneration and Appointment Committee. 6
Activities The Executive Committee generally meets once a week; additional meetings are convened if there are a large number of items or an urgent matter to be discussed. In addition to specific decisions relating to the day-to-day management of the bank, the Executive Committee reviews a detailed annual account of the performance and prospects of each of the bank's central units (profit centres and support services) and of all the main Belgian and international subsidiaries. The Executive Committee studies the bank's monthly results, broken down by business line 7 . It studies the periodic report drawn up by the General Auditor every other month. At the closing dates of 30 June and 31 December, the Executive Committee and the senior managers of the Credit Department review loan facilities requiring special attention. The Executive Committee regularly looks into issues affecting personnel management.
Special committees Six main committees report directly to the Executive Committee. These include the Assets and Liabilities Management Committee (ALMAC), the Financial Markets Committee, the ING Belgium Domestic Board, the Human Resources Management Committee, the Security and Operational Risk Steering Committee and the Commercial Board.
6 For more information, refer to 7.7.4. Remuneration of the members of the Board of Directors and Executive Committee. 7 The results are scrutinised in detail once a quarter. ING Belgium SA/NV – Financial Report 2009 14 5.1 Board of Directors
8 Composition Audit Committee Chairman Luc Vandewalle (2014) 9 Chairman of the Board of Directors Count Diego du Monceau de Bergendal Members Erik Dralans (2013) 10 Baron Philippe de Buck van Overstraeten 14 Chief Executive Officer Philippe Delaunois Michael Jonker (2010)10 Managing Director Remuneration and Appointment Committee Jan Op de Beeck (2014)10 Chairman Managing Director Luc Vandewalle Marlies van Elst (2013)10 Members Managing Director Eli Leenaars 5 Erik Dralans 5 Guy Beniada (2010)10 Eric Boyer de la Giroday 6 Managing Director Philippe van de Vyvere Philippe Masset (2014)10 Managing Director
Baron Luc Bertrand (2012) 11 Chairman of the Executive Board, Ackermans & van Haaren
Eric Boyer de la Giroday (2012)2 Vice Chairman Banking Board, CEO Commercial Banking ING Group
Baron Philippe de Buck van Overstraeten (2012)4 General Manager, Businesseurope
Philippe Delaunois (2015)4 Chairman of the Board of Directors, CFE, SBE, Mediabel, Alcopa
Count Diego du Monceau de Bergendal (2011)4 Managing Director, Rainyve
Eli Leenaars (2011)2; 12 CEO Retail Banking Direct and International ING Group
Hans van der Noordaa (2011)2; 13 CEO Retail Banking Benelux ING Group
Philippe van de Vyvere (2014)4 Managing Director, Sea Invest Group
00
8 Situation at the Annual General Meeting of 28 April 2010. Normal expiry dates are shown opposite each Director‘s name. 9 Non-executive Director representing the sole shareholder. 10 Director responsible for day-to-day management. 11 Independent Director. 12 Until February 12 2010. 13 From February 12 2010. 14 Member of the Audit Committee independent of the legal organ of administration within the meaning of article 526ter of the Companies Code and competent in accounting and / or auditing. ING Belgium SA/NV – Financial Report 2009 15 5.2 Statutory Auditor
Ernst & Young Company Auditors SCCRL/BCVBA (B160) represented by Marc Van Steenvoort, Partner Pierre Anciaux, Partner
5.3 Executive Committee
Erik Dralans Corporate Communication & Relations Chief Executive Officer Corporate Audit Services Personnel and Human Relations Financial Markets Brussels Transformation Office Economic Research
Michael Jonker Operational and Compliance Risk Managing Director Risk Management Credit Risk Management Leasing Commercial Finance
Jan Op de Beeck Retail & Private Banking Managing Director Marketing Record Group
Guy Beniada Finance SWE Managing Director Facility Management Legal department Fiscal Affairs Corporate Development SWE
Marlies van Elst Operations & IT Banking Belgium Managing Director
Philippe Masset Commercial Banking Belgium & Luxembourg Managing Director -Midcorps & Institutionals -Corporate Clients Belgium -Financial Institutions -Products & Services -Corporate Finance -Equity Markets
Marc Bihain Secretary General
Bruno Smet Auditor General
ING Belgium SA/NV – Financial Report 2009 16 Registered name In French, ING Belgique SA; in Dutch, ING België NV; in English, ING Belgium SA/NV; in German, ING Belgien AG.
Registered office Avenue Marnix/Marnixlaan 24 B-1000 Brussels.
Company registration Register of legal persons no. 0403 200 393.
Form of incorporation, Articles of Association and their publication ING Belgium SA/NV is incorporated under Belgian law as a public limited company (société anonyme - naamloze vennootschap) by notarial act drawn up on 30 January 1935, witnessed by Me Pierre De Doncker, Notary Public of Brussels, and published in the appendices to the Belgian Official Journal of 17 February 1935, under no. 1459. The Articles of Association of the company have been amended regularly, most recently by notarial act of 27 October 2006, witnessed by Me Sophie Maquet, associated Notary Public of Brussels, and published in the appendices to the Belgian Official Journal of 27 November 2006, under nos. 06176870 and 06176871. ING Belgium SA/NV is a credit institution within the meaning of Article 1 of the Law of 22 March 1993 on the status and control of credit institutions.
Duration The company has been established for an unlimited duration.
Corporate object Under Article 3 of its Articles of Association, the company's activity is to carry out, on its own behalf or on behalf of third parties, in Belgium or abroad, any business associated with a banking service, in the broadest sense of the term. This includes, but is not necessarily limited to, all transactions relating to deposits of cash and securities, credit transactions of any nature, financial business, stock-market operations, foreign exchange, issuance, intermediation and brokerage. The company is also authorised to conduct any other business activities that banks are, or may be, allowed to carry out in Belgium or abroad, such as, inter alia, those relating to the commission and brokerage of insurance services, finance leasing and other leasing services in any form, as well as asset, property, advisory or consultancy services on behalf of third parties within the context of these activities. The company is authorised to hold shares and interests in other companies within the limits laid down by law and regulatory authorities. The company may acquire and own property and real-estate rights for its own use, or in pursuit of its corporate object. It may also acquire property in connection with securing the repayment of loans and advances. The company is further authorised to engage in any venture or commercial activity involving assets or property directly or indirectly related to its corporate object, or to facilitate the pursuit of this object.
Issued share capital The issued share capital of ING Belgium SA/NV is EUR 2.35 billion currently represented by 55,414,550 ordinary shares, without par value. The bank has not issued any other class of shares. The bank's shares have not been listed on the Brussels Stock Exchange since 1 July 1998. Since 6 August 2004, they have all been held by the group ING.
ING Belgium SA/NV – Financial Report 2009 17 Share issues reserved for employees, under preferential conditions There is no other share-investment plan for the personnel or directors of the bank.
Company shares held by members of the bank's administrative and management bodies The members of ING Belgium SA/NV Board of Directors do not hold any company shares.
External functions exercised by directors and senior management of the bank The exercise of external functions by directors and senior management of Belgium-based financial institutions is subject to rules set out in the circular PPB-2006-13-CPB-CPA issued by the Belgian Banking, Finance & Insurance Commission on 13 November 2006. Each institution is required to publish details of any such mandates by the means described in point I(4)(e) of the circular. ING Belgium SA/NV has decided to make this information available to the public on its website.
ING Belgium SA/NV – Financial Report 2009 18 ING Belgium SA/NV – Financial Report 2009 19 7.1 Consolidated Balance Sheet
Cash and cash balances with central banks 1 5.103.393 3.564.476
Financial assets held for trading 2 29.590.560 42.224.448
Financial assets designated at fair value through profit or loss 3 714.770 1.321.968
Financial assets available for sale 4 24.495.883 27.414.649
Loans and receivables 5 87.596.943 96.757.904
Derivatives used for hedging 6 2.506.862 2.674.756
Tangible assets 913.864 930.852 of which property, plant and equipment 7 903.958 920.846 of which investment property 8 9.906 10.006
Goodwill and other intangible assets 9 71.720 67.682
Tax assets 630.767 762.522 of which current tax 92.148 87.050 of which deferred tax 10 538.619 675.472
Investments in associates, subsidiaries and joint ventures accounted for under the 11 1.263 787 equity method (including goodwill)
Investments in non- consolidated associates 59.904 48.381
Other assets 12 198.308 162.080
Assets held for sale 13 1.702.685
Deposits from central banks 98.400 26.579
Financial liabilities held for trading 14 27.910.531 38.895.194
Financial liabilities designated at fair value through profit or loss 15 4.799.639 6.080.418 of which subordinated liabilities 329.564 469.160 Financial liabilities measured at amortised cost 16 100.209.974 110.601.494 of which subordinated liabilities 146.255 132.550 Financial liabilities associated with transferred assets (repos) 17 2.654.523 4.687.280 Derivatives used for hedging 18 2.964.995 2.673.491 Provisions 19 271.095 367.031 Tax liabilities 743.182 756.572 of which current tax 76.379 76.039 of which deferred tax 20 666.803 680.533 Other liabilities 21 1.773.440 2.217.027 Liabilities held for sale 1.469.474 Share capital repayable on demand 22 137.714 145.118
Equity attributable to equity holders of the company 23 10.529.416 9.456.732 Minority interests 24.539 23.569
ING Belgium SA/NV – Financial Report 2009 20 7.2 Consolidated income statement
Net interest income 24 2.487.008 2.136.203 Dividend income 23.097 12.950 Net fee and commission income 25 639.292 688.679
Realised gains and losses on financial assets & liabilities not measured at fair value 26 19.389 19.149 through profit or loss
Net gains and losses on financial assets and liabilities held for trading 27 266.452 233.879
Net gains and losses on financial assets and liabilities designated at fair value through 28 -51.430 -70.525 profit or loss
Fair value adjustments in hedge accounting 29 -46.549 74.066 Exchange differences revaluations 30 54.827 62.006 Gains and losses on derecognition of assets other than held for sale 31 5.544 157.737 Other net operating income 32 120.759 -98.461
Staff expenses 33 1.096.785 1.144.799 General and administrative expenses 34 626.587 673.418 7,9 19 35
Impairment losses on financial assets not measured at fair value through profit or loss 220.878 143.083
Other Impairment -4.201 16.944
36
Attributable to minority interests 1.953 17 Attributable to equity holders of the parent 1.238.741 904.766
ING Belgium SA/NV – Financial Report 2009 21 7.3 Statement of Cash Flow
1.238.741 904.766 Adjustments to reconcile profit to net cash provided by operating activities -355.146 - 317.987 515.155 556.469 -1.953 -17 406.389 -69.014 of which: unrealised foreign currency (gains) losses -16.665 -7.021 net unrealised fair value (gains) losses via profit or loss 220.879 143.083 net unrealised gains from cash flow hedges -105.992 -283.593 net unrealised gains from available-for-sale investments 308.167 78.517
-24.934 -176.886
66.934 74.701 -4.201 16.944 64.986 14.290 51.549 -59.140
Net increase in balances with central banks 352.613 1.777.022 Net increase in loans and receivables -8.653.645 1.554.080 Net increase in financial assets available for sale 591.274 1.291.180 Net increase in financial assets held for trading -11.725.686 -5.402.270 Net increase in financial assets designated at fair value through profit or loss -607.199 -610.596 Net increase in asset-derivatives, used for hedging -167.894 498.419 Net increase in accrued income from financial assets -- Net increase in other assets 36.228 -27.410
ING Belgium SA/NV – Financial Report 2009 22 Net increase in advances from central banks -- Net increase in deposits from credit institutions -11.270.411 -24.874.203 Net increase in deposits from other than credit institutions 176.236 -136.875 Net increase in debt certificates -409.370 -260.483 Net increase in financial liabilities held for trading -10.984.663 17.423.703
Net increase in financial liabilities designated at fair value through profit or loss -1.280.779 2.141.976
Net increase in liability-derivatives used for hedging 291.504 1.160.916 Net increase in accrued expenses on financial instruments -- Net increase in other financial liabilities -81.849 645.594 Net increase in other liabilities 1.122.527 -306.070 -2.262.496 -3.285.867 -271.648 -2.327.888 Income tax (paid) refunded 238.969 297.166
Acquisition of tangible assets 4.932 2.098 Disposal of tangible assets - 356 Acquisition of intangible assets 1.734 4.014 Disposal of intangible assets -- Acquisition of joint ventures, associates, subsidiaries, net of cash acquired -50.704 -98.270 Disposal of joint ventures, associates, subsidiaries, net of cash disposed -3.214 -3.830 Other cash payments related to investing activities -7.251 -10.000 Other cash receipts related to investing activities --
Dividends paid -- Cash proceeds from the issuance of subordinated liabilities -- Cash repayments of subordinated liabilities -80.872 -88.547 Cash proceeds from the issuance of shares and other equity instruments -- Cash payments to acquire treasury shares -- Cash proceeds from the sale of treasury shares -- Other cash proceeds related to financing activities -- Other cash payments related to financing activities --
Effect of exchange rate changes on cash and cash equivalents --
Cash and cash equivalents at the beginning of the period 18.278.046 20.502.759 Cash and cash equivalents at the end of the period 18.109.992 18.278.046
ING Belgium SA/NV – Financial Report 2009 23 Cash on hand 484.336 414.480 Balances with central banks 1.570.501 525.875 Loans and receivables -1.002.744 -856.968 Government securities 17.267.769 18.687.117 Bank overdrafts -209.870 -492.458
Interest income received 37.492.034 48.032.207 Interest expense paid 35.005.026 45.896.004 Dividend income received 23.097 12.950
ING Belgium SA/NV – Financial Report 2009 24 7.4 Consolidated Statement of changes in equity
for year ended 31 December
Capital increase / decrease (-)
Purchases / sales of treasury shares
Share based payment 13.018
Net profit transferred to 556.763 -556.763 reserves
Reclassification between -4.869 4.871 reserves
Other changes 210 970
Dividends 2008 -348.003
Interim dividend 2009
Net profit or loss for the 1.238.741 current year
Other comprehensive income (net of related tax effects)
Currency translation reserve -2.043
Net change in hedge of net investments in foreign -4.272 operations reserve
Net change in tangible fixed -27.517 assets revaluation reserve
Net change in the revaluation 308.158 reserve available for sale
Net change in cash flow -105.992 hedges
Share of the other comprehensive income of associates and joint ventures accounted for using equity method
Other 382
ING Belgium SA/NV – Financial Report 2009 25 for year ended 31 December
Capital increase / decrease (-)
Purchases / sales of treasury shares
Share based payment 8.843
Net profit transferred to 1.161.003 -1.161.003 reserves
Reclassification between 1.747 -1.747 reserves
Other changes 791 645 -1.438
Dividends 2007
Interim dividend 2008
Net profit or loss for the 904.766 current year
Other comprehensive income (net of related tax effects)
Currency translation reserve 53.707
Net change in hedge of net investments in foreign -50.702 operations reserve
Net change in tangible fixed -6.710 assets revaluation reserve
Net change in the revaluation 78.517 reserve available for sale
Net change in cash flow -283.593 hedges
Share of the other comprehensive income of associates and joint ventures accounted for using equity method
Other
ING Belgium SA/NV – Financial Report 2009 26 7.5 Consolidated Statement of Comprehensive Income
1.238.741 904.766
Other comprehensive income (net of related tax effects) --
Currency translation reserve -2.043 53.707
Net change in hedge of net investments in foreign operations reserve -4.272 -50.702 Net change in tangible fixed assets revaluation reserve -27.517 -6.710 Net change in the revaluation reserve available for sale 308.158 78.517 Net change in cash flow hedges -105.992 -283.593 Share of the other comprehensive income of associates and joint ventures accounted for -- using equity method
Other 382 -
The tax impact of elements in other comprehensive income can be found in Note 10.
Segmentation
ING Belgium is separated into three operational segments: Retail, MidCorp and Commercial Banking.
Retail Banking: This segment consists of Private Banking, Retail Companies (small companies, independent professionals and members of liberal professions) and individuals not covered by any other group.
MidCorp Banking: This segment consists of medium sized companies in Belgium, large companies not quoted on a stock exchange and institutional organisations.
Commercial Banking: This segment consists of large companies quoted on a stock exchange, medium- sized companies in Luxemburg and all financial institutions (banks, pension funds, insurance companies etc.).
For publication purposes the MidCorp segment is included in the Retail segment. This operational segmentation allows management to evaluate the performance of each separate business unit. The following table gives an overview of both operational segments’ income, assets, liabilities and certain costs.
ING Belgium SA/NV – Financial Report 2009 27 Income - External 1.410 2.103 3.513 - Inter-segment --- Total income 1.410 2.103 3.513
Segment profit before taxation 918 529 1.447 Special items 50 55 105 Underlying profit before taxation 968 584 1.552
Segment assets 98.101 55.486 153.587 Segment liabilities 68.985 74.048 143.033
Share in profit or loss of associates accounted for under the equity method 476 - 476 Book value of associates accounted for under the equity method 17 44 61
Cost incurred to acquire property, equipment and intangibles 37 102 139
Significant non-cash expenses - Depreciation and amortisation 15 42 57 - Impairments on financial assets designated at fair value through profit and loss 26 195 221 - Other impairments --4-4 - Provisions 39 26 65
Income - External 1.341 1.819 3.160 - Inter-segment --- Total income 1.341 1.819 3.160
Segment profit before taxation 784 364 1.148 Special items -135 - -135 Underlying profit before taxation 649 364 1.013
Segment assets 120.938 54.993 175.931 Segment liabilities 94.428 72.022 166.450
Share in profit or loss of associates accounted for under the equity method -1 - -1 Book value of associates accounted for under the equity method 13 36 49
Cost incurred to acquire property, equipment and intangibles 38 77 115
Significant non-cash expenses - Depreciation and amortisation 25 50 75 - Impairments on financial assets designated at fair value through profit and loss 104 39 143 - Other impairments 31417 - Provisions 10 4 14
The main geographical markets in which ING Belgium operates are Belgium, Luxembourg, France, Switzerland and Spain. The following table shows the operating income per geographical location as well as the segments’ assets.
ING Belgium SA/NV – Financial Report 2009 28 Income - External 2.818 321 86 199 81 8 3.513 - Inter-segment ------Total income 2.818 321 86 199 81 8 3.513
Segment profit before taxation 1064 229 9 79 62 4 1.447
Segment assets 130.472 10.919 2.512 5.789 2.704 1.191 153.587 Cost incurred to acquire property 130 5 - 1 - 3 139 equipment and intangibles
Income - External 2.502 311 82 205 46 14 3.160 - Inter-segment ------Total income 2.502 311 82 205 46 14 3.160
Segment profit before taxation 837 185 31 52 31 11 1.147
Segment assets 150.237 8.755 3.781 5.367 3.594 4.196 175.930 Cost incurred to acquire property 101 4 1 3 - 6 115 equipment and intangibles
ING Belgium SA/NV – Financial Report 2009 29 7.6 Information on the consolidated accounts
ING Belgium SA/NV has prepared its consolidated financial statement in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (‘EU’). In this document the term ‘IFRS’ is used to refer to International Financial Reporting Standards as adopted by the EU, including the decisions ING Belgium made with regard to the options available under International Financial Reporting Standards as adopted by the EU and the supplementary disclosures required by Belgian law.
The preparation of the consolidated financial statements in conformity with IFRS requires the use of estimates and assumptions. These estimates and assumptions affect the reported amounts of the assets and liabilities and the amounts of contingent liabilities as at balance sheet date, as well as reported income and expenses for the year. The actual outcome may differ from these estimates. The process of setting assumptions is subject to internal control procedures and approvals and takes into account internal and external studies, industry statistics, environmental factors and trends as well as regulatory requirements.
ING Belgium is an international financial institution active in banking, insurance and asset management and a subsidiary of ING Bank N.V. ING Belgium has organised its commercial network into two business lines: Retail & Private Banking and Commercial Banking. Both report functionally to the equivalent business lines at ING Group.
ING Belgium is a limited liability company and employs 11,455 people. The address of its registered office is: Avenue Marnix 24, 1000 Brussels.
These consolidated financial statements have been approved for issue by the Board of Directors on 22 March 2010.
Amounts in the notes to the financial statements are in thousands of euros unless otherwise stated.
The main measurement bases used in preparing these financial statements are fair value and amortised cost.
Fair value of financial assets and liabilities is determined using quoted market prices. Market prices are obtained from traders, brokers and independent market vendors. In general, positions are valued taking the bid price for a long position and the offer price for a short position. In some cases where positions are marked at mid-market prices, a fair value adjustment is calculated.
Furthermore, additional fair value adjustments may be necessary for liquidity or outdated data because transactions in a particular financial instrument do not take place on a regular basis.
For certain financial assets and liabilities, including Over-The-Counter (OTC) derivative instruments, no quoted market prices are available. For these financial assets and liabilities, fair value is determined using valuation techniques. These valuation techniques consider, among other factors, contractual and market prices, correlations, time value of money, credit spread, yield curve, volatility factors and/or prepayment rates of the underlying positions. All valuation techniques used are approved by the applicable internal authorities. In addition, market data used in these valuation techniques are validated on a daily basis.
ING Belgium SA/NV – Financial Report 2009 30 Models are subjective in nature and significant judgement is involved in establishing fair values for financial assets and liabilities. Models involve various assumptions regarding the underlying price, yield curve, correlations and many other factors.
The use of different valuation techniques and assumptions could produce materially different estimates of fair value.
Price testing is done to assess whether the process of valuation has led to an appropriate fair value of the position and to an appropriate reflection of these valuations in the income statement. Price testing is performed to minimise the potential risks of economic losses due to materially incorrect or misused models, which applies to both exchange traded positions as well as OTC positions.
The difference between the price of the model used and the market data, the ‘day one profit’, is recorded in the income statement of the bank. However, when the bank uses models developed internally and/or data derived from observable prices, a valuation adjustment is made for model risk. This adjustment takes into account the different aspects of these models/data and the related degree of uncertainty.
With respect to the general rule for calculating the adjustment for model risk, the calculation takes into account: - the internal classification of the model in accordance with its complexity; - experience in using the model; and - the remaining term of the operation.
The calculation is performed on a transaction-by-transaction basis. The first two points are subject to a regular review by Risk Management.
A specific adjustment is also made for correlation risk. This adjustment is calculated based on the sensitivity indicator for this risk factor.
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectibility.
Financial statements are prepared on a going concern basis.
ING Belgium SA/NV – Financial Report 2009 31 7.6.3.1 Estimation of impacts of changes to IFRS This section explains the impact, in the financial statements of ING Belgium, of new IFRS modifications applicable as from 2010.
IAS 32 Amendments Yes 01/02/2010 IFRS 2 Amendments No 01/01/2010 IFRS 9 Phase 1 No 01/01/2013 IAS 24 Revised No 01/01/2011 IFRIC 14 Amendments No 01/01/2011 IFRIC 19 No 01/07/2010
The amendments to IAS 32 related to the classification of certain rights issues as equity or derivatives. The amendments do not have an impact on ING Belgium and its subsidiaries as they do not issue such rights.
The modifications made to IFRS 2 clarify its scope, the interaction with other standards and the accounting for certain share-based payment transactions within a group. The amendment also incorporates guidance previously included in IFRIC 8 and 11, which are now withdrawn. The revised standard does not have an impact on ING Belgium and its subsidiaries as they do not deal with cash- settled, share-based payment transactions.
IFRS 9 proposes a new classification for financial instruments based on measurement determined by: a) the entity’s business model for managing the financial assets; and b) the contractual cash flow characteristics of the financial asset. It is unclear whether the EU will endorse the Standard in its current form in 2010, but this will obviously have an impact on ING Belgium and its subsidiaries.
The amendments to IAS 24 Related Party disclosures focus on simplifying the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition. The revised standard also provides a partial exemption from the disclosure requirements for government-related entities. The changes in definition as well as in the disclosure guidelines will be applied by ING Belgium but do not represent a major impact.
The modifications to IFRIC 14 intend to resolve an unintended consequence whereby entities are in some circumstances not permitted to recognise prepayments of minimum funding contributions in employee benefit (pension) plans. These changes do not impact ING Belgium and its subsidiaries.
IFRIC 19 addresses the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability. This interpretation does not impact ING Belgium and its subsidiaries as they do not issue shares anymore.
ING Belgium SA/NV – Financial Report 2009 32 7.6.3.2 Principles of consolidation
Subsidiaries are all entities (including special purpose entities) over which ING Belgium has the power to govern the financial and operating policies, generally accompanying a shareholding of more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether ING Belgium controls another entity. Subsidiaries are fully consolidated from the date on which control is exercised by ING Belgium. They are deconsolidated from the date on which control ceases.
As regards fully consolidated subsidiaries, the bank ensures that, within the limits of percentages of equity controlled and with the exclusion of political risk, fully consolidated shareholdings are able to meet their commitments. The purchase method of accounting is used to account for the acquisition of subsidiaries by ING Belgium. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed on the exchange date, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at their fair value on the acquisition date, irrespective of the extent of any minority interest. The excess of the acquisition cost over the fair value of the bank’s share in the identifiable net assets acquired is recorded as goodwill. If the acquisition cost is less than the fair value of the bank’s share in the net assets of the subsidiary acquired, the difference is directly recognised in the income statement.
Balances and unrealised gains on transactions between ING Belgium companies are eliminated. Unrealised losses are also eliminated, unless the transaction provides evidence of an impairment of the transferred asset.
When necessary, the accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by ING Belgium.
ING Belgium SA/NV – Financial Report 2009 33 15
CEL Data Services SA/NV Brussels IT BE 0435.463.880 100.00% 7.780 3.215 111
Fiducré SA/NV Brussels Finance BE 0403.173.372 100.00% 36.257 20.486 12.759
GIE/ESV ING Technics Brussels IT BE 0477.871.290 89.99% 606 6 0
Real Immo Globe SA/NV Brussels BE 0415.586.512 100.00% 13.714 650 221 Estate
ING Bank (Suisse) SA Geneva Banking - 99.99% 1.738.630 1.512.534 73.625
ING Bank (Jersey) Ldt. Jersey Finance - 99.99% 699.114 639.588 6.865
ING Trust Co (Jersey) Ltd. Jersey Finance - 99.99% 5.066 40 544
ING Monaco SaM Monaco Banking FR 74 000 039 338 99.99% 830.876 800.025 185
ING Belgium International Finance Luxembourg Finance - 100.00% 5.046.337 5.035.237 5.713 Luxembourg SA
ING Contact Centre SA/NV Brussels Finance BE 0452.936.946 100.00% 7.103 5.774 113
ING Luxembourg Luxembourg Finance - 99.99% 12.213.676 10.811.358 -93.240
Société Immobilière ING Real Luxembourg - 99.99% 18.971 1.406 966 Luxembourg SARL Estate
ING LUX Ré SA Luxembourg Insurance - 99.99% 3.959 324 -270
Darum Ldt. Ireland Finance - 99.99% 37.964 25 0
Real Leudelange Office Park SA Luxembourg - 99.99% 18.300 0 0 Estate
Real New Immo-Schuman SA/NV Brussels BE 0428.361.797 100.00% 13.608 3.779 151 Estate
Record Bank SA/NV Brussels Banking BE 0403.263.642 100.00% 14.599.015 14.066.574 61.394
Record Credit Services SCRL/CVBA Liege Finance BE 0403.257.407 13.59% 964.893 914.607 2.830
Sogam SA/NV Brussels Finance BE 0402.688.075 100.00% 495 3 52
Soges-Fiducem SA/NV Brussels Finance BE 0403.238.304 100.00% 36.023 33.599 533
Belgian Overseas Agencies Ltd. Montreal Finance CA 0403.202.967 100.00% 15.158 14.992 6
Belgian Overseas Issuing Corp. New York Finance CA 0403.203.066 100.00% 10.842 10.346 4
Tax Shelter Production SPRL Brussels Cultural BE 0892.800.371 51.00% 1.491 1.322 82
Some subsidiaries are not consolidated mainly for reasons of materiality. A list of these non-consolidated companies can be found in note 11.
15 Assets are not equal to liability because equity is not included. ING Belgium SA/NV – Financial Report 2009 34 Associates are all entities over which ING Belgium has significant influence but no control, generally accompanying a shareholding of 20%-50% of the voting rights. Investments in associates are accounted for under the equity method of accounting and are initially recognised at cost. They include goodwill (net of any accumulated impairment loss) identified upon acquisition.
The bank’s share in the post-acquisition profits or losses of associates is recognised in the income statement. Its share in the post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment.
When ING Belgium’s share in the losses of an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the bank does not recognise further losses unless it has incurred obligations or made payments on behalf of the associate.
Unrealised gains on transactions between ING Belgium and its associates are eliminated to the extent of the bank’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
When necessary, the accounting policies of associates have been changed to ensure consistency with the policies adopted by ING Belgium.
Eurocasse S.I.M. S.p.A. (in Milan Finance IT 01627420159 43.00% 9.217.869 25.775.020 -651.393 liquidation)
Finanziaria ICCRI-BBL S.p.A. Milan Finance 50.00% 2.877.894 370.238 -92.252 (in liquidation)
Isabel SA/NV Brussels Finance BE 0455.530.509 25.33% 17.186.865 6.582.212 1.317.270
ING Belgium’s interests in jointly controlled entities are accounted for by proportionate consolidation. ING Belgium proportionately consolidates its share of the joint ventures’ individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in ING Belgium’s financial statements.
Tayar Ireland Finance 21.36% 226.442 45.669 7.146
16 Assets are not equal to liability because equity is not included. 17 Assets are not equal to liability because equity is not included. ING Belgium SA/NV – Financial Report 2009 35 7.6.4.1 Foreign currency translation
Items included in the accounts of all ING Belgium entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are drawn up in thousands of euros, which is the presentation currency.
Foreign currency transactions are converted into the functional currency using the exchange rates prevailing on the transaction date. Foreign exchange gains and losses resulting from the settlement of such transactions, as well as gains and losses resulting from the conversion at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement, except when deferred in equity as part of qualifying cash flow or net investment hedges.
Conversion differences on non-monetary items measured at fair value through profit and loss are reported as part of the fair value gain or loss. Non-monetary items are reconverted on the date when their fair value is determined. Conversion differences on non-monetary items measured at fair value through the revaluation reserve are included in the revaluation reserve in equity.
The results and financial position of ING Belgium companies whose functional currency differs from the presentation currency are converted into the presentation currency: - assets and liabilities included in their balance sheet are converted at the closing rate, on the date of the balance sheet concerned; - income and expenses included in their income statement are converted at average exchange rates; however, when the average is not a reasonable approximation of the cumulated effect of the rates prevailing on the transaction dates, income and expenses are converted on the transaction dates; - resulting exchange differences are recognised in a separate component of equity.
On consolidation, exchange differences arising from the conversion of a monetary item that forms part of the net investment in a foreign operation, and of borrowings and other instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and converted at the closing rate.
7.6.4.2 Recognition and derecognition of financial instruments All purchases and sales of financial assets classified as available for sale and trading that require delivery within the time frame established by regulation or market convention (‘regular way’ purchases and sales) are recognised on trade date, being the date when ING Belgium committed to purchase or sell the asset. Loans and deposits are recognised on settlement date.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or when ING Belgium has transferred all risks and rewards of ownership. If ING Belgium neither transfers nor retains all risks and rewards of ownership of a financial asset, it derecognises the financial asset when it no longer has control over it. In case of transfers in which control over the asset is retained, ING Belgium continues to recognise the asset to the extent of its continuing involvement. The extent of this continuing involvement is determined by the extent to which ING Belgium is exposed to changes in the value of the asset.
ING Belgium SA/NV – Financial Report 2009 36 7.6.4.3 Offsetting of financial assets and liabilities Financial assets and liabilities are offset and the net amount is reported in the balance sheet when ING Belgium has a legally enforceable right to offset the recognised amounts and intends to either settle on a net basis or to simultaneously realise the asset and settle the liability.
7.6.4.4 Repurchase and reverse repurchase transactions Securities sold subject to repurchase agreements (‘repos’) are retained in the consolidated financial statements. The counterparty liability is included in financial liabilities associated with the transferred assets.
Securities purchased under agreements to resell (‘reverse repos’) are recorded as collateral received. In addition, a receivable is recognised as loans and advances or as financial assets held for trading. The difference between the sale and repurchase price is recorded as interest and accrued over the life of the agreement, using the effective interest method.
7.6.4.5 Financial assets
Cash includes money held by ING Belgium as well as money deposited with other financial institutions that can be withdrawn without notice.
Cash equivalents are defined as short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value. The classification of a short-term investment as a cash equivalent not only requires the investment to meet the definition of a cash equivalent, but also depends on the purpose for which the investment is held. Cash and cash equivalents comprise balances with a l maturity of less than three months from the date of acquisition, including cash on hand, balances with central banks, short-term loans and advances, short- term government securities, reverse repos and bank overdrafts.
Trading assets are assets that are acquired principally for the purpose of generating short-term gains or a dealer's margin. Financial assets held for trading are initially recognised at cost. Subsequently, they are recalculated to fair value, without deduction of transaction costs, on each balance sheet date until they are derecognised.
Gains and losses arising from changes in fair value are recorded in the income statement for the period in which they occur. They include realised gains and losses on the disposal of financial assets and unrealised gains and losses arising from changes in fair value.
Interest income and expenses are recorded separately in the income statement.
ING Belgium designates marketable equity securities and debt securities, derivatives and reverse repos as financial assets held for trading.
ING Belgium SA/NV – Financial Report 2009 37 Management will designate financial assets at fair value through profit or loss when one of the following conditions is met: - it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as ‘accounting mismatch’) that would arise from measuring assets or recognising gains/ losses on them on a different basis; - a group of financial assets is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group of assets concerned is provided internally on that basis; - the assets contain one or more embedded derivatives, unless the embedded derivative does not significantly modify the cash flows or when separation of the embedded derivative would be prohibited. Gains and losses arising from changes in the fair value of such assets are recognised in the income statement for the period in which they occur. They include realised gains and losses on the disposal of financial assets and unrealised gains and losses arising from changes in the fair value of the assets.
Interest income and expenses are recorded separately in the income statement.
Designation is irrevocable: the marked-to-market valuation of such assets is maintained until derecognition.
ING Belgium designates marketable equity and debt securities as financial assets designated at fair value through profit or loss.
Loans and receivables are non-derivative instruments with fixed or determinable payments. They are carried at amortised cost using the effective interest rate method, less any impairment losses. Interest income is recognised on an accruals basis using the effective interest rate method.
Financial assets not classified in another category are recorded as available for sale.
Available-for-sale financial assets are measured at fair value. Unrealised gains and losses arising from changes in fair value are recognised in equity. When the assets are disposed of, the related accumulated fair value adjustments are recorded in the income statement as gains and losses from investments.
ING Belgium designates marketable equity and debt securities as financial assets designated at available for sale.
ING Belgium SA/NV – Financial Report 2009 38 7.6.4.6 Impairment of financial assets At each balance sheet date, ING Belgium assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired. Objective evidence that a financial asset or group of assets is impaired includes, but is not limited to: - the borrower has sought or has been placed in bankruptcy or similar protection, and this avoids or delays 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 evidenced significant financial difficulty, which will have a negative impact on the future cash flows of the financial asset; - the credit obligation has been restructured for non-commercial reasons.
ING Belgium 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.
With regard to equity investments classified as available for sale, a significant or prolonged decline in the fair value of the assets below their acquisition cost is considered in determining whether the assets are impaired. If any such evidence exists, the cumulated 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 the income statement - is removed from equity and recognised in the income statement. Impairment losses on equity instruments recognised in the income statement are not reversed through the income statement until the items are derecognised.
Regarding debt securities, the same rule applies to record the impairment. However, 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 income statement, the impairment loss is reversed through the income statement.
ING Belgium first assesses whether objective evidence of impairment exists individually for loans that are individually significant, and individually or collectively for loans that are not individually significant. Loans 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.
For loans that are not individually significant, a collective provision is calculated.
A collective provision is calculated when ING Belgium determines that no objective evidence exists of the depreciation of a financial asset or a group of financial assets; this also referred to as ‘Incurred But Not Reported’ (IBNR).
A loan is impaired when it is probable that the bank will not be able to collect all amounts due (principal and interest) according to the contractual terms. The collectibility of loans includes the credit risk, when a loan may not be repaid due to the borrower’s lack of capacity to repay. It also includes the transfer risk, when the loan is not repaid due to factors external to the borrower, such as currency restrictions resulting from an economic crisis in his/her country of domicile. Emphasis should be placed on the timing of the contractual cash flows from interest payments and principal repayments. If the bank expects to collect all interest and principal due in full, but it is probable that those cash flows will be received later than the date agreed in the original contract, an impairment review must be performed.
ING Belgium SA/NV – Financial Report 2009 39 When a loan is impaired, it is written off against the related provision account. This occurs after all required procedures have been undertaken and the final loan loss has been determined. Any amounts received in excess of expected cash flows are recognised in the income statement as reductions of the related provision.
When an impairment is recognised for a financial asset valued at amortised cost, the amount of the impairment is determined as being the difference between the asset’s book value and the present value of the expected, future cash flows (excluding future loan losses that have not yet occurred), discounted using the asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. If the loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.
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 allowance account. The amount of the reversal is recognised in the income statement.
It is the bank’s policy that write-offs should only be made in a limited number of cases, including after completion of a restructuring, in a bankruptcy situation and after divestment of a credit facility at a discount.
Both the loan and the impairment show up in the books. If the decision to (partially) write off the loan is taken, both the loan and the related provision are eliminated from the books and only the difference between the asset and the liability is brought to the income statement.
The identification of the impairment and the determination of the recoverable amount are an inherently uncertain process involving various assumptions and factors, including the financial condition of the counterparty, expected future cash flows, observable market prices and expected net selling prices. Further developments after the balance sheet date may indicate that certain unrealised losses that existed as of the balance sheet date will result in impairment in future periods, resulting in a negative impact on the income statement for future periods.
Considerable judgement is exercised in determining the extent of loan loss provisions. This judgement is based on the management’s evaluation of the risk in the portfolio, current economic conditions, loss experience in recent years and credit and geographical concentration trends. Changes in such judgements and analyses may lead to changes in provisions over time.
7.6.4.7 Financial liabilities
A financial liability is held for trading when it is acquired or incurred principally for the purpose of generating a profit from short-term fluctuations in price or dealer's margin. Financial liabilities held for trading include ‘short’ positions in securities.
Financial liabilities held for trading are initially recognised at cost, and subsequently remeasured to fair value (without deduction for transaction costs) on each balance sheet date until the items are derecognised.
Gains and losses arising from changes in the fair value are recorded in the income statement for the period in which they occur. Gains and losses include realised gains and losses on the disposal of financial liabilities, and unrealised gains and losses arising from changes in the fair value.
Interest is recorded separately in the income statement.
ING Belgium SA/NV – Financial Report 2009 40 Management will designate financial liabilities at fair value through profit or loss when one of the following conditions is met: - it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as ‘accounting mismatch’) that would arise from measuring liabilities or recognising gains/ losses on them on a different basis; - a group of financial liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group of liabilities concerned is provided internally on that basis; - the liabilities contain one or more embedded derivatives, unless the embedded derivative does not significantly modify the cash flows or when separation of the embedded derivative would be prohibited.
ING Belgium designates marketable debt certificates, subordinated liabilities and structured notes as financial liabilities at fair value through profit or loss.
The amortised cost of a financial liability is the amount at which the financial liability is measured at initial recognition, minus principal repayments, plus or minus the cumulated amortisation using the effective interest method of any difference between the initial amount and the maturity amount.
7.6.4.8 Derivatives and hedging activities Any derivative contract is initially recognised at fair value at the date on which it is entered into and is subsequently remeasured to its fair value. All derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative.
Embedded derivatives are bifurcated from their host contract provided the following conditions are met: - their economic characteristics and risks are not closely related to those of the host contract; - the host contract is not carried at fair value through profit or loss; - a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative.
These embedded derivatives are measured at fair value, with changes in fair value recognised in the income statement.
The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, on the nature of the item being hedged.
Hedge accounting is used for derivatives designated in this way, provided certain criteria are met.
At the inception of the transaction, ING Belgium documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The bank assesses, both at hedge inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items, including the method for assessing the hedging instruments’ effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk.
ING Belgium SA/NV – Financial Report 2009 41 ING Belgium uses three types of hedge accounting.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in the income statement, 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 in the income statement 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 income statement only when the hedged instrument is derecognised.
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 immediately recognised in the income statement. Amounts accumulated in equity are transferred to the income statement in the periods in which the hedged item will affect the income statement. 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 income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that is reported in equity is immediately transferred to the income statement.
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of.
7.6.4.9 Tangible assets
Land and buildings held for own use are stated at fair value on the balance sheet date.
The cost of an item of property, plant and equipment comprises its purchase price, including non- refundable purchase taxes, after deducting trade discount and rebates. The fair value of land and buildings is their market value. ING Belgium remeasures property at fair value at each reporting date and obtains a valuation from an independent, professionally qualified assessor on a sufficiently regular basis, or at least every 5 years.
Increases in the carrying amount arising from a revaluation of land and buildings held for own use are credited to the revaluation reserves in shareholders’ equity. Decreases that offset previous increases of the same asset are charged against revaluation reserves directly in equity. All other decreases are charged to the income statement. Increases that reverse a revaluation decrease on the same asset previously recognised in income statement are recognised in the income statement.
Depreciation on buildings is recognised, based on the fair value and the estimated useful life of the asset (in general 33 years). Depreciation is calculated pro rata temporis (or proportionally) on a straight-line basis. Residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date.
Subsequent expenditures are included in the carrying amount of the asset when it is probable that future economic benefits associated with the item will flow to ING Belgium and its cost can be measured reliably.
ING Belgium SA/NV – Financial Report 2009 42 All other repairs and maintenance are charged to the income statement during the financial period in which these are incurred. On disposal, the related revaluation reserve is transferred to retained earnings.
Land is not depreciated.
Equipment is stated at cost, less accumulated depreciation and any impairment losses. The cost of such assets is depreciated on a straight-line basis over their estimated useful lives.
Expenditures for maintenance and repairs are charged to the income statement as incurred. Expenditure incurred on major improvements is capitalised and depreciated.
The leases entered into by ING Belgium are operating leases. The total payments made under operating leases are charged to the profit and loss account on a straight-line basis over the period of the lease.
When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.
Owner-occupied land and buildings 33
IT equipment 5
Office equipment 10
Other equipment 7
Cars 4
Investment property is stated at fair value on the balance sheet date. Changes in the carrying amount resulting from revaluations are recorded in the income statement. On disposal, the difference between the sale proceeds and book value is recognised in the income statement. Fair value of investment property is based on regular appraisals by independent qualified assessors. Investment properties are not depreciated.
7.6.4.10 Goodwill and intangible assets
ING Belgium’s acquisitions are accounted for under the purchase method of accounting, whereby the cost of the acquisitions is allocated to the fair value of the assets, liabilities and contingent liabilities acquired. Goodwill - being the difference between the cost of the acquisition (including assumed debt) and the bank’s interest in the fair value of the acquired assets, liabilities and contingent liabilities on the acquisition date - is capitalised as an intangible asset. The results of the operations of the acquired companies are included in the income statement from the date control is obtained.
Goodwill is only capitalised on acquisitions after the date of implementing IFRS. Accounting for acquisitions before that date is not restated; goodwill and internally generated intangibles on those acquisitions are directly charged to shareholders’ equity. Goodwill is allocated to cash-generating units for the purpose of impairment testing. These cash-generating units represent the lowest level at which goodwill is monitored for internal management purposes.
ING Belgium SA/NV – Financial Report 2009 43 The impairment testing is performed annually or more frequently if there are indicators of impairment. Under the impairment tests, the carrying value of the cash-generating unit (including goodwill) is compared to its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. Adjustments to the fair value as of the date of acquisition of acquired assets and liabilities that are identified within one year after acquisition are recorded as an adjustment to goodwill. Any subsequent adjustment is recognised as income or expense. However, recognition of deferred tax assets after the acquisition date is recorded as an adjustment to goodwill, even after the first year.
On disposal of group companies, the difference between the sale proceeds and book value (including goodwill) and the amount recorded in the currency conversion reserve in equity is included in the income statement.
Goodwill is attributable to the high profitability of the acquired business and the significant synergies expected to arise. Fair value of assets and liabilities acquired are based on discounted cash flow model.
Computer software that has been purchased or internally generated for own use is stated at cost, less depreciation and any impairment losses. Depreciation is calculated on a straight-line basis over the useful life of the item. This period will not exceed five years. Depreciation is included in other expenses.
Internally generated software should only be capitalised if all of the following requirements are met: - ING Belgium has the feasibility of completing the intangible asset, so that it will be available for use or sale; - ING Belgium has the intention to complete the intangible asset and use or sell it; - ING Belgium has the ability to use or sell the intangible asset; - the intangible asset will generate probable future economic benefits; among other things, the bank must be able to demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset; - ING Belgium has adequate technical, financial and other resources available to complete the development and to use or sell the intangible asset; - ING Belgium is able to reliably measure the expenditure attributable to the intangible asset during its development. Projects with regard to internally generated software for own use are considered for capitalisation if they reach or exceed EUR 2.5 million in value.
Other intangible assets are capitalised and amortised over their expected economic lives. Intangible assets with an indefinite life are not amortised.
7.6.4.11 Provisions A provision involves a present obligation arising from past events, the settlement of which is expected to result in an outflow from the company of resources embodying economic benefits, whereas the timing or the amount is uncertain. Unless otherwise stated, provisions are discounted using a pre-tax discount rate to reflect the time value of money. The determination of provisions is an inherently uncertain process, involving estimates of amounts and timing of cash flows. Reorganisation provisions include employee termination benefits, when ING Belgium is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy. As a general rule, a provision or a part thereof should be released only when: - cash is received, which results in the present value of the expected future cash flows increasing compared to previous estimates (partial release) or exceeding the carrying amount (full release); - liabilities are extinguished and no claims whatsoever may be expected, in the case of contingent exposures.
ING Belgium SA/NV – Financial Report 2009 44 7.6.4.12 Employee benefits - pension obligations
ING Belgium entities operate various pension schemes. These are generally funded through payments to insurance companies or trustee-administered funds, determined by periodic actuarial calculations. ING Belgium has both defined-benefit and defined-contribution plans.
A defined-benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually depending on one or more factors such as age, seniority and compensation.
The liability recognised in the balance sheet in respect of defined-benefit pension plans is the present value of the defined-benefit obligation on the balance sheet date, less the fair value of the plan assets, adjusted for unrecognised actuarial gains or losses and past unrecognised service costs.
The defined-benefit obligation is calculated annually by internal and external actuaries, using the projected unit credit method.
Inherent in the actuarial models are assumptions including discount rates, rate of increase in future salary and benefit levels, mortality rates, health-care costs trends, consumer price index and the expected return on plan assets. The assumptions are based on available market data and the historical performance of plan assets. They are updated annually.
The actuarial assumptions may differ significantly from the actual results due to changes in market conditions, economic and mortality trends and other assumptions. Any changes in these assumptions could have a significant impact on the defined-benefit plan liabilities and future pension costs. The effects of changes in actuarial assumptions and experience adjustments are not recognised in the income statement, unless the accumulated changes exceed 10% of the greater of the defined-benefit obligation and the fair value of the plan assets, in which case the excess is amortised over the employees’ expected average remaining working lives.
For defined-contribution plans, ING Belgium pays contributions to publicly or privately managed pension insurance plans on a mandatory, contractual or voluntary basis. ING Belgium has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
ING Belgium provides post-retirement health care and other benefits to its retirees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum period of service. The expected costs of these benefits are accrued over the period of employment, using an accounting methodology similar to that for defined-benefit pension plans.
7.6.4.13 Income tax expenses Income tax on income for the year comprises current and deferred tax. Income tax is recognised in the income statement, except when it relates to items directly recognised in equity, in which case it is recognised in equity. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates and laws that have been enacted by the time of the balance sheet date, and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised when it is probable that future taxable profit will be available, against which the temporary differences can be utilised.
ING Belgium SA/NV – Financial Report 2009 45 Deferred tax liabilities are provided on temporary differences arising from investments in subsidiaries and associates, except when the timing of the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future.
The tax effects of income tax losses available for carrying forward are recognised as an asset when it is probable that future taxable profits will be available, against which these losses can be utilised.
Deferred tax related to fair value remeasurement of available-for-sale investments and cash flow hedges that are directly charged or credited to shareholders’ equity is also directly credited or charged to equity and subsequently recognised in the income statement, together with the deferred gain or loss.
7.6.4.14 Income recognition
Net interest income is recognised in the income statement, using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expenses over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, ING Belgium estimates cash flows considering all contractual terms of the financial instrument (e.g. prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Net interest income from trading positions and non-trading derivatives are classified in a separate line of the income statement. Movements in the fair value are included in net trading income.
Once an impaired loan or a portfolio of impaired loans has been written down to its estimated recoverable amount, interest income is thereafter recognised, based on the interest rate that was used to discount the future cash flows for the purpose of measuring the recoverable amount. The rationale of this is that, as time passes, the value of expected future cash flows increases as the time to realisation decreases; this unwinding effect is recognised as interest income.
Underlying source systems may either (i) suspend interest income due on impaired loans or (ii) continue to recognise it in full. An adjustment to interest income is required in both cases in order to recognise the correct amount of interest: upward under (i) and downward under (ii).
Actual interest receipts on impaired loans (‘late payments’) should be applied against interest accruals/principal depending on the probability of bankruptcy of the borrower. Interest receipts are either applied first to principal (when bankruptcy is probable) or first to interest (when bankruptcy is not probable).
Fees and commissions are generally recognised when a service has been provided.
Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan.
Fees and commissions arising from negotiating, or participating in the negotiation of, a transaction for a third party – such as the arrangement of the acquisition of shares or other securities, or the purchase or sale of businesses – are recognised on completion of the underlying transaction.
Portfolio and other management advisory and service fees are recognised based on the applicable service contracts as the service has been provided.
Asset management fees related to investment funds and investment contract fees are recognised rateably over the period the service is provided. The same principle is applied for planning and custody services that are continuously provided over an extended period of time. ING Belgium SA/NV – Financial Report 2009 46 Revenue is recognised when ING Belgium’s right to receive the payment is established.
7.6.4.15 Dividend policy description The Board of Directors convenes general meetings and decides on their agenda. It sets the date for payment of dividends. The Board may decide to pay interim dividends for the current period, subject to the conditions laid down by law. It also sets the amount and date of the payment. For the year 2009, ING Belgium will not propose at the shareholders’ meeting to grant a dividend. For the year 2008, ING Belgium proposed at the shareholders’ meeting to grant a dividend of EUR 6.28 EUR per share for a total of EUR 348.003.374.
7.6.4.16 Fiduciary activities The bank commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of ING Belgium.
7.6.4.17 Share-based payment transactions Option rights and share plans on ING Group shares have been granted by ING Belgium to a number of senior executives and managers (equity settled transactions).
The purpose of the option and share schemes, apart from promoting a lasting growth of ING Belgium, is to attract, retain and motivate senior executives.
The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, ING Belgium revises its estimates on the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period.
The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.
7.6.4.18 Financial guarantees Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities.
Financial guarantees are initially recognised in the financial statements at fair value, being the premium received on the date the guarantee was given. Subsequent to initial recognition, the bank’s liabilities under such guarantees are measured at initial measurement, less amortisation. The premium received is recognised in the income statement in net fees and commission income on a straight-line basis over the life of the financial guarantees.
Any increase in the liability relating to guarantees is recorded in the income statement under ‘other operating income’.
ING Belgium SA/NV – Financial Report 2009 47 The traditional role of a commercial bank is to attract deposits, which it then uses to grant loans. This role implies a twofold transformation in both transaction value and duration.
In addition to this conventional business, known as ‘on-balance-sheet’ activities, commercial banks have introduced a growing number of new off-balance-sheet instruments with the common aim of managing different types of risks: credit, liquidity, interest rate, exchange rate and equity risks. These transactions are known as ‘derivatives’ and generally no funds are exchanged upon their conclusion.
The interest rate risk, exchange risk and equity risk are usually grouped under the generic term ‘market risk’.
The management of credit risk has been entrusted to the bank's Credit Risk Management Department, which is part of the credit policy and decision line. The Risk Management Department is responsible for managing liquidity risk, market risk and operational risk. The Legal Department manages legal risk.
7.6.5.1 Credit risk Credit risk is the risk of loss resulting from the default by debtors or counterparties. Credit risk arises in the bank’s lending, pre-settlement and investment activities, as well as in its trading activities. Credit risk management is supported by dedicated credit risk information systems and internal rating methodologies for debtors and counterparties.
ING Belgium’s credit policy is aimed at maintaining a diversified loan and bond portfolio, while avoiding large risk concentrations.
The task of defining the risk policy applicable to credit transactions and the bank's investment portfolio lies with the Credit Policy Committee, chaired by the Managing Director responsible for risk management. This policy is in keeping with the general policy of ING Group. It is laid down in different credit policy and procedures handbooks, which are made available to all those responsible for credit decisions and monitoring.
Depending on type and size of loans, the granting and monitoring process is subject to a strictly supervised procedure, delegating powers to various approval authorities. A similar procedure applies to operational risks relating to loan and derivatives contracts, acceptance of collateral and overdraft monitoring, as well as pre-litigation and litigation. As already stated above, legal risk assessment is the responsibility of the Legal Department.
Credit decision-making powers are currently divided between two separate structures:
7.6.5.1.2.1 Credit mandates The decision authority that can be exercised is expressed in mandate levels. The mandates decide on the maximum credit lines granted to a client in the framework of the bank's commercial activity.
7.6.5.1.2.2 Securities committees Securities committees decide on the bank's investment strategy for its own financial instruments portfolios. The Credit Risk Management Department compiles the analyses and documents for the Central Securities Committee.
ING Belgium SA/NV – Financial Report 2009 48 7.6.5.1.2.3 Smaller loans The bank has developed an automatic system to assist with the decision-making process for the granting of small standardised loans. The system is based on the rating of the client, his / her reimbursement capacity, internal and/or external notoriety information, total amount of his commitments and some specific rules linked to the type of debtor and product.
7.6.5.1.2.4 Real estate transactions The bank makes a clear distinction between: • transactions for the debtor's own account (mortgages to private customers or investment loans to companies), which are subject to the usual granting rules (as set out in this chapter); • real estate promotion and investment, whereby the debtor is required to make a substantial capital contribution and where the actual return on the property must match the level of debt servicing.
Decisions beyond a certain level of commitments require the opinion of a credit analyst. Depending on the globalised amount of the commitments the decision is referred to specific decision-making structures. All decisions are taken by a maximum of two mandates: One advisory level and One decision level. A mandate level consists in any case (twins principle) of: An “Approval Signatory” of Front and An “Approval Signatory” of Risk Management.
Files with problems are closely monitored. When appropriate, specific mandates decide on the rapid implementation of precautionary measures. Problematic cases are identified among others by a series of automated warning signs.
In accordance with the principles applied by the regulatory authorities for calculating major risks, no borrower – neither a corporate customer nor a financial institution – may represent a risk greater than 25% of the bank's own funds.
Automotive 1.15% 1.26% Utilities 2.27% 2.27% Transportation and logistics 3.41% 3.02% General industries 3.09% 3.19% Food, beverages & personal care 4.24% 3.58% Real estate 6.33% 5.51% Natural resources 8.49% 4.53% Services 5.89% 6.31% Builders & contractors 4.13% 4.46% Non-bank financial institutions 8.63% 9.51% Commercial banks 17.67% 21.87% Central governments 23.20% 23.77% Other 11.50% 10.72%
ING Group has developed a set of “Golden Rules” which determine, at the level of the entire group, the lending limits per consolidated borrower, expressed as notional amounts and economic capital.
18 Based on exposure (financial markets + wholesale + issuers). ING Belgium SA/NV – Financial Report 2009 49 The bank's counterparties are mainly financial institutions with a professional approach to such transactions. Moreover, the bank signs framework agreements with these institutions based on the model provided by the International Swaps and Derivatives Association (ISDA). In most developed countries, these contracts among others. allow the debit and credit positions of a defaulting counterparty to be offset, which in many cases considerably reduces the risk. Certain contracts also require the deposit of a cover (collateralisation) if the net position exceeds a predetermined amount.
The bank applies a rigorous policy for monitoring the counterparty risk linked to such transactions: • each derivative contract is associated with a real credit risk ("present value") and a potential credit risk ("potential future exposure", or "PFE"); • assessment of outstandings per counterparty takes account of existing offsetting and collateralisation agreements; • each counterparty must have an adequate credit limit, granted by the appropriate decision-making level, and managed globally in real time for all dealing rooms.
A computerised application monitors, in real time, the risks on the bank's counterparties and constantly updates the consolidated position of the use of credit limits in all the dealing rooms. This application is backed up by a legal database which enables automatic, real-time recognition of new transactions which could be legally offset against other financial markets transactions. With this instrument, the bank is able to efficiently calculate risk netting, and thus make more productive use of credit limits.
Different models for credit (Probability at Default (PD), Loss Given Default (LGD), Exposure At Default (EAD)), market and operational risks have been elaborated in conformity of Basel II. They are used within the entire ING Group. A reconciliation process has been worked out to obtain certitude on the completeness and accuracy of the reported figures. Moreover the Internal Capital Adequacy Assessment Process (ICAAP) as required by the Banking, Finance and Insurance Commission (CBFA) has been elaborated in close cooperation with ING Group.
The credit exposure of ING Belgium is mainly related to traditional lending to individuals and businesses. Loans to individuals are mainly mortgage loans, secured by residential property. Loans to businesses are often collateralised, but can be unsecured, based on internal analysis of the borrowers’ creditworthiness. Presettlement credit exposure arises also from trading activities, for instance in derivatives, repurchase transactions and securities lending/borrowing. The bank uses various market pricing and measurement techniques to determine the amount of credit risk on presettlement activities. These techniques estimate among others ING Belgium’s potential future exposure on individual and portfolios of trades. Master agreements and collateral agreements are frequently entered into with the aim of reducing these credit risks.
Equity 592.872 962.733 Debt instruments 27.364.088 35.098.758 Loans and advances 87.380.762 93.904.107 Derivatives 27.060.434 37.753.371 Other --
Risk classes are defined based upon the credit quality of the client, varying from investment grade to problem grade, expressed in Moody’s and S&P equivalents.
ING Belgium SA/NV – Financial Report 2009 50 AAA 5.23% 6.38% AA 18.76% 30.97% A 22.76% 15.16% BBB 24.76% 21.31% Subtotal investment grade 71.50% 73.82% BB 18.13% 17.09% B 7.76% 7.41% Watch/Problem grade 2.61% 1.67%
The credit portfolio is under constant review. The files above a certain amount are reviewed at least once a year. Moreover portfolio committees per business with the participation of the management of risk and of the front office are organised quarterly. A formal analysis takes place quarterly to determine the provisions for possible bad debts, using a bottom-up approach. Conclusions are discussed by the ING Provisioning Committee, which advises the Executive Board on specific provisioning levels.
Country risk is the risk which is specifically attributable to events in a given country or group of countries. Country risk is identified in lending (corporate and counterparty), trading and investment activities. All transactions and trading positions generated by ING Belgium include country risk. Country risk is further divided into economic and transfer risk. Economic risk is the risk resulting from any event in a country which may affect transactions and other exposure in that country, regardless of the currency. Transfer risk is the risk incurred through the inability of ING Belgium or its counterparties to meet their respective foreign currency obligations due to a specific country event.
In countries where the bank is active, the relevant country’s risk profile is regularly evaluated, resulting in a country rating. Country limits are based on this rating. Exposures derived from lending and investment activities are then measured and reported against these country limits on a daily basis.
Belgium 54,48 52,76 France 18,39 19,82 Spain 6,80 9,67 Italy 4,81 4,78 Grand Duchy of Luxembourg 5,62 8,36 United States of America 3,93 5,67 Netherlands 4,18 4,20 United Kingdom 6,18 8,33 Germany 2,93 3,10 Switzerland 5,61 4,24
19 Based on lending (wholesale and retail), financial market and investment activities. 20 Lending portfolio: Wholesale + Issuer Risk. Selected intercompanies: Group/Insurance. Selected countries: 10 largest. ING Belgium SA/NV – Financial Report 2009 51 As with all financial institutions and banks in particular, ING Belgium is in the business of taking credit risks. As such, the creditworthiness of its customers, trading partners and investments is continually evaluated for their ability to meet their financial obligations to ING Belgium. During the assessment process of creating new loans, trading limits, or investments, as well as reviewing existing loans, trading positions and investments, ING Belgium determines the amount and type of cover, if any, that a customer may be required to give in order to secure its position. Generally, the lower the perceived creditworthiness of a borrower or financial counterparty, the more cover the customer or counterparty will have to provide. Within counterparty trading activities, ING Belgium actively enters into various legal arrangements whereby counterparties (or ING Belgium) may have to post collateral to one another to cover market fluctuations of their relative positions. Laws in various jurisdictions also affect the type and amount of collateral that ING Belgium can receive or pledge. Additionally, the bank will sometimes enter into credit default swaps, and other similar instruments in order to reduce the perceived credit risk on a given borrower or portfolio.
The table below provides the carrying amount of financial assets pledged by ING Belgium as collateral for liabilities or contingent liabilities.
Liabilities 13.197.601 10.360.987 Contingent liabilities 186.566 177.425
Guarantees relate both to credit and non-credit substitute guarantees. Credit-substitute guarantees are guarantees given by ING Belgium in respect of credit granted to customers by a third party. Many of them are expected to expire without being drawn on and therefore do not necessarily represent future cash outflows. The guarantees are generally of a short-term nature. In addition to the items included in contingent liabilities, ING Belgium has issued guarantees as a participant in collective arrangements of national industry bodies and as participant in government-required collective deposit guarantee schemes which apply in different countries.
Irrevocable letters of credit mainly secure payments to third parties for a customer’s foreign and domestic trade transactions in order to finance a shipment of goods. The bank’s credit risk in these transactions is limited since these transactions are collateralised by the commodity shipped and are of a short duration.
Other contingent liabilities mainly relate to acceptances of bills and are of a short-term nature.
Irrevocable facilities mainly constitute unused portions of irrevocable credit facilities granted to corporate clients. Many of these facilities are for a fixed duration and bear interest at a floating rate. Most of the unused portion of irrevocable credit facilities is secured by customers’ assets or counter-guarantees by the central governments and government bodies. Irrevocable facilities also include commitments made to purchase securities to be issued by governments and private issuers.
ING Belgium SA/NV – Financial Report 2009 52 Changes in the group ---- Writedowns taken against the allowance -85.474 -52.847 -- Amounts set aside for estimated probable loan 344.105 180.421 20.892 27.995 Amounts reversed for estimated probable loan losses -140.576 -42.527 -45.387 -26.828 Foreign exchange rate differences -9.032 6.357 -- Unwinding interests -4.958 928 2.344 3.541 Other adjustments -2.547 -29.229 -- Transfers between items -8709 - -1.195
Recoveries directly recognised in the income statement 15.188 17.557 Write-offs directly recognised in the income statement 59.258 32.780
ING Belgium continually measures its portfolio in terms of payment arrears. Particularly the retail portfolios are closely monitored on a monthly basis to determine if there are any significant changes in the level of arrears.
Generally, an obligation is considered ‘past-due’ if a payment of interest or principal is more than one day late. In practice, the first 5-7 days are considered to be an operational risk.
After this period, letters will be sent to the obligor as a reminder of his/her (past due) payment obligations. If payment has not been made after 90 days, the obligation is generally considered impaired and is transferred to one of the ‘problem loan’ units. In order to reduce the number of arrears, most ING Belgium units encourage obligors to set up automatic debits from their accounts to ensure timely payments. Generally, all loans with past due financial obligations of more than 90 days are automatically reclassified as impaired. However, there can also be other reasons for declaring a loan impaired prior to being 90 days past due. These include, but are not limited to, ING Belgium’s assessment of the customer’s perceived inability to meet its financial obligations or the customer filing for bankruptcy or bankruptcy protection. In some cases, a material breach of financial covenants will also trigger a reclassification of a loan to the impaired category.
ING Belgium SA/NV – Financial Report 2009 53 Tables below provide information at year end on financial assets that are past due, but not impaired.
Debt instruments - - - - - Loans & advances 1.065.134 215.836 1.964 1.211 1.589 Other financial assets - - - - -
Debt instruments ----- Loans & advances Other financial assets -----
7.6.5.2 Liquidity risk
Liquidity risk is the risk that ING Belgium or one of its subsidiaries cannot meet its financial liabilities when they come due, at reasonable costs and in a timely manner. Liquidity risk can materialise through both trading and non-trading positions. Within ING Belgium, the Assets and Liabilities Management Committee (ALMAC) bears overall responsibility for the liquidity risk. The main objective of ING’s liquidity risk framework is to maintain sufficient liquidity in order to ensure safe and sound operations. For this purpose liquidity risk is considered from three different angles: a structural, tactical and a contingency point of view.
ING Belgium SA/NV – Financial Report 2009 54 Structural liquidity risk is the risk that the structural, long-term balance sheet can not be financed timely or at a reasonable cost. In this view of liquidity risk, the total on- and off-balance-sheet positions are considered from a structural asset and liability management perspective. The main objective is to maintain a sound liquidity profile by: - maintaining a well-diversified mix of funding sources in terms of instrument types, fund providers, geographic markets and currencies; - actively managing the access to the capital markets by regularly issuing public debt in all material markets and conducting investor relations; - holding a broad portfolio of highly marketable assets that can be used to obtain secured funding; - maintaining an adequate structural liquidity gap, taking into account the asset mix and both the secured and unsecured funding possibilities of ING Belgium; - maintaining a funds transfer pricing methodology in which ING Group’s cost of liquidity is adequately reflected both under a going concern and a contingency perspective.
From a tactical, short-term perspective, the liquidity risk resulting from the short-term cash and collateral positions is considered. Day-to-day liquidity management has been delegated to Financial Markets, which is responsible for managing the overall liquidity risk position of ING Belgium. Within Financial Markets, the focus is mainly on the daily and intraday cash and collateral positions and it is policy to sufficiently stagger day-to-day funding requirements. For this purpose the Treasury function monitors all maturing cash flows along with expected changes in core business funding requirements. The liquidity risk management function is delegated to Market Risk Management (MRM) which bears the responsibility for liquidity risk stress testing and for the identification, measurement and monitoring of the liquidity risk position. For the measurement and monitoring of the actual liquidity position, the focus is on the daily cash and collateral position. For stress testing purposes, the liquidity risk positions are calculated in line with the regulatory reporting requirements for liquidity risk of the Belgian Central Bank. In addition to this, a framework is implemented within ING Belgium that sets limits on the overall weekly and monthly liquidity risk positions to ensure adequate buffers of liquidity.
ING Belgium SA/NV – Financial Report 2009 55 The table below provides a maturity analysis for financial assets and liabilities that shows the remaining contractual maturities.
Cash & balance with central 5.103.393 -- --- banks, loans and advances Financial assets held for trading 791.491 690.368 5.032.063 11.462.446 11.614.192 - Financial assets at fair value 7.781 6.112 9.098 691.779 through profit or loss -- Financial assets available for sale 155.723 330.575 2.296.044 11.008.498 10.260.793 444.250 Loans & receivables 25.742.871 8.507.243 12.070.929 17.496.788 23.773.539 5.573 - of which loans & advances to 11.162.146 4.961.963 7.751.457 23.875.566 1.234.617 102.958 - 25.213.141 banks - of which loans & advances to 14.580.725 3.545.280 4.319.472 22.445.477 16.262.171 23.670.581 5.573 62.383.802 customers Derivatives used for hedging 221.970 396.194 373.371 1.136.197 379.130 Investments shares, tangible & ------1.046.751 intangible assets Other assets 1.900.512 - 92.629 - 538.619 -
Deposits from central banks 98.400 -- ---
Financial liabilities held for trading 1.927.272 2.626.107 8.627.556 13.984.086 2.324.315 -1.578.805
Financial liabilities at fair value 39.872 83.532 694.587 2.830.856 1.095.045 55.747 through profit or loss - of which subordinated liabilities 14.653 26.306 86.672 189.312 12.621 - Financial liabilities measured at 81.847.121 5.052.268 7.134.906 6.432.820 2.323.968 73.414 amortised cost * - of which funds entrusted by 15.050.060 2.535.358 2.583.806 20.169.224 240.250 115.753 90.192 20.615.419 banks - of which funds entrusted by 66.039.483 2.423.372 4.053.333 72.516.188 2.296.792 328.605 - 75.141.585 customers - of which subordinated liabilities 478 584 60.749 61.811 85.002 - -558 146.255
- of which debt securities in issue 101.016 92.954 437.018 630.988 3.810.776 1.879.610 -16.220 6.305.154
- of which other financial liabilities 656.084 --656.084 ---656.084
Derivatives used for hedging 721.761 94.483 450.773 1.677.904 651.810 -631.736 Other liabilities 3.044.818 2.022 235.369 820.576 83.523 70.883 Share capital repayable on ------137.714 demand
* including financial liabilities associated with transferred assets
ING Belgium SA/NV – Financial Report 2009 56 The maturity analysis of Liabilities is based on contractual cash flows as required by the March 2009 amendments to IFRS7. The difference between the contractual cash flows and the balance sheet carrying amount has been reported in the column ‘unknown’.
Cash & balance with central 3.564.476 -- --- banks, loans and advances Financial assets held for trading 781.687 2.827.953 6.226.915 12.786.699 19.601.194 - Financial assets at fair value 653.086 29.323 501.691 137.868 through profit or loss - - Financial assets available for 170.647 845.768 1.175.015 12.070.449 12.668.641 484.129 sale Loans & receivables 29.519.928 11.482.740 14.449.065 17.981.771 23.324.400 - - of which loans & advances to 13.902.987 6.929.963 9.612.935 30.445.885 2.053.662 104.467 - 32.604.014 banks - of which loans & advances to 15.616.941 4.552.777 4.836.130 25.005.848 15.928.109 23.219.933 - 64.153.890 customers Derivatives used for hedging 360.367 499.316 421.724 570.793 822.556 - Investments shares, tangible & ------1.047.702 intangible assets Other assets 159.843 89.287 - 675.472 -
Deposits from central banks 26.579 -- --- Financial liabilities held for 861.060 2.686.397 5.285.208 12.315.035 17.747.494 trading - Financial liabilities at fair value 34.464 747.587 1.456.330 2.918.598 923.439 through profit or loss - - of which subordinated 8.963 14.072 114.472 289.574 42.079 - liabilities Financial liabilities measured at 85.814.331 11.735.006 9.380.999 5.179.845 3.178.593 amortised cost * - - of which funds entrusted by 23.702.663 5.764.421 2.812.334 32.279.418 280.693 92.343 - 32.652.454 banks - of which funds entrusted by 61.306.734 5.756.589 5.978.139 73.041.462 1.691.210 318.642 - 75.051.314 customers - of which subordinated liabilities 1.553 54.093 1.779 57.425 66.064 9.061 - 132.550 - of which debt securities in 65.449 159.903 588.747 814.099 3.141.878 2.758.547 - 6.714.524 issue - of which other financial 737.932 --737.932 ---737.932 liabilities Derivatives used for hedging 203.553 964.424 550.651 954.863 -- Other liabilities 1.709.543 32.340 481.054 851.953 101.011 164.729 Share capital repayable on - 145.118 demand
* including financial liabilities associated with transferred assets
ING Belgium SA/NV – Financial Report 2009 57 Contingency liquidity risk relates to the organisation and planning for liquidity management in times of stress. For ING this risk is managed on group level. ING Belgium participates via the functional lines that exist between global treasurers and local treasurers, and between global risk management and local risk managers. A specific crisis team is responsible for the liquidity management in times of crisis. This crisis team consists of the CRO the CFO, the Directors of CMRM and Capital Management and all the main treasurers of both ING Bank and ING Insurance. ING’s policy is to have adequate and up-to-date contingency funding plans in place throughout the organisation. The main objective of ING’s contingency funding plans is to enable senior management to act effectively and efficiently at times of crisis. Contingency funding plans have been established for addressing temporary and long-term liquidity disruptions caused by a general event in the market or an ING-specific event. These plans ensure that all roles and responsibilities are clearly defined and all necessary management information is in place. The contingency funding plans are regularly tested both on consolidated and local level in order to be best prepared for potential liquidity risk issues.
7.6.5.3 Market risk Market risk is the risk of losses due to fluctuations in market risk factors which include share prices, interest rates, exchange rates as well as commodity and property prices.
Market risk arises from trading and non-trading activities. Trading market risks arise within ING Belgium Commercial Banking primarily through market-making, client facilitation and proprietary trading in the fixed income, equities and foreign exchange markets, as well as in the directly related derivative markets. Non-trading market risk related to transactions over 1 year in euro is transferred to the asset & liability management (ALM) books. These are structural interest rate mismatch positions that result from commercial banking activities.
Each month, the Executive Committee, assisted by the relevant heads of departments, meets in the Assets and Liabilities Management Committee (ALMAC) to analyse the major gapping items relating to assets and liabilities (on- and off-balance sheet). A replicating model is used to set the theoretical maturities in respect of assets and liabilities for which maturities are not contractually known. The ALMAC oversees capital ratios (Capital Adequacy Directive, or ‘CAD’) and makes strategic decisions relating to interest rate risks, and therefore to Earnings at Risk.
Activities of Financial Markets and their support departments are reviewed by a weekly Financial Markets Committee headed by the member of the Executive Committee in charge of all financial market operations.
The Market Risk Management Department coordinates the daily monitoring of market risks, on a consolidated basis. It also compiles the analyses and documentation required for the smooth running of the ALMAC and the Financial Markets Committee.
ING Belgium SA/NV – Financial Report 2009 58 Potential risks relating to exchange rate, interest rate and share prices fluctuations must be kept under control.
Dealing room transactions are recorded, per strategic category, in dealer books, which in turn are grouped into market books according to the type of activity. Accounting rules are applied at the level of market books. These are classified as banking or trading books, pursuant to CAD. Market book positions are monitored daily by the Market Risk Management Department. A two-tier system is used: - an open position risk limit is fixed on the basis of Value at Risk (VaR). VaR for market risk quantifies, with a one-sided confidence level of at least 99%, the maximum overnight loss that could occur due to changes in risk factors (e.g. interest rates, foreign exchange rates, equity prices, credit spreads, implied volatilities) if positions remain unchanged for a time interval of one day; - Stop loss and Trigger point limits are applied to the overall result per market book since the beginning of the year.
Precise requirements have been laid down as regards reporting to the Financial Markets Committee. In this respect, the bank applies best market practices by calculating its consolidated VaR daily.
This requires the use of very large databases to measure the volatility of several segments of interest rate curves in different currencies and to identify correlations between the various curve segments for a particular currency, between all the currencies used, as well as between the various types of risks (exchange rates, interest rates and equity).
The bank uses a consistent approach to all risks. In addition, operators in the dealing rooms are provided with risk management information relating to their individual positions.
The bank also regularly estimates the possible repercussions of extraordinary market trends on VaR and on results (‘stress testing’). These estimates supplement daily VaR and back-testing calculations.
The impact of historical market movements on today’s portfolio is estimated based on equally-weighted, observed market movements of the previous 250 business days.
The general market risk component estimates the VaR resulting from general market-value movements. The specific market risk component estimates the VaR resulting from market-value movements that relate to the underlying issuer of securities in the portfolios.
VaR for linear portfolios is calculated using a variance – covariance approach. The market risk of all the important option portfolios within ING Belgium is measured by Monte Carlo simulation methods.
The following chart shows the development of the overnight VaR for the bank’s trading portfolio which was managed by trading risk management during 2009.
ING Belgium SA/NV – Financial Report 2009 59 23
21
19
17
15
13
11
9 31/12/2008 31/03/2009 30/06/2009 30/09/2009 31/12/2009
VaR as at 31 December Highest VaR 22,0 27,1 Lowest VaR 10,5 9,2 Average VaR 15,2 18,2
Although VaR models estimate potential future results, estimates are based on historical market data and the bank continuously monitors the plausibility and effectiveness of the VaR model in use. The technique for this purpose is generally known as back-testing, in which the actual daily result is compared with the daily VaR as calculated by the model. In addition to using actual results for back-testing, the bank also uses hypothetical results, which measure results excluding the effect of intraday trading, fees and commissions. When the actual or hypothetical loss exceeds the VaR, an ‘occurrence’ has taken place. Based on ING Belgium’s one-sided confidence level of at least 99%, an occurrence is expected, on average, once in every 100 business days. Since VaR in general does not produce an estimate of the potential losses that can occur as a result of extreme market movements, the bank uses structured stress testing to monitor the market risk under these extreme conditions. Stress scenarios are based on historical and hypothetical extreme events. The result of the stress testing is an event-risk number, which is an estimate of the income statement effect caused by a potential event and its worldwide impact for ING Belgium Commercial Banking. The event- risk policy (and its technical implementation) is specific for ING Belgium, as there is no event risk calculation method that is generally accepted by other banks and regulators (like the Value-at-Risk model). The bank’s event-risk policy basically consists of defined stress parameters per country and per market (fixed income, equity, foreign exchange and related derivative markets). The parameters indicate historical maximum market movements within the time frame of one month. The scenarios and stress parameters are back-tested against extreme market movements that actually occur in the markets.
ING Belgium SA/NV – Financial Report 2009 60 The interest rate (or mismatching) risk results from gaps between maturing assets and liabilities (final maturities or rate review maturities) both on- and off-balance sheet. Depending on their nature and the trend in rates, they may have a positive or negative impact on the interest margin: if the bank is regularly a net daily borrower in times of falling rates, this will benefit its interest margin; should rates rise before the bank reverses its position, the opposite would occur.
As it is not possible to correctly forecast the trend in rates at all times, the interest rate risk must be managed through absolute authorised amounts of gaps for pre-defined periods in the future. At this level, there is a direct link between the volume and the remaining duration of the positions. ING Belgium uses several methods to control interest rate risk. The most important ones are Value at Risk (VaR) and Earnings at Risk (EaR). The bank constantly monitors its maturity profiles, interest rate sensitivity and VaR per dealer book. The use of internal models for calculating VaR is encouraged by the regulatory authorities.
The bank takes on exposure to foreign exchange fluctuations on its financial position and cash flows. Currency exposures in the non-trading books are largely transferred by way of internal transactions to Financial Markets Treasury, which performs the day-to-day management of all foreign currency positions.
7.6.5.4 Operational risk The ING Belgium Operational & Compliance Risk Department is the 2nd Line of Defence department within ING Belgium for the management of the non-financial risks (Operational and Compliance risks).
Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. It includes the risk of reputational loss, which is an indirect or 2nd order effect of operational risk. Operational risk in general is an umbrella category for a number of sub-risks derived from Basel II:
Control risk Unauthorised Activity risk Processing risk Employment Practice risk Personal & Physical Security risk Information (Technology) risk Continuity risk Compliance risk Internal Fraud risk External Fraud risk
Note that Compliance Risk is part of the Basel II definition of Operational Risk. However, within the ING setup Compliance risks are mentioned separately as different functional reporting lines exist for Compliance Risk Management versus Operational Risk Management.
ING Belgium SA/NV – Financial Report 2009 61 For managing risks the ING Executive Board has chosen the three lines of defence risk governance model.
7.6.5.4.2.1 First Line of Defence Heads of ING businesses have primary responsibility and accountability for the effective control of risks affecting their business (the ‘first line of defence’). The first line of defence is responsible for the implementation and execution of the ING’s risk policies, minimum standards and framework set by the second line of defence. Examples of typical first line of defence activities are:
Performing integrated risk assessments and evaluating related responses to ensure that only for the business acceptable risks remain; Implementing and maintaining the applicable mandatory controls of the CORM & Compliance policies, minimum standards, local laws and regulations; Ensuring the operating effectiveness of the key controls.
7.6.5.4.2.2 Second Line of Defence Risk management functions (the ‘second line of defence’) partner with and support the first line of defence's risk management activities. Risk management functions are 'independent' of the management and personnel that originate the risk exposures. Examples of typical second line of defence activities are:
Overseeing and objectively challenging the execution of risk management activities; Monitoring the key risks of the business; Having the authority to escalate risk management issues to next higher level / veto high risk business activity; Allocating specific accountability for risk responses; Assisting the first line of defence to ensure the compliance with the ING risk policies and minimum standards.
7.6.5.4.2.3 Third Line of Defence Corporate Audit Services (CAS) operates as the ‘third line of defence’. CAS’s mission is to provide an independent assessment of the design and effectiveness of internal controls over the risks to ING’s business performance. In carrying out this work CAS will provide specific recommendations for improving the governance, risk and control framework.
ING Belgium SA/NV – Financial Report 2009 62 The ING Belgium Operational & Compliance Risk Department is organised in five main divisions:
Retail Business Line Relationship Management Wholesale Business Line Relationship Management Operational & Compliance Risk Management OIB BE Risk Reporting Expert Centre Policies & Risk Advice The Expert Centre Special Investigations and the Anti-Fraud Officer
The Retail and Commercial Banking Business Line Relationship Management divisions consist of dedicated ORM and Compliance teams. Both the ORM and the Compliance teams are managed by a head who reports directly to the Head of ING Belgium Operational & Compliance Risk Department.
The Operational & Compliance Risk Management OIB BE division consist of the following teams: ORM OIB BE, Compliance OIB BE, IRM OIB BE, BCP OIB BE, ICO OIB BE, Generic Services OIB BE and Project OIB BE. All teams are managed by a head who reports directly to the Head of ING Belgium Operational & Compliance Risk Department.
The Risk Reporting division contains a number of centralised operational activities, being ORM and Compliance monitoring activities, the central reporting activities, the 2nd line customer screening activities, the branch control activities and the technical support activities for the tooling. The Head of the Risk Reporting team reports directly to the Head of ING Belgium Operational & Compliance Risk Department. The head of the Risk Reporting team is also the Money Laundering Reporting Officer (MLRO), reporting into both Retail and Commercial Banking for this purpose.
The Expert Centre Policies & Risk Advice division conducts a number of specialised activities: policies, Information Risk Management (IRM), Business Continuity Management (BCM), SOx Testing and training & communication. The Head of the Expert Centre Policies & Risk Advice reports directly to the Head of ING Belgium Operational & Compliance Risk Department.
The Special Investigations team is an expert centre headed by a team manager who reports directly to the Head of ING Belgium Operational & Compliance Risk Department. The Anti-Fraud Officer also reports directly to the Head of ING Belgium Operational & Compliance Risk Department.
The ING Belgium Operational & Compliance Risk Department has a number of functional reporting lines.
On the Retail side, the Head of ORM has a functional reporting line to the business line ORM Officer for Retail & Private Banking. The head of Compliance has a functional reporting line to the business line compliance officer Retail & Private Banking. Furthermore the head of compliance team is also the regional Compliance officer for all business units falling within the scope of ING BeLux Retail Region (ING Belgium Domestic Banking, Record Group and ING Luxembourg Retail & Private Banking). The head of the ORM team is also the regional ORM officer for all business units falling within the scope of BeLux Retail Region.
On the Commercial Banking side, the head of ORM has a functional reporting line to the business line ORM Officer Commercial Banking. The head of compliance has a functional reporting line to the business line compliance officer Wholesale Banking. Furthermore the head of compliance team is also the regional compliance officer for all business units falling within the scope of ING BeLux Commercial Banking Region (ING Belgium Commercial Banking and ING Luxembourg Commercial Banking). The Head of the ORM team is also the regional ORM officer for all business units falling within the scope of BeLux Commercial Banking Region.
The head of Operational & Compliance Risk Management OIB BE has a functional reporting line to the head of Operational & Compliance Risk Management OIB.
The MLRO has a functional reporting line to the Business Line MLRO of Retail.
ING Belgium SA/NV – Financial Report 2009 63 The head of the Special Investigations team has a functional reporting line to Corporate Security division within the Corporate ORM department.
The Anti-Fraud Officer has a functional reporting line to Corporate Security division within the Corporate ORM department.
The Expert Centre Policies & Risk Advice interacts with, supports and ensures the functional guidance of the relevant business line ORM and Compliance officers.
The head of Information Risk Management (IRM) has a functional reporting line to the business line Information Security Officers Retail Banking & Commercial Banking.
The head of Business Continuity Management (BCM) has a functional reporting line to the business line Security Officers Retail Banking & Commercial Banking.
7.6.6.1 Objectives ING Group Capital Management (Capital Management), the ultimate parent company of ING Belgium SA, is responsible for the sufficient capitalisation of ING Group entities at all times in order to manage the risk associated with ING’s business activities. This involves the management, planning and allocation of capital within ING Group. ING’s Corporate Treasury is part of Capital Management. It executes the necessary capital market transactions, term (capital) funding and risk management transactions. Capital Management monitors and plans capital adequacy on a consolidated basis at three levels: ING Group, ING Insurance and ING Bank. The rating objective for these three entities is AA. Capital Management takes into account the metrics and requirements of regulators (EU Solvency, Tier1 and BIS ratios and limits for hybrid capital), rating agencies (leverage ratios, Adjusted Equity), internal risk management models, market value balance sheets and Available Financial Resources (AFR).
ING applies three main capital definitions: Adjusted Equity (ING Group and ING Insurance) – This rating agency concept is defined as shareholders’ equity plus core Tier 1 securities, hybrid capital, prudential filters and an adjustment for Value in Force and Deferred Acquisition Cost. See ‘Capital Base’ disclosures in this section. This capital definition is applied in comparing available capital to core debt (leverage) for ING Group and ING Insurance. Core tier-1 capital, Tier 1 capital and total BIS capital (ING Bank) – Tier 1 capital is defined as shareholders’ equity including core Tier 1 securities plus hybrid capital less certain prudential filters and deductible items. Tier 1 and BIS capital divided by risk weighted assets equals the Tier 1 and BIS ratio respectively. Core Tier 1 capital is equal to Tier 1 capital excluding hybrid capital. AFR (ING Insurance) – This is a market value concept, defined as market value of assets (MVA) less the market value of liabilities (MVL) on the balance sheet. The liabilities do not include perpetual hybrid capital which are included in AFR as equity. The valuation of ING Insurance includes an adjustment for portfolio illiquidity. AFR is used as the measure of available capital in comparison with Economic Capital (EC) employed. Economic Capital, is the amount of capital that is required to absorb unexpected losses in times of severe stress given the ‘AA’ target rating of ING Insurance.
In prior years, ING also measured AFR for ING Bank and ING Group. However, during 2009 the management focus shifted mainly to regulatory and rating agency metrics for ING Bank (Core Tier 1, Tier 1, BIS) and ING Group (debt/equity). For ING Insurance, AFR continues to be important but has a lower priority than in previous years. For ING Insurance, the main focus is now on ensuring operating entities are adequately capitalised based on local regulatory and rating agency requirements and ensuring that on a consolidated basis, the leverage of ING Insurance (debt/equity) is appropriate.
7.6.6.2 Policies The activities of Capital Management are executed on the basis of established policies, guidelines and procedures. The main documents that serve as guidelines for capital planning are the Capital Letter (comprising the approved targets and limits for capital), the Capital Planning Policy, the Dividend Policy and the Capital Request Policy. For Corporate Treasury there are many policies and limits that guide the management of the balance sheets and the execution of capital market transactions.
The above-mentioned capital definitions and policies have been approved by the ING Group Executive Board or delegated authorities.
ING Belgium SA/NV – Financial Report 2009 64 7.6.6.3 Processes for managing capital In addition to measuring capital adequacy, Capital Management also ensures that sufficient capital is available by setting targets and limits relevant to the above-mentioned metrics for ING Bank, ING Insurance and ING Group and ensuring adherence to the set limits and targets through planning and executing capital management transactions. The process is supplemented by stress testing and scenario analysis. The ongoing assessment and monitoring of capital adequacy is embedded in Capital Management’s capital planning process and results in a quarterly Capital Adequacy Assessment Report which is presented to both the ING Group Finance and Risk Committee and Executive Board. The main objective of the assessment is to ensure that ING Group as a whole has sufficient capital relative to its risk profile both the short and medium term.
7.6.6.4 Capital adequacy requirements Capital is required to support credit and market risks. Market risk arises from all foreign exchange positions and all positions held for trading in interest rate instruments and equities, including risks on individual equities and traded debt obligations, such as bonds. ING Belgium computes this risk using a Value at Risk (VaR) model approved by the CBFA, from which the market risk capital requirement is derived. The adequacy of ING Belgium’s capital is monitored using, among other measures, the rules and ratios established by the Basel Committee on Banking Supervision (‘BIS rules/ratios’). The BIS ratios compare the amount of eligible capital (in total and Tier 1) with the total of risk-weighted assets (RWAs). Capital adequacy and the use of regulatory required capital are based on the guidelines developed by the Basel Committee on Banking Supervision (the Basel Committee) and European Community Directives as implemented by the CBFA. The minimum Tier 1 ratio is 4% and the minimum total capital ratio (known as the ‘BIS ratio’) is 8% of all risk-weighted assets, including off-balance-sheet items and market risk associated with trading portfolios.
Original Own Funds (Tier 1) 10.191,2 8.946,2
Additional Own Funds (Tier 2) 468,8 526,6
(Items to be deducted from Tier 1and Tier 2) -338,9 -285,1
Credit Risk 46.313,4 49.264,8
Settlement Risk -0,0 7,4
Market Risk 2.157,5 4.013,8
Operational Risk 6.650,0 6.580,0
Total Credit Risk 3.705,1 3.941,2
Settlement risk - 0,6
Market Risk 172,6 321,1
Operational Risk 532 526,4
Tier 1 Basel II 18,18% 14,71%
Total Capital Basel II 18,72% 15,35%
After 2007: Tier 1 Basel II with floor impact / Until 2007: Basel I 15,92% 11,97%
After 2007: Total Capital Basel II with floor impact / Until 2007: Basel I 16,40% 12,49%
ING Belgium SA/NV – Financial Report 2009 65 Total eligible capital 10.321,1 Total capital requirements 4.409,7
Total eligible capital 10.321,1 18,72%
7.6.6.5 Basel II (Pillar 3 Disclosure) As of January 2008, ING Belgium SA/NV has begun calculating its capital ratios under Basel II. Since ING Belgium is a major subsidiary of ING Group, limited Pillar 3 disclosure is required (Market Discipline) by the local regulatory supervisor, whereas Pillar 3 is being implemented in full at the group level.
Pillar 3 complements Pillar 1 (minimum capital requirements) and Pillar 2 (supervisory review process) by allowing market participants to assess the capital adequacy of a bank by using key pieces of information.
Share capital 2.939,2 2.946,6 Reserves and retained earnings 7.279,6 6.023,2 (-) Other deductions from Original Own Funds (intangible assets) -27,6 -23,6
(-) Deductions from original and additional own funds -285,1
7.6.6.5.2.1 Credit and transfer risk Economic Capital for credit risk and for transfer risk is the portion of Economic Capital held to withstand unexpected losses inherent in the credit portfolios related to (unexpected) changes in the underlying creditworthiness of debtors or the recovery value of underlying collateral (if any). Credit risk and transfer risk capital are calculated on all portfolios which contain credit or transfer risk, including investment portfolios.
Economic Capital for credit risk and for transfer risk is calculated using internally developed models with a 99.95% confidence level and a time horizon of one year, which represents ING’s desired credit rating.
ING uses a series of credit risk models that can be grouped into three principal categories: Probability of Default (PD) models, which measure the creditworthiness of individual debtors; Exposure at Default models (EAD), which estimate the size of the financial obligation at the moment of default in the future; and Loss Given Default Models (LGD), which estimate the recovery value of the underlying collateral or guarantees received (if any) and the unsecured part. The various models can be grouped into three categories: statistical, expert and hybrid. Each model is individually reviewed and validated annually by the Model Validation department (MV) in order to determine the continued viability or need to adjust each individual model.
The Economic Capital formula for credit and transfer risks relies on seven different risk drivers. In addition to the PD, EAD, and LGD models mentioned above, the formula also considers the industry and the country of the debtor as well as the remaining term of the respective underlying transactions. Lastly, the formula considers the correlation of the individual transactions to the portfolio as a whole. ING uses Monte Carlo simulation tools to determine certain parameters which are then applied to individual transactions in
ING Belgium SA/NV – Financial Report 2009 66 determining the level of Economic Capital related to credit and transfer risk in a bottom up approach. The correlations, which are updated quarterly, are determined at a business line level, and diversification effects are applied at the transactional level.
The underlying models used for determining Economic Capital for credit and transfer risk are the same as those used for determining the level of regulatory capital that is required under Basel II (Pillar 1). Despite the fact that the same underlying models are used, (internal) Economic Capital and regulatory capital are not the same due to various specific rules imposed by Basel II, such as regulatory caps and floors and the use of the standardised approach for certain portions of ING’s portfolio. These differences are permitted under the Basel II guidelines.
The table below summarises different capital measures used for different purposes and shows the difference in key elements and purposes.
Vortex Basel Regulatory Engine (‘VBE’) in Risk Weighted Basel II Formula 99.90% Basel II model outputs Capital the Central Risk Assets (RWA) Database
Basel II model outputs excluding Pricing, Risk Adjusted Vortex Risk Basel II caps and floors, as well Economic Capital Economic Capital (RAC) Engine (‘VRE’) in 99.95% as maturity, repayment for credit at Capital Closed Algebraic the Central Risk schedules, correlation factors, transactional Formula Database migration matrix. level and above
With regard to methodology, the EC-MC Portfolio calculator provides a sophisticated and consistent framework to measure capital numbers for credit risk. Because of its complexity and required calculation time, the EC-MC Portfolio calculator is more suited for portfolio calculation rather than implementation in an environment requiring real-time reporting at a transactional level for day-to-day management, pricing of new transactions and limit setting. As a result, Economic Capital figures are based on RAC figures that are derived from the EC-MC Portfolio calculator, but they are not fully equivalent. The main characteristics are:
- RAC is calculated at facility level with closed algebraic formulas rather than from a Monte Carlo simulation. The RAC algebraic formula includes parameters which incorporate the impact of portfolio dynamics, such as correlations and diversification effects. These parameters are derived through a regression of the outputs of the EC-MC portfolio calculator;
- Due to its proprietary nature, the inputs in the EC-MC portfolio calculator are subject to certain technical caps and floors (e.g. PD migration matrix is capped), which do not apply in RAC. Also, due to the implemented mathematical routines, the EC-MC portfolio calculator is subject to a minimum probability of default (PD) and maximum tenor, which do not apply in RAC.
Additionally, the banking operations use the RAC model to determine the optimal pricing on (new) lending transactions to ensure that ING meets its desired RAROC returns.
During 2009, the Economic Capital levels for credit and transfer risk were calculated on a weekly basis for most of the Commercial Banking portfolios and for the SME portfolios within the Retail Banking operations. For consumer loans and residential mortgages, the calculations are made on a monthly basis. On a monthly basis, the Economic Capital for credit risk and transfer risk figures are consolidated with the corresponding Economic Capital components from other disciplines.
Governance of Economic Capital for Credit and Transfer Risk:
All PD, EAD and LGD models are approved by the Credit Risk Committee (CRC) after thorough review of documentation by the Model Development Steering Committee (MDSG) and MV. In addition, each model is validated on an annual basis by MV. Each model has both a credit risk and a front office co-sponsor. Both the MDSG and the CRC have participation from both credit risk officers as well as the front office to ensure maximum acceptance by the organisation.
ING Belgium SA/NV – Financial Report 2009 67 7.6.6.5.2.2 Market risk General:
Economic Capital for market risk is the Economic Capital necessary to withstand unexpected value movements due to changes in market variables, such as interest rates, equity prices, foreign exchange rates, real estate prices and volatility in these rates and prices. Economic Capital for market risk is calculated for exposures both in trading portfolios and non-trading portfolios.
Measurement:
Economic capital for market risk is calculated using internally developed methodologies with a 99.95% confidence interval and a horizon of one year, which represents extreme events and ING’s rating. The Economic Capital for market risk for non-trading portfolios is calculated for each risk type, while for trading portfolios it is calculated on a portfolio level. The calculations for Economic Capital market risk include foreign exchange rate risk, equity price risk, interest rate risk and real estate risk.
For the direct market risks, the actual VaR (measured at a 99% confidence interval and a one-day holding) of the trading and non-trading portfolios is taken as a starting point for the Economic Capital calculations for market risk. To arrive at the Economic Capital for market risk, a simulation-based model is used which includes scaling to the required confidence interval and holding period. In determining this scaling factor, several other factors are also taken into account, such as the occurrence of large market movements (events) and management interventions.
Economic Capital for market risk for the large non-trading portfolios is calculated for embedded option risk (e.g. the prepayment option in mortgages).
The model risk is calculated by stressing the underlying assumptions in the models for behavioural assets and liabilities. For example for the model applied to mortgage portfolios, the quality of the hedge depends on assumptions with respect to prepayment behaviour. If these assumptions are wrong, the funding may be either too long or too short-term. Similar to the above, the Economic Capital for model risk is based on the estimated 99% confidence prepayment model error and the 99% confidence adverse interest rate change. Prepayment model risk for mortgage loans and model risk for on demand client deposits are included in the Business Risk category (and not anymore in the Market Risk category).
Buildings owned by ING that are not managed by ING Real Estate, are referred to as ‘Property in Own Use’. Since 2009, Economic Capital for Property in Own Use is included in the Economic Capital for market risk.
While aggregating the different Economic Capital market risk figures for the different portfolios, diversification benefits are taken into account as it is not expected that all extreme market movements will appear at the same moment.
The nature of market risk Economic Capital, which evaluates the impact of extreme stress with a 99.95% confidence level, can sometimes be difficult to evidence in a statistically sound manner with the available historical data. The Economic Capital figures disclosed by ING Belgium are a best-effort estimate based on available data and expert opinions.
ING Belgium SA/NV – Financial Report 2009 68 7.6.6.5.2.3 Operational risk Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. It includes the risk of reputation loss, as well as legal risk, whereas strategic risks are not included. While operational risk can be limited through management controls and insurance, many incidents still have a substantial impact on the profit and loss account of financial institutions. The capital model, an actuarial model, consists of a combination of three techniques:
1. Loss Distribution approach (LDA), which applies statistical analysis to historical loss data;
2. Scorecard approach, which focuses on the quality of risk control measures within a specific business unit;
3. ‘Bonus/Malus’ approach, which focuses on the actual operational incidents of a specific business unit.
1. Loss Distribution approach:
The main objective of the LDA approach is to derive an objective capital amount based on the size and the risk appetite of an institution and its business units. This approach estimates the likely (fat-tailed) distribution of operational risk losses over some future horizon for each combination of business line and loss event type. The main characteristic of the LDA is the explicit derivation of a loss distribution, which is based on separate distributions for event frequency (Poisson) and severity (Inverse Gaussian). The model uses both external and internal loss data above EUR 1 million.
The calculation of operational risk capitals for the units follows five basic principles:
- Principle 1: If the world gets riskier, the business units need more Economic Capital;
- Principle 2: If a business unit’s size increases, so does its capital;
- Principle 3: If the business of a business unit is more complex, it needs more capital;
- Principle 4: If the level of control of a business unit is higher, it needs less capital;
- Principle 5: If the business units’ losses from internal incidents exceed the level of expected loss accounted for in the first four framework principles, it needs more capital.
The capital calculated according to the first three is ‘generic’: if two business units operate in the same markets and have the same size, the resulting capital will be the same. The specific capital adjustments mentioned below adjust the generic capital of a specific institution to its specific operational risk capital.
2. Scorecard approach (principle 4):
The scorecard adjustment reflects the level of quality of control in a specific institution. Scorecards aim to measure the quality of key operational risk management processes. The scorecard procedure concerns questions that require quantitative data, qualitative judgements or simple yes/no questions (e.g. indicating compliance with certain group policies). The scorecards are completed by all business units using self-assessment and reviewed by an expert panel who determines the final score. The set of scorecards then leads to an increase or decrease of the capital of the specific institution.
3. ‘Bonus/Malus’ approach (principle 5):
Units are assigned additional capital if case losses from internal incidents exceed the level of expected losses that have been accounted for in the LDA. When actual losses are lower than expected, the capital will be decreased. Only internal incidents above EUR 1 million from the last five years are used. The Bonus/Malus adjustments are capped at + and – 20% to prevent large capital fluctuations in total ING capital.
ING Belgium SA/NV – Financial Report 2009 69 SA exposure classes excluding securitisation positions
Institutions
Corporates
Retail
IRB approaches when own estimates of LGD and/or Conversion Factors are used 3.338,0 3.521,8
Central governments and central banks 42,1 38,7
Institutions 754,9 1.031,0
Corporates 2.031,1 1.953,7
Retail 509,9 498,4
Equity IRB 22,8 19,2
Securitisation positions IRB 8,8 11,1
Other non credit-obligation assets 258,9 299,7
Credit risk 3.705,1 3.941,20
Settlement/delivery risk - 0,6
Position, foreign exchange and commodity risks 172,6 321,1
Operational risk 532,0 526,4
ING Belgium SA/NV – Financial Report 2009 70 7.7 Notes to the consolidated accounts
7.7.1.1 Assets
Cash and cash balances with central banks other than mandatory reserve deposits 2.153.238 966.934
Mandatory reserve deposits with central banks 2.950.155 2.597.542
Derivative instruments 22.558.004 32.198.938 Equity securities 509.270 881.878
Debt securities 1.663.107 3.365.620
Loans and advances 357.750 223.579
Accrued income 4.502.429 5.554.433
Equity securities 2.674 2.468 Debt securities 712.096 1.319.500
ING Belgium SA/NV – Financial Report 2009 71 Equity securities 80.928 78.387
Debt securities 24.414.955 27.336.262
Additions 10.097 32.186 1.348.804 5.375.449 1.358.901 5.407.635
Changes in the composition of the group - -259 --- -259
Transfers of asset/liabilities -1.524 23.941 -235.821 - -237.345 23.941 Unrealised gains (losses) from changes in fair value 3.520 -47.040 283.314 143.936 286.834 96.896 Provision for impairment -4.802 -13.586 -4.031 -29.808 -8.833 -43.394
Disposals - sales price -8.076 -66.858 -4.260.152 -6.972.689 -4.268.228 -7.039.547
Realised profits (losses) 3.356 -2.517 -53.114 744.599 -49.758 742.082
Exchange rate differences -2 4 -1.324 45.861 -1.326 45.865
Other changes -28 - 1.017 -50 989 -50
Central governments 261.570 113.765
Credit institutions 24.938.997 32.243.550
Non-credit institutions 4.972.826 5.617.246
Corporate 29.477.750 31.508.566
Retail 26.794.537 26.134.235
Accruals 1.151.263 1.140.542
ING Belgium SA/NV – Financial Report 2009 72 IRS - -2.150
Cross-currency swaps - 2.246
Other - -
Accruals 4.808 25.000
IRS 1.548.550 1.212.838
Cross-currency swaps - -
Other - -
Accruals 953.504 1.436.822
Additions 73.583 16.981 8.898 24.378 123.840 Disposals -20.236 -215 -770 -3.401 -24.622 Increases from revaluations -34.908 - - - -34.908 Impairment losses directly recognised or reversed in equity -----
Depreciation -30.323 -6.540 -6.729 -13.656 -57.248 Impairment losses recognised in the income statement -1.231 - - - -1.231 Impairment losses reversed in the income statement 7.881 - - - 7.881
Foreign currency conversion effects 115 -11 -2 59 161 Transfers from (to) investment property ----- Other changes -34.170 -415 -362 4.185 -30.762
Accumulated depreciation -687.933 -180.044 -105.306 -109.876 -1.083.159 Carrying amount under the cost model 523.415 - - - 523.415
ING Belgium SA/NV – Financial Report 2009 73 Additions 52.001 7.639 11.878 31.293 102.810 Disposals -4.947 -31 -150 -1.943 -7.071 Increases from revaluations -17.174 - - - -17.174 Impairment losses directly recognised or reversed in equity -----
Depreciation -37.113 -6.106 -5.655 -11.895 -60.769 Impairment losses recognised in the income statement -5.756 - - - -5.756 Impairment losses reversed in the income statement 20 - - - 20
Foreign currency conversion effects 2.836 48 30 154 3.068 Transfers from (to) investment property ----- Other changes -55 2 -85 64 -74
Accumulated depreciation -717.806 -178.412 -100.674 -103.778 -1.100.670 Carrying amount under the cost model 538.883 - - - -
Opening balance
Changes in the revaluation reserve during the year -6.193
Closing balance
Owner-occupied land and buildings 33
IT equipment 5
Office equipment 10
Other equipment 7
Cars 4
Minimal future lease payments 87.842 282.655 0 Net present value of minimal future lease payments 2.873 10.287 2.981
ING Belgium has financial leases for equipments and fittings. These leases have no purchase options. However there is a swaplease option. Indeed, ING Belgium is able to require the replacement of leased equipments by new ones for a predefined amount and at a predetermined date. ING Belgium does not sublet any of the leased assets.
ING Belgium SA/NV – Financial Report 2009 74 Acquisitions 446 67
Subsequent expenditures - -
Disposals -546 -
Net gains (losses) from fair value adjustments - -333
Foreign currency conversion effects - -
Other changes - -
-
Additions from internal development - 11.685 - - 11.685
Additions from separate acquisitions - - 3.214 - 3.214
Adjustments from business combinations - - - - -
Withdrawals & disposals - - - - - Adjustments resulting from subsequent recognition of - - - - - deferred tax assets Amortisation recognised - -6.853 -2.834 - -9.687
Impairment recognised in the income statement -4 - - - -4
Impairment reversed in the income statement - - - -0
Foreign currency conversion effects - - -13 - -13
Other movements - - -1.157 - -1.157
-
ING Belgium SA/NV – Financial Report 2009 75 -
Additions from internal development - 7.822 - - 7.822
Additions from separate acquisitions - - 3.830 - 3.830
Adjustments from business combinations - - -16 - -16
Withdrawals & disposals - -311 -45 - -356 Adjustments resulting from subsequent recognition of - - - - - deferred tax assets Amortisation recognised - -10.655 -3.276 - -13.931
Impairment recognised in the income statement -6 - - - -6
Impairment reversed in the income statement - - - - -
Foreign currency conversion effects - -5 -5
Other movements -1 -1
-
Deferred tax assets relating to:
Investments 187.145 57.895
Other provisions 72.070 103.568
Unused tax losses carried forward 8.650 13.542
Receivables 1.899 20.771
Property and equipment 33.640 37.142
Other 235.215 442.555
Other items mainly include deferred tax assets relating to negative adjustments on derivatives.
Gross deferred tax assets 675.472 - -167.841 57.228 -26.240 538.619
Write-downs - deferred tax assets -
Deferred tax liabilities -680.533 72 139.964 -155.643 29.337 -666.803
Net deferred tax assets (liabilities) -5.061 72 -27.878 -98.415 3.098 -128.184
ING Belgium SA/NV – Financial Report 2009 76 Total of unused tax losses carried forward 60.660 - 18.074 - 42.586
of which:
Unused tax losses carried forward not recognised as a deferred tax asset 35.257 - 18.074 - 17.183
Unused tax losses carried forward recognised as a deferred tax asset 25.403 - - - 25.403
Tax rate applicable 34.05%
Deferred tax asset recognised on unused tax losses carried forward 8.650
Total of unused tax losses carried forward 62.168 - - - 62.168
of which:
Unused tax losses carried forward not recognised as a deferred tax asset 22.502 ---22.502
Unused tax losses carried forward recognised as a deferred tax asset 39.666 ---39.666
Tax rate applicable 34.14%
Deferred tax asset recognised on unused tax losses carried forward 13.542
Currency translation reserve - - - Hedge of net investments in foreign operations reserve - - - Tangible fixed assets revaluation reserve - -98.990 Revaluation reserve available for sale 83.390 -284.736 Cash flow hedges 96.919 -
Share of the other comprehensive income of associates and - - - joint ventures accounted for using equity method
Other - - -
ING Belgium SA/NV – Financial Report 2009 77 21
BIENCA (Biotechnological Seneffe Pharmacy BE 0446.755.472 33.90% 2.648 551 -995 Enzymatic Catalyse) sa
BNL Food Investments Luxembourg Industry 46.78% 10.467 1.035 -1.027
Brand & Licence Company Brussels Services BE 0884.499.250 20.00% 151 21 35
CMOSIS Antwerpen Technology BE 0893.557.169 24.56% 582 168 -762
Elysées GNI Finance Landon(Fr) Finance 50501533900029 49.05% 13.199 11.653 -484
Europay Belgium Brussels Finance BE 0434.197.536 20.36% 16.400 15.046 13.594
Greetham Veurne Services BE 0887.439.439 44.76% 7.439 2.636 509
Groep Bruyninx SA Hasselt Services BE 0444.498.837 43.49% 8.042 4.721 145
M Brussels Village Brussels Real Estate BE 0473.370.886 24.59% 356 141 31
Sherpa Invest Bruxelles Finance BE 0878.752.692 20.00% 877 439 -50
Tax Shelter Partners SCRL Brussels Cultural BE 0892.760.383 100.00% 16 10 -
Tigenix Heverlee Pharmacy BE 0471.340.123 13.45% 34.951 3.736 -13.039
Unibioscreen SA Brussels Pharmacy BE 0466.013.437 23.94% 3.961 5.823 -4.783
Verbraeken Construction Temse Construction BE 0431.507.369 26.46% 9.333 3.050 6 Drilling (VC Drilling) NV
Vesalius Biocapital I SA Luxembourg Finance LU 0894.571.018 25.00% 31.697 1.261 121 SICAR
Vesalius Biocapital Partners Luxembourg Finance LU 0894.571.315 20.00% 527 447 50 SARL
Vitalo Holding (Plastic Meulebeke Materials - BE 0464.050.770 34.49% 6.971 61 49 Investment Cy) (Kortrijk) Chemicals
Aigle Aviation Luxembourg Leasing 75.00% 117.286 113.610 -11
Immomanda SA Brussels Services BE 0417.331.315 100.00% 709 627 361
INAXI Willebroek Services BE 0894.141.743 58.65% 12.412 8.773 -45
ING Insurance Solutions SA Brussels Insurances BE 0453.312.375 100.00% 1.814 963 -18
ING-Activator Fund Brussels Finance BE 0878.533.255 50.04% 3.749 32 -1.283
Logipar Evere Real Estate BE 0439.526.103 100.00% 1.399 79 57
Partimmo Brussels Real Estate BE 0414.384.493 100.00% 31 2 -3
SAS Marnix Invest Brussels Finance 36.13% 23.187 14.325 834
SAS SODIR Paris Finance 40.45% 35.004 12.392 2.877
21 Assets are not equal to liability because equity is not included. 22 Assets are not equal to liability because equity is not included. ING Belgium SA/NV – Financial Report 2009 78 XPats.com SA/NV Brussels Services BE 0473.525.888 50.00% 529 84 13
Additions 7.276 10.000 Changes in the composition of the group --41 Transfer 1.196 -25.004 Gains/(losses) from change in fair value 7.282 -7.484 Provision for impairment -2.444 -11.201 Disposals – sales price -1.734 -4.014 Realised gains and loss through the income statement 5 181 Exchange rate differences -58 99 Other changes 495 -1.381
Employee benefits 507 417
Servicing assets for servicing rights - -
Prepaid charges 45.802 29.000
Accrued income (other than interest income from financial assets) 161 5.558
Precious metals, goods and commodities - -
Other advances 481 2.237
Others 151.357 124.868
Other advances consist of tax receivables excluding corporate tax and VAT. Others mainly include securities for collection.
23 Assets are not equal to liability because equity is not included. ING Belgium SA/NV – Financial Report 2009 79 1.702.685
Financial assets 1.656.558
Revaluation reserve for tangible assets 30.446
Revaluation reserve for intangible assets 1.186
Investments in associates and joint ventures 2
Tax assets 1.299
Other assets 13.194
1.469.474
Financial liabilities 1.426.689
Provisions 2.983
Tax liabilities 26.800
Other liabilities 13.002
-
Financial & operating income and expenses 91.513
Administration costs -65.918
Depreciation -3.226
Provisions -7.633
Impairment 567
Pre-tax profit or loss 15.303
Income tax expenses -4.205
Post-tax profit or loss 11.098
Gain or loss on measurement at fair value less cost to sell -
Income tax related to the measurement -
The disposal of the Private Banking activities in Switzerland is part of the Back to Basics programme of ING Group which focuses on fewer core activities and reducing the complexity of the Group. An agreement to sell this activity to Julius Baer was announced on 7 October 2009. The sale closed on 14 January 2010 after having obtained regulatory approval.
ING Belgium SA/NV – Financial Report 2009 80 7.7.1.2 Liabilities
Derivatives 22.510.033 32.400.431
Short positions in fixed income securities 447.054 1.068.904
Accruals 4.953.444 5.425.859
Term deposits 602.581 1.703.372 33.165 31.795
Certificates of deposit 513.048 739.271 8.900 13.700
Non-convertible bonds – structured notes 3.318.544 3.120.684 76.992 15.536
Subordinated liabilities 329.564 469.160 7.100 13.000
Interests 35.902 47.931 - -
Current accounts/overnight deposits - 1.075.179 2.607.961 6.062.071 18.361.248 7.563.888 35.670.346
Deposits with agreed maturity - 34.219 9.316.022 3.515.495 3.951.652 4.324.717 21.142.105
Deposits redeemable at notice - - 3.881.797 - 489 6.318 3.888.603
Other deposits - - 2.086.789 209.136 1.860.093 27.672.286 31.828.305
Debt certificates including bonds - - - - 1.744.368 4.560.785 6.305.154
Subordinated liabilities - - 146.255 - - - 146.255
Other financial liabilities - - 656.084 - - - 656.084
Accrued expenses - 6.872 110.826 60.618 149.729 245.077 573.122
-
ING Belgium SA/NV – Financial Report 2009 81 Current accounts/overnight deposits - 970.632 5.283.580 5.441.171 14.375.296 6.817.806 32.888.486
Deposits with agreed maturity - 70.177 17.327.399 7.354.959 6.579.825 9.022.625 40.354.984
Deposits redeemable at notice - - 3.560.970 - 3.118 18.148 3.582.235
Other deposits - - 1.806.883 157.751 1.534.529 21.643.631 25.142.794
Debt certificates including bonds - - -6.485 - 2.834.031 3.886.978 6.714.524
Subordinated liabilities - - 132.550 - - - 132.550
Other financial liabilities - - 737.933 - - - 737.933
Accrued expenses - 10.697 287.554 133.135 231.171 385.431 1.047.988
-
Of which credit institutions 2.379.617 3.967.326
Of which other than credit institutions - -
Financial assets held for trading - 621.500 - - Financial assets designated at fair value through - - - - - profit or loss Financial assets available for sale - 1.736.854 - -
Loans and receivables - - - - -
Other - 7.920 - -
- - -
Financial assets held for trading - 639.207 - - Financial assets designated at fair value through - - - - - profit or loss Financial assets available for sale - 2.969.469 - -
Loans and receivables - - - - -
Other - 488.778 - -
- - -
ING Belgium SA/NV – Financial Report 2009 82 Interest rate swaps (IRS) 202.306 160.667
Cross currency swap - 285
Other - -
Accruals 81.427 73.858
Interest rate swaps (IRS) 1.833.837 1.336.580
Cross currency swap - -
Other - -
Accruals 847.425 1.102.101
-
Additions 31.881 24.451 14.322 - - 15.751 86.405
Amounts used -6.915 -19.534 -471 -4.590 - -27.591 -59.101
Unused amounts reversed during the -1.545 -780 -3.215 - -112.180 -12.044 -129.764 period
Acquisitions (disposals) through ------business combination
Increase in the discounted amount (passage of time) and effect of any ------change in the discount rate
Exchange differences - - - - - 46 46
Other movements - - 50 - - 6.428 6.478
As from 2009, a split was made in restructuring costs to reflect more precisely the cost of termination benefits (according to the definition of IAS19).
ING Belgium SA/NV – Financial Report 2009 83 -
Additions - 7.886 8.232 3.092 - 20.360 39.570
Amounts used - -9.170 -904 -4.681 - -9.098 -23.853
Unused amounts reversed during the - -2.383 -2.761 -698 -79.982 -7.173 -92.996 period
Acquisitions (disposals) through ------business combination
Increase in the discounted amount (passage of time) and effect of any ------change in the discount rate
Exchange differences - - 11 - - -365 -354
Other movements ------99 -99
-
Information on pension and other staff-related liabilities ING Belgium maintains defined-benefit retirement plans in the major countries in which it operates. These plans are all completely or partially funded by ING. They generally cover all employees and provide them with benefits upon retirement. Provided the assets are sufficient, the benefits from many of these plans are subject to some forms of indexation.
Annual contributions are paid to the funds at a rate that is necessary to adequately finance the accrued liabilities of the plans, calculated in accordance with local legal requirements. Plans in all countries comply with applicable local regulations concerning investments and funding levels. During 2010, the expected contributions to be paid by ING Belgium are estimated to be EUR 49.4 million. The bank provides certain employees with other post-employment and post-retirement benefits. These are primarily post-retirement health-care benefits and post-employment defined-benefit, early-retirement plans provided to employees and former employees.
Certain group companies also sponsor defined-contribution pension plans. The assets of all ING Belgium’s defined-contribution plans are held in independently administered funds. Contributions are generally determined as a percentage of pay. These plans do not give rise to balance sheet provisions, other than those relating to short-term timing differences included in current liabilities.
Present value of the defined benefit obligation -846.118 -1.007.919 -1.039.648 -1.195.835 -1.374078 Fair value of plan asset 664.310 692.202 838.676 1.018074 948.836 Surplus (deficit) in the plan -181.808 -315.717 -200.972 -177.761 -425.242 Experience adjustments arising on - Plan liabilities -33.914 -38.523 60.490 212.462 -60.308 - Plan assets 33.413 -136.855 -46.328 2.165 15.898
ING Belgium SA/NV – Financial Report 2009 84 Unrecognised past service cost - - Unrecognised gains (losses) 112.619 133.070 Net obligation for pensions and other post retirement benefits 69.132 182.645 Of which asset -507 -416 Of which liability 69.639 183.061
Current service costs -29.382 -32.065 Interest costs -50.352 -53.195 Employers contribution - - Employee’s contribution -2.497 -2.582 Benefits paid 155.962 150.328 Actuarial gains and losses recognised - - Actuarial gains and losses unrecognised -33.914 -38.523 Past service costs recognised -18.762 -76.960 Past service costs unrecognised -57 - Changes in the composition of the group 89.539 3.307 Effect of curtailment or settlement 49.218 93.510 Exchange differences 2.043 -12.088
Actuarial gains (losses) because of assumption change -50.982 7.152 Actuarial gains (losses) because of experience adjustment 17.067 -45.675
Expected return on plan assets 38.614 47.415 Employers contribution 131.683 76.750 Employee’s contribution 2.497 2.582 Benefits paid -155.962 -150.328 Actuarial gains and losses on plan assets 33.413 -136.855 Past service costs - - Changes in the composition of the group -76.514 -2.995 Effect of settlement - 5.792 Exchange differences -1.623 11.165
The primary financial objective of the ING Belgium employee benefit plan is to secure participant retirement benefits. As such, the key objective in the plan’s financial management is to promote stability and, to the appropriate extent, growth in funded status (i.e. the ratio of market value of assets to liabilities). The investment strategy for the plan’s portfolio of assets (the fund) balances the requirement to generate returns with the need to control risk. The asset mix is recognised as the primary mechanism to influence the reward and risk structure of the fund in an effort to accomplish the plan’s funding objectives. Desirable target allocations among identified asset classes are set and within each asset class, careful consideration is given to balancing the portfolio among industry sectors, geographies, interest rate sensitivity, dependence on economic growth, currency and other factors affecting investment returns. The assets are managed by professional investment firms. They are bound by precise mandates and measured ING Belgium SA/NV – Financial Report 2009 85 against specific benchmarks. Among managers, consideration is given, among others, to balancing security concentration, investment style, and reliance on particular active investment strategies. ING Belgium reviews the fund’s asset mix on a regular basis. The asset mix will be generally rebalanced to the target mix, as individual portfolios approach their minimum or maximum levels.
Equity securities 209.639 177.160 Debt securities 369.628 386.952 Real estate 32.417 36.743 Other 52.626 91.345
‘Other’ includes amounts that are not invested in equity, debt securities or real estate. It essentially represents cash.
The plan assets of ING Belgium do not include any property occupied by ING, nor any own financial instruments.
The actual return of plan assets is 12.07%
An important element for financial reporting is the assumption for return on assets (ROA). The ROA is updated at least annually, taking into consideration the plan’s asset allocation, historical returns on the types of assets held in the fund and the current economic environment. Based on these factors, it is expected that the fund’s assets will earn an average percentage per year over the long term. This estimation is based on an active return on a compound basis, with a reduction for administrative expenses and non-ING investment manager fees paid from the fund. For estimation purposes, it is assumed that the long-term asset mix will be consistent with the current mix. Changes in the asset mix could impact the amount of recorded pension income or expense, the funded status of the plan and the need for future cash contributions.
(In percent at 31 December)
Expected rate of return on plan assets 5.3 6.5 Discount rates 4.7 5.3 Consumer price inflation 2.0 2.0 Expected rates of salary increases (excluding promotional increase) 2.0 2.5
Investments 213.704 70.760
Financial assets and liabilities at fair value through profit or loss 140.459 296.181
Depreciation 3.663 4.133
Other provisions 115.870 82.978
Loans and advances to customers 35.940 48.808
Property and equipment 127.493 139.855
Other 29.674 37.818
Other deferred tax liabilities mainly relate to the positive fair value of non-trading derivatives.
ING Belgium SA/NV – Financial Report 2009 86 Employee benefits 31.266 34.772
Social security charges 269.029 287.243
Servicing liabilities for servicing rights 7.631 8.185
Leasing liabilities - -
Accrued charges (other than from interest expenses on financial liabilities) 64 8
Income received in advance 99.215 85.836
Other debts 827.377 1.185.684
Other 538.858 615.298
Other debts mainly consist of immediately payable debts along with deferred purchase prices. Other covers mainly includes suspense accounts and diverse taxes.
Members' shares in co-operative entities have some characteristics of equity. They also give the holder the right to request redemption for cash, although that right may be subject to certain limitations. Under IFRIC 2, shares for which the member has the right to request redemption are normal liabilities. The total amount relates to the third-party members’ shares in our co-operative entity Record Credit Services.
Issued capital 2.350.000 2.350.000 Share premium 451.511 451.511 Revaluation reserves 449.482 285.635 of which: • tangible assets revaluation reserve 203.017 235.657 • hedge of net investments in foreign operations reserve (effective) -29.961 -25.689 • foreign currency translation reserve 22.409 23.825 • cash flow hedge reserve (effective) -188.221 -82.229 • fair value revaluation reserve on financial assets available for sale 442.238 134.071 Reserves including retained earnings 6.039.682 5.464.820 Net profit or loss 1.238.741 904.766
Authorised unissued share capital - -
Issued share capital 55.414.550 2.350.000
Authorised unissued share capital - -
Issued share capital 55.414.550 2.350.000
ING Belgium SA/NV – Financial Report 2009 87 28.237.314 34.005.164
Financial assets held for trading - 11.772
Financial assets designated at fair value through profit or loss 1.048.736 1.323.533
Financial assets available for sale 3.330.864 4.895.650
Loans and receivables 4.875.120 7.796.088
Derivatives used for hedging - -
Other assets
28.231.854 33.632.895
Financial liabilities held for trading 146.120 163.613
Financial liabilities designated at fair value through profit or loss 1.803.668 4.405.826
Financial liabilities measured at amortised cost 4.823.384 7.693.670
Derivatives used for hedging - -
Other liabilities
Of which interest income on impaired financial assets -2.663 4.469
Securities 409.626 698.202
Asset management 36.994 45.996
Credit commitments 126.517 125.873
Custody 46.115 47.018
Payment services 99.074 94.428
Servicing fees from securitisation activities 5.618 420
Other 195.483 200.859
Securities 46.630 137.626
Asset management 2.154 163.738
Commissions to agents (acquisition costs) 154.803 149.792
Custody 5.733 6.313
Clearing and settlement 752 1.466
Other 70.063 65.183
Other fee and commission income include revenues related to Life insurance, Non life insurance and other financial services. Other fee and commission expenses mainly relate to payment transfer and credit commitments.
ING Belgium SA/NV – Financial Report 2009 88 Financial assets available for sale 45.661 70.244
Loans and receivables - -
Financial liabilities (excluding items held for trading) - -
Other - -
Financial assets available for sale -26.272 -51.096
Loans and receivables - -
Financial liabilities (excluding items held for trading) - -
Other - -
Equity instruments and related derivatives -161.177 -20.648
Interest rate instruments and related derivatives 429.283 239.619
Foreign exchange trading -1.793 14.605
Commodities and related derivatives 139 303
Trading liabilities - -
Other - -
Gains
Financial assets at fair value through profit or loss 29.327 10.498
Financial liabilities at fair value through profit or loss 76.889 106.667
Losses
Financial assets at fair value through profit or loss -53.101 -48.499
Financial liabilities at fair value through profit or loss -104.545 -139.191
24 Excluding interest flows for all items. 25 Excluding interest flows for all items ING Belgium SA/NV – Financial Report 2009 89 -
Fair value changes of the hedged item - 4.123 318.949 -
Fair value changes of the hedging derivatives (Including discontinuation) - 41.451 - 247.253
- -
Fair value changes of the hedging instrument - ineffective portion - 975 2.370 -
- - - -
Fair value changes of the hedging instrument - ineffective portion - - - -
-
Up to one year 165.884 65.445 One to five years 325.088 207.652 Over five years -57.716 305.666
Foreign exchange 60.347 43.377
Currency and interest rate swaps 145.184 29.278
Currency options -146.706 -13.957
Forward exchange rate contracts -3.998 3.307
Derecognition of tangible fixed assets 4.822 271
Derecognition of investments in associates, joint ventures and subsidiaries 8.010 161.847
Derecognition of tangible fixed assets -7.288 -4.311
Derecognition of investments in associates, joint ventures and subsidiaries - -70
ING Belgium SA/NV – Financial Report 2009 90 The year 2009 shows the sale of IPCM (05/2009), Euro Ré (07/2009), the liquidation of Williams De Broë (08/2009) and the derecognition of tangible fixed assets mostly due to write-downs on old office equipment.
Sale price 850 Net assets transferred -288 562
Sale price 22.669 Net assets transferred -18.684 3.985
2.668
Property, plant and equipment & investment property measured using the revaluation model - 12
Rental income from investment property 470 446
Other 195.688 90.087
Property, plant and equipment & investment property measured using the revaluation model - 345
Other 75.399 188.661
‘Other income’ includes among others retrocessions received on financial market transactions and recovered amounts on loans bought by the entity Fiducré. Other expenses mainly includes retrocessions paid on financial market transactions. The change in other income/other expense is due to the reversal of 2008 intercompany with an ING Group entity for an amount of EUR 108 million.
ING Belgium SA/NV – Financial Report 2009 91 Wages and salaries 695.032 720.195
Social security charges 181.076 175.477
Pension and similar expenses 51.855 29.987
Share based payments 7.734 12.377
Other 161.088 206.763
Wages and salaries: includes as from 2009 the performance related pay, which was previously reported in other (bonus). ‘Other’ includes social benefits & allowances, third-party staff remuneration, discretionary bonuses and employee education costs.
Current service costs 29.382 32.065 Past service costs 18.762 76.960 Interest expenses 50.352 53.195 Expected return on assets -38.614 -47.415 Amortisation of unrecognised past service costs - - Amortisation of unrecognised actuarial (gains)/losses 13.690 -18.991 Effect of curtailment or settlement -49.218 -99.301 Defined-benefit post-employment plans (1) 24.355 -3.487 Defined-contribution plans (2) 27.500 33.474 Of which defined contributions for the senior management 10.319 8.128
Defined-benefit plans are held by ING Belgium, Record Group, ING Contact Centre, ING Luxembourg and ING Bank (Switzerland).
Marketing expenses 36.622 41.366 Professional fees 39.704 52.654 IT expenses 134.057 147.856 Repair and maintenance 51.266 50.093 Accommodation expenses 45.428 39.831 Other taxes 120.238 97.696 Overhead costs charged by related parties 29.711 45.757 Other 169.561 198.163
‘Other’ covers among others the expenses related to telecommunication, freight, alterations and installations, contribution to the deposit insurance system, postal charges and offices supplies.
ING Belgium SA/NV – Financial Report 2009 92 Financial assets available for sale 3.527 43.396
Loans and receivables 217.351 99.687
Property, plant and equipment -6.650 5.736
Investment property - -
Goodwill and other intangible assets 46
Other - -
Investments in associates and joint ventures accounted for under the equity method 2.445 11.202
Equity securities 17.831 6.354
Debt securities 17.821 147
Loans and advances 1.290.292 947.289
Other financial assets 115.778 123.346
Current tax for the period 136.955 153.069 Adjustments for current tax of previous periods 41.240 -5.990 Previously unrecognised tax losses, tax credits, temporary differences reducing current tax - -
Deferred taxes arising from current period 29.117 93.634 Deferred taxes arising from changes in tax rates -1.110 1.571 Deferred taxes arising from the reversal of deferred tax assets - - Previously unrecognised tax losses, tax credits, temporary differences reducing deferred tax - - - - Tax expense (income) relating to changes in accounting policies and errors in P&L - - Taxes relating to the gain or loss on discontinuance of an operation - - Income tax expense of discontinued operations - -
ING Belgium SA/NV – Financial Report 2009 93 26 Amount of dividend decided to be paid next year 19.214 73.383 Portion of dividend subject to income tax 961 3.669 Parent company tax rate on distributed profits 33.99% 33.99% Income tax on dividend decided to be paid next year 327 1.247
Parent company share of unremitted income at year-end 1.333.599 1.134.554 Unremitted income on which no tax liabilities have been recognised 1.314.385 1.061.171 Portion of dividend that would be subject to income tax if paid 65.719 53.059 Parent company tax rate used on undistributed profits 33.99% 33.99% Income tax not recognised on unremitted income 22.338 18.035
Result before taxation - tax expense using statutory rate 1.446.896 1.147.067
Statutory tax amount 491.800 389.888
Tax effect of rates in other jurisdictions -22.013 -22.169 Tax effect of non-taxable revenues -271.465 -254.817 Tax effect of non-tax deductible expenses 68.215 217.934 Tax effect of utilisation of previously unrecognised tax losses - - Tax effect on tax benefit not previously recognised in profit or loss - - Tax effect from reassessment of unrecognised deferred tax assets - - Tax effect of change in tax rates -1.109 1.571 Tax effect from under or over provisions in prior periods 41.453 -2.857 Tax effect from notional interest -101.383 -91.896 Other increase (decrease) in statutory tax charge 705 4.630 206.202 242.284
26 Estimation based on the current payout ratio ING Belgium SA/NV – Financial Report 2009 94 7.7.3.1 Fair value of financial assets and liabilities The estimated fair values correspond with the amounts at which the financial instruments could have been traded on a fair basis at the balance sheet date between knowledgeable, willing parties in arm’s-length transactions. The fair value of financial assets and liabilities is based on quoted market prices, where available. Because substantial trading markets do not exist for all of these financial instruments, various techniques have been developed to estimate their approximate fair values. These techniques are subjective in nature and involve various assumptions about the discount rate and the estimates of the amount and timing of the anticipated future cash flows. Changes in these assumptions could significantly affect the estimated fair values. Consequently, the fair values presented may not be indicative of the net realisable value. In addition, the calculation of the estimated fair value is based on market conditions at a specific point in time and may not be indicative of future fair values.
If the estimated fair value is lower than the balance sheet value, a review has been performed to determine that the carrying amount is recoverable.
The following methods and assumptions were used by ING Belgium to estimate the fair value of the financial instruments.
Cash and cash balances with central banks 3.564.476 3.564.476
Financial assets designated at fair value through profit or loss 42.224.448 42.224.448
Financial assets held for trading 714.770 714.770 1.321.968 1.321.968
Available-for-sale financial assets 24.495.883 24.495.883 27.414.649 27.414.649
Loans and receivables 87.595.047 87.596.943 96.758.285 96.757.904
Other financial assets 2.506.862 2.506.862 2.674.756 2.674.756
Financial liabilities held for trading 27.910.531 27.910.531 38.895.194 38.895.194
Financial liabilities designated at fair value through profit or loss 4.799.639 4.799.639 6.080.418 6.080.418
Financial liabilities measured at amortised cost 100.210.170 100.209.974 110.601.565 110.601.494
Other financial liabilities 5.619.518 5.619.518 7.360.771 7.360.771
ING Belgium SA/NV – Financial Report 2009 95 Financial assets held for trading
Equity securities, debt securities, loans and advances
Level 1 2.536.790 4.471.077
Level 2 --
Level 3 --
Derivatives
Level 1 102.578 33.431.865
Level 2 26.700.954 4.321.506
Level 3 250.238 -
Financial assets designated at fair value through profit or loss
Equity securities and debt securities
Level 1 714.770 1.321.968
Level 2 --
Level 3 --
Derivatives --
Level 1 --
Level 2 --
Level 3 --
Available-for-sale financial assets
Debt securities
Level 1 23.386.183 25.848.080
Level 2 379.923 721.560
Level 3 648.849 766.622
Equity securities
Level 1 28.397 28.852
Level 2 52.425 49.429
Level 3 106 106
Derivatives used for hedging
Level 1 2.574.218
Level 2 2.506.862 100.538
Level 3
ING Belgium SA/NV – Financial Report 2009 96 Financial liabilities held for trading
Short positions in fixed income securities
Level 1 503.709 1.069.093
Level 2
Level 3
Derivatives
Level 1 71.205 33.292.294
Level 2 27.209.221 4.533.807
Level 3 126.396
Financial liabilities designated at fair value through profit or loss
Term deposits, certificates of deposit, non-convertible bonds – structured notes and subordinated liabilities
Level 1 3.343.555 3.525.336
Level 2 1.456.084 2.555.082
Level 3
Derivatives
Level 1
Level 2
Level 3
Financial liabilities associated with transferred assets and derivatives used for hedging
Financial liabilities associated with transferred assets
Level 1 4.687.280
Level 2 2.654.523
Level 3
Derivatives used for hedging
Level 1 93.525 2.628.909
Level 2 2.871.470 44.582
Level 3
ING Belgium SA/NV – Financial Report 2009 97 Financial assets held for trading - - 37.193.590 -
Equity securities, debt securities, loans and advances - - - -
Derivatives - -37.193.590 37.193.590 -
Financial assets designated at fair value through profit or loss - - - -
Equity securities and debt securities - - - -
Derivatives - - - -
Available-for-sale financial assets - - - -
Debt securities - - - -
Equity securities - - - -
Derivatives used for hedging - -2.508.500 2.508.500 -
Financial liabilities held for trading - -34.300.410 34.300.410 -
Short positions in fixed income securities - - - -
Derivatives - -34.300.410 34.300.410 -
Financial liabilities designated at fair value through profit or loss - - - -
Term deposits, certificates of deposit, non-convertible bonds – ---- structured notes and subordinated liabilities
Derivatives - - - -
Financial liabilities associated with transferred assets and derivatives - -4.717.846 4.717.846 - used for hedging
Financial liabilities associated with transferred assets - -4.687.280 4.687.280 -
Derivatives used for hedging - -30.566 30.566 -
In line with IFRS 7 Revised on the classification of fair value in a level 3 hierarchy, non-quoted derivatives in an active market (all derivatives except futures) previously reported in level 1 are reported in level 2, while some have been classified as level 3 when their fair value is based on some non market-observable input.
ING Belgium SA/NV – Financial Report 2009 98 Financial assets held for - - - - - 250.238 - - 250.238 trading
Securities ------
Derivatives - - - - - 250.238 - - 250.238
Financial assets ------designated at fair value through profit or loss
Securities ------
Derivatives ------
Available-for-sale 766.728 342.191 - - - 68.518 - 1.671 648.955 financial assets 530.153
Debt instruments 766.622 342.191 - - - 68.518 - 1.671 648.849 530.153
Equity instruments 106 ------106
Derivatives used for ------hedging
Financial liabilities held - - - - - 126.396 - - 126.396 for trading
Short positions in fixed ------income securities
Derivatives - - - - - 126.396 - - 126.396
Financial liabilities ------designated at fair value through profit or loss
Term deposits, ------certificates of deposit, non-convertible bonds – structured notes and subordinated liabilities
Derivatives ------
Financial liabilities ------associated with transferred assets and derivatives used for hedging
Financial liabilities ------associated with transferred assets
Derivatives used for ------hedging
ING Belgium SA/NV – Financial Report 2009 99 Gains and losses on financial assets and liabilities held for trading
Gains and losses on financial assets and liabilities designated at 3.500 -4.124 -624 fair value through profit or loss
Fair value adjustments in hedge accounting
Revaluation reserve available for sale - 2.295 2.295
Cash flow hedges
Impact of alternative assumptions reasonably possible that would change fair value significantly
7.7.3.1.1.1 Cash and balances with central banks The carrying amount of cash equals its fair value.
7.7.3.1.1.2 Financial assets at fair value through profit or loss and held for trading The fair values of securities in the trading portfolio and other assets at fair value through profit and loss are based on quoted market prices, where available. For those securities not actively traded, fair values are estimated based on internal discounted cash flow pricing models, taking into account current cash flow assumptions and the counterparties’ credit standings.
7.7.3.1.1.3 Financial assets available for sale The fair values of equity securities are based on quoted market prices or, if unquoted, on estimated market values generally based on quoted prices for similar securities. Fair values for fixed income securities are based on quoted market prices, where available. For those securities that ere not actively traded, fair values are estimated based on values obtained from private pricing services or by discounting expected future cash flows using a current market rate applicable to the yield, credit quality and maturity of the investment.
7.7.3.1.1.4 Loans and advances For loans and advances that are frequently repriced and have had no significant changes in credit risk, carrying amounts represent a reasonable estimate of fair values. The fair values of other loans are estimated by discounting expected future cash flows, using interest rates offered for similar loans to borrowers with similar credit ratings. The fair values of non-performing loans are estimated by discounting the expected cash flows of recoveries. The fair values of mortgage loans are estimated by discounting future cash flows, using interest rates currently being offered for similar loans to borrowers with similar credit ratings. The fair values of fixed- rate policy loans are estimated by discounting cash flows at the interest rates charged on policy loans of similar policies currently being issued. Loans with similar characteristics are aggregated for purposes of the calculations. The fair values of variable-rate policy loans are approximately their carrying values.
ING Belgium SA/NV – Financial Report 2009 100 7.7.3.1.1.5 Other financial assets The carrying amount of other financial assets is approximately their fair value.
7.7.3.1.2.1 Financial liabilities at amortised cost The fair value of the financial liabilities at amortised cost is estimated using discounted cash flows based on interest rates that apply to similar instruments.
7.7.3.1.2.2 Financial liabilities at fair value through profit or loss and held for trading The fair values of securities in the trading portfolio and other liabilities at fair value through profit or loss are based on quoted market prices, where available. For those securities that are not actively traded, fair values are estimated based on internal discounted cash flow pricing models, taking into account current cash flow assumptions and the banks’ credit standings.
7.7.3.1.2.3 Other financial liabilities The carrying amount of other liabilities is approximately their fair value.
Derivatives used for hedging 3.52% 96.48% 0.00% 27 Trading assets 8.92% 90.23% 0.85% Financial assets at fair value through profit and loss 100.00% 0.00% 0.00% Available for sale investments 95.59% 1.76% 2.65%
Derivatives used for hedging 1.66% 98.34% 0.00% Trading liabilities 2.06% 97.49% 0.45% Financial liabilities at fair value through profit and loss 69.66% 30.34% 0.00%
27 Reverse repurchase agreements have been included in this category. Since these are short-term transactions, notional value equals fair value. ING Belgium SA/NV – Financial Report 2009 101 Derivatives used for hedging 95.81% 4.19% 0.00% Trading assets 28 85.63% 14.37% 0.00% Financial assets at fair value through profit and loss 100.00% 0.00% 0.00% Available for sale investments 94.50% 2.67% 2.83%
Derivatives used for hedging 99.35% 0.65% 0.00% Trading liabilities 83.49% 16.51% 0.00% Financial liabilities at fair value through profit and loss 57.98% 42.02% 0.00%
7.7.3.2 Off-balance-sheet commitments In the normal course of business, ING Belgium is a party to activities whose risks are not reflected in whole or part in the consolidated financial statements.
Guarantees relate to both credit and non-credit substitute guarantees. Credit-substitute guarantees are guarantees given by ING Belgium in respect of credits granted to customers by a third party. Many of them are expected to expire without being drawn on and therefore do not necessarily represent future cash outflows.
The guarantees are generally of a short-term nature. In addition to the items included in contingent liabilities, ING Belgium has issued guarantees as a participant in collective arrangements of national industry bodies and as a participant in government-required collective deposit guarantee schemes which apply in different countries. Irrevocable letters of credit mainly secure payments to third parties for foreign and domestic trade transactions of a customer in order to finance a shipment of goods. ING Belgium’s credit risk in these transactions is limited since they are collateralised by the commodity shipped and are of a short duration.
Other contingent liabilities mainly relate to acceptances of bills and are of a short-term nature.
Irrevocable facilities mainly constitute unused portions of irrevocable credit facilities granted to corporate clients. Many of these facilities are for a fixed duration and bear interest at a floating rate. ING Belgium’s credit risk in these transactions is limited. Most of the unused portion of irrevocable credit facilities is secured by customers’ assets or counter-guarantees by the central governments and exempted bodies under the regulatory requirements. Irrevocable facilities also include commitments made to purchase securities to be issued by governments and private issuers.
28 Reverse repurchase agreements have been included in this category. Since these are short-term transactions, notional value equals fair value. ING Belgium SA/NV – Financial Report 2009 102 Given 25.875.764 25.444.343
Received - 14.629
Guarantees given 10.880.263 9.389.381
Guarantees received 65.103.552 76.161.017
Credit derivatives given - -
Credit derivatives received 1.137.249 509.392
Given - -
Received 3.189.228 -
7.7.3.3 Share based payment Through the Long term Equity Ownership (Leo) plan, which has existed since 2004, ING Group NV offers stock options and performance shares to a number of staff members worldwide.
Main characteristics Stock options: - gives the participant the right to buy a number of stock shares of ING Group NV equal to the number of options owned at a predefined exercise price; - an exercise period of 10 year as from the date of receiving the reights, which can be reduced to 5 year upon the initiative of the participant; - a vesting period of 3 years as from the date of receiving the rights; - exercise by means of delivering ING Group NV stock shares to the participant, immediately followed by the sale of them or by placing them in a brokerage account after payment of the exercise price.
Performance shares: - offering of a number of performance shares on stock shares of ING Group NV for which the final number of performance shares depends on the relative position of ING’s Total Shareholder Return (TSR) within the TSR of a group of our peers; - vested at the end of the 3-year performance period; - settlement made on the basis of a distribution election (sell all/retain all/sell some).
Granted 1.292.782 1.070.785 2,83 22,09
Exercised 2.558 57.362 2,90 15,70
Forfeited 144.280 64.139 18,80 28,96
Rights issue 1.871.152 - -
Expired 27.100 - 13,74 -
ING Belgium SA/NV – Financial Report 2009 103 0,00-5,00 1.930.242 5,29 2,77 5,00-10,00 651.619 3,36 9,62 10,00 – 15,00 684.593 0,24 14,39 15,00 – 20,00 2.694.401 3,06 17,45 20,00 – 25,00 1.041.199 3,39 24,18 20,00 – 30,00 1.062.889 2,38 25,11 30,00 – 35,00 - - - 35,00 – 40,00 - - -
Expense arising from share based payments 7.780 Expense arising from cash transactions - - total nominal amount at the end of the year 303 - total intrinsic value at the end of the year 153
The fair value of granted options is recorded as a staff cost expense and is allocated over the vesting period of options. The fair value of those options is determined using a Monte Carlo simulation. This model takes into account the risk-free interest rate (2.64% - 4.62%), the estimated life of the options (4,5 to 8 years), the exercise price, the current price of the share (3,78 EUR – 25,89 EUR), the estimated volatility of the certificates of ING Group share (24.57% - 83.50%) and the estimated return on dividend (0.94% - 8.99%).
ING Belgium SA/NV – Financial Report 2009 104 7.7.3.4 Related party disclosures
Current accounts 1.846.533 - - - 10.087
Term loans 17.874.067 15.913 4.195 - 474.532
Finance leases - - - - -
Consumer credit - - 67 - 835
Mortgage loans - - - - 724
Other 660.829 - - 47.588 206
- - -
Trading securities 7.263.360 - - - -
Investment securities 667.064 3.504 - - -
- - - - -
-
-
Deposits 6.010.394 526 40.674 - 179.379
Other borrowings 2.387.757 - - - -
- - - - -
6.940.783 - - - -
- - - - -
- - - - -
Granted - - - - -
Exercised - - - - -
- - - -
- -
- - - -
- - - - -
29 The column “Subsidiaries” contains the information related to non consolidated subsidiaries, previously included in column ‘Other related parties’ ING Belgium SA/NV – Financial Report 2009 105 Interest expenses 404.318
Foreign exchange -
Fees and commissions 36.845
Rendering of services -
Purchase of goods, property and other assets -
Transfers -
Other 5.202
Interest income 794.771
Foreign exchange 246.473
Fees and commissions 13.120
Dividend income -
Receiving of services -
Sales of goods, property and other assets -
Transfers -
Other 114.625
-
7.7.3.5 Legal proceedings ING Belgium and its subsidiaries are involved in litigation proceedings in Belgium and in foreign jurisdictions involving claims by and against them which arise in the ordinary course of their business, including in connection with their activities as lenders, investors and taxpayers. In certain of such proceedings, large or indeterminate amounts are sought, including punitive and other damages. While it is not feasible to predict or determine the ultimate outcome of all pending or threatened proceedings, management does not believe that their outcome will have a material adverse effect on ING Belgium’s financial position or results of operation.
In Belgium, these legal proceedings include a pending dispute over an alleged responsibility of the bank in the framework of a third-party fraud, relating to fraudulent fund collection by this third party processed through the bank.
These proceedings also include several disputes over alleged responsibilities of the bank in the framework of so-called fraudulent cash company transaction schemes, some involving criminal court actions against some ING Belgium employees.
Judicial proceedings have also been instituted against ING Belgium by a group of investors led by a lawyer and a specialised company in this type of action regarding speculative investments in financial derivatives.
In Luxembourg, ING Luxembourg is confronted with several disputes over an alleged responsibility of the bank concerning fraud by an ex-employee in the area of fraudulent fund collection.
ING Luxembourg is also involved in criminal proceedings in Belgium in relation to a so-called fraudulent cash company transaction scheme.
ING Belgium SA/NV – Financial Report 2009 106 7.7.3.6 Auditor’s remuneration Ernst & Young Bedrijfsrevisoren BCVBA / Réviseurs d’entreprises SCCRL is the auditor of ING Belgium. The table below shows audit and non-audit fees for the group ING Belgium SA/NV for the year 2009.
The auditors and related professional working partners
1. Auditors’ fees 2.178.936 1.1 Fees for the exercise of the audit mandate 1.284.736
1.2 Fees for extraordinary duties or special assignments executed for the group 894.200
a. Other control assignments 869.200
b. Tax advice assignments 25.000
c. Other non-audit assignments -
2. Professional working partners’ fees 699.225
2.1 Fees for the exercise of the audit mandate 510.700
2.2 Fees for extraordinary duties or special assignments executed for the group 188.525
a. Other control assignments 188.525
b. Tax advice assignments -
c. Other non-audit assignments -
All fees were expressly approved by the Audit Committee of ING Belgium SA/NV and the Audit Committee of ING Group N.V. (Amsterdam).
7.7.4.1 Breakdown of remuneration paid to members of the Board of Directors The Annual General Meeting held on 25 April 2001 fixed the remuneration of each member of the Board of Directors at EUR 32.000. This remuneration applies for executive as well as for non-executive Directors.
By a decision of the Board, members appointed as Honorary Directors are entitled to a pension of EUR 300 for each year served, subject to a maximum of EUR 7.500.
Non-executive board members are not entitled to any termination indemnity.
The total remuneration allocated to the serving Directors of the Board for 2009 amounts to EUR 686.500.
Total remuneration allocated as pension to honorary directors in 2009 amounts to EUR 92.425.
7.7.4.2 Loans and advances to members of the Board of Directors
Loans and advances 1.022 336
ING Belgium SA/NV – Financial Report 2009 107 7.7.4.3 Breakdown of remuneration paid to members of the Executive Committee Total compensation for members of the Executive Committee consists of three basic components:
- The base salary, which represents the total guaranteed annual income;
- A short-term incentive, paid in cash, to reward past performance measured over one year;
- A long-term incentive, paid in stock options and performance shares, which compensates for performance measured over multiple years and is forward-looking.
In addition to the base salary and incentive plans, the members of the Executive Committee also enjoy benefits similar to those granted to most other employees of ING Belgium, such as medical insurance, use of company cars and representation allowances.
Base salary 2.410 2.040 Short-term incentive 856 1.350 Long-term incentive 1.956 650 Post-employment benefits 510 675
Compared with 2008, the increase in base salary is related to the inclusion of the director’s percentage of profits in the total and also to the increase of the number of people in scope.
Long-term incentive As already mentioned, the long-term incentive plan is granted with a total ‘fair value’ split between stock options and performance shares: - Stock options have a total maturity of a maximum of ten years and a vesting period of three years. - Performance shares are conditionally granted; the number of shares ultimately granted at the end of a 3-year performance period depends on ING Group’s Total Shareholder Return (TSR) over three years, relative to the TSR performance of a pre-defined peer group.
7.7.4.4 Pension scheme for members of the Executive Committee The pensions of the (non-expatriate) members of the Executive Committee are based on two group insurance plans and a top-hat insurance plan.
The first group insurance is a defined-benefit plan, which is insured through a contract with Winterthur- Europe Assurances SA/NV. The pension scheme provides retirement and pre- and post-retirement survivor’s pensions or their lump-sum equivalent. The target-defined pension is set at 50% of the average of the five last yearly base salaries.
The second group insurance is a defined-contribution plan, which is insured through a contract with AXA Belgium SA/NV.
The top-hat insurance is insured partly through a contract with Winterthur-Europe Assurances SA/NV.
ING Belgium SA/NV – Financial Report 2009 108 7.7.4.5 Other principal contractual stipulations regarding remuneration of members of the Executive Committee If an individual’s office as a member of the Executive Committee is terminated otherwise than through retirement, dismissal or serious misconduct, remuneration will be paid to equal two times the base salary and the short-term incentive.
In case of long-term illness, the Executive Committee member will receive 100% of his last base salary during the first 12 months, 90% during the next 12 months, and 50% afterwards.
No termination allowance or long-term illness allowances were paid in 2009.
In 2010 ING Belgium will comply with CBFA regulations regarding disclosure of remunerations.
ING Belgium SA/NV – Financial Report 2009 109 7.8 Verslag van de commissaris aan de algemene vergadering der aandeelhouders van ING België NV over de geconsolideerde jaarrekening over het boekjaar afgesloten op 31 December 2009
ING Belgium SA/NV – Financial Report 2009 110 ING Belgium SA/NV – Financial Report 2009 111 ING Belgium SA/NV – Financial Report 2009 112 ING Belgium SA/NV – Financial Report 2009 113 7.9 Rapport du commissaire à l’Assemblée Générale des actionnaires de la société ING Belgique SA sur les comptes consolidés pour l’exercice clos le 31 décembre 2009
ING Belgium SA/NV – Financial Report 2009 114 ING Belgium SA/NV – Financial Report 2009 115 ING Belgium SA/NV – Financial Report 2009 116 ING Belgium SA/NV – Financial Report 2009 117