20-F 1 ing20f2020.htm FORM 20-F ing20f2020
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
 
(Mark One)
 
☐
REGISTRATION
 
STATEMENT
 
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
 
☒
ANNUAL REPORT PURSUANT TO
 
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended 31 December 2020
 
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION
 
13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
 
☐
SHELL COMPANY REPORT
 
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 001-14642
ING GROEP N.V.
 
(Exact name of Registrant
 
as specified in its charter)
 
ING GROUP
 
(Translation
 
of Registrant’s
 
name into English)
 
The Netherlands
 
(Jurisdiction of incorporation or organization)
ING Groep N.V.
 
Bijlmerdreef 106
 
1102 CT Amsterdam
 
P.O.
 
Box 1800, 1000 BV Amsterdam
 
The Netherlands
 
(Address of principal executive offices)
 
 
Erwin Olijslager
 
Telephone:
 
+31 20 564 7705
 
E-mail: Erwin.Olijslager@ing.com
 
Bijlmerdreef 106
 
1102 CT Amsterdam
 
The Netherlands
 
(Name, Telephone,
 
E-mail and/or Facsimile number and Address
 
of Company Contact Person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act.
 
Title of each class
Trading symbols
Name of each exchange on which
registered
American Depositary Shares
ING
New York Stock Exchange
Ordinary shares
New York Stock Exchange
(i)
3.150% Fixed Rate Senior Notes due 2022
ING22
New York Stock Exchange
3.950% Fixed Rate Senior Notes due 2027
ING27
New York Stock Exchange
Floating Rate Senior Notes due 2022
ING22A
New York Stock Exchange
Floating Rate Senior Notes due 2023
ING23A
New York Stock Exchange
4.100% Fixed Rate Senior Notes due 2023
ING23
New York Stock Exchange
4.550% Fixed Rate Senior Notes due 2028
ING28
New York Stock Exchange
3.550% Fixed Rate Senior Notes due 2024
ING24
New York Stock Exchange
4.050% Fixed Rate Senior Notes due 2029
ING29
New York Stock Exchange
 
(i)
 
Not for trading, but only in connection with
the registration of American Depositary Shares representing such
ordinary shares, pursuant to the requirements of the Securities and Exchange Commission.
 
Securities registered or to be registered pursuant
 
to Section
 
12(g) of the Act.
 
 
None
 
Securities for
which there is a reporting obligation pursuant to Section
 
15(d) of the Act.
 
None
 
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the
close of the period covered by the annual report.
 
 
Ordinary
Shares, nominal value EUR 0.01 per Ordinary Share
 
 
 
 
3.900.668.
6
35
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer,
 
as defined in Rule 405 of the Securities
Act.
 
 
 
 
 
 
 
 
 
 
 
☐
 
Yes
☒
 
No
 
If this report is an annual or transition report, indicate by check mark if the registrant
 
is not required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 193
 
 
 
 
 
 
 
 
 
 
 
☐
 
Yes
☒
 
No
 
 
Note — Checking the box above will not relieve any registrant
 
required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections
.
 
 
Indicate by check mark whether the registrant (1) has filed all reports required
 
to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to
 
file such reports), and (2) has been subject to such filing requirements for the past 90
days.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
☒
 
Yes
☐
 
No
 
 
Indicate by check mark whether the registrant has submitted
 
electronically every Interactive Data
 
File required to
be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
 
months
(or for such shorter period that
 
the registrant was required to submit and post
 
such files).
 
 
 
 
 
 
 
 
 
 
☒
 
Yes
☐
 
No
 
 
Indicate by check mark whether the registrant is a large accelerated
 
filer, an accelerated
 
filer, a non-accelerated
filer, or an emerging growth
 
company. See definition of “large
 
accelerated filer,”
 
accelerated filer,”
 
and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
☒
 
Accelerated filer
☐
 
Non-accelerated filer
☐
 
 
Emerging growth company
☐
 
 
If an emerging growth company that prepares its financial statements
 
in accordance with U.S. GAAP,
 
indicate by
check mark if the registrant has elected not to use the extended transition
 
period for complying with any new or
revised financial accounting standards† provided pursuant
 
to Section 13(a) of the Exchange Act.
☐
 
 
†
The term “new or revised financial accounting standard” refers
 
to any update issued by the Financial
Accounting Standards Board to its Accounting Standards Codification
 
after April 5, 2012.
 
 
Indicate by check mark whether the registrant has filed a report on and attestation
 
to its management’s
assessment of the effectiveness of its internal control
 
over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting
 
firm that prepared or issued its audit
report.
☒
 
 
Indicate by check mark which basis of accounting the registrant has used to prepare
 
the financial statements
included in this filing:
 
 
U.S. GAAP
☐
 
International Financial Reporting Standards as issued
by the International Accounting Standards Board
☒
 
Other
 
☐
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial
statement item the registrant
 
has elected to follow.
 
☐
 
Item 17
☐
 
Item 18
 
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined
 
in Rule
12b
-
2 of the Exchange Act).
 
 
 
 
 
 
☐
 
Yes
☒
 
No
 
 
 
ing20f2020p3i0.gif ing20f2020p3i1.gif
ING GROUP
Annual Report 2020 on Form 20-F
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
5
 
PRESENTATION
 
OF INFORMATION
In this Annual Report, and unless otherwise stated or the context otherwise dictates,
 
references to "ING Groep
N.V.",
 
"ING Groep" and "ING Group" refer to ING Groep N.V.
 
and references to "ING", the "Company", the
"Group", "we" and "us" refer to ING Groep N.V.
 
and its consolidated subsidiaries. ING Groep N.V.'s
 
primary
 
banking subsidiary is ING Bank N.V.
 
(together with its consolidated subsidiaries, "ING Bank"). References to
"Executive Board"
 
and "Supervisory Board" refer to the Executive Board or Supervisory Board of ING Groep N.V.,
respectively.
 
ING presents its consolidated financial statements in euros, the
 
currency of the European Economic and
Monetary Union. Unless otherwise specified or the context otherwise requires, references
 
to “$”,
 
“US$” and
“Dollars” are to the United States dollars and references
 
to “EUR” are to euros.
 
 
ING prepares financial information in accordance with International
 
Financial Reporting Standards as issued by
the International Accounting Standards Board (“IFRS-IASB”) for
 
purposes of reporting with the U.S. Securities and
Exchange Commission (“SEC”), including financial information contained in this Annual Report on Form 20-F.
 
ING
Group’s accounting policies and its use of various options under IFRS
 
-IASB are described under ‘Principles of
valuation and determination of results’ in the consolidated financial statements.
 
In this document the term “IFRS-
IASB” is used to refer to IFRS-IASB as applied by ING Group.
 
 
The published 2020 Annual Accounts of ING Group, however,
 
are prepared in accordance with IFRS-EU. IFRS-EU
refers to International
 
Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”), including
the decisions ING Group made with regard to the options available under IFRS as adopted
 
by the EU (IFRS-EU).
 
IFRS-EU differs from IFRS-IASB,
 
in respect of certain paragraphs in IAS 39 ‘Financial Instruments: Recognition and
Measurement’ regarding hedge accounting for portfolio hedges of interest
 
rate risk. Under IFRS-EU, ING Group
applies fair value hedge accounting for portfolio hedges of interest
 
rate risk (fair value macro hedges) in
accordance with the EU “carve-out” version of IAS 39. Under the EU “IAS 39 carve-out”,
 
hedge accounting may be
applied, in respect of fair value macro hedges, to core deposits and hedge ineffectiveness
 
is only recognised
when the revised estimate of the amount of cash flows in scheduled time buckets
 
falls below the original
designated amount of that bucket, and is not recognised when the revised amount of cash
 
flows in scheduled
time buckets is more than the original designated amount. Under IFRS-IASB, hedge accounting
 
for fair value
macro hedges cannot be applied to core deposits and hedge ineffectiveness
 
arises whenever the revised
estimate of the amount of cash flows in scheduled time buckets is either more or less than the original
designated amount of that bucket. IFRS-IASB financial information
 
is prepared by reversing the hedge accounting
impacts that are applied under the EU “carve-out”’ version of IAS 39. Financial information under IFRS-IASB
accordingly does not take account of the possibility that, had ING Group applied IFRS-IASB as its primary
accounting framework, it might have applied alternative
 
hedge strategies where those alternative hedge
strategies could have qualified for IFRS-IASB
 
compliant hedge accounting. These decisions could have resulted in
different shareholders’ equity and net result amounts
 
compared to those indicated in this Annual Report on
Form 20-F.
 
Other than for the purpose of SEC reporting, ING Group intends to continue to prepare
 
its Annual Accounts
under IFRS-EU. A reconciliation between IFRS-EU and IFRS
 
-IASB for shareholders’ equity and net result is included
in Note 1 ‘accounting policies’ to the consolidated financial statements.
 
Certain amounts set forth herein, such as percentages, may
 
not sum due to rounding.
 
This Annual Report on Form 20-F contains inactive textual addresses to Internet
 
websites operated by us and
third parties. Reference to such websites
 
is made for information purposes only,
 
and information found at such
websites is not incorporated by reference
 
into this Annual Report on Form 20-F.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
6
 
CAUTIONARY STATEMENT
 
WITH RESPECT
TO FORWARD
 
-LOOKING STATEMENTS
Certain of the statements contained herein
 
are not historical facts, including, without limitation, certain
statements made of future expectations
 
and other forward-looking statements that
 
are based on management’s
current views and assumptions and involve known and unknown risks and uncertainties that
 
could cause actual
results, performance or events to differ materially
 
from those expressed or implied in such statements. Actual
results, performance or events may differ
 
materially from those in such statements due to a number of factors,
including, without limitation,
 
●
 
changes in general economic conditions, in particular economic conditions in ING’s
 
core
markets, including changes affecting currency exchange
 
rates,
●
 
the effects of the COVID-19 pandemic and related response
 
measures, including lockdowns and
travel restrictions, on economic conditions in countries in which ING operates,
 
on ING’s business
and operations and on ING’s employees, customers
 
and counterparties,
●
 
changes affecting interest
 
rate levels,
 
●
 
any default of a major market participant and related
 
market disruption,
●
 
changes in performance of financial markets, including in Europe and developing markets,
 
●
 
political instability and fiscal uncertainty in Europe and the United States,
●
 
discontinuation of or changes in ‘benchmark’ indices,
●
 
inflation and deflation in our principal markets,
●
 
changes in conditions in the credit and capital markets generally,
 
including changes in borrower
and counterparty creditworthiness,
 
●
 
failures of banks falling under the scope of state
 
compensation schemes,
●
 
non-compliance with or changes in laws and regulations, including those financial services and
tax laws, and the interpretation
 
and application thereof,
●
 
geopolitical risks, political instabilities and policies and actions of governmental and regulatory
authorities,
 
●
 
legal and regulatory risks in certain countries with less developed legal
 
and regulatory
frameworks,
●
 
prudential supervision and regulations, including in relation to stress tests and regulatory
restrictions on dividends and distributions, (also among members of the group),
●
 
regulatory consequences of the United Kingdom’s
 
withdrawal from the European Union,
including authorizations and equivalence decisions,
●
 
ING’s ability to meet minimum capital
 
and other prudential regulatory requirements,
●
 
changes in regulation of US commodities and derivatives businesses of ING and its customers,
●
 
application of bank recovery and resolution regimes, including write-down and conversion
powers in relation to our securities,
●
 
outcome of current and future litigation, enforcement
 
proceedings, investigations or other
regulatory actions, including claims by customers who feel mislead and other conduct issues,
●
 
changes in tax laws and regulations and risks of non-compliance or investigation
 
in connection
with tax laws, including FATCA,
●
 
operational risks, such as system disruptions or failures,
 
breaches of security, cyber-attacks,
human error,
 
changes in operational practices or inadequate controls including in respect
 
of
third parties with which we do business,
●
 
risks and challenges related to cybercrime including the effects
 
of cyber-attacks and changes in
legislation and regulation related to cybersecurity and data
 
privacy,
●
 
changes in general competitive factors, including ability to
 
increase or maintain market share,
●
 
the inability to protect our intellectual property and infringement claims by third parties,
●
 
inability of counterparties to meet financial obligations or ability to enforce rights against
 
such
counterparties,
●
 
changes in credit ratings,
●
 
business, operational, regulatory,
 
reputation and other risks and challenges in connection with
climate change,
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
7
 
●
 
inability to attract and retain key
 
personnel,
●
 
future liabilities under defined benefit retirement plans,
●
 
failure to manage business risks, including in connection with use of models, use of derivatives,
or maintaining appropriate policies and guidelines,
●
 
changes in capital and credit markets, including interbank funding, as well as customer deposits,
which provide the liquidity and capital required to fund our operations, and,
●
 
the other risks and uncertainties detailed in the most recent annual report of ING Groep N.V.
(including the Risk Factors contained therein) and ING’s
 
more recent disclosures, including press
releases, which are available on www.ING.com
 
.
 
This annual report contains inactive textual addresses to internet
 
websites operated by us and third parties.
Reference to such websites is made for
 
information purposes only, and information
 
found at such websites is not
incorporated by reference
 
into this annual report. ING does not make any representation
 
or warranty with
respect to the accuracy or completeness of,
 
or take any responsibility for,
 
any information found at any
 
websites
operated by third parties. ING specifically disclaims any liability with respect to any information
 
found at
websites operated by third parties. ING cannot guarantee
 
that websites operated by third parties remain
available following the filing of this annual report or that any information
 
found at such websites will not change
following the filing of this annual report. Many of those factors are
 
beyond ING’s control.
 
 
Any forward looking statements
 
made by or on behalf of ING speak only as of the date they are made, and ING
assumes no obligation to publicly update or revise any forward
 
-looking statements, whether as a result of new
information or for any other reason.
 
 
This document does not constitute an offer to sell, or a solicitation of an offer
 
to purchase, any securities in the
United States or any other jurisdiction.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
8
 
PART
 
I
 
 
Item 1.
 
I
dentity of Directors,
 
Senior
Management And Advisors
Not Applicable.
 
Item 2.
 
Offer Statistics
 
and Expected
Timetable
Not Applicable.
 
Item 3.
 
Key Information
 
A.
 
Selected financial data
 
Not applicable.
 
B.
 
Capitalization and indebtedness
 
This item does not apply to annual reports on Form 20-F.
 
C.
 
Reasons for the offer and use of proceeds
 
This item does not apply to annual reports on Form 20-F.
 
D.
 
Risk Factors
 
 
Summary of Risk factors
The following is a summary of the principal risk factors that could have a material
 
adverse effect on the business
activities, financial condition, results and prospects of ING. Please carefully consider all of the information
discussed in this Item 3.D “Risk Factors” for a detailed description of these risks.
 
Risks related to financial conditions, market
 
environment and general economic trends
●
 
Our revenues and earnings are affected by the volatility
 
and strength of the economic, business,
liquidity, funding and capital markets
 
environments of the various geographic regions in which we
conduct business, as well as by changes in customer behaviour in these regions, and an adverse change
in any one region could have an impact on our business, results and financial condition.
●
 
ING’s business, results and financial condition have
 
been, and likely will continue to be, adversely
affected by the Covid-19 pandemic.
●
 
Interest rate volatility
 
and other interest rate changes may
 
adversely affect our business, results and
financial condition.
●
 
The default of a major market participant could disrupt the markets
 
and may have an adverse effect
 
on
our business, results and financial condition.
●
 
Continued risk of political instability and fiscal uncertainty in Europe and the United States,
 
as well as
ongoing volatility in the financial markets and the economy generally
 
have adversely affected,
 
and may
continue to adversely affect, our business, results and financial condition.
●
 
Discontinuation of or changes to ‘benchmark’ indices may negatively affect
 
our business, results and
financial condition.
●
 
Inflation and deflation may negatively affect
 
our business, results and financial condition.
●
 
Market conditions, including those observed over the past few years,
 
and the application of IFRS 9 may
increase the risk of loans being impaired and have a negative effect
 
on our results and financial
condition.
●
 
We may incur losses due to failures of banks falling
 
under the scope of state compensation schemes.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
9
 
 
Risks related to the regulation and supervision of the Group
●
 
Non-compliance with laws and/or regulations concerning financial services or financial institutions,
including with respect to financial economic crimes, could result in fines and other liabilities, penalties or
consequences for us, which could materially affect our business and reduce our profitability.
●
 
Changes in laws and/or regulations governing financial services or financial institutions or the application
of such laws and/or regulations may increase our operating costs
 
and limit our activities.
●
 
We are subject to additional legal and regulatory risk in certain
 
countries where we operate with less
developed or predictable legal and regulatory frameworks.
●
 
We are subject to the regulatory supervision of the ECB and other regulators
 
with extensive supervisory
and investigatory powers.
●
 
The regulatory consequences of the United Kingdom’s withdrawal
 
from the European Union may have
adverse effects on our business, results and financial condition.
 
●
 
Failure to meet minimum capital and other prudential regulatory requirements
 
as applicable to us from
time to time may have a material adverse
 
effect on our business, results and financial condition and on
our ability to make payments on certain of our securities.
●
 
Our US commodities and derivatives business is subject to CFTC and SEC regulation under the Dodd-
Frank Act.
●
 
We are subject to several other bank recovery
 
and resolution regimes that include statutory write down
and conversion as well as other powers, which remains subject to significant
 
uncertainties as to scope
and impact on us.
 
Risks related to litigation, enforcement
 
proceedings and investigations and to
 
changes in tax
laws
●
 
We may be subject to litigation, enforcement
 
proceedings, investigations or other regulatory actions,
and adverse publicity.
●
 
We are subject to different
 
tax regulations in each of the jurisdictions where we conduct business, and
are exposed to changes in tax laws, and risks of non-compliance with or proceedings or investigations
with respect to, tax laws.
●
 
We may be subject to withholding tax if we fail to
 
comply with the Foreign Account Tax
 
Compliance Act
(“FATCA”)
 
and other US withholding tax regulations
●
 
ING is exposed to the risk of claims from customers who feel misled or treated
 
unfairly because of advice
or information received.
 
Risks related to the Group’s
 
business and operations
●
 
Operational risks, such as systems disruptions or failures,
 
breaches of security, cyber attacks,
 
human
error,
 
changes in operational practices, inadequate controls
 
including in respect of third parties with
which we do business, natural disasters or outbreaks of communicable diseases may
 
adversely impact
our reputation, business and results.
●
 
We are subject to increasing risks related
 
to cybercrime and compliance with cybersecurity regulation.
●
 
Because we operate in highly competitive markets,
 
including our home market, we may not be able to
increase or maintain our market share, which may have
 
an adverse effect on our results.
●
 
We may not always be able to protect
 
our intellectual property developed in our products and services
and may be subject to infringement claims, which could adversely impact our core business, inhibit
efforts to monetize our internal innovations
 
and restrict our ability to capitalize on future opportunities.
●
 
The inability of counterparties to meet their financial obligations or our inability to fully enforce our
rights against counterparties could have a material
 
adverse effect on our results.
●
 
Ratings are important to our business for a number of reasons, and a downgrade or a potential
downgrade in our credit ratings could have an adverse
 
impact on our results and net results.
●
 
We may be exposed to business, operational, regulatory,
 
reputational and other risks in connection with
climate change.
●
 
An inability to retain or attract key
 
personnel may affect our business and results.
●
 
We may incur further liabilities in respect of our defined benefit retirement
 
plans if the value of plan
assets is not sufficient to cover potential obligations, including as a result of differences
 
between actual
results and underlying actuarial assumptions and models.
 
Risks related to the Group’s
 
risk management practices
●
 
Risks relating to our use of quantitative models or assumptions to model client behaviour
 
for the
purposes of our market calculations may adversely impact our reputation
 
or results.
●
 
We may be unable to manage our risks successfully through derivatives.
 
Risks related to the Group’s
 
liquidity and financing activities
●
 
We depend on the capital and credit markets, as well
 
as customer deposits, to provide the liquidity and
capital required to fund our operations, and adverse conditions
 
in the capital and credit markets, or
significant withdrawals of customer deposits, may impact our liquidity,
 
borrowing and capital positions,
as well as the cost of liquidity, borrowings
 
and capital.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
10
 
●
 
As a holding company, ING Groep
 
N.V.
 
is dependent for liquidity on payments from its subsidiaries, many
of which are subject to regulatory and other restrictions on their ability to transact with affiliates.
 
Additional risks relating to ownership of ING shares
●
 
Holders of ING shares may experience dilution of their holdings.
●
 
Because we are incorporated under the laws of the Netherlands and many
 
of the members of our
Supervisory and Executive Board and our officers reside outside of the United States,
 
it may be difficult
to enforce judgments against ING or the members of our Supervisory and Executive
 
Boards or our
officers.
 
Risk factors
 
Any of the risks described below could have a material adverse effect
 
on the business activities, financial
condition, results and prospects of ING. ING may face a number of the risks described below simultaneously and
some risks described below may be interdependent. While the risk factors below have
 
been divided into
categories, some risk factors could belong in more than one category
 
and investors should carefully consider all
of the risk factors set out in this section. Additional risks of which the Company is not presently aware,
 
or that are
currently viewed as immaterial, could also affect the business operations
 
of ING and have a material adverse
effect on ING’s
 
business activities, financial condition, results and prospects. The market price of ING shares or
other securities could decline due to any of those risks including the risks described below,
 
and investors could
lose all or part of their investments.
 
Although the most material risk factors have been presented
 
first within each category,
 
the order in which the
remaining risk factors are presented is not necessarily an indication
 
of the likelihood of the risks actually
materialising, of the potential significance of the risks or of the scope of any potential negative impact to
 
our
business, results, financial condition and prospects.
 
Risks related to financial conditions, market
 
environment and general economic trends
 
Our revenues and earnings are affected by
 
the volatility and strength of the economic, business,
liquidity, funding and capital markets
 
environments of the various geographic
 
regions in which
we conduct business, as well as by changes in customer behaviour in these
 
regions, and an
adverse change in any one region could have
 
an impact on our business, results and financial
condition.
 
Because ING is a multinational banking and financial services corporation, with a global presence and serving
around 39.3 million customers, corporate
 
clients and financial institutions in over 40 countries, ING’s business,
results and financial condition may be significantly impacted by turmoil and volatility in the worldwide financial
markets or in the particular geographic areas in which we operate.
 
In Retail Banking, our products include
savings, payments, investments, loans and mortgages
 
in most of our Retail Banking markets. In Wholesale
Banking, we provide specialised lending, tailored corporate finance, debt and equity market
 
solutions, payments
& cash management, trade and treasury services. As a result, negative developments
 
in financial markets and/or
countries or regions in which we operate, have
 
in the past had and may in the future have a material adverse
impact on our business, results and financial condition, including as a result of the potential consequences listed
below.
 
Factors such as interest rates,
 
securities prices, credit spreads, liquidity spreads, exchange rates,
 
consumer
spending, changes in customer behaviour,
 
business investment, real estate values
 
and private equity valuations,
government spending, inflation or deflation, the volatility and strength of the capital
 
markets, political events
and trends, terrorism, pandemics and epidemics (such as Covid-19, as described in greater detail below under the
heading “– ING’s business, results and financial condition have
 
been, and likely will continue to be adversely
affected by the Covid-19 pandemic”) or other widespread health emergencies all impact the business and
economic environment and, ultimately,
 
our solvency, liquidity and the amount and profitability
 
of business we
conduct in a specific geographic region. Certain of these risks are often experienced globally as well as in specific
geographic regions and are described in greater detail below under the headings “–Interest
 
rate volatility and
other interest rate changes may
 
adversely affect our business, results and financial condition”,
 
“–Inflation and
deflation may negatively affect
 
our business, results and financial condition”,
 
“–Market conditions, including
those observed over the past few years and the application of IFRS 9 may
 
increase the risk of loans being
impaired and have a negative effect
 
on our results and financial condition” and “–Continued risk of political
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
11
 
instability and fiscal uncertainty in Europe and the United States, as well as ongoing
 
volatility in the financial
markets and the economy generally have
 
adversely affected, and may continue
 
to adversely affect, our business,
results and financial condition”.
 
All of these are factors in local and regional economies as well as in the global
economy,
 
and we may be affected by changes in any one of these factors
 
in any one country or region, and more
if more of these factors occur simultaneously and/or in multiple countries or regions
 
or on a global scale.
 
In case one or more of the factors mentioned above adversely affects
 
the profitability of our business, this might
also result, among other things, in the following:
◾
 
reserve and provisions inadequacies, which could ultimately be realised through profit and loss and
shareholders’ equity;
◾
 
the write-down of tax assets impacting net results and/or equity;
◾
 
impairment expenses related to goodwill and other intangible assets, impacting net result;
 
and/or
◾
 
movements in risk weighted assets for the determination of required
 
capital.
 
In particular, we are
 
exposed to financial, economic, market and political conditions in the Benelux countries and
Germany, from
 
which we derive a significant portion of our revenues in both Retail Banking and Wholesale
Banking, and which present risks of economic downturn. Though less material, we also derive substantial
revenues in the following geographic regions: Turkey,
 
Eastern Europe (primarily Poland among others), Southern
Europe (primarily Spain among others), East Asia (primarily Singapore among others) and Australia
 
which also
present risks of economic downturn. In an economic downturn, we expect that
 
higher unemployment, lower
family income, lower corporate earnings, higher corporate
 
and private debt defaults, lower business investments
and lower consumer spending would adversely affect the demand for
 
banking products, and that ING may need
to increase its reserves and provisions, each of which may result in overall lower
 
earnings. The impact of the
Covid-19 pandemic, as an example of an economic downturn, as well as the substantial monetary and
government measures, are still materialising and expected
 
to continue to affect our business. For more
information, refer to the risk factor
 
described under heading “–ING’s business, results and financial condition
have been, and likely will continue to be adversely affected
 
by the Covid-19 pandemic”. Securities prices, real
estate values and private equity valuations
 
may also be adversely impacted, and any such losses would be
realised through profit and loss and shareholders’ equity.
 
We also offer a number of financial products that
expose us to risks associated with fluctuations in interest rates,
 
securities prices, corporate and private default
rates, the value of real estate
 
assets, exchange rates and credit spreads.
 
For further information on ING’s exposure
 
to particular geographic areas, see Note 35 ‘Information on
geographic areas’ to the consolidated financial statements
 
.
 
ING’s business, results and financial condition have
 
been, and likely will continue to be,
adversely affected by the Covid-19 pandemic.
 
The Covid-19 pandemic and the related response measures introduced by various national and
 
local
governmental authorities aimed at preventing the further spread of the disease (such as bans on public events
with over a certain number of attendees, closures of places where larger groups
 
of people gather such as schools,
sports facilities, bars and restaurants, lockdowns,
 
border controls and travel and other restrictions)
 
have
disrupted the normal flow of business operations in those countries and regions where we and our customers
and counterparties operate (such as, among others, Benelux, Germany,
 
France, Italy,
 
Spain, the U.K. and the
U.S.). This disruption has adversely affected, and will likely
 
continue to adversely affect, global economic growth,
supply chains, manufacturing, tourism, consumer spending, asset prices and unemployment levels, and has
resulted in volatility and uncertainty across the global economy and financial markets.
 
 
In addition to the measures aimed at preventing the further spread of Covid-19, governments and central
 
banks
around the world have also introduced measures aimed at mitigating
 
the economic consequences of the
pandemic and related response measures, such as guarantee schemes, compensation
 
schemes and cutting
interest rates. For example,
 
the Dutch government has implemented economic measures aimed at protecting
jobs, households’ wages and companies, e.g., by way of tax payment holidays,
 
guarantee schemes and a
compensation scheme for heavily affected sectors
 
in the economy. These announced measures and any
additional measures, including any payment holidays with respect to mortgages
 
or other loans, have had and
may continue to have a significant impact on our customers
 
and other counterparties.
 
Governments, regulators and central
 
banks (including the ECB), have also announced that they are taking or
considering measures seeking to safeguard the stability of the financial sector,
 
to prevent lending to the business
sector from being jeopardised and to ensure the payment system
 
continues to function properly.
 
The ECB
currently allows banks to operate below the level
 
of capital required by the Pillar 2 Guidance, capital
conservation buffer and the liquidity coverage ratio,
 
and banks are also permitted to use a portion of their capital
instruments that do not qualify as CET1 capital to meet the Pillar 2 Requirements. Several
 
countries also released
or reduced countercyclical buffers
 
(CCyB). The ECB has also issued a recommendation to the banks that it
supervises that such banks should exercise extreme prudence when deciding on or paying out dividends or
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
12
 
performing share buy-backs until September 30, 2021. However,
 
it is not certain whether these or future
measures will be extended or maintained for a sufficient period of time, or whether such measures will be
successful in mitigating the economic consequences of the pandemic and related response measures. If the
pandemic is prolonged or the actions are unsuccessful, additional actions by governments and central banks may
follow and the adverse impact on the global economy will deepen, and our business, results and financial
condition may be materially adversely affected.
 
In 2020, the Covid-19 pandemic affected all of our businesses, including lower or negative interest
 
rates, lower oil
prices and credit deterioration of loans to ING’s
 
customers. These effects have
 
also resulted in an increase in the
allowance for credit losses and impairments on non-financial assets, and reduced net interest
 
income due to
lower interest rates. While these effects
 
were partly offset by resilient fee
 
and commission income in 2020, this
level of activity may not persist in future periods. With Covid-19 infection rates
 
having recently increased,
especially in some European countries, and further lockdowns measures having been reintroduced,
 
this may
result in changes in government responses and further downside risk towards macro-economic
 
developments,
with possibly a deeper risk aversion and a delayed recovery.
 
These developments may result in further negative
impact on our business, results and financial condition.
 
In 2020, ING also took certain measures to support customers impacted by the Covid-19 pandemic, including
payment holidays, offering credit
 
facilities to business customers under government guarantee
 
schemes and
providing liquidity under credit facilities to large corporate
 
customers. Although, following supervisory guidelines,
payment holidays do not automatically trigger an immediate classification
 
of the loans as in default or as
forborne, the credit quality of these loans will be monitored for future transitions into
 
Stage 2 and could result in
increased risk costs and additional risk weighted assets in future periods. As of December 31, 2020, in line with
the European Banking Association (EBA) moratoria guidelines, ING has a total amount of €19.4 billion of payment
holidays or 2.6% of total credit outstandings, granted
 
to approximately 196,000 customers. While these
customers are located across nearly all countries
 
in which ING operates, over 55% of these customers are in the
Netherlands and Belgium. ING also recorded €2,675 million of net additions to loan loss provisions in 2020
compared with €1,120 million in 2019. The 2020 risk costs were severely impacted by a combination of increased
collective provisioning reflecting the worsened macro
 
-economic indicators due to the Covid-19 pandemic, higher
Individual Stage 3 provisions, and negative rating
 
migration. Should these global economic conditions be
prolonged or worsen, or should the pandemic lead to additional market disruptions, we may
 
experience more
customer defaults and further additions to loan loss provisions. In these circumstances, we
 
may also experience
reduced customer activity and demand for its products and services, increased utilization of lending
commitments and higher credit and valuation adjustments on financial assets. In addition, persistently
 
low
interest rates for
 
a longer period, as well as a potential further decline in interest rates
 
might result in further
decreases in net interest income. These factors
 
and other consequences of the Covid-19 pandemic may
materially adversely affect our business, results and financial condition.
 
Our capital and liquidity position may also be adversely impacted by the Covid-19 pandemic and related response
measures, including as a result of changes in future levels of savings and deposits from customers, changes
 
in
asset quality, and the effects
 
of government or regulatory responses to the pandemic, and may require
 
changes
to our funding structure, impact our ability to comply with regulatory capital requirements
 
and adversely affect
our cost of capital and credit rating. Any of the foregoing
 
developments may have a material adverse
 
impact on
our business, results and financial condition.
 
As of December 31, 2020, most of our staff continue to work from home. Since May 2020, staff
 
in various
countries have started rotation
 
schemes to return to work in the office in a controlled manner,
 
taking into
account local circumstances and any applicable government
 
measures (including with respect to social
distancing). This controlled office opening process is expected to
 
allow for essential face-to-face meetings.
However,
 
with Covid-19 infection rates having recently
 
increased, we expect that more staff will again
 
work from
home. Due to the uncertainties relating to the future development of the Covid-19 pandemic, it is not certain
when our employees may be generally expected or permitted
 
to return to the offices. If due to illness, technical
limitations or other restrictions in connection with the pandemic, employees are unable to work or are not able
to operate as effectively
 
and efficiently as in the office, this may adversely affect
 
our business, results and
financial condition.
 
In addition, a situation in which most or some of our employees continue working from home may raise
operational risks, including with respect to information security,
 
data protection, availability of key
 
systems and
infrastructure integrity.
 
There is also a risk that we will not be effective in implementing regulatory or strategic
change programs in the current environment.
 
The Covid-19 pandemic has led to new banking behaviour from
customers. There has been an increase in the digital behaviour of our customers
 
leading to reduced traffic in
branches. Over 80% of our customers now interact
 
with us via digital channels only. Criminals are also taking
advantage of the Covid-19 pandemic to carry out financial fraud and exploitation
 
scams, with examples including
advertising and trafficking in counterfeit medicines, offering
 
fraudulent investment opportunities, fundraising for
fake charities and engaging in phishing schemes that prey on virus-related
 
fears. National authorities and
international bodies (including the Financial Action Task
 
Force) warn citizens and businesses on impostor,
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
13
 
investment and product scams. Although we have organized
 
a Covid-19 taskforce to identify and analyse new
behavioural patterns, leading to new cases of unusual transactions being reported
 
to the relevant authorities,
new banking behaviours may result in additional Know Your
 
Customer (KYC) risks. If any of these risks were to
materialize that may adversely affect
 
our business, results and financial condition.
 
The duration of the pandemic and the impact of measures taken in response by governmental
 
authorities,
central banks and other third parties, whether direct or indirect, such as by increasing sovereign
 
debt of certain
countries which may result in increased volatility and widening credit spreads, remain
 
uncertain. Therefore, it is
difficult to predict the extent to which our business, results and financial condition, as well as our ability to access
capital and liquidity on financial terms acceptable for us, may be materially adversely
 
affected.
 
Interest rate
 
volatility and other interest rate
 
changes may adversely affect our business,
 
results
and financial condition.
 
Changes in prevailing interest rates
 
may negatively affect our business, including the level of net interest
 
revenue
we earn, and the levels of deposits and the demand for loans. A sustained increase in the inflation rate
 
in our
principal markets may also negatively affect
 
our business, results and financial condition. For example, a
sustained increase in the inflation rate may
 
result in an increase in nominal market interest
 
rates. A failure to
accurately anticipate higher inflation and factor
 
it into our product pricing assumptions may result in mispricing
of our products, which could materially and adversely impact our results. On the other hand, recent concerns
regarding negative interest
 
rates and the low level of interest rates
 
generally may negatively impact our net
interest income, which may have an adverse
 
impact on our profitability.
 
A prolonged period of low interest rates,
 
and in some situations negative interest rates,
 
has resulted in, and may
continue to result in:
◾
 
lower earnings over time on investments, as reinvestments
 
will earn lower rates;
◾
 
increased prepayment or redemption of mortgages and fixed
 
maturity securities in our investment
portfolios, as well as increased prepayments of corporate
 
loans. This as borrowers seek to borrow at
lower interest rates potentially
 
combined with lower credit spreads. Consequently,
 
we may be required
to reinvest the proceeds into assets at
 
lower interest rates;
◾
 
lower profitability as the result of a decrease in the spread between client rates
 
earned on assets and
client rates paid on savings, current account and other liabilities;
◾
 
higher costs for certain derivative instruments that
 
may be used to hedge certain of our product risks;
◾
 
lower profitability since we may not be able to fully track the decline in interest
 
rates in our savings
rates;
◾
 
lower profitability since we may not always be entitled
 
to impose surcharges to customers to
compensate for the decline in interest rates;
◾
 
lower profitability since we may have to
 
pay a higher premium for the defined contribution scheme in
the Netherlands for which the premium paid is dependent on interest rate
 
developments and the Dutch
Central Bank’s (“DNB’s”)
 
methodology for determining the ultimate forward rate;
◾
 
lower interest rates may
 
cause asset margins to decrease thereby lowering our results. This may for
example be the consequence of increased competition for investments
 
as result of the low rates,
thereby driving margins down; and/or
 
◾
 
(depending on the position) a significant collateral posting requirement
 
associated with our interest rate
hedge programs, which could materially and adversely affect
 
liquidity and our profitability.
 
The foregoing impacts have been and may be further amplified in a negative
 
interest rate environment,
 
since we
may not be able to earn interest on our assets (including reserves). In addition, we have, and may
 
continue to,
earn negative interest on certain of our assets (including cash balances, loans and bonds), while still paying
positive interest or no interest to
 
others to hold our liabilities, resulting in an adverse impact on our credit spread
and lowering of our net interest income. Furthermore, in the event that
 
a negative interest rate
 
environment
results in ING’s depositors being forced
 
to pay interest to ING to hold cash deposits, some depositors
 
may choose
to withdraw their deposits rather than pay interest
 
to ING, which would have an adverse effect on our
reputation, business, results and financial condition. For example, in March
 
2020, the U.S. Federal Reserve has
cut the benchmark U.S. interest rate in response to
 
the Covid-19 pandemic and related impacts on the economy
and financial markets. On 1 January 2021, ING announced that it will charge negative interest
 
to customers on
current and deposit accounts exceeding €250,000 (such negative
 
interest rate will only apply to the amount by
which the current or deposit account exceeds €250,000 ). Such declines in interest rates
 
in the United States or
other markets in which ING and its customers and counterparties operate
 
may have a significant adverse effect
on our business and operations.
 
Alternatively,
 
any period of rapidly increasing interest rates
 
may result in:
◾
 
a decrease in the demand for loans;
◾
 
higher interest rates to be paid on customer
 
deposits and on debt securities that we have issued or may
issue on the financial markets from time to time to finance our operations, which would increase our
interest expenses and reduce our results;
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
14
 
◾
 
higher interest rates which can lead to
 
lower investments prices and reduce the revaluation reserves,
thereby lowering IFRS equity and the capital ratios. Also the lower securities value leads to a loss of
liquidity generating capacity which needs to be compensated by attracting
 
new liquidity generating
capacity which reduces our results;
◾
 
prepayment losses if prepayment rates
 
are lower than expected or if interest rates
 
increase too rapidly
to adjust the accompanying hedges; and/or
◾
 
(depending on the position) a significant collateral posting requirement
 
associated with our interest rate
hedge program.
 
The default of a major market participant could disrupt the markets
 
and may have an adverse
effect on our business, results and financial condition.
 
Within the financial services industry, the severe distress
 
or default of any one institution (including sovereigns
and central counterparties (CCPs)) could lead to defaults
 
by, or the severe
 
distress of, other market
 
participants.
While prudential regulation may reduce the probability of a default
 
by a major financial institution, the actual
occurrence of such a default could have a material adverse
 
impact on ING. Such distress of, or default
 
by, a major
financial institution could disrupt markets or clearance and settlement
 
systems and lead to a chain of defaults by
other financial institutions, since the commercial and financial soundness of many financial institutions may be
closely related as a result of credit, trading, clearing or other relationships. Also the perceived lack of
creditworthiness of a sovereign or a major financial institution (or a default by any such entity)
 
may lead to
market-wide liquidity problems and losses or defaults by us or by other institutions. This risk is sometimes
referred to as ‘systemic
 
risk’ and may adversely affect financial intermediaries, such as clearing agencies, clearing
houses, banks, securities firms and exchanges with whom we interact on a daily basis and financial instruments
of sovereigns in which we invest. Systemic
 
risk could impact ING directly, by exposing
 
it to material credit losses
on transactions with defaulting counterparties or indirectly by significantly reducing
 
the available market liquidity
on which ING and its lending customers depend to fund their operations and/or leading to a write down of loans
or securities held by ING. In addition, ING may also be faced with additional open market risk for which hedging
or mitigation strategies may not be available
 
or effective (either by hedges eliminated by defaulting
counterparties, or reduce market liquidity). Systemic
 
risk could have a material adverse effect
 
on our ability to
raise new funding and on our business, results and financial condition. In addition, such distress or failure could
impact future product sales as a potential result of reduced confidence in the financial services industry.
 
Continued risk of political instability and fiscal uncertainty in Europe and the United
 
States, as
well as ongoing volatility in the financial markets and the economy
 
generally have adversely
affected, and may continue to adversely
 
affect, our business, results and financial condition.
 
 
Our global business and results are materially affected by conditions in the global capital
 
markets and the
economy generally.
 
In Europe, there are continuing concerns over weaker
 
economic conditions, levels of
unemployment, the availability and cost of credit, credit spreads,
 
and the impact of continued quantitative
easing within the Eurozone through bond repurchases and the ECB’s
 
targeted longer-term
 
refinancing operation
(‘TLTRO’). In addition, geopolitical issues, including trade tensions between the US and China, increasing
protectionism between key countries,
 
and issues with respect to the Middle East, Russia/Ukraine and North
Korea may all contribute to adverse
 
developments in the global capital markets and the economy generally.
 
Adverse developments in the market have
 
included, for example, temporary decrease in liquidity,
 
increased price
volatility, credit
 
downgrade events, and increased probability of default for
 
fixed income securities. Moreover,
there is a risk that an adverse credit event at one or more
 
European sovereign debtors (including a credit rating
downgrade or a default) could trigger a broader economic downturn in Europe and elsewhere. In addition, the
confluence of these and other factors has resulted in volatile foreign
 
exchange markets. International
 
equity
markets have also continued to experience
 
heightened volatility and turmoil, with issuers, including ourselves,
that have exposure to the real estate,
 
mortgage, private equity and credit markets
 
particularly affected. These
events, market upheavals and continuing
 
risks, including high levels of volatility,
 
have had and may continue to
have an adverse effect on our results,
 
in part because we have a large investment
 
portfolio.
 
There is also continued uncertainty over the long-term outlook for the tax,
 
spending and borrowing policies of
the US, the future economic performance of the US within the global economy and any potential future
budgetary restrictions in the US, with a potential impact on a future sovereign credit ratings
 
downgrade of the US
government, including the rating of US Treasury
 
securities. A downgrade of US Treasury securities could also
impact the ratings and perceived creditworthiness of instruments issued, insured or guaranteed
 
by institutions,
agencies or instrumentalities directly linked to the US government.
 
US Treasury securities and other US
government-linked securities are key
 
assets on the balance sheets of many financial institutions and are widely
used as collateral by financial institutions to meet their day-to
 
-day cash flows in the short-term debt market.
 
The
impact of any further downgrades to the sovereign credit rating
 
of the US government or a default by the US
government on its debt obligations would create
 
broader financial turmoil and uncertainty,
 
which would weigh
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
15
 
heavily on the global financial system and could consequently result in a significant adverse
 
impact to the
Group’s business and operations.
 
In many cases, the markets for investments
 
and instruments have been and remain illiquid, and issues relating to
counterparty credit ratings and other factors
 
have exacerbated pricing and valuation uncertainties.
 
Valuation of
such investments and instruments is a complex process involving
 
the consideration of market transactions,
pricing models, management judgment and other factors, and is also impacted by external factors,
 
such as
underlying mortgage default rates, interest
 
rates, rating agency actions and property valuations.
 
Historically
these factors have resulted in, among other things, valuation
 
and impairment issues in connection with our
exposures to European sovereign debt and other investments.
 
Any of these general developments in global financial and political conditions could negatively
 
impact to our
business, results and financial condition in future periods.
 
Discontinuation of or changes to ‘benchmark’ indices may negatively
 
affect our business, results
and financial condition.
 
Financial markets
 
have historically relied on Interbank Offered
 
Rates (‘IBORs’) benchmarks, such as the London
Interbank Offered Rate (‘LIBOR’), the Euro
 
OverNight Index Average (‘EONIA’)
 
and the Euro Interbank Offered
Rate (‘EURIBOR’). These interest rate
 
‘benchmarks’ have been the subject of ongoing national and international
regulatory reform. For example,
 
ICE Benchmark Administration (IBA), as the administrator of LIBOR, issued a
consultation with respect to its plans for the cessation for most
 
LIBOR rates at the end of 2021, with an 18 month
extension proposed for USD LIBOR, one of the most widely used LIBOR rates. EONIA
 
will cease to be published by
1 January 2022 and the European Money Markets Institute (EONIA’s
 
administrator) has indicated that EONIA
cannot be used in any contracts that may be outstanding as of 1 January 2022. Following the implementation
 
of
such reforms, the manner of administration of benchmarks may change, with the
 
result that they may perform or
be calculated differently than in the past, or such benchmarks
 
may cease to exist entirely,
 
or there could be other
consequences which cannot be predicted.
 
Public authorities have initiated industry working groups in various jurisdictions to develop
 
and recommend
alternative rates that could serve as replacements
 
when such rates cease to exist or materially change. This is
commonly referred to as a fallback rate.
 
The US Federal Reserve’s
 
Alternative Reference Rates
 
Committee
(commonly referred to as ‘ARRC’)
 
has recommended adoption of the Secured Overnight Financing Rate
(commonly referred to as ‘SOFR’) as an alternative to
 
USD LIBOR, and the limited extension announced by the
IBA has eased the timeline for the transition of existing contracts referencing
 
USD LIBOR. For EURIBOR, the
Working Group on Euro Risk-Free
 
Rates is continuing its work on developing recommended fallback rates
 
based
on the “euro short-term rate”
 
(€STR). €STR is being published and is now widely used, and calculation of the
EONIA benchmark described above has been modified to refer to the €STR benchmark until the EONIA
benchmark is discontinued.
 
Public authorities have also recognised that certain LIBOR contracts do not contain
 
any alternatives, contain
inappropriate alternatives, or cannot be renegotiated
 
or amended prior to the expected cessation of LIBOR. In
response to this challenge the FCA, as the supervisor of LIBOR, plans to make use of the proposed powers
granted to them to enable continued publication of a “synthetic”
 
LIBOR using a different methodology and
inputs, which may help reduce disruption to holders of tough legacy contracts.
 
However,
 
there is no certainty as
to whether the FCA will exercise these powers or what
 
form the revised methodology would take, and the FCA
has consequently encouraged users of LIBOR to renegotiate
 
or amend as many contracts as possible before the
relevant LIBOR ceases.
 
In response, the European Commission has announced various legislative fixes, that most
notably reduce the scope for potential conflict with the solutions proposed by other jurisdictions. However,
 
there
is no guarantee that regulators will implement
 
measures to address such legacy contracts, or that such measures
will be effective in avoiding business disruption or contractual
 
disputes.
 
The potential discontinuation of interest rate
 
benchmarks or any other benchmark, or changes in the
methodology or manner of administration of any benchmark, could result in a number of risks for the Group,
 
its
customers, and the financial services industry more widely. These risks
 
include legal risks in relation to changes
required to documentation for new and existing
 
transactions. The Group may also be exposed to operational
risks or incur additional costs due to the potential requirement to
 
adapt IT systems, trade reporting infrastructure
processes, or in relation to communications with clients or other parties and engagement during the transition
period. In addition to the heightened conduct and operational risks, the process of adopting new reference
 
rates
may expose the Group to an increased level of financial risk, such as potential earnings volatility resulting
 
from
contract modifications and changes in hedge accounting relationships.
 
It is not currently possible to determine
the full impact of such changes on the Group, and the implementation of alternative benchmark rates
 
may have
a material adverse effect on our business, results and financial condition
.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
16
 
Inflation and deflation may negatively
 
affect our business, results and financial condition.
 
A sustained increase in the inflation rate in our principal markets
 
would have multiple impacts on us and may
negatively affect our business, results and financial condition. For example,
 
a sustained increase in the inflation
rate may result in an increase in market
 
interest rates, which may:
◾
 
decrease the estimated fair value of certain fixed
 
income securities that we hold in our investment
portfolios, resulting in:
◾
 
reduced levels of unrealised capital gains available
 
to us, which could negatively impact our
solvency position and net income, and/or
◾
 
a decrease in collateral values,
◾
 
result in increased withdrawal of certain savings products,
 
particularly those with fixed rates below
market rates,
◾
 
require us, as an issuer of securities, to pay higher interest rates
 
on debt securities that we issue in the
financial markets from time to time to finance our operations, which would increase our interest
expenses and reduce our results.
 
A significant and sustained increase in inflation has historically also been associated with decreased
 
prices for
equity securities and sluggish performance of equity markets generally.
 
A sustained decline in equity markets
may:
◾
 
result in impairment charges to equity securities that we hold in our investment portfolios and
 
reduced
levels of unrealised capital gains available to
 
us which would reduce our net income, and
◾
 
lower the value of our equity investments impacting our capital position.
 
In addition, a failure to accurately anticipate
 
higher inflation and factor it into our product pricing may result in a
systemic mispricing of our products, which would negatively impact
 
our results.
 
On the other hand, deflation experienced in our principal markets may also adversely affect
 
our financial
performance. In recent years, the risk of low inflation and even deflation (i.e., a continued
 
period with negative
rates of inflation) in the Eurozone has materialized.
 
Deflation may erode collateral values
 
and diminish the
quality of loans and cause a decrease in borrowing levels, which would negatively affect
 
our business and results.
 
Market conditions, including those observed over the past few
 
years, and the application of IFRS
9 may increase the risk of loans being impaired and have a negative
 
effect on our results and
financial condition.
 
We are exposed to the risk that our borrowers
 
(including sovereigns) may not repay their loans according to their
contractual terms and that the collateral
 
securing the payment of these loans may be insufficient. We may
 
see
adverse changes in the credit quality of our borrowers and counterparties, for
 
example, as a result of their
inability to refinance their indebtedness, with increasing delinquencies, defaults and insolvencies across a range
of sectors. This may lead to impairment charges on loans and other assets, higher costs and additions to loan loss
provisions. A significant increase in the size of our provision for loan losses could have
 
a material adverse effect
on our business, results and financial condition. Also see above under the heading “–ING’s business, results and
financial condition have been, and likely will continue to be adversely affected
 
by the Covid-19 pandemic”.
 
As set
out there, we expect to be affected by
 
the Covid-19 pandemic through its impact on, among others, the financial
condition of our customers or other counterparties.
 
IFRS 9 ‘Financial Instruments’ became effective as per 1 January 2018 and results in loan loss provisions that
 
may
be recognized earlier,
 
on a more forward looking basis and on a broader scope of financial instruments than was
previously the case under IAS 39. ING has applied the classification, measurement, and impairment requirements
retrospectively by adjusting the opening balance sheet and opening equity as at 1 January 2018. As a result of
applying IFRS 9, a shift in the forward looking consensus view of economic conditions may materially impact the
models used to calculate loan loss provisions under IFRS 9 and cause more volatility in, or higher levels of,
 
loan
loss provisions, any of which could adversely affect the Group’s
 
results, financial condition or regulatory capital
position.
 
Economic and other factors could lead to contraction
 
in the residential mortgage and commercial lending market
and to decreases in residential and commercial property prices, which could generate
 
substantial increases in
impairment losses. Additionally, continuing low oil prices could have
 
an influence on the repayment capacity of
certain corporate borrowers
 
active in the oil and oil related services industries.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
17
 
We may incur losses due to failures
 
of banks falling under the scope of state compensation
schemes.
 
While prudential regulation is intended to minimize the risk of bank failures, in the
 
event such a failure occurs,
given our size, we may incur significant compensation payments
 
to be made under the Dutch Deposit Guarantee
Scheme (DGS), which we may be unable to recover from the bankrupt estate,
 
and therefore the consequences of
any future failure of such a bank could be significant to ING. Such costs and
 
the associated costs to be borne by
us may have a material adverse effect
 
on our results and financial condition.
 
On the basis of the EU Directive on
deposit guarantee schemes, ING pays quarterly risk-weighted
 
contributions into
 
a DGS-fund.
 
The DGS-fund is to
grow to a target size of 0.8% of all deposits guaranteed
 
under the DGS, which is expected to be reached in July
2024. In case of failure of a Dutch bank, depositor compensation is paid from the DGS-fund. If the available
financial means of the fund are insufficient, Dutch banks, including ING, may be required pay to
 
extraordinary ex-
post contributions not exceeding 0.5% of their covered deposits per calendar year.
 
In exceptional circumstances
and with the consent of the competent authority,
 
higher contributions may be required. However,
 
extraordinary
ex-post contributions may be temporarily deferred
 
if, and for so long as, they would jeopardise the
 
solvency or
liquidity of a bank. Depending on the size of the failed bank, the available financial means in the fund, and the
required additional financial means, the impact of the extraordinary ex-post contributions on ING may
 
be
material.
 
Since 2015, the EU has been discussing the introduction of a pan-European deposit guarantee scheme (‘EDIS’),
(partly) replacing or complementing national compensation schemes in two or three phases. Proposals contain
elements of (re)insurance, mutual lending and mutualisation of funds. The new model is intended to be ‘overall
cost-neutral’.
 
Discussions have continued in 2020, but it remains uncertain when EDIS will be introduced and, if
introduced, what impact EDIS would have on ING’s
 
business and operations.
 
Risks related to the regulation and supervision of the Group
 
Non-compliance with laws and/or regulations concerning financial services or financial
institutions,
 
including with respect to financial economic crimes, could result in fines and other
liabilities, penalties or consequences for us, which could materially affect our business and
reduce our profitability.
 
ING has faced, and in the future may continue to face, the risk of consequences in connection with non-
compliance with applicable laws and regulations. For additional information on legal
 
proceedings, see Note 45
‘Legal proceedings’ to the consolidated financial statements.
 
There are a number of risks in areas where
applicable regulations may be unclear,
 
subject to multiple interpretations or under development, or where
regulations may conflict with one another,
 
or where regulators revise their previous guidance or courts overturn
previous rulings, which could result in our failure to meet applicable standards.
 
Regulators and other authorities
have the power to bring administrative or judicial proceedings against
 
us, which could result, among other things,
in suspension or revocation of our licenses, cease and desist orders, fines, civil penalties, criminal penalties or
other disciplinary action, which could materially harm our results and financial condition. If we fail to address, or
appear to fail to address, any of these matters
 
appropriately,
 
our reputation could be harmed and we could be
subject to additional legal risk, which could, in turn, increase the size and number of claims and damages brought
against us or subject us to enforcement actions, fines and penalties.
 
Furthermore, as a financial institution, we are exposed to the risk of unintentional involvement
 
in criminal
activity in connection with the commission of financial economic crimes, including with respect to money
laundering and the funding of terrorist and other criminal activities. The failure or perceived failure
 
by us to
comply with legal and regulatory requirements with respect to
 
financial economic crimes may result in adverse
publicity, claims and allegations, litigation
 
and regulatory investigations and sanctions, which may have
 
a material
adverse effect on our business, results, financial condition and/or
 
prospects in any given period. For further
discussion of the impact of litigation, enforcement proceedings, investigations
 
or other regulatory actions with
respect to financial economic crimes, see “– We may be subject to litigation,
 
enforcement proceedings,
investigations or other regulatory actions, and adverse
 
publicity” below.
 
Changes in laws and/or regulations governing
 
financial services or financial institutions or the
application of such laws and/or regulations may
 
increase our operating costs and limit our
activities.
 
We are subject to detailed banking laws and financial regulation in the jurisdictions in which we conduct
business. Regulation of the industries in which we operate is becoming increasingly more
 
extensive and complex,
while also attracting supervisory scrutiny.
 
Compliance with applicable and new laws and regulations is resources-
intensive, and may materially increase our operating
 
costs. Moreover,
 
these regulations intended to protect our
customers, markets and society as a whole can limit our activities, among others, through stricter
 
net capital,
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
18
 
market conduct and transparency requirements
 
and restrictions on the businesses in which we can operate or
invest.
 
Our revenues and profitability and those of our industry have been and will continue to
 
be impacted by
requirements relating to capital, additional loss-absorbing capacity,
 
leverage, minimum liquidity and long-term
funding levels, requirements related to resolution and recovery
 
planning, derivatives clearing and margin rules
and levels of regulatory oversight, as well as limitations on which and, if permitted,
 
how certain business
activities may be carried out by financial institutions.
 
We are subject to additional legal and regulatory
 
risk in certain countries where we operate
 
with
less developed or predictable legal and regulatory frameworks.
 
In certain countries in which we operate, judiciary and dispute resolution systems
 
may be less effective. As a
result, in case of a breach of contract, we may have
 
difficulties in making and enforcing claims against contractual
counterparties and, if claims are made against us, we might encounter difficulties
 
in mounting a defence against
such allegations. If we become party to legal proceedings in a market
 
with an insufficiently developed judicial
system, it could have an adverse
 
effect on our operations and net results.
 
In addition, as a result of our operations in certain countries, we are subject to risks of possible nationalisation,
expropriation, price controls, exchange
 
controls and other restrictive government actions, as well as the outbreak
of hostilities and or war,
 
in these markets. Furthermore, the current economic environment
 
in certain countries
in which we operate may increase the likelihood for
 
regulatory initiatives to enhance consumer protection or to
protect homeowners from foreclosures.
 
Any such regulatory initiative could have
 
an adverse impact on our
ability to protect our economic interest, for
 
instance in the event of defaults on residential mortgages
 
.
 
We are subject to the regulatory
 
supervision of the ECB and other regulators with extensive
supervisory and investigatory powers.
 
In its capacity as principal prudential supervisor in the EU, the ECB has extensive supervisory and investigatory
powers, including the ability to issue requests for information,
 
to conduct regulatory investigations
 
and on-site
inspections, and to impose monetary and other sanctions. For example, under the Single Supervisory Mechanism
(SSM), the regulators with jurisdiction over the Group, including the ECB, may
 
conduct stress tests and have
discretion to impose capital surcharges on financial institutions for
 
risks that are not otherwise recognised in risk-
weighted assets or other surcharges depending on the individual situation of the bank and take or require
 
other
measures, such as restrictions on or changes to the Group’s
 
business. Competent authorities may also, if the
Group fails to comply with regulatory requirements,
 
in particular with supervisory actions, minimum capital
requirements (including buffer requirements)
 
or with liquidity requirements, or if there are shortcomings in its
governance and risk management processes, prohibit the Group from making dividend payments
 
to shareholders
or distributions to holders of its regulatory capital instruments. Generally,
 
a failure to comply with prudential or
conduct regulations could have a material adverse
 
effect on the Group’s
 
business, results and financial condition.
 
The regulatory consequences of the United Kingdom’s
 
withdrawal from the European Union may
have adverse effects on our business, results
 
and financial condition.
 
On 24 December 2020, the United Kingdom and the EU agreed to the EU-UK Trade
 
and Cooperation Agreement
(the “TCA”) in connection with the departure of the UK from the EU (commonly referred to
 
as ‘Brexit’). However,
the financial services provisions of the TCA are very limited and , as a result, UK-based financial services providers
lost EU passporting rights as of 1 January 2021 and EU-UK financial services are now subject to unilateral
equivalence decisions. EU and UK regulators have, however,
 
taken certain measures to address overall
 
financial
stability risks, such as the temporary extension by the EU of equivalence recognition to
 
UK-based central
counterparties (UK CCPs) through to 30 June 2022. There is, however,
 
no guarantee that such equivalence
decisions will be issued by the EU or the UK in the future, or that any extensions or renewals of temporary
equivalence decisions or similar transitional arrangements will be made by the EU or the UK in the future. The
absence of such equivalence decisions for financial services could have a negative impact on ING’s
 
activities, with
 
the absence of future UK CCPs recognition expected to increase costs
 
for both ING and its financial markets
customers. In addition, Brexit has required and will require
 
other changes to ING’s business and operations,
including requiring ING to apply for a third country branch banking licenses in the UK for which ECB conditions
and PRA & FCA authorisation decisions remain pending. ING is also progressing the move of certain financial
markets activities from London to Amsterdam in light
 
of ECB’s supervisory expectations on booking models as a
result of Brexit. The regulatory impact of Brexit continues to
 
present material risks and uncertainties, particularly
as to how regulations may diverge between the EU and the UK, which could materially
 
increase ING’s compliance
costs and have a material adverse effect
 
on ING’s business, results and financial condition.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
19
 
Failure to meet minimum capital and other prudential regulatory
 
requirements as applicable to
us from time to time may have a material
 
adverse effect on our business, results and financial
condition and on our ability to make payments on certain
 
of our securities.
 
ING is subject to a variety of regulations that require us to comply with minimum requirements
 
for capital (own
funds) and additional loss absorbing capacity, as well as for liquidity,
 
and to comply with leverage restrictions. In
addition, such capital, liquidity and leverage requirements and their application
 
and interpretation may change.
Any changes may require us to maintain more
 
capital or to raise a different
 
type of capital by disqualifying
existing capital instruments from continued inclusion in regulatory
 
capital, requiring replacement with new
capital instruments that meet the new criteria. Sometimes changes are introduced
 
subject to a transitional
period during which the new requirements are being phased in, gradually progressing to a fully phased-in, or
fully-loaded, application of the requirements.
 
 
Any failure to comply with these requirements,
 
or to adapt to changes in such requirements, may have a material
adverse effect on our business, results and financial condition, and may require
 
us to seek additional capital.
Failures to meet minimum capital or other prudential requirements
 
may also result in ING being prohibited from
making payments on certain of our securities. Because implementation phases and transposition into EU or
national regulation where required may often involve
 
a lengthy period, the impact of changes in capital, liquidity
and leverage regulations on our business, results and financial condition, and on our ability to make payments
 
on
certain of our securities, is often unclear.
 
For further discussion of the impact of minimum capital and other prudential regulatory requirements on ING,
see “Item 4. Information on the Company—Regulation and Supervision—Regulatory
 
Developments—Basel III and
European Union Standards as currently applied by ING Group.”
 
Our US commodities and derivatives business is subject to CFTC
 
and SEC regulation under the
Dodd-Frank Act.
 
Our affiliate ING Capital Markets LLC is registered
 
with the Commodity Futures Trading Commission (“CFTC”) as a
swap dealer and is subject to CFTC regulation of the off-exchange
 
derivatives market pursuant to Title VII of the
U.S. Dodd-Frank Wall Street Reform
 
and Consumer Protection Act
 
(“Dodd-Frank”).
 
Operating as a swap dealer
requires compliance with CFTC regulatory requirements,
 
which may be burdensome, impose additional
compliance costs and could adversely affect
 
the profitability of this business, as well as exposing ING to the risk
of non-compliance with these regulations.
 
ING Capital Markets LLC is also expected to register
 
with the SEC as a security-based swap dealer pursuant to
Dodd-Frank and SEC regulations enacted thereunder effective
 
1 November 2021. SEC registration may increase
ING Capital Markets LLC’s operational
 
costs as a result of compliance, margin, capital and other requirements,
and result in a substantial portion or all of ING’s security-based
 
swap activities with U.S. persons being conducted
through ING Capital Markets LLC. These registration
 
and related requirements may also reduce trading
 
activity,
reduce market liquidity and increase volatility in the relevant
 
markets.
 
In addition, new position limits under Dodd-Frank applicable to the derivatives market generally
 
for uncleared
swaps referencing any of twenty
 
-five commodity futures contracts could limit ING’s
 
position sizes in these swaps
and similarly limit the ability of counterparties to utilize certain of our products to the extent
 
hedging exemptions
from the position limits are unavailable. Such regulation of the derivative
 
markets and market participants will
likely result in increased cost of hedging and other trading activities, both for ING and its customers,
 
which could
expose our business to greater risk and could reduce the size and profitability
 
of our customer business. The
imposition of these regulatory restrictions and requirements, could also result in reduced
 
market liquidity,
 
which
could in turn increase market volatility and the risks and costs of hedging and other trading
 
activities.
 
Any of the foregoing factors, and any
 
further regulatory developments with respect to commodities and
derivatives, could have a material impact on our business, results and financial condition.
 
For further discussion of the impact of regulation of commodities and derivatives on ING, see “Item 4.
Information on the Company—Regulation and Supervision—Regulatory Developments
 
—Dodd-Frank Act and
other US Regulations.”
 
We are subject to several
 
other bank recovery and resolution regimes that include statutory
write down and conversion as well as other powers,
 
which remains subject to significant
uncertainties as to scope and impact on us.
 
We are subject to several recovery
 
and resolution regimes, including the Single Resolution Mechanism (‘SRM’),
the ‘Bank Recovery and Resolution Directive’ (‘BRRD’) as implemented in national legislation, and the Dutch
‘Intervention Act’ (Wet bijzondere maatregelen financiële ondernemingen,
 
as implemented in the Dutch
Financial Supervision Act). The SRM applies to banks that are supervised by the ECB under the SSM, with the aim
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
20
 
of ensuring an orderly resolution of failing banks at minimum costs for taxpayers
 
and the real economy. The
BRRD establishes a common framework for the recovery
 
and resolution for banks within the European Union,
with the aim of providing supervisory authorities and resolution authorities with common tools and powers to
address banking crises pre-emptively in order to safeguard
 
financial stability and minimise taxpayers’ exposure
 
to
losses. In addition, the Intervention Act confers wide-ranging powers
 
to the Dutch Minister of Finance, including,
among other things, in relation to shares and other securities issued by us or with our cooperation or other
claims on us (including, without limitation, expropriation thereof) if there is a serious and immediate threat to
the stability of the financial system. Any application of statutory
 
write-down and conversion or other powers
would not be expected to constitute an event of default
 
under our securities entitling holders to seek repayment.
If any of these powers were to be exercised
 
in respect of ING, there could be a material adverse effect
 
on both
ING and on holders of ING securities, including through a material adverse effect on credit
 
ratings and/or the
price of our securities. Investors in our securities may lose their investment
 
if resolution measures are taken
under current or future regimes.
 
For further discussion of the impact of bank recovery and resolution regimes on ING, see “Item 4. Information on
the Company—Regulation and Supervision—Regulatory Developments—Bank Recovery
 
and Resolution
Directive.”
 
Risks related to litigation, enforcement
 
proceedings and investigations and to
 
changes in tax
laws
 
We may be subject to litigation,
 
enforcement proceedings, investigations
 
or other regulatory
actions, and adverse publicity.
 
We are involved in governmental,
 
regulatory, arbitration
 
and legal proceedings and investigations involving
claims by and against us which arise in the ordinary course of our businesses, including in connection with our
activities as financial services provider, employer,
 
investor and taxpayer.
 
As a financial institution, we are subject
to specific laws and regulations governing financial services or financial institutions. See “– Changes in laws
and/or regulations governing financial services or financial institutions or the application of such laws and/or
regulations may increase our operating costs and limit our activities” above. Financial reporting
 
irregularities
involving other large and well-known companies, possible findings of government authorities in various
jurisdictions which are investigating several
 
rate-setting processes, notifications made by whistleblowers,
increasing regulatory and law enforcement scrutiny
 
of ‘know your customer’ anti-money laundering, tax evasion,
prohibited transactions with countries or persons subject to sanctions, and bribery or other anti-corruption
measures and anti-terrorist-financing procedures and their effectiveness,
 
regulatory investigations of the banking
industry, and litigation
 
that arises from the failure or perceived failure
 
by us to comply with legal, regulatory,
 
tax
and compliance requirements could result in adverse publicity and reputational
 
harm, lead to increased
regulatory supervision, affect our ability to attract
 
and retain customers and maintain access to the capital
markets, result in cease and desist orders, claims, enforcement
 
actions, fines and civil and criminal penalties,
other disciplinary action or have other material adverse effects
 
on us in ways that are not predictable. Some
claims and allegations may be brought by or on behalf of a class and claimants may seek large or indeterminate
amounts of damages, including compensatory,
 
liquidated, treble and punitive damages. Our reserves for
litigation liabilities may prove to be inadequate.
 
Claims and allegations, should they become public, need not be
well founded, true or successful to have a negative
 
impact on our reputation. In addition, press reports and other
public statements that assert some form of wrongdoing could
 
result in inquiries or investigations by regulators,
legislators and law enforcement officials, and responding
 
to these inquiries and investigations, regardless
 
of their
ultimate outcome, is time consuming and expensive. Adverse publicity,
 
claims and allegations, litigation and
regulatory investigations and sanctions may have
 
a material adverse effect on our business, results, financial
condition and/or prospects in any given period.
 
We are subject to different
 
tax regulations in each of the jurisdictions where we conduct
business, and are exposed to changes in tax laws,
 
and risks of non-compliance with or
proceedings or investigations with respect
 
to, tax laws.
 
Changes in tax laws (including case law) could increase our taxes
 
and our effective tax rates
 
and could materially
impact our tax receivables and liabilities as well as deferred tax
 
assets and deferred tax liabilities, which could
have a material adverse effect
 
on our business, results and financial condition. Changes in tax laws could also
make certain ING products less attractive,
 
which could have adverse consequences for our businesses and
results. Because of the geographic spread of its business, ING may be subject to tax audits, investigations
 
and
procedures in numerous jurisdictions at any point in time. Although we believe that we have
 
adequately
provided for all our tax positions, the ultimate resolution of these audits, investigations
 
and procedures may
result in liabilities which are different from the amounts recognized.
 
In addition, increased bank taxes in
countries where the Group is active result in increased taxes
 
on ING’s banking operations, which could negatively
impact our operations, financial condition and liquidity.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
21
 
We may be subject to withholding tax
 
if we fail to comply with the Foreign Account Tax
Compliance Act (“FATCA”)
 
and other US withholding tax regulations
 
Due to the nature of its business, ING is subject to various provisions of US tax law.
 
These include FATCA,
 
which
requires ING to provide certain information
 
for the US Internal Revenue Service (“IRS”) and the Qualified
Intermediary (“QI”) requirements, which require withholding tax
 
on certain non US-source payments. Failure to
comply with FATCA
 
and/or QI requirements and regulations could also harm our reputation
 
and could subject the
Group to enforcement actions, fines and penalties, which could have a material
 
adverse effect on our business,
reputation, revenues, results, financial condition and prospects. For additional
 
information with respect to
specific proceedings, see Note 45 ‘Legal proceedings’ to the consolidated financial statements.
 
For further
discussion of FATCA
 
and QI requirements with respect to ING, see “Item 4. Information on the Company—
Regulation and Supervision—Regulatory Developments—Bank Recovery
 
and Resolution Directive.”
 
ING is exposed to the risk of claims from customers
 
who feel misled or treated unfairly because
of advice or information received.
 
Our products and services, including banking products and advice services for third-party products are exposed
to claims from customers who might allege that they have
 
received misleading advice or other information from
advisers (both internal and external) as to which products were most
 
appropriate for them, or that the terms and
conditions of the products, the nature of the products or the circumstances
 
under which the products were sold,
were misrepresented to them. When new financial products are
 
brought to the market, ING engages in a
multidisciplinary product approval process in connection with the development and distribution of such
products, including production of appropriate marketing and communication
 
materials. Notwithstanding these
processes, customers may make
 
claims against ING if the products do not meet their expectations. Customer
protection regulations, as well as changes in interpretation
 
and perception by both the public at large and
governmental authorities of acceptable market practices,
 
influence customer expectations.
 
Products distributed through person-to-person sales forces
 
have a higher exposure to such claims as the sales
forces may provide face-to-face
 
financial planning and advisory services. Complaints may also arise if customers
feel that they have not been treated
 
reasonably or fairly,
 
or that the duty of care has not been complied with.
While a considerable amount of time and resources have been invested
 
in reviewing and assessing historical
sales practices and products that were sold in the past, and in the maintenance of risk management, legal
 
and
compliance procedures to monitor current sales practices, there
 
can be no assurance that all of the issues
associated with current and historical sales practices have
 
been or will be identified, nor that any issues already
identified will not be more widespread than presently estimated.
 
The negative publicity associated with any sales practices, any
 
compensation payable in respect of any such
issues and regulatory changes resulting from such issues, has had and could have a material
 
adverse effect on our
reputation, business, results, financial condition and prospects. For additional information
 
regarding legal
proceedings or claims, see Note 45 ‘Legal proceedings’ to the consolidated financial statements
 
.
 
 
Risks related to the Group’s
 
business and operations
 
Operational risks, such as systems
 
disruptions or failures, breaches of security,
 
cyber attacks,
human error,
 
changes in operational practices, inadequate
 
controls including in respect of third
parties with which we do business, natural disasters
 
or outbreaks of communicable diseases may
adversely impact our reputation, business and results.
 
We face the risk that the design and operating effectiveness
 
of our controls and procedures may prove
 
to be
inadequate. Operational risks are inherent to
 
our business. Our businesses depend on the ability to process and
report a large number of transactions efficiently and accurately.
 
In addition, we routinely transmit, receive and
store personal, confidential and proprietary information
 
by email and other electronic means. Although we
endeavour to safeguard our systems
 
and processes, losses can result from inadequately trained or skilled
personnel, IT failures (including due to a computer virus or a failure to anticipate
 
or prevent cyber attacks or
other attempts to gain unauthorised access to digital systems
 
for purposes of misappropriating assets or
sensitive information, corrupting data, or impairing operational
 
performance, or security breaches by third
parties), inadequate or failed internal control processes and systems,
 
regulatory breaches, human errors,
employee misconduct, including fraud, or from natural disasters
 
or other external events that interrupt normal
business operations. Such losses may adversely affect our
 
reputation, business and results. We depend on the
secure processing, storage and transmission of confidential
 
and other information in our computer systems and
networks. The equipment and software used in our computer systems
 
and networks may not always be capable
of processing, storing or transmitting information as expected.
 
Despite our business continuity plans and
procedures, certain of our computer systems and
 
networks may have insufficient recovery
 
capabilities in the
event of a malfunction or loss of data. As part of our Accelerated Think Forward strategy,
 
we are consistently
managing and monitoring our IT risk profile globally. ING is subject to increasing regulatory
 
requirements
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
22
 
including EU General Data Protection Regulation (‘GDPR’)
 
and EU Payment Services Directive (‘PSD2’). Failure to
appropriately manage and monitor our IT risk profile could affect
 
our ability to comply with these regulatory
requirements, to securely and efficiently serve our clients or to timely,
 
completely or accurately process, store
and transmit information, and may adversely impact our reputation,
 
business and results. For further description
of the particular risks associated with cybercrime, which is a specific risk to ING as a result of its strategic focus
 
on
technology and innovation, see “–We are subject to
 
increasing risks related to cybercrime and compliance with
cybersecurity regulation” below.
 
Widespread outbreaks of communicable diseases may impact the health of our employees, increasing
absenteeism, or may cause a significant increase in the utilisation of health benefits offered
 
to our employees,
either or both of which could adversely impact our business. Also see above under the heading “–ING’s business,
results and financial condition have been, and likely will continue to be adversely
 
affected by the Covid-19
pandemic”. As set
 
out there, we expect to be affected by the Covid-19 pandemic through
 
its impact on, among
others, our employees. We also face physical
 
risks, including natural disasters as a direct result
 
of climate change,
such as extreme weather events or rising water levels,
 
which could have a material adverse effect
 
on our
operations, particularly where our headquarters may be impacted. For further description of the risks associated
herewith, see “–We may be exposed to business, operational,
 
regulatory,
 
reputational and other risks in
connection with climate change’ below. In addition, other events
 
including unforeseeable and/or catastrophic
events can lead to an abrupt interruption of activities, and our operations may be subject to
 
losses resulting from
such disruptions. Losses can result from destruction or impairment of property,
 
financial assets, trading positions,
and the loss of key personnel. If our business continuity plans are not able to be implemented, are not effective
or do not sufficiently take such events into account,
 
losses may increase further.
 
We are subject to increasing risks related
 
to cybercrime and compliance with cybersecurity
regulation.
 
 
Like other financial institutions and global companies, we are regularly the target
 
of cyber attacks, which is a
specific risk to ING as a result of its strategic focus on technology and innovation. In particular,
 
threats from
Distributed Denial of Service (‘DDoS’), targeted attacks
 
(also called Advanced Persistent Threats)
 
and
Ransomware intensify worldwide, and attempts to
 
gain unauthorised access and the techniques used for such
attacks are increasingly sophisticated.
 
We have faced, and expect to continue
 
to face, an increasing number of
cyber attacks (both successful and unsuccessful) as we have further digitalized.
 
This includes the continuing
expansion of our mobile- and other internet-based products and services, as well as our usage and reliance on
cloud technology. In particular,
 
ING is regularly subject to DDoS attacks, which are becoming increasingly
sophisticated. For example, in 2020 ING experienced DDoS attacks
 
in Turkey and Belgium. However,
 
to date ING
has not experienced a material loss of money or data due to cybercrime.
 
Cybersecurity, customer
 
data and data privacy have become the subject of increasing legislative and
 
regulatory
focus. The EU’s second Payment
 
Services Directive (‘PSD2’) and GDPR are examples of such regulations. In certain
locations where ING is active, there are additional local regulatory requirements
 
and legislation on top of EU
regulations that must be followed for business conducted
 
in that jurisdiction. Some of these legislations and
regulations may be conflicting due to local regulatory interpretations.
 
We may become subject to new EU and
local legislation or regulation concerning cybersecurity,
 
security of customer data in general or the privacy of
information we may store or maintain.
 
Compliance with such new legislation or regulation could increase the
Group’s compliance cost.
 
Failure to comply with new and existing legislation or regulation
 
could harm our
reputation and could subject the Group to enforcement
 
actions, fines and penalties.
 
ING may be exposed to the risks of misappropriation, unauthorised access, computer viruses or other malicious
code, cyber attacks and other external attacks
 
or internal breaches that could have a security impact. These
events could also jeopardise our confidential information or that
 
of our clients or our counterparties and this
could be exacerbated by the increase in data protection
 
requirements as a result of GDPR. These events can
potentially result in financial loss and harm to our reputation, hinder our operational effectiveness,
 
result in
regulatory censure, compensation costs or fines resulting from regulatory
 
investigations and could have a
material adverse effect on our business, reputation,
 
revenues, results, financial condition and prospects. Even
when we are successful in defending against cyber attacks,
 
such defence may consume significant resources or
impose significant additional costs on ING.
 
Because we operate in highly competitive markets,
 
including our home market, we may not be
able to increase or maintain our market share,
 
which may have an adverse effect
 
on our results.
 
There is substantial competition in the Netherlands and the other countries in which we do business for the types
of wholesale banking, retail banking, investment banking and other products and services we provide. Customer
loyalty and retention can be influenced by a number of factors,
 
including brand recognition, reputation, relative
service levels, the prices and attributes of products and services, scope of distribution, credit ratings and actions
taken by existing or new competitors
 
(including non-bank or financial technology competitors). A decline in our
competitive position as to one or more of these factors could adversely
 
impact our ability to maintain or further
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
23
 
increase our market share, which would adversely affect
 
our results. Such competition is most pronounced in our
more mature markets of the Netherlands, Belgium, the rest
 
of Western Europe and Australia.
 
In recent years,
however,
 
competition in emerging markets, such as Asia and Central and Eastern
 
Europe, has also increased as
large financial services companies from more developed countries have sought to
 
establish themselves in
markets which are perceived to offer
 
higher growth potential, and as local institutions have become more
sophisticated and competitive and proceeded to form
 
alliances, mergers or strategic relationships
 
with our
competitors. The Netherlands is our largest market.
 
Our main competitors in the banking sector in the
Netherlands are ABN AMRO Bank and Rabobank.
 
Competition could also increase due to new entrants (including non-bank and financial technology competitors)
in the markets that may have new operating
 
models that are not burdened by potentially costly legacy
operations and that are subject to reduced regulation. New entrants
 
may rely on new technologies, advanced
data and analytic tools, lower cost to serve, reduced regulatory burden
 
and/or faster processes in order to
challenge traditional banks. Developments in technology has also accelerated
 
the use of new business models,
and ING may not be successful in adapting to this pace of change or may incur significant costs in adapting its
business and operations to meet such changes. For example, new business models have
 
been observed in retail
payments, consumer and commercial lending (such as peer-to-peer lending), foreign exchange
 
and low-cost
investment advisory services. In particular,
 
the emergence of disintermediation in the financial sector resulting
from new banking, lending and payment solutions offered by rapidly
 
evolving incumbents, challengers and new
entrants, in particular with respect to payment services and products, and the introduction
 
of disruptive
technology may impede our ability to grow or retain our market
 
share and impact our revenues and profitability.
 
Increasing competition in the markets in which we operate
 
(including from non-banks and financial technology
competitors) may significantly impact our results if we are unable to
 
match the products and services offered by
our competitors. Future economic turmoil may accelerate
 
additional consolidation activity. Over time, certain
sectors of the financial services industry have become more concentrated,
 
as institutions involved in a broad
range of financial services have been acquired by or merged into other firms or have declared
 
bankruptcy. These
developments could result in our competitors gaining greater
 
access to capital and liquidity, expanding their
ranges of products and services, or gaining geographic diversity.
 
We may experience pricing pressures as a result
of these factors in the event that some of our competitors
 
seek to increase market share by reducing prices.
 
We may not always
 
be able to protect our intellectual property developed in our products
 
and
services and may be subject to infringement claims, which could adversely impact our core
business, inhibit efforts to monetize our internal innovations
 
and restrict our ability to capitalize
on future opportunities.
 
In the conduct of our business, we rely on a combination of contractual rights with third parties and copyright,
trademark, trade name, patent and trade secret
 
laws to establish and protect our intellectual property,
 
which we
develop in connection with our products and services. Third parties may infringe or misappropriate our
intellectual property.
 
We may have to litigate
 
to enforce and protect our copyrights, trademarks,
 
trade names,
patents, trade secrets and know-how or to
 
determine their scope, validity or enforceability.
 
In that event, we
may be required to incur significant costs, and our efforts
 
may not prove successful. The inability to secure or
protect our intellectual property assets could have an adverse
 
effect on our core business and our ability to
compete, including through the monetization of our internal innovations.
 
We may also be subject to claims made by third parties for (1) patent,
 
trademark or copyright infringement, (2)
breach of copyright, trademark or licence usage rights, or (3) misappropriation of trade
 
secrets. Any such claims
and any resulting litigation could result in significant expense and liability for
 
damages. If we were found to have
infringed or misappropriated a third-party patent or other intellectual property
 
right, we could in some
circumstances be enjoined from providing certain products or services to our customers
 
or from utilizing and
benefiting from certain methods, processes, copyrights, trademarks,
 
trade secrets or licences. Alternatively,
 
we
could be required to enter into costly licensing arrangements
 
with third parties or to implement a costly
workaround. Any of these scenarios could have a material
 
adverse effect on our business and results and could
restrict our ability to pursue future business opportunities.
 
The inability of counterparties to meet their financial obligations or our inability to
 
fully enforce
our rights against counterparties could have
 
a material adverse effect on our results.
 
Third parties that have an payment obligations to
 
ING, or obligations to return money,
 
securities or other assets,
may not pay or perform under their obligations. These parties include the issuers and guarantors
 
(including
sovereigns) of securities we hold, borrowers under loans originated, reinsurers,
 
customers, trading
counterparties, securities lending and repurchase counterparties, counterparties
 
under swaps, credit default and
other derivative contracts, clearing agents, exchanges,
 
clearing houses and other financial intermediaries.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
24
 
Defaults by one or more of these parties on their obligations to us due to bankruptcy,
 
lack of liquidity, downturns
in the economy or real estate values, continuing low oil or other commodity prices, operational
 
failure or other
factors, or even rumours about potential defaults
 
by one or more of these parties or regarding a severe distress
of the financial services industry generally, could have
 
a material adverse effect on our results, financial condition
and liquidity. Given the high level of interdependence
 
between financial institutions, we are and will continue to
be subject to the risk of deterioration of the commercial and financial soundness, or perceived soundness, of
sovereigns and other financial services institutions. This is particularly relevant to our franchise as an important
and large counterparty in equity,
 
fixed income and foreign exchange
 
markets, including related derivatives.
 
We routinely execute
 
a high volume of transactions, such as unsecured debt instruments, derivative transactions
and equity investments with counterparties and customers in the financial services industry,
 
including brokers
and dealers, commercial and investment banks, mutual and hedge funds, insurance
 
companies, institutional
clients, futures clearing merchants, swap dealers, and other institutions, resulting in large
 
periodic settlement
amounts, which may result in our having significant credit exposure
 
to one or more of such counterparties or
customers. As a result, we could face concentration
 
risk with respect to liabilities or amounts we expect to collect
from specific counterparties and customers. We
 
are exposed to increased counterparty risk as a result of recent
financial institution failures and weakness and will continue to be exposed to the risk of loss if counterparty
financial institutions fail or are otherwise unable to meet their obligations. A default by,
 
or even concerns about
the creditworthiness of, one or more of these counterparties
 
or customers or other financial services institutions
could therefore have an adverse
 
effect on our results or liquidity.
 
With respect to secured transactions, our credit risk may be exacerbated
 
when the collateral held by us cannot
be or is liquidated at prices not sufficient to recover the full amount of the loan or derivative
 
exposure due to us.
We also have exposure to
 
a number of financial institutions in the form of unsecured debt instruments,
derivative transactions and equity investments. For
 
example, we hold certain hybrid regulatory capital
instruments issued by financial institutions which permit the issuer to cancel coupon payments on the
occurrence of certain events or at their option. The EC has indicated that, in certain circumstances,
 
it may require
these financial institutions to cancel payment. If this were to happen, we expect that
 
such instruments may
experience ratings downgrades and/or a drop
 
in value and we may have to treat them as impaired,
 
which could
result in significant losses. There is no assurance that losses on, or impairments to the carrying value of,
 
these
assets would not materially and adversely affect our business, results or financial condition.
 
In addition, we are subject to the risk that our rights against third parties may not be enforceable
 
in all
circumstances. The deterioration or perceived deterioration
 
in the credit quality of third parties whose securities
or obligations we hold could result in losses and/ or adversely affect
 
our ability to rehypothecate or otherwise
use those securities or obligations for liquidity purposes. A significant downgrade in the credit ratings
 
of our
counterparties could also have a negative impact on our income and risk weighting, leading to increased
 
capital
requirements. While in many cases we are permitted to require
 
additional collateral from counterparties that
experience financial difficulty, disputes
 
may arise as to the amount of collateral we are entitled
 
to receive and
the value of pledged assets. Also in this case, our credit risk may also be exacerbated
 
when the collateral we hold
cannot be liquidated at prices sufficient to recover the full amount of the loan or derivative
 
exposure due to us,
which is most likely to occur during periods of illiquidity and depressed asset valuations, such as those
experienced during the financial crisis of 2008. The termination of contracts and the foreclosure
 
on collateral
may subject us to claims. Bankruptcies, downgrades and disputes with counterparties as to the valuation
 
of
collateral tend to increase in times of market
 
stress and illiquidity. Any of these developments
 
or losses could
materially and adversely affect our business, results, financial condition,
 
and/or prospects.
 
Ratings are important to our business for a number of reasons,
 
and a downgrade or a potential
downgrade in our credit ratings could have
 
an adverse impact on our results and net results.
 
Credit ratings represent the opinions of rating
 
agencies regarding an entity’s ability to repay
 
its indebtedness.
Our credit ratings are important to our ability to raise
 
capital and funding through the issuance of debt and to the
cost of such financing. In the event of a downgrade, the cost of issuing debt will increase, having an adverse
effect on our net results. Certain institutional investors
 
may also be obliged to withdraw their deposits from ING
following a downgrade, which could have an adverse
 
effect on our liquidity. They
 
can also have lower risk
appetite for our debt notes, leading to lower purchases of (newly issued) debt notes. We
 
have credit ratings from
S&P,
 
Moody’s Investor Service and Fitch Ratings. Each of the rating
 
agencies reviews its ratings and rating
methodologies on a recurring basis and may decide on a downgrade at any time.
 
As rating agencies continue to evaluate
 
the financial services industry, it is possible that rating agencies will
heighten the level of scrutiny that they apply to financial institutions, increase the frequency and scope of their
credit reviews, request additional information from
 
the companies that they rate and potentially adjust upward
the capital and other requirements employed in the rating agency models for maintenance
 
of certain ratings
levels. It is possible that the outcome of any such review of us would have additional adverse
 
ratings
consequences, which could have a material adverse effect
 
on our results and financial condition. We may need to
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
25
 
take actions in response to changing standards
 
or capital requirements set by any of the rating
 
agencies, which
could cause our business and operations to suffer.
 
We cannot predict what additional actions rating agencies
may take, or what actions we may
 
take in response to the actions of rating agencies.
 
Furthermore, ING Bank’s assets are risk-weighted.
 
Downgrades of these assets could result in a higher risk-
weighting, which may result in higher capital requirements. This may impact net earnings and the return
 
on
capital, and may have an adverse impact on our competitive
 
position.
 
We may be exposed to business,
 
operational, regulatory,
 
reputational and other risks in
connection with climate change.
 
Climate change is an area of significant focus for governments
 
and regulators, investors
 
and ING’s customers,
 
and
developments with respect to climate change topics may expose
 
ING to significant risks. The perception of
climate change as a risk by civil society, shareholders,
 
governments and other stakeholders continues
 
to increase,
including in relation to the financial sector’s operations and strategy,
 
and international actions regulating or
restricting CO2 emissions, such as the Paris agreement, may also result in financial institutions coming
 
under
increased pressure from such stakeholders
 
regarding the management and disclosure of their climate risks and
related lending and investment activities. For further information
 
regarding the alignment of ING’s
 
lending
portfolio with its climate-related goals, see “Item 4. – Information
 
on the Company – Business Overview –
Responsible finance” below.
 
For a description of the physical risks to our business resulting from natural
 
disasters as a result of climate
change, see “–Operational risks, such as systems disruptions or failures,
 
breaches of security, cyber attacks,
human error,
 
changes in operational practices, inadequate controls
 
including in respect of third parties with
which we do business, natural disasters or outbreaks of communicable diseases may
 
adversely impact our
reputation, business and results” above.
 
An inability to retain or attract key
 
personnel may affect our business and results.
 
ING Group relies to a considerable extent on the quality of its senior management, such as members
 
of the
executive committee, and management
 
in the jurisdictions which are material to ING’s business and operations.
The success of ING Group’s operations is dependent,
 
among other things, on its ability to attract and retain highly
qualified personnel. Competition for key personnel in most
 
countries in which ING Group operates, and globally
for senior management, is intense. ING Group’s
 
ability to attract and retain key
 
personnel, in senior management
and in particular areas such as technology and operational management, client relationship management,
finance, risk and product development, is dependent on a number of factors, including prevailing
 
market
conditions and compensation packages offered by companies
 
competing for the same talent.
 
The (increasing) restrictions on remuneration, plus the public and political scrutiny especially in the Netherlands,
will continue to have an impact on existing ING Group remuneration
 
policies and individual remuneration
packages for personnel. For example,
 
under the EU’s amended Shareholder Rights Directive, known as ‘SRD II’,
which came into effect on June 10, 2019, ING is required to hold a shareholder (binding) vote on ING’s
 
Executive
Board remuneration policy and Supervisory Board remuneration policy at
 
least every four years. Furthermore the
shareholders have an advisory vote on ING’s
 
remuneration report annually.
 
This may restrict our ability to offer
competitive compensation compared with companies (financial and/or non-financial) that are
 
not subject to such
restrictions and it could adversely affect ING Group’s
 
ability to retain or attract key
 
personnel, which, in turn, may
affect our business and results.
 
We may incur further liabilities in respect of our defined benefit retirement
 
plans if the value of
plan assets is not sufficient to cover potential obligations,
 
including as a result of differences
between actual results and underlying actuarial assumptions and models.
 
ING Group companies operate various defined benefit retirement
 
plans covering the post-employment benefits
of a number of our employees. The liability recognised in our consolidated balance sheet in respect of our
defined benefit plans is the present value of the defined benefit obligations at
 
the balance sheet date, less the
fair value of each plan’s assets, together
 
with adjustments for unrecognised actuarial gains and losses and
unrecognised past service costs. We determine our defined
 
benefit plan obligations based on internal and
external actuarial models and calculations using the projected unit credit method. Inherent in these actuarial
models are assumptions, including discount rates, rates
 
of increase in future salary and benefit levels, mortality
rates and consumer price index. These assumptions are based on available
 
market data and are updated
annually. Nevertheless, the actuarial assumptions may
 
differ significantly from 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 our present and future liabilities and costs associated
 
with our defined benefit
plans.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
26
 
Risks related to the Group’s
 
risk management practices
 
Risks relating to our use of quantitative models or
 
assumptions to model client behaviour for the
purposes of our market calculations may adversely
 
impact our reputation or results.
 
We use quantitative methods, systems
 
or approaches that apply statistical, economic financial, or mathematical
theories, techniques and assumptions to process input data into quantitative
 
estimates. Errors in the
development, implementation, use or interpretation
 
of such models, or from incomplete or incorrect data, can
lead to inaccurate, noncompliant or misinterpreted
 
model outputs, which may adversely impact our reputation
and results. In addition, we use assumptions in order to model client behaviour for the risk calculations in our
banking books. Assumptions are used to determine the interest rate
 
risk profile of savings and current accounts
and to estimate the embedded option risk in the mortgage and investment
 
portfolios. Assumptions based on
past client behaviour may not always be a reliable indicator
 
of future behaviour.
 
The realisation or use of
different assumptions to determine client behaviour
 
could have a material adverse effect
 
on the calculated risk
figures and, ultimately,
 
our future results or reputation. Furthermore, we may be subject to risks related
 
to
changes in the laws and regulations governing the risk management practices of financial institutions. For
 
further
information, see “Risks related to the regulation
 
and supervision of the Group – Changes in laws and/or
regulations governing financial services or financial institutions or the application of such laws and/or regulations
may increase our operating costs and limit our activities” above. As noted there,
 
regulation of the industries in
which we operates is becoming increasingly more extensive and complex,
 
while also attracting supervisory
scrutiny. Compliance failures
 
may lead to changes in the laws and regulations governing the risk management
practices and materially increase our operating costs.
 
We may be unable to manage our risks
 
successfully through derivatives.
 
We employ various economic hedging strategies
 
with the objective of mitigating the market risks that are
inherent in our business and operations. These risks include currency fluctuations, changes in the fair value
 
of our
investments, the impact of interest rates,
 
equity markets and credit spread changes, the occurrence of credit
defaults and changes in client behaviour.
 
We seek to control these risks by,
 
among other things, entering into a
number of derivative instruments, such as swaps, options, futures and forward
 
contracts, including, from time to
time, macro hedges for parts of our business, either directly as a counterparty or as a credit support provider to
affiliate counterparties. Developing an effective
 
strategy for dealing with these risks is complex, and no strategy
can completely insulate us from risks associated with those fluctuations. Our hedging strategies
 
also rely on
assumptions and projections regarding our assets, liabilities, general market
 
factors and the creditworthiness of
our counterparties that may prove to be incorrect
 
or prove to be inadequate. Accordingly,
 
our hedging activities
may not have the desired beneficial impact on our results or financial condition. Poorly designed strategies
 
or
improperly executed transactions could actually increase
 
our risks and losses. Hedging strategies involve
transaction costs and other costs, and if we terminate a hedging arrangement,
 
we may also be required to pay
additional costs, such as transaction fees or breakage costs. There
 
have been periods in the past, and it is likely
that there will be periods in the future, during which we have incurred or may incur losses on transactions,
possibly significant, after taking into account our hedging strategies.
 
Further, the nature
 
and timing of our
hedging transactions could actually increase our risk and losses. Hedging instruments we use to manage product
and other risks might not perform as intended or expected, which could result in higher (un)realised losses, such
as credit value adjustment risks or unexpected P&L effects,
 
and unanticipated cash needs to collateralise or settle
such transactions. Adverse market conditions can limit the availability
 
and increase the costs of hedging
instruments, and such costs may not be recovered in the pricing of the underlying products being hedged. In
addition, hedging counterparties may fail to perform their obligations,
 
resulting in unhedged exposures and
losses on positions that are not collateralised. As such, our hedging strategies
 
and the derivatives that we use or
may use may not adequately mitigate or offset
 
the risks they intend to cover,
 
and our hedging transactions may
result in losses.
 
Our hedging strategy additionally relies on the assumption that hedging counterparties remain able and willing to
provide the hedges required by our strategy.
 
Increased regulation, market shocks, worsening
 
market conditions
(whether due to the ongoing euro crisis or otherwise), and/or other factors that affect
 
or are perceived to affect
the financial condition, liquidity and creditworthiness of ING may reduce the ability and/or willingness of such
counterparties to engage in hedging contracts with us and/or
 
other parties, affecting our overall ability to hedge
our risks and adversely affecting our business, results and financial condition.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
27
 
Risks related to the Group’s
 
liquidity and financing activities
 
We depend on the capital and credit markets,
 
as well as customer deposits, to provide the
liquidity and capital required to fund our operations
 
,
 
and adverse conditions in the capital and
credit markets, or significant withdrawals
 
of customer deposits, may impact our liquidity,
borrowing and capital positions, as well as the cost of liquidity,
 
borrowings and capital.
 
Adverse capital market conditions have
 
in the past affected, and may in the future affect,
 
our cost of borrowed
funds and our ability to borrow on a secured and unsecured basis, thereby impacting our ability to support
and/or grow our businesses. Furthermore, although interest rates
 
are at or near historically low levels, since the
recent financial crisis, we have experienced increased funding costs due in part to the withdrawal
 
of perceived
government support of such institutions in the event of future financial crises. In addition, liquidity in the
financial markets has also been negatively impacted as market
 
participants and market practices and structures
adjust to new regulations.
 
We need liquidity to fund new and recurring business, to pay our operating expenses,
 
interest on our debt and
dividends on our capital stock, maintain our securities lending activities and replace certain maturing liabilities.
Without sufficient liquidity, we
 
will be forced to curtail our operations and our business will suffer.
 
The principal
sources of our funding include a variety of short-and long-term instruments, including deposit fund, repurchase
agreements, commercial paper,
 
medium- and long-term debt, subordinated debt securities, capital securities and
shareholders’ equity.
 
In addition, because we rely on customer deposits to fund our business and operations, the confidence of
customers in financial institutions may be tested in a manner that may
 
adversely impact our liquidity and capital
position. Consumer confidence in financial institutions may,
 
for example, decrease due to our or our competitors’
failure to communicate to customers
 
the terms of, and the benefits to customers
 
of, complex or high-fee
financial products. Reduced confidence could have an adverse
 
effect on our liquidity and capital position through
withdrawal of deposits, in addition to our revenues and results. Because a significant percentage
 
of our customer
deposit base is originated via Internet banking, a loss of customer confidence may result in a rapid withdrawal
 
of
deposits over the Internet.
 
In the event that our current resources do not satisfy our needs, we may
 
need to seek additional financing. The
availability of additional financing will depend on a variety of factors, such as market
 
conditions, the general
availability of credit, the volume of trading activities, the overall availability
 
of credit to the financial services
industry, our credit ratings
 
and credit capacity, as well as the possibility that
 
customers or lenders could develop
a negative perception of our long- or short-term financial prospects. Also see under the heading “Ratings are
important to our business for a number of reasons, and a downgrade or a potential downgrade
 
in our credit
ratings could have an adverse impact on our results and net
 
results”.
 
Similarly, our access to funds may be limited
if regulatory authorities or rating agencies take
 
negative actions against us. If our internal sources of liquidity
prove to be insufficient, there is a risk that we may not be able to successfully obtain
 
additional financing on
favourable terms, or at all. Any actions we
 
might take to access financing may,
 
in turn, cause rating agencies to
re-evaluate our ratings.
 
Disruptions, uncertainty or volatility in the capital and credit markets
 
may also limit our access to capital. Such
market conditions may in the future limit our ability to raise additional capital
 
to support business growth, or to
counterbalance the consequences of losses or increased regulatory capital and rating
 
agency capital
requirements. This could force us to (i) delay raising
 
capital, (ii) reduce, cancel or postpone payment of dividends
on our shares, (iii) reduce, cancel or postpone interest payments
 
on our other securities, (iv) issue capital of
different types or under different
 
terms than we would otherwise, or (v) incur a higher cost of capital than in a
more stable market environment.
 
This would have the potential to decrease both our profitability and our
financial flexibility. Our results, financial condition,
 
cash flows, regulatory capital and rating agency capital
position could be materially adversely affected
 
by disruptions in the financial markets.
 
Furthermore, regulatory liquidity requirements in certain jurisdictions in which we operate
 
are remain stringent,
undermining our efforts to maintain centralised management
 
of our liquidity. These developments may cause
trapped pools of liquidity and capital, resulting in inefficiencies in the cost of managing our liquidity and solvency,
and hinder our efforts to integrate
 
our balance sheet. An example of such trapped liquidity includes our
operations in Germany where German regulations impose separate
 
liquidity requirements that restrict ING’s
ability to move a liquidity surplus out of the German subsidiary.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
28
 
As a holding company,
 
ING Groep N.V.
 
is dependent for liquidity on payments from its
subsidiaries, many of which are subject to regulatory and other restrictions
 
on their ability to
transact with affiliates.
 
ING Groep N.V.
 
is a holding company and, therefore, depends on dividends, distributions and other payments
from its subsidiaries to fund dividend payments to its shareholders and to
 
fund all payments on its obligations,
including debt service obligations.
 
 
ING Groep N.V.’s
 
ability to obtain funds to meet its obligations depends on legal and regulatory restrictions
applicable to ING Groep N.V.’s
 
subsidiaries. Many of ING Groep N.V.’s
 
direct and indirect subsidiaries, including
certain subsidiaries of ING Bank N.V.,
 
may be subject to laws that restrict dividend payments, as well as
requirements with respect to capital and liquidity levels. For example,
 
certain local governments and regulators
have taken steps and may
 
take further steps to “ring fence” or impose minimum internal
 
total loss-absorbing
capacity on the local affiliates of a foreign financial institution in order to protect
 
clients and creditors of such
affiliates in the event of financial difficulties involving such affiliates
 
or the broader banking group. Increased
local regulation and supervision have therefore limited and may
 
in the future further limit the ability to move
capital and liquidity among affiliated entities and between ING Groep N.V.
 
and its direct and indirect subsidiaries,
limit the flexibility to structure intercompany and
 
external activities of ING as otherwise deemed most
operationally efficient, and increase in the overall level
 
of capital and liquidity required by ING on a consolidated
basis.
 
Lower earnings of a local entity may also reduce the ability of such local entity to make
 
dividends and
distributions to ING Groep N.V.
 
Other restrictions, such as restrictions on payments from subsidiaries or
limitations on the use of funds in client accounts, may also apply to distributions to ING Groep N.V.
 
from its
subsidiaries.
 
 
ING Groep N.V.
 
has also in the past and may in the future continue to guarantee the payment
 
obligations of
some of its subsidiaries, including ING Bank N.V.
 
Any such guarantees may require
 
ING Groep N.V.
 
to provide
substantial funds or assets to its subsidiaries or the creditors or counterparties
 
of these subsidiaries at a time
when the guaranteed subsidiary is in need of liquidity to fund their own obligations.
 
Finally, ING Groep N.V.,
 
as the resolution entity of ING, has an obligation to remove impediments to resolution
and to improve resolvability.
 
Regulatory authorities have required and may
 
continue to require ING to increase
capital or liquidity levels at the level of the resolution entity or at particular subsidiaries. This may result in,
among other things, the issuance of additional long-term debt issuance at the level of ING Groep N.V.
 
or
particular subsidiaries.
 
Additional risks relating to ownership of ING shares
 
Holders of ING shares may experience dilution of their holdings.
 
ING’s AT1
 
Securities may, under certain
 
circumstances, convert into equity securities, and such conversion
 
would
dilute the ownership interests of existing holders
 
of ING shares and such dilution could be substantial.
Additionally, any conversion,
 
or the anticipation of the possibility of a conversion, could depress the market
 
price
of ING shares. Furthermore, we may undertake future equity offerings
 
with or without subscription rights. In case
of equity offerings with subscription rights, holders of ING shares in certain jurisdictions, however,
 
may not be
entitled to exercise such rights unless the rights and the related
 
shares are registered or qualified for sale under
the relevant legislation or regulatory framework.
 
Holders of ING shares in these jurisdictions may suffer dilution
of their shareholding should they not be permitted to, or otherwise chose not to, participate
 
in future equity
offerings with subscription rights.
 
Because we are incorporated under the laws of
 
the Netherlands and many of the members of
our Supervisory and Executive Board and our officers reside outside of the United States,
 
it may
be difficult to enforce judgments against
 
ING or the members of our Supervisory and Executive
Boards or our officers.
 
Most of our Supervisory Board members, our Executive Board members and some of the experts named in this
Annual Report, as well as many of our officers are persons who are not residents
 
of the United States, and most
of our and their assets are located outside the United States. As a result, investors
 
may not be able to serve
process on those persons within the United States or to enforce
 
in the United States judgments obtained in US
courts against us or those persons based on the civil liability provisions of the US securities laws.
 
Investors also may not be able to enforce
 
judgments of US courts under the US federal securities laws in courts
outside the United States, including the Netherlands. The United States and the Netherlands do not currently
have a treaty providing for the reciprocal
 
recognition and enforcement of judgments (other than arbitration
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
29
 
awards) in civil and commercial matters.
 
Therefore, a final judgment for the payment of money rendered
 
by any
federal or state court in the United
 
States based on civil liability,
 
whether or not predicated solely upon the U.S.
federal securities laws, would not be enforceable
 
in the Netherlands unless the underlying claim is re-litigated
before a Dutch court. However,
 
under current practice, the courts of the Netherlands may be expected to render
a judgment in accordance with the judgment of the relevant U.S. court, provided
 
that such judgment (i) is a final
judgment and has been rendered by a court which has established its jurisdiction on the basis of internationally
accepted grounds of jurisdictions, (ii) has not been rendered in violation of elementary principles of fair trial, (iii)
is not contrary to the public policy of the Netherlands, and (iv) is not incompatible with (a) a prior judgment of a
Netherlands court rendered in a dispute between the same parties, or (b) a prior judgment of a foreign court
rendered in a dispute between the same parties, concerning the same subject matter and based on the same
cause of action, provided that such prior judgment is not capable of being recognized in the Netherlands. It is
uncertain whether this practice extends to default judgments
 
as well.
 
Based on the foregoing, there can be no assurance that U.S. investors
 
will be able to enforce against us or
members of our board of directors, officers or certain experts
 
named herein who are
 
residents of the
Netherlands or countries other than the United States any judgments obtained
 
in U.S. courts in civil and
commercial matters, including judgments under the U.S. federal
 
securities laws.
 
In addition, there is doubt as to whether a Dutch court would impose civil liability on us, the members of our
board of directors, our officers or certain experts
 
named herein in an original action predicated solely upon the
U.S. federal securities laws brought in a court
 
of competent jurisdiction in the Netherlands against us or such
members, officers or experts, respectively.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
30
 
Item 4.
 
Information on the Company
 
A.
 
History and development of the company
 
General
 
ING Groep N.V.
 
was established as a Naamloze Vennootschap
 
(a Dutch public limited liability company) on March
4, 1991. ING Groep N.V.
 
is incorporated under the laws of the Netherlands.
 
The corporate site of ING, www.ing.com,
 
provides news, investor relations
 
and general information about the
company.
 
ING is required to file certain documents and information with the United States
 
Securities and Exchange
Commission (SEC). These filings relate primarily to periodic reporting requirements applicable to
 
issuers of
securities, as well as to beneficial ownership reporting requirements as a holder of securities. The most common
filings we submit to the SEC are Forms 6-K and 20-F (periodic reporting requirements) and Schedules 13D and
13G (beneficial ownership requirements). The SEC maintains an internet
 
site that contains reports, proxy and
information statements, and other information
 
regarding issuers that file electronically with the SEC at
http://www.sec.gov.
 
ING’s electronic filings are available
 
on the SEC’s internet site under CIK ID 0001039765 (ING
Groep N.V.).
 
The official address of ING Group is:
 
ING Groep N.V.
Bijlmerdreef 106
1102 CT
 
Amsterdam
P.O.
 
Box 1800,
 
1000 BV Amsterdam
The Netherlands
Telephone +31 20 563 9111
 
The name and address of ING Group’s agent for
 
service of process in the United States in connection with ING’s
registration statement
 
on Form F-3 is:
 
ING Financial Holdings Corporation
 
1133 Avenue of the Americas
 
New York, NY 10036
United States of America
Telephone +1 646 424 6000
 
Changes in the composition of the Group
For information on changes in the composition of the Group, reference
 
is made to Note 46 ‘Consolidated
companies and businesses acquired and divested’.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
31
 
Our strategy
ING’s Think Forward
 
strategy is as relevant
 
as ever.
 
With our data-driven digital
and mobile-first approach we’re
 
continuing to empower people to stay
 
a step
ahead in life and in business – also at a time of social and economic disruption.
The global coronavirus pandemic has illustrated
 
just how digital society has
become, reinforcing trends
 
like the shift to mobile banking and contactless
payments.
 
Delivering on our strategy is about living up to our customer promise to be clear and easy,
 
anytime, anywhere,
empowering and keep getting better
 
.
 
Digitalisation remains central to this and we’re adapting
 
our processes and
service models to make banking even safer,
 
more personal, easier and smarter.
 
Combined with mastering data,
it’s how we can stand out as a bank that truly knows its customers
 
and anticipates their evolving needs, finding
innovative ways to add value
 
,
 
both within and beyond banking.
 
 
We’re doing all of this while striving to live up to the highest
 
possible standards of integrity.
 
Being a safe, secure
and compliant bank remains a top priority for ING. Our Orange Code of values and behaviours
 
places integrity
above all else.
 
Factors influencing our business in 2020
The spread of Covid-19, and the global measures to contain it, affected
 
ING in a number of ways in 2020,
impacting our customers, our employees and our communities. However,
 
it was not the only factor influencing
our business. The negative interest rate
 
environment in the eurozone and low interest
 
rates elsewhere, have
posed a significant challenge to banks’ business models since 2016, eroding margins on customer deposits and
putting pressure on net interest income. Until 2020, we
 
were able to counter the effects of this mainly through
profitable lending growth and a presence in non-eurozone countries.
 
However,
 
the pandemic made these levers less effective in 2020, resulting in a decrease of net interest
 
income,
as loan demand weakened in a number of markets due to strong
 
direct government support, while the inflow of
customer deposits accelerated and interest
 
rates in non-eurozone countries significantly
 
reduced. In response to
the pressure on net interest income we introduced
 
negative interest rates
 
on deposits for retail customers in
some markets and amplified our focus on income diversification through
 
fee income growth, particularly in retail
investment products.
 
That said, the impact of the global pandemic is still reverberating through societies worldwide. The second wave
that surged through Europe and the US in the autumn continued to pile pressure on consumers,
 
businesses,
communities and economies. It has fundamentally changed the way people work, travel,
 
shop and socialise and
the expected economic consequences will be felt for some time yet. We
 
are considering various post-coronavirus
scenarios focused on the next two to five years that take
 
account of the severity of the economic downturn and
level of global cooperation in the recovery period.
 
Universal digital bank
The coronavirus crisis has accelerated the urgency of implementing end-to-end digitalisation,
 
both to meet the
growing demand for mobile banking and to enhance operational excellence. Operational
 
excellence in particular
helps to ensure that our customers are able to do their daily banking without disruption, even during global
lockdowns, and makes it possible for employees to
 
work safely and securely from home.
 
 
Now we’re taking steps to deliver
 
on our strategic priorities, not least to keep
 
pace with society’s accelerated
adoption of digital resources during the coronavirus. We’ve
 
been working on transforming our organisation to
become a mobile-first digital platform, offering
 
all of our 39.3 million customers a harmonised customer
experience everywhere. But there’s
 
still work to do to become the leading data-driven digital bank we aspire to
be.
 
 
Building on what we’ve learnt and achieved over the past five years,
 
we took steps in 2020 to further consolidate
our business and reinforce alignment. This includes uniting all our Retail operations
 
– including the Business
Banking segment serving small and medium-sized businesses and mid-corporate clients – under one global
management team with one consistent unified approach.
 
Their focus will be on operational excellence through
increased digitalisation,
 
using our technology foundation globally – this includes shared data lakes, cloud and
modular IT building blocks – and rolling out global digital product offerings.
 
 
At the same time, the challenging external environment reconfirm
 
s
 
the importance of scrutinising costs and
looking for new ways to grow our fee
 
income and diversify our revenues in areas beyond traditional banking.
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
32
 
We need to be flexible in dealing with these challenges, and with changing customer behaviour,
 
continually
weigh up benefits versus costs, apply our learnings and focus our activities. For Wholesale Banking this means
deepening our relationship with our core clients, reducing our geographic footprint
 
in Asia and closing our offices
in South America. In Retail Banking it means stopping the Maggie transformation programme
 
(to standardise the
customer experience and product offering in four
 
Challengers Markets) and instead focusing on using and reusing
existing apps and modular components to drive scaling and speed of delivery.
 
 
Recognising the need to move even faster if we
 
want to stay a step ahead of the changes and evolutions
 
in the
world, we announced in 2020 that we are combining all our innovation activities into a dedicated
 
business area
called ING Neo. This will help sharpen our focus and create more impact, ultimately deepening our relationships
with our customers as their primary bank for financial and other needs.
 
 
The introduction in 2020 of our first global tagline ‘do your thing’ moved the ING brand another step
 
closer to
looking, sounding and feeling the same everywhere. It articulates ING’s purpose. We
 
want to make banking
frictionless, removing barriers to progress and giving people confidence in their ability to move
 
forward.
 
 
Think Forward
ING’s purpose is empowering people to stay
 
a step ahead in life and in business. Our Think Forward strategy
promises customers we’ll make banking clear and easy,
 
anytime anywhere, empower them to make informed
financial decisions and keep getting better.
 
Where our purpose guides us, the strategic priorities set out in our
Think Forward strategy help us to focus
 
on the elements we need to be successful.
 
These strategic priorities are:
 
earning the primary relationship, mastering data, being innovative to serve
changing customer needs, and developing new services and business models beyond banking. We achieve this by
simplifying and standardising our products and processes, being operationally excellent,
 
enhancing our
performance culture and expanding our lending capabilities. These are the strategic
 
enablers for executing on
our strategy.
 
See the graphics in this chapter for more information about our strategic
 
priorities and enablers.
 
Platform approach
While many businesses struggled in 2020 to survive global lockdowns, many Big Tech
 
companies thrived on
society’s growing reliance on technology and the online economy.
 
ING’s competitive landscape is also
increasingly shaped by these companies, which offer an engaging digital experience on an open platform
 
that
meets a range of needs in one go-to digital ecosystem.
 
 
We believe platform providers
 
are all about customer experience. They use data to pinpoint what customers
need and partner with third parties to ensure there is always a fitting product
 
or service to meet this. Platforms
are empowering. To
 
remain relevant, ING has to be where our (future)
 
customers are, on the platforms they’re
on, while maintaining the highest possible standard of integrity.
 
In an age of disruption and changing customer expectations we have to keep
 
adapting our banking services to
become clearer,
 
easier and more accessible while empowering our growing global customer base to stay
 
a step
ahead in life and in business. Open banking creates opportunities for ING to
 
add value for customers by connecting to the products
 
and services of others, both within and beyond banking.
 
When it comes to platforms, we are developing our own solutions. We’re
 
building digital channels on top of our
technology platform,
 
like ING’s mobile OneApp, which is used by customers
 
in the Netherlands, Belgium and
Germany. We’re
 
investing in independent initiatives such as Spanish finance app Fintonic, and we’re
 
connecting
to third-party platforms offering relevant
 
products and services. Among these are initiatives that have evolved
into stand-alone platforms such as smart money app Yolt
 
and corporate multibank platform Cobase.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
33
 
Touchpoint platform
 
Supporting our ambition to be the leading data-driven digital bank, we’re using a modular technology foundation
to create business-wide propositions that are globally scalable. This includes an open technology platform
 
called
Touchpoint. The Touchpoint
 
platform provides ready-made solutions, modular components and reusable
services the business and IT can use to build and run scalable business services and global value propositions.
They can also distribute these to a large third-party ecosystem.
 
In this way we can share innovations,
 
use and re-
use standardised components, and bring new products to customers
 
faster and in more countries.
 
 
Through the Touchpoint
 
platform,
 
new and existing ING business initiatives have access to 25.2 million customers
(around 65 percent of our customer base) in an internal and third-party ecosystem.
 
It is enabling scalable
business solutions that aim to harmonise the customer experience. And it connects ING to third parties through
common architecture and shared application programming
 
interfaces (APIs). The Amazon partnership was made
possible by using Touchpoint
 
to integrate fintech Lendico’s
 
lending platform for small and medium-sized
businesses with ING in Germany.
 
 
ing20f2020p34i0.gif ing20f2020p34i1.gif ing20f2020p34i2.gif ing20f2020p34i3.gif
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
34
 
Strategic priorities
Earning the
primary
relationship
By this we mean increasing the number of customers who have multiple ING products (including a current
account into which a recurring income, such as a salary,
 
is paid) or Wholesale Banking clients with anchor
products such as lending and transaction services. It’s closely linked to customer experience
 
and satisfaction:
the more satisfied customers are, the more likely
 
they’ll choose ING for additional products and services. Over
the past five years we’ve consistently
 
increased the number of primary customers.
Material topics:
 
financial performance, usability
and accessibility of our products
Using our
advanced data
capabilities to
understand our
customers
better
Having the right data at our fingertips will enable us to achieve many
 
of our strategic priorities. We use data
 
to
personalise our customer interactions and gain insights to deliver
 
a differentiating experience. It also helps us
make sound business decisions and drives innovation. At the same time, we want
 
to protect people’s data
 
and
their privacy and are committed to handling data safely
 
and being open about how we use it.
Material topics:
 
customer privacy,
 
culture, ethics
and integrity, digitalisation
 
and interconnectivity,
cyber resilience
Increase the pace
of innovation to
serve changing
customer needs
New technologies enable new ways to do things and disrupt the status quo. To
 
stay relevant it’s
 
essential that
we evolve too. This means coming up with disruptive products, services and experiences that support our
strategic ambitions and keep ING a step ahead.
Material topics:
 
innovation, usability and
accessibility of our products, digitalisation and
interconnectivity
Thinking beyond
traditional banking
to develop new
services and business
models
Persistent low/negative
 
interest rates offer
 
savers little incentive, challenging our traditional business model.
Digital platforms are an opportunity to become relevant
 
to customers by providing new products and services,
also in areas beyond banking, which offer new revenue streams for
 
ING and provide a better customer
experience.
Material topics:
 
innovation, digitalisation and
interconnectivity,
 
customer privacy,
 
culture, ethics
and integrity
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
35
 
Mastering data
Data is the lifeblood of organisations like
 
ING. We use data to personalise our customer interactions
 
and gain
insights to deliver a differentiating experience. It helps us make
 
better business decisions, while being mindful of
using our data responsibly and in line with people’s expectations
 
.
 
We rely on data-driven models to manage our
capital and risk-weighted assets and improve
 
risk management. Data on customers
 
and their transactions is also
essential in the fight against money laundering and other financial economic crime. Not least, data drives
innovation. It is the main ingredient for artificial intelligence and robotics
 
solutions.
 
However,
 
to make data meaningful it needs to be sorted, harmonised and put into context.
 
The accuracy of our
models relies heavily on the quality of the data that’s used to develop them. It’s
 
essential to have one common
approach for using and storing data. ING’s
 
data management strategy includes standardised
 
data definitions (ING
Esperanto) and data models (Esperanto Warehouse
 
Model), which contribute to the availability,
 
quality,
integrity, usability,
 
control and governance of our data.
 
Ethics and privacy
We acknowledge the need to protect people’s
 
privacy and are committed to handling our data safely
 
and being
honest about how it’s used. This means we inform our customers
 
and employees about how we use their data
and respect their privacy when processing it.
 
Analytics and building our data capabilities
Becoming a truly data-driven organisation requires stepping
 
up our analytics capabilities. This means promoting
data fluency among our employees and strengthening our analytics delivery.
 
ING’s Analytics Unit is responsible
for coordinating these activities globally and aligning them with our business strategy,
 
as well as building one
analytics and data community. To
 
enhance our data science capabilities – which we have identified as one of the
‘Big 6’ capabilities ING needs to succeed –
 
we have an Analytics Academy,
 
we’ve added an analytics track to our
International Talent
 
Programme for graduates, and we
 
collaborate with academic institutions like Dutch
 
Delft
University of Technology
 
(TU Delft) on artificial intelligence research.
 
 
Our analytics delivery is focused on solutions in nine areas: customer interactions, customer dialogue, risk and
pricing, financial crime and regulatory technology (Regtech), intelligent
 
operations, innovation and beyond
banking, people and finance, and Wholesale Banking. In 2020, we further accelerated our advanced analytics
capabilities and delivered solutions to different domains.
 
For example, in the Regtech space, we’re
 
using analytics solutions to identify potentially risky shell companies in
corresponding networks. In the retail domain, we developed and implemented
 
machine learning interest rate
optimisation models for better-priced mortgages in Germany,
 
Italy and the Netherlands. In risk management we
built more topic detection models for the early warning signals (EWS) monitoring tool, which should ultimately
help reduce risk costs. We’re also using analytics to develop acceptance
 
models for consumer and business
lending in Austria,
 
Belgium, the Netherlands and Spain, which help lower risk costs and increase acceptance
rates. New collections models for the Netherlands and Italy help us identify clients in financial difficulty and that
need our support at an early stage.
 
In addition, we stepped up our experiments and experience with chatbots and are creat
 
ing value and scale. The
benefits for customers include 24/7 contact, fewer
 
human errors and a simpler user experience. In the
Philippines, we launched a virtual assistant that directs
 
customers to their needed answers. Similar initiatives
have been or will be rolled out to other countries. In Germany,
 
ING’s virtual assistant ING answered
 
7.3 million
customer questions in 2020, recognising 94 percent of queries on current accounts
 
(the best chatbot out of 22
tested in various industry sectors),
 
while our Turkish chatbot INGo not only answered customers
 
questions, but
also approved 547.6 million lira worth of personal loans (89 million lira in 2019).
 
 
 
ing20f2020p36i0.jpg
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
36
 
Innovating to stay a step ahead
Innovation at ING is about creating a differentiating
 
experience for customers. As such, it’s at
 
the heart of our
Think Forward strategy.
 
We rely on innovation to remain relevant
 
to our customers and live up to our purpose.
Developing truly disruptive products, services and experiences is also a prerequisite for realising our
 
platform
ambitions and moving beyond banking.
 
So far,
 
our innovation focus has allowed us to turn great ideas into products
 
and services that customers really
need. Smart money app Yolt now has more than 1.6
 
million registered users.
 
Blockchain solutions in trade
finance are helping to make trades faster
 
and simpler, for
 
example by reducing the processing time for letters
 
of
credit from around 10 days to under 24 hours.
 
When the coronavirus crisis first hit, our focus shifted towards adjusting
 
our operations to accommodate the
new, more
 
digital environment. Radical innovation moved
 
down the priority list and certain projects were
shelved: for example,
 
an initiative to digitalise aircraft financing. Other initiatives benefitted
 
from the growing
demand for digital solutions, such as the trade finance tools of our co-owned blockchain-based software
company Komgo.
 
With the creation of ING Neo we’re aiming to increase the speed and impact of our innovation by bringing
together initiatives in Wholesale Banking, Retail Banking (platforms and beyond banking activities), the Chief
Innovation Office and our venture capital vehicle, ING Ventures.
 
 
ING was recognised by Global Finance magazine as the most innovative bank in Western
 
Europe at its Innovators
2020 awards. Our home-grown innovations in cash management
 
(Zero Knowledge Proof Notary on Corda), the
corporate finance category (CoorpID) and payments
 
(FINN Banking of Things) also won individual awards.
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
37
 
How we innovate
Innovative ideas come from inside and outside ING. All our employees are encouraged
 
to think creatively and
come up with ways of doing things faster,
 
better and more efficiently.
 
We stimulate their ideas through our bank-
wide
Innovation Bootcamp
 
and local innovation ambassadors. For Innovation Bootcamp
 
2020, we received 444
ideas in four areas: how to disrupt lending before others do; empowering
 
customers to strengthen their financial
health; delivering a unique digital customer experience; and creating a world-class employee experience.
 
The
winning idea was ImpactING, which aims to make it easy for customers
 
to have a positive impact on the planet
via a sustainable bank account that allows them to contribute to
 
a good cause with every transaction.
 
In November,
 
we hosted the first Innovation Summit for all employees.
 
The three-day digital event explored
ING’s impact on the lives of customers
 
and employees, shed light on global digital trends and showcased our
latest innovations. It was streamed to
 
over 30 ING countries and reached approximately 1,500 unique users.
 
ING’s customised innovation
 
methodology, PACE
 
,
 
combines lean start-up, design thinking and agile scrum. Its key
feature is customer validation. This ensures we
 
develop only what customers really want. More
 
than 10,000
employees have been trained in PACE
 
to date.
 
 
In 2020, the
ING Innovation Fund
 
allocated €25 million to accelerate innovation across
 
the bank. Funding is
available to any employee who wants to
 
turn a breakthrough idea into reality.
 
External collaboration
Nobody knows what the future looks like or the technologies that may emerge
 
.
 
We recognise we
 
don’t have all the skills and knowledge in-house and we’re open to investing,
 
partnering and building with others.
 
 
ING Ventures
 
is our €300 million fund investing in early-stage companies. It targets
 
disruptive technologies that
ensures customers and clients get access to best-in-class services. It also helps entrepreneurs
 
with hands-on
support, know-how and access to ING’s distribution network.
 
We currently have 34 investments,
 
including
WeLab (automated consumer loans in China and Hong Kong), Fintonic (Spanish finance app), Cobase (multi-
banking platform for corporate
 
clients), Ascent (regulatory compliance platform) and Axyon (AI-powered
 
asset
manager).
 
ING partners with those who look at banking from a different perspective.
 
Companies like Scalable Capital in
Germany, a robo-advisor,
 
which attracted a billion euros in assets under management in its first
 
2.5 years. Or
Eigen, a natural language processing fintech that offers
 
ING a strategic capability in the intelligent operations
domain. Deployed in use cases across retail and wholesale banking, Eigen is contributing to ING’s
 
digital
transformation, creating tangible value
 
for customers and employees by applying machine learning in areas such
as corporate lending and SME banking.
 
 
Currently, ING has more
 
than 200 partnerships.
 
Not all our collaborations lead to new products or services,
however,
 
and we’ve ended over 110 so far,
 
mostly after unsuccessful or unsatisfactory proofs of concept
 
.
 
 
In November 2020, in light of the impact of Covid-19 on the economy,
 
which required us to reprioritise and
reassess our programmes, we decided to stop our activities for
Cumulus Park Studios
. Part of the Cumulus Park
innovation district in Amsterdam,
 
where several ING buildings are located, Cumulus Park Studios is a
collaborative initiative with local government
 
and educational institutions to drive innovation and co-creation
around the themes of urbanisation and digital identity.
 
We remain committed to further developing
 
the
innovation district and will continue to collaborate
 
with our district partners on a lower ambition level.
 
ING Labs
 
is our incubator for potential scale-ups. Here we work with external
 
experts, combining corporate
innovation and entrepreneurial experience. We
 
believe this contributes to a higher success rate and greater
impact than either could achieve alone. We have four Labs worldwide,
 
each with its own specific value space that
matches local expertise and ecosystems.
 
These are trade (Singapore), property,
 
real estate and regulatory
processes (London), creating minimum viable companies that are ready to scale (Amsterdam)
 
and proofs
 
of
concept with fintechs to bring new tech solutions to market faster
 
(Brussels, formerly Fintech Village).
 
 
 
ing20f2020p38i0.gif ing20f2020p38i1.gif ing20f2020p38i2.gif ing20f2020p38i3.gif
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
38
 
Strategic enablers
Simplify and streamline
Standardised products, systems and processes, shared
 
services, one IT infrastructure and one Way of Working
 
lay the
foundation for the superior digital experience we strive
 
to deliver.
 
We believe this allows us to respond more quickly to
changing customer needs and low-cost competitors by becoming
 
more cost-effective, cost
 
-efficient and agile, and by
bringing new products and services to market faster.
Material topics:
 
usability and accessibility of our products
Operational excellence
ING promises customers we’ll keep getting
 
better.
 
This includes accelerating the digitalisation of end-to-end processes for a
frictionless customer experience and greater efficiency.
 
It’s also about ensuring safe and secure operations, stable
 
IT
systems and platforms and the highest standards
 
of data security.
Material topics:
 
IT systems and platforms, cyber resilience
Performance culture
Delivering a differentiating customer experience
 
requires engaged employees who are motivated
 
to go the extra mile.
That’s why we strive to create
 
a great employee experience and develop great leaders who can enhance performance
 
and
inspire our people to deliver on our strategy.
 
Diversity and inclusion contribute to this – people perform better
 
when they
are free to be themselves. ING does not tolerate discrimination in any
 
form. We are guided in everything we do by the
values and behaviours in our Orange Code and global Code of Conduct.
Material topics:
 
culture,
 
ethics and integrity
Lending capabilities
We are seeking opportunities to broaden and diversify our retail
 
lending capabilities in the Business Banking and consumer
lending segments. In Wholesale Banking we continue to build on our lending capabilities in our markets,
 
combined with our
sector lending franchises and product capabilities, to build primary relationships to be able to diversity
 
our income by
generating more fees. ING is considered a pioneer in sustainable
 
finance, having introduced the first sustainability-linked
loan and a made-to-measure sustainability improvement loan.
Material topics:
 
financial performance, climate resilience
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
39
 
Transformation
To deliver a differentiating
 
customer experience globally we are streamlining our products and processes,
enhancing operational excellence and harmonising our customer engagement
 
platforms, supported by a global
technology foundation.
 
This foundation includes shared data lakes, cloud solutions and modular IT building
blocks. It’s also about monitoring and executing regulatory
 
programmes globally that aim to ensure ING is a safe,
secure and compliant bank.
 
To accelerate
 
the execution of our Think Forward journey,
 
we launched a series of transformation programmes in
2016 to unite similar businesses and bring us closer to one mobile-first digital platform offering
 
one ING
experience everywhere. These included:
•
 
Unite be+nl
 
to combine the respective strengths of the Netherlands and Belgium.
•
 
Maggie
 
(formerly Model Bank) to standardise the customer experience and product
 
offering in four
Challengers markets - Czech Republic,
 
France, Italy and Spain.
 
•
 
Welcome
 
to digitalise ING in Germany,
 
which was completed in 2019.
•
 
WTOM
 
to optimise,
 
digitalise and standardise our Wholesale Banking offering in all countries.
 
 
Unite be+nl involved,
 
among other things, the large-scale integration of 600,000 Record
 
Bank customers in
Belgium in 2018, and the replacement of many existing IT systems
 
with one digital platform. Integrating the back-
end systems turned out to be more complicated.
 
Yet despite the challenges and adjustments
 
to the programme
in response to changing circumstances,
 
all our Belgian retail customers now use the same internet banking
environment as the Netherlands (OneWeb) and 90 percent have
 
migrated to the mobile OneApp used in the
Netherlands and Germany. Unite be+nl runs until 1H
 
2021.
 
Given the coronavirus-related economic headwinds and our learnings from the
 
complexities and costs of cross-
border systems and product integration,
 
we decided to refocus our activities in 2020 to ensure faster
 
customer
delivery and a continuously improving end-to-end digital customer experience.
 
 
This underpinned our decision in 2020 to stop Maggie as a programme.
 
Launched in 2016 to integrate our
product offering and provide a standardised
 
easy, personal
 
and smart digital experience for customers in four
Challengers markets, Maggie delivered various customer
 
experience building blocks and sales and services
journeys.
 
To further develop
 
our universal digital bank, we’ll focus instead on using our global technology foundation,
reusing already developed mobile app components,
 
and rolling out global digital product offerings in the areas of
insurance, investments and consumer lending. When identifying areas to build cross-border
 
capabilities we’ll
weigh up impact versus complexity,
 
always with the aim of increasing scalability and delivery speed. In this way
we only need to develop once for multiple countries and can create a sustainable
 
competitive advantage,
accelerating customer engagement and business impact. Updating legacy
 
IT systems with new technology
standards and global solutions will also contribute to greater
 
efficiency as we move towards becoming a global
digital bank.
 
The creation in 2020 of one global retail management team was the next step
 
in our journey to unify and
harmonise our retail approach in all our markets. This will further reinforce
 
alignment, improve prioritisation and
drive a consistent retail strategy
 
that aims to accelerate digitalisation,
 
use our global technology foundation to
enhance operational efficiency and excellence, and roll out global digital
 
product offerings in areas such as
insurance, investment and consumer lending.
 
The Wholesale Target
 
Operating Model (WTOM) programme has come to
 
a natural conclusion as it achieved
cost, risk and income benefits for the Wholesale Banking franchise globally,
 
the result of extensive work over the
last years to replace legacy systems,
 
applications with target solutions, and create a range
 
of shared operational
services. We have now decided to end WTOM and commence with digitalisation-orientated
 
programmes in our
Transaction Services, Lending and Financial Markets
 
businesses.
 
Laying the foundation
Building a universal digital bank requires a strong foundation
 
that’s the same everywhere: the
 
same approach to data, the same processes, same systems
 
and infrastructure and the same way
 
of working.
 
 
At the heart of this is our IT strategy.
 
ING is building a technology platform to facilitate our journey from a
traditional bank to a data-driven digital bank. It is designed to create
 
speed, scale and security as well as cost
efficiency through programmes like
 
ING Private Cloud, Touchpoint,
 
the data lake foundation and OnePipeline.
This last programme supports the engineering journey from idea to working code that underlies our digital
services and can easily be reused by other engineers worldwide. We continuously adjust and improve
 
IT projects
and programmes based on new insights, lessons learnt and the impact of developments such as the coronavirus.
For example, at the start of the outbreak we had
 
to increase our network capacity by 365 percent to facilitate
 
the
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
40
 
large numbers of users connecting
 
from home: daily remote connections have grown by 285 percent
 
since
March.
 
We changed the top structure of the Tech
 
organisation in January 2021, to better align with ING’s
 
digital and
data-driven ambitions. This has brought all the assets belonging to the banking technology platform under one
senior management line, helping to further the consumption and delivery of the features of the banking
technology platform and improve impact.
 
 
Related to this, the
ING Private Cloud
 
(IPC) is the target platform standardising our IT infrastructure.
 
It’s where
we store and process data and IT services such as our mobile phone apps to give customers
 
a consistent
experience in a secure and reliable way.
 
Unlike traditional infrastructure,
 
cloud computing enables pay-as-you-go
usage, elasticity and full management by the user.
 
To keep
 
up with global usage, scalability, availability
 
and
delivery speed, ING is adding public cloud computing to our infrastructure offering. By end-2020, IPC was
 
used in
15 countries.
 
Around a quarter of global infrastructure now runs on IPC, up from 15 percent
 
at the end of 2019.
 
 
Data lakes
 
serve as digital repositories for all the internal and external data
 
we collect, making it easier to share it
across the company.
 
Having one ‘home’ for data is in line with our strategy of simplifying our banking systems.
Aggregating our data allows us to exchange
 
information and knowledge with each other more easily.
 
To enable
this data exchange we’ve created
 
a universal data language called
ING Esperanto
. Translating local data
 
of all ING
entities is a significant challenge as it requires both subject matter expertise of local businesses and regulations
and knowledge of ING Esperanto to be able to create and benefit from
 
aggregated data in a governed way.
 
 
ING Business Shared Services BV (IBSS) is a fully-owned service company employing around 10 percent of ING
colleagues globally. Its
shared service centres
 
in Bratislava, Manila, Katowice,
 
Warsaw and Bucharest contribute
to ING’s digital transformation
 
and cross-border scalability by centralising operational and IT support tasks
 
in
areas such as global data management, Tech
 
services, non-financial risk and compliance, KYC, data analytics and
modelling.
 
Recognising the need for a strong engineering culture to achieve
 
our Think Forward ambitions, we strive to
develop and grow a global workforce of highly skilled engineers. We
 
run global performance days, where we
assess and calibrate engineers based on one engineering profile.
 
The ING Tech Academy
 
keeps engineers
updated on the latest technology.
 
We are pursuing initiatives to improve
 
diversity in our teams.
 
These include
the ING Women in Engineering days and the Sparks community at ING in Australia
 
,
 
which aims to inspire and
empower women in technology.
 
 
ING’s one Way
 
of Working (WoW) is based on agile, purpose-driven teams and allows us to
 
respond quickly to
changing customer demands and feedback. We’ve implemented
 
ING’s WoW
 
in all retail countries as well as in
Wholesale Banking and in many of our business support activities. Uniting so many different cultures requires
 
a
behavioural shift, guided by our Orange Code, and is supported by WoW ambassadors,
 
bootcamps and training
programmes. The coronavirus pandemic has made it necessary to adapt to new ways
 
of working and
collaborating remotely.
 
Government measures to curb the spread of Covid-19 in ING countries required us to
 
adapt quickly to extended
remote working. This accelerated certain IT programmes,
 
such as the roll-out of cloud-based tools, enabling
online collaboration and meetings. Remote working brings certain increased
 
operational risks with respect to
information security,
 
data protection, the availability of key
 
systems and infrastructure
 
integrity. In 2020, ING
continued to focus strongly on managing exposure to
 
these risks and took steps to increase the efficiency and
effectiveness of our IT infrastructure to
 
ensure the continuity of our business from outside the office.
 
 
We also have preventative
 
measures in place that continuously test our resilience against cyberattacks
 
and
attempts to gain unauthorised access to our systems.
 
These include a dedicated cybercrime expertise and
response team and ‘ethical’ hackers.
 
When and how our employees return to the office remains hard to predict and largely
 
depends on the situation
in each country. When it is safe
 
to do so, there are rotation schemes to allow a controlled
 
return to the office.
We will also pilot global principles that will guide our future way of working in the post-coronavirus
 
world. These
are based on feedback from employees and aim to balance the advantages
 
of working from home and working
from the office. We’re taking
 
a step-by-step approach that
 
provides a degree of flexibility for local
implementation and respects local labour laws.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
41
 
B. Business overview
Market trends like
 
the shift to mobile and online banking confirm ING’s mobile-
first digital approach. Building on this, we adapted our processes
 
and service
models to make banking safer,
 
easier and always accessible to customers
 
in a
time of social distancing,
 
and put measures in place to help them deal with the
impact of the coronavirus pandemic on their finances.
 
These included contactless payments, more flexibility on loan and mortgage
 
repayments, financial advice and
partnering with business clients big and small to support them in the most appropriate way.
 
We also strived to
provide uninterrupted access to our banking services.
 
In 2020, weighted system availability
 
for Retail Banking
customers in the Netherlands and Belgium was 99.6 percent and for Wholesale Banking clients worldwide system
availability was 99.9 percent.
 
Reduced economic activity during the year meant demand for consumer and business loans was lower in a
number of markets, and the ongoing low/negative interest
 
rate environment pushed our net interest
 
income
down. Yet our results remained
 
resilient throughout the year.
 
Demand for mortgages remained healthy and we
were able to grow our fee income as considerably more
 
customers chose ING’s accessible digital
 
retail
investment products. We ended the year
 
with improving cost control and a strong capital
 
position, contributing
to a full-year result before tax
 
of €3,399 million in accordance with IFRS-IASB.
 
Recognising the growing demand for digital and platform services, we took
 
steps in 2020 to increase the pace of
end-to-end digitalisation across our business and make our products and processes
 
even easier,
 
smarter and
more efficient, from onboarding new customers
 
to instant payments.
 
 
At the same time, to provide our 39.3 million customers with a differentiating
 
and engaging experience
everywhere and to move closer to becoming a universal data-driven digital
 
leader, we aligned our Retail
organisation under one management team with shared global priorities aimed at harmonising customer
engagement and selected products on cross-border platforms.
 
We also centralised innovation,
 
introduced ‘do your thing’ - ING’s
 
first global tagline – and harmonised our
activities for small and medium enterprises (SMEs) and mid-corporate clients in seven countries
 
in a new
Business Banking segment.
 
In Wholesale Banking we deepened our focus on core clients, supported by steps to build differentiating
 
value
propositions to meet their needs. This also supports our strategy to diversify income by generating
 
more fee-
based business. We continued to focus on digitalising our processes and st
 
reamlining our organisation to deliver
faster and better to clients. As part of the focus
 
on core clients, we announced measures to simplify our
geographical footprint, withdrawing from
 
South America and selected Asia markets while continuing to serve the
needs of clients in those markets from our regional hubs.
 
 
Our markets
 
ING serves over 39.3 million individual customers as well as small and medium-sized businesses up to
multinational corporations and financial institutions.
 
 
Our Retail Banking business line offers private
 
individuals a full range of products and services covering
payments, savings, insurance, investments
 
and secured and unsecured lending. This segment also includes self-
employed entrepreneurs, micro businesses, small-to-medium enterprises
 
(SMEs) and mid-corporate companies
who are served by our Business Banking proposition in several European countries. These business customers
earn revenues of up to €250 million and our goal is to help them manage and accelerate their business.
Wholesale Banking offers corporate clients
 
advisory value propositions such as specialised lending, tailored
corporate finance, green structuring and debt and equity-market
 
solutions. It also serves their daily banking
needs with payments and cash management, trade and treasury services.
 
ing20f2020p42i0.gif ing20f2020p42i1.gif ing20f2020p42i2.gif
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
42
 
Our markets
Market Leaders
Netherlands, Belgium, Luxembourg
 
•
 
Leading retail and wholesale banks
•
 
Cross-border customer interaction platform
 
with mobile-first customer
experience and cost efficiency
Challengers
Australia, Austria, Czech Republic, France,
 
Germany, Italy,
 
Spain
•
 
Digital bank with uniform, mobile-first customer experience
•
 
Broadening product capabilities
Growth Markets
Poland, Romania, Turkey,
 
the Philippines and our stakes in Asia
•
 
Universal banks in economies with high growth potential
•
 
Developing differentiating customer experience
 
based on
 
mobile-first approach
Wholesale Banking
International network and global franchises
•
 
Active in more than 40 countries
•
 
Extensive international client base across all regions
•
 
Sector-focused client business in lending, capital structuring and advisory,
transaction services and financial markets.
We offer:
•
 
Payments, savings, insurance, investments
 
and lending products and
services to individuals, SMEs and mid-corporate clients
•
 
Daily banking and strategic finance and advisory propositions to corporate
clients
Our customers
 
39.3 million
(year-end 2020)
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
43
 
Supporting customers in crisis
The Covid-19 crisis impacted our customers in many ways. Across
 
our business we took action to help them
navigate the economic headwinds and stay in control
 
of their finances during this turbulent time. ING’s support
began with the basics: aiming to provide
 
uninterrupted access to our mobile and digital channels when
customers need them most and making their lives easier with digital tools such as contactless payments.
 
 
To ensure
 
the continuity of services our Wholesale Banking clients rely on, certain business-critical operations
such as Financial Markets, Treasury,
 
and Payments, were split across different
 
locations during
 
global lockdowns.
 
 
In the Netherlands, 85 percent of all card payments in 2020 were contactless
 
via plastic cards and third-party
services like Apple Pay,
 
as well as our own Android solution in the banking app, which is now also available in
Australia, Poland, Romania, Germany,
 
France, the UK (via Yolt), Italy
 
and Spain. Driven by accelerating digital
behaviour of our customers, the use of mobile payments increased rapidly
 
against a backdrop of lockdowns and
other Covid-19 measures, both as a share of total card payments and total
 
contactless payments. Customers
appreciate not having to enter their pin code on a terminal.
 
 
In countries such as the Netherlands, Spain, Belgium, Germany and Turkey,
 
we increased the daily limit for
contactless payments so customers could use this option more
 
often and made it free to withdraw cash from
ATMs (in some countries this is already a free
 
service). Customers in Poland can use their mobile phones to make
contactless ATM
 
transactions. Also in Poland,
 
it’s now possible to open a new account from home using just a
mobile phone and an ID card.
 
 
New mortgage customers in Australia can
 
now validate their identity by video; video calls to advise customers on
investments and other matters replaced
 
face-to-face contact in Belgium and the Netherlands. For primary
customers in Australia, ING maintained a higher savings
 
interest rate even
 
when they did not reach the salary
deposit requirement.
 
 
In some countries, a limited number of branches remained open for customers
 
who wanted in-person advice. In
our branches we took precautions to ensure the safety
 
of customers and employees, such as installing plexiglass
screens, making hand sanitisers available, splitting teams and limiting visits to by appointment
 
only.
 
Payment holidays
 
Customers in all retail countries were offered
 
mortgage holidays and deferrals
 
on loans and credit card
repayments. We granted
 
196,000 customers payment holidays totalling
 
€19.4 billion since government measures
were introduced in various countries to protect
 
people impacted by job losses and loss of income during the
lockdowns.
 
Of these, 55 percent were for customers in the Netherlands and Belgium. By
 
the end of the year, 93%
of payment holidays had expired.
 
We also provided around €1.5 billion of government-guaranteed
 
facilities to
support our business clients.
 
In addition, ING worked closely with business clients to understand the direct impact on their individual
situations. Some industries, such as travel, hospitality and transport, were
 
more severely affected than others. In
the most heavily affected sectors governments
 
also stepped in to protect companies and jobs with measures
such as tax payment holidays and compensation schemes. Between March
 
and May we collected feedback from
over 18,000 businesses in six countries through regular pulse checks to gain insight into
 
their needs.
 
 
While it is impossible to predict how the pandemic will develop, additional lockdowns across Europe in the
autumn and the phasing out of related payment holiday schemes and other support measures could potentially
lead to more business insolvencies and unemployment. This could lead to more customers getting
 
into financial
difficulties and to higher levels of default.
 
 
More information on the impact of Covid-19 on ING as well on the related risk measures taken
 
to address it can
be found in the ‘Risk Management’ section.
 
Short-term liquidity
 
In times of crisis, companies need to be able to make swift decisions and want a financial partner they can trust
to be there for them. For many businesses, their most urgent
 
initial need was support with liquidity, particularly
when markets are as volatile
 
as today.
 
 
In Turkey,
 
ING worked with the World Bank and Turk
 
Eximbank on a €380 million loan to support exporters with
financing during the crisis.
 
 
In the Netherlands, we dedicated €1.1 billion for loans to SMEs. Part of these funds will be guaranteed
 
by the
European Investment Bank and €702 million of these loans will be sold against a favourable
 
interest rate.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
44
 
 
ING proactively contacted Wholesale Banking and Business Banking clients to discuss ways
 
to ease the impact on
their businesses, which in some cases was significant. By monitoring the business landscape to better understand
which industries are most impacted we can tailor our support and solutions to specific industries and determine
who needs our help the most.
 
These tailored solutions included ways of easing their short-term liquidity needs with funding set apart for Covid-
19 facilities. ING’s capital
 
markets teams placed €39 billion of bonds via active bookrunner roles for corporates
and financial institutions and approved around 70 new liquidity facilities for top-segmented
 
clients. By converting
Covid-19 facilities into capital market mandates
 
we believe we helped clients secure longer term funding more
easily while lessening the risks for our bank by shifting exposure to the institutional market.
 
In May, ING collaborated
 
with French bond issuer Caisse Francaise de Financement Local (CAFFIL) on Europe’s
first Covid-19-related bond to raise financing for
 
French public hospitals.
 
Financial health
Managing money is one of the leading causes of stress for people around the world as many struggle to meet
their day-to-day needs or plan for their future. This was amplified during the Covid-19 pandemic. ING offered
budgeting and debt relief advice and guidance to customers in financial difficulty in partnership with
organisations like the Dutch ‘Geldfit’ website,
 
and financial counselling services in Australia and Romania.
 
 
Using our knowledge of innovation and digitalisation,
 
we put insights about people and money into products,
tools, research and education that help contribute to a financially healthy
 
society. We
 
believe that the right
information at the right time can help people make better
 
financial decisions. We are delivering that through
forecasting tools, such as ‘Kijk Vooruit’ which gives Dutch customers
 
an overview of upcoming payments. With
Everyday Roundup,
 
available in Australia, Poland and Romania, we
 
help customers save while they spend (see
‘differentiating
 
customer experience’
 
below). In Belgium, we’ve partnered with fintech Minna to manage
customer subscriptions (see ‘Platform thinking’ below).
 
As a result of our financial empowerment activities, 27.8 million people (71 percent of our customer base) felt
financially empowered by ING in 2020. In 2019, this was 25.9 million or 67 percent. Our ambition for 2022 is for
30.2 million customers to feel financially empowered by ING.
 
Achieving our business goals
We still have a lot to do to become the
 
leading data-driven digital bank we aspire to be, but we also have to
remain flexible in dealing with the impact of the coronavirus pandemic, changing customer behaviour,
persistently low/negative interest
 
rates and increasing regulation. That means continually weighing up benefits
versus costs, consistently using what we have
 
already developed, quickly applying learnings and best practices,
and taking decisions to focus our activities to ensure we deliver on our strategic
 
priorities.
 
These considerations informed the decision to reduce the geographical
 
footprint of our Wholesale Banking
business and to stop Maggie,
 
our transformation programme to
 
simplify and harmonise the product offering and
experience of retail customers in four Challengers
 
markets.
 
Instead,
 
as we develop our universal digital bank, we
will focus on the global use of ING’s technology foundation
 
to build scalable cross-border products and a
consistent end-to-end digital customer experience in all our markets.
 
 
Global priorities
The accelerated shift to mobile and online banking in 2020 increased the urgency of stepping up the end-to-end
digitalisation of our products and services. Linked to this is the need for good quality data to
 
drive the engaging
and personalised customer experience we are aiming for.
 
 
Building on what we’ve learnt and achieved over the past years, we
 
adapted our Retail organisation in 2020 to
increase alignment around key priorities that will contribute
 
to our ambition to become one global digital bank.
Led by the new global Retail Banking management team, we will focus on rolling
 
out global digital propositions
converging towards a common engagement
 
platform. And we are looking for new ways
 
to be relevant to our
customers and generate alternate
 
revenue sources.
 
 
Innovation is essential here. To
 
increase the impact of our innovation and speed up execution, ING has created a
new dedicated business area,
 
ING Neo, which combines all of our initiatives and activities in this area.
 
Of course, keeping our bank safe, secure and compliant
 
remains a priority for ING. Customers trust us to protect
their money and their data. That trust is our licence to operate.
 
 
 
ing20f2020p45i0.jpg
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
45
 
Unleashing sector potential
 
In 2020, we remained focused on providing our corporate clients
 
with relevant advice, data-driven insights and
customised, integrated solutions that make
 
their day-to-day banking more efficient and support their business
ambitions. This is in line with the revised Wholesale Banking strategy we introduced in 2018 to enable us to
adapt to and overcome a challenging and complex market
 
environment, as well as increased regulatory
requirements, evolving technology,
 
greater competition and our clients’ changing needs. Addressing these
challenges, amplified by the effects of Covid-19, required us to accelerate
 
our priorities and refocus our activities
to ensure we deliver to our customers faster
 
and continuously improve the end-to-end digital experience.
 
 
We further developed our sectors strategy
 
over the year,
 
pairing local and global insight with sector knowledge
and financial expertise,
 
and we enhanced our client segmentation model, which helps us tailor our daily banking
and advisory value propositions to clients specific needs. Based on similar considerations of aligning with our
core client base and deepening our relationship, we made the decision to withdraw from a number of countries
in South America and Asia. We’ll continue serving the international needs of our clients in these countries from
regional hubs. We will stay focused
 
on improving client service delivery and streamline our operating model by
clustering similar activities and know-how in existing centres of expertise.
 
Several deals in 2020 reflect this sector focus.
 
These included a €1.6 billion debt financing package for Swedish
sustainable battery producer Northvolt to finance Europe's
 
first home-grown gigafactory for
 
lithium-ion
batteries. ING co-led the lending consortium.
 
ING was also involved in the largest green loan to date
 
in Asia-
Pacific in the commercial and industrial (C&I) renewables sector,
 
a US$75 million loan to Singapore-based
Cleantech Solar.
 
We work with our Wholesale Banking clients to finance and facilitate
 
their transition to low-carbon technologies.
We’ve developed a comprehensive
 
suite of sustainability products and services to help them, including green
loans and green bonds.
 
In July, we announced that due to Brexit
 
we will move some Financial Markets activities from London to
Amsterdam.
 
Here we already have a relatively large
 
Financial Institutions/Financial Markets risk organisation,
which can be effectively used during and after the transfer
 
of the operations. The move does not impact our
clients or client coverage.
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
46
 
A differentiating customer experience
More and more people are discovering how easy and efficient it is to
 
do their banking online, with the number of
digital interactions growing to 5.3 billion in 2020 from 4.5 billion in 2019. Of these, 87 percent are
 
mobile
interactions, with a growing number of Retail customers
 
only interacting with ING via their mobile phone: 40
percent versus just 12 percent in 2016.
 
 
This digital connectivity yields data and insights that contribute to a more personalised
 
and empowering
experience, giving customers even more reasons to interact
 
with us. This is how we can become an essential part
of people’s digital lives.
 
To provide
 
customers
 
with an even more personal, easy and smart experience, we held our first
 
fully virtual
customer experience (CX) day in October 2020. More than 2,000 colleagues from Belgium and the Netherlands
attended. They made small changes that can have a big impact, resulting in 291 customer
 
experience
improvements.
 
Among the new mobile features introduced in 2020 is a single sign-on that allows customers
 
in the Netherlands
to seamlessly switch between their mobile app and online banking, and we made it easier for them to block,
unblock and replace their bank cards themselves. In Belgium, customers can use their bank app to manage
subscriptions via third party Minna and send payment requests through Payconiq.
 
And we extended ‘magician
mode’ to Germany,
 
which hides customers’ account information when they swipe their hand in front
 
of their
phone camera while using the app in public.
 
For visually impaired customers, ING is the first bank in the Netherlands to provide
 
a bank card with a notch in
the side so they can easily recognise it and insert it correctly into an ATM.
 
In the Philippines, ING’s newest mobile-only retail
 
market, the ING app has been installed more than two million
times since its launch in November 2018. The introduction in the Philippines of ING Pay in November 2020 led to
over 60,000 new daily accounts in its first month.
 
With customers looking for alternatives to savings
 
accounts in the low/negative interest
 
rate environment, we’re
empowering them with smart digital investment tools like
 
My Money Coach in Spain, Coach Epargne in France
and Easy Invest in the Netherlands. In 2020, our retail investment
 
products in Germany and Spain reached €56
billion and €12.3 billion in assets under management respectively.
 
In Germany, ING is the first
 
bank to offer
securities savings
 
plans that allow all customers to invest small amounts (from
 
€1) in shares, exchange traded
funds (ETFs) or mutual funds. With savings plans available for more than 1,800 securities, including more than
200 funds and ETFs without purchasing costs,
 
it’s a low-threshold entry into investing
 
.
 
 
ING’s Everyday
 
Roundup (ERU) product is helping to make saving simpler.
 
First introduced in Poland,
 
then in
Australia and Germany,
 
it is now also available in Romania. More countries will follow in 2021. By rounding
 
up
every transaction and transferring the difference
 
to the customer’s savings account, it makes
 
saving frictionless
at a time when customers may be financially vulnerable (due to the corona
 
virus crisis). ING in Germany launched
a 'donate to Unicef' option for rounding up and ING in Australia has a roundup
 
option for mortgages. The next
step will be investments.
 
There are 850,000 active ERU users,
 
of which almost half are in Poland and Australia,
while users in Germany rose to 156,000.
 
 
Our Yolt smart money app introduced a similar feature
 
in 2020 called Money Jar.
 
It too allows users to save while
they spend by rounding up purchases to the nearest pound or euro and offering cashback
 
from selected retailers.
The money jar feature also offers handy tips and reminders
 
for users to increase their savings. It's trained to
recognise and save refunds, salary raises and even bonuses.
 
Through ING’s bancassurance
 
partnership with AXA, customers can create their own personalised insurance
cover in a clear and easy way using their ING mobile app or the ING website.
 
For example, customers in Italy only
have to answer three
 
questions to get building and contents insurance compared to
 
60+ previously – something
they appreciate, rating the service with a 4.5 out of five for advice and satisfaction.
 
The bancassurance offering is
now available in five countries through 11 insurance products
 
delivering banking linked to lending and home/life
protection.
 
A further two propositions for mobility and wellness are being built to provide full lifestyle
 
protection
for customers through ING’s
 
five billion digital engagements.
 
 
In the Business Banking segment, we are digitalising our proposition for SMEs, micro businesses, mid-corporate
 
s
and self-employed customers using the Touchpoint
 
platform. This will enable us to standardise our offering for
over 1.5 million businesses in Belgium, Luxembourg, the Netherlands, Poland, Romania, Germany and Turkey,
avoiding duplication and unlocking synergies between the countries.
Our call-centre platform,
 
developed as part of the Unite be+nl programme, is providing a harmonised customer
contact experience across multiple customer interaction
 
channels in eight countries. Because it is cloud-based,
customers receive the same services everywhere and it makes it easier for
 
ING to share and adopt innovations
and adjust to changing customer needs.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
47
 
 
One brand
The introduction in 2020 of ING’s new global ‘do
 
your thing’ tagline in the Netherlands, Belgium, Romania,
Poland and Wholesale Banking brings a common brand direction to the bank that will be extended to the other
ING countries over time. We launched advertising campaigns that included
 
new brand elements like a new style of photography,
 
a sound logo and always signing off with
 
‘do your thing’.
 
The tagline articulates ING’s empowering purpose and encourag
 
es people to do more of the things that move
them or their business. It is about people being free to focus on what matters most
 
to them knowing that,
whether in their private or professional lives, they can make
 
their world a little better
 
for it.
 
In Wholesale Banking, do your thing is linked to ‘changemakers’
 
– companies and people that ignite and lead
sustainable change in a responsible way.
 
 
Instant payments
Open banking has changed the way people pay,
 
giving consumers more options and opening up this service to
non-traditional providers. To
 
keep up with payment trends, ING has introduced instant
 
payments executed in
real time 24/7, 365 days a year.
 
In 2020, the service was extended,
 
enabling payments instantly from the
Netherlands to the rest of Europe. ING is also working with major retailers in the Netherlands to extend
 
peer-to-
peer payments (apps that enable users to request and receive payments
 
instantly) so merchants can send their
customers a mobile payment request on delivery
 
of goods.
 
 
Following a successful pilot in 2019, ING now uses SWIFT gpi in nine ING countries to make international
transfers quicker
 
and easier. With
 
SWIFT gpi around 80 percent of international money transfers
 
are done on the
same day, compared
 
with three to five days previously.
 
For Business Banking customers, ING added a bulk payment functionality to its payment initiation
 
application
programme interface (API), making it possible to pay
 
up to 5,000 recipients simultaneously. In addition,
 
it
supports multiple strong customer authentication,
 
that allows all types of payments requiring two or more
authorisations.
 
Making life easier for commuters on the go, ING is piloting Invisible Tickets,
 
a Dutch initiative that allows them to
seamlessly pay for public transport using mobile phone sensors. It is aimed at countries where the use of public
transport is high, such as Germany,
 
France, Italy,
 
the UK and the Netherlands.
 
Platform thinking
The power of platforms is that they are open, borderless, scalable, empowering and generate
 
large amounts of
data through frequent user interactions
 
that can in turn be used to improve users’ experience. To
 
remain
relevant to our customers we need to
 
be on the digital platforms where they are spending their time shopping,
socialising and working.
 
 
ING is exploring various platform business solutions. We are
 
building our own platforms.
 
Some of these have
evolved into stand-alone platforms.
 
Smart money app Yolt, mobile payments
 
app Payconiq and corporate
multibank platform Cobase are three examples.
 
 
Yolt, which now has over 1.6 million registered
 
users in the UK, Italy and France,
 
added new features in 2020,
such as Money Jar, which helps customers
 
save while they spend. Yolt
 
Pay,
 
currently in beta, uses open banking
APIs to initiate money transfers between
 
users’ accounts and to pay others. The app also links to partners
 
like
MoneySuperMarket, PensionBee and Wealthify so they can
 
invest, save on household bills and grow their
savings. In 2020, Yolt was named the best
 
personal finance app at the Wealth and Finance Fintech Awards.
 
 
ING can also add value for our customers by connecting to relevant
 
products and services on third-party
platforms. In 2020, we strengthened our SME offering
 
as the first bank in Germany to offer loans through
Amazon’s sellers
 
platform, which is mainly used by SME companies. ING’s banking platform
 
offers these clients
access to the digital lending solution of fintech Lendico, which provides
 
loan approvals within 48 hours.
 
 
In Belgium, we partnered with Minna Technologies
 
on a subscription service for customers. Using the ING app,
customers can keep track
 
of and manage their subscriptions, and even cancel unused subscriptions or switch to
better alternatives through an automated process,
 
helping them save money and time.
 
 
The integration of international payments
 
platform Payvision strengthens
 
ING’s digital payments
 
business,
especially in e-commerce.
 
Payvision is a subsidiary of ING that facilitates more
 
than 80 payment methods in 150
currencies. Its combined e-commerce and in-store solution helps merchants to
 
offer their shoppers a seamless
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
48
 
checkout experience across all channels. Since acquiring Payvision in 2018, ING is exiting Payvision
 
clients that no
longer fit our risk profile.
 
Open banking
The introduction of the European Payment Service Directive 2 (PSD2) in 2019 is reshaping the banking industry.
 
It
requires banks to rethink traditional products and services and create
 
new customer experiences that stand out
in a competitive landscape. At the same time, open banking allows us to connect to other providers
 
and integrate
products and services to add value for our customers. Our open banking platform
 
provides the key capabilities
that allow ING to open up by establishing secure, scalable, compliant and uniform connectivity with external
parties via application programming interfaces (APIs).
 
We believe open banking and APIs are a great way
 
to foster innovation, accelerate
 
digitalisation and integrate
and co-create with others. Open banking propositions powered by API technology include the Lendico
 
SME
lending platform in Germany and the Minna Technologies
 
subscription management app in Belgium. In daily
banking, APIs boost treasury departments by delivering real-time cash and liquidity management.
 
 
Yolt Technology
 
Services (YTS), the business-to-business arm of the smart money app, facilitates open banking
for businesses across Europe by providing them with access to bank APIs that connect them to users’ bank
accounts to initiate payments.
 
In 2020, YTS surpassed one billion API calls – single uses of its API. In the
Netherlands, France and the UK, it offers businesses API coverage
 
to over 90 percent of bank accounts and its API
infrastructure can connect to 80 percent
 
of bank accounts in Belgium, Italy and Spain.
 
 
In Poland, ING introduced the first aggregator
 
service that allows customers to manage multiple bank accounts
from their ING Moje account. The new service is available through ING’s
 
online banking channel and the mobile
app.
 
 
We also use APIs to connect to our insurance partner AXA on ING’s
 
first multi-country product platform.
 
 
Cross-border customer engagement
 
Internally, we
 
are working to harmonise our customer experience where it’s possible and beneficial on truly
cross-border platforms, giving ING the same face in different
 
markets and the same banking interface with the
same look and feel everywhere.
 
One such example is InsideBusiness – ING’s digital banking portal
 
that provides Wholesale Banking clients with a
single point of access to a growing range of products and services around the globe. It is accessible anytime and
anywhere via web, mobile app and tablet. In 2020, there was rapid growth in the adoption of the InsideBusiness
app: user numbers doubled from around 2,500 to nearly 6,000 unique users,
 
while usage went up by 96 percent.
We also doubled the number of self-service processes clients can initiate from
 
InsideBusiness.
 
 
Given the complexities and costs of cross-border system
 
and product integration, and in light of
 
coronavirus-
related economic headwinds, we announced in November 2020 that we will stop the Maggie transformation
programme. Launched in 2016, Maggie aimed to integrate our product
 
offering and provide a standardised
experience for retail customers in four
 
Challengers markets.
 
We will instead focus on using ING’s
 
global
technology foundation – shared data lakes, cloud and modular IT building blocks – to
 
further develop our
universal digital bank and the rollout of global digital product offerings in insurance,
 
investments and consumer
lending. We will continue to focus on implementing global solutions locally as a way
 
to harmonise and
standardise the customer experience.
 
In the Netherlands and Belgium, where ING is already a market leader,
 
we are uniting our respective strengths to
deliver an even better and more consistent
 
experience across all channels for our combined 11 million
customers. In the second quarter,
 
customers in Belgium were migrated to the OneWeb
 
banking environment
shared with our Dutch customers. They also now use the same OneApp mobile environment as in the
Netherlands and Germany,
 
bringing us a step closer towards our ambition to provide customers
 
everywhere with
the same easy, smart and personal experience.
 
Around 1.8 million customers in Belgium are now using OneApp
and OneWeb for online banking. In the Netherlands around five million customers
 
use the app. New features
were introduced in 2020 to empower customers
 
to take charge of their own banking affairs
 
via their mobile
phone, for example to block a lost card or change their daily withdrawal
 
limit, cutting back on the need to
contact customer service.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
49
 
Beyond banking services
Thinking beyond traditional banking is crucial to find new ways to be relevant
 
to customers and create new
revenue streams for ING. It strengthens
 
our core businesses by engaging customers early,
 
increasing the
customer lifetime value and contributing to a more sustainable
 
banking business model.
 
 
We can introduce new and complementary services through platforms.
 
Shopping services can use our scale to
provide better deals or cashbacks to customers.
 
The DealWise shopping platform gathers cashback deals and
discounts in one place. Users can save on their daily spending while merchants gain insights that
 
help them
better understand, acquire, develop
 
and maintain customers. It is now available in Romania,
 
with plans to enter
Germany next.
 
 
Similarly, ING+Deals in Belgium and ING Punten in the Netherlands are shopping platforms
 
offering customers
exclusive deals in partnership with various A-brands.
 
In addition to promoting customer loyalty,
 
these shopping
platforms help to increase interactions with ING’s
 
own digital channels. ING+Deals, with over 200,000 users
generated more than €5 million revenue for our merchants
 
in 2020, while ING Punten delivered a turnover of
€45 million from the sale of 1.4 million products.
 
In the know your customer (KYC) space, CoorpID provides a digital vault where
 
corporate clients can securely
store and share the KYC documentation
 
required by multiple financial institutions. CoorpID was connected to
ING’s KYC organisation
 
in 2020.
 
 
ING moved steadfastly on its housing strategy
 
across Dutch and German markets with disruptive concepts like
Scoperty and Makelaarsland. The near-term objective
 
is to independently grow these and invest in synergistic
business models. Makelaarsland is a property platform empowering people in the Netherlands
 
to buy and sell
their homes online themselves or with the support of a local agent.
 
 
In Germany, ING partnered
 
with Sprengnetter on Scoperty,
 
a real-estate platform connecting buyers
 
and sellers
of more than 35 million properties. The pre-qualification process for mortgages
 
is aligned with that of Interhyp,
ING’s independent mortgage brokerage
 
platform in Germany and Austria. Interhyp offers
 
buyers access to 400
mortgage lenders. In 2020 its market share rose to
 
10 percent in Germany (nine percent in 2019).
 
Earning the primary relationship
Customer numbers grew in 2020, especially the number of primary customers. These are Retail
 
customers with
multiple active products, including a current account with recurrent income, such as a salary.
 
In Wholesale
Banking these are clients lending and daily banking products and at least one other product generating recurring
revenues.
 
 
Earning the primary relationship is a strategic priority for ING as it leads to deeper relationships,
 
greater
customer satisfaction and ultimately customers
 
choosing us for more of their banking needs.
 
We want our
customers to do more than just some of their banking with us; we want to be their first
 
partner, where
 
they
deposit their salary, handle their payments and do most
 
of their other banking business.
 
 
In 2020, the number of primary customers increased by 578,000 to 13.9 million. Across retail segments
 
,
 
this
comprises 5.8 million for Market Leaders,
 
4.9 million for the Challengers Markets – where primary customers
 
in
Germany grew by 330,000, a record 56 percent in net growth
 
versus 2019
 
– and 3.2 million for Growth Markets.
 
Retail markets
 
NPS
 
Number 1 in
6 out of 14
markets
Wholesale Banking NPS
 
13% above
industry
average
Measuring customer satisfaction
 
One of the ways we measure our progress is through the Net Promoter
 
Score (NPS), which indicates customer
satisfaction and loyalty (whether they would recommend ING to
 
others). The score is calculated as the difference
 
ing20f2020p50i0.jpg
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
50
 
between the percentage of promoters
 
(who rate ING as 9 or 10 out of 10) and detractors (those scoring ING
below a 6). Our aim is to achieve a number one NPS ranking in all our retail markets, with a 10-point lead over
our main competitors.
 
 
Based on a rolling average of our NPS scores in 2020, ING ranked
 
number one in six of our 14 retail markets:
Australia, Germany,
 
Poland, Romania, Spain and the Philippines. In four of these we are more than 10 points
ahead of our nearest competitor.
 
ING also has a top-three position in a further six markets. The introduction of
current account fees in Germany in February 2020 led to a downward
 
dip in our NPS score here, but overall we
retained our number one position in Germany in all four quarters. In France,
 
more innovative competitors
overtook ING in the number one position.
 
In the Business Banking segment, we measure NPS in four markets. These are the Netherlands, Belgium, Poland
and Romania. The NPS for mid-corporate clients in the Netherlands improved
 
to +18.4
 
(from +12.4 in 4Q 2019),
well above our competitors (-23.3), based on feedback from
 
clients who do business with multiple banks. Clients
appreciate our sector knowledge combined with regional presence, with satisfaction
 
highest in the services,
industry and transport and logistics sectors. However,
 
there is room for improvement to make
 
the digital
customer experience easier and more personal, especially for Dutch SMEs and self-employed
 
clients, where our
NPS among both client groups declined to -26 from -20 and -18 respectively.
 
In Poland, the combined NPS for
SME and mid-corporate clients improved to +43 (from
 
+30 in 4Q 2019). As we revised our methodology in
Belgium we don’t have comparable figures for 2020. Although slightly lower than
 
in 2019, the NPS for micro
clients and SMEs in Romania is still a high +43 and +54 for mid-corporates.
The NPS programme also runs in 26 Wholesale Banking markets. In addition, we introduced a transactional
 
NPS
to measure client satisfaction on service requests for daily banking. In 2020, the customer
 
satisfaction exceeded
8.5 (scale 1-10). The overall NPS rating reached +56.3 (on a scale of -100 to +100), up from a score
 
of +49.6 in
2019, and 13 percent ahead of the industry average of +49.8. The response rate
 
also increased to 60 percent
compared with 50 percent in 2019, showing higher client engagement with ING. The scores are based on
thousands of responses from clients representing more than 50 percent of Wholesale Banking revenue.
 
The NPS
of Platinum and Gold clients showed an even higher year-on-year increase of 33 percent and 21 percent,
respectively. All sectors
 
also registered stronger NPS, with Energy achieving an exceptionally
 
high score of +71.3,
a 26 percent increase year-on-year.
 
The higher scores suggest that clients appreciate our approach (see
‘Unleashing sector potential’ above) and that Wholesale Banking is succeeding in its strategy to focus
 
on core
clients, with as a result more resources allocated to a smaller group of clients
 
and higher client satisfaction.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
51
 
External recognition
 
Recognising our efforts, Global Finance magazine named ING as the best consumer digital bank in Germany
 
while
Euromoney named us the best digital bank in Central and Eastern Europe,
 
as well as best bank in the Netherlands
and in Poland.
 
 
For the 14th year,
 
German consumers voted ING their preferred bank in €uro
 
magazine’s annual survey.
 
In
Australia, ING was named ‘Best Bank’ by financial comparison sites Mozo and Canstar
 
.
 
ING was also Canstar’s
Bank of the Year and ‘Most Trusted
 
Financial Institution’ at the Australian Banking Innovation Awards. In the
Forbes list of the world’s best
 
banks, ING ranked among the top five in seven count
 
ries in 2020.
 
Global Finance also named ING as the most innovative bank in Western Europe.
 
Three ING innovations also won
Innovators 2020 Awards: Zero
 
Knowledge Proof Notary (cash management category), CoorpID (corporate
 
finance
sector) and FINN – Banking of things (payments sector).
 
 
In Wholesale Banking, ING was recognised as Western Europe’s
 
best bank for transaction services (Euromoney)
and the best investment bank and best trade finance provider in the Netherlands (Global Finance).
 
Continuing to innovate
 
Since the introduction of direct banking in 1997, ING is still finding new ways to improve the
 
banking experience
for our customers. Many of these advances stem from
 
twinning the latest technologies with data insights.
Growing demand for digital solutions is also spurring new ideas.
Initiatives that have benefitted from
 
this include the trade finance tools of the blockchain-based software
company Komgo, which grew out of ING’s
 
Innovation Bootcamp (see ‘Distributed ledger technology and
blockchain’ below). Also in trade finance, ING teamed up in 2020 with AI-driven trade platform Tradeteq,
 
the first
electronic platform that allows banks and institutional investors
 
to transact trade assets. Tradeteq
 
uses advanced
analytics and artificial intelligence to derive more accurate risk scores,
 
helping investors to better
 
evaluate
opportunities and offers an end-to-end solution covering portfolio management,
 
risk analytics and securitisation-
as-a-service.
 
At the ING Labs in Amsterdam, Brussels, London and Singapore, over 20
 
initiatives are currently in development
to make disruptive impact in the value spaces of trade, lending, safety and compliance, financial health,
 
and
housing. Examples are Blacksmith, Loan Optics and Stemly.
 
Blacksmith, which ING has started using for
Wholesale Banking clients in Asia, provides banks with a single platform for digitally managing KYC
 
requirements,
connecting to trusted data sources, generat
 
ing tailored KYC files for its clients and quickly implementing
regulatory changes. Loan Optics is a platform for digitally-native
 
loans. It reduces operational costs by
streamlining the primary and secondary loan implementation processes. Stemly is creating an autonomous
decision system for supply chain and finance processes.
 
In Wholesale Banking Advanced Analytics we’re building artificial intelligence-powered products
 
to better
understand and serve our clients. These include improved monitoring and analysis activities for client
 
-facing
departments and Hunter,
 
a tool that accelerates the detection and investigation
 
of money laundering schemes,
reducing the workload for our KYC colleagues. Domino is a tool that gives us a ‘360
 
view’ of mid-corporate and
corporate clients to ensure we’re
 
having the right conversations at the right time to meet
 
their needs. In
addition, in 2020, we delivered a proof of concept to gain insight into how
 
mid-corporate clients are dealing with
the coronavirus crisis so we can help them where they need it most. It provides insights that go beyond
 
our
traditional knowledge of real-time client situations such as whether the client is receiving government
 
support or
needs support with tax payments.
 
Distributed ledger technology and blockchain
 
When it comes to distributed ledger technology (DLT),
 
ING is considered an industry leader.
 
For the second
consecutive year,
 
Forbes ranked ING as one of the top $50 billion companies embracing blockchain
 
technology.
Cryptoground, a blockchain and cryptocurrency hub, named ING among the best blockchain stocks
 
investments
in 2020.
 
Easy Trading
 
Connect (now Komgo.io) was one of the first to reinvent
 
commodities trade financing in 2017.
Komgo,
 
co-owned by ING, offers products that streamline
 
trade finance, optimise liquidity, manage risk and
verify customers. It recently created
 
a new feature, TRAKK, that uses DLT
 
to create provenance and immutability,
allowing traders to ensure the documents are genuine and are not used for
 
pledges to other parties. New DLT
initiatives currently in the execution phase include solutions for digital assets safekeeping,
 
tokenisation and
issuance of a structured finance loan for institutional investors, and an intra
 
-bank settlements utility token,
among others.
 
In October 2020, Contour went live. Co-founded by ING in a consortium with other major global banks, Contour
connects buyers, suppliers and banks across a decentralised digital
 
platform to bring transparency and trust into
trade financing. In its testing phase, Contour reduced the processing time for letters
 
of credit (LCs) from an
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
52
 
average of 10 days to under 24 hours.
 
Another ING initiative is securities lending platform HQLAx, which uses DLT
to facilitate trades in high-quality liquid assets, serving as an additional liquidity pool. It was commercially
launched in December 2020.
 
ING’s zero-knowledge
 
proof notary service, a solution aimed at improving the privacy and security of DLT
 
-based
transactions, received an Innovators 2020 Award
 
from Global Finance magazine in the cash management
category. Built
 
specifically to address the privacy requirements of R3’s
 
Corda platform, the capability is our latest
development in this field of cryptography,
 
following a suite of open-source privacy tools released in previous
years.
 
We amplify our DLT
 
impact by addressing how ING’s solutions can solve key
 
problems in the finance industry.
Our DLT research
 
team is constantly producing knowledge assets that can serve and influence the wider
community: from reflecting on the challenges and benefits of digital assets, to collaborating
 
with the Global
Blockchain Business Council and the World
 
Economic Forum on the creation of blockchain standards.
 
Fintech partnerships
ING entered into several fintech
 
partnerships this year that help our businesses execute our strategy.
 
Through
our investment arm, ING Ventures
 
,
 
we invest in companies with a strategic relevance
 
for ING. These are start-ups
with disruptive technologies that have the potential to improve
 
the customer experience or ING’s operati
 
onal
efficiency.
 
 
A number of partnerships are focused on enhancing our data analytics capabilities. One example is London-based
Eigen Technologies, which is working on natural
 
language processing (NLP) models tailored to the financial
industry’s need for data extraction.
 
The partnership is applying NLP and machine learning in areas such as
corporate lending, trade finance and SME banking to automate processes and reduce
 
risk and cost.
 
 
For our Business Banking clients we have a number of partnerships. Funding Options helps British and Dutch
SMEs find the right loan for their business. FinCompare gives German corporate customers
 
a quick and
independent overview of their financing options. TransferMate
 
provides SME customers and corporate
 
clients
with faster,
 
cheaper and easier payment solutions. We are also exploring new business models. Countingup, a
mobile banking app for self-employed entrepreneurs
 
and freelancers, combines accounting and banking features
into one seamless solution, greatly reducing operating complexity
 
and cost.
 
 
On the topics of aggregation, PSD2 and open banking, ING is working with an ING-initiated company,
 
Cobase,
which is making it easier and more efficient for international corporate
 
clients to work with multiple banks from
one cloud-based platform.
 
 
In the area of operational excellence, we’re
 
working with fintech Duco on a reconciliation solution that strongly
improves time to market in building reconciliations
 
and lowers the cost of carrying these out.
 
In the Philippines, ING teamed up with the UNICEF Innovation Office to support fintech start-ups working on
financial inclusion challenges (www.fintechforimpact.com
 
). The Fintech for Impact initiative will provide financial
support and mentoring for five projects: an app to bring affordable
 
healthcare to rural communities; a tool to
help migrant workers manage their finances; a platform
 
connecting farmers and fishermen directly to buyers; an
app connecting students to education loans; and an AI-enabled platform to deliver grassroots
 
insurance to low-
income families.
 
 
ing20f2020p53i0.jpg
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
53
 
 
Responsible finance
As a bank, we are committed to contributing to a low-carbon
 
and financially healthy society, both through
 
our
own efforts and by helping our clients to be more sustainable. We
 
make the most impact through our financing,
via the loans we provide to clients. That’s why we
 
are committed to steering our €600 billion lending portfolio
towards meeting the well-below two-degree goal of the Paris Agreement.
 
We call our approach to measuring and
steering, Terra.
 
 
Terra
 
approach
ING’s Terra
 
sets out our approach for aligning our lending portfolio with the Paris climate goals in the nine
sectors most responsible for climate change. Since 2019, we have
 
made significant progress in further
developing, refining and applying the Terra
 
approach. In October 2020, we released our second progress report
on Terra.
 
It included quantitative results and targets for
 
all of these nine sectors, fulfilling the commitment we
made the previous year.
 
 
The report’s Climate Alignment Dashboard tracks
 
our performance, showing the CO2 intensity per sector of our
portfolio compared to the market and the relevant
 
climate scenario. The portfolios for power generation,
shipping, cement and steel are ‘on track’ for
 
climate alignment, while residential real estate,
 
automotive and
aviation are ‘close to being on track’.
 
For the remaining two sectors we cannot yet benchmark our performance.
For upstream oil and gas this is because the 2019 portfolio is our starting point and we
 
will need to see
movement relative to the scenario pathway,
 
starting next year,
 
before indicator status can
 
be given. For
commercial real estate we still lack complete
 
and up-to-date market data.
 
 
ING’s power generation
 
portfolio continues to outperform the market
 
and both the International Energy
Agency’s sustainable development scenario (SDS) and the OECD scenario. In the 12 months measured in the
Terra
 
report, ING reduced
 
its direct exposure to coal-fired power plants by 43 percent
 
(in line with our
commitment to reduce it to close to zero by
 
the end of 2025) and increased financing for renewable energy
generation by €1.19 billion. Other sectors face more challenges, such as the residential
 
mortgage sector.
 
There
we encounter a shortage of accurate
 
data to measure progress and a general lack of homeowner action. Read
the full Terra
 
report on ing.com, and see ‘Greener homes’ below for more information
 
about making our
mortgage portfolio energy positive by 2050.
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
54
 
One of the targets included in the report is our aim to reduce financing to upstream oil and gas by
 
19 percent by
2040 from 2019 levels. We’ll align this portfolio both by decreasing exposure
 
and engaging with clients to help
them shift to low-carbon technology.
 
The measurement is based on three indicators: emission intensity,
 
an
absolute reduction in financing and a relative transition of the financing mix from high-carbon to low-carbon
 
and
renewable energy.
 
This target is also aligned with the SDS scenario, which is not static. If more or quicker action
is needed and this scenario is adjusted, our target will adjust accordingly.
 
 
Terra’s
 
sector-based approach respects the fact that each sector has its own transition
 
pathway for it to
contribute to a low-carbon, below-two-degree
 
world. We therefore
 
use the most appropriate methodology per
sector.
 
One example is PACTA
 
for Banks, which was co-developed by ING and non-profit think tank the 2°
Investing Initiative (2DII). The methodology-specific application was
 
further refined with more banks and
published as an open-source methodology for all banks to use in 2020.
 
It looks at the technology shift that’s needed across certain sectors
 
to slow global warming and then measures
this against the actual technology clients are using – or plan on using in the future.
 
 
We believe that working together to achieve
 
an industry-wide standard will increase transparency and
 
ultimately
help the entire financial sector to make a bigger impact. We
 
also believe in an inclusive approach to climate
alignment, as we work with our clients to facilitate
 
and finance their shift to low-carbon technology.
 
 
We will continue to monitor and report on our progress, engaging
 
with clients and other stakeholders to advance
on the journey to combat climate change. We conduct strategic
 
dialogues with clients on how we can help them
align their business with the Paris Agreement goals, for example by
 
advising them on how to structure their
financing and gain access to funding. We also contribute to policymaking to influence change
 
on a larger scale.
For example, we’re working
 
with the European Investment Bank on the implementation of the European Green
Deal and we’re providing input for proposals by the Network
 
for Greening the Financial System on sustainable
stress testing to assess the resilience of the financial system
 
to climate-related shocks.
 
 
Our efforts in this area are being recognised. In 2020, we were ranked
 
as ‘climate action leader’ by
 
the leading global environmental disclosure platform CDP for
 
the seventh consecutive year.
 
We also ranked first
in our market-cap group by Sustainalytics and MSCI upgraded ING’s
 
rating to ‘AA’,
 
which underscores sound
corporate governance and our strengths
 
in financing environmental impact, among others.
 
Facilitating change
Sustainability is about planet and people. We believe we can make
 
more impact with what we do finance than
what we don’t. So when it comes to people, we aim to increase our social impact finance portfolio by lending to
projects that lead to, for example,
 
basic infrastructure improvements, community development
 
or essential
services. And we’re working on making a positive contribution to human rights as financier,
 
employer,
 
taxpayer
and driver of progress and prosperity.
 
This is also in line with the United Nations’ Principles for Responsible
Banking, of which ING was a founding signatory
 
in 2019.
 
We have an inclusive approach to driving sustainable
 
business. We work with our clients to facilitate
 
and finance
the shift to low-carbon technology.
 
This includes environmental, social and governance (ESG) checks to ensure
that our financing is in line with our own sustainability goals. Read more about our environmental
 
and social risk
policy framework at www.ing.com/Sustainability/Sustainable
 
-business/Environmental-and-social-risk-
policies.htm
 
ING is considered a pioneer in sustainable finance, having introduced the first sustainability
 
-linked loan and a
made-to-measure sustainability improvement loan. We
 
offer various financial instruments such as green loans,
sustainability improvement loans, green bonds and advisory services.
 
 
In 2020, we saw a visible softening of lending demand due to the impact of Covid-19 on economic activity. Our
climate finance portfolio decreased by 12 percent in 2020 to €16.5 billion (from €18.7 billion in 2019), mainly due
to lower lending volumes in renewable energy and sustainable buildings. Social impact financing for projects
 
that
lead to, for example, basic infrastructure
 
improvements, community development or essential services,
decreased by 29 percent to €533 million.
 
Despite the decline in demand, we continued to shape sustainable finance in 2020 with the introduction of an
innovative financing method to make inland shipping in the Netherlands more sustainable. A pay
 
-per-use
financing structure for renewable battery containers
 
makes it easier for ship owners to transition from diesel-
powered barges to electrical power without the need for a large
 
up-front investment. ING and partners formed
 
a
new company called Zero Emissions Services (ZES) to facilitate
 
the transformation. The Dutch transport sector is
responsible for 21 percent of the country’s CO2
 
emissions; ZES is moving it a step closer towards the Paris
Agreement goals.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
55
 
In 2020, we started to link the circular economy even more
 
closely with our green finance products. The ZES
transaction is an example of how ING is exploring circular financial business models with various partners. The
circular economy offers a systematic
 
response to the climate crisis. It’s about rethinking our use of raw materials
and resources to reduce waste and emissions, shifting from ‘take,
 
make and waste’ to ‘reduce, reuse, recycle’.
Companies like ZES stimulate other use models for depleted battery
 
packs once they are exchanged to give them
a second or even third lifecycle.
 
ING issued 36 sustainability improvement loans and 20 green loans. Among these was the largest green
 
loan yet
in the Asia-Pacific commercial and industrial renewables sector.
 
The $75 million financing for Cleantech Solar will
support more than 500 megawatts of solar power projects across
 
Southeast Asia.
 
 
In addition to lending, ING supported 60 mandates for clients through green, social and sustainability bonds. In
September,
 
ING was involved in Ireland’s
 
first-ever green bond issued by AIB bank. The €1 billion will be used to
finance renewable energy projects and green buildings in Ireland and Britain.
 
 
ING broke new ground with Europe’s
 
first Covid-19-related bond, which raised financing for French
 
public
hospitals. ING was the joint bookrunner in the €1 billion deal with French bond issuer Caisse Francaise de
Financement Local (CAFFIL). Issued in May,
 
it was the first negative yield bond launch since the end of February
when the pandemic triggered a global sell-off and closed the primary market. ING’s previous
 
collaboration with
CAFFIL on the first French social covered bond was a winner at Environmental
 
Finance’s Bond Awards 2020.
 
 
ING subsequently supported a further three issuers with Covid-19-related bonds, helping them to overcome
 
the
impact of the crisis. We acted as bookrunner in the €500 million social bond for Korea Housing Finance
Corporation; as joint bookrunner in the €1 billion social bond for CaixaBank; and joint lead manager on the €500
million bond for the Export-Import Bank of Korea (KEXIM).
 
Greener
 
homes
A significant part of our loan book consists of residential mortgages, and houses generally account
 
for about 22
percent of direct and indirect CO2 emissions in the EU. We’re
 
working with clients to improve the energy
consumption of the houses we finance as a way of achieving our Paris alignment goals. Our long-term vision is to
have an energy-positive mortgage portfolio
 
by 2050. This means that the houses in our portfolio will collectively
generate more energy than they consume.
 
 
Our current carbon intensity measurement covers
 
our Dutch and German mortgage portfolio,
 
with a combined
outstanding lending amount of roughly €180 billion (60 percent of total mortgage
 
outstandings) and more than
one million financed homes. See the latest Terra
 
report on ing.com for information on the underlying
measurement.
 
We are developing retail products,
 
tools and services to help homeowners make their houses more sustainable.
Customers can use these products to finance solar panels, for example,
 
or insulate their homes. In Germany,
 
we
provide green mortgages through development bank KfW.
 
 
In addition to financial solutions, we help to raise awareness on the topic. Consumers in the Netherlands, for
example, can check the energy profile of their homes on our website, as well as the options and financing
available to improve in this area. And we provide
 
d
 
Dutch homeowners who want to invest in upgrading
 
their
energy label with a free rating as we know how insights can help people to take
 
the first steps towards a more
sustainable home.
 
 
However,
 
the number of homeowners taking up this offer remains low.
 
This likely reflects the cumbersome
process of gathering data for an energy label upgrade.
 
And although an up-to-date energy label is required when
selling a home, only a small percentage of properties in our portfolio are sold each year.
 
Sustainable investment services
ING offers sustainable investment
 
(SI) services to its Retail Banking customers in the Netherlands, Belgium,
Luxembourg and Germany.
 
In 2020, ING’s retail brokerage
 
division recorded €13.2 billion in sustainability assets
under management, up from €9.3 billion in 2019. This underlines our clients’ appetite for products and services
that integrate sustainability criteria
 
.
 
Competition
ING is a global financial institution with a strong European base, offering retail and wholesale banking services to
customers in over 40 countries. The purpose of ING is empowering people to stay
 
a step ahead in life and in
business.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
56
 
ING’s Retail business serves 39 million customers,
 
from individuals to small and medium-sized businesses and
mid-corporate clients. In most of our Retail markets
 
we offer a full range of banking products and services,
covering payments, savings, mortgages, insurance,
 
investments and secured and unsecured lending. Our
Wholesale Banking business offers clients advisory value propositions such as specialised lending, tailored
corporate finance and debt and equity-market
 
solutions. These clients range from large companies to
multinational corporations and financial institutions.
 
There is substantial competition in the Netherlands and the other countries in which we do business for the types
of wholesale banking, retail banking, investment banking and other products and services we provide.
 
This competition is most pronounced in our more mature markets of the Netherlands, Belgium, the rest
 
of
Western Europe and Australia.
 
Our largest market is the Netherlands, where our main competitors
 
are ABN
AMRO and Rabobank. In recent years, competition has increased in emerging markets
 
such as Asia and Central
and Eastern Europe. Financial services companies from more developed countries see these markets
 
as offering
higher growth potential, while local institutions have become more sophisticated
 
and competitive and have
proceeded to form alliances, mergers or strategic
 
relationships with our competitors.
 
However,
 
our competitive landscape is transforming as society becomes increasingly digitalised and ever
 
more
reliant on technology and the online economy – a trend amplified during the Covid-19 pandemic, which
accelerated the shift to mobile banking and contactless payments. Our main competitors
 
are no longer just other
banks. The big winners in 2020 were the tech companies that offer
 
an engaging digital experience on an open
platform that meets a range of needs in one go-to digital ecosystem.
 
Platform providers are all about customer experience.
 
They use data and advanced analytics to pinpoint what
people need and partner with third parties to meet this with a fitting product or service, ensuring customers
come back for more. This ability to meet people’s primary needs in a way
 
that is easily accessed on mobile
devices is what defines their success. Banking, by contrast, is a facilitator and not a primary need. The choice for
banks is to challenge their existing business models and disrupt themselves, or risk being eliminated as an
intermediary and relegated to the status
 
of white label facilitator of others’ platforms.
 
In this environment, the
digital customer experience is the key differentiator,
 
shaped by customer expectations based on their
interactions online and on their smartphones: easy,
 
smart and personal.
 
The opening up of the European payments market under the PSD2 directive is a significant competitive
development. It is creating a more crowded, uneven playing
 
field as new providers enter this lucrative
 
area once
dominated by banks. Newcomers include third party mobile and online payment platforms
 
like ApplePay and
Alipay, as well as fintechs
 
and other non-banks. These new entrant have operating models that
 
are not burdened
with potentially costly legacy operations. They are less regulated
 
than banks and use technologies like
blockchain, robotics and artificial intelligence and advanced data and analytic tools to lower
 
cost to serve and
speed up processes.
 
 
Advances in technology are accelerating the use of new business models, for example
 
in retail payments, peer-
to-peer lending, foreign exchange and low-cost
 
investment advisory services. New solutions offered by rapidly
evolving incumbents, challengers and new entrants, especially with respect to
 
payment services and products,
are disrupting the financial services sector and leading to the emergence of disintermediation. To
 
remain
competitive, banks have to think beyond banking and develop
 
their own platforms. Winners will be those with a
superior digital experience, a strong trusted brand, and the ability to mobilise a large
 
customer base to attract
partners to their platforms.
 
 
Successful platforms take the effort
 
out of managing finances, offering personalised, real-time advice and
products and services for all financial and other relevant needs. Open banking offers
 
opportunities to add value
by connecting to the products and services of others, also in areas beyond banking. Statements regarding
 
ING’s
competitive position reflect the assessment of ING’s
 
management about the general competitive landscape in
which ING operates.
 
Regulation and Supervision
 
The banking and broker-dealer businesses of ING are subject to detailed and comprehensive supervision in all of
the jurisdictions in which ING conducts business.
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
57
 
Regulatory agencies and supervisors have broad administrative
 
power and enforcement capabilities over many
aspects of our business, which may include liquidity, capital adequacy,
 
permitted investments, ethical issues,
money laundering, anti-terrorism measures, privacy,
 
recordkeeping, product and sale suitability,
 
marketing and
sales practices, remuneration policies, personal conduct and our own internal governance
 
practices. Also,
regulators and other supervisory authorities in the EU, the US and elsewhere continue to scrutinise payment
processing and other transactions and activities of the financial services industry through laws and regulations
governing such matters as money laundering, anti-terrorism financing, tax
 
evasion, prohibited transactions with
countries or persons subject to sanctions, and bribery or other anti-corruption measures.
 
 
As discussed under “Item 3. Key Information — Risk Factors”,
 
as a large multinational financial institution we are
subject to reputational and other risks in connection with regulatory and compliance matters
 
involving these
countries.
 
European Regulatory framework
The Single Supervisory Mechanism (“SSM”) – the first pillar of the Banking Union – was launched on 4 November
2014. Since that date, the European Central Bank (ECB) assumed responsibility for a
 
significant part of the
prudential supervision of banking groups in the Eurozone, including ING Group and ING Bank. Under the SSM, the
ECB has become ING Group’s and ING Bank’s
 
principal prudential supervisor. The
 
ECB is amongst others
responsible for tasks such as market access, compliance with capital
 
and liquidity requirements and governance
arrangements. National supervisors, including the Dutch Central Bank for
 
ING Group and ING Bank, remain
responsible for supervision of tasks that have not been transferred
 
to the ECB such as financial crime and
payment
 
supervision.
 
 
Another significant change in the regulatory environment is the setting up of the Single Resolution Mechanism
(“SRM”). It is the second pillar of the Banking Union. The SRM comprises the Single Resolution Board (“SRB”) and
the national resolution authorities and is fully responsible for the resolution of banks within the Eurozone as of 1
January 2016. ING has been engaging already with the Dutch national resolution authorities and the SRB for a
few years with the aim to support in the draw up of a resolution plan for
 
ING and will continue to collaborate
with the resolution authorities. The rules underpinning the SRM could have a significant impact on business
models and capital structure of financial groups in order to become resolvable.
 
As a third pillar to the Banking Union, the EU aims at further harmonizing regulations for Deposit Guarantee
Schemes (DGS).
 
Main elements are the creation of ex-ante funded DGS funds, financed by risk-weighted
contributions from banks.
 
As a next
 
step, the EU is discussing a pan-European (or pan-banking union) DGS (the
European Deposit Insurance Scheme (EDIS)), (partly) replacing or complementing national compensation
schemes. The progress on the EDIS proposal is slower than expected; this proposal as well as certain
accompanying risk reduction measures are still being discussed in the European Parliament
 
and in the Council.
 
Dutch Regulatory Framework
The Dutch regulatory system for
 
financial supervision consists of prudential supervision – monitoring the
soundness of financial institutions and the financial sector, and conduct
 
-of-business supervision – regulating
institutions’ conduct in the markets. As far as prudential supervision has not been transferred
 
to the ECB, it is
exercised by the Dutch
 
Central Bank (De Nederlandsche Bank or “DNB”), while conduct-of-business supervision is
performed by the Dutch Authority for the Financial Markets (Autoriteit
 
Financiële Markten or “AFM”). DNB is in
the lead with regard to macroprudential supervision.
 
 
Global Regulatory Environment
There is a variety of proposals for laws and regulations that
 
could impact ING globally, in particular those made
by the Financial Stability Board and the Basel Committee on Banking Supervision at the transnational level and an
expanding series of supranational directives and national legislation in the European Union (see “Item 3. Key
Information — Risk Factors — We
 
operate in highly regulated industries. Changes in laws and/or
 
regulations
governing financial services or financial institutions or the application of such laws and/or regulations governing
our business may reduce our profitability). The aggregated impact and possible interaction
 
of all of these
proposals are hard to determine, and it may be difficult to reconcile
 
them where they are not aligned. The
financial industry has also taken initiatives by means of guidelines and self-regulatory
 
initiatives.
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
58
 
Dodd-Frank Act and other US Regulations
ING Bank has a limited direct presence in the United States through the ING Bank Representative
 
Offices in New
York and Dallas, Texas.
 
Although the offices’ activities are strictly limited to essentially that of a marketing agent
of bank products and services and a facilitator (i.e. the offices may not take
 
deposits or execute any transactions),
the offices are subject to the regulation of the State of New York
 
Department of Financial Services and the Texas
Department of Banking, as well as the Federal Reserve. ING Bank also has a subsidiary in the United States, ING
Financial Holdings Corporation, which through several operating subsidiaries (one of which is registered
 
with the
CFTC as a swap dealer and another of which is registered with the U.S. Securities and Exchange
 
Commission as a
securities broker-dealer) offers various
 
financial products, including lending, and financial markets products.
These entities do not accept deposits in the United States on their own behalf or on behalf of ING Bank N.V.
 
 
Dodd-Frank Act, which became law on 21 July 2010, represented a significant overhaul
 
in the regulation of U.S.
financial institutions and markets. The primary impact on ING is through the establishment of a regulatory regime
for the off-exchange
 
derivatives market, pursuant to
 
Title VII of the Dodd-Frank Act.
 
 
Among other things, the Dodd-Frank Act and regulations enacted thereunder require swap
 
dealers to register
with the CFTC, the primary swaps regulator in the U.S.) as ‘swap
 
dealers’ and be subject to CFTC regulation and
oversight. The ING subsidiary,
 
ING Capital Markets LLC, is registered
 
as a swap dealer.
 
As a registered entity,
 
it is
subject to business conduct, record-keeping and reporting requirements,
 
as well as margin requirements and
capital requirements, which will become effective
 
in late 2021. In addition to the obligations imposed on
registrants (such as swap dealers), other requirements
 
relating to reporting, clearing, and on-facility trading have
been imposed for much of the off-exchange derivatives
 
market. It is possible that registration, execution,
clearing, margin, capital and business conduct compliance requirements will increase the costs of and restrict
participation in the derivative markets. These rules could therefore
 
restrict trading activity,
 
reducing trading
opportunities and market liquidity,
 
potentially increasing the cost of hedging transactions and the volatility of the
relevant markets. This could adversely
 
affect the business of ING in these markets.
 
The Dodd-Frank Act and SEC regulations enacted thereunder,
 
effective 1 November 2021, also require security-
based swap dealers to register with the SEC. The SEC has adopted
 
regulations, among others, establishing
registration, reporting, risk management, business conduct, and margin and capital
 
requirements for security-
based swaps. ING Capital Markets is expected to be registered
 
with the SEC as a security-based swap dealer.
Registration could increase ING Capital Markets
 
LLC’s operational costs, reduce trading activity
 
and market
liquidity, and increase volatility of the relevant
 
markets. It will also result in a substantial portion or all of ING’s
security-based swap activities with U.S. persons being conducted through ING Capital Markets
 
LLC.
 
 
In addition, new position limits requirements for uncleared swaps referencing
 
any of twenty-five commodity
futures contracts for market
 
participants could limit ING’s position sizes in these swaps
 
referencing specified
physical commodities and similarly limit the ability of counterparties to utilize certain
 
of our products to the
extent hedging exemptions from the position limits are unavailable.
 
 
The Dodd-Frank Act also impacts U.S. banks and non-U.S. banks with branches or agencies in the United States,
primarily through the Volcker Rule and the enhanced prudential standards
 
of Section 165 of the Dodd-Frank Act.
Because ING Bank does not have a U.S. banking presence, these provisions do not currently apply to ING.
 
The Dodd-Frank Act also created a new agency,
 
the Financial Stability Oversight Council (“FSOC”), an inter-agency
body that is responsible for monitoring the activities of the U.S. financial system, designating systemically
significant financial services firms and recommending a framework for substantially
 
increased regulation of such
firms, including systemically important non-bank financial companies that could consist
 
of securities firms,
insurance companies and other providers of financial services, including non-U.S. companies. ING has not been
designated a systemically significant non-bank financial company by
 
FSOC and such a designation currently is
unlikely.
 
 
Dodd-Frank continues to impose significant requirements on us, some of which may
 
have a material impact on
our operations and results, as discussed further under “Item 3. Key Information
 
— Risk Factors—We operate
 
in
highly regulated industries. Changes in laws and/or regulations governing
 
financial services or financial
institutions or the application of such laws and/or regulations governing our business may
 
reduce our
profitability”.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
59
 
Basel III and European Union Standards as currently applied by ING Bank
DNB, our principal home country supervisor until the ECB took over that position in November 2014, has given
ING permission to use the most sophisticated approaches for solvency reporting
 
under the Financial Supervision
Act, the Dutch legislation reflecting the Basel II and Basel III Frameworks. DNB has shared information
 
with host
regulators of relevant jurisdictions to come
 
to a joint decision. In all jurisdictions where the bank operates
through a separate legal entity that is a credit institution, ING must
 
meet the local implementation of Basel
requirements as well. ING uses the Advanced IRB Approach for credit risk, the Internal
 
Model Approach for its
trading book exposures and the Advanced Measurement Approach for
 
operational risk. A small number of
portfolios including certain sovereign exposures are reported
 
under the Standardized Approach
 
In December 2010, the Basel Committee on Banking Supervision announced higher global minimum capital
standards for banks, and has introduced a new global liquidity standard
 
and a new leverage ratio. The Basel
Committee's package of reforms, collectively
 
referred to as the “Basel III” rules, has, among other requirements,
increased
 
the amount of common equity required to be held by subject banking institutions, has prescribed
 
the
amount of liquid assets and the long term funding a subject banking institution must hold at any given moment,
and has limited leverage. Banks are required to
 
hold a “capital conservation buffer” to withstand
 
future periods
of stress. Basel III has also introduced a “countercyclical
 
buffer” as an extension of the capital conservation
buffer,
 
which permits national regulators to require banks to
 
hold more capital during periods of high credit
growth (to strengthen capital reserves and moderate
 
the debt markets). Further,
 
Basel III has strengthened the
definition of capital that has the effect of gradually disqualifying many hybrid
 
securities during the years 2013-
2022, including the hybrids that were issued by the Group, from inclusion in regulatory capital,
 
as well as the
higher capital requirements associated with certain business conditions (for
 
example, for credit value
adjustments (“CVAs”) and illiquid collateral)
 
as part of a number of reforms to the Basel II framework. In addition,
the Basel Committee and Financial Stability Board (“FSB”) published measures that have had the effect
 
of
requiring higher loss absorbency capacity, liquidity surcharges,
 
exposure limits and special resolution regimes for,
and instituting more intensive and effective
 
supervision of, “systemically
 
important financial institutions”
(“SIFIs”), in addition to the Basel III requirements otherwise applicable to most financial institutions. One such
measure, published by the FSB in November 2015, is the Final Total
 
-Loss Absorbing Capacity (‘TLAC’) standard for
G-SIFIs, which aims for G-SIFIs to have sufficient loss-absorbing and recapitalisation
 
capacity available in
resolution. ING Bank has been designated by the Basel Committee and FSB as a so-called “Global Systemically
Important Bank” (“G-SIB”), since 2011, and by DNB and the Dutch Ministry of Finance as a “other SII” (“O-SII”)
since 2011. DNB requires ING Group to hold a 2.5% O-SII Buffer in addition to the capital conservation
 
buffer and
the countercyclical buffer described above
 
.
 
 
CRR /CRD IV
For European banks the Basel III requirements have been implemented
 
through the Capital Requirement
Regulation (CRR) and the Capital Requirement Directive (“CRD IV”). The CRD IV regime entered into
 
effect in
August 2014 in the Netherlands, but not all requirements were implemented all at once. Having
 
started in 2014,
the requirements have been gradually tightened, mostly
 
before 2019, until the Basel III migration process was
completed.
 
CRD IV has not only resulted in new quantitative requirements but has also led to the setting
 
of new standards
and evolving regulatory and supervisory expectations in the area of governance, including with regard
 
to topics
like conduct and culture, strategy and
 
business models, outsourcing and reporting accuracy.
 
 
CRRII / CRD V and BRRDII
 
On 27 June 2019, a series of measures referred to as the Banking Reform
 
Package (including certain amendments
to CRR and CRDIV commonly referred to as ‘CRR II’ and CRD V’) came into force,
 
subject to various transitional
and staged timetables. The adoption of the Banking Reform Package
 
concluded a process that began in
November 2016 and marks an important step toward
 
the completion of the European post-crisis regulatory
reforms, drawing on a number of international standards
 
agreed by the Basel Committee, the Financial Stability
Board and the G20. CRDV was implemented in Dutch law in 2020. The Banking Reform Package
 
updates the
framework of harmonized rules established following the
 
financial crisis of 2008 and introduces changes to the
CRR, CRDIV, the Bank Recovery
 
and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation
(SRMR). The Banking Reform Package covers
 
multiple areas, including the Pillar 2 framework, the introduction of
a leverage ratio requirement
 
of 3% and a leverage ratio buffer requirement
 
of 50% of the G-SIB buffer
requirement (applicable per 1 January 2023), a binding Net Stable Funding (NSFR) ratio based on the Basel NSFR
standard but including adjustments with regard to e.g. pass-through
 
models and covered bonds issuance,
mandatory restrictions on distributions, permission for reducing own funds and eligible liabilities,
macroprudential tools, a new category of ‘non-preferred’
 
senior debt, the minimum requirement for own funds
and eligible liabilities (MREL) and the integration of the TLAC standard into EU legislation. Further,
 
the EBA
obtained a mandate to investigate
 
how to incorporate environmental,
 
social, and governance (ESG) risks into the
supervisory process and what the prudential treatment of assets associated with environmental
 
or social
objectives should look like.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
60
 
Whilst the Banking Reform Package
 
was being developed, the ECB introduced the Targeted
 
Review of Internal
Models (TRIM) in June 2017 to assess reliability and comparability between banks’ models for calculating each
bank’s risk-weighted
 
assets (‘RWA’)
 
used for determining certain of such bank’s capital
 
requirements. In July
2019, the ECB published the final chapters of the guide to internal models, covering credit risk, market
 
risk and
counterparty credit risk. These risk type-specific chapters are intended to
 
ensure a common and consistent
approach to the most relevant aspects of the regulations on internal
 
models for banks directly supervised by the
ECB. Additionally, they provide
 
transparency on how the ECB understands the regulations on the use of internal
models to calculate own funds requirements for the three risk types. Impact on ING is through
 
more stringent
regulation on the end-to-end process and governance around internal models as well as an increase
 
of risk
weighted assets (RWA).
 
In 2020, the last TRIM ECB inspection ended. Per rating system
 
the ECB has sent and will send final TRIM decision
letters, which will include obligations that ING shall remediate.
 
Also certain limitations have or might be put in
place until these obligations are fully addressed and closed.
 
Basel III revisions and upcoming regulations
In December 2017, revisions to Basel III were formally announced by the Basel Committee. These revisions to
Basel III establish new prudential rules for banks, including a revision to the standardised
 
approach to credit risk,
the introduction of a capital floor based on standardised approaches, the use of internal models, limitation
 
of
options for modelling operating risks, and new rules for the establishment
 
of risk-weighted items and unused
credit lines at the banks. Such revisions have a long implementation phase and are
 
not yet fully transposed into
EU regulation. The revisions are commonly referred
 
to as "Basel III Reform" or "Basel IV”.
 
In Europe, this will be
implemented through the ‘CRR III’ / ‘CRD VI’ in the coming years. With this long implementation phase and the
transposition into EU regulation still pending, some question marks remain on how this will shape up.
 
The full impact of the Basel III Reform rules and TRIM, and any additional requirements if and as applicable to the
Group, will depend on how they are implemented by national regulators,
 
including the extent to which such
regulators and supervisors can set more stringent
 
limits and additional capital requirements or surcharges, as
well as on the economic and financial environment at the time of implementation and beyond. We
 
expect these
rules could have a material impact on ING’s
 
operations and financial condition and may require the Group to
seek additional capital.
 
Final Basel III reforms
 
In December 2017 the Basel Committee finalised its Basel III post-crisis reforms with the publication of the
revisions to the prudential standards for credit, operational
 
and credit valuation adjustment (CVA)
 
risk as well as
the introduction of an output floor.
 
This package of reforms aims to increase consistency
 
in risk-weighted asset
calculations and improve the comparability of banks’ capital ratios.
 
The use of internal models will be reduced
and the standardised approaches will be made more risk-sensitive and granular.
 
 
Following a one-year deferral due to
 
COVID-19, these reforms will take
 
effect from 1 January 2023 and will be
phased in over five years. The EU Commission postponed the issuance of its legislative proposal (“CRR3”/”CRD6”)
to implement the final elements of the Basel III framework in the EU until 2021. The implementation date of
“CRR3/CRD6” is therefore not yet decided on. The implementation of the EU/Basel III reforms
 
will have impact
on ING’s risk-weighted
 
assets and capital ratios, but it is expected that other new banking regulations and
 
model
reviews bring forward a significant part of this impact before
 
the EU implementation date.
 
CRR “quick fix” in response to the Covid‐19 pandemic
On 26 June 2020 Regulation (EU) 2020/873 of the European Parliament and of the Council of 24 June 2020
amending Regulations CRR as regards certain adjustments in response
 
to the COVID-19 pandemic (commonly
referred to as CRR ”quick
 
fix”) was published.
 
The CRR ”quick fix” is part of a series of measures taken by European institutions to
 
mitigate the impact of the
COVID-19 pandemic on institutions across EU Member States. In addition to the flexibility already provided
 
in the
existing rules, the CRR ‘quick fix’ introduces certain adjustments to the CRR, including temporary
 
measures and
measures that early adopt changes in the regulations that were intended to
 
become effective at a future date.
This notably included reduced capital requirement for certain exposures
 
to small- and medium sized enterprises
(SMEs), a more favourable prudential treatment
 
for certain software assets, one year delay in the application of
the leverage ratio buffer
 
requirement of 50% of the G-SIB buffer (to 1 January 2023). Also the following
adjustments were introduced have
 
an impact on disclosures:
 
●
 
frontloading from CRR2 the possibility of temporarily excluding certain
 
exposures to central banks from
the calculation of an institution’s total
 
exposure measure (Article 500b of CRR);
 
●
 
extending by 2 years transitional arrangements
 
for mitigating the impact on own funds of the
introduction of IFRS 9 (Article 473a (8) of CRR).
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
61
 
In August 2020, the EBA issued guidelines to provide institutions with the necessary clarifications on how to apply
the measures set out in the CRR ‘quick fix’ supervisory reporting and disclosures. These Guidelines are an interim
solution until the new comprehensive ITS on disclosure start to apply (June 2021).
 
Capital requirements applicable to ING Group at
 
a consolidated level
In accordance with the CRR the minimum Pillar I capital requirements applicable to ING Group are:
 
a Common
Equity Tier 1 (CET1) ratio of 4.5%, a Tier 1 ratio of 6% and a Total
 
capital ratio of 8% of risk-weighted
 
assets.
 
 
In 2020, as a reaction to the COVID-19 pandemic, relevant regulators
 
introduced a number of changes to the
Pillar II capital requirements and the capital buffer
 
requirements applicable to ING, including structural
reductions. The structural reductions of these capital requirements reflect
 
the application of Art.104a in CRD V,
which allowed ING to replace CET1 capital with additional Tier 1 / Tier 2 securities to meet Pillar II requirement,
and a reduction in the overall systemic buffer
 
(i.e. the Systemic Risk Buffer plus the highest of the O-SII and G-SII
buffer) by the Dutch National Bank from 3% to 2.5%. Similarly,
 
various competent authorities changed or
removed their Countercyclical Buffer
 
(CCyB) requirements reducing the CCyB for ING from 24 basis points to 3
basis points.
 
 
As a consequence, the CET1 requirement, including buffers, for ING Group
 
at a consolidated level was 10.51% in
2020. This requirement is the sum of a 4.5% Pillar I requirement, a 0.98% Pillar II requirement (2019: 1.75%), a
2.5% Capital Conservation Buffer (CCB), a 0.03% Countercyclical
 
Buffer (CCyB) (based on December 2020
positions) and a 2.5% O-SII buffer that is set separately for Dutch
 
systemic banks by the Dutch Central Bank (De
Nederlandsche Bank). This requirement excludes the Pillar II guidance, which is not disclosed.
 
 
The Maximum Distributable Amount (MDA) trigger level stood at 10.51% in 2020 for CET1, 12.33% for
 
Tier 1
Capital and 14.77% for Total
 
Capital (after the application of Art.104a of CRDV), based on stable Pillar II capital
requirements. In the event that ING Group breaches the MDA
 
level, ING may face restrictions on dividend
payments, AT1
 
instruments coupons and payment of variable remuneration.
 
Covid-19 pandemic
Various countries and local governmental
 
authorities across the world have introduced measures aimed at
preventing the further spread of Covid-19.
 
 
In addition, governments in various countries have introduced
 
measures aimed at mitigating the economic
consequences of the outbreak. For example, the Dutch government
 
has announced economic measures aimed at
protecting jobs, households’ wages and companies, e.g., by way of tax payment
 
holidays, guarantee schemes and
a compensation scheme for heavily affected sectors
 
in the economy. These announced measures and any
additional measures, including any payment holidays with respect to mortgages
 
or other loans, have had and
may continue to have a significant impact on ING’s
 
customers and other counterparties.
 
The various measures by governments and ING to alleviate the impact of Covid-19 also impact the loan
classification in terms of forbearance and consequently IFRS 9 staging.
 
In light of this, the EBA has provided
guidelines that expired on 30 September 2020, which defined eligibility criteria for a payment
 
holiday
arrangement offered to a large
 
group of customers to be classified as a “general
 
payment moratorium”.
 
Based on
these guidelines, customers that were granted
 
the payment holidays did not lead to a forbearance classification.
Therefore it did not automatically trigger recognition of lifetime
 
Expected Credit Loss (ECL) either.
 
ING followed
the EBA guidelines and when a payment holiday was provided to a customer as part of a “general
 
payment
moratorium”,
 
ING did not consider this measure to classify as forbearance. EBA further extended these
guidelines in the first week of December 2020, valid until 31 March 2021, with certain extra conditions.
Regarding these extensions, ING
 
has taken a prudent decision to treat all payment
 
holiday requests under new
or extended schemes (after
 
September 2020) as stage 2 or stage 3 exposures.
 
Bank recovery and resolution directive
Since its adoption by the European Parliament in 2014, the Bank recovery and resolution directive (BRRD) has
become effective in all EU countries after transposition
 
into national law,
 
including in the Netherlands. The BRRD
aims to safeguard financial stability and minimise the use of public funds in case banks face financial distress
 
or
fail to comply with the BRRD. Banks across the EU need to have
 
recovery plans in place and need to cooperate
with resolution authorities to determine, and make feasible, the preferred
 
resolution strategy.
 
The banking
reform which came into force on 27 June 2019 includes changes to
 
the minimum requirement for own funds and
eligible liabilities (MREL) to ensure an effective bail in process. It also includes new competences for
 
resolution
authorities and requires G-SIBs and other banks to build up loss-absorbing and recapitalization capacity.
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
62
 
ING has had a recovery plan in place since 2012. The plan includes information on crisis governance, recovery
indicators, recovery options, and operational
 
stability and communication measures. The plan enhances the
bank’s readiness and decisiveness in case of a financial crisis. The plan is updated annually to
 
make sure it stays
fit for purpose. The completeness, quality and credibility of the updated plan is assessed each year by ING’s
regulators.
 
The Single Resolution Board (SRB) confirmed to ING in 2017 that a single-point-of-entry (SPE) strategy
 
is ING’s
preferred resolution strategy,
 
with ING Groep N.V.
 
as the resolution entity.
 
In 2019, ING Group received a formal notification from De Nederlandsche Bank (DNB) of its MREL. The MREL
requirement has been established to ensure that banks in the European Union have
 
sufficient own funds and
eligible liabilities to absorb losses in the case of potential bank failure. The MREL requirement is set for
 
ING
Group at a consolidated level, as determined by the Single Resolution Board (SRB). This MREL requirement
 
has
been set at 10.54% of total liabilities and own funds. The current MREL requirement is not binding, but a new
MREL requirement will be determined by ING’s
 
resolution authorities in 2021 based on the BRRD II.
 
ING has been replacing, and will continue to replace, maturing ING Bank N.V.
 
debt with ING Groep N.V.
instruments. In order to build up our MREL capacity,
 
ING Groep N.V.
 
issued multiple transactions. These
transactions will not only allow us to support business growth, but will also help to meet future MREL and TLAC
requirements with ING Groep N.V.
 
instruments only.
 
CRR II implements the Financial Stability Board’s total
 
loss absorbing (TLAC) requirement for Global Systemically
Important Institutions (G-SII), which is the EU equivalent of a G-SIB. The transitional requirement—the higher of
16 percent of the resolution group’s
 
Risk weighted assets (RWA) or six percent
 
of the leverage ratio exposure
measure—applies immediately. The higher requirement
 
—18 and 6.75 percent, respectively—comes into effect
as of January 1, 2022. As a G-SII ING is expected to meet the TLAC requirement alongside the other minimum
regulatory requirements set out in EU regulation.
 
 
Stress testing
Stress testing is an integral component of our risk and capital management
 
framework. It allows us to (i) assess
potential vulnerabilities in our businesses, business model, and/or portfolios; (ii) understand
 
the sensitivities of
the core assumptions in our strategic and capital plans; and (iii) prepare
 
and assess management actions that can
reduce or mitigate the impact of adverse scenarios.
 
In addition to running internal stress test scenarios to reflect the outcomes
 
of the annual risk assessment, ING
also participates in regulatory stress test exercises.
 
ING participated in the 2020 EU-wide stress test conducted by
the EBA in cooperation with the European Central Bank (ECB), the Dutch
 
central bank (DNB), the European
Commission and the European Systemic Risk Board (ESRB). The baseline scenario was developed by the ECB and
the adverse stress test scenario by the ESRB, both cover
 
a three-year time horizon (2020-2022). The ECB and the
EBA decided in March 2020 to postpone the EU-wide stress test exercise
 
due to the outbreak of COVID-19. EBA
will launch a new stress test exercise in January 2021 and is expected
 
to publish the results by July 2021.
 
The last EU-wide stress test exercise
 
that was completed concerns the 2018 edition. This stress test was carried
out applying a static balance sheet assumption as of December 2017, therefore does not take
 
into account
current or future business strategies and management
 
actions. The results of this stress test also cover a three-
year horizon (2018-2020) and reflect the impact of IFRS 9 for determining loan loss provisions
 
in adverse
circumstances. The results of the EBA stress test reaffirmed
 
the resilience of our business model and the strength
of ING’s capital base. Our commitment to
 
maintain a robust, fully-loaded Group common equity Tier 1 (CET1)
ratio in excess of prevailing requirements
 
remains. ING started the EU-wide stress test exercise
 
with a CET1 ratio
of 14.51% per 2017 year-end. Under the hypothetical baseline scenario and EBA’s
 
methodological instructions,
ING Group would have a fully loaded CET1 of 13.99% in 2020. Under the hypothetical adverse scenario and EBA’s
methodological instructions, ING Group would have a fully loaded CET1 ratio of 10.70% in 2020 without
management actions.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
63
 
Deposit Schemes
In the Netherlands and other jurisdictions, deposit guarantee schemes and similar funds (‘Compensation
Schemes’) have been implemented from which compensation may become payable
 
to customers of financial
services firms in the event the financial service firm is unable to pay, or unlikely
 
to pay,
 
claims against it. In many
jurisdictions in which we operate, these Compensation Schemes are funded, directly or indirectly,
 
by financial
services firms which operate and/or are licensed in the relevant jurisdiction. ING Bank is a participant in the
Dutch Deposit Guarantee Scheme (‘DGS’), which guarantees an amount
 
of EUR 100,000 per person per bank
(regardless of the number of accounts held). On the basis of the EU Directive on deposit guarantee schemes, ING
pays quarterly risk-weighted
 
contributions into a DGS-fund.
 
The DGS-fund is to grow to a target size of 0.8% of
all deposits guaranteed under the DGS, which is expected to be reached in July 2024. In case of failure of a Dutch
bank, depositor compensation is paid from the DGS-fund. If the available financial means of the fund are
insufficient, Dutch banks, including ING, may be required pay to
 
extraordinary ex-post contributions not
exceeding 0.5% of their covered deposits per calendar year.
 
In exceptional circumstances and with the consent
of the competent authority,
 
higher contributions may be required. However,
 
extraordinary ex-post contributions
may be temporarily deferred if,
 
and for so long as, they would jeopardise the solvency or liquidity of a bank.
 
 
Since 2015, the EU has been discussing the introduction of a pan-European deposit guarantee scheme (‘EDIS’),
(partly) replacing or complementing national compensation schemes in two or three phases. Proposals contain
elements of (re)insurance, mutual lending and mutualisation of funds. The new model is intended to be ‘overall
cost-neutral’.
 
Discussions have continued in 2020, but it remains uncertain when EDIS will be introduced.
 
Payment Services Directive 2 (PSD2)
PSD2 entered into force in January 2018 and responds to technical
 
change and a variety of developments in the
payments domain. It fosters innovation
 
and competition by promoting non-discriminatory access to payment
systems and accounts, including the newly introduced account
 
information services and payment initiation
services.
 
Customers benefit from greater transparency
 
of costs and charges, PSD2's extended geographical reach
and being applicable to transactions in any currency,
 
a reduction of the maximum liability for unauthorized
transactions and a backstop date for complaint resolution.
 
Finally, to combat
 
cybercrime and online fraud, PSD2
continues the trend towards enhancing the security around the making of payments,
 
e.g. by the introduction of
strong customer authentication. It consists of two factor
 
authentication, to be performed every time a payer
accesses its payment account online or initiates electronic remote payment
 
transactions. The Regulatory
Technical Standards
 
for strong customer authentication and common
 
and secure communication provide further
requirements to implement the strict security requirements
 
for payment service providers in the EU.
 
Benchmark Regulation
Benchmarks, such as the London Interbank Offered Rate (‘LIBOR’), the Euro
 
Overnight Index Average (‘EONIA’),
the Euro Interbank Offered Rate
 
(‘EURIBOR’) and other interest rates,
 
as well as commodity benchmarks or other
types of rates and indices which are deemed to be ‘benchmarks’ are the subject of ongoing national and
international regulatory reform.
 
 
In 2016, the EU adopted a Regulation (the ‘Benchmarks Regulation’ or ‘BMR’) on indices used in the EU as
benchmarks in financial contracts and financial instruments. The Benchmarks Regulation became effective
 
on 1
January 2018.
 
 
The BMR among others requires that supervised entities may only use benchmarks in the EU if these benchmarks
are provided by administrators
 
that are registered with the European Securities and Markets
 
Authority (‘ESMA’).
 
Benchmarks that are based on input from contributors shall have
 
a code of conduct in place designed primarily to
ensure reliability of input data, governing issues such as conflicts of interest,
 
internal controls and benchmark
methodologies. Financial contracts and financial instruments in which benchmarks are used by supervised
entities require to have robust fall
 
back wording included in their documentation.
 
 
Public authorities have initiated industry working groups in various jurisdictions to search
 
for and recommend
alternative risk-free rates
 
that could serve alternatives if current benchmarks like
 
LIBOR and EONIA cease to exist
or materially change. The work of these working groups is still ongoing, though certain of such organizations
 
have
advanced proposals for benchmark replacements.
 
The market has indicated that it will stop the calculation of certain
 
benchmarks and that they will proceed with
the use of risk free rates as benchmarks. For instance the FCA announced that
 
it will no longer persuade or
compel banks to submit rates for the calculation of the LIBOR benchmark after 2021. The FCA and Bank of
England are working together with market participants on the transition
 
to use SONIA as the primary interest
rate benchmark in sterling markets.
 
Furthermore, the working group on euro risk-free
 
rate has adopted the euro
short-term rate (€STR), which was published for
 
the first time on 2 October 2019, as a replacement for the EONIA
benchmark that will be discontinued by the end of 2021. The US Federal Reserve’s
 
Alternative Reference Rates
Committee (commonly referred to
 
as ‘ARRC’) has recommended adoption of the Secured Overnight Financing
Rate (commonly referred to as ‘SOFR’) as an alternative
 
to US dollar LIBOR.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
64
 
 
Financial Transaction Taxes
In February 2013, the EC adopted a proposal setting out the details of a financial transaction tax
 
(‘FTT’) under the
enhanced cooperation procedure, to be levied on transactions in financial instruments
 
by financial institutions if
at least one of the parties to the transaction is established in the financial transaction tax zone
 
(‘FTT-Zone’) or if
the instrument which is the subject of the transaction is issued within the territory of a Member State in the FFT-
Zone. 10 Member States have indicated
 
they wish to participate in the FTT (Austria, Belgium, France, Germany,
Greece, Italy,
 
Portugal, Slovakia, Slovenia and Spain). The initial proposal contemplated
 
that the FTT would enter
into effect on 1 January 2014, which would have then required us to
 
pay a tax on transactions in financial
instruments with parties (including Group affiliates) located in such FTT-zone. However,
 
the FTT remains subject
to negotiation between the participating Member States and currently
 
it is uncertain whether and in what form
and by which Member States the FTT will be adopted. The implementation date of any FTT will thus depend on
the future approval by participating Member States in the Council, consultation
 
of other EU institutions, and the
subsequent transposition into local law.
 
KYC Requirements
Compliance with applicable laws and regulations is resource-intensive. Banks
 
continue to be faced with new and
increasingly onerous regulatory requirements. Generally,
 
we expect the scope and extent of regulations in the
jurisdictions in which we operate to continue to increase.
 
An example is the implementation of DAC6 which like
 
FATCA
 
and CRS requires financial institutions to report
detailed client-related information
 
to the competent authorities. Customer due diligence (CDD), (sanctions)
screening and transaction monitoring impose requirements on financial institutions to maintain
 
appropriate
policies, procedures and controls to detect, prevent
 
and report to the competent authorities on e.g. money
laundering and terrorist financing.
 
The increasing regulatory scrutiny drives the need to continuous change in the various processes,
 
procedures and
IT systems. In some situations the applicable laws and regulations, at local and/or
 
at global level, seem to be
conflicting with each other, which imposes a significant
 
challenge on banks as part of the implementation of
requirements. In addition, the timeline for implementation of those new/changed
 
requirements is sometimes
very short, which is challenging in general, yet especially in IT development. ING aims to continuously work on
embedding the processes and procedures reflecting the applicable requirements in our IT systems
 
and data
sources, driving a business environment which is compliant by desire and design, and will execute
 
ongoing
training and awareness to develop its people to have
 
the right knowledge and skills.
 
That also accounts for risks deriving from new technologies. ING aims to continuously monitor regulatory
developments to make risk assessments and define the banks risk appetite.
 
Regulations on distributed ledger
technology and business developments in this area are as rapid and impactful as the accompanying risks.
 
5th AML Directive
 
In addition, the 5th AML Directive will be implemented in the Netherlands. The 5th AML Directive was originally
adopted by the EU Council in June 2018, with the aim of addressing means of terrorist financing, increasing
transparency to combat money laundering and helping to strengthen
 
the fight against tax avoidance. The most
important aspects of the 5th AML Directive involve the (anti money-laundering)
 
risks relating to the use of virtual
currencies, the improvement of information exchange
 
between supervising authorities, and the introduction of
beneficial ownership registers for corporate
 
and other legal entities.
 
 
ING expects to revise the KYC policy framework to
 
reflect the requirements of the 5th AML Directive. Prior to the
adoption of the 5th AML Directive, European supervisory authorities (ESAs) had previously issued their final
guidelines on risk factors, which came into force
 
in June 2018. These guidelines promote a common
understanding of the risk-based approach to
 
anti-money laundering/combatting terrorist financing (AML/CFT)
and set out how it should be applied in the context of the 4th AML Directive. These guidelines are currently in the
process of being updated, in order to support firms’ AML/CFT compliance efforts and enhance the ability of the
EU’s financial sector to effectively
 
deter and detect money laundering/terrorist financing. The ESAs published a
consultation version of the updated guidelines on 5 February 2020. The final updated guidelines are expected
 
to
come into force in the course of 2020. Furthermore, in September
 
2017, the ESAs issued their final guidelines to
prevent the abuse of funds transfers for
 
terrorist financing and money laundering purposes. These guidelines
came into force in June 2018.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
65
 
Policy with respect to certain countries
As a result of frequent evaluation of all businesses from economic, strategic
 
and risk perspective ING continues
to believe that for business reasons doing business involving certain specified countries should be discontinued.
In that respect, ING has a policy not to enter into new relationships with clients from
 
these countries and
processes remain in place to discontinue existing relationships involving
 
these countries. At present these
countries are Cuba, Iran, North Korea, Sudan and Syria.
 
 
IING Bank maintains a limited legacy portfolio of guarantees,
 
accounts, and loans that involve various entities
with a connection to Iran. These positions remain on the books but certain accounts related thereto
 
are ‘frozen’
where prescribed by applicable laws and procedures and in all cases subject to increased scrutiny
 
within ING
Bank. ING Bank may receive loan repayments, duly authorised by the relevant
 
competent authorities where
prescribed by applicable laws. For the calendar year 2020, ING Group had revenues
 
of approximately USD 274
thousand. ING Group estimates that it had a net profit of approximately
 
USD 17 thousand.
 
Sanctions related developments
In 2020, the EU and the US continued sanctions programs with respect to several regions and countries,
 
including
Ukraine/Russia, Iran, China, Venezuela
 
and Syria. There are notable differences between
 
the EU and US sanctions
programs.
 
The US, for example, continued and updated its sanctions with respect to the Nord
 
Stream 2 pipeline and the
second line of Turkstream,
 
both originating in Russia. Also with respect to Iran, where a significant number of EU
sanctions were lifted pursuant to the Iran Nuclear Agreement, the
 
US continued to take various measures in light
of its ‘maximum pressure campaign’ against Iran and all major Iranian
 
financial institutions are now designated
by OFAC.
 
Tensions between
 
the US and China continued, resulting in (additional) sanctions and export controls imposed by
the US, amongst others in response to China’s alleged
 
human rights abuses in Hong Kong and against China’s
Uyghur minority population. In addition, the U.S. Department of Commerce’s
 
Bureau of Industry and Security
(BIS) continued applying U.S. export controls on dual-use goods, software, and technology,
 
and it imposed a
number of significant new controls on trade with China and Hong Kong. BIS also added several
 
entities on the
Entity List under the US Export Administration Regulations, and thereby further tightened
 
the export control
regime in that respect. In response, China has announced to take resolute
 
countermeasures deemed required to
safeguard the legitimate rights and interests
 
of Chinese companies and related personnel as well as China’s
sovereignty,
 
security and development interests. These announced Chinese actions include visa restrictions and
potentially other measures firmly opposing US sanctions.
The US issued criminal indictments against President Maduro and several other high-level
 
officials of the
Venezuelan government. In addition, the US government
 
further restricted dealings with the Venezuela’s
 
oil
sector and imposed sanctions on certain parties included in the sale and transport of Venezuelan crude.
 
 
In respect of Syria, the US continued to pressure the Assad regime as well as other actors
 
in the region to stop
committing human rights abuses against the Syrian civilian population.
 
The EU blocking regulation remained in full force in 2020. This EU regulation aims to shield EU companies from
U.S. sanctions against Iran, Cuba
 
and Libya, in part by prohibiting European companies from complying with the
sanctions that the EU considers to be “extraterritorial”
 
in nature.
With a view to these and other developments, ING continuously evaluates its sanctions compliance controls
 
to
respond to risks of new or expanding sanctions regimes.
 
For additional information regarding regulatory
 
developments, including with respect to the 5th AML Directive,
FATCA,
 
CRS, DAC6 and MIFID II, see also this Form 20F 2020, under “Additional
 
Information – ING Group Risk
Management-
 
Compliance Risk- Regulatory
 
Developments”.
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
66
 
C. Organisational structure
ING Groep N.V.,
 
a publicly-listed company,
 
is the parent of one main legal entity: ING Bank N.V.
 
(ING Bank).
 
ING
Bank is the parent company of various Dutch and foreign banking and other subsidiaries.
 
 
Reference is made to Exhibit 8 “List of subsidiaries of ING Groep N.V.”
 
for a list of principal subsidiaries of ING
Groep. N.V.
 
For the majority of ING’s principal subsidiaries, ING Groep N.V.
 
has control because it either directly
or indirectly owns more than half of the voting power.
 
For subsidiaries in which the interest held is below 50%,
control exists based on the combination of ING’s
 
financial interest and its rights from other contractual
arrangements which result in control over the operating
 
and financial policies of the entity.
 
D.
 
Property, plants and equipment
 
ING predominantly leases the land and buildings used in the normal course of its business. In addition, ING has
invested in land and buildings. Management believes that ING’s
 
facilities are adequate for its present needs in all
material respects.
 
For information on property,
 
plants and equipment, reference is made to Note 9 ‘Property
 
and equipment’, for
information on lease liabilities reference is made to Note
 
16 ‘Other liabilities’ and for information on investment
properties reference is made to Note 11 ‘ Other
 
assets’ in the consolidated financial statements.
 
Item 4A.
 
Unresolved Staff
 
comments
 
Not applicable.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
67
 
Item 5.
 
Operating and financial review
and prospects
The following operating and financial review and prospects should be read in conjunction with the consolidated
financial statements and the related Notes thereto
 
included elsewhere herein. The consolidated financial
statements have been prepared
 
in accordance with IFRS-IASB. Unless otherwise indicated, financial information
for ING Group included herein is presented on a consolidated basis under IFRS-IASB.
 
A.
 
Operating results
 
Our business is shaped by events and developments in the world around us and our operating results for the
financial year should be viewed in the context of these event and developments. The biggest of these in 2020
was the coronavirus pandemic, which was first and foremost
 
a human tragedy,
 
but which also impacted
governments, economies, supply chains and jobs.
 
ING has had to adapt to the practical implications this had for customers
 
and employees, as well as to the new
market trends and stakeholder
 
expectations. At the same time, our business continues to be affected
 
by
regulatory changes and the persistent low interest
 
rate environment For further information
 
on regulatory
changes reference is made to “Item 4. Information
 
on the Company – Regulation and Supervision”.
 
Other material events and uncertainties that have an impact on our operating
 
results are:
●
 
Covid-19 pandemic
●
 
Marco economic developments
●
 
Climate change
●
 
Financial crime risk
●
 
Cybersecurity resilience
●
 
Fluctuations in equity markets, interest rates
 
and foreign exchange rates
 
For further information on other factors that can
 
impact ING Group’s results of operations,
 
reference is made to
“Item 3. Key information - Risk Factors”.
 
Covid-19 pandemic
 
Covid-19 was declared a global pandemic by the World Health Organization
 
on 11 March 2020. National and local
governments across the world introduced measures aimed at preventing
 
the further spread of the virus. These
included the closure of schools, sports facilities, bars and restaurants; bans on public events;
 
and travel
restrictions and border controls. Such measures disrupted the normal flow of business operations
 
in most
countries, including those where ING operates. It affected
 
global supply chains, manufacturing, tourism,
consumer spending and asset prices, and has increased volatility and uncertainty across the global economy and
in financial markets.
 
In an effort to mitigate the economic consequences, governments
 
introduced measures to protect households
and companies. These included tax-payment holidays, guarantee
 
schemes and compensation for heavily affected
sectors in the economy.
 
Still, the economic consequences had – and may continue to have – a significant impact
on ING’s customers, employees,
 
shareholders and other stakeholders.
 
 
There were also regulatory developments in light of Covid-19. The European and other central
 
banks took steps
to help by relaxing rules on capital buffers that
 
banks need to hold and made recommendations on paying
dividends, which remain in effect until at least September 2021. This gives banks more
 
buffer capital available to
lend to businesses during coronavirus restrictions, and to absorb losses when businesses can’t repay
 
those loans.
The European Central Bank (ECB) also undertook various monetary policy measures to
 
provide liquidity to the
economy and banks in particular.
 
ING also took steps to protect and provide relief for
 
our customers, employees and communities. For example,
we offered customers payment
 
holidays and provided business clients with liquidity.
 
We worked hard to
safeguard the wellbeing of our employees. We
 
built on our digital foundation and equipped employees with the
necessary facilities to work from home without interrupting the high standards of service we offer
 
customers. For
communities, we encouraged our businesses and employees to donate time and funds to help address the initial
challenges the coronavirus brought, as well as looking towards
 
the future and how we can help build back better.
 
Macroeconomic developments
As a global financial services company, our profitability,
 
solvency and liquidity are influenced by the state of the
economy and the market environment
 
for business, liquidity, funding and capital.
 
The year’s volatility had a
marked impact on our performance.
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
68
 
The Covid-19 pandemic threw the world economy into turmoil. The global economy shrank
 
in 2020 as demand
and supply, trade, and finance were
 
severely disrupted. Although we started to see a recovery
 
mid-year as
lockdowns were relaxed,
 
a second wave of the virus caused governments to slow reopening and/or
 
re-impose
lockdowns, and the economic recovery lost momentum. In most advanced
 
economies, despite effective
monetary and fiscal policy support, output remained substantially below pre-pandemic levels.
 
 
Western European economies were
 
hit hard by the coronavirus pandemic and associated mobility-reducing
measures. In Germany,
 
the Netherlands and Belgium, economic activity in the first half of 2020 dropped by 10-
15%. Economic activity in the second quarter
 
of 2020 recorded the largest contractions since World
 
War II.
 
Following a rapid implementation of sizeable policy support measures and after
 
most economic activities were
allowed to resume (subject to social distancing and hygiene measures), the economic
 
environment turned more
favourable during the summer.
 
However,
 
despite a strong economic rebound in the third quarter,
 
the level of
economic activity at the end of the year was still below year-end 2019 levels as a resurgence of
 
new coronavirus
cases necessitated the re-imposition of lockdown measures.
 
Helped by job retention schemes, the rise in unemployment was relatively mild and levelled off in
 
the second half
of the year.
 
Despite the unemployment rate having increased, housing markets
 
remained firm, helped by interest
rates remaining low.
 
There was an asymmetric impact across the euro area, with southern countries (Spain, Italy)
 
generally hit the
hardest during the first wave of the coronavirus.
 
This was partly due to the variation in the length and strictness
of containment measures, the size of discretionary fiscal support, and differences
 
in the economic importance of
international tourism.
 
 
As in the eurozone, economic performance in Poland was heavily
 
influenced by lockdown measures, the
introduction of job protection schemes and increased public expenditure. Uncertainty
 
about domestic factors
and the economic recovery held back private investment,
 
as in most other European countries. The central bank
of Poland reduced the benchmark interest rate
 
to 0.1% and purchased assets in the secondary market to improve
banks’ liquidity.
 
 
Additional economic uncertainty came from continuing US-China trade tensions and the US elections in
November.
 
To help ING’s
 
leadership in their strategic planning, we developed scenarios for various potential
outcomes to these developments so we are better prepared
 
for different possible futures. The ongoing negative
interest rate environment
 
is also making it a priority for ING to diversify our income.
 
Large amounts of fiscal stimulus deployed by governments worldwide in 2020
 
were combined with monetary
stimulus. The US Federal Reserve lowered key
 
interest rates and the ECB stepped
 
up bond purchasing. In the
eurozone, the yield curve flattened. In general,
 
the euro appreciated compared with its main trading partners,
reflecting perceived changes in global risk sentiment and interest
 
rate developments. Towards
 
the end of the
year,
 
positive news about vaccines improved financial market sentiment,
 
although a strong eruption of new
coronavirus cases and the emergence of new,
 
more contagious variants are sobering the economic outlook.
 
 
Uncertainty around the future relationship between the European Union and the United Kingdom
 
continued
throughout the year,
 
compounding the impact of Covid-19, which weakened the British pound vis-à-vis the euro.
In July, we announced that due to Brexit
 
we will move ING’s European trading
 
activities from London to
Amsterdam. The successful conclusion of an EU/UK-trade deal at year-end
 
avoided economic disruption at the
start of 2021.
 
China regained control of the outbreak of the coronavirus
 
relatively swiftly by implementing strict sanitary and
economic measures, and in the second half of the year almost all activities had restarted and exceeded
 
pre-
pandemic levels. However,
 
the number of cases began increasing again towards the end of 2020 and beginning of
2021.
 
 
Australia was hit less severely by the coronavirus
 
pandemic than other countries. The Australian authorities
introduced considerable fiscal and monetary support to the economy.
 
The central bank reduced its policy rate
and three-year Australian government bond yield target
 
to 0.1% and extended its long-term, low-cost funding to
banks to boost business loans. The central bank also introduced an asset purchase programme
 
targeted at long-
term bonds to ease further financial conditions.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
69
 
Climate change
 
Climate change is one of the world’s most
 
urgent problems. The International Monetary Fund (IMF) says
 
it will
have a potentially catastrophic
 
environmental, human and economic toll if left unaddressed. We
 
believe that ING
can make the biggest impact in fighting climate change through our financing.
 
 
We work with our clients to finance and facilitate
 
their transition to low-carbon technologies. We’ve
 
developed a
comprehensive suite of sustainability products and services to help them, including green loans and green bonds.
 
With our Terra
 
approach, we aim to align our loan book with the Paris Agreement’s well-below two-degrees
Celsius goal in the nine sectors most responsible for climate change. In 2020, we released our second
 
Terra
progress report. The report includes quantitative results
 
and targets for all of these nine sectors, fulfilling the
commitment we made the previous year.
 
One of these targets is a 19% reduction in our financing to upstream oil
and gas by 2040 compared with 2019 levels. It’s important
 
to note that this target is in line with the International
Energy Association’s sustainable
 
development scenario, and that it’s not static.
 
If more or quicker action is
needed and the scenario is adjusted, our target will adjust accordingly.
 
For more details on our targets and
exposure in these nine sectors, please see the latest Terra
 
progress report on ing.com.
 
Our approach to climate action is collaborative and
 
inclusive. We helped develop an open-source climate
methodology with our partner, the 2˚ Investing
 
Initiative (2DII). This was published in 2020 for all banks to use.
We’re working with other banks to make
 
this an industry-wide standard, as we believe this will lead to greater
transparency and help the financial sector make a bigger impact. In December 2018, ING and four peers signed
the Katowice Commitment and in September 2020 these same banks published a blueprint of how we’ll all use
the methodology developed with 2DII.
 
 
Our work with the Katowice Commitment laid the groundwork for the Collective Commitment
 
to Climate Action
(CCCA), now signed by 38 banks globally. This is the banking sector’s farthest
 
-reaching commitment to climate
alignment. ING is co-lead of the implementation of the CCCA. In December 2020 an overview was published of
the concrete measures CCCA signatory banks took in the first 12
 
months to deliver on their commitment. ING is a
founding signatory of the Principles for Responsible Banking, adopted by more than 200 banks, representing
 
a
third of the world's banking assets.
 
While our Terra
 
approach helps measure the impact of our loans on the climate, we are increasingly aware of the
risks associated with climate change. These include physical risks, which can be acute (such as floods and
wildfires) or chronic (temperature increases and rising sea levels); and transition
 
risk, which is driven by policy,
technology or market changes as we shift towards a low-carbon
 
global economy and potentially lead to stranded
assets. Our climate risk programme helps measure the impact of climate change on our loan book. Following a
year of floods, droughts and wildfires, climate-related risk again
 
topped the World Economic Forum’s
 
(WEF) 2020
global risk ranking in terms of likelihood of occurrence and impact. The IMF is examining the impact of climate
 
on
the world’s financial markets
 
and whether it is priced into market valuations. The European Central
 
Bank (ECB)
published a guide in 2020 on how they expect banks to prudently manage and transparently disclose climate-
related and environmental risks under current
 
prudential rules.
 
 
We are continuing to advance our understanding
 
and approach to climate risks and opportunities. In 2020 ING
published our first Climate Risk Report, setting out our approach to managing this emerging strategic
 
and credit
risk. We’re integrating
 
climate risk into our risk management framework, governance
 
and business strategy.
Please see the Environmental, social and governance risk chapter for
 
more information.
 
Financial crime risks
 
Money laundering is a crime in and of itself. It also facilitates other crimes, such as people trafficking
 
and drug
smuggling. According to the United Nations Office on Drugs and Crime, suspicious transactions continue to reach
as much as $2 trillion a year. This scale illustrates
 
the scope of the problem – it is not something one bank can
fight on its own.
 
 
To be more
 
effective in our efforts to fight
 
financial economic crime, we work closely with our peers, regulators
and law enforcement. This includes initiatives with other Dutch and Belgian banks to jointly monitor
 
transactions,
and further professionalising our KYC organisation
 
by means of internationally recognised certifications.
 
 
Next to this, improving customer due diligence and transaction monitoring activities are top
 
priorities for ING.
Since 2017, we’ve been running a programme to enhance our know your customer activities in all customer
segments of all ING business units. This has led to standardised KYC policies, global governance and consistent
processes, tools and training, which contribute to becoming sustainably better
 
in the way we address money
laundering risks and comply with laws and regulations.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
70
 
Structural solutions include interventions aimed at addressing undesirable behavioural
 
patterns identified within
the organisation and encouraging desirable behaviours
 
that will positively influence KYC execution.
 
Cybersecurity resilience
Digital technology has connected the world in an unprecedented way.
 
The Covid-19 outbreak highlighted just
how much people rely on the internet to work, socialise and shop. At the same time, there are growing concerns
about unequal access, a lack of governance, data privacy and increasingly sophisticated cyberattacks.
 
 
Cybercrime is a growing threat to companies in general and to the financial system
 
in particular. The expansion
 
of
mobile and online banking, and ING’s own reliance on cloud technology – especially at a time when many
employees are working from home – have increased the risk of criminals gaining unauthorised access to ING
networks. The global lockdowns due to the pandemic also presented opportunities for criminals to
 
continue to
target customers with phishing attacks,
 
identity theft and online fraud.
 
 
One of our top priorities is to keep our bank safe, secure and compliant and to retain
 
customers’ trust. Our multi-
faceted approach aims to anticipate threats
 
and prevent them from becoming reality.
 
Safeguards include security
and communication-monitoring capabilities that use behavioural analysis, machine learning and rules engines.
We are also partnering with fintechs and others to facilitate
 
security innovation for the bank and our industry.
 
Fluctuations in equity markets
 
Our banking operations are exposed to fluctuations in equity markets. ING maintains
 
an internationally
diversified and mainly client-related trading
 
portfolio. Accordingly,
 
market downturns are likely to lead to
declines in securities trading and brokerage activities which we execute
 
for customers and therefore
 
to a decline
in related commissions and trading results. In addition to this, ING also maintains equity investments
 
in its own
non-trading books. Fluctuations in equity markets may affect
 
the value of these investments.
 
Fluctuations in interest rates
Our banking operations are exposed to fluctuations in interest
 
rates. Mismatches in the interest
 
re-pricing and
maturity profile of assets and liabilities in our balance sheet can affect the future interest
 
earnings and economic
value of the bank's underlying banking operations. In addition, changing interest rates may
 
impact the (assumed)
behavior of our customers, impacting the interest rate
 
exposure, interest hedge positions and future interest
earnings, solvency and economic value of the bank’s underlying banking operations.
 
In the current low (and in
some cases negative) interest rate
 
environment in the Eurozone, the stability
 
of future interest earnings and
margin also depends on the ability to actively manage pricing of customer assets and liabilities. Especially,
 
the
pricing of customer savings portfolios in relation to re-pricing customer
 
assets and other investments in our
balance sheet is a key factor in the management of the bank’s
 
interest earnings.
 
 
Fluctuations in exchange rates
ING Group is exposed to fluctuations in exchange rates.
 
Our management of exchange rate
 
sensitivity affects the
results of our operations through the trading activities and because we prepare and publish our consolidated
financial statements in euros. Because a substantial
 
portion of our income, expenses and foreign investments is
denominated in currencies other than euros, fluctuations in the exchange rates
 
used to translate foreign
currencies, particularly the U.S. Dollar,
 
Pound Sterling, Turkish Lira,
 
Chinese Renminbi, Australian Dollar,
 
Japanese
Yen, Polish Zloty,
 
Korean Won, Brazilian Real,
 
Singapore Dollar,
 
Thai Baht and Russian Ruble into euros can
impact our reported results of operations, cash flows and reserves from year
 
to year.
 
Fluctuations in exchange
rates will also impact the value (denominated in euro) of our investments
 
in our non-euro reporting subsidiaries.
The impact of these fluctuations in exchange rates is mitigated
 
to some extent by the fact that income and
related expenses, as well as assets and liabilities, of each of our non-euro reporting subsidiaries are generally
denominated in the same currencies. FX translation risk is managed by taking into
 
account the effect of
translation results on the Core Equity Tier 1 ratio (CET1).
 
Consolidated result of operations
ING Group monitors and evaluates the performance of ING Group
 
at a consolidated level and by segment using
results based on figures according to IFRS as adopted by the European Union (IFRS-EU). The Executive
 
Board and
the Management Board Banking consider this measure to be relevant to
 
an understanding of the Group’s
financial performance, because it allows investors to
 
understand the primary method used by management to
evaluate the Group’s
 
operating performance and make decisions about allocating resources.
 
In addition, ING
Group believes that the presentation of results in accordance
 
with IFRS-EU helps investors compare its segment
performance on a meaningful basis by highlighting result before tax attributable
 
to ongoing operations and the
profitability of the segment businesses. IFRS-EU result is derived by including the impact of the IFRS-EU ‘IAS 39
carve out’ adjustment from IFRS-IASB.
 
The IFRS-EU ‘IAS 39 carve-out’ adjustment relates to fair value portfolio hedge accounting
 
strategies for the
mortgage
 
and savings portfolios in the Benelux, Germany and Other Challengers that are not eligible under IFRS-
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
71
 
IASB. As no hedge accounting is applied to these mortgage and savings portfolios under IFRS-IASB,
 
the fair value
changes of the derivatives are not offset by fair value
 
changes of the hedge items (mortgages and savings).
 
As from the financial year 2020 the information presented to
 
the executive Board is no longer based on
underlying results but on IFRS as endorsed by the EU. Previously monitoring and evaluation of ING Group’s
segments was based on a non-GAAP financial performance measure called underlying. Underlying result was
derived by excluding the impact of the IFRS-EU ‘IAS 39 carve-out’ adjustment, special items, divestments and
results from former insurance related
 
activities from the IFRS-EU results. In 2020 and 2019 no special items,
divestments or results from former insurance related
 
activities were recorded anymore. 2018 included a special
item of EUR 775 million special item related to the settlement agreement with the Dutch authorities on
regulatory issues, as well as a EUR 90 million net result from the former Insurance activities.
 
Segment Reporting
The published 2020 Annual Accounts of ING Group includes financial information in accordance with
International Financial Reporting Standards as adopted by the European Union (IFRS-EU). The segment
 
reporting
in the annual report on Form 20-F has been reconciled with International Financial Reporting Standards
 
as issued
by the International Accounting Standards Board (IFRS-IASB) for
 
consistency with the other financial information
contained in this report. The difference between the accounting
 
standards is reflected in the Wholesale Banking
segment, and in the geographical split of the segments in the Netherlands, Belgium, Germany and Other
Challengers. Reference is made to Note
 
1 ‘Accounting
 
Policies’ for a reconciliation between IFRS-EU and IFRS-
IASB.
 
Recognition and measurement of segment results are in line with the accounting policies as described in Note 1
‘Accounting
 
policies’. Transfer
 
prices for inter-segment transactions are set at arm’s
 
length. Corporate expenses
are allocated to business lines based on time spent by head office personnel, the relative number of staff,
 
or on
the basis of income, expenses and/or assets of the segment.
 
The Executive Board of ING Group and the Management Board Banking set the performance targets,
 
approve
and monitor the budgets prepared by the business lines. Business lines formulate strategic,
 
commercial, and
financial plans in conformity with the strategy and performance targets
 
set by the Executive Board of ING Group
and the Management Board Banking.
 
ING Group’s segments are based on the internal
 
reporting structures by lines of business. The following table
specifies the segments by line of business and the main sources of income of each of the segments:
Retail Netherlands
(Market Leaders)
Income from retail and private banking activities in the Netherlands, including the SME and mid-corporate
segments, and the Real Estate Finance portfolio related
 
to Dutch domestic mid-corporates. The main products
offered are current and savings accounts,
 
business lending, mortgages and other consumer lending in the
Netherlands.
Retail Belgium (Market Leaders)
Income from retail and private banking activities in Belgium (including Luxembourg)
 
,
 
including the SME and mid-
corporate segments. The main products offered
 
are similar to those in the Netherlands.
Retail Germany (Challengers and Growth Markets)
Income from retail and private banking activities in Germany (including Austria).
 
The main products offered are
current and savings accounts, mortgages and other customer lending.
Retail Other (Challengers and Growth Markets)
Income from retail banking activities in the rest of the world, including the SME and mid-corporate
 
segments in
specific countries. The main products offered are similar to those in the Netherlands.
Wholesale Banking
Income from wholesale banking activities. The main products are: lending, debt capital markets, working capital
solutions, export finance, daily banking solutions, treasury and risk solutions, and corporate finance.
Corporate Line
 
In addition to these segments, ING Group reconciles the total segment results to the total
 
result using Corporate
Line. The Corporate Line is a reflection of capital management activities and certain income and
 
expense items
that are not allocated to the banking businesses, including the recognition of value-added tax
 
(VAT)
 
refunds in
the Netherlands (recorded under expenses). In 2020, net interest income on the
 
Corporate Line sharply declined,
mainly due to lower interest results from foreign
 
currency hedging due to lower interest rate
 
differentials. In
2019, a EUR 119 million gain from the release of a currency translation reserve following the sale of ING’s
 
stake in
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
72
 
Kotak Mahindra Bank was included, and the recognition of a EUR 79 million receivable related
 
to the insolvency
of a financial institution (both recorded under income). In 2018, the EUR 775 million settlement agreement with
the Dutch authorities on regulatory issues was included as well as a EUR 90 million net result from the former
Insurance activities. Furthermore, the Corporate Line includes the isolated legacy costs
 
(mainly negative interest
results) caused by the replacement of short-term funding with long-term funding during 2013 and 2014. ING
Group applies a system of capital charging for
 
its banking operations in order to create a comparable basis for
 
the
results of business units globally, irrespective of the business units’ book equity and the currency they operate
 
in.
 
Total
 
Operations
The following table sets forth the contribution of ING’s
 
business lines and the corporate line to the net result for
each of the years 2020, 2019 and 2018. As of year 2020 consolidated results of ING Group are based on IFRS as
adopted by the European Union (IFRS-EU), and not on underlying anymore; furthermore, results of former
Insurance activities are included in Corporate Line; historical figures have
 
been adjusted (only in 2018). Reference
is made to 2019 Annual report on Form 20F for detailed information on the discussion of 2019 and 2018 results.
 
Total operations
1 January to 31 December 2020
Amounts in millions of euros
Retail
Banking
Netherlands
Retail
Banking
Belgium
Retail
Banking
Germany
Retail
Other
Wholesale
Banking
Corporate
Line
Total
Income:
 
- Net interest income
3,511
1,816
1,587
2,760
3,718
212
13,604
 
- Net fee and commission income
681
413
437
412
1,069
-1
3,011
 
- Total investment
 
and other income
279
145
93
89
609
-192
1,022
Total income
4,471
2,373
2,117
3,261
5,396
18
17,637
Expenditure:
 
- Operating expenses
2,236
1,737
1,110
2,469
3,218
383
11,153
 
- Additions to loan loss provision
157
514
57
593
1,351
2
2,675
Total expenditure
2,393
2,251
1,167
3,063
4,568
385
13,828
Result before taxation
2,078
122
950
199
827
-367
3,809
Taxation
523
51
331
105
295
-58
1,246
Non-controlling interests
-1
0
4
55
20
0
78
Net result IFRS-EU
1,556
71
615
39
512
-308
2,485
Adjustment of the EU 'IAS 39 carve-out'
0
0
0
0
-234
0
-234
Net result IFRS-IASB
1,556
71
615
39
278
-308
2,250
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
73
 
1 January to 31 December 2019
Amounts in millions of euros
Retail
Banking
Netherlands
Retail
Banking
Belgium
Retail
Banking
Germany
Retail
Other
Wholesale
Banking
Corporate
Line
Total
Income:
 
- Net interest income
3,541
1,907
1,579
2,787
3,794
470
14,079
 
- Net fee and commission income
674
374
268
423
1,135
-6
2,868
 
- Total investment
 
and other income
290
161
138
298
369
103
1,360
Total income
4,505
2,442
1,985
3,509
5,298
568
18,306
Expenditure:
 
- Operating expenses
2,210
1,609
1,080
2,210
2,937
307
10,353
 
- Additions to loan loss provision
91
186
-53
364
532
0
1,120
Total expenditure
2,301
1,794
1,027
2,574
3,469
307
11,472
Result before taxation
2,204
647
957
935
1,830
261
6,834
Taxation
558
192
328
234
464
179
1,955
Non-controlling interests
0
0
3
82
14
0
99
Net result IFRS-EU
1,646
455
627
619
1,352
82
4,781
Adjustment of the EU 'IAS 39 carve-out'
-878
-878
Net result IFRS-IASB
1,646
455
627
619
474
82
3,903
 
 
1 January to 31 December 2018
Amounts in millions of euros
Retail
Banking
Netherlands
Retail
Banking
Belgium
Retail
Banking
Germany
Retail
Other
Wholesale
Banking
Corporate
Line
Total
Income:
 
- Net interest income
3,749
1,830
1,671
2,690
3,686
290
13,916
 
- Net fee and commission income
664
371
225
395
1,152
-8
2,798
 
- Total investment
 
and other income
335
169
76
230
673
-20
1,462
Total income
4,747
2,369
1,972
3,315
5,510
262
18,176
Expenditure:
 
- Operating expenses
2,220
1,610
1,027
2,033
2,771
1,022
10,682
 
- Additions to loan loss provision
-41
164
-27
350
210
-1
656
Total expenditure
2,179
1,774
1,000
2,383
2,981
1,021
11,338
Result before taxation
2,568
595
972
932
2,529
-759
6,838
Taxation
626
199
324
200
633
46
2,027
Non-controlling interests
-0
6
3
80
19
-0
108
Net result IFRS-EU
1,942
390
646
652
1,877
-804
4,703
Adjustment of the EU 'IAS 39 carve-out'
58
58
Net result IFRS-IASB
1,942
390
646
652
1,935
-804
4,761
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
74
 
Year ended 31 December 2020 compared to
 
year ended 31 December 2019
ING’s net result (including the adjustment of the EU ‘IAS 39 carve-out’) decreased by EUR 1,653 million, or 42.4%,
to EUR 2,250 million compared with EUR 3,903 million in 2019. The net result was affected by a EUR 234
 
million
negative contribution of fair value changes on derivatives
 
related to asset-liability-management
 
activities for the
mortgage and savings portfolios in the Benelux, Germany,
 
France and Czech Republic, versus a EUR 878 million
negative contribution in 2019. These negative fair
 
value changes were mainly caused by changes in market
interest rates. No hedge accounting
 
is applied to these derivatives under IFRS-IASB.
 
The IFRS-EU net result (before adjustment of the EU ‘IAS 39 carve-out’) fell 48.0% to EUR 2,485 million from EUR
4,781 million in 2019. The effective tax rate in 2020 was
 
relatively high at 32.7% (versus 28.6% in 2019) and was
mainly caused by the lower result before tax, which included higher non-deductible amounts like
 
the
impairments on goodwill and on our stake in TMB.
 
The result before tax declined 44.3% to EUR 3,809 million in 2020 from EUR 6,834 million in 2019, primarily
caused by elevated risk costs reflecting the (expected)
 
economic impact of the Covid-19 pandemic, combined
with impairments on goodwill, restructuring provisions and other impairments. Net core lending (adjusted for
currency impacts, and excluding Treasury
 
and the run-off portfolios) declined by EUR 2.5 billion in 2020, while
net customer deposit inflow was high at EUR 41.4 billion. The global retail customer base grew
 
to 39.3 million at
year-end, and the number of primary customers rose during the year by 578,000 to 13.9 million.
 
Income declined 3.7% to EUR 17,637 million from EUR 18,306 million in 2019. The decline was mainly in the
Corporate Line due to lower interest
 
results from foreign currency ratio hedging and to
 
some positive one-offs
recorded in 2019. Income at Retail Banking decreased due to an impairment
 
on our equity stake in TMB, whereas
income in Wholesale Banking (mainly in Financial Markets) increased.
 
 
Net interest income decreased 3.4% to EUR 13,604 million. The decline was largely due to
 
lower interest results
on current accounts and savings, reflecting the continued pressure
 
on liability margins, combined with lower
interest results from foreign
 
currency ratio hedging due to lower interest rate
 
differentials. This decline was
largely offset by higher interest results
 
at Treasury (supported by
 
the introduction of the ECB’s two-tiering
system at the end of October 2019) and, to a lesser extent,
 
on lending products, reflecting a slight increase in the
total lending margin. ING’s overall
 
net interest margin declined to 1.44% from 1.54% in 2019.
 
Net fee and commission income increased 5.0% to EUR 3,011 million from 2,868 million in 2019. In Retail
Banking, net fee and commission income rose by EUR 204 million, or 11.7%. This was mainly driven by higher fee
income on investment products, predominantly in Germany,
 
whereas daily banking fees slightly increased
supported by increased package fees, which countered
 
the impact of a drop in payment transactions due to
lockdown measures and travel restrictions.
 
Total
 
fee income in Wholesale Banking declined by EUR 66 million, or
5.8%, predominantly in Trade
 
& Commodity Finance as a result of lower average oil prices as well as lower
syndicated deal activity in Lending.
 
Total
 
investment and other income decreased to EUR 1,022 million 2020 from EUR 1,360 million in previous year.
The decline was mainly in Retail Banking, largely due to a EUR 230 million goodwill impairment related to
 
ING’s
stake in TMB, and in the Corporate
 
Line. In 2019, the latter had included a EUR 119 million one-off gain from the
release of a currency translation reserve related to
 
the sale of ING’s stake
 
in Kotak Mahindra Bank and a EUR 79
million receivable related to the insolvency of a financial institution. These declines were partly
 
offset by
Wholesale Banking, predominantly in Financial Markets due to a positive swing in valuation adjustments.
 
Operating expenses increased by EUR 800 million, or 7.7%, to EUR 11,153 million. Expenses in 2020 included EUR
1,105 million of regulatory costs, compared with EUR 1,021 million previous year.
 
The increase was furthermore
caused by EUR 673 million of incidental items recorded in 2020, mainly reflecting EUR 310 million of goodwill
impairments and several restructuring provisions and impairments
 
related to the review of activities and
measures announced
 
(including those on Wholesale Banking and the Maggie project). Excluding regulatory costs
and these incidental items, expenses increased by EUR 43 million, or 0.5%, as the impact of collective-labour-
agreement (CLA) salary increases and higher IT expenses, was largely offset by the impact of continued
 
cost-
efficiency measures (including lower marketing and travel
 
costs as a result of the Covid-19 restrictions). The
cost/income ratio was 63.2% versus 56.6% in 2019.
 
Net additions to loan loss provisions were EUR 2,675 million, or 43 basis points of average customer
 
lending,
compared with EUR 1,120 million, or 18 basis points, in 2019. The increase was mainly due to various Individual
Stage 3 provisions, including a sizeable provision for an alleged external
 
fraud case in 2020, and high collective
Stage 1 and Stage 2 provisioning as a result of the economic impact of the Covid-19 pandemic. Risk costs in 2020
included EUR 590 million of collective provisions related to the worsened macro
 
-economic indicators, including
provisioning related to loans subject to a payment holiday.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
75
 
Year ended 31 December 2019 compared to year
 
ended 31 December 2018
In 2019, ING’s operations showed solid commercial
 
performance despite the challenging rate environment,
geopolitical uncertainties and demanding regulatory environment. The net
 
result (including the adjustment of
the EU ‘IAS 39 carve-out’) declined 18.0% to EUR 3,903 million in 2019 from EUR 4,761 million in 2018, which has
been negatively affected by the EUR 775 million settlement
 
agreement with the Dutch authorities on regulatory
issues. The net result was affected by a EUR 936 million negative swing in net
 
contribution of fair value changes
on derivatives related to asset-liability-management
 
activities the mortgage and savings portfolios in the
Benelux, Germany, France
 
and Czech Republic. These fair value changes are mainly caused by changes in market
interest rates. No hedge accounting
 
is applied to these derivatives under IFRS-IASB.
 
The net result IFRS-EU (excluding the adjustment of the EU ‘IAS 39 carve-out’) increased 1.6% to EUR 4,781
million from EUR 4,703 million. This was in part due to a decreased effective tax rate
 
of 28.6% from 29.6% in
2018, mainly reflecting lower non-deductible costs, as 2018 included the aforementioned settlement
 
agreement
with the Dutch authorities. This decline was partly offset by the cancellation of tax deductibility of interest
expenses on additional Tier 1 instruments in the Netherlands as from 2018.
 
The result before tax declined 0.1% to EUR 6,834 million in 2019 from EUR 6,838 million in 2018, primarily due to
higher risk costs. Commercial momentum remained solid, albeit at a slower pace than previous year.
 
ING grew
net core lending (adjusted for currency impacts, and excluding
 
Treasury and the run-off portfolios) by EUR 17.2
billion, or 2.9%, and net customer deposits rose by EUR 23.4 billion in 2019. The global retail customer base grew
to 38.8 million at year-end, and the number of primary customers rose during the year
 
by 0.8 million to 13.3
million.
 
The income increased 0.7% to EUR 18,306 million from EUR 18,176 million in 2018, driven by Corporate Line
(predominantly one-offs) and Retail Banking, while income in Wholesale Banking (mainly in Financial Markets
and Lending) declined. Net interest income rose 1.2% to EUR 14,079 million. The increase was driven
 
by higher
interest results on customer lending mainly supported by volume growth,
 
partly offset by lower margins on
savings and current accounts. The total lending margin was slightly up compared
 
with 2018, as the impact of
improved interest margins on mortgages
 
was largely offset by lower margins on other customer
 
lending. ING’s
overall net interest margin remained
 
at 1.54% in 2019.
 
Net fee and commission income rose 2.5% to EUR 2,868 million. The increase was driven by Retail
 
Banking with
increases in most countries, partly offset by a small decline in Wholesale Banking. Investment
 
and other income
slightly decreased to EUR 1,360 million from EUR 1,462 million in 2018, with a decline in Wholesale Banking,
mainly due to negative valuation adjustments in Financial Markets,
 
and some one-offs. The decline was largely
offset by increases in Retail Banking and Corporate
 
Line. The latter was supported by a EUR 119 million gain from
the release of a currency translation reserve following the sale of ING’s
 
stake in Kotak Mahindra
 
Bank and the
recognition of a EUR 79 million receivable related to the insolvency of a financial institution.
 
Operating expenses declined 3.1% to EUR 10,353 million from EUR 10,682 million in 2018, mainly due to the
aforementioned settlement agreement
 
with the Dutch authorities. Excluding this settlement, operating expenses
increased 4.5% to EUR 10,353 million from EUR 9,907 million in 2018. The increase was visible in all segments,
except for Retail Netherlands and Retail
 
Belgium. Regulatory expenses rose to EUR 1,021 million from EUR 947
million in previous year.
 
Excluding regulatory costs and the settlement agreement,
 
expenses were up 4.2%,
mainly due to higher KYC-related costs, increased
 
staff costs and continued investments
 
in business growth,
partly offset by costs savings and one-offs (including a higher VAT
 
refund, recorded in Corporate Line). The
cost/income ratio was 56.6% versus 58.8% in 2018.
 
The net addition to the provision for loan losses rose to EUR 1,120 million from EUR 656 million in 2018. This
increase was mainly caused by a number a large individual files in Wholesale Banking and higher,
 
but still
relatively low risk costs in Retail Netherlands. Risk costs
 
rose to 18 basis points of average customer lending,
remaining below ING Bank’s through-the-cycle average
 
of approximately 25 basis points, compared with 11 basis
points of average customer lending in 2018.
For the following information per business line the IFRS-EU measures are in place, in line with management
reporting.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
76
 
Retail Netherlands
Retail Netherlands
Amounts in millions of euros
2020
2019
2018
Income:
Net interest income
3,511
3,541
3,749
Net fee and commission income
681
674
664
Investment income and other income
279
290
335
Total income
4,471
4,505
4,747
Expenditure:
Operating expenses
2,236
2,210
2,220
Additions to the provision for loan losses
157
91
–41
Total expenditure
2,393
2,301
2,179
Result before tax
2,078
2,204
2,568
Taxation
523
558
626
Non-controlling interests
–1
–0
–0
Net result IFRS-IASB
1,556
1,646
1,942
 
 
Year ended 31 December 2020 compared to
 
year ended 31 December 2019
The net result of Retail Netherlands decreased by EUR 90 million, or -5.5%, to EUR 1,556 million in 2020 from
EUR 1,646 million in 2019.
 
The result before tax of Retail
 
Netherlands decreased 5.7% to EUR 2,078 million from EUR 2,204 million in 2019.
This decline was mainly attributable to higher risk costs reflecting the worsened
 
macro-economic environment
and an increase in regulatory costs.
 
Total
 
income declined by EUR 34 million, or -0.8%, to EUR 4,471 million, compared with EUR 4,505 million in
2019. Net interest income declined 0.8%, mainly due to lower margins on savings and current
 
accounts,
combined with a decline in average lending volumes, which was largely offset
 
by higher Treasury-
 
related
revenues. Net core lending (which excludes Treasury
 
products and a EUR 1.1 billion decline in the WUB run-off
portfolio) decreased by EUR 3.2 billion in 2020, of which EUR 0.8 billion was in residential mortgages and EUR 2.4
billion in other lending. Net customer deposits (excluding Treasury)
 
grew by EUR 15.3 billion, predominantly in
current accounts. Net fee and commission income increased by EUR 7 million, or 1.0%, primarily due to higher
investment product fees. Investment
 
and other income was EUR 11 million lower.
 
Operating expenses rose by EUR 26 million, or 1.2%, to EUR 2,236 million from EUR 2,210 million in 2019, of
which EUR 65 million was caused by higher regulatory costs to EUR 255 million from EUR 190 million in 2019.
Expenses excluding regulatory costs declined 1.9% as the impact of CLA salary increases, higher IT expenses as
well as provisions related to redundancies and customer claims, were
 
more than offset by lower external staff
costs and lower marketing and travel
 
expenses.
 
The net addition to loan loss provisions was EUR 157 million, or 10 basis points of average customer lending,
compared with EUR 91 million, or 6 basis points, in 2019. Risk costs in 2020 included EUR 118 million of collective
provisions related to the worsened macro-economic
 
indicators, including provisioning related to
 
loans subject to
a payment holiday.
Year ended 31 December 2019 compared to year
 
ended 31 December 2018
The net result of Retail Netherlands decreased by EUR 296 million, or 15.2%, to EUR 1,646 million in 2019 from
EUR 1,942 million in 2018.
 
The result before tax of Retail
 
Netherlands decreased 14.2% to EUR 2,204 million from EUR 2,568 million in 2018.
This was mainly due to lower income, mainly reflecting lower margins on customer deposits and lower revenues
from Treasury,
 
combined with higher risk costs. Operating expenses declined slightly.
 
Income fell 5.1% to EUR 4,505 million from EUR 4,747 million previous year.
 
The interest result was 5.5% lower,
reflecting margin pressure on savings and current accounts
 
due to lower re-investment yields and lower
revenues from Treasury.
 
This was partly compensated by improved margins on mortgages.
 
Net core lending
(excluding the WUB run-off portfolio and Treasury
 
-related products) grew by EUR 2.0 billion in 2019, equally
divided over mortgages and other lending. Net growth in customer deposits (excluding
 
Treasury) was EUR 8.4
billion in 2019. Net fee and commission income rose by EUR 10 million, or 1.5%, primarily due to higher daily
banking fees. Investment and other income declined by EUR 45 million, mainly attributable
 
to lower results from
financial markets-related products.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
77
 
Operating expenses declined 0.5% on 2018, this was mainly due to lower regulatory costs, benefits from
 
the
ongoing cost-saving initiatives and some positive one-offs, partly offset
 
by increased salaries as well as higher KYC
and IT-related
 
expenses.
 
Risk costs in 2019 increased to a relatively low EUR 91 million, or 6 basis points of average
 
customer lending,
partly caused by a change in the house price index that is used for Dutch mortgages. This compares with a net
release of EUR 41 million 2018, which included releases in both mortgages and business lending.
 
Retail Belgium
Retail Belgium
Amounts in millions of euros
2020
2019
2018
Income:
Net interest income
1,816
1,907
1,830
Net fee and commission income
413
374
371
Investment income and other income
 
145
161
169
Total income
2,373
2,442
2,369
Expenditure:
Operating expenses
1,737
1,609
1,610
Additions to the provision for loan losses
514
186
164
Total expenditure
2,251
1,794
1,774
Result before tax
122
647
595
Taxation
51
192
199
Non-controlling interests
0
0
6
Net result IFRS-IASB
71
455
390
 
 
Year ended 31 December 2020 compared to
 
year ended 31 December 2019
The net result of Retail Belgium (including ING in Luxembourg) declined by EUR 384 million to EUR 71 million in
2020 from EUR 455 million in 2019.
 
The result before tax of Retail
 
Belgium fell to EUR 122 million, compared with EUR 647 million in 2019. The
decline was attributable to higher risk costs reflecting the worsened
 
macro-economic environment, combined
higher expenses and lower income.
 
Income declined by EUR 69 million, or 2.8%, to EUR 2,373 million from EUR 2,442 million in 2019. Net interest
income was 4.8% down to EUR 1,816 million, mainly reflecting lower margins on savings and current accounts,
and lower Treasury related
 
revenues, partly offset by higher interest results
 
from mortgages. Net core lending
(excluding Treasury)
 
decreased by EUR 1.5 billion in 2020, evenly spread over mortgages and other lending. Net
customer deposits (also excluding Treasury)
 
grew by EUR 4.0 billion, predominantly in current accounts. Net fee
and commission income rose by EUR 39 million, or 10.4%, mainly due to higher fee income on investment
products and mortgages. Investment and other income
 
declined by EUR 16 million, mainly from Financial
Markets.
 
Operating expenses rose by EUR 128 million, of which EUR 43 million was due to a goodwill impairment related
to an acquisition in the past by ING Belgium and EUR 40 million related to restructuring costs recorded
 
in the
fourth quarter of 2020. The remaining increase was mainly due to higher regulatory costs and IT expe
 
nses.
 
The net addition to the provision for loan losses increased to EUR 514 million, or 57 basis points of average
customer lending, from EUR 186 million, or 21 basis points, in 2019. Risk costs in 2020 included EUR 158 million
of collective provisions related to the worsened macro
 
-economic indicators, including provisioning related to
loans subject to a payment holiday.
 
The remaining risk costs were mainly related to business lending, including
provisioning on a number of individual files.
Year ended 31 December 2019 compared to year
 
ended 31 December 2018
The net result of Retail Belgium (including ING in Luxembourg) increased by EUR 65 million, or 16.7%, to EUR 455
million in 2019 from EUR 390 million in 2018.
 
The result before tax of Retail
 
Belgium rose 8.7% to EUR 647 million in 2019, compared with EUR 595 million in
2018. The increase reflects higher income and stable expenses, only partly offset by an increase in risk costs.
 
Income increased to EUR 2,442 million from EUR 2,369 million in 2018. The interest result was 4.2% up to
 
EUR
1,907 million, mainly due to volume growth, increased margins on mortgages, and supported by
 
higher net
interest income from Treasury
 
-related products. This was in part offset by lower net interest
 
income from savings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
78
 
and current
 
accounts, reflecting the low interest rate
 
environment, and some margin pressure on non-mortgage
lending. The net production in customer lending (excluding Treasury)
 
was EUR 3.3 billion, of which EUR 1.2 billion
was in residential mortgages and EUR 2.1 billion in other lending. The net inflow in customer deposits (excluding
Treasury) was EUR 4.1 billion in 2019. Net fee and commission income
 
increased 0.8% to EUR 374 million.
Investment and other income was EUR 8 million lower,
 
mainly due to lower Treasur
 
y-related revenues.
 
Operating expenses declined 0.1% to EUR 1,609 million, mainly due to lower staff
 
-related expenses stemming
from the transformation programmes,
 
partly offset by higher regulatory costs and KYC
 
-related expenses.
 
Risk costs increased by EUR 22 million to EUR
 
186 million, or 21 basis points of average customer lending, from
EUR 164 million, or 19 basis points, in 2018. The increase was mainly caused by additional provisioning on
individual mid-corporates files and higher collective provisions for consumer
 
lending.
 
 
 
Retail Germany
Retail Germany
Amounts in millions of euros
2020
2019
2018
Income:
Net interest income
1,587
1,579
1,671
Net fee and commission income
437
268
225
Investment income and other income
93
138
76
Total income
2,117
1,985
1,972
Expenditure:
Operating expenses
1,110
1,080
1,027
Additions to the provision for loan losses
57
–53
–27
Total expenditure
1,167
1,027
1,000
Result before tax
950
957
972
Taxation
331
328
324
Non-controlling interests
4
3
3
Net result IFRS-IASB
615
627
646
 
 
Year ended 31 December 2020 compared to year
 
ended 31 December 2019
The net result of Retail Germany (including ING in Austria) decreased by EUR 12 million, or 1.9%, to EUR 615
million in 2020 from EUR 627 million in 2019.
 
The result before tax declined 0.7% to EUR 950 million, compared with EUR 957 million in 2019, as higher income
largely offset the impact of higher risk costs (after a net release in 2019) and increased expens
 
es.
 
Total
 
income rose 6.6% to EUR 2,117 million from EUR 1,985 million in 2019. The increase was driven by EUR 169
million higher fee income, predominantly on investment products
 
due to higher assets under management, new
account openings and a higher number of brokerage trades
 
in volatile markets. Net interest
 
income increased
0.5% to EUR 1,587 million, as higher interest results from lending and accounting asymmetry in Treasury
 
(with an
offset in other income), was largely offset by margin
 
pressure on savings and current accounts. In 2020, net core
lending (which excludes Treasury
 
products) increased EUR 4.5 billion, of which EUR 4.2 billion was in residential
mortgages and EUR 0.3 billion in consumer lending. Net customer deposits (excluding Treasury)
 
increased by EUR
5.8 billion, largely in current accounts. Investment and other income
 
declined by EUR 45 million, mainly due to
the aforementioned accounting asymmetry and lower capital
 
gains.
 
Operating expenses increased by EUR 30 million, or 2.8%, to EUR 1,110 million in 2020. The increase was mainly
due to investments to support business growth as well as the consolidation of a subsidiary as from the first
quarter of 2020, while previous year included a EUR 36 million restructuring provision.
 
The net addition to the provision for loan losses was EUR 57 million, or 6 basis points of average
 
customer
lending, compared with a net release of EUR 53 million in 2019, which had included model updates on
mortgages. Risk costs in 2020 included EUR 8 million of collective provisions related to
 
the worsened macro-
economic indicators.
Year ended 31 December 2019 compared to year
 
ended 31 December 2018
The net result of Retail Germany (including ING in Austria) decreased by EUR 19 million, or 2.9%, to EUR 627
million in 2019 from EUR 646 million in 2018.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
79
 
The result before tax declined 1.5% to EUR 957 million, compared with EUR 972 million in 2018, mainly due to
higher expenses, partly offset by slightly increased income and a higher net release in risk costs.
 
Income increased 0.7% to EUR 1,985 million in 2019 from EUR 1,972 million a year ago. Net interest income
declined 5.5%, mainly due to lower Treasury-related
 
interest results (with a partial offset in other income).
Excluding Treasury,
 
net interest income rose marginally,
 
mainly reflecting volume growth in most products and
improved margins on mortgages, offset by lower
 
interest results on savings and deposits due to margin pressure.
The net growth in core lending (excluding Treasury)
 
was EUR 3.0 billion in 2019, of which EUR 2.4 billion in
mortgages and EUR 0.6 billion in consumer lending. Net inflow in customer deposits (excluding Treasury)
 
was
EUR 0.8 billion. Net fee and commission income rose 19.1% to EUR 268 million, due to higher fees on mortgages
and daily banking. Investment and other income rose by EUR 62 million to EUR 138 million, largely due to the
aforementioned accounting asymmetry in Treasury
 
revenues.
 
Operating expenses rose 5.2% to EUR 1,080 million from EUR 1,027 million in 2018. The increase was mainly due
to a restructuring provision related to the completion
 
of ING’s Agile transformation
 
in Germany, higher KYC-
related expenses, investments to
 
accelerate the acquisition of primary customers, and the launch of Interhyp in
Austria.
 
Risk costs were EUR -53 million, or -6 basis points of average customer
 
lending, compared with EUR -27 million in
2018. The net release in 2019 mainly related to model updates for mortgages,
 
while the net release in 2018
included a significant release in the consumer lending portfolio.
 
Retail Other
Retail Other
Amounts in millions of euros
2020
2019
2018
Income:
Net interest income
2,760
2,787
2,690
Net fee and commission income
412
423
395
Investment income and other income
89
298
230
Total income
3,261
3,509
3,315
Expenditure:
Operating expenses
2,469
2,210
2,033
Additions to the provision for loan losses
593
364
350
Total expenditure
3,063
2,574
2,383
Result before tax
199
935
932
Taxation
105
234
200
Non-controlling interests
55
82
80
Net result IFRS-IASB
39
619
652
 
 
Year ended 31 December 2020 compared to year
 
ended 31 December 2019
Retail Other consists of the Other Challengers & Growth Markets,
 
including the bank stakes in Asia. The net result
of Retail Other decreased to EUR 39 million in 2020, from EUR 619 million in 2019.
 
Retail Others’ result before
 
tax fell to EUR 199 million, from EUR 935 million in 2019, mainly reflecting
impairments on TMB and the Maggie project as well as higher risk costs.
 
 
Total
 
income declined by EUR 248 million to EUR 3,261 million in 2020, of which EUR 230 million related to an
impairment on ING’s equity stake
 
in TMB. Excluding this impairment, total income decreased by EUR 18 million,
or -0.5%. Net interest income was down 1.0% to EUR 2,760 million, reflecting margin pressure
 
on savings and
current accounts, largely offset by higher interest
 
results from lending products and Treasury.
 
Net customer
lending (adjusted for currency effects and Treasury)
 
grew by EUR 2.6 billion in 2020, with growth in all countries,
except Italy.
 
The net inflow in customer deposits, also adjusted for currency impacts and Treasury,
 
was EUR 11.9
billion, with largest increases in Poland and Spain. Net fee and commission income declined 2.6% to EUR 412
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
80
 
million, largely due to a decline in Turkey,
 
which was partly offset by increases in most of the other countries.
Excluding the aforementioned impairment, investment
 
and other income rose by EUR 21 million.
 
Operating expenses increased by EUR 259 million, or 11.7%, to EUR 2,469 million from EUR 2,210 million in 2019,
of which EUR 140 million related to an impairment on capitalised software following the decision to
 
stop the
Maggie transformation programme (previously
 
called Model Bank) and EUR 27 million of restructuring provisions
and impairments related to the project and some other countries. Excluding
 
these incidental items, expenses
increased by EUR 92 million, or 4.2%, mainly due to higher regulatory costs, investments in business growth
 
and
lower capitalization of costs following the decision on Maggie. These increases were
 
partly offset by lower legal
provisions as well as lower marketing and travel
 
expenses.
 
The net addition to loan loss provisions increased by EUR 229 million on 2019 to EUR 593 million, or 61 basis
points of average customer lending. Risk costs in 2020 included EUR 114 million of collective provisions
 
related to
the worsened macro-economic indicators, including provisioning
 
related to loans subject to a payment holiday,
as well as a EUR 59 million Stage 3 provision for expected losses on CHF-indexed
 
mortgages in Poland. The
increase versus 2019 was mainly visible in Poland, Romania and Australia,
 
whereas risk costs in Turkey
 
declined.
Year ended 31 December 2019 compared to year
 
ended 31 December 2018
Retail Other consists of the Other Challengers & Growth Markets,
 
including the bank stakes in Asia. The net result
of Retail Other decreased by EUR 33 million, or 5.1%, to EUR 619 million in 2019 from EUR 652 million in 2018.
 
Retail Other’s result before
 
tax increased 0.3% to EUR 935 million in 2019, from EUR 932 million in 2018. This was
mainly due to higher income, partly offset by increased expenses and higher risk costs.
 
Total
 
income rose by EUR 194 million, or 5.9%, to EUR 3,509 million. This increase was driven by strong results
across most of the countries, whereas 2018 included a higher profit from ING Bank’s
 
stake in TMB due to one-
offs. Net interest income rose 3.6% to
 
EUR 2,787 million, reflecting volume growth in lending and customer
deposits, and a stable total interest margin. This increase was
 
offset by accounting asymmetry in Treasury
 
with
an offset in other income. The net production in customer lending (excluding currency
 
effects and Treasury)
 
was
EUR 7.8 billion, with increases mainly in Spain, Poland and Australia, while Turkey
 
and Italy declined. Net
customer deposits grew by EUR 6.9 billion in 2019, with the largest increases in Poland, Spain and Australia.
 
Net
commission and fee income increased 7.1% to EUR 423 million driven by increases in most countries, but
declined in Spain and Turkey.
 
Investment and other income rose by EUR 68 million, mainly due to the
aforementioned accounting asymmetry in Treasury
 
and a higher dividend from Bank of Beijing, partly offset by a
lower profit from TMB.
 
Operating expenses increased by EUR 177 million, or 8.7%, to EUR 2,210 million. This increase was in addition to
higher regulatory costs and legal provisions, mainly due to higher expenses to support business growth
 
and the
implementation of bank-wide regulatory programmes,
 
including KYC.
 
Risk costs were EUR 364 million, or 38 basis points of average customer
 
lending, compared with EUR 350 million,
or 40 basis points, in 2018. The increase was mainly attributable to higher risk costs in Spain and Poland, while
risk costs in Turkey
 
and Italy declined.
 
Wholesale Banking
Wholesale Banking
Amounts in millions of euros
2020
2019
2018
Income:
Net interest income
3,718
3,794
3,686
Net fee and commission income
1,069
1,135
1,152
Investment income and other income
609
369
673
Total income
5,396
5,298
5,510
Expenditure:
Operating expenses
3,218
2,937
2,771
Additions to the provision for loan losses
1,351
532
210
Total expenditure
4,568
3,469
2,981
Result before tax
827
1,830
2,529
Taxation
295
464
633
Non-controlling interests
20
14
19
Net result IFRS-EU
512
1,352
1,877
Adjustment of the EU 'IAS 39 carve-out'
–234
–878
58
Net result IFRS-IASB
278
474
1,935
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
81
 
Year ended 31 December 2020 compared to year
 
ended 31 December 2019
The net result of Wholesale Banking declined to EUR 278 million in 2020 compared with EUR 474 million in 2019.
The adjustment of the EU ‘IAS 39 carve-out’, included in the net result, was
 
EUR -234 million in 2020, compared
with EUR -878 million in 2019, due to fair value changes on derivatives related to
 
asset-liability-management
activities for the mortgage and savings portfolios in the Benelux, Germany,
 
France and Czech Republic. These fair
value changes were mainly a result of changes in market interest
 
rates. No hedge accounting is applied to these
derivatives under IFRS-IASB.
 
The IFRS-EU net result, which is before the adjustment of the EU ‘IAS 39 carve-out’,
 
declined to EUR 512 million
from EUR 1,352 million in 2019.
 
The full-year 2020 results for Wholesale Banking were also strongly affected
 
by the impact of the Covid-19
pandemic. The result before tax dropped 54.8% to EUR 827 million, down from
 
EUR 1,830 million in 2019. The
decline was predominantly due to elevated risk costs and higher expenses (including impairments
 
and
restructuring provisions), partly offset by higher income.
 
 
Total
 
income rose 1.8% to EUR 5,396 million in 2020, compared with EUR 5,298 million in 2019, reflecting higher
revenues in Financial Markets and Treasury
 
& Other, partly offset
 
by lower income in Daily Banking & Trade
Finance and Lending. The net core lending book (adjusted for currency impacts and excluding Treasury
 
and the
Lease run-off portfolio) declined by EUR 4.9 billion in 2020. The inflow in net customer deposits (excluding
currency impacts and Treasury) was EUR 4.4 billion. Net interest
 
income decreased 2.0%, mainly due to lower
margins on current accounts and lower average
 
lending volumes. This decline was largely offset by higher
interest results from Treasury
 
(with an offset in other income). Net fee and commission income decreased 5.8%
on 2019, mainly due to lower syndicated deal activity in Lending and lower fees in Trade
 
& Commodity Finance.
Investment and other income rose by EUR 240 million, primarily due to higher valuation results in Financial
Markets, partly offset by Treasury.
 
Operating expenses rose 9.6% to EUR 3,218 million from EUR 2,937 million in 2019, mainly due to a EUR 260
million goodwill impairment and EUR 124 million of restructuring provisions and impairments recorded in the
fourth quarter of 2020, following the announced refocusing of activities, including an additional impairment on
Payvision. Excluding the aforementioned
 
incidental items, expenses decreased 3.5%, mainly due to lower
regulatory costs and the impact of continued cost-efficiency measures
 
as well as lower travel expenses as a result
of the Covid-19 restrictions.
 
The net addition to loan loss provisions rose to EUR 1,351 million, or 75 basis points of average customer
 
lending,
compared with EUR 532 million, or 29 basis points, in 2019. The increase was predominantly due to various
Individual Stage 3 provisions, including a sizeable provision for an alleged
 
external fraud case in 2020, and high
collective Stage 1 and Stage 2 provisions as a result of the economic impact of the Covid-19 pandemic, including
EUR 192 million of collective provisions related to the worsened macro
 
-economic indicators.
 
Lending posted a result before tax of EUR 691 million, down 56.7% compared
 
with EUR 1,597 million in 2019,
predominantly due to elevated risk costs. Risk costs
 
in 2020 were primarily impacted by various large individual
files, including a sizeable provision for an alleged external fraud
 
case, as well as the economic impact of the
Covid-19 pandemic. Lending income declined 3.2%, reflecting lower lending margins and lower syndicated deal
activity. Expenses declined 3.1%, mainly due to lower regulatory costs.
 
 
The result before tax from Daily Banking & Trade
 
Finance fell to EUR 246 million from EUR 476 million in 2019.
This decline was due to lower income and higher expenses, partly offset by lower risk costs as previous year
included a sizeable provision for an external fraud case. The decline in income
 
mainly reflect lower margins on
current accounts as well as lower fee income, mainly in Trade
 
& Commodity Finance as a result of lower average
oil prices. Expenses rose 9.8%, mainly due to impairments on Payvision’s
 
intangible assets.
 
Financial Markets recorded a result before
 
tax of EUR 230 million, compared with a loss of EUR 121 million in
2019. The increase was predominantly due to higher income, which included EUR 73 million of positive valuation
adjustments versus EUR -228 million in 2019, and lower expenses in part due to lower staff
 
expenses and
regulatory costs. Excluding valuation adjustments,
 
pre-tax result rose by EUR 50 million compared with 2019,
mainly in the Global Capital Markets business.
 
 
The result before tax of Treasury
 
& Other was EUR -339 million compared with EUR -123 million in 2019. This
decline was mainly explained by a EUR 260 million goodwill impairment and EUR 95 million of restructuring
provisions and related impairments following the announced refocusing
 
of activities, partly offset by higher
Treasury income.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
82
 
Year ended 31 December 2019 compared to year
 
ended 31 December 2018
The net result of Wholesale Banking declined to EUR 474 million in 2019 compared with EUR 1,935 million in
2018. The adjustment of the EU ‘IAS 39 carve-out’, included in the net result, turned to a loss of EUR 878 million
in 2019, from EUR 58 million in 2018, due to fair value changes on derivatives related
 
to asset-liability-
management activities for the mortgage and savings portfolios in the Benelux, Germany,
 
France and Czech
Republic. These fair value changes are mainly a result of changes in market
 
interest rates. No hedge accounting is
applied to these derivatives under IFRS-IASB. The net result IFRS-EU, which excludes
 
the adjustment of the EU
‘IAS 39 carve-out’, declined to EUR 1,352 million from EUR 1,877 million in 2018.
 
The full-year 2019 results for Wholesale Banking show that conditions were challenging in our markets.
 
The
result before tax dropped 27.6% to
 
EUR 1,830 million, down from EUR 2,529 million in 2018. The decline reflects
elevated risk costs (compared with a relatively low level
 
a year ago), lower revenues in mainly Financial Markets
and Lending, as well as higher expenses.
 
Total
 
income of Wholesale Banking fell 3.8% to EUR 5,298 million compared with 2018, mainly reflecting lower
revenues in Financial Markets, Lending and Treasury
 
-related revenues, while 2018 included the aforementioned
loss on the intended sale of an Italian lease run-off portfolio. In 2019, the net core lending book (adjusted for
currency impacts and excluding Treasury
 
and the Lease run-off portfolio) grew by EUR 1.1 billion. The inflow in
net customer deposits (excluding currency impacts and Treasury)
 
was EUR 3.1 billion. Net interest income
increased 2.9%, mainly driven by volume growth in Lending at lower margins and higher interest
 
results in Daily
Banking & Trade Finance, especially in Bank Mendes Gans and Payments
 
& Cash Management. Net fee and
commission income declined 1.5%. Investment and other income fell by EUR 304 million, mainly due to lower
valuation results in Financial Markets, while previous year included a gain
 
on a bond transaction in Belgium and a
loss on the intended sale of an Italian lease run-off portfolio.
 
Operating expenses rose 6.0% to EUR 2,937 million, in part due to higher regulatory costs. Excluding
 
regulatory
costs, expenses rose 4.7%, mainly attributable to higher KYC,
 
IT and staff-related expenses, partly offset
 
by
continued cost-efficiency savings. The cost/income ratio
 
increased to 55.4%, from 50.3% in 2017.
 
Risk costs increased to EUR 532 million, or 29 basis points of average customer
 
lending, from a relatively low EUR
210 million, or 12 basis points of average customer lending, in previous year.
 
The increase was mainly
attributable to a number of large individual files, including a sizeable provision for
 
a suspected external fraud
case.
 
Lending posted a result before tax of EUR 1,597 million, down 20.4% compared
 
with 2018. The decline reflects
lower income combined with higher expenses (including increased regulatory costs and KYC
 
-related expenses)
and higher risk costs due to a number of large individual files. Despite higher average volumes, Lending income
declined, mainly due to some pressure on margins and the EUR 66 million gain related to an equity-linked
 
bond
in Belgium recorded in 2018.
 
 
The result before tax from Daily Banking & Trade
 
Finance declined 24.3% to EUR 476 million from EUR 629
million in 2018. A modest increase in income, reflecting improved margins at lower average
 
volumes, could not
compensate for higher expenses and elevated
 
risk costs. The increased expenses reflect higher regulatory costs
and KYC-related expenses as well as investments
 
in Payvision and regulatory changes (including PSD2). Risk costs
in 2019 included a sizeable provision for a suspected external fraud
 
case.
 
Financial Markets recorded a result before
 
tax of EUR -121 million, compared with EUR -36 million in 2018. The
drop was predominantly due to lower income, which was impacted by EUR 228 million of negative
 
valuation
adjustments versus EUR -1 million in 2018, in part offset by lower expenses on the back of ongoing cost efficiency
measures. Excluding valuation adjustments, pre-tax
 
result rose by EUR 142 million compared with 2018, driven
by higher client income.
 
 
The result before tax of Treasury
 
& Other was EUR -123 million compared with EUR -70 million in 2018. This
decline was mainly due to lower results from Treasury
 
-related activities and Corporate Investments,
 
whereas the
result of the run-off businesses improved after the EUR 123 million loss on the intended sale of an Italian Lease
run-off portfolio recorded in 2018. Expenses increased mainly due to investments
 
in KYC enhancement and
innovation, while 2018 included a release from a legal provision.
 
B.
 
Liquidity and capital resources
 
ING believes that its working capital is sufficient for its present requirements.
 
For information regarding our material
 
short and long- term cash requirements from known contractual and
other obligations, see “Additional
 
information – ING Group Risk Management section Funding and liquidity risk”
and “Note 51 – Capital Management” in the consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
83
 
For information on legal or economic restrictions on the ability of subsidiaries to transfer
 
funds to the company
in the form of cash dividends, loans or advances, see “Note 19 – Equity” in the consolidated financial statements.
 
For information on the maturity profile of borrowings and a further description of the borrowings, please see
“Note 17 - Debt securities in issue”,
 
“Note 18 - Subordinated Loans” and “Note 41 – Liabilities and off-balance
sheet commitments by maturity” in the consolidated financial statements.
 
For information on currency and interest
 
rate structure,
 
see “Additional information
 
– ING Group Risk
Management section Market risk” and “Additional
 
information – ING Group Risk Management section Funding
and liquidity risk”.
 
For information on the use of financial instruments for hedging purposes, please see “Note 39 - Derivatives
 
and
hedge accounting” in the consolidated financial statements.
 
ING Group Consolidated Cash Flows
cash and cash equivalents
 
Amounts in millions of euros
2020
2019
2018
Treasury bills and other eligible bills
0
43
159
Amounts due from/to banks
478
786
–2,617
Cash and balances with central banks
111,087
53,202
49,987
Cash and cash equivalents at end of year
111,566
54,031
47,529
 
 
Year ended 31 December 2020 compared to
 
year ended 31 December 2019
Net cash flow from operating activities amounts to EUR 101,243 million for the year-end 2020, compared
 
to EUR
13,055 million at 31 December 2019. The increase in cash flow from operating activities of EUR 88,187 million is
explained by higher cash inflows from Loans and advances to banks (increase of EUR 56,989 million to EUR
53,078 million in 2020 due to new TLTRO III as the ECB modified the terms
 
and conditions of its TLTRO programm
to further support the provision of credit to households and firms in view of the COVID-19 pandamic) and
Customer deposits (increase of EUR 21,700 million to EUR 39,740 million in 2020) as well as lower cash outflows
of Loans and advances to Customers (decrease of EUR 19,563 million to EUR 2,876 in 2020) and Trading
 
assets
and liabilities (decrease of EUR 5,134 million to EUR 2,566 in 2020). The increases are partly offset by lower cash
inflows from (reverse) repurchase
 
transactions (decrease EUR 12,041 to EUR -933 million in 2020).
 
Net cash flow from investing activities amounts to EUR -8,487 million compared to
 
EUR -2,495 million in 2019 the
net cash flow from investing activities decreased by EUR 5,992 million. The movement is explained by
 
a net
increase in Securities at amortised costs of EUR 6,337 million.
 
 
Net cash flow from financing activities amounts to EUR -34,796 million in 2020, compared to EUR -4,154 million
in 2019. The decrease of EUR 30,642 million is explained by a net decrease of EUR 30,200 million of debt
securities and EUR 3,117 million of subordinated loans offset by lower dividend payments of EUR 2,676 million.
 
 
The operating, investing and financing activities described above result in an increase of EUR 57,960 million in
cash and cash equivalents to EUR 111,566 at year end 2020. The increase in cash and cash equivalent
 
was
supported by the combination of lower demand for credit and the continued inflow of customer
 
deposits as
result of Covid-19, as well as the TLTRO
 
III participation.
Year ended 31 December 2019 compared to year
 
ended 31 December 2018
 
Net cash flow from operating activities amounts to EUR 13,055 million for the year
 
-end 2019, compared to EUR
6,915 million at 31 December 2018. The increase in cash flow from operating activities of EUR 6,140 million is
explained by lower cash outflows from Loans and advances to customer (increase
 
of EUR 14,669 million to EUR -
16,687 million in 2019), an increase in other (increase of EUR 7,685 million to EUR + 11,752 million in 2019)
mainly relating to assets mandatorily at fair value through profit
 
or loss and other financial liabilities at fair value
through profit and loss. The increases are offset by a cash outflow of trading assets and liabilities (decrease
 
of
EUR 12,478 million to EUR – 2,568 million) and a cash outflow in loans and advances to banks (decrease of EUR
3,700 million to EUR – 3,911 million).
 
 
Net cash flow from investing activities amounts EUR – 2,495 million compared to EUR + 5,451 million in 2018 the
net cash flow from investing activities decreased by EUR 7,946 million. The movement is explained by
 
a decrease
in financial assets at fair value through other comprehensive income in investments
 
and advances of EUR 5,753
million to EUR – 16,270 million and securities at amortised costs (decreased by EUR 5,708 million to EUR + 13,001
million). Moreover,
 
financial assets at fair value through other comprehensive income decreased
 
by EUR 2,267
million to EUR + 13,390 in disposals and redemptions. These movements are offset by an increase in securities at
amortised costs of investments and advances (increase of EUR 5,717 million to EUR – 12,268 million).
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
84
 
 
Net cash flow from financing activities amounts EUR – 4,154 million in 2019, compared to EUR 15,983 million in
2018. The decrease of EUR 20,137 million is explained by a decrease of EUR -61,750 million to EUR + 90,793
million in proceeds from debt securities and offset by an increase of EUR 36,673 million to EUR – 94,497 million
in repayments of debt securities.
 
 
The operating, investing and financing activities described above result in an increase of EUR 6,406 million in cash
and cash equivalents to EUR 54,031 at year end 2019.
 
C.
 
Research and development, patents and licenses, etc.
 
Not applicable.
 
D.
 
Trend information
 
For information regarding trend
 
information, see Item 5.A of this Form 20-F.
 
E.
 
Critical Accounting Estimates
 
Reference is made to Note 1 ‘accounting
 
policies’ to the consolidated financial statements, for detailed
information on Critical Accounting Estimates.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
85
 
Item 6. Directors,
 
Senior Management and
Employees
A.
 
Directors and senior management
 
 
Executive Board
Appointment, suspension and dismissal
Members of the Executive Board are appointed, suspended and dismissed by the General
 
Meeting. For the
appointment of Executive Board members, the Supervisory Board may draw
 
up a binding list, which may be
rendered non-binding by the General Meeting. A resolution of the General Meeting to render this list non-
binding, or to suspend or dismiss Executive Board members without this being proposed by the Supervisory
Board, requires an absolute majority of the votes cast. Additionally,
 
this majority must represent more than half
of the issued share capital. The Articles of Association exclude the waiver of the latter
 
requirement in a second
General Meeting. This ensures that significant shareholders proposals cannot
 
be adopted in a General Meeting
with a low attendance rate and can only be adopted with substantial
 
support of ING Group’s shareholders.
 
Candidates for appointment to the Executive
 
Board are subject to a suitability and reliability assessment by the
Dutch Central Bank and European Central Bank (DNB and ECB) and must continue
 
to meet these while in
function.
 
 
Function of the Executive Board
The Executive Board is charged with the management of ING Group. This includes responsibility for
 
setting and
achieving ING Group’s strategy,
 
objectives and policies, as well as ensuring the delivery of results. It also includes
the day-to-day management of ING Group. The Executive
 
Board is accountable for the performance of these
duties to the Supervisory Board and the General Meeting. The responsibility for the management of ING Group is
vested in the Executive Board collectively.
 
The organisation, powers and modus operandi of the Executive
 
Board
are detailed in the Charter of the Management Board.
 
The Charter of the Management Board is available on ing.com.
 
In accordance with the Banker’s Oath that is taken
 
by the members of the Executive Board, they must carefully
consider the interests of all stakeholders
 
of ING. In that consideration they must put the customer’s interests
 
at
the centre of all their activities.
 
ING Group indemnifies the members of the Executive Board against
 
direct financial losses in connection with
claims from third parties, as far as permitted by law,
 
on the conditions laid down in the Articles of Association
and their commission contract. ING Group has taken
 
out liability insurance for the members of the Executive
Board.
 
Profile of members of the Executive Board
ING Group aims for its Executive Board to have
 
an adequate and balanced composition. The Supervisory Board
regularly assesses the composition of the Executive
 
Board.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
86
 
The Supervisory Board has drawn up a profile to be used as a basis for selecting members of the Executive Board,
which is available on ing.com. This profile among others includes guidelines that relate to
 
the composition of the
Executive Board.
 
 
Diversity and succession planning
ING aims for the Executive Board of ING to consist of a diverse
 
selection of persons with executive experience,
preferably gained in the banking sector,
 
experience in corporate governance of large
 
stock-listed companies and
experience in the political and social environment in which such companies operate. In addition, there
 
should be
a good balance in the experience of and affinity with the desired nature and culture of the business of ING. ING
strives to have at least 30 percent of the seats held by
 
women, and at least 30 percent of the seats by men.
 
In 2018, ING introduced a new principle in a bid to bolster diversity within our organisation.
 
The 70 percent
principle gives managers a basis for building mixed teams around appropriate
 
dimensions of diversity (with a
focus on gender,
 
nationality and age group) and strives for a 30 percent difference
 
in team composition. It is our
ambition to adhere to this principle across the organisation within both local and global teams. This principle is
incorporated into succession planning for the Executive
 
Board.
 
The Supervisory Board is responsible for selecting and nominating candidates for appointment or reappointment
to the Executive Board,
 
among others based on the Executive Board profile.
 
Finding suitable candidates remains challenging, as there are numerous requirements
 
to take into account,
including gender to enhance the composition of the Executive Board and specific criteria for each function,
including regulatory requirements.
 
As an example to demonstrate the aforementioned:
 
with the departure of the CEO Ralph Hamers on 30 June
2020, the Supervisory Board was faced with the challenge of appointing a successor.
 
Considering all aspects the
Supervisory Board appointed Steven van Rijswijk as the successor of Ralph Hamers with effect
 
from 1 July 2020.
The Supervisory Board concluded that Steven van Rijswijk has the right combination of experience, leadership
skills and deep understanding of ING’s business to lead ING into
 
the next phase of ING’s strategic
 
direction.
 
With the position change of Steven van Rijswijk on 1 July 2020, the CRO position became vacant.
 
ING appointed Ljiljana Čortan as CRO of ING and member of the Management Board Banking with effective date
1 January 2021. The Supervisory Board will propose to the shareholders to appoint Ljiljana Čortan as member of
the Executive Board at the AGM on 26 April 2021. In terms of the dimensions of diversity,
 
Ljiljana Čortan will add
both nationality and gender diversity to the Executive Board and Management
 
Board in line with our 70 percent
principle.
 
Succession planning for Executive Board positions is continuously worked
 
on, balancing the career advancement
of (female) senior managers, considering female candidates for
 
the role and bringing in talents from outside the
bank.
 
 
On 31 December 2020, there were no female members of the Executive Board.
 
ING considers that the preferred
gender balance will be achieved with the appointment of Ljiljana Čortan following the AGM on 26 April 2021.
 
ING is still looking long term and taking steps to improve the appointment
 
of women in senior positions
throughout the bank in line with the adopted diversity and inclusion principle.
 
 
Remuneration and share ownership
Members of the Executive Board are permitted to
 
hold shares in the share capital of ING Group for long-term
investment purposes. Transactions
 
by members of the Executive Board in these shares are subject to the ING
regulations for insiders. These regulations are available
 
on ing.com.
 
Details of the remuneration of members of the Executive
 
Board, including shares granted to them, together with
additional information, are provided in the Remuneration
 
report.
 
Ancillary positions/conflicting interests
No member of the Executive Board has corporate directorships
 
at listed companies outside ING.
 
 
Transactions involving actual or potential conflicts of interest
In accordance with the DCGC, transactions with members of the Executive Board in which there
 
are significant
conflicts of interest will be disclosed in the Annual Report.
 
 
Significant conflicting interests are considered
 
to be absent and are not reported if a member of the Executive
Board obtains financial products and services, other than loans, which are provided by ING Group subsidiaries in
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
87
 
the ordinary course of their business on terms that apply to all employees. In connection with the
aforementioned, such loans do not include banking and financial products in which the granting of credit is of a
secondary nature, e.g. credit cards and overdrafts in current
 
account.
 
 
For an overview of loans granted to members of the Executive
 
Board, the Remuneration report.
 
Information on members of the Executive Board
 
 
S.J.A. (Steven) van Rijswijk, chief executive officer (CEO)
 
(Born 1970, Dutch nationality, male; appointed
 
in 2017, term expires in 2021)
 
Steven van Rijswijk has been a member of the Executive Board since 8 May 2017. He was appointed
 
CEO and
chairman of the Executive Board and the Management Board Banking with effect
 
from 1 July 2020. Prior to this
he was ING’s CRO. The Supervisory Board will propose
 
to the shareholders to reappoint him as member of the
Executive Board and CEO of ING Group at the AGM on 26 April 2021.
 
He is responsible for the proper functioning of the Executive Board, the Management Board
 
Banking and its
committees, formulating and implementing ING’s
 
strategy and acting as main contact for the Supervisory Board.
He is also responsible for the following departments: Innovation, Legal,
 
Corporate Strategy,
 
Corporate HR, Centre
of Excellence Communications and Brand Experience and Corporate Audit Services. Steven
 
van Rijswijk joined
ING in 1995 in the Corporate Finance department holding various positions in the areas of Mergers and
Acquisitions and Equity Markets. Before becoming a member of the Executive
 
Board, he was global head of Client
Coverage at Wholesale Banking.
 
He holds a master’s degree in business economics from Erasmus University Rotterdam
 
(the Netherlands).
 
Relevant positions pursuant to CRD IV
CEO and chairman of the Executive Board of ING Groep N.V.
 
and of the Management Board Banking of ING Bank
N.V.
 
Other relevant ancillary positions
 
Member of the Management Board of the Dutch Banking Association (Nederlandse Vereniging van
 
Banken),
member of the Board of Directors of the Institute of International Finance, Inc.
 
T. (Tanate) Phutrakul, chief financial officer (CFO)
(Born 1965, Thai nationality, male; appointed in 2019, term expires
 
in 2023)
 
 
Tanate
 
Phutrakul was appointed as CFO of ING Groep N.V.
 
and ING Bank N.V.
 
and member of the Management
Board Banking of ING Bank on 7 February 2019. Subsequently, he was appointed
 
as a member of the Executive
Board of ING Groep N.V.
 
at the AGM on 23 April 2019.
 
 
Tanate
 
Phutrakul is responsible for ING’s
 
financial departments, Group Treasury (including capital
 
management
activities), Investor Relations, Group Research
 
and Regulatory and International Affairs. Before
 
his appointment
to the Executive Board, he was ING Group controller
 
in Amsterdam and between 2015-2018 he was the CFO of
ING in Belgium.
 
He holds a master’s degree in Engineering from Imperial College, University of London, and an MBA from
 
Harvard
Business School.
 
As from 1 July 2020 Tanate
 
Phutrakul temporarily assumed the responsibility for risk on the Executive
 
Board until
the appointment of a successor to ING’s former CRO
 
Steven van Rijswijk.
 
Relevant positions pursuant to CRD IV
CFO and member of the Executive Board of ING Groep N.V.,
 
CFO and member of the Management Board Banking
of ING Bank N.V.,
 
and Non-executive member of the board of ING Belgium N.V./S.A.
 
 
Other relevant ancillary positions
None.
 
Temporary status chief risk officer (CRO)
With the position change of Steven van Rijswijk on 1 July 2020, the CRO position became vacant.
 
In November 2020, ING announced the appointment of Ljiljana Čortan as CRO and member of the Management
Board Banking from 1 January 2021. In the interim,
 
the day-to-day risk management activities were performed by
Karst Jan Wolters
 
,
 
reporting to chief financial officer Tanate
 
Phutrakul.
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
88
 
Changes in the composition
Ralph Hamers stepped down from his position as CEO and chairman of the Executive Board of ING Groep
 
N.V.
and of the Management Board Banking of ING Bank N.V.
 
as of 30 June 2020.
 
He was succeeded by Steven van Rijswijk.
 
 
The Supervisory Board will propose to the shareholders to appoint Ljiljana Čortan as member of the Executive
Board of ING Group at the AGM on 26 April 2021 (see ‘Diversity and succession planning’ above).
 
Supervisory Board
Appointment, suspension and dismissal
Members of the Supervisory Board are appointed, suspended and dismissed by the General Meeting. For the
appointment of Supervisory Board members, the Supervisory Board may draw up a binding list, which may be
rendered non-binding by the General Meeting.
 
A resolution of the General Meeting to render this list non-binding, or to suspend or dismiss Supervisory Board
members without this being proposed by the Supervisory Board, requires an absolute majority of the votes cast.
Additionally, this majority must represent
 
more than half of the issued share capital. The Articles of Association
exclude the waiver of the latter requirement
 
in a second General Meeting. This ensures that significant proposals
of shareholders cannot be adopted in a General Meeting with a low attendance
 
rate and can only be adopted
with substantial support of ING Group’s
 
shareholders.
 
Candidates for appointment to the Supervisory Board are subject to a suitability and reliability assessment by
 
the
Dutch Central Bank and European Central Bank (DNB and ECB) and must continue
 
to meet these while in
function.
 
 
Function of the Supervisory Board
The function of the Supervisory Board is to supervise the policy
(beleid)
 
of the Executive Board and the general
course of affairs of ING Group and the business connected with it, as well as to
 
provide advice to the Executive
Board.
 
In line with Dutch company law,
 
the Articles of Association, the DCGC as well as the Charter of the Supervisory
Board, all members of the Supervisory Board are required to:
 
•
 
be guided by the interests of ING Group and the business connected with it, thereby carefully balancing the
interests of all stakeholders
 
of ING and when drawing that balance, give paramount importance to the
customer’s interest, as set out in the Dutch Banker’s
 
Oath;
 
•
 
foster a culture focused on long-term value creation,
 
financial and non-financial risk awareness, compliance
with the Company’s risk appetite, responsible and ethical behaviour and stimulate
 
openness and
accountability within ING and its subsidiaries;
•
 
perform their duties without mandate and independent of any interest in the business of ING;
•
 
refrain from supporting one interest without regard
 
to the other interests involved;
 
and
•
 
ensure that it functions effectively.
 
According to the Banker’s Oath that is taken
 
by the members of the Supervisory Board, they must carefully
consider the interests of all stakeholders
 
of ING. In that consideration they must put the customer’s interests
 
at
the centre of all their activities. Certain resolutions of the Executive Board, specified in the Articles of Association,
in the Charter of the Management Board and in the Charter of the Supervisory Board, are subject to approval by
the Supervisory Board.
 
In accordance with the Articles of Association ING Group indemnifies the members of the Supervisory Board as
far as legally permitted against direct
 
financial losses in connection with claims from third parties lodged or
threatened to be lodged against them by virtue of their service as a member of the Supervisory Board.
 
Profile of members of the Supervisory Board
The Supervisory Board has drawn up a profile to be used as a basis for its composition. It is available on ing.com.
 
In view of their experience and the valuable contribution that former members of the Executive
 
Board can make
to the Supervisory Board, it has been decided, taking into account the size of the Supervisory Board and ING’s
wide range of activities that such individuals may become members of the Supervisory Board of ING Group.
Former Executive Board members must wait at least
 
one year before becoming eligible for appointment to
 
the
Supervisory Board.
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
89
 
Former members of the Executive Board are not eligible for appointment
 
to the position of chairman or vice-
chairman of the Supervisory Board.
 
After a former member of the Executive Board has been appointed to the
 
Supervisory Board, this member may
also be appointed to one of the Supervisory Board’s committees.
 
However,
 
appointment to the Audit Committee
is only possible if the individual in question resigned from the Executive Board at least three
 
years prior to such
appointment.
 
 
The Supervisory Board of ING shall consist of a mix of persons with executive experience, preferably
 
gained in the
banking sector,
 
experience in corporate governance of large stock
 
-listed companies and experience in the
political and social environment in which such companies operate. In the selection of Supervisory Board
members, ING is striving for a balance in nationality,
 
gender, age,
 
and educational and work background. In
addition, there should be a balance in the experience and affinity with the nature and culture of the business of
ING and its subsidiaries. More specifically ING strives to have at least 30 percent
 
of the seats held by women, and
at least 30 percent of the seats by men. These guidelines that relate to the composition of the Supervisory Board,
are laid down in the Supervisory Board Profile. Based on this profile, the Supervisory Board is responsible for
selecting and nominating candidates for appointment or reappointment to
 
the Supervisory Board.
 
With respect to gender diversity,
 
three female members currently serve on the Supervisory Board: Mariana
Gheorghe, Margarete Haase and Herna Verhagen,
 
resulting in the Supervisory Board meeting its 30 percent
gender diversity target.
 
We believe the Supervisory Board is well balanced in terms of other relevant diversity
 
aspects. Overall, the
preferred emphasis on members with a financial or banking background has been maintained. In terms
 
of
nationality, the ratio
 
between Dutch and non-Dutch nationalities in 2020 was 56 - 44 percent.
 
Other diversity related aspects are also taken
 
into consideration in light of the overall Supervisory Board
composition.
ChapSuperV
 
 
Term of appointment of members of the Supervisory Board
As a general rule, Supervisory Board members step down from the Supervisory Board in the 4th, 8th, 10th or
12th year after their initial appointment. They are eligible for re-appointment
 
in the 4th year after their initial
appointment and, with explanation, also in the 8th and 10th year.
 
Under special circumstances the Supervisory Board may,
 
with explanation, deviate from this general rule, for
instance to maintain a balanced composition of the Supervisory Board and/or to preserve valuable expertise
 
and
experience. The retirement schedule is available on ing.com.
 
Ancillary positions/conflicting interests
Members of the Supervisory Board may hold other positions, including directorships, either paid
or unpaid.
 
CRD IV restricts the total number of supervisory board positions or non-executive directorships
 
with commercial
organisations that may be held by a Supervisory Board member to four,
 
or to two, if the Supervisory Board
member also has an executive board position. The European Central
 
Bank may, under special circumstances,
permit a Supervisory Board member to fulfil an additional supervisory board position or non-executive
directorship. Positions with, inter alia, subsidiaries or qualified holdings are not taken
 
into account in the
application of these restrictions. Such positions may not conflict with the interests
 
of ING Group. It is the
responsibility of the individual member of the Supervisory Board and the Supervisory Board collectively to ensure
that the directorship duties are performed properly and are
 
not affected by any other positions that the
individual may hold outside ING Group.
 
 
Members of the Supervisory Board are to disclose material conflicts of interest (including potential
 
conflicts of
interest) and to provide all relevant
 
information relating to them. The Supervisory Board – excluding the member
concerned – decides whether a conflict of interest exists.
 
In case of a conflict of interest, the relevant member of the Supervisory Board abstains
 
from discussions and
decision-making on the topic or the transaction in relation to which he or she has a conflict of interest with ING
Group.
 
 
ing20f2020p90i0.jpg
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
90
 
Transactions involving actual or potential conflicts of interest
In accordance with the DCGC, transactions with members of the Supervisory Board in which there are material
conflicting interests will be disclosed in the Annual Report.
 
Any relation that a member of the Supervisory Board may have with an ING Group subsidiary as an ordinary,
private individual is not considered a significant conflict of interest.
 
Such relationships are not reported, with the
exception of any loans that may have
 
been granted.
 
 
For an overview of loans granted to members of the Supervisory Board, see the Remuneration
 
report.
 
Independence
The members of the Supervisory Board are requested to assess annually whether the criteria of dependence set
out in the DCGC do not apply to them and to confirm this in writing. On the basis of these criteria, all members of
the Supervisory Board are to be regarded as independent on 31 December 2020. On the basis of the NYSE listing
standards, all members of the Supervisory Board are independent.
 
Permanent committees of the Supervisory Board
On 31 December 2020, the Supervisory Board had four permanent committees: the Risk Committee, the Audit
Committee, the Nomination and Corporate Governance Committee
 
and the Remuneration Committee. An
organisational chart of the four permanent committees of the Supervisory Board can be found
 
above.
 
 
The organisation, powers and conduct of the Supervisory Board are detailed in the Supervisory Board Charter on
ing.com.
 
Separate charters have been drawn
 
up for the Risk Committee, the Audit Committee, the Nomination and
Corporate Governance Committee and the Remunerat
 
ion Committee. These charters are also available on
ing.com. A short description of the duties of the four permanent committees follows below.
 
The Risk Committee assists and advises the Supervisory Board with performance of its duties in relation to
overseeing (i) the setting and monitoring of the Company’s
 
risk appetite and risk strategy for all types of risk
including but not limited to financial and non-financial risk, (ii) the effectiveness of the internal risk management
and control systems and (iii) other related
 
risk management topics. The Risk Committee shall prepare the
discussions within and decisions of the Supervisory Board on such matters.
 
On 31 December 2020, the members
of the Risk Committee were: Mike Rees (chairman), Jan Peter
 
Balkenende, Juan Colombás, Mariana Gheorghe,
Margarete Haase, Herman Hulst, Harold Naus and Hans Wijers.
 
 
The Audit Committee assists and advises the Supervisory Board with the performance of its duties in relation to
the integrity and quality of the Company’s financial reporting and the related effectiveness
 
of the Company’s
internal risk management and control systems
 
and shall prepare the discussions within and the decisions of the
Supervisory Board on such matters. On 31 December 2020, the members of the Audit Committee were:
Margarete Haase (chairwoman), Juan Colombás, Herman Hulst, Mike Rees
 
and Hans Wijers.
 
The appointment of Margarete Haase in 2017 as Supervisory Board member became effective
 
as per 1 May 2018
and per that date Margarete Haase is considered a financial expert
 
as defined by the SEC in its final rules
implementing Section 407 of the Sarbanes-Oxley Act of 2002.
 
The Nomination and Corporate Governance Committee assists the Supervisory Board with the performance
 
of its
duties in relation to selection and nomination of among others the Supervisory Board members and
Management Board members,
 
talent management and the effectiveness of
 
the Company’s governance arrangements
 
and shall prepare the discussions with and decisions of the Supervisory
Board on such matters.
 
On 31 December 2020, the members of the Nomination
 
and Corporate Governance Committee were: Hans Wijers
 
(chairman), Mariana Gheorghe and
 
Herna Verhagen.
 
 
The Remuneration Committee assists the Supervisory Board, with the performance of its duties in relation
 
to
remuneration policies and the application and compliance thereof and shall prepare the discussion within and
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
91
 
decisions of the Supervisory Board on such matters. In doing so, the Remuneration
 
Committee will take into
account the adequacy of information provided to shareholders on remuneration
 
policies and practices. On 31
December 2020 the members of the Remuneration Committee were: Herna Verhagen
 
(chairwoman), Mariana
Gheorghe, Harold Naus and Hans Wijers.
 
The composition of the Supervisory Board committees can also be found on ing.com.
 
Remuneration and share ownership
 
Remuneration of the members of the Supervisory Board is determined by the General Meeting and is not
dependent on the results of ING Group. Details of remuneration are
 
provided in the Remuneration report.
Members of the Supervisory Board are permitted to hold shares in the share capital of ING Group for
 
long-term
investment purposes. Transactions
 
by members of the Supervisory Board in these shares are subject to the ING
insider regulations,
 
which are available on ing.com.
 
Information on members of the Supervisory Board
G.J. (Hans) Wijers (chairman)
(Born 1951, Dutch nationality, male; appointed
 
in 2017, term expires in 2021)
Former position: chief executive officer and member of the Executive
 
Board of AkzoNobel N.V.
 
Relevant positions pursuant to CRD IV
Chairman of the Supervisory Board of ING Groep N.V./ING
 
Bank N.V.
 
and member of the supervisory board of Hal
Holding N.V.
 
Other relevant ancillary positions
Member of the Temasek European
 
Advisory Panel of Temasek
 
Holdings Private Limited.
 
A.M.G. (Mike) Rees
(Born 1956, British nationality, male; appointed in 2019, term
 
expires in 2023)
Former position: Deputy CEO of Standard
 
Chartered Bank PLC.
 
 
Relevant positions pursuant to CRD IV
Vice-chairman of the Supervisory Board of ING Groep N.V./ING
 
Bank N.V.,
 
non-executive chairman of Athla
Capital Management Ltd.,
 
non-executive chairman of Travelex
 
Topco Limited
 
and non-executive chairman of the
board of Satsanga Fintech Holdings.
 
Other relevant ancillary positions
Non-executive chairman of Mauritius Africa FinTech
 
Hub.
 
J.P. (Jan Peter) Balkenende
 
(Born 1956, Dutch nationality, male; appointed
 
in 2017, term expires in 2021)
Former position: partner EY (on corporate responsibility).
 
Relevant positions pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING
 
Bank N.V.
 
Other relevant ancillary positions
Professor of governance, institutions and internationalisation
 
at Erasmus University Rotterdam
 
(the
Netherlands), external senior adviser to EY,
 
member of the Supervisory Board of Goldschmeding Foundation,
chairman of the Board of Maatschappelijke Alliantie (the Netherlands) and chairman of the Board of Noaber
Foundation.
 
J. (Juan) Colombás
(Born 1962, Spanish nationality, male, appointed in 2020, term
 
expires in 2024)
Former position: chief operating officer and executive
 
board member of the board of directors of Lloyds Banking
Group.
 
Relevant positions pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING
 
Bank N.V.
 
Other relevant ancillary positions
None.
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
92
 
M. (Mariana) Gheorghe
(Born 1956, Romanian nationality, female,
 
appointed in 2015, term expires in 2023)
Former position: CEO of OMV Petrom SA.
 
Relevant positions pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING
 
Bank N.V.
 
and non-executive director of ContourGlobal
Plc.
 
Other relevant ancillary position
Member of the Advisory Council of the Bucharest Academy of Economic Studies, Romania.
 
M. (Margarete) Haase
(Born 1953, Austrian nationality, female;
 
appointed in 2017, term expires in 2021)
Former position: CFO of Deutz AG.
 
Relevant positions pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING
 
Bank N.V.
 
(effective per 1 May 2018), member of the
supervisory board and chairwoman of the audit committee of Fraport AG, member of the supervisory board and
chairwoman of the audit committee of Osram Licht AG, and member of the supervisory board and chairwoman
of the audit committee of Marquard & Bahls AG.
 
 
Other relevant ancillary positions
Chairwoman of the Employers Association of Kölnmetall and member of the German Corporate Governance
Commission.
 
H.A.H. (Herman) Hulst
(Born 1955, Dutch nationality, male, appointed
 
in 2020, term expires in 2024)
Former position: global vice chair EY Japan and member of Global Practice Group.
 
Relevant positions pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING
 
Bank N.V.
 
Other relevant ancillary positions
 
None.
 
 
H.H.J.G. (Harold) Naus
(Born 1969, Dutch nationality, male, appointed
 
in 2020, term expires in 2024)
Former position: global head of Trading Risk Management
 
and general manager Market Risk management of ING
Bank N.V.
 
 
Relevant positions pursuant to CRD IV
Member of the Supervisory Board of ING Groep N.V./ING
 
Bank N.V.
 
,
 
CEO of Cardano Risk Management B.V.
 
and
CFO of Cardano Holding Ltd.
 
Other relevant ancillary positions
Chairman of the Curatorium VU Amsterdam “Risk Management for
 
Financial Institutions”
 
H.W.P.M.A. (Herna) Verhagen
 
(Born 1966, Dutch nationality, female;
 
appointed in 2019, term expires in 2023)
Former position: member of the Supervisory Board of SNS Reaal N.V.
 
(now: SRH N.V.).
 
Relevant positions pursuant to CRD IV
Member of the Supervisory
 
Board of ING Groep N.V./ING
 
Bank N.V.
 
CEO of PostNL N.V.
 
and non-executive board
member and chairwoman of the nomination committee of Rexel SA.
 
Other relevant ancillary positions
 
Member of the supervisory board,
 
member of the audit committee of Het Concertgebouw N.V
 
,
 
member of the
advisory council of Goldschmeding Foundation and member of the Board of VNO-NCW (inherent to her position
at Post NL N.V.).
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
93
 
Changes in the composition
Eric Boyer de la Giroday and Hermann-Josef Lamberti retired from
 
the Supervisory Board effective from the close
of 2020 AGM. Juan Colombás, Herman Hulst and Harold Naus were appointed by the AGM of 28 April 2020. The
appointments of Herman Hulst and Harold Naus became effective on this date.
 
The appointment of Juan
Colombás became effective on 1 October 2020.
 
Company secretary
The Supervisory Board and Executive Board are assisted by the company secretary
 
Cindy
 
van Eldert-Klep.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
94
 
B. Compensation
Remuneration report
FOR INFORMATION ONLY
 
 
In what was a challenging year for ING, one of the biggest factors
 
influencing our business was
Covid-19. First and foremost,
 
it’s a human tragedy that has affected
 
the lives, jobs and wellbeing of
people everywhere, including our customers and employees. Naturally,
 
it also affected our
business performance, which has a direct impact on the way we recognise
 
and reward many of our
employees. In this context there will be no changes
 
to remuneration for the Executive
 
Board and
the Supervisory Board in 2021 and the Executive Board will forgo
 
their variable remuneration for
performance year 2020.
 
 
ING’s approach to remuneration
 
is designed to attract, motivate and retain
 
people with the skills, abilities, values
and behaviours needed to achieve its strategy.
 
At the same time, we have a responsibility to be balanced and
fair,
 
taking into account all our stakeholders
 
in what was, and continues to be, a difficult environment.
 
That’s why we aim to have an ongoing dialogue with our regulators,
 
customers, shareholders , works councils
and other stakeholder groups. Due to the Covid-19 restrictions,
 
we engaged with our stakeholders
 
in 2020 mainly
through indirect and online channels. This included consultations in preparation for
 
this year’s remuneration
approach, strengthening the link between performance and remuneration
 
outcomes. We will continue these
interactions in 2021.
 
Our view on remuneration
ING seeks to effectively reward
 
success and avoid rewarding for failure.
 
We aim to offer well-balanced
remuneration that focuses on creating short-
 
and long-term value for all our stakeholders. We
 
make our biggest
contribution to society through our business: processing payments, providing loans and protecting
 
people’s
money. At
 
the same time, as a gatekeeper to the financial system
 
we have responsibility to keep our bank safe,
secure and compliant. Achieving the balance between our function as a bank and managing the inherent risks
this brings, is reflected in our remuneration approach.
Our remuneration principles are important to achieve our strategy
 
and our purpose – empowering people to stay
a step ahead in life and in business. These principles apply to all employees, including members of the Executive
Board.
 
 
The 2020 Remuneration Report is subject to an advisory vote at the AGM in April 2021. In the report we
 
look
back on the year 2020. We report on ING’s
 
performance and how 2020 events such as the coronavirus pandemic
impacted our business results and subsequently remuneration. We
 
explain how the Executive Board and
Supervisory Board remuneration policies are implemented and share details of remuneration
 
awarded in 2020 to
the Executive Board and to the Supervisory Board. In addition, we also set out the key performance
 
indicators for
the year ahead.
 
Halfway through the year,
 
Steven van Rijswijk succeeded Ralph Hamers as chief executive
 
officer.
 
The same
remuneration principles apply to him as did to his predecessor.
 
As such, Steven’s remuneration
 
until 1 July 2020
is reflected in his previous role as chief risk officer,
 
and in the second half of the year as CEO.
 
In line with ING’s commitment to increase transparency
 
and accountability,
 
this year we provide insight into the
organisational as well as the personal performance objectives of the Executive
 
Board members. Among other
things we aim to clarify the performance metrics used for awarding variable remuneration,
 
how targets are set,
how achievements are measured, and the important role risk management plays
 
in influencing remuneration,
including the pre-
 
and post award risk assessment.
 
In addition, we set out the remuneration approach that applies to all employees. We
 
explain more about how
remuneration works within ING. This includes the performance management process
 
and its link to
remuneration, as well as the measures we have in place to mitigate
 
risk.
 
Remuneration policy
 
This 2020 Remuneration Report is the first to reflect
 
ING’s new Executive Board
 
and Supervisory Board
remuneration policies, which came into effect
 
on 1 January 2020. The policies were drawn up based on the
various viewpoints, interests, remarks
 
and concerns of our stakeholder groups. When presented
 
in March 2020,
stakeholders were largely
 
positive. At the Annual General Meeting (AGM) in April 2020, shareholders approved
the Executive Board and Supervisory Board remuneration policies with 94.4% and 98.6% of the votes
respectively.
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
95
 
Under the 2020 policy, and in line with the requirements laid down in the Dutch Banking Code, the total
 
direct
compensation of the Executive Board is below the median of our peer group. This group is selected on the basis
of geography,
 
talent market, size and governance framework,
 
as well as a balancing factor to ensure relevance of
our benchmark. Our peer group in 2020 consists of eight comparable Dutch companies and eight relevant
European financial services providers, which are listed in the ‘Total
 
direct compensation’
 
 
Performance year 2020
The impact of the global coronavirus pandemic reverberated
 
across all of our businesses in all locations. While
2020 was a tough year,
 
ING’s financial results remained resilient and
 
we continued to attract more primary
customers, even during the wide-spread lockdowns that
 
took place around the world. At the same time, the
economic headwinds required us to remain flexible and sharpen our focus on activities that will ensure ING
delivers on its strategic priorities. And of course, there
 
is a link between performance and remuneration.
 
In light of the economic headwinds and the pressure Covid-19 placed on our business, our customers and on
society, the Supervisory Board and the Executive
 
Board jointly agreed that the Executive Board members
 
will not
receive any variable remuneration rela
 
ted to the performance year 2020.
Additionally, the Supervisory Board decided not to increase the base salary of Executive
 
Board members from 1
January 2021. The fees for the Supervisory Board will also be unchanged for 2021.
For all other eligible staff,
 
variable remuneration is based on group, business line and individual performance
criteria, is for at least 50% based on non-financial targets and comes in the form
 
of discretionary and collective
variable remuneration. The total amount awarded
 
was significantly lower than for the previous year,
 
reflecting
declining financial performance and recognising broader stakeholder
 
interests. The biggest reductions occur at
the more senior levels of the organisation (see ‘2020 specifics’ for more information).
 
This is in line with the
recommendations of the European Central Bank urging moderation
 
with respect to awarding variable
remuneration. Similarly,
 
ING complies with the prevailing ECB recommendation on shareholder distributions.
 
In closing, I’d like to
 
express my heartfelt gratitude
 
to every ING employee, at every level of the organisation, for
their ongoing commitment and dedication over the past year.
 
It hasn’t always been easy to adapt to working at a
distance, often while also juggling the demands of family life or recovering from
 
illness. Yet even in the most
challenging circumstances, they have shown true orange spirit and continued
 
to take things on and make them
happen for customers, for ING and for all stakeholders.
 
Thank you.
 
 
Herna Verhagen
Chairman of the Supervisory Board Remuneration Committee
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
96
 
Remuneration Report Executive Board and Supervisory Board
 
FOR ADVISORY VOTE AT
 
2021 ING GROEP N.V.
 
ANNUAL GENERAL MEETING (AGM)
 
About this report
This Remuneration Report explains the 2020 Executive
 
Board remuneration policy (hereafter called the 2020 EB
remuneration policy) and 2020 Supervisory Board remuneration policy (hereafter
 
called the 2020 SB
remuneration policy) and how these have been implemented. Both these policies were approved
 
at the 2020
AGM. This section of the report is the Remuneration Report as referred
 
to in the Dutch act implementing the
Shareholder Rights Directive II (SRD II). It will be presented to shareholders at
 
the 2021 AGM for an advisory vote.
An explanation of how the results of this vote are taken
 
into account will be included in the 2021 Remuneration
Report.
 
This report is prepared in the spirit of the draft (non-binding) ‘Guidelines on the standardised
 
presentation of the
remuneration report’ from the European Commission published in March 2019. Although the finalised guidelines
were expected to be published in 2020, these were not available at
 
the time of preparing this report. In that
context therefore,
 
2020 should still be considered a transitional year though with increased transparency where
possible. This is for instance processed in the paragraphs ‘2020 Executive
 
Board performance assessment &
reward process’ and ‘2020 Executive Board
 
performance evaluation’.
 
In the 2021 Remuneration Report we aim
to disclose fully in line with the final guidelines (if available).
 
2020 AGM
The 2019 Remuneration Report was presented
 
for an advisory vote at the AGM held on 28 April 2020 (hereafter
called the 2020 AGM). The outcome was that 93.4% of shareholders were in favour
 
of the report. There were no
additional comments or questions on the advisory vote, aside from the ask for additional transparency on
variable remuneration of the Executive Board. As explained
 
at the 2020 AGM, the 2019 Remuneration Report
included a new approach for Executive Board variable remuneration
 
also setting out how this links to
performance as of performance year 2020. The 2020 Remuneration Report
 
aims to provide greater transparency
regarding the Executive Board performance,
 
as also promised during our stakeholder consultation.
 
In addition to the 2019 Remuneration Report, the 2020 EB remuneration
 
policy and 2020 SB remuneration policy
were up for a binding vote at the 2020 AGM. To
 
come to a balanced proposal we incorporated feedback
 
from the
broad stakeholder consultation carried
 
out in the autumn and winter of 2019. This extensive stakeholder reach-
out was essential before any decision over 2020 was taken.
 
The vote was 94.4% in favour of the EB remuneration
policy and 98.6% in favour of the SB remuneration policy.
 
Both policies were adopted by shareholders and
became effective retroactively
 
from 1 January 2020 until the 2024 AGM at the latest.
 
We remain aware of the fact that
 
remuneration is an important topic for many
 
stakeholder groups and that
viewpoints on the topic may vary.
 
The Supervisory Board is fully committed to ensuring that our approach to
remuneration achieves a balance that aligns the best interest
 
of ING and the viewpoints of our stakeholders.
Stakeholder engagement is a key
 
element in the formulation of our remuneration policies, as demonstrated
 
by
the extensive process we carried out in 2019. The Supervisory Board will continue to foster
 
a transparent
dialogue on remuneration and future policy amendments.
 
Board changes and business events 2020
Ralph Hamers stepped down as chief executive officer (CEO)
 
and member of the Executive Board of ING Group
on 30 June 2020. The Supervisory Board appointed Steven van Rijswijk as his successor from 1 July 2020. Steven
van Rijswijk, who was ING’s chief risk officer
 
(CRO), was already a member of the Executive Board. The agreed
remuneration package for Steven
 
van Rijswijk is the same as for the previous CEO and in line with the 2020 EB
remuneration policy.
 
Until the appointment of a new CRO, Karst Jan Wolters,
 
reporting to chief financial officer (CFO) Tanate
Phutrakul, carried out the day-to-day risk management activities ad interim.
 
On 6 November 2020 it was
announced that Ljiljana Čortan was appointed as the new CRO and member of the Management Board Banking
effective 1 January 2021. The agreed remuneration package
 
for Ljiljana Čortan is the same as for the previous
CRO and in line with the 2020 EB remuneration policy.
 
The targets for 2021 are set in anticipation of her CRO role
as the Supervisory Board will propose to shareholders to appoint her as member of the Executive Board
 
and CRO
of ING Group at the AGM in April 2021.
 
 
Shareholders at the 2020 AGM approved the appointment of Juan Colombás, Herman Hulst and Harold
 
Naus to
the Supervisory Board. Robert Reibestein resigned from the Supervisory Board effective
 
from 1 January 2020,
because of persistent health issues, while Eric Boyer de la Giroday and Hermann-Josef Lamberti retired
 
at the end
of the 2020 AGM.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
97
 
 
Main decisions on the remuneration of the Executive Board and Supervisory Board
for 2021
To summarise, the following
 
decisions have been made in relation to remuneration for
 
2021:
◾
 
no changes to the 2020 EB and SB remuneration policies will be proposed;
◾
 
the Supervisory Board and Executive Board jointly agreed that the Executive
 
Board members will not
receive any variable remuneration related
 
to the performance year 2020;
◾
 
the Supervisory Board decided not to increase the base salary of the Executive Board members from 1
January 2021; and
◾
 
no changes to the current remuneration structure
 
for the Supervisory Board members will be made for
2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
98
 
Remuneration Executive
 
Board
Executive Board remuneration policy
The 2020 EB remuneration policy complies with applicable laws and regulations and is in line with the
remuneration principles that apply to all ING employees.
 
The 2020 EB remuneration policy is disclosed in full on ing.com under the section ‘Remuneration’.
 
Should policy
changes be proposed, we will first engage with our stakeholders
 
to inform and discuss the proposed changes,
after which a revised version of the 2020 EB remuneration policy will be submitted
 
for adoption by shareholders
at the General Meeting before it becomes effective.
 
Please note that the following paragraphs, present
 
a brief
summary of the current applicable 2020 EB remuneration policy.
 
Total direct compensation
 
Total
 
direct compensation is the total of fixed and variable remuneration,
 
excluding benefits such as pension and
allowances.
 
 
Total
 
direct compensation for the Executive Board members
 
is determined and reviewed periodically by the
Supervisory Board. In line with the 2020 EB remuneration policy, the Executive
 
Board’s total
 
direct compensation
for 2020 was compared to a new peer group as formulated
 
in the 2020 EB remuneration policy. This peer group
is based on five guiding principles, reflecting ING’s current profile,
 
and further explained in the 2020 EB
remuneration policy.
 
These principles can be described as follows.
 
Guiding principle
Short description
Geography
ING is headquartered in the Netherlands, but has an international profile
Talent market
ING is increasingly experiencing a cross-pollination of talent across
sectors/industries, not limited to traditional banking competitors
Size
ING acknowledges the importance of including companies that are broadly
comparable in terms of size and complexity
Governance framework
ING is subject to the Dutch (financial services) regulatory framework and
operates within a Dutch stakeholder
 
environment
Balancing
ING acknowledges the importance of retaining sight of relevant peer companies
that do not match on the other criteria
 
In line with the Dutch Banking Code, the peer group should consist of both financial and non-financial companies,
taking into account the relevant international
 
context. In addition, the Supervisory Board decided to exclude the
UK and Switzerland from our peer group, due to very different
 
pay structures in their financial sectors. Smaller
banks and companies were also excluded because these are less complex
 
compared to a large enterprise like
ING. The composition of the peer group is explicitly not included in the 2020 EB remuneration policy.
 
In 2020, the
peer group comprised:
1
 
 
ABN AMRO
Ahold Delhaize
BBVA
Deutsche Bank
Aegon
ASML
Banco Santander
Intesa Sanpaolo
NN Group
Heineken
BNP Paribas
Societe Generale
 
Rabobank
Philips
Credit Agricole
UniCredit
 
 
We aim to keep our peer group as constant
 
as possible. In line with the requirements laid down in the Dutch
Banking Code the total direct compensation under the 2020 EB remuneration policy is below the median of the
peer group. The calculation of the position towards the median of the peer group has been performed based on
the actual fixed remuneration 2020 and the actual variable remuneration
 
related to performance year 2019. Due
to the fact that there was no variable remuneration
 
related to the current performance year
 
(2020), we use the
variable remuneration related to the previous
 
performance year (2019) for this calculation.
 
1 The exact composition of the peer group is disclosed in the Annual Report annually retroactively.
 
ing20f2020p99i0.jpg
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
99
 
Fixed remuneration
The individual base salaries are set according to the role, responsibilities and experience of each Executive Board
member with reference to market
 
practice. The Remuneration Committee reviews
 
the individual base salaries of
the Executive Board members each year and advises the Supervisory Board on this. The Supervisory Board has
the discretion to increase the individual base salaries annually. The below factors
 
are given consideration in
determining their base salaries:
◾
 
the individual’s level of skill and performance;
◾
 
ING’s business performance, and market
 
conditions;
◾
 
internal pay ratios and salary increases for other employees within ING;
◾
 
remuneration level at the external peer group;
◾
 
public indexation reference points
 
(e.g. consumer price index); and
◾
 
stakeholder views.
 
Variable remuneration
Variable remuneration
 
for Executive Board members is limited to
 
a maximum of 20% of base salary in line with
legislative requirements. At least 50% of this is based on non-financial performance
 
criteria. The 2020 EB
remuneration policy provides for an at-target
 
variable remuneration of 16% of base salary.
 
If performance
criteria are exceeded, the Supervisory Board can increase the variable component to
 
the maximum. If
performance is below target, the variable component will be decreased,
 
potentially to zero. All variable
remuneration is awarded fully in shares. There is a minimum holding period of five years
 
from the award date
plus an additional holding year as of the vesting date. This combination (i.e. all shares plus a long holding period)
fosters alignment with shareholders and a focus
 
on the long term.
 
The Supervisory Board pre-determines the performance criteria for the Executive
 
Board each year to ensure
alignment between ING's strategy,
 
performance objectives and long-term interest.
 
For further details on the pay-out of variable remuneration
 
please see the 2020 EB remuneration policy which is
disclosed in full on ing.com under the section ‘Remuneration’.
 
On the right, is a visual illustrating the potential pay-out scheme of variable remuneration
 
for Executive Board
members.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
100
 
Pension
Since 1 January 2015, all members of the Executive Board participate in the Collective Defined Contribution
pension plan, which is accrued on an annual salary of up to €110,111 for 2020. This is the same as for all
employees working in the Netherlands without a supplementary pension scheme. Executive Board members
 
are
compensated for the lack of pension accrual above this amount by means of a savings allowance (see ‘Benefits’),
to be annually determined, on the same terms that apply to other participants in the Dutch pension scheme. The
set-up of this compensation for the lack of pension accrual is in line with best practices.
 
Benefits
Executive Board members are eligible for additional benefits, such as:
 
◾
 
the use of a company car;
 
◾
 
contributions to company savings plans;
 
◾
 
individual savings allowance;
◾
 
expatriate allowances (if applicable);
 
◾
 
banking and insurance benefits from ING (on the same terms as for other employees of ING in the
Netherlands);
 
◾
 
tax and financial planning services to ensure compliance with the relevant legislative requirements.
 
Tenure
Members of the Executive Board are appointed by shareholders
 
at the AGM for a maximum period of four years.
They may be reappointed by shareholders at the General
 
Meeting in line with ING’s Articles of Association and
applicable rules and regulation. Executive Board members have
 
a commission contract for an indefinite period.
ING has the option to terminate the contract if a member is not reappointed by shareholders
 
at the AGM, or if
their membership of the Executive Board is terminated. There is a three
 
-month notice period for individual board
members and a six-month period for ING. During this time the board member continues to work
 
and in principle
remains eligible for all agreed remuneration components.
 
In the event of an involuntary exit, Executive Board
 
members are eligible for an exit arrangement. If termination
of the contract is based on mutual agreement, the Executive Board
 
member is also eligible for a severance
payment. These arrangements are subject to specific requirements
 
(e.g. limited to a maximum of one year of
fixed base salary and under the condition that there should be no reward for failure).
 
If an Executive Board
member departs voluntarily or in circumstances involving fraud,
 
gross negligence, wilful misconduct or any
activity detrimental to ING, no severance payment or award
 
of variable remuneration over the performance year
will be made.
 
Periodic review of the Executive Board remuneration policy and the remuneration
awarded
In accordance with the 2020 EB remuneration policy,
 
the Supervisory Board annually determines the actual
remuneration for members of the Executive
 
Board, based on advice from the Remuneration Committee of the
Supervisory Board.
 
 
The Remuneration Committee’s
 
responsibilities include preparing the Supervisory Board for decisions regarding
the individual remuneration of members of the Executive Board.
 
Remuneration proposals for individual Executive
Board members are drawn up in accordance with the 2020 EB remuneration
 
policy and cover the following
aspects: remuneration structure, the amount of the fixed and variable
 
remuneration components, the
performance criteria used, scenario analyses that were carried out and, if and when considered appropriate
stakeholder engagement, review
 
of the EB remuneration policy,
 
the pay ratios within the company and its
affiliated enterprises. In the performance of its tasks the Remuneration
 
Committee works closely together with
the Risk Committee.
 
The Remuneration Committee takes
 
note of the views of individual Executive Board members with regard
 
to the
amount and structure of their own remuneration, including the aspects mentioned above.
 
Special employment conditions
Special employment conditions, for example to secure the recruitment
 
of new executives, may be used in
exceptional circumstances subject to approval
 
by the Supervisory Board. The Supervisory Board aims to minimise
these payments and ensure they are compliant with regulatory requirements.
 
This is in line with the 2020 EB
remuneration policy.
 
In 2020, there were none.
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
101
 
2020 Remuneration Executive Board
This section includes details of remuneration for current and former
 
Executive Board members relating to the
period served on the Executive Board in 2020.
2
 
 
In line with the Dutch Corporate Governance Code, ING calculates an internal
 
ratio of remuneration for Executive
Board members and a representative reference
 
group. Deemed most relevant for this ratio
 
is the total direct
compensation of the CEO compared to the average
 
total direct compensation of all ING employees. On this basis,
the internal ratio in 2020 was 1:28 (2019: 1:31, 2018: 1:29). For the sake of transparency
 
we also calculate the
ratio of total direct compensation for other Executive
 
Board members compared to the average
 
total direct
compensation of all ING employees. On that basis the internal ratio in 2020 was 1:19 (2019: 1:21, 2018: 1:20).
3
 
The lower ratios for 2020 compared to 2019, are
 
mainly because the Supervisory Board and the Executive Board
jointly agreed that the Executive Board members will not receive
 
any variable remuneration award related
 
to the
performance year 2020.
 
As was announced in February 2020, Ralph Hamers stepped down from his position as ING’s
 
CEO and chairman
of the Executive Board on 30 June 2020. As his departure was voluntary,
 
no exit arrangements were agreed or
paid, in line with the 2020 EB remuneration policy. All outstanding
 
variable remuneration that was awarded
 
in
previous years and not yet vested before
 
his departure, has lapsed. This means he will not receive any future
pay-outs of variable remuneration related
 
to previous performance years.
 
Remuneration versus company performance and average employee remuneration
 
The table on the next page shows the link between directors’ remuneration
 
(Executive Board and Supervisory
Board members), company performance and the average
 
remuneration of an ING employee. This is carried out
by showing the development of the remuneration for Executive
 
Board and Supervisory Board members over the
last five years presented in percentages.
 
With respect to the remuneration of the Supervisory Board, it should be
noted that there is no link to company performance in order to safeguard
 
its independent role. No component of
the remuneration of the Supervisory Board members is linked to company
 
performance, since this is all and only
dependant on attendance.
 
The relative performance of the company is presented
 
on three different metrics over the last five years.
 
The
metrics consist of:
 
◾
 
Retail primary relationships
◾
 
Profit before tax for ING Group
◾
 
Return on equity based on IFRS-EU Equity.
 
 
Finally, we present
 
the development of the remuneration on average
 
(per employee). For this number we use
the same data as is used to determine the internal ratio. As ING has only disclosed the internal ratio
 
since 2017,
no comparison for 2016 and 2015 is presented.
 
 
Due to the strict regulations on variable remuneration in the Netherlands (i.e. 20% bonus cap) and to the fact
that Executive Board members were not awarded
 
any variable remuneration for performance
 
year 2020, the link
between remuneration and company performance is correlated
 
but limited. Furthermore, the requirement that
variable remuneration must be based on at least 50% non-financial targets
 
means there is only a partial
relationship between the company’s financial performance
 
and the remuneration of Executive Board members.
2 Ralph Hamers stepped down from the Executive Board on 30 June 2020; Tanate
 
Phutrakul was appointed to the Executive Board
immediately after the AGM on 23 April 2019. Steven van Rijswijk was an Executive Board member for the full years 2018-2019. For 2020, a
pro-rata method is applied to his remuneration as CEO from 1 July 2020.
3 Total direct compensation
 
comprises fixed base salary and variable remuneration, excluding benefits such as pension arrangements, and
allowances.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
102
 
Development of directors’ remuneration, company
 
performance and employee remuneration
 
Amount in thousands of euros unless otherwise stated
FY 2020
FY 2020 vs FY 2019
 
6, 7
FY 2019 vs FY 2018
FY 2018 vs FY 2017
8
FY 2017 vs FY 2016
FY 2016 vs FY 2015
Directors remuneration (Executive
 
Board)
1, 2, 3, 4
Ralph Hamers
888
-55.9%
15.2%
-12.8%
1.4%
2.9%
Steven van Rijswijk
1,499
7.2%
16.2%
-11.8%
-
-
Tanate Phutrakul
1,222
25.6%
-
-
-
-
Company’s performance
4, 5
-
Retail primary relationships (in mln)
13.9
5%
7%
10%
9%
14%
Profit before Tax
 
ING Group (continuing operations) (in mln)
3,809
-44%
0%
-6%
23%
-4%
Return on equity based on IFRS-EU Equity
4.8%
-49%
-4%
-3%
6%
-
Average employee remuneration
Average fixed and annual variable remuneration
64
-1.7%
7%
-1.1%
-
-
Directors remuneration (Supervisory Board)
5
Hans Wijers
209
3.5%
9.2%
340.5%
-
-
Hermann-Josef Lamberti
48
-66%
1.4%
-1.4%
-5.4%
34.2%
Mike Rees
129
76.7%
-
-
-
-
Jan Peter Balkenende
97
-2%
0%
200%
-
-
Juan Colombás
23
-
-
-
-
-
Mariana Gheorghe
 
108
-8.5%
12.4%
11.7%
-4.1%
145%
Eric Boyer de la Giroday
38
-64.8%
0%
1.9%
-7%
23.9%
Margarete Haase
105
7.1%
55.6%
-
-
-
Herman Hulst
82
-
-
-
-
-
Harold Naus
82
-
-
-
-
-
Herna Verhagen
 
121
303.3%
-
-
-
-
1 The remuneration of the Executive Board consists of base salary and variable remuneration (total direct compensation).
 
2 Variable remuneration of the Executive Board is included in the year in which the performance was delivered
 
i.e. prior to the year in which it is paid out.
 
3 The fixed remuneration for the Executive Board did not change in 2019. Hence, the relative total
 
compensation increase from 2018 to 2019 is fully attributed to the fact that no variable remuneration was awarded
 
for performance year 2018. In addition, as Tanate Phutrakul
 
was not an
Executive Board member for the full year,
 
a comparison between 2018 and 2019 cannot be made.
4 Fixed remuneration for Executive Board members of ING is not linked
 
to company performance but is predominantly based on a benchmark exercise and total direct compensation of Executive
 
Board members should stay below the median of the benchmark, based on the Dutch Banking
Code. This has a mitigating effect on the correlation with the company performance.
 
5 Supervisory Board members do not receive any variable remuneration. Their remuneration is based on fixed fees related
 
to their role and number of meetings. The high fluctuations are caused by members joining or leaving the Supervisory Board during the year, role changes during the
year, and differences
 
in the number of meetings. Hence there is no correlation between the Supervisory Board remuneration and the company performance.
6 The decrease in the 2020 versus 2019 comparison for Ralph Hamers is due to the fact that his remuneration is only for the period from 1 January 2020 until 30 June 2020, when he stepped down as an Executive Board member.
 
The increase for Tanate
 
Phutrakul in this comparison is
because he was appointed by the AGM on 23 April 2019 and therefore his 2019 remuneration reflects a partial year as an Executive Board member while the 2020 remuneration presents
 
a full year as an Executive Board member.
 
The increase for Steven van Rijswijk in this comparison is
caused by his appointment as CEO as of 1 July 2020 and the higher remuneration package.
 
7 The decrease in the 2020 versus 2019 comparison for Hermann-Josef Lamberti and Eric Boyer de la Giroday is fully attributed to the fact that both retired after
 
the AGM on 28 April 2020. The increase in this comparison for Mike Rees and Herna Verhagen is because they were appointed
by the AGM on 23 April 2019 and therefore reflect a partial year as Supervisory Board members whereas 2020 is presented as a full year as a Supervisory Board member.
 
8 The decrease in the 2018 versus 2017 comparison for the CFO and CRO is fully attributed to the fact that for performance year
 
2018 no variable remuneration was awarded while over performance year 2017 variable remuneration was awarded.
 
 
ing20f2020p103i0.jpg
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
103
 
2020 Executive Board performance assessment & reward process
 
The Executive Board performance process includes a number of key
 
steps. This process serves as the foundation
to determine the variable remuneration for
 
Executive Board members.
 
 
 
At the start of the performance year,
 
the Supervisory Board approves the financial and non-financial
performance measures applicable to Executive Board members
 
for the upcoming financial year:
 
◾
 
Financial performance measures
including profit-based and return-based measures.
 
◾
 
Non-financial performance measures
including customer,
 
people, strategy and sustainability measures.
Each performance measure is weighted and totals 100%. The Dutch Remuneration
 
Policy for Financial Enterprises
Act (Wet Beloningsbeleid Financiële Ondernemingen, WBFO) specifies that at least 50% of variable remuneration
metrics must be based on non-financial targets. The performance measures for
 
the CEO and CFO are based on
group performance. The measures for the CRO are based 75% on functional key
 
performance indicators (KPIs)
and 25% on group results, in line with regulations for control functions.
 
Throughout the year,
 
regular conversations take
 
place between the Supervisory Board and the Executive Board
to review their performance to date. While no formal assessments are
 
completed, progress of performance
measures is discussed and the extent to which progress is on track.
 
At the end of the year,
 
the Risk Committee and Remuneration Committee are
 
both responsible for providing
input into and assessing the performance of the Executive Board members to determine
 
the variable
remuneration to be awarded. They jointly advise the Supervisory Board on the recommendations
 
to get final
approval of the awards. This follows a multi-step
 
and integrated process that closely aligns with the way that
variable remuneration is determined for the wider ING workforce.
 
The process covers an assessment of their
performance, based on individual performance scorecards. It includes KPIs and targets agreed
 
at the beginning of
the performance year,
 
along with risk assessments measured on an ex-ante and ex-post risk adjustment basis.
 
The core performance scorecard for each Executive
 
Board member consists of both quantitative and qualitative-
based KPIs. Quantitative-based KPIs are assessed on a primarily formulaic basis where the expected target
performance level must be achieved before
 
the on-target pay-out can be earned. Qualitative-based KPIs are
assessed using a standard three-point rating scale:
1 = maximum = exceeding expectations; 2 = target
 
= meeting expectations; 3 = threshold = not meeting
expectations. The overall outcome of the performance
 
scorecard assessment based on the above is the ‘starting
point’ for determining the variable remuneration of the Executive Board
 
members.
 
The integrated performance assessment process for
 
determining variable remuneration also takes
 
into account
financial and operational performance, risk and compliance, as well as behaviour and conduct of each Executive
Board member.
 
This is supported by a robust framework for considering risk and conduct, which is in line with
regulations. It includes the following elements:
◾
 
Performance hurdles
 
– Executive Board members are only eligible for consideration
 
for variable
remuneration if both of the performance hurdles are met. This is line with all employees who are eligible
for discretionary variable remuneration. See ‘Performance
 
hurdles’ for further details.
 
◾
 
Risk tests and adjustments
 
– Performance under three metrics (covering financial and non-financial risk)
is considered against thresholds set at the beginning of the financial year,
 
taking into account ING’s risk
appetite statement framework. When
 
these risk tests are not within the risk appetite it may lead to a
downward variable remuneration adjustment.
◾
 
Ex-post risk assessment
 
– Adjustments may be made based on risk management performance, including
events that had a financial or reputational impact on ING. Risk and Human Resources also assess
potential holdbacks or clawbacks impacting variable remuneration.
 
The CRO is responsible for recommending any risk-adjustments
 
to variable remuneration awards. The final
decision is at the level of the Supervisory Board. The Supervisory Board, based on the advice of the Remuneration
Committee and Risk Committee, decides on any risk adjustments (potentially to zero)
 
to variable remuneration
for Executive Board members.
As a final step in the process, in exceptional circumstances the Supervisory Board may
 
apply its discretion to
adjust upwards or downwards the variable remuneration
 
of Executive Board members.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
104
 
2020 Executive Board base salary
The base salary of all Executive Board members increased with 1.5% on 1 January 2020, as was announced in our
2019 Annual Report. This decision was based on reliable indexation reference
 
points, including the (forecast)
Consumer Prices Index 2020, in line with the 2020 EB remuneration policy.
 
As stated in our 2019 Remuneration
Report, the increase for Executive Board members
 
is below the collective labour agreement CLA increase for
employees in the Netherlands.
4
 
 
2020 Executive Board performance evaluation
 
The Executive Board is evaluated along the following perform
 
ance target areas:
 
Financial
 
◾
 
Profit before tax
◾
 
Return on equity
 
 
Non-financial
 
◾
 
Customer (except for CRO)
◾
 
Sustainability
◾
 
People
◾
 
Strategic priorities
◾
 
Regulatory (for CRO only,
 
replacing Customer)
 
This section includes more details on the financial and non-financial performance of the Executive Board
members. Key financial achievements, collectively accomplished by the Executive
 
Board in 2020 in the
predefined target areas are summarised in one table. The non-financial, individual performance
 
of each the
Executive Board members is summarised in separate
 
tables.
Financial performance
Measure
Target - minimum
Target - maximum
Performance
Assessment
Profit before tax (CEO/CFO weight
 
25%, CRO
12.5%)
6,509
7,195
3,809
0%
Return on Equity (CEO/CFO weight 25%, CRO
12.5%)
8%
10%
4.8%
0%
 
The performance assessment and outcome of the Executive Board members is summarised in the tables
 
below.
 
 
4 The collective salary increase based on the Collective Labour Agreement in the Netherlands (agreed for the period from 1 January 2019 –
31 December 2020), per 1 September 2019 was 3% for all employees in the Netherlands. In addition, per 1 September 2020 another
collective salary increase of 3% took place.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
105
 
Chief executive officer
 
Target
Performance
Customer
Increase number of
primary customers
In 2020 the number of primary customers increased by 578,000 to 13.9 million. The increase was lower
than projected at the beginning of 2020 and was impacted by the challenges related to Covid-19.
Sustainability
Cover nine sectors in Terra
In October 2020 the second progress report on Terra
 
was published. Five of the sectors (automotive,
power generation, residential real estate,
 
commercial real estate, and cement) are outlined in
comparison to 2019. An additional four sectors - fossil fuels, aviation, steel
 
and shipping - were added,
in line with the target to cover all nine sectors in scope in 2020, including quantitative
 
results and
targets. The report’s Climate Alignment
 
Dashboard shows most sectors are on track for climate
alignment, with progress still needed in some.
People
Improve organisational
health on three priorities
The Organisational Health Pulse survey for 2020 was focused on progress
 
against three priorities –
direction, leadership and innovation & learning. ING reached significant improvement
 
across all
business lines with all priorities in the top decile or top quartile.
Strategic priorities
Deliver on the regulatory
commitments
Delivered regulatory commitments related to implementation
 
of new regulations on time and at the
required levels.
Deliver on the strategic
priorities
- Migrated all private individual customers
 
in Belgium to the OneApp/OneWeb services.
- The Wholesale TOM programme achieved cost, risk and income benefits
 
and came to a natural close.
- Stopped the Maggie transformation programme and refocused
 
our activities to ensure faster
customer delivery and a continuously improving end-to-end digital customer experience.
- Extended the roll out of ING’s Touchpoint
 
platform, which gives new and existing business initiatives
access to 25.2 million ING customers (65% of customer base).
- Introduced innovative services such as CoorpID and Blacksmith, which digitalise the know your
customer process for corporate clients.
 
Chief financial officer
 
Target
Performance
Customer
Increase number of
primary customers
In 2020 the number of primary customers increased with 578,000 to 13.9m. The increase was lower
than projected at the beginning of 2020 and was impacted by the challenges of Covid-19.
Sustainability
Green issuance
In 2Q a US$1 billion green bond was issued to fund loans for renewable energy and green buildings,
which was beyond the agreed target.
People
Improve organisational
health on three priorities
The Organisational Health Pulse survey for 2020 was focused on progress
 
against three priorities –
direction, leadership and innovation & learning. ING reached significant improvement
 
across all
business lines with all priorities in the top decile or top quartile.
Strategic priorities
Deliver on the regulatory
commitments
Delivered regulatory commitments related to implementation
 
of new regulations on time and at the
required levels.
Deliver on the strategic
priorities
- Migrated all private individual customers
 
in Belgium to the OneApp/OneWeb services.
- The Wholesale TOM programme achieved cost, risk and income benefits
 
and came to a natural close.
- Stopped the Maggie transformation programme and refocused
 
our activities to ensure faster
customer delivery and a continuously improving end-to-end digital customer experience.
- Extended the roll out of ING’s Touchpoint
 
platform, which gives new and existing business initiatives
access to 25.2 million ING customers (65% of customer base).
- Introduced innovative services such as CoorpID and Blacksmith, which digitalise the know your
customer process for corporate clients.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
106
 
Chief risk officer
 
Target
Performance
Regulatory
 
Deliver on regulatory
commitments
Delivered identified regulatory commitments related to
 
implementation of new regulations on time
and at the required levels.
Sustainability
Digitalisation of retail
credit risk
Standardisation and digitalisation of retail credit risk processes
 
in line with target.
Install compliance by
design
Elements of compliance and non-financial risk have been digitalised and robotised in line with target,
improving sustainable embedding of compliance and NFR processes.
 
Strategic priorities
Manage credit- market
and non-financial risk
within Board approved risk
appetite
Credit risk, market risk and non-financial risk effectively managed
 
within ING’s risk appetite profile.
People
Improve organisational
health on three priorities
The Organisational Health Pulse survey for 2020 was focused on progress
 
against three priorities –
direction, leadership and innovation & learning. ING reached significant improvement
 
across all
business lines with all priorities in the top decile or top quartile.
* Sustainability for the CRO has been focused on sustainable embedding of risk in the organisation.
 
The performance assessment and outcome of the Executive Board members is summarised in the tables below,
taking into account the pre-
 
and post award risk assessment.
 
Outcome performance assessment
 
CEO
CFO
CRO
Weighting
Assessment
Outcome
Weighting
Assessment
Outcome
Weighting
Assessment
Outcome
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
Profit before tax
25%
0%
0%
25%
0%
0%
12.5%
0%
0%
Return on equity
25%
0%
0%
25%
0%
0%
12.5%
0%
0%
Customer
12.5%
0%
0%
12.5%
0%
0%
-
-
-
Regulatory
-
-
-
-
-
-
25%
100%
25%
Sustainability
12.5%
90%
11.3%
12.5%
90%
11.3%
10%
90%
9%
People
12.5%
100%
12.5%
12.5%
100%
12.5%
10%
100%
10%
Strategic priorities
12.5%
90%
11.3%
12.5%
90%
11.3%
30%
100%
30%
Total
100%
35%
100%
35%
100%
74%
* Due to rounding, percentages presented in the table may not add up precisely to the total percentages
 
provided.
 
2020 variable remuneration outcome
In light of the economic headwinds and the pressure Covid-19 placed on our business, our customers and on
society, the Supervisory Board and the Executive
 
Board jointly agreed for the Executive Board to
 
forgo their
variable remuneration related to the performance
 
year 2020. Although it was decided to forgo variable
remuneration, in the table on the left the individual performance of the members of the Executive
 
Board against
their set-targets is shown to illustrate
 
the performance to stakeholders.
 
As Steven van Rijswijk had a split year as CRO and then CEO, his award
 
was calculated against the CEO
performance results (50%) and the CRO performance results (50%).
In the second half of the year,
 
risk management reported into CFO Tanate
 
Phutrakul ad interim, in addition to his
role as CFO. As such, his variable remuneration award
 
was calculated against the CFO performance results
 
for the
full year,
 
also taking into consideration the CRO performance results for
 
the second half of the year.
 
 
Following the performance hurdles a thorough performance assessment has been completed
 
including ex-ante
risk tests. Based on this assessment and the overall achievements, the Supervisory Board has concluded that the
Executive Board members delivered relatively
 
strong results despite a challenging year due to Covid-19.
 
In addition, the Supervisory Board considered if any discretionary adjustment was required and they
 
determined
both the financial and non-financial results speak for themselves in the current environment. Furthermore the
Supervisory Board considers the behaviour of the Executive Board members and following their assessment
 
no
discretionary adjustments were applied.
 
In the final step, the Supervisory Board reviewed the CRO’s assessment
 
of ex-post risk adjustments. Whilst the
Global KYC program has made clear progress in 2020 and has delivered
 
on most milestones it was considered a
90% modifier (10% discount) to the CEO portion of his 2020 variable remuneration award
 
would be applied.
 
 
Following this performance assessment process the resulting variable remuneration
 
awards for Steven van
Rijswijk would have been €158,139 and for Tanate
 
Phutrakul €109,338.
 
 
Overall this would have equated to
 
variable remuneration for the CEO at 10.6% of his maximum 20% cap
 
and a
34.1% reduction against target. For the CFO it would
 
represent 9.0% of his maximum 20% cap and a 44.8%
reduction against target. The ratio
 
between base salary and total direct compensation is 100% (for 2020).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
107
 
 
Awards made to Executive Board members reflect
 
the Supervisory Board’s assessment of each of the Executive
Board members’ performance against the objectives in their scorecards,
 
as outlined in the previous section. The
Remuneration Committee also consulted the Risk Committee
 
and took into consideration its feedback on risk and
compliance matters. In addition to the modifier as stated
 
above, there was no reasoning to apply any individual
risk mitigating measures in accordance with ING’s
 
Remuneration Regulations Framework
 
(IRRF).
5
 
 
2020 Executive Board remuneration
Total remuneration
 
Amounts in euros (rounded
figures)
Base salary
Variable
remuneration
Total direct
compensation
Pension
Emoluments
Total
remuneration
Ralph Hamers
888,100
-
888,100
11,600
779,900
1,679,600
Steven van Rijswijk (CEO role)
888,100
-
888,100
11,600
242,000
1,141,700
Tanate Phutrakul
1,221,700
-
1,221,700
23,300
358,500
1,603,500
Steven van Rijswijk (CRO role)
610,800
-
610,800
11,600
169,000
791,400
 
As recognised in the profit or loss statement of 2020, the expenses for
 
each Executive Board member (active on
31 December 2020), relating to their role on the Executive Board, amount to
 
€2.0 million for the CEO and €1.6
million for the CFO. These amounts include deferred elements from
 
previous years, paid out in 2020.
 
 
The following tables (i.e. total direct compensation, pension costs and other emoluments) show the
remuneration awarded to individual Executive
 
Board members with respect to the performance years 2020, 2019
and 2018. The 2020 figures reflect a partial year as an Executive Board member for Ralph Hamers.
 
In addition,
the figures for Steven van Rijswijk are divided between his two
 
different roles on the Executive
 
Board. The 2019
figures reflect a partial year as an Executive Board member for Tanate
 
Phutrakul. The 2018 and 2019 figures
reflect a full year as Executive Board members for
 
Ralph Hamers and Steven van Rijswijk.
 
 
All Executive Board remuneration is paid directly
 
by ING with the exception of director’s fees for
 
Tanate
Phutrakul as non-executive director
 
at ING Belgium.
 
Total direct compensation
 
for (active) individual Executive Board members
2020
2019
4
2018
Amounts in euros (rounded figures)
Amount
Number of
shares
Amount
Number of
shares
Amount
Number of
shares
Ralph Hamers (CEO)
1
Base salary
888,100
1,750,000
1,750,000
Variable remuneration (fully in shares)
2
-
-
266,000
25,726
Steven van Rijswijk (CEO role)
3
Base salary
888,100
Variable remuneration (fully in shares)
2
-
-
Tanate Phutrakul
 
(CFO)
Base salary
1,221,700
831,100
5
Variable remuneration (fully in shares)
2
-
-
141,400
13,675
Steven van Rijswijk (CRO role)
3
Base salary
610,800
1,203,600
1,203,600
Variable remuneration (fully in shares)
2
-
-
195,000
18,858
Total aggregated
 
base salary
 
3,608,700
3,784,700
2,953,600
Total aggregated
 
variable remuneration
 
-
602,400
Total aggregated
 
number of shares
 
-
58,259
1 Ralph Hamers stepped down as an Executive Board member on 30 June 2020. His base salary reflects the payments from 1 January 2020 –
30 June 2020.
2 The number of shares is based on the average ING share price on the day the year-end results were published.
 
3 Steven van Rijswijk was appointed CEO as of 1 July 2020. His total direct compensation is divided between his role as CRO and then as
CEO. The annualised base salary for Steven van Rijswijk as of 1 July 2020 is EUR 1,776,250 (this includes the 1.5% salary increase as per 1
January 2020).
 
4 The variable remuneration percentage for the Executive Board
 
members are as follows: CEO 15%, CFO 15% and CRO 16%. The applicable
percentage for the CFO is the full percentage for 2019, partially in his capacity as a Management Board Banking member and since 23 April
2019 in his capacity as an Executive Board member.
 
5 The 2019 details for Tanate Phutrakul
 
reflect a partial year as an Executive Board member.
 
5 The IRRF consists of the most important regulatory requirements with respect to remuneration to which all remuneration
 
policies of
majority owned entities have to adhere to. Furthermore, it consists of our general remuneration principles that apply to all staff
 
globally
working under the responsibility of ING.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
108
 
Pension costs
Members of the Executive Board participate in the Collective Defined Contribution
 
(CDC) pension plan. In 2020,
pension accrual applied to salary up to an amount of € 110,111. The table below shows the pension costs of the
individual members of the Executive Board in 2020, 2019 and 2018.
 
Pension costs for individual Executive Board members
 
Amounts in euros (rounded figures)
1
2020
2019
4
2018
Ralph Hamers
2
11,600
23,000
26,000
Steven van Rijswijk (CEO role)
3
11,600
Tanate Phutrakul
23,300
16,000
Steven van Rijswijk (CRO role)
3
11,600
23,000
26,000
1 Pension accrual only applies to salary up to an annually set amount (i.e. EUR 105,075 for 2018, EUR 107,593 for 2019 and EUR 110,111 for
2020).
 
2 Ralph Hamers stepped down as an Executive Board member on 30 June 2020. His pension costs reflect the period from 1 January 2020 –
30 June 2020.
3 Steven van Rijswijk was appointed as CEO from 1 July 2020. Therefore his pension costs for
 
2020 are divided between his role of CRO and
then as CEO.
4 The 2019 emoluments for Tanate Phutrakul
 
reflect a partial year as an Executive Board member.
 
Benefits
The individual members of the Executive Board receive other emoluments, including savings allowances
 
to
compensate for the loss of pension benefits on salary above € 110,111 in 2020, employer contributions to savings
schemes, reimbursement of costs related to home/work
 
commute, costs relating to tax and financial planning
services, costs related to reimbursement of the Directors
 
& Officers indemnity,
 
costs associated with a company
car and for expats, the costs associated with housing and schooling.
 
 
The other emoluments in 2020, 2019 and 2018 amounted to the following costs.
 
Other emoluments
 
Amounts in euros (rounded figures)
2020
1
2019
2
2018
Ralph Hamers
 
779,900
4
613,000
5
561,000
Steven van Rijswijk (CEO role)
3
242,000
-
–
Tanate Phutrakul
358,500
235,000
-
Steven van Rijswijk (CRO role)
3
169,000
367,000
369,000
1 The 2020 emoluments reflect the partial year as an Executive Board member for Ralph Hamers.
 
2 The 2019 emoluments for Tanate Phutrakul
 
reflect a partial year as an Executive Board member.
3 Steven van Rijswijk was appointed as CEO from 1 July 2020. His emoluments are divided between his role as CRO and then as CEO.
 
4 This amount does not consist of any exit arrangements due to the fact his departure was voluntary and therefore
 
nothing has been agreed
or paid, which is fully in line with the 2020 EB remuneration policy.
 
5 The prior period has been updated to improve consistency and comparability.
 
Breakdown of other emoluments paid in 2020
 
Amounts in euros (rounded figures)
Ralph
 
Hamers
1
Steven van Rijswijk
(CEO role)
2
Tanate Phutrakul
Steven van Rijswijk
(CRO role)
2
Contribution individual savings
31,100
31,100
42,800
21,400
Individual savings allowance
193,100
192,400
257,200
128,800
Travel and
 
accident insurance
8,200
8,300
16,500
8,200
Other amounts
3
547,500
10,200
42,000
10,600
1 The 2020 emoluments reflect the partial year as an Executive Board member for Ralph Hamers.
 
2 Steven van Rijswijk was appointed as the new CEO as of 1 July 2020. The emoluments are divided between his role as CRO and then as
CEO.
3 Other amounts includes the following elements: personnel facility (mortgage), tax and financial planning, reimbursement of costs under
the Directors & Officers indemnity provided by ING, redemption of the holiday allowance for Ralph Hamers and payment of director’s
 
fees
for Tanate Phutrakul
 
as non-executive director at ING Belgium.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
109
 
Long-term incentives awarded in previous years
Long-term incentives to the Executive Board members
 
in previous years are disclosed in the table ‘ING shares
held by Executive Board members’.
 
In line with the 2020 EB remuneration policy we do not operate (active) long-
term incentive plans anymore.
 
Employee stock options
The table below contains information on outstanding employee
 
stock options and movements during the
financial year of employee stock options held by the members of the Executive Board
 
on 31 December 2020. This
includes employee stock options awarded prior to their appointment to
 
the Executive Board. Please note that all
unexercised options lapsed in 2020 when the applicable stock option plans reached
 
the end of their 10-year
lifespan.
 
Options held by Executive Board members
Number of options
Outstanding on
31 December
2019
Exercised
in 2020
Waived or
expired in
2020
Outstanding on
31 December
2020
Grant
price in
 
euros
Grant
date
Vesting
date
Expiry
date
Ralph Hamers
22,124
0
22,124
0
7.35
17 March
2010
17 March
2013
17 March
2020
Tanate Phutrakul
11,062
0
11,062
0
7.35
17 March
2010
17 March
2013
17 March
2020
Steven van Rijswijk
2,318
0
2,318
0
7.35
17 March
2010
17 March
2013
16 March
2020
Steven van Rijswijk
10,694
0
10,694
0
7.35
17 March
2010
17 March
2013
17 March
2020
 
Shares
Deferred shares are shares conditionally granted
 
subject to a tiered vesting over a period of five years (for
awards in 2020 and before), with the
 
ultimate value of each deferred
share
 
based on ING
’s
 
share
 
price on the
vesting date. This is conditional on there being no holdback.
 
The main condition for exercise is that these require
 
continued employment through vesting date.
 
Shares vested for Executive Board members
 
during 2020
Number of shares
Shares
3
Grant date
Vesting date
 
End date of
retention
period
No. of
shares
granted
5
No. of
shares
vested
Vesting
price in
euros
No. of
unvested
shares
remaining
6
Ralph Hamers
1
LSPP
11 May
 
2017
11 May
 
2020
11 May 2022
23,092
4,619
5.15
-
LSPP
10 May
 
2018
11 May
 
2020
10 May 2023
18,547
2,225
5.15
-
LSPP
11 May 2020
11 May
 
2020
11 May 2025
25,726
10,290
5.15
-
Tanate Phutrakul
2
LSPP Units
4
25 March
 
2016
27 March
 
2020
N/A
7,987
1,065
5.73
-
LSPP Units
4
27 March
 
2017
27 March
 
2020
N/A
6,032
482
5.73
1,449
LSPP Units
4
27 March
 
2018
27 March
 
2020
N/A
4,972
397
5.73
1,592
LSPP
27 March
 
2019
27 March
 
2020
27 March
2021
2,837
227
5.73
908
LSPP
7
11 May 2020
11 May
 
2020
11 May 2025
17,694
7,078
5.15
10,616
Steven van Rijswijk
2
LSPP
27 March
 
2017
27 March
 
2020
27 March
2021
13,890
2,315
5.73
-
LSPP
27 March
 
2018
27 March
 
2020
27 March
2021
3,460
346
5.73
1,038
LSPP
10 May
 
2018
11 May
 
2020
10 May 2023
6,584
790
5.15
2,370
LSPP
11 May
 
2020
11 May
 
2020
11 May 2025
18,858
7,543
5.15
11,315
1 All the outstanding deferrals of Ralph Hamers lapsed when he voluntarily stepped down as an Executive Board member.
 
2 Shares granted to Tanate
 
Phutrakul (March 2016 to March 2019) and Steven van Rijswijk (March 2017 to March 2018) were awarded for
their performance in positions prior to their Executive Board appointment.
3 All current Executive Board members participate in the ING Group Long-term Sustainable Performance
 
Plan (LSPP) and receive their
shares under its plan rules.
 
4 Deferred share units of Tanate
 
Phutrakul are cash settled instruments. The value of these are based on ING Group’s
 
share price at the
vesting date. No retention period applies.
5 Number of shares granted includes both the deferred and upfront part awarded at the granting
 
date.
6 The balance of unvested shares post holdback, where applicable.
7 The number of shares granted is split between the service period Tanate Phutrakul
 
was a Management Board member and Executive
Board member.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
110
 
 
Total value
 
of vested and unvested shares of Executive Board
 
members - 2020
 
Amounts in euros (rounded figures)
Vested shares
Unvested shares
 
Share price in euros
1
Total value
 
in
euros
Ralph Hamers
17,134
–
7.61
130,390
Tanate Phutrakul
9,249
14,565
7.61
181,225
Steven van Rijswijk
10,994
14,723
7.61
195,706
1 The opening share price on 31 December 2020.
 
 
Loans and advances to Executive Board members
The table below presents the loans and advances provided to Executive Board
 
members that were outstanding
on 31 December 2020, 2019 and 2018. Since Ralph Hamers was no longer an Executive Board member on 31
December 2020, there is no information included for 2020. These loans were provided on market
 
conditions with
due observance of the applicable policies within ING.
 
Loans and advances to individual Executive Board members – 2020
 
Amount in thousands of euros
Amount
outstanding 31
December
Average interest
rate
Repayments
Steven van Rijswijk
–
–
–
Tanate Phutrakul
–
–
–
 
Loans and advances to individual Executive Board members – 2019
Amount in thousands of euros
Amount
outstanding 31
December
Average interest
rate
Repayments
Ralph Hamers
2,402
1.4%
97
Tanate Phutrakul
 
-
-
-
Steven van Rijswijk
-
-
-
 
Loans and advances to individual Executive Board members – 2018
Amount in thousands of euros
Amount
outstanding 31
December
Average interest
rate
Repayments
Ralph Hamers
2,499
1.4%
-
Steven van Rijswijk
-
-
-
 
ING shares held by Executive Board members
Executive Board members are encouraged
 
to hold ING shares as a long-term investment to maintain
 
alignment
with ING. The table below shows an overview of the shares held by members of the Executive Board
 
on 31
December 2020, 2019 and 2018.
 
ING shares held by Executive Board members
 
Numbers of shares
 
2020
2019
2018
Ralph Hamers
1
–
93,833
67,392
Steven van Rijswijk
75,490
69,490
66,153
Tanate Phutrakul
 
13,251
9,200
-
1 Since Ralph Hamers was no longer an Executive Board member on 31 December 2020, there is no information included for 2020.
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
111
 
2021 Executive Board remuneration
 
The Supervisory Board decided not to increase the base salary of the Executive Board members from 1 January
2021.
 
 
The pandemic did not result in any adjustment of the target areas compared
 
to 2020. Therefore, for 2021 the
following target areas will be taken
 
into account:
 
Financial
◾
 
Profit before tax
 
◾
 
Return on equity
 
 
Non-financial
 
◾
 
Customer (except for CRO)
 
o
 
Increase number of primary customers as it leads to deeper relationships, greater
 
customer
satisfaction and, ultimately,
 
customers choosing ING for more of their financial needs
 
o
 
Increase mobile sales per 1,000 active customers
o
 
Increase percentage of personal interaction
 
with customers
◾
 
People
o
 
Strengthen organisational health with a focus on four priority areas:
 
direction, leadership,
innovation & learning and role clarity
 
o
 
Strengthen ING’s leadership
 
cadre
o
 
Increase gender balance in ING’s leadership cadre
◾
 
Strategy
 
o
 
Deliver on digitalisation initiatives
 
o
 
Deliver on innovation initiatives
◾
 
Sustainability
 
o
 
Development of integrated climate
 
risk strategy
◾
 
Regulatory
 
o
 
Deliver commitments to regulators
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
112
 
Remuneration Supervisory Board
Supervisory Board remuneration policy
In line with the Dutch act implementing SRD II, the 2020 SB remuneration policy was presented to shareholders
at the 2020 AGM. Based on the result of the binding vote (98.6% in favour), the 2020 AGM adopted the SB
remuneration policy with retroactive effect
 
from 1 January 2020 until the 2024 AGM at the latest. The 2020 SB
remuneration policy is disclosed in full on ing.com in the section ‘Remuneration’.
 
The Supervisory Board remuneration levels for 2020, similar to 2019, are shown below:
 
Supervisory Board remuneration structure
Annual fees in euros
2020
Chairman Supervisory Board
125,000
Vice chairman Supervisory Board
95,000
Supervisory Board member
70,000
Committee fees (annual amounts)
Chairman committee
20,000
Member committee
10,000
Attendance fees (per event)
Attendance fee outside country of residence
2,000
Attendance fee outside continent of residence
7,500
 
All fees are paid out fully in cash. No variable remuneration is provided
 
to ensure that the Supervisory Board
members can maintain independence. The Supervisory Board members are not eligible for retirement
 
benefits
nor any other benefits in relation to their position on the Supervisory Board. Members of the Supervisory Board
are reimbursed for their travel
 
and ING-related business expenses.
 
2020 Remuneration Supervisory Board
The table below shows the remuneration, including attendance fees
 
for each Supervisory Board member.
 
All fees
for the Supervisory Board are paid directly by ING. The only exception to this is for Eric Boyer
 
de la Giroday who
received payments from ING Belgium for his role in the Supervisory Board of ING Belgium.
 
 
2020 Remuneration Supervisory Board
2020
2019
2018
Amount in euros (rounded figures)
Remuneration
VAT
Remuneration
VAT
Remuneration
VAT
Hans Wijers (chairman)
173,000
36,000
167,000
35,000
153,000
32,000
Hermann-Josef Lamberti (vice-chairman)
1
48,000
141,000
139,000
Mike Rees (vice-chairman)
2
129,000
73,000
Jan Peter Balkenende
80,000
17,000
82,000
17,000
82,000
17,000
Juan Colombás
3
23,000
Mariana Gheorghe
108,000
119,000
105,000
Eric Boyer de la Giroday
1
38,000
108,000
108,000
Margarete Haase
105,000
98,000
63,000
Herman Hulst
4
68,000
14,000
Harold Naus
4
68,000
14,000
Herna Verhagen
100,000
21,000
25,000
5,000
1 Hermann-Josef Lamberti and Eric Boyer de la Giroday retired after the AGM on 28 April 2020. The remuneration figures for 2020 reflect a
partial year as a member of the Supervisory Board.
 
2 Mike Rees became vice-chairman after the AGM on 28 April 2020.
3 Juan Colombás was appointed to the Supervisory Board by the AGM on 28 April 2020 and became effective on 1 October 2020. The
remuneration figures for 2020 reflect a partial year as a member of the Supervisory Board.
 
4 Herman Hulst and Harold Naus were appointed to the Supervisory Board by the AGM on 28 April 2020 with effect from that date. The
remuneration figures for 2020 reflect a partial year as a member of the Supervisory Board.
 
 
Compensation of former members of
 
the Supervisory Board not
 
included in the table above amounted
 
to nil in
2020, €176,000 in 2019 and
 
€333,000 in 2018.
 
Loans and advances to Supervisory Board members
Supervisory Board members may obtain banking and insurance services from ING Group and its subsidiaries in
the ordinary course of their business and on terms that are customary in the sector.
 
The Supervisory Board
members do not receive privileged financial services. On 31 December 2020, there were no loans and advances
outstanding to Supervisory Board members.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
113
 
ING shares and employee stock options held by Supervisory Board members
Supervisory Board members are permitted to hold ING shares as a long-term investment.
 
The table below shows
the holdings by members of the Supervisory Board on 31 December 2020, 2019 and 2018.
 
ING shares held by Supervisory Board members
 
Numbers of shares
 
2020
2019
2018
Hermann-Josef Lamberti
1
5,700
5,700
Eric Boyer de la Giroday
1
47,565
47,565
Margarete Haase
800
800
Herman Hulst
3,650
Harold Naus
1,645
1 Since both Hermann-Josef Lamberti and Eric Boyer de la Giroday retired after the 2020 AGM on 28 April 2020, there is no information
included for 2020.
 
 
The following table contains information on employee
 
stock options outstanding and awards vested
 
for
Supervisory Board members.
 
Employee stock options on ING Groep N.V.
 
shares held by members of the Supervisory Board on 31 December 2020
 
Number of stock options
Outstanding on
31 December
2020
Expired in
2020
Outstanding on
31 December
2019
Expired in
2019
Outstanding on
31 December
2018
Expired in
2018
Eric Boyer de la Giroday
-
-
-
-
–
113,479
 
2021 Remuneration Supervisory Board
 
The Supervisory Board decided not to change the fees for 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
114
 
General information for all staff
FOR INFORMATION ONLY
 
AT 2021 ING GROEP N.V.
 
ANNUAL GENERAL MEETING (AGM)
 
The primary objective of ING’s remuneration
 
principles is to attract, motivate and retain
 
qualified and expert
leaders as well as senior staff (including Executive Board members)
 
and other highly qualified staff who have the
desired Orange Code values and behaviours, skills and knowledge to deliver on ING’s
 
purpose and Think Forward
strategy in a sustainable way.
 
 
The remuneration principles are an integral part of ING’s
 
strategy and risk profile. They maintain a sustainable
balance between short and long-term value creation and build on ING’s
 
long-term responsibility towards its
employees, customers, shareholders and other stakeholders.
 
Our approach to the remuneration principles did
not change in 2020.
 
Our remuneration principles apply to all staff and are embedded in ING’s
 
Remuneration Regulations Framework
(IRRF) and our people offer (OPO). Introduced in 2020, OPO sets out ING’s differentiating
 
offer as an employer in
the marketplace and states what we
 
ask of our people in return. It gives guidance to our global people practices,
while supporting our Think Forward Strategy.
 
The IRRF and OPO comply with relevant international and local
legislation and regulations.
 
Our remuneration principles
 
Our remuneration principles apply to all employees and comprise the following:
 
Aligned with business strategy
ING’s remuneration principles are
 
aligned with the business strategy and company goals.
Creates long-term value
ING’s remuneration principles contribute
 
to long-term value creation and support a focus on the long-term interests
 
of its
stakeholders, including employees, customers
 
and shareholders.
Responsible and fair
In line with our Orange Code values and behaviours, ING acts responsibly and treats staff
 
fairly across the globe.
Mitigates risk and optimises controls
Risk management is an enabler of long-term value creation. ING ensures its remuneration
 
principles are properly correlated with its
risk profile and stakeholder interests.
Performance driven
ING operates a fair,
 
objective and transparent performance management process linked
 
to remuneration to steer and motivate
 
all
employees to deliver on its strategic goals, aiming to reward
 
success and prevent rewarding for failure.
Sustainable
 
ING supports the sustainable recruitment, engagement and retention
 
of all employees.
 
Performance management
 
We aim to reward for
 
success and avoid rewarding for failure.
 
That is why ING’s remuneration
 
approach is
strongly linked to a robust and transparent
 
performance management process. Outcomes of performance
evaluations (including collective and individual risk assessments) provide input for remuneration.
 
As not all
employees are eligible for variable remuneration there
 
is not necessarily a link to financial performance. In the
Netherlands, for example the vast majority of the employees do not receive
 
any variable remuneration.
 
 
Step Up Performance Management is our global performance management approach
 
applicable to the majority
of employees. It aims to improve people’s
 
individual performance and thereby team performance and ultimately
ING's performance. Step Up Performance Management is one of our people practices
 
that help to increase focus,
alignment and transparency.
 
We do this through continuous conversations
 
between managers, employees and
teams. To
 
support these conversations, there are three formal
 
moments to discuss performance during the year:
target setting, mid-year review and year
 
-end evaluation.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
115
 
 
The Step Up Performance Management approach consists
 
of three dimensions:
 
 
Job:
 
the impact employees have in their daily work on an individual and team level, based on factors
such as qualitative job description, dynamic planning and specific selected quantitative priorities.
 
 
Orange Code behaviours:
 
how employees do their work and how effective their behaviour is as a
professional and colleague. We expect all employees
 
to act in line with ING’s Orange Code.
 
 
Stretch ambitions:
at ING, we believe high performance requires stretch
 
and investment (to achieve the
stretch). Therefore we
 
ask people to set ambitions beyond their day-to-day role and connect
 
their
personal passion, expertise or interest with the long-term success of ING.
All targets are agreed between the employee and their manager,
 
as well as within management teams, to ensure
consistency across the bank. ING uses three labels to evaluate performance:
 
excellent, well done and
improvement required.
 
Step Up Performance
 
Management does
 
not prescribe
 
the targets employees
 
should set.
 
However, the following
regulatory requirements
 
apply to specific
 
groups:
 
 
For employees eligible for variable remuneration,
 
a minimum of 50% non-financial priorities.
 
 
 
For all employees in control functions (Legal, Risk, Finance, Compliance, Audit and Human Resources), no
individual financial KPIs are allowed, unless required by local law.
 
 
 
For identified risk takers, risk mitigation
 
measures may lead to a downwards adjustment of the
performance outcome and negatively affect
 
variable remuneration (a risk modifier can be applied).
 
Total direct compensation
ING aims to provide total direct compensation or expected business and individual performance
 
at levels which,
on average, are at the median of the markets
 
in which we operate, benchmarked against
 
relevant peer groups. In
line with the Dutch Banking Code, the current remuneration levels of the Executive
 
Board are below the median
of the peer group introduced with the 2020 EB remuneration policy.
 
This year, remuneration
 
levels for members
of the Management Board Banking were also benchmarked against
 
the same peer group as the Executive Board.
The Executive Board and the other members of the Management Board Banking are on average
 
below the
median. Three members of the Management Board Banking are on or slightly above the median. Due to their
ING-specific roles it is difficult to have a good comparison inside and outside of the financial industry in the
Netherlands as well as abroad. There are limited comparable positions for these roles. To
 
ensure we adhere to
our 2020 EB remuneration policy,
 
we regularly monitor and benchmark salary levels across ING.
 
Fixed remuneration represents
 
a sufficiently high proportion, in line with the level of expertise and skills, and
allows a fully flexible variable remuneration award.
 
When no variable remuneration is awarded, the
compensation level is still enough for a decent standard of living. Variable
 
remuneration is performance driven,
subject to regulatory caps and prevents excessive
 
risk taking, where applicable.
 
The comprehensive process around variable remuneration
 
The awarding of variable remuneration, where
 
applicable, is based on group, business line and individual
performance criteria unless local legislation prescribes otherwise. In all ING countries, we adhere to the
applicable variable remuneration caps.
 
 
For Identified Staff (i.e. staff considered to
 
have a material impact on ING’s risk profile),
 
at least 40% of variable
remuneration is deferred over
 
a period of three to five years with a tiered vesting schedule. Furthermore, at
 
least
50% of variable remuneration is awarded in equity (or equity-linked
 
instruments unless local legislation
prescribes otherwise).
 
Performance and risk assessment
ING applies measures to mitigate risk relating to variable remuneration.
 
Our global remuneration policy takes
into consideration risk, capital, liquidity and the likelihood and timing of earnings. Measures
 
include pre-award
and post-award risk assessments of variable remuneration.
In 2020, the Management Board Banking and the Supervisory Board approved the Variable
 
Remuneration
Accrual Model (VRAM) set-up and approach to determine the 2020 discretionary risk-adjusted
 
variable
remuneration pools.
 
 
The VRAM takes a holistic view of the overall performance
 
of ING across three key dimensions:
 
(i)
 
financial,
 
(ii)
 
non-financial, and
 
(iii)
 
risk.
 
Within each of these three elements specific criteria are used to measure performance (e.g. profit, return on
equity, customer,
 
people, strategy,
 
sustainability as well as financial and non-financial risk).
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
116
 
The proposal for the variable remuneration pool is prepared
 
by Human Resources, Risk and Finance, and follows
the VRAM’s step-by-step
 
process and construct including CEO discretion to adjust the proposed variable
remuneration pool. The CEO considers several
 
factors when making this decision. This discretion is checked by
the Supervisory Board and requires their approval.
The Management Board Banking reviews the variable remuneration
 
pool on behalf of the Supervisory Board,
taking into account the advice of the Risk Committee and the Remuneration
 
Committee.
 
The total variable remuneration pool (for individual and collective variable
 
remuneration), encompasses all
employees eligible for variable remuneration globally,
 
including Identified Staff.
 
ING takes a multi-step approach to determine whether to
 
award variable remuneration in a given performance
year and the maximum amount of the pool. Within this process, a range of risk elements is assessed at various
levels and, where appropriate, risk adjustments are made to the variable
 
remuneration pools.
 
Performance hurdles
To unlock the discretionary
 
variable remuneration pools, both of the following performance hurdles must
 
be
met. These are:
 
 
The Common Equity Tier 1 (CET1) ratio must be at or above the threshold established by applicable
regulations;
 
 
The return on equity (underlying RoE) is equal to or higher than the percentage determined at
 
the
beginning of each performance year by the Management Board Banking and the Supervisory Board.
Underlying RoE, in line with the VRAM Policy (as established in PY 2019) and approved by governing
bodies, can be adjusted due to one-time charges or infrequent occurrences, such as but not limited to
macro-economic events and pandemic events, during a given performance year.
 
A variable remuneration pool is also separately accrued for staff
 
in control functions and support functions and
for those employees subject to a collective variable remuneration
 
plan. The amount is defined by the
Management Board Banking and approved by the Supervisory Board.
 
 
Risk adjustments
In determining the overall size of the variable remuneration
 
pool, a multi-layered, consistent and bank-wide
approach for risk tests and adjustments is applied to the process, based on an assessment by
 
the CRO.
 
To establish
 
appropriate risk-adjusted
 
variable remuneration pools, ex ante risk adjustments
 
are made based on
measures used to assess the bank’s current
 
and future risks and whether performance sufficiently aligns with risk
appetite levels. The risk adjustment assessment includes measurements on ‘forward
 
looking’ capital, liquidity and
non-financial risk, where adjustments are made on deviation from risk appetite.
 
 
In addition, ex post risk adjustments are a key element
 
in the process of determining both final variable
remuneration pools and individual awards. Here, the CRO may
 
provide additional input at a more granular level
to adjust ING’s overall,
 
business line and/or country variable remuneration pools based on their risk management
performance.
 
The ex-ante and/or ex-post risk adjustments require
 
Supervisory Board approval, taking into account the input of
the Risk and Finance functions and the advice of the Risk Committee and Remuneration Committee.
 
The final risk adjustment measure lies in the individual performance assessment itself.
 
An employee’s
performance is extensively assessed before variable
 
remuneration is proposed and awarded. Every
 
manager
carefully assesses the performance delivered by their individual team members on the basis of pre
 
-agreed
performance priorities and in line with the Step Up Performance Management framework. In addition, managers
have the discretionary power to lower the proposed variable remuneration
 
if risk taking is perceived as
inappropriate. In this way,
 
variable remuneration is aligned with any additional risks identified on an individual
basis during the performance year.
 
 
Additional risk requirements apply to Identified Staff who are considered
 
risk takers in accordance with CRD IV.
These risk requirements set the minimum standards to be met during the performance
 
year.
 
Deviation from
these standards may lead to downward adjustment
 
of the variable remuneration, a so-called risk modifier.
 
This
process is run independently by the Risk function for which the CRO is ultimately responsible. Within the
Executive Board, risk modifiers were applied to the CEO
 
for the performance year 2020. The Supervisory Board,
advised by its Risk Committee, is responsible for risk modifiers within the Management Board Banking.
 
Finally, a post-award
 
risk assessment can be applied. This assessment analyses whether any events or findings
occurred that should lead to a downward adjustment of variable remuneration
 
of previous years by applying a
holdback (i.e., forfeiture of up to 100% of the awarded, but unvested,
 
variable remuneration) or clawback
(surrender of up to 100% of the paid or vested variable remuneration).
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
117
 
Shareholders’ mandate to exceed 100% variable remuneration cap
ING’s remuneration
 
policies comply with international and local legislation and regulations. Under the Dutch
WBFO (which sets various requirements on remuneration), financial institutions
 
are permitted to set a variable
remuneration cap higher than 100% (but not higher than 200%) of fixed remuneration for
 
employees outside of
the European Economic Area (EEA), provided that the higher cap is approved
 
by shareholders and does not
conflict with ING’s capital adequacy requirements.
 
At the 2017 AGM, shareholders approved to apply an
 
increased maximum percentage of up to 200% for
employees outside the EEA for a period of five performance years until end-2021. For
 
2020, it was applied to zero
employees worldwide. At the 2021 AGM, we will ask for a new mandate to
 
apply an increased maximum
percentage of up to 200% for employees outside the EEA for a further period of five performance
 
years, from
2022 until 2026. This mandate is rarely used by ING and was applied to zero
 
employees worldwide in 2018 and
2019.
 
 
2020 specifics
 
ING awards variable remuneration across the global organisation
 
in line with our remuneration principles, global
and local legislation and market practices. The awarding of variable
 
remuneration, where applicable, is based on
group, business line and individual performance criteria, both financial and non-financial, and comes in the form
of discretionary and collective variable remuneration.
 
 
Collective variable remuneration is based on collective labour agreements and/or
 
profit sharing schemes that are
driven by regulation, law and/or workers
 
council agreements in various countries. Over the past years the total
amount of collective variable remuneration has been relatively
 
stable and typically accounted for around 25% of
the total amount of variable remuneration.
 
 
The award of discretionary variable remuneration is based on a clear,
 
transparent and verifiable mechanism for
measuring performance and applying adjustments for risks (the Variable
 
Remuneration Accrual Model or VRAM).
The starting point is an aggregate of the individual target incentive
 
amounts from all eligible employees across
the group. The next step is to unlock the discretionary pool based on the results of the performance hurdles.
First, the underlying RoE was calculated and this performance
 
hurdle passed. The underlying RoE, in line with the
VRAM Policy and approved by governing bodies, has been adjusted for
 
macro-economic and pandemic events
during performance year 2020. The CET1 performance hurdle was also calculated and passed. Subsequent
 
to the
results of these performance hurdles the discretionary pool was unlocked. This ‘discretionary
 
pool’ is then
subject to a number of adjustments including for
 
financial and non-financial performance and for risk.
 
 
In 2020 the impact of COVID-19 presented unprecedented challenges for ING. While considerations
 
around staff
well-being and the wider societal impact of the pandemic are paramount, these circumstances have
 
led to
weaker performance results and this led to a negative
 
adjustment to the discretionary pool. Furthermore, in line
with our policy, executive
 
discretion was applied to further adjust the pool amount downwards in light of
declining financial performance and recognising broader stakeholder
 
interests. Overall, these adjustments
accounted for a downward adjustment
 
of the discretionary pool amount by approximately 26% from target
discretionary pool and resulting in approximately 20% decline versus the previous
 
performance year.
 
A
differentiated approach was
 
taken in the allocation of the discretionary variable remuneration,
 
with a
significantly larger reduction for senior leaders than for junior employees
 
(on average 30% reduction for senior
leaders).
 
The total actual amount of both discretionary and collective variable remuneration
 
awarded to all eligible
employees globally for 2020 was €314.2 million (€93.6 million in collective variable remuneration),
 
compared to
total staff expenses of €5,812 million. For 2019, the total
 
amount was €378.0 million (€98.0 million in collective
variable remuneration) on €5,755 million staff expenses
 
and €303.1 million (€93.9 million in collective variable
remuneration) out of €5,420 million in 2018.
 
 
In 2020, two employees – excluding members of the Management Board
 
Banking – were awarded total annual
remuneration (including employer pension contributions and excluding
 
severance payments made) of €1 million
or more.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
118
 
C.
 
Board practices
 
For information regarding
 
board practices, see Item 6.A
 
Severance payments to members of the Executive Board
The contracts entered into with the members
 
of the Executive Board provide for severance
 
payments that
become due upon termination of the applicable Executive Board member’s contract,
 
including if termination
occurs in connection with a public bid as defined in section 5:70 of the Dutch Financial Supervision Act. For
purposes of calculating the amounts due, it is not relevant whether or not termination of the employment or
commission contract is related to a public bid. Severance
 
payments to the members of the Executive Board are
limited to a maximum of one year’s fixed salary,
 
in line with the Dutch Financial Supervision Act and the
Corporate Governance Code
 
D.
 
Employees
 
The average number of employees at a full time equivalent basis was 55,901
 
at the end of 2020, of which 15,201
or 27%, were employed in the Netherlands. Substantially all of the Group’s
 
Dutch employees are subject to a
collective labor agreement covering ING in the Netherlands.
 
 
The distribution of employees with respect to the Group’s
 
continuing operations for the years 2020, 2019 and
2018 were as follows:
 
Number of employees
Netherlands
Rest of the world
Total
2020
2019
2018
2020
2019
2018
2020
2019
2018
Total average
 
number
of internal employees at full time
equivalent basis
15,201
14,415
13,600
40,701
39,016
38,633
55,901
53,431
52,233
 
 
The Group employs a significant numbers of temporary employees. The
 
average number of temporary
employees, not included in the table above, at a full time equivalent basis was 7,886 at the end of 2020.
 
E.
 
Share ownership
 
For information regarding share
 
ownership, see Item 6.B of this Form 20-F and Note 27 ‘Staff expenses’ to the
consolidated financial statements.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
119
 
Item 7.
 
Major shareholders and related
party transactions
A. Major shareholders
ING Group ordinary shares are listed on the stock exchanges
 
of Amsterdam (Euronext Amsterdam)
 
and
Brussels (Euronext Brussels). ING Group American Depositary Shares (“ADSs”)
 
are listed on the New York
 
Stock
Exchange (NYSE). Options on ING Group ordinary shares or in the form of American depository receipts (ADRs)
are traded on the Euronext Amsterdam
 
Derivative Markets and the Chicago Board Options Exchange.
 
Holders of ordinary shares or American Depositary Shares with a stake
 
of 3% or more
 
To the best
 
of our knowledge, as of 31 December 2020, no holder of ordinary shares or ADSs, other than
BlackRock Inc. held 3% or more of ING Group’s issued share
 
capital.
 
On 4 February 2019, BlackRock, Inc. disclosed by way of a Schedule 13G filed with the SEC, beneficial
ownership of 233,492,874 ordinary shares of ING Group as of 31 December 2018, representing 6.0% of ING
Group’s issued share capital.
 
On 5 February 2020, BlackRock, Inc. disclosed by way of a Schedule 13G filed with
the SEC, beneficial ownership of 259,231,767 ordinary shares of ING Group as of 31 December 2019,
representing 6.7% of ING Group’s
 
issued share capital. On 29 January 2021, BlackRock, Inc. disclosed by way of
a Schedule 13G filed with the SEC, beneficial ownership of 289,185,500 ordinary shares of ING Group as of 31
December 2020, representing 7.4% of ING Group’s issued share
 
capital.
 
On 31 December 2020, ING Groep N.V.
 
and its subsidiaries held 571,671 ordinary shares or ADSs, ,representing
0.01% of ING Group’s issued share capital.
 
ING Groep N.V.
 
does not have voting rights in respect of shares and
ADSs it holds or which are held by its subsidiaries. Pursuant to section 5.3 of the Dutch Financial Supervision
Act (“Major Holdings Rules”), any person who, directly or indirectly,
 
acquires or disposes of an interest in the
voting rights and/or the capital of (in short) a public limited company incorporated
 
under the laws of the
Netherlands with an official listing on a stock exchange within the European Economic
 
Area, as a result of
which acquisition or disposal the percentage of his voting rights or capital interest
 
- whether through
ownership of shares, American depositary receipts (ADRs) or any other financial instrument, whether stock-
settled or cash-settled, such as call or put options, warrants, swaps
 
or any other similar contract - reaches,
exceeds or falls below the threshold levels of 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% and 95%
is required to provide updated information
 
on its holdings. As a result, other than based on information
available from public filings available under the applicable laws of any other jurisdiction, ING Groep
 
N.V.
 
is not
aware of any changes in the ownership of ordinary shares or ADSs between the thresholds levels
 
mentioned in
the previous sentence.
 
On 31 December 2020, no person is known to ING Groep N.V.
 
to be the owner of more than 10% of the
ordinary shares or ADSs. As of 31 December 2020, members of the Supervisory Board and their related third
parties held 5,295 Ordinary Shares. Members of the Supervisory Board do not hold ING options.
 
As at 31 December 2020, members of the Executive Board and their related third
 
parties held 88,741
 
ordinary
shares.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
120
 
As at 31 December 2020 ING Groep N.V.
 
was not a party to any material agreement that becomes effective,
 
or
is required to be amended or terminated in case of a change of control
 
of ING Groep N.V.
 
following a public bid
as defined in the Dutch Financial Supervision Act. ING Groep N.V.’s
 
subsidiaries may have customary change of
control arrangements included in agreements related
 
to various business activities, such as joint venture
agreements, letters of credit and other credit facilities,
 
ISDA-agreements, hybrid capital and debt instruments,
reinsurance contracts and futures and option trading
 
agreements. Following a change of control of ING Groep
N.V.
 
(as the result of a public bid or otherwise), such agreements may be amended or terminated, leading, for
example, to an obligatory transfer
 
of the interest in the joint venture, early repayment
 
of amounts due, loss of
credit facilities or reinsurance cover and liquidation of outstanding
 
futures and option trading positions.
As of 31 December 2020 ING Groep N.V.
 
was not aware of any arrangements the operation
 
of which may result
in a change of control of ING Groep N.V.
 
B. Related Party Transactions
In the normal course of business, ING Group enters into various transactions
 
with related parties. Parties are
considered to be related if one party has the ability to control or exercise
 
significant influence over the other
party in making financial or operating decisions. Related parties of ING Group include, among others, its
subsidiaries, associates, joint ventures, key
 
management personnel, and various defined benefit and
contribution plans. Transactions between
 
related parties include rendering or receiving of services, leases,
transfers under finance arrangements
 
and provisions of guarantees or collateral. There
 
are no significant
provisions for doubtful debts or individually significant bad debt expenses recognised on outstanding
 
balances
with related
 
parties.
 
 
ING Group has entered into various transactions with related
 
parties. For more information, reference
 
is made
to Note 49 “Related parties”
 
in the consolidated financial statements.
 
 
As described under “Item 6. Directors, Senior Management and Employees”,
 
some members of the Supervisory
Board are current or former senior executives
 
of leading multi-national corporations based primarily in the
Netherlands. ING Group may at any time have lending, investment
 
banking or other financial relationships with
one or more of these corporations in the ordinary course of business on terms which we believe are no less
favorable to ING than those reached with unaffiliated
 
parties of comparable creditworthiness.
 
C. Interests of experts and counsel
This item does not apply to annual reports on Form 20-F.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
121
 
Item 8.
 
Financial information
 
A.
 
Consolidated statements and other financial information
 
Consolidated statements
For information regarding consolidated
 
statements and other financial information, see Item 18 of this Form
20-F.
 
Legal Proceedings
For a description of ING’s legal proceedings,
 
see Note 45 ‘Legal proceedings’ in the consolidated financial
statements.
 
Policy on dividend distribution
 
In the third quarter of 2020, ING announced a change in its distribution policy from a progressive dividend to a
pay-out ratio of 50% of resilient net profit and additional return
 
of structural excess capital. For detailed
information on ING’s 2020 dividend, reference
 
is made to Note 51 ‘Capital Management’.
 
Cash distributions on ING Groups ordinary shares are generally paid in Euros. However,
 
the Executive Board
may decide, with the approval of the Supervisory Board, to declare dividends in the currency of a country other
than the Netherlands in which the shares are traded. Amounts payable to holders
 
of ADSs that are paid to the
Depositary in a currency other than dollars will be converted to dollars and subjected to
 
a charge by the
Depositary for any expenses incurred by it in such conversion.
 
 
If the Executive Board has been designated as a body authorised to resolve to issue shares, it may
 
decide, with
the approval of the Supervisory Board, that a distribution on ordinary shares shall be made in the form of
ordinary shares instead of cash or to determine that the holders of ordinary shares
 
shall be given the choice of
receiving the distribution in cash or in the form of ordinary shares on such terms as the Executive Board,
 
with
the approval of the Supervisory Board, may decide.
 
The right to dividends and distributions in respect of the ordinary shares will lapse if such dividends or
distributions are not claimed within five years following the day after
 
the date on which they were made
available.
 
There are no legislative or other legal provisions currently in force
 
in the Netherlands or arising under ING
Groups’ Articles of Association restricting the remittance of dividends to holders of ordinary
 
shares, or ADSs
not resident in the Netherlands. Insofar as the laws of the Netherlands are concerned, cash dividends paid in
Euro may be transferred from
 
the Netherlands and converted into any other currency,
 
except that for
statistical purposes such payments and transactions must
 
be reported by ING Group to DNB
 
and, further, no
payments, including dividend payments, may be made to jurisdictions or persons, that
 
are subject to certain
sanctions, adopted by the Government of the Netherlands, implementing resolutions of the Security Council of
the United Nations, or adopted by the European Union.
 
Dividends are subject to withholding taxes in the Netherlands as described under Item 10, “Additional
Information - Taxation
 
- Netherlands Taxation”.
 
B.
 
Significant changes
 
For information on subsequent events reference
 
is made to Note 50 ‘Subsequent events’ of the consolidated
financial statements.
 
 
Since 31 December 2020, until the filing of this report, no other significant changes have occurred in the
financial statements of the Group included in “Item 18 Consolidated Financial Statem
 
ents” of this document.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
122
 
Item 9.
 
The offer and listing
 
A.
 
Offer and listing details
 
Ordinary Shares (nominal value EUR 0.01 per share) are traded on Euronext Amsterdam,
 
the principal trading
market for
 
the Ordinary Shares, under the symbol “INGA”.
 
The Ordinary Shares are also listed on the stock
exchange of Euronext Brussels, under the symbol “INGA”.
 
ADSs, representing an equal number of Ordinary
Shares, are traded on the New York
 
Stock Exchange under the symbol “ING”.
 
B.
 
Plan of distribution
 
This item does not apply to annual reports on Form 20-F.
 
C.
 
Markets
 
For information regarding markets,
 
see Item 9.A of this Form 20-F.
 
D.
 
Selling shareholders
 
This item does not apply to annual reports on Form 20-F.
 
E.
 
Dilution
 
This item does not apply to annual reports on Form 20-F.
 
F.
 
Expenses of the issue
 
This item does not apply to annual reports on Form 20-F.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
123
 
Item 10.
 
Additional information
 
A.
 
Share capital
 
 
This item does not apply to annual reports on Form 20-F.
 
B.
 
Memorandum and articles of association
 
 
 
For a description of ING’s memorandum and articles of association, please see Exhibit 2.1 “Description of
Securities Registered under Section 12 of the Exchange Act”,
 
which is incorporated by reference
 
herein.
 
C.
 
Material contracts
 
There have been no material contracts outside the ordinary course
 
of business to which ING Groep N.V.
 
or any
of its subsidiaries is a party in the last two years.
 
D.
 
Exchange controls
 
Cash distributions, if any, payable in Euros on Ordinary Shares and ADSs
 
may be officially transferred from the
Netherlands and converted into any other currency without
 
violating Dutch law, except that for statistical
purposes such payments and transactions must be
 
reported by ING Groep N.V.
 
to the Dutch Central Bank and,
further, no payments, including dividend payments, may be made to jurisdictions
 
or persons subject to certain
sanctions, adopted by the government of
 
the Netherlands
 
or the European Union.
 
 
E.
 
T
axation
 
The following is a summary of certain Netherlands tax consequences, and the United States federal
 
income tax
consequences, of the ownership of our Ordinary Shares or American Depositary Shares (“ADSs”)
 
by U.S.
Shareholders (as defined below) who hold Ordinary Shares or ADSs as capital assets.
 
 
For the purposes of this summary, a “U.S. Shareholder” is a beneficial owner of Ordinary Shares or ADSs that is:
 
 
◾
 
an individual citizen or resident of the United States,
◾
 
a corporation organized under the laws
 
of the United States or of any state of the United States,
 
or any
entity taxable as United States corporation,
◾
 
an estate, the income of which is subject to United States federal
 
income tax without regard to its
source, or
◾
 
a trust if a court within the United States is able to exercise
 
primary supervision over the
administration of the trust and one or more United States
 
persons have the authority to control all
substantial decisions of the trust.
 
Further, this summary is limited to U.S.
 
Shareholders who are not, and are not deemed to be, a resident of the
Netherlands for Dutch tax purposes.
 
 
This summary is based on the United States Internal Revenue Code of 1986 and the laws of the Netherlands,
each as amended, their legislative history,
 
existing and proposed regulations, published rulings and court
decisions, and the tax treaty between the United States
 
and the Netherlands for the Avoidance of Double
Taxation
 
and the Prevention of Fiscal Evasion with respect to Taxes
 
on Income (“Treaty”), all as of the date
hereof. These laws are
 
subject to change, possibly on a retroactive basis. The information provided
 
below is
neither intended as tax advice nor purports to describe all of the tax considerations that
 
may be relevant to
investors and prospective investors.
 
It should not be read as extending to matters not specifically discussed,
and investors should consult their own advisors as to the tax
 
consequences of their ownership and disposal of
Ordinary Shares or ADSs. In particular,
 
the summary does not take into account the specific circumstances of
particular investors (such as tax-exempt
 
organizations, banks, insurance companies, dealers
 
in securities,
traders in securities that elect to mark-to-market
 
their securities holdings, investors liable for alternative
minimum tax, investors whose functional currency is not the U.S. dollar,
 
investors that actually or
constructively own 10% or more of the combined voting power of the voting stock or of the total value
 
of ING
Groep N.V.,
 
investors that hold Ordinary Shares or ADSs as part of a straddle
 
or a hedging or conversion
transaction, investors that acquired
 
or dispose of Ordinary Shares or ADSs as part of a wash sale, or investors
that own Ordinary Shares or ADSs through a partnership), some of which may be subject to special rules.
 
 
Moreover,
 
this summary does not discuss the Dutch tax treatment of a holder of Ordinary Shares or ADSs that
is an individual who receives income or capital gains derived from the Ordinary Shares and ADSs and this
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
124
 
income received or capital gains derived are attributable
 
to the past, present or future employment activities
of such holder.
 
 
The summary is based in part upon the representations of the Depositary and the assumption that each
obligation in the Deposit Agreement and any related agreement
 
will be performed in accordance with its
terms. In general, for United States federal
 
income tax and Netherlands tax purposes, holders of ADSs will be
treated as the owners of the Ordinary Shares underlying the ADSs, and exchanges
 
of Ordinary Shares for ADSs,
and exchanges of ADSs for Ordinary Shares, will not be subject to United States
 
federal income tax or
Netherlands income tax. References to
 
Ordinary Shares in this section include references to ADSs.
 
 
It is assumed, for purposes of this summary, that a U.S.
 
Shareholder is eligible for the benefits of the Treaty
 
and
that a U.S. Shareholder’s eligibility is not limited by the limitation on benefits provisions of the Treaty.
 
 
Netherlands Taxation
Withholding tax on dividends
The Netherlands imposes a withholding tax on a distribution of a dividend at the statutory rate of 15%.
Dividends include:
 
i.
 
dividends paid in cash and in kind;
 
ii.
 
deemed and constructive dividends;
 
iii.
 
the consideration for the repurchase or redemption of shares
 
in excess of the qualifying average paid-
in capital unless such repurchase is made for temporary investment
 
purposes or is exempt by law;
 
iv.
 
any (partial) repayment of paid-in capital not qualifying as capital for
 
Dutch dividend withholding tax
purposes;
 
v.
 
liquidation proceeds in excess of the qualifying average
 
paid-in capital for Dutch dividend withholding
tax purposes; and
 
vi.
 
stock dividends up to their nominal value (unless distributed out of ING Groep N.V.’s
 
qualifying paid-in
capital).
 
Reduction of Dutch dividend withholding tax based on Dutch law
Under certain circumstances, a reduction of Dutch dividend withholding tax can be obtained
 
based on Dutch
law:
 
i.
 
An exemption at source is available if the Dutch
 
participation exemption applies and the Ordinary
Shares or ADSs are attributable to a business carried out in the Netherlands. To
 
qualify for the Dutch
participation exemption, the U.S. Shareholder must generally
 
hold at least 5.0 percent of our nominal
paid-in capital and meet certain other requirements.
ii.
 
An exemption at source is available for
 
dividend distributions to certain qualifying corporate U.S.
Shareholders owning our Ordinary Shares or ADSs if such shareholder would have been able to apply
the Dutch participation exemption if it would have been resident
 
of the Netherlands, unless such
shareholder holds the Ordinary Shares or ADSs with the primary aim or one of the primary aims to
avoid the levy of Dutch dividend withholding tax at the level of another person and the Ordinary
Shares or ADSs are not held for valid commercial reasons that reflect
 
economic reality.
 
iii.
 
Certain tax exempt organizations
 
(e.g. pension funds and excluding collective investment vehicles) may
be eligible for a refund of Dutch dividend withholding tax upon their request. Based on domestic law
not yet entered into force,
 
in those circumstances, an exemption at source
 
may also become available
upon request.
iv.
 
Upon request and under certain conditions, certain qualifying individual and corporate U.S
Shareholders of Ordinary Shares or ADSs which are not subject to personal or corporate
 
income tax in
the Netherlands may request a refund of Dutch dividend withholding tax insofar
 
the withholding tax
withheld on the gross dividend is higher than the personal or corporate income tax which would have
been due on the net dividend if they were resident or established in the Netherlands. This refund is
however not applicable when, based on the Treaty,
 
the Dutch dividend withholding tax can be fully
credited in the United States by the U.S. Shareholder.
 
However,
 
it is unclear whether (i) which
(financing) costs can be taken into account
 
when determining the hypothetical personal or corporate
income tax due on the net income (ii) or how the Netherlands would determine whether,
 
based on the
double taxation convention, a full credit
 
is available in the country of residence of the holder for
purposes of this refund. See “United States Taxation
 
—Taxes
 
on dividends” for more information. The
provision in essence is intended to be a codification of certain judgments by both the European Free
Trade Association Court of Justice and the European
 
Court of Justice that already indicated that in
certain circumstances a refund should be available prior to
 
the introduction of the provision in Dutch
law. It is possible that this provision is an insufficient
 
codification of these judgments and that based
on EU law a larger refund should be provided.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
125
 
Reduction of Dutch dividend withholding tax based on the Tre
 
aty
Pursuant to the provisions of the Treaty,
 
certain corporate U.S. Shareholders owning
 
directly at least 10% of
our voting power are eligible for a reduction to 5% Dutch dividend withholding tax provided
 
that the U.S.
Shareholder is the beneficial owner of the dividends received and does not have an enterprise or an interest
 
in
an enterprise that is, in whole or in part, carried on through a permanent establishment or permanent
representative in the Netherlands to which the dividends are attributable.
 
The Treaty also provides
 
for a
dividend withholding tax exemption on dividends, but only for a shareholder owning directly at
 
least 80.0
percent of our voting power and meeting all other requirements.
 
Provided that certain conditions are met, under the Treaty
 
dividends paid to qualifying exempt pension trusts
and other qualifying exempt organizations, as defined in the Treaty,
 
are exempt from Dutch dividend
withholding tax. To
 
obtain a refund of the tax withheld such qualifying exempt pension trusts are
 
required to
file a request. Only if certain conditions are fulfilled, such qualifying exempt pension trusts may
 
be eligible for
relief at source upon payment of the dividend. Qualifying exempt
 
organizations (other than qualifying exempt
pension trusts) can only file for a refund of the tax withheld.
 
Anti-dividend stripping rules
Pursuant to the Dutch anti-dividend stripping rules, in the case of dividend-stripping, the 15% dividend
withholding tax cannot be reduced or refunded. Dividend-stripping is deemed to be present if the recipient
 
of a
dividend is, different from what has been assumed above, not the beneficial owner thereof and is entitled to
 
a
larger credit, reduction or refund of dividend withholding tax than the beneficial owner of the dividends. Under
these rules, a recipient of dividends will not be considered the beneficial owner thereof if as a consequence of
a combination of transactions a person other than the recipient wholly or partly benefits from the dividends,
whereby such person retains, whether directly or indirectly,
 
an interest similar to the shares on which the
dividends were paid.
 
Credit for ING Groep N.V.
 
ING Groep N.V.
 
may, with respect to
 
certain dividends received from qualifying non-Netherlands subsidiaries,
credit taxes withheld from those dividends against the Netherlands
 
withholding tax imposed on certain
qualifying dividends that are redistributed by ING Groep N.V.,
 
up to a maximum of the lesser of:
 
3% of the amount of qualifying dividends redistributed by ING Groep N.V.;
 
and
3% of the gross amount of certain qualifying dividends received by ING Groep N.V.
 
The reduction is applied to the Dutch dividend withholding tax that ING Groep N.V.
 
must pay to the Dutch tax
authorities and not to the Dutch dividend withholding tax that ING Groep N.V.
 
must withhold.
 
Taxes
 
on income and capital gains
Income and capital gains
 
Income and capital gains derived from the Ordinary Shares or ADSs by an individual or corporate
 
U.S.
Shareholder are generally not subject to Netherlands income tax or corporation
 
tax, unless:
 
 
i.
 
such income and gains are attributable to a (deemed) permanent establishment
 
or (deemed)
permanent representative in the Netherlands of the U.S. Shareholder;
 
or
ii.
 
the shareholder is entitled to a share in the profits of an enterprise or (in case of a non-Dutch resident
corporate shareholder only) a co-entitlement to the net
 
worth of an enterprise, that is effectively
managed in the Netherlands (other than by way of securities) and to which enterprise the Ordinary
Shares or ADSs are attributable; or
iii.
 
such income and capital gains are derived from a direct, indirect or deemed substantial
 
interest in the
share capital of ING Groep N.V.
 
(such substantial interest not being a business asset), and in the case
of a non-Dutch resident corporate shareholder only,
 
that substantial interest is being held with the
primary aim or one of the primary aims to avoid the levy of income tax from another person and is put
in place without valid economic reasons that reflect economic reality;
 
iv.
 
in case of a non-Dutch resident corporate shareholder,
 
such shareholder is a resident of Aruba,
Curacao or Saint Martin with a permanent establishment or permanent representative
 
in Bonaire,
Eustatius or Saba to which the Ordinary Shares or ADS are attributable, while the profits of such
shareholder are taxable in the Netherlands pursuant to Article 17(3)(c) of the Dutch Corporate
 
Tax Act
1969; or
v.
 
in case of a non-Dutch resident individual, such individual derives income or capital gains from the
Ordinary Shares or ADSs that are taxable as benefits from
 
‘miscellaneous activities’ in the Netherlands
(‘resultaat uit overige werkzaamheden’,
 
as defined in the Dutch Income Tax
 
Act 2001), which includes
the performance of activities with respect to the Ordinary Shares or ADSs that exceed regular
 
portfolio
management.
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
126
 
Substantial interest
Generally speaking, for Dutch tax purposes, an interest in the share
 
capital of ING Groep N.V.,
 
should not be
considered a substantial interest if the holder of such interest,
 
and, in case of an individual, his or her spouse,
registered partner,
 
certain other relatives or certain persons sharing the holder’s household, alone or together,
does or do not hold, either directly or indirectly, the ownership
 
of, or certain rights over,
 
shares or rights
resembling shares representing 5% or more of the total issued and outstanding
 
capital, or the issued and
outstanding capital of any class of shares, of ING Groep N.V.
 
Gift or inheritance tax
No Netherlands gift or inheritance tax will be imposed on the transfer or deemed transfer
 
of the Ordinary
Shares or ADSs by way of a gift by or on the death of a U.S. Shareholder if,
 
at the time of the gift or the death of
that shareholder,
 
such shareholder is not a (deemed) resident of the Netherlands.
 
Netherlands inheritance or gift taxes (as the case may be) are due, however,
 
if the transfer of the bearer
receipts or ADSs are construed as an inheritance or as a gift made by or on behalf of a person who, at the time
of the gift or death, is deemed to be a resident of the Netherlands. For the purposes of Netherlands gift or
inheritance tax, an individual of Dutch nationality is deemed to be a resident of the Netherlands if he or she
has been a resident thereof at any time during the ten years preceding
 
the time of the gift or death. For the
purposes of Netherlands gift tax, any person is deemed to be a resident of the Netherlands if he or she has
resided therein at any time in the twelve months preceding the gift.
 
United States Taxation
Taxes
 
on dividends
The tax treatment of owning Ordinary shares will depend in part on whether or not ING Groep N.V.
 
is classified
as a passive foreign investment company,
 
or PFIC, for United States federal
 
income tax purposes.
 
Except as
discussed below under “-PFIC Rules”, this discussion assumes that we
 
are not classified as a PFIC for United
States federal income tax
 
purposes.
 
Under the United States federal income tax
 
laws, a U.S. Shareholder will be required to include in gross income
the full amount of a cash dividend (including any Netherlands withholding tax withheld) as ordinary income
when the dividend is actually or constructively received by the U.S. Shareholder.
 
For this purpose, a “dividend”
will include any distribution paid by ING Groep N.V.
 
with respect to the Ordinary Shares, but only to the extent
such distribution is not in excess of ING Groep N.V.’s
 
current and accumulated earnings and profits as
determined for United States federal
 
income tax purposes. Distributions in excess of current and accumulated
earnings and profits, as determined for United States federal
 
income tax purposes, will be treated as a non-
taxable return of capital to the extent
 
of a U.S. Shareholder’s basis in the Ordinary Shares and thereafter as
capital gain. Because ING Groep N.V.
 
does not keep account of its earnings and profits, as determined for
United States federal income tax
 
purposes, U.S. Shareholders should generally expect to treat
 
any distribution
as a dividend for U.S. federal income tax
 
purposes.
 
 
For foreign tax credit purposes, dividends will generally be income
 
from sources outside the United States and
will, depending on the circumstances of the U.S. Shareholder,
 
generally be “passive” income for purposes of
computing the foreign tax credit allowable to the shareholder.
 
A dividend will not be eligible for the dividends
received deduction generally allowed to U.S. corporations
 
in respect of dividends received from other U.S.
corporations. Dividends paid to a non-corporate U.S.
 
Shareholder that are considered qualified dividend
income will be taxable to the shareholder at preferential
 
rates applicable to long-term capital gains provided
that the shareholder holds the Ordinary Shares for more than 60 days during the 121-day
 
period beginning 60
days before the ex-dividend date
 
and meets other holding period requirements. Dividends paid by ING Groep
N.V.
 
with respect to the Ordinary Shares generally will be qualified dividend income, provided that, in the year
that you receive the dividend, we are eligible for the benefits of the Treaty.
 
We believe that we are currently
eligible for the benefits of the Treaty
 
and we therefore expect that dividends on the Ordinary Shares will be
qualified dividend income, but there can be no assurance that we will continue to be eligible for the benefits of
the Treaty.
 
 
Subject to certain limitations, a U.S. Shareholder may generally
 
deduct from income, or credit against its
United States federal income tax
 
liability, the amount of any Netherlands withholding taxes
 
under the Treaty.
The Netherlands withholding tax will likely not be creditable against the U.S.
 
Shareholder’s United States tax
liability, however,
 
to the extent that ING Groep N.V.
 
is allowed to reduce the amount of dividend withholding
tax paid over to the Netherlands Tax
 
Administration by crediting withholding tax imposed on certain dividends
paid to ING Groep N.V.
 
In addition, special rules apply in determining the foreign tax credit limitation with
respect to dividends that are subject to preferential
 
rates. To
 
the extent a reduction or refund of the tax
withheld is available to you under Dutch law or under the Treaty,
 
the amount of tax withheld that could have
been reduced or is refundable will not be eligible for credit against your United
 
States federal income tax
liability. In addition, to the extent
 
an amount of Dutch tax withheld is contingent on the availability of a credit
against the amount of income tax owed to another country,
 
that amount of Dutch tax withheld will not be
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
127
 
eligible for a credit against your United States federal
 
income tax liability. It is unclear whether or how the
Netherlands would apply this rule in determining whether,
 
based on the Treaty,
 
a credit is available in the
United States for purposes of the dividend withholding tax refund
 
provision described in Section IV under
“Netherlands Taxation
 
—Withholding tax on dividends—Reduction of Dutch dividend withholding tax based on
Dutch law”.
 
 
Since payments of dividends with respect to Ordinary Shares will be made in Euros, a U.S. Shareholder will
generally be required to determine the amount of dividend income by translating
 
the Euro into United States
dollars at the “spot rate” on the date
 
the dividend distribution is includable in the income of the U.S.
Shareholder.
 
Generally, any
 
gain or loss resulting from currency exchange fluctuations during the period from
the date the dividend distribution is includable in the income of the U.S. Shareholder to the date such payment
is converted into U.S. dollars will be treated
 
as ordinary income or loss and will not be eligible for the special
tax rate applicable to qualified dividend income. Such gain or loss will generally
 
be income or loss from sources
within the United States for foreign tax
 
credit limitation purposes.
 
Taxes
 
on capital gains
 
Gain or loss on a sale or exchange of Ordinary Shares by a U.S. Shareholder will generally
 
be a capital gain or
loss for United States federal
 
income tax purposes. If such U.S. Shareholder has held the Ordinary Shares for
more than one year,
 
such gain or loss will generally be long-term capital gain or loss. Long-term capital gain
 
of
a non-corporate U.S. Shareholder is generally taxed
 
at preferential rates.
 
In general, gain or loss from a sale or
exchange of Ordinary Shares by a U.S. Shareholder will be treated
 
as income or loss from sources within the
United States for foreign tax
 
credit limitation purposes.
 
 
PFIC rules
 
ING Groep N.V.
 
believes it is not a PFIC for United States federal
 
income tax purposes, and it does not expect to
become a PFIC in the foreseeable future. However,
 
this conclusion is a factual determination that must be
made annually and thus may be subject to change. It is therefore possible that we could
 
become a PFIC in a
future taxable year
 
If ING Groep N.V.
 
were to be treated as a PFIC, unless a U.S. Shareholder made an effective
 
election to be taxed
annually on a mark-to-market basis with respect to the Ordinary Shares, any gain
 
from the sale or disposition
of Ordinary Shares by a U.S. Shareholder would be allocated ratably
 
to each year in the holder’s holding period
and would be treated as ordinary income. Tax
 
would be imposed on the amount allocated to each year prior to
the year of disposition at the highest rate in effect
 
for that year,
 
and interest would be charged at the rate
applicable to underpayments on the tax payable
 
in respect of the amount so allocated. The same rules would
apply to “excess distributions”,
 
defined generally as distributions in a single taxable year exceeding
 
125% of the
average annual distribution made by ING Groep N.V.
 
over the shorter of the three preceding taxable years
 
or
the portion of the holder’s holding period that preceded the current taxable year.
 
Dividends received by a U.S.
Shareholder will not be eligible for the special tax rates applicable to qualified dividend income if ING Groep
N.V.
 
were to be treated as a PFIC with respect to the shareholder either in the taxable
 
year of the distribution
or the preceding taxable year,
 
but instead will be taxable at rates applicable to
 
ordinary income.
 
 
A U.S. Shareholder who owns Ordinary Shares during any year that ING Groep N.V.
 
is a PFIC may be required to
file Internal Revenue Service Form 8621.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
128
 
F.
 
Dividends and paying agents
 
This item does not apply to annual reports on Form 20-F.
 
G.
 
Statement by experts
 
This item does not apply to annual reports on Form 20-F.
 
H.
 
Documents on display
 
ING Groep N.V.
 
is subject to the informational requirements of the Securities Exchange Act of 1934, as
amended. In accordance with these requirements, ING Groep N.V.
 
files reports and other information with the
Securities and Exchange Commission (”SEC”). These materials, including this Annual Report and its exhibits,
may be inspected and copied on the SEC’s website at www.sec.gov.
 
You may
 
also inspect ING Groep N.V.’s
 
SEC
reports and other information on the website of ING Groep N.V.
 
(www.ing.com).
 
I.
 
Subsidiary information
 
This item does not apply to annual reports on Form 20-F.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
129
 
Item 11. Quantitative
 
and Qualitative
Disclosure of Market
 
Risk
See “Item 5. Operating and Financial Review and Prospects – Factors
 
Affecting Results of Operations” and
“Additional information
 
- ING Group Risk Management” for these
 
disclosures, including disclosures relating to
operational, compliance and other non-market-related
 
risks.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
130
 
Item 12. Description of Securities Other
Than Equity Securities
A.
 
Debt securities
 
This item does not apply to annual reports on Form 20-F.
 
B.
 
Warrants and rights
 
This item does not apply to annual reports on Form 20-F.
 
C.
 
Oth
er securities
 
This item does not apply to annual reports on Form 20-F.
 
D.
 
American depositary shares
 
Fees and Charges Payable
 
by a Holder of ADSs
 
JPMorgan Chase Bank, N.A., as ADR depositary,
 
may collect fees for,
 
among other things, the delivery and
surrender of ADSs directly from investors, or from
 
intermediaries acting for them, depositing Ordinary Shares
or surrendering ADSs for the purpose of withdrawal.
 
The charges of the ADR depositary payable which may be payable
 
by investors are as follows:
 
 
Type of Service
 
ADR Depositary Actions
Fee Payable
Depositing or
substituting the
underlying Ordinary
Shares
Issuance of ADSs against the deposit of Ordinary Shares,
including deposits and issuances in respect of:
 
 
·
 
share distributions, rights and other
 
distributions.
 
·
 
a stock dividend or stock split.
 
·
 
a merger, exchange
 
of securities or
 
other transactions or events affecting
 
the ADSs or the underlying Ordinary
 
Shares.
$5.00 for each 100 ADSs (or portion
thereof) issued, delivered or upon
which a share distributive or elective
distribution is made or offered.
 
The
ADR depositary may sell sufficient
securities or property received in
respect of share distributions, rights
and other distributions prior to such
deposit to pay such charge.
Receiving or
distributing cash
dividends
Distribution of cash dividends or other cash distributions, or
offering of elective cash/stock dividends.
$0.05 or less per ADS held.
Selling or exercising
rights
 
·
 
additional ADRs resulting from a
 
dividend or free distribution consisting
 
of Ordinary Shares, or U.S dollars
 
resulting from sales of Ordinary Shares
 
received in a distribution.
 
·
 
Instruments representing rights to
 
acquire additional ADRs as a result of
 
distribution on Ordinary Shares, or U.S
 
dollars resulting from sales of such
 
rights.
 
·
 
other securities available to the ADR
 
depositary resulting from any
 
distribution on the deposited Ordinary
 
Shares, or U.S dollars resulting from
 
sales of such other securities.
An amount equal to the fee for the
execution and delivery of ADSs which
would have been charged as a result
of the deposit of such securities.
Withdrawing an
underlying Ordinary
Share
Acceptance of ADSs surrendered for withdrawal of deposited
Ordinary Shares
$5.00 for each 100 ADSs (or portion
thereof) reduced, cancelled or
surrendered.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
131
 
 
Type of Service
 
ADR Depositary Actions
Fee Payable
Transferring,
splitting or grouping
of ADRs
Registration, registration of transfer,
 
combination and split-up
of ADRs in the ADR register as evidenced by the ADRs
surrendered or upon delivery of proper instruments of transfer
$1.50 per ADR.
General depositary
services, particularly
those charged on an
annual basis
Other services performed by the ADR depositary in
administering the ADR program
$0.05 per ADS per calendar year (or
portion thereof), which may be
charged on a periodic basis during
each calendar year against holders of
the record date(s) set by the ADR
depositary and shall be payable at
the sole discretion of the ADR
depositary by billing such holders or
deducting such charge from one or
more cash distributions.
Reimbursement of
fees, charges and
expenses of the ADR
depositary
The ADR depositary and/or any of its agents may incur fees,
charges and expenses (including expenses incurred on behalf
of holders of ADRs in connection with compliance with foreign
exchange control regulations or any
 
law or regulation relating
to foreign investment) in connection with the servicing of the
underlying Ordinary Shares or other deposited securities, the
sale of securities (including, without limitation, deposited
securities), the delivery of deposited securities or otherwise in
connection with the ADR depositary’s compliance with
applicable law, rule or regulation.
Fees and charges shall be assessed
on a proportionate basis against
holders of ADRs as of the record date
or dates set by the ADR depositary
and shall be payable at the sole
discretion of the ADR depositary by
billing such holders of ADRs or by
deducting such charge from one or
more cash dividends or other cash
distributions.
 
Type of Service
 
ADR Depositary Actions
Fee Payable
Other charges and
expenses of the ADR
depositary
The ADR depositary may incur charges and expenses on behalf
of holders in connection with:
 
 
·
 
stock transfer or other taxes
 
and other
 
 
governmental charges.
 
·
 
SWIFT, cable, telex
 
and facsimile
 
transmission and delivery charges
 
incurred at the request of persons
 
depositing, or holders of ADRs delivering
 
underlying Ordinary Shares, ADRs or
 
deposited securities.
 
·
 
transfer or registration fees
 
for the
 
registration or transfer of deposited
 
securities.
 
 
·
 
fees, expenses and other charges of the
 
ADR depositary or its agent in
 
connection with the conversion of
 
foreign currency into U.S. dollars.
Payable by holders or persons
depositing Ordinary Shares.
Payable by persons depositing, or
holders of ADRs delivering underlying
Ordinary Shares, Ads or deposited
securities.
Payable by persons depositing or
withdrawing deposited securities.
Payable by persons receiving such
foreign currency,
 
as the ADR
depositary will deduct any fees,
expenses and other charges prior to
distributing such foreign currency.
 
 
Fees and Payments made by the ADR depositary to
 
ING
 
In consideration for acting as depositary,
 
the ADR depositary has agreed to provide ING with certain amounts
on an annual basis. In the year ended 31 December 2020, the ADR depositary paid aggregate fees and made
other direct and indirect payments to ING in an amount of USD 3,335,215.
 
 
Under certain circumstances, including removal of the ADR depositary or termination of the ADR program
 
by
ING, ING is required to repay the ADR depositary certain amounts reimbursed
 
and/or expenses paid to or on
behalf of ING.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
132
 
PART
 
II.
 
Item 13. Defaults,
 
Dividend Arrearages
 
and
Delinquencies
None.
 
Item 14. Material Modifications
 
to the
Rights of Security Holders and Use of
Proceeds
None.
 
Item 15. Controls and Procedures
Internal control over financial reporting
Due to the listing of ING shares on the New York Stock
 
Exchange, ING Group is required to comply with the SEC
regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act (SOX
 
404). These regulations require that
the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) of ING Group report and certify on an
annual basis on the effectiveness of ING Group’s
 
internal control over financial reporting. Moreover,
 
the external
auditors are required to provide an opinion on the effectiveness
 
of ING Group’s internal
 
control over financial
reporting.
SOX 404 activities are organized along the lines of the governance
 
structure, and involve the participation of
senior management across ING. Following the SOX 404 process, ING is in the position to publish an unqualified
statement that the Company’s
 
internal control over financial reporting was effective
 
as of 31 December 2020.
The SOX 404 statement by the Executive
 
Board is included on this page, followed by the report of the external
auditor as issued on Form 20-F.
 
Disclosure Controls and Procedures
 
The Company’s management, under the supervision and with the participation of the CEO and CFO, has
performed an evaluation of the effectiveness of the design and operation
 
of the Company’s disclosure controls
and procedures. Based on that evaluation, the CEO and CFO concluded that the Company’s
 
disclosure controls
and procedures were effective as of December 31, 2020, the end of the period covered
 
by the 2020 Form 20-F.
 
 
Report of the Executive Board on Internal
 
Control Over Financial Reporting
The Executive Board is responsible for establishing and maintaining
 
adequate internal control over financial
reporting. ING’s internal control
 
over financial reporting is a process designed under the supervision of our
principal executive and principal financial officers to provide reasonable
 
assurance regarding the reliability of
financial reporting and the preparation of financial statements for
 
external purposes in accordance with generally
accepted accounting principles.
 
Our internal control over financial reporting includes those policies and procedures that:
◾
 
Pertain to the maintenance of records that,
 
in reasonable detail, accurately and fairly reflect the
transactions and dispositions of assets of ING;
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
133
 
◾
 
Provide reasonable assurance that transactions are recorded
 
as necessary to permit preparation of
financial statements in accordance with generally accepted
 
accounting principles, and that our receipts
and expenditures are being made only in accordance with authorisations of our management and
directors; and
◾
 
Provide reasonable assurance regarding prevention
 
or timely detection of unauthorised acquisition, use
or disposition of our assets that could have a material effect on our financial statements.
 
Because of its inherent limitations, internal control over
 
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation
 
of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that
 
the degree of compliance with the
policies or procedures may deteriorate.
 
The Executive Board assessed the effectiveness of internal
 
control over financial reporting as of 31 December
2020. In making this assessment, the Executive Board performed tests based on the criteria of the Committee
 
of
Sponsoring Organisations of the Treadway
 
Commission (“COSO”) in Internal Reporting – Integrated Framework
(2013 Framework). Based on the Executive Board’s
 
assessment and those criteria, the Executive Board concluded
that the Company’s internal control
 
over financial reporting was effective as of 31 December 2020.
 
Attestation Report
 
of the Registered Public Accounting Firm
Our independent registered public accounting firm has audited and issued their report on ING’s
 
internal control
over financial reporting, which appears on the page below.
 
 
Changes in Internal Controls over Financial Reporting
There have been no changes in the Company’s internal
 
controls over financial reporting during the period
covered by this Annual Report that have materially affected
 
or are reasonably likely to materially affect,
 
our
internal control over financial reporting.
 
 
Report of Independent Registered Public Accounting Firm
 
To the Shareholders
 
and the Supervisory Board
 
ING Groep N.V.:
 
Opinion on Internal Control Over Financial Reporting
We have audited ING Groep N.V.
 
and subsidiaries’ (‘the Company’) internal control over financial reporting as of
December 31, 2020, based on criteria established in Internal Control – Integrated
 
Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway
 
Commission. In our opinion, the Company
maintained, in all material respects, effective
 
internal control over financial reporting as of December 31, 2020,
based on criteria established in Internal Control – Integrated
 
Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway
 
Commission.
 
We also have audited, in accordance with the standards
 
of the Public Company Accounting Oversight Board
(United States) (‘PCAOB’), the consolidated statements
 
of financial position of the Company as of December 31,
2020 and 2019, the related consolidated statements
 
of profit or loss, comprehensive income, changes in equity,
and cash flows for each of the years in the three-year period ended December 31, 2020, and the related
 
notes
and specific disclosures described in Note 1 of the consolidated financial statements as being part of the
consolidated financial statements (collectively,
 
‘the consolidated financial statements’), and our report dated
March 8, 2021 expressed an unqualified opinion on those consolidated financial statements.
 
Basis for Opinion
The Company’s management is responsible for maintaining
 
effective internal control
 
over financial reporting and
for its assessment of the effectiveness of internal control
 
over financial reporting, included in the accompanying
Report of the Executive Board on Internal Control
 
Over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over
 
financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required
 
to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations
 
of the Securities and
Exchange Commission and the PCAOB.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
134
 
We conducted our audit in accordance with the standards
 
of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
 
internal control over financial
reporting was maintained in all material respects. Our audit of internal control
 
over financial reporting included
obtaining an understanding of internal control
 
over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
 
effectiveness of internal control
 
based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides
 
a reasonable basis for our opinion.
 
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control
 
over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation
 
of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s
 
internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that,
 
in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company;
 
(2) provide
reasonable assurance that transactions are recorded
 
as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and
 
expenditures of the company
are being made only in accordance with authorisations of management and directors of the company;
 
and (3)
provide reasonable assurance regarding prevention
 
or timely detection of unauthorised acquisition, use, or
disposition of the company’s assets that could have a material
 
effect on the financial statements.
Because of its inherent limitations, internal control over
 
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation
 
of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
 
degree of compliance with the
policies or procedures may deteriorate.
 
/s/ KPMG Accountants N.V.
Amstelveen, The Netherlands
March 8, 2021
 
Item 16A. Audit Committee Financial Expert
The Supervisory Board has determined that Margarete Haase, who is a member of the Supervisory Board,
qualifies as an “audit committee financial expert” as defined by the SEC pursuant to section 407 of the Sarbanes-
Oxley Act of 2002. The Supervisory Board has further determined that Margarete Haase is “independent”,
 
as
defined in Rule 10A-3 under the U.S. Securities Exchange Act of 1934. She was appointed as a member of the
Supervisory Board at the General Meeting in May 2017 and her appointment became effective
 
as per 1 May
2018, as decided by the Supervisory Board in January 2018. Margarete Haase is chairwoman of the Audit
Committee.
Item 16B. Code of Ethics
How we work
 
Creating a differentiating employee experience
 
starts with ING’s distinctive
 
culture: entrepreneurial, open,
collaborative, innovative and energetic.
 
Who we are and how we work are set out in the Orange Code, our
internal Code of Ethics. Putting
‘integrity above all’
, it comprises:
 
 
Our values.
The non-negotiable promises we make to the world no matter
 
what.
 
◾
 
We are honest.
 
◾
 
We are responsible.
 
◾
 
We are prudent.
 
 
Our behaviours.
The commitments we make to each other and the standards by which we measure each other’s
performance:
 
◾
 
You take
 
it on and make it happen.
 
◾
 
You help others to
 
be successful.
 
◾
 
You are always
 
a step ahead.
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
135
 
The Orange Code is supported by a compliments tool, kudos, that allows employees
 
to give each other
compliments based on Orange Code behaviours. Employees are introduced
 
to the Orange Code early with new
joiners invited to complete a global online e-learning introduction module that
 
explains more about ING’s
culture, how we work and what we expect from employees. In 2019, ING also developed
 
a global code of conduct
that builds on the Orange Code and sets the standards we expect our people to uphold. This ING Global Code of
Conduct was launched in February 2020. All employees were requested to perform
 
online e-learning explaining
the Global Code of Conduct in more detail and signed off on adherence to the Global Code of Conduct.
 
 
Our Orange Code is included within the performance management process and discussed throughout the year.
 
It
is also linked to our Employee Value Proposition
 
(or Our People Offer), which forms the basis of all people-
related programmes. Through these activities, our aim is to develop a culture
 
that is focused on long- term value
creation.
 
 
The Orange Code applies to all employees worldwide, including the principal executive, financial and accounting
officers. The values and behaviours of the Orange Code are available
 
on the ING website at
https://www.ing.jobs/Global/Careers/Orange
 
-code.htm.
 
In 2020, there were no amendments to the Orange Code. ING did not grant any
 
waivers (including implicit
waivers) under the Orange Code to the principal executive,
 
financial or accounting officers in 2020.
 
 
Regarding the management of actual or potential conflicts of interest,
 
ING maintains a Policy on Information
Barriers and Conflicts of Interest which applies to all employees worldwide, including the principal executive,
financial and accounting officers. A description of the Policy on Information Barriers
 
and Conflicts of Interest is
available to view on the ING website at https://www.ing.com/About
 
-us/Compliance/Information-Barriers-
Conflicts-of-Interest.htm.
 
 
The Conflict of Interest Policy “aims to identify,
 
assess, manage and mitigate or prevent actual and potential
conflicts between ING customers and between the interests
 
of ING an the private interests of ING Employees,
including members of ING’s Senior Management which could adversely
 
influence the performance of their duties
and responsibilities”.
 
 
In 2020, an updated Conflicts of Interest was launched and implemented throughout
 
ING globally.
 
. ING did not
grant any waivers (including implicit waivers)
 
under the Conflicts of Interest Policy to the principal executive,
financial or accounting officers in 2020.
 
Regarding reporting of breaches of the Orange Code, encouraging
 
a speak up culture and raising concerns about
suspected or actual criminal conduct, unethical conduct or other misconduct by or within ING, ING maintains a
Whistleblower Policy next to the standard reporting
 
and escalation lines. This requires prompt internal reporting
of violations of the Orange Code and applies to all employees worldwide, including the principal executive,
financial and accounting officers. A description of the Whistleblower Policy is available
 
on the ING website at
www.ing.com/About
 
-us/Compliance/ING-Group-Whistleblower-Policy.htm.
 
ING did not grant any waivers (including implicit waivers)
 
under the Whistleblower Policy to the principal
executive, financial or accounting officers in 2020.
 
Banker’s Oath
 
All employees working for ING in the Netherlands (including ING's principal executive, financial or accounting
officers) take the Banker's
 
Oath. The oath contains a set of principles affirming the banking industry's
commitment to maintain high standards of ethical behaviour.
 
Accountability and a disciplinary sanction
mechanism are linked to breaches of these principles.
 
Compliance is trained to support employees in dealing with dilemmas via workshops and dialogue sessions, using
the Orange Code Decision Making
 
model (a so-called “four-step approach” weighing the rights and interest
 
of
stakeholders involved).
 
 
In 2020, there were no amendments to the Banker's Oath. ING did not grant
 
any waivers under the Banker's Oath
to principal executive, financial or accounting officers in 2020. The text
 
of the Banker’s oath can be found here:
https://www.ing.com/About
 
-us/Corporate-governance/Dutch-Banking-Code.htm
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
136
 
Item 16C. Principal Accountant
 
Fees and
Services
 
At the Annual General Meeting held on 23 April 2019, KPMG was re-appointed as the external audit firm for
 
ING
Group for the financial years 2020 through 2023. This appointment includes the responsibility to provide
 
an audit
opinion on the financial statements and internal control over
 
financial reporting on 31 December 2020 and to
report on the outcome of these audits to the Executive Board and the Supervisory Board.
 
 
The external auditor may be questioned at the Annual General Meeting in relation to
 
its audit opinion on the
financial statements. The external auditor will therefore
 
attend and be entitled to address this meeting. The
external auditor attended the meetings of the Risk Committee and of the Audit Committee
 
and attended and
addressed the 2020 Annual General Meeting, at which the external auditor was questioned about its audit
opinion.
 
 
The external auditor may only provide services to ING Group and its subsidiaries with the permission of the Audit
Committee, in line with the ING Group Policy on External Auditors’ Independence. All services were approved
 
by
the Audit Committee.
 
More information on the ING Group Policy on External Auditors’
 
Independence is available on the website of ING
Group www.ing.com.
 
Audit fees
Audit fees were paid for professional services rendered
 
by the auditors for the audit of the consolidated financial
statements of ING Group and statutory
 
financial statements of ING’s
 
subsidiaries or services provided in
connection with the audit of Form 20-F and other filings for regulatory and supervisory purposes as well as the
review on interim financial statements
 
and work performed relating to comfort letters
 
issued in connection with
prospectuses and reviews of SEC product filings.
 
Audit-related fees
Audit-related fees were
 
paid for assurance and related services that are reasonably related
 
to the performance of
the audit or review of the consolidated financial statements and are not reported
 
under the audit fee item
above. These services consisted primarily of specific agreed-upon procedure engagements
 
and assurance
engagements.
 
Tax
 
fees
Over 2020 no tax fees were paid. Under the current ING Policy
 
on External Auditor Independence most tax
services are prohibited and some tax services are only allowed after specific approval
 
under an ‘exception
procedure’.
 
 
Reference is made to Note 28 ‘Other operating
 
expenses’ in the consolidated financial statements for
 
audit,
audit-related, tax and all other fees
 
paid to the external auditors in 2020, 2019 and 2018.
 
Item 16D. Exemptions
 
from the Listing
Standards for
 
Audit Committees
Not applicable.
 
Item 16E. Purchases of Equity
 
Securities by
the Issuer and Affiliated Purchasers
There were no purchases by us or any of our affiliated purchasers
 
of any of our equity securities registered
pursuant to Section 12 of the U.S. Securities Exchange Act of 1934 during the fiscal years ended December 31,
2020 and 2019.
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
137
 
Item 16F.
 
Changes in Registrant’s
 
Certifying
Accountant
Not applicable.
Dutch Corporate Governance Code
 
ING Group uses the Dutch Corporate Governance Code (DCGC) as reference
 
for its corporate governance
structure and practices.
 
 
ING’s application of the DCGC is described in the 2020 ‘Application
 
of the Dutch Corporate Governance Code by
ING Groep N.V.’,
 
dated 8 March 2021, available on ing.com. This is to be read in conjunction with this chapter
and is deemed to be incorporated into this chapter.
 
 
The DCGC can be downloaded from the website mccg.nl.
 
Dutch Banking Code
The Dutch Banking Code (Banking Code), is only applicable to ING Bank N.V.
 
(ING Bank) and not to ING Group.
However,
 
ING Group voluntarily applies the principles of the Banking Code regarding remuneration
 
to its
Executive Board members and senior management. The application by ING Bank is described in the 2020
publication ‘Application
 
of the Dutch Banking Code by ING Bank N.V.’,
 
dated 8 March 2021, available on ing.com.
 
The Banking Code can be downloaded from the website nvb.nl/english/.
 
Differences between Dutch and US corporate governance practices
ING Group is a public limited liability company (naamloze vennootschap) organised
 
under the laws of the
Netherlands. It qualifies as a foreign private issuer under the US Securities and Exchange Commission (SEC) rules
and for the purposes of the New York Stock
 
Exchange (NYSE) listing standards. Under NYSE listing standards,
listed companies that are foreign private
 
issuers are permitted to follow home-country practice
 
in some
circumstances, in lieu of the provisions of the corporate governance
 
rules contained in Section 303A of the NYSE
Listed Company Manual applicable to US-listed companies. In accordance with
 
the requirements of the SEC and
NYSE, ING Group must disclose in its Annual Report on Form 20-F any significant differences
 
between its
corporate governance practices and those applicable to
 
US companies under NYSE listing standards. ING Group
believes the following to be the significant differences between
 
its corporate governance practices and the NYSE
corporate governance rules applicable to US companies:
 
•
 
ING Group has a two-tier board structure, in contrast to
 
the one-tier board structure used by most US
companies. In the Netherlands, a public limited liability company with a two-tier board structure has an
executive board as its management body and a supervisory board that advises and supervises the executive
board. Supervisory board members are often former state
 
or business leaders and sometimes former
members of the executive board. A member of the executive
 
board or other officer or employee of the
company cannot simultaneously be a member of the supervisory board. The supervisory board must approve
specified decisions of the executive board.
 
•
 
NYSE listing standards generally require
 
a majority of board members to be ‘independent’ as determined
under the NYSE listing standards. Under the DCGC, all members of the supervisory board, with the exception
of not more than one person, should be ‘independent’ as determined under the DCGC. However,
 
the
definition of ‘independent’ under the DCGC differs in its details from the definition of ‘independent’ under the
NYSE listing standards. In some cases, Dutch requirements
 
are stricter; in other cases the NYSE listing
standards are stricter
. All members of ING’s Supervisory Board, are independent as determined under the
DCGC.
 
 
•
 
NYSE listing standards require a US company to
 
have a compensation committee and a nominating/corporate
governance committee, each composed entirely of independent director
 
s
 
(as determined under the NYSE
listing standards). ING’s
 
Nomination and Corporate Governance Committee
 
and Remuneration Committee are
composed entirely of members of the Supervisory Board who are independent as determined under the
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
138
 
DCGC.
 
 
•
 
NYSE listing standards require that, when a member of the audit committee
 
of a US company serves on four
or more audit committees of public companies, the company should disclose (on its website, in its annual
proxy statement or in its annual report filed with the SEC) that the
 
board of directors has determined this
simultaneous service would not impair the director’s service to the company.
 
Dutch law does not require the
Supervisory Board to make such a determination.
 
•
 
In contrast to the NYSE listing standards,
 
the DCGC contains an ‘apply-or-explain’
 
principle, offering the
possibility of deviating from the DCGC. For any deviations by ING Group, please refer
 
to the paragraph ‘Dutch
Corporate Governance Code’.
 
•
 
NYSE listing standards applicable to US companies require external
 
auditors to be appointed by the audit
committee. By contrast, Dutch
 
law requires ING Group’s external
 
auditors to be appointed by the General
Meeting and not by the Audit Committee. The Audit Committee is responsible for preparing the Supervisory
Board’s nomination to the General
 
Meeting for the appointment and remuneration of ING Group’s
 
external
auditor,
 
and annually evaluates the independence and functioning of, and developments in the relationship
with, ING Group’s external
 
auditor and informs the Supervisory Board of its findings and proposed measures.
 
•
 
Under NYSE listing standards, shareholders of US companies must be given the opportunity to
 
vote on all
equity compensation plans and to approve material revisions to those plans, with limited
 
exceptions set forth
in the NYSE rules. The NYSE rules require a shareholder vote on all equity compensation plans applicable to
any employee, director or other service provider of a company.
 
The results of such votes are advisory in
nature rather than binding. Under Dutch law and the DCGC, binding shareholder approval
 
is only required for
equity compensation plans (or changes thereto) for members of the executive
 
board and supervisory board,
and not for equity compensation plans for other groups of employees.
 
Item 16H. Mine Safety
 
Disclosure
Not applicable.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
139
 
PART
 
III.
 
Item 17. Consolidated Financial Statements
Not applicable.
 
Item 18. Consolidated Financial Statements
Reference is made to the Consolidated financial statements
 
of ING Group on page F-249.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
140
 
Item 19. Exhibits
 
The following exhibits are filed as part of this Annual Report:
 
Exhibit 2.2
 
Exhibit 2.3
Exhibit 2.4
Exhibit 2.5
Exhibit 2.6
Exhibit 2.7
Exhibit 2.8
Exhibit 2.9
Exhibit 2.10
Exhibit 2.11
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
141
 
 
Exhibit 101
eXtensible Business Reporting Language (XBRL)
 
SIGNATURES
 
The registrant hereby certifies that it meets all the requirements
 
for filing on Form 20-F and that it has duly
caused and authorised the undersigned to sign this annual report on its behalf.
 
ING Groep N.V.
(Registrant)
 
 
 
By:/s/T.
 
Phutrakul
T. Phutrakul
Chief Financial Officer
 
 
 
 
 
 
 
Date: March 8, 2021
 
ing20f2020p142i0.jpg
 
 
 
 
 
 
 
>
 
Risk management at ING Group
 
ING Group Annual Report 2020 on Form 20-F
142
 
Risk management
The Covid-19 pandemic and subsequent lockdown measures have
 
thrown the
world into turmoil. The global economy shrank in 2020 as domestic
 
demand
and supply, trade
 
and finance have been severely disrupted. This section
explains ING’s
 
approach towards risk management and how
 
this was impacted
by the Covid-19 pandemic.
 
As a global financial institution with a strong European base, offering banking services, ING is exposed to a variety
of risks. We manage these risks through a comprehensive
 
risk management framework that integrates
 
risk
management into daily business activities and strategic planning. This safeguards
 
ING’s financial strength
 
and
reputation by promoting the identification, measurement
 
and control of risks at all levels of the organisation.
Taking measured risks
 
is core to ING’s business.
 
The risk management function supports the Executive Board in formulating the risk appetite, strategies,
 
policies
and limits. It provides review,
 
oversight and support functions throughout ING on risk-related
 
items. ING’s main
financial risks exposures are to credit risk (including transfer
 
risk), market risk (including interest rate,
 
equity, real
estate, credit spread, and foreign exchange
 
risks), funding and liquidity risk, and business risk. ING is also exposed
to non-financial risks such as operational,
 
IT and compliance risks, as well as to model risks. The ING Group chief
risk officer (CRO) is also the CRO of ING Bank.
 
 
This section sets out how ING manages its risks on a day-to-day basis. It explains how the risk management
function is embedded within the organisation based on the ‘three lines of defence’ model. It describes the key
risks that arise from ING’s business model and how these are managed by dedicated
 
risk management
departments, with various specific areas of expertise. The section provides qualitative and quantitative
disclosures about solvency, credit,
 
market, funding and liquidity,
 
ESG, business, operational, IT,
 
compliance and
model risks.
 
 
Risk profile
This chart provides high-level information on the risks arising from ING’s
 
business activities:
 
Risk profile
 
 
 
 
 
 
 
 
 
 
 
>
 
Risk management at ING Group
 
ING Group Annual Report 2020 on Form 20-F
143
 
 
 
Top and emerging risks
The risks listed below are defined as existing and emerging risks that may
 
have a potentially significant impact on
our financial position or our business model. They may have a material impact on the reputation of the company,
introduce volatility in future operational results, or impact ING’s
 
medium and long-term strategy including the
ability to pay dividends, maintain appropriate levels of capital
 
or meet liquidity and funding targets. An emerging
risk is defined as a risk that has the potential to have a significant negative
 
effect on our performance, but whose
impact on the organisation is currently more difficult to assess than other risk factors
 
that are not identified as
emerging risks.
 
 
The topics have emerged as part of the annual risk assessment that is performed as part of the Stress Testing
Framework and the Risk Appetite Framework. The sequence in which the risks are presented
 
below is not
indicative of their likelihood of occurrence or the potential magnitude of their financial consequences.
 
 
The 2020 risk assessment confirmed our top and emerging risks. The top risks in 2020 are related
 
to financial
crime, cybercrime and a persistent low interest rate
 
environment.
 
On top of that, the Covid-19 pandemic
impacted our business environment. Climate change risk remains an important
 
risk, reflecting the impact that
climate change may have for the financial position and/or
 
reputation of ING.
 
 
Covid-19 pandemic
Covid-19 was declared a global pandemic by the World Health Organization
 
on 11 March 2020. Various countries
and local governmental authorities across the world have introduced
 
measures aimed at preventing the further
spread of Covid-19. Read more in ‘The world around us‘.
 
 
 
In addition, governments in various countries have introduced
 
measures aimed at mitigating the economic
consequences of the outbreak. For example, the Dutch government
 
has announced economic measures aimed at
protecting jobs, households’ wages and companies, e.g., by way of tax payment
 
holidays, guarantee schemes and
a compensation scheme for heavily affected sectors
 
in the economy. These announced measures and any
additional measures, including any payment holidays with respect to mortgages
 
or other loans, have had and
may continue to have a significant impact on ING’s
 
customers and other counterparties. Read more in ‘Our
business’, in ‘Credit
 
risk’ and in Note 51 ‘Capital Management’.
 
The Covid-19 pandemic has affected all of ING’s
 
businesses. These effects have included increased volatility,
widening of credit spreads, and credit deterioration of loans to ING’s
 
customers. The 2020 risk costs were
impacted by a combination of increased collective provisioning reflecting the worsened
 
macroeconomic
indicators and uncertainty,
 
higher individual Stage 3 provisions, negative rating
 
migration and manual overlays to
address the risk on payment holidays and for the delay in observed defaults
 
as a result of the Government
support measures.
 
Sectors particularly impacted by the Covid-19 pandemic were Aviation (Transportation
 
and
Logistics), Hospitality and Leisure (Services and Food, Beverages and Personal Care)
 
and Non-food retail (Retail).
 
 
Increased attention is being paid to our financial risks. This was especially true during the initial phases of the
pandemic, which included high frequency calls between senior management of the bank, as well as with external
stakeholders like
 
the ECB, to intensely monitor developments relating to
 
liquidity, market
 
and credit risks. ING
also performed several types of stress tests and sectoral
 
reviews to assess the potential impact on its financial
position, which helped ING to get further insights into the potential impact and to define appropriate
 
mitigating
actions. Read more in ‘Credit risk’,
 
‘Market risk’ and ‘Funding and Liquidity risk’.
 
Basis of disclosures (*)
The risk management section contains information relating to
 
the nature and extent of the risks of
financial instruments as required by International Financial Reporting Standards
 
(IFRS) 7 'Financial
Instruments: Disclosures'. These disclosures are an integral part of ING Group Consolidated
 
financial
statements and are indicated by the symbol
 
(*). Chapters, paragraphs, graphs or tables within the risk
management section that are indicated with this symbol in the respective
 
headings or table header
are considered to be an integral part of the consolidated
 
financial statements.
 
This risk management section also includes additional disclosures beyond those required by IFRS
standards, such as certain legal and regulatory disclosures. Not all information
 
in this section can be
reconciled back to the primary financial statements and corresponding notes,
 
as it has been prepared
using risk data that differs to the accounting basis of measurement.
 
Examples of such differences
include the exclusion of accrued interest and certain costs
 
and fees from risk data, and timing
differences in exposure values (IFRS 9 models report
 
expected credit loss on underlying exposures).
Disclosures in accordance with Part Eight of the CRR and CRD IV,
 
and as required by the supervisory
authority, are published in our ‘Additional
 
Pillar III Report’, which can be found
 
on our corporate
website ing.com.
 
 
 
 
 
 
 
 
 
>
 
Risk management at ING Group
 
ING Group Annual Report 2020 on Form 20-F
144
 
ING is monitoring the evolving Covid-19 pandemic carefully to understand the impact on its people and business.
A central ING team has been set up to monitor the situation globally and provide guidance on health and safety
measures, travel advice, and business continuity for our company.
 
In addition, a situation in which most or some
of ING’s employees continue working
 
from home may raise operational risks, including with respect to
information security,
 
data protection, availability of key
 
systems and infrastructure
 
integrity. Read
 
more in ‘Non-
financial risk’.
 
 
The duration of the pandemic and the impact of measures taken in response by governmental
 
authorities,
central banks and other third parties remain uncertain. Recent
 
increases in Covid-19 infection rates amplified
uncertainty and affect the recovery path. Potential
 
economic implications for the countries and sectors where
ING is active, which could have a material adverse effect
 
on ING’s business and operations, are continuously
being identified, assessed and monitored in order to execute possible mitigating
 
actions.
 
Geopolitical risk
ING`s business and portfolios are exposed to geopolitical risks such as political instability,
 
social unrest or military
conflicts, which could adversely affect our operations.
 
Global tensions over trade, technology and ideology pose
challenges and have negative effects
 
for economic growth. The Covid-19 pandemic could accelerate and amplify
the negative impact, with divergence both between and within countries leading to increased inequality.
 
The US-China relationship stands out as an important geopolitical
 
risk, with (related) trade tensions, negatively
impacting global growth. Increasing protectionism between key
 
countries could lead to a slowdown in global
production and adversely affect global trade and investments
 
.
 
On 24 December 2020, the United Kingdom and the European Union agreed a post-Brexit "EU-UK Trade
 
and
Cooperation" Agreement (the “TCA”). The financial services provisions of the TCA are very limited. UK-based
financial services providers lost EU passporting rights from 1 January 2021 and EU-UK financial services have
become subject to unilateral equivalence decisions. The EU and UK regulators have
 
taken measures to address
overall financial stability risks (e.g. extension to recognition
 
of UK CCPs).
 
 
ING’s Brexit preparations
 
were predicated on a no trade deal outcome and certain business model adaptations
have been implemented to ensure the continuity of business post-Brexit.
 
ING was well prepared with both our
EU and UK post-Brexit authorisations. ECB’s
 
authorisation decision conditions have been met or are on track for
their September 2021 due dates. Pending PRA & FCA authorisation decision, UK Temporary
 
Permissions Regime
is allowing continuity of UK branch authorisation from 1 January 2021. Some FM trading activities will move from
London to Amsterdam as a result of Brexit.
 
ING continuously monitors the developments and outlook in geopolitical risk and assesses what impacts these
may have on our portfolios. Internal stress
 
testing and scenario analyses are used to assess the potential impact
and adjust the limits to exposures according to our risk appetite.
 
Financial economic crime
Knowing who we do business with helps us protect our customers, society and our bank from
 
financial economic
crimes (FEC). We believe that as gatekeepers
 
to the financial system we have an obligation
 
to prevent criminals
from misusing it, detect misuse where it occurs and respond accordingly.
 
We believe we can be even more
effective in safeguarding the financial system
 
if we join forces and work with other banks and with national,
European and global authorities and law enforcement agencies to tackle financial economic crime. In 2020, ING
continued to execute and update
 
policies and procedures to further enhance our know your customer (KYC)
activities. In addition, ING set up a special taskforce to monitor transactions for financial economic crime related
to Covid-19.
 
Cybercrime
Cybercrime remains a continuous threat to companies in general
 
and to financial institutions in particular.
 
Both
the frequency and the intensity of attacks are increas
 
ing on a global scale. Threats from distributed denial of
service (DDoS) attacks,
 
targeted
 
attacks (also called advanced persistent
 
threats) and ransomware have
intensified worldwide.
 
 
 
 
 
 
 
 
 
 
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Risk management at ING Group
 
ING Group Annual Report 2020 on Form 20-F
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ING builds on its cybercrime resilience through its dedicated Cyber Crime Expertise and Response Team,
 
further
enhancing the control environment to protect
 
from, and detect and respond to,
 
e-banking fraud, DDoS and
targeted attacks. Controls
 
and monitoring continue to be embedded in the organisation as part of the overall
internal control framework and are
 
continuously re-assessed against existing and new threats.
 
The identification
and monitoring of new threat actors and campaigns relevant
 
to ING inform this process as does closer alignment
between IT security and fraud teams. In addition, ING continues to strengthen its global cybercrime and fraud
resilience through extensive collaboration with financial industry peers,
 
law enforcement authorities,
government (e.g. National Cybersecurity Center) and internet service providers
 
(ISPs).
 
Data management
ING is using a large number of systems and applications to support key
 
business processes and operations to best
focus on our customers and their needs. The reconciliation of multiple data sources
 
and the protection of
customer data are regarded as crucial processes
 
in ING, and further spurred by its strategic focus on digital
service delivery, technology and innovation.
 
We depend on the secure processing, storage and transmission
 
of
confidential and other information in our computer systems
 
and networks. ING is also subject to increasing
regulatory requirements including EU General Data
 
Protection Regulation (GDPR) and the Basel Committee for
Banking Supervision (BCBS 239) principles. ING is continuing to improve data governance, execute
 
data-quality
framework controls consistently
 
across the Bank and prioritising implementation of the target infrastructure
 
to
further simplify, standardise
 
and modernise its activities.
 
Low/negative interest rate
 
environment
The persistent low/negative interest
 
rate environment, with central
 
banks holding their rates at negative levels in
most countries, continued to negatively impact short-term
 
as well as long-term market rates. The Covid-19
pandemic intensified the low/negative interest rate
 
environment and it is expected to remain at this level for
some time. This is posing a challenge for bank business models that earn income from net interest income from
traditional savings activities. In addition, loans are being repriced at lower rates
 
which is putting more pressure
on margins and impacting long-term profitability.
 
ING is continuously assessing this market environment. ING has
introduced negative charging and is reducing thresholds for
 
charging negative rates. Further,
 
ING is expanding
other sources of income such as net fee and commission income.
 
Climate change risk
ING is increasingly aware of the risks associated with climate change. This includes physical
 
risk and transition
risk. Physical risk can be acute, such as flood and wildfires, or chronic, such as increase in temperature
 
and sea
level rise. Transition risk can
 
be driven by policy, technological or market
 
changes occurring as we shift towards a
low-carbon global economy and potentially lead to stranded
 
assets.
 
In addition to our Climate Expert Group (CEG), in 2020 we established an internal climate
 
risk working group to
address the impacts resulting from climate change as part of a bank-wide approach.
 
As such, climate should be
considered to be included in our risk management framework and integrated
 
into a forward-looking approach.
Our Climate
 
Risk Report 2020 details our approach and sector-specific insights.
 
Risk governance (*)
Effective risk management requires
 
firm-wide risk governance. ING’s risk and control
 
structure is based on the
‘three lines of defence’ governance model. Each line has a specific role and defined responsibilities, with the
execution of tasks being distinct from the control
 
of these same tasks. The three lines work closely together to
identify, assess, and mitigate
 
risks.
 
 
This governance framework is designed in such a way that risk is managed in line with the risk appetite approved
by the Management Board Banking (MBB), the Executive Board (EB) and the Supervisory Board (SB); and this
approach is cascaded throughout ING. The MBB is composed of the Executive Board of ING Group, the heads of
the business lines and the chief operating officer.
 
The heads of ING’s banking business and support functions and the heads of the country units, or their delegates,
are the first line of defence. They have the primary ownership,
 
accountability and responsibility for assessing,
controlling and mitigating all financial and non-financial risks affecting
 
their businesses, and, for the
completeness and accuracy of the financial statements and risk reports with
 
respect to their responsible areas.
The COO is responsible and accountable for proper security and controls
 
on global applications and IT platforms
servicing the Bank and implementing proper processes.
 
 
ing20f2020p146i0.jpg
 
 
 
 
 
 
 
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Risk management at ING Group
 
ING Group Annual Report 2020 on Form 20-F
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The second line of defence consists of oversight and specialised functions in risk management and compliance.
They (i) have co-responsibility for risk management, through articulating
 
and translating the risk appetite into
methodologies and policies to support and monitor business management's control of risk, (ii) objectively
challenge risk management execution and control
 
processes and coordinate the reporting of risks and controls by
the first line of defence, (iii) advise management on risk management and compliance and have
 
decision-making
power in relation to business activities that are judged to present unacceptable
 
risks to ING and (iv) can set
minimum requirements in terms of quality and quantity of global resourcing in the risk management and
compliance functions.
 
The internal audit function forms the third line of defence. It provides an independent assessment of the
effectiveness of internal controls
 
over the risks to ING’s business processes and assets,
 
including risk
management activities performed in both the first and second lines of defence. To
 
protect its independent
nature, decisions regarding the appointment, re-appointment
 
or dismissal from office as well as the
remuneration package of the head of the internal audit function require Supervisory Board approval.
 
The next graph illustrates the different
 
key senior management level committees
 
in place in the risk governance
structure.
(*)
Risk governance
 
 
 
 
 
 
 
 
 
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Risk management at ING Group
 
ING Group Annual Report 2020 on Form 20-F
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Board-level risk oversight
 
(*)
ING has a two-tier board structure consisting of a Management Board (EB for ING Group
 
and MBB for ING Bank)
and a Supervisory Board (SB); both tiers play an important role in managing and monitoring the risk management
framework.
 
◾
 
The SB is responsible for supervising EB and MBB policy, the general
 
course of affairs of ING Group, ING
Bank and its business (including its financial policies and corporate structure). For risk management
purposes the SB is advised mainly by the Risk Committee, which assists and advises in monitoring the risk
profile and approving the overarching risk appetite
 
of the company as well as the structure and effective
operation of the internal risk management and control systems.
 
◾
 
The EB is responsible for managing risks associated with all activities of ING Group, whereas the MBB is
responsible for managing risks associated with all activities of ING Bank. The EB and MBB responsibilities
include ensuring that internal risk management and control systems
 
are effective and that ING Group
and ING Bank comply with relevant legislation and regulations. On a regular basis, the EB and MBB
report on these issues and discuss the internal risk management and control systems
 
with the SB. On a
quarterly basis, the EB and MBB report on ING’s risk profile versus
 
its risk appetite to the Risk
Committee, explaining changes in the risk profile.
 
As a member of the EB and the MBB, the CRO is responsible for ensuring that risk management issues are heard
and discussed at the highest level. The CRO steers a risk organisation
 
both at head-office and business-unit levels,
which participates in commercial decision-making, bringing countervailing power to keep
 
the risk profile within
the agreed risk tolerance. The CRO reports to the SB committee on ING’s
 
risk appetite levels and on ING’s risk
profile at least quarterly.
 
In addition, the CRO briefs them on developments in internal and external risk-related
issues and seeks to ensure they understand specific risk concepts.
 
Executive level
 
(*)
The key risk committees described below act within the overall risk policy and delegated
 
authorities granted by
the MBB:
 
◾
 
Global Credit and Trading Policy
 
Committee (GCTP) discusses and approves policies, methodologies, and
procedures related to credit, trading, country,
 
and reputation (i.e. environmental and social risk or ESR)
risks. The GCTP meets on a monthly basis. After the MBB and the GCTP,
 
the Credit and Trading Risk
Committee (CTRC) is the highest level body authorised to discuss and approve policies, methodologies,
and procedures related to credit and trading risk.
◾
 
Global Credit Committee – Transaction
 
Approval (GCC(TA))
 
discusses and approves transactions that
entail taking credit risk (including investment risk), country,
 
legal, and environmental and social risk. The
GCC(TA) meets twice a week.
◾
 
Asset and Liability Committee Bank (ALCO Bank) discusses and steers, on a monthly basis, the overall
 
risk
profile of all ING Bank’s balance sheet and capital management
 
risks. ALCO Bank discusses and approves
policies, methodologies and procedures regarding solvency,
 
market risk in the banking book and funding
and liquidity risks.
◾
 
Non-Financial Risk Committee Bank (NFRC Bank) is accountable for the design and maintenance of the
Non-financial risk management framework including operational risk management, compliance
 
and legal
policies, minimum standards, procedures and guidelines, development of tools, methods, and key
parameters (including major changes) for risk identification, measurement,
 
mitigating and monitoring/
reporting. NFRC Bank meetings are held at least quarterly.
◾
 
The Model Risk Management Committee (MoRMC) discusses and steers, on a monthly basis, the overall
model strategy.
 
MoRMC discusses and approves policies and methodologies related to model risk
management.
 
 
ing20f2020p148i0.jpg
 
 
 
 
 
 
 
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Risk management at ING Group
 
ING Group Annual Report 2020 on Form 20-F
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Regional and business unit level
 
(*)
ING’s regional and/or business unit management
 
have primary responsibility for the management of risks (credit,
market, funding and liquidity,
 
operational, IT,
 
compliance and model) that arise in their daily operations. They are
accountable for the implementation and execution
 
of appropriate risk frameworks affecting
 
their businesses in
order to comply with procedures and processes at the corporate
 
level. Where necessary, the implementation
 
is
adapted to local requirements.
The regional and/or business unit CROs are involved in these activities. The local (regional and BU) CRO is
responsible for the analysis, monitoring and management of risks across the whole value chain (from front
 
to
back office). The local risks are discussed in local risk committees that roll up to the key
 
risk committees at
executive level. Local Client Integrity Risk Committees
 
(CIRCs) assess client integrity risk and they have a final
decision on client acceptance or client off-boarding, from a risk-based
 
perspective, in the areas of financial
economic crime (FEC), Foreign Account Tax
 
Compliance Act (FATCA),
 
Common Reporting Standard (CRS) and
environmental and social risk (ESR).
 
Organisational structure (*)
Over the past years, banks have been faced with regulatory
 
and public pressure with regard to their risk
management policies, processes and systems. A raft
 
of new requirements and regulations has been introduced
and implemented. To
 
address these internal and external (market and regulatory)
 
developments and challenges
effectively,
 
ING regularly reviews the set-up of its risk-management
 
organisation. This allows for better
 
support
of the Bank’s Think Forward strategy
 
and enhances the interconnectedness of the risk oversight responsibilities
in business units with global risk functions. The following organisation chart illustrates the reporting lines in 2020
for the risk organisation:
(*)
Risk function
 
 
 
 
 
 
 
 
 
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Risk management at ING Group
 
ING Group Annual Report 2020 on Form 20-F
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Risk policies, procedures and standards (*)
ING has a framework of risk management policies, procedures, and minimum standards in place to
 
create
consistency throughout the organisation, and to define
 
requirements that are binding for all business units. The
goal of the governance framework of the local business units is to align with ING’s
 
framework and to meet local
(regulatory) requirements. Senior management is responsible for the implementation
 
of and adherence to
policies, procedures and standards. Policies, procedures
 
and standards are regularly reviewed and updated
 
via
the relevant risk committees to reflect
 
changes in requirements, markets, products and practices
 
.
 
Internal control framework
ING has organised its internal control framework
 
(ICF) so as to translate regulations and internal requirements
into policies articulating specific risks and control objectives. These policies form the basis for translation
 
into
process control standards, which are
 
used by the business to support and promote
 
an effective risk and control
environment. The ICF includes binding principles, definitions, process steps,
 
and roles and responsibilities to
create consistent bank-wide
 
policies and control standards.
 
Global policies and control standards are developed and maintained
 
or updated within the ICF.
 
These global
documents are designed by head-office functions and are to be adhered to by all ING entities and support
functions. In line with the Enterprise Risk Management approach, ownership for policies will be with the 2
nd
 
Line
of Defence (2
nd
 
LoD), while control standards are to be owned by the 1
st
 
LoD. Global policy and control standard
documents are approved by relevant approval
 
bodies (e.g. Supervisory Board, Executive Board, Managing
Banking Board and Bank Non-Financial Risk Committee).
 
The policies are based on the risk taxonomy,
 
which is designed to prevent overlaps in policy control objectives.
The control standard owners are responsible
 
for defining the key controls that
 
mitigate the significant inherent
risks in the business processes. The ICF aims to achieve single key-control
 
testing for multiple purposes, where
controls mitigate more than one risk.
 
 
The process of developing policy and process control standard
 
documents includes the following steps: identify
the document owner,
 
determine the relevant stakeholders,
 
define a risk-based approach, perform an impact
assessment, involve relevant stakeholders
 
and (local) entities for sounding on key and expected controls,
 
and
determine an approval body.
 
This overall process is currently being further strengthened by
 
implementing an
updated Regulatory Management Process also covering horizon
 
scanning.
 
 
At the end of 2019, the ICF gatekeeper function was split into
 
a first and a second LoD gatekeeper function. The
2nd LoD gatekeeper oversees
 
the policy design process, while the first LoD gatekeeper
 
oversees the design
process for the process control standard.
 
The principal role of these gatekeepers is to
 
provide quality assurance
and to advise on the relevant approval bodies. The ICF gatekeepers
 
challenge document owners on the
alignment of internal control documents with the agreed methodology and risk taxonomy,
 
and verify that the
development and communication of those documents are in line with the agreed process.
 
 
All policies, control standards, and procedures are
 
published on ING’s intranet. New
 
and updated documents are
periodically communicated by means of a dedicated policy update bulletin to the country
 
managers and senior
heads of business departments.
 
Risk culture
At ING we attach great importance to
 
a sound risk culture, which is essential for performing our role in society
responsibly and to keep the bank safe, secure and compliant.
 
Our risk culture determines the way in which
employees identify, understand,
 
discuss, and act on the risks we are confronted with and the risks we take.
 
In
2020, we conducted a self-assessment of our risk culture and are working on developing our envisaged
 
risk
culture, built on the foundation of our Orange Code and Global Code of Conduct, and in line with our Think
Forward strategy.
 
To support ING’s
 
ambition to safeguard a sound risk culture, several enhancement
 
projects are ongoing in areas
such as our approach to monitoring risk culture, our escalation behaviour and further linking non-financial risk
related topics to our purpose and strategy.
 
Orange Code and the global Code of Conduct
As mentioned above, the Orange Code and the global Code of Conduct are the foundation of ING’s
 
risk culture. In
February 2020 ING launched a new global Code of Conduct linking the Orange Code to its main ING policies,
minimum standards and guidelines. In addition to the Orange Code, it further defines the most essential conduct
principles expected from ING employees in their daily activities, to create additional risk awareness
 
and better
meet expectations stated in external
 
rules and guidelines. Additionally, the global Code of Conduct will be linked
to the employees’ performance management cycle to ensure continuous attention
 
to the Global Code of
Conduct, and dialogue on how to apply it in the daily work practice of our employees.
 
 
ing20f2020p150i0.gif
 
 
 
 
 
 
 
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Risk management at ING Group
 
ING Group Annual Report 2020 on Form 20-F
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The Orange Code is a declaration of who we are. It describes what we can expect from each other when we
 
turn
up to work each day. It is a set of standards
 
that we collectively value, strive to live up to,
 
and invite others to
measure us by.
 
 
The Orange Code is the sum of two parts, the ING values and ING behaviours, with integrity being the
overarching principle. The ING values (being honest, prudent and responsible) are designed to be non-negotiable
promises we make to the world, principles we seek to stick to,
 
no matter what. The ING behaviours (take
 
it on
and make it happen, help others to be successful, and always be a step
 
ahead) represent our way to differentiate
ourselves. The Orange Code is embedded in commitments we make
 
to each other and the standards by which we
will measure each other’s performance.
 
To reinforce
 
the values and behaviours in our Orange Code, which puts integrity above all, we
 
invite all (new)
employees to participate in e-learnings that aim to equip them to make the right
 
decisions when faced with a
dilemma or issue. In 2020, we developed and rolled out new e-learnings on the Global Code of Conduct,
Sanctions, Getting Data Protection Right and Keeping up with KYC.
 
Orange Code decision-making
To enhance risk awareness,
 
we continued to support monitoring risk culture and compliance risk in the business.
This included training by compliance and data experts to enhance balanced decision-making in line with the
Orange Code decision-making model (introduced in 2017) to support moral learning and well-balanced decision-
making. This four-step model helps to delay judgement and aims to find out where
 
the moral weight lies for a
potential decision.
 
 
The model is already embedded in some decision-making processes (such as the data ethics governance process
and the global Product Approval and Review Process policy) and we are exploring how to
 
embed it in other
decisive governance processes within the bank. Compliance is continuing to train experts in this area within the
local Compliance teams
 
to support the organisation in properly applying the model in practice in their respective
countries.
 
 
 
Global data ethics
 
Data ethics is key for an enhanced and sustainable trusted
 
relationship with ING customers and society.
 
Our
vision is to integrate data ethics as part of our culture, behaviours
 
and decision-making process. We have defined
values that should guide our employees’ behaviours. Furthermore,
 
we have set up data ethics councils that help
ensure we use data responsibly.
 
Learning
In 2020 we continued to strengthen and expand our learning offering
 
on risk topics and the governance around
this. The learning focuses on compliance, non-financial risk and risk.
 
We established a board to approve
 
and monitor progress on the required learning that is taken
 
by all staff.
 
This
will ensure improved learner engagement, bank-wide
 
alignment, and connection between learning, business
impact and management actions and also improved feedback and evidencing of outputs. The board brings
together content owners, learning experts and corporate
 
communications teams to ensure the best fit for the
training need.
 
 
We also took steps to expand our learning for
 
risk professionals, with the Risk Academy which provides focused
learning for Risk staff.
 
These take the form of various online learning modules
 
and frameworks that support
employees
 
in developing their knowledge, skills and behaviours.
 
 
 
 
 
 
 
 
 
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Risk management at ING Group
 
ING Group Annual Report 2020 on Form 20-F
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Banker’s Oath
In the Netherlands, all employees of ING take the Banker’s
 
Oath and pledge this in a meaningful ceremony.
 
The
oath came into force in the Netherlands on 1 April 2015 as part of a joint approach from all banks. The
introduction of social regulations, the revision of the Dutch Banking Code, and the implementation of the
Banker’s Oath (with the associated rules of conduct and disciplinary law), are a way
 
for Dutch banks to show
society what they stand for and are accountable
 
for,
 
both as individual banks and as a sector. In 2020, due to
 
the
Covid-19 crisis, ING NL developed a virtual Banker’s Oath ceremony via Skype/Teams
 
–
 
in addition to the physical
one – to ensure that all new employees (around 400 a month) can still take
 
the Banker’s Oath in timely fashion
and in a meaningful ceremony. Before
 
taking the oath, its importance is discussed, as well as dilemmas
employees may come across in their daily work, to ensure a careful
 
balancing of the interests of all our
stakeholders, in the decisions they make.
 
In 2020, the whole Banker’s Oath programme was revised
 
and updated,
to keep it aligned with the current external circumstances
 
as well as with ING’s do your thing branding.
 
Remuneration
ING aims to align its remuneration policy with its risk profile and the interests of all stakeholders.
 
For more
information on ING’s compensation
 
and benefits policies and its relation to the risk taken, please refer
 
to the
Capital Requirements Regulation (CRR) Remuneration
 
Disclosure published on the corporate website ing.com.
 
 
Centre of Expertise on Behavioural Risk Management (BRM)
Behavioural risk is an increasingly important risk area for ING and across the financial industry.
 
It arises when
behavioural patterns are at the root
 
of financial and non-financial risks in the organisation.
 
The complexity of this type of risk is that it is less tangible compared to other risk areas because it focuses on
behavioural patterns and their drivers. Patterns
 
in how decisions are made, how people communicate and
whether they can take ownership. Behaviour
 
is driven by formal and informal mechanisms. Examples of formal
drivers are the processes ING applies and how its governance is structured. Informal
 
drivers are less tangible,
such as group dynamics or underlying beliefs that influence behaviour.
 
At ING, behavioural risk management (BRM) is positioned in the second line of defence, reporting directly
 
to the
CRO. The global BRM Centre of Expertise not only assesses behavioural risk in the organisation, but also has the
mandate to direct, challenge and support business owners to intervene on behavioural
 
patterns and their
underlying drivers.
 
Behavioural risk assessments
Behavioural risk assessments (BRAs) identify and analyse undesired behaviours within ING and provide
management with specific direction on how to change these behaviours. They focus on the
 
effectiveness of
groups rather than individuals, the role of leadership and on less visible aspects such as team dynamics and
unwritten social norms. The goal is to understand and systematically
 
assess what drives undesired habits at ING.
The BRM model of behavioural risk is used as the standard across ING to signal behavioural risks
 
going forward.
 
Behavioural risk interventions
Based on the results of the executed behavioural risk assessments (BRAs), BRM mitigates
 
behavioural risk in a
focused manner.
 
Effective mitigation
 
requires a deep understanding of what drives undesired behaviours.
 
Theory
and evidence-based techniques and tools developed in behavioural science play an important role
 
in designing
and evaluating interventions. Given the crucial role of leaders in creating
 
the right conditions for employees,
interventions are first initiated at
 
leadership level. These include leadership labs, which address topics such as
‘connection, alignment and trust’,
 
as well as bringing together the ‘whole system in the room’.
 
Here senior
leaders delve into the outcomes of the assessments, identifying deeply rooted and often complex
 
issues for
improvement.
 
In addition, interventions are also set in motion that focus on enabling employees to build awareness on
behavioural risk and support them in initiating solutions to mitigate the potential behavioural
 
risks. After each
assessment the results are shared with the management teams of the assessed units and with the participants of
the BRA in a so-called ‘feedback session’.
 
This feedback session is followed up with a dialogue starter toolkit,
enabling teams to reflect on the results, discuss opportunities for improvement
 
and call for first steps towards
sustainable solutions.
 
A ‘nudge lab’ can be organised to co-create effective
 
nudges (i.e. a gentle push in the right direction, based on
behavioural insight) for solutions to issues that were identified during a BRA. The solutions that have
 
been
developed are now being scaled up globally.
 
 
The BRM team works closely with the business units and departments such as HR, Audit, and Compliance to align
on and embed desired leadership and risk behaviours (i.e. speak up, psychological safety,
 
communication,
guiding leadership).
 
 
 
 
 
 
 
 
 
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Risk management at ING Group
 
ING Group Annual Report 2020 on Form 20-F
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Risk cycle process
ING uses a step-by-step risk management approach
 
to identify, manage and mitigate
 
its financial and non-
financial risks. The approach consists of a cycle of five recurrent activities: risk identification,
 
risk assessment, risk
control, risk monitoring, and risk reporting. The cycle is designed to determine what the risks are, assess which of
these risks can really do harm, take mitigating measures
 
to control these risks, monitor the development of the
risk to see if the measures taken are effective,
 
and report the findings to management at all relevant levels to
enable them to take action when needed.
 
The cycle recurs in two ways. First,
 
the identification, assessment, review,
 
and update of mitigating measures are
repeated periodically.
 
Second, this periodic monitoring exercise may indicate
 
emerging risks, known risks that are
changing, risk levels that are changing, or current control measures that are not effective
 
enough. Further
analyses of these findings may then result in renewed and more frequent risk identification,
 
and/or assessment,
and/or change of mitigating measures.
 
Risk identification
Risk identification is a joint effort of the business and the risk management functions. Its goal is to detect
potential new risks and determine changes in known risks. Regular risk identification is essential for
 
effective risk
management. Potential risks that are not identified, will not be controlled
 
and monitored and may lead to
surprises later.
 
Known risks may have changed over time and as a consequence the existing
 
mitigating measures
and monitoring may be inadequate or obsolete.
 
Risk identification is performed periodically.
 
In case of material internal or external change, additional ad hoc risk
identification can be performed.
 
Risk assessment
Each identified risk is assessed qualitatively or quantitatively to determine its importance.
 
This enables ING to
decide which of the identified risks need control measures and how strict or tolerant
 
these measures should be.
Known risks are re-assessed to detect any change in the
 
risk level.
 
The importance of a risk is based on both the likelihood that the risk materialises and the subsequent financial or
reputational impact that may occur should the risk arise. Unlikely risks with a potentially high impact need to
 
be
controlled. A risk that is likely to happen regularly but expected
 
to have a modest financial impact may not need
to be mitigated if the consequences are accepted by management.
 
Risk control
Risks can be controlled by mitigating measures that lower the
 
likelihood the risk occurs, lower the impact when it
occurs or both. The ultimate measure to lower a risk is to stop the activity or service that causes the risk (risk
avoidance). Risk control and mitigation measures are
 
defined and maintained at both the bank-wide and local
level.
 
Monitoring and reporting
ING monitors the risk-control measures
 
by checking if they are executed, complied with and have
 
the expected
mitigating effects and by following the development
 
of the risks and their risk levels. Risk reporting provides
senior and local management with the information they need to manage risks.
 
Risk Appetite Framework
The Risk Appetite Framework (RAF) is one of the pillars of the Enterprise Risk Management (ERM) Framework.
 
Its
objective is to set the appropriate risk appetite at the consolidated level
 
across the different risk categories and
to allocate the risk appetite throughout the organisation.
 
Policy
The RAF policy states the overarching global risk appetite. Within the RAF,
 
ING monitors a range of financial and
non-financial risk metrics to ensure that our risk profile is in line with our risk appetite while executing our
strategy.
 
ING’s RAF,
 
which is approved by the Supervisory Board (SB), defines the desired risk profile that is to be
integrated in the strategic
 
decision-making and financial planning process. It is designed to be able to withstand
market volatility and stress, while meeting regulatory
 
requirements. The framework, including underlying
assumptions and metrics, is regularly reviewed so that it remains relevant.
 
The RAF combines various financial
and non-financial risk appetite statements (RASs) into a single, coordinated
 
approach to provide the business
with a clear overview of the relevant risks and the tools to manage them. This view allows the Executive
 
Board
(EB), the Management Board Banking (MBB) and senior management to form an opinion on the adequacy of
internal risk management and control systems
 
for the risks ING faces while pursuing its strategy.
 
ing20f2020p153i0.jpg
 
 
 
 
 
 
 
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ING Group Annual Report 2020 on Form 20-F
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Process
The RAF is focused on setting the risk appetite at the consolidated level and across the different
 
risk categories,
and provides the principles for cascading this risk appetite down into the organisation.
 
The RAF and underlying
limit allocation are reviewed on an annual basis, or more frequently if necessary,
 
based on their quarterly review
in the EB, the MBB and the SB. It is therefore a top-down process, which bases itself on the ambition of the bank
in terms of its risk profile, the regulatory environment and the economic context.
 
The set of limits used is split
according to the approval levels needed for them. Limits that need SB approval
 
are called boundaries and the
underlying metrics supporting the boundaries which need EB and MBB approval are called instruments.
 
Since the
outbreak of the Covid-19 virus, ING re-assessed its risk appetite to take into account
 
the potential impact of the
virus and the uncertainties caused by the virus.
Risk appetite framework process
 
 
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Risk management at ING Group
 
ING Group Annual Report 2020 on Form 20-F
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Step 1. Identify and assess ING’s
 
key risks
The outcome of the risk identification and risk assessment process is used as the starting point for the review
 
of
the RAF. Within this step,
 
the risks ING faces when executing its strategy
 
are identified in the context of the
current economic, political, regulatory and technological environment.
 
The assessment identifies whether the
potential impact is material and if it is sufficiently controlled within ING’s
 
risk management function. It
benchmarks the current risk framework against regulatory
 
developments. Known risks are re-assessed either to
confirm risk levels or to take account of potential
 
changes. The assessment is contextualised by the current set of
risk appetite statements.
 
Step 2. Set Risk Appetite Framework
Based on ING’s risk assessment and risk purpose, boundaries for the overarching
 
risk frameworks are set. Once
the overarching risk appetite thresholds have
 
been set and approved by EB/MBB and subsequently by SB, the
statements are translated
 
into risk-type-specific statements
 
and lower level thresholds which are set and
approved by senior risk committees,
 
ALCO Bank, GCTP and Bank NFRC. Cascading is done via a number of
detailed risk appetite statements which have
 
been defined per risk type, the combination of which ensures
compliance with the overarching Solvency,
 
Concentration and Funding and Liquidity RASs.
 
 
Step 3. Cascade into statements
 
per risk type and business unit
The bank-wide risk appetite is translated per risk type, which is further cascaded
 
into the organisation to the
lowest level. Risk appetite statements
 
are then translated into dedicated underlying risk limits that are
 
used for
the day-to-day monitoring and management of ING’s
 
risks. The risk appetite statements serve as inputs for the
quarterly planning process as well as for the establishment of key
 
performance indicators and targets for
 
senior
management.
Risk appetite framework policy
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Risk management at ING Group
 
ING Group Annual Report 2020 on Form 20-F
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Risk Appetite Statements
Boundaries
Underlying risk metrics
 
Solvency
CET1 ratio
Leverage ratio
Economic capital utilisation
MREL
TLAC
Total capital
 
ratio
Funding and liquidity
Liquidity coverage ratio
Net liquidity position – internal stress test
Stable funding-to-loans ratio
Concentration
Concentration event risk (LGD)
Event risk
Instruments
Underlying risk metrics
 
Solvency and profitability
IFRS P&L-at-risk
Funding and liquidity
Asset encumbrance
Economic counterbalancing capacity
Stable funding surplus
Liquidity coverage ratio surplus
Funding mix
Interbank market stress up to one year
Credit risk
EAD
RWA
ECL
INCAP
Market risk (trading book)
Value-at-risk / stressed
 
value-at-risk
Incremental risk charge
Regulatory/ economic market risk capital
Market risk (banking book)
IFRS P&L-at-risk
NPV-at-risk
Customer behavior/market risk economic capital
Revaluation-reserve-at-risk
Non-financial risk
Expected loss
Regulatory/ economic operational risk capital
Overdue iRisk
RWA
Business risk
IFRS P&L-at-risk
Economic capital
RWA
 
 
Step 4. Monitor and manage underlying risk limits
In order to verify that it remains within the Risk Appetite Framework, ING reports its risk positions vis-à-vis its
limits on a regular basis to senior management committees. The Quarterly Risk Update reflecting
 
the exposure of
ING against the risk appetite is submitted quarterly to the EB and the MBB and to the (Risk Committee
 
of the) SB.
Moreover every quarter the financial plan is checked for potential
 
limit breaches within a one-year horizon,
where in the strategic dialogue the MBB can take
 
mitigating measures or adjustments to the dynamic plan can be
made.
 
Stress testing
Stress testing is an important risk management tool that provides input
 
for strategic decisions and capital
planning. The purpose of stress testing is to assess the impact of plausible but severe stress scenarios on ING’s
capital and liquidity position. Stress tests provide complementary and forward
 
-looking insights into the
vulnerabilities of certain portfolios, with regards to adverse
 
macroeconomic circumstances, stressed financial
markets, and changes in the (geo)political climate.
 
Since the outbreak of the Covid-19 pandemic, ING assessed
the potential impact on its financial position via different types of stress tests. In addition to
 
assessing P&L,
capital and liquidity position of ING for a range of different
 
scenarios, idiosyncratic risks were also included. The
outcome of these Covid-19 stress tests helped management to get insight into
 
the potential impact and to define
actions to mitigate this potential impact.
 
Types of stress tests
Within ING, different types of stress tests are
 
performed. The most comprehensive type of stress tests are
 
the
firm-wide scenario analyses, which involve setting scenario assumptions for all the relevant
 
macroeconomic and
financial market variables in all countries relevant to
 
ING. These assumptions usually follow a qualitative
narrative that provides a background to
 
the scenario. In addition to firm-wide scenario analyses, ING executes
scenario analyses for specific countries or portfolios. Furthermore, sensitivity analyses are performed,
 
which
focus on stressing one or more risk drivers; usually without an underlying scenario narrative.
 
Finally, ING
performs reverse stress tests,
 
which aim to determine scenarios that could lead to a pre-defined severe
 
adverse
outcome.
 
 
 
 
 
 
 
 
 
>
 
Risk management at ING Group
 
ING Group Annual Report 2020 on Form 20-F
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Process
The stress testing process of ING consists of several
 
stages, which are:
 
 
Risk identification and risk assessment: It identifies and assesses the risks ING or the relevant entity is
facing when executing its strategy
 
based on the current and possible future economic, political,
regulatory and technological environment. It provides
 
a description of the main risks and risk drivers
related to the nature of ING’s
 
business, activities and vulnerabilities.
 
 
 
Scenario definition and parameterisation: Based on the outcome of the previous step,
 
a set of scenarios
is determined with the relevant scope and set of risk drivers for each scenario,
 
as well as its severity, the
key assumptions and input parameters. The output of this phase includes a quantitative
 
description of
the stress scenarios to be analysed, the relevant output metrics and, when applicable, a narrative
description.
 
 
Impact calculation and aggregation: Based on the quantitative description of the stress scenarios
determined in the previous step, the impact is determined for the relevant
 
scenario, scope and horizon.
The impact calculation and aggregation can be part of a recurring process or part of a specific process
set-up for one-off stress tests.
 
 
Scenario reporting: For each stress test, a report is prepared after
 
each calculation which describes the
results of the scenario, and gives a recap of the scenario with its main assumptions and parameters.
 
The
stress test report is sent to the relevant
 
risk committees and/or senior management. It is complemented,
if needed, with advice for management action based on the stress testing results.
 
 
 
Scenario control and management assessment: Depending on the outcomes of the stress test
 
and the
likelihood of the scenario, mitigating actions may be proposed. Mitigating
 
actions may include, but are
not limited to, sales or transfers
 
of assets and reductions of risk limits.
 
Methodology
Detailed and comprehensive models are used to calculate the impact of the scenarios. In these models, statistical
analysis is combined with expert opinion to make sure that the results adequately
 
reflect the scenario
assumptions. The methodologies are granular and portfolio-specific and use different
 
macroeconomic and
market variables as input variables. The calculations are in line with our accounting and regulatory
 
reporting
frameworks. The stress-testing models are subject to review
 
by Model Risk Management.
 
Developments in the regulatory environment
CRRII/CRDV and BRRDII
On 27 June 2019, a series of measures referred to as the Banking Reform
 
Package (including certain amendments
to CRR and CRDIV commonly referred to as ‘CRR II’ and CRD V’) came into force, subject to
 
various transitional
and staged timetables. The adoption of the Banking Reform Package
 
concluded a process that began in
November 2016 and marks an important step toward
 
the completion of the European post-crisis regulatory
reforms, drawing on a number of international standards
 
agreed by the Basel Committee, the Financial Stability
Board and the G20. CRDV was implemented in Dutch law in 2020. The Banking Reform Package
 
updates the
framework of harmonized rules established following the
 
financial crisis of 2008 and introduces changes to the
CRR, CRDIV, the Bank Recovery
 
and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation
(SRMR). The Banking Reform Package covers
 
multiple areas, including the Pillar 2 framework, the introduction of
a leverage ratio requirement
 
of 3% and a leverage ratio buffer requirement
 
of 50% of the G-SIB buffer
requirement (applicable per 1 January 2023), a binding Net Stable Funding (NSFR) ratio based on the Basel NSFR
standard but including adjustments with regard to e.g. pass-through
 
models and covered bonds issuance,
mandatory restrictions on distributions, permission for reducing own funds and eligible liabilities,
macroprudential tools, a new category of ‘non-preferred’
 
senior debt, the minimum requirement for own funds
and eligible liabilities (MREL) and the integration of the TLAC standard into EU legislation. Further,
 
the EBA
obtained a mandate to investigate
 
how to incorporate environmental,
 
social, and governance (ESG) risks into the
supervisory process and what the prudential treatment of assets associated with environmental
 
or social
objectives should look like.
 
Basel III revisions and upcoming regulations
In December 2017, revisions to Basel III were formally announced by the Basel Committee. These revisions to
Basel III establish new prudential rules for banks, including a revision to the standardised
 
approach to credit risk,
the introduction of a capital floor based on standardised approaches, the use of internal models, limitation
 
of
options for modelling operating risks, and new rules for the establishment
 
of risk-weighted items and unused
credit lines at the banks. Such revisions have a long implementation phase and are
 
not yet fully transposed into
EU regulation. The revisions are commonly referred
 
to as "Basel III Reform" or "Basel IV”.
 
In Europe, this will be
implemented through the ‘CRR III’ / ‘CRD VI’ in the coming years. With this long implementation phase and the
transposition into EU regulation still pending, some question marks remain on how this will shape up.
 
 
 
 
 
 
 
 
 
>
 
Risk management at ING Group
 
ING Group Annual Report 2020 on Form 20-F
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Targeted
 
review of internal models
In order to make capital levels more comparable
 
and to reduce variability in banks’ internal models, in June 2017
the European Central Bank (ECB) introduced the Targeted
 
Review of Internal Models (TRIM) to assess the
reliability and comparability between banks’ models. The TRIM aims to create
 
a level playing field by harmonising
the regulatory guidance around internal models with the ultimate goal of restor
 
ing trust in European banks’ use
of internal models.
 
 
In July 2019, the ECB published the final chapters of the guide to internal models, covering credit risk, market
 
risk
and counterparty credit risk. These risk-type-specific chapters
 
are intended to ensure a common and consistent
approach to the most relevant aspects of the regulations on internal
 
models for banks directly supervised by the
ECB. Additionally, they provide
 
transparency on how the ECB understands the regulations on the use of internal
models to calculate own funds requirements for the three risk types. Impact on ING is through
 
more stringent
regulation on the end-to-end process and governance around internal models as well as an increase
 
of risk
weighted assets (RWA).
 
In 2020, the last TRIM ECB inspection ended. Per rating system
 
the ECB has sent and will send final TRIM decision
letters,
 
which will include obligations that ING shall remediate. Also certain limitations such as restrictions on PD
and/or LGD, effectively
 
resulting
 
in higher capital requirements, have or might be put in place until these
obligations are fully addressed and closed.
 
 
 
 
 
 
 
 
>
 
Solvency risk
 
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Solvency risk
Introduction
Solvency risk is the risk of lacking sufficient capital to fulfil the business objectives, regulatory requirements or
market expectations. A bank that is completely insolvent
 
is unable to pay its debts and will be forced into
bankruptcy.
 
The level and quality of capital is crucial for the resilience of individual banks. Banks are expected
 
to
assess the risks they face, and in a forward-looking manner ensure that all material risks are
 
identified, managed
and covered sufficiently by loss absorbing capital to ensure continuity
 
in case of
materialisation of unexpected risks in times of stress. Given the interdependencies
 
to other financial
and non-financial risks this balancing act of capital adequacy needs to be done within a sound and
integrated management approach coherently
 
linking all moving parts of the bank in line with the long-term
business strategy.
 
Solvency risk management
ICAAP Framework
ING’s Internal Capital Adequacy Assessment
 
Processes (ICAAP) aims to ensure that capital levels are
adequate to cover all material risks at all levels and to
 
ensure compliance with regulations. ING follows an
integrated approach to assess the adequacy of its capital position in relation
 
to its business activities, underlying
business strategy,
 
market positioning risk profile and operating environment.
 
This implies taking into account the
interests of its various stakeholders
 
such as regulators, shareholders, investors,
 
rating agencies, clients and
customers.
 
The continued strength of ING’s
 
capital position, the adequacy of the financial position and the risk
management effectiveness are essential for
 
achieving the Think Forward strategy.
 
ING’s ICAAP
ultimately supports this strategy and contributes thereby to
 
the continuity of ING Group, ING Bank and all its
business units.
 
Managing ING’s capital requirements
 
and allocation entails finding a balance between the forces
governing supply and demand. The uncertainties surrounding these factors are a
 
reflection of changing market
circumstances and continuous unpredictability in regulatory and macroeconomic
forces. The process of balancing these strategic goals is captured
 
in the ICAAP framework and enabled by the
building blocks and elements facilitating the ICAAP.
 
The following building blocks have been defined in the ICAAP
Framework, which are applied for both the ‘normative’ and ‘economic’
 
perspective as defined in the ECB Guide
to ICAAP that was published in November 2018:
●
 
Risk identification and assessment
●
 
Risk appetite
●
 
Capital planning
●
 
Capital management
 
●
 
Stress testing
●
 
Continuity
 
Solvency risk related to Covid-19
The outbreak of the Covid-19 stress tests resulted in several
 
additional analyses to assess the potential impact of
the virus on the actual and future solvency position. For instance, in 2020 ING performed a sequence of Covid-19
stress tests to assess potential scenarios of how the virus would develop and how it may impact society and
economies. These Covid-19 stress tests were used to prepare
 
potential mitigating actions, but also served as
starting point for the review of ING’s
 
risk appetite and of the financial and capital planning. In light of this, ING
also updated the management actions in the Contingency Capital & Funding Plan and the Recovery Plan and
assessed potential additional mitigating actions to counter this very specific crisis.
 
Risk identification and assessment
ING’s capital management
 
and solvency risk management starts with the risk identification & risk assessment
process. Its main purpose is to detect potential new risks and to identify changes in the potential impact of
known risks. On an annual basis, ING performs a thorough review of its solvency risks or risks to capital.
 
Within
this assessment, bottom-up assessments are combined with top-down assessments, including a questionnaire
and interviews with senior management. The results of the risk assessment are discussed in ALCO Bank which
comprises almost the full Management Board Banking. Once approved, the conclusions of the risk assessment
feed into the annual review of the Risk Appetite Framework,
 
the Stress Testing Framework
 
and the Economic
Capital Framework. In addition to this annual process, ING also re-assesses its risks as part of its Capital Adequacy
Statement, a quarterly process to assess ING’s
 
capital adequacy.
 
 
 
 
 
 
 
 
>
 
Solvency risk
 
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Solvency risk appetite
As explained in the Risk Appetite Framework section in the previous chapter,
 
ING has established overarching
solvency risk boundaries. Boundaries are risk appetite statements that are
 
essential for risk management activity,
making it of paramount importance to keep these boundaries within the defined level. The SB is responsible for
approving and monitoring the boundaries. These boundaries are complemented by a sequence of risk-type-
specific instruments. These underlying risk appetite statements are cascaded
 
down into the organisation to the
lowest level deemed necessary and dedicated risk thresholds are set that are used for
 
day-to-day monitoring and
management of ING’s risks. ING has solvency risk appetite
 
statements in place for the following metrics: CET1
ratio, Total
 
capital ratio, leverage
 
ratio, TLAC RWA/leverage
 
ratio and economic capital utilisation.
 
Capital planning
The capital and funding plan is an integral part of the dynamic plan, ING’s
 
financial and business planning
process. Its objective is to inform and advise the management on the capital development
 
and need of ING
Group and ING Bank, under base case and adverse scenarios. It describes how ING shall finance the expected
capital constraints taking into consideration
 
growth projections, capital and risk evolution, macro and market
conditions, both under the normative and economic perspective. The capital & funding plan is updated at least
twice a year, and
 
discussed and approved by ALCO Bank. Within these updates, ING takes
 
into account recent
market and risk developments and ensures that the capital planning adheres
 
to the solvency risk appetite set by
the SB.
 
 
Capital management
Among the solvency management tools the formulation of the CET1 ambition forms a key
 
element. The target
ratio which is based on the management buffer concept
 
enables ING’s senior management to steer,
 
benchmark
and assess the bank’s current and future capital
 
levels much more efficiently while the ambition level clearly
supports trust building among ING’s key
 
stakeholders (e.g. regulators,
 
investors, customers and
 
clients).
The capital management buffer aims to protect
 
the interests of key stakeholders
 
(e.g. shareholders, investors)
and plays an important role in the overall capital
 
adequacy governance.
The rationale behind the concept of the management buffer is that
 
it provides an additional cushion on top of
the (local) regulatory minimum requirements (e.g. SREP requirements) to withstand
 
a certain level of stress and
to facilitate awareness and preparedness
 
to take management actions. ING reviews its capital
 
management
buffer on a regular basis to determine its effectiveness
 
and robustness,
 
and updates it as appropriate.
 
Stress testing
Solvency stress testing allows a bank to examine the
 
effect of exceptional but plausible future
events on the solvency position and provides insight into which entities or portfolios are
 
vulnerable to
which type of risks or in which type of scenarios. Solvency stress testing is an important tool in identifying,
assessing, measuring and controlling risks to capital, providing a complementary and forward
 
-looking perspective
to other solvency risk management tools.
 
ING distinguishes the following three types of stress test analyses:
 
●
 
Sensitivity analysis: Within these analyses, ING assess the impact of a pre-defined shock in one or more
risk drivers. The key purpose of sensitivity analyses is to monitor the impact of this pre-defined (or
standardised) shock over time to get an understanding
 
of how the risk profile of the bank has developed.
 
●
 
Scenario analysis: Scenario analyses are used to assess an integral impact of historical, statistical
 
and/or
hypothetical circumstances on the financial position of ING. These stress tests often
 
build on a
qualitative scenario narrative and reflect risk topics that
 
are deemed relevant for ING given, for example,
its business model. Scenarios can be derived from historical realisations, but also reflect e.g. potential
macroeconomic, geopolitical or climate risk related events.
 
These scenarios can be used for one-off
analyses, but can also be translated into a set of regular or standardised
 
stress tests that are assessed on
a quarterly basis.
●
 
Reverse stress testing: The purpose of reverse
 
stress testing is to identify scenarios that could lead to a
pre-defined outcome. This could for example be a pre-defined
 
solvency level. The added value of reverse
stress testing is to explore risk drivers
 
and stress scenarios outside the existing range.
 
 
The outcomes
 
of solvency stress test analyses are taken
 
into account in capital planning, but also for setting risk
appetite statements and the capital management
 
buffer.
 
 
 
 
 
 
 
 
 
>
 
Solvency risk
 
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Contingency and recovery Planning
Contingent capital events are unexpected
 
situations or business conditions that may increase the risk with
respect to ING’s capital
 
position. These events may be ING-specific, or arise from external factors.
 
The
Contingency Capital and Funding Plan (CCFP) sets out the organisation and actions in case of contingency events.
The CCFP has a suite of monitoring metrics that are aligned with the risk appetite statements
 
that are in place for
managing ING’s capital, liquidity and funding position. The Recovery Plan is designed by ING to
 
detect and act
upon possible major and unforeseen deterioration of its solvency position in a timely fashion. This plan has
integrated several risk appetite
 
statements to allow timely identification of possible stress on the company.
Incorporating risk appetite statements
 
into both plans ensures a seamless continuum between the ING’s
business-as-usual management and its contingency or recovery management.
 
Assessing capital adequacy: Capital Adequacy Statement (CAS)
The Capital Adequacy Statement (CAS) is ING Group’s
 
quarterly assessment of its capital adequacy and takes into
account different elements with respect to
 
its capital position. The degree to which ING’s capital
 
position is
considered to be adequate depends on a variety of internal and external
 
drivers:
 
●
 
Current supervisory requirements and (expected) requirements going forward;
 
●
 
Current internal requirements and (expected) requirements
 
going forward;
 
●
 
Coherence of the available capital with the (realisation of) strategic
 
plans; and
 
●
 
The ability to meet internal and external requirements in the case of stressed
 
events or should a risk
materialise.
 
 
The CAS assesses the adequacy of ING’s capital position in relation to above
 
-mentioned drivers and states the
extent to which the capital position consequently is considered as adequate.
 
On a quarterly basis the CAS
document is prepared. Additionally each year,
 
the management body signs and provides a comprehensive
assessment of ING’s capital adequacy,
 
supported by the ICAAP outcomes, in the form of a Capital Adequacy
Statement.
 
 
 
 
 
 
 
 
>
 
Credit risk
 
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Credit risk
Introduction
Credit risk is the risk of loss from the default and/or credit rating deterioration
 
of clients. Credit risks arise in
ING's lending, financial markets and investment activities. The credit risk section provides information
 
on how
ING measures, monitors and manages credit risk and gives an insight into the portfolio from
 
a credit risk
perspective.
 
Governance (*)
ING’s credit risk strategy
 
is to maintain an internationally diversified loan and bond portfolio,
 
while avoiding large
risk concentrations. The emphasis is on managing business developments within the business lines by means of a
top-down risk appetite framework, which sets concentration
 
limits for countries, individual clients, sectors,
products, secondary risk (collateral/guarantees)
 
and investment activities. The aim is to support relationship-
banking activities, while maintaining internal risk/reward guidelines and controls.
 
ING has organised support functions at two levels: Tier 1, operational unit level, and Tier 2, head office level.
Credit risk is a Tier 1 level risk function within ING and is part of the second line of defence. It is managed by
regional and/or business unit CROs. The CRO Wholesale Banking (WB), CRO Challengers & Growth Markets
(C&G), CRO Netherlands and CRO Belux focus on specific risks in the geographical and/or business areas of their
responsibilities. The Financial Risk department is a Tier 2 level risk function, which is responsible for the
consolidated risk appetite setting, risk frameworks, model development
 
and policies.
 
 
The credit risk function encompasses the following
 
activities:
◾
 
Measuring, monitoring and managing credit risks in the bank’s portfolio,
 
including the measures taken
since the start of the Covid-19 crisis;
◾
 
Challenging and approving new and modified transactions and borrower reviews;
◾
 
Managing the levels of provisioning and risk costs, and advising on impairments; and
◾
 
Providing consistent credit risk policies, systems
 
and tools to manage the credit lifecycle of all activities.
 
Credit risk categories
 
(*)
Credit risk uses the following risk categories to differentiate
 
between the different types of credit risk:
 
◾
 
Lending risk:
 
is the risk that the client (counterparty,
 
corporate or individual) does not pay the principal,
interest or fees on a loan when they are due, or on demand for letters
 
of credit (LCs) and guarantees
provided by ING.
◾
 
Investment risk
: is the credit default and risk rating migration risk that is associated
 
with ING’s
investments in bonds, commercial paper,
 
equities, securitisations, and other similar publicly traded
securities. This can be viewed as the potential loss that ING may incur as a result of holding a position in
underlying securities whose issuer's credit quality deteriorates or defaults. All investments
 
in the banking
book are classified in the investment risk category.
 
The primary purpose of ING’s investments in the
banking books is for liquidity management.
◾
 
Money market (MM) risk
: arises when ING places short-term deposits with a counterparty in order to
manage excess liquidity.
 
In the event of a counterparty default, ING may lose the deposit placed.
◾
 
Pre-settlement (PS) risk
: arises when a client defaults on a transaction before settlement
 
and ING must
replace the contract by a trade with another counterparty
 
at the then prevailing (possibly unfavourable)
market price. This credit risk category is associated with derivatives
 
transactions (exchange-traded
derivatives, over-the-counter (OTC)
 
derivatives and securities financing transactions).
 
◾
 
Settlement risk
: is the risk that arises when there is an exchange of value (funds or instruments) for the
same value date or different value
 
dates and receipt is not verified or expected until after ING has given
irrevocable instructions to pay or has paid or delivered its side of the trade. The risk is that ING delivers
but does not receive delivery from its counterparty.
 
ING manages settlement risk in the same way as
other credit risks by setting a risk limit per client. Due to the short-term nature
 
(typically one day), ING
does not hold provisions for settlement risk. Although a relatively low
 
risk, ING increasingly uses DVP
(delivery versus payment) and safe settlement
 
payment techniques to reduce settlement risk.
 
For the reconciliation between credit risk outstandings categories
 
and financial assets, refer to the table below:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
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Reconciliation between credit risk categories and financial position (*)
Credit risk categories
Mainly relates to:
Notes in the financial statements
Lending risk
-Cash and balances with central banks
Note
2
Cash and balances with central banks
-Loans and advances to banks
Note
3
Loans and advances to banks
-Loans and advances to customers
Note
4
Financial assets at fair value through profit or loss
-Off-balance sheet items e.g. obligations under financial guarantees and
 
letters of credit and undrawn
 
Note
5
Financial assets at fair value through other comprehensive income
credit facilities
Note
7
Loans and advances to customers
Note
44
Contingent liabilities and commitments
Investment risk
-Debt securities
Note
4
Financial assets at fair value through profit or loss
-Equity securities
Note
5
Financial assets at fair value through other comprehensive income
Note
6
Securities at amortised cost
Money market (MM) risk
-Cash and balances with central banks
Note
2
Cash and balances with central banks
-Loans and advances to banks
Note
3
Loans and advances to banks
-Loans and advances to customers
Note
7
Loans and advances to customers
Pre-settlement (PS) risk
-Financial assets at fair value through profit or loss (trading assets and non-trading
 
derivatives)
 
Note
4
Financial assets at fair value through profit or loss
-Financial liabilities at fair value through profit or loss (trading assets and non-trading
 
derivatives)
Note
14
Financial liabilities at fair value through profit or loss
-Securities financing
Note
43
Offsetting financial assets and liabilities
Settlement risk
-Financial assets at fair value through profit or loss (trading assets and non-trading
 
derivatives)
Note
4
Financial assets at fair value through profit or loss
-Financial liabilities at fair value through profit or loss (trading assets and non-trading
 
derivatives)
Note
11
Other assets
-Amounts to be settled
Note
14
Financial liabilities at fair value through profit or loss
Note
16
Other liabilities
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
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Credit risk appetite and concentration risk framework
 
(*)
The credit risk appetite and concentration risk framework
 
is designed to prevent undesired high levels of credit
risk and credit concentrations within various levels of the ING portfolio. It is derived from
 
the concepts of
boundaries and instruments as described in the ING Risk Appetite Framework.
 
Credit risk appetite is the maximum level of credit risk ING is willing to accept for growth and value
 
creation. The
credit risk appetite is linked to the overall
 
bank-wide risk appetite framework. The credit risk appetite
 
is
expressed in quantitative and qualitative measures.
 
Having a credit risk appetite achieves:
◾
 
Clarity about the credit risks that ING is prepared to assume, target setting
 
and prudent risk
management;
◾
 
Consistent communication to diffe
 
rent stakeholders;
◾
 
Guidelines on how to align reporting and monitoring tools with the organisational structure and strategy;
and
◾
 
Alignment of business strategies and key performance
 
indicators of business units with ING’s
 
credit risk
appetite through dynamic planning.
 
Credit risk appetite is set at different levels within ING and specifies the scope and focus
 
of the credit risk of ING,
and the composition of the credit portfolio, including its concentration and diversification
 
objectives in relation
to business lines, sectors and products.
 
The credit risk appetite and concentration risk framework
 
is composed of:
 
◾
 
Country risk concentration
: Country risk is the risk that arises due to events in a specific country (or
group of countries). In order to manage the maximum country event loss ING is willing to accept,
boundaries are approved by the SB. The estimated level is correlated
 
to the risk rating assigned to a
given country.
 
Actual country limits are set by means of country instruments, which are reviewed
monthly and updated when needed. For countries with elevated levels of geopolitical
 
or severe
economic cycle risk, monitoring is performed on a more frequent basis with strict pipeline and exposure
management.
◾
 
Single name and industry sector concentration
: ING has established a credit concentration risk
framework in order to identify,
 
measure and monitor single name concentration and industry sector
concentration (systemic risk). The same concept
 
of boundaries and instruments is applicable.
 
◾
 
Product and secondary risk concentration
: ING has established a concentration framework to
 
identify,
measure and monitor product concentration and secondary risk.
 
◾
 
Scenarios and stress tests
: Stress testing evaluates ING’s
 
financial stability under severe, but plausible
stress scenarios, and supports decision-making that assures ING remains a financially going concern even
after a severe event occurs. In addition to the bank-wide
 
stress testing framework described above, ING
performs regularly sensitivity analyses to assess portfolio risks and concentrations.
 
These sensitivity
analyses are consistent with the stress scenario established in the Group
 
-wide credit risk appetite
framework.
 
In light of Covid-19 ING incorporated pandemic specific scenarios for the stress tests
 
to gain
insight into the potential effects of Covid-19 on the credit risk in the portfolios
 
.
◾
 
Product approvals
: The product approval and review process (PARP)
 
assesses and manages risks
associated with the introduction of new or modified products. It ensures that sound due diligence is
performed by relevant stakeholders
 
and the relevant risks (credit, operational, compliance, etc.)
 
are
addressed appropriately.
◾
 
Sector strategy and risk appetite papers
: These are detailed analyses of defined products and/or
industries. They identify the major risk drivers and mitigants, the internal business mandate, and
propose the risk (including business) parameters – and potentially the maximum product
 
and/or
portfolio limit - to undertake that business. A sector strategy
 
and risk appetite paper is always prepared
by the front office responsible for the internal business mandate and requires
 
an approval from the
designated approval authority.
 
Sector strategy and risk appetite papers may carry
 
various names and/or
may have geographical and/or business limitations
 
(e.g. local vs global).
◾
 
Credit approval process
: The purpose of the credit approval process is that individual transactions and
the risk associated with these transactions are assessed on a name-by-name basis. For each type of
client there is a dedicated process with credit risk managers specialised along the business lines of ING,
including the use of automated decision-making in certain cases. The credit approval process is
supported by a risk rating system and exposure
 
monitoring system. Risk ratings are
 
used to indicate a
client’s creditworthiness which translates into
 
a probability of default. This is used as input to determine
the maximum risk appetite that ING has for a given type of client (reference
 
benchmark). The
determination of the delegated authority (the amount that can be approved
 
at various levels of the
organisation) is a function of the risk rating of the client and ING’s
 
credit risk exposure on the client.
Where necessary, underwriting standards
 
were reviewed and refined to limit the credit risk to portfolios
particularly sensitive to Covid-19.
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
164
 
Credit risk models (*)
 
Within ING, internal Basel compliant models are used to determine probability of default (PD), exposure
 
at
default (EAD) and loss given default (LGD) for
 
regulatory and economic capital purposes. These models also form
the basis of ING’s IFRS 9 loan loss provisioning (see ‘IFRS 9 models’ below). Bank-wide,
 
ING has implemented
around 100 credit risk models, for regulatory capital, economic capital
 
and loan loss provisioning purposes.
 
There are two main types of PD, EAD and LGD models used throughout the Bank:
◾
 
Statistical models
 
are created where a large set of default or detailed
 
loss data is available. They are
characterised by a sufficient number of data points that facilitate
 
meaningful statistical estimation of the
model parameters. The model parameters are
 
estimated with statistical techniques based on the data
set available;
◾
 
Hybrid models
 
contain characteristics of statistical
 
models combined with knowledge and experience of
experts from risk management and front-office staff,
 
literature from rating
 
agencies, supervisors and
academics. These models are especially appropriate for ‘low default portfolios’,
 
where limited historical
defaults exist.
 
Credit risk rating process
 
(*)
 
In principle, all risk ratings are based on a Risk Rating (PD) Model that complies with the minimum requirements
detailed in CRR/CRDIV, ECB
 
Supervisory Rules and EBA guidelines. This concerns all borrower types and
segments.
 
 
ING’s PD rating models are based on a 1-22 scale (1=highest
 
rating; 22=lowest rating) referred
 
to as the ‘Master
scale’,
 
which roughly corresponds to the rating grades that are assigned by
 
external rating agencies, such as
Standard & Poor’s, Moody’s and Fitch. For
 
example, an ING rating of 1 corresponds to an S&P/Fitch
 
rating of AAA
and a Moody’s rating of Aaa; an ING rating of 2 corresponds to
 
an S&P/Fitch rating of AA+ and a Moody’s
 
rating
of Aa1, and so on.
 
 
The 22 grades are composed of the following categories:
◾
 
Investment grade (risk rating 1-10);
 
◾
 
Non-investment grade (risk rating
 
11-17);
◾
 
Sub-standard (risk rating 18-19); and
◾
 
Non-performing (risk rating 20-22).
 
The three first categories (1-19) are risk ratings
 
for performing loans. The ratings are calculated
 
in IT systems with
internally developed models based on data that is either manually or automatically fed. Under certain
 
conditions,
the outcome of a manually fed model can be challenged through a rating appeal process.
 
Risk ratings for non-
performing loans (NPL) (20-22) are set by the global or regional credit restructuring department. For
securitisation portfolios, the external ratings of the tranche in which ING has invested
 
are leading.
 
Risk ratings assigned to clients are reviewed at least annually,
 
with the performance of the underlying models
monitored regularly.
 
Some of these models are global in nature, such as models for large corporates,
 
commercial
banks, insurance companies, central governments, local
 
governments, funds, fund managers, project finance and
leveraged companies. Other models are more regional-
 
or country-specific: there are PD models for small
medium enterprise (SME) companies in Central Europe, the Netherlands, Belgium, Luxembourg, as well as
residential mortgage and consumer loan models in the various retail markets.
 
Rating models for retail clients are predominantly statistically
 
driven and automated, such that ratings can be
updated on a monthly basis. Rating models for large corporates,
 
institutions and banks include both statistical
characteristics and manual input, with the ratings being manually updated on at least an annual basis. During
2020, portfolios and clients most at risk of being affected by the pandemic were
 
subject to more frequent (e.g.
quarterly) reviews to closely monitor the development of credit risk.
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
165
 
Credit risk systems
Credit risk tools and data standards
The acceptance, maintenance, measurement, management and reporting of credit risks at all levels of ING is
executed through single, common credit risk data
 
standards using shared credit risk tools that support
standardised and transparent credit risk practices.
 
ING has chosen to develop credit risk tools centrally with the
philosophy of using a single source of data in an integrated way.
 
This includes applying a combination of the ING
policy, the regulatory
 
environment in which we operate and the daily processes that
 
are active throughout the
Group. Disciplined application in these three areas is essential for achieving high data quality standards.
 
In 2020, ING established a Credit Risk Control Unit (CRCU), which is part of the Financial Risk department, with
the main objective to contribute to compliant and continuously improving rating
 
systems.
 
Credit risk portfolio (*)
ING’s credit exposure
 
is mainly related to lending to individuals and businesses followed by investments
 
in bonds
and securitised assets, and money market. Loans to individuals are mainly mortgage loans secured by residential
property. Loans (including guarantees
 
issued) to businesses are often collateralised, but may be unsecured based
on the internal analysis of the borrower’s creditworthiness. Bonds in the investment
 
portfolio are generally
unsecured, but predominantly consist of bonds issued by central governments
 
and EU and/or OECD based
financial institutions. Secured bonds, such as mortgage backed securities and asset backed
 
securities are secured
by the underlying diversified pool of assets (commercial or residential mortgages, car
 
loans and/or other assets)
held by the securities issuer. For
 
money market, exposure is mainly deposits to central banks.
 
The last major
credit risk source involves pre-settlement
 
(PS) exposures which arise from trading activities, including derivatives,
repurchase transactions and securities lending/borrowing transactions. This is also commonly referred to
 
as
counterparty credit risk.
 
The prior period outstandings by economic sector (industry) have been updated reflecting improved
 
classification
of clients. This is applicable to all following tables in the sections credit risk portfolio, credit
 
risk mitigation and
credit quality that includes outstandings by economic sectors with prior period comparatives.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
166
 
Portfolio analysis per business line (*)
Outstandings per line of business (*)
1, 2, 3, 4
in EUR million
Wholesale Banking
Retail Benelux
Retail Challengers & Growth
Markets
Corporate Line
Total
Rating class
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Investment grade
1 (AAA)
74,735
31,859
357
372
34,782
18,973
2,375
24,774
112,248
75,978
2-4 (AA)
63,239
46,394
6,119
5,853
38,586
36,460
18
1,832
107,961
90,539
5-7 (A)
66,537
66,756
23,143
20,922
54,381
48,587
349
323
144,409
136,588
8-10 (BBB)
104,987
115,888
120,714
115,192
53,346
49,681
2,692
3,190
281,738
283,951
Non-Investment grade
11-13 (BB)
65,832
86,342
61,797
63,993
39,823
41,584
0
31
167,451
191,950
14-16 (B)
20,925
22,929
17,759
15,845
10,299
14,755
48,983
53,528
17 (CCC)
1,822
1,081
2,543
2,223
844
933
128
98
5,338
4,335
Substandard grade
18 (CC)
1,690
1,228
1,170
1,409
514
531
3,374
3,168
19 (C)
518
659
1,306
1,056
600
672
2,423
2,387
NPL grade
20-22 (D)
4,415
4,516
5,614
4,316
3,203
2,399
295
275
13,526
11,506
Total
404,699
377,651
240,520
231,180
236,377
214,575
5,857
30,524
887,454
853,930
Industry
Private Individuals
25
31
160,884
164,466
172,390
167,262
333,299
331,758
Central Banks
84,697
34,044
27,921
8,383
632
23,339
113,250
65,766
Real Estate
 
26,271
38,338
24,064
13,205
3,297
2,732
53,632
54,275
Commercial Banks
42,088
44,152
201
250
8,211
8,884
3,010
3,502
53,509
56,788
Central Governments
43,753
37,449
1,691
1,364
4,482
6,356
1,697
3,131
51,623
48,300
Natural Resources
43,905
54,113
1,090
976
553
806
45,549
55,894
Non-Bank Financial Institutions
40,581
37,695
1,488
1,396
323
378
456
512
42,848
39,981
Transportation & Logistics
24,692
27,334
3,571
2,882
696
764
28,960
30,980
Food, Beverages & Personal Care
14,706
16,691
6,162
5,960
1,975
2,151
22,843
24,802
Services
8,878
10,252
11,302
10,929
808
862
4
3
20,993
22,046
Lower Public Administration
 
5,698
3,594
4,756
5,619
9,010
8,184
19,464
17,397
Utilities
 
17,062
16,377
1,358
741
136
145
18,556
17,263
General Industries
10,943
12,599
4,346
4,269
2,359
2,764
17,648
19,632
Other
41,398
44,982
19,607
19,123
4,214
4,906
58
36
65,279
69,046
Total
404,699
377,651
240,520
231,180
236,377
214,575
5,857
30,524
887,454
853,930
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
167
 
Outstandings per line of business (*) - continued
1, 2, 3
in EUR million
Wholesale Banking
Retail Benelux
Retail Challengers & Growth
Markets
Corporate Line
Total
Region
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Europe
Netherlands
72,236
41,255
149,686
142,547
645
905
2,965
25,340
225,532
210,046
Belgium
36,517
33,936
84,104
82,368
642
572
19
18
121,282
116,894
Germany
21,102
18,067
542
485
119,032
99,966
45
43
140,722
118,561
Poland
18,296
15,713
55
66
20,750
20,377
39,101
36,156
Spain
9,157
8,849
66
68
25,255
21,838
35
30
34,512
30,785
United Kingdom
30,582
27,026
193
277
170
225
73
1,872
31,018
29,400
Luxemburg
20,080
22,209
4,373
4,051
864
1,554
13
13
25,330
27,827
France
15,651
13,914
618
519
6,447
6,267
6
3
22,721
20,703
Rest of Europe
61,213
65,432
525
406
20,573
22,816
13
25
82,324
88,679
Americas
64,688
67,893
210
223
1,535
1,457
312
340
66,745
69,912
Asia
44,961
52,065
91
103
166
180
2,376
2,840
47,594
55,188
Australia
8,134
8,622
22
27
40,294
38,416
0
1
48,451
47,066
Africa
2,082
2,671
36
40
3
2
2,121
2,713
Total
404,699
377,651
240,520
231,180
236,377
214,575
5,857
30,524
887,454
853,930
1
 
Based on credit risk measurement contained in lending, pre-settlement, money market and investment activities.
2
 
Based on the total amount of credit risk in the respective column using ING’s internal credit risk measurement methodologies. Economic sectors
 
(industry) below 2% are not shown separately but grouped in Other.
3
 
Geographic areas are based on country of residence, except for private individuals for which the geographic
 
areas are based on the primary country of risk.
4
 
The prior period outstandings by economic sector (industry) have been updated reflecting improved classification of clients.
 
Overall portfolio (*)
During 2020, ING’s portfolio size increased
 
by €33.5 billion (+ 3.93%) to €887.5 billion outstandings. The net
volume growth was concentrated in the Money Market
 
and Lending risk categories and was mainly due to
growth in exposures to Central Banks relating
 
to participation in TLTRO III. Excluding
 
Central Banks, the portfolio
size decreased by €14.0 billion, driven by a reduction in Lending exposures and FX impact mainly due to the
weakening of the US dollar against euro.
 
Foreign exchange rate
 
changes had a negative impact on portfolio growth and reduced total outstanding
 
by
€13.9 billion. This was driven by the depreciation of the US dollar (-8.45%), Polish new zloty (-6.64%), New
Turkish lira (-26.65%) and the British pound (-5.36%) against the
 
euro.
Rating distribution (*)
In 2020, governments and banks introduced numerous measures to financially support individuals and
businesses during the Covid-19 pandemic. These support measures in many case prevent or delay financial
difficulties of customers. As a result, Covid-19 did not materially affect
 
the overall rating distribution in the
portfolio per 31 December 2020. Refer to ‘Covid-19 sensitive sectors’
 
for the impact on the portfolios most
sensitive to Covid-19.
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
168
 
Overall, the rating class concentration
 
slightly improved. The share of investment grade
 
rating classes increased
from 68.7% to 72.8%, while the share of non-investment grade decreased,
 
from 29.3% to 25.0%. Substandard
grade outstanding remained stable at 0.7% of total
 
portfolio, whereas the non-performing loans (NPL) grade
increased share from 1.3% to 1.5%.
 
With respect to the rating distribution within the business lines, in Wholesale Banking AAA and AA rated assets
increased driven by Central Banks exposures, mainly due to the transfer
 
of the reserve deposit with the Dutch
central bank (DNB) from Corporate Line Bank to Wholesale Banking. Further decrease in BBB rating
 
class for
Wholesale Banking was seen with Commercial Banks’ exposures, while for BB rating the outstanding
 
decreased
primarily in natural resources and transportation and logistics industries
 
.
 
The rating distribution for Retail Benelux improved
 
mostly because of Dutch residential mortgages, shifting from
rating class BB to ratings A and BBB, driven by continuing increase of the NVM house price index
 
and improving
LTVs,
 
despite Covid-19. Additionally, a trend of early repayments
 
was visible in the Dutch mortgage portfolio,
further reducing the share of BB rating class. Residential mortgages in Belgium also improved
 
in rating
distribution, reducing concentration in BB and B ratings, while increasing
 
in AA, A and BBB. On the other hand,
the retail mid-corporates portfolio showed
 
a worsening of rating distribution both in Belgium and the
Netherlands, shifting volumes from BBB to B rating.
 
In Retail Challengers & Growth Markets,
 
the increase in AAA-rating was explained by increased reserve deposits
the central banks of Germany and Australia. Similarly,
 
rating class A increased due to exposures to Banco de
Espana. Further, the increase in AA is partially explained by
 
Australian residential mortgages . In Germany
residential mortgage loans grew steadily,
 
mainly in rating classes A and BBB, with Poland and Spain also
contributing to the growth of A-rated residential
 
mortgages.
 
 
Corporate line decreased concentration
 
in AAA rating class due to the transfer of the reserve deposit with the
Dutch central bank (DNB) to Wholesale Banking.
Industry (*)
The industry composition within Retail is concentrated
 
in private individuals with 67% for Retail Benelux and 73%
for Retail Challengers & Growth. Dutch
 
residential mortgages continued to decrease driven by run-off at
Westland Utrecht bank and higher regular repayments,
 
partly mitigated by stable new production at Domestic
Bank NL throughout 2020. In Belgium, residential mortgages slightly decreased in total volume, while an increase
was seen with lease products in Belgium mid-corporate portfolio.
 
In C&G, apart from mortgage volumes growth, an increased outstanding was
 
seen in Lower Public Administration
(seen in Germany, France
 
and Australia) and in Real Estate (Australia)
 
.
 
Within Wholesale Banking, the sector development in Central Banks is consistent with the development in the
investment grade category
 
above. Exposures towards Central Governments
 
increased due to higher bond
investments with Italy,
 
Poland and France, while Commercial Banks decreased exposure, driven by
 
lower
volumes of trade-related transactions, seen in Australia.
 
The most noticeable reduction in Wholesale Banking was seen in Natural Resources, where exposures
 
decreased
significantly, most
 
visible in Singapore, Luxembourg, US, UK and UAE. Outstanding to Transportation
 
& Logistics
also decreased, seen in the Netherlands, Hong Kong and Belgium, partly mitigated by an increase in Germany.
Apart from the above ING Wholesale increased its exposure to Lower Public Administration
 
(Germany and
France), while overall exposure decreased in Food,
 
Beverages & Personal Care (Belgium and Argentina)
 
.
Covid-19 sensitive sectors (*)
Aviation (Transportation
 
& Logistics):
 
exposure amounted to €4.6 billion outstanding (0.52% of total portfolio).
In terms of rating, the distribution of outstanding worsened compared to
 
2019, with main concentration shifting
from BBB to BB and B rating classes. Substandard grade
 
outstanding increased to 1.2% from 0% of Aviation
portfolio, whereas the non-performing grade increased to
 
4.5% from 0%.
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
169
 
 
Hospitality & Leisure (Services and Food, Beverages & Personal Care):
 
exposure amounted to €5.9 billion
outstanding (0.67% of total portfolio). Rating distribution worsened compared
 
to 2019, with outstanding shifting
from BBB and BB ratings into B, CCC and CC rating classes. Substandard
 
grade increased to 9.7% from 1.8%,
whereas the NPL grade increased to 6.2% from 2.5%.
 
Non-food retail (Retail):
 
exposure slightly reduced and amounted to €10.8 billion (1.22% of total portfolio).
Rating distribution remained relatively stable, with concentration
 
reducing in BBB, BB and B ratings and slightly
increasing in A rating class. Substandard grade decreased
 
to 0.7% from 0.9%, while NPL grade increased to 3.3%
from 3.2%.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
170
 
Outstandings by economic sectors and geographical area (*)
 
1
in EUR million
Region
Total
Industry
Netherlands
Belgium
Germany
Poland
Spain
United
Kingdom
Luxemburg
France
Rest of Europe
America
Asia
Australia
Africa
2020
Private Individuals
114,219
42,443
88,178
12,216
21,775
186
3,203
2,644
14,717
169
173
33,346
29
333,299
Central Banks
43,615
22,840
23,601
31
3,058
6,247
3,855
811
3,655
0
4,090
1,424
23
113,250
Real Estate
18,349
10,540
1,374
2,478
1,460
313
3,846
3,511
3,839
2,889
828
4,197
7
53,632
Commercial Banks
1,640
265
4,546
607
468
6,931
3,478
6,218
6,926
7,434
13,222
1,476
298
53,509
Central Governments
6,636
6,762
2,010
8,956
4,435
55
175
2,130
10,020
8,949
344
712
439
51,623
Natural Resources
2,830
1,214
1,102
626
286
3,435
959
316
13,542
8,193
11,442
821
782
45,549
Non-Bank Financial Institutions
2,743
940
3,301
1,502
126
6,348
4,054
1,547
4,096
14,726
3,089
376
0
42,848
Transportation & Logistics
4,162
2,016
1,503
1,018
539
1,934
641
782
6,229
3,628
5,468
743
295
28,960
Food, Beverages & Personal Care
6,623
2,783
306
1,932
515
782
1,663
789
2,202
3,975
1,072
191
10
22,843
Services
4,281
9,307
584
783
159
520
454
411
1,054
2,314
612
515
0
20,993
Lower Public Administration
432
4,875
7,526
721
0
583
1,693
528
1,026
30
2,050
0
19,464
Utilities
 
1,731
1,277
1,815
618
610
2,105
583
402
2,975
3,196
1,716
1,292
237
18,556
General Industries
 
4,176
2,802
1,030
2,134
252
234
266
194
3,014
2,477
1,053
16
0
17,648
Other
14,094
13,218
3,843
5,478
829
1,926
1,572
1,273
9,527
7,769
4,456
1,293
0
65,279
Total
225,532
121,282
140,722
39,101
34,512
31,018
25,330
22,721
82,324
66,745
47,594
48,451
2,121
887,454
Rating class
Investment grade
169,111
78,294
118,082
26,045
26,622
25,924
19,528
16,688
51,233
44,279
35,879
34,545
127
646,357
Non-Investment grade
51,818
38,113
21,185
11,979
7,468
4,837
5,530
5,870
29,051
20,758
10,696
12,651
1,816
221,772
Substandard grade
1,794
1,159
516
215
102
101
191
37
679
476
94
349
83
5,798
NPL grade
2,808
3,715
939
862
320
156
81
126
1,360
1,232
925
905
95
13,526
Total
225,532
121,282
140,722
39,101
34,512
31,018
25,330
22,721
82,324
66,745
47,594
48,451
2,121
887,454
1
 
Geographic areas are based on country of residence, except for private individuals for which the geographic
 
areas are based on the primary country of risk.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
171
 
Outstandings by economic sectors and geographical area (*)
1, 2
in EUR million
Region
Total
Industry
Netherlands
Belgium
Germany
Poland
Spain
United
Kingdom
Luxemburg
France
Rest of Europe
America
Asia
Australia
Africa
2019
Private Individuals
117,194
43,057
84,281
11,296
20,758
248
3,019
2,242
15,626
222
179
33,602
36
331,758
Central Banks
21,635
16,651
7,573
211
370
1,867
5,048
796
6,454
0
4,951
200
8
65,766
Commercial Banks
1,918
358
4,231
254
743
7,206
3,771
5,945
7,398
7,682
13,576
3,353
352
56,788
Natural Resources
2,556
1,323
959
729
220
4,307
2,339
652
16,037
9,521
15,442
749
1,061
55,894
Central Governments
7,970
5,777
3,033
6,626
4,597
42
184
1,554
6,668
9,724
1,071
689
367
48,300
Non-Bank Financial Institutions
2,852
1,178
2,856
1,252
175
7,462
2,983
1,318
4,117
12,145
3,178
315
149
39,981
Real Estate
18,478
10,287
1,418
2,415
1,390
350
3,865
3,503
4,539
3,685
886
3,450
8
54,275
Transportation & Logistics
4,722
2,298
505
1,100
569
2,081
868
812
6,129
3,979
6,818
651
447
30,980
Food, Beverages & Personal Care
6,301
3,095
322
2,093
329
995
1,779
874
2,602
4,632
1,651
111
19
24,802
Services
4,683
9,272
574
822
162
774
646
711
1,109
2,264
604
426
0
22,046
General Industries
4,096
3,301
1,143
2,295
274
382
437
144
3,504
2,628
1,423
5
0
19,632
Utilities
 
1,331
1,056
1,673
654
418
2,032
571
445
3,103
3,493
1,380
843
265
17,263
Lower Public Administration
522
5,949
5,798
727
4
0
728
471
536
958
18
1,686
0
17,397
Chemicals, Health & Pharmaceuticals
4,160
3,517
935
1,066
112
95
257
524
2,812
2,286
474
205
0
16,443
Other
11,628
9,774
3,260
4,614
664
1,560
1,331
712
8,045
6,694
3,536
782
2
52,603
Total
210,046
116,894
118,561
36,156
30,785
29,400
27,827
20,703
88,679
69,912
55,188
47,066
2,713
853,930
Rating class
Investment grade
144,134
73,010
95,685
22,921
23,598
24,429
21,444
15,418
50,878
42,689
41,134
31,542
175
587,056
Non-Investment grade
60,937
39,994
21,616
12,219
6,832
4,807
6,229
5,163
35,775
25,660
13,553
14,573
2,457
249,814
Substandard grade
1,993
1,023
555
212
85
17
75
25
484
464
347
265
9
5,555
NPL grade
2,983
2,867
705
806
270
148
79
96
1,541
1,100
154
686
71
11,506
Total
210,046
116,894
118,561
36,156
30,785
29,400
27,827
20,703
88,679
69,912
55,188
47,066
2,713
853,930
1
 
Geographic areas are based on country of residence, except for private individuals for which the geographic
 
areas are based on the primary country of risk.
2
 
The prior period outstandings by economic sector (industry) have been updated reflecting improved classification of clients.
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
172
 
Portfolio analysis per geographical area (*)
The portfolio analysis per geographical area re-emphasises the international
 
distribution of the ING portfolio. The
share of the Netherlands in the overall portfolio remained stable at
 
25%.
 
The most noticeable trend in the Netherlands was the increase in exposure with the central bank. Apart from
that, lower volumes of residential mortgage loans were visible, as well as lower bond exposures
 
towards the
Dutch Central Government. For Belgium the increase in exposures
 
towards the central bank was partially offset
by reduced outstanding to Lower Public Administration and slight
 
decrease in residential mortgage volumes.
In terms of rating distribution, the share of investment grade
 
increased in both the Netherlands and Belgium (due
to central banks), while non-investment grade
 
reduced, mainly seen with private individuals (mortgages shifting
to investment grade). For both countries
 
substandard grade remained relatively
 
stable (little below 1%). For the
Netherlands, the NPL grade decreased to 1.2% from 1.4%, while for Belgium it increased to 3.1% from
 
2.5%.
 
In Germany, Spain and Poland,
 
residential mortgages increased due to strong market
 
position and stable business
volume growth. Germany,
 
Spain and Australia also showed increased exposures to central
 
banks.
 
Rating distribution in Germany improved: the share of investment
 
grade increased (central banks), while non-
investment grade slightly decreased. Substandard
 
grade (0.4%) also reduced share, while NPL grade slightly
increased (0.7%). Poland and Spain also showed rating distributions improvement,
 
as in both investment grade
share increased (central banks and mortgages). Substandard
 
grade remained stable at 0.6% for Poland and 0.3%
for Spain, as for NPL grade, it was stable at 2.2% for
 
Poland and 0.9% for Spain.
 
In Luxemburg despite the reduced overall exposure
 
to central banks and Natural Resources, the rating
distribution remained stable: investment grade
 
at 77.1%, non-investment grade slightly decreased to 21.8%.
Substandard grade increased to 0.8% from 0.3%, while NPL grade
 
remained at 0.3%.
 
For Rest of Europe, the exposure decreased due to
 
lower exposure with the central bank of the Czech Republic,
lower outstanding in Turkey,
 
mainly due to FX impact and a reduction of exposure in Switzerland, visible in
Natural Resources.
 
The lower exposure in the Americas was mainly driven by FX impact and decreased volumes of term loans to
 
US
Corporates, mainly in Natural Resources, partly offset
 
by higher outstanding to US Non-Bank FIs. A similar
reduction in outstanding for Natural Resources
 
was visible in Asia (mainly in Singapore and UAE), which was
partially offset by increased exposure to Technology
 
industry.
 
 
In Australia, outstanding increased, driven by Central
 
Bank exposures and exposures in Real Estate,
 
partly
compensated by lower volumes of trade related
 
transactions with Commercial Banks.
 
In terms of rating distribution for America region the share of investment
 
grade increased to 66.3% from 61.1%,
while non-investment grade decreased
 
to 31.1% from 36.7%. Substandard grade remained at
 
0.7%, while NPL
slightly increased to 1.8% from 1.6%. For Asia, investment
 
grade moved slightly up to 75.4%, non-investment and
substandard decreased to 22.5% and 0.2% respectively,
 
while the NPL increased its share to 1.9% from 0.3% of
outstanding in Asia. Australia’s
 
rating distribution remained stable with slight shift of outstanding from
 
non-
investment to investment
 
grade.
 
 
The top five countries within Rest of Europe based on outstanding were:
 
Italy (€17,544 million), Switzerland
(€10,494 million), Turkey
 
(€9,579 million), Romania (€8,484 million) and Russian Federation (€4,964 million).
 
Credit risk mitigation (*)
ING uses various credit risk mitigation techniques and instruments to mitigate
 
the credit risk associated with an
exposure and to reduce the losses incurred subsequent to a default
 
by a customer.
 
The most common
terminology used in ING for credit risk protection is ‘cover’.
 
While a cover may be an important mitigant of credit
risk and an alternative source of repayment, generally
 
it is ING’s practice to lend on the basis of the customer’s
creditworthiness rather than exclusively relying
 
on the value of the cover.
 
Cover forms (*)
Within ING, there are two distinct forms of covers. First,
 
where the asset has been pledged to ING as collateral or
security, ING has the right to liquidate
 
it should the customer be unable to fulfil its financial obligation. As such,
the proceeds can be applied towards full or partial compensation of the customer's outstanding
 
exposure. This
may be tangible (such as cash, securities, receivables, inventory,
 
plant and machinery, and mortgages on real
estate properties) or intangible (such as patents,
 
trademarks, contract rights and licences). Second, where there
is a third-party obligation, indemnification or undertaking (either by contract and/or
 
by law), ING has the right to
claim from that third party an amount if the customer fails on its obligations. The most common
 
examples are
guarantees (such as parent guarantees
 
and export credit insurances) or third-party pledged mortgages.
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
173
 
Cover valuation methodology (*)
General guidelines for cover valuation are established
 
to ensure consistent application within ING. These also
require that the value of the cover is monitored on a regular basis. Covers
 
are revalued periodically and
whenever there is reason to believe that the market is subject to
 
significant changes in conditions. The frequency
of monitoring and revaluation depends on the type of cover.
 
The valuation method also depends on the type of covers. For asset collateral,
 
the valuation sources can be the
customer’s balance sheet (e.g. inventory,
 
machinery and equipment), nominal value (e.g. cash and receivables),
market value (e.g. securities and commodities), independent valuations (commercial real
 
estate) and market
indices (residential real estate). For third-party obligations,
 
the valuation is based on the value that is attributed
to the contract between ING and that third party.
 
Cover values (*)
This section provides insight into the types of cover and the extent to which exposures
 
benefit from collateral or
guarantees. The disclosure differentiates
 
between risk categories (lending, investment, money market
 
and pre-
settlement). The most relevant types of cover include mortgages,
 
financial collateral (cash and securities) and
guarantees. ING obtains cover that is eligible for credit
 
risk mitigation under CRR/CRDIV,
 
as well as cover that is
not eligible. Collateral covering financial market transactions
 
is valued on a daily basis, and as such not included
in the following tables. To
 
mitigate the credit risk arising from Financial Markets transactions,
 
the bank enters
into legal agreements governing the exchange
 
of financial collateral (high-quality government bonds and cash).
 
The cover values are presented for the
 
total portfolio of ING, both the performing and non-performing portfolio.
Our definition of non-performing is explained in detail in ‘Credit restructuring’ (below). For additional insight, a
breakdown of ING’s
 
portfolio by industry and geography is provided.
 
 
Exposures are categorised into different
 
value-to-loan (VTL) buckets that give insight in the level of
collateralisation of ING’s
 
portfolio. VTL is calculated as the cover value divided by the outstandings at
 
the balance
sheet date. The cover values are indexed
 
where appropriate and exclude any
 
cost of liquidation. Covers can
either be valid for all or some of a borrower’s exposures or particular outstandings,
 
the latter being the most
common. For the purpose of aggregation, over-collateralisation
 
is ignored in the total overview and VTL coverage
of more than 100% is reported as fully covered. For VTL coverage
 
in the tables for Dutch mortgages, consumer
lending and business lending, each cover is subsequently assigned to one of the six defined VTL buckets: no
cover,
 
>0% to 25%, >25% to 50%, >50% to 75%, >75% to <100%, and ≥ 100%.
 
The next table gives an overview of the collateralisation of the ING’s
 
total portfolio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
174
 
Cover values including guarantees received (*)
in EUR million
Cover type
Value to Loan
2020
Outstandings
Mortgages
Financial Collateral
Guarantees
Other covers
No Cover
Partially covered
Fully covered
Consumer Lending
331,288
609,967
6,208
26,117
38,438
6.7%
7.5%
85.8%
Business Lending
388,270
161,474
20,431
94,913
302,357
43.1%
21.2%
35.7%
Investment and Money Market
121,809
95
121
782
245
99.2%
0.1%
0.7%
Total Lending, Investment
 
and Money Market
841,367
771,536
26,761
121,811
341,039
36.9%
12.7%
50.4%
Pre-settlement
46,086
 
 
 
 
Total Bank
887,454
 
 
Cover values including guarantees received (*)
in EUR million
Cover type
Value to Loan
2019
Outstandings
Mortgages
Financial
 
Collateral
Guarantees
Other
No Cover
Partially covered
Fully covered
Consumer Lending
329,949
574,786
3,775
26,766
36,774
6.9%
7.6%
85.5%
Business Lending
378,444
154,351
21,073
93,407
296,286
36.7%
24.3%
39.1%
Investment and Money Market
94,866
33
133
64
266
96.0%
3.9%
0.1%
Total Lending, Investment
 
and Money Market
803,258
729,171
24,981
120,236
333,326
31.4%
15.0%
53.5%
Pre-settlement
50,672
Total Bank
853,930
 
In 2020, the collateralisation level of the portfolio slightly
 
decreased as a result of an increase in unsecured
Central Bank reserves which are included in Business lending. Excluding the pre-settlement
 
portfolio,50.4% of
ING’s outstandings were
 
fully collateralised in 2020 (2019: 53.5%). Since investments traditionally
 
do not require
covers, the percentage for ‘no covers’
 
in this portfolio is above 90%. However,
 
99% of the investment
outstanding is investment grade. Improved
 
economic conditions in ING’s main markets
 
contributed to improved
collateral valuations, observed in consumer lending.
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
175
 
Consumer lending portfolio (*)
The consumer lending portfolio accounts for 37.3% of ING’s
 
total outstanding, primarily consisting of residential
mortgage loans and other consumer lending loans, which mainly comprise term loans, revolvers and personal
loans to consumers. As a result, most of the collateral consists of mortgages.
 
The mortgage values are collected
in an internal central database and in most cases external
 
data
 
is used to index the market value (e.g. mortgage
values for the Netherlands are updated on a quarterly basis using the NVM/CBS house price index).
 
 
A significant part of ING’s residential mortgage
 
portfolio is in the Netherlands (36.6%), followed by Germany
(25.9%), Belgium and Luxembourg (13.4%) and Australia (10.7%). Given the size of the Dutch mortgage
 
portfolio,
the valuation methodology to determine the cover values for
 
Dutch residential mortgages is provided below.
 
Dutch mortgages valuation (*)
When a mortgage loan is granted in the Netherlands, the policy dictates maximum
 
loan to market value (LTMV)
for an existing property and for construction property
 
financing of 100 percent.
 
 
In case of newly built houses usually the building /purchase agreement is sufficient as valuation. In the case of
existing houses three types of valuations are allowed. If the LTMV
 
is below 90 percent, either WOZ (fiscal market
value, determined by government authorities) or an automated model valuation
 
(the Calcasa ING Valuation) are
permitted.
In most cases, a valuation is performed by certified valuers that
 
are registered at one of the organisations
accepted by ING. In addition, the valuer must be a member of the NVM (Nederlandse Vereniging van Makelaars
 
–
Dutch Association of Real Estate Agents), VBO (Vereniging
 
Bemiddeling Onroerend Goed – Association of Real
Estate Brokers),
 
VastgoedPRO (Association of Real
 
Estate Professionals) or NVR (Nederlandse Vereniging
 
van
Rentmeesters).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
176
 
 
Consumer lending portfolio – cover values
 
(*)
The below tables show the values of different covers
 
and the VTL split between performing and non-performing
loans.
 
Cover values including guarantees received - Consumer lending portfolio (*)
in EUR million
Cover type
Value to Loan
2020
Outstandings
Mortgages
Financial
 
Collateral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Performing
Residential Mortgages (Private Individuals)
294,642
594,073
5,147
23,210
30,927
0.1%
0.7%
7.3%
92.0%
Residential Mortgages (SME)
 
1
5,681
9,010
151
126
1,532
0.3%
0.7%
1.4%
6.1%
91.5%
Other Consumer Lending
25,780
197
861
2,619
4,336
81.5%
0.3%
0.1%
0.2%
0.3%
17.6%
Total Performing
326,103
603,281
6,160
25,955
36,795
6.4%
0.0%
0.1%
0.7%
6.7%
86.1%
Non-performing
Residential Mortgages (Private Individuals)
3,698
6,379
45
141
1,414
0.2%
0.1%
0.4%
1.2%
5.9%
92.2%
Residential Mortgages (SME)
 
1
184
301
0
9
54
0.1%
0.2%
0.5%
1.8%
7.7%
89.7%
Other Consumer Lending
1,303
6
4
12
175
91.8%
0.3%
0.2%
0.3%
0.6%
6.7%
Total Non-performing
5,185
6,686
49
162
1,643
23.2%
0.1%
0.3%
1.0%
4.6%
70.6%
Total Consumer Lending
331,288
609,967
6,208
26,117
38,438
6.7%
0.0%
0.1%
0.7%
6.7%
85.8%
1
 
Consists mainly of residential mortgages to small one man business clients
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
177
 
Cover values including guarantees received - Consumer lending portfolio (*)
in EUR million
Cover type
Value to Loan
2019
Outstandings
Mortgages
Financial
Collateral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Performing
Residential Mortgages (Private Individuals)
294,658
561,766
2,897
24,281
30,541
0.1%
0.8%
7.2%
91.8%
Residential Mortgages
(SME)
 
1
5,687
8,786
258
145
1,402
0.2%
0.8%
1.4%
8.0%
89.6%
Other Consumer Lending
26,025
183
603
2,204
3,980
83.8%
0.3%
0.1%
0.1%
0.3%
15.4%
Total Performing
326,370
570,734
3,759
26,630
35,922
6.7%
0.0%
0.1%
0.8%
6.7%
85.7%
Non-performing
Residential Mortgages (Private Individuals)
2,477
3,804
14
121
720
0.2%
0.2%
0.7%
2.3%
9.6%
87.1%
Residential Mortgages
(SME)
 
1
147
240
7
36
0.2%
0.3%
0.8%
2.9%
6.0%
89.8%
Other Consumer Lending
956
7
2
8
96
94.0%
0.4%
0.2%
0.4%
0.5%
4.6%
Total Non-performing
3,579
4,052
16
136
852
25.3%
0.2%
0.5%
1.8%
7.0%
65.2%
 
 
 
Total Consumer Lending
329,949
574,786
3,775
26,766
36,774
6.9%
0.0%
0.1%
0.8%
6.7%
85.5%
1
 
Consists mainly of residential mortgages to small one man business clients
 
The collateralisation levels of the consumer lending portfolio continued
 
to improve during 2020. The rise in
collateralisation levels was due to rising housing prices observed in different
 
mortgage markets, specifically
noticeable in the Netherlands.
 
ING’s residential mortgage
 
outstanding increased mainly in Germany (4.9%), Spain (7.4%) and Poland (10.3%). In
2019 the increases where respectively 3.1%, 14.8% and 23.2%. Mortgage outstanding in the Netherlands
decreased slightly (2.3%). For the residential mortgages portfolio,
 
the cover type guarantees relate to
 
mortgages
covered by governmental insurers
 
under the Dutch national mortgage guarantee (NHG) scheme in the
Netherlands. The NHG guarantees the repayment of a loan in case of a forced
 
property sale.
 
 
 
 
Business lending portfolio (*)
Business lending accounts for 43.8% of ING’s total
 
outstanding (44.3% in 2019). In line with our objective to give
stakeholders insight into the portfolio,
 
we present the business lending portfolio per industry breakdown in
accordance with the NAICS definition and per region and main market. Business lending presented in this section
does not include pre-settlement, investment and money market
 
exposures, which are outlined in the next
sections.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
178
 
 
Cover values including guarantees received - Business lending portfolio (*)
in EUR million
2020
Cover type
Value to Loan
Industry
Outstandings
Mortgages
Financial
Collateral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Central Banks
79,464
23
100.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Real Estate
52,743
99,824
1,176
6,644
28,378
3.3%
0.7%
2.1%
1.5%
7.4%
85.1%
Natural Resources
43,209
1,453
2,192
23,503
35,739
24.5%
14.4%
13.0%
7.2%
15.9%
25.0%
Transportation & Logistics
27,395
7,251
182
7,487
37,220
18.2%
5.1%
2.4%
3.9%
11.7%
58.8%
Non-Bank Financial Institutions
22,225
1,139
10,771
3,766
46,286
42.9%
3.5%
2.3%
3.6%
4.6%
43.2%
Food, Beverages & Personal Care
20,594
8,346
430
9,473
33,918
25.0%
5.1%
5.9%
9.6%
14.0%
40.3%
Services
19,632
10,623
1,855
8,394
23,917
27.9%
5.8%
7.0%
5.3%
7.2%
46.9%
Commercial Banks
17,931
313
107
1,546
3,868
74.8%
1.0%
3.4%
1.7%
8.2%
10.8%
Utilities
16,948
185
1,011
4,464
9,723
42.3%
19.1%
5.2%
4.3%
3.0%
26.0%
General Industries
16,417
5,563
241
5,736
20,781
31.5%
4.0%
5.7%
9.6%
9.9%
39.3%
Chemicals, Health & Pharmaceuticals
14,120
7,558
194
4,391
12,332
26.0%
5.7%
3.6%
7.7%
13.6%
43.5%
Builders & Contractors
13,895
7,583
309
4,490
15,711
26.3%
6.2%
6.4%
8.9%
10.4%
41.7%
Others
 
1
43,696
11,635
1,938
15,020
34,484
40.0%
5.1%
4.3%
6.1%
10.5%
34.1%
Total Business Lending
388,270
161,474
20,431
94,913
302,357
43.1%
4.9%
4.2%
4.2%
7.9%
35.7%
of which Total Non-performing
8,261
3,027
230
3,803
6,915
29.1%
5.2%
5.0%
8.5%
14.2%
38.1%
1
 
‘Others’ comprises industries with outstandings lower than €10 billion.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
179
 
Cover values including guarantees received - Business lending portfolio (*)
1
in EUR million
2019
Cover type
Value to Loan
Industry
Outstandings
Mortgages
Financial
Collateral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Natural Resources
53,796
1,197
2,426
22,041
35,691
26.6%
15.3%
9.6%
11.6%
12.9%
24.1%
Real Estate
53,564
98,238
1,589
6,869
20,353
4.0%
0.6%
2.1%
1.8%
8.7%
82.9%
Central Banks
42,087
7
100.0%
Non-Bank Financial Institutions
22,593
1,434
11,339
5,638
41,084
30.9%
3.7%
5.1%
6.5%
7.1%
46.6%
Transportation & Logistics
29,303
3,293
169
7,519
36,223
17.0%
6.4%
2.3%
4.1%
11.3%
58.9%
Food, Beverages & Personal Care
22,585
8,030
407
8,777
34,633
24.5%
5.2%
7.8%
10.3%
12.8%
39.5%
Commercial Banks
22,508
331
130
1,656
6,062
72.4%
3.3%
2.0%
1.6%
5.9%
14.8%
Services
21,044
10,090
1,519
8,799
29,470
30.7%
5.0%
6.3%
6.5%
6.9%
44.6%
General Industries
18,849
5,031
246
5,369
22,154
32.2%
5.1%
4.3%
8.3%
9.6%
40.6%
Utilities
15,952
242
1,036
3,785
7,928
41.7%
19.7%
3.9%
5.5%
2.0%
27.3%
Chemicals, Health & Pharmaceuticals
15,410
8,361
203
3,744
12,439
26.4%
6.7%
3.9%
7.5%
11.8%
43.7%
Builders & Contractors
15,054
7,449
201
3,802
15,704
27.5%
6.7%
7.2%
8.6%
8.7%
41.2%
Others
 
2
45,698
10,655
1,800
15,407
34,546
41.5%
4.9%
4.6%
5.8%
7.7%
35.4%
Total Business Lending
378,444
154,351
21,073
93,407
296,286
36.7%
6.0%
4.4%
5.7%
8.2%
39.1%
of which Total Non-performing
7,856
2,600
281
2,643
6,305
32.6%
3.6%
7.9%
9.2%
16.5%
30.2%
1
 
The prior period outstandings by economic sector (industry) have been updated reflecting improved classification of clients.
2
 
‘Others’ comprises industries with outstandings lower than €10 billion.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
180
 
Cover values including guarantees received - Business lending portfolio (*)
2020
Cover type
Value to Loan
Region
Outstandings
Mortgages
 
Financial
Collateral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Europe
Netherlands
100,918
61,180
3,298
9,245
59,268
51.6%
1.6%
2.5%
3.9%
8.6%
31.8%
Belgium
50,245
36,071
1,174
22,424
53,041
24.8%
1.6%
3.0%
3.1%
6.9%
60.7%
Germany
35,069
3,233
118
2,711
4,788
80.4%
4.0%
2.1%
1.4%
1.2%
10.9%
Luxembourg
16,332
8,403
1,671
2,849
29,875
46.4%
1.5%
6.0%
1.5%
3.4%
41.1%
Poland
16,176
9,414
168
3,720
25,652
28.3%
4.5%
3.8%
7.9%
11.3%
44.2%
United Kingdom
13,864
4,659
1,971
4,028
9,906
44.6%
16.1%
7.2%
3.0%
8.3%
20.8%
Switzerland
9,544
46
684
3,540
6,980
27.2%
21.7%
16.6%
7.1%
7.2%
20.3%
France
9,513
7,543
150
2,021
4,096
39.2%
5.1%
4.1%
2.7%
2.0%
46.8%
Rest of Europe
46,302
13,817
2,460
18,446
41,326
35.4%
7.7%
4.6%
4.7%
9.1%
38.5%
America
40,800
5,967
6,872
7,442
40,815
38.3%
7.3%
6.0%
5.4%
10.2%
32.7%
Asia
37,435
978
1,728
15,174
23,607
40.6%
5.0%
5.5%
6.6%
11.9%
30.5%
Australia
10,019
10,153
83
1,650
2,273
26.4%
7.7%
2.1%
2.4%
4.7%
56.8%
Africa
2,053
10
53
1,661
730
8.0%
6.6%
3.0%
19.9%
26.8%
35.7%
Total Business Lending
388,270
161,474
20,431
94,913
302,357
43.1%
4.9%
4.2%
4.2%
7.9%
35.7%
of which Non-performing
8,261
3,027
230
3,803
6,915
29.1%
5.2%
5.0%
8.5%
14.2%
38.1%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
181
 
Cover values including guarantees received - Business lending portfolio (*)
2019
Cover type
Value to Loan
Region
Outstandings
Mortgages
 
Financial
Collateral
Guarantees
Other covers
No Cover
>0% - 25%
>25%-50%
>50% - 75%
>75% - <100%
≥ 100%
Europe
Netherlands
81,383
60,334
3,265
8,845
52,909
37.4%
2.8%
3.7%
5.3%
10.7%
40.1%
Belgium
51,881
35,937
1,231
23,583
51,204
25.4%
1.8%
2.6%
4.0%
6.7%
59.5%
Germany
18,366
3,143
95
1,237
4,916
62.7%
9.2%
2.4%
2.2%
2.5%
20.9%
Luxembourg
19,013
7,076
1,690
3,780
31,685
48.3%
2.3%
6.6%
3.2%
3.0%
36.7%
Poland
17,498
8,896
135
3,053
27,356
30.1%
3.4%
4.6%
7.0%
11.4%
43.4%
United Kingdom
14,919
1,132
1,128
4,381
10,159
39.0%
18.0%
5.7%
8.9%
5.3%
23.0%
Switzerland
11,328
83
656
2,950
6,085
35.7%
13.7%
12.3%
7.4%
11.7%
19.2%
France
10,015
6,843
147
2,003
4,661
39.5%
5.7%
5.5%
3.5%
1.3%
44.6%
Rest of Europe
48,494
15,504
2,873
17,219
40,243
32.1%
7.8%
4.9%
4.7%
10.2%
40.2%
America
48,048
7,253
7,856
8,827
39,792
39.7%
6.1%
5.0%
6.6%
9.2%
33.4%
Asia
45,131
920
1,941
14,051
24,632
37.2%
8.4%
4.5%
9.2%
7.2%
33.5%
Australia
9,731
7,219
4
1,640
1,867
37.3%
9.6%
1.5%
3.0%
5.5%
43.1%
Africa
2,638
9
51
1,838
778
9.2%
16.5%
9.6%
13.2%
12.2%
39.3%
Total Business Lending
378,444
154,351
21,073
93,407
296,286
36.7%
6.0%
4.4%
5.7%
8.2%
39.1%
of which Non-performing
7,856
2,600
281
2,643
6,305
32.6%
3.6%
7.9%
9.2%
16.5%
30.2%
 
The tables above describe the collateralisation of ING’s
 
business lending portfolio. Breakdowns are provided by
industry as well as by geographical region or market, based on the residence of the borrowers.
 
 
Broken down by industry,
 
the largest increase in outstanding is attributable to
 
Central Banks (€37.4 billion,
88.8%) followed by Utilities (€1.0 billion, 6.2%). The largest decrease in outstanding was
 
observed in Natural
Resources (€10.6 billion), where the total cover percentage
 
increased.
 
The proportion of the business lending portfolio in Australia and Switzerland with no cover decreased
substantially year-on-year,
 
respectively from 37.3% to 26.4% and from 35.7% to 27.2% in 2019. Most industry
types experienced an increase in total covers. The largest
 
increases in outstanding in absolute figures were seen
in the Netherlands (23.9%) and Germany (90.9%). The increase in Germany (€16.7 billion) was primarily due to
increases in regulatory reserve deposits and nostro accounts. As these deposits and nostro
 
accounts are not
collateralised, this increase had only a small impact on total cover amounts.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
182
 
 
Credit quality (*)
 
Credit risk categories (*)
Regular
Watch List
Restructuring
 
1
Non-
performing
 
1
Possible ratings
1–19
1–19
11–20
20-22
Typical ratings
1–14
15–17
18–20
20-22
Deterioration in risk
Not significant
Significant
Significant
Significant
Significant intervention
Not required
Not required
Required
Required
Account Ownership
Front Office
Front Office
Front Office
Front Office
Credit Risk Management
Regular
Regular
Credit
Restructuring
Credit
Restructuring
Primary Manager
Front Office
Front Office
Credit
Restructuring
Credit
Restructuring
Accounting provisioning
Stage 1/2
Stage 1/2
Stage 2/3
Stage 3
1
 
More information on the Restructuring and Non-performing categories can be found in the Credit restructuring section.
 
 
Credit quality outstandings
 
(*)
in EUR million
2020
2019
Neither past due nor non-performing
863,506
831,340
Business lending past due but performing (1–90 days)
7,831
7,747
Consumer lending past due but performing (1–90 days)
2,619
3,367
Non-performing
1
13,497
11,477
Total
887,454
853,930
1
 
Based on lending and investment activities
 
 
Total
 
group outstanding increased by 4% (€+33.5 billion), mainly visible in the Investment grade
 
rating class
(€+59.3 billion) partly offset by the decrease in the non-investment grade rating
 
class outstanding (€-28 billion).
Business lending past due but performing remained stable at €7.8 billion, whereas consumer lending past due
but performing decreased by 22% (€-0.7 billion).
 
The €2.0 billion non-performing outstanding increase was
distributed as follows; Retail Benelux (€+1.1 billion) and Retail
 
Challengers & Growth Markets (€+0.9 billion).
Within Retail Banking Benelux the private individuals outstanding increase accounted
 
for €+0.7 billion, mainly
driven by the introduction of the new definition of default for mortgages. while for
 
retail business this was €+0.4
billion in Builders & Contractors and the Services sectors. Within Retail
 
Challengers & Growth Markets the
increase was seen for private individuals. This was mainly driven by mortgages forbearance
 
measures granted to
clients in the form of payment holidays not in scope of the European Banking Association (EBA) moratoria
guidelines and classified as in default, as well as the implementation of new definition of default for
 
secured
consumer lending.
 
 
Past due obligations (*)
Retail Banking continuously measures its portfolio in terms of payment
 
arrears and on a monthly basis
determines if there are any significant changes in the level of arrears.
 
This methodology is principally extended to
loans to private individuals, such as residential mortgage loans, car loans and other consumer loans, as well as
business lending. An obligation is considered ‘past due’ if a payment of interest
 
or principal is more than one day
late. ING aims to help its customers as soon as they are past due by communicating
 
to remind them of their
payment obligations. In its contact with the customers,
 
ING aims to solve the (potential) financial difficulties by
offering a range of measures (e.g. payment arrangements,
 
restructuring). If the issues cannot be cured, for
example because the customer is unable or unwilling to pay,
 
the contract is sent to the recovery unit. The facility
is downgraded to risk rating 20 (non-performing) when the facility or obligor – depending on the level at
 
which
the non-performing status is applied - is more than 90 days past
 
due and to risk rating 21 or 22 when the contract
is terminated.
 
ING has aligned the regulatory concept of non-performing with that of the definition of default. Hence, in
Wholesale Banking, obligors are classified as non-performing when a default trigger occurs:
◾
 
ING believes the borrower is unlikely to pay; the borrower
 
has evidenced significant financial difficulty,
to the extent that it will have a negative
 
impact on the future cash flows of the financial asset. The
following events could be seen as indicators of financial difficulty:
◾
 
The borrower (or third party) has started insolvency proceedings;
◾
 
A group company/co-borrower has NPL status
 
;
◾
 
Indication of fraud (affecting the company’s
 
ability to service its debt);
◾
 
There is doubt as to the borrower’s ability to generate
 
stable and sufficient cash flows to service
its debt;
◾
 
Restructuring of debt.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
183
 
◾
 
ING has granted concessions relating to the borrower’s
 
financial difficulty, the effect
 
of which is a
reduction in expected future cash flows of the financial asset below current carrying amount
 
.
◾
 
The obligor has failed in the payment of principal, interest or fees,
 
the total past due amount is above
the materiality threshold and this remains the case for more than 90 consecutive days
 
.
 
Further, Wholesale Banking has an individual name approach, using early warnings indicators
 
to signal possible
future issues in debt service.
 
 
Ageing analysis (past due but performing): Consumer lending portfolio, outstandings
1
(*)
in EUR million
2020
2019
Past due for 1–30 days
2,129
2,564
Past due for 31–60 days
402
639
Past due for 61–90 days
88
163
Total
2,619
3,367
1
 
Based on consumer lending. The amount of past due but performing financial assets in respect of non-lending activities was not
significant.
 
 
Ageing analysis (past due but performing): Consumer lending portfolio by geographic area, outstandings
1
(*)
in EUR million
2020
Region
Residential
Mortgages
Other retail
Total
Europe
Netherlands
713
12
725
Belgium
469
107
576
Germany
359
71
430
Poland
84
62
146
Spain
24
30
55
Luxemburg
7
18
25
France
1
7
7
United Kingdom
2
0
2
Rest of Europe
136
119
255
America
0
0
1
Asia
4
0
4
Australia
388
6
394
Total
2,186
433
2,619
1
 
Based on consumer lending. The amount of past due but performing financial assets in respect of non-lending activities was not
significant.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
184
 
Ageing analysis (past due but performing): Consumer lending portfolio by geographic area, outstandings
1
(*)
in EUR million
2019
Region
Residential
Mortgages
Other retail
Total
Europe
Netherlands
829
11
840
Belgium
733
166
899
Germany
372
104
476
Poland
145
90
236
Spain
21
36
56
Luxemburg
3
24
27
France
2
10
13
United Kingdom
3
3
Rest of Europe
195
290
484
America
3
3
Asia
3
3
Australia
310
18
328
Total
2,619
749
3,367
1
 
Based on consumer lending. The amount of past due but performing financial assets in respect of non-lending activities was not
significant.
 
 
The consumer lending decrease in past due but performing was distributed as follows; Retail
 
Benelux (€-0.4
billion) and Retail Challengers & Growth Markets
 
(€-0.3 billion). Within Retail Benelux the decrease was
noticeable in the 1-30 days bucket for Belgium (€-0.2 billion) mainly driven by the implementation
 
of the new
definition of default via the introduction of the unlikely to pay
 
assessment by which short arrears result in
defaults,
 
as well as the Covid-19 related payment holidays granted
 
after which days past due counting stops, and
the Netherlands (€-0.1 billion), due to the good payment behaviour of our clients which is facilitated
 
by strict
underwriting rules, low interest rates, low unemployment and low bankruptcy,
 
as well as the financial aid
measures granted by the Dutch government
 
to employees and employers because of the Covid-19 pandemic.
Within Retail Challengers & Growth Markets
 
the largest decrease was mainly witnessed in the 31-60 days bucket
for Germany (€-0.1 billion).
 
Ageing analysis (past due but performing): Business lending, outstandings (*)
in EUR million
2020
2019
Past due for 1–30 days
7,038
6,681
Past due for 31–60 days
712
658
Past due for 61–90 days
82
408
Total
7,831
7,747
 
 
Ageing analysis (past due but performing): Business lending portfolio by geographic area,
outstandings (*)
in EUR million
2020
2019
Region
Total
Total
Europe
Netherlands
770
751
Belgium
912
1,028
Germany
204
385
United Kingdom
959
820
Spain
339
688
France
106
639
Luxemburg
301
340
Poland
206
279
Rest of Europe
1,214
1,445
America
2,538
1,159
Asia
151
187
Australia
128
23
Africa
3
2
Total
7,831
7,747
 
 
Total
 
past due but performing outstanding remained stable for business loans. Although, there
 
was a similar
sized but opposite difference visible in the 1-30 days bucket
 
(€+0.4 billion) and the 61-90 days bucket (€-0.3
billion). The largest contributors in the 1-30 days bucket
 
were seen in America (€+1.3 billion), Bermuda (€+0.2
billion) on some larger client names. This was partially offset by the decreases witnessed in France (€-0.5 billion),
Spain (€-0.3 billion) and Belgium (€-0.3 billion). The largest contributors to the decrease in the 61-90 days bucket
were Sweden (€-0.1 billion) and America (€-0.1 billion).
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
185
 
Credit restructuring (*)
Global Credit Restructuring (GCR) is the dedicated and independent department that deals with non-performing
loans and loans that hold a reasonable probability that ING will end up with a loss, if no specific action is taken.
GCR handles accounts or portfolios requiring an active approach, which may include renegotiation of terms
 
and
conditions and business or financial restructuring. The loans are managed by GCR or by units in the various
regions and business units.
 
 
ING uses three distinct statuses to categorise the management
 
of clients with (perceived) deteriorating credit risk
profiles, i.e. there is increasing doubt as to the performance and the collectability of the client’s
 
contractual
obligations:
◾
 
Watch List
: Usually, a client is first classified as Watch
 
List when there are concerns of any potential or
material deterioration in credit risk profile that
 
may affect the ability of the client to adhere to its debt
service obligations or to refinance its existing loans. Watch
 
List status requires more than usual
attention, increased monitoring and quarterly reviews. Some clients
 
with a Watch List status
 
may
develop into a Restructuring status or even a Recovery
 
status.
◾
 
Restructuring
: A client is classified in Restructuring when there are concerns about the client’s financial
stability,
 
credit worthiness, and/or ability to repay,
 
but where the situation does not require the recall or
acceleration of facilities or the liquidation of collateral. ING’s
 
actions aim to maintain the going concern
status of the client by:
 
◾
 
Restoring the client’s financial stability;
 
◾
 
Supporting the client’s turnaround;
 
◾
 
Restoring the balance between debt and equity; and
◾
 
Restructuring the debt to a sustainable situation.
◾
 
Recovery
: A client is classified as in Recovery when ING and/or the client concludes that the client’s
financial situation cannot be restored and a decision is made to end the (credit) relationship or even
 
to
enter into bankruptcy.
 
ING will prefer an amicable exit, but will enforce and liquidate
 
the collateral or
claim under the guarantees if deemed necessary.
 
Watch List, Restructuring
 
and Recovery accounts are reviewed at
 
least quarterly by the front office, GCR and the
relevant credit risk management executives
 
.
 
Forbearance
 
(*)
Forbearance occurs when a client is unable to meet their financial commitments due to financial difficulties it
faces or is about to face and ING grants concessions towards
 
this client. Forborne assets are assets in respect of
which forbearance measures have been granted.
 
 
Forbearance may enable clients experiencing financial difficulties to continue repaying
 
their debt.
 
 
For business customers, ING mainly applies forbearance measures to support clients
 
with fundamentally sound
business models that are experiencing temporary difficulties with the aim of maximising the client’s repayment
ability and therewith avoiding a default situation or helping the client to return
 
to a performing situation.
 
 
For ING retail units, clear criteria have been established to
 
determine whether a client is eligible for the
forbearance process. Specific approval mandates
 
are in place to approve the measures, as well as procedures to
manage, monitor and report the forbearance activities.
 
ING reviews the performance of forborne exposures at
 
least quarterly, either on a case-by-case
 
(business) or on a
portfolio (retail) basis.
 
All exposures are eligible for forbearance
 
measures, i.e. both performing (Risk Ratings 1-19) and non-performing
(Risk Ratings 20-22) exposures. ING uses specific criteria to move forborne exposures from
 
non-performing to
performing or to remove the forbearance statuses
 
that are consistent with the corresponding EBA standards.
 
An
exposure is reported as forborne for a minimum of two years.
 
An additional one-year probation period is
observed for forborne exposures that move from
 
non-performing back to performing.
 
During 2020, ING supported clients affected by the Covid-19 pandemic among others by providing payment
holidays. In line with European Banking Authority (EBA) Guidelines, exposures subject to these payment
 
holidays
are not classified as forborne. Refer to ‘Payment
 
holidays’ below for more information on payment
 
holidays.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
186
 
Summary Forborne portfolio (*)
 
1
in EUR million
2020
2019
Business Line
Outstandings
Of which:
performing
Of which: non-
performing
% of total
portfolio
Outstandings
Of which:
performing
Of which: non-
performing
% of total
portfolio
Wholesale Banking
10,176
7,849
2,327
3.2%
4,632
2,699
1,932
1.7%
Retail Banking
9,640
6,341
3,299
2.0%
4,861
2,686
2,175
1.1%
Total
19,816
14,190
5,626
2.5%
9,492
5,385
4,107
1.3%
1
 
Undrawn commitments are excluded.
 
 
Summary Forborne portfolio by forbearance type (*)
1
in EUR million
2020
2019
Forbearance type
Outstandings
Of which:
performing
Of which: non-
performing
% of total
portfolio
Outstandings
Of which:
performing
Of which: non-
performing
% of total
portfolio
Loan modification
17,877
12,937
4,940
2.3%
8,285
4,800
3,485
1.1%
Refinancing
1,939
1,252
686
0.2%
1,208
585
622
0.2%
Total
19,816
14,190
5,626
2.5%
9,492
5,385
4,107
1.3%
1
 
Undrawn commitments are excluded.
 
 
As per December 2020 ING’s total forborne assets increased
 
by €10.3 billion (108.8%) against December 2019 to
€19.8 billion, largely as a result of the Covid-19 crisis, driven by both Wholesale and Retail Banking.
Wholesale Banking (*)
As per December 2020, Wholesale Banking forborne assets amounted to €10.2 billion, which represented 3.2% of
the total Wholesale Banking portfolio.
 
Wholesale Banking: Forborne portfolio by geographical area (*)
 
1
in EUR million
2020
2019
Region
Outstandings
Of which:
performing
Of which: non-
Outstandings
Of which:
performing
Of which: non-
performing
performing
Europe
Netherlands
842
700
142
822
410
412
Belgium
255
175
81
41
16
25
Germany
845
676
170
246
182
63
United Kingdom
1,738
1,606
132
332
251
81
Italy
353
317
36
197
115
83
Ukraine
88
5
82
169
77
93
Norway
78
32
47
151
124
27
Poland
199
101
98
134
31
103
Rest of Europe
2,317
2,144
173
502
322
180
America
2,338
1,541
796
1,315
759
556
Asia
555
194
362
316
206
109
Australia
365
251
113
214
85
129
Africa
202
109
94
192
122
71
Total
10,176
7,849
2,327
4,632
2,699
1,932
1
 
Undrawn commitments are excluded.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
187
 
Wholesale Banking: Forborne portfolio by economic sector (*)
1, 2
in EUR million
2020
2019
Industry
Outstandings
Of which:
performing
Of which: non-
Outstandings
Of which:
performing
Of which: non-
performing
performing
Natural Resources
2,370
1,397
973
1,587
909
678
Transportation & Logistics
1,453
1,253
201
674
362
313
General Industries
661
605
55
427
286
142
Food, Beverages & Personal Care
1,475
1,216
260
375
227
148
Real Estate
529
365
165
392
217
175
Chemicals, Health & Pharmaceuticals
394
364
30
212
209
3
Builders & Contractors
449
370
78
195
79
116
Utilities
290
141
149
188
55
133
Services
750
643
106
129
69
60
Retail
346
296
49
114
92
22
Automotive
768
714
54
108
72
36
Other
691
485
206
230
124
106
Total
10,176
7,849
2,327
4,632
2,699
1,932
1
 
Undrawn commitments are excluded.
2
 
The prior period outstandings by economic sectors (industry) have been updated reflecting improved classification of clients.
 
 
The main concentration of forborne assets in a single country was in the United Kingdom with 17% (2019: 7%) of
the total Wholesale Banking forborne assets and 6% (2019: 4%) of the total non-performing forborne assets.
 
Wholesale Banking forborne assets increased by €5.5 billion compared to 2019, of which the performing
forborne assets increased by €5.1 billion. The increase of the performing forborne assets was visible across all
industries and locations, as a result of the pandemic outbreak.
 
Wholesale Banking forborne assets were mainly concentrated in Natural
 
Resources, Food Beverages & Personal
Care-
 
and Transportation
 
& Logistics. Together
 
they accounted for 52% of the total Wholesale Banking forborne
assets and 62% of the total Wholesale Banking non-performing forborne assets. Back in 2019, the main
concentration was witnessed in Natural Resources,
 
Transportation
 
& Logistics and General Industries with 58% of
the total Wholesale Banking forborne. A significant increase in forborne assets was visible in the Food, Beverages
& Personal Care industry (€+1.1 billion) during 2020, followed by Transportation
 
& Logistics (€+0.8 billion) and
Natural Resources (€+0.8).
Retail Banking (*)
As per year-end 2020, Retail Banking forborne assets amounted
 
to a total of €9.6 billion, which represented 2.0%
of the total Retail Banking portfolio.
 
Retail Banking: Forborne portfolio by geographical area (*)
 
1
in EUR million
2020
2019
Region
Outstandings
Of which:
performing
Of which: non-
Outstandings
Of which:
performing
Of which: non-
performing
performing
Europe
Netherlands
4,415
3,447
968
2,212
1,367
845
Belgium
2,672
1,621
1,051
1,149
435
714
Germany
578
410
168
425
294
131
Turkey
307
218
89
314
184
130
Poland
349
112
237
209
101
109
Romania
114
59
55
101
55
46
Italy
49
13
37
25
13
12
Spain
22
10
12
25
13
12
Rest of Europe
80
42
37
43
22
22
America
10
9
1
2
1
1
Asia
3
1
2
1
1
Australia
1,041
399
643
354
201
153
Total
9,640
6,341
3,299
4,861
2,686
2,175
1
 
Undrawn commitments are excluded.
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
188
 
The main concentration of forborne assets in a single country was in the Netherlands with 46% (2019: 46%) of
the total Retail Banking forborne assets and 29% (2019: 39%) of the non-performing forborne
 
assets. Belgium
followed with 28% (2019: 24%) of the total Retail Banking forborne assets.
 
Payment holidays
Globally, 2020 has been dominated by the Covid-19 pandemic and the distressing
 
human and economic cost
thereof. The shutdown of various businesses immediately
 
affected banking customers and as such various
measures have been and continue to be implemented in order to minimise short-
 
and long-term economic and
customer impacts. In many countries, governments have
 
adopted economic support programs (such as tax
advantages, unemployment regulations or guarantees)
 
that we believe will assist ING clients in potential financial
difficulty to manage through these extraordinary times. In addition, various initiatives have
 
been taken by ING to
grant payment holidays, (guaranteed)
 
new money facilities etc.
 
 
Governments in almost all Retail Banking countries have
 
adopted measures providing for payment holidays.
 
As of
end-December, in line with the European Banking Association
 
(EBA) moratoria guidelines, approximately
 
196,000
customers had been granted payment
 
holidays under schemes that were eligible under the EBA moratoria
guidelines. The total exposure of loans for which a payment holiday was granted
 
amounts to €19.4 billion, of
which over 55% were for customers located
 
in the Netherlands and Belgium. At the end of 2020, 93% of granted
payment holidays had expired.
 
The payment holiday schemes offered in the various countries
 
differ in terms of scope, benefit duration and key
conditions. Generally,
 
underlying conditions differ per country in terms of tenor,
 
deferment of principal and
interest payments. The payment
 
holidays are applied to business lending, mortgages and consumer loans.
 
The modification of contractual terms of loans subject to payment holiday arrangements
 
does not automatically
result in derecognition of the financial assets. Where applicable, the carrying amount of the financial asset has
been recalculated as the present value of the renegotiated
 
or modified contractual cash flows, discounted at the
original effective interest rate
 
and a gain or loss was recognised.
 
The various measures by governments and ING to alleviate the impact of Covid-19 also impact the loan
classification in terms of forbearance and consequently IFRS 9 staging.
 
In light of this, the EBA has provided
guidelines that expired on 30 September 2020, which defined eligibility criteria for a payment
 
holiday
arrangement offered to a large
 
group of customers to be classified as a “general
 
payment moratorium”.
 
Based on
the guidelines, the granting of these payment holidays did not lead to forbearance
 
classifications. Therefore, it
did not automatically trigger recognition of lifetime Expected Credit Loss (ECL) either.
 
A small number of payment
holidays were granted outside this scheme and were
 
flagged as forborne. ING followed the EBA guidelines and
when a payment holiday was provided to a customer as part of a “general
 
payment moratorium”,
 
ING did not
consider this measure to classifiable as forbearance. EBA further extended these guidelines in the first
 
week of
December 2020, valid until 31 March 2021, with certain extra conditions. ING decided not to make
 
use of the
extension of these guidelines and has taken a prudent decision to treat all payment
 
holiday requests under new
or extended schemes (after September 2020) as stage 2 or sta
 
ge 3 exposures.
 
Non-performing loans (*)
ING’s loan portfolio is under constant
 
review. Loans to obligors
 
that are considered more than 90 days past due
on material exposure are reclassified as non-performing. For commercial
 
lending portfolios, there generally are
reasons for declaring a loan non-performing prior to the obligor being 90 days past due. These reasons include,
but are not limited to, ING’s
 
assessment of the customer’s perceived inability to meet its financial obligations, or
the customer filing for bankruptcy or bankruptcy protection.
 
The table below represents the breakdown by industry of credit
 
risk outstandings for lending and investment
positions that have been classified as non-performing.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
189
 
Non-performing Loans: outstandings by economic sector and business lines (*)
1, 2
in EUR million
Wholesale Banking
Retail Benelux
Retail Challengers
& Growth Markets
Corporate Line
Total
Industry
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Private Individuals
2,879
2,173
2,480
1,573
 
5,359
3,746
Natural Resources
1,434
1,108
63
35
36
53
 
1,533
1,196
Food, Beverages & Personal
Care
668
599
420
351
138
168
 
1,226
1,119
Transportation & Logistics
786
651
201
96
44
40
 
1,031
787
Services
313
320
474
357
58
60
 
844
737
Builders & Contractors
148
265
398
258
133
168
 
680
691
Real Estate
217
312
416
329
21
9
 
655
649
General Industries
138
248
232
204
133
153
 
502
605
Non-Bank Financial Institutions
18
426
26
16
3
2
47
444
Retail
85
89
170
172
54
63
309
325
Other
 
3
579
467
335
326
103
110
295
275
1,312
1,178
Total
4,386
4,487
5,614
4,316
3,203
2,399
295
275
13,497
11,477
1
 
Based on Lending and Investment outstandings.
2
 
The prior period outstandings by economic sector (industry) have been updated reflecting improved classification of clients.
3
 
Economic sectors not specified in above overview are grouped in Other.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
190
 
Non-performing Loans: outstandings by economic sectors and geographical area (*)
in EUR million
Region
Total
Industry
Netherlands
Belgium
Germany
Poland
Spain
United Kingdom
France
Luxemburg
Rest of Europe
America
Asia
Australia
Africa
2020
Private Individuals
1,040
1,760
712
214
239
7
18
38
555
5
4
766
1
5,359
Natural Resources
75
48
0
20
25
0
0
171
659
394
93
49
1,533
Food, Beverages & Personal
Care
324
165
80
114
15
11
68
1
76
240
132
1
0
1,226
Transportation & Logistics
346
54
1
42
47
18
0
3
110
40
352
18
0
1,031
Services
190
495
0
42
5
0
1
4
28
73
6
0
844
Builders & Contractors
66
361
1
93
0
0
4
107
47
0
0
680
Real Estate
144
255
86
15
80
15
17
26
16
655
General Industries
111
161
7
91
0
5
0
93
32
1
1
0
502
Non-Bank Financial
Institutions
9
13
3
0
0
4
13
4
1
47
Retail
66
140
0
41
3
6
1
36
13
3
0
309
Other
 
1
427
259
138
116
0
12
14
8
143
120
23
7
45
1,312
Total
2,799
3,710
939
862
320
156
126
81
1,359
1,220
925
905
95
13,497
1
 
Economic sectors not specified in above overview are grouped in Other.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
191
 
Non-performing Loans: outstandings by economic sectors and geographical area (*)
1
in EUR million
Region
Total
Industry
Netherlands
Belgium
Germany
Poland
Spain
United Kingdom
France
Luxemburg
Rest of Europe
America
Asia
Australia
Africa
2019
Private Individuals
840
1,271
585
134
195
4
14
24
411
4
3
261
1
3,746
Natural Resources
83
21
28
63
254
533
84
111
20
1,196
Food, Beverages & Personal
Care
315
153
63
117
1
12
68
1
109
254
26
1,119
Transportation & Logistics
432
48
1
31
47
49
3
88
32
10
46
787
Services
224
377
36
3
49
42
6
737
Builders & Contractors
88
226
1
103
1
3
230
39
691
Real Estate
237
225
96
19
7
28
27
8
4
649
General Industries
176
148
12
89
3
1
127
48
1
605
Non-Bank Financial
Institutions
35
8
3
7
5
14
107
264
444
Retail
74
147
40
4
7
1
52
325
Other
 
2
464
239
44
130
10
1
9
173
34
23
51
1,178
Total
2,968
2,864
705
805
270
144
96
79
1,534
1,099
154
686
71
11,477
1
 
The prior period outstandings by economic sector (industry) have been updated reflecting improved classification of clients.
2
 
Economic sectors not specified in above overview are grouped in Other.
 
The non-performing portfolio increased in 2020, as a result of ING’s
 
introduction of a new definition of default
(€1.0 billion) and due to developments with respect to certain large individual files. The increase is visible in all
businesses and also in almost all the sectors. More specifically in Retail Benelux and in Retail Challengers
 
&
Growth, the increase is explained by private individuals, whereas in Wholesale the main increase is visible in the
sector Natural Resources, in Transportation
 
and Logistics, and in Other.
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
192
 
Loan loss provisioning (*)
Since 1 January 2018, ING has recognised loss allowances based on the expected credit loss model (ECL) of IFRS 9,
which is designed to be forward-looking. The IFRS 9 impairment requirements are applicable
 
to on-balance sheet
financial assets measured at amortised cost or fair value through other comprehensive income
 
(FVOCI), such as
loans, debt securities and lease receivables, as well as off-balance sheet items such as undrawn
 
loan
commitments, certain financial guarantees, and undrawn committed
 
revolving credit facilities.
 
IFRS 9 models (*)
The IFRS 9 models leverage the advanced internal rating
 
-based (AIRB) models (PD, LGD, EAD), which include
certain required conservatism. In order to include IFRS 9 requirements,
 
such regulatory conservatism is removed
from the ECL parameters (PD,
 
LGD and EAD). The IFRS 9 models apply two types of adjustments to the ECL
parameters: (1) to economic outlook and (2) for stage
 
2 and stage 3 assets only, to
 
the lifetime horizon. The IFRS
9 model parameters are estimated
 
based on statistical techniques and supported by expert judgement.
 
ING has aligned the definition of default for regulatory purposes with the definition of ‘credit
 
-impaired’ financial
assets under IFRS 9 (Stage 3). To
 
comply with the new regulatory technical standards (RTS)
 
and EBA guidelines,
ING updated its definition of default in the first quarter of 2020. Consequently,
 
ING updated this definition also
for IFRS 9 purposes. More information can be found
 
in section 1.6 of the Consolidated Financial Statements.
 
Portfolio quality (*)
The table below describes the portfolio composition over the different IFRS
 
9 stages and rating classes. The Stage
1 portfolio represents 91.8% (2019: 94.0%) of the total gross carrying amounts, mainly composed of investment
grade, while Stage 2 makes up 6.8% (2019: 4.7%) and Stage 3 makes
 
up 1.5% (2019: 1.3%) total gross carrying
amounts, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
193
 
Gross carrying amount per IFRS 9 stage and rating class (*)
1,2,3
in EUR million
12-month ECL (Stage 1)
Lifetime ECL not credit
impaired (Stage 2)
Lifetime ECL credit impaired
(Stage 3)
Total
2020
Rating class
Gross
Carrying
Amount
Provisions
Gross
Carrying
Amount
Provisions
Gross
Carrying
Amount
Provisions
Gross
Carrying
Amount
Provisions
Investment grade
1 (AAA)
109,734
3
46
0
109,780
3
2-4 (AA)
108,776
6
646
0
109,422
6
5-7 (A)
137,901
27
797
1
138,698
28
8-10 (BBB)
294,923
88
7,418
12
302,341
100
Non-Investment grade
11-13 (BB)
159,076
239
18,513
133
177,588
372
14-16 (B)
28,335
208
23,742
570
52,077
777
17 (CCC)
2,817
9
5,113
259
7,930
269
Substandard grade
18 (CC)
3,384
248
3,384
248
19 (C)
2,323
254
2,323
254
NPL grade
20-22 (D)
13,398
3,797
13,398
3,797
Total
841,562
581
61,981
1,476
13,398
3,797
916,942
5,854
1 Compared to the credit risk portfolio, the differences are mainly undrawn committed
 
amounts (€118.4 billion) not included in Credit outstandings and non-IFRS 9 eligible assets (€89.1 billion, mainly guarantees, letters of credit and pre-settlement exposures) included in Credit
outstandings.
2 For a reference to the Notes in the consolidated financial statements, we refer
 
to the table ‘Reconciliation between credit risk categories and financial position’.
3 IAS 37 provisions (€74.8 million) are excluded.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
194
 
Gross carrying amount per IFRS 9 stage and rating class (*)
1,2,3
in EUR million
12-month ECL (Stage 1)
Lifetime ECL not credit
impaired (Stage 2)
Lifetime ECL credit impaired
(Stage 3)
Total
2019
Rating class
Gross
Carrying
Amount
Provisions
Gross
Carrying
Amount
Provisions
Gross
Carrying
Amount
Provisions
Gross
Carrying
Amount
Provisions
Investment grade
1 (AAA)
75,144
1
75,144
1
2-4 (AA)
82,992
3
28
83,020
3
5-7 (A)
131,931
11
273
132,204
11
8-10 (BBB)
295,449
55
4,905
6
300,353
61
Non-Investment grade
11-13 (BB)
194,643
209
7,925
54
202,568
263
14-16 (B)
36,683
202
18,416
367
55,099
569
17 (CCC)
405
7
4,067
146
4,472
153
Substandard grade
18 (CC)
3,253
160
3,253
160
19 (C)
2,216
148
2,216
148
NPL grade
20-22 (D)
10,955
3,275
10,955
3,275
Total
817,247
490
41,082
881
10,955
3,275
869,284
4,646
1 Compared to the credit risk portfolio, the differences are mainly undrawn committed
 
amounts (€115 billion) not included in Credit outstandings and non-IFRS 9 eligible assets (€100 billion, mainly guarantees, letters of credit and pre-settlement exposures)
 
included in Credit outstandings.
2 For a reference to the Notes in the consolidated financial statements, we refer
 
to the table ‘Reconciliation between credit risk categories and financial position’.
3 IAS 37 provisions (€93.3 million) are excluded.
 
Changes in gross carrying amounts and loan loss provisions (*)
The table below provides a reconciliation by stage of the gross carrying/nominal amount and allowances for
loans and advances to banks and customers, including loan commitments and financial guarantees. The transfers
of financial instruments represent the impact of stage transfers
 
upon the gross carrying/nominal amount and
associated allowance for ECL. This includes the net-remeasurement
 
of ECL arising from stage transfers,
 
for
example, moving from a 12-month (stage 1) to
 
a lifetime (stage 2) ECL measurement basis.
 
The net remeasurement line represents the changes in provisions for
 
facilities that remain in the same stage.
 
Please note the following comments with respect to the movements observed in the table below:
◾
 
Stage 3 gross carrying amount increased by €2.4 billion from €11.0 billion as per 31 December 2019
mainly as a result of ING’s introduction of a new definition of default
 
(€1.0 billion) and due to
developments with respect to certain large individual files in the first half of 2020. For further
background on implementation of the new definition of default, please refer
 
to section 1.6 of the
Consolidated Financial Statements;
◾
 
Stage 2 gross carrying amount increased by €20.9 billion from €41.1 billion as per 31 December 2019.
This is mainly caused by the Watch List trigger (€10.2 billion) and the forbearance trigger (€9.5 billion)
and to a lesser extent to other triggers such as 30 Days Past
 
Due and the significant lifetime PD trigger,
primarily in Wholesale Banking and Retail Market Leaders;
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
195
 
◾
 
Transportation
 
& Logistics, Services, Real Estate and Food, Beverages
 
& Personal Care were the sectors
particularly impacted by the Covid-19 pandemic, with an increase in stage 2 amounts of €4.5 billion, €3.7
billion, €3.7 billion and €2.2 billion respectively. These sectors
 
represent 10%, 11%, 10% and 9% of the
total stage 2 gross carrying amounts respectively;
◾
 
The net re-measurement of loan loss provisions in stage 1 and stage
 
2 of €109 million and €450 million
respectively and the transfer into lifetime
 
ECL not credit impaired of €651 million were significantly
impacted by the worsened macroeconomic outlook, including management adjustments of €269 million
to reflect the risks in payment holidays and the impact of oil price decrease on the upstream
 
Reserve
Based Lending book in the US and €394m overlays to address for the delay in observed defaults
 
as a
result of the Government support measures.
 
 
Additional information on macroeconomic scenarios is included in the section “Macro-economic scenarios and
sensitivity analysis of key sources of estimation uncertainty”.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
196
 
Changes in gross carrying amounts and loan loss provisions (*)
1,2,3
in EUR million
12-month ECL (Stage 1)
Lifetime ECL not credit
impaired (Stage 2)
Lifetime ECL credit impaired
(Stage 3)
Total
2020
Gross
carrying
amount
Provisions
Gross
carrying
amount
Provisions
Gross
carrying
amount
Provisions
Gross
carrying
amount
Provisions
Opening balance
817,247
490
41,082
881
10,955
3,275
869,284
4,646
Transfer
 
into 12-month ECL (Stage 1)
9,139
24
-8,899
-200
-240
-18
0
-194
Transfer
 
into lifetime ECL not credit impaired (Stage 2)
-39,093
-76
39,601
651
-509
-57
0
518
Transfer
 
into lifetime ECL credit impaired (Stage 3)
-3,592
-30
-1,879
-163
5,471
1,518
0
1,325
Net remeasurement of loan loss provisions
109
450
700
1,259
New financial assets originated or purchased
161,333
178
161,333
178
Financial assets that have been derecognised
-116,035
-85
-6,987
-107
-897
-236
-123,919
-428
Net drawdowns and repayments
12,563
-938
-181
11,444
Changes in models/risk parameters
 
7
7
Increase in loan loss provisions
119
638
1,908
2,666
Write-offs
-1,200
-1,200
-1,200
-1,200
Recoveries of amounts previously written off
39
39
Foreign exchange and other movements
-28
-42
-226
-297
Closing balance
841,562
581
61,981
1,476
13,398
3,797
916,942
5,854
 
1 At the end of December 2020, the gross carrying amounts included
 
loans and advances to central banks (€109.2 billion),
 
loans and advances to banks (€25.4 billion), financial assets at FVOCI
 
(€34.0 billion), securities at amortised cost (€50.6 billion), loans and advances to
 
customers (€599.7 billion) and
contingent liabilities (credit replacements) in scope
 
of IFRS 9 (€118.4 billion) and excludes receivables related
 
to securities in reverse repurchase transaction
 
(€-6.4 billion), cash collateral in respect of derivatives
 
(€-8.3 billion), the value adjustment hedged items (€-1.0 billion), a receivable
 
that is offset by a
liquidity facility (€-2.2 billion), on-demand bank balances (€-2.2 billion) and other differences
 
amounting to €-0.3 billion.
2 Stage 3 Lifetime credit impaired includes €3 million
 
Purchased or Originated Credit Impaired.
3 At the end of December 2020, the stock of provisions included
 
provisions for loans and advances to central
 
banks (€3 million), loans and advances to banks (€23 million), financial
 
assets at FVOCI (€14 million),
securities at amortised cost (€17 million), provisions for
 
loans and advances to customers (€ 5,779 million) and
 
provisions for contingent liabilities (credit
 
replacements) recorded under Provisions (€17
 
million).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
197
 
Changes in gross carrying amounts and loan loss provisions (*)
1,2,3
in EUR million
12-month ECL (Stage 1)
Lifetime ECL not credit
impaired (Stage 2)
Lifetime ECL credit impaired
(Stage 3)
Total
2019
Gross
carrying
amount
Provisions
Gross
carrying
amount
Provisions
Gross
carrying
amount
Provisions
Gross
carrying
amount
Provisions
Opening balance
788,537
501
46,949
925
10,758
3,141
846,244
4,568
Transfer
 
into 12-month ECL (Stage 1)
12,856
30
-12,579
-253
-277
-23
0
-246
Transfer
 
into lifetime ECL not credit impaired (Stage 2)
-21,577
-73
22,382
474
-805
-81
0
320
Transfer
 
into lifetime ECL credit impaired (Stage 3)
-2,210
-6
-1,753
-135
3,964
1,113
0
972
Net remeasurement of loan loss provisions
0
-77
0
36
0
283
0
242
New financial assets originated or purchased
180,605
205
0
0
0
0
180,605
205
Financial assets that have been derecognised
-126,082
-103
-9,108
-162
-1,659
-137
-136,849
-402
Net drawdowns and repayments
-14,880
0
-4,807
0
1
0
-19,686
0
Changes in models/risk parameters
 
0
15
0
2
0
-8
0
9
Increase in loan loss provisions
0
-9
0
-39
0
1,147
0
1,099
Write-offs
-1
-1
-2
-2
-1,027
-1,028
-1,030
-1,031
Recoveries of amounts previously written off
0
0
0
0
0
55
0
55
Foreign exchange and other movements
0
-1
0
-3
0
-41
0
-45
Closing balance
817,247
490
41,082
881
10,955
3,275
869,284
4,646
 
1 At the end of December 2019, the gross carrying amounts included
 
loans and advances to central banks (€51.2 billion),
 
loans and advances to banks (€35.1 billion), financial assets at FVOCI
 
(€32.2 billion), securities at amortised cost (€46.1 billion), loans and advances to
 
customers (€612.6 billion) and
contingent liabilities (credit replacements) in scope
 
of IFRS 9 (€115.7 billion) and excludes receivables related
 
to securities in reverse repurchase transaction
 
(€-9.9 billion), cash collateral in respect of derivatives
 
(€-10.2 billion), the value adjustment hedged items (€0.0 billion),
 
a receivable that is offset by a
liquidity facility (€-1.3 billion), on-demand bank balances (€-1.8 billion) and other differences
 
amounting to €-0.3 billion.
2 Stage 3 Lifetime credit impaired includes €1 million
 
Purchased or Originated Credit Impaired.
3 At the end of December 2019, the stock of provisions included
 
provisions for loans and advances to central
 
banks (€1 million), loans and advances to banks (€9 million), financial
 
assets at FVOCI (€10 million), securities at amortised cost (€10 million), provisions
 
for loans and advances to customers (€4,590
million) and provisions for contingent liabilities
 
(credit replacements) recorded under Provisions
 
(€25 million).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
198
 
Modification of financial assets
The table below provides the following information:
- Financial assets that were modified during the year (i.e. qualified as forborne) while they had a loss allowance
measured at an amount equal to lifetime ECL.
 
- Financial assets that were reclassified to stage 1 during the period.
Financial assets modified (*)
in EUR million
2020
2019
Financial assets modified during the period
Amortised cost before modification
2,840
1,510
Net modification results
-144
-35
Financial assets modified since initial recognition
Gross carrying amount at 31 December of financial assets for which loss allowance has changed to 12-
month measurement during the period
312
689
The prior period has been updated to improve consistency
 
and comparability.
Modifications that have been provided in 2020 under general payment
 
moratoria (payment holidays) are
 
not
included in this analysis. For details refer to the section ‘payment
 
holidays’.
 
 
Macroeconomic scenarios and sensitivity analysis of key sources
 
of estimation uncertainty (*)
Methodology (*)
Our methodology in relation to the adoption and generation of macroeconomic scenarios is described in this
section. We continue to follow this methodology in generating
 
our probability-weighted ECL, with consideration
of alternative scenarios and management adjustments supplementing this ECL where, in management's
 
opinion,
the consensus forecast does not fully capture the extent
 
of recent credit or economic events. The
macroeconomic scenarios are applicable to the whole ING portfolio in the scope of IFRS 9 ECLs.
 
The introduction of IFRS 9, with its inherent complexities and potential impact on the carrying amounts of our
assets and liabilities, represents a key source of estimation uncertainty.
 
In particular, ING’s
 
reportable ECL
numbers are most sensitive to the forward
 
-looking macroeconomic forecasts used as model inputs, the
probability-weights applied to each of the three scenarios, and the criteria for identifying a significant increase in
credit risk. As such, these crucial components require consultation and management judgement, and are
 
subject
to extensive governance.
Baseline scenario (*)
As a baseline for IFRS 9, ING has adopted a market-neutral view combining
 
consensus forecasts for economic
variables (GDP,
 
unemployment) with market forwards (for interest
 
rates, exchange rates
 
and oil prices). The
Oxford Economics’ Global Economic Model (OEGEM) is used to complement
 
the consensus with consistent
projections for variables for which there are no consensus estimates
 
available (most notably house prices and –
for some countries - unemployment), to generate
 
alternative scenarios, to convert annual consensus information
to a quarterly frequency and to ensure general consistency
 
of the scenarios. As the baseline scenario is consistent
with the consensus view it can be considered as free from any bias.
 
 
The relevance and selection of macroeconomic variables is defined by the ECL models under credit risk model
governance. The scenarios are reviewed and challenged by two panels. The first panel consists
 
of economic
experts from Global Markets Research and risk and modelling specialists, while the second
 
panel consists of
relevant senior managers.
 
Alternative scenarios and probability weights (*)
Two alternative scenarios are taken
 
into account; an upside and a downside scenario. The alternative scenarios
have,
 
to a large extent,
 
a technical character as these are based on the forecast errors
 
of the OEGEM.
 
To understand
 
the baseline level of uncertainty around any forecast,
 
Oxford Economics keeps
 
track of all its
forecast errors of the past 20 years.
 
The distribution of forecast errors for
 
GDP,
 
unemployment, house prices and
share prices is applied to the baseline forecast creating a broad range
 
of alternative outcomes. In addition, to
understand the balance of risks facing the economy in an unbiased way,
 
Oxford Economics runs a survey with
respondents from around the world and across a broad range
 
of industries. In this survey the respondents put
forward their views of key risks. Following
 
the survey results, the distribution of forecast errors
 
(that is being
used for determining the scenarios) may be skewed.
 
For the downside scenario, ING has chosen for the 90th percentile of that distribution because this corresponds
with the way risk management earnings-at-risk is defined within the Group. The upside scenario is represented
by the 10th percentile of the distribution. The applicable percentiles of the distribution imply a 20% probability
for each alternative scenario. Consequently,
 
the baseline scenario has a 60% probability weighting. Please note
that, given their technical nature, the downside and upside scenarios are not based on an explicit specific
narrative.
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
199
 
Macroeconomic scenarios applied (*)
The provisions are based on the December consensus forecasts.
Baseline assumptions (*)
The December 2020 consensus anticipates global output (ING definition), after declining sharply in 2020 by 3.6%,
to bounce back to 5.0% growth in 2021 and 3.8% in 2022. The consensus reflects that near-term economic
weakness - resulting from a re-imposition of restrictions on mobility and firms, in order to prevent
 
a further
spread of the coronavirus – will be followed by an economic recovery
 
underpinned by the start of a vaccination
program in many parts of the world enabling a lifting of lockdowns. This could bring world real GDP back to pre-
crisis levels by mid-2021. China is in the lead with the economy touching pre-crisis levels again already in the
second half of 2020. But the US economy may not reach that level before
 
the third quarter of 2021 and the
eurozone not before the second quarter
 
of 2022. Lagging the economic recovery, unemployment in a
 
number of
countries may continue to increase up to the third quarter
 
of 2021 as government policy measures to preserve
jobs may end. Most countries are expected to end the forecast
 
period with higher unemployment rates than
observed before the outbreak of the coronavirus pandemic. Further out in the forecast
 
horizon, the
unemployment rate is generally expected
 
to fall back as the economic recovery continues (3.8% growth of world
output in 2022).
 
 
When compared to the June 2020 consensus forecast, used for the second quarter
 
interim reporting, the
December forecast assumes a smaller shrink in 2020 global GDP (-3.6% compared to -4.8%) following a generally
stronger than expected economic rebound. The fourth quarter
 
re-imposition of lockdown measures to contain
the spread of the coronavirus results, compared to June, in a less strong
 
global recovery in 2021 (5.0% versus
5.1%) but the likely roll-out of an effective vaccine
 
brightens the outlook further out (global growth in 2022 3.8%
versus 3.2% in June).
 
When compared to the consensus forecast used for the
 
final 2019 reporting, the current outlook is substantially
different as at that time no assumptions with respect to the possible consequences of the spread of the
coronavirus have been incorporated.
 
The baseline scenario at the time assumed continued world economic
growth close to 2.5% per year in 2020-2022.
Alternative scenarios and risks (*)
Uncertainty around the base case is high as new cases of Covid-19 remain high in many countries and restrictions
to mobility have been tightened again, increasing the risk that the economic recovery
 
falls back. There is also
uncertainty around the degree to which government support schemes will continue to limit the increase
 
in
unemployment. And while there is positive news about the efficacy of a vaccine, many logistical
 
and production
challenges lie ahead.
 
To reflect
 
the heightened uncertainty,
 
the dispersion of the forward-looking distributions – from which the
alternative scenarios are being derived – has been increased while maintaining a downward skew
 
following on
from the outcomes of Oxford Economics’ Global Risk Survey.
 
Specifically, the forecast
 
bandwidths projected for
the end of the forecast horizon have now been applied to
 
the near term as well.
 
The upside scenario – though technical in nature - implies a quick return of output to its pre-coronavirus baseline
forecast and more positive medium-term prospects than envisaged
 
in the baseline scenario. In this scenario,
unemployment rates quickly fall back from their peaks in 2020. In spirit it is a scenario where medical advances
allow for a more rapid easing of lockdowns. A faster
 
restoration of confidence among business and households
would result in private spending and business activity accelerating more markedly
 
in 2021 and beyond.
 
The downside scenario, while being equally technical in nature, represents an even
 
more pronounced near-term
global downturn than expected in the baseline scenario. The downside scenario reflects the risk of the
coronavirus pandemic not only posing significant risks to the near-term outlook but also having
 
longer-lasting
negative effects on economic growth
 
(e.g. because of faster de-leveraging and weaker
 
productivity growth).
 
Management adjustments applied this year (*)
In times of volatility and uncertainty where portfolio quality and the economic environment are
 
changing rapidly,
models alone may not be able to accurately predict losses. In these cases management adjustments can
 
be
applied to appropriately reflect ECL. Management adjustments
 
can also be applied where the impact of the
updated macroeconomic scenarios is over- or under-estimated
 
by the IFRS 9 models.
 
An overlay of €394 million was taken in December 2020 because of time lags in defaults occurring in this crisis, as
a result of support programmes, while GDP growth forecasts
 
were improving as 2020 is now over
 
and more
favourable 2021 GDP growth forecasts
 
(and subsequent years) are now being taken into
 
account in the models.
As it is expected that additional defaults as a result of the crisis will still come in, the overlay was
 
taken which was
calculated using a scenario with a time lag between GDP growth forecasts deteriorating
 
and defaults occurring.
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
200
 
As mentioned above, per the guidance from EBA, Covid-19 related payment holidays
 
granted until September
2020 have not automatically been classified as forbearance, and hence, have
 
not automatically triggered
recognition of lifetime ECL in stage 2. Looking forward,
 
it is expected that the phasing out of the support
measures in the course of 2021 could lead to more business insolvencies and unemployment. This could lead to
more clients that have currently taken
 
payment holidays getting into financial difficulties
 
and to higher levels of
defaults. To
 
the extent ING believes that this elevated risk is not yet
 
covered in the IFRS 9 models, a management
adjustment has been recognised.
 
This management adjustment has been recognised for SME and mid-corporate
 
portfolios as these portfolios are
considered to be most at risk and have the highest percentage
 
of customers requesting payment holidays
compared to other portfolios.
 
ING has recognised a management adjustment of €85 million in the Netherlands
and €131 million in Belgium as they are the largest SME portfolios and not significantly impacted by
macroeconomic forecasts updates. Furthermore,
 
a management adjustment of €28 million has been recognised
in Australia for the mortgage portfolio which is also a portfolio where
 
relative many payment holidays
 
are
granted and which is considered at risk.
 
In addition, as the oil price remains volatile, as well as exposed to the impact of the Covid-19 crisis and subject to
political decisions, ING recognised a management adjustment for the upstream
 
oil book of €25 million.
 
Analysis on sensitivity (*)
The table below presents the analysis on the sensitivity of key forward
 
-looking macroeconomic inputs used in the
ECL collective-assessment modelling process and the probability-weights applied to each of the three scenarios.
The countries included in the analysis are the most significant geographic regions, in terms of both gross
contribution to reportable ECL, and sensitivity of ECL to forward
 
-looking macroeconomics. Accordingly,
 
ING
considers these portfolios to present the most significant
 
risk of resulting in a material adjustment to the carrying
amount of financial assets within the next financial year.
 
ING also observes that, in general, the Wholesale
Banking business is more sensitive to the impact of forward-looking macroeconomic scenarios.
 
The purpose of the sensitivity analysis is to enable the reader to understand the extent of the impact on model
based reportable ECL from the upside and downside scenario. The table does not include any management
adjustments,
 
except for the overlay for
 
time lag in defaults of €394 million as at 31 December 2020.
 
In the table below the Real GDP is presented in percentage
 
year-on-year change, the unemployment in
percentage of total labour force and the house price index
 
(HPI) in percentage year-on year change.
 
While the table does give a high-level indication of the sensitivity of the outputs to the different scenarios, it does
not provide insight into the interdependencies and correlations between
 
different macroeconomic variable
inputs. On total ING level, the unweighted ECL for all collective
 
provisioned clients in the upside scenario was
€2,770 million, in the baseline scenario €3,082 million and in the downside scenario €4,362 million compared to
€3,276 reportable collective provisions currently accounted
 
for (including time lag overlay,
 
excluding other
management adjustments).
 
When compared to the sensitivity analysis of 2019 the macroeconomic inputs are substantially different
 
,
 
as at
that time no assumptions with respect to the possible consequences of the spread of the coronavirus had been
incorporated. The macroeconomic inputs used in the 2020 sensitivity analysis reflect that,
 
after declining sharply
in 2020, a bounce back in Real GDP is expected in 2021 and 2022. Furthermore the downside scenario has an
increased downward skew,
 
reflecting the continuing uncertainty related to the impact of Covid-19.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
201
 
Sensitivity analysis as at December 2020
 
(*)
2021
2022
2023
Un-weighted
ECL (Eur mln)
Probability-
weighting
Reportable ECL
(Eur mln)
1
Netherlands
Upside scenario
Real GDP
5.3
3.3
2.8
383
20%
468
Unemployment
5.1
3.9
3.0
HPI
8.1
6.3
4.7
Baseline Scenario
 
Real GDP
2.8
2.9
1.9
441
60%
Unemployment
5.8
5.2
4.7
HPI
-1.9
-1.6
4.5
Downside scenario
Real GDP
-4.9
4.8
1.4
636
20%
Unemployment
7.7
7.8
7.9
HPI
-12.3
-11.0
4.3
Germany
Upside scenario
Real GDP
7.6
3.3
1.5
504
20%
558
Unemployment
3.0
2.2
1.8
HPI
3.5
8.3
6.6
Baseline Scenario
 
Real GDP
3.9
3.4
1.6
541
60%
Unemployment
4.1
3.5
3.5
HPI
0.4
4.8
3.1
Downside scenario
Real GDP
-2.4
3.5
1.3
662
20%
Unemployment
5.6
5.3
5.6
HPI
-3.5
0.8
-0.9
Belgium
Upside scenario
Real GDP
6.9
3.3
2.4
494
20%
559
Unemployment
7.3
6.2
5.8
HPI
-0.2
4.2
4.8
Baseline Scenario
 
Real GDP
4.5
3.3
2.3
540
60%
Unemployment
7.5
6.3
6.3
HPI
-1.7
3.5
3.8
Downside scenario
Real GDP
-0.4
4.0
2.2
681
20%
Unemployment
9.4
9.1
8.8
HPI
-3.6
2.5
2.9
United States
Upside scenario
Real GDP
5.6
4.1
3.8
93
20%
189
Unemployment
5.0
3.0
1.9
HPI
6.2
9.4
9.3
Baseline Scenario
 
Real GDP
4.0
3.2
2.5
134
60%
Unemployment
6.0
4.7
4.1
HPI
4.3
4.1
4.0
Downside scenario
Real GDP
-6.3
6.8
1.9
448
20%
Unemployment
8.5
7.9
7.6
HPI
1.2
-1.9
-2.3
1 Sensitivity does only include the effect of time lag overlay, other management adjustments are excluded.
 
 
Sensitivity analysis as at December 2019 (*)
2020
2021
2022
Un-weighted
ECL (Eur mln)
Probability-
weighting
Reportable ECL
(Eur mln)
1
Netherlands
Upside scenario
Real GDP
2.3
3.5
3.2
370
20%
428
Unemployment
2.8
2.4
2.3
HPI
14.1
11.3
2.9
Baseline Scenario
 
Real GDP
1.4
1.5
1.6
416
60%
Unemployment
3.6
3.9
4.2
HPI
3.3
2.9
2.8
Downside scenario
Real GDP
-0.7
-0.9
0.5
520
20%
Unemployment
5.0
6.3
7.1
HPI
-7.5
-7.0
2.7
Germany
Upside scenario
Real GDP
2.6
2.8
1.8
458
20%
502
Unemployment
2.4
1.7
1.4
HPI
9.7
7.0
6.4
Baseline Scenario
 
Real GDP
0.8
1.1
1.3
495
60%
Unemployment
3.2
3.2
3.3
HPI
6.1
3.5
2.9
Downside scenario
Real GDP
-1.2
-1.7
0.5
567
20%
Unemployment
4.3
4.8
5.2
HPI
2.5
-0.3
-1.1
Belgium
Upside scenario
Real GDP
2.3
2.6
2.0
323
20%
357
Unemployment
5.5
5.4
5.3
HPI
5.1
4.2
4.3
Baseline Scenario
 
Real GDP
1.1
1.2
1.3
350
60%
Unemployment
5.8
5.9
6.1
HPI
3.5
3.4
3.4
Downside scenario
Real GDP
-0.4
-0.2
1.0
411
20%
Unemployment
7.5
8.4
8.4
HPI
1.5
2.6
2.4
United States
Upside scenario
Real GDP
2.6
4.1
3.8
74
20%
144
Unemployment
2.6
1.7
1.5
HPI
5.0
8.0
8.1
Baseline Scenario
 
Real GDP
1.8
1.8
1.9
127
60%
Unemployment
3.7
3.7
3.8
HPI
2.6
2.6
2.8
Downside scenario
Real GDP
-0.6
-0.5
0.3
267
20%
Unemployment
5.2
6.5
7.1
HPI
0.1
-3.1
-3.4
1 Excluding management adjustments.
 
 
 
 
 
 
 
 
>
 
Credit risk
 
ING Group Annual Report 2020 on Form 20-F
202
 
 
 
Criteria for identifying a significant increase in credit risk (*)
All assets and off-balance sheet items that are in scope of IFRS 9 impairment and which are subject to
 
collective
ECL assessment are allocated a 12-month ECL if deemed to belong in stage
 
1, or a lifetime ECL if deemed to
belong in stages 2 and 3. An asset belongs in stage 2 if it is considered to have experienced
 
a significant increase
in credit risk since initial origination or purchase. The stage allocation process involves
 
an asset’s derived scenario
weighted average PD being assessed against
 
a set of PD threshold bandings, which determines the appropriate
staging and ECL. Stage 2 is triggered when either a threshold for absolute change
 
in lifetime PD or relative change
in lifetime PD is hit. The thresholds for the absolute change in lifetime PD vary
 
between 75bps for Retail
portfolios, 100bps for Wholesale and 250bps for SMEs, based on the characteristics of the specific portfolio. We
are however in a transition phase to determine this on a portfolio level,
 
which has been implemented for a few
Turkish and Polish models which already have
 
deviating lifetime PD thresholds. The threshold for the relative
change in lifetime PD is inversely correlated
 
with the PD at origination; the higher the PD at origination, the lower
the threshold. Despite this, the relative threshold is punitive for investment
 
grade assets while the absolute
threshold primarily affects speculative grade assets. On ING Group level,
 
the total ECL collective-assessment for
performing assets is €1,678 million (2019: €1,291 million) (without taking management adjustments into
account).
 
The setting of PD threshold bandings requires management judgement, and is a key
 
source of estimation
uncertainty. To
 
demonstrate the sensitivity of the ECL to these PD thresholds bandings, analysis was run on all
collectively-assessed assets, which assumed all assets (stage 1 and 2) were below the threshold, and apportioned
a 12-month ECL. On the same asset base, analysis was run which assumed all performing assets were above the
threshold, and apportioned a lifetime ECL. This gave rise to hypothetical
 
collective-assessment ECLs of €1,242
million (2019: €866 million) and €3,552 million (2019: €2,665 million) respectively. Please note that in this
analysis all other ECL risk parameters (except
 
for the stage) were kept
 
equal.
 
It should be noted that the lifetime PD thresholds are not the only drivers of stage allocation.
 
An asset can
change stages as a result of being in arrears, being on a Watch
 
List or being forborne, among other triggers. Refer
to section 1.7.8 of Note 1 ‘Basis of preparation and accounting policies’ for an exhaustive
 
list. Furthermore, this
analysis is rudimentary in that other parameters would change when an asset
 
changes stages.
 
 
 
 
 
 
 
 
 
>
 
Market risk
 
ING Group Annual Report 2020 on Form 20-F
203
 
Market risk
Introduction (*)
Market risk is the risk that movements in market
 
variables, such as interest rates, equity prices, foreign
 
exchange
rates, credit spreads and real estate
 
prices negatively impact the bank’s earnings, capital,
 
market value or
liquidity position. Market risk either arises through positions in banking books or trading books. The banking
book positions are intended to be held for the long term (or until maturity) or for the purpose of hedging other
banking book positions. The trading book positions are typically held with the intention of short-term trading
 
or
in order to hedge other positions in the trading book. This means that financial instruments in the trading books
should be free of trade restrictions. Policies and processes are in place to monitor the inclusion of positions in
either the trading or banking book as well as to monitor the transfer of risk between the trading
 
and banking
books.
 
 
ING recognises the importance of sound market risk management and bases its market
 
risk management
framework on the need to identify,
 
assess, control and manage market risks. The approach
 
consists of a cycle of
five recurring activities: risk identification, risk assessment, risk control, risk monitoring and risk reporting.
 
(*)
◾
 
Risk identification is a joint effort of the first and second
 
lines of defence. The goal of risk identification is
to detect potential new risks and any changes in known risks. See ‘Risk Governance’ for
 
more on our
‘three lines of defence’ governance model;
◾
 
Identified risks are assessed and measured by means of various risk metrics to determine the importance
of the risk to ING and subsequently to identify the control measures needed;
◾
 
Risk control measures used by ING include policies, procedures, minimum standards, limit frameworks,
buffers and stress tests;
 
◾
 
Risk monitoring occurs to check if the implemented risk controls are executed,
 
complied with across the
organisation, and are effective;
 
and
◾
 
Market risk management results and findings are reported to
 
the necessary governing departments and
approval bodies.
 
Governance (*)
A governance framework has been established defining specific roles and responsibilities of business
management units, market risk management units, and internal
 
approval bodies per activity.
 
 
Supervision of market risk falls under the responsibility of the MBB and is delegated to the ALCO function, where
ALCO Bank is the highest approval authority and sets the market risk appetite.
 
ALCO Bank monitors ING’s
adherence to the risk appetite for market risk and sets additional limits where appropriate.
 
These limits are
cascaded through the organisation through lower level ALCOs.
 
This ALCO structure facilitates top
 
-down risk
management, limit setting, and the monitoring and control of market risk.
 
 
The monitoring and control of market risk is the responsibility of the Financial Risk (FR) department and Financial
Institutions – Financial Markets (FI-FM) Risk. FR and FI-FM Risk are the designated departments of the second line
of defence that report to the CRO function and are responsible for the design and execution
 
of the bank’s market
risk and counterparty credit risk management functions in support of the ALCO function. FR focuses on the
market risks in the banking books, whereas FI-FM Risk is responsible for counterparty
 
credit risk and market risks
resulting from the Financial Markets trading books. FR and FI-FM Risk are
 
responsible for determining adequate
policies and procedures for actively managing market risk in the banking and trading books
 
and for monitoring
ING’s compliance with these guidelines.
 
 
FR and FI-FM Risk also maintain a limit framework in line with ING’s Risk Appetite
 
Framework. The businesses are
responsible for adhering to limits that are ultimately approved
 
by the ALCO Bank. Limit excesses are reported to
senior management on a timely basis and the business is required to take appropriate
 
actions based on
management decisions. To
 
adhere to the established limit framework, ING implements hedging and risk
mitigation strategies that range
 
from the use of traditional market instruments, such as interest
 
rate swaps, to
more sophisticated hedging strategies
 
to address a combination of risk factors arising at the portfolio level.
 
 
The organisational structure facilitates
 
top-down risk management by recognising that risk taking and risk
management to a large extent occur at the regional/local level.
 
Bottom-up reporting from regional/local units to
head office units allows each management level to fully assess the market risks relevant
 
at the respective levels.
 
 
 
 
 
 
 
 
 
>
 
Market risk
 
ING Group Annual Report 2020 on Form 20-F
204
 
Several committees govern communicati
 
on between the parties involved in market risk management
 
,
 
such as
MRMC and CTRC. These committees have a functional reporting line to ALCO Bank. The Market
 
Risk Model
Committee (MRMC) is the dedicated authority within ING for the approval of all trading and
 
banking risk models,
methodologies and parameters related to market
 
risk. The Trading Pricing Model Committee
 
(TPMC) approves
pricing models for trading and banking books. Financial Risk and FI-FM Risk departments provide systematic
 
risk
reporting to the EB and MBB, the ALCO Bank and the senior executive management of related
 
business functions.
 
 
The FI-FM risk management framework governs the boundary between trading books and banking books. It
defines the activities ING considers to be trading according to a regulatory
 
definition and for own funds
requirement purposes. Trading
 
activity is systematically reviewed and positions are
 
assessed against the
mandates jointly by the first and second lines of defence. As specified in the framework,
 
the transfer of risk or
the transfer of positions between banking and trading books is in principle not allowed. In exceptional
 
cases
when a re-designation is deemed necessary, the re-designation should be approved
 
by senior management.
 
The following sections elaborate on the various elements of the risk management framework
 
for:
◾
 
Market risk economic capital (trading and banking books);
◾
 
Market risks in banking books; and
◾
 
Market risks in trading books.
 
Market risk economic capital (trading and banking books)
Economic capital for market risk is the economic capital
 
necessary to withstand unexpected value movements
due to changes in market variables and model risk.
 
Economic capital for market risk is calculated
 
for exposures both in trading portfolios and banking portfolios
 
and
includes interest rate risk, credit spread
 
risk, equity price risk, foreign exchange rate
 
risk, customer behaviour
risk, real estate risk, model risks and pension risk. Economic capital for
 
market risk is calculated using internally
developed methodologies with a 99.9% confidence level and a horizon of one year.
 
 
For the trading books and the linear interest rate
 
risk and equity investments in the banking books, the Value at
Risk (VaR) is taken as a starting
 
point for the economic capital calculations for market
 
risk. The VaR is measured
at a 99% confidence level with a one-day holding period.
 
To arrive at
 
the economic capital for market risk, a simulation-based model is used which includes scaling to the
required confidence level and holding period. In determining this scaling factor,
 
other factors are also taken
 
into
account like the occurrence of large market
 
movements (events).
 
 
Embedded options, e.g. the prepayment option and offered rate
 
option in mortgages in the banking books, result
in non-linear interest rate risk in the banking books. Embedded options are economically
 
hedged using a delta-
hedging methodology, leaving the mortgage
 
portfolio exposed to convexity risk, volatility
 
risk and model risk. For
the calculation of economic capital for this non-linear interest rate
 
risk, ING performs a Monte Carlo simulation.
 
Real estate price risk includes the market risks in both the real
 
estate investment and the development
 
portfolio
of the ING Wholesale Banking business line. The economic capital for real estate price risk is calculated by
stressing the underlying market variables.
 
 
While aggregating the different economic capital
 
market risk figures for the different
 
portfolios, diversification
benefits (based on stressed correlations) are taken
 
into account as it is not expected that all extreme market
movements will appear at the same moment.
 
Market risk in banking books (*)
ING makes a distinction between the trading and banking (non-trading) books. Positions in banking books
originate from the market risks inherent in commercial
 
products that are sold to clients, Group Treasury
exposures, and from the investment of our own funds (core
 
capital). Both the commercial products and the
products used to hedge market risk exposures in these products
 
are intended to be held until maturity,
 
or at
least for the long term.
 
 
Risk transfer (*)
An important element of the management of market risks in the banking book is the risk transfer
 
process. In this
process the interest rate,
 
FX, funding and liquidity risks are transferred from the
 
commercial books through
matched funding to Group Treasury,
 
where it is centrally managed. The scheme below presents the transfer
 
and
management process of market risks in the banking books:
 
ing20f2020p205i0.jpg
 
 
 
 
 
 
 
>
 
Market risk
 
ING Group Annual Report 2020 on Form 20-F
205
 
 
(*)
Risk transfer
 
Risk measurement (*)
The main concepts and metrics used for measuring market risk in the banking book are described below per risk
type.
 
Interest rate
 
risk in banking book (*)
Interest rate risk in the banking book is defined as the exposure of a bank’s
 
earnings, capital, and market value to
adverse movements in interest rates
 
originated from positions in the banking book.
 
Governance (*)
The management of interest rate risk follows
 
the Interest Rate Risk in the Banking Book (IRRBB) framework as
approved by ALCO Bank. This framework describes roles, responsibilities,
 
risk metrics, and the policies and
procedures related to interest
 
rate risk management. Furthermore ALCO Bank sets the risk appetite for
 
interest
rate risk, which is then translated into
 
limits for the interest rate risk metrics.
 
 
As a result of this framework, ING centralises interest
 
rate risk management from commercial books (that
capture the products sold to clients) to globally managed interest
 
rate risk books. This enables a clear
demarcation between commercial business results and results based on unhedged interest
 
rate positions.
 
 
ING distinguishes between three types of activities that generate interest
 
rate risk in the banking book:
◾
 
Investment of own funds;
◾
 
Commercial business; and
◾
 
Group Treasury exposures
 
including strategic interest rate
 
positions.
 
Below the three activities are described in more detail:
 
Group Treasury is responsible for
 
managing the investment of own funds (core capital). Capital is invested
 
for
longer periods to keep earnings stable. The main objective is to maximise the economic value of the book and to
generate adequate and stable annual earnings within the risk appetite boundaries set by ALCO
 
Bank.
 
 
Commercial activities can result in linear interest rate
 
risk, for example, when re-pricing causes the tenors of
assets to differ from those of liabilities. Also, interest
 
rate risk can arise from customer behaviour and/or
convexity risk, depending on the nature of the underlying product characteristics.
 
customer behaviour risk is
 
 
 
 
 
 
 
 
>
 
Market risk
 
ING Group Annual Report 2020 on Form 20-F
206
 
defined as the potential future value loss due to deviations in the actual behaviour of clients versus the
 
modelled
behaviour towards the embedded options in commercial products. General
 
sources of customer behaviour risk,
amongst others, include the state of the economy,
 
competition, changes in regulation, legislation and tax regime,
and developments in the housing market. Since these risk factors
 
cannot be (fully) mitigated, ING holds capital to
be able to absorb possible losses as a result of unforeseen customer behaviour.
 
From an interest rate
 
risk perspective, commercial activities can typically be divided into three main product
types: savings and demand deposits, mortgages, and loans.
◾
 
Savings and demand deposits are generally invested so as to
 
hedge their value and minimise the
sensitivity of the margin to market interest rates.
 
Interest rate risk can arise when there is a lag between
savings rate adjustments and the adjustments experienced
 
through market rates or when market
 
rate
changes cannot be passed on to clients. Interest rate
 
risk is modelled based on the stability of the
deposit and the pass-through rate. This takes into
 
account different elements, such as pricing strategies,
volume developments and the level and shape of the yield curve. Savings volumes are typically assumed
to be relatively stable and not sensitive to rate
 
changes;
◾
 
Interest rate risk for mortgages
 
arises through prepayment behaviour.
 
In modelling this risk, both
interest rate dependent pre
 
-payments and constant prepayments
 
are considered. Next to the
dependence on interest rates, modelled prepayments
 
may include other effects such as loan-to-value,
seasonality and the reset date of the loan. In addition, the interest sensitivity of embedded offered rate
options is considered;
 
and
 
◾
 
Wholesale Banking loans typically do not experience interest rate
 
dependent prepayment behaviour;
these portfolios are matched-funded taking the constant
 
prepayment model into account.
 
They typically
do not contain significant convexity risk. Wholesale banking loans can have
 
an all-in rate floor or a floor
on a reference rate
 
.
 
Customer behaviour in relation to mortgages, loans, savings and demand deposits is modelled, based on
extensive research. Per business unit and product type, exposures
 
are typically segmented into different
portfolios based on expected client behaviour.
 
For each of the segments, model parameters for example
 
for the
pass-through rate and customer behaviour are
 
determined based on historical data and expert opinion. Models
are backtested and updated when deemed necessary in an annual procedure. Model parameters
 
and the
resulting risk measures are approved by (local) ALCO.
 
 
Linear risk transfers take
 
place from commercial business books to the treasury book (Group Treasury),
 
if
necessary, by using estimations of customer
 
behaviour.
 
The originating commercial business is ultimately
responsible for estimating customer behaviour,
 
leaving convexity risk and (unexpected) customer
 
behaviour risk
with the commercial business. Risk measurement and the risk transfer process take
 
place on a monthly basis.
However,
 
if deemed necessary additional risk transfers can take
 
place, for instance due to volatile markets
 
.
 
 
The commercial business manages the convexity risk that is the result of products that
 
contain embedded
options, like mortgages. Here the convexity
 
risk is defined as the optionality effects in the value due to interest
rate changes, excluding the first
 
-order effects. In some cases, convexity
 
risk is transferred from the commercial
books to treasury books using cap/floor contracts.
 
In the following sections, the interest rate risk exposures
 
in the banking books are presented. ING uses risk
measures based on both an earnings and a value perspective. Net interest income (NII)-at-risk
 
is used to provide
the earnings perspective and the net present value (NPV)-at-risk and basis point value (BPV) figures
 
provide the
value perspective. Please note that corrective management actions are
 
not taken into account in these figures
although price adjustments are included in the earnings risk measure.
 
During 2020, the following refinements to the risk measurement for IRRBB were
 
made:
◾
 
Review of the risk appetite for IRRBB;
◾
 
Further insights in sub-risk types such as vega optionality risk, tenor basis risk and a client behaviour risk
earnings and value metrics
 
◾
 
Annual review of the interest rates
 
scenarios used for calculating NII-at-Risk and NPV-at-Risk;
◾
 
Savings/ current account model updates and prepayment
 
model updates for market developments;
 
and
◾
 
Specific Covid-19 related stress test.
 
Net interest income (NII) at Risk
 
(*)
NII-at-Risk measures the impact of changing interest rates on net interest
 
income (before tax) of the banking
book with a time horizon of one year (expanding to a horizon of three years). This excludes
 
credit spread
sensitivity and fees.
 
The NII-at-Risk figures in the tables below reflect a parallel interest
 
rate shock under the
assumption of the balance sheet development in line with the dynamic plan with a time horizon of one year.
 
As
well as parallel scenarios, IRRBB monitoring and management includes the impact of non-parallel scenarios and
the impact over a longer horizon. NII-at-Risk asymmetry between the downward and upward
 
ramped scenarios is
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Market risk
 
ING Group Annual Report 2020 on Form 20-F
207
 
primarily caused by the asymmetry between pricing behaviour of mortgages and savings products due to
embedded options and pricing constraints.
 
NII-at-Risk banking books per business
 
- year one (*)
in EUR million
2020
2019
Ramped, unfloored
 
Ramped, unfloored
 
parallel
▼
parallel
▲
parallel
▼
parallel
▲
By business
Wholesale Banking
135
-83
-12
12
Retail Banking Benelux
 
-114
105
-91
40
Retail Challengers & Growth Markets
-52
-14
-3
-3
Corporate Line Banking
-52
52
-30
30
Total
-83
60
-136
79
EUR ramped is at +/- 100bps in 1 year
USD ramped is at +/- 120bps in 1 year
 
The NII-at-Risk is primarily driven by the difference in sensitivity of client liabilities, mainly savings, versus
 
the
sensitivity of client assets and investments to rate
 
changes. The investment of own funds only impacts the
earnings sensitivity marginally, as only a relatively
 
small part has to be (re)invested within the one-year horizon.
NII-at-Risk banking book per currency - year one (*)
in EUR million
2020
2019
Ramped, unfloored
 
Ramped, unfloored
 
parallel
▼
parallel
▲
parallel
▼
parallel
▲
By currency
Euro
-146
120
-134
65
US Dollar
41
-36
25
-24
Other
23
-25
-27
39
Total
-83
60
-136
79
EUR ramped is at +/- 100bps in 1 year
USD ramped is at +/- 120bps in 1 year
 
 
Year-on-year
 
variance analysis (*)
The change in NII-at-Risk is primarily visible for Retail Challengers
 
& Growth Markets and Wholesale Banking. This
is driven by balance sheet developments, the low interest rate
 
environment and savings model updates for
market developments mainly in ING Germany,
 
ING Spain and ING Poland. The annual update of the interest rate
scenarios also led to a limited increase in the NII-at-Risk for year one.
 
 
Net Present Value (NPV)
 
at Risk (*)
NPV-at-Risk measures the impact of changing interest rates
 
on value. The NPV-at-Risk is defined as the outcome
of an instantaneous increase and decrease in interest
 
rates from applying currency-specific scenarios. The NPV-
at-Risk asymmetry between the downward and upward shock is mainly caused by convexity
 
risk in the mortgage
and savings portfolio. The NPV-at-Risk figures are also calculated
 
using the updated interest rate scenarios.
 
The full value impact cannot be directly linked to the financial position or profit or loss account, as fair value
movements in banking books are not necessarily reported through the profit or loss account
 
or through other
comprehensive income (OCI). The value mutations are expected
 
to materialise over time in the profit and loss
account if interest rates
 
develop according to forward rat
 
es throughout the remaining maturity of the portfolio.
 
NPV-at-Risk banking books per business (*)
in EUR million
2020
2019
unfloored
unfloored
parallel
▼
parallel
▲
parallel
▼
parallel
▲
By business
Wholesale Banking
-68
171
182
400
Retail Banking Benelux
 
-1,425
541
-1,431
268
Retail Challengers & Growth Markets
-506
-17
-259
-452
Corporate Line Banking
1,946
-1,820
1,819
-1,731
Total
-54
-1,125
310
-1,514
The prior period has been updated to improve consistency
 
and comparability.
EUR +/- 100bp shock scenario
 
USD +/- 120bp shock scenario
 
 
 
 
 
 
 
 
 
 
 
>
 
Market risk
 
ING Group Annual Report 2020 on Form 20-F
208
 
Year-on-year variance
 
analysis
 
(*)
 
The change in NPV-at-Risk is primarily visible for Retail Challengers & Growth Markets
 
and Wholesale Banking.
This is driven by balance sheet developments, the low interest rate
 
environment and savings model updates for
market developments mainly in ING Germany,
 
ING Spain and ING Poland. Main sensitivity can be attributed to
Corporate Line, in which core capital is represented
 
in line with the regulations, assuming a zero duration.
Corporate Line Banking has been included retroactively in the measurement
 
of NPV-at-Risk since 2019 for better
alignment with regulatory IRRBB measurements.
 
IBOR transition (*)
Interbank offered rates,
 
such as EURIBOR and LIBOR, are widely used as benchmarks to set interest rates across
 
a
broad range of financial products and contracts. In line with recommendations
 
from the Financial Stability Board,
a fundamental review and reform of the major interest
 
rates benchmarks has been undertaken. For
 
the
eurozone, this led to a reform of the EURIBOR benchmark rate
 
and development of €STR as the recommended
new nearly risk-free-rate (RFR) to replace EONIA. For LIBOR benchmarks, the reform
 
will include replacing current
LIBOR rates with alternative, nearly risk-free
 
rates. For example RFR Working
 
Groups in the US and UK have
recommended to replace USD LIBOR and GBP LIBOR with SOFR and SONIA respectively when these LIBOR rates
cease to exist. This process is at different
 
stages, and is progressing at different
 
speeds, across several major
currencies.
 
The reform of EURIBOR was completed in 2019 and consisted of a change to
 
the underlying calculation
methodology. The Belgian Financial Services and Markets Authority granted
 
authorisation with respect to
EURIBOR under the EU Benchmarks Regulation. This allows market participants to continue
 
to use EURIBOR after
1 January 2020 for both existing and new contracts. ING expects that EURIBOR will continue
 
to exist as a
benchmark rate for the foreseeable future. In addition, the Working
 
Group on Euro Risk-Free Rates is continuing
its work on developing recommended fallback rates based on the €STR
 
for EURIBOR contracts.
 
EONIA will cease to be published by 3 January 2022 and the European Money Markets Institute (EONIA’s
administrator) has indicated that EONIA
 
cannot be used in any contracts that may be outstanding
 
as of 1 January
2022. The transition of existing contracts and products that
 
still rely on EONIA is ongoing. As both EONIA and
€STR are overnight rates and the spread between
 
them was established in 2019 this transition is considered less
complex than that for LIBOR.
 
The ICE Benchmark Administration, as the administrator of LIBOR, issued a consultation with respect
 
to its plans
for the cessation for most LIBOR rates at the end of 2021, with an 18 month
 
extended period of publication for
USD LIBOR to support legacy products. ING is in the process of amending or preparing to amend contractual
terms in response to this, and there is still some uncertainty over the timing and the methods of transition.
 
ING is
proactively reaching out to industry participants, counterparties and clients to create
 
awareness and offer
support on the ongoing transition.
 
 
During 2020 the financial sector issued a number of interim targets,
 
guidance papers and other initiatives to help
phase in key components of this transition. For example
 
significant progress was made to address deficiencies in
existing derivative fallback clauses. ISDA issued an IBOR fallbacks
 
supplement that sets out how the transition to
alternative benchmark rates (e.g. SOFR, SONIA) will be accomplished. The effect of the supplement
 
is to create
clear fallback rates that will apply on the permanent discontinuation of certain
 
key IBORs. From the effective date
of 25 January 2021, all new derivatives that reference these ISDA definitions
 
include these robust fallbacks. The
Group and many other parties have also adhered to a protocol to
 
implement these fallbacks into derivative
contracts that were entered into
 
before the effective date.
 
If both counterparties adhere to the protocol, these
new fallbacks will be automatically implemented into existing
 
derivative contracts. For loans, various
recommendations have been made to help drive consistent
 
use of robust fallbacks for new contracts.
 
These
industry recommendations are incorporated into
 
our contract templates used for new lending.
 
Public authorities have also recognised that certain LIBOR contracts do not contain
 
any alternatives, contain
inappropriate alternatives, or cannot be renegotiated
 
or amended prior to the expected cessation of LIBOR. In
response, the European Commission announced that it intends to implement legislation that gives market
participants the confidence to transition these ‘tough legacy’ contracts to the recommended
 
benchmark
replacement without the fear of legal repercussions. In addition, the UK government
 
announced that it would
grant powers to the FCA to enable continued publication
 
of a ‘’synthetic’’ LIBOR using a different
 
methodology
and inputs, and therefore could reduce disruption to any
 
holders of these tough legacy contracts. However,
 
there
is no certainty as to whether the FCA will exercise these powers
 
or what form the revised methodology would
take, and the FCA has consequently encouraged
 
users of LIBOR to renegotiate or amend as many contracts
 
as
possible before the relevant LIBOR. There is no guarantee
 
that regulators will implement measures to address
such legacy contracts, or that such measures will be effective
 
in avoiding business disruption or contractual
disputes.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Market risk
 
ING Group Annual Report 2020 on Form 20-F
209
 
ING Group has significant exposures to IBORs on its financial instruments that will be reformed
 
as part of this
market-wide initiative. The potential discontinuation
 
of interest rate benchmarks, or changes
 
in the methodology
or manner of administration of any benchmark, could result in a number of risks for ING Group,
 
its customers,
and the financial services industry more widely. These risks include legal risks in relation
 
to changes required to
documentation for new and existing transactions that may
 
be required. Financial risks (predominantly limited to
interest rate risk) may
 
also arise from any changes in the valuation of financial instruments linked to
 
benchmark
rates, and changes to benchmark indices could impact pricing mechanisms on some instruments. Changes in
valuation, methodology or documentation may also result into complaints
 
or litigation. The Group
 
may also be
exposed to operational risks or incur additional costs due to the potential requirement
 
to adapt IT systems, trade
reporting infrastructure and operational processes,
 
or in relation to communications with clients or other parties
and engagement during the transition period. Particularly,
 
one of the main risks to which the Group is exposed as
a result of IBOR reform is operational. For example,
 
the renegotiation of loan contracts through bilateral
negotiation with customers, updating of contractual
 
terms, updating of systems that use IBOR and revision of
operational controls related to
 
the reform.
 
The ING IBOR programme has a robust governance in place, with progress being tracked
 
by business line steering
committees reporting into a central IBOR steering
 
committee. The programme assesses and coordinates
 
the
actions necessary to manage the required changes to internal processes and systems,
 
including pricing, risk
management, legal documentation, hedge arrangements,
 
as well as the impact on our customers. ING continues
to monitoring market developments, and the outcome
 
of several remaining uncertainties such as the availability
of term rates, to anticipate the impact on the program
 
,
 
our customers and any related risks.
 
As at 31 December 2020 the following financial instruments have yet to transition
 
to alternative benchmark
rates, summarised by significant benchmark rate
 
.
 
The table below excludes exposures
 
that will expire before
transition is required. For all rates this has been taken
 
as 31 December 2021, despite some recent developments
that indicate that USD LIBOR will be available until mid-2023. The table below also excludes
 
off-balance sheet
commitments.
 
 
Non derivative Financial instruments to transition to alternative benchmarks
in EUR million
Financial Assets non-derivative
Financial Liabilities
 
non-derivative
2020
Carrying value
(in EUR mln)
Carrying value
(in EUR mln)
By benchmark rate
GBP LIBOR
6,912
259
USD LIBOR
42,279
5,188
CHF LIBOR
345
42
JPY LIBOR
225
41
EUR LIBOR
422
8
EONIA
100
728
Total
50,283
6,265
 
 
Derivative Financial instruments to transition to alternative benchmarks
2020
Nominal value (in EUR mln)
By benchmark rate
1
GBP LIBOR
26,851
USD LIBOR
474,457
CHF LIBOR
9,710
JPY LIBOR
60,592
EONIA
28,592
Total
600,203
 
1.
 
For cross currency swaps
 
all legs of the swap are included that are linked to a main IBOR that is significant to ING Group.
 
The table above does not include EURIBOR exposures as the reformed EURIBOR is compliant with the EU
Benchmarks Regulation and there are no plans to discontinue.
 
ING Group also has exposure to interest rate
 
benchmark reform in respect of its cash collateral balances across
some of its Credit Support Annex agreements.
 
This exposure is not included within the table above.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Market risk
 
ING Group Annual Report 2020 on Form 20-F
210
 
Given that IBOR reform may have various
 
accounting implications, the International Accounting Standards
 
Board
(IASB) has undertaken a two phase project. Phase 1 addresses those issues that affect
 
financial reporting before
the replacement of an existing benchmark. Phase 1 amendments to IFRS were issued by the IASB in 2019. Phase
2 focuses on issues that may affect financial reporting when the existing
 
benchmark rate is reformed or replaced.
Phase 2 amendments to IFRS were issued by the IASB in 2020. In 2019, ING early adopted the Phase 1
amendments to IFRS which allowed ING to apply a set of temporary exceptions
 
to continue hedge accounting
even when there is uncertainty about contractual cash flows arising from
 
the reform. Under these temporary
exceptions, interbank offered
 
rates are assumed to continue unaltered for
 
the purposes of hedge accounting
until such time as the uncertainty is resolved. Refer to
 
Note 39 ‘Derivatives and hedge accounting’ for the
disclosures relating to the application of the amendments as part of Phase 1.
 
The Phase 2 amendments to IFRS relating mainly to accounting for changes in the basis for determining
 
the
contractual cash flows of financial assets and liabilities due to the IBOR reform and impact on hedge accounting
when an existing benchmark rate is reformed or replaced
 
with an alternative risk free rate. The Phase 2
amendments are effective for annual reporting
 
periods beginning on or after 1 January 2021, with early
application permitted. ING did not early adopt Phase 2 amendments in 2020. Refer to section 1.4.2 of Note
 
1
‘Basis of preparation and accounting policies’ of the financial statements.
 
Foreign exchange (FX)
 
risk in banking books (*)
FX exposures in banking books result from core banking business activities (business units doing business in
currencies other than their base currency), foreign currency investments
 
in subsidiaries (including realised net
profit and loss), and strategic equity stakes
 
in foreign currencies. The policy regarding these exposures
 
is briefly
explained below.
 
Governance – Core banking business (*)
Every business unit hedges the FX risk resulting from core banking business activities into its base currency.
Consequently, assets and liabilities are matched
 
in terms of currency.
 
Governance – FX translation result (*)
ING’s strategy
 
is to keep the target CET1 ratio within a certain
 
range when FX rates fluctuate, while limiting
volatility in the profit and loss account due to this CET1 hedging. Therefore, hedge accounting
 
is applied to the
largest extent possible. Taking
 
this into account, the CET1 ratio hedge can be achieved by deliberately
 
taking
foreign currency positions equal to certain target
 
positions, such that the target CET1 capital and risk-weighted
assets are equally sensitive in relative terms to changing FX rates.
 
For a selection of emerging market currencies
ING decided not to enter into foreign currency hedges as allowed under the
 
policy.
 
Risk profile – FX translation result (*)
The following table presents the currency exposures in the banking books for
 
the most important currencies for
the FX translation result. Positive figures indicate
 
long positions in the respective currency. As a result of the
strategy
 
to hedge the CET1 ratio an open structural FX exposure
 
exists.
 
In order to measure the sensitivity of the target CET1 ratio against
 
FX rate fluctuations, an historical Value
 
-at-Risk
approach is used. It measures the drop in the CET1 ratio based on historical FX rates.
 
The impact is taken into
account under the solvency RAS.
 
Foreign currency exposures banking books (*)
in EUR million
Foreign Investments
Hedges
Net exposures
2020
2019
2020
2019
2020
2019
US Dollar
1
7,126
8,031
-10
-11
7,117
8,020
Pound Sterling
2
1,285
-22
1,285
-22
Polish Zloty
2,631
2,522
-369
-278
2,262
2,244
Australian Dollar
3,544
3,565
-2,269
-2,033
1,275
1,532
Turkish Lira
1,078
1,337
1,078
1,337
Chinese Yuan
1,912
2,255
1,912
2,255
Russian Rouble
344
540
-126
-85
218
455
Other currency
5,992
4,742
-3,456
-1,834
2,536
2,907
Total
23,913
22,969
-6,231
-4,242
17,683
18,727
1
 
US Dollar net exposure move is mainly driven by EURUSD FX
 
rate.
2
 
The net exposure move in Pound Sterling
 
is related to capital injection in UK Branch.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Market risk
 
ING Group Annual Report 2020 on Form 20-F
211
 
Equity price risk in banking books (*)
 
Governance (*)
ING maintains a strategic portfolio with substantial
 
equity exposure in its banking books. Local offices are
responsible for the management of the equity investment positions. Financial Risk is responsible for monitoring
the regulatory capital for equity investments
 
on a monthly basis and acts independently from ING / local
management when monitoring these positions.
 
 
Risk Profile
 
 
(*)
Equity price risk arises from the possibility that an equity security’s price will fluctuate, affecting
 
the values
 
of the
equity security itself as well as other instruments whose value react similarly to the particular security,
 
a defined
basket of securities, or a securities index. ING’s equity exposure
 
mainly consists of the investments in associates
and joint ventures of EUR 1,475 million (2019: EUR 1,790 million) and equity securities held at fair value through
other comprehensive income (FVOCI) of EUR 1,862 million (2019: EUR 2,306 million). The value of equity
securities held at FVOCI is directly linked to equity security prices with increases/decreases being recogni
 
sed in
the revaluation reserve. Investments in associates
 
and joint ventures are measured in accordance with the equity
method of accounting and the balance sheet value is therefore not directly linked
 
to equity security prices.
 
Year-on-year
 
variance analysis (*)
The revaluation reserve relating to equity securities at FVOCI
 
moved from EUR 1,580 million per year-end 2019 to
EUR 1,181 million per year-end 2020. In 2020 the securities at FVOCI decreased by EUR 443 million. This was
mainly due to the revaluation of shares in Bank of Beijing (EUR -339 million).
 
 
Revaluation reserve equity securities at fair value through other comprehensive income (*)
in EUR million
2020
2019
Positive re-measurement
1,201
1,582
Negative re-measurement
-20
-2
Total
1,181
1,580
 
 
Real estate price risk in banking books (*)
 
Real estate price risk arises from the possibility that real estate
 
prices fluctuate. This affects both the value of real
estate assets and the earnings related to real estate
 
activities.
 
 
Governance (*)
Real estate is a run-off business consisting of real estate
 
development and real estate investment
 
management
activities which are being wound down by sale of assets, strict execution of contract maturity,
 
or through
portfolio sales.
 
Market risk in trading books (*)
 
Within the trading portfolios, positions are maintained in the financial markets. These positions are
 
often a result
of transactions with clients and may benefit from short-term
 
price movements. In 2020, ING continued its
strategy of undertaking trading activities to develop its client
 
-driven franchise and deliver a differentiating
experience by offering multiple market and trading
 
products.
 
Governance
 
(*)
The Financial Markets Risk Committee (FMRC) is the market
 
risk committee that, within the risk appetite set by
ALCO Bank, sets market risk limits both on an aggregated level
 
and on a desk level, and approves new products.
FI-FM Risk advises both FMRC and ALCO Bank on the market risk appetite of trading activities.
 
With respect to the trading portfolios, FI-FM Risk focuses on the management of market
 
risks of Wholesale
Banking (mainly Financial Markets) as this is the only business line within ING where trading activities take place.
Trading activities include facilitation
 
of client business and market making. FI-FM Risk is responsible for the
development and implementation of trading risk policies and risk measurement methodologies, and for
 
reporting
and monitoring risk exposures against approved trading
 
limits. FI-FM Risk also reviews trading mandates and
limits, and performs the gatekeeper role in the product
 
review process. The management of market risk in
trading portfolios is performed at various organisational
 
levels. The FI-FM Risk Management Framework defines
policies and procedures for the overall management of trading
 
books. Trading activity is systematically
 
reviewed
and positions against the mandates are assessed jointly by the first and second lines of defence
 
.
 
 
 
 
 
 
 
 
 
>
 
Market risk
 
ING Group Annual Report 2020 on Form 20-F
212
 
Risk measurement (*)
ING uses a comprehensive set of methodologies and techniques to measure market risk in trading
 
books: Value
at Risk (VaR) and Stressed Value
 
at Risk (SVaR), Incremental
 
Risk Charge (IRC), and Event Risk (stress testing).
Systematic validation processes are
 
in place to validate the accuracy and internal consistency of data
 
and
parameters used for the internal models and modelling processes.
 
Value at Risk (*)
FI-FM Risk uses the historical simulation VaR methodology (HVaR)
 
as its primary risk measure. The HVaR for
market risk quantifies, with a one-sided confidence level of 99%, the maximum overnight loss that
 
could occur in
the trading portfolio of ING due to changes in risk factors (e.g. interest
 
rates, equity prices, foreign exchange
rates, credit spreads, implied volatilities) if positions remain unchanged for
 
a time period of one day. Next to
general market movements in these risk factors,
 
HVaR also takes
 
into account market data movements
 
for
specific moves in e.g. the underlying issuer of securities. A single model that diversifies general and specific risk is
used. In general, a full revaluation approach is applied, and for a limited number
 
of linear trading positions and
risk factors in commodity and equity risk classes a sensitivity-based approach is applied. The potential impact of
historical market movements on today’s
 
portfolio is estimated, based on equally weighted observed market
movements of the previous year (260 days). When simulating potential movements
 
in risk factors, depending on
the risk factor type, either an absolute or a relative shift is used. The data used in the computations is updated
daily. ING uses HVaR
 
with a one-day horizon for internal risk measurement,
 
management control, and
backtesting, and HVaR with a ten-day
 
horizon for determining regulatory capital.
 
To compute
 
HVaR with a ten-
day horizon the one-day risk factor shifts are scaled by the square
 
root of ten and then used as an input for the
revaluation. The same model is used for all legal entities within ING with market
 
risk exposure in the trading
portfolio.
 
 
Limitations (*)
HVaR has some limitations: HVaR
 
uses historical data to forecast
 
future price behaviour,
 
but future price
behaviour could differ substantially from
 
past behaviour.
 
Moreover,
 
the use of a one-day holding period (or ten
days for regulatory capital
 
calculations) assumes that all positions in the portfolio can be liquidated or hedged in
one day. In periods of illiquidity or market
 
events, this assumption may not hold. Also, the use of a 99%
confidence level means that HVaR does not take
 
into account any losses that occur beyond this confidence level.
 
Backtesting (*)
Backtesting is a technique for the ongoing monitoring of the plausibility of the HVaR
 
model in use. Although
HVaR models estimate potential
 
future trading results, estimates are based on historical
 
market data. In a
backtest, the actual daily trading result (excluding fees
 
and commissions) is compared with the one-day HVaR. In
addition to using actual results for backtesting, ING also uses hypothetical results, which exclude
 
the effects of
intraday trading, fees, and commissions. When an actual or a hypothetical
 
loss exceeds the HVaR, an ‘outlier’
occurs. Based on ING’s one-sided confidence level of 99%, an outlier is expected
 
once in every 100 business days.
On an overall level in 2020 there were four outliers
 
for hypothetical P&L and five outliers for actual P&L.
Following the approval of ECB, the March 2020 backtest
 
outliers caused by market volatility of Covid-19 has been
excluded from capital multiplier calculations as of 30 June 2020. This applies to four hypothetical
 
and four actual
outliers for ING Group.
 
ING reports backtesting results on a quarterly basis to the ECB.
 
Stressed HVaR (*)
The Stressed HVaR (SVaR)
 
is intended to replicate the HVaR
 
calculation that would be generated on the bank’s
current portfolio with inputs calibrated to
 
the historical data from a continuous 12-month period of significant
financial stress relevant to the bank’s
 
portfolio. To
 
calculate SVaR, ING uses the same model that is used for
1DHVaR, with a ten-day horizon.
 
The data for the historical stress period used currently
 
includes the height of the
credit crisis around the fall of Lehman Brothers, and this choice is reviewed regularly.
 
The historical data period is
chosen so that it gives the worst scenario loss estimates for the current
 
portfolio. The same SVaR model is used
for management purposes and for regulatory purposes. The same SVaR
 
model is used for all legal entities within
ING with market risk exposure in the trading portfolio.
 
 
Incremental risk charge (*)
The Incremental risk charge (IRC) for ING is an estimate
 
of the default and migration risks for credit products
(excluding securitisations) in the trading book, over a one-year capital
 
horizon, with a 99.9% confidence level. The
same IRC model is used for all legal entities within ING with market risk exposure in the trading
 
portfolio. Trading
positions (excluding securitisations) of ING, which are subject to specific interest rate
 
risk included in the internal
model approach for market risk regulatory capital,
 
are in scope of the IRC model. By model choice, equity is
excluded
 
from the model. For the calculation of IRC, ING performs a Monte-Carlo simulation based on a Gaussian
copula model. The asset correlations used in the Gaussian copula model are determined using the IRB correlation
formula. The rating change is simulated for all issuers over
 
the different liquidity horizons (i.e. time required to
liquidate the position or hedge all significant risks) within one year.
 
Movements across different rating
 
categories
and probabilities of default are governed by a credit-rating
 
transition matrix. An external transition matrix is
 
 
 
 
 
 
 
 
>
 
Market risk
 
ING Group Annual Report 2020 on Form 20-F
213
 
obtained from Standard & Poor’s (S&P). The financial impact is then determined
 
for the simulated migration to
default, or for the simulated migration to
 
a different rating category,
 
based on LGD or credit spread changes,
respectively.
 
 
The liquidity horizon has been set to the regulatory minimum of three months for all positions in scope. ING
reviews the liquidity horizons regularly based on a structured assessment of the time it takes
 
to liquidate the
positions in the trading portfolio.
 
 
ING periodically assesses the compliance of the IRC model with regulatory requirements by performing gap
analyses, substantiating the modelling choices, and quantifying the impact of alternative approaches
 
.
 
 
Stress testing and event risk (*)
Stress testing and event risk are valuable risk management tools. In addition to
 
the bank-wide stress test
framework as described in the stress-testing section, FI-FM Risk performs additional assessments, specific to the
Trading Book, with various frequencies:
 
sensitivity analyses (single-risk factor and multi-risk factor), ad-hoc stress
tests (e.g. Covid-19 scenarios) and structured stressed scenario tests under the event risk framework
 
- to monitor
market risks under extreme market
 
conditions. Event risk is calculated because HVaR
 
in general does not produce
an estimate of the potential losses that can occur as a result of extreme market
 
movements, i.e. beyond the
confidence level. Event risk evaluates
 
the bank’s financial stability under severe
 
but plausible stress scenarios and
assists in decision-making aimed at maintaining a financially healthy going-concern institution after a severe
event occurs. Event risk is based on historical as well
 
as hypothetical extreme scenarios. The result is an estimate
of the profit and loss caused by a potential event and its worldwide impact for ING. The event risk number for
ING trading activity is generated on a weekly basis. As with HVaR,
 
the risk appetite for event risk is limited by
ALCO Bank.
 
 
ING’s event risk policy is based on a large set
 
of possible stress scenarios per risk type. In stress scenarios, shocks
are applied to prices (credit spreads, interest rates,
 
equity, commodities, and fx rates)
 
and volatilities. Depending
on the type of the stress test, additional scenario assumptions can be made, for example on correlations,
dividends, or recovery rates. For equity products, for
 
example, both a crisis scenario (prices decrease) as well as a
bull scenario (prices increase) are assumed. Scenarios are calculated based on events happening independently,
jointly by region, or in all countries simultaneously.
 
This way,
 
for each risk type, a large set of scenarios is
calculated. The worst scenarios per market are
 
combined across markets by assessing both independent events
per market, and the worst events
 
happening in all markets at the same time.
 
Other trading controls
HVaR and event risk limits are the most important
 
limits to control the trading portfolios. Additionally,
 
limits have
been set on SVaR and IRC. Furthermore, ING uses a variety of other controls
 
to supplement these limits. Position
and sensitivity limits are used to prevent large concentrations
 
in specific issuers, sectors, or countries. Moreover,
other risk limits are set with respect to the activities in complex derivatives trading.
 
The market risk of these
products is controlled by product-specific limits and constraints
 
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ing20f2020p214i1.gif
 
ing20f2020p214i0.gif
 
 
 
 
 
 
 
>
 
Market risk
 
ING Group Annual Report 2020 on Form 20-F
214
 
Risk profile
The following chart shows the development of the overnight HVaR
 
under a 99% confidence level and a one-day
horizon versus actual and hypothetical daily trading profits
 
and losses. In calculation of the hypothetical daily
profit and loss, the trading position is kept constant
 
and only the market movement is taken
 
into account. The
overnight HVaR is presented
 
for the ING trading portfolio from 2015 to 2020. In the graph below,
 
it can be seen
that the market volatility in March 2020 lead to a sharply increased HVaR
 
as the new scenarios entered the 1
year history. In addition it shows significant
 
P&L volatility with the largest loss coming from a significant increase
in Valuation Adjustments booked
 
end of March 2020.
 
 
 
 
1
 
CVA risk is not included in VaR.
 
The risk figures in the backtesting graph above and in the table below relate
 
to all trading books for which the
internal model approach is applied, i.e. all trading books, including Credit Exposure Management books.
 
 
1d VaR for Internal Model Approach trading portfolios
in EUR million
Minimum
Maximum
Average
Year end
2020
2019
2020
2019
2020
2019
2020
2019
Interest rate
1
12
3
42
13
26
6
15
12
Equity and commodity
1
1
14
7
3
2
3
1
Foreign exchange
 
1
1
7
11
3
2
2
1
Credit spread
 
4
4
32
7
15
6
7
5
Diversification
 
2
 
 
-17
-6
-4
-6
Total VaR
2
12
6
52
15
29
10
22
13
1 For calculation of HVaR per risk class the full valuation is performed
 
according to HVaR methodology using a set of scenario
changes for the risk factors for the particular risk class, while risk factors
 
for all other risk classes are kept unchanged.
2 The total HVaR for the columns Minimum and Maximum
 
cannot be calculated by taking the sum of the individual components
since the minimum/maximum observations for both the individual markets as well as for total
 
HVaR may occur on different
 
dates.
Therefore, diversification is not calculated
 
for the minimum and maximum categories.
3
 
CVA risk is not included in VaR.
 
 
Average 1D/10D HVaR,
 
10D SVaR over 2020 increased compared to
 
2019, due to the increase in market volatility,
while IRC remained in line with 2019. The average for interest
 
rate and credit spread increased compared to
2019, both driven mainly by market movements. The VaR
 
at the period end of 2020 increased to 22 mln from 13
mln at period end of 2019, the main driver of the move was the increased market volatility throughout
 
2020. The
main components of the risk were interest rate
 
and credit spread.
 
 
EU MR4: Consolidated trading HVaR
1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Market risk
 
ING Group Annual Report 2020 on Form 20-F
215
 
EU MR3: Internal Model Approach values for trading portfolios
in EUR million
2020
2019
VaR (10 day 99%)
1 Maximum value
161
42
2 Average value
83
27
3 Minimum value
31
16
4 Period end
60
33
Stressed VaR (10 day 99%)
5 Maximum value
304
126
6 Average value
116
72
7 Minimum value
72
47
8 Period end
83
76
Incremental Risk Charge (99.9%)
9 Maximum value
134
169
10 Average value
74
76
11 Minimum value
38
42
12 Period end
89
64
Comprehensive Risk capital charge (99.9%)
13 Maximum value
n/a
n/a
14 Average value
n/a
n/a
15 Minimum value
n/a
n/a
16 Period end
n/a
n/a
 
 
Regulatory capital
According to the Capital Requirements Regulation
 
(CRR/CRD IV), regulatory capital (own funds requirements) for
market risk can be calculated using the standardised approach
 
or an internal model approach. ING received
regulatory approval to use an internal model to determine
 
the regulatory capital for the market risk in all trading
books of ING. Market risk capital of trading books is calculated
 
according to the CRR, using internal HVaR, SVaR,
and IRC models, where diversification is taken
 
into account. Capital for foreign exchange
 
risk from the banking
books and for collective investment undertakings
 
(CIUs) exposures in trading books are calculated using the
standardised approach with fixed risk weights. ING does not have
 
a correlation trading portfolio or any other
securitisations in the trading book.
 
Standardised approach
 
 
EU MR1: Market risk under Standardised Approach
in EUR million
2020
2019
RWA
Capital
requiremen
ts
RWA
Capital
requiremen
ts
Outright products
1 Interest rate risk (general and specific)
2
0
14
1
2 Equity risk (general and specific)
3 Foreign exchange risk
4 Commodity risk
Options
5 Simplified approach
6 Delta-plus method
7 Scenario approach
8 Securitization (specific risk)
9
 
Total
2
0
14
1
 
 
The MRWA under standardised approach
 
slightly decreased compared to end of 2019. The FX exposure
continued to be lower than the 2% own funds threshold. According to Art. 351 CRR, in such a case, the
calculation of Market Risk regulatory capital is not required.
 
As of the third quarter of 2020, collective investment
undertakings are capitalised in market risk under standardised
 
approach under interest rate risk and foreign
exchange risk.
 
Internal model approach
Market risk regulatory capital increased during 2020 compared
 
to 2019. The increase is driven by an increase in
HVaR and SVaR
 
due to increased market volatility as a result of the Covid-19 pandemic, while IRC slightly
decreased.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Market risk
 
ING Group Annual Report 2020 on Form 20-F
216
 
EU MR2-A: Market risk under Internal Model Approach
in EUR million
2020
2019
RWA
Capital
requirements
RWA
Capital
requirements
1
 
HVaR (higher of values a and b)
3,214
257
1,261
101
(a) Previous day's VaR (Article 365(1) (VaRt
 
-1))
744
60
404
32
(b) Average of the daily VaR (Article 365(1))
 
on each of the preceding sixty business
days (VaRavg)
 
x multiplication factor ((mc) in accordance with Article 366)
3,214
257
1,261
101
2
 
SVaR (higher of values a and b)
4,419
354
3,011
241
(a) Latest SVaR (Article 365(2) (sVaRt
 
-1))
1,036
83
902
72
(b) Average of the SVaR
 
(Article 365(2) during the preceding sixty business days
(sVaRavg) x multiplication factor
 
(ms) (Article 366)
4,419
354
3,011
241
3
 
Incremental risk charge -IRC (higher of values a and b)
1,113
89
1,278
102
(a) Most recent IRC value (incremental default
 
and migration risks section 3
calculated in accordance with Section 3 articles 370/371)
1,113
89
799
64
(b) Average of the IRC number over the preceding 12 weeks
967
77
1,278
102
4 Comprehensive Risk Measure – CRM (higher of values a, b and c)
 
 
 
(a) Most recent risk number for the correlation trading portfolio
 
(article 377)
 
 
 
 
 
(b) Average of the risk number for the correlation trading
 
portfolio over the
preceding 12-weeks
 
 
 
(c) 8 % of the own funds requirement in SA on most recent risk number for the
correlation trading portfolio (Article 338(4))
 
 
 
 
Other
180
14
5
 
Total
8,925
714
5,550
444
 
 
Sensitivities (*)
As part of the risk monitoring framework, FI-FM Risk actively monitors the daily changes of sensitivities of the
trading portfolios. Sensitivities measure the impact of movements in individual market
 
risk factors (foreign
exchange rates, interest
 
rates, credit spreads, equity,
 
and commodity prices) on profit and loss results of the
trading positions and portfolios.
 
 
The following tables show the five largest trading positions in terms of sensitivities to foreign
 
exchange, interest
rate and credit spread risk factor movements.
 
These largest exposures also reflect concentrations
 
of risk in FX risk
per currency, interest
 
rate risk per currency,
 
and credit spread risk per country,
 
rating and sector.
 
Due to the
nature of the trading portfolios, positions in the portfolios can change significantly from
 
day to day,
 
and
sensitivities of the portfolios
 
can change daily accordingly.
 
Most important foreign exchange year-end trading
 
positions (*)
in EUR million
2020
2019
Foreign exchange
Foreign exchange
US Dollar
 
203
US Dollar
 
116
Chinese Yuan Renminbi
-63
Chinese Yuan Renminbi
-21
Japanese Yen
-44
South Korean Won
20
British Pound
-37
Brazilian Real
-15
Romanian Leu
-16
Japanese Yen
-10
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Market risk
 
ING Group Annual Report 2020 on Form 20-F
217
 
Most important interest rate and credit spread sensitivities at year-end
 
(*)
in EUR thousand
2020
2019
Interest Rate (BPV)
 
1
Interest Rate (BPV)
 
1
Euro
-787
Euro
-740
US Dollar
-319
US Dollar
-325
British Pound
-120
Russian Ruble
-105
Russian Ruble
-86
British Pound
-68
Australian Dollar
-64
Australian Dollar
-31
Credit Spread (CSO1)
 
2
Credit Spread (CSO1)
 
2
Germany
134
United States
360
Republic of Korea
-129
Germany
163
United States
118
France
117
Belgium
115
Russian Federation
73
Netherlands
50
United Kingdom
72
1
 
Basis Point Value (BPV) measures the impact on value
 
of a 1 basis point increase in interest rates. The figures
 
include commodity
risk in banking books.
2
 
Credit Spread Sensitivity (CS01) measures the impact on value of a 1 basis point increase in credit spreads. Exposures to
supranational institutions are not assigned to a specific country.
 
Credit spread sensitivities per risk class and sector at year-end (*)
2020
2019
in EUR thousand
Corporate
Financial
Institutions
Corporate
Financial
Institutions
Credit Spread (CSO1)
 
1
Risk classes
1 (AAA)
4
-4
1
-1
2–4 (AA)
2
-120
-15
-63
5–7 (A)
80
-14
143
32
8–10 (BBB)
301
-14
273
1
11–13 (BB)
55
148
9
14–16 (B)
18
-6
51
1
17–22 (CCC and NPL)
2
26
Not rated
1
Total
462
-158
626
-21
1 Credit Spread Sensitivity (CS01) measures the impact on value of a 1 basis point increase in credit spreads.
 
 
ing20f2020p218i0.jpg
 
 
 
 
 
 
 
>
 
Funding & liquidity risk
 
ING Group Annual Report 2020 on Form 20-F
218
 
Funding and liquidity risk (*)
Introduction (*)
Funding and liquidity (F&L) risk is the risk that ING or one of its subsidiaries cannot meet its financial liabilities
when they are due at reasonable cost and in a timely manner.
 
ING incorporates funding and liquidity
management in its business strategy and has established
 
a funding and liquidity risk framework to manage risks
within pre-defined boundaries.
 
 
A high-level overview of the F&L framework is provided in the next figure.
(*)
Funding and liquidity framework
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Funding & liquidity risk
 
ING Group Annual Report 2020 on Form 20-F
219
 
Governance (*)
Funding and liquidity risk management within ING falls under the supervision of the ALCO Bank function that
approves the funding and liquidity risk appetite and subsequently cascades it throughout the organisation.
 
ALCO
Bank has delegated the responsibilities concerning the Internal Capital and Liquidity Adequacy Assessment
Process (ICLAAP) and documents, as per the ICLAAP framework of ING, to the ICLAAP Committee. The ICLAAP
Committee therefore focuses
 
on technical liquidity documents and oversees business processes and deliverables
concerning ILAAP.
 
The EB, MBB, staff departments from the CRO and CFO domain as well as Group
 
Treasury have
oversight of and are responsible for managing funding and liquidity risks.
 
ING’s funding and liquidity risk governance is based on the three lines of defence structure
 
to ensure a clear
division of responsibilities as well as an independent risk control challenging process.
 
 
Group Treasury and the business lines have
 
the first line of defence functions. Group Treasury’s
 
main
responsibility is to manage ING’s (regulatory)
 
liquidity and funding position by executing ING’s funding plan,
maintaining access to both the short- and the long-term professional
 
funding markets and managing the liquidity
buffer.
 
Business lines are responsible for managing the funding and liquidity positions from the originated
business, a large part of which is replicated with Group Treasury.
 
At the second line of defence,
 
Financial Risk is responsible for developing and maintaining ING’s
 
policies,
standards and guidelines on F&L risk management as well as for setting the F&L risk appetite. Furthermore,
 
the
Financial Risk function measures funding and liquidity risks, executes stress testing, provides
 
management
information and controls the liquidity and funding requirements on commercial
 
products. The Finance function is
responsible for management information and regulatory
 
reporting related to funding and liquidity risk
management.
 
For the third line of defence Corporate Audit Services is responsible for
 
independently assessing the design,
effectiveness and implementation of the funding and liquidity framework
 
.
 
Funding and liquidity management strategy and objectives (*)
The main objective of ING’s funding and liquidity risk management is to maintain sufficient
 
liquidity to fund the
commercial activities of ING both under normal and stressed market circumstances across
 
various geographies,
currencies and tenors. This requires a diversified funding structure
 
considering relevant opportunities and
constraints.
 
 
ING’s funding consists mainly of retail
 
and corporate deposits contributing around 50 percent
 
and 20 percent of
total funding respectively.
 
These funding sources provide a relatively stable funding base. The remainder of the
required funding is attracted primarily through a combination
 
of long-term and short-term professional funding.
Group Treasury manages the professional
 
funding in line with the F&L risk appetite to ensure a sufficiently
diversified and stable funding base.
 
Funding mix
1
 
(*)
2020
2019
Funding type
Customer deposits (retail)
52%
51%
Customer deposits (corporate)
20%
21%
Interbank
9%
5%
Lending/repurchase agreement
6%
5%
CD/CP
2%
5%
Long-term senior debt
9%
11%
Subordinated debt
2%
2%
Total
100%
100%
1
 
Liabilities excluding trading securities and IFRS equity
 
 
ING’s long-term professional
 
funding is well diversified across maturities and currencies. The main part of it is
EUR and USD denominated which is in line with the currency composition of customer lending. The increase in
‘Interbank’ funding type is related to ING's participation in the TLTRO
 
III.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Funding & liquidity risk
 
ING Group Annual Report 2020 on Form 20-F
220
 
ING Group long-term debt maturity profile by currency (*)
in EUR billion (nominal amounts)
2021
2022
2023
2024
2025
2026
Beyond
2026
Total
Currency
EUR
8
7
5
1
4
5
24
54
USD
2
4
3
1
0
2
10
21
Other
2
1
1
1
1
1
8
Total
13
12
9
3
4
8
35
83
 
 
ING Group long-term debt maturity profile by currency at year-end 2019 (*)
 
in EUR billion (nominal amounts)
2020
2021
2022
2023
2024
2025
Beyond
2026
Total
Currency
EUR
9
9
8
5
1
4
26
62
USD
3
2
4
4
1
8
22
Other
1
2
1
1
1
2
10
Total
13
14
13
10
3
4
37
94
 
Funding and liquidity adequacy and risk appetite (*)
ING distinguishes between several key drivers
 
of future liquidity and funding needs:
◾
 
Refinancing needs resulting from maturing debt and asset growth;
◾
 
Current and future regulatory requirements;
◾
 
Risk appetite statements set by ING’s
 
funding and liquidity risk function;
◾
 
The outcomes of various stress tests;
 
◾
 
Ability to distribute and transfer liquidity across the Group
 
.
 
Taking into
 
consideration the abovementioned factors, ING regularly
 
assesses its current and future liquidity
adequacy and, if deemed necessary, takes
 
steps to further improve ING’s
 
liquidity position and to ensure
sufficient counterbalancing capacity.
 
A liquidity adequacy statement is formulated at least
 
quarterly to
substantiate and reflect the management’s
 
view on the current funding and liquidity position as well as the
potential future challenges. The quarterly adequacy statement
 
is an important part of ING’s ILAAP process.
 
 
ING assesses its F&L adequacy through three lenses – stress,
 
sustainability and regulatory:
 
◾
 
ING evaluates its ability to withstand a period of prolonged F&L stress (idiosyncratic,
 
market-wide,
combined idiosyncratic and market-wide) which is characterised
 
by customer deposit outflows,
deterioration of funding markets access and lower liquidity value of the counterbalancing
 
capacity;
 
◾
 
ING assesses the extent to which its customers, professional
 
counterparties and investors are
 
comfortable
with extending funding in tenors, currencies and instruments necessary to sustainably fund ING under a
going-concern situation;
◾
 
ING ascertains that it is in a position to meet both current and future regulatory requirements.
 
For each lens, ING has established a related set of risk appetite statements
 
which define ING’s risk appetite
commensurate with the principles of liquidity adequacy.
 
These risk appetite statements are summarised in the
next graph.
 
 
ing20f2020p221i0.jpg
 
 
 
 
 
 
 
>
 
Funding & liquidity risk
 
ING Group Annual Report 2020 on Form 20-F
221
 
(*)
Funding and liquidity adequacy
 
 
The F&L risk appetite statements are translated
 
into a number of metrics with appropriate boundaries and
instruments which are used to measure and manage ING’s
 
funding and liquidity risk.
 
The risk appetite with respect to the stress lens is set to ensure there is sufficient counterbalancing
 
capacity
under various internally defined stress scenarios. Regarding
 
the sustainability perspective, an internally defined
stable funding to loans (SFL) ratio (supplemented by other metrics) is used to ensure a diversified
 
funding base
and to prevent overreliance on professional
 
funding. Finally, the liquidity coverage
 
ratio (LCR) and the net stable
funding ratio (NSFR) regulatory metrics are monitored in terms of both ING’s
 
risk appetite and regulatory
requirements.
 
The LCR compares the volume of available high-quality liquid assets (HQLA) to net outflows (outflows minus
inflows) over a 30-day stress scenario defined by the regulator.
 
ING’s liquidity buffer forms
 
a part of the
counterbalancing capacity which serves as a liquidity cushion under normal and stressed conditions.
 
 
The liquidity buffer consists mainly of Level 1 assets such as government and central
 
bank assets and are of the
highest liquidity quality. Only assets that are freely
 
available (not pledged under existing contracts) for
 
liquidity
purposes are included in the buffer.
 
The size and composition of the liquidity buffer are driven by ING’s
 
internal
risk appetite limits as well as by regulatory requirements.
 
 
The macroeconomic and market environment
 
are also important considerations in ING’s
 
funding and liquidity
framework.
 
The macroeconomic environment comprises various exogenous
 
factors over which ING has no control but which
may have a material impact on ING’s
 
F&L position. The main macroeconomic factors analysed on a regular basis
include:
 
◾
 
Global and local economic performance: e.g. shifts in GDP,
 
inflation rate, unemployment rates
 
and public
deficit/surplus;
◾
 
Changing geopolitical trends;
◾
 
Monetary policy with a focus on the unconventional monetary measures employed
 
by central banks in
recent years including the measures taken
 
since the start of the Covid-19 crisis; and
◾
 
Regulatory requirements: e.g. understanding the changing regulatory
 
landscape as well as the impact of
ING’s actions on existing regulatory
 
boundaries.
 
The strategic ambitions of ING, together with the design and execution
 
of the funding plan, are assessed under
both current and projected market conditions. Key
 
emphasis is placed on understanding overall market
 
trends
and developments, credit rating changes and peer comparison.
 
Liquidity stress testing (*)
Funding and liquidity stress testing forms part of the overall F&L framework.
 
It allows ING to examine the effects
of exceptional but plausible future events on ING’s
 
liquidity position and provides insight into which entities,
business lines or portfolios are vulnerable to which types of risk or scenarios.
 
The stress-testing framework encompasses the funding and liquidity risks of the consolidated
 
balance sheet of
ING Group including all entities, business lines as well as on and off-balance sheet positions. The net liquidity
 
 
 
 
 
 
 
 
>
 
Funding & liquidity risk
 
ING Group Annual Report 2020 on Form 20-F
222
 
position and time-to-survive are the two main stress-testing measures. Both measures may
 
be impacted
differently under specific F&L stress scenarios and parameterisation.
 
 
The stress-testing framework considers
 
idiosyncratic, market-wide and combined (idiosyncratic
 
plus market-
wide) stress scenarios. Moreover,
 
it differentiates between stress
 
events that develop in a gradual and in a fast
manner.
 
The design of the framework is based on empirical evidence supplemented by expert judgment. The
framework can be extended to additional ad hoc scenarios. For example,
 
it can be used as input for firm-wide
stress testing and reverse stress
 
testing.
 
 
In response to the Covid-19 crisis, ING has developed a dedicated corona liquidity stress-test
 
framework that
focuses on the key vulnerabilities of the crisis and their potential impact on ING’s
 
net liquidity position and LCR.
The current framework calculates the impact of severe macroeconomic
 
stress combined with turmoil on financial
markets due to a prolonged lockdown.
 
 
The outcomes of the stress testing are taken
 
into account in all the key aspects of ING’s
 
F&L risk framework and
F&L risk management:
 
◾
 
Risk Appetite Framework (through risk appetite statements);
◾
 
risk identification and assessment;
◾
 
monitoring the liquidity and funding position;
◾
 
business actions (if needed);
◾
 
contingency funding plan; and
 
◾
 
early warning indicators.
 
 
The funding and liquidity stress-testing framework is also subject to regular internal validation.
 
In line with supervisory expectations, ING’s liquidity position is stress tested
 
at least monthly using scenarios that
form part of the F&L risk appetite statement. In addition, the results of all internal stress
 
scenarios are monitored
and assessed on a regular basis. They also serve as input in the decision on additional contingency measures.
 
Contingent F&L risks are addressed in the contingency funding plan with a focus on early warning indicators
 
as
well as organisation and planning of liquidity management in times of stress. The contingency funding measures
are developed in conjunction with the ING Recovery
 
Plan and are tested on a regular basis.
 
 
 
 
 
 
 
 
>
 
Environmental, social and governance risk
 
ING Group Annual Report 2020 on Form 20-F
223
 
Environmental, social and governance risk
Introduction
Regulatory changes in relation to environmental,
 
social and governance (ESG) risk practices have continued at an
accelerated pace since the UN Paris Agreement and the United Nations Sustainable
 
Development Goals (UN
SDGs) were signed by world leaders in 2015. The G20 Taskforce
 
on Climate-related Financial Disclosures (TCFD)
Working Group has outlined a set of principles for financial entities, while the European Commission released an
Action Plan for Financing Sustainable Growth and most recently,
 
the new Green Deal, which provides an action
plan to boost the efficient use of resources by moving to a clean, circular economy,
 
restoring biodiversity and
cutting pollution. Since the introduction of the United Nations Guiding Principles and the OECD Guidelines for
Multinational Enterprises there is a clear shift towards a more regulated
 
environment and impact management
on social risks. Legislation aimed at preventing human rights violations along the supply chain is being introduced
in several countries, including a proposal at EU level for mandatory
 
human rights due diligence.
 
Other key developments in the regulatory landscape include the latest
 
EU Taxonomy
 
Regulation that requires
compliance to minimum social and governance safeguards and the EBA consultation
 
on ESG risks launched
recently which aims to incorporate ESG risks into
 
the governance, risk management and supervision of credit
institutions and investment firms. The effects
 
of the recent pandemic also bring a renewed focus on the
importance of health and safety measures on the ground for the projects we
 
finance as well as for the workforce
of our clients.
 
Since 2017, ING has been communicating its progress on climate risks and opportunities according to the TCFD
 
in
its Annual Report. Further,
 
ING has set its climate risk management ambition based on other relevant materials,
such as the ECB’s recent Guide on Climate
 
-related and Environmental risks. This includes integrating
 
climate
change as part of our risk appetite framework. We plan to commence integrating
 
this progressively in the second
half of 2021.
 
Meanwhile, the Dutch Banking Sector Agreement on Human Rights (DBA) was successfully completed in 2019.
ING updated its human rights policy to reflect its commitment to the United Nations Guiding Principles, and
improved transparency through regular human rights reporting.
 
We continue to work within the framework
 
of
this agreement; we are currently in the process of developing a tool that will help assess portfolio
 
and client
exposure to salient human rights issues, enabling identification of issues and client engagement.
 
The tool is
expected to be launched in 2021.
 
During 2020, ING has also cooperated with other banks and the Equator Principles (EP) working groups on the
implementation of the EP 4, which brings a new set of requirements related to human rights, climate
 
change,
biodiversity and impacts on Indigenous Peoples.
 
The ESR Framework
ING’s ESR policy framework
 
helps us make transparent choices about how,
 
where and with whom we do
business. In 2019 we released the updated ESR Framework based on input from internal as well as external
stakeholders while during 2020 we also made several
 
updates, which are briefly summarised in the next section.
Through these regular updates we keep abreast
 
of social norms and regulation relating to sustainability and
challenge our own increasingly strong commitments on the topics of human rights and climate
 
change.
 
ESR in practice in 2020
The ESR policy framework includes standards and best practice
 
guidance for ESR-sensitive sectors. It includes
explicit restrictions on activities not in line with ING’s values and harmful to
 
people or the environment (for
example companies involved in clearance of primary forest),
 
which we do not finance.
 
 
The next table gives insight into the ESR policies that are part of the ESR framework
 
and where they are applied.
 
Credit risk portfolio per economic sector and application of ESR framework in percentage 2020 outstandings Conduct and ethics Human
 
rights Environmental compliance Defence Equator principles Forestry and Agrocommodities Mining and Metals Tobacco1 Infrastructure Generic engineering1
 
Manufacturing
 
Chemicals Energy2 Fisheries1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ing20f2020p224i0.gif
 
 
 
 
 
 
 
>
 
Environmental, social and governance risk
 
ING Group Annual Report 2020 on Form 20-F
224
 
 
Consumer lending
31,5%
●
Financial institutions
23,86%
●
Governments
7,29%
●
Other
2,37%
●
Corporates
35,02%
●
●
●
Real estate
6,13%
●
●
●
●
Natural resources
5,14%
●
●
●
●
●
 
●
Transportation & logistics
3,30%
●
●
●
●
●
●
Services
4,18%
●
●
●
●
●
●
●
Food, beverages & personal care
2,82%
●
●
●
●
●
●
●
●
●
General industries
2,86%
●
●
●
●
●
●
●
Builders & contractors
1,75%
●
●
●
●
●
Chemicals, health & pharmaceuticals
1,80%
●
●
●
●
●
●
●
Other sectors
0,36%
●
●
●
●
Utilities
2,09%
●
●
●
●
●
Media and telecom
1,38%
●
●
●
●
●
●
Retail
1,33%
●
●
●
●
Automotive
1,04%
●
●
●
●
●
●
Technology
0,85%
●
●
●
●
●
●
●
1 Fully or partially excluded activities
2 Includes policies on Oil and Gas, Coal, Nuclear Energy and Power Generation
 
 
The way the ESR Framework is applied in practice differs
 
per product type. The largest potential environmental
and social impacts come from large corporates within our Wholesale Banking (WB) segment. WB is therefore
 
the
primary focus of our assessments and where we promote active ESR dialogue and knowledge sharing. We
 
have
been working with wholesale clients for more than 15 years to support them in understanding
 
and managing
their environmental and social impact. A simplified version of the ESR policy framework,
 
following the same
rationale and principles, applies to ING’s mid-corporate
 
and small medium enterprise client segments. The ESR
framework minimum requirements are also included in ING’s
 
procurement policy and apply to the screening of
suppliers of ING’s global procurement
 
activities.
 
The ESR policy framework is incorporated in ING’s
 
KYC policy framework, meaning the ESR client assessment is
part of regular client on-boarding and review.
 
The ESR policy framework also triggers a dedicated ESR transaction
assessment to corporate clients which will indicate
 
if such transaction is categorised as ‘ESR high risk’,
 
and thus
require a separate in-depth advice from the ESR team
 
.
 
While we have a strong ESR policy framework and made progress
 
in enhancing the automation of the checks and
controls in the ESR assessment processes, we acknowledge that we need to
 
further improve our processes in
order to ensure accuracy and completeness of the data.
 
Of all Wholesale Banking engagements in scope of the ESR policy framework in 2020, 83 percent were
 
considered
ESR low-risk, 8 percent ESR medium-risk and 9 percent ESR high-risk. ESR high-risk cases require
 
specialised
advice from the global ESR team. The team now consists of 11 dedicated ESR advisors, 10 of whom are in
Amsterdam and one in Geneva. The ESR advice assesses the specific product offered
 
and environmental and
social impacts associated with it, the sector,
 
operating context and geography
 
of the engagement and other
relevant factors. Based on this in-depth research,
 
a binding advice is given that can only be overruled at Global
Credit Committee level. Of the 292 ESR advices given in 2020, which are related to
 
new requests, 60 percent
were positive, 25 percent positive subject to conditions and 15 percent negative.
 
Conditions can play an
important role in helping clients transition towards improved
 
environmental and social performance on the
ground.
 
The ESR team mainly focuses on policy development and transaction advisory.
 
However the team also provides
training (both in-person and via webinars) to hundreds of colleagues around
 
the world every year in risk, front-
office, KYC and compliance teams, so that ESR knowledge is built on and spread.
 
Key updates to the ESR framework
The renewed ESR framework incorporates
 
the updates that took place in December 2019 and July 2020,
respectively. The new release,
 
includes the following updates in the policy:
 
 
 
 
 
 
 
 
>
 
Environmental, social and governance risk
 
ING Group Annual Report 2020 on Form 20-F
225
 
◾
 
ESR restriction on small arms and light weapons (SALW)
 
was strengthened. For more information
 
please
see the ESR framework published on the corporate website
 
ing.com.
◾
 
Equator Principles: We have adopted
 
EP4 in line with the new updated EP guidelines.
 
In 2020, the ESR team, together with the retail business, started
 
the implementation of a new ESR self-
declaration approach for business banking. The concept is already approved
 
by GCTP and it entails an alternative
ESR client assessment implementation for business banking clients where lending and pre
 
-settlement limits
exceed €1 million and where the client is active in any of the pre-identified sectors (e.g. employment
 
agencies).
Such clients will be required to confirm their compliance with specific statements
 
related to safeguarding labour
rights and/or environmental regulations
 
that are specific for that sector.
 
The implementation of this initiative is
expected to be finalised in 2021.
 
Following any key ESR policy updates
 
on restrictions, we engage with affected
 
existing clients and provide them
with the opportunity to reduce their exposure to the new restrictions; in case a reduction is not feasible,
 
we
implement an exit strategy.
 
Developing international best practice and stakeholder engagement
Our ESR approach helps us and our clients to gradually enhance the implementation of key
 
standards like the UN
Guiding Principles on Business and Human Rights and the Organisation for Economic Cooperation and
Development (OECD) Guidelines for Multinational Enterprises. But beyond stimulating
 
better environmental and
social performance in our own portfolio, ING actively collaborates
 
with other institutions, peers and regulators to
address the environmental, social and human rights challenges we face:
 
 
◾
 
ING and the Equator Principles (EPs):
 
The EPs are an environmental and social risk management
framework adopted by 110 financial institutions worldwide. The EPs were
 
updated in 2019, and the new
version (EP4) became effective in October 2020. EP4 contains
 
new and stronger commitments on human
rights, climate change, Indigenous Peoples and biodiversity,
 
as well as an increased scope. ING is active
in several EP working groups covering social risks, climate
 
change and scope. ING also co-leads the
capacity building and training workgroup, which is focussing on updating the EP learning tool with the
changes included in EP4.
 
◾
 
The Covid-19 pandemic
 
has also had material implications for our clients and peers to continually meet
the environmental and social requirements of the EPs. ING participated
 
in the development of a
guidance note to provide practical guidelines for both Equator
 
Principle financial institutions and clients
on how to manage Covid-19 related risks to EP compliance.
 
◾
 
Dutch Banking Sector Agreement
: The Dutch multi-stakeholder platform to
 
implement the Dutch
Banking Sector Agreement on International Responsible Business Conduct Regarding
 
Human Rights
formally came to an end in December 2019. The agreement was in place for three years
 
and was
finalised with a conclusive report published in August 2020 and a closing statement confirming that all
agreed deliverables were completed. During the period covered
 
by the agreement, we updated our
human rights policy and published ING’s first human rights report
 
in 2018. In 2019, we issued an update
of the report, highlighting the pilot on proactive client engagement carried out and the actions resulting
from this pilot. In 2020, a follow-up of the 2019 human rights report was shared, providing an update
 
of
the client engagement model presented in 2019 and the current human rights landscape.
 
◾
 
Thun Group
: ING participates in the Thun Group, an informal group of banking representatives
 
focusing
on human rights. The group was initially established in 2011 to support the integration of the UN Guiding
Principles on Business and Human Rights into banking activities, and is now further evolving as a formal
group promoting human rights and sharing best practices among its participant members.
 
◾
 
OECD
: ING’s active role in promoting and integrating
 
human rights is reflected in our participation as a
formal advisory member to the OECD Working Party on responsible business conduct
 
in our sector.
 
In
2020 we started to develop the third and final OECD due-diligence guidance documentation
 
for asset
based finance transactions. This guidance is expected to be finalised in 2021. We also participated in the
Export Credit Agencies annual meetings for practitioners from financial institutions where
 
we actively
promoted ING’s ESR framework
 
and due-diligence process with export credit agencies, EP financial
institutions, commercial banks, and development institutions.
 
By taking part in the above-mentioned initiatives, we aim to contribute our viewpoint
 
and those of our clients,
employees and other stakeholders to help form
 
a consensus and develop clear guidelines that can serve as a
standard for our industry.
 
 
 
 
 
 
 
 
 
>
 
Environmental, social and governance risk
 
ING Group Annual Report 2020 on Form 20-F
226
 
Task Force on Climate-Related Financial Disclosures (TCFD)
ING endorses the recommendations of the Financial Stability Board’s
 
(FSB) Task Force
 
on Climate-Related
Financial Disclosures. This voluntary disclosure outlines the progress made to date. To
 
further strengthen our
understanding and adoption of the TCFD recommendations, ING is part of the UNEP FI TCFD project.
 
Governance
ING’s Climate Change Committee
 
(CCC) is mandated to oversee and set priorities for the implementation
 
of the
TCFD recommendations and other strategic climate
 
-related topics that impact the group. For details please refer
to our approach to climate governance (Sustainability governance
 
)
 
published on our corporate website ing.com.
 
Strategy
Climate change impacts companies and companies have an impact on climate change. As banks, we need to
understand the risk climate change poses for our clients and be ready to
 
safeguard our business by taking the
implications of climate change into account in our risk processes. We
 
also have a role to play in financing the
transition to a low-carbon, climate-resilient
 
economy. At
 
ING, we have chosen an integrated strategy
 
that allows
us to translate the risks associated with climate change into
 
opportunities.
 
In 2017, we started to develop in-house energy transition scenarios based on the drivers of policy and
technology. These scenarios formed the basis for
 
the energy transition assessment we undertook for particularly
sensitive sectors within the Transportation,
 
Industrials, Power and Real Estate
 
sectors. ING is committed to
continuously reviewing and monitoring its policies and strategies as climate
 
-related risks and opportunities
emerge. As a result of transition risk ING further refined its coal policy in 2017, targeting near-zero
 
coal exposure
by 2025.
 
In 2020, we published our second Terra
 
Progress Report that provided an update on how we steer
 
our lending
portfolio in line with the goals of the Paris Agreement for all nice sectors in scope, including quantitative
 
results.
For an overview of how we capitalise on climate-related
 
opportunities, please refer to Responsible Finance
(section ‘Our performance and strategy’).
 
Risk management
At ING we already have several
 
processes in place to identify and assess climate-related risks. An example
 
is our
environmental and social risk (ESR) framework, including its climate
 
change policy, reviewing risk on a client
 
and
transaction basis. We also monitor sector-specific developments
 
associated with the energy transition. For
upstream oil and gas, our credit assessments include a strong focus on production
 
costs. By focusing on low-cost
production, we work with our clients to ensure their businesses are resilient to the risk of stranded
 
assets.
 
 
In the course of 2020, we worked on further identifying climate risk within our portfolio. We
 
use scenarios to
understand the various climate pathways
 
that can potentially affect sectors. In addition, ING conducted
 
an
internal firm-wide stress test, including the assessment of both physical and transition
 
risk. To better
 
understand
the potential impact across sectors we developed an initial transition
 
risk heatmap. We also started to conduct
pilots for specific portfolios, for instance on our global mortgages portfolio
 
with the aim to identify potential
exposure towards physical risks.
 
These types of investigations can inform our approach
 
towards incorporating
climate risk in our risk management framework. For details please refer
 
to our stand-alone ‘Climate Risk Report
2020’ published on our corporate website ing.com.
 
Metrics and targets
We have set climate-related
 
targets in our lending portfolio. This includes exiting thermal coal by 2025 and
steering our portfolio towards meeting the Paris Agreement’s
 
well-below two degree goal (Terra
 
approach).
Under Terra,
 
we set one target per sector for each of the nine sectors. For details
 
on the approach refer to our
‘2020 Terra
 
Progress Report’
 
and for our approach to setting opportunity-related
 
metrics and targets please refer
to ‘Climate Finance’ both published on our corporate website ing.com.
 
Within the UNEP FI TCFD project we
worked towards methodologies to translate
 
the impact of climate change on financial rations.
 
Next steps
In 2021, we aim to further progress with our efforts regarding
 
climate-related risks and opportunities by refining
our methodologies, working towards standard setting
 
and expanding the scope. For instance, we aim to expand
the scope of our physical risk assessment for real estate
 
and investigate
 
the impact of transition risk on various
sectors.
 
 
 
 
 
 
 
 
>
 
Non-financial risk
 
ING Group Annual Report 2020 on Form 20-F
227
 
Non-financial risk
Introduction
Non-financial risk (NFR) is defined as the risk of financial loss, legal or regulatory sanctions, or reputational
damage due to inadequate or failing internal processes, people and systems;
 
a failure to comply with laws,
regulations and standards; or external events. The NFR function encompasses Operational
 
Risk Management
(ORM), Information Risk Management (IRM), the Independent Validation
 
Unit (IVU),
 
Professional Practice Unit
(ERM PPU) and Corporate Security & Investigations (CSI).
 
Governance
The head of Corporate ORM, Corporate IRM, IVU, CSI, ERM PPU and NFR Strategy,
 
Central Services &
Digitalisation Unit report to the global head of NFR, who directly reports to the chief risk officer.
 
The global head
of NFR is responsible for developing the framework of NFR policies and standards
 
within ING, and for monitoring
the quality of non-financial risk management in the ING entities.
 
Non-Financial risk measurement
ING uses an internal model in line with the Advanced Measurement Approach (AMA) to determine the regulatory
and economic capital amounts that are necessary to cover potential losses as a result of non-financial
 
risks. This
model predicts non-financial risk losses by combining a forward-looking and a backward-looking view on non-
financial risk events. ING reports the outcome of its AMA model on a quarterly basis.
 
Risk categories
ING categorises non-financial risks in a number of areas:
 
◾
 
Information (technology)
 
risk
 
is the risk of financial loss, regulatory sanctions or reputational damage due
to breaches of confidentiality,
 
integrity or availability within business processes, the supporting IT
systems, of information or lack of information
 
quality;
◾
 
Continuity risk
 
is the risk of financial loss, regulatory sanctions or reputational damage due to business
disruptions (loss of people, processes, systems, data, premises);
◾
 
Control risk
 
is the risks of financial loss, regulatory sanctions or reputational damage due to ineffective
organisational structures and governance procedures
 
(including unclear roles and responsibilities and
inadequate reporting structure);
◾
 
Processing risk
 
is the risk of financial loss, regulatory sanctions or reputational damage due to failed
(transaction) processing (input, execution, output) or failing process
 
management;
◾
 
Unauthorised activity risk
 
is the risk of financial loss, regulatory sanctions or reputational damage due to
employees performing outside the normal course of their business, intentionally giving unauthorised
approvals or overstepping their authority;
◾
 
Personal and physical security risk
 
is the risk of financial loss, regulatory sanctions or reputational
damage due to criminal and environmental threats that might
 
endanger the security or safety of ING
personnel at work, people in ING locations, ING assets or assets entrusted to ING, people at ING event
locations, or might have an impact on ING organisation's confidentiality,
 
integrity or availability;
◾
 
Employment practice risk
 
is the risk of financial loss, regulatory sanctions or reputational damage due to
acts that are inconsistent with employment, health and/or safety
 
laws, regulations or agreements, from
payment of personal injury claims, or from diversity/discrimination events;
 
and
◾
 
Fraud
 
is the deliberate abuse of procedures,
 
systems, assets, data, products and/or
 
services of ING by
those who intend to deceitfully or unlawfully benefit themselves and/or others. This definition of fraud is
specified in the following two categories of fraud:
Internal fraud
: acts of fraud which involves at least one internal party performed
 
by or in collusion with
an ING employee or agent with the consequence of financial loss, regulatory fines, litigation loss,
business disruption and/or reputational damage for ING.
External fraud
: acts of fraud or scams by individuals and/or parties excluding ING staff
 
(including
contractors), with the consequence of financial loss, regulatory fines, litigation
 
loss, business disruption
and/or reputational damage for ING.
 
 
 
 
 
 
 
 
 
>
 
Non-financial risk
 
ING Group Annual Report 2020 on Form 20-F
228
 
Main developments in 2020
Covid-19
From the start of the global outbreak of the Covid-19 virus in January 2020, ING’s
 
priority has been to protect its
employees and their families and to continue servicing its customers as before
 
,
 
and put extra effort into
supporting them in difficult times. To ensure
 
this ING employees have put immediate focus on ensuring the
bank’s operational resilience
 
and continuity. ING has mobilised a global crisis management organisation
 
–
engaging with all ING entities worldwide – to monitor and manage Covid-19 related operational,
 
health and
safety challenges. In the first weeks of 2020 the bank was able to transfer
 
around 80% of its employees, including
external employees, to a working-from-home (WFH) environment.
 
Throughout the year,
 
ING continued to
monitor developments in employee well-being and local BCM threat levels and aimed to
 
identify, monitor and
manage Covid-19 related risks through specific risk assessments. In addition to internally focused
 
risk
assessments, risk assessments were also performed on critical suppliers of ING. The financial health of these
suppliers has been monitored throughout the entire year.
 
Cybercrime and fraud
 
Controls and monitoring continue to be embedded in the organisation as part of the overall
 
internal control
framework and are continuously re-assessed against existing
 
and new threats. The identification and monitoring
of new threat actors and campaigns relevant
 
to ING also informs this process as does the closer alignment
between IT security and fraud teams. In addition, ING continues to strengthen its global cybercrime and fraud
resilience through collaboration with financial industry peers, law enforcement
 
authorities, government (e.g.
National Cybersecurity Centre) and internet service providers (ISPs).
 
 
General concerns over the potential impact of insider threats continues to increase. However
 
the impact of
external instances or trends remain limited in the financial industry where collaboration
 
within the sector is
improving.
 
The further digitalisation of banking services, increasing electronic exchange of information
 
via different
consumer channels, use of and dependency on third-party vendors for services,
 
and the implementation of PSD2
are likely to present ongoing cybercrime resilience, fraud
 
management and IT-security challenges; both in the
short- and medium-term as criminal actors target
 
financial and sensitive (payment) data, such as customer user
credentials outside the traditional banking environment. Sensitive (payment)
 
or personal data can be obtained by
criminals via social forums such as WhatsApp and by screen scraping user credentials when a fallback procedure
within PSD2 is allowed. In 2020, these challenges have further increased due to Covid-19, which resulted in more
sophisticated phishing attempts, improved
 
social engineering fraud attempts, an increased risk of external fraud
in the lending portfolio and people working from home.
 
Dealing with current and emerging fraud threats, especially given the ever-increasing use of digital
 
and on-line
banking, effectively requires continuous improvement
 
of fraud management capabilities such as real-time
transaction monitoring and response capabilities. In addition, better alignment and standardisation
 
of cross-
border fraud management across ING and related
 
platforms as well as exchanging data cross
 
border.
 
With
legislation such as EBA PSD2 and the continuing emphasis on duty of care, financial institutions are potentially
becoming more and more responsible for losses incurred by clients, and taking on more
 
of the burden of
reclaiming those losses.
 
Data risk management
The drivers for ING’s
 
data management come from the Think Forward strategy,
 
where data management is one
of the key enablers, and from the increasing regulatory focus
 
on data.
ING has the enterprise data lake in place (part of the target infrastructure)
 
and is implementing data
management capabilities including data definitions, data quality,
 
data governance and data ethics, for use by ING
entities, to support, amongst others,
 
statutory and regulatory reporting. ING is
 
continuously improving its data
governance, the execution of its data quality framework
 
controls at a consistent level across the bank and
prioritising the implementation of the target infrastructure
 
to further simplify, standardise
 
and modernise its
activities.
 
 
 
 
 
 
 
 
 
>
 
Non-financial risk
 
ING Group Annual Report 2020 on Form 20-F
229
 
In 2020, the Global Data Committee was established as a key
 
Management Board Banking committee, to provide
guidance to the global data function, comprising the chief data management officer and the data management
organisations of all entities. Its purpose is consistent with BCBS239’s
 
stipulation of ‘strong governance’ (Principle
1) as well as ING’s own ambition of being a data-driven bank. The Global Data Committee,
 
chaired by the CRO,
oversees the global data function and its contribution to wider society by providing decisions, endorsements
 
and
priorities for ING’s data
 
management strategy and data-related
 
initiatives.
 
Enterprise risk management
The enterprise risk management (‘ERM’) framework is the overarching
 
risk management framework. ERM
assembles common risk principles for all risk types and domains: financial, non-financial (including compliance
and model risks) and strategic risks. It aims to ensure standardisation
 
of all risk frameworks and applies to all
businesses lines and entities across ING.
 
In 2020, the ERM Professional Practice Unit (PPU) was established to set standards
 
for the management and
implementation of the ERM framework and to assure consistent
 
use of the policy governance and risk library for
all risk domains within ING. The PPU is introducing ING’s global documentation governance
 
by providing
definitions and guidance for global policy documentation and global policy development, update and approval
processes.
 
User access management (UAM)
 
UAM is one of the focus areas of ING and an important element in our control framework
 
to mitigate the risk of
unauthorised and / or inappropriate access to systems, processes and the data
 
and information contained
therein. Consequently,
 
the UAM processes, controls and practices are periodically
 
reviewed, tested, adapted and
improved by a dedicated UAM team to address ongoing
 
developments both within and outside ING. In 2020, ING
continued to mature, with attention
 
to tooling,
 
standardisation and harmonisation of processes and workflows
and further automation of UAM controls. This will continue in 2021.
 
Personal data protection
As per 25 May 2018, the European General Data Protection Regulation
 
(GDPR) became effective. ING is bound by
the GDPR that affords greater protection
 
to individuals and requires more control on data
 
and transparency
regarding the use of data by companies. In 2020, ING continued working on structural
 
solutions to support
further enhancing the data protection of our clients and employees.
 
Sourcing Risk
In 2019, a renewed sourcing policy became effective, outlining the inherent
 
critical and high risks that can
materialise during the sourcing life-cycle. In addition, a sourcing guideline was issued to support updated
requirements, issued by EBA in 2019. The controls defined in the support control
 
framework (SCF) sourcing have
been implemented and tested. The scope of sourcing encompasses outsourcing to external
 
providers as well as
intra-group sourcing.
 
BCBS 239
In January 2013 the Basel Committee on Banking Supervision published the Principles for Effective Risk Data
Aggregation and Risk Reporting (BCBS 239), which is adopted by the ECB and became effective for
 
all Global
Systemically Important Banks (G-SIBs) as of January 2016 and for all D-SIBs depending on the date
 
of designation.
In 2020, ING continued with the extension of scope, continuous implementation improvements
 
and further
embedding into business as usual.
 
 
 
 
 
 
 
 
>
 
Compliance risk
 
ING Group Annual Report 2020 on Form 20-F
230
 
Compliance risk
Introduction
 
Compliance risk is defined as a threat posed to ING’s standing
 
resulting from failure to act in line with applicable
laws and regulations, internal rules (including ING’s
 
Orange Code and global Code of Conduct) and/or societal
expectations. A failure to adequately mitigate
 
compliance risk may lead to damage to ING’s reputation
 
and/or
legal/regulatory sanctions, and/or financial loss.
 
The mission of Compliance is to support ING in conducting its business activities in line with applicable laws and
regulations, taking into account ING’s
 
internal code of conduct and societal expectations. Compliance wants to
drive compliance risk management by desire and design throughout the organisation, unleashing the power
 
of
our data, risk expertise, and people to keep the bank safe and sound, and help drive new
 
and sustainable ways of
doing business.
 
Within ING, compliance risks are defined as those risks that are within the scope of the ING Compliance Risk
Catalogue. The following three risk categories apply:
◾
 
Financial crime risk refers to the risks of the bank’s
 
products and services being abused for illicit purpose
generating or disguising financial and/or economic crimes (FEC).
◾
 
Conduct risk refers to the compliance risks arising from potential
 
or perceived misconduct by ING or its
employees towards its customers, market
 
integrity, business partners
 
and other stakeholders.
◾
 
Organisational risk refers
 
to the compliance risks arising from actual, potential or perceived flaws in the
way that ING is organised and structured including its regulatory and
 
reporting framework.
 
Governance roles and responsibilities
The Compliance organisation (comprised of four roles: Group Compliance, business segment compliance,
geographical compliance and country compliance) is part of ING’s
 
second line of defence refer to ‘Risk
Governance’.
 
Group Compliance together with business segment compliance set the priorities, standards and
boundaries for the business segments (Retail and Wholesale Banking). Geographical compliance (Challengers
 
&
Growth Markets / Wholesale Banking / Market Leaders)
 
together with the functional lines in the countries are
responsible for the execution of these priorities, standards
 
and control framework, within the boundaries set.
Compliance is tasked with instructing, advising, challenging and having oversight of the first line of defence
 
in
their management of compliance risks as well as raising awareness (via training and communication),
 
influencing
and stimulating a sound compliance risk culture. The scope of the compliance risks is outlined in the ING
Compliance Risk Charter.
 
Compliance is headed by the chief compliance officer (CCO) who reports directly to the CRO. The CCO has direct
access to the Risk Committee of the Supervisory Board. The CCO and the chairman of the Risk Committee had
regular bilateral consultations in 2020.
 
Update on key compliance matters
Strengthening the compliance function
In 2020 ING introduced measures to strengthen the compliance function. These measures were
 
implemented as
part of a multi-year,
 
global compliance strategy and transformation
 
programme that started in October 2019.
The programme encompasses the whole compliance function and particularly aims at enhancing and integrating
governance, an end-to-end framework and monitoring capabilities of the compliance function. As we operate
 
in
a dynamic and challenging environment we are continuously learning and improving while getting
 
to a more
sustainable and mature level within the compliance function.
 
Financial economic crime
Knowing who we do business with helps us to prevent the financial system
 
from being misused, and is an
important obligation to help gain trust in the financial markets.
 
As gatekeepers of the financial system
 
we have
an obligation to prevent criminals from misusing it or detect and respond
 
when it is being misused. We believe
we can be even more effective in safeguarding
 
the financial system if we join forces and work with other banks
and with national, European and global authorities and law enforcement agencies to tackle financial economic
crime. In 2020, ING continued to execute and update policies and procedures
 
to further enhance our know your
customer (KYC) activities. In addition, ING set up a special taskforce to
 
monitor transactions for financial
economic crime related to Covid-19.
ING is continuously working to strengthen its implementation of KYC
 
and build sustainable KYC practices. One of
the ways we do this is through our global KYC enhancement programme
 
which aims to:
◾
 
Improve customer due diligence, perform on-going transaction
 
monitoring and report on unusual
activities should these be identified.
◾
 
Make structural improvements
 
in five areas: policy and risk appetite statements, digital tooling,
governance, monitoring and screening, and KYC knowledge and behaviour.
 
 
ing20f2020p231i0.gif ing20f2020p231i1.gif ing20f2020p231i2.gif ing20f2020p231i3.gif ing20f2020p231i4.gif ing20f2020p231i5.gif
 
 
 
 
 
 
 
>
 
Compliance risk
 
ING Group Annual Report 2020 on Form 20-F
231
 
It is important to continuously enhance our FEC controls framework
 
given the dynamic nature of the threats and
regulations. In 2020, the FEC controls maturity program
 
me (FCMP) was initiated in order to further mature the
framework over time.
 
Risk culture
At ING we attach great importance to
 
a sound risk culture. ING’s risk culture determines the way
 
in which
employees identify, understand,
 
discuss and act on the risks we are confronted with and the risks we take.
 
In
2019, ING initiated a global risk culture project to understand and measure where
 
our level on the mentioned
aspects is. The Management Board Banking and Supervisory Board are closely involved in this project and are
strongly committed to safeguarding
 
a sound risk culture for ING. Key characteristics of ING’s
 
risk culture are:
 
◾
 
Our Orange Code and global Code of Conduct define the most essential conduct principles expected
from ING employees in their daily activities; (see ‘Conduct risk’)
◾
 
Our leadership plays an active role in offering an environment
 
of open communication and challenge;
◾
 
Having a robust risk management framework is key;
◾
 
Managing non-financial risk is as important as managing financial risk;
◾
 
We take time to learn from
 
best practices and incidents from the past;
◾
 
We all are accountable for sound risk management
 
and take time to actively educate ourselves;
 
and
◾
 
Our reward and remuneration system
 
reflects our ING values and our desired risk culture.
 
The project includes specific enhancement assignments in areas such as monitoring risk culture, our escalation
culture and further linking non-financial risk related topics to our purpose and strategy
 
.
 
Risk culture
 
 
RegTech
The large number of regulations impacting financial institutions shows no sign of slowing down, leading to an
increasing need within the compliance function for innovative solutions to support our business processes. A
notable area of interest is horizon scanning, covering
 
the timely spotting of rules and regulations, identifying risks
and obligations resulting from these regulations, and creating policies to
 
support the organisation on being
compliant. A wide range of innovative tooling (such as Ascent, SparQ, Corlytics) is being assessed for horizon
scanning and interoperability of solutions is a key
 
factor in our consideration.
 
Regulators are showing a growing recognition
 
of the value of RegTech
 
solutions to manage Compliance Risk. In
response, ING is running a diverse portfolio of RegTech
 
initiatives. This ranges from making investments
 
(e.g.
Ascent, Eigen), close collaboration on solutions (e.g. Privitar,
 
DuCo, Regtek Solutions) and creation of home-
Essential risk culture components
 
Risk awareness
 
•
 
Clear view of risks
 
•
 
Recognition of risks
 
•
 
Common understanding of risk
 
Risk judgement
 
•
 
Balanced decision-making, alternate views
 
•
 
Effective challenge and feedback
 
•
 
Ownership of risk
 
Escalation & follow-up
 
•
 
Speak up and effective escalation
 
•
 
Follow up on issues raised
 
•
 
Reflective conversation
 
Leadership as
 
mediating driver
 
•
 
Tone from
 
the top/
 
 
Leading by example
 
•
 
Learning from experiences
 
•
 
Clear consequences
 
 
 
 
 
 
 
 
 
>
 
Compliance risk
 
ING Group Annual Report 2020 on Form 20-F
232
 
grown solutions (e.g. CoorpID). Our focus is on RegTech
 
solutions that create positive impact on compliance
effectiveness and cost.
 
Financial crime risk and know your customer
Financial crime risk refers to the risk of the bank’s
 
products and services being abused for an illicit purpose; either
generating or disguising FEC. Keeping ING safe, secure
 
and compliant is a top priority. Know
 
your customer (KYC)
and financial crime compliance play a major role and aim to ensure we only engage and do business with people
and companies that meet regulatory requirements and are
 
within our risk appetite. This is important, not only for
ING but for wider society, with governments
 
around the globe having identified financial crime as a major
concern in modern society.
 
Fighting financial crime in a constantly changing environment requires
 
ongoing updates to regulations and
requirements to keep banking safe. However,
 
according to the European Banking Authority,
 
increased
regulations and scrutiny can also have unintended consequences, with some customers
 
and clients no longer
being able to get their financial needs met.
 
KYC policy framework
ING strives to play its part in safeguarding the integrity
 
of the financial system by combatting financial crime
through utilisation of an overarching policy and control framework
 
which is continuously enhanced. The KYC
policy and related control standards
 
(the KYC policy framework) set the minimum requirements
 
and control
objectives for all ING entities to guard against involvement
 
in financial crime activity. The KYC policy Framework
reflects relevant national and international laws,
 
regulations, guidance documents and guidelines from national,
European and international authorities, (supra)national risk assessments, and industry standards
 
related to:
 
◾
 
financial economic crime, covering money laundering, terrorist financing, bribery and corruption, export
trade controls, proliferation
 
financing, sanctions (economic, financial and trade), countries designated by
ING as ultra-high-risk countries (UHRC)
◾
 
customer tax compliance, covering customer tax
 
integrity (CTI), FATCA,
 
CRS, mandatory disclosure
requirements (MDR)
◾
 
environmental and social risk (ESR) client assessment, specifically the initial customer screening for
environmental and social risk. For more information
 
see the Credit risk chapter.
 
The KYC policy framework is mandatory and applies to all ING entities (i.e. all branches and majority-
 
owned
subsidiaries of ING Groep N.V.
 
(including ING Bank N.V.)
 
or where ING exercises control), their corporate
functions and their branches, including outsourcing partners to whom ING entities have sourced KYC
 
-related
responsibilities. The KYC policy framework also reflects relevant
 
national and international laws, regulations and
industry standards related to business partners
 
and overarching requirements with regards
 
to record retention,
training and awareness. ING entities have local procedures
 
in place, aimed at enabling them to comply with local
laws and regulations and the KYC policy framework. Where
 
local laws and regulations are more stringent, these
have to be applied.
 
As a result of frequent evaluation of the businesses from economic, strategic
 
and risk perspectives, ING continues
to believe that for business reasons doing business involving certain specified countries should be discontinued.
In that respect, ING has a policy not to enter into new relationships with clients from
 
these countries and
processes remain in place to discontinue existing relationships involving
 
these countries. At present,
 
these
countries are Cuba, Iran, North Korea, Sudan, Syria and Crimea region.
 
KYC enhancement programme
 
ING is continuously working to strengthen its implementation of KYC
 
and build sustainable KYC practices. One of
the ways we do this is through our global KYC enhancement programme
 
which aims to:
◾
 
Improve customer due diligence files (documentation, data
 
and identity verification), assess selected
past transactions and report on unusual activities should these be identified.
◾
 
Make structural improvements
 
in five areas: policy and risk appetite statements, digital tooling,
governance, monitoring and screening, and KYC knowledge and behaviour.
 
Global approach
ING updated its KYC policy in line with external regulatory developments
 
in anti-money laundering and financial
sanctions. We also updated our ESR framework to
 
incorporate new policies on human rights, climate change and
financing infrastructure projects. This framework updates
 
and standardises our policies by expanding the list of
restricted activities ING will not finance. It also clarifies roles, responsibilities as well as the products and clients in
scope.
 
In addition, we refreshed and further enhanced our systematic integrated
 
risk analysis (SIRA). This allows us to
measure and monitor adherence to our KYC risk appetite and ensures consistent
 
KYC integrity risk assessments
 
 
 
 
 
 
 
 
>
 
Compliance risk
 
ING Group Annual Report 2020 on Form 20-F
233
 
across the bank. Our risk appetite statements (RAS) which incorporate
 
ING’s risk appetite and tolerance
 
towards
KYC integrity risks were also updated
 
.
 
We changed the structure of our global KYC organisation
 
introducing three pillars that oversee customer
 
due
diligence, transaction monitoring and screening. Each pillar has a dedicated team with expert leads. This brings
greater focus, strengthens steering
 
and ensures end-to-end responsibility.
 
We also continued to introduce uniform
 
global transaction monitoring solutions in 2020. These include
standardised transaction monitoring tooling, supported by risk-based
 
scenarios, handling alerts and reporting
suspicious activities where required. The countries in scope have been connected to our global pre
 
-transaction
screening tool. Our adverse media screening tool is now available in most
 
of the countries and will be available
across the network of countries in early 2021. This allows us to continuously screen customers
 
against news
intelligence related to financial and economic crime. We
 
implemented continuous name screening in several
countries. Substituting local tools with centralised global tools enables us to further improve
 
the way we
onboard, monitor and screen customers using a consistent
 
approach across the world.
 
We have also established a financial economic crime Covid-19 taskforce
 
within ING aimed at identifying potential
criminal schemes and assessing if the coronavirus pandemic influenced payment patterns or created
 
new
channels for money laundering. The taskforce worked
 
with other parts of the bank to protect customers from
fraud and further strengthen cybersecurity,
 
during the pandemic. It also identified and analysed new behavioural
patterns of customers in the Netherlands, which resulted in new cases of unusual transactions
 
being reported.
These findings are used to determine if similar patterns exist in other ING countries.
 
In 2020, five Dutch banks, including ING, proceeded with Transaction
 
Monitoring Netherlands (TMNL), following
a successful proof of concept that explored the feasibility and effectiveness
 
of joint transaction monitoring.
Monitoring transactions with a combined database provides greater
 
insights into potential criminal money flows
and networks, which will further boost monitoring and alert detection.
 
Similarly, we are working
 
with four banks and payment provider Isabel Group in Belgium to use the blockchain
application KUBE to share corporate data
 
as part of the KYC process. KUBE is currently being built and is expected
to be operational next year,
 
and will help streamline the verification and maintenance of corporate
 
identities.
 
In Germany, ING joined the public-private
 
partnership Anti-Financial Crime Alliance (AFCA) to foster mutual
exchange of information within the financial system.
 
The alliance consists of 30 members, amongst them public
authorities, the largest financial institutions as well as representatives
 
from the real estate sector.
 
Digitalisation and innovation
Criminals are harnessing technologies like artificial intelligence and machine learning to become ever more
sophisticated. These same technologies can also help us to counter this threat.
 
For example, Hunter is an AI-
powered anti-money laundering tool that has the predictive capability to detect
 
(emerging) suspicious patterns
and entities. It helps identify clients with a high concentration of suspicious behaviour and points out hidden
relationships, delivering on the promise to always be a step
 
ahead. And we’ve developed a centralised digital
vault where corporate clients can store
 
and share their KYC documentation in a secure way.
 
Similarly, the ING
Lab in Singapore is working on a tool to help banks that serve other financial institutions eradicate
 
the
duplication of KYC documentation.
 
Knowledge and behaviour
Increasing our knowledge of KYC, providing training and carrying out behavioural
 
risk assessments aimed at
detecting impeding behavioural patterns and intervening where
 
necessary is also key.
 
A global KYC academy was set up last year to equip employees with the skills and knowledge they
 
need to
effectively protect customers,
 
the bank and society against financial economic crimes. This year,
 
the academy
partnered with ACAMS (Association of Certified Anti-Money Laundering Specialists) and developed learning
modules for employees working on KYC to raise their KYC
 
awareness. Almost 8,000 employees enrolled for these
modules. Trainings on sanctions also took place.
 
Behavioural risk assessments were carried out to identify impeding behavioural
 
patterns and their drivers and
give direction to any necessary interventions. Since 2018, several KYC
 
teams in various business lines have been
assessed.
 
Leadership labs (workshops with senior leaders) were organised
 
in APAC, EMEA and Americas
 
to address
impeding behavioural
 
patterns identified in the assessments and develop the right conditions to manage risks.
 
We also conducted two Nudge Labs this year for
 
Wholesale Banking globally, developing subtle triggers that
encourage desired behaviours to further strengthen
 
our KYC processes and execution. Co-created
 
by our
 
 
 
 
 
 
 
 
>
 
Compliance risk
 
ING Group Annual Report 2020 on Form 20-F
234
 
Wholesale Banking and behavioural risk experts, the Nudge Labs are another follow-up from our KYC
 
behavioural
risk assessments.
 
Staying safe, secure and compliant
Fighting financial economic crime is a challenge the financial industry faces globally.
 
The scope of the problem
was illustrated in media reports in September 2020, in which several
 
banks, including ING, were mentioned in
respect of SARs filed some years ago.
 
As a gatekeeper to the financial system,
 
we have an important role in the collective fight against
 
financial
economic crimes. By performing customer due diligence and monitoring transactions we aim to detect
 
and
prevent the financial system from being misused in criminal activities, including money laundering and terrorist
financing, for the safety and security of our customers and society.
 
We take this responsibility extremely
seriously. As part of our ongoing anti-money laundering efforts,
 
we assess relationships with customers and
screen transactions. Potentially unusual/suspicious transactions
 
are reviewed and, where applicable, reported to
the relevant authorities. Over the past few years,
 
we have increasingly discontinued customer relationships
which do not fit our risk profile. This approach is also applied to acquisitions such as Payvision. ING was aware
when it acquired Payvision that its customer base partly did not meet ING’s
 
desired risk profile. Hence,
arrangements were made during the acquisition to exit customers
 
in the ‘adult’ entertainment and gambling
segments. Steps were also needed to better
 
align Payvision with ING’s risk profile,
 
strengthening Payvision’s
governance, policies and processes. For example, Payvision’s
 
risk and compliance functions were reinforced, its
chief risk officer is now a member of its board and there is a formal programme in place, including governance, to
ensure that Payvision’s
 
compliance meets requirements.
 
The programme involves a series of initiatives, including
working on various structural improvements in compliance, tooling, monitoring, governance,
 
knowledge and
conduct.
 
In September 2020, Banca d’Italia announced that the ban on onboarding new customers at ING in Italy,
 
imposed
in March 2019 was removed. The decision followed comprehensive
 
steps undertaken by ING in Italy to
strengthen its processes and management of KYC compliance risks.
 
Following an inspection by Banca d’Italia,
which identified shortcomings in AML processes, ING in Italy was banned from taking on new customers in March
2019. Existing customers in Italy continued to be fully served throughout the period of the ban.
 
Keeping banking safe and secure for the longer term, requires
 
staying ahead in the area of financial economic
crime compliance. Hence, we are building on the foundation of our global KYC enhancement programme
 
by
organising and integrating all regulatory
 
developments and activities in the area of financial crime compliance
within our regular controls framework.
 
Bribery and corruption
Corruption curbs economic growth and impedes the development of peaceful and sustainable societies. It
undermines business confidence and corporate integrity,
 
impedes fair business competition and harms
international trade. It can also severely damage the reputation
 
of companies and thus erode both public trust
and investor confidence. We take
 
these risks seriously and take steps in our organisation
 
to identify and to
minimise the risk of being involved in or associated with bribery or corruption.
 
We expect all ING employees at every level of the organisation
 
to always do business in accordance with the
values and behaviours of our Orange Code. We
 
have a zero-tolerance
 
approach when it comes to bribery and
corruption. Our zero tolerance statement
 
and more information regarding our anti
 
-bribery and corruption
(AB&C) policy can be found on our website.
 
Bribery and corruption risks are part of our non-financial risk framework, are included in the client and third-
party due diligence and monitoring measures in our KYC framework and will be integrated
 
into our systematic
integrity risk analysis alongside our KYC and other integrity risks in 2021. An enhancement programme to
 
further
improve our AB&C risk assessment, controls and reporting is in progress.
 
Our people receive training which includes how to recognise warning signs of bribery and corruption and in order
to ensure they understand our zero
 
-tolerance approach and the mandatory control measures
 
in place. Our
training framework will be enhanced to provide more targeted
 
and specialist training on bribery and corruption
risks from 2021 onwards. We encourage
 
employees to speak up if they have concerns relating to bribery and
corruption.
 
5th EU AML Directive
 
The 5th AML Directive was implemented in the Dutch Anti-Money Laundering and Anti-Terrorist
 
Financing Act
(Wwft) in May 2020. Furthermore, in the battle against financial economic crime, including money laundering,
the Dutch UBO-(ultimate beneficial owner) register went live in September
 
2020. These developments have been
incorporated in ING’s
 
KYC policy framework.
 
 
 
 
 
 
 
 
 
>
 
Compliance risk
 
ING Group Annual Report 2020 on Form 20-F
235
 
Looking ahead, ING keeps abreast and takes relevant
 
action on other external developments. In this context,
reference is made, among other things, to the 6th AML Directive, as well as regulatory
 
proposals from the
European Commission following from its action plan for a comprehensive union policy on preventing
 
money
laundering and terrorism financing. Moreover,
 
the execution of the Dutch action plan for the prevention
 
of
money laundering through the Dutch financial system and for tracking
 
and prosecuting criminals and their
enablers is in progress. This action plan was presented by the Dutch Minister
 
of Justice and Security and Minister
of Finance. Anticipating regulatory developments in this area, ING and four other Dutch
 
banks established
Transaction Monitoring Netherlands (TMNL) in the collective
 
fight against money laundering and the financing of
terrorism. This organisation is a first of its kind: it is anticipated
 
that within TMNL transactions of those banks are
jointly monitored with advanced analytics techniques like network analytics and anomaly detection.
 
Common Reporting Standard (CRS)
Similarly, the Organisation
 
for Economic Cooperation and Development (OECD)
 
has developed a Common
Reporting Standard (CRS) and model competent authority agreement to
 
enable the multilateral and automatic
exchange of financial account information. CRS requires
 
financial institutions to identify and report the tax
residency and account details of non-resident customers to
 
the relevant authorities in CRS-compliant
jurisdictions. As of 29 September 2020, 109 jurisdictions (‘signatory countries’), including the Netherlands, have
signed a multilateral competent authority agreement to
 
automatically exchange information
 
pursuant to CRS.
The majority of countries where ING has a presence have committed to CRS.
 
The EU has made CRS mandatory for
all its member states.
 
The OECD has also introduced two additional new measures to tackle global tax avoidance/evasion:
◾
 
Mandatory Disclosure Rules for Addressing CRS Avoidance
 
Arrangements and Opaque Offshore
Structures
◾
 
Preventing Abuse of Residence by Investment (RBI) and Citizenship
 
by Investment (CBI) Schemes to
Circumvent the CRS.
 
These measures are in the process of being implemented in local laws. With regard
 
to the mandatory disclosure
rules for EU jurisdictions, this was done via the amendment to Directive 2011/16 (DAC6).
 
Tax
 
risk
Tax policies, procedures
 
and a tax control framework have
 
been implemented to support management in
mitigating potential tax risks in a prudent manner.
 
Internal monitoring, control and reporting of tax-related
 
risks
take place on a continuous basis with regular reporting to various
 
stakeholders. For 404/SOX
 
purposes (section
404 of the Sarbanes-Oxley Act), an ‘effectiveness of internal
 
control statement’ with respect to tax controls
 
has
been provided. Tax
 
risk management is subject to Corporate Audit testing and evaluation. In the Netherlands
 
and
also in other countries, ING’s position is to be cooperatively
 
tax compliant, this implies to have transparency
about and disclosure of relevant tax risks towards
 
tax authorities. Tax
 
risks not only refer to ING’s
 
own tax
position, but also to the risks in relation to the tax positions of our customers. In this respect, we
 
have integrated
a tax integrity assessment in our overall customer risk assessment process
 
.
 
Conduct risk
 
Culture and ethics
A sound risk culture is paramount at ING as it determines the way in which employees identify,
 
understand,
discuss, and act on the risks we are confronted with and the risks we take.
 
In 2020, ING conducted a self-
assessment of our risk culture and are working on developing the key characteristics
 
of ING’s risk culture.
To further enhance our risk management in the area
 
of risk culture, ING added culture and ethics risk to its
compliance conduct risk scope. The proper embedding of our global Code of Conduct, Orange Code and the
whistle-blower policy are key to managing our culture and ethics risk.
 
Orange code and the global Code of Conduct
In February 2020, ING launched a new global Code of Conduct, clarifying the link between the existing Orange
Code and our main policies. The global Code of Conduct further defines the most essential conduct principles
expected from ING employees in their daily activities. It provides additional risk awareness and helps to better
meet expectations stated in external
 
rules and guidelines. To enhance monitoring on the global Code of Conduct,
this code will be linked (like the Orange Code) to the employees’
 
performance management cycle to ensure a
continuous attention and dialogue on how to apply the global Code of Conduct in the daily work practice of our
employees.
 
To preserve
 
risk awareness in the area of risk culture, ING continued its efforts towards
 
embedding the Orange
Code decision making model (introduced in 2017) that supports ethical and well-balanced decision-making
throughout ING. This included frequent training by Compliance towards the first
 
line. In 2020 the model was also
 
 
 
 
 
 
 
 
>
 
Compliance risk
 
ING Group Annual Report 2020 on Form 20-F
236
 
further embedded in ING’s governance by adding the model to the Global Product
 
Approval (PARP)
 
Policy and
the local PARP processes.
 
Conflict of Interest
Compliance will cover the risk of running deals and operations in a way where personal or organisational
interests prevail over the interest
 
of the client (e.g. when related to personal account dealing).
 
In 2020 our existing conflict of interest policy was revised in alignment
 
with the standards as defined by
enterprise risk management. The policy incorporates key
 
requirements for both personal and organisational
conflicts of interests in line with the EBA Guidelines on Internal Governance. Controls
 
are defined in control
standards owned by the first line of defence.
 
Market conduct risk
Market conduct risk is defined as running deals and operations not in line with good capital markets
 
functioning
along the product/service life cycle (i.e., pre-trade, execution
 
and post-execution). A smooth functioning of
markets and public confidence in markets are crucial for
 
economic growth and wealth. The 2016 market abuse
policy was revised to incorporate EU Regulation
 
2019/2115, which changed the requirements on market
soundings for small and medium-sized enterprises. Furthermore,
 
a full-fledged review of the 2016 market abuse
policy was also conducted.
 
Treating custo
 
mers fairly
Under conduct risk, ING includes the risk related to treating customers unfairly
 
and not having their best
interests in mind throughout the product life cycle
 
(from design to advice and claims
handling).
 
Our focus in 2020 was on strengthening compliance with the Markets
 
in Financial Services Directive (MiFID). New
key controls were rolled
 
out throughout ING’s EU entities and an extensive
 
assessment was carried out to further
align the implementation of MiFID rules in all locations and to enhance training and guidelines. INGs global Client
Protection and Product Approval Committee (CPAC)
 
oversees the embedding and monitoring of ING’s global
standards and risk appetite when offering investment
 
services to our customers. Local and/or regional CPAC
 
s
have been setup across the footprint representing
 
Retail-
 
and Wholesale Banking and allowing for a global
framework that can be monitored and steered accordingly.
 
2020 also saw a big emphasis on the improvement of
transaction reporting activities in order to fully align them with regulatory expectations.
 
 
 
 
 
 
 
 
>
 
Model risk
 
ING Group Annual Report 2020 on Form 20-F
237
 
Model risk
Introduction
Model risk is the risk that the financial or reputational position of ING is negatively impacted as a consequence of
the use of models. Model risk can arise from errors in the development, implementation, use or interpretation
 
of
models, or from incomplete or wrong data etc., leading to inaccurate,
 
noncompliant or misinterpreted model
outputs.
 
A model is defined as:
a quantitative method, system, or approach
 
that applies statistical, economic, financial, or mathematical
theories, techniques, and assumptions to process input data into quantitative
 
estimates or whose inputs are
partially or wholly qualitative or based on expert judgement.
 
A tool or solution (a candidate model) is considered a model when:
◾
 
it covers quantitative approaches whose inputs are
 
partially or wholly qualitative or based on expert
judgement, provided that the output is quantitative in nature
 
;
◾
 
it is used multiple times without changing or reconsidering the assumptions, model parameters or
weighting factors;
 
and
◾
 
the outcome is used for decision-making.
 
Covid-19 impact
The outcome of models depends directly on the data that is used as input. As described throughout this report
many sectors have been hit hard by the consequences of the pandemic and governments
 
have taken
extraordinary support measures to counteract
 
the negative economic circumstances these sectors are
experiencing. The same measures also cloud to a certain extent
 
the reliability of the data that currently is being
used as input for models. The support measures interfere with normal economic circumstances
 
meaning that
data currently used may not reflect the true nature
 
of economic circumstances and may be positively biased. The
increased model risk that is associated with this phenomenon has been acknowledged and is being managed by a
range of management actions, such as management overlays, and close monitoring of portfolio
 
developments.
 
Models governance (*)
The growing complexity and number of models created and utilised every year for decision-making makes
 
it
important to manage and control the associated model risk accordingly.
 
Within ING the overarching
responsibility for this risk type lies within Model Risk Management (MoRM) department. The MoRM, is
responsible for identifying, assessing, monitoring and reporting global model risk exposure at the aggregated
level. The department sets and maintains a model risk management framework containing:
 
(1) model
governance, (2) model risk appetite, (3) model risk management policies and standards, and (4) the global model
inventory tool. MoRM is responsible for providing independent
 
validation of models in use within ING. For that
purpose, the department has four specialised dedicated teams, each focusing on different
 
family of models,
namely: Credit Risk Model Validation, Banking Book Risk Model Validation,
 
Trading Book Risk Model Validation
and Data Science Model Validation.
 
The Model Risk Management Committee (MoRMC) is in place to align the overall model strategy
 
and approve the
model risk appetite, model risk management policies and methodologies. MoRMC is mandated by the MBB and
chaired by the CRO of ING, the MoRMC meets monthly.
 
Model lines of defence (*)
ING’s model risk and control structure
 
is based on the three model lines of defence (MLoD) approach. This
approach aims to provide a sound governance framework for
 
model risk management by defining and
implementing three different management layers
 
with distinct roles and oversight responsibilities.
 
ing20f2020p238i0.jpg
 
 
 
 
 
 
 
>
 
Model risk
 
ING Group Annual Report 2020 on Form 20-F
238
 
 
Model lines of defence (*)
 
In terms of composition and main activities within three model lines of defence (MLoD):
◾
 
The 1
st
 
MLoD is composed of the model owners, model users, data management and model
development, and is accountable for,
 
among others, the development, implementation and use of the
models as well as monitoring the effectiveness of models’ performance;
 
◾
 
The 2
nd
 
MLoD is composed of model validation and model risk oversight, which owns the model risk
management framework, proposes the model risk appetite and provides an independent
 
validation of
models used within ING;
◾
 
The 3
rd
 
MLoD is the internal audit, reviewing the quality of model risk management execution in all lines
of defence and providing independent assurance.
 
An important difference with the financial and non-financial risk lines of defence is that models can
 
also be
owned by risk (normally a 2
nd
 
LoD), e.g. for bank-wide stress testing, or by the audit service (normally a 3
rd
 
LoD),
e.g. to support prioritisation of their audits. In that case, both domains (risk or audit service) become 1
st
 
MLOD.
 
Model Risk Appetite (Model RAS) (*)
The model risk appetite is designed to determine the level of model risk ING is willing to accept in pursuit of its
strategic objectives. The initial iteration
 
of Model RAS was introduced in 2020 and it will be monitored and
evaluated in 2021.
 
Model risk management (*)
Since models are by definition simplifications of reality,
 
model risk is inherent in the use of models and therefore
model risk must be identified and managed. Model risk management includes the identification, assessment,
control (acceptance or mitigation) and monitoring (and reporting) of the risks related
 
to applying models in
various business processes.
 
Model risk management is to be executed for each individual model through the model life
 
cycle via processes
such as: model classification, model risk identification and assessment, and model validation. On an aggregated
level model risk is monitored via analysis of data from the global model inventory.
 
The insights, from aggregated
data analysis, are reported to the MoRMC and to the MBB for senior management
 
to take well-informed
decisions on acceptance or further mitigation of model risk.
 
 
ing20f2020p239i0.gif ing20f2020p239i1.jpg
 
 
 
 
 
 
 
>
 
Model risk
 
ING Group Annual Report 2020 on Form 20-F
239
 
Model lifecycle (*)
The next figure provides a schematic overview of the model lifecycle, where orange
 
represents the activities of
the 1
st
 
MLoD, grey represents the 2
nd
 
MLoD and light grey is the 3
rd
. The objectives of the different processes are
outlined below (reference).
 
 
 
Initiation or change
: The initiation of the development of a new model or change of an existing model can be
triggered by different factors.
 
These may be (i) internal, such as the introduction of a new product that cannot be
handled by the existing models, a change in ING’s organisation,
 
financial or commercial strategy or findings and
issues by an auditor,
 
validator or based on monitoring; or (ii) external, such as innovation/new technology that
becomes available (for example the Fintech
 
models), new or upcoming supervisory regulations or ongoing
technical developments.
 
Data collection
 
is the process of defining and collecting data that meets the defined data quality requirements
for model development. The process includes the definition of the data needed, assessment of data availability
and quality, assumptions and limitations, as well as the gathering
 
of the data needed for the analyses, impact
study and testing during the model development process.
 
Model development
is a structured process that leads to a model that is ready for validation and subsequent
use. Depending on the development approach these first stages can be separate
 
or integrated. An example of the
latter is data science based application development.
 
Pre-approval validation
 
is the independent confirmation that the model is valid for its intended use, before
 
the
new or changed model is submitted for use approval. To
 
ensure objectivity and effective challenge, the model
validator is independent from other model parties such as the model developer,
 
model owner or model
approver.
 
Model validation applies equally to in-house developed and third-party models.
 
The objective of the
model approval
 
stage is approval for use. The model owner submits the model for formal
consent by the internal approver before
 
being deployed and used. The recommendations and validation report
prepared by the model validator are key
 
inputs for approval for use.
 
During the
implementation
 
stage, the model is realised, tested and made available in a production environment.
 
In the
model use
 
stage the model is applied by the users for the specific purpose it was designed for.
 
The model
can only be used after formal validation and approval for
 
use of the model.
 
The objective of model
performance monitoring
 
is to regularly check if the model is performing as intended, also
after possible changes in the commercial, organisational or legal environment.
 
Model performance monitoring
begins when model use has started and continues until the model has officially been decommissioned.
 
 
 
 
 
 
 
 
 
>
 
Model risk
 
ING Group Annual Report 2020 on Form 20-F
240
 
Periodic validation:
During the life time of a model its ongoing validity must be safeguarded. This is done by
periodical independent (re)validation that assesses whether the model is still valid for its intended
 
use. There are
two types of validation: (1) periodic, such as annual, which is mandatory for regulatory models, or (2) ad hoc, for
example triggered by changes in the model, the business or financial instruments etc. The actual frequency of
periodic validation depends on the model risk, model type and applicable regulation.
 
A model that is / will no longer be used must be decommissioned.
Decommissioning
 
disables the model. It can,
for example, be triggered because (1) the product, organisation
 
or risk the model is made for has changed
considerably or no longer exists, (2) the model is outdated, underperforming
 
or better alternatives are available,
(3) the model became obsolete due to standardisation or (4) the external approver
 
withdraws its approval for the
model.
 
Continuous model inventory and reporting
: Keeping an inventory of all models and their status during their
lifecycle is a continuous process. It supports management and control
 
of the models in scope, both per individual
model and the overarching management of all ING’s
 
models. Periodic model risk reporting provides the relevant
internal and external stakeholders
 
with an overview of the models in use and the associated model risk given the
defined model risk appetite.
 
 
 
 
 
 
 
 
>
 
Business risk
 
ING Group Annual Report 2020 on Form 20-F
241
 
Business risk
Introduction
Business risk for ING has been defined as the exposure to value loss due to fluctuations in volumes/margins, net
fee and commission income as well as expenses. It is the risk inherent to strategy
 
decisions,
 
internal efficiency
and the business environment.
 
Business risk capital is calculated via the variance-covariance methodology for
these risks, covering the risk that volume/margins, net fee and commission income and operating
 
expenses will
deviate from the expected expenses over the horizon
 
of the relevant activities.
 
 
Governance and risk management
ING applies an explicit risk appetite statement regarding
 
business risk, focusing on earnings stability and
diversification of the business mix. Avoiding putting all eggs in one basket reduces
 
the risk that volumes and/or
margins will suddenly drop due to unexpected changes in the business environment
 
for certain markets and
products. Furthermore, the underlying risk types (expense risk, volume-margin risk, and net fee and commission
income risk) are mitigated and managed differently.
 
Expense risk is monitored and managed via the financial
performance of the bank and the local units, whereby the reported expense numbers are
 
compared on a
quarterly basis with the projected cost/income ratio. Deviations
 
from this ambition are monitored as part of the
financial projections that are discussed continuously within different
 
parts of the organisation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Selected statistical information on banking operations
 
ING Group Annual Report 2020 on Form 20-F
242
 
Selected Statistical
 
Information on Banking
Operations
Reference is made to Note 1 ‘ Accounting Policies’
 
of the Consolidated financial statements for information
 
on
Changes in accounting principles, estimates and presentation of the consolidated
 
financial statements and
related notes.
 
The information in this section sets forth selected statistical
 
information regarding the Group’s
 
operations.
Information for 2020, 2019 and 2018 is set forth under IFRS-IASB. Unless otherwise indicated, average
 
balances,
when used, are calculated from monthly data and the distinction between domestic and foreign
 
is based on the
location of the office where the assets and liabilities are booked, as opposed to the domicile of the customer.
However,
 
the Company believes that the presentation of these amounts based upon the domicile of the
customer would not result in material differences in the amounts
 
presented in this section.
 
Average balances and interest rates
The following tables show the Group’s
 
operations, average interest
 
-earning assets and average interest-bearing
liabilities, together with average rates,
 
for the periods indicated. The interest income, interest
 
expense and
average yield figures do not reflect interest
 
income and expense on derivatives and other interest income and
expense not considered to be directly related to interest
 
-bearing assets and liabilities. These items are reflected
in the corresponding interest income, interest
 
expense and net interest income figures in the consolidated
financial statements. A reconciliation of the interest
 
income, interest expense and net interest
 
income figures to
the corresponding line items in the consolidated financial statements
 
is provided hereunder.
 
 
ASSETS
Interest-earning assets
2020
2019
2018
Average
balance
Interest
income
Average
yield %
Average
balance
Interest
income
Average
yield %
Average
balance
Interest
income
Average
yield %
(EUR millions)
(EUR millions)
(EUR millions)
Time deposits with banks
domestic
3,495
39
1.1
4,516
49
1.1
3,418
41
1.2
foreign
4,788
57
1.2
4,433
121
2.7
4,199
201
4.8
Loans and advances
domestic
187,189
4,831
2.6
190,118
5,673
3.0
186,629
5,889
3.1
foreign
431,665
10,606
2.5
428,646
12,825
3.0
407,495
12,683
3.1
Securities purchased with
agreements to resell
domestic
5,242
3
0.1
3,722
52
1.4
789
4
0.5
foreign
55,682
573
1.0
63,337
1,939
3.1
74,788
1,670
2.2
Interest-earning securities
1
domestic
33,400
313
0.9
29,892
347
1.2
29,454
336
1.1
foreign
54,542
708
1.3
50,156
917
1.8
50,699
1,055
2.1
Other interest-earning assets
domestic
43,417
27
0.1
30,659
56
0.2
36,898
34
0.1
foreign
48,453
44
0.1
24,978
66
0.3
30,224
80
0.3
Total
867,875
17,201
2.0
830,456
22,047
2.7
824,594
21,994
2.7
Non-interest earning assets
48,761
54,459
59,345
Derivatives assets
29,423
25,322
27,432
Total assets
946,059
910,238
911,370
Percentage of assets
applicable to foreign
operations
69.7%
70.0%
70.2%
Interest income on
derivatives
 
4,546
5,499
5,556
Other
812
617
579
Total interest
 
income
22,559
28,163
28,129
1 Substantially all interest-earning securities held by the banking operations of the Company are taxable securities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Selected statistical information on banking operations
 
ING Group Annual Report 2020 on Form 20-F
243
 
 
LIABILITIES
Interest-bearing liabilities
2020
2019
2018
Average
balance
Interest
expense
Average
yield
Average
balance
Interest
expense
Average
yield
Average
balance
Interest
expense
Average
yield
(EUR millions)
%
(EUR millions)
%
(EUR millions)
%
Time deposits from banks
domestic
35,079
10
0.0
17,673
28
0.2
17,805
22
0.1
foreign
18,888
123
0.7
14,270
200
1.4
15,262
210
1.4
Demand deposits
domestic
82,639
121
0.1
66,667
498
0.7
60,679
289
0.5
foreign
124,337
12
0.0
108,193
32
0.0
95,977
29
–
Time deposits
1
domestic
11,798
129
1.1
14,019
336
2.4
21,746
391
1.8
foreign
9,538
132
1.4
14,114
300
2.1
14,607
259
1.8
Savings deposits
domestic
95,455
77
0.1
93,911
114
0.1
92,203
121
0.1
foreign
267,713
627
0.2
266,470
1,301
0.5
261,398
1,257
0.5
Securities sold under
agreements to repurchase
 
domestic
0
36
33
92.8
450
6
1.3
foreign
46,225
317
0.7
52,158
1,429
2.7
86,191
1,344
1.6
Commercial paper
domestic
10,127
12
0.1
13,554
21
0.2
13,746
22
0.2
foreign
13,360
163
1.2
14,143
350
2.5
20,006
436
2.2
Short term debt
domestic
8,995
97
1.1
9,005
159
1.8
4,507
73
1.6
foreign
3,389
28
0.8
3,784
55
1.5
11,515
116
1.0
Long term debt
domestic
64,418
1,387
2.2
72,012
1,700
2.4
55,080
1,548
2.8
foreign
14,994
234
1.6
14,110
317
2.2
12,765
781
6.1
Subordinated liabilities
domestic
16,676
616
3.7
15,304
664
4.3
16,444
721
4.4
foreign
–0
77
3
4.3
81
3
4.1
Other interest
‑
bearing
liabilities
domestic
2,960
31
1.1
1,472
113
7.6
3,777
94
2.5
foreign
8,173
44
0.5
9,101
121
1.3
10,040
119
1.2
Total
834,764
4,159
0.5
800,076
7,773
0.8
814,280
7,842
0.8
Non-interest bearing
liabilities
31,711
35,010
22,527
Derivatives liabilities
27,232
24,376
25,927
Total Liabilities
893,707
859,461
862,734
Group Capital
52,353
50,777
48,635
Total liabilities and capital
946,059
910,238
911,369
Percentage of liabilities
applicable to foreign
operations
62.3%
63.5%
65.2%
Other interest expense:
Interest expenses on
derivatives
4,227
5,925
6,212
other
622
654
114
Total interest
 
expense
9,007
14,353
14,169
Total net interest
 
result
13,552
13,811
13,960
 
1 These captions do not include deposits from banks.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Selected statistical information on banking operations
 
ING Group Annual Report 2020 on Form 20-F
244
 
Analysis of changes in net interest income
The following table allocates changes in the Group’s
 
operations’ interest income and expense and net interest
result between changes in average balances and rates
 
for the periods indicated. Changes due to a combination of
volume and rate have been allocated
 
to changes in average volume. The net changes in interest
 
income, interest
expense and net interest result, as calculated
 
in this table, have been reconciled to the changes in interest
income, interest expense and net interest
 
result in the consolidated financial statements. See introduction
 
to
“Average
 
Balances and Interest Rates” for a discussion of the differences
 
between interest income, interest
expense and net interest result as calculated
 
in the following table and as set forth in the consolidated financial
statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2020 over 2019
2019 over 2018
Increase (decrease)
due to changes in
Increase (decrease)
due to changes in
Average
volume
Average
rate
Net
change
Average
volume
Average
rate
Net
change
(EUR millions)
(EUR millions)
Interest-earning assets
Time deposits to banks
domestic
–11
1
–10
13
–5
8
foreign
10
–74
–64
11
–91
–80
Loans and advances
domestic
–78
–764
–842
122
–337
–216
foreign
96
–2,316
–2,220
682
–540
142
Securities purchased with agreements to
resell
Domestic
21
–69
–48
15
32
47
foreign
–234
–1,132
–1,366
–256
525
269
Interest-earning securities
Domestic
41
–75
–35
5
7
12
foreign
80
–290
–210
–11
–127
–138
Other interest-earning assets
domestic
23
–52
–29
–6
28
22
foreign
62
–84
–22
–14
–1
–15
Interest income
domestic
–4
–960
–964
149
–275
–126
foreign
14
–3,895
–3,882
412
–233
179
Total
9
–4,855
–4,846
561
–508
53
Other interest income
–759
–18
Total interest
 
income
–5,604
35
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Selected statistical information on banking operations
 
ING Group Annual Report 2020 on Form 20-F
245
 
2020 over 2019
2019 over 2018
Increase (decrease)
due to changes in
Increase (decrease)
due to changes in
Average
volume
Average
rate
Net
change
Average
volume
Average
rate
Net
change
(EUR millions)
(EUR millions)
Interest-bearing liabilities
Time deposits from banks
domestic
28
–46
–18
–0
7
7
foreign
65
–142
–77
–14
4
–9
Demand deposits
 
domestic
119
–496
–377
29
180
209
foreign
5
–24
–20
4
–1
3
Time deposits
domestic
–53
–154
–207
–139
84
–55
foreign
–97
–70
–167
–9
49
40
Savings deposits
domestic
2
–39
–37
2
–10
–8
foreign
6
–680
–674
25
18
44
Short term debt
domestic
–0
–62
–62
73
13
86
foreign
–6
–22
–27
–78
17
–61
Securities sold under agreements to
repurchase
 
domestic
–41
8
–33
–6
33
27
foreign
–162
–950
–1,113
–531
616
85
Commercial paper
domestic
–5
–4
–10
–0
–1
–1
foreign
–19
–168
–187
–128
41
–87
Long term debt
domestic
–179
–134
–313
476
–323
152
foreign
20
–103
–83
82
–547
–464
Subordinated liabilities
domestic
59
–107
–47
–50
–8
–58
foreign
–3
0
–3
–0
0
0
Other interest-bearing liabilities
domestic
114
–195
–81
–57
76
19
foreign
–12
–64
–77
–11
13
2
Interest expense
domestic
44
–1,230
–1,186
328
50
378
foreign
–205
–2,224
–2,428
–659
212
–447
Total
–161
–3,454
–3,615
–331
262
–69
Other interest expense
–1,731
253
Total interest
 
expense
–5,345
184
Net interest
domestic
–48
270
222
–179
–325
–504
foreign
218
–1,672
–1,454
1,071
–445
626
Net interest
170
–1,402
–1,231
893
–770
122
Other net interest result
 
972
–271
Net interest result
–259
–149
 
The following table shows the interest spread and net interest
 
margin for the past two years.
 
2020
2019
Average rate
Average rate
 
%
%
Interest spread
Domestic
1.1
 
1.2
 
Foreign
1.7
 
2.0
 
Total
1.5
 
1.7
 
Net interest margin
Domestic
1.0
 
1.0
 
Foreign
1.7
 
2.1
 
Total
1.5
 
1.7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Selected statistical information on banking operations
 
ING Group Annual Report 2020 on Form 20-F
246
 
Investments in debt securities
The following tables
 
show the weighted average yield of ING’s
 
investments on debt securities measured at
amortised cost and fair value through other comprehensive income. The weighted
 
average yield is calculated as
follows:
 
Nominal value * coupon rate * remaining maturity
 
Nominal value * remaining maturity
 
Weighted average
 
yield
2020
1 year or
less
Between
1 and 5
years
Between 5
and 10
years
Over 10
years
Fair value through other comprehensive income
Government bonds
1.90%
2.19%
0.98%
3.07%
Sub-sovereign, Supranationals and Agencies
2.61%
1.79%
1.03%
0.82%
Covered bonds
0.72%
0.44%
0.30%
Corporate bonds
2.03%
0.98%
0.13%
Financial institutions bonds
0.11%
1.21%
0.06%
ABS portfolio
0.13%
0.02%
(1) Since substantially all investment securities held by the banking operations of the Company are taxable securities, the yields are on tax-
equivalent basis.
 
Weighted average
 
yield
2020
1 year or
less
Between
1 and 5
years
Between 5
and 10
years
Over 10
years
Securities at amortised cost
Government bonds
3.37%
2.17%
1.29%
4.27%
Sub-sovereign, Supranationals and Agencies
2.08%
1.33%
0.53%
0.14%
Covered bonds
2.18%
0.67%
0.24%
Corporate bonds
0.26%
0.06%
0.08%
Financial institutions bonds
0.25%
0.94%
2.06%
ABS portfolio
0.16%
0.65%
(1) Since substantially all investment securities held by the banking operations of the Company are taxable securities, the yields are on tax-
equivalent basis.
 
 
Loan Portfolio
 
Loans and advances to banks and customers
 
Loans and advances to banks include all receivables from credit institutions, except
 
for cash, current accounts
and deposits with other banks (including central banks). Loans and advances to customers includes lending
facilities to corporate and private
 
customers encompass among others, loans, overdrafts
 
and finance lease
receivables.
 
 
Maturities and sensitivity of loans to changes in interest
 
rates
The following table analyses loans and advances to banks and customers by time remaining
 
until maturity as of
31 December 2020.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Selected statistical information on banking operations
 
ING Group Annual Report 2020 on Form 20-F
247
 
2020
1 year
or less
1 year
to 5 years
5 years
through 15
years
After 15
years
Total
By domestic offices:
Loans guaranteed by public authorities
1,758
2,229
19,998
307
24,292
Loans secured by mortgages
6,207
16,436
88,339
4,194
115,176
Loans guaranteed by credit institutions
7,091
568
87
7,747
Other private lending
1,256
902
861
3,019
Other corporate lending
21,828
12,206
3,366
194
37,594
Total domestic offices
38,140
32,341
112,652
4,695
187,827
By foreign offices:
Loans guaranteed by public authorities
4,205
6,145
5,828
1,032
17,210
Loans secured by mortgages
24,891
61,006
115,900
35,157
236,954
Loans guaranteed by credit institutions
16,604
3,236
2,981
14
22,836
Other private lending
6,931
12,346
5,042
456
24,776
Other corporate lending
52,432
65,760
16,625
711
135,527
Total foreign
 
offices
105,064
148,493
146,376
37,370
437,303
Total gross
 
loans and advances to banks and customers
143,204
180,834
259,028
42,065
625,130
 
The following table analyzes loans and advances to banks and customers
 
by interest rate sensitivity by maturity
as of 31 December 2020.
 
Predetermined
interest rates
Floating or
adjustable interest
rates
(1)
Loans guaranteed by public authorities
26,314
9,225
Loans secured by mortgages
219,225
101,829
Loans guaranteed by credit institutions
3,318
3,547
Other private lending
15,968
3,640
Other corporate lending
20,285
78,577
Total
285,109
196,817
 
(1)
 
Loans that have an interest rate that remains fixed
 
for more than one year and which can then be changed are classified as “adjustable
interest rates”.
 
Allowance for credit losses
 
The following table presents the movements in allocation of the provision for
 
loan losses on loans accounted for
as loans and advances to banks and customers for 2020, 2019 and 2018 under IFRS-IASB.
 
Movements in allocation of the provision for loan losses on loans
 
2020
2019
2018
Balance on 1 January
4,645
4,568
4,521
Effect of changes in accounting policy
795
Change in the composition of the Group
Write-offs
-1,200
-1,030
-1,044
Recoveries
39
55
53
Net write-offs
-1,160
-975
-992
Additions and other adjustments (included in value Adjustments
 
to receivables of the Banking
operations)
2,369
1,052
244
Balance on 31 December
5,854
4,645
4,568
Average loans and advances to banks and customers
645,134
644,139
616,140
Ratio of net charge
‑
offs to average loans and advances to banks
 
and customers
0.18%
0.15%
0.16%
Ratio of allowance for credit losses to total loans and advances to banks
 
and customers
outstanding
0.94%
0.72%
0.73%
 
The Covid-19 pandemic has affected all of ING’s
 
businesses. These effects have included increased volatility,
widening of credit spreads, and credit deterioration of loans to ING’s
 
customers. The 2020 risk costs were
impacted by a combination of increased collective provisioning reflecting the worsened
 
macro-economic
indicators and uncertainty,
 
higher Individual Stage 3 provisions, negative rating
 
migration and manual overlays to
address the risk on payment holidays and for the delay in potential
 
credit losses as a result of the Government
support measures. Reference is made to Note 1 ‘Accounting
 
policies’ and ‘Additional information
 
– Risk
Management’ for detailed information on loan loss provisioning.
 
Deposits
Reference is made to ‘Additional
 
information – Average balances and interest
 
rates’ for detailed information
 
on
average amount of and the average
 
rate paid on deposit categories.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
Selected statistical information on banking operations
 
ING Group Annual Report 2020 on Form 20-F
248
 
For the years ended 31 December 2020, 2019 and 2018 the aggregate amount of deposits by foreign
 
depositors
in domestic offices was EUR27,850 million EUR 27,649 million and EUR 27,586 million, respectively.
 
Uninsured deposits
For the years ended 31 December 2020 and 2019 the amount of uninsured deposits, which were not covered by
DGS, was EUR 171,802 million and EUR 164,793 million, respectively.
 
Deposit guarantee schemes (DGS) reimburse a limited amount to compensate
 
depositors whose bank has failed.
A fundamental principle underlying DGS is that they are funded entirely by banks, and that no taxpayer
 
funds are
used. Under EU rules, the Deposit Guarantee Scheme (DGS) guarantees deposits up to a maximum of EUR
100,000 per depositor in case of a bank failure.
 
 
On 31 December 2020, the amount of time deposits in excess of (local) deposit insurance regime and time
deposits which are otherwise uninsured is as follows:
 
Time deposits in excess on
deposit insurance regime
Other uninsured
 
Time deposits
(EUR millions)
(EUR millions)
3 months or less
2,352
11,754
6 months or less but over 3 months
523
2,401
12 months or less but over 6 months
406
914
Over 12 months
804
64,900
Total
4,085
79,969
 
For further detailed information on deposits reference
 
is made to Note 12 ‘Deposits from banks’ and Note 13 ‘
Customer deposits’ of the consolidated financial statements.
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
F -249
Contents
Report of Independent Registered Public Accounting Firm
F- 251
 
Consolidated financial statements
 
 
F-
F-
F-
F-
F-
 
Notes to the consolidated financial statements
 
 
 
Notes to the consolidated statement of financial position
F-
F-
F-
F-
F-
F-
F-
F-
F-
F-
F-
F-
F-
F-
F-
F-
F-
F-
 
Notes to the consolidated statement of profit or loss
F-
F-
F-
F-
F-
F-
F-
F-
F-
F-
 
Notes to the consolidated statement of cashflows
F-
F-
F-
 
 
ing20f2020p251i0.gif
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
F -251
To
 
the Shareholders and the Supervisory Board
ING Groep N.V.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of ING Groep N.V. and subsidiaries
(‘the Company’) as of December 31, 2020 and 2019, the related consolidated statements of profit or loss, comprehensive
income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and
the related notes
 
and specific disclosures described in Note 1 of the consolidated financial statements as being part of the
consolidated financial statements
(collectively: ‘the consolidated financial statements’). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020
and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2020, in conformity with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (‘PCAOB’), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria
established in
Internal Control – Integrated Framework (2013)
 
issued by the Committee of Sponsoring Organizations of
the Treadway Commission, and our report dated March 8, 2021 expressed an unqualified opinion on the effectiveness of
the Company’s internal control over financial reporting.
Changes in Accounting Principle
The
Company
changed its method of accounting for leases and financial instruments due to the adoption of International
Financial Reporting Standard 16, ‘
Leases
’ in 2019, the early adoption of the amendments to IAS 39 ‘
Financial
Instruments: Recognition and Measurement
’ and IFRS 7 ‘
Financial Instruments: Disclosures
’ in relation to the Interest
Rate Benchmark Reform in 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
 
 
 
 
 
 
 
 
 
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The Critical Audit Matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate
to accounts or disclosures that are material to the consolidated financial statements, and (2) involved our especially
challenging, subjective, or complex judgements. The communication of Critical Audit Matters does not alter in any way
our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the Critical
Audit Matters below, providing separate opinions on the Critical Audit Matters or on the accounts or disclosures to which
they relate.
Assessment of Expected Credit Losses on loans and advances to customers and banks
As discussed in the Credit Risk section of the annual report and in Note 3 and Note 7 to the consolidated financial
statements, the loans and advances to customers and loans and advances to banks amounts are
EUR 594 billion and
EUR 25 billion, respectively, as at December 31, 2020. Management considers the uncertainties of Covid-19 in the
estimate of Expected Credit Losses (‘ECL’), specifically regarding macroeconomic forecasts and behaviour of borrowers
subject to payment holidays and government stimulus plans. These loans and advances are measured at amortised cost,
less ECL of EUR 5.8 billion.
We identified the assessment of ECL on loans and advances to customers and banks as a Critical Audit Matter.
Significant and complex auditor judgement and specialised skills and knowledge were required to evaluate the following
elements of the overall estimate:
—
 
The judgements used to develop the probability of defaults (‘PD’), the loss given default (‘LGD’), and the exposure at
default (‘EAD’), including model or manually determined expected future recovery cash flows.
—
 
Use of forward
-
looking macroeconomic forecasts in the ECL, including GDP,
 
unemployment, and house pricing index.
 
—
 
Criteria for identifying significant increase in credit risk (‘SICR’).
 
—
 
Calculation of
management overlays to the ECL due to the increased uncertainty in the forecast of future economic
conditions and to calculate the default ratio of borrowers with payment holidays.
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
F -252
The following are the primary procedures we performed to address this Critical Audit Matter:
—
 
We evaluated the design and tested the operating effectiveness of certain internal controls related to the ECL
-
process
for loans and advances to customers and banks. This included controls related to the assumptions (including
macroeconomic forecasts, PD, LGD and EAD), review of model outputs, governance and monitoring of the ECL,
determination of credit risk ratings, the estimated future recovery cash flows of individual loan provisions and
management overlays recorded to ECL.
—
 
We invol
ved credit risk professionals with speciali
s
ed skills and knowledge who assisted in evaluating the
assumptions to determine the PD, LGD, and EAD parameters in models used by the Company to determine the
collective provisions, and assessing management overlays recorded to the ECL, including payment holiday and time
lag overlays. This included reperforming back testing of certain models to evaluate current model performance. We
considered the impact these overlays have on model calculations and results when reaching our conclusions.
—
 
We involved economic professionals with speciali
s
ed skills and knowledge who assisted in assessing the Company’s
methodology to determine the macroeconomic forecasts used in the ECL. We tested the reasonableness of
management’s forecasts against other external benchmarks and our own internal forecasts.
—
 
We involved corporate finance professionals with speciali
s
ed skills and knowledge who assisted in examining the
methodologies, cash flows and collateral values used in expected future recovery cash flow assessments of individual
loan provisions for impaired loans. We challenged management’s use of recovery scenarios and expected cash flows
considering industry trends and comparable benchmarks, and recalculated recovery amounts.
—
 
We eval
uated the identification of significant increase in credit risk in loans by challenging the scope of management
’
s
criteria used in staging assessments, the thresholds applied within each criterion, and the ability of staging criteria to
identify SICR prior to loans being credit impaired.
 
Assessment of goodwill impairment
As discussed in Note 10 to the consolidated financial statements, goodwill was EUR 533 million as at December 31,
2020. Management conducts an impairment test annually in accordance with IAS 36, and whenever events or changes in
circumstances indicate that the carrying value of a Cash Generating Unit (‘CGU’) may exceed its recoverable amount. As
a result of the negative developments in the macroeconomic outlook in the context of the Covid-19 pandemic, the
recoverable amount of goodwill has declined. The recoverable amount is estimated as the higher of fair value less cost of
disposal and value in use (‘VIU’) of each CGU based on management’s dividend discount model.
We identified the assessment of goodwill impairment as a Critical Audit Matter. There was a high degree of estimation
uncertainty due to the sensitivity of assumptions used in the VIU-calculations and in identifying events or changes in
circumstances that could be an indicator of impairment requiring complex auditor judgement. Specifically, forecasts,
terminal growth rates, discount rates and capital ratios were challenging to test as minor changes to those assumptions
had a significant effect on the Company’s assessment of the recoverable amount. We performed sensitivity analyses to
determine the significant assumptions used, which required challenging auditor judgement. Additionally, the audit effort
associated with this estimate required specialised skills and knowledge.
The following are the primary procedures we performed to address this Critical Audit Matter:
—
 
We identified
 
events or changes in circumstances and
tested
 
management’s process for determining the recoverable
amount of each CGU.
—
 
We evaluated the reasonableness of the Company’s forecasts and cash
 
flows for the individual CGUs by challenging
the forecasts and comparing the assumptions to historical performance.
 
—
 
We involved valuation professionals with speciali
s
ed skills and knowledge who assisted in:
 
•
 
evaluating the mathematical accuracy of the model by recalculation of the discount rates and terminal value
calculations included in the model and assessment of the consistency of applied formulas;
•
 
assessing the reasonableness of certain assumptions applied in the model including capital ratios (by comparing
with analyst consensus data for comparable entities), terminal growth rates (by comparing per country the
terminal growth rates applied to long term inflation) and discount rates (by independently deriving the risk fee rate
for cost of equity per country based on observable market data).
/s/ KPMG Accountants N.V.
We have served as the Company’s auditor since 2016.
Amstelveen, The Netherlands
March 8, 2021
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
F -253
Consolidated statement
 
of financial position
As at 31 December
in EUR million
2020
2019
2020
2019
Assets
Liabilities
Cash and balances with central banks
 
2
111,087
53,202
Deposits from banks
 
12
78,098
34,826
Loans and advances to banks
 
3
25,364
35,136
Customer deposits
 
13
609,517
574,355
Financial assets at fair value through profit or loss
 
4
Financial liabilities at fair value through profit or loss
 
14
– Trading assets
51,356
49,254
– Trading liabilities
32,709
28,042
– Non-trading derivatives
3,583
2,257
– Non-trading derivatives
1,629
2,215
– Designated as at fair value through profit or loss
4,126
3,076
– Designated as at fair value through profit or loss
48,444
47,684
– Mandatorily at fair value through profit or loss
44,305
41,600
Current tax liabilities
342
554
Financial assets at fair value through other comprehensive income
 
5
35,895
34,468
Deferred tax liabilities
 
37
343
322
Securities at amortised cost
 
6
50,587
46,108
Provisions
 
15
691
688
Loans and advances to customers
 
7
593,970
608,029
Other liabilities
 
16
11,609
12,829
Investments in associates and joint ventures
 
8
1,475
1,790
Debt securities in issue
 
17
82,065
118,528
Property and equipment
 
9
2,841
3,172
Subordinated loans
 
18
15,805
16,588
Intangible assets
 
10
1,394
1,916
Total liabilities
881,250
836,631
Current tax assets
419
251
Deferred tax assets
 
37
1,596
1,242
Equity
 
19
Other assets
 
11
5,893
7,018
Share capital and share premium
17,128
17,117
Other reserves
2,342
4,013
Retained earnings
32,149
29,866
Shareholders’ equity (parent)
51,619
50,996
Non-controlling interests
1,022
893
Total equity
52,640
51,889
Total assets
933,891
888,520
Total liabilities and equity
933,891
888,520
 
References relate
 
to the accompanying notes. These are an integral part of the Consolidated financial
statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
F -254
Consolidated statement
 
of profit or loss
 
for the years ended 31 December
in EUR million
2020
2019
2018
2020
2019
2018
Continuing operations
Interest income using effective interest
 
rate method
20,715
25,056
25,249
Addition to loan loss provisions
 
7
2,675
1,120
656
Other interest income
1,843
3,107
2,880
Staff expenses
 
27
5,812
5,755
5,420
Total interest
 
income
 
22,559
28,163
28,129
Other operating expenses
 
28
5,341
4,598
5,262
Total expenses
 
13,828
11,472
11,338
Interest expense using effective
 
interest rate method
-7,402
-11,268
-11,171
Other interest expense
-1,605
-3,084
-2,997
Result before tax from continuing
 
operations
3,399
5,653
6,986
Total interest
 
expense
 
-9,007
-14,353
-14,169
Taxation
 
37
1,070
1,652
2,116
Net interest income
 
20
13,552
13,811
13,960
Net result from continuing operations
2,329
4,001
4,869
Fee and commission income
4,514
4,439
4,240
Net result (before non-controlling interests)
2,329
4,001
4,869
Fee and commission expense
-1,503
-1,571
-1,442
Net result attributable to Non-controlling interests
78
99
108
Net fee and commission income
 
21
3,011
2,868
2,798
Net result attributable to shareholders of the parent
2,250
3,903
4,761
Valuation results and net trading income
 
22
474
-159
1,227
in EUR
Earnings per ordinary share
 
29
Investment income
 
23
152
188
183
Basic earnings per ordinary share
0.58
1.00
1.22
Share of result from associates and joint ventures
 
8
66
82
146
Diluted earnings per ordinary share
0.58
1.00
1.22
Impairment of associates and joint ventures
 
8
-235
-34
-3
Result on disposal of group companies
 
24
-3
117
-123
Earnings per ordinary share from continuing operations
 
29
Net result on derecognition of financial assets measured at amortised cost
 
25
189
38
18
Basic earnings per ordinary share from continuing operations
0.58
1.00
1.22
Other income
 
26
20
214
118
Diluted earnings per ordinary share from continuing operations
0.58
1.00
1.22
Total income
17,227
17,125
18,324
Dividend per ordinary share
 
30
0.12
0.24
0.68
 
References relate
 
to the accompanying notes. These are an integral part of the Consolidated financial
statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
F -255
Consolidated statement
 
of comprehensive income
for the years ended 31 December
in EUR million
2020
2019
2018
Net result (before non-controlling interests)
2,329
4,001
4,869
Other comprehensive income
Items that will not be reclassified to the statement of profit or loss:
Realised and unrealised revaluations property in own use
-7
58
1
Remeasurement of the net defined benefit asset/liability
 
36
28
58
6
Net change in fair value of equity instruments at FVOCI
-335
139
-461
Change in fair value of own credit risk of financial liabilities at FVPL
-19
-116
199
Items that may subsequently be reclassified to the statement
 
of profit or loss:
Net change in fair value of debt instruments at FVOCI
25
-42
-177
Realised gains/losses on debt instruments at FVOCI reclassified to the statement
 
of profit or
loss
-34
-34
-56
Changes in cash flow hedge reserve
355
640
382
Exchange rate differences
-1,620
-29
-396
Share of other comprehensive income of associates and joint ventures and
 
other income
6
14
Total comprehensive
 
income
728
4,674
4,381
Comprehensive income attributable to:
Non-controlling interests
133
142
132
Equity holders of the parent
595
4,532
4,250
728
4,674
4,381
 
References relate
 
to the accompanying notes. These are an integral part of the Consolidated financial
statements.
 
For the disclosure on the income tax effects on each component of the other comprehensive
 
income reference is
made to Note 37 ‘Taxation’.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
F -256
Consolidated statement
 
of changes in equity
For the years ended 31 December
in EUR million
Share capital
and share
premium
Other
reserves
Retained
earnings
Shareholders'
equity (parent)
Non-
controlling
interests
Total
equity
Balance as at 31 December 2019
17,117
4,013
29,866
50,996
893
51,889
Net change in fair value of equity instruments at fair value through
 
other comprehensive income
-399
62
-337
2
-335
Net change in fair value of debt instruments at fair value
 
through other comprehensive income
20
20
5
25
Realised gains/losses on debt instruments at fair value through
 
other comprehensive income reclassified to the statement of profit
 
or loss
-33
-33
-1
-34
Changes in cash flow hedge reserve
242
242
112
355
Realised and unrealised revaluations property in own use
-33
26
-7
-0
-7
Remeasurement of the net defined benefit asset/liability
 
36
28
28
28
Exchange rate differences
 
and other
-1,557
-1,557
-63
-1,620
Share of other comprehensive income of associates and joint ventures and
 
other income
-37
43
6
6
Change in fair value of own credit risk of financial liabilities at fair value through
 
profit or loss
-3
-16
-19
-19
Total amount recognised
 
directly in other comprehensive income net of tax
-1,770
114
-1,656
55
-1,601
Net result
94
2,156
2,250
78
2,329
Total comprehensive
 
income net of tax
-1,676
2,271
595
133
728
Dividends
 
30
-3
-3
Changes in treasury shares
5
5
5
Employee stock option and share plans
11
11
22
0
22
Changes in the composition of the group and other changes
-1
-1
Balance as at 31 December 2020
17,128
2,342
32,149
51,619
1,022
52,640
 
References relate
 
to the accompanying notes. These are an integral part of the Consolidated
 
financial
statements.
Changes in individual Reserve components are presented in Note 19 ‘Equity’.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
F -257
Consolidated statement
 
of changes in equity - continued
For the years ended 31 December
in EUR million
Share
capital and
share
premium
Other
reserves
Retained
earnings
Share-
holders'
equity
(parent)
Non-
controlling
interests
Total
equity
Balance as at 31 December 2018
17,088
3,621
28,339
49,049
803
49,851
Net change in fair value of equity instruments at fair value through
 
other comprehensive income
 
-335
472
137
1
139
Net change in fair value of debt instruments at fair value
 
through other comprehensive income
 
-43
-43
1
-42
Realised gains/losses on debt instruments at fair value through
 
other comprehensive income reclassified to the statement of profit
 
or loss
-33
-33
-1
-34
Changes in cash flow hedge reserve
604
604
36
640
Realised and unrealised revaluations property in own use
49
9
58
-0
58
Remeasurement of the net defined benefit asset/liability
 
36
58
58
58
Exchange rate differences
 
and other
-36
-36
7
-29
Share of other comprehensive income of associates and joint ventures and
 
other income
69
-69
Change in fair value of own credit risk of financial liabilities at fair value through
 
profit or loss
-123
6
-116
-116
Total amount recognised
 
directly in other comprehensive income net of tax
211
418
629
44
673
Net result
180
3,723
3,903
99
4,001
Total comprehensive
 
income net of tax
391
4,141
4,532
142
4,674
Dividends
 
30
-2,650
-2,650
-29
-2,679
Changes in treasury shares
1
1
1
Employee stock option and share plans
28
13
41
0
41
Changes in the composition of the group and other changes
23
23
-23
-0
Balance as at 31 December 2019
17,117
4,013
29,866
50,996
893
51,889
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
F -258
Consolidated statement
 
of changes in equity - continued
For the years ended 31 December
in EUR million
Share capital
and share
premium
Other
reserves
Retained
earnings
Shareholders'
equity (parent)
Non-controlling
interests
Total
equity
Balance as at 31 December 2017
17,045
4,362
27,022
48,429
715
49,144
Effect of change in accounting policy due to implementation
 
of IFRS 9
-604
-390
-993
-14
-1,008
Balance as at 1 January 2018
17,045
3,759
26,632
47,435
700
48,136
Net change in fair value of equity instruments at fair value through
 
other comprehensive income
 
-518
56
-461
0
-461
Net change in fair value of debt instruments at fair value
 
through other comprehensive income
 
-177
-177
0
-177
Realised gains/losses on debt instruments at fair value through
 
other comprehensive income reclassified to the statement of profit
 
or loss
-54
-54
-2
-56
Changes in cash flow hedge reserve
342
342
41
382
Realised and unrealised revaluations property in own use
-2
3
1
-0
1
Remeasurement of the net defined benefit asset/liability
 
36
6
6
6
Exchange rate differences
 
and other
-380
-380
-16
-396
Share of other comprehensive income of associates and joint ventures and
 
other income
283
-270
14
14
Change in fair value of own credit risk of financial liabilities at fair value through
 
profit or loss
199
199
199
Total amount recognised
 
directly in other comprehensive income net of tax
-301
-211
-512
24
-488
Net result
160
4,601
4,761
108
4,869
Total comprehensive
 
income net of tax
-141
4,391
4,250
132
4,381
Dividends
 
30
-2,607
-2,607
-61
-2,668
Changes in treasury shares
4
4
4
Employee stock option and share plans
44
19
63
0
63
Changes in the composition of the group and other changes
 
1
-96
-96
31
-65
Balance as at 31 December 2018
17,088
3,621
28,339
49,049
803
49,851
 
1 Includes an amount for the initial recognition of the redemption liability related to the acquisition of Payvision Holding B.V.
 
and
Makelaarsland B.V.
 
that reduces the Retained earnings of the Group.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
F -259
Consolidated statement
 
of cash flows
for the years ended 31 December
in EUR million
2020
2019
2018
2020
2019
2018
Cash flows from operating activities
31
Disposals and redemptions:
– Associates and joint ventures
24
67
116
Result before tax
3,399
5,653
6,986
– Disposal of subsidiaries, net of cash disposed
-3
Adjusted for:
– Depreciation and amortisation
829
789
520
- Financial assets at fair value through other
comprehensive income
14,571
13,390
15,657
– Addition to loan loss provisions
2,675
1,120
656
- Securities at amortised cost
31,918
13,001
18,709
– Other non-cash items in Result before tax
1,671
1,213
-1,763
– Property and equipment
75
81
17
Taxation
 
paid
-1,734
-2,345
-1,602
– Loans sold
744
206
Changes in:
–
 
Net change in Loans and advances to/from banks, not
available/payable on demand
53,078
-3,911
-211
– Other investments
12
34
–
 
Net change in Trading assets and Trading
 
liabilities
2,566
-2,568
9,910
Net cash flow from/(used in) investing activities
 
-8,487
-2,495
5,451
–
 
Loans and advances to customers
2,876
-16,687
-31,356
–
 
Customer deposits
39,740
18,040
19,709
Cash flows from financing activities
–
 
Other
31
-3,856
11,752
4,067
Proceeds from debt securities
65,308
90,793
152,543
Net cash flow from/(used in) operating activities
 
101,243
13,055
6,915
Repayments of debt securities
-99,212
-94,497
-131,170
Proceeds from issuance of subordinated loans
2,165
3,429
1,859
Cash flows from investing activities
Repayments of subordinated loans
-2,786
-933
-4,646
Investments and advances:
- Acquisition of subsidiaries, net of cash acquired
-17
-111
Repayments of principal portion of lease liabilities
 
1
-273
-271
n/a
- Associates and joint ventures
-24
-507
-97
Purchase/sale of treasury shares
5
1
4
- Financial assets at fair value through other comprehensive
income
-16,949
-16,270
-10,517
Dividends paid
-3
-2,679
-2,607
- Securities at amortised cost
-37,522
-12,268
-17,985
Other financing
-1
2
– Property and equipment
-287
-355
-286
Net cash flow from/(used in) financing activities
-34,796
-4,154
15,983
– Other investments
-300
-395
-258
Net cash flow
57,960
6,406
28,349
Cash and cash equivalents at beginning of year
33
54,031
47,529
18,977
Effect of exchange
 
rate changes on cash and cash equivalents
-425
95
204
Cash and cash equivalents at end of year
33
111,566
54,031
47,529
 
1 The amounts for
 
the period ended 31 December 2020 and 2019 have been prepared in accordance with IFRS 16. 2018 period amounts
have not been restated.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group Annual Report 2020 on Form 20-F
F -260
Consolidated statement
 
of cash flows - continued
As at 31 December 2020, Cash and cash equivalents includes cash and balances with central banks of EUR
111,087 million (2019: EUR 53,202 million; 2018: EUR 49,987 million). The increase in cash and balances with
central banks was mainly driven by ING’s
 
participation of EUR 59.5 billion in the targeted longer-term
 
refinancing
operations (TLTRO
 
III) in 2020, which was mainly placed on deposit with the ECB as at 31 December and by
increased customer deposits. Reference is made to
 
Note 33 ‘Cash and cash equivalents’.
 
 
References relate
 
to the accompanying notes. These are an integral part of the Consolidated financial
statements.
 
The table below presents the Interest and dividend received and paid.
2020
2019
2018
Interest received
23,352
28,957
28,722
Interest paid
-9,672
-14,550
-14,948
13,680
14,407
13,774
Dividend received
1
144
219
183
Dividend paid
-3
-2,679
-2,607
 
1
 
Includes dividends received as recognized within Investment Income, from equity securities included in the Financial assets at fair value
through profit or loss, Financial assets at fair value through OCI, and from Investments in associates and joint ventures.
 
Dividend paid and
received from trading positions have been included.
 
Interest received, interest
 
paid and dividends received are included in operating activities in the Consolidated
statement of cash flow.
 
Dividend paid is included in financing activities in the Consolidated statement of cash
flow.
 
 
 
 
 
 
 
>
 
1
 
Basis of preparation and accounting policies
 
ING Group Annual Report 2020 on Form 20-F
F -261
Notes to the Consolidated financial statements
1
 
Basis of preparation and accounting policies
 
1.1 Reporting entity and authorisation of the Consolidated financial statements
ING Groep N.V.
 
is a company domiciled in Amsterdam, the Netherlands. Commercial Register of Amsterdam,
number 33231073. These Consolidated financial statements, as at and for the year ended 31 December 2020,
comprise ING Groep N.V.
 
(the Parent company) and its subsidiaries, together referred
 
to as ING Group. ING
Group is a global financial institution with a strong European base, offering a wide range of retail
 
and
wholesale banking services to customers in over 40 countries.
 
 
The ING Group Consolidated financial statements, as at and for
 
the year ended 31 December 2020, were
authorised for issue in accordance with a resolution of the Executive Board on 8 March 2021.
 
1.2 Basis of preparation of the Consolidated financial statements
 
The ING Group Consolidated financial statements have
 
been prepared in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board
 
for purposes of
reporting with the U.S. Securities and Exchange Commission (SEC), including financial information contained
 
in
this Annual report on Form 20-F.
 
The term ‘IFRS-IASB’ is used to refer to International
 
Financial Reporting
Standards as issued by the International Accounting Standards Board, including the decisions ING Group
 
made
with regard to the options available under IFRS-IASB.
 
The ING Group Consolidated financial statements have
 
been prepared on a going concern basis and there are
no significant doubts about the ability of ING Group to continue as a going concern. In 2020 ING Group’s
 
capital
and liquidity position remained strong despite the Covid-19 impact and ING Group has sufficient buffers
 
to
withstand certain adverse scenarios without breaching currently applicable and likely
 
future requirements.
 
The consolidated financial statements are presented
 
in euros and rounded to the nearest million, unless stated
otherwise. Amounts may not add up due to rounding.
 
1.2.1 Presentation of Risk management disclosures
To improve
 
transparency,
 
reduce duplication and present related information
 
in one place, certain disclosures
of the nature and extent of risks related to financial instruments
 
required by IFRS 7 ‘Financial instruments:
Disclosures’ are included in the ‘Risk management’ section of the Annual Report.
 
These disclosures are an integral part of ING Group Consolidated financial statements
 
and are indicated in the
‘Risk management’ section by the symbol (*). Chapters, paragraphs, graphs or tables within the risk
management section that are indicated with this symbol in the respective
 
headings or table header are
considered to be an integral part of the consolidated financial statements.
 
1.2.2 Reconciliation between IFRS-EU and IFRS-IASB
The published 2020 Annual Accounts of ING Group are prepared in accordance with IFRS-EU. IFRS
 
-EU refers to
International Financial Reporting Standards (‘IFRS’) as adopted
 
by the European Union (EU), including the
decisions ING Group made with regard to the options available under IFRS
 
as adopted by the EU. IFRS-EU
differs from IFRS-IASB in respect of certain paragraphs
 
in IAS 39 ‘Financial Instruments: Recognition and
Measurement’ regarding hedge accounting for portfolio hedges of interest
 
rate risk.
 
Under IFRS-EU, ING Group applies fair value hedge accounting for
 
portfolio hedges of interest rate
 
risk (fair
value macro hedges) in accordance with the EU carve-out version of IAS 39. Under the EU IAS 39 carve-out,
hedge accounting may be applied, in respect of fair value macro hedges, to
 
core deposits and hedge
ineffectiveness is only recognised when the revised estimate
 
of the amount of cash flows in scheduled time
buckets falls below the original designated amount of that bucket
 
and is not recognised when the revised
amount of cash flows in scheduled time buckets is more than the original designated amount. Under IFRS-IASB,
hedge accounting for fair value macro hedges cannot
 
be applied to core deposits and ineffectiveness arises
whenever the revised estimate of the amount of cash flows in scheduled time buckets
 
is either more or less
than the original designated amount of that bucket.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
1
 
Basis of preparation and accounting policies
 
ING Group Annual Report 2020 on Form 20-F
F -262
This information is prepared by reversing
 
the hedge accounting impacts that are applied under the EU ‘carve-
out’ version of IAS 39. Financial information under IFRS-IASB accordingly does not take account
 
of the
possibility that had ING Group applied IFRS-IASB as its primary accounting framework it might have applied
alternative hedge strategies where
 
those alternative hedge strategies could have
 
qualified for IFRS-IASB
compliant hedge accounting. These decisions could have resulted in different
 
shareholders’ equity and net
result amounts compared to those indicated in this Annual Report on Form 20-F.
 
A reconciliation between IFRS-EU and IFRS-IASB is included below.
Both IFRS-EU and IFRS-IASB differ in several areas
 
from accounting principles generally accepted in the United
States of America (US GAAP).
 
Reconciliation net result under IFRS-EU and IFRS-IASB
Net result
2020
2019
2018
In accordance with IFRS-EU (attributable to the shareholders of the parent)
2,485
4,781
4,703
Adjustment of the EU IAS 39 carve-out
-410
-1,181
148
Tax effect
 
of the adjustment
1)
176
303
-90
Effect of adjustment after tax
-234
-878
58
In accordance with IFRS-IASB (attributable to the shareholders of the parent)
2,250
3,903
4,761
Non-controlling interests
78
99
108
In accordance with IFRS-IASB Total
 
net result
2,329
4,001
4,869
1)
 
includes the effect of changes in tax rate.
 
 
Reconciliation shareholders’ equity under IFRS-EU and IFRS-IASB
Total Equity
2020
2019
2018
In accordance with IFRS-EU (attributable to the shareholders of the parent)
54,637
53,769
50,932
Adjustment of the EU IAS 39 carve-out
-4,081
-3,658
-2,460
Tax effect
 
of the adjustment
1,063
885
577
Effect of adjustment after tax
-3,018
-2,773
-1,883
Shareholders’ equity
51,619
50,996
49,049
Non-controlling interests
1,022
893
803
In accordance with IFRS-IASB Total
 
Equity
52,640
51,889
49,851
 
 
1.3 Impact of Covid-19
After the outbreak of the Covid-19 pandemic, various governments issued programs offering
 
guarantee
schemes for borrowers impacted by Covid-19. As at 31 December 2020 ING Group provided
 
approximately EUR
1.5 billion of loans under these programs.
 
 
In Wholesale Banking the main schemes are being offered in the Netherlands (Corporate Finance Guarantee
Scheme (“GO-C”)), in France (state-guarantee scheme Bpifrance) and Germany
 
(guaranteed by KWF).
 
In Retail Banking these facilities include in the Netherlands the SME Credit Guarantee Scheme (“BMKB-C”) and
the small credit facility (“Klein Krediet Corona” or KKC)
 
for self-employed individuals. Similar facilities are
offered by ING Group in other countries, mainly in Belgium and Poland. ING Belgium provided
 
in 2020 loans
under the state guarantee scheme GS1 which establishes risk sharing between banks
 
and the government. It
applies to new loans to non-financial companies, SME and self-employed persons under certain
 
conditions. ING
Bank Poland signed an agreement with BGK (Polish State Development
 
Bank) to support clients with individual
guarantee schemes, provided by BGK as a collateral
 
(equivalent to a state guarantee).
 
Loans that have been originated under the above programs have
 
been recognized on the consolidated
statement of financial position of ING Group. Depending on the scheme, the guarantees received are
 
either
integral or non-integral to the origination of these loans. Following this, the
 
guarantees are either reflected in
the expected credit losses (ECL) associated with these loans or as separate
 
reimbursement asset, respectively.
 
 
 
 
 
 
 
>
 
1
 
Basis of preparation and accounting policies
 
ING Group Annual Report 2020 on Form 20-F
F -263
In either case, such guarantees have a similar impact on the statement
 
of profit or loss and both reduce the
amount presented as ‘addition to loan loss provisions’.
 
In November 2020 ING Group announced an initiative with European Investment
 
Bank to lend nearly EUR 800
million on favorable terms to Dutch small and medium-sized
 
enterprises that are affected by
 
the economic
impact of Covid-19. Loans originated under this program will be recognized on the statement
 
of financial
position of ING Group as from 2021.
 
Governments in almost all countries where ING Retail bank is active have
 
adopted measures providing for
payment holidays to private individuals and small business loans. As of the end of December,
 
approximately
196 thousand customers were granted
 
payment holidays in the context
 
of the Covid-19 pandemic. The total
exposure of loans for which a payment holiday is granted
 
amounts to EUR 19.4 billion as at 31 December 2020.
 
 
The modification of contractual terms of loans subject to payment holiday arrangements
 
does not
automatically result in derecognition of the financial assets. Where applicable, the carrying amount of the
financial asset has been recalculated as the present value of the renegotiated or modified contractual
 
cash
flows, discounted at the original effective interest
 
rate and a gain or loss was recognized. This did not have
 
a
material impact on the profit or loss statement of ING Group.
 
 
The various measures by governments and ING Group to alleviate the impact of Covid-19 also impacts the
classification of assets as forborne. Based on European Banking Authority (EBA) Guidelines, assets that were
subject to Covid-19 payment holidays granted
 
before 30 September 2020 were not classified as forborne. As a
result, these payment holidays did not automatically trigger recognition
 
of lifetime Expected Credit Loss (ECL).
Payment holidays granted
 
that were outside the scope of these Guidelines or granted after 30 September 2020
did trigger the recognition of lifetime ECL. Reference is made to
 
the ‘Credit risk’ paragraph of the ‘Risk
management’
 
section.
 
As a result of the economic effects of Covid-19 estimation uncertainty and level
 
of management judgement
increased in 2020 in the areas of impairment assessment of loan loss provisions (including the need for
management adjustments), non-financial assets and associated companies, and the determination
 
of the fair
values of financial assets and liabilities. Reference is made to paragraph
 
1.5 ‘Significant judgements and critical
accounting estimates and assumptions’ for further explanation.
 
Over the course of 2020 the European Central Bank (ECB) decided on a number of modifications to
 
the terms
and conditions of its Targeted
 
Longer-term Refinancing Operations
 
(TLTRO III) in order to
 
support further the
provision of credit to households and firms in the face of the current economic disruption and heightened
uncertainty caused by the Covid-19 pandemic. ING
 
Group has borrowed EUR 59.5 billion under the TLTRO
 
III
program during 2020. Reference is made to paragraph
 
1.6 ‘Other Developments’.
 
1.4 Changes to accounting policies and presentation
ING Group has consistently applied its accounting policies to all periods presented in these Consolidated
financial statements, except for
 
changes due to the introduction of IFRS 16 ‘Leases’ in 2019. Comparatives
were not restated when applying IFRS 16.
 
Furthermore,
 
ING Group has already early adopted in 2019 the Interest Rate
 
Benchmark Reform (Phase 1)
amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement’ and IFRS 7 ‘Financial
Instruments: Disclosures’.
 
These amendments have been adopted retrospectively to hedging relationships
 
that
existed at the start of 2019 or were designated
 
thereafter.
 
The amendments provide temporary relief from
applying specific hedge accounting requirements to hedging relationships directly affected
 
by IBOR reform. The
amendments require certain additional disclosures and have no further impact. Refer
 
ence is made to
paragraph 1.7.4 ‘Derivatives and hedge accounting’ of this note and to note 39 ‘Derivatives and
 
hedge
accounting’ for more information on the adoption of these amendments.
 
In 2020 ING Group presented separately on the face
 
of the Statement of Profit or Loss the following two lines
(including comparatives): ‘Impairment of associates and joint ventures’
 
and ‘Net result on derecognition of
financial assets measured at amortised cost’.
 
These lines were not presented separately in prior years
 
given the
size of the amounts, but were included in ‘Share of result from associates and joint ventures’
 
and ‘Other
income’ respectively.
 
1.4.1 Changes in IFRS effective in 2020
The changes in IFRS that became effective in 2020 did not have
 
a significant impact on ING Group’s accounting
policies, ING Group’s results or financial position:
●
 
Amendments to IFRS 3 ‘Business Combinations’: Definition of a Business (issued in October 2018);
 
●
 
Amendments to IAS 1 and IAS 8: ‘Definition of Material’ (issued in October 2018); and
 
●
 
Amendments to References to the Conceptual Framework
 
in IFRS Standards (issued in March 2018).
 
 
 
 
 
 
 
 
 
 
 
 
>
 
1
 
Basis of preparation and accounting policies
 
ING Group Annual Report 2020 on Form 20-F
F -264
ING Group has not early adopted any other standard, interpretation
 
or amendment in 2020 which has been
issued, but is not yet effective.
 
1.4.2 Upcoming changes in IFRS after 2020
The following published amendments are not mandatory for 2020 and have not been early adopted by ING
Group. ING Group is still currently assessing the detailed impact of these amendments. However,
 
the
implementation of these amendments is expected to have no significant
 
impact on ING Group’s Consolidated
financial statements, apart from IBOR Phase 2 amendments, the impact of which is explained below.
 
The list of upcoming changes to IFRS, which are applicable for ING Group:
 
 
Effective in 2021:
 
In May 2020 the IASB issued amendments to IFRS 16 ‘Leases’: ‘Covid-19-Related Rent Concessions’ to
 
provide
lessees with an exemption from assessing whether a Covid-19-related rent
 
concession is a lease modification.
The amendments are effective for annual reporting periods beginning on or after
 
1 June 2020, with early
application permitted. Once they become effective
 
for ING Group in 2021, the amendments will not have
material impact on ING Group’s accounting
 
policies, ING Group’s results or financial position. In 2020 ING
Group did not receive rent concessions as a lessee. This is why the amendments were not relevant
 
and, hence,
not early adopted by ING Group in 2020.
 
 
In August 2020, the IASB issued amendments to IFRS 9 ‘Financial Instruments’,
 
IAS 39 ‘Financial Instruments:
Recognition and Measurement’,
 
IFRS 16 ‘Leases’,
 
IFRS 4 ‘Insurance Contracts’ and IFRS 7 ‘Financial Instruments:
Disclosures’: ‘IBOR Reform and its Effects
 
on Financial Reporting – Phase 2’.
 
Phase 2 amendments relate mainly
to accounting for changes in the basis for determining the contractual
 
cash flows of financial assets and
liabilities due to the IBOR reform and impact on hedge accounting when an existing benchmark rate
 
is
reformed or replaced with an alternative risk free rate.
 
Specifically, for
 
ING Group, the main elements of the
Phase 2 amendments are that the effective interest
 
rate on debt financial instruments will be adjusted, and
hedge accounting will continue on transition to risk free rates,
 
but only to the extent that the modifications
made to financial instruments are those necessary to implement IBOR Reform and that the new basis for
calculating cash flows is ‘economically equivalent’ to the previous basis. When ING Group applies
 
these
amendments, ING Group would avoid recognising modification gains
 
and losses on debt instruments that
would otherwise be required in the absence of Phase 2 amendments. In addition, when ING Group applies
Phase 2 amendments, ING Group will avoid hedge accounting discontinuations when modifying both hedged
items and hedging instruments as a consequence of IBOR reform that would otherwise be required in the
absence of Phase 2 amendments. When ING Group applies Phase 2 amendments, certain additional disclosures
will need to be provided.
 
The Phase 2 amendments are effective for annual reporting periods beginning on or after
 
1 January 2021, with
early application permitted.
 
 
ING Group did not early adopt Phase 2 amendments in 2020 as Phase 2 reliefs were largely not yet
 
relevant for
ING Group.
 
During 2021, ING Group commenced the process of amending contracts which reference
 
LIBORs
that are at risk, with a focus on those being decommissioned by 31 December 2021 with alternative benchmark
rates. This is the period when Phase 2 amendments will become relevant (and mandatorily effective)
 
for ING
Group.
 
Effective in 2022:
 
●
 
Amendments to IFRS 3 ‘Business Combinations’: Reference
 
to the Conceptual Framework (issued in May
2020).
●
 
Amendments to IAS 16 ‘Property,
 
Plant and Equipment’: Proceeds before Intended Use (issued in May
2020).
●
 
Amendments to IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’:
 
Onerous Contracts —
Cost of Fulfilling a Contract (issued in May 2020).
●
 
Annual improvements to IFRS Standards 2018-2020 Cycle: Amendments to
 
IFRS 1 ‘First-time Adoption of
International Financial Reporting Standard’,
 
amendments to IFRS 9 ‘Financial Instruments’ and amendments
to IFRS 16 ‘Leases’ (issued in May 2020).
 
Although ING Group is currently assessing the detailed impact of the above amendments, it is expected that
they will not have a significant impact on ING Group’s
 
accounting policies, ING Group’s results
 
or financial
position.
 
Effective in 2023:
●
 
Amendments to IAS 1 ‘Presentation of Financial Statements’: Classification
 
of Liabilities as Current or Non-
current (issued in January 2020).
 
●
 
Amendments to IAS 1 ‘Presentation of Financial Statements’:
 
Disclosure of Accounting Policies (issued in
February 2021).
 
 
 
 
 
 
 
>
 
1
 
Basis of preparation and accounting policies
 
ING Group Annual Report 2020 on Form 20-F
F -265
●
 
Amendments to IAS 8 ‘Accounting
 
Policies, Changes in Accounting Estimates and Errors’: Definition
 
of
Accounting Estimates (issued in February 2021).
 
 
Although ING Group is currently assessing the detailed impact of the above amendments, it is expected that
they will not have a significant impact on ING Group’s
 
accounting policies, ING Group’s results
 
or financial
position.
 
The IASB has also issued IFRS 17 ‘Insurance Contracts’.
 
The original effective date of IFRS 17 was 1 January
2021, but in June 2020 the IASB has published an Amendment confirming 1 January 2023 as the new effective
date. ING Group is currently assessing the detailed impact of IFRS 17.
 
1.5 Significant judgements and critical accounting estimates
 
and assumptions
 
The preparation of the consolidated financial statements
 
requires management to make judgements
 
in the
process of applying its accounting policies and to use estimates and assumptions. The estimates and
assumptions affect the reported amounts of the assets and liabilities and the amounts of the contingent
 
assets
and contingent liabilities at the 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.
 
 
ING Group has identified areas that require management to make
 
significant judgements and use critical
accounting estimates and assumptions based on the information and financial data that may
 
change in future
periods. These areas are:
 
◾
 
Loan loss provisions (financial assets);
◾
 
The determination of the fair values of financial assets and liabilities;
 
◾
 
Impairment assessment of non-financial assets;
 
◾
 
Impairment assessment of an investment in associate;
 
◾
 
Provisions; and
◾
 
Accounting for Targeted
 
Longer-Term
 
Refinancing Operations (TLTRO
 
).
 
In light of Covid-19 the estimation uncertainty and level of management judgement to determine
 
the loan loss
provisions and the fair values of financial assets and liabilities further increased in 2020.
 
The negative effects of Covid-19 gave
 
rise to new significant judgements and critical accounting estimates and
assumptions in 2020: ‘Impairment assessment of non-financial assets’ where estimates and judgements
became more sensitive; and ‘Impairment assessment of an investment in associate’
 
where impairment
indicators arose for the first
 
time. In addition, ING Group’s participation in 2020 in a new series of Targeted
Longer-Term
 
Refinancing Operations (TLTRO
 
III) also led to a new area of significant judgements. Recognition
and measurement of provisions remained an area of significant judgement and estimation
 
uncertainty in 2020
consistent with prior years.
For further discussion of the significant judgements and critical accounting estimates and assumptions in these
areas, reference is made to the relevant
 
parts in paragraph 1.7 ‘Financial instruments’
 
(specifically 1.7.3 for
‘Fair values of financial assets and liabilities’ and 1.7.8 ‘Impairment of financial assets’), 1.11 ‘Investments in
associates and joint ventures’,
 
1.13 ‘Acquisitions, goodwill and other intangible assets’,
 
1.17 ‘Provisions,
contingent liabilities and contingent assets’ of this note, section 1.6 ‘Other developments’,
 
‘Accounting
 
for
Targeted
 
Longer-Term
 
Refinancing Operations (TLTRO)’
 
and the applicable notes to the Consolidated financial
statements.
 
1.6 Other developments
Definition of Default
ING Group has historically aligned the Definition of Default for regulatory
 
purposes with the definition of
‘credit-impaired’ financial assets under IFRS 9 (Stage
 
3). To comply with new regulatory
 
technical standards
(RTS) and EBA guidelines ING Group updated its Definition of Default in 1Q 2020. Consequently,
 
ING Group
updated this definition also for IFRS 9 purposes. From an accounting perspective,
 
this represents a change in
accounting estimate that is applied prospectively.
 
This change had no material impact on ING Group’s
expectation for credit losses, but impacted the classification of assets mainly between Stage
 
2 and Stage 3
resulting in an increase in Stage 3 assets (and mostly a decrease of Stage 2 assets) of approximately
 
EUR 1
billion at the time of updating the definition.
 
Accounting for Targeted
 
Longer-Term
 
Refinancing Operations (TLTRO)
In 2020 ING Group participated in a new series of Targeted
 
Longer-Term
 
Refinancing Operations (TLTRO
 
III) and
repaid outstanding amounts under TLTRO
 
II, reference is made to Note 12 ‘Deposits from banks’.
 
ING Group considers TLTRO
 
funding provided by the ECB to banks to be on market terms on the basis that
 
the
ECB has established a separate market
 
with TLTRO programmes.
 
They have specific terms which are different
from other sources of funding available to banks, including those provided by the ECB. Consequently,
 
the rate
under TLTRO is considered to
 
be a market conforming rate
 
and TLTRO funding is recognized
 
fully as a financial
liability.
 
 
 
 
 
 
 
 
 
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ING Group Annual Report 2020 on Form 20-F
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ING Group interprets the whole rate set by the
 
ECB under TLTRO as a floating rate
 
on the financial liability,
being the market rate for each specific period in time. This results in discrete
 
rates for discrete interest
 
periods
over the life of TLTRO.
 
The change in the applicable rate between interest
 
periods is seen as a change in the
floating rate and is accounted for prospectively.
 
Similarly, if the ECB announces changes in the rate
 
for the
amounts already drawn under the existing TLTRO,
 
then such changes also represent a change in a floating rate.
Following this, such changes lead to the recognition of an increased interest in the relevant
 
period of life of the
exposure, rather than by the recognition of an immediate modification
 
gain or loss at the moment of the
change of terms by the ECB.
 
 
Furthermore, the change in the TLTRO
 
rate driven by changes in expectations of meeting the targets
 
is also
seen as a change in the floating rate. However,
 
in this case, the effective interest rate
 
is updated not only
prospectively,
 
but also partially retrospectively.
 
As a result, the effect of the revised effective
 
interest rate for
the period that already passed until the moment when the change in expectations occurs, is recognised as a
catch up adjustment in Profit or Loss. This change occurs only when ING Group has a reasonable expectation
that the lending targets will be met.
 
 
ING Group views ‘reasonable expectation’ in case of TLTRO
 
funding as a high hurdle. This is the moment when
it becomes highly probable, i.e. the probability of meeting the lending targets is substantially
 
greater than the
probability that it will not. As a result, if interest income is recognised during the period based on the
expectation of meeting the targets, there should only be a limited possibility that the interest
 
may need to be
reversed in future periods.
 
 
Reference is made to note 12 ‘Deposits from banks’ and to note
 
20 ‘Net interest income’ for the presentation
of ING Group’s participation in TLTRO
 
programmes.
 
Significant judgements and critical accounting estimates and assumptions:
Significant management judgement is exercised
 
in determining the accounting treatment of TLTRO
transactions. In particular,
 
ING Group applied judgement in:
●
 
assessing and concluding that in ING Group’s view the rate
 
under TLTRO is considered to
 
be a market
conforming rate and, hence, accounting for
 
TLTRO in accordance
 
with IFRS 9;
 
●
 
selecting accounting policies regarding the calculation of the effective
 
interest rate under TLTRO,
 
including
treatment of changes in expectations of meeting the lending targets;
●
 
defining the moment when ING has a reasonable expectation of meeting the targets;
 
●
 
estimating future expected lending growth, which includes estimations around
 
client behaviour.
 
Changes
in these estimations may lead to changes in the amount of interest recognized
 
on TLTRO transactions.
 
ING Group continuously monitors the actual and forecasted
 
development of eligible loans under TLTRO
programmes to assess the appropriate interest
 
recognition in the statement of profit or loss and to minimise
the risk of potential interest reversals due to
 
the use of outdated or incorrect assumptions.
 
1.7 Financial instruments
1.7.1 Recognition and derecognition of financial instruments
Recognition of financial assets
Financial assets are recognised in the balance sheet when ING Group becomes a party to the contractual
provisions of the instrument. For a regular way purchase or sale of a financial asset, trade
 
date and settlement
date accounting is applied depending on the classification of the financial asset.
Derecognition of financial assets
 
Financial assets are derecognised when the rights to receive cash flows from the financial assets have
 
expired
or where ING Group has transferred substantially
 
all risks and rewards of ownership. If ING Group neither
transfers nor retains
 
substantially all the risks and rewards of ownership of a financial asset, it derecognises
 
the
financial asset if it no longer has control over the asset. The difference between
 
the carrying amount of a
financial asset that has been extinguished and the consideration received is recognised in profit or loss.
Recognition of financial liabilities
 
Financial liabilities are recognised on the date that the entity becomes a party to the contractual
 
provisions of
the instrument.
Derecognition of financial liabilities
 
Financial liabilities are derecognised when the obligation specified in the contract is discharged,
 
cancelled or
expired. The difference between the carrying amount of a financial liability that has been extinguished and the
consideration paid is recognised in profit or loss.
 
 
 
 
 
 
 
 
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Basis of preparation and accounting policies
 
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1.7.2 Classification and measurement of financial instruments
Financial assets
ING Group classifies its financial assets in the following measurement categories:
◾
 
those to be measured subsequently at fair value (either through OCI, or through
 
profit or loss); and
◾
 
those to be measured at amortised cost (AC).
 
 
At initial recognition, ING Group measures a financial asset at its fair value plus, in the case of a financial asset
not at FVPL, transaction costs that are directly attributable
 
to the acquisition of the financial asset. Transaction
costs of financial assets carried at fair value through profit or loss (FVPL) are
 
expensed in the statement of
profit or loss.
 
Financial assets - Debt instruments
The classification depends on the entity’s business model for managing the financial assets and the contractual
terms of the cash flows at initial recognition.
Business models
Business models are classified as Hold to Collect (HtC), Hold to Collect and Sell (HtC&S) or Other depending on
how a portfolio of financial instruments as a whole is managed. ING Group’s
 
business models are based on the
existing management structure of the bank, and refined based on an analysis of how businesses are evaluated
and reported, how their specific business risks are managed and on historic and expected future sales. Sales
are permissible in a HtC business model when these are due to an increase in credit risk, take place close to the
maturity date (where the proceeds from the sales approximate
 
the collection of the remaining contractual cash
flows), are insignificant in value (both individually and in aggregate) or are infrequent.
Contractual cash flows Solely Payments of Principal and Interest
 
(SPPI)
 
The contractual cash flows of a financial asset are assessed to determine whether they represent
 
SPPI. Interest
includes consideration for the time value of money,
 
credit risk and also consideration for liquidity risk and costs
associated with holding the financial asset for a particular period of time. In addition, interest can include a
profit margin that is consistent with a basic lending arrangement.
 
Financial assets with embedded derivatives
are considered in their entirety when determining whether their cash flows are SPPI.
 
 
In assessing whether the contractual cash flows are SPPI, ING Group considers the contractual
 
terms of the
instrument. This includes assessing whether the financial asset contains a contractual term that
 
could change
the timing or amount of contractual cash flows such that it would not meet this condition. In making the
assessment, terms such as the following are considered, with an example of an SPPI failure
 
for each
consideration:
 
◾
 
prepayment terms. For example a prepayment
 
of an outstanding principal amount plus a penalty
which is not capped to three or six months of interest;
 
◾
 
leverage features, which increase
 
the variability of the contractual cash flows with the result that they
do not have the economic characteristics of interest.
 
An example is a Libor contract
 
with a multiplier;
 
◾
 
terms that limit ING Group’s claim to
 
cash flows from specified assets - e.g. non-recourse asset
arrangements. This could be the case if payments of principal and interest
 
are met solely by the cash
flows generated by the underlying asset, for example
 
instances in real estate, shipping and aviation
financing;
 
and
 
◾
 
features that modify consideration of the time value
 
of money. These are contracts
 
with for example
an interest rate which is reset every
 
month to a one-year rate. ING Group performs either a qualitative
or quantitative benchmark test on a financial asset with a modified time value of money element. A
qualitative test is performed when it is clear with little or no analysis whether the contractual
 
cash
flows solely represent SPPI.
 
Based on the entity’s business model for managing the financial assets and the contractual terms of the cash
flows, there are three measurement categories into
 
which ING Group classifies its debt instruments:
 
◾
 
Amortised Cost (AC):
Debt instruments that are held for collection of contractual
 
cash flows under a HtC business model where
those cash flows represent SPPI are measured at AC. Interest
 
income from these financial assets is
included in Interest income using the EIR method. Any gain or loss arising on derecognition is recognised
directly in profit or loss. Impairment losses are presented as a separate line item
 
in the Consolidated
statement of profit or loss.
◾
 
FVOCI:
Debt instruments that are held for collection of contractual
 
cash flows and for selling the financial assets
under a HtC&S business model, where the assets’ cash flows represent SPPI, are measured at FVOCI.
Movements in the carrying amount are recognised in OCI, except
 
for the recognition of impairment gains
or losses, interest revenue and foreign exchange
 
gains and losses which are recognised in profit or loss.
 
 
 
 
 
 
 
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When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is
reclassified from equity to profit or loss and presented in Investment
 
income or Other income, based on
the specific characteristics of the business model. Interest income from these financial assets is included
in Interest income using the EIR method. Impairment losses are presented as a separate
 
line item in the
Consolidated statement of profit or loss.
◾
 
FVPL:
Debt instruments that do not meet the criteria for AC or FVOCI are measured at
 
FVPL. This includes debt
instruments that are held-for-trading (presented
 
separately as Trading
 
assets) and all other debt
instruments that do not meet the criteria for AC or FVOCI (presented
 
separately as Mandatorily at FVPL).
ING Group may in some cases, on initial recognition, irrevocably designate
 
a financial asset as classified
and measured at FVPL. This is the case where doing so eliminates or significantly reduces an accounting
mismatch that would otherwise arise on assets measured at AC or FVOCI. Fair value movements
 
on
trading securities, trading loans and deposits (mainly reverse repo’s)
 
are presented fully within valuation
result and net trading income, this also includes interest. The interest
 
arising on financial assets
designated as at FVPL is recognised in profit or loss and presented within Interest
 
income or Interest
expense in the period in which it arises. The interest arising on a debt instrument that is part of a hedge
relationship, but not subject to hedge accounting, is recognised in profit or loss and presented within
Interest income or Interest expense
 
in the period in which it arises.
 
 
ING Group reclassifies debt investments when, and only when, its business model for managing those assets
changes. Such changes in business models are expected to be very infrequent. There have
 
been no
reclassifications during the reporting period.
 
Financial assets - Equity instruments
All equity investments are measured at fair value.
 
ING Group applies the fair value through OCI option to
investments which are considered strategic,
 
consisting of investments that add value to ING Group’s
 
core
banking activities.
 
 
There is no subsequent recycling of fair value gains and losses to profit
 
or loss following the derecognition of
investments if elected to be classified and measured as FVOCI. However,
 
the cumulative gain or loss is
transferred within equity to retained
 
earnings on derecognition of such equity instruments. Dividends from
such investments continue to be recognised in profit
 
or loss as Investment income when ING Group’s
 
right to
receive payments is established. Impairment requirements
 
are not applicable to equity investments classified
and measured as FVOCI.
 
Other remaining equity investments are measured at FVPL. All changes in the fair
 
value are recognised in
Valuation result and Net trading
 
income in the Consolidated statement of profit or loss.
 
Financial liabilities
Financial liabilities are classified and subsequently measured at AC, except for financial guarantee
 
contracts,
derivatives and liabilities designated at FVPL. Financial liabilities classified and measured at FVPL are presented
as follows:
 
◾
 
the amount of change in the fair value that is attributable to changes in own credit
 
risk of the liability
designated at FVPL is presented in OCI. Upon derecognition this Debit Valuation
 
Adjustment (DVA)
impact does not recycle from OCI to profit or loss; and
 
◾
 
the remaining amount of change in the fair value is presented in profit or loss in ‘Valuation
 
results and
net trading income’.
 
Interest on financial liabilities at FVPL is also recognised in the valuation result,
except for items voluntarily designated
 
as FVPL for which interest is presented within ‘Other interest
income (expense).
 
A financial guarantee contract is a contract
 
that requires ING Group to make specified payments
 
to reimburse
the holder for a loss it incurs because a specified debtor fails to make payment
 
when due in accordance with
the original or modified terms of a debt instrument. Such a contract is initially recognised at fair value
 
and is
subsequently measured at the higher of (a) the amount determined in accordance with impairment provisions
of IFRS 9 ‘Financial instruments’ (see section “Impairment of financial assets”) and (b) the amount initially
recognised less, when appropriate, cumulative amortisation recognised in accordance
 
with the revenue
recognition principle of IFRS 15 ‘Revenue from contracts
 
with customers’.
 
1.7.3 Fair values of financial assets and liabilities
All financial assets and liabilities are recognised initially at fair value. The fair value of a financial instrument on
initial recognition is generally its transaction price (that is, the fair value of the consideration
 
given or received).
However,
 
if there is a difference between the transaction price and the fair value
 
of financial instruments
whose fair value is based on a valuation technique that uses significant unobservable inputs, the entire
 
day one
difference (a ‘Day One profit or loss’) is deferred
 
and recognised in the statement of profit or loss over the life
 
 
 
 
 
 
 
 
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ING Group Annual Report 2020 on Form 20-F
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of the transaction until the transaction matures or until the observability changes. In all other cases, ING Group
recognises the difference as a gain or loss at inception.
 
Subsequently, except
 
for financial assets and financial liabilities measured at amortised cost, all the other
financial assets and liabilities are measured at fair value.
 
 
Fair value is defined as the price that would be received to sell an asset or paid to transfer
 
a liability in an
orderly transaction between market participants at the measurement
 
date. It assumes that market participants
would use and take into account the characteristics
 
of the asset or liability when pricing the asset or liability.
Fair values of financial assets and liabilities are based on unadjusted quoted market
 
prices where available.
Such quoted market prices are primarily obtained from exchange
 
prices for listed financial instruments. Where
an exchange price is not available, quoted prices in an active market
 
may be obtained from independent
market vendors, brokers,
 
or market makers. In general,
 
positions are valued at the bid price for a long position
and at the offer price for a short position or are valued at the price within the bid-offer
 
spread that is most
representative of fair value in the
 
circumstances. In some cases where positions are marked at mid-market
prices, a fair value adjustment is calculated.
 
 
For certain financial assets and liabilities, quoted market prices are not available.
 
For such instruments, fair
value is determined using valuation techniques. These range from discounting
 
of cash flows to various
valuation models, where relevant pricing factors
 
including the market price of underlying reference
instruments, market parameters
 
(volatilities, correlations and credit ratings), and customer
 
behaviour are
taken into account. ING Group maximises the use of market
 
observable inputs and minimises the use of
unobservable inputs in determining the fair value. It can be subjective dependent on the significance of the
unobservable input to the overall valuation. All valuation techniques
 
used are subject to internal review and
approval. Most data used in these valuation techniques
 
are validated on a daily basis when possible.
 
When a group of financial assets and liabilities are managed on the basis of their net risk exposures, the fair
value of a group of financial assets and liabilities are measured on a net portfolio level.
 
To include credit
 
risk in fair value, ING Group applies both Credit and Debit Valuation
 
Adjustments (CVA, DVA,
also known as Bilateral Valuation
 
Adjustments or BVA). Own issued debt and structured notes that
 
are
designated at FVPL are adjusted for ING Group’s
 
own credit risk by means of a DVA. Additionally,
 
derivatives
valued at fair value are adjusted for
 
credit risk by a BVA. The BVA
 
is of a bilateral nature as both the credit risk
on the counterparty (CVA) as well as the credit risk on ING Group (DVA)
 
are included in the adjustment. All
input data that is used in the determination of the BVA is based on market
 
implied data. Additionally, wrong-
way risk (when exposure to a counterparty is increasing
 
and the credit quality of that counterparty
deteriorates) and right-way
 
risk (when exposure to a counterparty is increasing and the credit quality of that
counterparty improves) are taken
 
into account in the measurement of the valuation adjustment.
 
 
To include the funding risk, ING Group applies an additional ‘Funding Valuation
 
Adjustment’ (FVA) to the
uncollateralised derivatives based on the market
 
price of funding liquidity.
 
ING Group also applies to certain positions other valuation adjustments to arrive at the fair
 
value: Bid-Offer
adjustments, Model Risk Adjustments and Collateral Valuation
 
Adjustments (CollVA).
 
Significant judgements and critical accounting estimates and assumptions:
Even if market prices are available,
 
when markets are less liquid there may be a range
 
of prices for the same
security from different price sources. Selecting the most appropriate
 
price requires judgement and could result
in different estimates of fair
 
value.
 
Valuation techniques are subjective in nature
 
and significant judgement is involved in establishing fair values
for certain financial assets and liabilities. Valuation techniques involve
 
various assumptions regarding pricing
factors. The use of different valuation
 
techniques and assumptions could produce significantly different
estimates of fair value.
 
Price testing is performed 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 statement
 
of profit or loss. Price testing is
performed to minimise the potential risks for economic losses due to incorrect
 
or misused models.
 
The Covid-19 pandemic impacted the global financial markets in 2020. In the beginning of 2020, ING Group
observed large volatility in the market resulting in widened spreads,
 
markets distortion and illiquidity in some
specific markets which has stressed ING Group’s
 
valuation processes and movements in level classifications.
The volatility in the market has stabilised in the course
 
of 2020 and has largely returned to pre-pandemic
levels. Financial Assets and Liabilities, including Level 3, continued to be valued using agreed methodologies
and ING Group continued to limit the unobservable input to arrive at the most appropriate
 
Fair Market value.
 
 
 
 
 
 
 
 
 
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ING Group Annual Report 2020 on Form 20-F
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Reference is made to note 38 ‘Fair
 
value of assets and liabilities’ and to the ‘Market risk’ paragraph in the ‘Risk
management’ section of the Annual Report for the basis of the determination of the fair value of financial
instruments and related sensitivities.
 
1.7.4 Derivatives and hedge accounting
Derivatives are initially recognised at fair value
 
on the date on which a derivative contract is entered
 
into and
are subsequently measured at fair value. Fair
 
values are obtained from quoted market
 
prices in active markets,
including market transactions and valuation techniques (such as discounted
 
cash flow models and option
pricing models), as appropriate. All derivatives are carried as assets when their fair value
 
is positive and as
liabilities when their fair value is negative. Fair value
 
movements on derivatives are presented in profit
 
or loss
in Valuation
 
result and net trading income, except for
 
derivatives in either a formal hedge relationship and so-
called economic hedges that are not in a formal hedge accounting relationship where
 
a component is
presented separately in interest
 
result in line with ING Group’s risk management strategy.
 
 
Embedded derivatives are separated from
 
financial liabilities and other non-financial contracts and accounted
for as a derivative if,
 
and only if:
a)
 
the economic characteristics and risks of the embedded derivative are not closely related
 
to the economic
characteristics and risks of the host contract;
b)
 
a separate instrument with the same terms as the embedded derivative
 
would meet the definition of a
derivative; and
c)
 
the combined instrument is not measured at fair value with changes in fair value
 
reported in profit or loss.
 
If an embedded derivative is separated, the host contract
 
is accounted for as a similar free-standing contract.
 
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, the nature of the item being hedged. ING Group designates certain
derivatives as hedges of the fair value of recognised assets or liabilities or firm commitments (fair
 
value hedge),
hedges of highly probable future cash flows attributable to a recognised
 
asset or liability or a forecast
transaction (cash flow hedge), or hedges of a net investment in a foreign
 
operation. Hedge accounting is used
for derivatives designated in this way
 
provided certain criteria are met.
 
At the inception of the transaction ING Group documents the relationship between hedging instruments
 
and
hedged items, its risk management objective, together with the methods selected to assess hedge
effectiveness. ING Group also documents its assessment, both at hedge inception
 
and on an ongoing basis, of
whether the derivatives that are used in hedging transactions are highly effective
 
in offsetting changes in fair
values or cash flows of the hedged items.
 
ING Group applies also macro cash flow hedge accounting to hedge the variability in future cash flows of non-
trading assets and liabilities due to the interest rate
 
risk and foreign currency exchange rate
 
risk. The
designated hedged items are floating rated assets or liabilities, such as floating rate
 
mortgages and corporate
loans. The effective portion of changes in the fair value of the derivatives
 
are recognised in the Other
Comprehensive Income.
 
 
Fair value hedges
Changes in the fair value of derivatives that are designated
 
and qualify as fair value hedges are recognised in
the statement of profit or loss, together with fair value
 
adjustments to the hedged item attributable to the
hedged risk. If the hedge relationship no longer meets the criteria for hedge accounting, the cumulative
adjustment of the hedged item is, in the case of interest bearing instruments, amortised through the
statement of profit or loss 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 statement of profit or loss only when the hedged item is derecognised.
 
Cash flow hedges
The effective portion of changes in the fair value of derivatives
 
that are designated and qualify as cash flow
hedges are recognised in the Other Comprehensive Income. The gain or loss relating to the ineffective
 
portion
is recognised immediately in the statement of profit or loss. Amounts accumulated
 
in the Other
Comprehensive Income are recycled to the statement
 
of profit or loss in the periods in which the hedged item
affects net result. When a hedging instrument expires
 
or is sold, or when a hedge no longer meets the criteria
for hedge accounting, any cumulative gain or loss existing in the Other Comprehensive
 
Income at that time
remains in the Other Comprehensive Income and is recognised when the forecast
 
transaction is ultimately
recognised in the statement of profit or loss. When a forecast
 
transaction is no longer expected to occur,
 
the
cumulative gain or loss that was reported in the Other Comprehensive Income is transferred
 
immediately to
the statement of profit or loss.
 
 
 
 
 
 
 
 
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Net investment hedges
Hedges of net investments in foreign operations
 
are accounted for in a similar way to cash flow hedges. Any
gain or loss on the hedging instrument relating to the effective
 
portion of the hedge is recognised in the Other
Comprehensive Income and the gain or loss relating to the ineffective
 
portion is recognised immediately in the
statement of profit or loss. Gains and losses accumulated in the Other Comprehensive Income
 
are included in
the statement of profit or loss when the foreign operation
 
is disposed.
 
IBOR Transition - specific policies
 
applicable from 1 January 2019 for hedges directly affected
by IBOR reform
As further explained in the ‘IBOR Transition’ paragraph
 
of the ‘Risk management’
 
section,
 
the financial markets
are going through a significant reform of interbank
 
offered rates (IBOR) and financial institutions are
 
obligated
to implement a replacement of major interest rate
 
reference rates. This process is
 
at different stages, and
 
is
progressing at different speeds, across
 
several major currencies.
 
Given that IBOR reform may have various
 
accounting implications, the International Accounting Standards
Board (IASB) has undertaken a two phase project. Phase 1 addresses those issues that affect
 
financial reporting
before the replacement of an existing benchmark (Phase 1 amendments to
 
IFRS were issued by the IASB in
2019). Phase 2 focuses on issues that may affect financial reporting when the existing
 
benchmark rate is
reformed or replaced Phase 2 amendments to IFRS were issued by the IASB in 2020.
 
 
In 2019, ING Group early adopted the Phase 1 amendments to IFRS which allowed ING Group to apply a set of
temporary exceptions to continue hedge
 
accounting even when there is uncertainty about contractual cash
flows arising from the reform. Under these temporary exceptions,
 
interbank offered rates
 
are assumed to
continue unaltered for the purposes of hedge accounting until such time as the uncertainty is resolved.
 
More specifically, the following
 
temporary reliefs are part of the Phase 1 amendments:
◾
 
Highly probable requirement for cash flow hedges
When determining whether a forecast transaction is highly probable, it is assumed that the interest
rate benchmark on which the hedged cash flows are based is not altered as a result
 
of the reform.
◾
 
Prospective assessment of hedge effectiveness
When performing the prospective assessment it is assumed that the interest rate
 
benchmark on which
the hedged cash flows are based is not altered as a result of the reform.
◾
 
Retrospective assessment of hedge effectiveness
When performing the retrospective assessment hedges are allowed to
 
pass the assessment even if
actual results are outside the 80-125% range, during the period of uncertainty arising from the IBOR
reform.
◾
 
Designation of a component of an item as a hedged item
For hedges of the benchmark component of interest rate
 
risk affected by the reform, the separately
identifiable requirement only needs to be demonstrated
 
at the inception of such hedging relationships
(including macro hedges).
 
The amendments are relevant given that ING Group hedges and applies hedge accounting
 
to benchmark
interest rate exposure
 
part of IBOR reform. Hedging instruments and most of hedged items continue to
 
be
indexed by the IBOR benchmark rates. Therefore,
 
there is still uncertainty in 2020 over the timing and the
amount of the replacement rate cash flows and, thus, temporary
 
exceptions under Phase 1 continued to be
relevant for ING Group in 2020. ING Group will cease to apply the amendments when this uncertainty is no
longer present or when the hedging relationship is discontinued. Refer
 
to Note 39 ‘Derivatives and hedge
accounting’ for the disclosures relating to the application of the amendments as part of Phase 1.
 
 
In 2020 ING Group did not early adopt Phase 2 amendments. Reference is made to paragraph
 
1.4.2 ‘Upcoming
changes in IFRS after 2020’ of this note.
 
Non-trading derivatives that do not qualify for hedge
 
accounting
Derivative instruments that are used by ING Group as part of its risk management strategies,
 
but which do not
qualify for hedge accounting under ING Group’s
 
accounting policies, are presented as non-trading derivatives.
Non-trading derivatives are measured at fair
 
value with changes in the fair value taken to
 
the statement of
profit or loss.
 
1.7.5 Offsetting of financial assets and financial liabilities
Financial assets and financial liabilities are offset, and the net amount reported, in the statement
 
of financial
position when ING Group has a current legally enforceable right to set off the
 
recognised amounts and intends
to either settle on a net basis or to realise the asset and settle the liability simultaneously.
 
Offsetting is applied
to certain interest rate
 
swaps for which the services of a central clearing house are used.
 
 
 
 
 
 
 
 
 
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1.7.6 Repurchase transactions and reverse
 
repurchase transactions
Securities sold subject to repurchase agreements (repos), securities lending and similar agreements continue
to be recognised in the consolidated statement
 
of financial position. The counterparty liability is measured at
FVPL (designated) and included in Other financial liabilities at FVPL if the asset is measured at FVPL. Otherwise,
the counterparty liability is included in Deposits from banks, Customer deposits, or Trading,
 
as appropriate.
 
 
Securities purchased under agreements to resell (reverse repos),
 
securities borrowings and similar agreements
are not recognised in the consolidated statement
 
of financial position. The consideration paid to purchase
securities is recognised as Loans and advances to customers, Loans and advances to banks, Other financial
assets at FVPL or Trading assets, as appropriate.
 
The difference between the sale and repurchase price is
treated as interest and amortised over the life
 
of the agreement using the effective interest
 
method for
instruments that are not measured at FVPL.
 
1.7.7 Credit risk management classification and maximum credit risk exposure
Credit risk management disclosures are provided in the ‘Credit risk’ paragraph
 
‘Credit risk categories’ of the
‘Risk management’ section in the Annual Report.
 
 
The maximum credit risk exposure for items in the statement
 
of financial position is generally the carrying
value for the relevant financial assets. For the off-balance
 
sheet items the maximum credit exposure is the
maximum amount that could be required to be paid. Reference
 
is made to Note 44 ‘Contingent liabilities and
commitments’ for these off-balance sheet items. Collateral
 
received is not taken into account
 
when
determining the maximum credit risk exposure.
 
The manner in which ING Group manages credit risk and determines credit risk exposures for that
 
purpose is
explained in the Credit risk paragraph ‘Credit Risk Appetite and Concentration
 
Risk Framework’ of the ‘Risk
management’ section in the Annual Report.
 
1.
7
.
8
 
Impairment of financial assets
 
An Expected Credit Loss (ECL) model is applied to financial assets accounted for at AC or FVOCI such as loans,
debt securities and lease receivables, as well as off-balance sheet items such as undrawn loan commitments,
certain financial guarantees, and undrawn committed
 
revolving credit facilities. Under the ECL model ING
Group calculates the expected credit losses (ECL) by considering on a discounted
 
basis the cash shortfall it
would incur in case of a default and multiplying the shortfall by the probability of a default occurring. The ECL is
the sum of the probability-weighted outcomes. The ECL estimates are
 
unbiased and include reasonable and
supportable information about past events, current
 
conditions, and forecasts of future economic conditions.
ING Group’s approach leverages
 
the Advanced Internal Ratings Based (AIRB) models that are used for
regulatory purposes. Adjustments are applied to make these models suitable
 
for determining ECL. ECL is
recognised on the balance sheet as loan loss provisions (LLP).
 
Three stage approach
Financial assets are classified in one of the below three Stages at each reporting date. A financial asset can
move between Stages during its lifetime. The Stages are
 
based on changes in credit quality since initial
recognition and defined as follows:
 
◾
 
Stage 1
Financial assets that have not had a significant increase in credit risk since initial recognition (i.e. no
Stage 2 or 3 triggers apply). Assets are classified as Stage 1 upon initial recognition (with the exception
of purchased or originated credit impaired (POCI) assets) and ECL is determined by the probability that
a default occurs in the next 12 months (12 months ECL);
◾
 
Stage 2
Financial assets showing a significant increase in credit risk since initial recognition. For assets in Stage
2 ECL reflects an estimate on the credit losses over the remaining maturity of the asset (lifetime
 
ECL);
or
◾
 
Stage 3
Financial assets that are credit-impaired. Also for these
 
assets ECL is determined over the remaining
maturity of the asset.
Significant increase in credit risk
ING Group established a framework, incorporating
 
quantitative and qualitative indicators,
 
to identify and
assess significant increases in credit risk (SICR). This is used to determine the appropriate ECL Stage
 
for each
financial asset.
 
 
 
 
 
 
 
 
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Basis of preparation and accounting policies
 
ING Group Annual Report 2020 on Form 20-F
F -273
 
The main determinate of SICR is a quantitative test, whereby the lifetime
 
Probability of Default (PD) of an asset
at each reporting date is compared against its lifetime
 
PD determined at the date of initial recognition. If the
delta is above pre-defined absolute or relative thresholds the item
 
is considered to have experienced a SICR.
Consequently, the item moves
 
from Stage 1 to Stage 2 (unless the item is credit-impaired). In these instances,
items are no longer assigned a 12 month ECL and instead are assigned a lifetime ECL.
 
Items can return to Stage
1 if there is sufficient evidence that there is no longer a significant increase in credit risk.
 
 
ING Group also relies on a number of qualitative indicators to identify and assess SICR. These include:
 
◾
 
Forbearance status;
◾
 
Watch List status.
 
Loans on the Watch List are individually assessed for Stage
 
2 classification;
◾
 
Intensive care management;
◾
 
Substandard Internal rating; and
◾
 
Arrears status.
Credit-impaired financial assets (Stage 3)
Financial assets are assessed for credit-impairment at each reporting date and more frequently
 
when
circumstances warrant further assessment. Evidence
 
of credit-impairment includes arrears of over 90 days on
any material credit obligation, indications that
 
the borrower is experiencing significant financial difficulty,
 
a
breach of contract, bankruptcy or distressed restructuring.
 
An asset (other than a POCI asset) that is in Stage 3 will move back to Stage 2 when, as at the reporting date,
 
it
is no longer considered to be credit-impaired. The asset will migrate back to Stage
 
1 when its credit risk at the
reporting date is no longer considered to have increased significantly
 
since initial recognition.
 
 
The definition of credit-impaired under IFRS 9 (Stage 3) is aligned with the definition of default used by ING
Group for internal risk management purposes, which is also the definition used for regulatory
 
purposes.
 
Macroeconomic scenarios
ING Group has established a quarterly process whereby forward
 
-looking macroeconomics scenarios and
probability weightings are developed for the purpose of ECL. ING Group applies data
 
predominantly from a
leading service provider (Oxford Economics (OE))
 
enriched with the internal ING Group view. A baseline, up-
scenario and a down-scenario are determined to reflect an unbiased and probability-weighted ECL
 
amount. As
a baseline scenario, ING Group applies the market-neutral view combining consensus forecasts
 
for economic
variables such as unemployment rates, GDP growth, house prices, commodity prices, and short-term
 
interest
rates. Applying market consensus in the baseline scenario ensures unbiased estimates
 
of the expected credit
losses.
 
 
The alternative scenarios are based on observed forecast errors
 
in the past, adjusted for the risks affecting the
economy today and the forecast
 
horizon. The probabilities assigned are based on the likelihoods of observing
the three scenarios and are derived from confidence intervals on a probability distribution. The forecasts
 
for
the economic variables are adjusted on a quarterly basis.
Measurement of ECL
ING Group applies a collective assessment method to measure ECL for Stage
 
1, Stage 2, and certain Stage 3
assets. Other credit-impaired assets subject to ECL measurement apply the individual assessment method.
 
Collectively assessed assets (Stages 1 to 3)
For collective assessed assets, ING Group applies a model-based approach. ECL is determined by,
 
expressed
simplistically, multiplying the probability
 
of default (PD) with the loss given default (LGD) and exposure at
default (EAD), adjusted for the time value of money.
 
Assets that are collectively assessed are grouped on the
basis of similar credit risk characteristics, taking into account loan type, industry,
 
geographic location, collateral
type, past due status and other relevant factors.
 
These characteristics are relevant to
 
the estimation of future
cash flows for groups of such assets by being indicative of the debtors’
 
ability to pay all amounts due according
to the contractual terms of the assets being evaluated and the loss in case the debtor is not able to
 
pay all
amounts due.
 
For Stage 3 assets the PD equals 100% and the LGD and EAD represent a lifetime
 
view of the losses based on
characteristics of defaulted facilities.
 
For the purpose of ECL, ING Group’s expected
 
credit loss models (PD, LGD, EAD) used for
 
regulatory purposes
have been adjusted. These adjustments include removing embedded prudential conservatism
 
(such as floors)
and converted through-the-cycle estimates to
 
point-in-time estimates. The models assess ECL on the basis of
forward-looking macroeconomic forecasts
 
and other inputs. For most financial assets, the expected life is
limited to the remaining maturity.
 
For overdrafts and certain revolving credit
 
facilities, such as credit cards, the
maturity is estimated based on historical data as these do not have
 
a fixed term or repayment schedule.
 
 
 
 
 
 
 
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ING Group Annual Report 2020 on Form 20-F
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Individually assessed assets (Stage 3)
ING Group estimates ECL for individually significant credit-impaired
 
financial assets within Stage 3 on an
individual basis. ECL for these Individually assessed assets are determined using the discounted expected
future cash flow method. To
 
determine expected future cash flows, one or more scenarios are used. Each
scenario is analysed based on the probability of occurrence and include forward looking information.
 
In determining the scenarios, all relevant factors impacting the future
 
cash flows are taken into account.
 
These
include expected developments in credit quality,
 
business and economic forecasts, and estimates of if/when
recoveries will occur taking into account ING Group’s
 
restructuring/recovery strategy.
 
 
The best estimate of ECL is calculated as the weighted
 
-average of the shortfall (gross carrying amount minus
discounted expected future cash flow using the original EIR) per scenario, based on best estimates
 
of expected
future cash flows. Recoveries can arise from, among others, repayment
 
of the loan, collateral recovery and the
sale of the asset. Cash flows from collateral and other credit enhancements are included in the measurement
of ECL of the related financial asset when it is part of or integral to the contractual
 
terms of the financial asset
and the credit enhancement is not recognised separately.
 
For the individual assessment, with granular
(company or asset-specific) scenarios, specific factors can
 
have a larger impact on the future cash flows than
macroeconomic factors.
 
When a financial asset is credit-impaired, interest is no longer recognised based on the accrual income based
on the gross carrying amount of the asset. Rather,
 
interest income is calculated by applying the original EIR to
the AC of the asset, which is the gross carrying amount less the related loan loss provision.
 
Purchased or Originated Credit Impaired (POCI) assets
POCI assets are financial assets that are credit-impaired on initial recognition. Impairment on a POCI asset is
determined based on lifetime ECL from initial recognition. POCI assets are recognised
 
initially at an amount net
of LLP and are measured at AC using a credit-adjusted effective
 
interest rate. In subsequent periods any
changes to the estimated lifetime ECL are recognised
 
in profit or loss. Favourable changes are
 
recognised as an
impairment gain even if the lifetime ECL at the reporting date
 
is lower than the estimated lifetime ECL at
origination.
Modifications
 
In certain circumstances ING Group grants borrowers
 
postponement, reduction of loan principal and/or
interest payments on a temporary period of time to
 
maximise collection opportunities, and if possible, avoid
default, foreclosure, or repossession. When such postponement,
 
reduction of loan principal and/or interest
payments is executed based on credit concerns it is also referred
 
to as forbearance (refer to
 
the ‘Risk
Management’ section of the Annual Report for more details). In such cases, the net present value of the
postponement, reduction of loan principal and/or interest payments
 
is taken into account in the determination
of the appropriate level of ECL. If the forbearance results in a substantial
 
modification of the terms of the loan,
the original loan is derecognised and a new loan is recognised at fair value at the modification date.
 
ING Group
determines whether there has been a substantial modification using both quantitative
 
and qualitative factors.
 
Write-off and debt forgiveness
If there is no reasonable expectation of recovery and/or collectability
 
of amounts due a write-off can occur.
The following events can lead to a write-off:
 
◾
 
After a restructuring has been completed and there is a high improbability of recovery of part of the
remaining loan exposure (including partial debt forgiveness);
 
◾
 
In a bankruptcy liquidation scenario;
 
◾
 
After divestment or sale of a credit facility at a discount;
 
◾
 
Upon conversion of a credit facility into equity;
 
or
 
◾
 
ING Group releases a legal (monetary) claim it has on its customer.
 
When a loan is uncollectable, it is written off against the related
 
loan loss provision. Subsequent recoveries of
amounts previously written off are recognised in the statement
 
of profit or loss.
 
Debt forgiveness (or debt settlement) involves
 
write-off but additionally involves the forgiveness of a legal
obligation, in whole or in part. This means that ING Group forfeits the legal right to
 
recover the debt. As a
result, the financial asset needs to be derecognised. Distinction is made in situations where ING Group ends
the relationship with the client and situations where ING Group (partially) continues the financing of the client.
Presentation of ECL
ECL for financial assets measured at AC are deducted from the
 
gross carrying amount of the assets. For debt
instruments at FVOCI, the ECL is recognised in OCI, instead of deducted the carrying amount of the asset. ECL
also reflects any credit losses related to the portion of the loan commitment that is expected
 
to be drawn
 
 
 
 
 
 
 
 
 
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Basis of preparation and accounting policies
 
ING Group Annual Report 2020 on Form 20-F
F -275
down over the remaining life of the instrument. The ECL on issued financial guarantee contracts,
 
in scope of
IFRS 9 and not measured at FVPL, are recognised as liabilities and presented in Other provisions. ECL are
presented in profit or loss in Addition to loan loss provision.
 
Significant judgements and critical accounting estimates and assumptions:
Considerable management judgement is exercised
 
in determining the amount of LLP for financial assets
assessed on both a collective and an individual basis. The need for management judgement has increased even
further due to the Covid-19 pandemic. In particular,
 
this judgement requires ING Group to make various
assumptions about the risk of default, the credit loss rates in case of a default and expected
 
future cash flows.
These assumptions are based on a combination of ING Group’s past
 
history, existing
 
market conditions and
forward-looking estimates at the end of each reporting period. Changes in these assumptions may
 
lead to
changes in the LLP over time. Given they are subjective and complex in nature, and because the LLP and the
underlying exposures subject to ECL are material, these assumptions are
 
considered critical accounting
assumptions. The sensitivity of these assumptions is assessed in the credit risk section of the ‘Risk
Management’ section in the Annual Report.
 
The use of forward-looking macroeconomic scenarios in both collective and individual impairment assessments
Forward-looking macroeconomic scenarios are uncertain in nature.
 
The process ING Group follows involves
two internal groups, the Macroeconomics Scenarios Team
 
and the Macroeconomics Scenarios Expert Panel.
The latter team consists of senior management representatives
 
from the Business, Risk and Finance. These
groups review inputs obtained from a third party provider and subject these to
 
internal expert challenge to
ensure the inputs used in the models reflect ING Group’s view on the macro
 
economy. The use of alternate
forward-looking macroeconomic scenarios can produce significantly different
 
estimates of ECL. This is
demonstrated in the sensitivity analysis in the ‘Risk Management’ section of the Annual Report, where the un-
weighted ECL under each of the three scenarios for some significant portfolios is disclosed. The uncertainty
around the expected macroeconomic recovery once Covid-19
 
induced lockdowns are lifted increased the
judgement necessary in using macroeconomic scenarios. Furthermore, the specific nature of the Covid-19
crisis, which leads to a time lag between the effects of macroeconomic outlooks on model produced ECL and
observed defaults, has further increased the judgements required in the use of forward
 
-looking
macroeconomic scenarios in 2020.
 
The probability weights applied to each of the three scenarios
This is a management judgement that ultimately requires estimation and consideration
 
of the range of
possibilities. This ensures a consensus view on the likelihood of each scenario materialising is appropriately
reflected in the weights applied by ING Group for collectively assessed ECL.
 
The sensitivity analysis in the ‘Risk
Management’ section of the Annual Report discloses these weights used.
 
The criteria for identifying a significant increase in credit risk
When determining whether the credit risk on a financial asset has increased significantly,
 
ING Group considers
reasonable and supportable information to compare the risk of default
 
occurring at reporting date with the risk
of a default occurring at initial recognition of the financial asset. Whilst judgement is required in applying a PD
rating to each financial asset, there is significant judgement used in determining the Stage
 
allocation PD
banding thresholds. The process of comparing a financial asset’s PD with the PD banding thresholds determines
its ECL Stage. Assets in Stage 1 are allocated a 12 month ECL, and those in Stage
 
2 are allocated a lifetime ECL,
and the difference is often significant. As such, the judgement made in assigning financial asset PDs and the PD
banding thresholds constitute a significant judgement. Analysis of the
 
sensitivity associated with the assessment of significant increase in credit risk is presented in the ‘Risk
Management’ section of the Annual Report. During 2020 ING Group provided many customers with payment
holidays. Traditional
 
risk drivers in models used to determine LLP that are based on customers’ payment
behaviour may be ineffective for these assets,
 
because customers with payment holidays are
 
not required to
make regular material payment
 
and limited (if any) additional information is available. Hence, judgement was
required to appropriately reflect the effect
 
of payment holidays on LLP.
 
The definition of default
Judgement is exercised in management’s
 
evaluation of whether there is objective evidence that larger
exposures are credit-impaired. Management judgement is required
 
in assessing evidence of credit-impairment.
 
Impact from Covid-19 – management overlays and management adjustments
The increased uncertainty around ECL arising from Covid-19 in the use of forward-looking macroeconomic
scenarios and determining significant increases in credit risk resulted in Covid-19
 
related management overlays
and adjustments to the model-based ECL. The management adjustment related to
 
payment holidays and
management overlay related to
 
time lag in expected defaults are EUR 638 million in total. Reference
 
is made to
the ‘Credit risk’ paragraph in the ‘Risk management’ section of the Annual Report.
 
 
 
 
 
 
 
 
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ING Group Annual Report 2020 on Form 20-F
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1.8 Consolidation
 
ING Group comprises ING Groep N.V.
 
(the Parent Company), ING Bank N.V.
 
and all other subsidiaries.
Subsidiaries are entities controlled by ING Groep N.V.
 
Control exists if ING Groep N.V.
 
is exposed or has rights
to variable returns and has the ability to affect those returns through
 
the power over the investee. Control is
usually achieved through situations including, but not limited to:
 
◾
 
Ownership, directly or indirectly,
 
of more than half of the voting power;
 
◾
 
Ability to appoint or remove the majority of the board of directors;
 
◾
 
Power to govern operating and financial policies under statute
 
or agreement; and
 
◾
 
Power over more than half of the voting rights through an agreement
 
with other investors.
 
 
The existence and effect of potential voting
 
rights that are currently exercisable
 
or convertible are considered
in assessing whether Group controls another entity.
 
 
For interests in structured entities, the existence
 
of control requires judgement as these entities are designed
so that voting or similar rights are not the dominant factor in deciding who controls the entity.
 
This judgement
includes, for example, the involvement in the design of the structured
 
entity, contractual
 
arrangements that
give rights to direct the structured entities relevant
 
activities and commitment to ensure that the structured
entity operates as designed.
 
A list of principal subsidiaries is included in Note 47 ‘Principal subsidiaries’.
 
 
A list containing the information referred
 
to in Section 379 (1), Book 2 of the Dutch Civil Code has been filed
with the office of the Commercial Register of Amsterdam, in accordance
 
with Section 379 (5), Book 2 of the
Dutch Civil Code.
 
 
The results of the operations and the net assets of subsidiaries are included in the statement
 
of profit or loss
and the statement of financial position from the date control is obtained
 
until the date control is lost. On
disposal, the difference between the sales proceeds, net of directly attributable
 
transaction costs, and the net
assets is included in net result.
 
 
A subsidiary which ING Group has agreed to sell but is still legally owned by ING Group may still be controlled
by ING Group at the balance sheet date and therefore, still be included in the consolidation.
 
Such a subsidiary
may be presented as a held for sale disposal group if certain conditions are met.
 
 
All intercompany transactions, balances and unrealised surpluses and deficits on transactions
 
between group
companies are eliminated. Where necessary,
 
the accounting policies used by subsidiaries are changed to
ensure consistency with group policies. In general, the reporting dates
 
of subsidiaries are the same as the
reporting date of ING Groep N.V.
 
 
ING Groep N.V.
 
and its Dutch group companies are subject to legal restrictions regarding
 
the amount of
dividends they can pay to their shareholders. The Dutch Civil Code contains the restriction
 
that dividends can
only be paid up to an amount equal to the excess of the company’s
 
own funds over the sum of the paid-up
capital and reserves required by law.
 
Certain Group companies are also subject to other restrictions in certain
countries, in addition to the restrictions on the amount of funds that may be transfer
 
red in the form of
dividends, or otherwise, to the parent company.
 
 
Furthermore, in addition to the restrictions in respect of minimum capital requirements that
 
are imposed by
industry regulators in the countries in which the subsidiaries operate,
 
other limitations exist in certain
countries.
 
1.9 Segment reporting
 
An operating segment is a distinguishable component of ING Group, engaged in providing
 
products or services,
whose operating results are regularly reviewed by the
 
Executive Board of ING Group and the Management
Board Banking (together the Chief Operating Decision Maker (CODM)) to
 
make decisions about resources to be
allocated to the segments and assess its performance. A geographical area
 
is a distinguishable component of
ING Group engaged in providing products or services within a particular economic environment that
 
is subject
to risks and returns that are different
 
from those of segments operating in other economic environments.
 
 
The CODM examines ING Group’s
 
performance both by line of business and geographic perspective and has
identified five reportable segments by line of business and six by geographical area. The geographical
 
analyses
are based on the location of the office from which the transactions are originated.
 
 
 
 
 
 
 
 
 
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Basis of preparation and accounting policies
 
ING Group Annual Report 2020 on Form 20-F
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1.10 Foreign currency translation
 
Functional and presentation currency
 
Items included in the financial statements of each of ING Group’s
 
entities are measured using the currency of
the primary economic environment in which the entity operates (the functional currency). The Consolidated
financial statements are presented in euros,
 
which is Group’s presentation
 
currency.
 
Transactions and balances
 
Foreign currency transactions are translated
 
into the functional currency using the exchange rate
 
prevailing at
the date of the transactions. Exchange rate
 
differences resulting from the settlement
 
of such transactions and
from the translation at year-end exchange
 
rates of monetary assets and liabilities denominated in foreign
currencies are recognised in the statement of profit
 
or loss, except when deferred in equity as part of
qualifying cash flow hedges or qualifying net investment hedges.
 
 
Non-monetary items that are measured in terms of historical cost in a foreign
 
currency are translated using the
exchange rate at
 
the date of the transaction.
 
 
Exchange rate differences
 
on non-monetary items, measured at fair value through profit
 
or loss, are reported
as part of the fair value gain or loss. Non-monetary items are retranslated
 
at the date the fair value is
determined. Exchange rate differences
 
on non-monetary items measured at fair value through other
comprehensive income
 
are included in other comprehensive income and get accumulated in the revaluation
reserve in equity.
 
 
Exchange rate differences
 
in the statement of profit or loss are generally included in ‘Valuation
 
results and net
trading income’.
 
Reference is made to Note 22 ‘Valuation
 
results and net trading income’,
 
which discloses the
amounts included in the statement of profit or loss. Exchange rate
 
differences relating to the disposal of debt
and FVPL equity securities are considered to be an inherent part of the capital gains and losses recognised in
Investment income. As mentioned below,
 
in Group companies relating to the disposals of group companies,
any exchange rate
 
difference deferred in equity is recognised
 
in the statement of profit or loss in ‘Result on
disposal of group companies’.
 
Reference is also made to Note 19 ‘Equity’,
 
which discloses the amounts
included in the statement of profit or loss.
 
Group companies
 
The results and financial positions of all group companies that have a functional currency different
 
from the
presentation currency are translated
 
into the presentation currency as follows:
 
◾
 
Assets and liabilities included in each statement of financial position are translated at
 
the closing rate at
the date of that statement of financial position;
 
◾
 
Income and expenses included in each statement of profit or loss are translated
 
at average exchange
 
rates
(unless this average is not a reasonable approximation
 
of the cumulative effect of the rates prevailing
 
on
the transaction dates, in which case income and expenses are translated
 
at the dates of the transactions);
and
 
◾
 
All resulting exchange rate differences
 
are recognised in a separate component of equity.
 
 
On consolidation, exchange rate
 
differences arising from the translation 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, the corresponding
exchange rate differences
 
are recognised in the statement of profit or loss as part of the gain
 
or loss on sale.
 
 
Goodwill and fair value adjustments arising from the acquisition of a foreign operation
 
are treated as assets
and liabilities of the foreign operation and translated at
 
the exchange rate prevailing
 
at the balance sheet date.
 
 
1.11 Investments in associates and joint ventures
 
Associates are all entities over which ING Group has significant influence but not control.
 
Significant influence
is the ability to participate in the financial and operating policies of the investee. It generally
 
results from a
shareholding of between 20% and 50% of the voting rights or through situations including, but not limited to
one or more of the following:
 
◾
 
Representation on the board of directors;
 
◾
 
Participation in the policymaking process; and
 
◾
 
Interchange of managerial personnel.
 
 
Joint ventures are entities over which ING Group has joint control.
 
Joint control is the contractually agreed
sharing of control over an arrangement or entity,
 
which exists only when decisions about the relevant activities
require the unanimous consent of the parties sharing control. Joint control means that
 
no party to the
agreement is able to act unilaterally to control
 
the activity of the entity. The parties to the agreement must
 
act
together to control the entity and therefore
 
exercise the joint control.
 
 
 
 
 
 
 
 
 
 
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ING Group Annual Report 2020 on Form 20-F
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Investments in associates and joint ventures are
 
initially recognised at cost and subsequently accounted for
using the equity method of accounting.
 
 
ING Group’s investment
 
in associates and joint ventures (net of any accumulated
 
impairment loss) includes
goodwill identified on acquisition. ING Group’s share of its associates
 
and joint ventures post-acquisition profits
or losses is recognised in the statement of profit or loss, and its share of post-acquisition changes in reserves is
recognised in equity. The cumulative post-acquisition
 
changes are adjusted against the carrying amount of the
investment. When ING Group’s
 
share of losses in an associate or joint venture equals or exceeds its interest
 
in
the associate or joint venture, including any long-term interests
 
in the associate like uncollateralised loans that
are neither planned nor likely to be settled in the foreseeable future, ING Group
 
does not recognise further
losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture.
 
 
Unrealised gains on transactions between ING Group and its associates and joint ventures
 
are eliminated to the
extent of ING Group’s
 
interest in the associates and joint ventures.
 
Unrealised losses are also eliminated unless
they provide evidence of an impairment of the asset transferred. Accounting
 
policies of associates and joint
ventures have been changed where necessary to ensure consistency
 
with the policies adopted by ING Group.
 
 
Investments in associates and joint ventures are
 
assessed at each reporting date and tested for impairment
when there is an indication that the investment may be impaired.
 
Goodwill on acquisitions of interests in
associates and joint ventures is not tested separately
 
for impairment, but is assessed as part of the carrying
amount of the investment. Reversal of impairment
 
is considered when the indicators of impairment no longer
exist and the recoverable amount has improved
 
above the carrying amount. The reversal of impairment cannot
exceed the original impairment loss.
 
Significant judgements and critical accounting estimates and assumptions:
The most significant estimates and assumptions relate to the assessment of impairment of the investment
 
in
TMB which involves estimations of value in use.
 
Management’s best estimate of TMB’s
 
expected future earnings are based on forecasts derived
 
from broker
consensus over the short to medium term and TMB observable targets for steady
 
state earnings into
perpetuity. A capital maintenance
 
charge is applied, which is management’s forecast
 
of the earnings that need
to be withheld in order for TMB to meet target regulatory
 
requirements over the forecast period. Both of these
factors are subject to a high degree of uncertainty.
 
 
Key assumptions used in estimating TMB’s value
 
in use and the sensitivity of the value in use calculations to
different assumptions are described in note 8 ‘Investments
 
in associates and joint ventures’.
 
 
1.12 Property and equipment
 
Property in own use
 
Land and buildings held for own use are stated at fair value
 
at the balance sheet date. Increases in the carrying
amount arising on revaluation of land and buildings held for own use are credited to the revaluation
 
reserve in
shareholders’ equity. Decreases in the
 
carrying amount that offset previous increases of the same asset are
charged against the revaluation reserve
 
directly in equity; all other decreases are charged to the statement
 
of
profit or loss. Increases that reverse a revaluation
 
decrease on the same asset previously recognised in net
result are recognised in the statement of profit
 
or loss. Depreciation is recognised based on the fair value and
the estimated useful life (in general 20–50 years).
 
Depreciation is calculated on a straight-line basis. On
disposal, the related revaluation reserve is transferred
 
to retained earnings.
 
 
The fair values of land and buildings are based on regular appraisals performed by independent qualified
valuers or by internal valuers. Subsequent expenditure
 
is included in the asset’s carrying amount when it is
probable that future economic benefits associated with the item will flow to ING Group and the cost of the
item can be measured reliably.
 
Equipment
 
Equipment is stated at cost less accumulated
 
depreciation and any impairment losses. The cost of the assets is
depreciated on a straight line basis over their estimated
 
useful lives, which are generally as follows: for data
processing equipment two to five years, and four to
 
ten years for fixtures and fittings. Expenditure incurred on
maintenance and repairs is recognised in the statement
 
of profit or loss as incurred. Expenditure incurred on
major improvements is capitalised and depreciated.
 
 
 
 
 
 
 
 
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Basis of preparation and accounting policies
 
ING Group Annual Report 2020 on Form 20-F
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Disposals of property and equipment
The difference between the proceeds on disposal and net carrying value is recognised in the
 
statement of
profit or loss under Other income.
 
Right-of-use assets
IFRS 16 ‘Leases’ – Accounting policies applied from 1 January 2019
ING Group as the lessee
A lessee is required to recognise a right-of-use asset representing
 
its right to use the underlying leased asset
and a corresponding liability representing its obligation to make
 
lease payments at the date at which the
leased asset is available for use by ING Group. Each lease payment
 
is allocated between the repayment of the
liability and finance cost. The finance costs are charged to profit or loss over the lease period so as to produce
 
a
constant periodic rate of interest
 
on the remaining balance of the liability for each period. The right-of-use
asset is depreciated over the shorter of the asset’s useful life
 
and the lease term on a straight-line basis.
 
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include
the net present value of the following lease payments:
 
◾
 
Fixed payments (including in-substance fixed
 
payments), less any lease incentives receivable;
 
◾
 
Variable lease payments that are
 
based on an index or a rate;
 
◾
 
Amounts expected to be payable by the lessee under residual value guarantees;
 
◾
 
The exercise price of a purchase option if the lessee is reasonably certain to exercise
 
that option; and
 
◾
 
Payments of penalties for terminating the lease, if the lease term reflects
 
the lessee exercising that
option.
 
 
The lease payments are discounted using the interest rate
 
implicit in the lease. If that rate cannot be readily
determined, the lessee’s incremental
 
borrowing rate is used, being the rate that the lessee would have
 
to pay
to borrow the funds necessary to obtain an asset of similar value in a similar economic environment
 
with
similar terms and conditions. This rate is approximated
 
by using the risk free rate applicable to the lease term,
the currency of the lease payment and jurisdiction, with the Fund Transfer
 
Pricing (FTP) rate as an add-on. The
FTP rate is used to transfer interest
 
rate risk and funding and liquidity risk positions between the ING Group
business and treasury departments. It is determined by either ING Group or Local Asset and Liability
Committee (ALCO).
 
 
Right-of-use assets are measured at
 
cost comprising the amount of the initial measurement of the lease
liability, any lease payments
 
made at or before the commencement date less any lease incentives
 
received and
any initial direct costs and restoration
 
costs.
 
 
Payments associated with short-term
 
leases and leases of low-value assets are recognised on a straight
 
-line
basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-
value assets comprise mainly IT-equipment
 
(for example mobile phones or laptops) and small items of office
furniture.
 
 
The right-of-use asset is included in the statement
 
of financial position line-item ‘Property and equipment’, the
lease liability is included in the statement of financial position line-item ‘Other liabilities’.
 
Refer to note 9
‘Property and equipment’ and to note 16 ‘Other liabilities’.
 
Subsequent to initial recognition,
 
the right-of-use asset amortises using a straight
 
-line method to the income
statement over the life of the lease. The lease liability increases for the
 
accrual of interest and decrease when
payments are made. Any remeasurement of the lease liability due to a lease modification
 
or other
reassessment results in a corresponding adjustment to the carrying amount of the right-of-use
 
asset.
 
ING Group as the lessor
When ING Group acts as a lessor, a distinction
 
should be made between finance leases and operating leases.
For ING Group as a lessor these are mainly finance leases. The present value of the lease payments is
recognised as a receivable under Loans and advances to customers
 
or Loans and advances to banks. The
difference between the gross receivable and the
 
present value of the receivable is unearned finance lease
income. Lease income is recognised over the term of the lease using the net investment method (before
 
tax),
which reflects a constant periodic rate of return.
 
Operating leases for lessees prior to 1 January 2019 under IAS 17
The comparative figures presented for
 
2018 are accounted for using the previous Standard, IAS 17 ‘Leases’.
Under this Standard a distinction was made between finance leases and operating leases for both lessees and
lessors. A lease was considered a finance lease if it transfers substantially
 
all risks and rewards of the
ownership of the asset. All other leases were considered to be operating leases.
 
 
 
 
 
 
 
 
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Basis of preparation and accounting policies
 
ING Group Annual Report 2020 on Form 20-F
F -280
Leases entered into by ING Group as a lessee were primarily operating
 
leases and therefore not recognised on
the balance sheet. The total payments under operating leases were recognised
 
in the statement of profit or
loss on a straight-line basis over the period of the lease.
 
1.13 Acquisitions, goodwill and other intangible assets
 
Acquisitions and goodwill
 
ING Group’s acquisitions are accounted
 
for using the acquisition method of accounting. The consideration for
each acquisition is measured at the aggregate of the fair values (at the date
 
of exchange) of assets given,
liabilities incurred or assumed, and equity instruments issued in exchange for control
 
of the acquiree. Goodwill,
being the difference between the cost of the acquisition (including assumed debt) and the Group’s
 
interest in
the fair value of the acquired assets, liabilities and contingent liabilities as at the date of acquisition, is
capitalised as an intangible asset. Goodwill is only recognised separately on acquisitions. The results
 
of the
operations of the acquired companies are included in the statement
 
of profit or loss from the date control is
obtained.
 
 
Where applicable, the consideration for the acquisition includes any asset or liability resulting from
 
a
contingent consideration arrangement,
 
the contingent consideration is measured at its acquisition-date
 
fair
value. Contingent consideration arrangements
 
classified as an asset or a liability, are subsequently measured at
fair value and the changes in fair value will be recognised in the statement
 
of profit or loss. Changes in the fair
value of the contingent consideration classified as equity,
 
are not recognised.
 
 
Where a business combination is achieved in stages, ING Group’s
 
previously held interests in the assets and
liabilities of the acquired entity are remeasured to fair value at the acquisition date
 
(i.e. the date ING Group
obtains control) and the resulting gain or loss, if any,
 
is recognised in the statement of profit or loss. Amounts
arising from interests in the acquiree prior to the acquisition date that have
 
previously been recognised in
other comprehensive income are reclassified to the statement
 
of profit or loss, where such treatment would
be appropriate if that interest were
 
disposed of. Acquisition related costs
 
are recognised in the statement of
profit or loss as incurred and presented in the statement
 
of profit or loss as Other operating expenses.
 
 
The initial accounting for the fair value of the net assets of the companies acquired during the year may
 
be
determined only provisionally as the determination of the fair value can be complex and
 
the time between the
acquisition and the preparation of the Financial statements can be limited. The initial accounting shall be
completed within a year after acquisition. Adjustments to the fair value
 
as at the date of acquisition of
acquired assets and liabilities, that are identified within one year after acquisition are recognised as an
adjustment to goodwill; any subsequent adjustment is recognised as income
 
or expense. On disposal of group
companies where control is lost, the difference
 
between the sale proceeds and carrying value (including
goodwill) and the unrealised results (including the currency translation reserve in equity) is included in the
statement of profit or loss.
 
 
Impairment of goodwill and other non-financial assets
ING Group assesses at each reporting period, whether there is an indication that an intangible asset may
 
be
impaired. Irrespective of whether there is an indication of impairment, intangible assets with an indefinite
useful life, including goodwill acquired in a business combination, and intangible assets not yet available
 
for
use, are tested annually for impairment. Goodwill is allocated to
 
groups of CGUs (that is, the group of cash
generating units or CGUs) for the purpose of impairment testing. These groups of CGUs
 
represent the lowest
level at which goodwill is monitored for internal management purposes. Goodwill is tested
 
for impairment by
comparing the carrying value of the group of CGUs to the recoverable amount
 
of that group of CGUs. The
carrying value is determined as the IFRS net asset value including goodwill. In compliance with IAS 36
‘Impairment of assets’,
 
the carrying value is determined on a basis that is consistent with the way in which the
recoverable amount of the CGU is determined. When the carrying values need to
 
be allocated between Retail
and Wholesale solvency (risk-weighted assets) are used as a basis. The recoverable
 
amount is estimated as the
higher of fair value less costs of disposal and value in use. Several methodologies are applied to arrive
 
at the
best estimate of the recoverable
 
amount. Impairment of goodwill, if applicable, is included in the statement of
profit or loss in Other operating expenses.
 
 
Computer software
 
Computer software that has been purchased or generated internally
 
for own use is stated at cost less
amortisation and any impairment losses. Amortisation is calculated on a straight
 
-line basis over its useful life.
This period will generally not exceed five years. Amortisation
 
is included in Other operating expenses.
 
Other intangible assets
 
Other intangible assets are capitalised and amortised over their expected economic life,
 
which is generally
between three and ten years. Intangible assets with an indefinite life
 
are not amortised.
 
 
 
 
 
 
 
 
 
 
 
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Basis of preparation and accounting policies
 
ING Group Annual Report 2020 on Form 20-F
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Significant judgements and critical accounting estimates and assumptions:
Impairment test of non-financial assets, mainly related to the assessment for potential
 
impairment of goodwill
and intangible assets, largely software, involves estimation
 
of their recoverable amounts. The review of
impairment of non-financial assets reflects management’s best estimate
 
of the future cash flows of the CGUs
and the rates used to discount these cash flows, both of which are subject to uncertain factors.
 
The future cash flows of the CGUs are sensitive to the cash flows projected for
 
the periods for which forecasts
are available and to assumptions regarding the long-term
 
pattern of sustainable cash flows thereafter.
 
The
accuracy of the forecasted cash flows is subject to
 
a high degree of uncertainty.
 
 
The rates used to discount future expected
 
cash flows can have a significant effect
 
on their valuation and are
based on the costs of capital assigned to individual CGUs. Cost of capital is subject to fluctuations in external
market rates and economic conditions beyond
 
management’s control.
 
Key assumptions used in estimating goodwill and software impairment are described in Note 10 ‘Intangible
assets’.
 
1.14 Taxation
 
Income tax on the result for the year consists of current
 
and deferred tax. Income tax
 
is recognised in the
statement of profit or loss but it is recognised directly in equity if the tax
 
relates to items that are recognised
directly in equity.
 
Deferred income tax
 
Deferred income tax is provided in full, using the liability method, for
 
temporary differences arising between
the tax basis 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 or substantively
 
enacted
at 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 and liabilities are not discounted.
 
 
Deferred tax assets are recognised when it is probable
 
that future taxable profit will be available
 
against which
the temporary differences can be utilised. Deferred
 
income tax is provided for temporary differences
 
arising
from investments in subsidiaries and associates, except
 
where the timing of the reversal of the temporary
difference is controlled by ING Group and it is probable
 
that the difference will not reverse in the foreseeable
future. The tax effects of income tax losses available
 
for carry forward are recognised as an asset where it
 
is
probable that future taxable profits will be ava
 
ilable against which these losses can be utilised.
 
 
Fair value remeasurements of debt and equity instruments measured at
 
FVOCI and cash flow hedges are
recognised directly in equity. Deferred
 
tax related to this fair value
 
remeasurement is also recognised directly
in equity and is subsequently recognised in the statement of profit or loss together
 
with the deferred gain or
loss.
 
 
Uncertain tax positions are assessed continually by ING Group and in case it is probable that there
 
will be a
cash outflow; a current tax liability is recognised.
 
 
1.15 Other assets
 
Investment property
 
Investment properties are recognised at
 
fair value at the balance sheet date. Changes in the carrying amount
resulting from revaluations are recognised
 
in the statement of profit or loss. On disposal, the difference
between the sale proceeds and carrying value is recognised in the statement
 
of profit or loss.
 
 
Property obtained from foreclosures
 
Property obtained from foreclosures is stated
 
at the lower of cost and net realisable value. Net realisable value
is the estimated selling price, less applicable variable selling expenses. Property obtained from foreclosures
 
is
included in Other assets - Property development and obtained from foreclosures.
 
Property development
 
Property developed and under development is included in Other assets – Property development and obtained
from foreclosures. Depending on the intention of ING Group after
 
completion of the development, the
property is measured as follows:
 
◾
 
Intention to sell: at the lower of cost and net realisable value;
◾
 
Intention to use as a real estate investment:
 
at fair value.
 
 
 
 
 
 
 
 
 
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Basis of preparation and accounting policies
 
ING Group Annual Report 2020 on Form 20-F
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1.16 Disposal groups held for sale and discontinued operations
 
Disposal groups (and groups of non-current assets) are classified as held for sale if their carrying amount will be
recovered principally through a sale transaction rather
 
than through continuing use. This is only the case when
the sale is highly probable and the disposal group (or group of assets) is available for immediate sale in its
present condition; management must be committed to the sale, which is expected
 
to occur within one year
from the date of classification as held for sale.
 
 
Upon classification as held for sale, the disposal group is measured at the lower of its carrying amount and fair
value less costs to sell, except where specifically exempt
 
from IFRS 5 ‘Non-current Assets Held for Sale and
Discontinued Operations. An impairment loss is recognised for any
 
initial or subsequent write-down of the
disposal group to fair value less costs to sell. A gain is recognised
 
for any subsequent increases in fair value less
costs to sell of the disposal group, but not in excess of any cumulative impairment
 
loss previously recognised. A
gain or loss not previously recognised by the date of the sale of the disposal group is recognised at
 
the date of
derecognition. Assets within the disposal group are not depreciated or amortised while they are classified as
held for sale. Interest and other expenses attributable
 
to the liabilities of a disposal group classified as held for
sale continue to be recognised. The assets of the disposal group classified as held for sale are presented
separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for
sale are presented separately from other liabilities in the balance sheet.
 
 
When a group of assets that is classified as held for sale represents a major line of business or geographical
area the disposal group is classified as discontinued operations. Upon classification of a business as held for
sale and discontinued operations the individual income and expenses are presented within the Total
 
net result
from discontinued operations instead of being presented
 
in the usual line items in the Consolidated statement
of profit or loss. All comparative years in the Consolidated statement
 
of profit or loss are restated and
presented as discontinued operations for all periods presented.
 
Furthermore, the individual assets and
liabilities are presented in the Consolidated statement
 
of financial position as Assets and liabilities held for sale
and are no longer included in the usual line items in the Consolidated statement of financial position. Changes
in assets and liabilities as a result of classification as held for sale are included in the notes in the line ‘Changes
in composition of the group and other changes’.
 
 
1.17 Provisions, contingent liabilities and contingent
 
assets
 
A provision is a present obligation arising from past events,
 
the settlement of which is expected to result in an
outflow of resources embodying economic benefits, however the timing or the amount is uncertain. Provisions
are discounted when the effect of the time value of money is significant
 
using a pre-tax discount rate.
 
 
Reorganisation provisions include employee termination
 
benefits when ING Group is demonstrably committed
to either terminate
 
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.
 
 
A liability is recognised for a levy when the activity that triggers payment, as identified by the relevant
legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the liability is recognised
only upon reaching the specified minimum threshold.
 
 
A contingent liability is a possible obligation that arises from past events
 
and whose existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within
the control of ING Group; or a present obligation that arises from past
 
events but is not recognised because it
is either not probable that an outflow of economic benefits will be required to settle the obligation or the
amount of the obligation cannot be measured reliably.
 
Contingent liabilities are not recognised in the
statement of financial position, but are rather disclosed in the notes unless the possibility of the outflow of
economic benefits is remote.
 
 
A contingent asset is a possible asset that arises from past events and whose existence
 
will be confirmed only
by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of
ING Group. Contingent assets are recognised in the statement
 
of financial position only when realisation of the
income that arises from such an asset is virtually certain. Contingent assets are disclosed in the notes when an
inflow of economic benefits is probable.
 
 
Significant judgements and critical accounting estimates and assumptions:
The recognition and measurement of provisions is an inherently uncertain process involving
 
using judgement
to determine when a present obligation exists
 
and estimates regarding probability,
 
amounts and timing of cash
flows.
 
 
 
 
 
 
 
 
 
 
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Basis of preparation and accounting policies
 
ING Group Annual Report 2020 on Form 20-F
F -283
ING Group may become involved in
 
governmental, regulatory,
 
arbitration and legal proceedings and
investigations. The degree of uncertainty and the method of making the accounting
 
estimate depends on the
individual case, its nature and complexity.
 
Such cases are usually one of a kind. Judgement is required to assess
whether a present obligation exists and to estimate
 
the probability of an unfavourable outcome and the
amount of potential loss. For the assessment of related provisions
 
ING Group consults with internal and
external legal experts. Even taking
 
into consideration legal experts’ advice, the probability of an outflow of
economic benefits can still be uncertain and the provision recognised can remain sensitive to the
 
assumptions
used. Reference is made to note 15 ‘Provisions’.
 
For
 
proceedings where it is not possible to make a reliable
estimate of the expected financial effect, that
 
could result from the ultimate resolution of the proceedings, no
provision is recognised, however disclosure is included in the financial statements.
 
Reference is made to note
45 ‘Legal proceedings’.
 
Critical accounting estimates and assumptions for the reorganisation
 
provision are in estimating the amounts
and timing of cash flows as the announced transformation initiatives are
 
implemented over a period of several
years. Reference is made to note
 
15 ‘Provisions’.
 
1.18 Other liabilities
 
Defined benefit plans
 
The net defined benefit asset or liability recognised in the statement of financial position in respect of defined
benefit pension plans is the fair value of the plan assets less the present value of the defined benefit obligation
at the balance sheet date.
 
 
Plan assets are measured at fair value at the balance sheet date. For
 
determining the pension expense, the
return on plan assets is determined using a high quality corporate bond rate
 
identical to the discount rate used
in determining the defined benefit obligation.
 
 
Changes in plan assets that effect Shareholders’ equity and/or
 
Net result, include mainly:
 
◾
 
Return on plan assets using a high quality corporate bond rate
 
at the start of the reporting period which
are recognised as staff costs in the statement
 
of profit or loss; and
 
◾
 
Remeasurements which are recognised in Other comprehensive income.
 
 
The defined benefit obligation is calculated by internal and external
 
actuaries through actuarial models and
calculations using the projected unit credit method. This method considers expected future
 
payments required
to settle the obligation resulting from employee service in the current and prior periods, discounted
 
using a
high quality corporate bond rate. Inherent
 
in these actuarial models are assumptions including discount rates,
rates of increase in future salary and benefit levels, mortality rates,
 
consumer price index and the expected
level of indexation. The assumptions are based on available market
 
data as well as management expectations
and are updated regularly.
 
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 obligation and future pension costs.
 
 
Changes in the defined benefit obligation that effects Shareholders’
 
equity and/or Net result, include mainly:
 
◾
 
Service cost which are recognised as staff costs in the statement
 
of profit or loss;
 
◾
 
Interest expenses using a high quality corporate bond rate
 
at the start of the period which are recognised
as staff costs in the Statement of profit
 
or loss; and
 
◾
 
Remeasurements which are recognised in Other comprehensive income
 
(equity).
 
 
Remeasurements recognised in other comprehensive income are
 
not recycled to profit or loss. Any past service
cost relating to a plan amendment is recognised in profit or loss in the period of the plan amendment. Gains
and losses on curtailments and settlements are recognised in the statement
 
of profit or loss when the
curtailment or settlement occurs.
 
 
The recognition of a net defined benefit asset in the Consolidated statement of financial position is limited to
the present value of any economic benefits available in the form
 
of refunds from the plans or reductions in
future contributions to the plans.
 
Defined contribution plans
 
For defined contribution plans, ING Group
 
pays contributions to publicly or privately administered
 
pension
insurance plans on a mandatory,
 
contractual or voluntary basis. ING Group has no further payment obligations
once the contributions have been paid. The contributions are recognised as staff
 
expenses in the profit or loss
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.
 
Other post-employment obligations
 
Some group companies provide other post-employment benefits to
 
former employees. The entitlement to
these benefits is usually conditional on the employee remaining in service up to retirement age and the
 
 
 
 
 
 
 
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Basis of preparation and accounting policies
 
ING Group Annual Report 2020 on Form 20-F
F -284
completion of a minimum service period. 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.
 
 
1.19 Income recognition
 
Interest
 
Interest income and expense are recognised in the statement
 
of profit or loss 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 expense
 
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 Group estimates
 
cash
flows considering all contractual terms of the financial instrument (for example,
 
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. Once a financial asset
or a group of similar financial assets has been written down as a result of an impairment loss, interest income
is recognised using the rate of interest
 
used to discount the future cash flows for the purpose of measuring the
impairment loss.
 
Interest results on instruments classified at Amortised Cost, assets measured
 
at FVOCI and derivatives in a
formal hedge accounting relationship is presented in ‘Interest
 
income (expense) using effective interest
 
rate
method’.
 
Interest result on financial assets and liabilities voluntarily designated as at
 
FVPL and derivatives in so
called economic hedges and instruments designated at fair value are
 
presented in ‘Other interest income
(expense)’.
 
Interest result on all other financial assets and liabilities at FVTPL is recognised in ‘Valuation results
and net trading income’.
 
Fees and commissions
 
Fees and commissions are generally recognised as the service is 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. Loan syndication fees are recognised
 
as income when the syndication
has been completed and ING Group has retained no part of the loan package for itself or has retained
 
a part at
the same effective interest rate
 
as the other participants. Commission and fees 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 is provided. Asset management fees related
 
to investment funds and
investment contract fees
 
are recognised on a pro-rata basis over the period the service is provided. The same
principle is applied for wealth management, financial planning and custody services that are continuously
provided over an extended period of time. Fees received and paid between banks
 
for payment services are
classified as commission income and expenses.
 
Lease income
 
The proceeds from leasing out assets under operating leases are recognised on a straight
 
-line basis over the life
of the lease agreement. Lease payments received in respect of finance leases when ING Group is the lessor are
divided into an interest component (recognised as interest
 
income) and a repayment component based on a
pattern reflecting a constant periodic rate
 
of return on the lessor’s net investment in the lease.
 
 
1.20 Expense recognition
 
Expenses are recognised in the statement of profit or loss as incurred or when a decrease in future
 
economic
benefits related to a decrease in an asset or an increase in a liability has arisen that can be measured reliably.
Fee and commission expenses are generally a result from a contract
 
with ING service providers in order to
perform the service for ING Group’s customers.
 
Costs are generally presented as ‘Commission expenses’ if they
are specific, incremental, directly attributable and identifiable to
 
generate commission income.
 
 
Share-based payments
 
ING Group only engages in share-based payment transactions with its staff
 
and directors. Share-based payment
expenses are recognised as a staff expense over
 
the vesting period. A corresponding increase in equity is
recognised for equity-settled share-based payment
 
transactions. A liability is recognised for cash-settled share-
based payment transactions. The fair value of equity-settled
 
share-based payment transactions are measured
at the grant date, and the fair value of cash-settled
 
share-based payment transactions are measured at each
balance sheet date. Rights granted will remain valid until the expiry date,
 
even if the share based payment
scheme is discontinued. The rights are subject to certain conditions, including a pre-determined continuous
period of service.
 
 
 
 
 
 
 
 
 
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Basis of preparation and accounting policies
 
ING Group Annual Report 2020 on Form 20-F
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1.21 Earnings per ordinary share
 
Earnings per ordinary share is calculated on the basis of the weighted average
 
number of ordinary shares
outstanding. In calculating the weighted average
 
number of ordinary shares outstanding:
 
◾
 
Own shares held by group companies are deducted from the total
 
number of ordinary shares in issue;
 
◾
 
The computation is based on daily averages; and
 
◾
 
In case of exercised warrants,
 
the exercise date is taken
 
into consideration.
 
 
Diluted earnings per share data are computed as if all convertible instruments
 
outstanding at year-end were
exercised at the beginning of the period. It is also assumed that ING Group uses the assumed proceeds thus
received to buy its own shares against the average
 
market price in the financial year.
 
The net increase in the
number of shares resulting from the exercise is added to the average
 
number of shares used to calculate
diluted earnings per share.
 
 
Share options with fixed or determinable terms are treated
 
as options in the calculation of diluted earnings per
share, even though they may be contingent on vesting. They
 
are treated as outstanding on the grant date.
Performance-based employee share options are treated
 
as contingently issuable shares because their issue is
contingent upon satisfying specified conditions in addition to the passage of time.
 
 
1.22 Statement of cash flows
 
The statement of cash flows is prepared in accordance
 
with the indirect method, distinguishing cash flows from
operating, investing and financing activities. In the net cash flow from operating
 
activities, the result before tax
is adjusted for those items in the statement of profit
 
or loss and changes in items per the statement of financial
position, which do not result in actual cash flows during the year.
 
 
For the purposes of the statement of cash flows, Cash and cash equivalents comprise balances with less than
three months’ maturity from the date of acquisition, including cash and balances with central banks, treasury
bills and other eligible bills, amounts due from other banks, and deposits from banks. Investments qualify as a
cash equivalent if they are readily convertible to
 
a known amount of cash and are subject to an insignificant
risk of changes in value.
 
 
Cash flows arising from foreign currency transactions are translated
 
into the functional currency using the
exchange rates at the date
 
of the cash flows.
 
 
The net cash flow shown in respect of Loans and advances to customers relates
 
only to transactions involving
actual payments or receipts. The Addition to loan loss provision which is deducted from the item Loans and
advances to customers in the statement
 
of financial position has been adjusted accordingly from the result
before tax and is shown separately
 
in the statement of cash flows.
 
 
The difference between the Net cash flow in accordance with the statement
 
of cash flows and the change
between the opening and closing balance of Cash and cash equivalents in the statement of financial position is
due to exchange rate differences
 
and is presented separately in the cash flow statement.
 
Liabilities arising from financing activities are debt securities and subordinated loans.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
2
 
Cash and balances with central bank
 
ING Group Annual Report 2020 on Form 20-F
F -286
Notes to the Consolidated statement
 
of financial position
2
 
Cash and balances with central bank
Cash and balances with central banks
2020
2019
Amounts held at central banks
109,237
51,178
Cash and bank balances
1,851
2,024
111,087
53,202
 
 
The movement in Cash and balances with central banks reflects ING’s
 
active liquidity management. ING
participated in a series of Targeted
 
Longer-Term
 
Refinancing Operations (TLTRO
 
III) for EUR 4.5 billion in March
2020, EUR 55.0 billion in June 2020 and repaid EUR 17.7 billion on previous TLTRO. Further details
 
are reported in
Note 12 ‘Deposits from Banks’ and in the consolidated statement
 
of Cash Flow.
 
Amounts held at central banks reflect on demand balances.
 
 
Reference is made to Note 42 ‘Transfer
 
of financial assets, assets pledged and received as collateral’ for
restrictions on Cash balances with central banks.
 
3
 
Loans and advances to banks
Loans and advances to banks
Netherlands
Rest of the world
Total
2020
2019
2020
2019
2020
2019
Loans
7,442
13,641
17,939
21,499
25,381
35,140
Cash advances, overdrafts and other balances
0
0
6
4
6
5
7,442
13,641
17,945
21,504
25,387
35,145
Loan loss provisions
-10
-6
-13
-3
-23
-9
7,432
13,635
17,933
21,501
25,364
35,136
 
 
Loans include balances (mainly short-term deposits) with central banks amounting to EUR 2,519 million (2019:
EUR 3,185 million).
 
As at 31 December 2020, Loans include receivables related to finance lease contracts amounting to
 
EUR 6 million
(2019: EUR 24 million). Reference is made to Note 7 ‘Loans and advances to customers’
 
for information on
finance lease receivables.
 
 
As at 31 December 2020, all loans and advances to banks are non-subordinated.
 
4
 
Financial assets at fair value through profit or loss
 
Financial assets at fair value through profit or loss
2020
2019
Trading assets
51,356
49,254
Non-trading derivatives
3,583
2,257
Designated at fair value through profit or loss
4,126
3,076
Mandatorily measured at fair value through profit or loss
44,305
41,600
103,370
96,187
 
 
(Reverse) repurchase transactions
Financial assets at fair value through profit or loss includes securities lending and sales and repurchase
transactions which were not derecognised, because ING Group continues to be exposed
 
to substantially all risks
and rewards of the transferred financial asset. For
 
repurchase agreements the gross amount of trading assets
must be considered together with the gross amount of related
 
trading liabilities, which are presented separately
on the statement of financial position since IFRS does not always allow netting
 
of these positions in the
statement of financial position.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
4
 
Financial assets at fair value through profit or loss
 
ING Group Annual Report 2020 on Form 20-F
F -287
ING Group’s exposure
 
to (reverse) repurchase transactions is included in the following
 
lines in the statement of
financial position:
 
Exposure to (reverse) repurchase agreements
2020
2019
Reverse repurchase transactions
Loans and advances to banks
4,869
8,943
Loans and advances to customers
624
180
Trading assets, loans and receivables
10,947
11,969
Loans and receivables measured at mandatorily measured at fair value
 
through profit or loss
41,735
38,985
58,175
60,077
Repurchase transactions
Deposits from banks
1,971
205
Trading liabilities, funds on deposit
5,787
4,556
Funds entrusted measured at designated at fair value
 
through profit or loss
41,177
38,492
48,935
43,253
 
 
Securities purchased under agreements to resell (reverse repos),
 
securities borrowings and similar agreements
are not recognised in the consolidated statement
 
of financial position. Based on the business model assessment
and counterparty,
 
the consideration paid to purchase securities is recognised as Loans and advances to
customers, Loans and advances to banks, Other financial assets at FVPL or Trading
 
assets.
 
 
Securities sold subject to repurchase agreements (repos), securities lending and similar agreements continue to
be recognised in the consolidated statement of financial position. The counterparty
 
liability is measured at FVPL
(designated) and included in Other financial liabilities at FVPL if the asset is measured at FVPL. Otherwise, the
counterparty liability is included in Deposits from banks, Customer deposits, or Trading,
 
as appropriate.
 
 
Reference is made to Note 42 ‘Transfer
 
of financial assets, assets pledged and received as collateral’ for
information on transferred
 
assets which were not derecognised.
 
 
Trading assets
Trading assets by type
2020
2019
Equity securities
7,809
8,499
Debt securities
5,183
6,256
Derivatives
27,238
21,694
Loans and receivables
11,126
12,806
51,356
49,254
 
 
Trading assets include assets that
 
are classified under IFRS as Trading, but are
 
closely related to servicing the
needs of the clients of ING Group. ING offers institutional clients, corporate
 
clients, and governments, products
that are traded on the financial markets. A significant part of the derivatives
 
in the trading portfolio is related to
servicing corporate clients in their risk management to hedge for example
 
currency or interest rate exposures.
 
In
addition, ING provides its customers access to equity and debt markets for
 
issuing their own equity or debt
securities (securities underwriting).
 
Reference is made to Note 14 ‘Financial liabilities at fair value
 
through profit or loss’ for information on trading
liabilities.
 
Non-trading derivatives
 
 
Non-trading derivatives by type
2020
2019
Derivatives used in
-
 
fair value hedges
486
524
-
 
cash flow hedges
1,376
677
-
 
hedges of net investments in foreign operations
69
23
Other non-trading derivatives
1,653
1,033
3,583
2,257
 
 
Reference is made to Note 39 ‘Derivatives
 
and hedge accounting’ for information on derivatives used in hedge
accounting.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
5
 
Financial assets at fair value through other comprehensive income
 
ING Group Annual Report 2020 on Form 20-F
F -288
 
Other non-trading derivatives mainly includes interest rate
 
swaps and foreign exchange currency
 
swaps for which
no hedge accounting is applied.
 
Designated at fair value through profit
 
or loss
Designated at fair value through profit or loss by type
2020
2019
Debt securities
3,544
2,334
Loans and receivables
582
742
4,126
3,076
 
 
‘Financial assets designated at fair value through profit or loss’ is partly economically hedged
 
by credit
derivatives.
 
The hedges do not meet the criteria for hedge accounting and the loans are recorded
 
at fair value to
avoid an accounting mismatch. The maximum credit exposure of the loans and receivables
 
included in ‘Financial
assets designated at fair value through profit or loss’ approximates
 
its carrying value. The cumulative change in
fair value of the loans attributable to changes in credit risk is not significant.
 
The notional value of the related credit derivatives is EUR 1,077 million (2019: EUR 1,672 million). The cumulative
change in fair value of the credit derivatives attributable
 
to changes in credit risk since the financial assets were
first designated, amounts to EUR -16 million (2019: EUR 29 million) and the change for the current
 
year amounts
to EUR -45 million (2019: EUR -52 million).
 
These have been calculated by determining the changes in credit spread
 
implicit in the fair value of bonds issued
by entities with similar credit characteristics.
 
Mandatorily at fair value through profit or loss
Mandatorily at fair value through profit or loss by type
2020
2019
Equity securities
228
159
Debt securities
787
733
Loans and receivables
43,290
40,708
44,305
41,600
 
 
None of the equity securities are individually significant for ING Group.
 
For details on ING Group’s total
 
exposure to debt securities reference is made to
 
Note 6 ‘Securities at amortised
cost’.
 
5
 
Financial assets at fair value through other comprehensive income
Financial assets at fair value through other comprehensive income by type
2020
2019
Equity securities
 
1,862
2,306
Debt securities
1
32,977
30,483
Loans and advances
1
1,056
1,680
35,895
34,468
 
1 Debt securities include an amount of EUR -12 million (2019: EUR -7 million)
 
and the Loans and advances includes EUR -2 million (2019:
EUR -3 million) of Loan loss provisions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
5
 
Financial assets at fair value through other comprehensive income
 
ING Group Annual Report 2020 on Form 20-F
F -289
Exposure to equity securities
Equity securities designated as at fair value through other comprehensive
 
income
Carrying
value
Carrying
value
Dividend
income
Dividend
income
2020
2019
2020
2019
Investment in Bank of Beijing
1,662
2,001
95
93
Other Investments
200
305
12
18
1,862
2,306
107
111
 
 
For strategic equity securities, ING decided to apply the option to irrevocably
 
designate these investments at fair
value through other comprehensive income, instead of the IFRS 9 default
 
measurement of fair value through
profit or loss.
 
 
As at 31 December 2020 ING holds approximately 13% (2019: 13%)
 
of the shares of Bank of Beijing, a bank listed
on the stock exchange of Shanghai. As per regulatory requirements
 
set by China Banking and Insurance
 
Regulatory Commission, ING, as a shareholder holding more than 5% or more of the shares, is required to supply
additional capital when necessary. No request for
 
additional capital was received in 2020 (2019: nil).
 
Changes in fair value through other comprehensive
 
income
The following table presents changes in financial assets at fair value
 
through other comprehensive income.
 
Changes in fair value through other comprehensive income financial assets
FVOCI equity securities
FVOCI debt instruments
1
Total
2020
2019
2020
2019
2020
2019
Opening balance as at 1 January
2,306
3,228
32,163
27,995
34,468
31,223
Additions
13
11
16,936
16,259
16,949
16,270
Amortisation
-9
-12
-9
-12
Transfers
 
and reclassifications
 
-107
3
0
-0
-107
3
Changes in unrealised revaluations
2
-283
139
520
258
237
397
Impairments
-2
-2
-2
-2
Reversals of impairments
-4
1
-4
1
Disposals and redemptions
-13
-1,091
-14,557
-12,298
-14,571
-13,389
Exchange rate differences
-53
15
-1,017
-40
-1,070
-25
Changes in the composition of the group and other
changes
-0
0
2
2
2
3
Closing balance
1,862
2,306
34,033
32,163
35,895
34,468
 
 
1 Fair value through other comprehensive income debt instruments includes both debt securities and loans and advances.
2 Changes in unrealised revaluations of FVOCI debt instruments include changes on hedged items which are recognised in the statement of
profit or loss. Reference is made to Note 19 ‘Equity’ for details on the changes in revaluation reserve.
 
 
In 2020, changes in unrealised revaluations of equity securities decreased mainly related to negative
 
revaluation
of the stake in Bank of Bejing following a decline in share price (EUR -339 million).
 
In 2020, transfers and reclassifications of
 
EUR -107 million mainly relates to ING’s
 
investment in Visa preference
series C shares (EUR -116 million) that have been reclassified from equity at fair value through
 
other
comprehensive income to debt securities at mandatorily fair value
 
through profit or loss' based on variable
conversion rate.
 
 
In the first quarter of 2019, ING sold its last tranche of shares in India’s
 
Kotak Mahindra Bank (Kotak) for
 
EUR 880
million. The transaction, for a stake of 3.07%, concluded the divestment
 
process and was the main driver for the
‘disposal’ line in 2019.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
6
 
Securities at amortised cost
 
ING Group Annual Report 2020 on Form 20-F
F -290
Reference is made to Note 6 ‘Securities at amortised cost’ for details on ING Group’s
 
total exposure to debt
securities.
 
 
6
 
Securities at amortised cost
Securities at amortised cost fully consist of Debt securities.
ING Group’s exposure
 
to debt securities is included in the following lines in the statement of financial position:
 
Exposure to debt securities
2020
2019
Debt securities at fair value through other comprehensive income
32,977
30,483
Debt securities at amortised cost
50,587
46,108
Debt securities at fair value through other comprehensive income and amortised cost
83,564
76,592
Trading assets
5,183
6,256
Debt securities at fair value through profit or loss
4,274
3,067
Total debt securities at
 
fair value through profit or loss
9,457
9,323
93,022
85,914
 
 
ING Group’s total
 
exposure to debt securities (excluding debt securities held in the trading portfolio)
 
of EUR
87,838 million (31 December 2019: EUR 79,659 million) is specified as follows:
 
Debt securities by type of exposure
Debt Securities
at FVPL
Debt Securities
at FVOCI
Debt Securities
at AC
Total
2020
2019
2020
2019
2020
2019
2020
2019
Government bonds
48
408
22,448
20,300
26,801
25,627
49,296
46,334
Sub-sovereign, Supranationals
and Agencies
2,331
505
7,510
6,606
14,858
10,689
24,699
17,801
Covered bonds
1,821
1,734
5,965
6,960
7,786
8,693
Corporate bonds
26
207
476
131
143
364
619
Financial institutions' bonds
1,143
1,440
523
332
1,956
1,536
3,622
3,308
ABS portfolio
726
714
480
1,043
894
1,163
2,100
2,920
4,274
3,067
32,990
30,491
50,604
46,118
87,868
79,676
Loan loss provisions
-12
-7
-17
-10
-29
-17
Bond portfolio
4,274
3,067
32,977
30,483
50,587
46,108
87,838
79,659
 
 
Approximately ##D<20F_Note_Securities_at_amortised_cost_var_2_CY>%
 
(2019:90%) of the exposure in the
ABS portfolio is externally rated AAA, AA or A, and the remaining positions are largely unrated.
 
There are no
borrowed debt securities recognised in the statement of financial position.
 
7
 
Loans and advances to customers
Loans and advances to customers by type
Netherlands
Rest of the world
Total
2020
2019
2020
2019
2020
2019
Loans to, or guaranteed by,
 
public authorities
24,292
25,340
17,210
16,849
41,502
42,190
Loans secured by mortgages
115,176
117,199
236,954
231,327
352,130
348,526
Loans guaranteed by credit institutions
305
206
4,896
3,569
5,201
3,775
Personal lending
3,019
3,482
24,776
24,768
27,794
28,250
Corporate loans
37,594
39,645
135,527
150,233
173,121
189,878
180,385
185,873
419,364
426,746
599,749
612,619
Loan loss provisions
-1,286
-1,193
-4,493
-3,398
-5,779
-4,590
179,099
184,680
414,871
423,349
593,970
608,029
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
8
 
Investment in associates and joint ventures
 
ING Group Annual Report 2020 on Form 20-F
F -291
For details on credit quality and loan loss provisioning, refer to ‘Risk management
 
– Credit risk’ paragraph ‘Credit
quality’.
Loans and advances to customers by subordination
2020
2019
Non-subordinated
593,871
607,908
Subordinated
99
121
593,970
608,029
 
 
No individual loan or advance has terms and conditions that significantly affect the amount, timing or certainty
 
of
the consolidated cash flows of the Group.
 
Loans and advances to customers and Loans and advances to banks include finance lease receivables and are
detailed as follows:
 
Finance lease receivables
2020
2019
1
Maturities of gross investment in finance lease receivables
-
 
within 1 year
3,175
3,116
-
 
between 1-2 years
2,212
2,250
-
 
between 2-3 years
1,722
1,753
-
 
between 3-4 years
1,166
1,229
-
 
between 4-5 years
711
732
-
 
more than 5 years
1,487
1,511
10,473
10,591
Unearned future finance income on finance leases
-508
-580
Net investment in finance leases
9,965
10,011
Included in Loans and advances to banks
6
24
Included in Loans and advances to customers
9,958
9,987
9,965
10,011
 
1
 
The prior period has been updated to improve consistency and comparability of the amounts per maturity of finance lease receivables.
 
The finance lease receivables mainly relate to the financing of equipment and are part of corporate
 
loans. To a
lesser extent, the finance lease receivables relate to real
 
estate for third parties, where ING is the lessor.
 
These
finance lease receivables are part of loans secured by mortgages. Interest
 
income in 2020 on Finance lease
receivables amounts to EUR 229 million (2019: EUR 251 million).
 
Expected credit losses for uncollectable finance lease receivables of EUR 164 million as at 31 December 2020
(2019: EUR 136 million) is included in the loan loss provision. The loan loss provision for finance lease receivables
is classified into the following loan loss provision stages; stage
 
1: EUR 8 million (2019: EUR 2 million), stage 2: EUR
25 million (2019: EUR 6 million), and stage 3: EUR 131 million (2019: EUR 128 million).
 
No individual finance lease receivable has terms and conditions that significantly affect the amount,
 
timing or
certainty of the consolidated cash flows of the Group.
 
 
8
 
Investment in associates and joint ventures
Investments in associates and joint ventures
2020
Interest
held (%)
Fair value
of listed
invest-
ments
Balance
sheet
value
Total
assets
Total
liabilities
Total
income
Total
expenses
TMB Public Company Limited
23
653
1,202
50,123
44,597
1,388
1,093
Other investments in associates and joint
ventures
273
1,475
 
 
Investments in associates and joint ventures
2019
Interest
held (%)
Fair value
of listed
invest-
ments
Balance
sheet
value
Total
assets
Total
liabilities
Total
income
Total
expenses
TMB Public Company Limited
23
1,109
1,509
55,804
49,974
1,145
891
Other investments in associates and joint
ventures
281
1,790
 
 
 
 
 
 
 
 
 
>
 
8
 
Investment in associates and joint ventures
 
ING Group Annual Report 2020 on Form 20-F
F -292
 
The reporting dates of certain associates and joint ventures can differ
 
from the reporting date of the Group, but
by no more than three months.
 
TMB Bank Public Company Limited
ING Group has a 23% investment in TMB Bank Public Company Limited (hereafter:
 
TMB), a bank listed on the
Stock Exchange of Thailand. TMB is providing products and services to Wholesale, Small and Medium Enterprise
(SME), and Retail customers. In December 2019 TMB merged with Thanachart Bank and became Thailand’s
 
sixth
largest bank.
 
 
TMB is accounted for as an investment in associate
 
based on the size of ING shareholding and representation on
the Board. IFRS requires to test its investment
 
in TMB for impairment when there is an indication that
impairment might exist.
 
Impairment testing
In 2020, the fair value of ING’s investment
 
in TMB significantly declined below the purchase cost. This indicator
triggered ING to perform an impairment test on the recoverability
 
of the investment of TMB.
 
The impairment
test performed led to an impairment at 30 September 2020 of EUR 230 million, as the recoverable
 
amount of
EUR 1,181 million,
 
as determined by a Value in Use calculation, was below the carrying amount of EUR 1,411
million at that point in time. The impairment test at year end resulted in no further impairments.
 
 
Methodology
The recoverable amount is determined as the higher of the fair value less costs
 
of disposal and Value in Use
(‘VIU’). Fair value less costs of disposal is based on observable share price. The VIU calculation uses discounted
cash flow projections based on management’s best estimates. VIU is derived using a Dividend Discount
 
Model
(DDM) where distributable equity,
 
i.e. future earnings available to ordinary shareholders, is used as a proxy
 
for
future cash flows. The valuation looks at expected cash flows
 
into perpetuity resulting in two main components
to the VIU calculation:
i) the estimation of future earnings over a 5 year forecast period; and
ii) the terminal value being the extrapolation of earnings into perpetuity applying a long term growth
rate. The earnings that are used for extrapolation
 
represent the stable long term financial results and
position of TMB, i.e. a steady state. The terminal value comprises the
 
majority of the total VIU.
 
Key assumptions used in the VIU calculation as at 31 December 2020 (and as at 30 September 2020 resulting in
impairment)
The value in use is determined using a valuation model which is subject to multiple management assumptions.
The key assumptions, i.e. those to which the overall result is most sensitive to,
 
are the following:
 
 
Expected future earnings of TMB: based on forecasts derived from broker
 
consensus over the short to
medium term and TMB observable targets for steady state
 
earnings into perpetuity. A capital
 
maintenance
charge is applied, which is management’s forecast
 
of the earnings that need to be withheld in order for TMB
to meet target regulatory requirements
 
over the forecast period;
 
 
Terminal growth
 
rate: 1.6% for periods after 2024, consistent
 
with current long term government bond yield
in Thailand as a proxy for a risk-free
 
rate (30 September 2020: 3.0% consistent with long term
 
forecasts of
GDP growth in Thailand);
 
 
 
Discount rate (cost of equity): 8.49%, based on the capital asset pricing model (CAPM) calculated
 
for TMB,
using current market data (30 September 2020: 9.8%).
 
The terminal growth rate and the discount rate
 
are interdependent. Following the use of the long term
government bond yield as a basis for terminal growth rate
 
at year-end, cost of equity was adjusted accordingly
(reducing cost of equity). This change did not have a significant impact on value in use as at 31 December 2020.
Furthermore, following the approval of vaccines
 
and improvement in the share price of TMB observed in the last
quarter of the year,
 
in line with the general market, the level of confidence in the forecasted
 
cash flows of TMB
increased compared to 30 September 2020. This allowed ING to remove the
 
additional forecasting risk factor
from cost of equity at year-end compared to 30 September 2020. Even
 
if the additional forecasting risk factor
remained in the cost of equity as at 31 December 2020, this would not have resulted in impairment at year
 
-end
in addition to the impairment already recognised at 30 September 2020.
 
At year end 2020 the model was tested for reasonably
 
possible changes to key assumptions in the model. This
reflects the sensitivity of the VIU to each key assumption on its own and it is possible that more than one
favourable and/or unfavourable
 
change may occur at the same time. Holding the other key assumptions
constant, a reduction in all of the forecasted
 
annual cashflows, including terminal value, of 17.6% would reduce
the recoverable amount to the carrying amount. A 589bps decrease in long term growth
 
rate or a 153bps
increase in the discount rate would cause the VIU to equal the carrying amount.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
9
 
Property and equipment
 
ING Group Annual Report 2020 on Form 20-F
F -293
Other investments in associates
 
and joint ventures
Included in Other investments in associates and joint ventures are
 
mainly financial services and financial
technology funds or vehicles operating predominantly in Europe.
 
 
Other investments in associates and joint ventures represents
 
a number of associates and joint ventures that are
individually not significant to ING Group.
 
 
Significant influence for associates in which the interest
 
held is below 20%, is based on the combination of ING
Group’s financial interest
 
and other arrangements, such as participation in the Board of Directors.
 
The associates and joint ventures of ING are subject to legal and regulatory
 
restrictions regarding the amount of
dividends it can pay to ING. These restrictions are for example
 
dependent on the laws in the country of
incorporation for declaring dividends or as a result of minimum capital requirements that
 
are imposed by
industry regulators in the countries in which the associates and joint ventures
 
operate. In addition, the associates
and joint ventures also consider other factors in determining the appropriate
 
levels of equity needed. These
factors and limitations include, but are not limited to,
 
rating agency and regulatory views, which can change over
time.
 
Changes in Investments in associates and joint ventures
2020
2019
Opening balance
1,790
1,203
Additions
24
507
Revaluations
-3
-18
Share of results
66
82
Dividends received
-12
-58
Disposals
-12
-10
Impairments
-235
-34
Exchange rate differences
-144
113
Other
0
4
Closing balance
1,475
1,790
 
Share of results from associates and joint ventures of EUR 66 million (2019: EUR 82 million) as included in the
table above is mainly attributable to results of TMB of EUR 70 million (2019: EUR 77 million).
 
‘Share of results from associates and joint ventures’ and ‘impairments
 
of associates and joint ventures’ are
presented separately in the face of the consolidated
 
statement of profit or loss. In 2020 impairments is
predominantly attributable to TMB.
 
9
 
Property and equipment
 
Property and equipment by type
2020
2019
Property in own use
745
757
Equipment
842
940
Right- of- use assets
1,255
1,476
2,841
3,172
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
9
 
Property and equipment
 
ING Group Annual Report 2020 on Form 20-F
F -294
Changes in property in own use
2020
2019
Opening balance
757
780
Additions
10
5
Transfers
 
to and from Other Assets
57
-1
 
- Depreciation
-12
-11
 
-
 
Impairments
-8
-2
 
-
 
Reversal of impairments
9
6
Amounts recognised in the statement of profit or loss for
 
the year
-12
-7
Revaluations recognised in equity during the year
20
58
Disposals
-63
-72
Exchange rate differences
-24
-7
Closing balance
745
757
Gross carrying amount as at 31 December
1,258
1,279
Accumulated depreciation as at 31 December
-378
-385
Accumulated impairments as at 31 December
-135
-137
Net carrying value as at 31 December
745
757
Revaluation surplus
Opening balance
339
280
Change in the year
-30
59
Closing balance
310
339
 
ING considers valuations from third party experts in determining
 
the fair values of property in own use.
 
 
The purchase costs amounted to EUR 948 million (2019: EUR 940 million). Cost or the purchase price less
accumulated depreciation and impairments would have been EUR 435 million (2019: EUR 417 million) had
property in own use been valued at cost instead of at fair value.
 
Changes in equipment
Data processing
Fixtures and fittings
equipment
and other equipment
Total
2020
2019
2020
2019
2020
2019
Opening balance
307
290
633
589
940
879
Additions
134
149
143
200
277
349
Disposals
-3
-1
-9
-8
-12
-9
Depreciation
-145
-136
-147
-142
-291
-278
Impairments
-1
-0
-7
-1
-9
-1
Exchange rate differences
-10
1
-11
1
-22
2
Changes in the composition of the group
and other changes
-1
3
-41
-5
-42
-3
Closing balance
281
307
561
633
842
940
Gross carrying amount as at 31 December
1,489
1,479
2,297
2,408
3,786
3,886
Accumulated depreciation as at 31 December
-1,207
-1,171
-1,734
-1,774
-2,940
-2,946
Accumulated impairments as at 31 December
-2
-1
-3
-1
-5
-1
Net carrying value as at 31 December
281
307
561
633
842
940
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
10
 
Intangible assets
 
ING Group Annual Report 2020 on Form 20-F
F -295
Changes in Right-of-use assets
Property
Cars
Other leases
Total
2020
2019
2020
2019
2020
2019
2020
2019
Opening balance
1,323
n/a
96
n/a
57
n/a
1,476
n/a
Effect of changes in accounting policy due to
the implementation of IFRS 16
1,138
70
72
1,280
Additions
94
381
37
65
3
-2
134
444
Depreciation
-213
-211
-43
-40
-19
-12
-275
-262
Impairments
-35
-35
Remeasurements
8
29
1
8
30
Disposals
-13
-18
-1
-1
-14
-19
Exchange rate differences
-32
8
-1
-2
-1
-35
7
Changes in the composition of the group and
other changes
-4
-4
-4
-4
Closing balance
1,129
1,323
89
96
38
57
1,255
1,476
Gross carrying amount as at 31 December
1,519
1,503
152
135
65
69
1,737
1,707
Accumulated depreciation as at 31 December
-399
-213
-64
-40
-28
-12
-492
-265
Accumulated impairments as at 31 December
-36
-36
Accumulated remeasurement as at
31 December
44
33
1
1
45
34
Accumulated exchange rate
 
diffrences as at
31 December
Net carrying value as at 31 December
1,129
1,323
89
96
38
57
1,255
1,476
 
 
Right-of-use assets relate
 
to leased land and buildings, cars, data-processing equipment and other leases.
 
 
The reported impairment losses of EUR 35 million result from change in use of right-of-use
 
property and the
anticipation of a change in the post-pandemic way of working.
 
 
10
 
Intangible assets
Changes in intangible assets
Goodwill
Software
Other
Total
2020
2019
2020
2019
2020
2019
2020
2019
Opening balance
907
918
958
868
52
53
1,916
1,839
Additions
17
86
94
87
111
Capitalised expenses
213
285
213
285
Amortisation
-249
-235
-2
-2
-251
-237
Impairments
1
-310
-167
-61
-35
-513
-61
Exchange rate differences
-63
-28
-6
-69
-28
Disposals
-9
-1
-9
-1
Changes in the composition of the group and other
changes
19
8
1
19
9
Closing balance
533
907
846
958
15
52
1,394
1,916
Gross carrying amount as at 31 December
843
907
2,642
2,608
60
61
3,545
3,575
Accumulated amortisation as at 31 December
-1,621
-1,641
-9
-7
-1,630
-1,648
Accumulated impairments as at 31 December
-310
-175
-9
-37
-2
-522
-11
Net carrying value as at 31 December
533
907
846
958
15
52
1,394
1,916
 
1 Impairments of intangible assets are presented within Other operating expenses in the statement of Profit or Loss.
 
Goodwill
Goodwill is allocated to groups of cash generating units (CGUs) as follows:
Goodwill allocation to group of CGUs
Method used for
recoverable amount
Discount rate
Terminal growth
rate
Goodwill
Goodwill
Group of CGU’s
2020
2019
Retail Netherlands
 
Values in use
8.59%
0.00%
30
30
Retail Belgium
 
Values in use
9.48%
0.00%
50
Retail Germany
 
Values in use
8.57%
0.00%
349
349
Retail Growth Markets
1
 
Values in use
13.09%
3.80%
153
209
Wholesale Banking
1
 
Values in use
9.58%
0.75%
268
533
907
 
 
 
 
 
 
 
 
>
 
10
 
Intangible assets
 
ING Group Annual Report 2020 on Form 20-F
F -296
1 Goodwill from acquisition related to Growth Countries is allocated across two groups of CGUs, EUR 153 million to Retail Growth
 
Markets
and EUR 0 million to Wholesale Banking (2019: EUR 209 million to Retail Growth Markets and EUR 61 million to Wholesale Banking).
 
 
Impairment testing
Goodwill is tested for impairment annually in the fourth quarter by comparing the recoverable
 
amount of each
goodwill-carrying CGU with its carrying amount. The key assumptions used in the calculation of the recoverable
amounts are included in the table above. In addition ING Group tests goodwill whenever a triggering event
 
is
identified.
 
Covid-19 has resulted in adverse changes in the market and economic environment.
 
Due to the impact of the
significant deterioration in the economic environment
 
on the cash flow outlook of our businesses, we also
completed a goodwill impairment review across ING Group in the second quarter of 2020.
 
Goodwill impairment test performed in the second quarter resulted in the recognition of goodwill impairments
on the CGU Retail Belgium of EUR 50 million (of which EUR 43 million is reported in Retail Belgium segment and
EUR 8 million in Corporate Line segment) and on the CGU Wholesale Banking of EUR 260 million (fully reported in
the Wholesale Banking segment).
 
For both CGUs the impairment resulted from the negative developments
 
in the macro-economic outlook in the
context of the Covid-19 pandemic. In addition, the applicable discount rate is also affected
 
by the deteriorated
economic and risk environment. The discount rate
 
used to estimate the value in use of the CGU Belgium as at 30
June 2020 was 9.54 % (31 December 2019: 6.94 %). The discount rate used to estimate the value in use of CGU
Wholesale Banking, which is based on the weighted average of the discount rates of various
 
local businesses as
Wholesale Banking is a global business line, was at 30 June 9.38% (31 December 2019: 7.29%). The terminal
growth rate used to estimate the value
 
in use of the CGU Belgium was 0.00% at 30 June 2020 and it was not
changed compared to Q4 2019 (31 December 2019: 0.00 %). The terminal growth rate
 
used to estimate the value
in use of CGU Wholesale Banking
 
was at 30 June 0.85% (31 December 2019: 0.69%).
 
For each of the other groups
 
of CGUs the recoverable amount exceeds
 
the carrying value of the CGUs as at 31
December 2020 and therefore no impairment is required.
 
Methodology
 
In line with IFRS, the recoverable amount is determined as the higher of the fair value
 
less costs of disposal and
Value in Use (VIU). The VIU calculation is based on a Dividend Discount model using three year management
approved plans, updated for the expected impact of Covid-19. When estimating
 
the VIU of a CGU, local
conditions and requirements determine the capital requirements,
 
discount rates, and terminal growth rates
 
.
 
These local conditions and requirements determine the ability to upstream excess
 
capital and profits to ING
Group. The discount rate calculation includes other inputs such as equity market
 
premium, country risk premium,
and long term inflation which are based on market sources and management’s
 
judgement. The long term growth
rate for EU-countries is based on long term risk-free
 
rate by reference
 
to the yield of a composite index consisting
of Euro generic government bonds, with a maturity of 30 years. For other countries,
 
the growth rate includes
long term inflation rate obtained from market
 
sources.
 
Sensitivity of key assumptions
 
Key assumptions in the goodwill impairment test model are the projected locally available
 
cash flows (based on
local capital requirements and projected profits), discount
 
rates (cost of equity), and long term growth rates.
 
 
The recoverable amounts of the unimpaired CGUs are sensitive to
 
the above key assumptions.
 
A decrease in the available cash flows of 10%, an increase in the discount rate
 
of 1 percent point or a reduction of
future growth rate to
 
zero are considered reasonably possible changes
 
in key assumptions. If the aforementioned
changes
 
occur
 
to
 
the
 
above
 
key
 
assumptions
 
holding
 
the
 
other
 
key
 
assumptions
 
constant,
 
goodwill
 
of
 
the
remaining CGUs will continue to be recoverable and no impairment
 
will occur.
 
Other changes
Other changes in goodwill in 2020 relate to changes in currency exchange
 
rates of CGUs Wholesale Banking and
Retail Growth Markets goodwill.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
11
 
Other assets
 
ING Group Annual Report 2020 on Form 20-F
F -297
Software
 
Software, includes internally developed software amounting to EUR 688 million (2019: EUR 741 million).
 
 
Following the decision to discontinue the Maggie programme an impairment of EUR 141 million was recognised in
2020, primarily
 
related to
 
capitalised software
 
development costs.
 
In addition,
 
an impairment
 
of EUR
 
19 million
with regards
 
software in
 
the payments
 
and cash management
 
business was recogni
 
sed. The rest
 
of the software
impairment relates to various, individually immaterial items.
 
 
Other intangible assets
In 2020 an impairment of an indefinite useful life asset
 
of EUR 14 million was recognised, related to
 
brand names
(2019: nil)
 
and additional
 
EUR 20
 
million was
 
recognised related
 
to intangible
 
assets from
 
a previous
 
acquisition
(customer relationships), following a re-evaluation
 
of the business plan.
 
 
11
 
Other assets
Other assets by type
2020
2019
Net defined benefit assets
725
709
Investment properties
20
46
Property development and obtained from foreclosures
72
98
Accrued assets
781
783
Amounts to be settled
2,215
2,835
Other
2,079
2,546
5,893
7,018
 
 
Disclosures in respect of Net defined benefit assets are provided in Note 36 ‘Pension and other post-employment
benefits’.
 
Amounts to be settled include primarily transactions not settled at the balance sheet date. The nature
 
of these
transaction is short term and are expected to settle shortly after
 
the closing date of the balance sheet.
 
Other relates to various receivables in the normal course of business, amongst
 
others, short term receivables
relating to mortgage issuance and other amounts receivable from customers.
 
 
12
 
Deposits from banks
Deposits from banks includes non-subordinated debt from banks, except
 
for amounts in the form of debt
securities.
Deposits from banks by type
Netherlands
Rest of the world
Total
2020
2019
2020
2019
2020
2019
Non-interest bearing
596
107
196
73
792
180
Interest bearing
49,336
17,544
27,971
17,101
77,306
34,646
49,931
17,651
28,166
17,175
78,098
34,826
 
 
Deposits from banks includes ING’s participation in the Targeted
 
Longer-Term
 
Refinancing Operations of EUR
59.5 billion (2019: EUR 17.7 billion). ING participated in a new series of Targeted
 
Longer-Term
 
Refinancing
Operations (TLTRO
 
III) for EUR 4.5 billion in March 2020, EUR 55.0 billion in June 2020 and repaid EUR 17.7 billion
of the previous TLTRO (TLTRO
 
II).
 
 
The TLTRO III funding is granted
 
for a period of three years with an early repayment option after one year
 
with
the earliest date of September 2021. The three new participation windows introduced by the ECB press
 
release in
December 2020, can be repaid quarterly from June 2022. Interest under TLTRO
 
III will be settled on maturity of
each TLTRO III operation
 
or on early repayment. The interest rate
 
on TLTRO III depends on the lending volumes
granted to corporates (excluding
 
financial institutions) and households (excluding mortgages).
 
Under the conditions of the program, interest rate
 
s
 
can be as favorable as 50 basis points below the average
interest rate on the Deposit Facility
 
rate, but in any case not higher than -1%. Such a rate
 
would apply to all
TLTRO III operations
 
outstanding over the discrete periods between 24 June 2020 and 23 June 2021 (special
interest period 1), and between 24 June 2021 and 23 June 2022 (special interest period 2), for
 
banks that show
growth in lending volumes equal to or above 0% between 1 March 2020 and 31 March 2021 (observation period
1) and 1 October 2020 and 31 December 2021 (observation period 2), respectively.
 
In case lending growth targets
are not met, the interest rate during the special interest
 
periods can in a worst case scenario be at 50 basis points
below the average Main Refinancing Operations
 
rate over the same period. In the period preceding and following
the special interest periods the interest will be in a corridor between the Deposit Facility
 
and Main Refinancing
Operations rates, depending to what extent
 
ING meets the lending growth conditions of the TLTRO
 
III program.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
13
 
Customer deposits
 
ING Group Annual Report 2020 on Form 20-F
F -298
Special interest period 2 was announced by the ECB in its press release in December 2020 and confirmed in
January 2021.
 
The amount of interest income recognised during the period on the TLTRO
 
III depends on a reasonable
expectation of whether the conditions will be met. Interest income on ING’s
 
participation in TLTRO III of EUR 164
million was recognised in the statement of profit and loss (please refer
 
to Note 20 Net interest income). Interest
income recognised in 2020 for TLTRO
 
III is based on -50 bps (the Main Refinancing Operations rate minus 50 bps),
which is in substance an unconditional rate during June 2020 – June 2021 and does not depend on whether the
lending targets are achieved. At 31 December 2020 ING assessed that it is not yet
 
highly probable that lending
targets will be met. Any conditional benefit from TLTRO
 
III has not been included yet.
 
 
13
 
Customer deposits
Customer deposits
2020
2019
Savings accounts
336,392
326,864
Credit balances on customer accounts
256,636
224,022
Corporate deposits
15,941
22,329
Other
548
1,140
609,517
574,355
 
 
Customer deposits by type
Netherlands
Rest of the world
Total
2020
2019
2020
2019
2020
2019
Non-interest bearing
24,206
19,030
42,211
24,782
66,417
43,812
Interest bearing
174,641
159,546
368,459
370,997
543,100
530,543
198,847
178,576
410,671
395,779
609,517
574,355
 
 
Savings accounts relate to the balances on savings accounts,
 
savings books, savings deposits, and time deposits of
private individuals.
 
 
 
14
 
Financial liabilities at fair value through profit or loss
 
Financial liabilities at fair value through profit or loss
2020
2019
Trading liabilities
32,709
28,042
Non-trading derivatives
1,629
2,215
Designated at fair value through profit or loss
48,444
47,684
82,781
77,942
 
Trading liabilities
 
Trading liabilities by type
2020
2019
Equity securities
191
193
Debt securities
577
1,201
Funds on deposit
6,204
5,322
Derivatives
25,737
21,325
32,709
28,042
 
 
Non-trading derivatives
Non-trading derivatives by type
2020
2019
Derivatives used in:
-
 
fair value hedges
444
873
-
 
cash flow hedges
230
339
-
 
hedges of net investments in foreign operations
98
51
Other non-trading derivatives
857
953
1,629
2,215
 
 
Reference is made to Note 39 ‘Derivatives
 
and hedge accounting’ for information on derivatives used for hedge
accounting.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
15
 
Provisions
 
ING Group Annual Report 2020 on Form 20-F
F -299
 
Other non-trading derivatives mainly includes interest rate
 
swaps and foreign currency swaps for hedging
purposes, but for which no hedge accounting is applied.
 
Designated at fair value through profit
 
or loss
 
 
Designated at fair value through profit or loss by type
2020
2019
Debt securities
6,276
8,053
Funds entrusted
41,911
39,386
Subordinated liabilities
258
246
48,444
47,684
 
 
As at 31 December 2020, the change in the fair value of financial liabilities designated at fair value through
 
profit
or loss attributable to changes in credit risk is EUR 141 million (2019: EUR 139 million) on a cumulative basis. This
change has been determined as the amount of change in fair value of the financial liability that is not attributable
to changes in market conditions that gave
 
rise to market risk (i.e. mainly interest rate
 
risk based on yield curves).
 
The amount that ING Group is contractually required to pay
 
at maturity to the holders of financial liabilities
designated at fair value through profit or loss excluding
 
repurchase agreements is EUR 6,682 million (2019:
EUR 8,634 million).
 
15
 
Provisions
 
Provisions by type
2020
2019
Reorganisation provisions
381
385
Other provisions
310
303
691
688
 
 
Changes in reorganisation provisions
2020
2019
Opening balance
385
613
Additions
165
56
Releases
-16
-49
Utilised
-152
-234
Exchange rate differences
-1
0
Closing balance
381
385
 
 
In 2020, the addition to the reorganisation provision is mainly attributable
 
to refocusing of our activities in
Wholesale Banking and decision on the Maggie project, as well as additional restructuring costs in Retail Benelux
and Other Challengers & Growth Markets. These initiatives are
 
implemented over a period of several years and
the estimate of the reorganisation provisions is inherently
 
uncertain.
 
 
The addition to the reorganisation provision in 2019 is mainly related
 
to ING’s closure of branches in the
Netherlands and updates in existing reorganisation provisions
 
following the digital transformation programmes
of ING Bank.
 
 
 
Changes in other provisions
Litigation
Other
Total
2020
2019
2020
2019
2020
2019
Opening balance
102
165
201
234
303
399
Effect of change in accounting policies
7
7
Additions
46
74
32
46
78
120
Interest
-1
-5
-1
-5
Releases
-25
-31
-13
-38
-38
-68
Utilised
-16
-104
-13
-12
-29
-116
Exchange rate differences
-3
-1
-5
-0
-8
-1
Other changes
0
-0
4
-31
4
-31
Closing balance
105
102
205
201
310
303
 
 
Reference is made to Note 45 ‘Legal proceedings’
 
for developments in litigation provisions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
16
 
Other liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -300
 
In 2020, Other provisions – other includes provisions of EUR 17 million (2019: EUR 25 million) that relate to credit
replacement facilities and EUR 75 million (2019: EUR 93 million) that relate to non-credit replacement
 
off balance
facilities.
 
As at 31 December 2020, amounts expected to be settled within twelve months amount to EUR 139 million
(2019: EUR 146 million). The amounts included in Other provisions are based on best estimates with regard to
amounts and timing of cash flows required to settle the obligation.
 
 
Further reference is made to Note 28 ‘Other operating
 
expenses’.
 
 
16
 
Other liabilities
 
Other liabilities by type
2020
2019
Net defined benefit liability
350
483
Other post-employment benefits
83
84
Other staff-related liabilities
490
526
Share-based payment plan liabilities
2
6
Other taxation and social security contributions
435
442
Rents received in advance
15
9
Costs payable
2,018
2,111
Amounts to be settled
4,877
4,741
Lease liabilities
1,339
1,507
Other
1,999
2,921
11,609
12,829
 
 
Disclosures in respect of Net defined benefit liabilities are provided in Note 36 ‘Pension and other post-
employment benefits’.
 
Other staff-related liabilities includes vacation leave
 
provisions, variable compensation provisions, jubilee
provisions, and disability/illness provisions.
 
Costs payable relates to costs
 
attributable to 2020, which will be paid in subsequent periods.
 
Amounts to be settled includes primarily transactions not settled at the balance sheet date. The nature
 
of these
transactions is short term and these are expected to settle shortly after the closing date
 
of the balance sheet.
 
Lease liabilities includes primarily liabilities relating to Right of use assets. Reference is made to Note
 
9 ‘Property
and Equipment’.
 
The total cash outflow for leases in 2020 was EUR 273 million (2019: EUR 271 million).
 
Other relates mainly to balances on margin accounts or amounts payable
 
to customers.
 
17
 
Debt securities in issue
Debt securities in issue relates to debentures and other issued debt securities with either fixed interest
 
rates or
interest rates based on floating interest
 
rate levels, such as certificates of deposit and accepted bills issued by
ING Group, except for subordinated
 
items. Debt securities in issue does not include debt securities presented as
Financial liabilities at fair value through profit or loss. ING Group does not have debt securities that are
 
issued on
terms other than those available in the normal course of business. The maturities of the debt securities are as
follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
18
 
Subordinated loans
 
ING Group Annual Report 2020 on Form 20-F
F -301
Debt securities in issue – maturities
2020
2019
Fixed rate debt securities
Within 1 year
18,315
26,871
More than 1 year but less than 2 years
8,339
10,358
More than 2 years but less than 3 years
6,193
9,527
More than 3 years but less than 4 years
2,731
6,321
More than 4 years but less than 5 years
3,685
2,836
More than 5 years
28,706
29,007
Total fixed
 
rate debt securities
67,969
84,920
Floating rate debt securities
Within 1 year
8,699
24,938
More than 1 year but less than 2 years
3,050
3,126
More than 2 years but less than 3 years
1,526
3,041
More than 3 years but less than 4 years
138
1,541
More than 4 years but less than 5 years
91
144
More than 5 years
592
816
Total floating rate
 
debt securities
14,095
33,608
Total debt securities
82,065
118,528
 
In 2020 Debt securities in issue decreased by EUR 36.5 billion because of lower funding needs driven by increased
TLTRO funding and the strong
 
growth of customer deposits. This decrease is mainly explained by a reduction of
EUR 18.2 billion in commercial paper,
 
a reduction of EUR 8.1 billion in certificates of deposits, a reduction of EUR
8.6 billion in matured long term bonds and a reduction of EUR 2.1 billion in matured covered bonds.
 
18
 
Subordinated loans
 
Subordinated loans by group companies
2020
2019
ING Groep N.V.
13,150
13,069
ING Group companies
2,654
3,519
15,805
16,588
 
Subordinated loans issued by ING Groep N.V.
 
include bonds issued to raise Tier 1 and Tier 2 (CRD IV eligible)
capital for ING Bank N.V.
 
Under IFRS these bonds are classified as liabilities and for regulatory purposes, they are
considered capital. Subordinated loans issued by ING Group companies comprise, for
 
the most part,
subordinated loans which are subordinated to all current
 
and future liabilities of ING Bank N.V.
 
Changes in subordinated loans
 
2020
2019
Opening balance
 
16,588
13,724
New issuances
2,165
3,429
Repayments
-2,786
-933
Exchange rate differences
 
and other
-163
367
Closing balance
15,805
16,588
 
 
In 2020 ING Groep N.V.
 
issued in February USD 750 million 4.875% Perpetual Additional Tier 1 Contingent
Convertible Capital Securities and in May EUR 1.5 billion 2.125% Subordinated Tier 2 Notes.
 
 
In 2020 ING Bank N.V.
 
bought back USD 1 billion in February and USD 190 million in December 5.800% Tier 2
securities via a tender.
 
ING Groep N.V.
 
redeemed USD 1 billion 6.000% Perpetual Additional Tier 1 Contingent
Convertible
 
Capital Securities and USD 700 million 6.125% Perpetual Debt Securities in April.
 
The average interest
 
rate on subordinated loans is 3.73% (2019: 4.38%). The interest
 
expense during the year
2020 was EUR 612 million (2019: EUR 660 million).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
19
 
Equity
 
ING Group Annual Report 2020 on Form 20-F
F -302
19
 
Equity
 
Total equity
2020
2019
2018
Share capital and share premium
 
-
 
Share capital
39
39
39
 
-
 
Share premium
17,089
17,078
17,050
17,128
17,117
17,088
Other reserves
 
-
 
Revaluation reserve: Equity securities at FVOCI
1,181
1,580
1,914
 
-
 
Revaluation reserve: Debt instruments at FVOCI
309
322
398
 
-
 
Revaluation reserve: Cash flow hedge
1,450
1,208
604
 
-
 
Revaluation reserve: Credit liability
-117
-114
8
 
-
 
Revaluation reserve: Property in own use
221
253
204
 
-
 
Net defined benefit asset/liability remeasurement reserve
-307
-336
-394
 
-
 
Currency translation reserve
-3,636
-2,079
-2,043
 
-
 
Share of associates and joint ventures and other reserves
3,246
3,189
2,940
 
-
 
Treasury shares
-4
-10
-11
2,342
4,013
3,621
Retained earnings
32,149
29,866
28,339
Shareholders’ equity (parent)
51,619
50,996
49,049
Non-controlling interests
1,022
893
803
Total equity
52,640
51,889
49,851
 
 
Share capital and share premium
Share capital
 
Share capital
Ordinary shares (par value EUR 0.01)
Number x 1,000
Amount
2020
2019
2018
2020
2019
2018
Authorised share capital
14,729,000
14,729,000
14,729,000
147
147
147
Unissued share capital
10,828,331
10,832,266
10,837,272
108
108
108
Issued share capital
3,900,669
3,896,734
3,891,728
39
39
39
 
 
Changes in issued share capital
Ordinary shares
(par value EUR 0.01)
Number x 1,000
Amount
Issued share capital as at 1 January 2018
3,885,790
39
Issue of shares
5,938
Issued share capital as at 31 December 2018
3,891,728
39
Issue of shares
5,006
Issued share capital as at 31 December 2019
3,896,734
39
Issue of shares
3,934
Issued share capital as at 31 December 2020
3,900,669
39
 
 
In 2020, ING Groep N.V.
 
issued 3.9 million ordinary shares (2019: 5.0 million ordinary shares, 2018: 5.9 million).
These issues were made in order to fund obligations arising from share-based employee
 
incentive programmes.
 
In 2020, 2019 and 2018 respectively, ING Groep
 
N.V.
 
issued USD 750 million, USD 2,750 million and nil Perpetual
Additional Tier 1 Contingent Convertible Capital Securities which can, in accordance with their terms and
conditions, convert by operation of law into ordinary shares
 
if the conditions to such conversion are fulfilled. As a
result
 
of this conversion, the issued share capital can increase by no more
 
than 83 million ordinary shares (2019:
306 million ordinary shares). Reference is made to Note 18 ‘Subordinated
 
loans’.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
19
 
Equity
 
ING Group Annual Report 2020 on Form 20-F
F -303
Ordinary shares
All ordinary shares are registered. No share certificates
 
have been issued. The par value of ordinary shares is EUR
0.01. The authorised ordinary share capital of ING Groep N.V.
 
currently consists of 14,729 million ordinary shares.
As at 31 December 2020, 3,901 million ordinary shares were issued and fully paid.
Ordinary shares held by ING Group (Treasury shares)
As at 31 December 2020, 0.6 million ordinary shares (2019: 0.9 million and 2018: 1.1 million) of ING Groep N.V.
with a par value of EUR 0.01 are held by ING Groep N.V.
 
or its subsidiaries. The obligations with regard to the
existing stock option plan and the share plans will be funded either by cash or by newly issued shares at the
discretion of ING Group.
 
Share premium
Share premium
2020
2019
2018
Opening balance
17,078
17,050
17,006
Issue of shares
11
28
44
Closing balance
17,089
17,078
17,050
 
 
The increase in share premium, is a result of the issuance of ordinary shares related to share
 
-based employee
incentive programmes.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
19
 
Equity
 
ING Group Annual Report 2020 on Form 20-F
F -304
Other reserves
Revaluation reserves
 
Changes in revaluation reserve
Equity securities at FVOCI
Debt instruments at FVOCI
AFS and other
Cash flow hedge
Credit liability
Property in own use
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
Opening balance
1,580
1,914
n/a
322
398
n/a
n/a
n/a
3,447
1,208
604
263
-114
8
n/a
253
204
203
Effect of change in accounting policy due to the implementation
 
of IFRS 9
2,432
629
-3,447
-190
Changes in credit liability reserve
-19
-116
199
Unrealised revaluations
-337
137
-461
20
-43
-177
242
604
342
-7
58
3
Realised gains/losses transferred to the statement
 
of profit or loss
 
-33
-33
-54
Realised revaluations transferred
 
to retained earnings
-1
-472
-56
16
-6
-26
-9
-2
Other changes
-62
Closing balance
1,181
1,580
1,914
309
322
398
n/a
n/a
n/a
1,450
1,208
604
-117
-114
8
221
253
204
 
Equity securities at FVOCI
In 2020, the unrealised revaluations of EUR -337 million includes revaluation of shares in Bank of Beijing for
 
EUR -
339 million. Other changes of EUR -62 million is related to prior years revaluations
 
of Visa shares, which are
reclassified to Financial assets at fair value through profit or loss and for
 
which the unrealized revaluation up until
2019 is transferred to retained
 
earnings. Reference is made to note 5 ‘Financial assets at fair
 
value through other
comprehensive income’.
 
 
In 2019, the unrealised revaluations of EUR 137 million are due to the revaluation
 
of shares in Bank of Beijing
EUR 35 million and shares in EquensWorldLine EUR 101 million. The EUR -472 million transfer of revaluation
reserve to retained earnings is mainly related to the sale of shares in Kotak
 
Mahindra Bank EUR -320 million and
EquensWorldLine EUR -149 million.
 
In 2018, the Equity securities at FVOCI revaluation reserve decreased by EUR 517 million, mainly due to
 
the
revaluation of shares in Bank of Beijing EUR -549 million, partly offset by revaluation of shares
 
in Kotak Mahindra
Bank EUR 71 million.
Available-for-sale and other
As from 2018, due to implementation of IFRS 9, the revaluation results
 
of Available-for-sale and other are
reported in the FVOCI reserve.
Cash flow hedge
ING mainly hedges floating rate lending with interest rate
 
swaps. Due to decrease in interest rate
 
yield curve in
2020 the interest rate swaps
 
had a positive revaluation of EUR 242 million which is recognised in cash flow hedge
reserve.
 
Net defined benefit asset/liability remeasurement reserve
Reference is made to Note 36 ‘Pension and other post
 
-employment benefits’.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
19
 
Equity
 
ING Group Annual Report 2020 on Form 20-F
F -305
Currency translation reserve
 
Changes in currency translation reserve
2020
2019
2018
Opening balance
-2,079
-2,043
-1,663
Unrealised revaluations
106
-134
71
Realised gains/losses transferred to the statement
 
of profit or loss
 
-1
-138
Exchange rate differences
-1,662
236
-451
Closing balance
-3,636
-2,079
-2,043
 
 
Unrealised revaluations relates to
 
changes in the value of hedging instruments that are designated as net
investment hedges. The hedging strategy is to
 
hedge the CET1 ratio. The net decrease of unrealized revaluations
and Exchange rate differences
 
of EUR -1,557 million is related to several currencies including USD (EUR -536
million), TRY (EUR -406 million) PLN (EUR -137 million) and RUB (EUR -104 million).
In 2019 realised gains/losses transferred to
 
the statement of profit or loss is related to the sale of shares
 
in Kotak
Mahindra Bank (EUR -119 million) and the effect of the merger transaction of TMB (EUR -18 million).
 
Share of associates and joint ventures and other reserves
 
Changes in share of associates, joint ventures and other reserves
2020
2019
2018
Opening balance
3,189
2,940
2,527
Effect of change in accounting policy due to the implementation
 
of IFRS 9
-28
Result for the year
94
180
160
Transfer
 
to/from retained earnings
-37
69
280
Closing balance
3,246
3,189
2,940
 
 
The Share of associates, joint ventures and other reserves includes non-distributable profits
 
from associates and
joint ventures of EUR 644 million (2019: EUR 624 million). Other reserves includes a statutory reserve of EUR
1,912 million (2019: EUR 1,818 million) related to the former Stichting Regio Bank and the former Stichting
Vakbondsspaarbank SPN and a legal reserve of EUR 688 million (2019: EUR 736 million) related to
 
own developed
software.
Treasury shares
 
Changes in treasury shares
Amount
Number
2020
2019
2018
2020
2019
2018
Opening balance
-10
-11
-15
919,387
1,137,701
944,257
Purchased/sold
5
1
4
-347,716
-218,314
193,444
Closing balance
-4
-10
-11
571,671
919,387
1,137,701
 
 
Retained earnings
 
Changes in retained earnings
 
2020
2019
2018
Opening balance
29,866
28,339
27,022
Effect of change in accounting policy due to the implementation
 
of IFRS 9
-390
Transfer
 
to/from other reserves
108
418
-211
Result for the year
2,156
3,723
4,601
Dividend
-2,650
-2,607
Employee stock options and share plans
11
13
19
Changes in composition of the group and other changes
6
23
-96
Closing balance
32,149
29,866
28,339
 
Changes in the composition of the group
Changes in the composition of the group mainly relate to Payvision. In
 
2018 ING Bank obtained control over
Payvision Holding B.V.
 
(Payvision) by acquiring 75% of its shares. The share purchase agreement included a put
option exercisable by the original shareholders and a call option exercisable
 
by ING for the remaining 25% shares.
The put and call option led to the recognition of a financial liability with initial recognition through shareholders’
equity of EUR 87 million related
 
to Payvision.
 
In November 2019 ING Bank agreed to purchase the remaining 25% shares in three tranches between November
2019 and April 2020 for a total consideration of EUR 90 million. Given that ING already
 
had control over
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
19
 
Equity
 
ING Group Annual Report 2020 on Form 20-F
F -306
Payvision, the acquisition of 23% of the shares in 2019 and 2% in 2020 represents a shareholder transaction and
resulted in a transfer between Non-controlling
 
interest and Shareholders equity of EUR 24 million in 2019 and
EUR 2 million in 2020.
Dividend
In 2020, a cash dividend of nil (2019: EUR 2,650 million and 2018: EUR 2,607 million) was paid to the
shareholders of ING Group.
 
For further information, reference
 
is made to Note 30 ‘Dividend per ordinary share’.
Ordinary shares - Restrictions with respect to dividend and repayment of capital
The following equity components cannot be freely distributed: Revaluation
 
reserves, Net defined benefit
asset/liability remeasurement reserve, Currency translation reserve,
 
Share of associates and joint ventures
reserve and Other reserves including the part related to the former Stichting Regio Bank and the former
 
Stichting
Vakbondsspaarbank SPN.
 
As at 31 December 2020, an amount of EUR 1,912 million (2019: EUR 1,818 million; 2018: EUR 1,638 million)
related to the former Stichting Regio Bank and the former
 
Stichting Vakbondsspaarbank SPN is included.
 
ING Groep N.V.
 
is subject to legal restrictions regarding the amount of dividends it can pay
 
to the holders of its
ordinary shares. Pursuant to the Dutch Civil Code, dividends can only be paid up to an amount equal to the
excess of the company’s own funds over
 
the sum of the paid-up capital and reserves required by law.
 
Moreover,
 
ING Groep N.V.’s
 
ability to pay dividends is dependent on the dividend payment ability of its
subsidiaries, associates and joint ventures. ING Groep N.V.
 
is legally required to create a non-distributable
reserve insofar as profits of its subsidiaries, associates and joint ventures are
 
subject to dividend payment
restrictions which apply to those subsidiaries, associates and joint ventures themselves.
 
 
Non distributable reserves, determined in accordance with the financial reporting requirements
 
included in Part
9 of Book 2 of the Dutch Civil Code, from ING Group’s subsidiaries, associates
 
and joint ventures are as follows:
 
Non-distributable reserves
2020
2019
2018
ING Bank
9,829
8,397
7,603
Other
2
0
97
Non-distributable reserves
9,831
8,398
7,700
 
 
In addition to the legal and regulatory restrictions on distributing dividends from subsidiaries, associates
 
and joint
ventures to ING Groep N.V.
 
there are various other considerations and limitations that
 
are taken into account in
determining the appropriate levels of equity in the Group’s
 
subsidiaries, associates and joint ventures. These
considerations and limitations include, but are not restricted to,
 
minimum capital requirements that are imposed
by industry regulators in the countries in which the subsidiaries, associates and joint ventures
 
operate, or other
limitations which may exist in certain countries and may
 
or may not be temporary in nature. It is not possible to
disclose a reliable quantification of these limitations. For an overview of the minimal capital requirements
 
of ING
Group refer to the ‘Capital Management’ section.
 
Without prejudice to the authority of the Executive Board to allocate profits
 
to reserves and to the fact that the
ordinary shares are the most junior securities issued by ING Groep N.V.,
 
no specific dividend payment restrictions
with respect to ordinary shares exist. The European Central
 
Bank has recommended banks in December 2020 to
limit dividend distributions out of cumulative 2019 and 2020 profits, given the persisting uncertainty over
 
the
economic impact the Covid-19 pandemic.
Refer to ‘Capital Management’ section for further details.
 
Furthermore, ING Groep N.V.
 
is subject to legal restrictions with respect to repayment
 
of capital to holders of
ordinary shares. Pursuant to the Dutch Civil Code, capital may only be repaid if none of ING Groep N.V.’s
creditors opposes such a repayment within two months following
 
the announcement of a resolution to that
effect.
 
 
 
 
 
 
 
>
 
19
 
Equity
 
ING Group Annual Report 2020 on Form 20-F
F -307
Cumulative preference shares (not issued)
Pursuant to the Articles of Association of ING Groep N.V.
 
the authorised cumulative preference share capital
consists of 4.6 billion cumulative preference shares,
 
of which none have been issued. The par value of these
cumulative preference shares is EUR 0.01.
 
The cumulative preference shares rank
 
before the ordinary shares in entitlement to dividend and to distributions
upon liquidation of ING Groep N.V.
 
The dividend on the cumulative preference shares will be equal to a percentage,
 
calculated on the amount
compulsorily paid up or yet to be paid up. This percentage shall be equal to the average
 
of the Euro short-term
rate (€STR) as calculated by the European
 
Central Bank during the financial year for which the distribution is
made; this percentage being weighted on the basis of the number of days for
 
which it applies, and increased by
2.585 percentage points.
 
If, and to the extent
 
that the profit available for distribution is not sufficient to pay
 
the dividend referred to
above in full, the shortfall will be made up from the reserves insofar as possible. If,
 
and to the extent that, the
dividend distribution cannot be made from the reserves, the profits earned in subsequent years shall first
 
be
used to make up the shortfall before any
 
distribution may be made on shares of any other category.
 
ING Groep N.V.’s
 
Articles of Association make provision for the cancellation of cumulative
 
preference shares.
Upon cancellation of cumulative preference shares
 
and upon liquidation of ING Groep N.V.,
 
the amount paid up
on the cumulative preference shares will be repaid together
 
with the accrued dividend as well as any dividend
shortfall in preceding years, insofar as this shortfall has not yet
 
been made up.
 
No specific dividend payment restrictions with respect to the cumulative preference
 
shares exist.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
20
 
Net interest income
 
ING Group Annual Report 2020 on Form 20-F
F -308
Notes to the Consolidated statement
 
of profit or loss
20
 
Net interest income
 
Net interest income
2020
2019
2018
2020
2019
2018
Interest income on loans
15,624
19,028
18,966
Interest expense on deposits from banks
177
361
362
Interest income on financial assets at fair value through
 
OCI
512
615
554
Interest expense on customer deposits
1,331
2,934
2,607
Interest income on debt securities at amortised cost
508
673
780
Interest expense on debt securities in issue
1,732
2,350
2,254
Interest income on non-trading derivatives (hedge
 
accounting)
3,392
4,319
4,497
Interest expense on subordinated loans
612
660
711
Negative interest on liabilities
678
422
453
Negative interest on assets
353
349
412
Total interest
 
income using effective interest rate
 
method
20,715
25,056
25,249
Interest expense on non-trading derivatives (hedge
 
accounting)
3,198
4,615
4,826
Total interest
 
expense using effective interest rate
 
method
7,402
11,268
11,171
Interest income on financial assets at fair value through
 
profit or loss
658
1,897
1,795
Interest income on non-trading derivatives (no hedge accounting)
1,154
1,181
1,059
Interest expense on financial liabilities at fair value through
 
profit or loss
514
1,695
1,578
Interest income other
 
32
30
25
Interest expense on non-trading derivatives (no hedge
 
accounting)
1,029
1,311
1,387
Total other interest
 
income
1,843
3,107
2,880
Interest expense on lease liabilities
18
25
n/a
Total inter
 
est income
 
22,559
28,163
28,129
Interest expense other
44
54
33
Total other interest
 
expense
1,605
3,084
2,997
Total interest
 
expense
9,007
14,353
14,169
Net interest income
13,552
13,811
13,960
 
Total
 
net interest income amounts to EUR 13,552 million (2019: EUR 13,811 million). The decrease is mainly
caused by continued margin pressure on customer deposits on both savings and current
 
accounts due to lower
reinvestment yields. In addition, average
 
liability volumes increased over the year whereas customer lending
volumes decreased. Negative interest
 
on liabilities in 2020, amounting to EUR 678 million (2019: EUR 422 million)
includes interest income on ING’s
 
participation in TLTRO III of EUR 164 million and TLTRO
 
II of EUR 24 million
(2019: TLTRO II EUR 57 million). Any conditional
 
benefit from TLTRO
 
III on net interest income has not been
included yet.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
21
 
Net fee and commission income
 
ING Group Annual Report 2020 on Form 20-F
F -309
21
 
Net fee and commission income
 
Fee and commission income
2020
2019
2018
Funds transfer
1,428
1,513
1,394
Securities business
805
603
618
Insurance broking
200
191
173
Asset management fees
244
205
170
Brokerage and advisory fees
658
611
584
Other
1,180
1,317
1,302
4,514
4,439
4,240
 
 
Other fee and commission income mainly consists of commission fees in respect of bank guarantees
 
of EUR 187
million (2019: EUR 202 million; 2018: EUR 207 million), in respect of underwriting syndication loans of EUR 16
million (2019: EUR 10 million; 2018: EUR 4 million), in respect of structured finance fees of EUR 126 million (2019:
EUR 141 million; 2018: EUR 129 million), and in respect of collective instruments distributed but not managed by
ING of EUR 163 million (2019: EUR 167 million; 2018: EUR 165 million).
 
 
Fee and commission expenses
2020
2019
2018
Funds transfer
601
659
597
Securities business
147
140
170
Insurance broking
4
2
2
Asset management fees
9
8
4
Brokerage and advisory fees
330
282
220
Other
413
481
448
1,503
1,571
1,442
 
 
Reference is made to Note 34 ‘Segments’ which includes net fee
 
and commission income, as reported to the
Executive Board and the Management Board Banking, disaggregated
 
by line of business and by geographical
segment.
 
22
 
Valuation results and net trading income
 
Valuation results and net trading income
2020
2019
2018
Securities trading results
-500
974
-722
Derivatives trading results
701
-998
540
Other trading results
72
117
116
Change in fair value of derivatives relating to
–
 
fair value hedges
1
538
507
185
–
 
cash flow hedges (ineffective portion)
-5
47
-19
–
 
other non-trading derivatives
1
-90
-732
868
Change in fair value of assets and liabilities (hedged items)
-541
-518
-176
Valuation results on assets and liabilities designated at
 
FVPL (excluding trading)
-123
-358
366
Foreign exchange transactions results
422
801
69
474
-159
1,227
 
1 The 2019 prior period has been updated to improve consistency and comparability.
 
Securities trading results includes the results of market making in instruments such as government
 
securities,
equity securities, corporate debt securities, money-market
 
instruments, and interest rate derivatives
 
such as
swaps, options, futures, and forward
 
contracts.
 
 
The portion of trading gains and losses relating to trading securities still held as at 31 December 2020 amounts to
EUR -690 million (2019: EUR -82 million; 2018: EUR 396 million).
 
The majority of the risks involved in security and currency trading is economically hedged with derivatives.
 
The
securities trading results are partly offset by results on these derivatives.
 
The result of these derivatives is
included in Derivatives trading results.
 
 
Other trading results include the results of trading loans and funds entrusted.
 
 
Foreign exchange transactions results include gains
 
and losses from spot and forward contracts, options, futures,
and translated foreign currency assets and liabilities. The result on currency trading
 
is included in foreign
exchange transactions results.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
23
 
Investment income
 
ING Group Annual Report 2020 on Form 20-F
F -310
 
Net trading income relates to trading assets and trading
 
liabilities which include assets and liabilities that are
classified under IFRS as Trading but are closely related
 
to servicing the needs of the clients of ING. ING offers
products that are traded on the financial markets
 
to institutional clients, corporate clients, and governments.
 
ING
Group’s trading books
 
are managed based on internal limits and comprise a mix of products with results which
could be offset. A significant part of the derivatives in the trading portfolio
 
are related to servicing corporate
clients in their risk management to hedge for example currency or interest
 
rate exposures. From a risk
perspective, the gross amount of trading assets must be considered together
 
with the gross amount of trading
liabilities, which are presented separately on the statement
 
of financial position. However,
 
IFRS does not always
allow netting of these positions in the statement of financial position. Reference
 
is made to Note 4 ‘Financial
assets at fair value through profit or loss’ and Note 14 ‘Financial liabilities at fair
 
value through profit or loss’ for
information on trading assets and trading liabilities respectively
 
.
 
‘Valuation results and net trading income’ include the fair value
 
movements on derivatives (used for both hedge
accounting and economically hedging exposures) as well as the changes in the fair value of assets and liabilities
included in hedging relationships as hedged items. Reference is made to Note
 
39 ‘Derivatives and hedge
accounting’ for information on derivatives used for hedge accounting.
 
 
In general, the fair value movements are influenced by changes
 
in the market conditions, such as stock prices,
credit spreads, interest rates
 
and currency exchange rates. Following
 
the increased concerns about the Covid-19
pandemic, the global financial markets experienced more volatility than usual in the first half of 2020 which had
considerable impact on the results. Aided by substantial central
 
bank intervention, markets have recovered
 
and
stabilised during the second half of 2020 and volatility has largely returned to pre-pandemic levels.
 
Furthermore, derivatives trading results is also impacted by fair
 
value movements arising from changes in credit
spreads (CVA and DVA),
 
bid offer spreads, model risk and incremental cost of funding on derivatives
 
(FVA and
CollVA). As result of the economic consequences of the Covid-19 pandemic, ING also observed significant
widening of the spreads resulting in increased negative fair value changes. As markets
 
stabilised in the second
half of 2020 and spreads tightened, the fair value changes decreased again.
 
In 2020, Derivatives trading results include EUR 17 million CVA/DVA
 
adjustments on trading derivatives (2019:
EUR 39 million; 2018: EUR -20 million).
 
 
‘Valuation results on assets and liabilities designated at fair value
 
through profit or loss’ include fair value
changes on financial liabilities driven by changed market conditions as disclosed in Note 14 ‘Financial liabilities at
fair value through profit or loss’.
 
 
In 2020, Valuation results on assets and liabilities designated at fair
 
value through profit or loss (excluding
trading) include fair value adjustments on own issued notes amounting to EUR -1 million (2019: EUR -424 million;
2018: EUR 302 million).
 
Interest income from trading assets in 2020 amounted
 
to EUR 13,412 million (2019: EUR
 
15,187 million; 2018:
13,924 million). Interest expense from trading liabilities in 2020
 
amounted to EUR 13,052 million (2019: EUR
14,922 million; 2018: 13,976 million).
 
23
 
Investment income
 
Investment income
2020
2019
2018
Dividend income
107
115
102
Realised gains/losses on disposal of debt instruments measured at FVOCI
44
46
77
Income from and fair value gains/losses on investment
 
properties
1
27
4
Investment income
152
188
183
 
 
In 2020, 2019 and 2018 dividend income mainly consists of dividend received from ING’s
 
equity stake in Bank of
Beijing.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
24
 
Result on disposal of group companies
 
ING Group Annual Report 2020 on Form 20-F
F -311
24
 
Result on disposal of group companies
 
Result on disposal of group companies
2020
2019
2018
ING Lease Italy
-2
-123
ING Mauritius
119
Cel Data Services
 
-3
-3
117
-123
 
 
In 2020 ING realized a EUR -3 million loss on the sale of Cel Data Services N.V.
 
against net assets disposed of EUR
4 million. Cel Data Services N.V.
 
is active in ATM services including cash loading and ICT managed services for
ING’s Belgian retail branche
 
s, other Belgian financial institutions and retail shops.
 
In 2019 the Result on disposal of group companies is mainly impacted by the sale of ING’s stake
 
in Kotak
Mahindra Bank by ING Mauritius during 1Q 2019. ING Mauritius is in the process of being liquidated and
consequently, the release
 
of the currency translation reserve (CTA)
 
and the release of the Net Investment
Foreign Entities reserve resulted in a one-off gain of EUR 119 million.
 
The Result on disposal of group companies includes the result (fair value less cost to sell) on the sale of part of
the ING Lease Italy business amounting to EUR -123 million, which was recognised in 2018 and a final result of
EUR -2 million recognised in 2019.
 
25
 
Net result on derecognition of financial assets measured at amortised cost
 
Net result on derecognition of financial assets measured at amortised cost
2020
2019
1
2018
1
Loans at amortised cost
4
13
17
Securities at amortised cost
185
24
0
Net result on derecognition of financial assets measured at amortised cost
189
38
18
 
1 Net result on derecognition of financial assets measured at amortised cost was included in note 26 Other income in prior years.
 
In 2020, driven by exceptional market circumstances
 
in the first quarter,
 
ING realised a profit on the sale of debt
securities at amortised cost of EUR 186 million.
 
26
 
Other income
In 2020, Other income of EUR 20 million (2019: EUR 214 million; 2018: EUR 118 million) includes the positive
recovery of defaulted receivables of EUR 27 million (2019: EUR 32 million). In addition, Other income is impacted
by positive and negative non-recurring results, including a loss of EUR 58 million following a settlement
 
with the
Australian Tax
 
Authorities related to former insurance activities, that were
 
fully indemnified by NN Group. This
was offset by a tax profit for the same amount resulting
 
from the release of the provision for uncertain tax
positions in current tax liabilities. In 2019, Other income also included the recognition of EUR 79 million
receivable related to the insolvency of a financial institution.
 
27
 
Staff Expenses
 
Staff expenses
2020
2019
2018
Salaries
3,751
3,572
3,287
Pension costs and other staff-related benefit
 
costs
395
366
385
Social security costs
538
530
509
Share-based compensation arrangements
19
41
49
External employees
881
974
901
Education
43
64
87
Other staff costs
186
208
202
5,812
5,755
5,420
 
 
Share-based compensation arrangements include EUR 17 million (2019: EUR 38 million; 2018: EUR 46 million)
relating to equity-settled share-based payment
 
arrangements and EUR 2 million (2019: EUR 3 million; 2018: EUR
3 million) relating to cash-settled share-based payment arrangements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
27
 
Staff Expenses
 
ING Group Annual Report 2020 on Form 20-F
F -312
Number of employees
Netherlands
Rest of the world
Total
2020
2019
2018
2020
2019
2018
2020
2019
2018
Total average
 
number
of internal employees at full time
equivalent basis
15,201
14,415
13,600
40,701
39,016
38,633
55,901
53,431
52,233
 
 
Remuneration of senior management, Executive Board and Supervisory Board
Reference is made to Note 49 ‘Related
 
parties’.
 
Stock option and share plans
ING Groep N.V.
 
has granted option rights on ING Groep N.V.
 
shares and conditional rights on shares to a number
of senior executives (members of the Executive Board,
 
general managers and other officers nominated by the
Executive Board), and to a considerable number of employees of ING Group. The purpose of the option and share
schemes, apart from promoting a lasting growth of ING Group, is to attract,
 
retain and motivate senior executives
and staff.
 
ING grants various types of share awards, namely deferred
 
shares, performance shares and upfront shares, which
form part of the variable remuneration offering via the Long-term
 
Sustainable Performance Plan (LSPP). The
entitlement to the LSPP share awards is granted
 
conditionally. If the participant remains in employment for
 
an
uninterrupted period between the grant date and the vesting
 
date, the entitlement becomes unconditional, with
the exception of the upfront shares which are
 
immediately vested upon grant. Additionally,
 
a condition before
vesting is applied to performance shares until 2018. As of 2019, this performance condition is no longer
applicable. Upfront and deferred shares awarded
 
to the Management Board members of ING Group as well as
identified staff,
 
have a retention obligation that must
 
be adhered to upon vesting, typically a minimum retention
of 12 months applies. ING has the authority to apply a holdback to awarded but unvested shares and a clawback
to vested shares.
 
 
In addition to the LSPP share awards, ING paid a number of senior employees fixed shares. The number of shares
were determined each month from a cash value that forms part of the employee
 
fixed remuneration. The shares
were immediately vested to the employee,
 
but had a minimum holding requirement of two years before
 
the
employee can dispose of the shares. The fixed shares are not subject to holdback or clawback.
 
The share awards granted in 2020 relate
 
to the performance year 2019. In 2020, 63,837
 
share awards (2019: 0;
2018:31,743) were granted to the members of the Executive
 
Board of ING Groep N.V.,
 
and
 
122,338 share awards
(2019: 2,837; 2018: 80,036) were granted to the Management Board
 
Banking. To senior management
 
and other
employees
 
3,678,776 share awards (2019: 2,167,817; 2018: 3,989,214) were granted.
 
In 2010, the Group Executive Board decided not to continue the option scheme as from 2011. The existing
 
option
schemes have run off during the year as the option rights have expired.
 
The obligations with regard to share plans are
 
funded by newly issued shares at the discretion of ING Group.
Changes in share awards
Share awards (in numbers)
Weighted average
 
grant date fair
values (in euros)
2020
2019
2018
2020
2019
2018
Opening balance
3,857,048
5,854,999
7,222,279
11.14
11.62
11.46
Granted
3,864,951
2,170,654
4,100,993
5.12
10.04
12.50
Performance effect
341,623
11.12
11.65
Vested
-3,690,340
-3,945,020
-5,565,093
9.01
11.23
12.05
Forfeited
-153,440
-223,585
-244,803
8.55
11.39
11.52
Closing balance
3,878,219
3,857,048
5,854,999
7.25
11.14
11.62
 
 
As at 31 December 2020 the share awards consists of 3,326,457 share awards (2019: 3,346,004; 2018: 5,211,339)
relating to equity-settled share-based payment
 
arrangements and 551,762 share awards (2019: 511,044; 2018:
643,660) relating to cash-settled share-based payment arrangements.
 
The fair value of share awards granted
 
is recognised as an expense under Staff expenses and is allocated over
 
the
vesting period of the share awards. The fair value calculation
 
takes into account the current
 
stock prices,
expected volatilities and the dividend yield of ING shares.
 
 
As at 31 December 2020, total unrecognised compensation costs related
 
to share awards amount to EUR 10
million (2019: EUR 15 million; 2018: EUR 29 million). These costs are expected to be recognised over a weighted
average period of 1.6 years (2019: 1.4 years;
 
2018: 1.4 years).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
28
 
Other operating expenses
 
ING Group Annual Report 2020 on Form 20-F
F -313
Changes in option rights outstanding
Options outstanding
Weighted average
 
exercise price
(in numbers)
(in euros)
2020
2019
2018
2020
2019
2018
Opening balance
2,356,343
5,123,853
15,141,980
7.35
5.69
12.36
Exercised
-679,471
-2,186,316
-827,755
7.34
4.40
5.91
Forfeited
-2,490
-45,852
-89,816
7.35
7.01
8.09
Expired
-1,674,382
-535,342
-9,100,556
7.36
3.51
16.75
Closing balance
0
2,356,343
5,123,853
7.35
5.69
 
 
The weighted average share price at
 
the date of exercise for options exercised
 
during 2020 is EUR 5.73 (2019:
EUR 10.89; 2018: 13.65). All option rights are vested.
 
 
28
 
Other operating expenses
Other operating expenses
2020
2019
2018
Regulatory costs
1,105
1,021
947
Audit and non-audit services
29
30
26
IT related expenses
812
759
779
Advertising and public relations
335
391
402
External advisory fees
418
416
358
Office expenses
320
325
564
Travel and
 
accommodation expenses
68
140
179
Contributions and subscriptions
110
108
91
Postal charges
38
46
54
Depreciation of property and equipment
1
578
551
312
Amortisation of intangible assets
251
237
209
Impairments and reversals of impairments of tangible and intangible assets
558
59
19
Addition to / (unused amounts reversed of) provision for reorganisations
149
6
4
Addition to / (unused amounts reversed of) other provisions
39
29
-13
Other
532
477
1,332
5,341
4,598
5,262
 
1 Includes depreciation expenses of right-of-use assets as recognised under IFRS 16 in 2020 and 2019.
 
Regulatory costs
Regulatory costs represent contributions to
 
the Deposit Guarantee Schemes (DGS), The Single Resolution Fund
(SRF), local bank taxes and local resolution funds. Included in Regulatory costs
 
for 2020, are contributions to DGS
of EUR 413 million (2019: EUR 362 million; 2018: EUR 364 million) mainly related to the Netherlands, Germany,
Belgium, Poland, and Spain and contributions to the SRF and local resolution funds of EUR 277 million (2019: EUR
239 million; 2018: EUR 208 million).
In 2020 local bank taxes decreased by EUR 6 million from EUR 420 million in 2019 to EUR 414 million (2018: EUR
375 million). This was caused by a decrease of EUR 10 million in Romania following abolishment of its bank tax in
2020. Excluding this effect, total bank taxes
 
increased with EUR 4 million.
 
 
Audit and non-audit services
Total
 
audit and non-audit services include the following fees for services provided by the Group’s
 
auditor.
 
 
Fees of Group’s auditors
2020
2019
2018
Audit fees
25
21
19
Audit related fees
1
2
1
Total
 
1
26
23
20
 
1
 
The Group’s auditors did not provide any non-audit services.
 
Fees as disclosed in the table above relate to the network of the Group’s
 
auditors and are the amounts related to
the respective years, i.e. on an accrual basis. The increase in audit fees 2020 follow from
 
the re-appointment of
the current auditor that also triggered a revision of the audit fees. In 2019, the increase
 
primarily relates to audit
activities for the implementation of IFRS 16, new statutory audits and new IT systems
 
in scope.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
28
 
Other operating expenses
 
ING Group Annual Report 2020 on Form 20-F
F -314
Impairments and reversals of impairments of tangible and intangible
 
assets
Impairments and reversals of impairments of tangible and intangible assets
 
Impairment losses
Reversals of impairments
Total
2020
2019
2018
2020
2019
2018
2020
2019
2018
Property and equipment
52
4
9
-9
-6
-17
43
-3
-8
Property development
2
1
15
2
1
15
Goodwill
310
310
Software and other intangible assets
202
61
12
202
61
12
567
66
35
-9
-7
-17
558
59
19
 
 
Impairment losses on property and equipment in 2020 follow from the changes in intended use of right-of-use
property due to the changes in the future way of working post-pandemic.
In 2018, impairment losses on property development mainly relate to impairments in Spain and Italy due to
lower expected net realisable values.
 
The reversals of impairments on property and equipment in 2018 relate
 
to impairments previously recognised in
the statement of profit or loss and mainly include impairments on property in own use that were
 
reversed
following the sale of office buildings.
 
Goodwill impairment test performed in the second quarter of 2020 resulted in goodwill impairment losses for
EUR 310 million in the CGUs Retail Belgium and Wholesale Banking.
 
 
Impairment losses on software and other intangible assets in 2020 mainly include software that was impaired for
an amount of EUR 141 million following the decision to discontinue Project Maggie (previously called Model
Bank). This is primarily related to capitalised software development costs
 
.
 
In addition, impairment losses of EUR
19 million were recognised related to purchased software
 
and of EUR 35 million related to intangible assets in
the payments and cash management business.
 
 
2019 and 2018 impairment losses on software and intangible assets relate to rescoping
 
of IT transformation
programs.
 
Reference is made to Note 9 ‘Property and equipment
 
’
 
and Note 10 ‘Intangible assets’ .
 
Addition to / (unused amounts reversed of) provision for reorganisations
Included in Addition to / (unused amounts reversed of) provision for reorganisations
 
in 2020 are increases due to
refocusing of ING’s
 
activities in Wholesale Banking and decisions on the Maggie project, as well as additional
restructuring costs in Retail Benelux and Other Challengers & Growth
 
Markets. Reference is made to
 
Note 15
‘Provisions’.
 
Addition to / (unused amounts reversed of) other provisions
Included in Addition to / (unused amounts reversed of) other provisions in 2020 are movements mainly in the
litigation provision and the general provision for
 
cybercrime in the Netherlands. Reference is made to Note 15
‘Provisions’ and Note 45
 
‘Legal proceedings’.
 
Other
 
In 2018 Other operating expenses - Other included, amongst others, the settlement with the Dutch Public
Prosecution Service of EUR 775 million. The settlement related to previously disclosed investigations
 
regarding
various requirements for client on-boarding and the prevention
 
of money laundering and corrupt practices.
Reference is made to Note 45 ‘Legal proceedings’.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
29
 
Earnings per ordinary share
 
ING Group Annual Report 2020 on Form 20-F
F -315
29
 
Earnings per ordinary share
Earnings per ordinary share
Weighted average
 
number of ordinary
 
shares outstanding
 
Amount
during the period
Per ordinary share
(in EUR million)
(in millions)
(in EUR)
2020
2019
2018
2020
2019
2018
2020
2019
2018
Basic earnings
2,250
3,903
4,761
3,898.9
3,894.8
3,888.9
0.58
1.00
1.22
Basic earnings from continuing
operations
2,250
3,903
4,761
0.58
1.00
1.22
Effect of dilutive instruments:
Stock option and share plans
2.2
0.5
1.5
2.2
0.5
1.5
Diluted earnings
2,250
3,903
4,761
3,901.1
3,895.3
3,890.4
0.58
1.00
1.22
Diluted earnings from continuing
operations
2,250
3,903
4,761
0.58
1.00
1.22
 
 
Dilutive instruments
 
Diluted earnings per share is calculated as if the stock options and share plans outstanding at the end of the
period had been exercised at the beginning of the period and assuming that the cash received from exercised
stock options and share plans is used to buy own shares against the average
 
market price during the period. The
net increase in the number of shares resulting from exercising stock
 
options and share plans is added to the
average number of shares used for the calculation of diluted earnings per share
 
.
 
30
 
Dividend per ordinary share
Dividends to shareholders of the parent
Per
ordinary
share
 
(in EUR)
Total
 
(in EUR
million)
Dividends on ordinary shares:
In respect of 2018
 
- Interim dividend, paid in cash in August 2018
0.24
934
 
- Final dividend, paid in cash in May 2019
0.44
1,714
Total dividend in respect
 
of 2018
0.68
2,648
In respect of 2019
 
- Interim dividend, paid in cash in August 2019
0.24
935
 
- Final dividend
0
Total dividend in respect
 
of 2019
0.24
935
In respect of 2020
 
- Interim dividend, paid in February 2021
0.12
468
Total dividend in respect
 
of 2020
0.12
468
 
 
ING Groep N.V.
 
is required to withhold tax of 15% on dividends paid.
In March 2020, ING Group announced that it will suspend any payment of dividends until 1 October 2020
following an industry wide recommendation of the ECB. The ECB subsequently updated their recommendation,
lastly in December 2020, extending the timeframe to 1 October 2021. Final dividend 2019 was therefore
 
not paid
in 2020.
ING paid in February 2021 a cash-only interim dividend of EUR 468 million (EUR 0.12 per share). This amount is
equal to 15% of adjusted net profit for 2020, in line with the ECB recommendation of 15 December 2020, which
included a definition of adjusted net profit.
Refer to note 51 Capital Management
 
for more information about the change in ING’s
 
dividend policy and the
ECB recommendations regarding dividend payments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
31
 
Net cash flow from operating activities
 
ING Group Annual Report 2020 on Form 20-F
F -316
31
 
Net cash flow from operating activities
The table below shows a detailed overview of the net cash flow from operating activities.
Cash flows from operating activities
2020
2019
2018
Cash flows from operating activities
Result before tax
3,399
5,653
6,986
Adjusted for:
- Depreciation and amortisation
829
789
520
-
 
Addition to loan loss provisions
2,675
1,120
656
-
 
Other non-cash items included in result before tax
1,671
1,213
-1,763
Taxation
 
paid
-1,734
-2,345
-1,602
Changes in:
–
 
Loans and advances to banks, not available on demand
10,033
-1,338
-777
–
 
Deposits from banks, not payable on demand
43,044
-2,574
566
Net change in loans and advances to/ from banks, not available/ payable
 
on
demand
53,078
-3,911
-211
–
 
Trading assets
-2,101
605
16,928
–
 
Trading liabilities
4,667
-3,173
-7,018
Net change in Trading assets and Trading
 
liabilities
2,566
-2,568
9,910
Loans and advances to customers
2,876
-16,687
-31,356
Customer deposits
39,740
18,040
19,709
–
 
Non–trading derivatives
-1,440
1,072
-215
–
 
Assets designated at fair value through profit or loss
-1,369
-7
-725
–
 
Assets mandatorily at fair value through profit or loss
-1,963
23,343
-6,968
–
 
Other assets
1,082
1,363
684
–
 
Other financial liabilities at fair value through profit or loss
1,189
-12,235
10,522
–
 
Provisions and other liabilities
-1,355
-1,784
769
Other
-3,856
11,752
4,067
Net cash flow from/(used in) operating activities
101,243
13,055
6,915
 
 
32
 
Changes in liabilities arising from financing activities
Changes in liabilities arising from financing activities
Debt securities in issue
Subordinated Loans
Lease liabilities
Total Liabilities from
financing activities
2020
2019
2020
2019
2020
2019
2020
2019
Opening balance
118,528
119,751
16,588
13,724
1,507
n/a
136,622
133,475
Effect of change in accounting
policy due to the
implementation of IFRS 16
1,301
1,301
Cashflows:
Additions
65,308
90,793
2,165
3,429
0
0
67,472
94,222
Redemptions / Disposals
-99,212
-94,497
-2,786
-933
-273
-271
-102,270
-95,700
Non cash changes:
Amortisation
68
135
5
1
18
25
92
161
Other
-105
21
-20
26
118
443
-6
490
Changes in FV
880
1,018
397
201
0
0
1,277
1,220
Foreign exchange movement
-3,403
1,306
-545
140
-31
8
-3,980
1,454
Closing balance
82,065
118,528
15,805
16,588
1,339
1,507
99,208
136,622
 
 
33
 
Cash and cash equivalents
Cash and cash equivalents
2020
2019
2018
Treasury bills and other eligible bills
0
43
159
Deposits from banks/Loans and advances to banks
478
786
-2,617
Cash and balances with central banks
111,087
53,202
49,987
Cash and cash equivalents at end of year
111,566
54,031
47,529
 
 
Treasury bills and other eligible bills included in cash and cash equivalents
2020
2019
2018
Treasury bills and other eligible bills included in trading assets
0
0
17
Treasury bills and other eligible bills included in securities at AC
43
142
0
43
159
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
34
 
Segments
 
ING Group Annual Report 2020 on Form 20-F
F -317
 
Deposits from banks/Loans and advances to banks
2020
2019
2018
Included in cash and cash equivalents:
–
 
Deposits from banks
-8,788
-8,519
-8,520
–
 
Loans and advances to banks
9,266
9,304
5,903
478
786
-2,617
Not included in cash and cash equivalents:
–
 
Deposits from banks
-69,310
-26,307
-28,811
–
 
Loans and advances to banks
16,098
25,832
24,519
-53,212
-476
-4,292
Total as included in the statement
 
of financial position:
–
 
Deposits from banks
-78,098
-34,826
-37,330
–
 
Loans and advances to banks
25,364
35,136
30,422
-52,733
310
-6,909
 
 
Cash and cash equivalents includes deposits from banks and loans and advances to banks that are on demand.
 
 
Included in Cash and cash equivalents, are minimum mandatory reserve deposits to be held with various central
banks. Reference is made to Note 42 ‘Transfer
 
of financial assets, assets pledged and received as collateral’ for
restrictions on Cash and balances with central banks.
 
 
 
Segment reporting
34
 
Segments
 
ING Group’s segments are based on the internal
 
reporting structures by lines of business.
 
The Executive Board of ING Group and the Management Board Banking set the performance targets,
 
approve
and monitor the budgets prepared by the business lines. Business lines formulate strategic,
 
commercial, and
financial plans in conformity with the strategy and performance targets
 
set by the Executive Board of ING Group
and the Management Board Banking.
 
The following table specifies the segments by line of business and main sources of income of each of the
segments:
 
 
Specification of the main sources of income of each of the segments by line of business
Segments by line of business
 
Main source of income
Retail Netherlands
(Market Leaders)
Income from retail and private banking activities in the Netherlands, including the
SME and mid-corporate segments, and the Real Estate
 
Finance portfolio related to
Dutch domestic mid-corporates. The main products offered
 
are current and savings
accounts, business lending, mortgages and other consumer lending in the
Netherlands.
Retail Belgium
(Market Leaders)
Income from retail and private banking activities in Belgium (including
Luxembourg), including the SME and mid-corporate segments. The main products
offered are similar to those in the Netherlands.
Retail Germany
(Challengers and Growth Markets)
Income from retail and private banking activities in Germany
 
(including Austria). The
main products offered are current and savings
 
accounts, mortgages and other
customer lending.
Retail Other
(Challengers and Growth Markets)
Income from retail banking activities in the rest of the world, including the SME and
mid-corporate segments in specific countries. The main products offered
 
are similar
to those in the Netherlands.
Wholesale Banking
Income from wholesale banking activities. The main products are: lending, debt
capital markets, working capital solutions, export finance, daily banking solutions,
treasury and risk solutions, and corporate finance.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
34
 
Segments
 
ING Group Annual Report 2020 on Form 20-F
F -318
 
Specification of geographical split of the segments
Geographical segments
Main countries
The Netherlands
Belgium
Including Luxembourg
Germany
Including Austria
Other Challengers
Australia, Czech Republic, France, Italy,
 
Spain, Portugal, Other
Growth Markets
Poland, Romania, Turkey,
 
Philippines and Asian stakes
Wholesale Banking Rest of World
UK, Americas, Asia and other countries in Central and Eastern Europe
Other
Corporate Line and the run-off portfolio of Real Estate
 
 
ING Group monitors and evaluates the performance of ING Group
 
at a consolidated level and by segment using
results based on figures according to IFRS as adopted by the European Union (IFRS-EU). The Executive
 
Board and
the Management Board Banking consider this measure to be relevant to
 
an understanding of the Group’s
financial performance, because it allows investors to
 
understand the primary method used by management to
evaluate the Group’s
 
operating performance and make decisions about allocating resource
 
s.
 
In addition, ING Group believes that the presentation of results in accordance with IFRS-EU
 
helps investors
compare its segment performance on a meaningful basis by highlighting result before tax
 
attributable to ongoing
operations and the profitability of the segment businesses. IFRS-EU result is derived by including the impact of
the IFRS-EU ‘IAS 39 carve out’ adjustment.
 
The IFRS-EU ‘IAS 39 carve-out’ adjustment relates to fair value portfolio hedge accounting
 
strategies for the
mortgage and savings portfolios in the Benelux, Germany and Other Challengers that
 
are not eligible under IFRS-
IASB. As no hedge accounting is applied to these mortgage and savings portfolios under IFRS-IASB,
 
the fair value
changes of the derivatives are not offset by fair val
 
ue changes of the hedge items (mortgages and savings).
 
The segment reporting in the annual report on Form 20-F has been prepared in accordance with International
Financial Reporting Standards as issued by the EU (IFRS-EU) and reconciled to International
 
Financial Reporting
Standards as issued by the International Accounting Standards Board (IFRS-IASB)
 
for consistency with the other
financial information contained in this report. The difference
 
between the accounting standards is reflected in
the Wholesale Banking segment, and in the geographical split of the segments in the Netherlands, Belgium,
Germany and Other Challengers.
 
 
Reference is made to Note 1 ‘Basis of preparation
 
and accounting policies’ for a reconciliation between IFRS-EU
and IFRS-IASB. Corporate expenses are allocated
 
to business lines based on time spent by head office personnel,
the relative number of staff,
 
or on the basis of income, expenses and/or assets of the segment.
 
ING Group reconciles the total segment results to the total result
 
using Corporate Line. The Corporate Line is a
reflection of capital management activities and certain income and expenses that are
 
not allocated to the
banking businesses, including the recognition of value-added tax (VAT)
 
refunds in the Netherlands (recorded
under expenses). In 2020, net interest income on the Corporate Line sharply declined, mainly due to
 
lower
interest results from foreign
 
currency hedging due to lower interest rate
 
differentials. In 2019, a EUR 119 million
gain from the release of a currency translation reserve following
 
the sale of ING’s stake
 
in Kotak Mahindra Bank
was included, and the recognition of a EUR 79 million receivable related to the insolvency of a financial
institution (both recorded under income). In 2018, the EUR 775 million settlement agreement with the Dutch
authorities on regulatory issues was included, as well as a EUR 90 million net result from the former Insurance
activities. Furthermore, the Corporate Line includes the isolated legacy costs (mainly negative
 
interest results)
caused by the replacement of short-term funding with long-term funding during 2013 and 2014. ING Group
applies a system of capital charging for its banking operations
 
in order to create a comparable basis for the
results of business units globally, irrespective of the business units’ book equity and the currency they operate
 
in.
 
 
 
 
 
 
 
>
 
34
 
Segments
 
ING Group Annual Report 2020 on Form 20-F
F -319
 
As from the financial year 2020 the information presented to
 
the executive Board is no longer based on
underlying results but on IFRS as endorsed by the EU. Previously monitoring and evaluation of ING Group’s
segments was based on a non-GAAP financial performance measure called underlying. Underlying result was
derived by excluding the impact of the IFRS-EU ‘IAS 39 carve-out’ adjustment, special items, divestments and
results from former insurance related
 
activities from the IFRS-EU results. In 2020 and 2019 no special items,
divestments or results from former insurance related
 
activities were recorded anymore. 2018 included a special
item of EUR 775 million special item related to the settlement agreement with the Dutch authorities on
regulatory issues, as well as a EUR 90 million net result from the former Insurance activities.
 
The information presented in this note is in line with the information presented
 
to the Executive Board of ING
Group and Management Board Banking.
 
This note does not provide information on the revenue specified to each product
 
or service as this is not reported
internally and is therefore not readily available.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
34
 
Segments
 
ING Group Annual Report 2020 on Form 20-F
F -320
Reconciliation between IFRS-IASB and IFRS-EU income, expense and net result
2020
2019
2018
 
4
Income
Expenses
Taxation
Non-
controlling
interests
Net result
1
Income
Expenses
Taxation
Non-
controlling
interests
Net result
1
Income
Expenses
 
Taxation
Non-
controlling
interests
Net result
1
Net result IFRS-IASB attributable to equity holder of the
parent
17,227
13,828
1,070
78
2,250
17,125
11,472
1,652
99
3,903
18,324
11,338
2,116
108
4,761
Remove impact of:
Adjustment of the EU 'IAS 39 carve out'
2
410
176
234
1,181
303
878
-148
-90
-58
Result IFRS-EU
3
17,637
13,828
1,246
78
2,485
18,306
11,472
1,955
99
4,781
18,176
11,338
2,027
108
4,703
 
1. Net result, after tax and non-controlling interests.
2. ING prepares the Form 20-F in accordance with IFRS-IASB. This information is prepared by reversing the hedge accounting impacts that
applied under the EU 'carve-out' version of IAS 39. For the IFRS-EU result, the impact of the carve-out is re-instated as this is the measure at
which management monitors the business.
3. IFRS-EU figures are derived from figures according to IFRS-IASB by excluding the impact of adjustment of the EU 'IAS 39 carve-out'.
4. As from 2020 results of former Insurance activities are included in Corporate Line; prior period figures have been adjusted.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
34
 
Segments
 
ING Group Annual Report 2020 on Form 20-F
F -321
ING Group Total
2020
2019
2018
ING
Bank N.V.
Other
 
1
Total ING
Group
ING
Bank N.V.
Other
 
1
Total ING
Group
ING
Bank N.V.
Other
 
1
Total ING
Group
Income
– Net interest income
13,600
3
13,604
14,074
4
14,079
13,949
-34
13,916
– Net fee and commission income
3,011
-0
3,011
2,868
-0
2,868
2,803
-5
2,798
– Total investment
 
and other income
1,034
-12
1,022
1,352
8
1,360
1,350
112
1,462
Total income
17,645
-9
17,637
18,295
12
18,306
18,102
74
18,176
Expenditure
– Operating expenses
11,160
-8
11,153
10,343
9
10,353
10,695
-13
10,682
– Addition to loan loss provisions
2,675
-0
2,675
1,120
0
1,120
656
0
656
Total expenses
13,835
-8
13,828
11,463
9
11,472
11,351
-13
11,338
Result before taxation
3,810
-1
3,809
6,831
3
6,834
6,751
87
6,838
Taxation
1,317
-71
1,246
1,889
66
1,955
2,036
-9
2,027
Non-controlling interests
78
78
99
99
108
108
Net result IFRS-EU
2,415
70
2,485
4,843
-63
4,781
4,607
96
4,703
Adjustment of the EU 'IAS 39 carve out'
-234
-234
-878
-878
58
58
Net result IFRS-IASB attributable to equity holder of the parent
2,180
70
2,250
3,966
-63
3,903
4,665
96
4,761
1 Comprises for the most part the funding charges of ING Groep N.V.
 
(Holding). In 2018, Other also includes former Insurance activities result of EUR 90 million (2020 and 2019: nil).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
34
 
Segments
 
ING Group Annual Report 2020 on Form 20-F
F -322
Segments by line of business
1
2020
2019
2018
Retail
Nether-
lands
Retail
Belgium
Retail
Ger-
many
Retail
Other
Wholesale
Banking
Corporate
Line
Total
Retail
Nether-
lands
Retail
Belgium
Retail
Ger-
many
Retail
Other
Wholesale
Banking
Corporate
Line
Total
 
Retail
Nether-
lands
Retail
Belgium
Retail
Ger-
many
Retail
Other
Wholesale
Banking
Corporate
Line
2
Total
Income
–
 
Net interest income
3,511
1,816
1,587
2,760
3,718
212
13,604
3,541
1,907
1,579
2,787
3,794
470
14,079
3,749
1,830
1,671
2,690
3,686
290
13,916
–
 
Net fee and commission income
681
413
437
412
1,069
-1
3,011
674
374
268
423
1,135
-6
2,868
664
371
225
395
1,152
-8
2,798
–
 
Total investment
 
and other income
279
145
93
89
609
-192
1,022
290
161
138
298
369
103
1,360
335
169
76
230
673
-20
1,462
Total income
4,471
2,373
2,117
3,261
5,396
18
17,637
4,505
2,442
1,985
3,509
5,298
568
18,306
4,747
2,369
1,972
3,315
5,510
262
18,176
Expenditure
–
 
Operating expenses
2,236
1,737
1,110
2,469
3,218
383
11,153
2,210
1,609
1,080
2,210
2,937
307
10,353
2,220
1,610
1,027
2,033
2,771
1,022
10,682
–
 
Additions to loan loss provision
157
514
57
593
1,351
2
2,675
91
186
-53
364
532
-0
1,120
-41
164
-27
350
210
-1
656
Total expenses
2,393
2,251
1,167
3,063
4,568
385
13,828
2,301
1,794
1,027
2,574
3,469
307
11,472
2,179
1,774
1,000
2,383
2,981
1,021
11,338
Result before taxation
2,078
122
950
199
827
-367
3,809
2,204
647
957
935
1,830
261
6,834
2,568
595
972
932
2,529
-759
6,838
Taxation
523
51
331
105
295
-58
1,246
558
192
328
234
464
179
1,955
626
199
324
200
633
46
2,027
Non-controlling interests
-1
0
4
55
20
-0
78
-0
0
3
82
14
-0
99
-0
6
3
80
19
-0
108
Net result IFRS-EU
1,556
71
615
39
512
-308
2,485
1,646
455
627
619
1,352
82
4,781
1,942
390
646
652
1,877
-804
4,703
Adjustment of the EU 'IAS 39 carve out'
-234
-234
-878
-878
58
58
Net result IFRS-IASB
1,556
71
615
39
278
-308
2,250
1,646
455
627
619
474
82
3,903
1,942
390
646
652
1,935
-804
4,761
 
1. As of 2020 consolidated results of ING Group are based on IFRS as adopted by the European Union (IFRS-EU), and not on underlying
results anymore; prior period figures have been adjusted to confirm to current year reporting.
2. As from 2020 reporting, results of former Insurance activities are included in Corporate Line; prior period figures have been adjusted.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
34
 
Segments
 
ING Group Annual Report 2020 on Form 20-F
F -323
Geographical split of the segments
1
2020
2019
2018
Nether-
lands
Belgium
Ger-
many
Other
Challeng
ers
Growth
Markets
Wholesa
le
Banking
Rest of
World
 
Other
Total
Nether-
lands
Belgium
 
Ger-
many
Other
Challeng
ers
Growth
Markets
2
Wholesa
le
Banking
Rest of
World
2
Other
Total
Nether-
lands
Belgium
 
Ger-
many
Other
Challeng
ers
Growth
Markets
2
Wholesa
le
Banking
Rest of
World
2
Other
3
Total
Income
–
 
Net interest income
4,178
2,116
2,090
1,781
1,578
1,654
208
13,604
4,213
2,233
2,122
1,808
1,610
1,633
461
14,079
4,374
2,137
2,200
1,732
1,637
1,550
285
13,916
– Net fee and commission
income
981
583
468
276
286
418
-1
3,011
994
533
315
283
304
446
-7
2,868
980
520
273
254
293
486
-8
2,798
–
 
Total investment
 
and
other income
398
196
127
27
215
243
-184
1,022
119
233
169
16
420
292
111
1,360
509
379
99
-92
328
249
-11
1,462
Total income
5,557
2,896
2,684
2,084
2,078
2,315
23
17,637
5,325
2,999
2,606
2,107
2,334
2,370
566
18,306
5,863
3,037
2,572
1,895
2,258
2,285
266
18,176
Expenditure
–
 
Operating expenses
3,347
2,037
1,270
1,566
1,272
1,273
387
11,153
2,994
1,925
1,237
1,318
1,277
1,293
308
10,353
2,929
1,932
1,171
1,217
1,160
1,236
1,038
10,682
–
 
Additions to loan loss
provision
421
589
267
298
412
684
2
2,675
146
268
-40
171
271
303
-0
1,120
-65
153
6
163
274
126
-1
656
Total expenses
3,769
2,627
1,537
1,864
1,684
1,957
390
13,828
3,140
2,194
1,197
1,489
1,548
1,596
308
11,472
2,863
2,085
1,176
1,380
1,435
1,362
1,037
11,338
Result before taxation
1,788
269
1,146
220
395
357
-367
3,809
2,185
805
1,409
618
785
774
258
6,834
3,000
952
1,396
515
824
923
-771
6,838
Retail Banking
2,078
122
950
-27
225
3,348
2,204
647
957
307
628
4,744
2,568
595
972
285
647
5,067
Wholesale Banking
-290
147
197
247
169
357
-0
827
-19
158
451
311
157
774
-3
1,830
432
357
424
229
177
923
-13
2,529
Corporate Line
-367
-367
261
261
-759
-759
Result before taxation
1,788
269
1,146
220
395
357
-367
3,809
2,185
805
1,409
618
785
774
258
6,834
3,000
952
1,396
515
824
923
-771
6,838
Taxation
518
89
381
91
141
85
-59
1,246
549
247
476
207
159
144
173
1,955
741
291
459
178
141
175
42
2,027
Non-controlling interests
-1
0
4
75
-0
78
-0
0
3
96
-0
99
1
6
3
98
-0
108
Net result IFRS-EU
1,271
180
761
129
178
273
-308
2,485
1,637
558
929
411
530
630
85
4,781
2,258
655
935
337
584
748
-813
4,703
Adjustment of the EU 'IAS
39 carve out'
-177
27
-115
30
-234
-273
-372
-232
-0
-878
106
22
-72
2
58
Net result IFRS
1,094
207
647
159
178
273
-308
2,250
1,363
186
697
411
530
630
85
3,903
2,364
677
863
339
584
748
-813
4,761
 
1 As of 2020 consolidated results of ING Group are based on IFRS as adopted by the European Union (IFRS-EU), and not on underlying
results anymore; prior period figures have been adjusted to confirm to current year reporting.
2 As from 2020 financials of Philippines are reported in Growth Markets, while previously Wholesale Banking in Philippines was reported in
WB Rest of World; prior period figures have been adjusted.
3 As from 2020, results of former Insurance activities are included in geographical segment Other (Corporate Line); prior period figures have
been adjusted.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
35
 
Information on geographical areas
 
ING Group Annual Report 2020 on Form 20-F
F -324
35
 
Information on geographical areas
ING Group’s business lines operate
 
in seven main geographical areas: the Netherlands, Belgium, Rest of Europe,
North America, Latin America, Asia and Australia. A geographical area is a distinguishable component
 
of the
Group engaged in providing products or services within a particular economic environment
 
that is subject to risks
and returns that are different from
 
those of geographical areas operating in other economic environments.
 
The
geographical analyses are based on the location of the office from which the transactions
 
are originated and do
not include countries where ING only has representation offices. The Netherlands is ING Group’s
 
country of
domicile.
 
In order to increase ING Group’s
 
tax transparency,
 
additional financial information on a per country basis has
been included in this disclosure: Tax paid represents
 
all income tax paid to and/or received from tax authorities
in the current year,
 
irrespective of the fiscal year to which these payments or refunds relate.
 
The table below provide additional information, for the years
 
2020, 2019 and 2018 respectively, on names of
principal subsidiaries and branches, nature of main activities and average number of employees
 
on a full time
equivalent basis by country/tax jurisdiction.
 
Additional information by country
Geographical
area
Country/Tax
jurisdiction
Name of principal subsidiary
Main (banking)
activity
Average number of employees at
full time equivalent basis
Total Income
Total assets
Result before tax
Taxation
Tax paid
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
Netherlands
Netherlands
ING Bank N.V.
Wholesale / Retail
15,201
14,415
13,600
5,100
5,198
6,130
283,664
267,368
259,387
612
1,397
1,973
285
437
738
588
684
528
Belgium
Belgium
ING België N.V.
Wholesale / Retail
7,397
7,694
8,248
2,637
2,277
2,838
133,269
121,813
120,287
212
291
898
75
142
285
66
258
71
Luxemburg
ING Luxembourg S.A.
Wholesale / Retail
855
841
791
279
292
315
15,290
16,608
13,310
100
123
199
25
29
50
24
17
23
Rest of Europe
Poland
ING Bank Slaski S.A
Wholesale / Retail
9,425
8,968
8,829
1,399
1,344
1,229
40,928
37,220
33,040
438
533
525
131
141
128
232
166
169
Germany
ING DiBa A.G.
Wholesale / Retail
5,059
4,639
4,625
2,376
2,141
2,315
162,539
147,642
144,861
896
1,032
1,203
310
355
397
409
460
368
Romania
Branch of ING Bank N.V.
Wholesale / Retail
3,049
2,575
2,269
456
457
403
8,526
7,424
7,112
141
221
183
20
34
25
24
34
22
Spain
Branch of ING Bank N.V.
Wholesale / Retail
1,228
1,233
1,201
679
706
600
29,899
26,118
23,757
104
249
195
37
72
71
52
90
61
Italy
Branch of ING Bank N.V.
Wholesale / Retail
1,025
959
911
337
269
231
13,747
15,726
16,991
44
-39
-101
24
4
-24
2
4
3
UK
Branch of ING Bank N.V.
Wholesale
709
692
672
546
594
505
64,676
61,088
64,016
97
214
180
15
52
44
32
40
61
France
1
Branch of ING Bank N.V.
Wholesale / Retail
737
659
620
239
308
323
11,555
12,058
12,063
-71
70
111
-17
35
45
9
48
25
Russia
ING Bank (Eurasia) Z.A.O.
Wholesale
297
293
277
51
93
82
1,035
1,499
1,449
3
68
25
0
22
3
-3
49
13
Czech Republic
Branch of ING Bank N.V.
Wholesale / Retail
355
339
306
146
88
106
3,848
4,494
6,278
59
10
39
12
2
10
4
5
6
Hungary
Branch of ING Bank N.V.
Wholesale
131
138
141
43
24
40
1,092
1,299
1,227
6
-7
5
2
2
3
1
2
2
Slovakia
Branch of ING Bank N.V.
Wholesale
878
703
571
18
14
14
385
587
487
7
2
0
3
0
1
1
-1
1
Ukraine
PJSC ING Bank Ukraine
Wholesale
108
111
109
26
43
36
335
481
368
16
31
22
3
9
3
3
6
4
Austria
Branch of ING DiBa A.G.
Wholesale / Retail
332
279
235
75
80
85
1,840
1,441
753
0
0
18
-5
1
6
-14
1
-12
Bulgaria
Branch of ING Bank N.V.
Wholesale
65
68
69
13
12
9
406
358
360
2
2
0
0
0
0
0
0
0
Ireland
Branch of ING Bank N.V.
Wholesale
50
48
47
72
71
68
2,051
2,575
2,868
66
58
65
8
8
8
8
7
6
Portugal
Branch of ING Bank N.V.
Wholesale
13
12
11
16
18
18
790
899
905
11
14
13
7
4
4
4
5
2
Switzerland
Branch of ING Bank N.V.
Wholesale
256
257
244
187
234
257
7,939
8,577
8,266
88
126
169
13
-36
35
14
22
6
 
1
 
Public subsidies received, as defined in article 89 of the CRD IV, amounts to EUR 0.3 million (2019: EUR 0.3 million; 2018: EUR 0.5 million).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
35
 
Information on geographical areas
 
ING Group Annual Report 2020 on Form 20-F
F -325
Additional information by country (continued)
Geographical
area
Country/Tax
jurisdiction
Name of principal subsidiary
Main (banking)
activity
Average number of employees at
full time equivalent basis
Total Income
Total assets
Result before tax
Taxation
Tax paid
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
North America
Canada
Payvision Canada Services Ltd.
 
Wholesale
1
1
1
3
3
3
0
1
2
0
0
0
0
0
0
0
0
0
USA
ING Financial Holdings Corp.
Wholesale
600
626
617
720
813
736
48,205
45,521
61,440
39
366
343
16
118
61
38
130
67
Latin America
Brazil
Branch of ING Bank N.V.
Wholesale
89
89
88
30
43
35
1,813
2,921
1,974
3
27
16
19
6
9
4
7
3
Colombia
ING Capital Colombia S.A.S.
Wholesale
3
3
3
1
1
1
2
2
2
0
0
0
0
0
0
0
0
0
Mexico
ING Consulting, S.A. de C.V.
Wholesale
7
8
8
1
1
1
2
2
2
-1
-2
-2
0
0
0
0
0
0
Asia
China
Branch of ING Bank N.V.
Wholesale
90
89
86
26
35
37
1,598
2,031
2,107
-2
7
3
1
-1
7
-5
0
17
Japan
Branch of ING Bank N.V.
Wholesale
32
33
32
29
31
36
3,104
5,109
2,300
-1
22
19
-1
8
5
2
10
3
Singapore
Branch of ING Bank N.V.
Wholesale
608
592
546
353
349
340
24,498
27,982
32,222
42
76
176
8
13
21
7
22
12
Macau
Payvision Macau Ltd.
Wholesale
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Hong Kong
Branch of ING Bank N.V.
Wholesale
122
128
122
92
96
110
7,030
7,350
6,975
-9
38
52
-1
7
8
15
2
12
Philippines
Branch of ING Bank N.V.
Wholesale/ Retail
1,857
1,420
878
13
25
17
497
412
395
-26
-11
0
6
-5
3
2
2
1
South Korea
Branch of ING Bank N.V.
Wholesale
77
79
80
66
60
55
6,692
5,457
4,299
18
25
14
4
7
3
10
3
6
Taiwan
Branch of ING Bank N.V.
Wholesale
34
34
33
36
26
23
3,160
2,873
2,839
19
10
7
4
0
0
1
3
-2
Indonesia
PT ING Securities Indonesia
In liquidation
0
0
3
0
0
0
5
6
6
0
0
0
0
0
0
0
0
0
Malaysia
Branch of ING Bank N.V.
Wholesale
6
5
5
1
1
1
141
166
139
-1
0
0
0
0
0
0
0
0
India
Branch of ING Bank N.V.
Wholesale
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
Turkey
ING Bank A.S.
Wholesale / Retail
3,724
4,074
4,709
420
677
678
7,316
9,927
11,521
125
304
245
27
66
50
25
92
11
United Arabic
Emirates
Branch of ING Bank N.V.
Wholesale
10
11
11
0
-1
0
1
0
0
-2
-2
-1
0
0
0
0
0
0
Australia
Australia
ING Bank (Australia) Ltd.
Wholesale / Retail
1,472
1,319
1,234
740
701
647
46,014
43,482
39,673
362
400
389
40
121
118
181
177
113
Other
Mauritius
ING Mauritius Ltd.
In liquidation
0
0
0
0
0
1
0
1
920
0
0
1
0
0
0
0
0
0
Total
55,901
53,431
52,233
17,227
17,125
18,324
933,891
888,520
884,603
3,399
5,653
6,986
1,070
1,652
2,116
1,734
2,345
1,602
 
 
 
 
 
 
 
 
>
 
36 Pensions and other post-employment benefits
 
ING Group Annual Report 2020 on Form 20-F
F -326
2020
The higher tax charge of 47% in the Netherlands (compared to the statutory
 
rate of 25%) is mainly caused by
the non-deductible Dutch bank tax (EUR 169 million) and the non-deductible impairments regarding goodwill
(EUR 266 million) and TMB (EUR 230 million).
 
The lower tax charge in Australia is caused by a release
 
of a tax provision after concluding a settlement with
the Australian Tax
 
Authorities on an issue related to former Insurance activities, which issue was fully
indemnified by NN Group.
 
The higher tax charges in Brazil and the Philippines are mainly caused by the de-recognition of tax
 
benefits for
incurred tax losses due to expected insufficient future taxable
 
profits.
 
The higher tax charges in Poland and Belgium are mainly caused by non-deductible regulatory-
 
and other costs.
 
2019
The relatively high tax charge of 31% in the Netherlands (compared to statutory
 
rate of 25%) is mainly caused
by the non-deductible Dutch bank tax (EUR 177 million) and the non-deductible AT1
 
interest expenses (EUR
276 million).
 
The relatively low tax charge in Switzerland
 
is caused by a deferred tax benefit following a tax
 
rate reduction in
2019.
 
2018
 
The relatively high tax charge of 37% in the Netherlands (compared to
 
statutory rate of 25%) is mainly caused
by non-deductible expenses of EUR 775 million upon the settlement agreement reached with the Dutch
authorities on regulatory issues.
 
 
Additional notes to the Consolidated financial statements
36 Pensions and other post-employment benefits
Most group companies sponsor defined contribution pension plans. The assets of all ING Group’s
 
defined
contribution plans are held in independently administered funds. Contributions are generally
 
determined as a
percentage of remuneration. Contributions, including the defined contribution
 
plan in the Netherlands, are
principally determined as a percentage of renumeration. These plans do not give rise to provisions
 
in the
statement of financial position, other than relating to short-term
 
timing differences included in other
assets/liabilities.
 
ING Group maintains defined benefit retirement plans in some countries. These plans provide
 
benefits that are
related to the remuneration and service of employees upon retirement.
 
The benefits in some of these plans
are subject to various forms of indexation. The indexation
 
is, in some cases, at the discretion of management;
in other cases it is dependent upon the sufficiency of plan assets.
 
Annual contributions are paid to the funds at a rate necessary to adequately finance the accrued liabilities of
the plans calculated in accordance with local legal requirements. Plans in all countries are
 
designed to comply
with applicable local regulations governing investments and funding levels.
 
ING Group provides other post-employment benefits to certain former employees.
 
These are primarily
discounts on ING products.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
36 Pensions and other post-employment benefits
 
ING Group Annual Report 2020 on Form 20-F
F -327
Statement of financial position - Net defined benefit asset/liability
Plan assets and defined benefit obligation per country
Plan assets
Defined benefit
obligation
Funded Status
2020
2019
2020
2019
2020
2019
The Netherlands
469
454
643
634
-174
-180
United States
311
277
291
275
20
3
United Kingdom
1,896
1,887
1,199
1,184
696
703
Belgium
591
590
681
676
-90
-85
Other countries
316
168
393
383
-77
-214
Funded status (Net defined benefit asset/liability)
3,583
3,377
3,208
3,151
375
226
Presented as:
- Other assets
725
709
- Other liabilities
-350
-483
375
226
 
 
The most recent (actuarial) valuations of the plan assets and the present value of the defined benefit
 
obligation
were carried out as at 31 December 2020. The present value of the defined benefit obligation, and the related
current service cost and past service cost, were determined using the projected
 
unit credit method.
 
Changes in the fair value of plan assets for the period were as follows:
 
Changes in fair value of plan assets
2020
2019
Opening balance
3,377
3,019
Interest income
50
70
Remeasurements: Return on plan assets excluding amounts
 
included in interest income
246
274
Employer's contribution
170
34
Participants contributions
2
2
Benefits paid
-128
-126
Exchange rate differences
-134
104
Closing balance
3,583
3,377
Actual return on the plan assets
296
344
 
 
As at 31 December 2020 the various defined benefit plans did not hold any direct investments in ING Groep
N.V.
 
(2019: nil). During 2020 and 2019 there were no purchases or sales of assets between ING and the pension
funds.
 
 
ING does not manage the pension funds and thus receives no compensation for fund management. The
pension funds have not engaged ING in any swap or derivative transactions
 
to manage the risk of the pension
funds.
 
 
No plan assets are expected to be returned to ING Group during 2021.
 
Although Covid-19 has had an impact on most investment markets in 2020, the effect
 
on the fair value of ING
Group’s plan assets was limited as a large
 
majority of our plan assets is invested in liquid asset categories which
mark to market frequently.
 
 
Changes in the present value of the defined benefit obligation and other post-employment benefits for
 
the
period were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
36 Pensions and other post-employment benefits
 
ING Group Annual Report 2020 on Form 20-F
F -328
Changes in defined benefit obligation and other post-employment benefits
Defined benefit
obligation
Other post-employment
benefits
2020
2019
2020
2019
Opening balance
3,151
2,913
84
76
Current service cost
31
28
-2
-1
Interest cost
44
65
2
3
Remeasurements: Actuarial gains and losses arising from changes in demographic
assumptions
4
-6
Remeasurements: Actuarial gains and losses arising from changes in financial
assumptions
190
206
7
7
Participants’ contributions
2
2
0
1
Benefits paid
-132
-130
-1
-1
Past service cost
2
-0
Exchange rate differences
-85
73
-8
1
Closing balance
3,208
3,151
83
84
 
 
Amounts recognised directly in Other comprehensive income were as follows:
Changes in the net defined benefit assets/liability remeasurement reserve
2020
2019
Opening balance
-336
-394
Remeasurement of plan assets
246
274
Actuarial gains and losses arising from changes in demographic assumptions
-4
6
Actuarial gains and losses arising from changes in financial assumptions
-190
-206
Taxation
 
and Exchange rate differences
-24
-15
Total Other comprehensive
 
income movement for the year
28
58
Closing balance
-307
-336
 
 
In 2020, EUR 246 million remeasurement of plan assets that is recognised as a gain in other comprehensive
income is driven by higher yields on investments.
 
The EUR -190 million actuarial losses arising from changes in financial assumptions in the calculation of the
defined benefit obligation are mainly due to a decrease in discount rates.
 
The accumulated amount of remeasurements recognised directly in Other comprehensive
 
income is EUR -343
million (EUR -307 million after tax) as at 31 December 2020 (2019: EUR -378 million; EUR -336 million after tax).
 
Amounts recognised in the statement of profit or loss related
 
to pension and other staff related benefits are as
follows:
 
Pension and other staff-related benefit costs
Net defined benefit
asset/liability
Other post-employment
benefits
Other
Total
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
Current service cost
31
28
39
-2
-1
-4
12
1
22
41
29
57
Past service cost
2
-0
0
2
-0
0
Net Interest cost
-6
-5
-4
2
3
2
0
0
0
-3
-2
-2
Effect of curtailment or
settlement
0
-1
0
-1
Other
Defined benefit plans
27
23
35
0
2
-1
12
2
21
40
26
54
Defined contribution plans
356
340
331
395
366
385
 
 
Determination of the net defined benefit asset/liability
The net defined benefit asset/liability is reviewed and adjusted annually.
 
The assumptions used in the
determination of the net defined benefit asset/liability and the Other post-employment benefits include
discount rates, mortality rates,
 
expected rates of salary increases (excluding
 
promotion increases), and
indexation. The rates used for
 
salary developments, interest discount factors,
 
and other adjustments reflect
country-specific conditions.
 
The key assumption in the determination of the net defined benefit asset/liability is the discount rate.
 
The
discount rate is the weighted average
 
of the discount rates that are applied in different
 
regions where ING
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
37
 
Taxation
 
ING Group Annual Report 2020 on Form 20-F
F -329
Group has defined benefit pension plans (weighted by the defined benefit obligation). The discount rate
 
is
based on a methodology that uses market yields on high quality corporate bonds of the specific regions with
durations matching the pension liabilities as key input. Market
 
yields of high quality corporate bonds reflect
the yield on corporate bonds with an AA rating for durations
 
where such yields are available. An extrapolation
is applied in order to determine the yield to the longer durations for which no AA-rated
 
corporate bonds are
available. As a result of the limited availability of long-duration AA-rated
 
corporate bonds, extrapolation is an
important element of the determination of the discount rate.
 
The weighted average discount rate
 
applied for
net defined benefit asset/liability for 2020 was 1.0% (2019:
 
1.5%) based on the pension plan in the
Netherlands, Germany,
 
Belgium, The United States of America, and the United Kingdom. The average
 
discount
rate applied for Other post-employment benefits was
 
2.7% (2019:
 
3.3%).
 
Sensitivity analysis of key assumptions
 
ING performs sensitivity analysis on the most significant assumptions: discount rates,
 
mortality, expected
 
rate
of salary increase, and indexation. The sensitivity analysis has been carried out under the assumption that the
changes occurred at the end of the reporting period.
 
The sensitivity analysis calculates the financial impact on the defined benefit obligation of an increase or
decrease of the weighted averages of each significant actuarial assumption,
 
all other assumptions held
constant. In practice, this is unlikely to occur,
 
and some changes of the assumptions may be correlated.
Changes to mortality,
 
expected rate of salary increase, and indexation
 
would have no material impact on the
defined benefit obligation. The most significant impact would be from a change in the discount
 
rate. An
increase
 
or decrease in the discount rate of 1% creates
 
an impact on the defined benefit obligation of EUR-461
million and EUR 586 million, respectively.
 
Expected cash flows
 
Annual contributions are paid to the funds at a rate necessary to adequately finance the accrued liabilities of
the plans calculated in accordance with local supervisory requirements. Plans in all countries are designed to
comply with applicable local regulations governing investments
 
and funding levels. ING Group’s subsidiaries
should fund the cost of the entitlements expected to be earned on a yearly basis.
 
For 2021 the expected contributions to defined benefit pension plans are EUR 31 million.
 
The benefit payments for defined benefit and other post-employment benefits expected
 
to be made by the
plan between 2021-2025 are estimated to be between EUR 110 million and EUR 138 million per year.
 
From
2026 to 2030 the total payments made by the plan are expected
 
to be EUR 724 million.
 
 
 
37
 
Taxation
 
Statement of financial position – Deferred tax
Deferred taxes are
 
recognised on all temporary differences under the liability method using tax
 
rates applicable
in the jurisdictions in which ING Group is subject to taxation.
 
Changes in deferred tax
2020
Net liability (-)
 
Net asset (+)
opening
balance
Change
through
equity
Change
through
net result
Exchange
rate
differences
Changes
 
in the composi-
tion of the
group and
other changes
Net liability (-)
 
Net asset (+)
ending balance
Financial assets at FVOCI
-107
10
-10
0
-108
Investment properties
-7
3
0
5
2
Financial assets and liabilities at FVPL
947
246
10
1,202
Depreciation
-19
6
2
-10
Cash flow hedges
-337
-23
0
-360
Pension and post-employment benefits
42
-8
-5
7
-0
36
Other provisions
6
-4
-7
0
-5
Loans and advances
490
-1
42
-15
0
517
Unused tax losses carried forward
61
7
-5
63
Other
-156
62
16
-1
-5
-83
920
40
301
-9
0
1,253
Presented in the statement of financial
position as:
–
 
Deferred tax liabilities
-322
-343
–
 
Deferred tax assets
1,242
1,596
920
1,253
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
37
 
Taxation
 
ING Group Annual Report 2020 on Form 20-F
F -330
The above table shows netted deferred
 
tax amounts related to right-of-use assets
 
and lease liabilities included
in the row ‘Other’ a deferred tax amount for right-of-use
 
assets of EUR 306 million (2019: EUR 370 million) and
a deferred tax amount for lease liabilities of EUR -326 million (2019: EUR -376 million).
 
 
Financial assets and liabilities FVPL changes through net result in 2020 relates to the increase in fair value
 
of
derivatives due to decreased interest
 
yield curves.
 
Changes in deferred tax
2019
Net liability (-)
 
Net asset (+)
opening
balance
 
Change
through
equity
Change
through
net result
Exchange
rate
differences
Changes in
the composi-
tion of the
group and
other changes
Net liability (-)
 
Net asset (+)
ending balance
Financial assets at FVOCI
-118
23
-11
-1
-107
Investment properties
-6
-1
-0
-7
Financial assets and liabilities at FVPL
632
314
2
-2
947
Depreciation
-23
5
-0
-19
Cash flow hedges
-140
-199
2
-337
Pension and post-employment benefits
59
-14
2
-5
42
Other provisions
10
-1
-3
0
6
Loans and advances
474
-1
18
0
0
490
Unused tax losses carried forward
51
5
5
-0
61
Other
-160
16
-13
1
-0
-156
Total
778
-176
318
2
-2
920
Presented in the statement of financial
position as:
–
 
deferred tax liabilities
-180
-322
–
 
deferred tax assets
958
1,242
778
920
 
 
IFRS 16 Leases (implemented per 1 January 2019) requires lessees to recognise right-of-use assets and lease
liabilities on the balance sheet. The above table shows netted amounts which include in the row ‘Other’ a
deferred tax amount for right
 
-of-use assets of EUR 370 million (1 January 2019: EUR 320 million) and a
deferred tax amount for lease liabilities of EUR -376 million (1 January 2019: EUR -323 million).
 
 
Financial assets and liabilities FVPL changes through net result in 2019 relates to the increase in fair value
 
of
derivatives due to decreased interest
 
yield curves.
 
 
Deferred tax in connection with unused tax losses carried forward
2020
2019
Total unused tax
 
losses carried forward
1,675
1,685
Unused tax losses carried forward not recognised as a deferred
 
tax asset
903
922
Unused tax losses carried forward recognised as a deferred
 
tax asset
772
764
Average tax rate
22.0%
21.4%
Deferred tax asset
170
163
 
 
Total unused tax
 
losses carried forward analysed by expiry terms
No deferred tax
 
asset recognised
Deferred tax
 
asset recognised
2020
2019
2020
2019
Within 1 year
1
1
More than 1 year but less than 5 years
4
4
57
17
More than 5 years but less than 10 years
92
92
8
0
Unlimited
806
824
707
746
903
922
772
764
 
 
The above mentioned deferred tax of EUR 170 million (2019: EUR 163 million) and the related unused tax
losses carried forward exclude the deferred
 
tax liability recorded in the Netherlands with respect to the
recapture of previously deducted UK tax losses in the Netherlands for the
 
amount of EUR -107 million (2019:
EUR -102 million).
 
 
Deferred tax assets are recognised for
 
temporary deductible differences, for tax
 
losses carried forward and
unused tax credits only to the extent that realisation of the related
 
tax benefit is probable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
37
 
Taxation
 
ING Group Annual Report 2020 on Form 20-F
F -331
Breakdown of certain net deferred tax asset
 
positions by jurisdiction
2020
2019
Italy
86
181
France
28
Philippines
7
Slovakia
1
114
189
 
 
The table above includes a breakdown of certain net deferred
 
tax asset positions by jurisdiction for which the
utilisation of the deferred tax asset is dependent on future taxable
 
profits in excess of the profits arising from
the reversal of existing taxable
 
temporary differences whilst the related
 
entities have incurred losses in either
the current or the preceding year.
 
Recognition is based on the fact that it is probable that the entity will have taxable
 
profits and/or can utilise tax
planning opportunities before expiration of the deferred
 
tax assets. Changes in circumstances in future periods
may adversely impact the assessment of the recoverability.
 
The uncertainty of the recoverability is taken
 
into
account in establishing the deferred tax
 
assets.
 
As at 31 December 2020 and 31 December 2019, ING Groep N.V.
 
had no significant temporary differences
associated with the parent company’s investments
 
in subsidiaries as any economic benefit from those
investments will not be taxable at parent
 
company level.
 
Statement of profit or loss – Taxation
 
Taxation
 
by type
Netherlands
Rest of the world
Total
2020
2019
2018
2020
2019
2018
2020
2019
2018
Current taxation
355
488
587
1,016
1,481
1,264
1,371
1,970
1,851
Deferred taxation
-72
-51
151
-230
-267
114
-301
-318
265
284
437
738
786
1,214
1,379
1,070
1,652
2,116
 
 
Reconciliation of the weighted average
 
statutory income tax rate to
 
ING Group’s effective income tax
 
rate
2020
2019
2018
Result before tax from continuing
 
operations
3,399
5,653
6,986
Weighted average
 
statutory tax rate
25.2%
25.8%
25.8%
Weighted average
 
statutory tax amount
856
1,459
1,803
Participation exemption
-46
-49
-77
Other income not subject to tax
-6
-76
-70
Expenses not deductible for tax purposes
320
237
346
Impact on deferred tax from change in tax
 
rates
-47
-57
50
Deferred tax benefit from previously
 
unrecognised amounts
-6
Current tax from previously unrecognised amounts
17
48
28
Write-off/reversal of deferred
 
tax assets
24
2
4
State and local taxes
44
72
25
Adjustments to prior periods
-85
16
7
Effective tax amount
1,070
1,652
2,116
Effective tax rate
31.5%
29.2%
30.3%
 
 
The weighted average statutory
 
tax rate in 2020 (25.2%) is comparable to that
 
of 2019.
 
 
The effective tax rate
 
of 31.5% in 2020 is significantly higher than the weighted average statutory
 
tax rate. This
is mainly caused by a high amount of expenses non-deductible for tax purposes like the non-deductible bank
tax and non-deductible losses with respect to goodwill impairments and impairments on associates in the
Netherlands and in some other European countries.
 
 
Included in “Adjustments
 
to prior periods” is a release of a tax provision of EUR -68 million after concluding a
settlement with the Australian tax authorities on an issue related
 
to former insurance activities, which issue
was fully indemnified by NN Group.
 
The weighted average statutory
 
tax rate in 2019 was
 
equal to the rate of 25.8% in 2018.
 
The effective tax rate
 
of 29.2% in 2019 was higher than the weighted average statutory
 
tax rate. This was
mainly caused by a high amount of expenses non-deductible for tax purposes with respect to interest
 
on
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
38 Fair value of assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -332
additional Tier 1 securities and non-deductible bank tax in the Netherlands and regulatory expenses non-
deductible for tax purposes in some other European countries.
 
The effective tax rate
 
of 30.3% in 2018 was significantly higher than the weighted average statutory
 
tax rate.
This was mainly caused by a high amount of expenses non-deductible for tax purposes (tax amount:
 
EUR 346
million).
This relatively high amount of non-deductible expenses is caused by the EUR 775 million
settlement agreement reached with the Dutch Public Prosecution Service (tax
 
amount: EUR 194
million).
 
Equity – Other comprehensive income
Income tax related to components of other comprehensive income
2020
2019
2018
Unrealised revaluations financial assets at fair value through
 
other comprehensive income and
other revaluations
-1
11
90
Realised gains/losses transferred to the statement
 
of profit or loss
 
(reclassifications from equity to profit or loss)
10
12
23
Changes in cash flow hedge reserve
-23
-199
-76
Remeasurement of the net defined benefit asset/liability
-8
-14
-12
Changes in fair value of own credit risk of financial liabilities at fair value through
 
profit or loss
-1
7
-33
Exchange rate differences
 
and other
62
7
-18
Total income tax
 
related to components of other comprehensive income
40
-176
-25
 
 
Tax
 
Contingency
The contingent liability (also disclosed in note 44 ‘Contingent liabilities’) in connection with taxation in the
Netherlands refers to a possible obligation
 
arising from the deduction from Dutch taxable profit of losses
incurred by ING Bank in the United Kingdom in previous years. The existence
 
of this obligation will be
confirmed only by the occurrence of future profits in the United Kingdom.
 
 
38 Fair value of assets and liabilities
 
 
a) Valuation Methods
The estimated fair values represent the price that would
 
be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement
 
date. It is a market-based
measurement, which is based on assumptions that market participants would use and takes
 
into account the
characteristics of the asset or liability that market participants would take
 
into account when pricing the asset
or liability.
 
 
Fair values of financial assets and liabilities are based on quoted prices in active market where
 
available. When
such quoted prices are not available, the fair value is determined by using valuation
 
techniques. The fair value
hierarchy consists of three levels, depending upon whether fair
 
values were determined based on (unadjusted)
quoted prices in an active market (Level 1), valuation techniques with observable
 
inputs (Level 2) or valuation
techniques that incorporate inputs which are unobservable and which have
 
a more than insignificant impact on
the fair value of the instrument (Level 3).
 
The Covid-19 pandemic impacted the global financial markets in 2020. In the beginning of 2020, ING observed
large volatility in the market resulting in widened spreads, markets
 
distortion and illiquidity in some specific
markets which has stressed ING’s
 
valuation processes and movements in level classifications. The volatility in
the market has stabilised in the course of 2020 and has largely returned
 
to pre-pandemic levels. In 2020,
Financial Assets and Liabilities, including Level 3, continued to be valued using agreed methodologies and ING
continued to limit the unobservable input to arrive at the most appropriate Fair
 
Market value.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
38 Fair value of assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -333
b) Valuation Control
 
framework
The valuation control framework covers
 
the product approval process (PARP),
 
pricing, independent price
verification (IPV), valuation adjustments including prudent valuation,
 
and model use. Valuation processes are
governed by various governance bodies, including Local Parameter
 
Committees (LPC), Global Price Testing
 
and
Impairment Committee (GP&IC), Market Data Committee
 
(MDC), Trading Pricing Model Committee
 
(TPMC)
and Model Risk Management Committee (MRMC). All relevant committees
 
meet on a regular basis
(monthly/quarterly), where agenda covers the aforementioned
 
valuation controls.
 
The Global Price Testing and Impairment
 
Committee is responsible for the oversight and the approval
 
of the
outcome of impairments (other than loan loss provisions) and valuation processes. It oversees
 
the quality and
coherence of valuation methodologies and performance. The TMPC is responsible for the approval
 
of validating
pricing and fair value models. The MRMC is responsible for the approval of the validated
 
prudent valuation
adjustment models and the Local Parameter Committee
 
monitor the appropriateness of (quoted) pricing, any
other relevant market info,
 
as well as the appropriateness of pricing models themselves related to the fair
valued positions to which they are applied. The LPC executes valuation methodology and processes
 
at a local
level. The Market Data Committee
 
approves and reviews all pricing inputs for the calculation of market
parameters.
 
Financial instruments measured by internal models where one or more unobservable market
 
inputs are
significant for valuation, a difference between
 
the transaction price and the theoretical price resulting from the
internal model can occur.
 
ING defers the Day One profit and loss relating to financial instruments
 
reported with
significant unobservable valuation parameters, including positions classified as Level
 
3 in the Fair Value
Hierarchy and trades related
 
to CVA with material unobservable input but not necessarily classified as Level 3
in the Fair Value Hierarchy.
 
The Day One profit and loss is amortised over the life of the instrument or until the
observability changes. The impact on the profit and loss per year end 2020 is deemed to be immaterial. No Day
one Profit and loss has been reserved for prior years. The Day one Profit and loss reserve is expected
 
to grow
over the coming years when new trades requiring a Day one Profit
 
are reported.
 
 
c) Valuation Adjustments
Valuation adjustments are
 
an integral part of the fair value. They are included as part of the fair value
 
to
provide better estimation of market
 
exit value on measurement date. ING considers various valuation
adjustments to arrive at the fair value including Bid-Offer
 
adjustments, Model Risk adjustments, Credit
Valuation Adjustments (CVA),
 
Debt valuation Adjustments (DVA),
 
including DVA on derivatives and own issued
liabilities and Collateral Valuation
 
Adjustment (CollVA) and Funding Valuation
 
Adjustment (FVA)'.
 
The following table presents the models reserves for financial assets and liabilities:
 
 
Valuation adjustment on financial assets and liabilities
as at 31 December
2020
2019
Bid/Offer
-121
-140
Model Risk
-25
-214
CVA
-238
-223
DVA
-124
-118
CollVA
-16
-23
FVA
-111
-76
Total Valuation
 
Adjustments
-634
-794
 
Bid-Offer Adjustment
Bid-Offer adjustments are required to
 
adjust mid-market values to appropriate
 
bid or offer value in order to
best represent the exit value, and therefore
 
fair value. It is applicable to financial assets and liabilities that are
valued at mid-price initially. In practice
 
this adjustment accounts for the difference in valuation
 
from mid to bid
and mid to offer for long and short exposures respectively.
 
In principle assets are valued at the bid prices and
liabilities are valued at the offer price. For certain assets or liabilities, where a market
 
quoted price is not
available, the price used is the fair value that is most representative
 
within the bid-offer spread.
Model Risk Adjustment
Model risk adjustments addresses the risk of possible financial losses resulting from the use of a mis-specified,
misapplied, or incorrect implementation of a model.
 
 
 
 
 
 
 
 
>
 
38 Fair value of assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -334
Credit Valuation Adjustment (CVA)
Credit Valuation Adjustment (CVA)
 
is the adjustment on the fair value of a derivative trade to
 
account for the
possibility that a counterparty can go into default. In other words,
 
it is the market value of counterparty credit
risk. On the contrary,
 
Debit Valuation Adjustment (DVA)
 
reflects the credit risk of ING for its counterparty.
 
CVA
and DVA combinedly are regarded
 
as the Bilateral Valuation
 
Adjustment (BVA). The calculation of CVA
 
is based
on the estimation of the expected exposure, the counterparties’ risk of default,
 
and taking into account the
collateral agreements as well as netting agreements.
 
The counterparties’ risk of default is measured by
probability of default and expected loss given default,
 
which is based on market information including credit
default swap (CDS) spread. Where counterparty CDS spreads are
 
not available, relevant proxy
 
spreads are
used. Additionally, wrong-way
 
risk (when exposure to a counterparty is increasing and the credit quality of that
counterparty deteriorates) and right
 
-way risk (when exposure to a counterparty is increasing and the credit
quality of that counterparty improves) are included in the adjustment
Debit Valuation Adjustment (DVA)
ING recognises two types of Debit Valuation Adjustments,
 
namely DVA on derivatives, as aforementioned
 
and
DVA on own issued financial liabilities. The application of DVA
 
on own issued financial liabilities are measured
at fair value through profit or loss, if the credit risk component has not been included in the prices. In this DVA
calculation, the default probability of the institution are estimated
 
based on the ING Funding spread.
Collateral Valuation
 
Adjustment (CollVA)
Collateral Valuation
 
Adjustment is a derivative valuation adjustment capturing
 
specific features of CSA (Credit
Support Annex) with a counterparty that the regular valuation framework
 
does not capture.
 
Non-standard CSA
features may include deviations in relation to the currency
 
in which ING posts or receives collateral, deviations
in remuneration rate on collateral
 
which may pay lower or higher rate than overnight
 
rate or even no interest
at all. Other deviations can be posting securities rather than cash as collateral.
Funding Valuation Adjustment (FVA)
ING applies an additional ‘Funding Valuation Adjustment’ (FVA) to address the funding costs
 
associated with
the
 
collateral funding asymmetry on uncollateralized
 
or partially collateralized derivatives
 
in the portfolio. This
adjustment is based on the expected exposure profiles of the uncollateralized
 
or partially collateralized OTC
derivatives and market-based funding spreads.
 
d) Fair value hierarchy
ING Group has categorised its financial instruments that are either measured in the statement
 
of financial
position at fair value or of which the fair value is disclosed, into a three level
 
hierarchy based on the
observability of the valuation inputs from (unadjusted) quoted prices. Highest priority is retained
 
to
(unadjusted) quoted prices in active markets for identical
 
assets or liabilities and the lowest priority to
valuation techniques supported by unobservable inputs.
 
Transfers
 
into and transfers
 
out of fair value hierarchy levels are
 
made on a quarterly basis at the end of the
reporting period.
Level 1 – (Unadjusted) quoted prices in active markets
This category includes financial instruments whose fair value is determined directly by reference
 
to
(unadjusted) quoted prices in an active market. A financial instrument is regarded
 
as quoted in an active
market if quoted prices are readily and regularly available
 
from an exchange, dealer markets,
 
brokered
markets, or principal to principal markets. Those prices represent actual and regularly
 
occurring market
transactions with sufficient frequency and volume to provide pricing information
 
on an ongoing basis.
Transfers
 
out of Level 1 into Level 2 or Level 3 occur when ING Group establishes that markets
 
are no longer
active and therefore (unadjusted) quoted prices no longer provide
 
reliable pricing information.
Level 2 – Valuation technique supported by
 
observable inputs
This category includes financial instruments whose fair value is based on market observables other than
(unadjusted) quoted prices. The fair value for financial instruments in this category
 
can be determined by
reference to quoted prices for similar instruments
 
in active markets, but for which the prices are modified
based on other market observable external data or reference
 
to quoted prices for identical or similar
instruments in markets that are not active. These prices can be obtained from
 
a third party pricing service. ING
analyses how the prices are derived and determines whether the prices are liquid tradable prices or model
based consensus prices taking various data as inputs.
 
 
For financial instruments that do not have a reference
 
price available, fair value is determined using a valuation
technique (e.g. a model), where inputs in the model are taken from an active market
 
or are observable, such as
interest rates and yield curves observable at commonly
 
quoted intervals, implied volatilities, and credit
spreads.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
38 Fair value of assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -335
Instruments, where inputs are unobservable are classified in this category,
 
provided that the impact of those
unobservable inputs on the overall valuation is insignificant. The notion of significant is particularly relevant
 
for
the distinction between Level 2 and Level 3 assets and liabilities. ING Group has chosen to align the definition
of significance with the 90% confidence range as captured in the prudent value definition by EBA where
possible. The same 90% confidence range is applied to model uncertainty.
 
If the combined change in asset
value resulting from the shift of the unobservable parameters and the model uncertainty
 
exceeds the
threshold, the asset is classified as Level 3. A value change below the threshold results in a Level 2
classification.
Level 3 – Valuation technique supported by
 
unobservable inputs
This category includes financial instruments whose fair value is determined using a valuation technique
 
(e.g. a
model), for a significant part of the overall valuation is unobservable, or is determined by
 
reference to price
quotes where the market is considered inactive. Unobservable inputs are
 
inputs which are based on the
Group’s own assumptions about the factors
 
that market participants would use in pricing an asset or liability,
developed based on the best information available in the market.
 
Unobservable inputs may include volatility,
correlation, spreads to discount rates,
 
default rates and recovery rates,
 
prepayment rates, and certain credit
spreads. Transfers
 
into and transfers out of fair
 
value hierarchy levels are made on a quarterl
 
y
 
basis.
 
Financial instruments at fair value
 
The fair values of the financial instruments
 
were determined as follows:
 
Methods applied in determining fair values of financial assets and liabilities (carried at fair value)
Level 1
Level 2
Level 3
Total
2020
2019
2020
2019
2020
2019
2020
2019
Financial Assets
Financial assets at fair value
through profit or loss
 
- Equity securities
7,897
8,508
2
2
138
148
8,037
8,657
 
- Debt securities
3,378
4,963
4,867
3,441
1,269
919
9,514
9,323
 
- Derivatives
1
30,623
23,797
197
154
30,821
23,951
 
- Loans and receivables
 
-0
53,733
52,668
1,265
1,588
54,998
54,256
11,276
13,471
89,225
79,909
2,870
2,807
103,370
96,187
Financial assets at fair value
through other comprehensive
income
 
- Equity securities
1,687
2,024
176
281
1,862
2,306
 
- Debt securities
31,592
30,141
1,385
343
32,977
30,483
 
- Loans and receivables
 
1,056
1,680
1,056
1,680
33,279
32,165
1,385
343
1,231
1,961
35,895
34,468
Financial liabilities
Financial liabilities at fair value
through profit or loss
–
 
Debt securities
1,124
1,081
5,231
7,034
180
184
6,534
8,299
–
 
Deposits
1
48,111
44,707
2
48,114
44,707
–
 
Trading securities
699
1,388
70
7
0
-0
768
1,395
–
 
Derivatives
55
58
27,094
23,176
217
305
27,365
23,540
1,879
2,527
80,505
74,924
398
490
82,781
77,942
 
 
 
 
 
 
 
 
 
>
 
38 Fair value of assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -336
The following methods and assumptions were used by ING Group to estimate
 
the fair value of the financial
instruments:
Equity securities
Instrument description:
 
Equity securities include stocks
 
and shares, corporate investments
 
and private equity
investments.
Valuation:
 
If available, the fair values of publicly traded equity securities and private equity securities are
based on quoted market prices. In absence of active markets, fair
 
values are estimated by analysing the
investee’s
 
financial position, result, risk profile, prospect, price, earnings comparisons and revenue multiples.
Additionally, reference
 
is made to valuations of peer entities where quoted prices in active markets are
available. For equity securities best market practice
 
will be applied using the most relevant valuation method.
 
All non-listed equity investments, including investments
 
in private equity funds, are subject to a standard
review framework which ensures that valuations reflect
 
the fair values.
Fair value hierarchy:
 
The majority of equity securities are publicly traded and quoted prices are readily and
regularly available.
 
Hence, these securities are classified as Level 1.
 
Equity securities which are not traded in
active markets mainly include corporate investments,
 
fund investments and other equity securities and are
classified as Level 3.
Debt securities
Instrument description:
 
Debt securities include government bonds, financial institutions bonds and Asset-
backed securities (ABS).
 
Valuation:
 
Where available, fair values for debt
 
securities are generally based on quoted market prices.
Quoted market prices are obtained from an exchange
 
market, dealer,
 
broker,
 
industry group, pricing service, or
regulatory service. The quoted prices from non-exchange sources are
 
reviewed on their tradability of market
prices. If quoted prices in an active market are not available, fair value
 
is based on an analysis of available
market inputs, which includes consensus prices obtained from one or more pricing services. Furthermore, fair
values are determined by valuation techniques discounting expected
 
future cash flows using a market interest
rate curves, referenced credit
 
spreads, maturity of the investment, and estimated prepayment
 
rates where
applicable.
Fair value hierarchy:
 
Government bonds and financial institutions bonds are generally traded in active
markets, where quoted prices are readily and regularly available
 
and are hence, classified as Level 1. The
remaining positions are classified as Level 2 or Level 3.
 
Asset backed securities for which no active market
 
is
available and a wide discrepancy in quoted prices exists, are classified as Level 3.
Derivatives
Instrument description:
 
Derivatives contracts can either be exchange
 
-traded or over the counter (OTC).
Derivatives include interest rate
 
derivatives, FX derivatives, Credit derivatives,
 
Equity derivatives and
commodity derivatives.
Valuation:
 
The fair value of exchange-traded derivatives
 
is determined using quoted market prices in an active
market and are classified as Level 1 of the fair value hierarchy.
 
For instruments that are not actively traded, fair
values are estimated based on valuation techniques. OTC
 
derivatives and derivatives trading in an inactive
market are valued using valuation techniques. The valuation
 
techniques and inputs depend on the type of
derivatives
 
and the nature of the underlying instruments. The principal techniques used to value these
instruments are based on (amongst others) discounted cash flows option pricing models and Monte
 
Carlo
simulations. These valuation models calculate the present value of expected
 
future cash flows, based on ‘no-
arbitrage’ principles. The models are commonly used in the financial industry and inputs to the validation
models are determined from observable market data
 
where possible. Certain inputs may not be observable in
the market, but can be determined from observable prices via valuation model calibration
 
procedures. These
inputs include prices available from exchanges, dealers, brokers
 
or providers of pricing, yield curves, credit
spreads, default rates, recovery
 
rates, dividend rates, volatility of underlying interest
 
rates, equity prices, and
foreign currency exchange rates
 
and reference is made to quoted prices, recently executed
 
trades,
independent market quotes and consensus data, where available.
For uncollateralised OTC
 
derivatives, ING applies Credit Valuation
 
Adjustment to correctly reflect the
counterparty credit risk in the valuation. See section DVA/BVA
 
in section b) Valuation Adjustments for
 
more
details regarding the calculation.
Fair value hierarchy:
 
The majority of the derivatives are classified as Level 2. Derivatives for
 
which the input
cannot be implied from observable market data are classified as Level
 
3.
Loans and receivables
Instrument description:
 
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market.
 
Loans and receivables carried at fair value includes trading
loans, being securities lending and similar agreement comparable to collateralised lending, syndicated
 
loans,
loans expected to be sold and receivables with regards to
 
reverse repurchase transactions.
Valuation:
 
The fair value of loans and receivables are generally based on quoted market
 
prices. The fair value
of other loans is estimated by discounting expected future cash flows using a discount
 
rate that reflects credit
risk, liquidity, and other current market
 
conditions. The fair value of mortgage loans is estimated by taking into
account prepayment behaviour.
 
 
 
 
 
 
 
>
 
38 Fair value of assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -337
Fair value hierarchy:
 
Loans and receivables are predominantly classified as Level 2. Loans and receivables for
which current market information about similar assets to use as observable,
 
corroborated data for
 
all
significant inputs into a valuation model is not available are classified as Level
 
3 and are expected to be sold as
Level 3.
Financial liabilities at fair value through profit and loss
 
Instrument description:
 
Financial liabilities at fair value through profit and loss include debt securities, debt
instruments, primarily comprised of structured notes, which are held at fair value
 
under the fair value option.
Besides that, it includes derivative contracts and repurchase agreements
 
.
Valuation:
 
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 not actively traded, fair values
are estimated based on internal discounted cash flow valuation
 
techniques using interest rates and credit
spreads that apply to similar instruments.
Fair value hierarchy:
 
The majority of the derivatives are classified as Level 2. Derivatives for
 
which the input
cannot be derived from observable market data are
 
classified as Level 3.
 
e) Transfers
 
between Level 1 and 2
No significant transfers between Level
 
1 and 2 and no significant changes in the valuation techniques were
recorded in the reporting period 2020.
 
f) Level 3: Valuation techniques and inputs used
 
Financial assets and liabilities in Level 3 include both assets and liabilities for which the fair value was
determined using (i) valuation techniques that incorporate
 
unobservable inputs as well as
 
(ii) quoted prices
which have been adjusted to reflect that the market
 
was not actively trading at or around the balance sheet
date. Unobservable inputs are inputs which are based on ING’s own assumptions about the factors
 
that market
participants would use in pricing an asset or liability, developed based on the best information
 
available in the
circumstances. Unobservable inputs may include volatility,
 
correlation, spreads to discount rates,
 
default rates
and recovery rates, prepayment
 
rates, and certain credit spreads. Valuation
 
techniques that incorporate
unobservable inputs are sensitive to the inputs used.
 
 
Of the total amount of financial assets classified as Level 3 as at 31 December 2020 of EUR 4.1 billion (31
December 2019: EUR 4.8 billion), an amount of EUR 2.1 billion ( 52.3%) (31 December 2019: EUR 2.5 billion,
being 52.6%) is based on unadjusted quoted prices in inactive markets. As ING does not generally adjust
quoted prices using its own inputs, there is no significant sensitivity to ING’s own unobservable inputs.
 
Furthermore, Level 3 financial assets includes approximately EUR 0.9 billion (31 December 2019: EUR 1.3
billion) which relates to financial assets that are part of structures that are
 
designed to be fully neutral in terms
of market risk. Such structures include various financial assets and liabilities for which the overall
 
sensitivity to
market risk is insignificant. Whereas the fair value of individual components of these structures
 
may be
determined using different techniques and the fair value
 
of each of the components of these structures may be
sensitive to unobservable inputs, the overall sensitivity is by design not significant.
 
The remaining EUR 1.1 billion (31 December 2019: EUR 1.0 billion) of the fair value classified in Level 3 financial
assets is established using valuation techniques that incorporates
 
certain inputs that are unobservable.
 
Of the total amount of financial liabilities classified as Level 3 as at 31 December 2020 of EUR 0.4 billion (31
December 2019: EUR 0.5 billion),
 
an amount of EUR 0.1 billion (34.6%) (31 December 2019: EUR 0.2 billion,
being 39.3%) is based on unadjusted quoted prices in inactive markets. As ING does not generally adjust
quoted prices using its own inputs, there is no significant sensitivity to ING’s own unobservable inputs.
 
Furthermore, Level 3 financial liabilities includes approximately EUR 0.1 billion (31 December 2019: EUR 0.1
billion) which relates to financial liabilities that are part of structures that are designed to
 
be fully neutral in
terms of market risk. As explained above, the fair value of each of the components of
 
these structures may be
sensitive to unobservable inputs, but the overall sensitivity is by design not significant.
 
The remaining EUR 0.2 billion (31 December 2019: EUR 0.2 billion) of the fair value classified in Level 3 financial
liabilities is established using valuation techniques that incorporates
 
certain inputs that are unobservable.
The table below provides a summary of the valuation techniques, key unobservable inputs and the lower and
upper range of such unobservable inputs, by type of Level 3 asset/liability.
 
The lower and upper range
mentioned in the overview represent the lowest and highest variance
 
of the respective valuation input as
actually used in the valuation of the different financial instruments. Amounts and percentages
 
stated are
unweighted. The range can vary from period to
 
period subject to market movements and change in Level 3
position. Lower and upper bounds reflect the variability of Level 3 positions and their underlying valuation
inputs in the portfolio, but do not adequately reflect their level of valuation uncertainty.
 
For valuation
uncertainty assessment, reference is made to section Sensitivity analysis of unobservable
 
inputs (Level 3).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
38 Fair value of assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -338
 
Valuation techniques and range of unobservable
 
inputs (Level 3)
Assets
Liabilities
Valuation techniques
Significant unobservable inputs
Lower range
Upper range
2020
2019
2020
2019
2020
2019
2020
2019
At fair value through profit or loss
Debt securities
1,269
919
Price based
Price (%)
0%
0%
107%
121%
Equity securities
137
146
1
1
Price based
Price
0
0
5,475
5,475
Loans and advances
1,090
1,577
2
Price based
Price (%)
0%
0%
101%
104%
Present value techniques
Credit spread (bps)
0
1
250
250
(Reverse) repo's
176
3
1
Present value techniques
Interest rate (%)
3%
4%
4%
4%
Structured notes
180
184
Price based
Price (%)
74%
83%
109%
124%
Option pricing model
Equity volatility (%)
14%
13%
25%
20%
Equity/Equity correlation
0.6
0.6
0.9
0.8
Equity/FX correlation
-0.7
-0.5
0.3
0.3
Dividend yield (%)
0%
2%
5%
4%
Derivatives
–
 
Rates
2
13
38
68
Option pricing model
Interest rate volatility (bps)
12
17
70
137
Present value techniques
Reset spread (%)
2%
2%
2%
2%
–
 
FX
1
Option pricing model
FX volatility (bps)
6
5
10
8
–
 
Credit
168
102
154
183
Present value techniques
Credit spread (bps)
2
2
1,403
11,054
Jump rate (%)
n/a
12%
n/a
12%
Price based
Price (%)
99%
n/a
107%
n/a
–
 
Equity
24
42
20
50
Option pricing model
Equity volatility (%)
5%
4%
64%
84%
Equity/Equity correlation
0.5
n/a
0.9
n/a
Equity/FX correlation
-0.6
-0.6
0.1
0.6
Dividend yield (%)
0%
0%
34%
13%
Price based
Price (%)
3%
n/a
3%
n/a
–
 
Other
3
3
3
3
Option pricing model
Commodity volatility (%)
18%
11%
55%
53%
Com/Com correlation
n/a
0.3
n/a
0.9
Com/FX correlation
-0.5
-0.5
-0.3
-0.3
At fair value through other comprehensive income
–
 
Loans and advances
1,056
1,680
Present value techniques
Prepayment rate (%)
9%
6%
9%
6%
Price based
 
Price (%)
99%
n/a
99%
n/a
–
 
Equity
176
282
Present value techniques
Credit spread (bps)
2
n/a
2
n/a
Interest rate (%)
3%
3%
3%
3%
Price based
Price
n/a
1
n/a
187
Other
63
n/a
80
n/a
Total
4,101
4,768
398
490
 
 
 
 
 
 
 
>
 
38 Fair value of assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -339
 
Price
For securities where market prices are not available
 
fair value is measured by comparison with observable pricing
data from similar instruments. Prices of 0% are distressed to the point that
 
no recovery is expected, while prices
significantly in excess of 100% or par are expected to pay a yield above
 
current market rates.
Credit spreads
Credit spread is the premium above a benchmark interest rate,
 
typically LIBOR or relevant Treasury
 
instrument,
required by the market participant to accept a lower credit
 
quality. Higher credit spreads indicate
 
lower credit
quality and a lower value of an asset.
Volatility
Volatility is a measure for variation
 
of the price of a financial instrument or other valuation input over time.
Volatility is one of the key inputs in option pricing models. Typically,
 
the higher the volatility, the higher value of
the option. Volatility varies by the underlying reference
 
(equity, commodity,
 
foreign currency and interest rates),
by strike, and maturity of the option. The minimum level of volatility is 0% and there is no theoretical
 
maximum.
Correlation
Correlation is a measure of dependence between two underlying references which is relevant
 
for valuing
derivatives and other instruments having more than one underlying reference.
 
High positive correlation (close to
1) indicates strong positive (statistical)
 
relationship, where underliers move, everything else equal, move into the
same direction. The same holds for a high negative correlation.
Reset spread
Reset spreads are key inputs to mortgage
 
linked prepayment swaps valuation.
 
Reset spread is the future spread
at which mortgages will re-price at interest rate
 
reset dates.
Inflation rate
 
Inflation rate is a key input to inflation
 
linked instruments. Inflation linked instruments
 
protect against price
inflation and are denominated and indexed to investment
 
units. Interest payments would be based on the
inflation index and nominal rate in order to receive/pay
 
the real rate of return. A rise in nominal coupon
payments is a result of an increase in inflation expectations, real
 
rates, or both. As markets for these inflation
linked derivatives are illiquid, the valuation parameters
 
become unobservable.
Dividend yield
Dividend yield is an important input for equity option pricing models showing how much dividends a company is
expected to pay out each year relative to
 
its share price. Dividend yields are generally expressed as an annualised
percentage of share price.
Jump rate
Jump rates simulate abrupt changes in valuation models. The rate
 
is an added component to the discount rate in
the model to include default risks.
 
Prepayment rate
Prepayment rate is a key
 
input to mortgage and loan valuation. Prepayment rate
 
is the estimated rate at which
mortgage borrowers will repay
 
their mortgages early, e.g. 5% per year.
 
Prepayment rate and reset spread
 
are key
inputs to mortgage linked prepayment
 
swaps valuation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
38 Fair value of assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -340
Level 3: Changes during the period
 
Changes in Level 3 Financial assets
Trading assets
Non-trading
derivatives
Financial assets
 
mandatorily at FVPL
Financial assets
designated at FVPL
Financial assets
at FVOCI
Total
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Opening balance
 
174
494
8
27
1,381
1,042
1,244
1,075
1,961
2,749
4,768
5,387
Realised gain/loss
 
recognised in the statement of profit or loss during the period
 
1
–61
40
–1
–21
–104
–63
–198
–6
–19
–15
–383
–66
Revaluation recognised in other comprehensive income during the
 
period
 
2
–46
155
–46
155
Purchase of assets
453
28
3
0
1,180
1,494
212
360
39
11
1,887
1,893
Sale of assets
–73
–53
–8
–3
–973
–832
–270
–212
–419
–680
–1,743
–1,780
Maturity/settlement
–39
–11
–1
–83
–461
–57
–35
–175
–212
–354
–719
Reclassifications
 
–279
330
279
-105
3
224
4
Transfers
 
into Level 3
517
26
4
6
9
1
63
–1
523
103
Transfers
 
out of Level 3
–90
–72
0
–528
–88
–138
–53
–755
–214
Exchange rate differences
1
-24
–1
–4
1
–27
1
Changes in the composition of the group and other changes
5
2
1
1
6
3
Closing balance
882
174
1
8
1,191
1,381
796
1,244
1,231
1,961
4,101
4,768
 
1
 
Net gains/losses were recorded as ‘Valuation results and net trading income’ in the statement
 
of profit or loss. The total amounts
includes EUR 312 million (2019: EUR 43 million) of unrealised gains and losses recognised in the statement of profit or loss.
 
2
 
Revaluation recognised in other comprehensive income is included on the line ‘Net change in fair value of debt instruments at fair value
through other comprehensive income’.
 
In 2020, the transfer into Level 3 assets is mainly driven by debt
 
securities that are part of a structure transferred
into level 3 due to market illiquidity which decreased observability for
 
an input.
 
Transfers
 
out of Level 3 is mainly related to debt obligations due to the valuation
 
no longer being significantly
impacted by unobservable inputs.
 
In 2020, reclassification relate to a re-review
 
of the general terms of a portfolio of securitization loans, the
underlying pools of assets are exposed to residual value risk. Consequently,
 
the portfolio of EUR 0.3 billion, which
is classified at Level 3, was incorrectly measured at amortised cost and therefore
 
reclassified to mandatorily fair
value through profit or loss. Furthermore, it relates to ING’s
 
investment in Visa preference
 
series C shares,
reference is made to Note 5 ‘Financial assets at fair
 
value through other comprehensive income’.
 
In 2019 the amounts reported on the line reclassifications relate to syndicated
 
loans reclassed from trading
assets to financial assets mandatory at FVPL.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
38 Fair value of assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -341
Changes in Level 3 Financial liabilities
Financial liabilities
designated as at fair
 
value through profit or
loss
Trading liabilities
Non-trading derivatives
Total
2020
2019
2020
2019
2020
2019
2020
2019
Opening balance
195
122
110
80
184
708
490
910
Realised gain/loss recognised in
the statement of profit or loss
 
during the period
1
-2
102
20
-16
-22
32
-4
118
Additions
55
72
19
46
662
35
736
154
Redemptions
-116
-30
-45
-0
-90
-10
-250
-40
Maturity/settlement
-11
-32
-52
-83
-479
-146
-511
Transfers
 
into Level 3
170
13
8
267
49
445
62
Transfers
 
out of Level 3
-111
-52
-23
-738
-150
-873
-202
Closing balance
180
195
39
110
180
184
398
490
 
1
 
Net gains/losses were recorded as ‘Valuation results and net trading income’ in the statement
 
of profit or loss. The total amount includes
EUR -4 million (2019: EUR 115 million) of unrealised gains and losses recognised in the statement of profit or loss.
 
In 2020, the transfers into level
 
3 mainly consisted of structured notes, measured designated as at fair
 
value
through profit or loss, which were transferred
 
into Level 3 due to market illiquidity as a result of the Covid-19
pandemic. This caused the valuation being significantly impacted by unobservable inputs.
 
In 2019 and 2020, financial liabilities mainly (long term) repurchase transactions were transferred
 
out of Level 3
mainly due to the valuation not being significantly impacted by unobservable inputs.
 
g) Recognition of unrealised gains and losses in Level 3
Amounts recognised in the statement of profit or loss relating
 
to unrealised gains and losses during the year that
relates to Level 3 assets and liabilities are included in the line item ‘Valuation
 
results and net trading income’ in
the statement of profit or loss.
 
In 2019 and 2020, unrealised gains and losses that relate to ‘Financial assets at fair value
 
through
other comprehensive income’ are included in the Revaluation reserve – Equity
 
securities at fair value through
other comprehensive income or Debt
 
Instruments at fair value through other comprehensive income.
 
h) Level 3: Sensitivity analysis of unobservable inputs
Where the fair value of a financial instrument is determined using inputs which are unobservable and which have
a more than insignificant impact on the fair value of the instrument, the actual value of those inputs at the
balance date may be drawn from a range
 
of reasonably possible alternatives. In line with market practice
 
the
upper and lower bounds of the range of alternative input values reflect a 90% level
 
of valuation certainty.
 
The
actual levels chosen for the unobservable inputs in preparing the financial statements are consistent
 
with the
valuation methodology used for fair valued financial instruments.
 
In practice valuation uncertainty is measured and managed per exposure to
 
individual valuation inputs (i.e. risk
factors) at portfolio level across different
 
product categories. Where the disclosure looks at individual Level
 
3
inputs the actual valuation adjustments may also reflect the benefits of portfolio
 
offsets.
 
 
This disclosure does not attempt to indicate or predict future
 
fair value movement. The numbers in isolation give
limited information as in most cases these Level 3 assets and liabilities should be seen in combination with other
instruments (for example as a hedge) that are classified as Level 2.
 
 
The valuation uncertainty in the table below is broken
 
down by related risk class rather than by product. The
possible impact of a change of unobservable inputs in the fair value o of financial instruments where
unobservable inputs are significant to the valuation is as follows:
 
 
Sensitivity analysis of Level 3 instruments
Positive fair value
movements from
 
using reasonable
 
possible alternatives
Negative fair value
movements from
 
using reasonable
 
possible alternatives
2020
2019
2020
2019
Equity (equity derivatives, structured notes)
33
35
-14
Interest rates (Rates derivatives,
 
FX derivatives)
20
40
-1
Credit (Debt securities, Loans, structured notes, credit derivatives)
43
10
-27
96
85
-42
 
 
 
 
 
 
 
 
>
 
38 Fair value of assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -342
i) Financial instruments not measured at fair value
The following table presents the estimated The fair values
 
of the financial instruments not measured at fair value
in the statement of financial position. The aggregation of the fair values presented
 
below does not represent, and
should not be construed as representing, the underlying value of ING Group.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
38 Fair value of assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -343
Methods applied in determining fair values of financial assets and liabilities (carried at amortised cost)
Carrying Amount
Carrying amount
approximates fair value
Level 1
Level 2
Level 3
Total fair
 
value
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Financial Assets
Loans and advances to banks
25,364
35,136
2,165
2,367
0
728
7,763
11,469
15,611
20,570
25,539
35,133
Loans and advances to customers
593,970
608,029
17,486
20,343
0
165
14,595
12,622
576,659
588,063
608,740
621,194
Securities at amortised cost
50,587
46,108
0
–0
49,109
43,784
2,550
2,304
622
840
52,281
46,928
669,921
689,273
19,651
22,710
49,109
44,677
24,908
26,395
592,892
609,473
686,560
703,255
Financial liabilities
Deposits from banks
78,098
34,826
3,918
4,596
0
68,473
23,900
6,014
6,589
78,405
35,086
Customer deposits
1
609,517
574,355
580,262
530,626
0
14,007
19,802
15,704
24,626
609,972
575,055
Debt securities in issue
82,065
118,528
–0
51,906
57,563
24,005
42,638
6,449
18,642
82,360
118,844
Subordinated loans
15,805
16,588
–0
–0
15,013
14,552
1,161
2,701
16,174
17,253
785,484
744,297
584,180
535,222
66,919
72,116
107,645
89,042
28,167
49,858
786,911
746,239
 
1 The prior period has been updated to improve consistency
 
and comparability of customer deposits
 
The following methods and assumptions were used by ING Group to estimate
 
the fair value of the financial
instruments not measured at fair value .
Loans and advances to banks
The fair values of receivables from banks are generally
 
based on quoted market prices or,
 
if unquoted, on
estimates based on discounting future cash flows using available
 
market interest rates
 
including appropriate
spreads offered for receivables
 
with similar characteristics, similar to Loans and advances to customers described
below.
Loans and advances to customers
For loans and advances that are repriced frequently and have
 
had no significant changes in credit risk, carrying
amounts represent a reasonable estimate of the fair value.
 
The fair value of other loans is estimated by
discounting expected future cash flows using a discount rate
 
that reflects credit risk, liquidity,
 
and other current
market conditions. The fair value of mortgage loans is estimated
 
by taking into account prepayment behaviour.
Loans with similar characteristics are aggregated for
 
calculation purposes.
Deposits from banks
The fair values of payables to banks are generally
 
based on quoted market prices or,
 
if not available, on estimates
based on discounting future cash flows using available market
 
interest rates and credit spreads for
 
payables to
banks with similar characteristics.
Customer deposits
The carrying values of customer deposits with an immediate on demand features approximate
 
their fair values.
The fair values of deposits with fixed contractual terms
 
have been estimated based on discounting future cash
flows using the interest rates currently
 
applicable to deposits of similar maturities.
Debt securities in issue
 
The fair value of debt securities in issue is generally based on quoted market prices, or if not available,
 
on
estimated prices by discounting expected future cash flows using a current
 
market interest rate
 
and credit
spreads applicable to the yield, credit quality and maturity.
 
 
 
 
 
 
 
>
 
39
 
Derivatives and hedge accounting
 
ING Group Annual Report 2020 on Form 20-F
F -344
Subordinated loans
The fair value of publicly traded subordinated loans are based on quoted market
 
prices when available. Where
no quoted market prices are available, fair
 
value of the subordinated loans is estimated using discounted cash
flows based on interest rates and credit
 
spreads that apply to similar instruments.
 
39
 
Derivatives and hedge accounting
Use of derivatives
 
ING Group uses derivatives for economic hedging purposes to manage its asset and liability portfolios and
structural risk positions. The primary objective of ING Group’s hedging
 
activities is to manage the risks which
arises from structural imbalances in the duration and other profiles of its assets and liabilities. The objective of
economic hedging is to enter into positions with an opposite risk profile to an identified risk exposure to
 
reduce
that exposure. The main risks which are being hedged are interest
 
rate risk and foreign currency exchange
 
rate
risk. These risks are primarily hedged with interest rate swaps,
 
cross currency swaps and foreign exchange
forwards/swaps.
 
 
ING Group uses credit derivatives to manage its economic exposure
 
to credit risk, including total return swaps
and credit default swaps, to sell or buy protection for credit
 
risk exposures in the loan, investment, and trading
portfolios. Hedge accounting is not applied in relation to these credit derivatives.
 
Hedge accounting
 
Derivatives that qualify for hedge accounting under IFRS are
 
classified and accounted for in accordance with the
nature of the instrument hedged and the type of IFRS hedge model that is applicable. The three models
applicable under IFRS are: fair value hedge accounting, cash flow hedge accounting, and hedge accounting
 
of a
net investment in a foreign operation.
 
How and to what extent these models are applied are described under the
relevant headings below.
 
The company’s detailed accounting policies for
 
these three hedge models are set out in
paragraph 1.7 ‘Financial instruments’ of Note 1 ‘Basis of preparation
 
and accounting policies’.
 
Impact of Covid-19
The impact of Covid-19 on timing or amount of cash flows of our products that are designated as hedged items in
hedge accounting programs did not result in hedge ineffectiveness
 
during the reporting period.
 
Impact of Brexit
As a result of Brexit and the associated uncertainty of the ability of United Kingdom based clearing houses to
offer clearing services to European clients such as ING, ING has reduced its exposure to UK based clearing houses.
In 2020 ING Group transferred part of the derivative
 
exposures to an European Union based clearing house,
which resulted in de-designation and re-designation of hedge accounting relationships.
 
ING Group migrated various portfolios
 
of interest rate swaps
 
,
 
which were partly designated in macro cash flow
hedges. For discontinued cash flow hedges, the fair value changes accumulated
 
in the cash flow hedge reserve of
EUR 884 million remains in Other Comprehensive Income and is recycled to the statement
 
of profit or loss in the
periods in which the hedged item affects profit or loss. The de-designation and re-designation of these hedge
accounting relationships did not result in material impact in the statement
 
of profit or loss of 2020.
 
IBOR transition
Following the decision by global regulators to seek alternatives for
 
current critical benchmarks in use in various
jurisdiction in order to comply with the EU Benchmarks Regulation, the IBOR transition program of ING was
initiated in 2018 to prepare the Group for the reform.
 
Reference is made to note Risk management/
 
IBOR Transition for more
 
information on to what rates ING is
exposed and on how ING is managing the transition to alternative benchmark rates.
At the reporting date, ING Group assessed the extent
 
to which hedge relationships are subject to uncertainties
driven by the IBOR reform.
ING applies fair value and cash flow hedge accounting in accordance with IAS 39, and interest
 
rate and foreign
currency risks are designated as hedged risks in various micro and macro models.
 
Except for EONIA and EUR LIBOR all IBOR’s
 
in scope of ING’s program are
 
a component of either hedging
instrument and/or hedged item where the interest
 
rate and/or foreign currency
 
risk are the designated hedged
risk. The hedged exposures are mainly loan portfolios, issued debt securities and purchased debt instruments.
 
 
ING Group early adopted the amendments to IAS 39 issued in September 2019 to these hedging relationships
directly affected by IBOR reform
 
(Phase 1). This excludes EURIBOR hedges as EURIBOR is Benchmarks Regulation
compliant.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
39
 
Derivatives and hedge accounting
 
ING Group Annual Report 2020 on Form 20-F
F -345
LIBOR indexed fair value and cash flow hedges are expected
 
to be directly affected by the uncertainties arising
from the IBOR reform. In particular,
 
uncertainties over the timing and amount of the replacement rate may
impact the effectiveness and highly probable assessment.
 
For these affected fair value and cash
 
flow hedge relationships ING Group assumes that the LIBOR based cash
flows from the hedging instrument and hedged item will remain unaffected.
 
The same assumption is used while assessing the likelihood of occurrence of the forecast transactions that
 
are
subject to cash flow hedges. The cash flow hedges directly impacted by the IBOR reform still meet
 
the highly
probable requirement assuming the respective LIBOR benchmark on which the hedged cash flows are based are
not altered as a result of the reform.
 
The following table contains details of the gross notional amounts of hedging instruments
 
as at 31 December that
are used in the Group's hedge accounting relationships for which the Phase 1 amendments to
 
IAS39 were
applied:
 
Notional amounts of Hedging instruments in EUR as at 31 December
Benchmark
2020
2019
USD LIBOR
 
41,020
45,496
GBP LIBOR
 
1,500
2,184
JPY LIBOR
410
2,922
CHF LIBOR
315
313
 
 
Approximately 85% (31 December 2019: 68%) of the above notional amounts have
 
a maturity date beyond 2021.
In addition, approximately 63% of the above notional amounts for USD LIBOR have
 
a maturity date beyond June
2023.
 
 
The notional amounts of the derivative hedging instruments (in above table) provide a close approximation
 
of
the extent of the risk exposure ING manages through these hedging relationships.
 
ING Group did not early adopt Phase 2 amendments in 2020. Refer to sections 1.4.2 and 1.7.4. of Note 1 ‘Basis of
preparation and accounting policies’ for more information
 
on the Phase 2 amendments.
 
Fair value hedge accounting
ING Group’s fair value
 
hedges principally consist of interest rate swaps
 
that are used to protect against changes
in the fair value of fixed-rate instruments
 
due to movements in market interest
 
rates. ING Group’s
 
approach to
manage market risk, including interest rate
 
risk, is discussed in ‘Risk management –Market risk’.
 
ING Group’s
exposure to interest rate
 
risk is disclosed in paragraph ‘Interest rate
 
risk in banking book’.
 
 
By using derivative financial instruments to hedge exposures to
 
changes in interest rates, ING Group
 
also exposes
itself to credit risk of the derivative counterparty,
 
which is not offset by the hedged item. ING Group minimises
counterparty credit risk in derivative instruments by
 
clearing most of the derivatives through Central Clearing
Counterparties. In addition ING Group only enters into transactions with high-quality counterparties
 
and requires
posting collateral.
 
 
ING Group applies fair value hedge accounting on micro level in which one hedged item
 
is hedged with one or
multiple hedging instruments. Micro fair value hedge accounting is mainly applied on issued debt securities and
purchased debt instruments for hedging interest
 
rate risk.
 
 
Before fair value hedge accounting
 
is applied by ING Group,
 
ING Group determines whether an economic
relationship between the hedged item and the hedging instrument exists based on an evaluation
 
of the
quantitative characteristics of these items and the hedged risk that
 
is supported by quantitative analysis. ING
Group considers whether the critical terms of the hedged item and hedging instrument closely align when
assessing the presence of an economic relationship. ING Group evaluates whether the fair
 
value of the hedged
item and the hedging instrument respond similarly to similar risks. In addition ING is mainly using regression
analysis to assess whether the hedging instrument is expected to be and has been highly effective in offsetting
changes in the fair value of the hedged item.
 
ING Group uses the following derivative financial instruments in a fair
 
value hedge accounting relationship:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
39
 
Derivatives and hedge accounting
 
ING Group Annual Report 2020 on Form 20-F
F -346
Gross carrying value of derivatives designated under fair value
 
hedge accounting
Assets
 
2020
Liabilities
 
2020
Assets
 
2019
Liabilities
 
2019
As at 31 December
Hedging instrument on interest rate risk
– Interest rate swaps
4,895
2,050
5,133
5,486
– Other interest derivatives
44
110
87
70
 
 
The derivatives used for fair value hedge accounting are
 
included in the statement of financial position line-item
‘Financial assets at fair value through profit or loss – Non-trading derivatives’
 
for EUR 486 million (2019: EUR 524
million) respectively ‘Financial liabilities at fair value through profit or loss – Non-trading derivatives’
 
EUR 444
million (2019: EUR 873 million). The remaining derivatives are offset with other derivatives and collaterals
 
paid or
received.
 
For our main currencies the average fixed
 
rate for interest
 
rate swaps used in fair value hedge accounting
 
are
2.79% (2019: 2.98%)for EUR and 3.76% (2019: 3.55%) for USD.
 
 
The following table shows the net notional amount of derivatives designated in fair
 
value hedging, split into the
maturity of the instruments. The net notional amounts presented in the table are a combination
 
of payer (-) and
receiver (+) swaps.
 
Maturity derivatives designated in fair value hedging
As at 31 December 2020
Less than
1 month
1 to 3
months
3 to 12
months
1 to 2
year
2 to 3
years
3 to 4
years
4 to 5
years
>5 years
Total
Hedging instrument on
interest rate risk
– Interest rate swaps
15
1,153
1,263
6,704
6,170
4,281
4,347
16,548
40,481
– Other interest derivatives
-1
-68
-283
-434
-370
-302
-315
394
-1,378
As at 31 December 2019
Hedging instrument on
interest rate risk
- Interest rate swaps
-59
612
6,394
12,936
7,637
7,195
3,266
16,494
54,475
– Other interest derivatives
-20
-22
58
-242
-404
-290
-44
1,075
110
 
Gains and losses on derivatives designated under fair value hedge accounting are
 
recognised in the statement of
profit or loss. The effective portion of the fair value change on the hedged item
 
is also recognised in the
statement of profit or loss. As a result, only the net accounting ineffectiveness
 
has an impact on the net result.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
39
 
Derivatives and hedge accounting
 
ING Group Annual Report 2020 on Form 20-F
F -347
Hedged items included in a fair value hedging relationship
Carrying amount of the hedged items
Accumulated amount of fair value hedge
adjustment on the hedged item included in
 
the carrying amount of the hedged item
Change in fair value
used for measuring
ineffectiveness for the
period
Change in fair value
hedge instruments
Hedge ineffectiveness
recognised in the
statement of profit or
loss gain (+) / loss (-)
Assets
Liabilities
Assets
Liabilities
As at 31 December 2020
Interest rate risk
– Amounts due from banks
– Debt securities at fair value through other comprehensive income
20,164
n/a
552
– Loans at FVOCI
n/a
-0
– Loans and advances to customers
876
121
25
– Debt instruments at amortised cost
4,222
501
170
– Debt securities in issue
54,043
3,443
-878
– Subordinated loans
13,309
510
-397
– Amounts due to banks
-5
– Customer deposits and other funds on deposit
54
0
-9
– Discontinued hedges
561
2
Total
25,262
67,406
1,183
3,956
-541
538
-4
As at 31 December 2019
Interest rate risk
– Amounts due from banks
-0
– Debt securities at fair value through other comprehensive income
23,281
n/a
357
– Loans at FVOCI
n/a
– Loans and advances to customers
959
75
31
– Debt instruments at amortised cost
6,133
429
356
– Debt securities in issue
62,236
2,706
-1,018
– Subordinated loans
14,970
261
-201
– Amounts due to banks
8,783
38
1
– Customer deposits and other funds on deposit
299
2
-12
– Discontinued hedges
688
7
Total
30,373
86,288
1,192
3,014
-487
504
18
 
The main sources of ineffectiveness are:
◾
 
differences in maturities of the hedged item(s) and hedging instrument(s);
◾
 
different interest
 
rate curves applied to discount the hedged item(s) and hedging instrument(s);
◾
 
differences in timing of cash flows of the hedged item(s) and hedging instrument(s).
 
There were no other sources of ineffectiveness in these hedging relationships.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
39
 
Derivatives and hedge accounting
 
ING Group Annual Report 2020 on Form 20-F
F -348
Cash flow hedge accounting
ING Group’s cash flow hedges mainly consist
 
of interest rate swaps
 
and cross-currency swaps that are used to
protect against the exposure to variability
 
in future cash flows on non-trading assets and liabilities that bear
interest at variable rates
 
or are expected to be refunded or reinvested
 
in the future. The amounts and timing of
future cash flows, representing both principal and interest
 
flows, are projected for each portfolio of financial
assets and liabilities, based on contractual terms and other variables including estimates of prepayments.
 
These
projected cash flows form the basis for identifying the notional amount subject to interest
 
rate risk or foreign
currency exchange rate
 
risk that is designated under cash flow hedge accounting.
 
ING Group’s approach to
 
manage market risk, including interest rate
 
risk and foreign currency exchange rate
 
risk,
is discussed in ‘Risk management – Credit risk and Market risk’.
 
ING Group determines the amount of the
exposures to which it applies hedge accounting by assessing the potential impact of changes in interest
 
rates and
foreign currency exchange rates
 
on the future cash flows from its floating-rate assets and liabilities. This
assessment is performed using analytical techniques.
 
 
As noted above for fair value hedges, by using derivative
 
financial instruments to hedge exposures to changes in
interest rates and foreign
 
currency exchange rates, ING Group
 
exposes itself to credit risk of the derivative
counterparty,
 
which is not offset by the hedged items. This exposure is managed similarly to that for fair
 
value
hedges.
 
 
Gains and losses on the effective portions of derivatives designated under cash flow hedge accounting
 
are
recognised in Other Comprehensive Income. Interest cash flows on these derivatives
 
are recognised in the
statement of profit or loss in ‘Net interest
 
income’ consistent with the manner in which the forecasted cash
 
flows
affect net result. The gains and losses on ineffective
 
portions of such derivatives are recognised immediately in
the statement of profit or loss in ‘Valuation results
 
and net trading income’.
 
 
ING Group determines an economic relationship between the cash flows of the hedged item and the hedging
instrument based on an evaluation of the quantitative characteristics
 
of these items and the hedged risk that is
supported by quantitative analysis. ING Group considers whether
 
the critical terms of the hedged item and
hedging instrument closely align when assessing the presence of an economic relationship. ING Group evaluates
whether the cash flows of the hedged item and the hedging instrument respond similarly to the hedged risk, such
as the benchmark interest rate of foreign
 
currency. In addition (for macro
 
FX hedging relationships) a regression
analysis is performed to assess whether the hedging instrument is expected to be and has been highly effective
 
in
offsetting changes in the fair value of the hedged item.
 
 
ING Group uses the following derivative financial instruments in a cash flow hedge accounting
 
relationship:
 
Gross carrying value of derivatives used for cash flow hedge accounting
Assets
Liabilities
Assets
Liabilities
2020
2020
2019
2019
As at 31 December
Hedging instrument on interest rate risk
– Interest rate swaps
2,271
545
2,615
2,848
Hedging instrument on combined interest and FX rate
 
risk
– Cross currency interest rate
 
derivatives
774
21
358
158
 
 
The derivatives used for cash flow hedge accounting are included in the statement
 
of financial position line-item
‘Financial assets at fair value through profit or loss – Non-trading derivatives’
 
EUR
 
1,376 million (2019: EUR
 
677
million) respectively ‘Financial liabilities at fair value through profit or loss – Non-trading derivatives’
 
EUR
 
230
million (2019: EUR
 
339 million). The remaining derivatives are offset with other derivatives
 
and collaterals paid
or received.
 
For the main currencies the average
 
fixed rate for interest
 
rate swaps used in cash flow hedge accounting are
 
-
0.15% (2019: 0.54%) for EUR, 1.74% (2019: 2.38%) for PLN, 2.31% (2019: 2.51%) for USD and 0.82% (2019: 1.50%)
for AUD. The average
 
currency exchange rates
 
for cross currency swaps used in cash flow hedge accounting is for
EUR/USD 0.95 (2019: 1.11) and for EUR/AUD 1.60 (2019: 1.55).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
39
 
Derivatives and hedge accounting
 
ING Group Annual Report 2020 on Form 20-F
F -349
The following table shows the net notional amount of derivatives designated in cash flow hedging split into
 
the
maturity of the instruments. The net notional amounts presented in the table are a combination
 
of payer (+) and
receiver (-) swaps.
Maturity derivatives designated in cash flow hedging
As at 31 December
2020
Less than 1
month
1 to 3
months
3 to 12
months
1 to 2 year
2 to 3 years
3 to
 
4
years
4 to 5 years
>5 years
Total
Hedging instrument
on interest rate risk
– Interest rate swaps
-248
-92
-2,061
-4,896
-1,832
-5,772
-3,466
-19,537
-37,904
Hedging instrument
on combined interest
and FX rate risk
– Cross currency
interest rate
derivatives
-160
-1,666
-2,828
-2,446
-3,493
-1,324
194
-210
-11,934
As at 31 December
2019
Hedging instrument
on interest rate risk
– Interest rate swaps
-401
580
-2,591
-6,512
-5,541
-5,788
-5,364
-23,009
-48,627
– Other interest
derivatives
Hedging instrument
on combined interest
and FX rate risk
– Cross currency
interest rate
derivatives
-1,098
-2,068
-5,044
-2,509
-1,473
3
104
-12,086
 
 
The following table shows the cash flow hedge accounting impact on profit or loss and comprehensive
 
income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
39
 
Derivatives and hedge accounting
 
ING Group Annual Report 2020 on Form 20-F
F -350
Cash flow hedging – impact of hedging instruments on the statement of profit or loss and other comprehensive income
Change in value used for
calculating hedge
ineffectiveness for the
period
Carrying amount
 
cash flow hedge
 
reserve at the end of
 
the reporting period
1
Amount reclassified from
CFH reserve to profit or
loss
Cash flow is no
 
longer expected
 
to occur
Change in value of
hedging instrument
recognised in OCI
Hedge ineffectiveness
recognised in the
statement of profit or
loss, gain (+) / loss (-)
As at 31 December 2020
Interest rate risk on;
– Floating rate lending
-784
1,310
-97
– Floating rate borrowing
136
-306
33
– Other
-107
36
19
– Discontinued hedges
1,037
-236
Total interest
 
rate risk
-755
2,077
-281
830
-6
Combined interest and FX rate risk on;
– Floating rate lending
-26
-35
-256
– Floating rate borrowing
29
-42
-10
– Other
-0
-0
-3
– Discontinued hedges
-26
Total combined interest
 
and Fx
3
-78
-295
263
1
Total cash flow hedge
-753
1,999
-576
1,093
-5
As at 31 December 2019
Interest rate risk on;
– Floating rate lending
-940
1,395
357
– Floating rate borrowing
133
-198
-201
– Other
-211
169
53
– Discontinued hedges
316
-112
Total interest
 
rate risk
-1,018
1,682
97
851
44
Combined interest and FX rate risk on;
– Floating rate lending
-22
-42
-498
– Floating rate borrowing
12
15
-12
-1
– Other
1
-1
-4
– Discontinued hedges
-3
Total combined interest
 
and Fx
-10
-28
-517
-1
475
3
Total cash flow hedge
-1,028
1,654
-420
-1
1,326
47
 
1
 
The carrying amount is the gross amount, excluding tax adjustments.
 
The main sources of ineffectiveness for cash flow hedges are:
 
 
differences in timing of cash flows of the hedged item(s) and hedging instrument(s);
 
 
mismatches in reset frequency between hedged item and hedging instrument.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
39
 
Derivatives and hedge accounting
 
ING Group Annual Report 2020 on Form 20-F
F -351
As a result of interest rate developments
 
in 2019 ING Group de-designated cash flow hedge accounting portfolios
with a total notional value of approximately EUR 25 billion.
 
Hedges of net investments in foreign
 
operations
 
A foreign currency exposure arises from a net investment
 
in subsidiaries that have a different functional currency
from the presentation currency of ING Group. The risk arises from the fluctuation in spot exchange
 
rates
between the functional currency of the subsidiaries and ING Group’s presentation
 
currency, which causes the
amount of the net investment to vary in the consolidated financial statements
 
of ING Group. This risk may have a
significant impact on ING Group’s financial statements.
 
ING Group’s policy is to hedge these exposures only when
not doing so it is expected to have a significant impact on the regulatory capital
 
ratios of ING Group and its
subsidiaries.
 
 
ING Group’s net investment
 
hedges principally consist of derivatives (including currency forwards and swaps)
 
and
non-derivative financial instruments such as foreign currency denominated
 
funding. When the hedging
instrument is foreign currency denominated debt, ING Group
 
assesses effectiveness by comparing past changes
in the carrying amount of the debt that are attributable to a change in the spot rate
 
with past changes in the
investment in the foreign operation
 
due to movement in the spot rate (the offset method).
 
 
Gains and losses on the effective portions of derivatives designated under net investment
 
hedge accounting are
recognised in Other Comprehensive Income.
 
The balance in equity is recognised in the statement of profit or loss
when the related foreign subsidiary is disposed. The gains and losses on ineffective
 
portions are recognised
immediately in the statement of profit or loss.
 
ING Group has the following derivative financial instruments used for
 
net investment hedging;
 
Gross carrying value of derivatives used for net investment hedging
 
Assets
Liabilities
Assets
 
Liabilities
 
2020
2020
2019
2019
As at 31 December
– FX forwards and Cross currency swaps
69
98
23
51
 
 
The derivatives used for net investment
 
hedge accounting are included in the statement of financial position line-
item ‘Financial assets at fair value through profit or loss – Non-trading derivatives’
 
EUR 69 million (2019: EUR 23
million) respectively ‘Financial liabilities at fair value through profit or loss – Non trading derivatives’
 
EUR 98
million (2019: EUR
 
51 million). The remaining derivatives are offset with other derivatives
 
and collaterals paid or
received.
 
For ING Group’s main currencies the average
 
exchange rates used in net investment
 
hedge accounting for 2020
are EUR/USD 1.14 (2019: 1.12), EUR/PLN 4.45 (2019: 4.30), EUR/AUD 1.65 (2019: 1.61) and EUR/THB 35.71
(2019: 34.79).
 
 
The following table shows the notional amount of derivatives designated
 
in net investment hedging split into the
maturity of the instruments:
 
Maturity derivatives designated in net investment hedging
As at 31 December
2020
Less than
1 month
1 to 3
months
3 to 12
months
1 to 2 year
2 to 3
years
3 to
 
4
years
4 to 5
years
>5 years
Total
– FX forwards and
cross currency
swaps
-3,825
-375
-580
-4,780
– Other FX
derivatives
-8
-8
As at 31 December
2019
– FX forwards and
Cross currency
swaps
-3,179
-999
-54
-4,232
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
40
 
Assets by contractual maturity
 
ING Group Annual Report 2020 on Form 20-F
F -352
The effect of the net investment hedge accounting
 
in the statement of profit or loss and other comprehensive
income is as follows:
 
Net investment hedge accounting – Impact on statement
 
of profit or loss and other comprehensive income
As at 31 December 2020
Change in value
used for
calculating
hedge
ineffectiveness
for the period
Carrying amount
net investment
hedge reserve at
the end of the
reporting period
1
Hedged item
affected
statement of
profit or loss
 
Change in value
of hedging
instrument
recognised in
OCI
Hedge
ineffectiveness
recognised in the
statement of
profit or loss,
gain(+) / Loss(-)
Investment in foreign operations
-122
553
-11
121
1
Discontinued hedges
-210
As at 31 December 2019
Investment in foreign operations
134
440
44
-134
0
Discontinued hedges
-210
 
1
 
The carrying amount is the gross amount, excluding tax adjustments.
 
40
 
Assets by contractual maturity
 
Amounts presented in these tables by contractual maturity
 
are the amounts as presented in the statement
 
of
financial position and are discounted cash flows. Reference
 
is made to ‘Risk Management – Funding and liquidity
risk’.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
40
 
Assets by contractual maturity
 
ING Group Annual Report 2020 on Form 20-F
F -353
Assets by contractual maturity
2020
Less than 1 month
 
1
1-3 months
3-12 months
1-5 years
Over 5 years
Maturity not applicable
Total
Cash and balances with central banks
111,087
111,087
Loans and advances to banks
15,786
2,796
3,419
3,093
270
25,364
Financial assets at fair value through profit or loss
–
 
Trading assets
12,100
6,567
9,206
10,206
13,277
51,356
–
 
Non-trading derivatives
495
446
644
1,252
746
3,583
–
 
Mandatorily at fair value through profit or loss
26,854
11,376
3,472
1,153
1,222
228
44,305
–
 
Designated as at fair value through profit or loss
248
26
631
657
2,564
4,126
Financial assets at fair value through other comprehensive income
–
 
Equity securities
1,862
1,862
–
 
Debt securities
841
985
5,175
11,576
14,400
32,977
–
 
Loans and advances
32
34
73
407
509
1,056
Securities at amortised cost
2,104
2,444
3,943
24,298
17,798
50,587
Loans and advances to customers
50,293
19,788
48,261
176,047
299,581
593,970
Other assets
2
3,797
312
1,148
1,934
1,283
5,142
13,617
Total assets
223,636
44,775
75,973
230,625
351,649
7,232
933,891
2019
Cash and balances with central banks
53,202
53,202
Loans and advances to banks
22,820
3,100
5,090
3,729
397
35,136
Financial assets at fair value through profit or loss
–
 
Trading assets
12,754
6,589
8,469
8,240
13,203
49,254
–
 
Non-trading derivatives
110
161
215
998
773
2,257
–
 
Mandatorily at fair value through profit or loss
22,645
13,784
2,357
1,010
1,645
159
41,600
–
 
Designated as at fair value through profit or loss
259
126
1,004
442
1,245
3,076
Financial assets at fair value through other comprehensive income
–
 
Equity securities
2,306
2,306
–
 
Debt securities
216
175
1,146
14,528
14,419
30,483
–
 
Loans and advances
26
36
202
627
788
1,680
Securities at amortised cost
1,005
916
5,930
24,556
13,701
46,108
Loans and advances to customers
55,138
18,586
45,871
180,972
307,462
608,029
Other assets
4,618
369
1,176
1,683
1,251
6,292
15,389
Total assets
172,793
43,842
71,460
236,784
354,885
8,756
888,520
 
1 Includes assets on demand.
2 Includes other financial
 
assets such as assets held for sale, current and deferred tax assets as presented in the consolidated statement
 
of the financial position. Additionally, non-financial assets are included in that position where maturities are not applicable as property and equipment
and investments in associates and joint ventures. Due to their nature non-financial assets consist mainly of assets expected to be recovered
 
after more than 12 months
 
 
 
 
 
 
 
>
 
41
 
Liabilities and off-balance sheet commitments by maturity
 
ING Group Annual Report 2020 on Form 20-F
F -354
41
 
Liabilities and off-balance sheet commitments by maturity
The tables below include all liabilities and off-balance sheet commitments by maturity based on contractual,
undiscounted cash flows. These balances are included in the maturity analysis as follows:
 
 
Perpetual liabilities are included in column ‘Maturity not applicable’.
 
 
Derivative liabilities are included on a net basis if cash flows are settled net. For other derivative
liabilities the contractual gross cash flow payable is included.
 
 
Undiscounted future coupon interest on financial liabilities payable
 
is included in a separate line and in
the relevant maturity bucket.
 
 
 
Non-financial liabilities are included based on a breakdown of the amounts per statement
 
of financial
position, per expected maturity.
 
 
Loans and other credit-related commitments are classified on the basis of the earliest date they
 
can be
drawn down.
 
ING Group’s expected
 
cash flows on some financial liabilities vary significantly from contractual cash flows.
Principal differences are in demand deposits from customers that
 
are expected to remain stable or increase and
in unrecognised loan commitments that are not all expected to be drawn
 
down immediately. Reference
 
is made
to the liquidity risk paragraph in ‘Risk Management – Funding and liquidity risk’ for a description on how liquidity
risk is managed.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
41
 
Liabilities and off-balance sheet commitments by maturity
 
ING Group Annual Report 2020 on Form 20-F
F -355
Liabilities and off-balance sheet commitments by maturity
2020
Less than 1 month
 
1
1–3 months
3–12 months
1–5 years
Over 5 years
Maturity not
applicable
Adjustment
 
2
Total
Deposits from banks
11,080
537
772
64,147
1,722
-161
78,098
Customer deposits
587,137
9,662
8,208
2,169
2,207
134
609,517
Financial liabilities at fair value through profit or loss
–
 
Other trading liabilities
4,940
1,197
204
268
323
39
6,972
–
 
Trading derivatives
2,179
2,297
4,250
9,589
7,794
-373
25,737
–
 
Non-trading derivatives
283
178
204
468
454
41
1,629
–
 
Designated at fair value through profit or loss
32,540
8,506
1,330
2,181
3,247
11
631
48,444
Debt securities in issue
5,144
8,428
13,441
25,752
25,430
3,868
82,065
Subordinated loans
661
8,815
5,670
659
15,805
Lease liabilities
17
42
166
611
520
-18
1,339
Financial liabilities
643,321
30,848
28,576
105,846
50,512
5,680
4,821
869,605
Other liabilities
 
3
6,830
568
2,681
765
802
11,646
Total liabilities
650,150
31,416
31,257
106,611
51,315
5,680
4,821
881,250
Coupon interest due on financial liabilities
229
490
1,155
3,732
3,249
292
9,147
Contingent liabilities in respect of
–
 
Discounted bills
–
 
Guarantees
 
22,836
550
23,386
–
 
Irrevocable letters of credit
14,016
14,016
–
 
other
50
47
97
Guarantees issued by ING Groep N.V.
292
292
Irrevocable facilities
124,991
0
124,991
162,186
0
47
550
162,782
 
1
 
Includes liabilities on demand.
2
 
This column reconciles the contractual undiscounted cash flows on financial liabilities to the statement of financial position values. The adjustments mainly relate to
 
the impact of discounting and fair value hedge adjustments,
 
and for derivatives, to the fact that the contractual cash flows
are presented on a gross basis (unless the cash flows are actually settled net).
3
 
Includes Other liabilities, Current and deferred tax liabilities, and Provisions as presented in the Consolidated statement of financial position.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
41
 
Liabilities and off-balance sheet commitments by maturity
 
ING Group Annual Report 2020 on Form 20-F
F -356
Liabilities and off-balance sheet commitments by maturity
2019
Less than 1 month
 
1
1–3 month
3–12 months
1–5 years
Over 5 years
Maturity not applicable
Adjustment
 
2
Total
Deposits from banks
9,903
847
12,011
10,280
1,965
-180
34,826
Customer deposits
540,544
13,892
13,784
3,646
2,381
108
574,355
Financial liabilities at fair value through profit or loss
–
 
Other trading liabilities
4,666
646
436
568
333
68
6,717
–
 
Trading derivatives
1,589
1,492
3,312
7,771
7,011
151
21,325
–
 
Non-trading derivatives
379
91
152
616
440
539
2,215
–
 
Designated at fair value through profit or loss
27,048
10,467
1,885
2,938
5,089
7
251
47,684
Debt securities in issue
2,616
13,278
35,915
36,895
26,592
3,231
118,528
Subordinated loans
1,780
7,455
6,941
411
16,588
Lease liabilities
16
39
161
668
643
-21
1,507
Financial liabilities
586,762
40,753
67,656
65,160
51,909
6,948
4,557
823,745
Other liabilities
 
3
7,916
820
2,361
728
1,061
12,886
Total liabilities
594,677
41,573
70,017
65,888
52,970
6,948
4,557
836,631
Coupon interest due on financial liabilities
574
692
1,482
5,790
4,355
379
13,271
Contingent liabilities in respect of
4
–
 
Discounted bills
–
 
Guarantees
 
26,952
550
27,502
–
 
Irrevocable letters of credit
16,340
16,340
–
 
other
57
75
131
Guarantees issued by ING Groep N.V.
319
319
Irrevocable facilities
120,002
120,002
163,670
75
550
164,296
 
1
 
Includes liabilities on demand.
2
 
This column reconciles the contractual undiscounted cash flows on financial liabilities to the statement of financial position values. The adjustments mainly relate to
 
the impact of discounting and fair value hedge adjustments,
 
and for derivatives, to the fact that the contractual cash flows
are presented on a gross basis (unless the cash flows are actually settled net).
3
 
Includes Other liabilities, Current and deferred tax liabilities, and Provisions as presented in the Consolidated statement of financial position.
4 The prior period has been updated to improve consistency and comparability of the amounts per maturity of contingent liabilities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
42
 
Transfer
 
of financial assets, assets pledged and received as collateral
 
ING Group Annual Report 2020 on Form 20-F
F -357
42
 
Transfer of financial assets, assets pledged and received as collateral
 
Financial assets pledged
 
as collateral
The financial assets pledged as collateral consist primarily of Loans and advances to customers
 
pledged to secure
Debt securities in issue, deposits from the Dutch Central Bank and other banks, as well as debt securities used in
securities lending or sale and repurchase transactions. They serve to secure margin accounts and are
 
used for
other purposes required by law. Pledges are
 
generally conducted under terms that are usual and customary for
collateralised transactions including standard
 
sale and repurchase agreements, securities lending and borrowing
and derivatives margining. The financial assets pledged are as follows:
 
Financial assets pledged as collateral
2020
2019
Banks
–
 
Cash and balances with central banks
1,377
1,382
–
 
Loans and advances to banks
3,833
6,337
Financial assets at fair value through profit or loss
14,772
16,350
Financial assets at fair value through OCI
2,377
440
Securities at amortised cost
7,023
1,118
Loans and advances to customers
115,194
75,755
Other assets
761
908
145,338
102,290
 
 
In addition, in some jurisdictions ING Bank N.V.
 
has an obligation to maintain a reserve with central banks. As at
31 December 2020, the minimum mandatory reserve deposits with various central banks amount to EUR 10,573
million (2019: EUR 9,975 million).
 
 
Loans and advances to customers that have been pledged as collateral
 
for Debt securities in issue and for
liquidity purposes, amount in The Netherlands to EUR 67,067 million (2019: EUR 45,530 million), in Germany to
EUR 12,512 million (2019: EUR 13,222 million), in Belgium EUR 23,060 million (2019: EUR 11,298 million), in
Australia to EUR 5,572 million (2019: EUR 4,150 million) and in the United States to EUR 1,742 million (2019: EUR
1,010 million) and the remaining amount in other countries.
 
 
Financial assets received as collateral
The financial assets received as collateral that can be sold or repledged in absence of default
 
by the owner of the
collateral consists of securities obtained through reverse
 
repurchase transactions and securities borrowing
transactions.
 
These transactions are generally conducted under standard
 
market terms for most repurchase
 
transactions and
the recipient of the collateral has unrestricted
 
right to sell or repledge it, provided that the collateral
 
(or
equivalent collateral) is returned to the counterparty
 
at term.
 
Financial assets received as collateral
2020
2019
Total received
 
collateral available for sale or repledge
 
at fair value
–
 
equity securities
20,018
17,919
–
 
debt securities
79,670
94,772
of which sold or repledged at fair value
–
 
equity securities
16,365
15,654
–
 
debt securities
60,384
67,194
 
 
Transfer
 
of financial assets
The majority of ING's financial assets that have been transferred, but do not qualify for derecognition
 
are debt
instruments used in securities lending or sale and repurchase transactions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
43
 
Offsetting financial assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -358
Transfer of financial assets not qualifying for
 
derecognition
 
Securities lending
Sale and repurchase
Equity
Debt
Equity
Debt
2020
2019
2020
2019
2020
2019
2020
2019
Transferred
 
assets at carrying amount
Financial assets at fair value through profit or loss
3,151
2,542
1,974
2,078
1,682
8,619
9,538
Financial assets at fair value through other
comprehensive income
56
193
2,120
6
Loans and advances to customers
Securities at amortised cost
470
195
6,281
734
Associated liabilities at carrying amount
1
Deposits from banks
n/a
n/a
n/a
n/a
0
0
0
0
Customer deposits
n/a
n/a
n/a
n/a
0
0
0
0
Financial liabilities at fair value through profit or loss
n/a
n/a
n/a
n/a
2,018
1,619
4,190
3,805
 
1
 
The table includes the associated liabilities which are reported after offsetting, compared to the gross positions of the encumbered
assets.
 
 
The table above does not include assets transferred to consolidated
 
securitisation entities as the related assets
remain recognised in the consolidated statement
 
of financial position.
 
Transferred
 
financial assets that are derecognised in their entirety are mentioned in note
 
48 Structured Entities.
 
 
43
 
Offsetting financial assets and liabilities
The following tables include information about rights to offset
 
and the related arrangements. The amounts
included consist of all recognised financial instruments that are presented
 
net in the statement of financial
position under the IFRS netting criteria (legal right to offset and intention
 
to net settle or to realise the asset and
settle the liability simultaneously) and amounts presented gross in the statement
 
of financial position but subject
to enforceable
 
master netting arrangements or similar arrangement
 
s.
 
At ING Group amounts that are offset mainly relate
 
to derivatives transactions,
 
sale and repurchase agreements,
securities lending agreements and cash pooling arrangements. A significant portion of offsetting
 
is applied to OTC
derivatives which are cleared through central clearing parties.
 
Related amounts not set off in the statement
 
of financial position include transactions where:
◾
 
The counterparty has an offsetting exposure and a master
 
netting or similar arrangement is in place with
a right to set off only in the event of default, insolvency or bankruptcy,
 
or the offsetting criteria are
otherwise not satisfied, and
◾
 
In the case of derivatives and securities lending or sale and repurchase agreements,
 
cash and non-cash
collateral has been received or pledged to cover
 
net exposure in the event of a default or other
predetermined events.
 
The effect of over-collateralisation
 
is excluded.
 
 
The net amounts resulting after setoff are not intended to
 
represent ING’s actual exposure
 
to counterparty risk,
as risk management employs a number of credit risk mitigation strategies in addition to
 
netting and collateral
arrangements. Reference
 
is made to the Risk Management section on Credit risk.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
43
 
Offsetting financial assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -359
Financial assets subject to offsetting, enforceable master netting arrangements
 
and similar agreements
2020
Gross amounts of
recognised financial
assets
Gross amounts of
recognised financial
liabilities offset in the
statement of financial
position
Net amounts of
financial assets
presented in the
statement of financial
position
Related amounts not offset
 
in the statement of financial position
Net amount
Amounts not subject
to enforceable
netting
arrangements
Statement of
financial position
total
1
Financial instruments
Cash and financial
instruments received
as collateral
Statement of financial position
 
line item
Financial instrument
Loans and advances to banks
Reverse repurchase, securities
 
borrowing and similar agreements
1,911
0
1,911
0
1,907
4
2,958
4,869
Cash pools
2
2
-2
0
0
0
0
0
1,913
-2
1,911
0
1,907
4
2,958
4,869
Financial assets at fair value through profit or loss
Trading and Non-trading
Reverse repurchase, securities
borrowing and similar agreements
48,487
-14,823
33,664
245
33,343
77
19,018
52,682
Trading and Non-trading
Derivatives
73,142
-52,561
20,581
12,520
5,350
2,710
10,240
30,821
121,629
-67,384
54,245
12,765
38,693
2,787
29,258
83,503
Loans and advances to customers
Reverse repurchase, securities
borrowing and similar agreements
2,845
-2,359
486
0
486
0
138
624
Cash pools
3
168,461
-165,815
2,646
1,729
628
289
2,646
171,306
-168,174
3,132
1,729
1,113
289
138
3,270
Other items where offsetting is applied in the
statement of financial position
4
8,558
-7,752
806
10
0
796
806
Total financial assets
303,406
-243,312
60,095
14,505
41,714
3,876
32,354
92,449
 
 
1
 
‘The statement of financial position total’ is the sum of ‘Net amounts of financial assets presented in the statement of financial position’
and ’Amounts
 
not subject to enforceable master netting arrangements’.
2
 
At 31 December 2020, the total amount of ‘Loans and advances to banks’ excluding repurchase agreements is EUR 20,495 million which is
not subject to offsetting.
3
 
At 31 December 2020, the total amount of ‘Loans and advances to customers’ excluding repurchase agreements is EUR 593,345 million of
which EUR 2,646 million is subject to offsetting.
4
 
Other items mainly include amounts to be settled with Central Clearing Counterparties regarding securities and derivatives transactions
and is included in ‘Other Assets – Amounts to be settled’ for EUR 2,215 million in the statement of financial position of which EUR 806
million is subject to offsetting as at 31 December 2020.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
43
 
Offsetting financial assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -360
Financial assets subject to offsetting, enforceable master netting arrangements
 
and similar agreements
2019
Gross amounts of
 
recognised financial
assets
Gross amounts of
recognised financial
liabilities offset in the
statement of financial
 
position
Net amounts of
financial assets
presented in the
statement of financial
 
position
Related amounts not offset
 
in the statement of financial position
Net amount
Amounts not subject
to enforceable
netting
arrangements
Statement of
financial position
total
1
Financial instruments
Cash and financial
instruments received
as collateral
Statement of financial position line item
Financial instrument
Loans and advances to banks
Reverse repurchase, securities
borrowing and similar agreements
868
868
21
738
109
8,075
8,943
868
868
21
738
109
8,075
8,943
Financial assets at fair value through profit or loss
Trading and non-trading
 
Reverse repurchase, securities
borrowing and similar agreements
57,328
-20,545
36,783
50
36,553
181
14,171
50,954
Trading and non-trading
 
Derivatives
74,454
-57,172
17,282
10,510
3,968
2,805
6,669
23,951
131,782
-77,717
54,066
10,559
40,520
2,986
20,839
74,905
Loans and advances to customers
Reverse repurchase, securities
borrowing and similar agreements
180
180
Cash pools
2
169,313
-166,624
2,689
1,422
813
454
2,689
169,313
-166,624
2,689
1,422
813
454
180
2,869
Other items where offsetting is applied in the
statement of financial position
3
9,787
-9,423
364
15
349
364
Total financial assets
311,750
-253,764
57,986
12,016
42,072
3,898
29,094
87,080
 
1
 
‘The statement of financial position total’ is the sum of ‘Net amounts of financial assets presented in the statement of financial position’ and ’Amounts
 
not subject to enforceable master netting arrangements’.
2
 
At 31 December 2019, the total amount of ‘Loans and advances to customers’ excluding repurchase agreements is EUR 607,849 million of which EUR 2,689 million is subject to offsetting.
3
 
Other items mainly include amounts to be settled with Central Clearing Counterparties regarding securities and derivatives transactions and is included in ‘Other Assets – Amounts to be settled’ for EUR 2,835 million in the statement
 
of financial position of which EUR 364 million is
subject to offsetting as at 31 December 2019.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
43
 
Offsetting financial assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -361
Financial liabilities subject to offsetting, enforceable master netting arrangements
 
and similar agreements
Related amounts not offset in the statement
of financial position
Amounts not
subject to
enforceable
netting
arrangements
Statement of
financial position
total
 
1
2020
Gross amounts of
recognised financial
liabilities
Gross amounts of
recognised financial
assets offset in the
statement of financial
position
Net amounts of
financial liabilities
presented in the
statement of financial
position
Financial instruments
Cash and financial
instruments pledged
as collateral
Net amount
Statement of financial position line item
Financial instrument
Deposits from banks
Repurchase, securities lending and
similar agreements
167
0
167
0
166
1
1,804
1,971
Cash pools
2
3
-2
2
0
0
2
2
170
-2
169
0
166
3
1,804
1,973
Customer deposits
 
Repurchase, securities lending and
similar agreements
2,354
-2,354
0
0
0
0
0
0
Cash pools
3
184,490
-165,815
18,675
1,702
0
16,973
18,675
186,844
-168,169
18,675
1,702
0
16,973
0
18,675
Financial liabilities at fair value through profit or loss
Trading and Non-trading
Repurchase, securities lending and
similar agreements
53,520
-14,827
38,693
245
38,447
0
8,271
46,964
Trading and Non-trading
Derivatives
73,215
-52,626
20,589
12,521
6,742
1,326
6,777
27,366
126,735
-67,453
59,282
12,766
45,189
1,326
15,048
74,330
Other items where offsetting is applied in the statement of
financial position
4
8,552
-7,687
865
36
0
829
865
Total financial liabilities
322,303
-243,312
78,991
14,505
45,356
19,131
16,852
95,843
 
1
 
‘The statement of financial position total’ is the sum of ‘Net amounts of financial assets presented in the statement of financial position’ and ’Amounts
 
not subject to enforceable master netting arrangements’.
2
 
At 31 December 2020, the total amount of ‘Deposits from banks’ excluding repurchase agreements is EUR 76,127 million of which EUR 2 million is subject to offsetting.
3
 
At 31 December 2020, the total amount of ‘Customers deposits’ excluding repurchase agreements is EUR 609,517 million of which EUR 18,675 million is subject to offsetting.
4
 
Other items mainly include amounts to be settled with Central Clearing Counterparties regarding securities and derivatives transactions and is included in ‘Other Liabilities – Amounts to be settled’ for EUR 4,877 million in the statement
 
of financial position of which EUR 865 million is
subject to offsetting as at 31 December 2020.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
43
 
Offsetting financial assets and liabilities
 
ING Group Annual Report 2020 on Form 20-F
F -362
Financial liabilities subject to offsetting, enforceable master netting arrangements
 
and similar agreements
Related amounts not offset in the statement
of financial position
Amounts not
subject to
enforceable
netting
arrangements
Statement of
financial position
total
 
2
2019
Gross amounts of
 
recognised
 
financial liabilities
Gross amounts of
recognised financial
assets offset in the
statement of financial
position
Net amounts of
financial
 
liabilities presented in
the statement of
financial position
Financial instruments
Cash and financial
instruments pledged
as collateral
1
Net amount
Statement of financial position line item
Financial instrument
Deposits from banks
Repurchase, securities lending and
similar agreements
26
26
26
179
205
26
26
26
179
205
Customer deposits
 
Cash pools
3
181,273
-166,624
14,649
1,419
13,230
14,649
181,273
-166,624
14,649
1,419
13,230
14,649
Financial liabilities at fair value through profit or loss
Trading and Non-trading
Repurchase, securities lending and
similar agreements
56,818
-20,545
36,273
50
35,808
436
6,776
43,049
Trading and Non-trading
Derivatives
76,129
-57,665
18,464
10,511
7,817
137
5,076
23,540
132,946
-78,210
54,737
10,560
43,625
573
11,852
66,589
Other items where offsetting is applied in the statement of
financial position
4
9,200
-8,930
269
11
258
269
Total financial liabilities
323,445
-253,764
69,681
12,016
43,625
14,040
12,031
81,712
 
1
 
The amounts pledged as collateral for ‘Deposits from Banks – Repurchase agreements’ and ‘financial liabilities at fair value through profit or loss –
 
Repurchase agreements’ have been updated to improve consistency and comparability.
2
 
‘The statement of financial position total’ is the sum of ‘Net amounts of financial assets presented in the statement of financial position’ and ’Amounts
 
not subject to enforceable master netting arrangements’.
3
 
At 31 December 2019, the total amount of 'Customer Deposits' excluding repurchase agreements is EUR 574,355 million of which EUR 14,649 million is subject to offsetting.
4
 
Other items mainly include amounts to be settled with Central Clearing Counterparties regarding securities and derivatives transactions and is included in ‘Other Liabilities – Amounts to be settled’ for EUR 4,741 million in the statement
 
of financial position of which EUR 269 million is
subject to offsetting as at 31 December 2019.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
44
 
Contingent liabilities and commitments
 
ING Group Annual Report 2020 on Form 20-F
F -363
44
 
Contingent liabilities and commitments
In the normal course of business, ING Group is party to activities where risks are not reflected in whole or in part
in the consolidated financial statements. In response to the needs of its customers,
 
the Group offers financial
products related to loans. These products include traditional off-balance
 
sheet credit-related financial
instruments.
 
Contingent liabilities and commitments
2020
2019
Contingent liabilities in respect of
–
 
Guarantees
 
23,386
27,502
–
 
Irrevocable letters of credit
14,016
16,340
–
 
other
97
131
37,499
43,974
Guarantees issued by ING Groep N.V.
292
319
Irrevocable facilities
124,991
120,002
162,782
164,296
 
 
Guarantees relate both to credit and
 
non-credit substitute guarantees. Credit substitute
 
guarantees are
guarantees given by ING Group 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.
 
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. ING Group’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 include acceptances of bills and are of a short-term nature.
 
Other contingent liabilities
also include contingent liabilities resulting from the operations of the Real Estate
 
business including obligations
under development and construction contracts. Furthermore other contingent
 
liabilities include a contingent
liability in connection with a possible Dutch tax obligation that relates
 
to the deduction from Dutch taxable profit
for losses incurred by ING Bank in the United Kingdom in previous years. The existence
 
of this obligation will be
confirmed only by the occurrence of future profits in the United
 
Kingdom.
 
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 Group’s
 
credit risk and
interest rate risk in these transactions is limited.
 
The unused portion of irrevocable credit facilities is partly
secured by customers’ assets or counter-guarantees
 
by the central governments and other public sector entities
under the regulatory requirements. Irrevocable facilities
 
also include commitments made to purchase securities
to be issued by governments and private issuers.
 
As at 31 December 2020, ING Groep N.V.
 
guarantees various US dollar debentures (that mature
 
between 2023
and 2036) which were issued by a subsidiary of Voya Financial Inc. In the Shareholder’s agreement
 
between ING
Groep N.V.
 
and Voya Financial Inc. it was agreed that the aggregate
 
outstanding principal amount of the
debentures shall be reduced to nil at 31 December 2019. In accordance with the Shareholder’s agreement, the
net exposure of ING Groep N.V.
 
as at 31 December 2020 was nil, as the outstanding principal amount of the US
dollar debentures was fully covered with collateral
 
of EUR 304 million (2019: EUR 331 million) pledged by Voya
Financial Inc.
 
In addition to the items included in contingent liabilities, ING Group has issued certain guarantees as participant
in collective arrangements of national banking funds and as a participant in required collective guarantee
schemes which apply in different countries. For example,
 
ING Bank N.V.
 
provided a guarantee to the German
Deposit Guarantee Fund (‘Einlagensicherungsfonds’ or ESF) under section 5 (10) of the by-laws
 
of this fund,
where ING Bank N.V.
 
indemnifies the Association of German Banks Berlin against any losses it might incur as
result of actions taken with respect to ING Germany.
 
The ESF is a voluntary collective guarantee scheme for
 
retail
savings and deposits in excess of EUR 100,000.
 
 
 
 
 
 
 
 
>
 
45
 
Legal proceedings
 
ING Group Annual Report 2020 on Form 20-F
F -364
45
 
Legal proceedings
 
 
ING Group and its consolidated subsidiaries are involved in governmental,
 
regulatory, arbitration
 
and legal
proceedings and investigations in the Netherlands and in a number of foreign jurisdictions,
 
including the U.S.,
involving claims by and against them which arise in the ordinary course of their businesses, including in
connection with their activities as lenders, broker-dealers, underwriters,
 
issuers of securities and investors and
their position as employers and taxpayers. In certain
 
of such proceedings, very 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 governmental, regulatory,
 
arbitration and legal proceedings and
investigations, ING is of the opinion that some of the proceedings and investigations
 
set out below may have or
have in the recent past had a significant effect
 
on the financial position, profitability or reputation of ING and/or
ING and its consolidated subsidiaries.
 
Settlement agreement
: On 4 September 2018, ING announced that it had entered into a settlement agreement
with the Dutch Public Prosecution Service relating to previously disclosed investigations
 
regarding various
requirements for client on-boarding and the prevention
 
of money laundering and corrupt practices. Following
the entry into the settlement agreement, ING has experienced heightened scrutiny
 
from authorities in various
countries. ING is also aware, including as a result of media reports, that other parties may,
 
among other things,
seek to commence legal proceedings against ING in connection with the subject matter
 
of the settlement, have
filed or may file requests for disciplinary proceedings against ING employees based on the Dutch
 
“Banker’s oath”,
and/or have filed requests with the Court of Appeal in The Netherlands to reconsider the prosecutor’s
 
decision to
enter into the settlement agreement with ING and not to prosecute
 
ING or (former) ING employees. In December
2020, the Court of Appeal issued its final ruling. In this ruling the prosecutors' decision to enter into the
settlement agreement with ING was upheld, making the settlement final. However,
 
in a separate ruling, the
Court ordered the prosecution of ING’s former
 
CEO.
 
Findings regarding AML processes
: As previously disclosed, after its September 2018 settlement with Dutch
authorities concerning anti-money laundering matters, and in the context
 
of significantly increased attention on
the prevention of financial economic crime, ING has experienced heightened scrutiny by authorities in various
countries. The interactions with such regulatory and judicial authorities have included, and can
 
be expected to
continue to include, onsite visits, information requests, investigations
 
and other enquiries. Such interactions, as
well as ING’s internal assessments in connection with its global enhancement programme,
 
have in some cases
resulted in satisfactory outcomes, and also have resulted
 
in, and may continue to result in, findings, or other
conclusions which may require appropriate remedial actions by ING, or may
 
have other consequences. ING
intends to continue to work in close cooperation with authorities as it seeks to
 
improve its management of non-
financial risks in terms of policies, tooling, monitoring, governance, knowledge and behaviour.
 
Also as previously disclosed in March 2019, ING Italy was informed by the Banca d’Italia of their report containing
their conclusions regarding shortcomings in AML processes at ING Italy,
 
which was prepared based on an
inspection conducted from October 2018 until January 2019. ING Italy has been engaged in discussions with
Banca d’Italia and Italian judiciary authorities. In February 2020, the Court of Milan confirmed and approved a
plea bargain agreement with the Italian judiciary authorities. As a consequence, ING Italy has paid an
administrative fine and disgorgement of profit. In addition, in February 2020 the Banca d’Italia
 
imposed an
administrative fine on ING Italy.
 
Both amounts were already provisioned for in 2019.
 
In September 2020, the Banca d’Italia announced that the ban on onboarding new customers at ING Italy,
imposed in March 2019 has been removed. The decision follows the comprehensive steps
 
undertaken by ING
Italy to strengthen its processes and management of KYC
 
compliance risks.
 
ING continues to take steps to
 
enhance its management of compliance risks and embed stronger awareness
across the whole organisation. These steps are part of the global KYC
 
programme and set of initiatives, which
includes enhancing KYC files and working on various structural improvements
 
in compliance policies, tooling,
monitoring, governance, knowledge and behaviour.
 
Tax cases
: Because of the geographic spread of its business, the Issuer may be subject to tax audits,
investigations and procedures in numerous
 
jurisdictions at any point in time. Although the Issuer believes that it
has adequately provided for all its tax positions, the ultimate resolution of these audits, investigations
 
and
procedures is uncertain and may result in liabilities which are materially different
 
from the amounts recognised.
 
 
 
 
 
 
 
 
>
 
45
 
Legal proceedings
 
ING Group Annual Report 2020 on Form 20-F
F -365
Litigation regarding products of a former subsidiary in Mexico
: Proceedings in which ING is involved include
complaints and lawsuits concerning the performance of certain interest
 
sensitive products that were sold by a
former subsidiary of ING in Mexico. A provision has been taken in the past.
 
SIBOR – SOR litigation:
 
In July 2016, investors in derivatives tied to the Singapore
 
Interbank Offer Rate (“SIBOR”)
filed a U.S. class action complaint in the New York
 
District Court alleging that several banks, including ING,
conspired to rig the prices of derivatives tied to SIBOR and the Singapore Swap
 
Offer Rate (“SOR”). The lawsuit
refers to investigations
 
by the Monetary Authority of Singapore (“MAS”) and other regulators, including the U.S.
Commodity Futures Trading Commission (“CFTC”), in relation to rigging
 
prices of SIBOR- and SOR based
derivatives. In October 2018, the New York
 
District Court issued a decision dismissing all claims against ING
Group and ING Capital Markets LLC, but leaving ING Bank, together
 
with several other banks, in the case, and
directing plaintiffs to file an amended complaint consistent
 
with the Court's rulings. In October 2018, plaintiffs
filed such amended complaint, which asserts claims against a number of defendants but none against
 
ING Bank
(or any other ING entity), effectively dismissing ING Bank from the case. In December 2018, plaintiffs sought
permission from the Court to file a further amended complaint that names ING Bank as a defendant. In July 2019,
the New York District Court granted
 
the defendants’ motion to dismiss and denied leave to further amend the
complaint, effectively dismissing all remaining claims against ING Bank. In November 2019,
 
plaintiffs filed an
appeal against this judgment.
 
Claims regarding accounts with predecessors of ING Bank Turkey:
 
ING Bank Turkey has received
 
numerous
claims from (former) customers of legal predecessors
 
of ING Bank Turkey.
 
The claims are based on offshore
accounts held with these banks, which banks were seized by the Savings Deposit Insurance Fund (“SDIF”) prior to
the acquisition of ING Bank Turkey
 
in 2007 from OYAK.
 
SDIF has also filed various lawsuits against ING Bank
Turkey
 
to claim compensation from ING Bank Turkey,
 
with respect to amounts paid out to offshore account
holders so far.
 
At this moment it is not possible to assess the outcome of these procedures nor to provide an
estimate of the (potential) financial effect of these claims.
 
Interest rate derivatives
 
claims
: ING is involved in several legal proceedings in the Netherlands with respect
 
to
interest rate derivatives
 
that were sold to clients in connection with floating interest
 
rate loans in order to hedge
the interest rate risk of the loans. These proceedings are based on several
 
legal grounds, depending on the facts
and circumstances of each specific case, inter alia alleged breach of duty of care, insufficient information
provided to the clients on the product and its risks and other elements related to the interest
 
rate derivatives
that were sold to clients. In some cases, the court has ruled in favour of the claimants and awarded
 
damages,
annulled the interest rate derivative
 
or ordered repayment of certain amounts to the claimants.
 
The total
amounts that need to be repaid or compensated in some cases still need to be determined. ING may
 
decide to
appeal against adverse rulings. Although the outcome of the pending litigation and similar cases that may
 
be
brought in the future is uncertain, it is possible that the courts may ultimately rule in favour
 
of the claimants in
some or all of such cases. Where appropriate a provision has been taken.
 
The aggregate financial impact of the
current and future litigation could become material.
 
As requested by the AFM, ING has reviewed a significant part of the files of clients who bought interest
 
rate
derivatives. In December 2015, the AFM concluded that Dutch banks may have
 
to re-assess certain client files,
potentially including certain derivative contracts
 
that were terminated prior to April 2014 or other client files. As
advised by the AFM, the Minister of Finance appointed a Committee of independent experts (the “Committee”)
which has established a uniform recovery framework
 
for Dutch SME clients with interest rate
 
derivatives. ING has
adopted this recovery framework and has reassessed individual files against this
 
framework. ING has taken an
additional provision for the financial consequences of the recovery framework.
 
In 2017, ING has informed the
majority of the relevant clients whether they are in scope of the recovery framework,
 
and thus eligible for
compensation, or not. Because implementation by ING of the uniform recovery framework
 
encountered delay,
ING has previously offered advance payments to
 
customers out of the existing provision. As of December 2018,
all customers in scope of the uniform recovery framework
 
have received an offer of compensation from
 
ING
(including offers of no compensation). In June 2020, the independent derivative dispute
 
committee rejected all
claims by the client against ING in ING’s
 
last open file under the uniform recovery framework. The last open file
has been closed at the end of June 2020.
 
 
 
 
 
 
 
 
>
 
45
 
Legal proceedings
 
ING Group Annual Report 2020 on Form 20-F
F -366
Interest surcharges claims:
 
ING received complaints and was involved in litigation
 
with certain individuals in the
Netherlands regarding increases in interest
 
surcharges with respect to several credit
 
products, including but not
limited to commercial property.
 
ING has reviewed the relevant product portfolio.
 
The provision previously taken
has been reversed for certain of these complaints. All claims are dealt with individually.
 
Thus far,
 
the courts have
ruled in favour of ING in each case, ruling that ING was allowed to increase the interest
 
surcharge based upon the
essential obligations in the contract. In a relevant
 
case the Dutch Supreme Court ruled in favor of another Dutch
bank, addressing the question whether or not a bank is allowed to increase interest surcharges
 
unilaterally.
 
The
Supreme Court ruled affirmative. ING will continue to deal with all claims individually.
 
Criminal proceedings regarding cash company financing:
 
In June 2017, a Belgian criminal court ruled that ING
Luxembourg assisted third parties in 2000 to commit a tax
 
fraud in the context of the purchase of the shares of a
cash company.
 
The court convicted ING Luxembourg, among others, and ordered
 
ING to pay a penal fine of EUR
120,000 (suspended for half of the total amount). The court also ordered ING Luxembourg jointly
 
and severally
with other parties, to pay EUR 31.48 million (together with any interest payable
 
under applicable law) to the
bankruptcy trustee of the cash company.
 
In July 2017, ING Luxembourg filed an appeal against this judgment. A
settlement with all the civil parties involved was reached in mid-2018. However,
 
this settlement does not apply
to the criminal conviction of ING Luxembourg. In January 2020, the Court of Appeal of Antwerp reformed
 
the first
judgment: ING Luxemburg benefitted from
 
an "opschorting van de uitspraak/suspension du prononcé" which
means that the conviction has been upheld, but no penal sanction has been pronounced (penalties suspended).
The judgment is now final.
 
 
Mortgage expenses claims
: ING Spain has received claims and is involved in procedures with customers
regarding reimbursement of expenses associated
 
with the formalisation of mortgages. In most court proceedings
in first instance the expense clause of the relevant
 
mortgage contract has been declared null and ING Spain has
been ordered to reimburse all or part of the applicable expenses. The courts in first
 
instance have applied in their
rulings different criteria regarding
 
the reimbursement of expenses. A provision has been taken
 
and ING Spain has
filed an appeal against a number of these court decisions. Since 2018, the Spanish Supreme Court and the
European Court of Justice have issued rulings setting out which party should bear notary,
 
registration, agency,
and stamp duty costs. In January 2021, the Spanish Supreme Court ruled that valuation costs of mortgages,
signed prior to June 16, 2019, the date the new mortgage law entered into
 
force, should be borne by the bank.
The impact on ING was analysed and the provision mentioned above was adjusted. ING Spain has also been
included, together with other Spanish banks, in three class actions filed by customer associations. In one of the
class actions an agreement was reached with the association. In another class action ING filed an appeal asking
the Spanish Court of Appeal to determine that the ruling of the court of first instance is only applicable to the
consumers that were part of the case.
 
Imtech claim:
 
In January 2018, ING Bank received a claim from Stichting ImtechClaim.nl and Imtech Shareholders
Action Group B.V.
 
on behalf of certain (former) shareholders of Imtech N.V.
 
(“Imtech”). Furthermore, on 28
March 2018, ING Bank received another claim on the same subject matter from the Dutch Association of
Stockholders (Vereniging van
 
Effectenbezitters,
 
“VEB”). Each of the claimants allege inter alia that shareholders
were misled by the prospectus of the rights issues of Imtech in July 2013 and October 2014. ING Bank, being one
of the underwriters of the rights issues, is held liable by the claimants for the damages that investors
 
in Imtech
would have suffered. ING Bank responded to
 
the claimants denying any and all responsibility in relation to the
allegations made in the relevant letters.
 
In September 2018, the trustees in the bankruptcy of Imtech claimed
from various financing parties, including ING, payment of what the security agent has collected following
bankruptcy or intends to collect, repayment of all that was
 
repaid to the financing parties, as well as
compensation for the repayment of the bridge financing. At this moment it is not possible to assess the outcome
of these claims nor to provide an estimate of the (potential) effect
 
of these claims.
 
 
 
 
 
 
 
 
>
 
46
 
Consolidated companies and businesses acquired and divested
 
ING Group Annual Report 2020 on Form 20-F
F -367
Mexican Government Bond litigation:
 
A class action complaint was filed adding ING Bank N.V.,
 
ING Groep N.V.,
ING Bank Mexico S.A. and ING Financial Markets LLC (“ING”) as defendants to a complaint
 
that had previously
been filed against multiple other financial institutions. The complaint alleges that the defendants conspired
 
to fix
the prices of Mexican Government Bonds. ING is defending itself against the allegations.
 
Currently, it
 
is not
possible to provide an estimate of the (potential) financial effect
 
of this claim. On 30 September 2019, the
relevant court dismissed the antitrust complaint, finding that the plaintiffs
 
had failed to identify any facts that
links each defendant to the alleged conspiracy.
 
On 9 December 2019, the plaintiffs filed an amended complaint
removing all ING entities as defendants on the condition that the ING entities enter into
 
a tolling agreement for
the duration of two years. The relevant
 
ING entities subsequently entered into a tolling agreement,
 
which
provides that the statute of limitations will not be tolled
 
for the two-year duration of the agreement. Should the
plaintiffs discover any evidence of potential involvement
 
by ING in the activities alleged in the complaint, ING
could be brought back into the litigation.
 
46
 
Consolidated companies and businesses acquired and divested
Acquisitions
 
There were no significant acquisitions in 2020.
 
In May 2019 ING acquired 80% of the shares of Intersoftware Group
 
B.V.,
 
Findata Access B.V.
 
and Unitrust B.V.
(ISW Group) for a total consideration of EUR 18 million. The acquisition of ISW Group resulted
 
in the recognition
of goodwill of EUR 17 million.
 
 
In 2018 ING Bank obtained control over Payvision Holding B.V.
 
(Payvision) by acquiring 75% of its shares. The
share purchase agreement included a put option exercisable
 
by the original shareholders and a call option
exercisable by ING for the remaining 25% shares. The put and call option led to
 
the recognition of a financial
liability with initial recognition through shareholders’ equity of EUR 87 million. In November 2019 ING Bank
agreed to purchase the remaining 25% shares in three tranches between November
 
2019 and April 2020 for a
total consideration of EUR 90 million. This resulted in the remeasurement
 
of the financial liability to EUR 90
million. A stake of 23% was purchased in 2019 which reduced the outstanding financial liability and on 30 April
2020 ING purchased the remaining stake of 2%. As at 31 December 2020 the ownership interest
 
of ING Bank was
100%. Given that ING Bank already had control over Payvision, the
 
acquisition of the shares in 2020 represents a
shareholder transaction and resulted in a transfer between
 
Non-controlling interest and Shareholders
 
equity of
EUR 1 million.
 
 
Divestments
There were no significant divestments in 2020
 
In July 2019 ING completed the sale of part of the ING Lease Italy business. The settlement price amounted to
EUR 1,162 million, consisted of a EUR 368 million cash settlement, a EUR 20 million Deferred Purchase Price and
a EUR 774 million Senior Loan facility for the portfolio of lease receivables. The deferred
 
purchase price is linked
to the performance of the sold portfolio and is reported under the financial assets mandatorily measured at
 
fair
value through profit and loss. The additional loss in 2019 amounted EUR -2 million (2018: EUR -123 million). The
Italian lease business was reported as Assets Held for Sale as at 31 December 2018 and previously included in the
business line segment Wholesale Banking and geographical segment Other Challengers.
 
 
Reference is made to Note 24 ‘Result on the disposal of group companies’.
 
47
 
Principal subsidiaries, investments in associates and joint ventures
For the majority of ING’s principal subsidiaries, ING Groep N.V.
 
has control because it either directly or indirectly
owns more than half of the voting power.
 
For subsidiaries in which the interest held is below 50%, control exists
based on the combination of ING’s financial interest
 
and its rights from other contractual arrangements which
result in control over the operating and financial policies of the entity.
 
For each of the subsidiaries listed, the voting rights held equal the proportion of ownership interest
 
and
consolidation by ING is based on the majority of ownership.
 
For the principal investments in associates and joint ventures
 
ING Group has significant influence but not control.
Significant influence generally results from a shareholding of between 20% and 50% of the voting rights, but
 
also
the ability to participate in the financial and operating policies through situations including, but not limited to
one or more of the following:
◾
 
Representation on the board of directors;
◾
 
Participation in the policymaking process; and
◾
 
Interchange of managerial personnel.
 
The principal subsidiaries, investments in associates and joint ventures
 
of ING Groep N.V.
 
and their statutory
place of incorporation or primary place of business are as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
48
 
Structured entities
 
ING Group Annual Report 2020 on Form 20-F
F -368
Principal subsidiaries, investments in associates and joint ventures
Proportion of ownership
and interest held
by the group
2020
2019
Subsidiary
 
Statutory place of Incorporation
Country of operation
ING Bank N.V.
Amsterdam
the Netherlands
100%
100%
Bank Mendes Gans N.V.
Amsterdam
the Netherlands
100%
100%
ING Belgium S.A./N.V.
Brussels
Belgium
100%
100%
ING Luxembourg S.A.
Luxembourg City
Luxembourg
100%
100%
ING-DiBa AG
Frankfurt am Main
Germany
100%
100%
ING Bank Slaski S.A.
1
Katowice
Poland
75%
75%
ING Financial Holdings Corporation
Delaware
United States of America
100%
100%
ING Bank A.S.
Istanbul
Turkey
100%
100%
ING Bank (Australia) Ltd
Sydney
Australia
100%
100%
ING Commercial Finance B.V.
Amsterdam
the Netherlands
100%
100%
ING Groenbank N.V.
Amsterdam
the Netherlands
100%
100%
Investments in associates and joint
ventures
TMB Bank Public Company Ltd
2
Bangkok
Thailand
23%
23%
 
1 The shares of the non-controlling interest stake of 25% are listed
 
on the Warsaw Stock Exchange, for summarised financial information we
refer to ‘Note 35 ‘Information on geographical areas.
2 Reference is made to Note 8 Investments in Associates and Joint Ventures.
 
48
 
Structured entities
ING Group’s activities involve
 
transactions with various structured entities (SE) in the normal course of its
business. A structured entity is an entity that has been designed so that voting or similar rights are not the
dominant factor in deciding who controls the entity,
 
such as when any voting rights relate to administrative
 
tasks
only and the relevant activities are directed by means of contractual
 
arrangements. ING Group’s
 
involvement in
these entities varies and includes both debt financing and equity financing of these entities as well as other
relationships. Based on its accounting policies, as disclosed in the section Principles of valuation and
determination of results of these financial statements, ING establishes whether these involvements
 
result in no
significant influence, significant influence, joint control or control
 
over the structured entity.
 
The structured entities over which ING can exercise control
 
are consolidated. ING may provide support to these
consolidated structured entities as and when appropriate. However,
 
this is fully reflected in the consolidated
financial statements of ING Group as all assets and liabilities of these entities are included and off-balance
 
sheet
commitments are disclosed.
 
ING’s activities involving structured
 
entities are explained below in the following categories:
1.
 
Consolidated ING originated securitisation programmes;
2.
 
Consolidated ING originated Covered bond programme (CBC);
3.
 
Consolidated ING sponsored Securitisation programme (Mont Blanc);
4.
 
Unconsolidated Securitisation programme; and
5.
 
Other structured entities.
 
1. Consolidated ING originated securitisation programmes
 
ING Group enters into liquidity management securitisation programmes
 
in order to obtain funding and improve
liquidity. Within the programme ING Group
 
sells ING originated assets to a structured entity.
 
The underlying
exposures include residential mortgages in the Netherlands, Belgium, Spain, Italy and Australia
 
and SME Loans in
Belgium.
 
The structured entity issues securitised notes (traditional securitisations) which are eligible collateral
 
for central
bank liquidity purposes. In most programmes ING Group acts as investor of the securitised notes. ING Group
continues to consolidate these structured entities if it is deemed to control
 
the entities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
48
 
Structured entities
 
ING Group Annual Report 2020 on Form 20-F
F -369
The structured entity issues securitisation notes in two or more tranches, of which the senior tranche obtains
 
a
high rating (AAA or AA) by a rating agency.
 
The tranche can subsequently be used by ING Group as collateral in
the money market for secured borrowings.
 
ING Group originated various securitisations, as at 31 December 2020, these consisted of approximately
 
EUR 66
billion (2019: EUR 57 billion) of senior and subordinated notes, of which approximately EUR 2 billion (2019: EUR 4
billion) were issued externally.
 
The underlying exposures are residential mortgages and SME loans. Apart from
the third party funding, these securitisations did not impact ING Group’s Consolidated statement
 
of financial
position and profit or loss.
 
 
In 2020, there are no non-controlling interests as part of the securitisation structured
 
entities that are significant
to ING Group. ING Group for the majority of the securitisation vehicles provides the funding for the entity
 
except
for EUR 2 billion (2019: EUR 4 billion).
 
In addition ING Group originated various securitisations for liquidity management optimisation
 
purposes. As at
31 December 2020, these consisted of approximately EUR 2 billion (2019: EUR 3 billion) of senior secured
portfolio loans, which have been issued to ING subsidiaries in Germany.
 
The underlying exposures are senior
loans to large corporations and financial institutions, and real estate
 
finance loans, mainly in the Netherlands.
These securitisations did not impact ING Group’s consolidated
 
statement of financial position and profit or loss.
 
2. Consolidated ING originated Covered bond programme
 
(CBC)
ING Group has entered into a covered bond programme.
 
Under the covered bond programme ING issues bonds.
The payment of interest and principal is guaranteed
 
by the ING administered structured entities, ING Covered
Bond Company B.V.,
 
and ING SB Covered Bond Company B.V.
 
In order for these entities to fulfil their guarantee,
ING legally transfers mainly Dutch
 
mortgage loans originated by ING. Furthermore ING offers
 
protection against
deterioration of the mortgage loans. The entities are consolidated
 
by ING Group.
 
Covered bond programme
Fair value pledged
mortgage loans
2020
2019
Dutch Covered Bond Companies
20,157
24,297
20,157
24,297
 
In addition, subsidiaries of ING in Germany, Belgium and Australia
 
also issued covered bonds with pledged
mortgages loans of approximately EUR 21 billion (2019: EUR 16 billion) in total.
 
In general, the third-party investors in securities issued by
 
the structured entity have recourse only to the assets
of the entity and not to the assets of ING Group.
 
3. Consolidated ING sponsored Securitisation programme (Mont
 
Blanc)
 
In the normal course of business, ING Group structures financing transactions for its clients by assisting
 
them in
obtaining sources of liquidity by selling the clients’ receivables or other financial assets to a Special Purpose
Vehicle (SPV). The senior positions in these transactions may be funded by the ING administered
 
multi seller
Asset Backed Commercial Paper (ABCP) conduit Mont Blanc Capital Corp. (rated
 
A-1/P-1). Mont Blanc Capital
Corp. funds itself externally
 
in the ABCP markets.
 
 
In its role as administrative agent, ING Group facilitates
 
these transactions by acting as administrative agent,
swap counterparty and liquidity provider to Mont Blanc Capital Corp. ING Group also provides
 
support facilities
(i.e. liquidity) backing the transactions funded by the conduit. The types of asset currently in the Mont Blanc
conduit include trade receivables, consumer finance receivables, car leases and residential
 
mortgages.
 
ING Group supports the commercial paper programmes by providing Mont Blanc Capital
 
Corp. with short-term
liquidity facilities. Once drawn these facilities bear normal credit risk.
 
 
The liquidity facilities, provided to Mont Blanc are EUR 2,793 million (2019: EUR 1,631 million). The drawn
liquidity amount is nil as at 31 December 2020 (2019: nil).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
49
 
Related parties
 
ING Group Annual Report 2020 on Form 20-F
F -370
The standby liquidity facilities are reported under irrevocable
 
facilities. All facilities, which vary in risk profile, are
granted to the Mont Blanc Capital Corp. subject to normal ING Group credit and liquidity risk analysis procedures.
The fees received for services provided and for facilities
 
are charged subject to market conditions.
 
4. Unconsolidated Securitisation programme
 
In 2013 ING transferred financial assets (mortgage loans) for
 
an amount of approximately EUR 2 billion to a
special purpose vehicle (SPV). The transaction resulted in full derecognition of the financial assets from ING’s
statement of financial position. Following this transfer
 
ING continues to have two types of on-going involvement
in the transferred assets: as counterparty
 
to the SPE of a non-standard interest rate
 
swap and as servicer of the
transferred assets. ING has an option to unwind the transaction
 
by redeeming all notes at their principal
outstanding amount, in the unlikely event of changes in accounting
 
and/or regulatory requirements that
significantly impact the transaction. The fair value of the swap held by ING at 31 December 2020 amounted
 
to
EUR -34 million (2019: EUR -45 million); fair value changes on this swap recognised in the statement of profit
 
or
loss in 2020 were EUR 11 million (2019: EUR 12 million). Service fee income recognised, for the role as
administrative agent, in the statement
 
of profit or loss in 2020 amounted to EUR 1 million (2019: EUR 2 million).
The cumulative income recognised in profit or loss since derecognition amounts to EUR 16 million (2019: EUR 15
million).
 
5. Other structured entities
 
In the normal course of business, ING Group enters into transactions
 
with structured entities as counterparty.
Predominantly in its structured finance operations, ING can be instrumental
 
in facilitating the creation of these
structured entity counterparties. These entities are generally
 
not included in the consolidated financial
statements of ING Group, as ING facilitates
 
these transactions as administrative agent by providing
 
structuring,
accounting, funding, lending, and operation services.
 
ING Group offers various investment
 
fund products to its clients. ING Group does not invest in these investment
funds for its own account nor acts as the fund manager.
 
 
49
 
Related parties
In the normal course of business, ING Group enters into various transactions
 
with related parties. Parties are
considered to be related if one party has the ability to control or exercise
 
significant influence over the other
party in making financial or operating decisions. Related parties of ING Group include, among others, its
subsidiaries, associates, joint ventures, key
 
management personnel, and various defined benefit and contribution
plans. For post-employment benefit plans, reference is made to
 
Note 36 ‘Pension and other postemployment
benefits’.
 
Transactions between related
 
parties include rendering or receiving of services, leases, transfers under
finance arrangements and provisions of guarantees or collateral.
 
All transactions with related parties took place
at conditions customary in the market. There are no significant provisions
 
for doubtful debts or individually
significant bad debt expenses recognised on outstanding balances with related
 
parties.
 
Subsidiaries
Transactions with ING Groep N.V.'s
 
main subsidiaries
2020
2019
Assets
45,625
44,242
Liabilities
134
163
Income received
1,122
1,103
Expenses paid
9
9
 
 
Transactions between ING Groep
 
N.V.
 
and its subsidiaries are eliminated on consolidation. Reference
 
is made to
Note 47 ‘Principal subsidiaries’ for a list of principal subsidiaries and their statutory place of incorporation.
 
 
Assets from ING’s subsidiaries mainly comprise long-term funding. Liabilities to
 
ING’s subsidiaries mainly
comprise short-term deposits.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
49
 
Related parties
 
ING Group Annual Report 2020 on Form 20-F
F -371
Associates and joint ventures
Transactions with ING Group’s
 
main associates and joint ventures
Associates
Joint ventures
2020
2019
2020
2019
Assets
100
96
0
Liabilities
239
97
1
6
Off-balance sheet commitments
10
29
0
Income received
14
11
 
 
Assets, liabilities, commitments, and income related to Associates and joint
 
ventures result from transactions
which are executed as part of the normal Banking business.
 
Key management personnel compensation
The Executive Board of ING Groep N.V.,
 
the Management Board Banking and the Supervisory Board are
considered Key Management personnel of ING Group. In 2020 and 2019, the three members of the Executive
Board of ING Groep N.V.
 
were also members of the Management Board Banking.
 
Transactions with key
 
management personnel, including their compensation are included in the tables below.
 
 
Key management personnel compensation (Executive Board
 
and Management Board Banking)
2020
in EUR thousands
Executive Board
of ING Groep N.V.
3
Management
Board Banking
1.4
Total
Fixed Compensation
–
 
Base salary
3,609
4,170
7,779
–
 
Collective fixed allowances
 
2
898
1,009
1,907
–
 
Pension costs
58
93
151
–
 
Severance benefits
4
667
667
Variable compensation
–
 
Upfront cash
305
305
–
 
Upfront shares
305
305
–
 
Deferred cash
457
457
–
 
Deferred shares
457
457
–
 
Other emoluments
5
652
814
1,466
Total compensation
5,217
8,277
13,494
 
1 Excluding members of the Management Board Banking that are also members of the Executive Board of ING Groep N.V.
2 The collective fixed allowances consist of two savings allowances applicable to employees in the Netherlands; an individual savings
allowance of 3.5% and a collective savings allowance to compensate for loss of pension benefits with respect to salary in excess of EUR
110,111.
3 In 2020 one member of the Executive Board left ING during the year.
 
The table includes compensation earned in the capacity as board
member.
4 One member of the Management Board Banking left ING at the end of the year. In line with applicable regulation a severance
 
payment
was granted.
5 Other emoluments include reimbursement of costs related to home/work
 
commute, costs relating to tax
 
and financial planning
 
services,
costs associated with a
 
company car and for expats, the costs associated with housing and schooling and costs related to reimbursement of
Directors and Officers indemnity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
49
 
Related parties
 
ING Group Annual Report 2020 on Form 20-F
F -372
Key management personnel compensation (Executive Board
 
and Management Board Banking)
Executive
Board of ING
Groep N.V.
 
3
Management
Board Banking
1,4
Total
2019
in EUR thousands
Fixed Compensation
–
 
Base salary
4,587
3,847
8,434
–
 
Collective fixed allowances
 
2
1,167
937
2,104
–
 
Pension costs
78
94
172
–
 
Severance benefits
 
Variable compensation
 
–
 
Upfront cash
361
361
–
 
Upfront shares
247
378
625
–
 
Deferred cash
541
541
–
 
Deferred shares
371
566
937
–
 
Other emoluments
5
281
536
817
Total compensation
6,731
7,260
13,991
 
1 Excluding members that are also members of the Executive Board of ING Groep N.V.
 
One Management Board Banking member was
appointed to the Executive Board during the year.
 
2 The collective fixed allowances consist of two savings allowances applicable to employees in the Netherlands; an individual savings
allowance of 3.5% and a collective savings allowance to compensate for loss of pension benefits with respect to salary in excess of EUR
107,539.
3 In 2019 one member of the Executive Board left and one member joined. The table includes their compensation earned in the capacity as
board member and in addition an advisor fee for the period in which the activities were transferred to the successor.
4 One member left ING during the year. The table includes compensation earned in the capacity as board member.
5 The prior period has been updated to improve consistency and comparability.
 
 
Key management personnel compensation is generally included in Staff
 
expenses in the statement of profit or
loss. The total remuneration of the Executive Board and Management
 
Board Banking is disclosed in the table
above. Under IFRS, certain components of variable remuneration
 
are not recognised in the statement of profit or
loss directly, but are allocated
 
over the vesting period of the award. The comparable amount recognised
 
in Staff
expenses in 2020 relating to the fixed expenses of 2020 and the vesting of variable
 
remuneration of earlier
performance years, is EUR 12 million in 2020 (2019: EUR 11 million).
 
 
The table below shows the total of fixed remuneration,
 
expense allowances and attendance fees for the
Supervisory Board in 2020 and 2019.
 
 
Key management personnel compensation (Supervisory Board)
in EUR thousands
2020
2019
Total compensation
1,042
1,045
 
 
Balances outstanding with key management personnel were
 
as follows:
 
Loans and advances to key management personnel
Amount outstanding
31 December
Weighted average
interest rate
Repayments
in EUR thousands
2020
2019
2020
2019
2020
2019
Executive Board members
2,402
1.4%
97
Management Board Banking
350
350
2.6%
2.6%
Supervisory Board members
Total
350
2,752
97
 
 
The loans and advances mentioned in the table above (1) were made in the ordinary course of business, (2) were
granted on conditions that are comparable to
 
those of loans and advances granted to all employees and (3) did
not involve more than the normal risk of collectability or present other unfavourable
 
features. Loans and
advances to members of the Executive Board and Management
 
Board Banking are compliant with the standards
set out in the DNB guidelines for loans to officers and directors of a regulated
 
entity, such as ING.
 
As at 31 December 2020 Deposits outstanding from key management personnel
 
amounted to EUR 12.5 million
(31 December 2019: EUR 12.4 million). Total interest
 
paid in 2020 on these deposits amounted to EUR 14
thousand (2019: EUR 13 thousand).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
50
 
Subsequent events
 
ING Group Annual Report 2020 on Form 20-F
F -373
Number of ING Groep N.V.
 
shares and stock options to key management personnel
ING Groep N.V.
 
shares
Stock options on
ING Groep N.V.
 
shares
in numbers
2020
2019
2020
2019
Executive Board members
88,741
172,523
46,198
Management Board Banking
254,052
147,713
Supervisory Board members
5,295
54,065
Total number of shares
 
and stock options
348,088
374,301
46,198
 
 
50
 
Subsequent events
 
On 18 February 2021 ING announced that it intends to withdraw from the retail
 
banking market in the Czech
Republic. Raiffeisenbank Czech Republic has agreed to
 
prepare a welcome offer for ING’s
 
retail customers in the
Czech Republic.In March, customers will receive an
 
invitation from Raiffeisenbank to move to
 
this bank over the
coming months. The ambition is for ING to stop all its retail activities in this market
 
by the end of 2021. ING will
remain active in the Czech Republic as a provider of wholesale banking products and services.The
 
agreement
with Raiffeisenbank has been secured to ensure ING’s
 
customers in the Czech Republic can continue to
 
meet
their banking needs. ING customers will receive the option to move their savings and investments
 
to
Raiffeisenbank at preferential
 
conditions. The agreement between ING Czech Republic and Raiffeisenbank
 
Czech
Republic is pending regulatory approval.
 
ING announced on 2 March 2021 that it is reviewing the strategic options for
 
its Retail Banking operations in
Austria with the aim of exiting this market by the end of 2021. The scope of the review focuses solely on ING’s
retail business. ING will continue its Wholesale Banking activities in Austria.
As a first step, in June 2021, ING will discontinue its savings-only offering
 
for customers in Austria. As it exits the
local retail banking market, ING will make
 
sure its customers are fully supported throughout.
 
51
 
Capital management
Objectives
Group Treasury (“GT”) Balance Sheet & Capital Management,
 
is responsible for maintaining the adequate
capitalisation of ING Group and ING Bank entities, to manage the risk associated with ING’s
 
business activities.
This involves not only managing, planning and allocating capital within ING Group, ING Bank and its various
entities, but also helping to execute necessary capital market
 
transactions, term (capital) funding and risk
management transactions. ING takes an integrated
 
approach to assess the adequacy of its capital position in
relation to its risk profile and operating environment.
 
This means GT Balance Sheet & Capital Management takes
into account both regulatory and internal, economic based metrics and requirements
 
as well as the interests of
key stakeholders such as shareholders
 
and rating agencies.
 
 
ING applies the following main capital definitions:
 
 
Common equity Tier 1 capital (CET1) - is defined as shareholders’ equity less regulatory adjustments.
CET1 capital divided by risk-weighted assets equals the CET1 ratio.
 
 
Tier 1 capital – is defined as CET1 capital plus Additional Tier 1 (hybrid) securities and other regulatory
adjustments. Tier 1 capital divided by risk-weighted
 
assets equals the Tier 1 capital ratio.
 
 
Total
 
capital – is Tier 1 capital plus subordinated Tier 2 liabilities and regulatory adjustments. Total
capital divided by risk-weighted assets equals the Total
 
capital ratio.
 
 
Common equity Tier 1 ratio ambition – is built on the CET1 requirements specified for ING, uncertainty
of expected regulatory RWA
 
inflation, potential increase in the regulatory requirement
 
of the
Countercyclical Buffer and the potential
 
impact of a standardised and pre-determined 1-in-10-year stress
event (i.e. at a 90% confidence level with a 1-year horizon).
 
 
Leverage ratio (LR) – is defined as Tier 1 capital divided by the leverage
 
exposure.
 
Capital developments
Our capital position remained strong despite the higher risk costs due to Covid-19. At both
 
the consolidated and
entity level, ING has sufficient buffers to withstand
 
certain adverse scenarios without breaching regulatory
requirements in a forward looking scenario.
 
 
In 2020, ING has changed its CET1 ambition from around 13.5% to around 12.5%, reflecting among others a
structural reduction of capital requirements and increased
 
visibility of expected regulatory RWA inflation.
 
This
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
51
 
Capital management
 
ING Group Annual Report 2020 on Form 20-F
F -374
new ambition level is still comfortably above the current
 
Maximum Distributable Amount (MDA) level of 10.51%,
implying a management buffer of ~200 basis points.
 
 
ING’s capital ratios
 
at the end of the year improved compared to 2019 primarily due to lower risk-weighted
assets, mainly driven by lower volumes, FX movements and improved lending book quality.
 
On the latter,
downward rating adjustments were
 
more than offset by higher and additional collateral value.
 
ING continues to
maintain a strong and high quality capital level.
 
 
ING Groep N.V.
 
has a Common equity Tier 1 ratio of 15.5% as at 31 December 2020 versus an overall CRR II / CRD
V solvency requirement (including buffer requirements)
 
of 10.51%. The Group’s Tier 1 ratio (including
grandfathered securities) increased to 17.3%. The Total
 
capital ratio (including grandfathered
 
securities)
increased from 19.1% to 20.1% compared to last year.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ING Group capital position according to CRR II
 
/ CRD V
in EUR million
2020
2019
Shareholders’ equity
4
54,637
53,769
- Reserved profit not included in CET1 capital
 
1
-3,266
-1,754
- Other adjustments
-4,037
-4,464
Regulatory adjustments
-7,303
-6,217
Available common equity Tier 1 capital
47,333
47,552
Additional Tier 1 securities
 
2
5,643
6,916
Regulatory adjustments additional Tier 1
48
51
Available Tier 1 capital
53,024
54,519
Supplementary capital Tier 2 bonds
 
3
9,359
8,943
Regulatory adjustments Tier 2
-846
-1,158
Available Total
 
capital
61,537
62,303
Risk weighted assets
306,324
326,414
Common equity Tier 1 ratio
15.45%
14.57%
Tier 1 ratio
17.31%
16.70%
Total capital
 
ratio
20.09%
19.09%
 
1. The reserved profit not included in CET1 capital ING Group as per 31 December 2020 was EUR 3,266 million, of which EUR 1,512 million
relates to the result of 2020 and EUR 1,754 million relates to the result of 2019.
2. Including EUR 4,660 million which is CRR-compliant (2019: EUR 5,312 million) and EUR 983 million to be replaced as capital recognition is
subject to CRR grandfathering rules (2019: EUR 1,604 million).
3. Including EUR 9,206 million which is CRR-compliant (2019: EUR 8,789 million), and EUR 153 million to be replaced as capital recognition is
subject to CRR grandfathering rules (2019: EUR 153 million).
4. Shareholders' equity is determined in accordance with IFRS-EU.
 
In accordance with the applicable regulation, credit and operational risk models used in the capital ratios
calculations are not audited.
 
 
 
 
 
 
 
 
>
 
51
 
Capital management
 
ING Group Annual Report 2020 on Form 20-F
F -375
Dividend
In the third quarter of 2020, ING announced a change in its distribution policy from a progressive dividend to a
pay-out ratio of 50% of resilient net profit and additional return
 
of structural excess capital. The latter
 
to be
considered periodically, taking
 
into account alternative opportunities as well as macroeconomic circumstances
and the outcome of our capital planning. Resilient net profit is defined as net profit
 
adjusted for significant items
not linked to the normal course of business. The 50% pay-out may be in the form of cash or a combination
 
of
cash and share repurchases.
 
 
For 2020, the resilient net profit amounts to EUR 3,025 million of which EUR 1,512 million is reserved for
distribution outside of CET1 capital. The resilient net profit includes EUR 540 million of positive P&L adjustments
to the IFRS-EU net result related to impairments on goodwill (EUR 310 million) and the TMB stake
 
(EUR 230
million). In February 2021, ING paid a cash-only interim dividend of EUR 468 million (EUR 0.12 per share). This
amount is equal to 15% of adjusted net profit for 2020, in line with the ECB recommendation of 15 December
2020, which included a definition of adjusted net profit. At the end of 2020 and including the final 2019 dividend,
ING has reserved EUR 3,266 million for distribution. This includes EUR 468 million of cash-only 2020 interim
dividend and the remainder, subject to
 
prevailing ECB recommendation, for distribution
 
after September 2021.
 
Processes for managing capital
GT Balance Sheet & Capital Management ensures adherence to the set limits and targets
 
by planning and
executing capital management transactions. The ongoing assessment
 
and monitoring of capital adequacy is
embedded in the capital planning process within the ICAAP framework. As part of the dynamic business planning
process, ING prepares a capital and funding plan on a regular basis for all its material businesses and assesses
continuously the timing, need and feasibility for capital management actions in scope of its execution
 
strategy.
Sufficient financial flexibility should be preserved to meet important financial objectives. ING’s
 
risk appetite
statements set targets and are
 
at the foundation of the capital plan. These limits are cascaded to the different
businesses in line with our risk management framework. Contingency capital measures and early warning
indicators are in place in conjunction with ING’s
 
recovery plan to support the strategy in times of stress.
 
 
Adverse planning and stress testing, which reflect the outcomes of the annual risk assessment, are
 
integral
components of ING’s risk and capital management
 
framework. It allows us to (i) identify and assess potential
vulnerabilities in our businesses, business model, portfolios or operating environment;
 
(ii) understand the
sensitivities of the core assumptions used in our strategic and capital plans; and (iii) improve
 
decision-making and
business steering through balancing risk and return following a forward
 
looking and prudent management
approach.
 
Regulatory requirements
Capital adequacy and the use of required regulatory capital are based on the guidelines developed by the Basel
Committee on Banking Supervision (The Basel Committee) and the European Union Directives, as implemented
by the Dutch Central Bank (Dutch Central Bank until 3 November
 
2014, the ECB thereafter) for supervisory
purposes. In 2010, the Basel Committee issued new solvency and liquidity requirements that superseded Basel II,
implemented in the EU via CRR / CRD. In accordance with the CRR the minimum Pillar 1 capital requirements
applicable to ING Group are: a CET1 ratio of 4.5%, a Tier 1 ratio of 6% and a Total
 
capital ratio of 8% of risk-
weighted assets.
 
In 2020, as a reaction to the Covid-19 pandemic, relevant regulators
 
introduced a number of changes to the
regulatory capital requirements applicable to
 
ING, including structural reductions. The structural reductions of
capital requirements reflect the application of Art.104a in CRD V,
 
which allowed ING to replace CET1 capital with
additional Tier 1 / Tier 2 securities to meet the Pillar II requirement, and a reduction in the overall systemic
 
buffer
(i.e. the Systemic Risk Buffer plus the highest of the O-SII and G-SII buffer) by the Dutch
 
National Bank from 3% to
2.5%. Similarly, various competent
 
authorities changed or removed their Countercyclical Buffer
 
(CCyB)
requirements reducing the CCyB for ING from 24 basis points to 3 basis points.
 
 
As a consequence, the overall CET1 requirement (including buffer requirements)
 
for ING Group at a consolidated
level was 10.51% in 2020. This requirement is the sum of a 4.5% Pillar I requirement, a 0.98% Pillar II
requirement, a 2.5% Capital Conservation Buffer (CCB), a 0.03% Countercyclical
 
Buffer (CCyB) (based on
December 2020 positions) and a 2.5% O-SII buffer that is set separately for Dutch
 
systemic banks by the Dutch
Central Bank (De Nederlandsche Bank). This requirement excludes the Pillar II guidance, which is not disclosed.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
>
 
51
 
Capital management
 
ING Group Annual Report 2020 on Form 20-F
F -376
The Maximum Distributable Amount (MDA) trigger level stood at 10.51% in 2020 for CET1, 12.33% for
 
Tier 1
Capital and 14.77% for Total
 
Capital (after the application of Art.104a of the CRD V), based on stable Pillar II
capital requirements. In the event that ING Group breaches
 
the MDA level, ING may face restrictions on dividend
payments, AT1
 
instruments coupons and payment of variable remuneration.
 
Ratings
ING’s key
 
credit ratings and outlook are shown in the table above. Each of these ratings
 
reflects only the view of
the applicable rating agency at the time the rating was issued, and any explanation
 
of the significance of a rating
may be obtained only from the rating agency.
 
Main credit ratings of ING at 31 December 2020
Standard & Poor’s
Moody’s
Fitch
Rating
Outlook
Rating
Outlook
Rating
Outlook
ING Groep N.V.
Long-term
A-
Negative
Baa1
Stable
A+
Negative
ING Bank N.V.
Long-term
A+
Stable
Aa3
Stable
AA-
Negative
Short-term
A-1
P-1
F1+
 
A security rating is not a recommendation to buy,
 
sell or hold securities and each rating should be evaluated
independently of other ratings. There is no assurance that any credit
 
rating will remain in effect for
 
any given
period of time or that a rating will not be lowered, suspended or withdrawn entirely by the rating
 
agency if, in
the rating agency’s judgment, circumstances
 
so warrant. ING accepts no responsibility for the accuracy or
reliability of the ratings.