Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Banks Netherlands ING Bank N.V. Full Rating Report Key Rating Drivers Ratings Foreign Currency Long-Term IDR Short-Term IDR A+ F1+ Viability Rating Support Rating Support Rating Floor a 1 A+ Sovereign Risk Foreign-Currency Long-Term IDR Local-Currency Long-Term IDR AAA AAA Outlooks Foreign-Currency Long-Term IDR Negative Sovereign Foreign-Currency Long- Stable Term IDR Sovereign Local-Currency LongStable Term IDR Financial Data ING Bank N.V. (cons.) 30 Jun 14 31 Dec 13 Total assets (USDm) 1,118,144 1,086,256 Total assets (EURm) 818,705 787,644 Total equity (EURm) 34,681 33,760 Operating profit (EURm) 2,621 4,564 Published net income 1,211 3,153 (EURm) Comprehensive income 2,609 729 (EURm) Operating ROAA (%) 0.7 0.6 Operating ROAE (%) 15.7 12.8 Fitch core capital/ 11.3 11.0 weighted risks (%) CET 1 ratio (%) 10.8 11.7 State Support Driven IDRs: ING Bank N.V.‟s Long-Term Issuer Default Rating (IDR) is at its Support Rating Floor (SRF), reflecting Fitch Ratings‟ belief that the Dutch state (AAA/Stable) would support the bank if required due to its importance to the domestic economy and financial system. Evolving Support Dynamics: The Negative Outlook on the IDR reflects Fitch's view there is a clear intention ultimately to reduce implicit state support for financial institutions in the EU, as demonstrated by a series of legislative, regulatory and policy initiatives. Strong Standalone Strength: ING Bank‟s „a‟ Viability Rating (VR) reflects its strong franchise (mostly in the Benelux) and diverse business model. These support a solid ability to underwrite new business, recurring earnings generation and material deposit-gathering capacities. The VR factors in a stabilising impaired loans ratio. Resilient Performance: ING Bank‟s operating performance has remained resilient 'throughthe-cycle' due to its diversification by geography and sector, as well as good cost efficiency. Profitability will benefit from the expected continued gradual reduction in loan impairment charges (LICs) throughout 2H14 and 2015, although some lag effect is likely to remain following recent weak economic conditions and low growth in most of ING Bank's markets. Diversification Benefits Funding Profile: ING Bank's funding profile is strong and benefits from the bank's solid franchise in deposit-rich jurisdictions, such as Belgium and Germany. The bank also regularly taps the wholesale funding market, to which it has ready access. Its liquidity position remains healthy, despite liquidity being not fully fungible within the group. Stabilising Impaired loans: ING Bank's impaired loans ratio is in line with similarly rated European peers', and Fitch expects impaired loans to peak in 2014. Impaired loans coverage is fairly low, but its largely collateralised loan book offers some buffer and the bank has a track record of LICs consistently exceeding write-offs. Sound Capitalisation: Consistent profitability, combined with some deleveraging, has helped ING Bank to boost capitalisation to solid levels. The bank targets to maintain a fully-loaded common equity tier 1 (CET 1) ratio above 10% plus a “comfortable buffer”, which Fitch expects will be circa 1pp. This is not overly ambitious in Fitch‟s view. Leverage is sound in a European context, although Fitch expects the bank will improve this further during 2H14 and 2015. ING Bank came through the ECB Comprehensive Assessment unscathed, as expected by Fitch. Related Research ING Bank N.V. - Ratings Navigator (July 2014) Sovereign Support for Banks - Rating Path Expectations (March 2014) Rating Sensitivities IDR Downgrade From SRF Revision: Fitch expects to revise the bank's SRF down to 'No Floor' by mid-2015 as a consequence of weakening sovereign support. ING Bank‟s Long-Term IDR would then most likely be downgraded to the level of its 'a' VR. Netherlands (July 2014) Analysts Philippe Lamaud +33 1 44 29 91 26 [email protected] Jens Hallen +44 20 3530 1326 [email protected] www.fitchratings.com Increased Risk Appetite: Pressure on the VR, although not expected, would most likely stem from significantly increased appetite for higher-risk markets or sectors, or less prudent liquidity or capital management, particularly should these hurt ING Bank‟s access to and/or cost of wholesale funding. Capital is also vulnerable to collateral valuations in light of the fairly modest reserve coverage of impaired loans compared with peers. Upside potential is limited due to the already high rating. 29 October 2014 Banks Support Figure 1 Dutch Companies Bankruptcies and Unemployment Rate IDR Based on Sovereign Support ING Bank‟s Long-Term IDR and senior debt ratings are driven by its SRF of „A+‟. This reflects Fitch‟s expectation that there remains an extremely high probability that the Dutch state would support the bank if required because of its importance to the Dutch economy. 1Q13-2Q14 Bankruptcies (RHS) Unemployment (LHS) (%) 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 2,500 2,250 2,000 1,750 1,500 1,250 2Q14 1Q14 4Q13 3Q13 2Q13 1Q13 1,000 Unemployement rate based on ILO definition Source: Eurostat, CBS, Fitch The Negative Outlook on ING Bank‟s Long-Term IDR reflects Fitch's view that there is a clear intention to reduce implicit state support for financial institutions in the EU, as demonstrated by a series of legislative, regulatory and policy initiatives. Fitch expects the EU's Bank Recovery and Resolution Directive (BRRD) to be implemented into national legislation by mid-2015. Fitch also expects progress towards the Single Resolution Mechanism (SRM) for eurozone banks in this timeframe. In Fitch's view, these two developments will dilute the influence the Netherlands has in deciding how Dutch banks are resolved and increase the likelihood of senior debt losses in its banks if they fail solvability assessments. Fitch expects to then downgrade ING Bank's and ING Group's Support Ratings to '5' and to revise down their SRFs to 'No Floor'. ING Bank's 'a' VR means, however, that any support-driven downgrade of the bank's Longterm IDR and senior debt ratings would be limited to one notch, by which point the ratings would be based on the bank‟s standalone strength. Operating Environment Receding Cyclical Headwinds in Key Markets Figure 2 Dutch Housing Prices and Sale Jan 13-Aug 14 83 81 79 77 Europe, and the eurozone in particular, represents the vast majority of ING Bank‟s operations (around 85% and 70%, respectively, of total exposures at end-2013), with the rest being mostly in other global major advanced economies (mainly Australia and the US). The vast majority of ING Bank‟s operations are conducted in countries that Fitch assigns a Macro-Prudential Indicator of „1‟, indicating a low macro-prudential risk. Fitch‟s macroeconomic forecasts for ING Bank‟s main markets all point to a gradual acceleration of the economic recovery, but to moderate levels, and decreasing unemployment rates. Fitch recently revised the Outlook on the Netherlands‟ „AAA‟ rating to Stable from Negative, and one of the drivers was the turnaround of the Dutch economy. 75 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 16 15 14 13 12 11 10 9 8 7 6 5 Number of sold dwellings (000 units) (LHS) Housing price index (100=Aug 08) (RHS) Linear (Number of sold dwellings (000 units) (LHS)) 85 ING Bank is based in the Netherlands, where it is a top-three universal bank and has therefore been affected by the Dutch recession in recent years. However, unlike the two other major Dutch banks, Rabobank Group (AA−/Negative/aa−) and ABN AMRO Bank N.V. (A+/Negative/a), the majority of ING Bank‟s operations are conducted in other EU countries. Figure 3 Macroeconomic Data - ING Bank’s Main Markets Source: CBS, Fitch Eurozone Netherlands (AAA/Stable) Belgium (AA/Stable) Germany (AAA/Stable) GDP annual growth (%) 2013 2014e 2015e -0.4 0.9 1.3 -0.8 0.7 1.4 0.2 1.2 1.6 0.1 1.6 1.8 Unemployment rate (%) 2013 2014e 2015e 12.0 12.0 11.6 6.7 7.5 7.3 8.4 8.6 8.2 5.3 4.9 4.7 Source: Eurostat, Fitch Related Criteria Global Financial Institutions Rating Criteria (January 2014) Related Criteria Assessing and Rating Bank Subordinated and Hybrid (January 2014) ING Bank N.V. October 2014 ING Bank mostly operates in developed and concentrated banking systems, where barriers to entry are high and dominated by a few leading players with established presence and franchises. In the Netherlands, the aggregated market shares of the three largest banks amount to 70%-75% in the retail and SME segments. The Belgian banking system also shows significant concentration, with the four largest banks (among which ING Belgium) making up 70%-80% of retail volumes. The German market is more fragmented, notably owing to the strong market shares of local saving and cooperative banks. 2 Banks Developed and Transparent Regulatory Environment The regulatory environments in ING Bank‟s main markets are developed and transparent, and legislations and regulations are effectively enforced. ING Bank operates under a Dutch banking licence and is subject to domestic and European banking regulations. ING Bank‟s main supervisor is the Dutch regulator (DNB, the Dutch central bank) and its foreign subsidiaries are regulated by local authorities. ING Bank‟s supervision will be transferred to the ECB by the end of 2014 under the Single Supervisory Mechanism (SSM), one of the pillars of the Banking Union. As such, it was subject to the ECB‟s 2014 comprehensive assessment; the bank easily passed the assessment which showed a strong resilience to economic stresses for ING Bank. Company Profile Strong Benelux Franchise, Challenger Positions Elsewhere Figure 4 Selected Market Shares End-2013 (%) Retail mortgage loans Retail savings SME lending Mid-corp lending NL 22 19 30 17 BE GE 19 7 15 6 17 n.a. 35 n.a. Source: ING Bank Figure 5 Business Volumes by Division End-June 14 (EURbn) Commercial banking Retail banking Of which: Netherlands Belgium Germany France Italy Spain Australia Other Loans 129.5 Deposits 75.7 275.6 402.9 167.7 68.1 67.9 7.9 10.6 26.1 21.7 116.0 81.6 111.7 10.9 15.0 24.4 21.4 23.7 ING Bank‟s strong franchises in retail and commercial banking in the Benelux countries provide it with scale, pricing power and deposit gathering abilities; this underpins ING Bank‟s ratings. The bank also has a good retail presence in Germany. Through ING Direct (established in 1999), ING Bank has been a pioneer bank for direct (mostly internet) banking, which is increasingly becoming the dominant distribution channel in many markets. Outside the Benelux, ING Bank is essentially a challenger bank in retail banking. Commercial banking enjoys good competitive positions, but limited to certain industries and niche segments (such as commodities and trade finance). ING Bank is wholly owned by ING Group (A/Negative) which is a listed company. The stakes in ING Bank‟s subsidiaries (ING Belgium, the German ING DiBa, ING Direct, etc.) are directly held by ING Bank. The foreign subsidiaries are locally regulated, meaning capital and liquidity are not fully fungible within ING Bank. In particular, there has been increased regulatory caution around cross-border flows of customer deposits from deposit-rich jurisdictions (such as Belgium and Germany) to foreign parent banks. The implementation of the Banking Union within the eurozone would be beneficial for ING Bank if restrictions on current liquidity transfer across eurozone jurisdictions are removed. According to ING Bank, the removal of such regulatory hurdles could have a positive impact of around EUR0.4bn on its annual earnings (7%-10% of annual pre-tax profits reported over the past four years), which are currently not incorporated in the bank‟s „2017 Ambition‟ financials targets. Excluding the Netherlands, ING Bank‟s loan/deposit ratios in its main eurozone markets are below 100%. Source: ING Bank Management High Quality Management Figure 6 Main Financial Targets CET1 ratio (%) Leverage (%) Loans/deposits Net Interest Margin (bp) Cost/income (%) ROE (%) a 1H14 10.5 3.7 1.03 146 ‘Ambition 2017’ > 10 ±4 n.a. 150-155 56.2a 50-53 10.7a 10-13 Underlying earnings (i.e. excludes oneoffs) Source: ING Bank ING Bank N.V. October 2014 ING Bank‟s management has a high degree of depth, stability and experience. Succession planning for key executive roles is routinely undertaken. The current CEO has been with the bank for over 20 years and succeeded the previous CEO in 2013 on his retirement. Corporate culture is consistent at ING Bank. Strategic objectives are well articulated and appear consistent over time. Management has delivered on an extensive restructuring programme imposed by the European Commission (EC) on state aid received during the financial crisis. The divestments of the insurance operations are advanced and well on track with the timing agreed with the EC. The latest milestone was the sale in July 2014 of 32% of the European insurance operations, NN Group, through an IPO and to institutional investors. In addition, ING Group has almost completely repaid the state held capital securities. Fitch believes that ING Bank‟s corporate governance is effective; the bank follows the recommendations from the Dutch corporate governance code which sets best practices in this matter. As a bank licensed in the Netherlands, it adheres to the Dutch Banking Code, which discloses standards for corporate governance, risk management, audit and remuneration 3 Banks policy. Governance is organised around a two-tier board with an executive board and a supervisory board. ING Bank and ING Group share same governance bodies, but ING Bank‟s executive board is enlarged with four members, in addition to the CEO, CFO and CRO. Risk Appetite Moderate Risk Appetite ING Bank‟s risk appetite is moderate, in Fitch‟s view, and underwriting standards are broadly in line with industry practice. Credit standards are largely consistent over economic cycles. ING Bank‟s Dutch mortgage lending has been done at high loans/values by international standards, but this is in line with other Dutch banks, and driven by tax incentives to borrow. Overall, a majority of lending is collateralised with direct recourse to the asset being financed, and ING Bank prudently monitors borrower concentration limits. Risk controls and reporting are robust and public disclosures are of good quality. Balanced Growth Expected The balance sheet has shrunk in the past years due to deleveraging (mostly from the divestments of ING Direct subsidiary in the US, as required by the EC, as well as the Canadian and UK subsidiaries) and low demand for new lending in a weak economic environment. Balance sheet growth should resume as the economy recovers and the restructuring is completed for ING Bank. ING Bank‟s 2017 strategic plan considers an annual growth for the bank‟s balance sheet of 3% and customer lending of 4%; when compared with 1%-2% GDP expected annual growth in the bank‟s main markets, this is not overly aggressive and, if the economy plunged back into recession, Fitch believes ING will revise its own growth target. Moreover, the expected earnings and dividend policy would allow the bank to generate sufficient capital to maintain solid capital ratios. Limited Market Risk Structural interest rate risk is ING Bank‟s most significant market risk, reflecting its focus on traditional commercial banking activities. ING Bank uses hedging to reduce this risk. Interest rate risk in the banking book is measured against various indicators, including earnings. ING Bank calculated that, at end-2013, a 100bp upward/downward shift in interest rates for the major currencies would result in impacts of negative EUR122m and positive EUR188m respectively on the bank‟s net income, which is small. Foreign exchange risk is modest, reflecting limited currency mismatches on ING Bank‟s balance sheet. Market risk for the trading operations is largely customer driven and has conservative limits. The average undiversified value at risk during 2Q14 (1-day, 99%) was a low EUR14m (EUR16m in 2013). Financial Profile Resilient Asset Quality, Stabilising Impaired Loans ING Bank‟s asset quality has remained relatively resilient, despite a deteriorating trend since 2011, and is in line with similarly rated European peers. The loan book (EUR520bn at end-June 2014, EUR570bn when including off-balance sheet exposures) accounts for around two-thirds of total assets and represents the largest credit risk. Interbank exposures (EUR43bn at endJune 2014) and fixed-income debt investments (EUR107bn) are overall of sound quality. The weak operating environment since 2011, particularly in the Netherlands, has affected asset quality. Fitch expects impaired loans to peak in 2014, supported by improving economic conditions, although the performance remains sensitive to eurozone growth. At just over 3% of gross loans, ING Bank‟s impaired loans ratios is in line with similarly rated peers. ING Bank N.V. October 2014 4 Banks Figure 8 Figure 9 Asset Quality Ratios (1) Asset Quality Ratios (2) Impaired loans/gross loans (LHS) LICs/average gross loans Writte-offs/average gross loans LICs/average gross loans, 10 past years average Reserves for impaired loans/gross loans (LHS) Net impaired loans/equity (RHS) (%) (bp) (%) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 40 30 End-2011 End-2012 End-2013 End-1H14 Source: ING Bank, Fitch 50 40 30 20 20 10 10 0 0 2011 2012 2013 1H14 Source: ING Bank, Fitch Retail Loan Book: Healthy Mortgage Loans, Weaker SME Lending Just over 40% of ING Bank‟s lending consists of well performing residential mortgage loans, with a further around 15% of consumer loans and SME lending. Dutch residential mortgage lending (EUR132bn at end-June 2014) was faced with a property price correction of around 20% since the 2008 peak, combined with increasing unemployment. Fitch expects the somewhat brighter prospects will stabilise the quality of Dutch mortgage lending, supported by reducing unemployment and house prices bottoming-out. ING Bank‟s Dutch mortgage loan book showed the highest ratio of 90-day past due loans amongst the three large Dutch banks, but it remain low (1.5% at end-June 2014, 1.1% for ABN AMRO and 0.8% for Rabobank at the same date). Despite potential lag effects of the 2011-2013 recession, Fitch believes the quality of this book will remain healthy. The remainder of the retail banking exposure is mostly in the SME sector, an inherently more volatile segment. SME lending in the Netherlands has faced significant challenges and, despite bankruptcies reducing from the 2013 peak, impaired loans are once again rising in 2014, albeit at a slower pace. Fitch believes they should stabilise in 2015. Figure 7 Customer Loan Book (End-June 2014, EUR570bnᵃ) (%) Retail NL Dutch mortgage loans Dutch SMEs NPLᵇ Exposure ratio 31 3.3 24 2.0 5 7.8 Retail BE Retail GE Retail international Retail banking 12 13 13 69 3.2 1.0 1.8 2.5 Structured finance CRE General lending Leasing Other Commercial banking 12 4 11 1 3 31 2.0 11.1 2.0 18.1 3.6 3.6 ᵃ Includes off-balance sheet exposures ᵇ Non-performing loans Source: ING Bank Solid Commercial Banking Book, Easing Strains on CRE Exposures The commercial banking loan book is diversified by obligor and geography and has largely been performing well in the recent difficult conditions. Commercial real estate (CRE) remains challenging, and this cyclical sector has faced increased vacancy rates and related fall in property prices; both have now stabilised. Impaired CRE exposures were 11.1% of total CRE exposures at end-June 2014; however, Fitch believes the downside risk has reduced and that the portfolio is manageable for the bank. The Dutch regulator conducted an extensive review of major Dutch banks‟ CRE portfolios in 2013, which has not led to any particular additional provisioning and/or regulatory capital adjustments for ING Bank. ING Bank‟s leasing exposures are weak and in run-off, but given the small volume, Fitch does not expect any material additional LICs. In order to grow its net interest margin, ING Bank intends to slightly increase its lending towards more remunerative (but higher risk) segments, including structured finance, SMEs and consumer lending in Germany, Spain and Italy. These are not new geographies or customer segments for ING Bank, and are unlikely to significantly shift the customer loan mix, which could otherwise be ratings negative for ING Bank. ING Bank‟s Russian exposure (EUR7.9bn at end-June 2014) is composed of large Russian corporates (mostly benefiting from US dollar denominated revenues), and the quality of the portfolio has remained sound (0.1% impaired loans ratio). However, depending on the evolution of the political situation and economic sanctions, this could result in additional impaired loans. The Ukrainian exposure is much weaker (19.9% impaired loans ratio at end-June 2014), but ING Bank N.V. October 2014 5 Banks significantly smaller (EUR1.4bn in total at the same date) and manageable for the bank. Total net exposures to Russia and Ukraine represented 26% of the bank‟s total equity; while relatively significant, Fitch believes these exposures will remain manageable for the bank. Figure 10 Debt Securities End-June 2014 ABS 6% Corporates 3% Low Impaired Loans Coverage Partly Mitigated by Prudent Classification Banks 11% Covered bonds 18% Source: ING Bank, Fitch Government bonds 62% The fairly low impaired loans coverage (38% at end-June 2014) leaves close to 30% of the bank‟s equity exposed to unreserved impaired loans. This is higher than most similarly rated peers and renders ING Bank‟s capital vulnerable to collateral valuations. However, this is partly mitigated by a fairly prudent approach in classifying an exposure as impaired, largely collateralised lending and the bank‟s track record of LICs consistently exceeding write-offs (see Figure 9). The adjustments from the ECB‟s Asset Quality Review on the level of nonperforming exposures and their coverage have been limited. Other Earning Assets ING Bank‟s liquidity portfolio is of good quality. At end-June 2014, „AAA‟ rated government bonds made up over 60% of the portfolio. The bank has shifted the purpose of its securities portfolio from investment into a liquidity reserve. The focus is on investing is highly rated assets eligible as liquid asset classes for the calculation of the Basel III liquidity coverage ratio (LCR). Solid Earnings Capacities from Strong Franchise ING Bank‟s profitability is good and compares well with its peers, and its performance continues to benefit from its diversified operations across customer segments and geographies. Net interest income remains the main revenue source (75%-80% of operating income), reflecting ING Bank‟s business mix geared towards traditional banking activities. Its net interest margin has improved since 2012 backed by continuing reduction in interest rates paid on deposits and gradual upward repricing of the loan book. The envisaged growth in SME, consumer lending and structured finance will provide further widening of the NIM toward the targeted 150-155bp. The difficult economic conditions with low transaction volumes have dented net fees and commissions. However, fees are predominately made up of recurring commissions, such as cash management and banking transactions, which have held up well. Other income stems from the bank‟s treasury and financial markets activity (the latter being client-driven), with some volatility implied by the changes in credit and debit value adjustments (CVA/DVA). Figure 11 Figure 12 Key Profitability Ratios (1) Key Profitability Ratios (2) (%) Cost/income (LHS) Imp. charges/pre-imp. op. profit (LHS) Operating profit/average equity (RHS) Interest income/average earning assets (RHS) Net income/average equity (RHS) 65 60 55 50 2011 2012 Source: ING Bank, Fitch 2013 1H14 20 40 1.7 15 30 1.6 10 20 5 10 0 0 2011 2012 Source: ING Bank, Fitch 1.5 1.4 1.3 1.2 2013 1H14 Good Cost Efficiency Provides Buffer to Absorb LICs A number of restructuring programmes have been adopted across the bank to improve cost efficiency and reach the targeted cost/income ratio of 50%-53% by 2015 (just over 55% since 2012). ING Bank had achieved EUR521m of cost savings by end-June 2014, of a targeted EUR955m by 2017 (EUR880m by 2015). This has enabled ING Bank to contain nominal expenses and absorb inflation as well as investments and higher costs from new regulations. ING Bank N.V. October 2014 6 Banks This excludes the EUR0.7bn charge booked in 1H14 on the termination of the defined benefit pension plan, reported on line 26 (non-recurring expenses) in the attached spreadsheet. Figure 13 1H14 Underlying Performance by Division (EURm) RB CB CL Net interest 4,443 1,680 21 income Commission 678 479 -1 income Other 136 383 -97 Underlying 5,255 2,542 -77 income Operating 3,044 1,137 47 expenses Impairment 570 330 11 charges Underlying 1,642 1,075 -135 pre-tax profit Underlying cost/income (%) Underlying ROE (%) Total 6,145 1,155 422 7,721 4,228 912 2,582 54.7 10.7 RB = Retail Banking, CB = Commercial Banking, CL = Corporate Line Underlying profit is defined by the bank using its analytical accounts and excludes the impact of divestments and special items Source: ING Bank, Fitch Key Capitalisation and Leverage Ratios (%) Fitch core capital/weighted risks (LHS) CT1/CET1 ratio (LHS) Total capital ratio (LHS) Tangible common equity/tangible assets (RHS) 5 4 3 2 1 0 End2011 End2012 End2013 End1H14 2011-2013: Basel II/1H14: 'Phased-in' Basel III Source: ING Bank, Fitch Retail banking provides for the bulk of ING Bank‟s income but its contribution to net profit is smaller due to the typically higher expenses associated with running a retail network, and cyclically elevated LICs in the Netherlands. Earnings diversification is good and the Netherlands represent around 30% of underlying net profit, Belgium around 25% and Germany 15%. Nevertheless, the vast majority of the bank‟s earnings stems from the eurozone. Capitalisation and Leverage Sound Capitalisation ING Bank‟s internal capital generation is good and consistent profitability, combined with some deleveraging, has helped ING Bank to boost capitalisation in recent years. It reported a fully loaded Basel III CET1 ratio of 10.5% at end-June 2014, despite substantial dividends (EUR8bn paid between 2011 and 2013) upstreamed to ING Group to fund the repayment of state capital securities. In May 2014, the Dutch regulator announced national systemic risk buffers for the systemically important domestic banks. Like for Rabobank and ABN AMRO, ING Bank will be subject to a 3% buffer, which will be phased from 2016 to 2019. This will mean a minimum regulatory requirement of 10% (4.5% CET1, 2.5% capital conservation buffer and 3% systemic risk buffer), when restrictions are imposed on the payment of dividends, hybrid coupons and bonuses. Figure 14 18 16 14 12 10 8 6 4 2 0 ING Bank‟s resilient profitability provides it with a buffer to absorb LICs. Pre-impairment profit of around EUR7bn means the bank can withstand LICs 3x higher than the 2013 levels (already well above the “through-the-cycle” average) before it would report a loss. LICs have come down markedly in 1H14, and Fitch expects LICs will reduce in 2014 compared with 2013. ING Bank targets a fully-loaded CET1 ratio above 10% plus a “comfortable buffer”, which Fitch expects will be around 1pp. This target is not excessively ambitious given that the bank already reports a 10.5% ratio, and should enable the bank to meet its targeted dividend pay-out ratio (40%). ING Bank‟s capitalisation is in line with similarly rated peers, although lag some more highly rated northern European banks that target CET1 ratios well above 11%. ING Bank has issued CRD IV compliant Tier 2 securities, building a buffer for senior unsecured creditors, the latter particularly in view of new regulations potentially imposing losses via bail-in of unsecured creditors. Fitch expects that ING Bank will also issue additional Tier 1 securities when the new tax treatment is voted by the Dutch parliament (scheduled for 4Q14), to strengthen risk-weighted and unweighted capital ratios; this will bring the leverage ratio closer to the 4% targeted by the bank. It may also replace its (still grandfathered) legacy Tier 1 securities (EUR6.8bn at end-2013). Risk-weights on ING Bank‟s Dutch mortgage loans are 19%, which is higher than its Dutch peers (12% at ABN AMRO, 9% at Rabobank). Leverage (tangible equity-to-tangible assets of 4.0% at end-June 2014 is sound in a European context. Funding and Liquidity Strong Funding Profile ING Bank‟s funding profile is well balanced, with customer deposits as its main funding source, and complemented by wholesale funding. Its funding profile benefits from large market shares in deposit rich countries (such as Belgium) offsetting structurally deposit short countries (such as the Netherlands). However, liquidity is not fully fungible within ING Bank, and the individual operating entities report varying loan/deposit ratios (eg 118% for the Dutch company at end2013). The bank has addressed local regulators‟ caution around large cross-border flow of domestic deposits to foreign parent banks by transferring assets to deposit-rich entities and ING Bank N.V. October 2014 7 Banks now intends to focus lending growth in countries where there are deposits „available‟ to fund new lending. Figure 15 LT Debt Maturity Profile At end-June 2014 Subordinated debt RMBS Covered bonds Senior unsecured debt (bn) The bank‟s large deposits base has grown steadily since the financial crisis (+22% since end2009 to EUR475bn), reflecting ING Bank‟s robust deposit-gathering abilities from a strong franchise in its home markets. Successes in countries where it is a challenger bank have supplemented its deposit base. Corporate deposits (potentially more volatile) represented 12.5% of total deposits at end-2013. The rest is households/SMEs, the largest part covered by domestic deposit guarantee schemes. >2020 2018 -2020 2017 2016 2015 2H14 35 30 25 20 15 10 5 0 Source: ING Bank, Fitch ING Bank has maintained uninterrupted access to the capital markets since 2009, and its debt maturities are reasonably well spread over time. The EUR17bn of long-term debt maturing in 2015 is significant, but less than the bank has recently issued. Debt issuance volumes have reduced in 2013 and 2014 as a result of lower credit demand and strong deposit inflow. ING Bank has substantially reduced its use of interbank and short-term debt securities, and asset encumbrance is low. Figure 16 Long-Term Debt Issuance Large Liquidity Buffer (EURbn) 1H14 2013 2012 Senior unsecured 6.6 13.8 24.3 Secured debt 0.9 7.8 8.8 Covered bonds 0.1 2.7 7.3 RMBS 0.8 5.1 1.5 Subordinated debt 1.5 4.1 Total 9.0 25.7 33.1 ING Bank manages its liquidity to provide it with sufficient unencumbered assets eligible for ECB repo transactions or repoable with commercial banks to withstand a temporary drying-up of all wholesale markets. It had ample liquidity available at end-June 2014, mainly made up of high-quality liquid assets. The bank‟s liquidity coverage ratio was above 100% at end-June 2014. Source: ING Bank, Fitch ING Bank N.V. October 2014 8 Banks Appendix Figure 17 Peer Comparison (‘Viability Rating’) Total assets (EURbn) Total equity (EURbn) Performance (%) Net interest margin Cost/income Loan & securities imp. charges/pre-imp. op. profit Operating profit/average total assets Operating profit/average equity Asset quality (%) Growth of gross loans Impaired loans/gross loans Reserves for impaired loans/impaired loans Impaired loans less reserves for imp. loans/equity Loan impairment charges/ average gross loans Funding & capital (%) Loans/customer deposits Customer deposits/total funding (excl. derivatives) Equity/assets CET1/CT1 ratio Fitch core capital ratio Fully-loaded B3 CET1 Fitch core capital (EURbn) ING Bank (‘a’) ABN AMRO (‘a’) BNPP Fortis (‘a’) Groupe BPCE (‘a’) Danske Bank (‘a’) 1H14 2013 1H14 2013 1H14 2013 1H14 2013 1H14 2013 818.7 787.6 395.8 372.0 276.5 261.4 1,152 1,123 439.0 432.8 34.7 33.8 13.9 13.6 24.3 23.4 57.8 54.6 20.2 19.5 1.62 56.6 25.0 1.53 55.7 33.4 1.57 70.5 59.9 1.43 65.3 38.3 2.00 64.4 12.1 1.84 65.8 24.5 1.18 68.3 24.6 1.15 69.9 29.4 1.04 55.0 16.0 1.03 62.6 36.8 0.66 0.55 0.25 0.40 0.85 0.57 0.50 0.43 0.53 0.30 15.7 12.8 6.9 11.8 9.6 6.6 9.9 9.1 11.8 7.2 1.02 3.15 38.0 -5.96 3.09 38.5 0.37 2.99 65.9 -2.22 2.98 63.8 3.55 4.16 49.8 8.64 4.56 49.7 1.63 3.98 53.2 2.04 4.06 52.7 1.32 5.11 2.78 -5.61 5.21 2.89 29.3 29.0 19.2 20.8 14.7 16.1 18.8 20.2 25.6 26.0 0.34 0.43 0.54 0.37 0.24 0.28 0.30 0.31 0.20 0.33 106 64.3 108 68.6 126 59.0 126 62.6 101 74.0 102 73.8 132 48.5 129 49.7 216 31.3 210 32.4 4.24 10.8 11.3 10.5 33.1 4.29 11.7 11.0 10.0 31.8 3.52 12.8 11.4 12.7 13.1 3.65 14.4 11.4 12.2 12.4 8.79 14.2 16.2 n.a. 21.0 8.97 14.1 15.2 n.a. 19.1 5.02 n.a. n.a. 11.1 44.0 4.86 11.4 11.1 10.4 41.1 4.59 14.4 12.5 13.2 14.9 4.51 14.7 12.5 12.8 14.2 Source: Banks‟ data reclassified by Fitch ING Bank N.V. October 2014 9 Banks ING Bank N.V. Incom e Statem ent 30 Jun 2014 1. Interest Income on Loans 31 Dec 2013 6 Months - Interim 6 Months - Interim USDm EURm Unaudited Unaudited As % of Year End 31 Dec 2012 As % of EURm Year End 31 Dec 2011 As % of EURm Year End As % of EURm Earning Assets Unqualified Earning Assets Unqualified Earning Assets Unqualified Earning Assets n.a. n.a. - 21,549.0 2.86 24,793.0 3.12 26,434.0 3.13 33,290.1 24,375.0 6.25 30,025.0 3.98 35,478.0 4.46 38,770.0 4.59 12.3 9.0 0.00 94.0 0.01 64.0 0.01 49.0 0.01 33,302.4 24,384.0 6.26 51,668.0 6.86 60,335.0 7.59 65,253.0 7.73 n.a. n.a. - 6,618.0 0.88 9,140.0 1.15 9,383.0 1.11 6. Other Interest Expense 24,897.6 18,230.0 4.68 32,992.0 4.38 38,883.0 4.89 42,237.0 5.00 7. Total Interest Expense 24,897.6 18,230.0 4.68 39,610.0 5.26 48,023.0 6.04 51,620.0 6.12 8,404.8 6,154.0 1.58 12,058.0 1.60 12,312.0 1.55 13,633.0 1.62 9. Net Gains (Losses) on Trading and Derivatives 386.5 283.0 0.07 895.0 0.12 784.0 0.10 90.0 0.01 10. Net Gains (Losses) on Other Securities 189.8 139.0 0.04 215.0 0.03 581.0 0.07 132.0 0.02 11. Net Gains (Losses) on Assets at FV through Income Statement n.a. n.a. - n.a. - (12.0) (0.00) n.a. 12. Net Insurance Income n.a. n.a. - n.a. - n.a. - n.a. - 1,577.4 1,155.0 0.30 2,240.0 0.30 2,133.0 0.27 2,495.0 0.30 2. Other Interest Income 3. Dividend Income 4. Gross Interest and Dividend Incom e 5. Interest Expense on Customer Deposits 8. Net Interest Incom e 13. Net Fees and Commissions 14. Other Operating Income - 316.9 232.0 0.06 4.0 0.00 (456.0) (0.06) 255.0 0.03 15. Total Non-Interest Operating Incom e 2,470.6 1,809.0 0.46 3,354.0 0.44 3,030.0 0.38 2,972.0 0.35 16. Personnel Expenses 3,393.9 2,485.0 0.64 4,914.0 0.65 4,708.0 0.59 5,506.0 0.65 17. Other Operating Expenses 2,762.9 2,023.0 0.52 3,663.0 0.49 4,025.0 0.51 4,720.0 0.56 18. Total Non-Interest Expenses 6,156.8 4,508.0 1.16 8,577.0 1.14 8,733.0 1.10 10,226.0 1.21 19. Equity-accounted Profit/ Loss - Operating 53.3 39.0 0.01 22.0 0.00 22.0 0.00 32.0 0.00 20. Pre-Im pairm ent Operating Profit 4,771.9 3,494.0 0.90 6,857.0 0.91 6,631.0 0.83 6,411.0 0.76 21. Loan Impairment Charge 1,190.9 872.0 0.22 2,289.0 0.30 2,125.0 0.27 1,670.0 0.20 1.4 1.0 0.00 4.0 0.00 38.0 0.00 725.0 0.09 3,579.6 2,621.0 0.67 4,564.0 0.61 4,468.0 0.56 4,016.0 0.48 n.a. n.a. - n.a. - n.a. - n.a. - 271.8 199.0 0.05 26.0 0.00 1,605.0 0.20 906.0 0.11 26. Non-recurring Expense 1,466.8 1,074.0 0.28 228.0 0.03 897.0 0.11 n.a. - 27. Change in Fair Value of Ow n Debt (101.1) (74.0) (0.02) (129.0) (0.02) (633.0) (0.08) 377.0 0.04 n.a. n.a. - n.a. - n.a. - n.a. - 2,283.5 1,672.0 0.43 4,233.0 0.56 4,543.0 0.57 5,299.0 0.63 629.6 461.0 0.12 1,080.0 0.14 1,171.0 0.15 1,216.0 0.14 n.a. n.a. - n.a. - n.a. - n.a. - 1,653.9 1,211.0 0.31 3,153.0 0.42 3,372.0 0.42 4,083.0 0.48 (0.06) 22. Securities and Other Credit Impairment Charges 23. Operating Profit 24. Equity-accounted Profit/ Loss - Non-operating 25. Non-recurring Income 28. Other Non-operating Income and Expenses 29. Pre-tax Profit 30. Tax expense 31. Profit/Loss from Discontinued Operations 32. Net Incom e 33. Change in Value of AFS Investments 831.7 609.0 0.16 (363.0) (0.05) 1,972.0 0.25 (539.0) 34. Revaluation of Fixed Assets (16.4) (12.0) (0.00) 0.0 0.00 n.a. - n.a. - 35. Currency Translation Differences 267.7 196.0 0.05 (1,038.0) (0.14) (313.0) (0.04) (477.0) (0.06) 36. Remaining OCI Gains/(losses) 826.3 605.0 0.16 (1,023.0) (0.14) (2,688.0) (0.34) (195.0) (0.02) 3,563.2 2,609.0 0.67 729.0 0.10 2,343.0 0.29 2,872.0 0.34 61.5 45.0 0.01 90.0 0.01 91.0 0.01 78.0 0.01 39. Memo: Net Income after Allocation to Non-controlling Interests 1,592.5 1,166.0 0.30 3,063.0 0.41 3,281.0 0.41 4,005.0 0.47 40. Memo: Common Dividends Relating to the Period 1,673.0 1,225.0 0.31 2,962.0 0.39 2,131.0 0.27 3,000.0 0.36 41. Memo: Preferred Dividends Related to the Period n.a. n.a. - n.a. - n.a. - n.a. - 37. Fitch Com prehensive Incom e 38. Memo: Profit Allocation to Non-controlling Interests Exchange rate ING Bank N.V. October 2014 USD1 = EUR0.73220 USD1 = EUR0.72510 USD1 = EUR0.75790 USD1 = EUR0.77290 10 Banks ING Bank N.V. Balance Sheet 30 Jun 2014 31 Dec 2013 31 Dec 2012 31 Dec 2011 6 Months - Interim 6 Months - Interim As % of Year End As % of Year End As % of Year End As % of USDm EURm Assets EURm Assets EURm Assets EURm Assets Assets A. Loans 1. Residential Mortgage Loans n.a. n.a. - n.a. - n.a. - n.a. - 398,079.8 291,474.0 35.60 291,925.0 37.06 312,467.0 37.45 n.a. - 3. Other Consumer/ Retail Loans 36,686.7 26,862.0 3.28 26,761.0 3.40 24,598.0 2.95 n.a. - 4. Corporate & Commercial Loans 202,026.8 147,924.0 18.07 141,057.0 17.91 145,977.0 17.49 n.a. - 72,993.7 53,446.0 6.53 54,730.0 6.95 64,009.0 7.67 582,512.0 60.60 2. Other Mortgage Loans 5. Other Loans 6. Less: Reserves for Impaired Loans 8,492.2 6,218.0 0.76 6,135.0 0.78 5,505.0 0.66 4,943.0 0.51 7. Net Loans 701,294.7 513,488.0 62.72 508,338.0 64.54 541,546.0 64.90 577,569.0 60.09 8. Gross Loans 709,786.9 519,706.0 63.48 514,473.0 65.32 547,051.0 65.56 582,512.0 60.60 22,358.6 16,371.0 2.00 15,921.0 2.02 14,928.0 1.79 13,382.0 1.39 n.a. n.a. - n.a. - n.a. - n.a. - 58,981.2 43,186.0 5.27 37,875.0 4.81 37,944.0 4.55 45,323.0 4.72 n.a. n.a. - 5,137.0 0.65 1,109.0 0.13 n.a. - 177,163.3 129,719.0 15.84 84,412.0 10.72 61,922.0 7.42 66,875.0 6.96 9. Memo: Impaired Loans included above 10. Memo: Loans at Fair Value included above B. Other Earning Assets 1. Loans and Advances to Banks 2. Reverse Repos and Cash Collateral 3. Trading Securities and at FV through Income 4. Derivatives 4,751.4 3,479.0 0.42 37,164.0 4.72 64,241.0 7.70 69,215.0 7.20 125,569.5 91,942.0 11.23 76,883.0 9.76 74,279.0 8.90 74,935.0 7.80 6. Held to Maturity Securities 3,410.3 2,497.0 0.30 3,098.0 0.39 6,545.0 0.78 8,868.0 0.92 7. Equity Investments in Associates 2,006.3 1,469.0 0.18 707.0 0.09 841.0 0.10 827.0 0.09 n.a. n.a. - n.a. - n.a. - n.a. - 312,900.8 229,106.0 27.98 207,401.0 26.33 208,937.0 25.04 220,720.0 22.96 89,497.4 65,530.0 8.00 52,679.0 6.69 48,337.0 5.79 49,217.0 5.12 n.a. n.a. - n.a. - n.a. - n.a. - 127.0 93.0 0.01 108.0 0.01 207.0 0.02 435.0 0.05 13. Insurance Assets n.a. n.a. - n.a. - n.a. - n.a. - 14. Other Earning Assets n.a. n.a. - n.a. - 6,781.0 0.81 n.a. - 1,073,303.7 785,873.0 95.99 753,722.0 95.69 795,415.0 95.32 844,047.0 87.81 16,845.1 12,334.0 5. Available for Sale Securities 8. Other Securities 9. Total Securities 10. Memo: Government Securities included Above 11. Memo: Total Securities Pledged 12. Investments in Property 15. Total Earning Assets C. Non-Earning Assets 1. Cash and Due From Banks 1.51 11,920.0 1.51 15,447.0 1.85 28,112.0 2.92 n.a. n.a. - n.a. - n.a. - n.a. - 983.3 720.0 0.09 n.a. - n.a. - n.a. - 4. Fixed Assets 2,904.9 2,127.0 0.26 2,282.0 0.29 2,336.0 0.28 2,417.0 0.25 5. Goodw ill 2. Memo: Mandatory Reserves included above 3. Foreclosed Real Estate 1,425.8 1,044.0 0.13 1,035.0 0.13 1,188.0 0.14 1,179.0 0.12 6. Other Intangibles 777.1 569.0 0.07 571.0 0.07 590.0 0.07 564.0 0.06 7. Current Tax Assets 379.7 278.0 0.03 n.a. - n.a. - 459.0 0.05 2,051.4 1,502.0 0.18 1,305.0 0.17 2,139.0 0.26 2,437.0 0.25 n.a. n.a. - n.a. - n.a. - 62,483.0 6.50 19,472.8 14,258.0 1.74 16,809.0 2.13 17,318.0 2.08 19,467.0 2.03 1,118,143.9 818,705.0 100.00 787,644.0 100.00 834,433.0 100.00 961,165.0 100.00 1. Customer Deposits - Current 667,045.9 488,411.0 59.66 190,714.0 24.21 182,597.0 21.88 114,362.0 11.90 2. Customer Deposits - Savings n.a. n.a. - 284,069.0 36.07 277,766.0 33.29 291,516.0 30.33 3. Customer Deposits - Term n.a. n.a. - n.a. - n.a. - 73,486.0 7.65 667,045.9 488,411.0 59.66 474,783.0 60.28 460,363.0 55.17 479,364.0 49.87 7.52 8. Deferred Tax Assets 9. Discontinued Operations 10. Other Assets 11. Total Assets Liabilities and Equity D. Interest-Bearing Liabilities 4. Total Custom er Deposits 5. Deposits from Banks 44,251.6 32,401.0 3.96 24,071.0 3.06 32,981.0 3.95 72,233.0 6. Repos and Cash Collateral n.a. n.a. - 3,186.0 0.40 5,723.0 0.69 n.a. - 7. Other Deposits and Short-term Borrow ings n.a. n.a. - 49,891.0 6.33 57,330.0 6.87 66,332.0 6.90 8. Total Deposits, Money Market and Short-term Funding 711,297.5 520,812.0 63.61 551,931.0 70.07 556,397.0 66.68 617,929.0 64.29 9. Senior Debt Maturing after 1 Year 177,547.1 130,000.0 15.88 72,408.0 9.19 77,359.0 9.27 64,594.0 6.72 21,195.0 15,519.0 1.90 9,653.0 1.23 9,633.0 1.15 11,558.0 1.20 n.a. n.a. - n.a. - n.a. - n.a. - 198,742.1 145,519.0 17.77 82,061.0 10.42 86,992.0 10.43 76,152.0 7.92 10. Subordinated Borrow ing 11. Other Funding 12. Total Long Term Funding 13. Derivatives 6,401.0 0.78 127,838.0 93,603.0 11.43 57,844.0 7.34 44,916.0 5.38 65,251.0 6.79 1,046,619.8 766,335.0 93.60 731,014.0 92.81 756,359.0 90.64 833,540.0 86.72 (329.1) (241.0) (0.03) (167.0) (0.02) (38.0) (0.00) (595.0) (0.06) n.a. n.a. - n.a. - n.a. - n.a. - 1,703.1 1,247.0 0.15 1,226.0 0.16 1,721.0 0.21 1,834.0 0.19 4. Current Tax Liabilities 710.2 520.0 0.06 342.0 0.04 809.0 0.10 806.0 0.08 5. Deferred Tax Liabilities 984.7 721.0 0.09 340.0 0.04 1,571.0 0.19 1,735.0 0.18 6. Other Deferred Liabilities n.a. n.a. - n.a. - n.a. - n.a. - 7. Discontinued Operations n.a. n.a. - n.a. - n.a. - 64,265.0 6.69 14. Trading Liabilities 15. Total Funding E. Non-Interest Bearing Liabilities 1. Fair Value Portion of Debt 2. Credit impairment reserves 3. Reserves for Pensions and Other 8. Insurance Liabilities 8,742.1 39,178.0 4.97 68,054.0 8.16 74,208.0 7.72 n.a. n.a. - n.a. - n.a. - n.a. - 21,089.9 15,442.0 1.89 16,006.0 2.03 31,430.0 3.77 17,670.0 1.84 1,070,778.5 784,024.0 95.76 748,761.0 95.06 791,852.0 94.90 919,255.0 95.64 1. Pref. Shares and Hybrid Capital accounted for as Debt n.a. n.a. - 5,123.0 0.65 6,774.0 0.81 6,850.0 0.71 2. Pref. Shares and Hybrid Capital accounted for as Equity G. Equity n.a. n.a. - n.a. - n.a. - n.a. - 46,604.8 34,124.0 4.17 32,380.0 4.11 33,011.0 3.96 33,608.0 3.50 760.7 557.0 0.07 955.0 0.12 843.0 0.10 693.0 0.07 3. Securities Revaluation Reserves n.a. n.a. - 1,870.0 0.24 2,650.0 0.32 550.0 0.06 4. Foreign Exchange Revaluation Reserves n.a. n.a. - (989.0) (0.13) (263.0) (0.03) 209.0 0.02 5. Fixed Asset Revaluations and Other Accumulated OCI n.a. n.a. - (456.0) (0.06) (434.0) (0.05) n.a. - 47,365.5 34,681.0 4.24 33,760.0 4.29 35,807.0 4.29 35,060.0 3.65 9. Other Liabilities 10. Total Liabilities F. Hybrid Capital 1. Common Equity 2. Non-controlling Interest 6. Total Equity 7. Total Liabilities and Equity 1,118,143.9 818,705.0 100.00 787,644.0 100.00 834,433.0 100.00 961,165.0 100.00 8. Memo: Fitch Core Capital 45,162.5 33,068.0 4.04 31,884.0 3.94 33,220.0 4.01 32,099.0 3.34 9. Memo: Fitch Eligible Capital 45,162.5 33,068.0 4.04 31,884.0 3.94 33,220.0 4.01 32,099.0 3.34 Exchange rate ING Bank N.V. October 2014 USD1 = EUR0.73220 USD1 = EUR0.72510 USD1 = EUR0.75790 USD1 = EUR0.77290 11 Banks ING Bank N.V. Sum m ary Analytics 30 Jun 2014 31 Dec 2013 31 Dec 2012 31 Dec 2011 6 Months - Interim Year End Year End Year End 1. Interest Income on Loans/ Average Gross Loans n.a. 4.03 4.33 4.54 2. Interest Expense on Customer Deposits/ Average Customer Deposits n.a. 1.40 1.93 1.92 3. Interest Income/ Average Earning Assets 6.40 6.57 7.17 7.58 4. Interest Expense/ Average Interest-bearing Liabilities 4.91 5.21 5.86 6.12 5. Net Interest Income/ Average Earning Assets 1.62 1.53 1.46 1.58 6. Net Int. Inc Less Loan Impairment Charges/ Av. Earning Assets 1.39 1.24 1.21 1.39 7. Net Interest Inc Less Preferred Stock Dividend/ Average Earning Assets 1.62 1.53 1.46 1.58 1. Non-Interest Income/ Gross Revenues 22.72 21.76 19.75 17.90 2. Non-Interest Expense/ Gross Revenues 56.61 55.65 56.92 61.58 3. Non-Interest Expense/ Average Assets 1.13 1.04 0.96 1.08 20.86 19.24 18.15 18.61 A. Interest Ratios B. Other Operating Profitability Ratios 4. Pre-impairment Op. Profit/ Average Equity 5. Pre-impairment Op. Profit/ Average Total Assets 0.88 0.83 0.73 0.68 6. Loans and securities impairment charges/ Pre-impairment Op. Profit 24.99 33.44 32.62 37.36 7. Operating Profit/ Average Equity 15.65 12.80 12.23 11.66 0.66 0.55 0.49 0.42 27.57 25.51 25.78 22.95 10. Pre-Impairment Operating Profit / Risk Weighted Assets 2.40 2.43 2.38 1.94 11. Operating Profit / Risk Weighted Assets 1.80 1.62 1.60 1.22 1. Net Income/ Average Total Equity 7.23 8.84 9.23 11.85 2. Net Income/ Average Total Assets 0.30 0.38 0.37 0.43 3. Fitch Comprehensive Income/ Average Total Equity 15.58 2.04 6.41 8.34 4. Fitch Comprehensive Income/ Average Total Assets 0.65 0.09 0.26 0.30 5. Net Income/ Av. Total Assets plus Av. Managed Securitized Assets n.a. n.a. n.a. n.a. 6. Net Income/ Risk Weighted Assets 0.83 1.12 1.21 1.24 7. Fitch Comprehensive Income/ Risk Weighted Assets 1.79 0.26 0.84 0.87 1. Fitch Core Capital/ Risk Weighted Assets 11.27 10.98 11.99 9.71 2. Fitch Eligible Capital/ Risk Weighted Assets 11.27 10.98 11.99 9.71 3. Tangible Common Equity/ Tangible Assets 3.96 3.97 4.02 3.47 4. Tier 1 Regulatory Capital Ratio 11.60 13.53 14.40 11.69 5. Total Regulatory Capital Ratio 14.60 16.46 16.96 14.26 6. Core Tier 1 Regulatory Capital Ratio 10.80 11.72 11.97 9.62 4.24 4.29 4.29 3.65 101.16 93.94 63.20 73.48 46.95 406.31 90.95 104.46 n.a. n.a. n.a. n.a. (0.08) 0.57 3.47 3.09 1. Grow th of Total Assets 3.94 (5.61) (13.19) 3.01 2. Grow th of Gross Loans 1.02 (5.96) (6.09) (1.71) 3. Impaired Loans/ Gross Loans 3.15 3.09 2.73 2.30 4. Reserves for Impaired Loans/ Gross Loans 1.20 1.19 1.01 0.85 5. Reserves for Impaired Loans/ Impaired Loans 37.98 38.53 36.88 36.94 6. Impaired loans less Reserves for Impaired Loans/ Fitch Core Capital 30.70 31.55 28.19 26.29 7. Impaired Loans less Reserves for Impaired Loans/ Equity 29.28 28.99 26.32 24.07 8. Loan Impairment Charges/ Average Gross Loans 0.34 0.43 0.37 0.29 9. Net Charge-offs/ Average Gross Loans 0.25 0.28 n.a. 0.20 10. Impaired Loans + Foreclosed Assets/ Gross Loans + Foreclosed Assets 3.28 3.09 2.73 2.30 1. Loans/ Customer Deposits 106.41 108.36 118.83 121.52 2. Interbank Assets/ Interbank Liabilities 133.29 157.35 115.05 62.75 64.27 68.63 66.88 63.13 8. Operating Profit/ Average Total Assets 9. Taxes/ Pre-tax Profit C. Other Profitability Ratios D. Capitalization 7. Equity/ Total Assets 8. Cash Dividends Paid & Declared/ Net Income 9. Cash Dividend Paid & Declared/ Fitch Comprehensive Income 10. Cash Dividends & Share Repurchase/Net Income 11. Internal Capital Generation E. Loan Quality F. Funding 3. Customer Deposits/ Total Funding (excluding derivatives) ING Bank N.V. October 2014 12 Banks ING Bank N.V. Reference Data 30 Jun 2014 31 Dec 2013 31 Dec 2012 31 Dec 2011 6 Months - Interim 6 Months - Interim As % of Year End As % of Year End As % of Year End As % of USDm EURm Assets EURm Assets EURm Assets EURm Assets 1. Managed Securitized Assets Reported Off-Balance Sheet n.a. n.a. - n.a. - n.a. - n.a. - 2. Other off-balance sheet exposure to securitizations n.a. n.a. - n.a. - n.a. - n.a. - 3. Guarantees n.a. n.a. - 23,137.0 2.94 24,034.0 2.88 n.a. - 4. Acceptances and documentary credits reported off-balance sheet n.a. n.a. - 14,587.0 1.85 14,552.0 1.74 n.a. - 5. Committed Credit Lines n.a. n.a. - 85,057.0 10.80 86,549.0 10.37 n.a. - 6. Other Contingent Liabilities n.a. n.a. - 507.0 0.06 499.0 0.06 n.a. - 1,118,143.9 818,705.0 100.00 910,932.0 115.65 960,067.0 115.06 961,165.0 100.00 400,710.2 293,400.0 35.84 282,503.0 35.87 278,656.0 33.39 330,421.0 34.38 A. Off-Balance Sheet Item s 7. Total Business Volume 8. Memo: Risk Weighted Assets 9. Fitch Adjustments to Risk Weighted Assets 10. Fitch Adjusted Risk Weighted Assets n.a. n.a. - n.a. - n.a. - n.a. - 400,710.2 293,400.0 35.84 282,503.0 35.87 278,656.0 33.39 330,421.0 34.38 B. Average Balance Sheet Average Loans 704,774.7 516,036.0 63.03 534,725.6 67.89 572,453.4 68.60 581,873.0 60.54 Average Earning Assets 1,049,417.8 768,383.7 93.85 785,850.4 99.77 841,759.2 100.88 860,737.7 89.55 Average Assets 1,097,750.2 803,772.7 98.18 823,793.8 104.59 905,170.0 108.48 945,613.3 98.38 n.a. n.a. - n.a. - n.a. - n.a. - 1,023,338.3 749,288.3 91.52 760,989.8 96.62 820,026.4 98.27 843,419.3 87.75 Average Common equity 44,525.7 32,601.7 3.98 33,736.4 4.28 35,231.2 4.22 32,863.0 3.42 Average Equity 46,126.3 33,773.7 4.13 35,648.4 4.53 36,534.6 4.38 34,443.3 3.58 658,712.5 482,309.3 58.91 473,499.4 60.12 472,549.4 56.63 487,873.7 50.76 Loans & Advances < 3 months n.a. n.a. - 79,338.0 10.07 77,733.0 9.32 n.a. - Loans & Advances 3 - 12 Months n.a. n.a. - 32,854.0 4.17 31,944.0 3.83 n.a. - Loans and Advances 1 - 5 Years n.a. n.a. - 120,881.0 15.35 125,556.0 15.05 n.a. - Loans & Advances > 5 years n.a. n.a. - 275,265.0 34.95 306,313.0 36.71 n.a. - Debt Securities < 3 Months n.a. n.a. - n.a. - n.a. - n.a. - Debt Securities 3 - 12 Months n.a. n.a. - n.a. - n.a. - n.a. - Debt Securities 1 - 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Debt Securities > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Loans & Advances to Banks < 3 Months n.a. n.a. - 27,497.0 3.49 28,157.0 3.37 n.a. - Loans & Advances to Banks 3 - 12 Months n.a. n.a. - 5,653.0 0.72 3,894.0 0.47 n.a. - Loans & Advances to Banks 1 - 5 Years n.a. n.a. - 4,361.0 0.55 5,597.0 0.67 n.a. - Loans & Advances to Banks > 5 Years n.a. n.a. - 364.0 0.05 296.0 0.04 n.a. - Retail Deposits < 3 months n.a. n.a. - 440,869.0 55.97 413,534.0 49.56 n.a. - Retail Deposits 3 - 12 Months n.a. n.a. - 25,311.0 3.21 38,098.0 4.57 n.a. - Retail Deposits 1 - 5 Years n.a. n.a. - 6,212.0 0.79 6,239.0 0.75 n.a. - Retail Deposits > 5 Years n.a. n.a. - 2,391.0 0.30 2,492.0 0.30 n.a. - Other Deposits < 3 Months n.a. n.a. - n.a. - n.a. - n.a. - Other Deposits 3 - 12 Months n.a. n.a. - n.a. - n.a. - n.a. - Other Deposits 1 - 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Other Deposits > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Deposits from Banks < 3 Months n.a. n.a. - 18,139.0 2.30 27,891.0 3.34 n.a. - Deposits from Banks 3 - 12 Months n.a. n.a. - 1,755.0 0.22 3,305.0 0.40 n.a. - Deposits from Banks 1 - 5 Years n.a. n.a. - 2,891.0 0.37 2,757.0 0.33 n.a. - Deposits from Banks > 5 Years n.a. n.a. - 4,472.0 0.57 4,751.0 0.57 n.a. - Senior Debt Maturing < 3 months n.a. n.a. - 31,069.0 3.94 35,063.0 4.20 n.a. - Senior Debt Maturing 3-12 Months n.a. n.a. - 18,822.0 2.39 22,267.0 2.67 n.a. - Senior Debt Maturing 1- 5 Years n.a. n.a. - 39,476.0 5.01 44,411.0 5.32 n.a. - Senior Debt Maturing > 5 Years n.a. n.a. - 32,932.0 4.18 32,948.0 3.95 n.a. - Total Senior Debt on Balance Sheet n.a. n.a. - 122,299.0 15.53 134,689.0 16.14 n.a. - Fair Value Portion of Senior Debt n.a. n.a. - n.a. - n.a. - n.a. - Covered Bonds n.a. n.a. - n.a. - n.a. - n.a. - Subordinated Debt Maturing < 3 months n.a. n.a. - 15.0 0.00 650.0 0.08 n.a. - Subordinated Debt Maturing 3-12 Months n.a. n.a. - 90.0 0.01 28.0 0.00 n.a. - Subordinated Debt Maturing 1- 5 Year n.a. n.a. - 2,218.0 0.28 4,581.0 0.55 n.a. - Subordinated Debt Maturing > 5 Years n.a. n.a. - 7,330.0 0.93 4,374.0 0.52 n.a. - 21,195.0 15,519.0 1.90 9,653.0 1.23 9,633.0 1.15 11,558.0 1.20 n.a. n.a. - n.a. - n.a. - n.a. - Average Managed Securitized Assets (OBS) Average Interest-Bearing Liabilities Average Customer Deposits C. Maturities Asset Maturities: Liability Maturities: Total Subordinated Debt on Balance Sheet Fair Value Portion of Subordinated Debt D. Equity Reconciliation 1. Equity 47,365.5 34,681.0 4.24 33,760.0 4.29 35,807.0 4.29 35,060.0 3.65 2. Add: Pref. Shares and Hybrid Capital accounted for as Equity n.a. n.a. - n.a. - n.a. - n.a. - 3. Add: Other Adjustments n.a. n.a. - n.a. - n.a. - n.a. - 47,365.5 34,681.0 4.24 33,760.0 4.29 35,807.0 4.29 35,060.0 3.65 47,365.5 34,681.0 4.24 33,760.0 4.29 35,807.0 4.29 35,060.0 3.65 0.0 0.0 0.00 (167.0) (0.02) (38.0) (0.00) (595.0) (0.06) 4. Published Equity E. Fitch Eligible Capital Reconciliation 1. Total Equity as reported (including non-controlling interests) 2. Fair value effect incl in ow n debt/borrow ings at fv on the B/S- CC only 3. Non-loss-absorbing non-controlling interests 0.0 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 1,425.8 1,044.0 0.13 1,035.0 0.13 1,188.0 0.14 1,179.0 0.12 777.1 569.0 0.07 571.0 0.07 590.0 0.07 564.0 0.06 6. Deferred tax assets deduction 0.0 0.0 0.00 103.0 0.12 771.0 0.07 623.0 0.06 7. Net asset value of insurance subsidiaries 0.0 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 8. First loss tranches of off-balance sheet securitizations 0.0 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 45,162.5 33,068.0 4.04 31,884.0 3.94 33,220.0 4.01 32,099.0 3.34 0.0 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 45,162.5 33,068.0 4.04 31,884.0 3.94 33,220.0 4.01 32,099.0 3.34 4. Goodw ill 5. Other intangibles 9. Fitch Core Capital 10. Eligible w eighted Hybrid capital 11. Government held Hybrid Capital 12. Fitch Eligible Capital Exchange Rate ING Bank N.V. October 2014 USD1 = EUR0.73220 USD1 = EUR0.72510 USD1 = EUR0.75790 USD1 = EUR0.77290 13 Banks The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2014 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004.Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings, Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch‟s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third-party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch‟s ratings should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings can be affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion is based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at anytime for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assi gnment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. ING Bank N.V. October 2014 14