Banks. ING Bank N.V. Netherlands. Full Rating Report. Key Rating Drivers. Rating Sensitivities. Ratings

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1 Netherlands Full Rating Report Ratings Foreign Currency Long-Term IDR A+ Short-Term IDR F1+ Viability Rating a Support Rating 1 Support Rating Floor A+ Sovereign Risk Foreign-Currency Long-Term IDR Local-Currency Long-Term IDR Outlooks AAA AAA Foreign-Currency Long-Term IDR Negative Sovereign Foreign-Currency Long- Stable Term IDR Sovereign Local-Currency Long- Stable Term IDR Financial Data (cons.) 30 Jun Dec 13 Total assets (USDm) 1,118,144 1,086,256 Total assets (EURm) 818, ,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, (EURm) Operating ROAA (%) Operating ROAE (%) Fitch core capital/ weighted risks (%) CET 1 ratio (%) Key Rating Drivers State Support Driven IDRs: 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 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 % 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 ING Bank came through the ECB Comprehensive Assessment unscathed, as expected by Fitch. Related Research - Ratings Navigator (July 2014) Sovereign Support for Banks - Rating Path Expectations (March 2014) Netherlands (July 2014) Analysts Philippe Lamaud philippe.lamaud@fitchratings.com Jens Hallen jens.hallen@fitchratings.com 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. 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

2 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Banks Figure 1 Dutch Companies Bankruptcies and Unemployment Rate 1Q13-2Q14 Bankruptcies (RHS) (%) Figure 2 Unemployment (LHS) Unemployement rate based on ILO definition Source: Eurostat, CBS, Fitch 2,500 2,250 2,000 1,750 1,500 1,250 1,000 Dutch Housing Prices and Sale Jan 13-Aug Number of sold dwellings (000 units) (LHS) Housing price index (0=Aug 08) (RHS) Linear (Number of sold dwellings (000 units) (LHS)) 85 Source: CBS, Fitch Support 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. 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 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 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. 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. Figure 3 Macroeconomic Data - ING Bank s Main Markets GDP annual growth (%) Unemployment rate (%) e 2015e e 2015e Eurozone Netherlands (AAA/Stable) Belgium (AA/Stable) Germany (AAA/Stable) 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 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

3 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. Figure 4 Selected Market Shares End-2013 (%) NL BE GE Retail mortgage loans Retail savings SME lending n.a. Mid-corp lending n.a. Source: ING Bank Figure 5 Business Volumes by Division End-June 14 (EURbn) Loans Deposits Commercial banking Retail banking Of which: Netherlands Belgium Germany France -.9 Italy Spain Australia Other Source: ING Bank Figure 6 Main Financial Targets 1H14 Ambition 2017 CET1 ratio (%).5 > Leverage (%) 3.7 ± 4 Loans/deposits 1.03 n.a. Net Interest Margin (bp) Cost/income 56.2 a (%) ROE (%).7 a -13 a Underlying earnings (i.e. excludes oneoffs) Source: ING Bank Company Profile Strong Benelux Franchise, Challenger Positions Elsewhere 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%-% 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 0%. Management High Quality Management 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

4 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 0bp 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 end- June 2014) and fixed-income debt investments (EUR7bn) 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. 4

5 Figure 8 Figure 9 Asset Quality Ratios (1) Impaired loans/gross loans (LHS) Reserves for impaired loans/gross loans (LHS) Net impaired loans/equity (RHS) (%) (%) End-2011 End-2012 End-2013 End-1H14 Asset Quality Ratios (2) (bp) LICs/average gross loans Writte-offs/average gross loans LICs/average gross loans, past years average H14 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 recession, Fitch believes the quality of this book will remain healthy. Figure 7 Customer Loan Book (End-June 2014, EUR570bnᵃ) (%) Exposure NPLᵇ ratio Retail NL Dutch mortgage loans Dutch SMEs Retail BE Retail GE Retail international Retail banking Structured finance CRE General lending Leasing Other Commercial banking ᵃ Includes off-balance sheet exposures ᵇ Non-performing loans Source: ING Bank 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 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 5

6 Figure Debt Securities End-June 2014 Banks 11% Covered bonds 18% ABS 6% Corporates 3% Government bonds 62% 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. Low Impaired Loans Coverage Partly Mitigated by Prudent Classification 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 bp. 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) Cost/income (LHS) Operating profit/average equity (RHS) Net income/average equity (RHS) H Key Profitability Ratios (2) (%) Imp. charges/pre-imp. op. profit (LHS) Interest income/average earning assets (RHS) H 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. 6

7 Figure 13 1H14 Underlying Performance by Division (EURm) RB CB CL Total Net interest income 4,443 1, ,145 Commission income ,155 Other Underlying 5,255 2, ,721 income Operating expenses 3,044 1, ,228 Impairment charges Underlying 1,642 1, ,582 pre-tax profit Underlying cost/income (%) 54.7 Underlying ROE (%).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 Figure 14 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) End End End End- 1H : Basel II/1H14: 'Phased-in' Basel III 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. 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 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.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 This will mean a minimum regulatory requirement of % (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. ING Bank targets a fully-loaded CET1 ratio above % plus a comfortable buffer, which Fitch expects will be around 1pp. This target is not excessively ambitious given that the bank already reports a.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 end- 2013). 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 7

8 2H >2020 Banks Figure 15 LT Debt Maturity Profile At end-june 2014 Subordinated debt RMBS Covered bonds (bn) Senior unsecured debt Figure 16 Long-Term Debt Issuance (EURbn) 1H Senior unsecured Secured debt Covered bonds RMBS Subordinated debt Total now intends to focus lending growth in countries where there are deposits available to fund new lending. The bank s large deposits base has grown steadily since the financial crisis (+22% since end 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 The rest is households/smes, the largest part covered by domestic deposit guarantee schemes. 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. Large Liquidity Buffer 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 0% at end-june

9 Appendix Figure 17 Peer Comparison ( Viability Rating ) ING Bank ( a ) ABN AMRO ( a ) BNPP Fortis ( a ) Groupe BPCE ( a ) Danske Bank ( a ) 1H H H H H Total assets (EURbn) ,152 1, 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 n.a Fitch core capital ratio n.a Fully-loaded B3 CET n.a. n.a Fitch core capital (EURbn) Source: Banks data reclassified by Fitch 9

10 Income Statement 30 Jun Dec Dec Dec Months - Interim 6 Months - Interim As % of Year End As % of Year End As % of Year End As % of USDm EURm EURm EURm EURm Unaudited Unaudited Earning Assets Unqualified Earning Assets Unqualified Earning Assets Unqualified Earning Assets 1. Interest Income on Loans n.a. n.a. - 21, , , Other Interest Income 33, , , , , Dividend Income Gross Interest and Dividend Income 33, , , , , Interest Expense on Customer Deposits n.a. n.a. - 6, , , Other Interest Expense 24, , , , , Total Interest Expense 24, , , , , Net Interest Income 8, , , , , Net Gains (Losses) on Trading and Derivatives Net Gains (Losses) on Other Securities Net Gains (Losses) on Assets at FV through Income Statement n.a. n.a. - n.a. - (12.0) (0.00) n.a Net Insurance Income n.a. n.a. - n.a. - n.a. - n.a Net Fees and Commissions 1, , , , , Other Operating Income (456.0) (0.06) Total Non-Interest Operating Income 2, , , , , Personnel Expenses 3, , , , , Other Operating Expenses 2, , , , , Total Non-Interest Expenses 6, , , , , Equity-accounted Profit/ Loss - Operating Pre-Impairment Operating Profit 4, , , , , Loan Impairment Charge 1, , , , Securities and Other Credit Impairment Charges Operating Profit 3, , , , , Equity-accounted Profit/ Loss - Non-operating n.a. n.a. - n.a. - n.a. - n.a Non-recurring Income , Non-recurring Expense 1, , n.a Change in Fair Value of Ow n Debt (1.1) (74.0) (0.02) (129.0) (0.02) (633.0) (0.08) Other Non-operating Income and Expenses n.a. n.a. - n.a. - n.a. - n.a Pre-tax Profit 2, , , , , Tax expense , , , Profit/Loss from Discontinued Operations n.a. n.a. - n.a. - n.a. - n.a Net Income 1, , , , , Change in Value of AFS Investments (363.0) (0.05) 1, (539.0) (0.06) 34. Revaluation of Fixed Assets (16.4) (12.0) (0.00) n.a. - n.a Currency Translation Differences (1,038.0) (0.14) (313.0) (0.04) (477.0) (0.06) 36. Remaining OCI Gains/(losses) (1,023.0) (0.14) (2,688.0) (0.34) (195.0) (0.02) 37. Fitch Comprehensive Income 3, , , , Memo: Profit Allocation to Non-controlling Interests Memo: Net Income after Allocation to Non-controlling Interests 1, , , , , Memo: Common Dividends Relating to the Period 1, , , , , Memo: Preferred Dividends Related to the Period n.a. n.a. - n.a. - n.a. - n.a. - Exchange rate USD1 = EUR USD1 = EUR0.725 USD1 = EUR USD1 = EUR

11 Balance Sheet Assets A. Loans 30 Jun Dec Dec Dec 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. Residential Mortgage Loans n.a. n.a. - n.a. - n.a. - n.a Other Mortgage Loans 398, , , , n.a Other Consumer/ Retail Loans 36, , , , n.a Corporate & Commercial Loans 202, , , , n.a Other Loans 72, , , , , Less: Reserves for Impaired Loans 8, , , , , Net Loans 701, , , , , Gross Loans 709, , , , , Memo: Impaired Loans included above 22, , , , , Memo: Loans at Fair Value included above n.a. n.a. - n.a. - n.a. - n.a. - B. Other Earning Assets 1. Loans and Advances to Banks 58, , , , , Reverse Repos and Cash Collateral n.a. n.a. - 5, , n.a Trading Securities and at FV through Income 177, , , , , Derivatives 4, , , , , Available for Sale Securities 125, , , , , Held to Maturity Securities 3,4.3 2, , , , Equity Investments in Associates 2, , Other Securities n.a. n.a. - n.a. - n.a. - n.a Total Securities 312, , , , , Memo: Government Securities included Above 89, , , , , Memo: Total Securities Pledged n.a. n.a. - n.a. - n.a. - n.a Investments in Property Insurance Assets n.a. n.a. - n.a. - n.a. - n.a Other Earning Assets n.a. n.a. - n.a. - 6, n.a Total Earning Assets 1,073, , , , , C. Non-Earning Assets 1. Cash and Due From Banks 16, , , , , Memo: Mandatory Reserves included above n.a. n.a. - n.a. - n.a. - n.a Foreclosed Real Estate n.a. - n.a. - n.a Fixed Assets 2, , , , , Goodw ill 1, , , , , Other Intangibles Current Tax Assets n.a. - n.a Deferred Tax Assets 2, , , , , Discontinued Operations n.a. n.a. - n.a. - n.a. - 62, Other Assets 19, , , , , Total Assets 1,118, , , , , Liabilities and Equity D. Interest-Bearing Liabilities 1. Customer Deposits - Current 667, , , , , Customer Deposits - Savings n.a. n.a , , , Customer Deposits - Term n.a. n.a. - n.a. - n.a. - 73, Total Customer Deposits 667, , , , , Deposits from Banks 44, , , , , Repos and Cash Collateral n.a. n.a. - 3, , n.a Other Deposits and Short-term Borrow ings n.a. n.a. - 49, , , Total Deposits, Money Market and Short-term Funding 711, , , , , Senior Debt Maturing after 1 Year 177, , , , , Subordinated Borrow ing 21, , , , , Other Funding n.a. n.a. - n.a. - n.a. - n.a Total Long Term Funding 198, , , , , Derivatives 8, , , , , Trading Liabilities 127, , , , , Total Funding 1,046, , , , , E. Non-Interest Bearing Liabilities 1. Fair Value Portion of Debt (329.1) (241.0) (0.03) (167.0) (0.02) (38.0) (0.00) (595.0) (0.06) 2. Credit impairment reserves n.a. n.a. - n.a. - n.a. - n.a Reserves for Pensions and Other 1, , , , , Current Tax Liabilities Deferred Tax Liabilities , , Other Deferred Liabilities n.a. n.a. - n.a. - n.a. - n.a Discontinued Operations n.a. n.a. - n.a. - n.a. - 64, Insurance Liabilities n.a. n.a. - n.a. - n.a. - n.a Other Liabilities 21, , , , , Total Liabilities 1,070, , , , , F. Hybrid Capital 1. Pref. Shares and Hybrid Capital accounted for as Debt n.a. n.a. - 5, , , Pref. Shares and Hybrid Capital accounted for as Equity n.a. n.a. - n.a. - n.a. - n.a. - G. Equity 1. Common Equity 46, , , , , Non-controlling Interest Securities Revaluation Reserves n.a. n.a. - 1, , Foreign Exchange Revaluation Reserves n.a. n.a. - (989.0) (0.13) (263.0) (0.03) Fixed Asset Revaluations and Other Accumulated OCI n.a. n.a. - (456.0) (0.06) (434.0) (0.05) n.a Total Equity 47, , , , , Total Liabilities and Equity 1,118, , , , , Memo: Fitch Core Capital 45, , , , , Memo: Fitch Eligible Capital 45, , , , , Exchange rate USD1 = EUR USD1 = EUR0.725 USD1 = EUR USD1 = EUR

12 Summary Analytics 30 Jun Dec Dec Dec Months - Interim Year End Year End Year End A. Interest Ratios 1. Interest Income on Loans/ Average Gross Loans n.a Interest Expense on Customer Deposits/ Average Customer Deposits n.a Interest Income/ Average Earning Assets Interest Expense/ Average Interest-bearing Liabilities Net Interest Income/ Average Earning Assets Net Int. Inc Less Loan Impairment Charges/ Av. Earning Assets Net Interest Inc Less Preferred Stock Dividend/ Average Earning Assets B. Other Operating Profitability Ratios 1. Non-Interest Income/ Gross Revenues Non-Interest Expense/ Gross Revenues Non-Interest Expense/ Average Assets Pre-impairment Op. Profit/ Average Equity Pre-impairment Op. Profit/ Average Total Assets Loans and securities impairment charges/ Pre-impairment Op. Profit Operating Profit/ Average Equity Operating Profit/ Average Total Assets Taxes/ Pre-tax Profit Pre-Impairment Operating Profit / Risk Weighted Assets Operating Profit / Risk Weighted Assets C. Other Profitability Ratios 1. Net Income/ Average Total Equity Net Income/ Average Total Assets Fitch Comprehensive Income/ Average Total Equity Fitch Comprehensive Income/ Average Total Assets Net Income/ Av. Total Assets plus Av. Managed Securitized Assets n.a. n.a. n.a. n.a. 6. Net Income/ Risk Weighted Assets Fitch Comprehensive Income/ Risk Weighted Assets D. Capitalization 1. Fitch Core Capital/ Risk Weighted Assets Fitch Eligible Capital/ Risk Weighted Assets Tangible Common Equity/ Tangible Assets Tier 1 Regulatory Capital Ratio Total Regulatory Capital Ratio Core Tier 1 Regulatory Capital Ratio Equity/ Total Assets Cash Dividends Paid & Declared/ Net Income Cash Dividend Paid & Declared/ Fitch Comprehensive Income Cash Dividends & Share Repurchase/Net Income n.a. n.a. n.a. n.a. 11. Internal Capital Generation (0.08) E. Loan Quality 1. Grow th of Total Assets 3.94 (5.61) (13.19) Grow th of Gross Loans 1.02 (5.96) (6.09) (1.71) 3. Impaired Loans/ Gross Loans Reserves for Impaired Loans/ Gross Loans Reserves for Impaired Loans/ Impaired Loans Impaired loans less Reserves for Impaired Loans/ Fitch Core Capital Impaired Loans less Reserves for Impaired Loans/ Equity Loan Impairment Charges/ Average Gross Loans Net Charge-offs/ Average Gross Loans n.a Impaired Loans + Foreclosed Assets/ Gross Loans + Foreclosed Assets F. Funding 1. Loans/ Customer Deposits Interbank Assets/ Interbank Liabilities Customer Deposits/ Total Funding (excluding derivatives)

13 Reference Data 30 Jun Dec Dec Dec 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 A. Off-Balance Sheet Items 1. Managed Securitized Assets Reported Off-Balance Sheet n.a. n.a. - n.a. - n.a. - n.a Other off-balance sheet exposure to securitizations n.a. n.a. - n.a. - n.a. - n.a Guarantees n.a. n.a. - 23, , n.a Acceptances and documentary credits reported off-balance sheet n.a. n.a. - 14, , n.a Committed Credit Lines n.a. n.a. - 85, , n.a Other Contingent Liabilities n.a. n.a n.a Total Business Volume 1,118, , , , , Memo: Risk Weighted Assets 400, , , , , Fitch Adjustments to Risk Weighted Assets n.a. n.a. - n.a. - n.a. - n.a. -. Fitch Adjusted Risk Weighted Assets 400, , , , , B. Average Balance Sheet Average Loans 704, , , , , Average Earning Assets 1,049, , , , , Average Assets 1,097, , , , , Average Managed Securitized Assets (OBS) n.a. n.a. - n.a. - n.a. - n.a. - Average Interest-Bearing Liabilities 1,023, , , , , Average Common equity 44, , , , , Average Equity 46, , , , , Average Customer Deposits 658, , , , , C. Maturities Asset Maturities: Loans & Advances < 3 months n.a. n.a. - 79, , n.a. - Loans & Advances 3-12 Months n.a. n.a. - 32, , n.a. - Loans and Advances 1-5 Years n.a. n.a , , n.a. - Loans & Advances > 5 years n.a. n.a , , 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, , n.a. - Loans & Advances to Banks 3-12 Months n.a. n.a. - 5, , n.a. - Loans & Advances to Banks 1-5 Years n.a. n.a. - 4, , n.a. - Loans & Advances to Banks > 5 Years n.a. n.a n.a. - Liability Maturities: Retail Deposits < 3 months n.a. n.a , , n.a. - Retail Deposits 3-12 Months n.a. n.a. - 25, , n.a. - Retail Deposits 1-5 Years n.a. n.a. - 6, , n.a. - Retail Deposits > 5 Years n.a. n.a. - 2, , 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, , n.a. - Deposits from Banks 3-12 Months n.a. n.a. - 1, , n.a. - Deposits from Banks 1-5 Years n.a. n.a. - 2, , n.a. - Deposits from Banks > 5 Years n.a. n.a. - 4, , n.a. - Senior Debt Maturing < 3 months n.a. n.a. - 31, , n.a. - Senior Debt Maturing 3-12 Months n.a. n.a. - 18, , n.a. - Senior Debt Maturing 1-5 Years n.a. n.a. - 39, , n.a. - Senior Debt Maturing > 5 Years n.a. n.a. - 32, , n.a. - Total Senior Debt on Balance Sheet n.a. n.a , , 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 n.a. - Subordinated Debt Maturing 3-12 Months n.a. n.a n.a. - Subordinated Debt Maturing 1-5 Year n.a. n.a. - 2, , n.a. - Subordinated Debt Maturing > 5 Years n.a. n.a. - 7, , n.a. - Total Subordinated Debt on Balance Sheet 21, , , , , Fair Value Portion of Subordinated Debt n.a. n.a. - n.a. - n.a. - n.a. - D. Equity Reconciliation 1. Equity 47, , , , , Add: Pref. Shares and Hybrid Capital accounted for as Equity n.a. n.a. - n.a. - n.a. - n.a Add: Other Adjustments n.a. n.a. - n.a. - n.a. - n.a Published Equity 47, , , , , E. Fitch Eligible Capital Reconciliation 1. Total Equity as reported (including non-controlling interests) 47, , , , , Fair value effect incl in own debt/borrowings at fv on the B/S- CC only (167.0) (0.02) (38.0) (0.00) (595.0) (0.06) 3. Non-loss-absorbing non-controlling interests Goodw ill 1, , , , , Other intangibles Deferred tax assets deduction Net asset value of insurance subsidiaries First loss tranches of off-balance sheet securitizations Fitch Core Capital 45, , , , , Eligible w eighted Hybrid capital Government held Hybrid Capital Fitch Eligible Capital 45, , , , , Exchange Rate USD1 = EUR USD1 = EUR0.725 USD1 = EUR USD1 = EUR