Balance sheet transformation Capital, funding and liquidity ING Investor Day Amsterdam 13 January 2012
Priorities in transitioning to Basel III 1 2 3 4 Strong capital generation and a conservative funding mix Johannes Wolvius Sound funding and liquidity profile form strategic advantage for our business model Harold Naus Building Basel III liquidity while preserving the NIM Olivier Casse & Boris Dunnewijk Balance sheet integration to result in higher return Harold Naus ING Investor Day - 13 January 2012 2
Strong capital generation and a conservative funding mix Johannes Wolvius, Head ING Group Capital Management ING Investor Day - 13 January 2012 3
ING has a good starting position to reach Basel III capital targets by 2013 Targets Actions Core Tier 1 To be reached in 2013 6.5% 3Q08 9.6% 3Q11 10% Strong continued capital generation and RWA containment Leverage ratio To be reached in 2013 57 29 < 25 Further reduction via balance sheet optimisation 3Q08 3Q11 LCR 1 ~90% 3Q11 > 100% NSFR 1 ~85% > 100% 1 Excluding ING Direct US 3Q11 To be reached in 2015 Further optimising the investment portfolio Implementation as of 2015 Implementation expected as of 2018 Uncertainty around definitions ING Investor Day - 13 January 2012 4
ING has shown strong capital generation ING Bank core Tier 1 ratio Core Tier 1 capital surplus generation* (in EUR mln) 1,959 7.3% 7.8% 9.6% 9.6% 4,462 1,150 2,809-450 -261 2008 2009 2010 9M2011 Core Tier 1 EUR 3 bln paid to State 2009 2010 3Q11 Change of required capital (RWA movement at constant FX) Net profit before minority interest * Core Tier 1 capital generated is defined as net result before minority interest minus 10% * RWA growth at constant FX Focus on State repayment and Basel III State repayment of EUR 3 bln in 2011 was offset by retained earnings, divestments and lower RWA Cumulative capital generation since 2009 amounts to almost EUR 10 bln ING Investor Day - 13 January 2012 5
Core Tier 1 target increased to 10% 7.5% CT1 8-12% CT1 Global SIFI 0-2.5% Counter cyclical buffer, 0-2.5% Cap. cons. buffer, 2.5% Basel III, 4.5% 8 12.5% CT1 Dutch SIFI 1-3% 9.0% CT1 Uncertain environment for setting a core Tier 1 target, with no formal guidance yet on SIFI buffers A target of 10% offers a buffer between indicative SIFI requirements and could vary over the cycle depending on the counter cyclical buffer SIFI buffer phased in during 2016-2019 Current target (Basel II) Basel III standard (indicative) Dutch regulator (indicative) EBA (Basel II) 10% target to be reached in 2013 ING Investor Day - 13 January 2012 6
Core Tier 1 target of 10% to be reached in 2013 1.0% -0.3% -0.8% 9.6% 9.5% 10.0% 10.0% Sept. 2011 Divestments* Basel 2.5 Basel III Capital Generation 2013 2015 Strong focus on core Tier 1 Strong earnings generation should enable ING to grow into Basel III targets before the end of 2013 A further review of non-core assets in the Bank may also accelerate repayment of the State Dividend payments can be resumed post State repayment and restructuring * Divestments include part of REIM and ING Direct USA ING Investor Day - 13 January 2012 7
Limited increase in RWA expected In EUR bln -35 11 31 23-15 In line with GDP 320 335 3Q11 ING Direct USA Basel 2.5 Basel III Growth / rating migration Identified mgt actions 2013 Growth / rating migration Managing RWA growth Divestments and indentified management actions offset the majority of the impact from regulatory changes Business growth will be limited and focussed on core clients 2015 ING Investor Day - 13 January 2012 8
Identified management actions amount to 40 bps Financial Markets De-risking and adaption of Financial Markets platform Currently identified management actions will lead to a RWA reduction EUR 10 bln or 25 bps Other Additional management actions will lead to a further mitigation Non-core general lease portfolio in run-off Reduce Real Estate Investments and Real Estate Development projects EUR 5 bln EUR 15 bln or 40 bps ING Investor Day - 13 January 2012 9
Basel III capital impact a manageable 80 bps by end of 2013 RWA impact implemented in 2013* bps IFRS assets below 15% threshold -20 CVA and correlation -50 Other RWA -5 Capital impact in 2013* AFS Revaluation reserve +10 Minority interest -15 Total 2013-80 Mgt actions 25 bps -55 bps Basel III impact in 2013 is expected to be -80 bps This excludes currently identified management actions of +25 bps by 2013 Currently identified management actions include adaption and de-risking of Financial Markets platform Additional phase 2014-2018* AFS Revaluation reserve Pension fund assets Expected loss CVA derivatives Intangibles * Estimated impact based on figures as of 30 September 2011-12 bps per annum 2014-2018 -60 bps is expected to be phased in during the period 2014-2018 and based on figures as of 30 September 2011 Total Basel III impact before management actions amounts to -140 bps This does not incorporate 25 bps DTA impact, which is expected to be utilised before the end of 2013 ING Investor Day - 13 January 2012 10
ING Bank benefits from favourable funding mix Funding mix (%) 11% 8% 4% 8% 13% 3% 21% 44% 14% 2% 23% 49% Further optimisation ING s funding mix will remain dominated by client deposits (~70% in 2015) ING Bank has increased the issuance of longterm debt since 2008 Further reliance on long-term funding is expected to be moderate in line with market developments and redemptions Impact on NIM by higher credit spreads manageable due to large client deposit base and increased issuance of secured funding 3Q11 Indicative 2015 Retail deposits Corporate deposits Subordinated debt Long-term debt Short-term debt Interbank ING Investor Day - 13 January 2012 11
Reduction of short-term funding Reduce short-term professional funding EUR bln 55 30 3Q11 Indicative 2015 Lowering amounts due to banks EUR bln 87 60 3Q11 Indicative 2015 Short-term debt in issue Short-term funding partly opportunistically used for short-term assets Reliance on short-term funding is modest in relation to size and duration of total balance sheet (~5%) and versus EUR 155 bln eligible assets Both short-term assets and short-term funding will be reduced as we optimise our balance sheet: Reduction of opportunistic trading opportunities Further increase of client deposits and longterm debt issuance Amounts due to banks ING Bank is seen as a safe haven and strong credit, which is why other Financial Institutions deposited money with ING The excess versus EUR 55 bln Amounts due from banks was largely placed with Central Banks Exposure will be reduced to optimise the balance sheet and reduce leverage ING Investor Day - 13 January 2012 12
Conservative approach towards long-term funding with limited refinancing needs Long-term funding increase reflects conservative approach ~ EUR 96 bln ~ EUR 105 bln 20 15 76 90 3Q11 Indicative 2015 Long-term debt in issue Subordinated debt Maintaining a diversified funding mix and conservative maturity ladder ING Bank partly pre-financed 2012 funding needs by issuing EUR 23 bln in 2011 versus EUR 10.7 bln maturing in full-year 2011 ING Bank has EUR 18 bln of debt with tenor longer than 1 year maturing in 2012 Year-to-date, ING Bank has already successfully issued EUR 2.75 bln Limiting refinancing needs (EUR mln) 25,000 20,000 15,000 10,000 5,000 0 2011 2012 2013 2014 2015 2016 2017 2018 >2018 Senior debt State guaranteed Lower Tier-2 Covered bonds RMBS ING Investor Day - 13 January 2012 13
Sound funding and liquidity profile form strategic advantage for our business model Harold Naus, Head of Market Risk Management ING Investor Day - 13 January 2012 14
Sound funding and liquidity profile form strategic advantage for our business model Liquidity is integral part of ING Bank s Risk Appetite Statements, Strategic steering and tactical business planning and operations: No necessity to divest portfolio of assets Lending growth conditional to funding availability Full compliance with regulatory (Basel III) requirements Embedding of liquidity risk management throughout all subs and branches of the Bank ING Bank is well placed with its current and future liquidity position: Balance sheet integration enables efficient use of ING s funding sources ING s Retail Banking model makes ING well placed for strong deposit growth Large unencumbered eligible asset portfolio provides strong cash generating capacity Investment book will be transformed into liquidity portfolio (fully Basel III eligible) ING has modest long-term refinancing needs and has access to broad range of funding sources ING Investor Day - 13 January 2012 15
Ample liquidity reserves/eligible assets Amounts in EUR billion 212 Investments 115 187 96 155 71 87 Level 3 Level 2 Level 1 Other 97 27 64 23 61 23 64 Liquidity Buffer MtM Unencumbered After central bank haircut LCR Value ING has ample liquidity reserves with EUR 155 bln of central bank eligible debt securities, central bank reserves and cash Other includes cash, retained RMBS and central bank reserves Encumbrance due to minimum reserves and repo Level 1 assets include cash and government (guaranteed) bonds Level 2 contains highly rated covered bonds and corporate bonds ING Investor Day - 13 January 2012 16
ING manages liquidity by comparing liquidity reserves with severe funding stress test outcome Liquidity reserves / eligible asset provides insight into nature and quality of underlying assets However, the ultimate test is to show adequacy of eligible asset buffer compared to the potential funding outflow Conservative approach to inconvertible currency and non-transferable positions Liquidity position of ING is stress-tested using the following assumptions: High degree of outflow for wholesale funding (typically 90-100%) Relevant degree of outflow to retail savings (typically 10%) Drawings on credit facilities (typically 10%) Customer lending rolled over for a significant part (typically 40%) Stress testing leads to a significant 1-month liquidity buffer A limit framework is in place to ensure this stress test is always passed The limit framework embeds liquidity risk management in the business ING Investor Day - 13 January 2012 17
Further optimising the investment portfolio will support the LCR Automatically growing into LCR 1 target Based on indicative definition NSFR 1 ~85% ~90% >100% ~85% >100% Liquidity coverage ratio will force banks to hold more cash, government bonds and covered bonds Liquid asset definition is currently very restrictive, which will likely impact margins for the industry To increase the LCR to the targeted level, we will Reduce short-term funding Increase long-term funding Replace maturing non-eligible investment portfolio with eligible assets Regulatory observation period has started. Revisions to LCR to be made by mid-2013. Implemented in 2015 1 Excluding ING Direct US 3Q11 2015 3Q11 2018 Net Stable Funding Ratio metric has an uncertain status and is not expected to be implemented before 2018: BIS scheduled to be implemented with a binding minimum ratio CRDIV drafts of July 2011 do not contain NSFR calibration nor minimum requirement NSFR addressed via target balance sheet where long-term lending and investment assets require stable funding in the form of funds entrusted, equity and long-term debt ING Investor Day - 13 January 2012 18
Liquidity Coverage Ratio is at ~90% September 2011 (EUR bln), indicative* LCR = [Stock of Liquid Assets] / [Net Potential Outflow over a 30-day period] Loans and advances to customers Debt securities Cash and balances with central banks Fair value through the P&L Banks Other 3% 10% 35% +16 bln in +87bln Liquid assets +15 bln in +16 bln in Customer deposits and other funds on deposits Sub debt Short-term debt Long-term debt Equity Fair value through the P&L Banks Other 10% 40% 1% 20% 50% -47 bln out -22 bln out -1 bln out -30 bln out -43 bln out Assets Liabilities LCR = [~EUR 87 bln stock] / [~EUR 95 bln out] LCR ~ 90% Shortfall can easily be covered by 2015 (Re)investments in LCR eligible assets only Increase proportion of long-term debt in funding mix * Excluding ING Direct US ING Investor Day - 13 January 2012 19
Indicative definition results in Net Stable Funding Ratio of ~85% September 2011 (EUR bln), indicative* NSFR = [Available amount of stable funding (ASF)] / [Required amount of stable funding (RSF)] Loans and advances to customers Debt securities Cash and balances with central banks Fair value through the P&L Banks Other 80% 20% 0% 70% 0% 100% 433 bln RSF 23 bln RSF 0 bln RSF 105 bln RSF 0 bln RSF 39 bln RSF Customer deposits and other funds on deposits Sub debt Short-term debt Long-term debt Equity Fair value through the P&L Banks Other Assets Liabilities NSFR = [~EUR 500 bln ASF] / [~EUR 600 bln RSF] 80% 90% 0% 90% 100% 0% 0% 0% 375 bln ASF 18 bln ASF 0 bln ASF 69 bln ASF 34 bln ASF 0 bln ASF 0 bln ASF 0 bln ASF NSFR ~ 85% Shortfall under Basel 3 calibration to be closed by 2018 NSFR not included in CRDIV framework by European Commission Increase proportion of longterm debt in funding mix Optimise product characteristics * Excluding ING Direct US ING Investor Day - 13 January 2012 20
Investment Portfolio: Building Basel III liquidity while preserving the NIM Olivier Casse, Co-head ING FM Boris Dunnewijk, CIO ING Direct ING Investor Day - 13 January 2012 21
Investment portfolio governance: More central co-ordination and pro-active management Historical organisation Business line or country based management: scattered investment portfolios Mainly buy-and-hold books Historical concentration in AAA ABS/RMBS Bank Treasury Centralised governance: one investment view across all execution centres Pro-active portfolio management Set and manage the liquidity, funding and investment positions of the Bank: prevent concentrations Bank Treasury One ALM (results in local P&L) Optimised liquidity Optimised funding One investment view Netherlands Belgium DiBa Slaski UK Direct Europe Australia Others Taking consolidated and local constraints into account ING Investor Day - 13 January 2012 22
Transforming the investment portfolio into a liquidity book, while preserving the NIM ING Bank s investment portfolio (EUR bln): re-investing in liquid Basel III level 1 and 2 assets 115 100 31% 11% 19% 31% 50% 58% Historical credit spreads are low Historical spread (bps) Level 1 0 Level 2 +15 Non-liquid +28 Average +11 3Q11 Indicative 2015 Level 1 Level 2 Non-BIII liquid Towards a smaller portfolio with a higher liquidity value and a similar NIM Fixed income investment portfolio is generating historical spread of around 11 bps Re-investments in liquid assets deliver higher liquidity value at a similar average spread Portfolio reduction used to downsize professional funding or to fund client assets ING Investor Day - 13 January 2012 23
Maturity ladder provides flexibility and will support the portfolio s liquidity value and NIM EUR 68 bln maturities in 2012-2015 16 2 3 3 22 4 4 7 8 8 19 5 3 6 11 2 1 3 5 5 2012 2013 2014 2015 ABS Financials/Corporates Covered Bonds Government Bonds Re-allocate maturities to improve liquidity value at a similar NIM Beneficial maturity profile: EUR 68 bln will mature before 2016 Re-allocate to improve liquidity value and preserve the NIM Generally re-invest Basel III Level 1 assets in Level 1 Generally re-invest ABS and financials in Basel III Level 2 assets ING Investor Day - 13 January 2012 24
Ongoing portfolio transformation: Reduction in size and improvement in composition Investment portfolio 2008-11* (EUR bln) 144 127 123 29 115 25 28 22 17 22 22 19 35 32 29 28 52 47 50 51 2008 2009 2010 3Q11 ABS Financials/corporates Covered bonds Government bonds Portfolio affected by downgrades* 2010 3% 3% 3Q11 5% 3% 21% 20% 34% 43% 30% 38% AAA AA A BBB BB+ and below Composition improves ABS and unsecured Financials reduced by EUR 21 bln since 2008 Portfolio reduced EUR 8 bln in 9M11: Almost entirely due to maturities and sales in ABS and Financials Government and covered bond portfolio size remained stable in 9M11 EUR 22 bln downgrades, concentrated in AAA * Excluding ING Direct US, cash balances and equity ING Investor Day - 13 January 2012 25
Portfolio is actively managed to counterbalance RWA migration RWA migration offset by sales and maturities* (EUR bln) 6.8-1.1-1.0-5.9 2.5 14.7 16.0 2010 Migration Sales Impairments Maturities Purchases Nov-11* * Preliminary data RWA actively managed EUR 22 billion bonds downgraded in 2011, adding EUR 6.8 bln RWA Maturities released EUR 5.9 bln RWA, re-investments have limited RWA ABS sales immediately released EUR 1.1 bln RWA and prevented an additional EUR 1.5 bln RWA migration Pro-active management continues * Excluding ING Direct US ING Investor Day - 13 January 2012 26
Peripheral sovereign debt further reduced in 4Q11 Sovereign exposures (EUR bln) 4.4 1.7 1.6 0.9 0.8 0.5 0.6 0.4 0.4 0.5 0.3 0.2 Italy Spain Portugal Greece B/S value 4Q10 B/S value 3Q11 B/S value 4Q11* * Preliminary data Reduced peripheral sovereign in 2011 EUR 4 bln GIIPS sovereign sold in 2011 GIIPS exposure further reduced in Q4 Italian sovereign debt reduced by EUR 0.8 bln Spanish sovereign debt reduced by EUR 0.3 bln Remaining positions are below EUR 1 bln per country ING Investor Day - 13 January 2012 27
Balance sheet integration to result in higher return Harold Naus, Head of Market Risk Management ING Investor Day - 13 January 2012 28
Balance sheet integration to result in higher return Balance sheet integration Align capital, assets and liabilities Reducing low-yielding investments with ownoriginated assets to optimise returns Balanced growth in Commercial Banking assets via organic growth and selected portfolio transfers Eliminate cross-border inefficiencies Asset and liability generation to create locally sustainable balance sheets Income diversification enables more competitive offering for retail liabilities Diversified income drivers offering the full Retail and Commercial Banking product range Assets Liabilities Commercial Banking assets Retail assets Investment portfolio Money market Commercial Banking assets Retail assets Investment portfolio Money market Deposits ST funding LT funding Equity Deposits ST funding LT funding Equity An optimised balance sheet should result in a higher return on assets Within regulatory constraints 2011 Optimised 2011 Optimised ING Investor Day - 13 January 2012 29
ING has several ways to optimise the balance sheet Reduction of professional shortterm funding Fund assets with local liabilities Asset optimisation Portfolio rationalisation Increase long-term funding Germany Belgium Luxembourg Spain France Italy Improves LCR and NSFR Improves liquidity and repairs geographical asymmetry Investment portfolio Client assets Improves liquidity Balance sheet integration Coordinate country balance sheet management Merging legal entities Improves liquidity and return on assets ING Investor Day - 13 January 2012 30
Balance sheet integration initiatives have delivered EUR 23 bln and a further EUR 30 bln targeted Wave 1 <2010 2010 2011 Wave 2 Wave 3 Wave 4 Optimise utilisation of excess funding Internal securitisations CB Asset transfers Coordinate country balance sheet management DiBa Belgium Luxemburg France Italy Belgium Luxemburg Spain France Italy DiBa France Italy Integration impact EUR 7 bln Integration impact EUR 12 bln Integration impact EUR 3 bln Integration impact EUR 1 bln 2012 2015 Further optimisation Wave 4 to be continued with an additional impact of EUR 30 bln to be realised by transfer of Commercial Banking assets ING Investor Day - 13 January 2012 31
Germany A classic example of balance sheet optimisation delivering significant benefits Capital Funding Liquidity Align capital with assets and liabilities: Merging of German Commercial Banking activities with ING-DiBa Optimises capital use of ING-DiBa Transfer of Commercial Banking assets Integration of ING-DiBa in ING term-funding strategy: Use of high-quality German residential mortgages for long-term funding and Pfandbriefe programme (up to EUR 10 bln) established in April 2011 Inaugural issue of EUR 500 mln in June 2011 Strong track record in retail deposit generation Leverage residential mortgage expertise for investments Purchase of Orange Lions (backed by Dutch residential mortgages) Total intercompany transactions up to EUR 9 bln Improved liquidity of ING Bank NV Balance sheet integration is expected to deliver EUR 16 bln of benefits, of which EUR 10 bln completed EUR 9 bln of internal securitisations and collateralised lending EUR 1 bln integration of Commercial Banking EUR 1 bln integration of Real Estate Finance EUR 5 bln usage of retail funds to facilitate CB asset transfers Intercompany transactions are increasing Balanced growth in commercial banking assets via organic growth and selected portfolio transfers ING Investor Day - 13 January 2012 32
Further potential benefits of balance sheet integration in France, Spain and Italy France Spain Italy Commercial Bank 5 REF/CB ING Direct 12 Money market Investment portfolio 5 Wholesale funding 12 Wholesale funding/other Deposits Commercial Bank 5 REF/CB ING Direct 20 Money market Investment portfolio Mortgages 5 Wholesale funding 20 Wholesale funding Deposits Commercial Bank 4 REF/CB ING Direct 18 18 Money market Investment portfolio Lending 4 Wholesale funding Wholesale funding Deposits Three strong businesses combined (CB, REF, ING Direct) Steady growth of retail deposits Well-positioned for French corporates operating in Benelux and CE REF recognised international player with outstanding financial performances and low risk profile Potential optimisation EUR 5 bln Locally fund asset origination after balance sheet integration is optimised Locally yielding assets enable being more competitive in retail savings market Self-sufficient in terms of liquidity Potential optimisation EUR 5 bln Asset and liability generation to create a self-sustainable balance sheet which is locally funded Income diversification enables more competitive offering for retail liabilities Diversified income drivers offering the full retail and commercial banking product range Potential optimisation EUR 4 bln ING Investor Day - 13 January 2012 33
Priorities in transitioning to Basel III 1 2 Strong capital generation and a conservative funding mix Sound funding and liquidity profile form strategic advantage for our business model 3 Building Basel III liquidity while preserving the NIM 4 Balance sheet integration to result in higher return ING Investor Day - 13 January 2012 34
Disclaimer ING Group s Annual Accounts are prepared in accordance with International Financial Reporting Standards as adopted by the European Union ( IFRS-EU ). In preparing the financial information in this document, the same accounting principles are applied as in the 3Q2011 ING Group Interim Accounts. All figures in this document are unaudited. Small differences are possible in the tables due to rounding. Certain of the statements contained herein are not historical facts, including, without limitation, certain statements made of future expectations and other forward-looking statements that are based on management s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation: (1) changes in general economic conditions, in particular economic conditions in ING s core markets, (2) changes in performance of financial markets, including developing markets, (3) the implementation of ING s restructuring plan to separate banking and insurance operations, (4) changes in the availability of, and costs associated with, sources of liquidity such as interbank funding, as well as conditions in the credit markets generally, including changes in borrower and counterparty creditworthiness, (5) the frequency and severity of insured loss events, (6) changes affecting mortality and morbidity levels and trends, (7) changes affecting persistency levels, (8) changes affecting interest rate levels, (9) changes affecting currency exchange rates, (10) changes in general competitive factors, (11) changes in laws and regulations, (12) changes in the policies of governments and/or regulatory authorities, (13) conclusions with regard to purchase accounting assumptions and methodologies, (14) changes in ownership that could affect the future availability to us of net operating loss, net capital and built-in loss carry forwards, and (15) ING s ability to achieve projected operational synergies. ING assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or for any other reason. This document, and any other document or presentation to which it refers, do not constitute an offer to sell, or a solicitation of an offer to buy, any securities. www.ing.com ING Investor Day - 13 January 2012 35