ING Bank NV

ING was founded in 1991 by a merger between Nationale-Nederlanden and NMB Postbank
Group. During the past years ING has become a multinational with diverse international
activities.
The roots of ING can be traced to the insurers De Nationale Levensverzekering Bank and De
Nederlanden

van

1845 and

to

the

public

bank

services

such

as De

Rijkspostspaarbank and De Postcheque- and Girodienst, as well as to the Nederlandsche

Middenstands Bank. These are the legal predecessors of the founding fathers of
ING: Nationale-Nederlanden and NMB Postbank Group.
Netherlands-incorporated ING Bank N.V. has a leading franchise in the Benelux region, and
operates
internationally in about 40 countries. Retail activities represent an increasing share of profits
and capital following the repositioning of wholesale banking operations to focus on the
bank's home markets, reduce risk concentrations, and increase returns. In addition to its
stand-alone characteristics, the ratings on the bank also recognize its core position within the
ING group. Due to its business mix, ING Bank's earnings and balance sheet have so far been
relatively resilient to the turbulent market conditions. At 2.3 billion, underlying pretax
earnings in the nine months of 2008 were 40% down on the prior year as negative fair-value
changes and trading losses pressured revenues, mostly in the third quarter. Cost efficiency
could be stronger and is a strategic priority, particularly in the Benelux where programs have
been initiated to rationalize operating platforms and upgrade the retail banking distribution.
The bank is managed through the following three divisions:
Wholesale Banking
This division provides a full product range to large Benelux corporate customers.
Internationally, the division is present in about 40 countries, where its primary role is to
support the overseas operations of core Benelux customers, but also offers selected services

to certain local corporates and financial institutions. It also houses ING Real Estate's
investment, financing, and development activities.
Retail Banking
This division's earnings are dominated by the bank's Dutch and Belgian activities. It is a
leading player in The Netherlands, where its two brands, Postbank N.V. (not rated) and ING
Bank are being brought together strategically and operationally. Both offer a wide range of
financial products, including those manufactured by the group's insurance business, to retail
and small business customers. ING Belgium SA/NV (AA/Negative/A-1+) is the smallest of
the four major banks in that country, and was acquired by ING group in 1998. Activities in
Poland, Turkey, Romania, India, and China, and a 30% stake in Thailand's TMB Bank Public
Co. Ltd. (BB+/Stable/B) provide access to higher growth markets.
ING Direct
The ING Direct brand is used to access mature retail banking markets through a low-cost
business model. It offers a range of retail financial services products based around a savings
account offering to customers in nine countries through direct channels only. To avoid
cannibalizing existing group business, it does not operate in countries where the Retail
Banking division is active.

Common Size Financial Statements

( all year end figures are in EURm )
Liabilities

31-Dec-08

31-Dec-07

Yr. End

%age of
total
liabilities

Common equity

27221

2.63

23424

Non-controlling interest

1232

0.12

Security revaluation reserves

-4165

Accumulated other comp. income

31-Dec-05
Yr. End %age of total
liabilities

Yr. End

%age of
total
liabilities

2.36

18961

2.12

16996

2.11

1684

0.17

1204

0.13

482

0.06

-0.40

1677

0.17

1640

0.18

3075

0.38

-167

-0.02

410

0.04

697

0.08

1260

0.16

Total equity

24121

2.33

27195

2.74

22502

2.51

21813

2.70

Hybrid capital

7085

0.68

6397

0.64

5726

0.64

5764

0.71

Customer deposits - current

175233

16.94

166919

16.79

150999

16.87

139112

17.25

Customer deposits - savings

275079

26.59

275127

27.68

283148

31.64

269387

33.40

Customer deposits - term

87371

8.44

86151

8.67

62628

7.00

57655

7.15

Total customer deposits

537683

51.97

528197

53.13

496775

55.51

466154

57.80

Deposits from banks

152265

14.72

166972

16.80

120839

13.50

122234

15.16

5.92

42309

4.26

52803

5.90

72.60

737478

74.18

670417

74.91

588388

72.96

2.23

13681

1.38

14661

1.64

84857

10.52

Equity

Yr. End %age of

Total
liabilities

31-Dec-06

Interest Bearing Liabilities

Other deposits and short term

61203
borrowings
Total deposits, money market and short
751151
term funding
Long term borrowings
23069

0.00

Subordinated borrowings

14572

1.41

12389

1.25

12347

1.38

13017

1.61

Total long term funding

37641

3.64

26070

2.62

27008

3.02

97874

12.14

Derivatives

17050

1.65

34070

3.43

25240

2.82

25917

3.21

Trading liabilities

166620

16.10

134268

13.51

120683

13.48

71733

8.89

Total interest bearing liabilities

972462

93.99

931886

93.74

843348

94.23

783912

97.20

Reserves for pension and others

1574

0.15

583

0.06

288

0.03

287

0.04

Current tax liabilities

458

0.04

1385

0.14

1501

0.17

1370

0.17

Deferred tax liabilities

2297

0.22

2330

0.23

2648

0.30

2871

0.36

other non-interest bearing liabilities 26692

2.58

24337

2.45

18972

2.12

18018

2.23

Total liabilities and equity

100.00

994113

100.00

894985

100.00

834035

100.00

Non-interest bearing liabilities

1034689

Assets
Yr.
End

31-Dec-08
31-Dec-07
31-Dec-06
31-Dec-05
%age of Yr.
%age of Yr.
%age of Yr.
%age of
Total assets End
Total assets End
Total assets End
Total assets

Loans
Residential mortgage
Other consumer/retail
Corporate and commertial
Other loans
Less:reserves for impaired loans/NPLs

Total loans net and reserves

Memo: gross loans
Memo: impaired loans included
above
Other earning assets
Loans and advances to banks
Tradind securities
Derivatives
Available for sale securities
Held to maturity securities
At-equity investment
Other securities
Total securities
Investments in property
Total earning assets
Non earning assets
Cash and due from banks
Fixed assets
Goodwill
Other intangibles
Current tax assets
Deffered tax assets
Other assets
Total assets

206254

24.73
0.00

242421

23.43

205984

20.72

183343

20.49

168669

20.22

26935

2.60

23640

2.38

25953

2.90

31442

3.77

2526

0.24

1988

0.20

2638

0.29

3306

0.40

598328

57.83

526323

52.94

437774

48.91

403059

48.33

600854

58.07

528311

53.14

440412

49.21

406365

48.72

8592

0.83

5219

0.52

6299

0.70

6700

0.80

48447

4.68

48875

4.92

39868

4.45

47466

5.69

87925

8.50

163194

16.42

170938

19.10

128822

15.45

82549

7.98

35805

3.60

27481

3.07

26745

3.21

133365

12.89

143632

14.45

158651

17.73

170671

20.46

15440

1.49

16753

1.69

17660

1.97

18937

2.27

1813

0.18

2010

0.20

1223

0.14

1188

0.14

4548

0.44

9146

0.92

325640

31.47

370540

37.27

375953

42.01

346363

41.53

2884

0.28

3527

0.35

3665

0.41

1745

0.21

975299

94.26

949265

95.49

857260

95.78

798633

95.76

0.00

0.00

18169

1.76

9829

0.99

11769

1.31

10718

1.29

5686

0.55

8310

0.84

7212

0.81

6519

0.78

1432

0.14

1254

0.13

136

0.02

77

0.01

983

0.10

629

0.06

249

0.03

214

0.03

328

0.03

499

0.05

1066

0.12

543

0.07

6070

0.59

2251

0.23

1753

0.20

1959

0.23

26722

2.58

22076

2.22

15540

1.74

15372

1.84

1034689

100.00

994113

100.00

894985

100.00

834035

100.00

31-Dec-08
Off-balance sheet items Yr. End

31-Dec-07

%age of total Yr. End

Assets

31-Dec-06

%age of total Yr. End

Assets

31-Dec-05

%age of totalYr. End

Assets

%age of total
Assets

Guarantees
Committed credit lines
Other contingent liabilities
Total business volume
Memo: total weighted risks

22391
89081
10912
1157073
429612

2.16
8.61
1.05
111.83
41.52

19018
100707
11902
1125740
402727

1.91
10.13
1.20
113.24
40.51

894985
337926

Assets
Residential mortgage

2008
29.38

2007
27.56

%age Growth

Other consumer/retail

2.66

2.49

6.90

Corporate and commertial

23.43

20.72

13.07

Other loans

2.60

2.38

9.47

Less:reserves for impaired loans/NPLs 0.24

0.20

22.08

834035
319653

0.00
0.00
0.00
100.00
38.33

6.61

Total loans net and reserves

57.83

52.94

9.22

Memo: gross loans

58.07

53.14

9.27

0.52

58.17

Memo: impaired loans included above 0.83

0.00
0.00
0.00
100.00
37.76

Other earning assets

Loans and advances to banks

4.68

4.92

-4.76

Trading securities

8.50

16.42

-48.24

Derivatives

7.98

3.60

121.51

Available for sale securities

12.89

14.45

-10.79

Held to maturity securities

1.49

1.69

-11.45

At-equity investment

0.18

0.20

-13.34

Other securities

0.44

0.92

-52.22

Total securities

31.47

37.27

-15.56

Investments in property

0.28

0.35

-21.44

Total earning assets

94.26

95.49

-1.29

Cash and due from banks

1.76

0.99

77.60

Fixed assets

0.55

0.84

-34.26

Goodwill

0.14

0.13

9.72

Other intangibles

0.10

0.06

50.15

Current tax assets

0.03

0.05

-36.85

Deffered tax assets

0.59

0.23

159.08

Other assets

2.58

2.22

16.30

Non earning assets

Dec-08
Income
Yr.end

% of
total
income

Dec-07

Yr.end

% of
total
income

Dec-06

Yr.end

% of
total
income

Dec-05

Yr.end

% of
total
income

Interest Income
On loans
other
Dividend
Gross int. and dividend

31064
22422
84
53570

54.73
39.50
0.15
94.38

26159
15108
70
41337

55.80
32.23
0.15
88.17

21755
13422
84
35261

54.34
33.53
0.21
88.08

18718
10244
71
29033

55.65
30.46
0.21
86.32

-189
69

-0.33
0.12

810
451

1.73
0.96

1250
243

3.12
0.61

747
197

2.22
0.59

127
2895
338
3240
162

0.22
5.10
0.60
5.71
0.29

56
2926
925
5168
138

0.12
6.24
1.97
11.02
0.29

-213
2681
677
4638
-45

-0.53
6.70
1.69
11.59
-0.11

-111
2401
814
4048
415

-0.33
7.14
2.42
12.03
1.23

-210
56762

-0.37
100.00

238
46881

0.51
100.00

180
40034

0.45
100.00

140
33636

0.42
100.00

Interest expense on customer

deposit
other interest expense
Total int. expense
personal expenses
other operating expenses
Total non interest expenses
non-recurring expense
Loan impairment charges
Other credit impairment charges
total expenses

19594
22606
42200
5988
4187
10175
136
1280
2385
56176

34.52
39.83
74.35
10.55
7.38
17.93
0.24
2.26
4.20
98.97

18563
13669
32232
5421
4157
9578
435
125
57
42427

39.60
29.16
68.75
11.56
8.87
20.43
0.93
0.27
0.12
90.50

15107
10737
25844
5091
3893
8984
63
103
0
34994

37.74
26.82
64.56
12.72
9.72
22.44
0.16
0.26
0.00
87.41

14331
5486
19817
4745
3970
8715
86
88
0
28706

42.61
16.31
58.92
14.11
11.80
25.91
0.26
0.26
0.00
85.34

Other nonoperating income and

expenses

-53

Net gains(losses) on trading

derivatives
Net gains(losses) on other securities
Net gains(losses) on assets at FV
through income statement
Net fees and commissions
Other operating income
Total non int.
Non recurring income
Equity accounted profit/loss nonoperating
Total Income
Expenses

Pretax profit
Tax expense
Net income

533
-170
703

4454
753
3701

-16

-54

5024
1211
3813

4876
876
4000

Financial Statements Analysis

A) Capital Adequacy

ING Bank's stand-alone regulatory core capitalization has been boosted as the group has
down streamed half of the10 billion received from the Dutch government to the bank to
increase regulatory capital ratios. The capital injection--in the form of deeply subordinated
non dilutive instruments--is classed as core Tier 1 by the Dutch regulator. This capital
injection has increased ING Bank's capital ratios substantially.

Capital position of ING Bank

2008 2007
Shareholders equity (parent)

22,88925,511

Minority interests

1,198 1,668

Subordinated loans qualifying as Tier-1 capital

7,085 6,397

Goodwill and intangibles deductible from Tier-1

1,6361,428

Deductions Tier-1 (as of 2007)

1,04093

Revaluation reserve

3,523 2,283

Available capital Tier-1

32,01929,772

Supplementary capital Tier-2

12,91014,199

Available Tier-3 funds

Deductions

1,0402,407

BIS capital

43,88941,564

Risk-weighted assets

343,38402,727

2008 2007
8

Tier-1 ratio

9.32% 7.39%

BIS ratio

12.78%
10.32%

Required capital based on Basel I floor

34,369

Required capital based on Basel I floor as at 1/1/09

30,550

BIS ratio based on Basel I floor

10.22%

BIS ratio based on Basel I floor as at 1/1/09

11.49%

ING bank is adequately capitalized. Risk weighted assets have reduced in 2008. Also tier-1
ratio has improved.
Banks hybrid capital amounted to 7.1 bn Euro at the end of 2008.Though hybrid instruments
are weaker form of capital, present levels are acceptable as they represent 19% of eligible
capital.
Customer loans continue to be largely funded by customer deposits, of which 51% were from
savings accounts.

B) Risk Management
ING Bank's enterprise risk management practices as strong. This reflects improved risk
controls and reporting, and strong senior management engagement with the risk management
process. The executive board sets the group's risk appetite and policies, and has ultimate
responsibility for overseeing risk controls. Various committees monitor specified risk areas--

such as credit limits, provisioning, and asset-liability managementunder delegated

authorities from the executive board.

Ratio
2008
Gross NPA ratio I
( non earning assets/total assets )
5.74
Gross NPA ratio II
4.68
Loans/customer deposits
111.45
Loans/deposits and short term funding
79.99
Liquid assets/total assets
8.5
Liquid assets /wholesale funding
32.26
Wholesale funding/total funding and capital27.62
Impaired loans/gross loans
1.43
loan impaired reserves/goss loans
0.42
reserves for impaired loans/impaired loans29.4

x4

2007

x3

2006

x2

2005 x 1 Index Trend

22.96
18.73
445.80
319.96
34.00
129.04
110.48
5.72
1.68
117.60

4.51
4.92
100.02
71.64
20.59
97.92
22.44
0.99
0.38
38.09

13.53
14.75
300.06
214.92
61.77
293.76
67.32
2.97
1.14
114.27

4.22
4.45
88.65
65.69
23.23
100.81
24.37
1.43
0.6
41.88

8.43
8.91
177.30
131.38
46.46
201.62
48.74
2.86
1.20
83.76

4.24 4.24 2.63

5.69 5.69 2.44
87.1787.172.61
69.0669.062.57
15.4515.452.33
73.4673.462.29
22.3222.322.57
1.65 1.65 2.40
0.81 0.81 2.19
49.3449.342.30

Increasing
Reducing
Increasing
Increasing
Reducing
Reducing
Increasing
Reducing
Reducing
Reducing

Credit Risk
- The bond portfolio led to significant impairments in 2008, owing to holdings of US nonprime RMBS. Fixed investments which mounted to EUR147bn at the end-2008, are
generally good quality. 35% is invested in government debt.
- Just over 50% loan book is secured by mortgages, representing EUR40bn. Other personal
lending was limited representing 5% of gross loans. Unsecured corporate loans represented
40% of total gross loans. The portfolio is well diversified. The banks risk is not overly
concentrated, with the 20 largest outstanding corporate total exposures representing 96% of
total equity.
- The bank measures its total outstanding credit risk ( EUR832bn ) by including investments
and interbank.
Major sector concentrations( for outstanding credit risk )
32%
Private individuals
15%
Non bank financial institutions
13%
Commercial banks
7%
Central government
6%
Real estate

Loans and reserves

10

After decreasing in previous few years , the loan impairment reserves started to grow in
2008. The impaired loans are expected to reduce as the economic recession phases out. The
coverage ratio of impairment reserves to impaired loans appears low, although impairment
reserves to NPL is higher.
Market Risk
Trading market activity is centered in Amsterdam and Brussels. Exposures are moderate
relative to the bank's financial resources, and are managed using a value-at-risk (VAR)
approach supplemented by stress testing, scenario modeling, and event risk analysis.
The average trading VaR ( value at risk ) during 2008 was EUR53m ( against consolidated
limit of EUR60m ). The bank is exposed to structural foreign exchange risk in its banking
book, mainly as a result of investments in foreign subsidiaries and through its ASDdominatedTier-1 issues.
Equity Risk
Equity investments included EUR1.8bn of AFS securities, down from EUR3.6bn in 2007.
This is in line with its de risking strategy.
Operational Risk
Operational risks are identified through scorecards, loss databases, and self-assessment by
business units. ING Bank applies the Basel II Advanced Measurement Approach.
C) Profitability Ratios

Ratios
2008
Return on equity
1.24
Return on Assets
0.07
Net Interest Margin
1.10
Interest income ratio
5.18
Non-interest income ratio28.50

x4
2007
4.97 7.85
0.27 0.37
4.40 0.92
20.71 4.16
113.98 56.76

x3

2006

1.12
2.75
12.47
170.28

0.43
1.05
3.94
49.25

x2
23.56
0.85
2.10
7.88
98.50

2005
9.48
0.48
1.10
3.48
43.92

x1
11.84
0.48
1.10
3.48
43.92

Index
1.95
2.02
2.48
2.66
2.39

11

Trend
Reducing
Reducing
Stable
Increasing
Reducing

As is clear from the above figures that both ROE and ROA have taken a beating. This has
been caused by the increase in impairment charges mainly due to start of economic recession.
D) Peer Group Comparison
Peer Group Comparison
(EURbn)
Long term IDR
Equity

2008
Net interest revenue/average 2008
earning assets
2007
2008
Operating profit/average
assets
2007
2008
Operating profit/average
equity(%)
2007
2008
Cost/income ratio(%)
2007
2008
Loan impairment
cahrge/average loans(%)
2007

ING
AA24.1
1.15
1.01
0.07
0.48
3.3
18.1
69.6
67.1
0.22
0.03

KBC
A
10.1
1.35
1.17
-0.62
1.04
-16.8
25.3
115.6
56.9
0.48
0.11

Rabo
AA+
29.9
1.53
1.23
0.49
0.53
9.8
10.9
65.2
71.7
0.3
0.07

Santand
AA
53
2023
1.91
1.28
1.3
24.2
23.6
44.3
47.3
1.03
0.63

SocGen
A+
33.5
0.83
0.29
0.3
0.55
10.5
19.7
72.3
68.1
0.73
0.28

Deutsche
AA31.9
0.67
0.55
-0.31
0.48
18.3
24.3
145
70
0.47
0.32

12