Capital Managment - Koos Timmermans (ING) voor Zanders Risicomanagement Seminar 2012


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Capital Management - perspectives, challenges, practice. Koos Timmermans - Vice chairman ING Bank. Zanders Risicomanagement Seminar 1 november 2012

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Capital Managment - Koos Timmermans (ING) voor Zanders Risicomanagement Seminar 2012

  1. 1. Capital managementPerspectives, challenges, practice Koos Timmermans Vice-chairman ING Bank Zanders – 1 November 2012
  2. 2. Outline• Impact of external environment• Changes for European banks• Regulatory developments• ING’s strategy for the coming years• ING’s balance sheet and the 2015 ambition 2
  3. 3. External environment impacting ING BankEurozone debt crisis continues amid growth slowdown Social/Economic Political Regulatory/industry• Eurozone is falling back into • Eurozone sovereign debt crisis • Moody’s downgraded 15 major recession, with rising continuing banks incl. ING Bank unemployment • Proposals to establish • Reputation of industry under• Eurozone GDP shrank 0.2% in common European banking pressure Q2 and currently available supervision indicators point to an even • Basel III/CRD IV, taxes bigger contraction in Q3 • EU agreed to provide Spain with €100 billion to recapitalise• IMF cuts global growth Spanish banks forecasts • Greek and Spanish reforms spark domestic unrest ING Bank will take a cautious approach: focus on funding, capital & liquidity 3
  4. 4. European banks are facing far-reachingchanges • Higher capital requirementsRegulatory • Lower balance sheet leverage How did ING react? changes • More conservative funding and liquidity • Significant simplification • Focus on size of banks relative to GDP of the company and reduction of the B/S • Households and governments need to reduce Societal debt • Doubling of capital • More customer scrutiny of banks buffers drivers • Increasing demand for transparency • New remuneration policy • Simpler product offering • Weaker economic environment • Improving risk profile Economic • Reticence among companies to invest drivers • Further reduction of • Deleveraging across banking industry (already limited) trade activities • Customers expect more • Repayment of capital • Customers want to be close support + premium + interest Customer • Customers want transparency and simplicity • • Etc. context Customers more informed and self-directed • Customers trust their peers 4
  5. 5. Regulatory developments have a significantimpact on ING’s capital structure • Higher required capital ratios • Tighter definitions of available capital • Capital conservation buffer Capital • Countercyclical buffer buffers • Systemically important Financial Institutions (SIFIs) should have additional loss absorbing capacity (=hold more capital) • Leverage ratio (non-risk-based), first in Pillar 2, later in Pillar 1 (Capital / Total assets ≥ 3%) • Introduction of a liquidity coverage ratio (LCR) as of 2015 (after an observation period 2011-2015) Liquidity ratios • Introduction of another measure of liquidity ratio: net stable funding ratio (NSFR) as of 2018 • Adjustments to the DGSWhat else? • Banking taxes • Bail-in debt 5
  6. 6. … an example of the developments in thecapital ratios % 16 Set on a country and/or Systemic risk 14 sector basis 12 Set on a institution by European Domestic institution basis Global SIFI SIFI SIFI 10 Weighted average of 8 percentages by country Counter-cyclical 6 Capital Capital Conservation Conservation 4 Capital Capital 2 Capital Requirement Requirement Requirement 0 BASEL II MINIMUM MAXIMUM 6
  7. 7. … These developments have unwanted(potential) consequences Developments• Various buffers, increasing capital requirements (Potential) consequences• Room for national deviations (also for • Sum of required capital goes liquidity ratios) up• Basel III definition of available capital • Additional buffer required to more volatile (revaluation reserve and stay above target (also for shifts in pensions) leverage ratio)• Additional conservatism likely to be • As a result, lending to support built in models, e.g. floors for PD, LGD the real economy under• Buffers are in the CRD4 directive pressure• Additional loss absorption via bail-in debt 7
  8. 8. ING’s strategy for the coming years is based ontwo phases Two important milestones to be achieved • Growing into Basel III requirements • Completing EC restructuring Bank transition to Basel III • Manage through the sovereign debt crisis • Limit B/S and RWA growth • Execute B/S optimisation • Invest to achieve operational excellence • Further simplify the business portfolio and the organisation • Prudent approach to capital and funding given unstable market conditions Bank stand-alone • Grow deposits across the bank • Evolve ING Direct units towards mature business model using loans from Commercial Banking • Expand the franchise without increasing the size of the balance sheet 8
  9. 9. To prepare for the future, ING is maintaining momentum in restructuring …Delivering on EC restructuring EUR 9 bln paid to the Dutch State Action 10 0.4 0.6• Separation Bank/Insurance  2.0 5.0• Sell ING Direct USA  5 10.0• Sell Insurance Latin America  1.0 7.0 2.0• Insurance/IM Asia Exploring sale 0• Insurance/IM US Base case IPO October Paid May Paid Paid in May Total paid 2008 2009 December 2011• Insurance/IM Europe Base case IPO 2009• Divesting WUB Discussing alternatives Core Tier I securities Premium & Coupon paymentsING and the Dutch State are in discussions with the EC• Together with the Dutch State, ING is in discussions with the European Commission about adjustments to the restructuring plan• ING remains committed to repay the Dutch State as soon as possible, while maintaining strong capital ratios given the uncertain economic outlook 9
  10. 10. ING will be a strong, predominantly European Bankwith options for future growth beyond Europe Leading Commercial Northern European Bank in Benelux and home markets: CEE, supporting Leading domestic domestic economy. banking positions in Leaders in Netherlands, Belgium, Specialised Finance Germany and Polandand Financial Markets European markets: Combining ING Direct franchises with CB operations; selectively CEE and Asia: evolving towards Domestic banks provide mature domestic options for future growth banking model Home markets Domestic Banks ING Direct (retail)* CB Presence * On 2 August, ING announced a review of strategic options for ING Direct Canada and ING Direct UK. On 29 August, ING announced to sell ING Direct Canada to Scotiabank. On 9 October, ING announced to sell ING Direct UK to Barclays. 10
  11. 11. Internal and external views on capital Rating1 ING 2 Regulators 3 Agencies• Optimising capital • Safeguarding the • Safeguarding the from an economic interests of the public Regulators interests of debt perspective (consumers) and of holders other stakeholders • Avoiding deferral or• Balancing risk and return • Avoiding bankruptcy cancellation of with costs to society payments• Pricing of risk • Regulatory develop- • Different rating• Aligning risk and agencies have ments: diverse, but return internally different slowly converging methodologies Management continuously takes all perspectives into account 11
  12. 12. Optimised balance sheet should result in ROEof 10-13% under Basel III by 2015 12
  13. 13. ING is making progress on Ambition 2015 13
  14. 14. Questions? 14