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

1. Capital management
Perspectives, challenges, practice
Koos Timmermans
Vice-chairman ING Bank
Zanders – 1 November 2012

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
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3. External environment impacting ING Bank
Eurozone 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
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4. European banks are facing far-reaching
changes
• Higher capital requirements
Regulatory • 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
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5. Regulatory developments have a significant
impact 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 DGS
What else? • Banking taxes
• Bail-in debt
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6. … an example of the developments in the
capital 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
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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
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8. ING’s strategy for the coming years is based on
two 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
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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 payments
ING 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
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10. ING will be a strong, predominantly European Bank
with 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 Poland
and 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.
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11. Internal and external views on capital
Rating
1 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
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12. Optimised balance sheet should result in ROE
of 10-13% under Basel III by 2015
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13. ING is making progress on Ambition 2015
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14. Questions?
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