Glossary

The following glossary includes definitions of words and expressions that are commonly found in ING's financial press releases, annual report, ing.world and other publications.

The glossary is offered to enhance your understanding of ING's business and results, but is by no means complete. If you can't find a certain definition, please feel free to contact us.

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Actuarial and underwriting risks

These risks (mortality, longevity, morbidity, adverse motor or home claims, etc.), result from the pricing and acceptance of insurance contracts. Actuarial risk is the risk that premium levels and provisions in respect of insurance risk may turn out to be (no longer) correct. Underwriting risk is the risk that an issuer will receive a claim under an insurance policy it issues/underwrites. Maximum underwriting exposures are limited through exclusions, cover limits and reinsurance.

Advanced Measurement Approach (AMA)

The risk methodology to calculate the regulatory Operational Risk capital.

Alt-A Residential Mortgage Backed Security (Alt-A RMBS)

A type of United States residential mortgage which is considered riskier than ‘prime’ and less risky than ‘sub-prime’ mortgages. Parameters generally taken into account are borrower credit scores, residential property values and loan-to-value ratios. Alt-A mortgages are further characterised by a limited degree of income and/or asset verification.

Amortised cost

The amount at which the financial asset or liability is measured at initial recognition less principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and minus any reduction for impairment or uncollectibility.

Annuity

An income receivable for a specified period of time or during the life of the annuitant (person receiving the annuity).

Asset and Liability Committee (ALCO)

ALCO manages the balance sheet of ING, especially with regard to the strategic non-trading risk. These risks comprise interest rate exposures, equity risk, real estate risk, liquidity, solvency and foreign exchange risk and fluctuations.

Asset and Liability Management (ALM)

The practice of managing a business such that decisions on assets and liabilities are coordinated. It involves the ongoing process of formulating, implementing, monitoring and revising strategies relates to assets and liabilities.

Asset-backed commercial paper (ABCP)

Commercial paper that is collateralised by other financial assets.

Asset backed securities (ABS)

A type of bond or note that is based on pools of assets, or collateralised by the cash flows from a specified pool of underlying assets.

Associate

An entity over which the Group has significant influence, generally accompanying a shareholding of between 20% and 50% of the voting rights, and that is neither a subsidiary nor a joint venture.

Audit Committee

The Audit Committee assists the Supervisory Board in monitoring the integrity of the financial statements of ING Group N.V., ING Verzekeringen N.V. and ING Bank N.V., in monitoring the compliance with legal and regulatory requirements, and in monitoring the independence and performance of ING’s internal and external auditors.

Authorised capital

The maximum amount of share capital that a public limited company or a private limited company can issue according to its articles of association. Part of the authorised capital can remain unissued.

Available financial resources (AFR)

The available financial resources equal the market value of assets minus market value of liabilities, excluding hybrids issued by ING Group which is counted as capital. ING’s policy is that the available financial resources should exceed economic capital for Bank, Insurance and Group.

Available-for-sale financial assets

Those non-derivative financial assets that are designated as available-for-sale or are not classified as:

  • loans and receivables
  • held-to-maturity investments
  • financial assets at fair value through profit and loss.
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Basel I

Regulatory requirements issued by the Basel Committee on Banking Supervision for the solvency calculation, which are superseded by Basel II, for ING, from 2008 onwards.

Basel II

Regulatory requirements issued by the Basel Committee on Banking Supervision for the solvency calculation, which, for ING, apply from 2008 onwards. Basel II is an international standard for calculating the required capital based on internal models that take into account the financial and operational risks.

Basel III

Regulatory requirements issued by the Basel Committee on Banking Supervision for the solvency calculation and liquidity requirements, which will supersede Basel II.
From 1 January 2013 these requirements will start to apply, with the full requirements being effective as of 1 January 2018.

Basis point value

The change in the Net Present Value of a cash flow or a pool of cash flows due to a one basis point change of the yield curve.

Basis risk

This risk arises from an imperfect correlation in the adjustment of the rates earned and paid on different financial instruments. Examples of products in which these risks are inherent are demand deposits, saving accounts and mortgages with prepayment options.

BIS

BIS stands for Bank for International Settlements – an international organisation which fosters international monetary and financial co-operation and serves as a bank for central banks. The BIS has set a minimum for the solvency ratio reflecting the relationship between capital and risk weighted assets. This ratio should be at least 8%.

Business risk

The exposure to value loss due to fluctuations in volumes, margins and costs. These fluctuations can occur because of internal, industry, or wider market factors. It is the risk inherent to strategy decisions and internal efficiency.

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Capital base

Capital plus minority interests plus subordinated loans.

Capital coverage ratio

Available capital divided by required capital.

Certificates of deposit

Short-term negotiable bearer debt instruments issued by banks.

Claim

A demand for payment of a policy benefit because of the occurrence of an insured event, such as the death or disability of the insured or the maturity of an endowment, the incurrence of hospital or medical bills, the destruction or damage of property and related deaths or injuries, defects in, liens on, or challenges to the title to real estate, or the occurrence of a surety loss.

Claims ratio

Claims, including claims handling expenses, expressed as a percentage of net earned premiums.

Collateralised debt obligation (CDO)

A type of asset-backed security which provides investors exposure to the credit risk of a pool of fixed income assets.

Collateralized loan obligation (CLO)

A type of CDO which is backed primarily by leveraged bank loans.

Combined ratio

The sum of the claims ratio and the cost ratio for a non-life insurance company or a reinsurance company. A combined ratio of more than 100% does not necessarily mean that there is a loss on non-life insurance policies, because the result also includes the allocated investment income.

Commercial paper

Promissory note (issued by financial institutions or large firms) with very short to short maturity periods (usually 2 to 30 days, and not more than 270 days), and unsecured.

Compliance risk

Compliance risk is defined as the risk of damage to ING’s reputation as a result of failure or perceived failure to comply with relevant laws, regulations, internal policies and procedures or ethical standards.

Concentrations of credit risk

Concentrations of credit risk exist when changes in economic, industry or geographical factors similarly affect groups of counterparties whose aggregate exposure is material in relation to ING Group’s total exposure.

Contingent liabilities

Possible obligations that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or a present obligation that arises from past events but is not recognised because:

  • It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation.
  • The amount of the obligation cannot be measured with sufficient reliability.

Control

The power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Convertible debentures

Debentures with embedded options issued by corporations. The holder has the right to exchange a convertible debenture for equity in the issuing company at certain times in the future according to a certain exchange ratio. Very often, the conversion is callable. This means that it can be repurchased by the issuer at a certain price at certain times in the future. Once the debentures have been called, the holder can always choose to convert prior to repurchase.

Convexity

The non-linear relationship between changes in the interest rates and changes in bond prices and their Net Present Value. It is a very important market risk measure for portfolios containing (embedded) options.

Core debt

Investments in ING Group subsidiaries minus the equity of the holding company including hybrids.

Corporate governance

The way in which a company is governed and how it deals with the various interests of its customers, shareholders, employees, business partners and society at large.

Corporate governance committee

The Corporate Governance Committee assists the Supervisory Board in monitoring and evaluating the corporate governance of ING as a whole and the reporting thereon in the Annual Report and to the General Meeting, and advises the Supervisory Board on improvements.

Cost of capital

The costs related to owning capital. These can be split into the cost of equity, hybrids and debt, taking a target leverage into account.

Cost ratio

Underwriting costs expressed as a percentage of net premiums written.

Country risk

The risk that a government will not fulfil its obligations or obstructs the remittance of funds by debtors, either for financial reasons (transfer risk) or for other reasons (e.g. political risk).

Credit rating

Credit ratings, as assigned by rating agencies (such as Standard & Poor’s and Moody’s), are indicators for the likelihood of timely and complete repayment (by ING) of interest and instalments of fixed-income securities.

Credit institutions

All institutions that are subject to banking supervision by public authorities, including mortgage banks, capital market institutions, multilateral development banks and the International Monetary Fund (IMF).

Credit risk

The risk of loss through default by borrowers (including bond issuers) or counterparties. Credit risks arise in ING’s lending, pre-settlement and investment activities, as well as in its trading activities. Credit risk management is supported by dedicated credit risk information systems and internal rating methodologies for debtors and counterparties.

Cumulative preference shares

Shares that entitle the holder to a fixed annual dividend. In case of profit distribution, these shares take precedence over ordinary shares. If profits are insufficient to cover the dividend payment, the amount of unpaid dividend is carried forward to future years until the unpaid amount is settled.

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Deferred tax liabilities

The amounts of income tax payable in future periods in respect of taxable temporary differences between carrying amounts of assets or liabilities in the balance sheet and tax base, based on tax rates that are expected to apply in the period when the assets are realised or the liabilities are settled.

Defined benefit plan

Post-employment benefit plans other than defined contribution plans.

Defined contribution plan

A post-employment benefits plan under which an enterprise pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the funds does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.

Delta hedge

The delta hedge minimises the exposure of the employee option scheme by holding an appropriate number of (depositary receipts for) ordinary shares. The exposure is reassessed every quarter and, if necessary, ordinary shares are bought from the market.

In December 2010, ING Groep N.V. announced that it will no longer rebalance its hedge portfolio. This decision is an effort to simplify the management and administration of ING’s various employee share and option programmes. The remaining shares in the hedge portfolio will be used to fund the obligations arising out of exercise and vesting. Once all shares in the hedge portfolio are used ING will fund these obligations by issuing new shares.

Depositary receipt

A depositary receipt for ordinary and preference shares, issued by the ING Trust Office, in exchange for ordinary and preference shares issued by ING Group.

Derivatives

Financial instruments, such as forwards, futures, options and swaps, whose value is based on an underlying asset, index or reference rate.

Discount rate

A rate used to place a current value on future cash flows. It is needed to reflect the fact that money has a time value. In the embedded value calculated for ING's insurance operations, the discount rate is equal to the weighted cost of capital after taxation of the insurance operations.

Discounted bills

Bills that are sold under deduction of interest giving the owner the right to receive an amount of money on a given date.

Discontinued operations

When a group of assets that is classified as held for sale represents a major line of business or geographical area the disposal group classifies as discontinued operations.

Discretionary participation feature

A contractual right to receive, as a supplement to guaranteed benefits, additional benefits that: are likely to be a significant portion of the total contractual benefits, whose amount or timing is contractually at the discretion of the insurer, that are contractually based on the performance of a specified pool or type of contract, (un)realised investment returns on a specified pool of assets held by the insurer, or the profit of the company, fund, or other entity that issues the contract.

Disposal group held for sale

When groups of assets are to be sold together in a single transaction, and the sale is considered to be highly probable, the disposal group is classified separately in the balance sheet as ‘assets held for sale’. A sale is highly probable when management is demonstrably committed to the sale, which is expected to occur within one year from the date of classification as held for sale. Liabilities directly associated with those assets, and that are included in the transaction are to be included in the balance sheet as ‘liabilities held for sale’.

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Earnings sensitivity (ES)

Measures the impact on earnings resulting from changes in economic and financial conditions over a one-year horizon.

Economic capital

The minimum amount of capital that is required to absorb unexpected losses in times of severe stress. Given ING Group’s A target rating, ING calculates economic capital requirements at a 99.95% level of confidence. This confidence level is derived from the historical default frequency of AA-rated companies (probability of default of 1 in 2000 years or 0.05%). For ING Insurance, the economic capital is calculated based on a confidence level of 99.5%, which is aligned with Solvency II.

Effective interest method

A method of calculating the amortised cost of a financial asset or liability and of allocating the interest income or interest expense over the relevant period.

Elimination

A process by which intercompany transactions are matched with each other and deducted, so that the assets, liabilities, income and expenses are not inflated.

Employee benefits

All forms of consideration given by a company in exchange for service rendered by current and former employees.

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Fair value

The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

Final dividend

The final dividend is the total dividend for the year as approved by the shareholders in the annual General Meeting less any interim dividend paid during the year.

Finance lease

A lease that transfers substantially all the risks and rewards associated with ownership of an asset to the lessee. Title may or may not eventually be transferred.

Financial asset

Any asset that is:

  • cash
  • an equity instrument of another company
  • a contractual right to:
    • receive cash or another financial asset from another company, or
    • exchange financial instruments with another company under conditions that are potentially favourable
    • certain contract that will or may be settled in ING’s own equity instruments

Financial instruments

Contracts that give rise to both a financial assets for one company and a financial liability or equity instrument for another company.

Financial liability

Any liability that is a contractual obligation:

  • to deliver cash or another financial asset to another company;
  • to exchange financial instruments with another company under conditions that are potentially unfavourable;
  • certain contracts that will or may be settled in ING’s own equity instruments.

Foreign exchange rate risk

Probability of loss occurring from an adverse movement in foreign exchange rates.

Forward contract

Commitments to exchange currencies or to buy or sell other financial instruments at specified future dates.

Future contract

Commitment to exchange currencies or to buy or sell other financial instruments at specified future dates. Exchanges act as intermediaries and require daily cash settlement and collateral deposits.

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Gross premiums written

Total premiums (whether or not earned) for insurance contracts written or assumed (including deposits for investment contracts with limited or no life contingencies written) during a specific period, without deduction of premiums ceded.

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Hedge fund

Investment fund that specialises in a specific trading strategy, such as currencies, bonds or equities, while hedging the investment against adverse price developments.

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity that ING Group has the positive intention and ability to hold to maturity other than:
a. Those that ING Group upon initial recognition designates as at fair value through profit and loss.
b. Those that ING Group designates as available-for-sale.
c. Those that meet the definition of loans and receivables.

Historical simulation

A model to calculate Value-at-Risk, assuming that future changes in risk factors will have the same distribution as they had in the past taking into account the non-linear behaviour of financial products.

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Impairment loss

The amount by which the carrying amount of an asset exceeds its recoverable amount.

ING Trust Office

The role of the ING Trust Office is to actively communicate with shareholders and represent the votes of the depositary-receipt holders and shareholders.

ING Continuity Foundation

The role of the ING Continuity Foundation is to ensure ING's continuity. Should a hostile takeover attempt ever occur, this foundation can exercise its call option right for as many cumulative preference shares as are necessary in order to hold one third of the issued share capital.

Interest-bearing instrument

A financial asset or liability for which a time-proportionate compensation is paid or received, in relation to a notional amount.

Interest margin

Difference between the averagely received interest on funds lent and the interest paid by the bank on capital raised.

Internal rate of return (IRR)

Internal rate of return is the discount rate at which the present value of distributable earnings from new business equals the investment in new business (i.e. the projected return on the investment in new business) is calculated.

Interest-rate rebate

Profit sharing for group life insurance business. A rebate granted to policyholders based on the discounted value of the difference between the interest rate used for calculating the premiums and the expected yield on investment. The profit sharing is granted by means of a premium discount related to the yield on government bonds.

Interest-rate risk

Probability that the market interest rates will rise significantly higher than the interest rate earned on investments such as bonds, resulting in their lower market value.

Interim dividend

The interim dividend is an advance on the final dividend and distributed before the year-end closing.

In the money

A call option is said to be in the money if the exercise price is lower than the price of the underlying value; a put option is said to be in the money if the exercise price is higher than the price of the underlying value.

Investment risk

Investment risk is the credit default and risk rating migration risk that is associated with ING Group’s investments in bonds, commercial paper, securitisations, and other similar publicly traded securities. Investment risk arises when ING purchases a (synthetic) bond with the intent to hold the bond for a longer period of time (generally through maturity).

Investment portfolio

Comprises those assets which are intended for use on a continuing basis, and have been identified as such. These investments are held in order to cover the insurance provisions and to manage interest rate, capital and liquidity risks.

Irrevocable facilities

Mainly constitute unused portions of irrevocable credit facilities granted to corporate clients and commitments made to purchase securities to be issued by governments and private issuers.

Irrevocable letters of credit

Concerns an obligation on behalf of a client to, within certain conditions, pay an amount of money under submission of a specific document or to accept a bill of exchange. An irrevocable letter of credit cannot be cancelled or adjusted by the bank that has granted it during the duration of the agreement unless all those concerned agree.

Issued share capital

The share capital issued by a public limited company or a private limited company; contrary to authorised capital, which indicates the maximum amount of capital that can be issued.

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Joint venture

A contractual arrangement whereby two or more parties undertake an economic activity which is subject to joint control.

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Legal risk

Legal risk is the risk related to:

  • A failure (or perceived failure) to adhere to applicable laws, regulations and standards.
  • Contractual liabilities or contractual obligations that are defaulted or cannot be enforced as intended, or are enforced in an unexpected or adverse way.
  • Liability (tort) towards third parties due to an act or omission contributable to ING; (potentially) resulting in impairment of ING’s integrity, leading to damage to ING’s reputation, legal or regulatory sanctions, or financial loss.

Lending risk

Lending risk arises when ING Group grants a loan to a customer, or issues guarantees on behalf of a customer. This is the most common risk category, and includes term loans, mortgages, revolving credits, overdrafts, guarantees, letters of credit, etc. The risk is measured at the notional amount of the financial obligation that the customer has to repay to ING, excluding any accrued and unpaid interest, or discount/premium amortisations or impairments.

Liquidity risk

The risk that ING Group or one of its subsidiaries cannot meet its financial liabilities when they fall due, at reasonable costs and in a timely manner.

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Market risk

Market risk is the risk that movements in market variables, such as interest rates, equity prices, implied volatilities, foreign exchange rates, real estate prices negatively impact the earnings or market value.

Minority interest

That part of the profit or loss and net assets of a subsidiary attributable to an interest which is not owned, directly or indirectly, by the parent company.

Monetary assets and liabilities

Assets and liabilities which are fixed in terms of units of currency by contract or otherwise. Examples are cash, short or long-term accounts, notes receivable in cash and notes payable in cash.

Money market risk

Money market risk arises when ING Group places short term deposits with a counterparty in order to manage excess liquidity, as such, money market deposits tend to be short term in nature (1-7 days is common). In the event of a counterparty default, ING Group may lose the deposit placed. Money market risk is therefore measured simply as the notional value of the deposit, excluding any accrued and unpaid interest or the effect of any impairment.

Monoliner

A financial company that deals specifically with one particular branch of the financial industry.

Monte Carlo simulation

A model to calculate Value at Risk, assuming that changes in risk factors are (jointly) normally distributed taking into account nonlinear behaviour of financial products.

Mortgage-backed securities (MBS)

A security whose cash flows are backed by typically the principal and/or the interest payments of a pool of mortgages.

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Net asset value

Used in the equity method of accounting. The initial net asset value of the investment is determined by the fair value of the assets and liabilities of the investee. After the initial valuation of assets and liabilities of the investee at fair value, the assets and liabilities of the investee are valued in accordance with the accounting policies of the investor.
The profit and loss account reflects the investor’s share in the results of operations of the investee.

Net premiums written

Gross premiums written for a given period less premiums ceded to retrocessionaires during the given period.

Net present value at risk (NPV at Risk)

Establishes what the value of future cash flows is in terms of today’s monetary value. NPV at Risk establishes the change in value of future cash flows as a result of interest rate changes in terms of today’s monetary value.

New sales

New sales of life insurance, measured as Annual Premium Equivalent (APE), have been defined as the total of annual premiums and 10% of single premiums received on production in a given period.

Nominal value of share

Dutch shares have a nominal value, which is mentioned on all share certificates that are issued. Shares must be issued against at least the nominal value. The nominal value remains fixed, as opposed to the market value, which fluctuates.

Nomination Committee

The Nomination Committee advises the Supervisory Board, among other things, on the composition of the Supervisory Board and Executive Board.

Non-voting equity securities

Core Tier 1 securities issued to the Dutch State in November 2008 for a total consideration of EUR 10 billion. In December 2009 EUR 5 billion and in May 2011 EUR 2 billion was paid back to the Dutch State. This capital injection qualifies as core Tier 1 capital for regulatory purposes.

Notional amounts

Represent units of account which, in respect of derivatives, reflect the relationship with the underlying assets. They do not reflect, however, the credit risks assumed by entering into derivative transactions.

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Operating lease

A lease other than a finance lease.

Operational risk

The risk of direct and indirect loss resulting from inadequate or failed internal processes, people and systems or from external events.

Option contracts

Give the purchaser, for a premium, the right, but not the obligation, to buy or sell within a limited period of time a financial instrument or currency at a contracted price that may also be settled in cash. Written options are subject to market risk, but not to credit risk since the counterparties have already performed in accordance with the terms of the contract by paying a cash premium up front.

Ordinary share

An equity instrument that is subordinated to all other classes of equity instruments. Ordinary shares participate in the net profit for the financial year after other types of shares such as preference shares.

Out of the money

A call option is said to be out of the money if the exercise price is higher than the price of the underlying value; a put option is said to be out of the money if the exercise price is lower than the price of the underlying value.

Over-the-counter instrument

A non-standardised financial instrument not traded on a stock exchange but directly between market participants.

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Plan assets

Comprise assets held by a long-term employee benefit fund and qualifying insurance policies. Assets held by a long-term employee benefit fund are assets (other than non-transferable financial instruments issued by the reporting enterprise) that:

  • Are held by an entity (a fund) that is legally separate from the reporting enterprise and exists solely to pay or fund employee benefits.
  • Are available to be used only to pay or fund employee benefits, are not available to the reporting enterprise’s own creditors (even in bankruptcy), and cannot be returned to the reporting enterprise, unless either the remaining assets of the fund are sufficient to meet all the related employee benefit obligations of the plan or the reporting enterprise or the assets are returned to the reporting enterprise to reimburse it for employee benefits already paid.

A qualifying insurance policy is an insurance policy issued by an insurer that is not a related party of the reporting enterprise, if the proceeds of the policy:

  • Can be used only to pay or fund employee benefits under a defined benefit plan.
  • Are not available to the reporting enterprise’s own creditors (even in bankruptcy) and cannot be paid to the reporting enterprise, unless either the proceeds represent surplus assets that are not needed for the policy to meet all the related employee benefit obligations or the proceeds are returned to the reporting enterprise to reimburse it for employee benefits already paid.

Post-employment benefit plans

Formal or informal arrangements under which a company provides post-employment benefits for one or more employees. Post-employment benefits are employee benefits other than termination benefits and equity compensation benefits, which are payable after the completion of employment.

Preference share

A preference share is similar to an ordinary share but carries certain preferential rights.
These rights usually concern the guarantee of a fixed (cumulative) return to the shareholder or a guaranteed return on the investment.

Premium income

The amount paid by the purchaser of an insurance contract less any commission or brokerage fees payable to an insurance agent. This represents the gross income of an insurance company.

Premiums earned

The portion of net premiums written in current and past periods which applies to the expired portion of the policy period, calculated by subtracting movements in unearned premium reserves from net premiums.

Pre-settlement risk

Pre-settlement risk arises when a counterparty defaults on a transaction before settlement and ING Group has to replace the contract by a trade with another counterparty at the then prevailing (possibly unfavourable) market price. The pre-settlement risk (potential or expected risk) is the cost of ING Group replacing a trade in the market.

This credit risk category is associated with dealing room products such as options, swaps, and securities financing transactions. Where there is a mutual exchange of value, the amount of outstanding is generally based on the replacement value (mark-to-market) plus potential future volatility concept, using an historical seven-year time horizon and a 99% confidence level.

Private banking

Financial services for affluent individuals.

Private equity

Investment in non-listed companies, with financing taking place through private capital.

Private loan

Loans to governments, other public bodies, public utilities, corporations, other institutions or individuals with a loan agreement as the only instrument of title.

Private placement

A placement in which newly issued shares or debentures come into possession of a limited group of subscribers who are prepared to buy the new securities.

Projected unit credit method

An actuarial valuation method that considers each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation.

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Qualifying asset (within the meaning of borrowing costs)

An asset that necessarily takes a substantial period of time to get ready for its intended use or sale.

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Recognition

The process of incorporating in the balance sheet or profit and loss account an item that meets the definition of an element and satisfies the following criteria for recognition:

  • it is probable that any future economic benefit associated with the item will flow to or from the enterprise; and
  • the item has a cost or value that can be measured reliably.

Recoverable amount

The higher of an asset’s net selling price and its value in use.

Redemption value

With respect to investments in fixed-interest securities, the amount payable on the maturity date.

Reinsurance

The practice whereby one party, called the reinsurer, in consideration for a premium paid to him, agrees to indemnify another party, called the reinsured or ceded party, for part or all of the liability assumed by the reinsured under a contract or contracts of insurance which the reinsured has issued. The reinsured may also be referred to as the original or primary insurer, the direct writing company, or the ceding company.

Return on equity (ROE)

The return on equity is the net result as percentage of the average equity.

Revaluation reserve

Part of the shareholders' equity that arises from changes in the current value of the fixed assets.

Remuneration Committee

The Remuneration Committee advises the Supervisory Board, among other things, on the terms and conditions of employment (including their remuneration) of Executive Board members and the policies and general principles on which the terms and conditions of employment of Executive Board members and of senior managers of ING and its subsidiaries are based.

Risk-adjusted return on capital (RAROC)

A performance indicator that measures revenues in the perspective of the risks that had to be taken to obtain that revenue. RAROC is calculated by dividing the risk-adjusted-return by economic capital. In the RAROC calculation, the actual credit-risk provisioning is replaced by statistically expected losses reflecting the average credit losses over the entire economic cycle.

Risk Committee

The Risk Committee assists and advises the Supervisory Board in monitoring the risk profile of the company as well as the structure and operation of the internal risk management and control systems.

Risk-weighted assets (‘RWA’ under Basel I)

Assets which are weighted for credit risk according to a formula used by the Dutch central bank (De Nederlandsche Bank), which conforms to the capital adequacy guidelines of the BIS (Bank of International Settlements). On and off-balance-sheet items are weighted for risk, with off-balance-sheet items converted to balance-sheet equivalents (using credit-conversion factors) before being allocated a risk weight.

Risk-weighted assets (‘RWA’ under Basel II)

Assets which are weighted for credit and market risk in accordance with the Basel II methodology. The risk-weighted assets are calculated using internal models approved by the Dutch central bank (De Nederlandsche Bank). Regulatory capital requirements for operational risk are calculated without use of risk-weighted assets.

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Settlement risk

Settlement risk rises when there is an exchange of value (funds, instruments or commodities) for the same or different value dates or times and receipt is not verified or expected until ING Group has paid or delivered its side of the trade. The risk is that ING Group delivers, but does not receive delivery from the counterparty.

Shareholders' equity

Capital invested by the shareholders in the company, increased by the reserves.

Significant influence

The power to participate in the financial and operating policy decisions of an entity, but not to have control over these policies. Significant influence may be gained by share ownership, statute or agreement.

Solvency II

The fundamental reform of European insurance solvency and risk governance legislation, which is expected to be effective as of 1 January 2014.

Stakeholder

A stakeholder is somebody who has an interest in ING. ING distinguishes the following stakeholder groups: customers, employees, business relations and suppliers, society at large and shareholders.

Sub-prime mortgage

Mortgage loans made to borrowers who cannot get a regular mortgage because they have a bad credit history or limited income.

Subsidiary

An entity that is controlled by another entity.

Surrender

The termination of a life or retirement contract at the request of the policyholder after which the policyholder receives the cash surrender value, if any, on the contract.

Swap contracts

Commitments to settle in cash at a specified future date, based on differentials between specified financial indices as applied to a notional principal amount. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party.

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Tier 1 capital

Also referred to as the core capital of ING Bank. It comprises paid-up share capital, reserves excluding revaluation reserves, retained earnings, minority interests and hybrid Tier 1.

Tier 1 ratio

Reflecting the Tier 1 capital of ING Bank as a percentage of its total risk-weighted assets. The minimum set by the Dutch central bank is 4%.

Total and underlying net result

The variance between Total and Underlying net result is caused by divestments and special items.

Trading portfolio

Comprises those financial instruments which are held to obtain short-term transaction results, to facilitate transactions on behalf of clients or to hedge other positions in the trading portfolio.

Transfer risk

Probability of loss due to currency conversion (exchange) restrictions imposed by a foreign government that make it impossible to move money out of the country.

Treasury bills

Generally short-term debt certificates issued by a central government. Dutch Treasury Certificates are regarded as Dutch Treasury Bills.

Treasury shares

An entity’s own equity instruments, held by the entity or other members of the consolidated group.

Trust office

A trust office is a body that represents the interests and rights on behalf of a certain group of people. At ING, this term is used to refer to the ING Trust Office. This body represents the interest of ING's depositary-receipt holders.

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Value at Risk (VaR)

Quantifies, with a one-sided confidence level of at least 99%, the maximum overnight loss in Net Present Value that could occur due to changes in risk factors (e.g. interest rates, foreign exchange rates, equity prices, credit spreads, implied volatilities) if positions remain unchanged for a time interval of one day.

Value in use

The present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life.

Variance-covariance

A model to calculate Value at Risk, assuming that changes in risk factors are (jointly) normally distributed and that the change in portfolio value is linearly dependent on all risk factor changes.

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Warrant

A financial instrument that gives the holder the right to purchase ordinary shares

Weighted average cost of capital (WACC)

The weighted average cost of capital is used as the discount rate for calculating the present value of future cash flows.

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