RAROC performance
ING Bank applies the Risk Adjusted Return on Capital framework (RAROC). This method consistently measures the performance of different activities and has a clear link to shareholder-value creation. The use of RAROC increases focus on risks versus return in the decision-making process, and consequently stimulates the use of scarce capital in the most efficient way. Risk-adjusted pricing tools are also used as a basis for the pricing of certain transactions and as an important determinant in the credit-approval procedures.
RAROC is calculated as the risk-adjusted return divided by economic capital. The risk-adjusted return is based on similar valuation policies as applied in the financial accounts, with two important exceptions. The actual credit-risk provisioning is replaced by expected losses reflecting statistically calculated average credit losses over the entire economic cycle. In addition the profit and loss account is adjusted for effects that relate to replacing actual book capital by economic capital.
Underlying RAROC for banking operations
| RAROC (after-tax) | RAROC (pre-tax) | |||
|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |
| Netherlands | 14.8% | 13.1% | 18.0% | 17.7% |
| Belgium | 27.5% | 28.6% | 26.1% | 28.0% |
| Rest of the world | 13.8% | 16.8% | 12.3% | 16.7% |
| Other Wholesale | –35.5% | –3.6% | –66.5% | –17.6% |
| Subtotal Wholesale Banking | 17.6% | 17.7% | 17.6% | 19.2% |
| ING Real Estate | 32.7% | 40.1% | 44.6% | 58.6% |
| Total Wholesale Banking | 20.3% | 20.6% | 22.5% | 24.3% |
| Netherlands | 60.4% | 46.4% | 78.8% | 65.9% |
| Belgium | 45.8% | 45.5% | 55.6% | 60.5% |
| Poland | 56.9% | 17.6% | 70.5% | 22.5% |
| Other Retail | 2.0% | –0.5% | 0.9% | –1.9% |
| Total Retail Banking | 39.5% | 32.0% | 50.3% | 44.4% |
| Total ING Direct | 14.3% | 11.8% | 17.7% | 19.4% |
| Corporate Line | –59.5% | –60.8% | –86.8% | –115.4% |
| Total banking operations | 22.3% | 20.5% | 26.2% | 26.2% |
| Total banking operations including divestments and special items |
19.9% | 19.7% | 23.1% | 25.5% |
Note: The underlying figures exclude divestments and special items.
