Capital management
OBJECTIVES
ING Group Capital Management (Capital Management) is responsible for the sufficient capitalisation of ING Group entities at all times in order to manage the risk associated with ING’s business activities. This involves the management, planning and allocation of capital within ING Group. ING’s Corporate Treasury is part of Capital Management. It executes the necessary capital market transactions, term (capital) funding and risk management transactions. Capital Management monitors and plans capital adequacy on a consolidated basis at three levels: ING Group, ING Insurance and ING Bank. The rating objective for these three entities is currently AA/Aa2. Capital Management takes into account the metrics and requirements of regulators (EU Solvency, Tier 1 and BIS ratios and limits for hybrid capital), rating agencies (leverage ratios, Adjusted Equity) and internal risk management models and market value balance sheets (economic capital (EC) and available financial resources (AFR)).
ING applies three main capital definitions:
- AFR – This is a market value concept, defined as market value of assets less the market value of liabilities on the balance sheet. The liabilities do not include the hybrid capital which is accounted for as equity. In the absence of a full market value balance sheet for ING Bank, AFR Bank is defined as Tier 1 capital plus the revaluation reserve for equity securities, less the difference between expected loss and loan loss provisions. AFR is used as the measure of available capital in comparison with EC employed. EC, or Economic Capital, is the amount of capital that is required to absorb unexpected losses in times of severe stress given ING Group’s ‘AA’ target rating.
- Adjusted Equity – This rating agency concept is defined as shareholders’ equity adjusted for hybrids, prudential filters and the Value in Force and Deferred Acquisition Cost. See ‘Capital Base’ disclosures below. This capital definition is applied in comparing available capital to core debt (leverage) for ING Group and ING Insurance.
- Tier 1 capital – Tier 1 capital and total BIS capital are regulatory concepts applicable to ING Bank. Tier 1 capital is defined as shareholders’ equity plus hybrid capital less certain prudential filters and deductible items. Tier 1 and BIS capital divided by risk weighted assets equals the Tier 1 and BIS ratio respectively.
Increasingly Capital Management considers AFR and EC employed when managing capital. AFR should exceed EC and for ING Group as a whole there should be a prudent buffer. The target for the buffer at Group level is 20%.