ing+groep+jaarverslag+2012.pdf

7/27/2019 ING+Groep+jaarverslag+2012.pdf

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2012

ING GroupAnnual Report

Taking charge of change


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> We continued our focuson customer centricity

and sustainability> ING posted 2012 underlying

net profit of EUR 2,603million in a challengingenvironment

> Capital, funding and liquidity

positions improved> ING continued to de-risk,

streamline its portfolio andstrengthen its businesses

> Agreement reached withEuropean Commission onamended Restructuring Plan

> Further progress madetowards State repayment andreduction in double leverage

2 ING Group Annual Report 2012


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1Whoweare

2ReportoftheExecutiveBoard

3Corporategovernance

4Consolidatedannualacco

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5Parentcompanyannualaccounts

6Otherinformation

7Additionalinform

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Chairmans message 4ING at a glance 6Key gures 8

Composition o the Boards 9ING share 10

Financial and regulatory environment 12Strategy 17

Capital management 22Risk management 24

Banking overview 26 Retail Banking 30 Commercial Banking 39

Insurance overview 44 Insurance 48

Report o the Supervisory Board 56

Corporate governance 60Report o ING Trust Oce 73

Report o ING Continuity Foundation 76Conormity statement 77

Section 404 Sarbanes-Oxley Act 78

Remuneration report 80Works councils 88

Consolidated balance sheet 90

Consolidated prot and loss account 91Consolidated statement o comprehensive income 93Consolidated statement o cash fows 94

Consolidated statement o changes in equity 96

Accounting policies or the consolidated

annual accounts 98Notes to the consolidated annual accounts 118Risk management 218

Capital management 304

Parent company balance sheet 312Parent company prot and loss account 313Parent company statement o changes in equity 314

Accounting policies or the parent companyannual accounts 315Notes to the parent company annual accounts 316

Independent auditors report 321Proposed appropriation o result 322

Risk actors 323Additional Pillar 3 inormation 344

Financial glossary 370General inormation 377

3ING Group Annual Report 2012

Contents


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Dear reader,Thanks to loyal customers, prudent balance sheetmanagement and the determination o our sta to

provide the best possible service to our customers,

ING strengthened its position. 2012 was a year marked

by major change. In challenging times, ING has become

a nancially stronger company. Through divestments,

ING has sharpened its ocus and became smaller.

The oundations or urther changes are in place.

economic outlook remains uncertain despite eortsby the ECB.

Added to this, or both banking and insurance thereis ongoing uncertainty about the exact nature andtiming o the implementation o many o the new

regulatory measures, which are putting considerablepressure on costs. This is an area o concern, becausei the nancial sector is to acilitate sustainable economic

growth, one needs to be careul about the timing andextent o the measures.

An important priority remains to win back trust, thecornerstone o nancial services; and it starts by being astrong and nancially sustainable company that puts its

customers rst. Product development, or example, issomething we are increasingly doing in cooperation withour customers, collecting eedback using tools such as

ocus groups and social media. We are also making everyeort to ensure that we have excellent processes andservices in place, so that customers can organise their

nancial aairs simply and easily.

We are responding to the signals society is sending us.

In this context, we have amended and tightened up ourremuneration policy in 2012. In the Netherlands, weagreed on a new Collective Labour Agreement or Banksta with the trade unions. Employees under the CLA

will in principle no longer receive variable remuneration.In addition, we have taken urther steps to tighten upthe remuneration policy or senior management.

We are maintaining an active dialogue with ourstakeholders to explain our strategy, and to nd out

what they think and eel about ING. Personally, I havespoken to large numbers o customers this year athome and abroad on company visits, as well as at

special customer seminars organised by ING. By actively

engaging with customers, we can nd out what reallymatters to them and get a better idea o what we can

do to improve our services.

There are two milestones I would like to mention.

First, with the tranche repaid on 26 November 2012,

Taking charge o change, the theme o this AnnualReport, was the common thread across our operations:

managing change to prepare or a new uture asa ully independent bank and ully independentinsurance businesses.

The drive towards that uture began our years ago,in 2009, when I became chairman o the Executive

Board and was aced with the challenge o steeringING through the nancial crisis. This required robustmeasures. We needed to change course. It was evident

that we had to restructure our organisation drastically,not only because o the crisis and the lessons we drewrom it, but because o the increasing call or sustainable

nancial services, or a change o culture. In brie, weneeded to nd a dierent way o working and so werolled up our sleeves and we set changes in motion.

In 2012, we urther simplied our organisation, and wetook signicant urther steps to reduce our risk prole,but at a cost. We also streamlined our product range

and anticipated and implemented new regulations.On the banking side, we rened the strategy, andalthough our results were under pressure, we managed

to strengthen the balance sheet and improve ourcapital and unding position. Moreover, our liquidityposition remained strong.

These steps were necessary in order to remaincompetitive and to be able to ace the challenging

external environment. The economic and nancial marketconditions in which we operated in 2012 were dicult,especially in the eurozone, a key geographical area or

our company. Financial markets were infuenced by theEuropean sovereign debt crisis, with an interbank marketthat had virtually stopped unctioning. Unemployment

grew and consumer condence in Europe declined.

Specically in the Netherlands, current levels o debt arestill too high, which is hampering economic growth.The need or companies and households to deleverageurther is bound to have negative eects on business

banking in the Netherlands. For Europe as a whole, thedemand or lending remained weak in 2012. The 2013


Chairmans message


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An important priority isto win back trust becausetrust is the cornerstoneo nancial services.Restoring trust startsby being a strong andnancially sustainablecompany that puts itscustomers rst.

ING brought the total repaid above the EUR 10 billiono capital support provided by the Dutch State in

October 2008. The total repaid so ar o EUR 10.2billion consists o a principal amount o EUR 7.8 billion

and EUR 2.4 billion in premiums and interest. Second,ING and the Dutch State reached an agreement withthe European Commission on amendments to theRestructuring Plan we had to submit to obtainapproval or the state aid we received. The amended

Restructuring Plan gives us more time and greaterfexibility to shape our uture.

Both the bank and the insurance businesses are ontrack. In January 2012, ING Bank updated its strategyand nancial ambitions around three pillars: customer

centricity, operational excellence and balance sheetoptimisation. ING Bank wants to be the preerred bank

o customers, the bank that customers recommend toothers. To achieve this and as part o strengthening ourcustomer-centric culture we are thereore convergingto one model: easy and air, and at low cost. In 2012,

we have made progress towards operational excellenceby improving our service and streamlining ourorganisation and systems. And we aim to optimise

our balance sheet to enhance returns and to allow usto continue to support our customers and grow ourloan portolio without growing the balance sheet. We

realise that having engaged and motivated employeesis key to making our strategy a success. Thereore beinga top employer is also a key priority or ING.

The strategy is clear; it is now about the execution.In line with our strategic objectives o sharpening

the Banks ocus and urther strengthening its capitalposition, ING made a ew divestments as a result othe continuous evaluation o its portolio o businesses.

In 2012, we sold ING Direct Canada and our stake inCapital One. In the rst quarter o 2013, we sold INGDirect UK.

The insurance businesses have made progress towardsindependent utures. The sale o a large part o the

Asian insurance and investment management businesswas announced, and ING U.S. has made great strides in

preparing or its initial public oering (IPO), bringing itone step closer to becoming an independent business.

Preparations have been stepped up or the basic scenarioo an IPO or the European insurance and investmentmanagement business.

The streamlining and the sale o parts o the businessadversely impact jobs at the bank and the insurance and

investment management businesses. This is somethingwe regret, but these measures are necessary and keepour organisation fexible in the current uncertain climate.

I would like to thank our sta or their resilience. Wehave asked a lot o them and they have continued to

step up to the plate.All these developments propel us urther along the

road towards a successul, independent uture or ourbusinesses. We are not there yet, but we can be proudo what we have achieved.

We have also made progress this year in the areao sustainability. As you might expect rom a reliable

nancial partner, sustainability is anchored in ourstrategic policy, particularly when it comes to our social,environmental and ethical perormance. For example,

ING is one o the co-signatories o the United Nationssustainable insurance principles. I would also like tomention the establishment o the Sustainable Lending

Team which initiates and encourages sustainabilityopportunities successully.

Through a range o activities, we contribute to society.One example is our renewed partnership with UNICEFto give children all over the world the chance o a better

uture via education. We engage with all our stakeholders;actively observing and listening to their needs andcomments and responding accordingly. That is what

nancial services are all about, and we are determinedto deliver on that in a sustainable way. This is achallenge we are embracing with ull conviction.

I am convinced that we can build on the oundationswe have laid.

As o 1 October 2013, I will step down as CEO.The Supervisory Board intends to propose RalphHamers to be appointed as a member o the Executive

Board at the annual General Meeting on 13 May 2013and to succeed me as the next CEO as o 1 October2013. I am sure that Ralph Hamers will continue to

execute INGs strategic course.

Until that date, I remain ully dedicated to leading INGas it shapes its uture. There are still many tasks ahead

as we work towards completing our restructuringprogramme.

Jan Hommen

Chairman of the Executive Board



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OUR PROFILEING is a global nancial institution o Dutch origin, currently oeringbanking, investments, lie insurance and retirement services.

We are concentrating on our position as a strong European bankwith attractive home market positions in Northern Europe and

growth options in Central and Eastern Europe and Asia, whilecreating an optimal base or independent utures or our insuranceoperations (including investment management).

OUR STRATEGYTo serve the interests o all stakeholders, increase management

ocus and create value or shareholders, ING is moving towardsull separation o its banking and insurance operations. Theseparation is part o the Restructuring Plan required by the European

Commission in order to gain approval or the Dutch state aid receivedin 2008/2009.

ING Groups strategic priorities are: strengthening our nancial

position, restructuring, streamlining the portolio, repaying stateaid and building both stronger banking and insurance/investmentmanagement businesses, all based on sound business ethics and

good corporate citizenship.

ING Bank intends to be a strong, predominantly European bank,

with leading domestic ull-service banking positions in attractive,stable home markets, as well as a leading commercial bank in theBenelux with a strong position in Central and Eastern Europe.

OUR MISSION

INGs mission is to set the standard in helpingour customers manage their nancial uture.We aim to deliver nancial products and servicesin the way our customers want them delivered:with exemplary service, convenience and atcompetitive prices.

We will also continue to evolve our various ING Direct units into

more mature ull-service banking models. These initiatives in Europe,coupled with our positions outside Europe, should give the Bank

attractive growth potential in the long term. ING will build on itsglobal presence and international network and capitalise on itsleadership position in gathering savings, multi-channel distribution,simple propositions and marketing.

On the insurance side, the ocus will be to optimise returns andvalue or the business as we prepare or separation. We will ocuson earning our customers trust through transparent products,

value or money and superior service. This refects our universalcustomer ideal: saving and investing or the uture should be easier.

ING Insurance/Investment Management (IM) is preparing itsbusinesses or standalone utures. ING Insurance/IM Europe and

ING Insurance/IM US are preparing or base case initial publicoerings (IPOs) and the sale o ING Insurance/IM Asia is in ullprogress. ING Insurance/IM will continue to ocus on its customersand distributors by providing exemplary products and service.

OUR CUSTOMERSING serves a broad customer base, comprising individuals, amilies,

small businesses, large corporations, institutions and governments.

OUR STAKEHOLDERS

ING conducts business on the basis o clearly dened businessprinciples. In all our activities, we careully weigh the interestso our various stakeholders such as customers, employees,

supervisors, shareholders, civil society organisations and regulators.

OUR CORPORATE RESPONSIBILITY

ING wants to build its uture on sustainable prot based onsound business ethics and respect or its stakeholders and tobe a good corporate citizen. Our Business Principles prescribe

the corporate values we pursue and the responsibilities we havetowards society and the environment: we act with integrity, weare open and clear, we respect each other and we are socially

and environmentally responsible.

Repayment to the Dutch StateING has made good progress in repaying the EUR 10 billion o

capital support rom the Dutch State. As part o the amendedRestructuring Plan, ING has led a schedule to repay the DutchState in our equal tranches o EUR 1.125 billion each. The rst

payment was made on 26 November 2012. The other tranchesare due to be paid by November 2013, March 2014 and May 2015.

So ar ING has repaid EUR 10.2 billion, which consists o a principalamount o EUR 7.8 billion and EUR 2.4 billion o premiums and interest.

Regulation and superision

ING supports the overall majority o international, European andnational regulatory reorms taking place in the nancial sector.

However, ING is concerned about their cumulative impact, theuncertainty when and in what orm they will be implemented,and how they will aect our role in nancing the real economy.

TAKING CHARGE OF CHANGE

Financial position strengthenedING places great importance on strengthening its nancial positionin order to put itsel in the best position to acilitate the real

economy. Despite persistent market volatility and uncertaineconomic recovery in the eurozone and elsewhere, ING gainednancial strength in 2012. Capital and liquidity improved, our

unding position remained strong, earnings remained resilient,and net exposure to riskier asset classes and activities declined.

Amendments to the Restructuring Plan

In November 2012, ING and the Dutch State reached an agreementwith the European Commission on amendments to its 2009

Restructuring Plan.

The amendments extend the time and increase the fexibility or

the completion o divestments, and also adjust other commitmentsin light o the market conditions, economic climate and morestringent regulation.


ING at a glance


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56.8

61.8 62.5

2010 2011 2012

Underlying cost/income ratio (%)

48.3

43.3

47.5

2010 2011 2012

Life & ING IM administrative expenses /

Life & ING IM operating income (%)

-6.1 -1.1 1.8

2010 2011 2012

Underlying return on equity (%)***

11.7 8.8 5.9

2010 2011 2012

Underlying return on equity (%)***

0

7

5.2 4.1 3.2

2010 2011 2012

Underlying result before tax (EUR billion)

0

3

1.1 1.7 1.1

2010 2011 2012

Operating result (EUR billion)**

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UNDERLYING INCOME

14,241m2011: 14,289m

UNDERLYING INCOME

26,688m2011: 29,045m

UNDERLYING NET RESULT

2,147m2011: 2,977m

UNDERLYING NET RESULT

456m2011: 230m

BANKINGINGs banking operations are divided into two mainactivities: Retail Banking and Commercial Banking.

Retail Banking provides retail and direct bankingservices to individuals and small and medium-sized

enterprises throughout Europe and Asia, with abase in our Northern European home markets.Our ambition is to transorm ING Direct into a

ull-service bank.

Commercial Banking oers services such as lending,

payments and cash management in more than40 countries to corporations, governments andother nancial institutions.

INSURANCE/INvESTMENT MANAGEMENT

INGs insurance and investment managementbusinesses include its lie and non-lie insurance,pension and asset management activities.

These activities are divided into ve business lines:Insurance Benelux, Insurance Central and Rest

o Europe, Insurance US (excluding US ClosedBlock VA), US Closed Block VA and INGInvestment Management.

ING Investment Management provides a broad

range o investment strategies and advisoryservices in Europe, the Americas and theMiddle East.

*** Full-year underlyingnet result divided byaverage equity.

** Operating result isunderlying result beoretax excluding gains/losses and impairments,revaluations and marketand other impacts.

* Excluding discontinuedoperations. The resultso the Asia insurance andinvestment businesses areclassied as net resultrom discontinuedoperations.


BANKING INSURANCE*

ING GROUP


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ING Group

in accordance with IFRS-EUin EUR million unless otherwise indicated 2012 2011 2010 2009 2008

Income

Banking operations 16,102 17,908 17,734 12,293 11,662

Insurance operations (1) 26,689 29,133 28,035 26,644 39,142

Intercompany eliminations 147 350 336 336 291

Total 42,644 46,691 45,433 38,601 50,513

Sta expenses and operating expenses

Banking operations 9,632 9,889 9,649 9,665 10,122

Insurance operations (1) 3,752 3,447 3,463 3,469 4,103

Total 13,384 13,336 13,112 13,134 14,225

Addition to loan loss provision Banking operations 2,125 1,670 1,751 2,973 1,280

Result

Banking result beore taxation 4,134 6,028 5,830 838 106

Insurance result beore taxation(1)

238 608 2,182 1,537 1,282Result beore taxation 3,896 5,420 3,648 2,375 1,176

Taxation 799 1,246 1,146 677 662

Net result rom continuing operations 3,097 4,174 2,502 1,698 514

Net result rom discontinued operations (1) 908 1,673 405 572 406

Minority interests 111 81 97 121 52

Net result 3,894 5,766 2,810 1,006 868

Figures per ordinary share (in EUR)

Basic earnings (2) 0.86 1.12 0.63 0.60 0.33

Shareholders equity (in parent) 14.30 12.33 10.81 8.89 8.55

Balance sheet (year-end, in EUR billion)

Total assets 1,169 1,279 1,247 1,164 1,332

Shareholders equity (in parent) 54 47 41 34 17Core Tier 1 securities (in EUR million) 2,250 3,000 5,000 5,000 10,000

(1) The results o Insurance/IM Asia and Insurance Latin America are shown in net result rom discontinued operations.(2) See note 50 in the Annual Accounts.

Capital ratios and other data

2012 2011 2010

Debt/equity ratio (1) 11.1% 12.7% 13.4%

Core Tier 1 ratio 11.9% 9.6% 9.6%

Insurance IGD Solvency I ratio 245% 225% 230%

Underlying return on equity based on IFRS-EU equity 5.2% 6.5% 6.3%

Employees (FTEs, year-end, excluding FTEs in discontinued operations) (2) 84,718 87,866 88,203

Market capitalisation (in EUR billion) 27 21 28

(1) ING Group evaluates its debt/equity ratio on the basis o core debt and adjusted equity. Further inormation is provided in the section Capital managementin the consolidated annual accounts.

(2) Comparatives are excluding FTEs in entities divested in the years thereater.

ING Group evaluates the results o its businesses using a non-GAAP fnancial perormance measure called underlying result. Underlying resultis derived rom the result in accordance with IFRS-EU by excluding the impact o divestments, discontinued operations and special items.

Historic underlying results have been restated or divestments in order to create a comparable sequence (i.e. 2012, 2011 and 2010 underlyingresults exclude the results o a divestment which was completed in 2012). See note 52 in the consolidated annual accounts or a reconciliationbetween IFRS and underlying result.

Underlying net result

in EUR million 2012 2011 % change 2010

Banking operations 2,147 2,977 27.9% 3,836

Insurance operations 456 230 1,252

Underlying net result 2,603 2,746 5.2% 2,584

Divestments, discontinued operations and special items 1,291 3,020 226

Net result 3,894 5,766 32.5% 2,810


Key fgures


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Non-fnancial key fgures

2012 2011 2010

Better customer experience % o business units that oer services or products or groups o peoplewith special needs (1) 29.4% n.a. n.a.

Better business Sustainable assets allocated (in EUR billion) (2) 5.7 2.9 3.0

Better environment CO2 emissions per FTE (in tonnes) (3) 2.4 2.1 2.3

Better workplace Employee engagement score ING Bank Employee engagement score ING Insurance/IM (4)

68%70%

66%67%

69%68%

Better community Donations to UNICEF (in EUR million) (5) 2.8 3.5 3.8

(1) We aim to oer our fnancial products and services to all segments o society, including young people, the physically challenged and the economicallydisadvantaged. Our branches thereore have barrier ree access, ATMs are adapted or the visibly challenged and we develop products such as savingsaccounts or children and insurance products or cancer patients.

(2) As a bank and asset manager, ING allocates assets to a wide range o companies, projects and unds. Increasingly, we include sustainability criteria in ourcapital allocation choices. For reporting purposes, we combine all the assets rom our fnancing and investment activities under the heading Sustainableassets allocated. Sustainability criteria have been applied to these assets. During 2012 we nearly doubled the amount o Sustainable assets allocated,which is mainly attributable to an increase in sustainability mandates managed by ING Investment Management.

(3) Our absolute carbon emissions decreased by 7% rom 225 to 209 kilotonnes. However, due to divestments and restructuring o our organisation, the totalnumber o employees decreased, resulting in a relative increase o carbon emissions per FTE.

(4) Annually, we survey the level o employee engagement. We defne employee engagement as the extent to which our employees are committed to contributingto our business perormance and are willing to walk the extra mile to achieve INGs success. Given the operational split o ING Bank and ING Insurance,employee engagement surveys have been held at both companies.

(5) Targets have been set to raise adequate unds between 2005-2015 to acilitate access to education by one million children through our partnership withUNICEF. At year-end, more than 780,000 children had access to education. We are well on track to meet our target.

Jan H.M. Hommen (69), CEO

and chairmanPatrick G. Flynn (52), CFOWilred Nagel (56), CRO

* You can fnd more inormation on the members o the Executive Board on pages 6667 and on the members o theSupervisory Board on pages 7071.

Jeroen van der Veer (65), chairmanPeter A.F.W. Elverding (64), vice-chairman

J.P. (Tineke) Bahlmann (62)Henk W. Breukink (62)

Jan H. Holsboer (66)Sjoerd van Keulen (1) (66)Piet C. Klaver (67)Joost Ch.L. Kuiper (65)

Robert W.P. Reibestein (2) (56)Yvonne C.M.T. van Rooy (61)

Luc A.C.P. Vandewalle (68)Lodewijk J. de Waal (62)

(1) Resignation as o the annual GeneralMeeting on 13 May 2013.

(2) Appointed in 2012 as o 1 January 2013.

COMMITTEES OF THE SUPERVISORY BOARD (3)

on 31 December 2012

Audit Committee

Joost Kuiper, chairmanTineke BahlmannHenk BreukinkJan Holsboer

Yvonne van RooyLuc Vandewalle

Risk CommitteePiet Klaver, chairmanTineke Bahlmann

Joost KuiperLuc VandewalleJeroen van der Veer

Corporate Governance

CommitteeHenk Breukink, chairmanJeroen van der VeerLodewijk de Waal

(3) The current compositiono the Supervisory BoardCommittees can be oundon the Companys website(www.ing.com).

Remuneration

CommitteePeter Elverding, chairmanPiet KlaverJeroen van der Veer

Lodewijk de Waal

Nomination CommitteeJeroen van der Veer,chairmanPeter Elverding

Piet KlaverLodewijk de Waal


Composition o the Boards* on 31 December 2012

EXECUTIVE BOARD

SUPERVISORY BOARD


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in percentages

United States 34

United Kingdom 20

France 11

Netherlands 6

Germany 6

Switzerland 4

Belgium 2

Luxembourg 1

Other 16

Total 100

Geographical distribution of ING shares*

PROFIT RETENTION AND DISTRIBUTION POLICYING Groups prot retention and distribution policy is determinedby internal and external capital requirements and protable

business opportunities on the one hand and the capital providersdividend expectations on the other. ING Groups internal needs are

determined by statutory solvency requirements and capital ratios,in excess o which ING Group needs to maintain healthy buers.An important determinant are the credit ratings which are o highimportance to ING Group, because they directly aect thecompanys nancing costs and hence protability. For their part,

the capital providers expect a dividend which refects ING Groupsnancial results and is relatively predictable.

INGs policy is to pay dividends in relation to the long-term underlyingdevelopment o cash earnings. Dividends will only be paid when theExecutive Board considers such a dividend appropriate. Given the

uncertain nancial environment, increasing regulatory requirementsand INGs priority to repay the remaining outstanding core Tier 1

securities, the Executive Board will not propose to pay a dividendover 2012 at the annual General Meeting. ING intends to resumedividend payments on common shares when all remaining coreTier 1 securities have been repaid to the Dutch State and regulatory

capital requirements have been met.

CORE TIER 1 SECURITIESIn October 2008, to support its capital position, ING Group madeuse o capital support acilities by the Dutch Government by issuingEUR 10 billion o core Tier 1 securities to the Dutch State with a

coupon o 8.5%. The core Tier 1 securities rank pari passu withcommon equity.

In December 2009, ING repaid hal o the core Tier 1 securities o

EUR 5 billion plus a total premium o EUR 605 million. Furthermore,at the coupon reset date, 13 May 2011, ING exercised its option

or early repayment o EUR 2 billion o the remaining core Tier 1securities. The total repayment in May 2011 amounted to EUR 3billion and included a 50% repayment premium. ING has unded

this repayment rom retained earnings.

On 19 November 2012, ING announced that, together with

the Dutch State, it reached an agreement with the EuropeanCommission on signicant amendments to the 2009 RestructuringPlan. As part o the agreement, ING led a schedule or repayment

to the Dutch State o the remaining EUR 3 billion in core Tier 1securities plus a 50% premium, in our equal tranches in the

years 2012-2015. A rst tranche o EUR 1.125 billion was paid on26 November 2012, ollowing approval by De Nederlandsche Bank

(DNB), the Dutch central bank. This brought the total repaid to theDutch State to EUR 10.2 billion, including EUR 7.8 billion in principaland EUR 2.4 billion in interest and premiums.

It remains INGs ambition to repay the remaining support as quicklyas possible and ING intends to accelerate repayments i possible

and prudent under the prevailing economic circumstances. Giventhe ongoing crisis in the eurozone and increasing regulatory capitalrequirements, ING needs to take a cautious approach and to

maintain strong capital ratios in the Bank as it builds towards theimplementation o Basel III. Each subsequent repayment to theDutch State requires prior approval rom DNB, at the time ING

decides to propose such repayment.

LISTINGSDepositary receipts or ING Group ordinary shares are listed on thestock exchanges o Amsterdam, Brussels and New York (NYSE).

Options on ING Group ordinary shares (or the depositary receiptsthereor) are traded on the NYSE Euronext Amsterdam Derivative

Markets and the Chicago Board Options Exchange.

SHAREHOLDERS AND DEPOSITARY-RECEIPT HOLDERS WITHSTAKES OF 5% OR MORETo the best o our knowledge, as at 31 December 2012, there were noshareholders or holders o depositary receipts or shares who reportedto hold an interest o 5% or more as mentioned in the Dutch Financial

Supervision Act, other than Stichting ING Aandelen (ING Trust Oce)and Stichting Continuteit ING (ING Continuity Foundation).

Authorised and issued capital

in EUR millionYear-end

2012Year-end

2011

Ordinary shares

authorised 3,480 3,480

issued 919 919

Cumulatie preference shares

authorised 1,080 1,080

issued

Shares in issue and shares outstanding in the market

in millionsYear-end

2012Year-end

2011

(Depositary receipts or) ordinary shareso EUR 0.24 nominal value 3,831.6 3,831.6

(Depositary receipts or) own ordinary sharesheld by ING Group and its subsidiaries 30.1 49.3

(Depositary receipts or) ordinary sharesoutstanding in the market 3,801.5 3,782.3

Prices depositary receipts for ordinary shares

Euronext Amsterdam by NYSE Euronextin EUR 2012 2011 2010

Price high 7.49 9.41 8.16

Price low 4.53 4.49 5.52

Price year-end 7.06 5.56 7.28

Price/earnings ratio* 6.9 3.7 9.8

* Based on the share price at year-end and net prot per ordinary shareor the nancial year.

* Year-end 2012 gures, estimated on inormation provided by ThomsonReuters Advisory Services.


ING share


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140

70

80

90

100

110

120

130

One-year price development ING depositary receipts for shares

Index 1 January 2012 = 100

ING FTSE 300 Banks FTSE 300 Life Insurance

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INvESTOR RELATIONSTo be kept inormed o press releases and other ING news, you cansubscribe to the email service through our Investor Relations section

at www.ing.com. You can also download the ING Investors andMedia app on www.ing.com, which gives you access to the latest

nancial inormation and press releases both online and ofine.

INvESTORS AND FINANCIAL ANALYSTS MAY CONTACT:ING GroupInvestor Relations (AMP C.03.049)

P.O. Box 18001000 BV AmsterdamThe Netherlands

Telephone: +31 20 576 6396Fax: +31 20 576 6637E-mail: [email protected]

Main credit ratings of ING (1)

Standard& Poors (2) Moodys (3) Fitch (2)

ING GROEP N.v. A A3 A

ING BANK N.v.

short term A-1 Prime-1 F1+

long term A+ A2 A+

ING vERZEKERINGEN N.v.

short term A-2 Prime-2 F2

long term A- Baa2 A-

(1) Still valid on 18 March 2013, the date o this Annual Report.(2) Standard & Poors and Fitch long-term ratings or ING Groep N.V., ING Bank

N.V. and ING Verzekeringen N.V. carry a negative outlook.(3) Moodys rating or ING Groep N.V. and the long-term rating o ING Bank N.V.

carry a negative outlook, while the long-term rating o ING Verzekeringen N.V.carries a developing outlook.

INGs long-term credit ratings are shown in the table above.Each o these ratings refects only the view o the applicable ratingagency at the time the rating was issued, and any explanation o the

signicance o a rating may be obtained only rom the rating agency.A security rating is not a recommendation to buy, sell or hold securitiesand each rating should be evaluated independently o any other rating.

There is no assurance that any credit rating will remain in eect or anygiven period o time or that a rating will not be lowered, suspendedor withdrawn entirely by the rating agency i, in the rating agencys

judgment, circumstances so warrant. ING accepts no responsibilityor the accuracy or reliability o the ratings.

IMPORTANT DATES IN 2013*Publication results 1Q 2013Wednesday, 8 May 2013, 7:00 a.m.

Annual General Meeting

Monday, 13 May 2013

Publication results 2Q 2013Wednesday, 7 August 2013, 7:00 a.m.

Publication results 3Q 2013Wednesday, 6 November 2013, 7:00 a.m.

* All dates shown are provisional.



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Adapting to change

> Financial environment still highly challenging> ING adapting to nancial sector reorm

Continuing challenges in the external environment had an impacton ING in 2012, the most prominent being the deepening o the

eurozone sovereign debt crisis which created an extremely challengingnancial market environment in the rst hal o 2012, until theEuropean Central Bank (ECB) took action to relieve the immediate

nancial markets stress. The ECBs eorts were probably the mainreason or nancial market stability rom the third quarter onwards.

The current regulatory reorms taking place in the nancial sectorare aimed at making it more resilient to external shocks, and theyhave an impact on ING. We support the need to make nancialinstitutions more resilient and the system as a whole more stable. We

support the overall majority o international, European and national

measures being undertaken, such as the required strengtheningo banks core capital base. However, ING is concerned about the

cumulative impact o the many dierent measures, the uncertaintywhen and in what orm they will be implemented, and how theywill aect our role in nancing the real economy.

CHALLENGES IN FINANCIAL ENVIRONMENT REMAINThe sovereign debt crisis continued in 2012 and its negative eecton the real economy escalated. Since the third quarter o 2012, thegeneral nancial market sentiment in the eurozone and in the US

improved. By contrast, the real economy deteriorated in most o

Europe during the second hal o the year.

EUROZONE SOVEREIGN DEBT CRISIS AFFECTED THECREDIT AND EQUITY MARKETS IN 2012The uncertainty about the uture o the euro, combined with

austerity measures taken in certain European Union member states,are among the reasons why the eurozone has been pushed backinto recession. A modest recovery is only slowly taking hold in the

US, while Chinese growth came o the boil in 2012. Globally, centralbanks have been providing additional support. Although this supportprobably has not been eective in curing the worlds economic ills,it did stabilise nancial markets.

Both in the eurozone and the US, credit spreads ollowed a similarpattern during the year. In the rst quarter, they decreased as

market sentiment improved, which was uelled by the ECBs LongTerm Renancing Operation (o which ING made no use). However,market sentiment deteriorated again at the end o the second

quarter due to concerns about a possible break-up o the eurozone.From the third quarter onwards credit market sentiment improved(and thereore credit spreads were down) again, mainly because

o the ECB expressing its commitment to the euro. The ECBpresidents promise o unlimited, i conditional, sovereign bondbuying the so called Outright Monetary Transactions in August

and September 2012 eased immediate stress. Since then, there hasbeen an uneasy market balance, despite no actual ECB intervention.During 2012, equity indices ollowed a pattern that mirrored credit

spreads, with an overall improvement over the whole year.

EUROPE FALLS BEHIND, SIGNS OF REVIVAL IN US ECONOMYAusterity measures started to weigh heavily on the eurozoneeconomy in 2012. As unemployment increased, consumer spendingremained weak and companies postponed investment decisions.

Economic growth in the eurozone turned negative in the secondquarter and remained negative or the rest o 2012. Europeannancial markets remained under stress in the rst hal o the year.

Whilst Europe was mired in recession, the US economy showedsome signs o revival in the second hal o 2012. The US housing

market slowly recovered, with prices stabilising and construction

activity recovering. Unemployment was trending downward,reinorcing INGs view o a recovery slowly taking hold in the US.

The prolonged low growth period in the advanced economies hada negative impact on consumption, capital investment expenditures

and job creation in the emerging countries. Governments in China,India, Brazil, Turkey and other emerging markets shited their ocusto reducing government decits. Risk aversion by oreign investorsaround the world reduced non-debt capital fows to emerging

markets, orcing them to increase domestic savings to nance newcapital investments. China suered a growth slowdown in 2012,but the economy showed signs o picking up again towards the

end o the year.

The uncertain economic outlook and the turbulence on nancialmarkets in 2012 were among the actors that made ING Bank putextra ocus on unding, capital and liquidity.


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ING GROUP FINANCIAL DEVELOPMENTSThe operating environment was challenging throughout 2012,with volatile inancial markets and an uncertain macroeconomic

environment. Against this backdrop, ING Groups 2012 net resultdeclined to EUR 3,894 million, rom EUR 5,766 million a year earlier.

Special items ater tax were EUR 1,060 million in 2012, comparedwith EUR 60 million in 2011. The 2012 special items predominantlyrelect costs or various restructuring programmes, which areessential to reduce our uture annual expenses. Furthermore,special items include EUR 169 million in separation and IPO

preparation costs, EUR 386 million in settlement costs with theUS authorities, partly oset by the avourable impact o a EUR 305million provision release ollowing the announcement on 3 July

2012 o the new Dutch employee pension scheme. The 2011special items include a EUR 718 million net gain rom the liabilitymanagement transaction oset by costs or various restructuring

programmes and separation costs.

Net gains on divestments, including net result on disposal andclassiication o discontinued operations, were EUR 1,714 millionin 2012, compared with EUR 1,812 million in 2011. The 2012 resultson divestments include gains on the sales o ING Direct USA

(EUR 489 million), ING Direct Canada (EUR 1,135 million), andInsurance Malaysia (EUR 745 million), as well as a EUR 260 millionloss on the announced sale o ING Direct UK and EUR 380 million

in goodwill write-os or Insurance/IM Korea. The 2011 gains ondivestments o EUR 1,812 million were attributable to the sales othe Latin America business, ING Car Lease, and Real Estate

Investment Management.

The result rom discontinued operations was EUR 550 million in

2012 versus EUR 678 million in 2011 and relates to Insurance Asia/

Paciic and Insurance Latin America. The decrease was due to thesale o Latin American pension, lie insurance and investment

management operations in 2011.INGs capital position remained strong, despite the EUR 1,125

million repayment to the Dutch State in November 2012. INGBanks core Tier 1 ratio increased rom 9.6% in 2011 to 11.9% atthe end o 2012, supported by the gain on the sale o ING Direct

USA and ING Direct Canada. These transactions helped ING Bankto und a dividend upstream o EUR 2,125 million to ING Group,which was used to repay part o the core Tier 1 securities and

reduce Group leverage. ING Banks risk-weighted assets werereduced by EUR 52 billion in 2012, primarily relecting the sale

o ING Direct USA, ING Direct Canada, lower lending volumesand de-risking o the investment portolio. The Insurance Group

Directive Solvency I ratio increased to 245% at the end o 2012,rom 225% at the end o 2011, mainly due to the sale o InsuranceMalaysia, market developments and the introduction o the Ultimate

Forward Rate (UFR) curve or the Dutch insurance entities. The Groupdebt/equity ratio improved to 11.1% rom 12.7% a year earlier.

Shareholders equity increased by EUR 7.7 billion, rom EUR 46.7billion at the end o 2011 to EUR 54.4 billion at the end o 2012.This increase was caused by the addition o net proit and positive

revaluations on debt securities, partly oset by exchange ratedierences and the repurchase premium paid to the Dutch State inNovember 2012. Shareholders equity per share was EUR 14.30 at

the end o 2012 versus EUR 12.33 at the end o 2011. Underlyingnet return on equity, calculated as underlying net result divided byaverage IFRS-EU equity, decreased to 5.2% rom 6.5% in 2011.

Underlying net result held up well at EUR 2,603 million,compared with an underlying net result o EUR 2,746 millionin 2011. Underlying net result is derived rom the total net result

by excluding the impact o divestments, discontinued operationsand special items.

Banking recorded an underlying result beore tax o EUR 3,219 millionin 2012, a 22.0% decrease compared with 2011. This decrease wasmainly driven by higher loan losses, losses rom active de-risking,

negative credit and debt valuation adjustments and the Dutch banklevy. Insurance reported an underlying result beore tax o EUR 311million, which increased by EUR 636 million rom the EUR 325 million

loss in 2011. De-risking and low interest rates put pressure oninvestment returns, but underlying results recovered as the impacto market-related items declined to EUR 783 million in 2012 versusEUR 1,984 million in 2011.

IMPORTANT CHANGES IN REGULATION AND SUPERVISION

The most prominent development in 2012 was the agreementreached among the heads o European Union member stateson the introduction o a European banking union. Agreementon the details and timetable is likely to take some time.

BANKING UNION/SINGLE SUPERVISORY MECHANISMING supports the concept o a banking union based on our main

pillars: a single supervisory mechanism (SSM), a single rulebookor prudential regulation, a common ramework or recoveryand resolution, and a harmonised deposit guarantee scheme.

Such a union is likely to reduce ragmentation in the interbankand wholesale markets and increase the integrity o the Europeansingle market and European single currency.

The SSM, which will give strong powers to the ECB or the supervisiono all banks in the euro area, with a mechanism or non-eurozone

countries to join voluntarily, is an important rst step in achievinga banking union. It is crucial that the ECB has exclusive responsibilityto carry out specic prudential tasks. Furthermore, a consistent

application o the single rulebook, a single set o rules or all banks inthe euro area, is key as it will diminish discrepancies between nationalsupervisory practices. Important tasks like the authorisation o credit

institutions, assessment o acquisitions and disposals, the authorityto ensure compliance or capital, liquidity regime and leverage ratios,and the imposition o additional capital buers or prudential and

countercyclical reasons should be the exclusive responsibility o theECB or all banks in the participating member states.

REGULATIONS DRIVE UP CAPITAL REQUIREMENTSThe Capital Requirements Directives (CRD III and CRD IV) have alreadyaected and will continue to increase the capital requirements or all

banks in Europe, including ING. ING recognises the importance omitigating systemic risk. As expected, the G20 in 2012 included INGon its list o Global Systemically Important Banks (G-SIBs). G-SIBs willbe required to hold an additional buer above the 7% core Tier 1

buer o Basel III, to be phased in between 2016 and 2019. ING isin one o the lower categories, and thereore subject to an additionalrequirement o 1%. In addition, the Dutch regulator indicated that

the national capital requirements or systemically important banksin the Netherlands will be in the range o 1-3% including the G20international requirement mentioned above. ING is expected to be in

the highest category in the Netherlands. These requirements must bemet by 2019. The Dutch Government agreed in October 2012 that thetimetable or the additional buers or Systemically Important Financial


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BANK STRUCTURAL REFORMThe European Commissions High-level Expert Group on BankStructural Reorm, better known as the Liikanen Committee,

published its report on reorming the EU banking sector on2 October 2012. I the size o certain trading activities compared

to a banks total activities exceeds certain thresholds, the LiikanenCommittee recommends that it may be necessary to require legalseparation o these activities into a separate trading entity. Theshares o this trading entity could be held by a bank holdingcompany that also holds the shares o the deposit bank. In addition,

the Liikanen Committee made a number o other recommendationsregarding bail-in instruments, capital requirements and governanceand control. The impact o the Liikanen recommendations on INGs

business model is unclear, not in the least because it is uncertaini and to what extent the European Commission will ollow theLiikanen Committee separation recommendation in its legislative

proposal, which is expected around the summer o 2013.

ING believes in the strength o the universal banking model,combining retail and commercial banking activities. The universalbanking model brings major benets in terms o risk diversication,capital and liquidity management, consumer choice and ullling

the needs o long-term customer banking relationships.Commercial banking activities within ING provide key support interms o debt capital markets, hedging, cash management, trade

nance and project nance, which helps serve the growingdemand or integrated services, rom large corporations and smalland medium-sized enterprises (SMEs). The synergies achieved by

combining this wide range o services within a universal bankwould be lost i parts o these activities were separated or ring-enced. ING is o the opinion that moving activities not permitted

in a deposit bank into a trading bank would be detrimental to the

ability o banks to serve their customers.

Trading activities account or only a small percentage o INGsoverall activities. Many o the activities booked in the tradingbook are directly related to providing services to customers, such

as hedging risks and securities underwriting. I trading activitieshad to be separated rom the rest o the banks activities, providingsuch customer services would no longer be possible within one

bank, also due to the large exposure rules.

In the Netherlands, the Wijels Committee, named ater the

Dutch representative in the Liikanen Committee, was establishedin October 2012. The task o the Wijels Committee is to advise

the Dutch government on a number o topics, including applyingthe recommendations o the Liikanen Committee to Dutch banks,

or whether additional measures are needed. The WijelsCommittee has been asked to submit its report by 15 June 2013.

SOLVENCY IIDuring 2012, ING Insurance/Investment Management devotedmuch attention to preparing to meet the Solvency II capital adequacy

requirements. Both in the head oce and in the business units, manymeasures have been taken to upgrade our existing risk measurementand risk reporting to the required levels.

During the course o 2012 it became increasingly likely that theSolvency II ramework would not be transposed into national law

by the ocial deadline 1 January 2014, giving the insurance industrymore time. Although ING Insurance/Investment Management seesmany potential advantages o Solvency II over the existing Solvency I

Institutions (SIFIs) will be brought orward in a responsible way, takingthe international situation into account. As or macro-prudential tools,CRD IV will introduce a Systemic Risk Buer which will apply to the

whole or parts o the banking sector and will be covered by thecore Tier 1 capital ratio. The Systemic Risk Buer is one o the most

important deviations rom the Basel III rules, as Basel does notrecognise systemic risk. The details and impact o this buer canonly be assessed once CRD IV has been nalised. The delay in theimplementation o CRD IV, which was scheduled or 1 January 2013,

has created uncertainty about how the regulations will evolve andwhen they will be implemented. In particular, ING is concerned aboutthe cumulative impact o all the various capital buers, and the timing

o their implementation.

REGULATORY MEASURES THAT IMPACT LIQUIDITYThe liquidity position o European banks, including ING, is being

shaped by CRD IV, and, in the case o ING, by regulations romDNB. The observation period o the Liquidity Coverage Ratio (LCR)

was intended to start in the EU in January 2013, but this has nothappened because CRD IV has been delayed. Based on inputrom various parties, the European Banking Authority (EBA) willincorporate reporting on a broader range o assets and will decide

by 2015 on the nal eligibility criteria or liquid assets. In January2013, the Basel Committee on Banking Supervision (BCBS)announced a number o changes both in content and planning

o implementation or the LCR. The proposed widening o the listo eligible assets or the LCR by the BCBS will be included in CRD IV.

EU CRISIS MANAGEMENT FRAMEwORKThe drat Crisis Management Framework Directive was published inJune 2012, and is still under discussion at the European Parliament

and the European Council. The most important elements are:

recovery and resolution planning, bail-in requirements and thenancing o resolution arrangements. Bail-in requirements are

planned to enter into orce by 2018, the other parts in 2014.

ING avours the use o a designated bail-in liability class where

the bail-in capital consists o subordinated instruments that maybe written-down or converted in a resolution scenario with cleartriggers attached to it. Banks should build up a suciently large

layer o bail-inable debt that should be clearly dened, so that itsposition within the hierarchy o debt commitments in a banksbalance sheet is clear, and investors understand the eventual

treatment in the event o resolution.

ING Bank submitted its recovery planning package to DNB in November2012. These included detailed tasks and responsibilities or (i) recovery incase o nancial crisis, (ii) monitoring o metrics, (iii) maintenance o therecovery planning package, and (iv) implementation o certain recovery

planning activities. Except or responsibilities related to recovery thesetasks and responsibilities are embedded in the regular, going-concernorganisation and processes. ING has dened a crisis operationalramework with several specic governance arrangements that will

be initiated in case o recovery. Similarly, ING has set up a procedureto monitor the metrics and a decision-making process to determinewhether or not the recovery plan should be activated.

Furthermore, in the course o 2012, DNB has requested the largestDutch banks to prepare and submit inormation on the basis o

which they will be able to develop a Resolution Plan. ING isdiligently working towards providing this inormation and meetingthe deadlines provided by DNB.


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ramework, we recognise that the Solvency II ramework may havesevere consequences, particularly on business models in whichlong-term guarantees are oered to customers. ING will thereore

continue to take part in discussions with the industry and regulatorsto develop a more workable ramework.

In parallel with these preparations, urther development o Solvency IIcontinued. Some progress was made on the Omnibus II Directive the Directive that will amend the already-agreed level one SolvencyII Directive yet the legislative process was delayed when the trilogue

partners (European Commission, European Parliament and theCouncil) ailed to come to an agreement. The main area odisagreement is the treatment o long-term guarantees under

Solvency II. Ultimately, the deadlock was broken with their agreementon an impact assessment, to be executed early 2013. During thetrilogue discussions, ING stressed the importance o appropriate

long-term guarantee measures. A ailure to put in place appropriatemeasures would diminish insurers ability to provide such long-term

guarantees, and undermine the role o insurers as long-term investorsand stabilisers o the economy. Together with other insurancecompanies ING proposed an appropriate balance, which will betested in a orthcoming impact assessment.

ING recognises that the disagreements on the treatment o long-termguarantees have led to a signicant delay in implementing Solvency II.

We also recognise that the delay has prompted some member statesto consider implementing elements o Solvency II ahead o the ocialdate. As this would create an uneven playing eld and impede

standardised supervision, it is important or everyone to agree on arealistic timeline as soon as possible. ING will continue to play a partin industry discussions on Solvency II.

COMFRAMEOn 2 July 2012, the International Association o Insurance

Supervisors released a working drat on the Comrame Insurancecore principles. Comrame, short or Common Framework or theSupervision o Internationally Active Insurance Groups (IAIGs), has

three main objectives: (i) develop methods o operating group-widesupervision o IAIGs, (ii) establish a comprehensive ramework orsupervisors to address group-wide activities and risks, and (iii) oster

global convergence. The working drat received harsh criticism romsupervisors and industry alike or being too detailed and tooprescriptive. The IAIS will open Comrame up or a second round

o consultation in 2013. Finalisation is not expected until 2018.

GLOBAL SYSTEMICALLY IMPORTANT INSURERS (G-SIIs)In 2012, discussions on the methodology to identiy GlobalSystemically Important Insurers, or G-SIIs in the terminology o theInternational Association o Insurance Supervisors (IAIS), continued.In those discussions, insurers have stressed that non-traditional,

non-insurance activities should lie at the heart o G-SIIidentication. Regulators appear to preer a much broaderassessment also taking into account size and interconnectedness.

A list o G-SIIs identied with this methodology is expected in thesecond quarter o 2013. In the meantime, the IAIS developed apolicy on dealing with G-SIIs that was published or consultation.

More discussions on this policy are expected in 2013.

EU UNISEx RULE

In March 2011, the European Court o Justice ruled that insurersin Europe cannot dierentiate in price or benets or the sameinsurance products, based on gender. This gender-neutral pricing,

commonly called the unisex rule, states that as o 21 December2012 lie insurers must oer products that are identical or men andwomen. To comply with this new regulation, all product portolios

across the insurance business units were reviewed. More than90 products were re-priced in ING Insurance Central and Rest o

Europe. In the Benelux, all products available or sale were reviewedin the past two years to ensure they were compliant with the EUunisex rule. From 21 December 2012, all ING Insurances productsavailable or sale throughout the European Union have been

compliant with the rule.

ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVEDuring 2012, ING Investment Management spent considerabletime and eort amiliarising the organisation with the requirementso the Alternative Investment Fund Managers Directive (AIFMD),which was agreed in 2011 and comes into eect in July 2013. In

July 2012, urther details o the AIFMD became clear through adrat text publication. Since then the EC has missed its deadline o

September 2012 or the publication o the nal version o that textdue to discussions on some o the detailed AIFMD measures. INGis awaiting publication o the nal text and will continue to preparethe organisation or timely compliance with the AIFMD.

ING BANK REACHED AGREEMENT wITH U.S. AUTHORITIESOn 12 June 2012, ING Bank entered into a Settlement Agreement

with U.S. Department o the Treasurys Oce o Foreign AssetsControl (OFAC) and Deerred Prosecution Agreements with theDepartment o Justice, the United States Attorneys Oce or the

District o Columbia and the District Attorney o the County o NewYork (together the U.S. Authorities) in relation to the investigationby those agencies into compliance with U.S. economic sanctions and

U.S. dollar payment practices until 2007. Under the terms o the

Deerred Prosecution Agreements, no urther action will be takenagainst ING Bank i it meets the conditions set orth in the

agreements during an 18-months period. As part o the settlement,ING Bank has paid a total penalty o EUR 473 million. As announcedon 9 May 2012, ING Bank recognised a provision in the rst quarter

o 2012 by which this issue has been suciently covered. ING Bankhas cooperated closely and constructively with regulators and otherauthorities throughout this process. The U.S. Authorities have

recognized INGs substantial cooperation in the resolution and INGseorts and commitment to continuously enhance compliance withinthe organization.

DUTCH REGULATORY DEVELOPMENTS

Dutch Coalition AgreementOn 29 October 2012, the Dutch coalition government agreementwas presented. It contained some ar-reaching policy intentions orthe banking sector which have still to be translated into legislation

and pass through the Dutch parliament and senate. They include: The implementation o the capital requirements or SIFIs (SIFIs

buer) to be brought orward in a responsible way, basedon a risk assessment and taking into account the need or

an international level playing eld. Dutch government support or a possible nancial transaction

tax (FTT) or the nancial sector and membership o the group

o EU member states exploring the possibilities o imposingan FTT in parts o the EU. However, a condition or the DutchGovernments support o any orm o FTT is the exemption

o Dutch pension unds. Legally capping variable remuneration, such as annual bonuses,

in the nancial sector at 20% o xed remuneration.


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Stricter screening o bank employees to reduce risks. Enshrining banks duty o care in law. Introducing proposals to better protect citizens savings

against high-risk banking, to be based on the advice othe Wijels Committee.

Moreover, the Dutch government has introduced a mandatory oathor Executive and Supervisory Board members o nancial institutionslicensed in the Netherlands, eective per 1 January 2013. In this oath,the Executive and Supervisory Board members o the relevant ING

entities licensed in the Netherlands, declare that they (i) will perormtheir duties with integrity and care (ii) will careully consider all theinterests involved in the company, i.e. those o the customers, the

shareholders, the employees and the society in which the companyoperates, (iii) in that consideration, will give paramount importanceto the customers interests and inorm the customer to the best o

their ability, (iv) will comply with the laws, regulations and codeso conduct applicable to them, (v) will observe secrecy in respect

o matters entrusted to them, (vi) will not abuse their knowledge,(vii) will act in an open and assessable manner and know theirresponsibility towards society and (viii) will endeavour to maintainand promote condence in the nancial sector. I they break the

oath, the supervisory authority (DNB/AFM) can decide to reassesstheir suitability.

The coalition agreement also contains a number o measuresaecting the Dutch housing market. One o these is the curtailmento mortgage interest deduction or income tax purposes: interest

on new mortgages will only be tax deductible under speciedrepayment conditions.

The policy intentions or the insurance sector include:

Measures to be taken in the area o second pillar pensionsbasically ocus on reducing the tax-avoured treatment o second

pillar pensions per 1 January 2015. The increase o the insurance premium tax rom 9.7% to 21%

per 1 April 2013, causing a signicant increase in insurance

policy premiums. Fees or advice on annuities and disability insurance will no

longer be tax-deductible, causing the price or advice to rise.

Bank LevyOn 1 July 2011, the Dutch Ministry o Finance announced a temporary

reduction o the real estate transer tax rom 6% to 2% (a tax onproperty transactions). In this announcement, several ways o unding

the reduction were identied, the introduction o a bank tax beingone o them. The levy entered into orce in 2012. Dutch and non-

Dutch entities with banking activities in the Netherlands come withinits scope. The taxable base o the levy is the liability side o the globalconsolidated balance sheet, with exemptions or equity, or deposits

that are covered by a deposit guarantee scheme, and or certainliabilities that relate to insurance business.

The levy on short-term unding liabilities (less than one year) is twiceas high as the levy on long-term unding liabilities (more than oneyear). O the total yearly tax proceeds o EUR 600 million, EUR 175

million is borne by ING. I a bank violates the 1:1 xed remuneration-to-variable remuneration ratio or board members set out in theDutch Banking Code, the levy percentage will be increased. For ING,

the levy increase will not be triggered as long as no bonuses are paidto the Executive Board o ING Group. Moreover, banking taxes paidby ING in other countries amounts to EUR 55 million in 2012. We

believe the timing and motivation or such a bank levy to beinopportune given the economic climate and conditions in nancialmarkets. There is also a risk that banks such as ING will ace double

taxation, i.e. taxation by more than one country per bank activity.

Deposit Guarantee SchemeIn August 2011, the Ministry o Finance and DNB published theirproposal to establish an ex-ante unded (i.e. pre-unded) DepositGuarantee Scheme (DGS) in the Netherlands. The scheme was

expected to be introduced on 1 July 2013. However, as aconsequence o the arrangements made by the Dutch governmentrelated to the nationalisation o SNS REAAL, ING and the other

Dutch banks will be required to pay a one-time levy o EUR 1 billionin 2014. For ING, based on current limited inormation, this isestimated to result in a charge o EUR 300-350 million. To avoida disproportionate nancial burden or banks and in view o the

ability o banks to lend to the real economy the ex-ante DGScontribution has now been postponed by two years until 1 July 2015.

The target level o the und will be 1% o total guaranteed depositsin the Netherlands. This is about EUR 4 billion now, to be built up,in principle, in 15 years. The main element o the proposal is that

or each bank the individual target amount is dened as 1% o itsguaranteed deposit base. To reach this individual target amount,every bank pays a base premium o 0.0167% per quarter o its

guaranteed deposits. Additionally, a risk add-on o 0%, 25%,50% or 100% o the base premium has to be paid by every bank,depending on its risk weighting. We expect the cost or ING to

amount to EUR 100 to 150 million on a yearly basis as o the startdate o the DGS contribution. The banking industry is in discussionswith the Ministry o Finance on several aspects o the DGS, including

banks individual contributions and the unds target size.

The Banking Code Monitoring CommitteeA committee to monitor banks compliance with the Dutch BankingCode was set up in 2010 and in December 2012 it presented itsreport. It concluded that Dutch banks had made good progress

on implementing the Code, but that more could be done and thatbanks should put more eort into communicating their eortsto the general public.

Dutch Parliamentary Committee on the Financial SystemThe Dutch Parliamentary Committee on the Financial System

(Commissie De Wit) held a Parliamentary Inquiry rom November2011 to January 2012. Its mandate was to analyse the acute

problems that developed in the Dutch nancial system betweenSeptember 2008 and January 2009, to assess the measures takento deal with those problems, and to draw lessons or the uture.Key people rom the Dutch nancial sector were interviewed

and the Committee presented its report to the Dutch Parliamentin April 2012.

The Commissie De Wit ormulated 20 recommendations, o which

9 are relevant to banks. Recommendations include those oncontributions to the Deposit Guarantee Scheme, investigatingthe possibility o ring-encing bank activities outside the EU,

and creating a strong European banking supervisor.


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Taking charge o change

> Continued ocus on customer centricityand sustainability

> Solid nancial results, continued activede-risking and a urther strengtheningo the capital and liquidity position

> Good progress on restructuring amida challenging environment

> Agreement reached with the ECon amended Restructuring Plan

> Further progress towards State repaymentand double leverage reduction

> Portolio streamlined and businessesstrengthened

Since the nancial crisis o 2008/2009, ING has put more emphasis onits priorities to put the customer rst, to better balance the interests oall stakeholders, and to have strong, nancially sustainable, simpler

businesses. In 2012, several important milestones were reached. First,we strengthened our capital, unding and liquidity positions to meet

uture regulatory requirements (Basel III), and continued to take aprudent approach to risk in a volatile external environment. Second,ING and the Dutch State reached an agreement with the EuropeanCommission (EC) in November 2012 on an amended RestructuringPlan. This has given us more fexibility in completing the divestments

and making adjustments on other commitments in light o the marketenvironment, economic climate and more stringent regulation. Third,INGs repayments (including premium payments) to the Dutch State

exceeded the principal amount o capital support provided in 2008.Among all the European banks that received state aid ollowing thecrisis, ING is one o the urthest advanced in repaying it; above that

with a signicant premium.

Moreover, ING updated and streamlined its remuneration policy,and continued to reduce its risk prole. Sustainability has becomemore central to INGs strategy and we continue to oster dialoguewith all existing and new stakeholders. ING sharpened its strategy

or the Bank, and urther reduced the size o the Banks balancesheet and simplied its product range, making the company easierto manage. At the same time, we managed to increase service

levels, which has won ING Bank several industry awards. On theInsurance and Investment Management side, we announced therst ve sales o its Asian Insurance/IM units, and both ING U.S.

(which is the new name or Insurance and IM activities in the US)and ING Insurance/IM Europe made strides in their initial publicoering (IPO) preparations.

STRENGTHENING THE FINANCIAL POSITION

ING places great importance on strengthening its nancial position

in order to put itsel in the best position to acilitate the realeconomy. Despite persistent market volatility and uncertaineconomic recovery in the eurozone and elsewhere, which caused

ING Groups net result to decline to EUR 3,894 million, we gainedin nancial strength in 2012. We said that capital, unding andliquidity would come beore prot in 2012 and we delivered in

ull on that promise. Capital and unding improved, our liquidityposition remained strong, earnings remained resilient, and netexposure to riskier asset classes and activities declined.

In January 2012 the Bank unveiled Ambition 2015, a set o

aspirations that included generating more capital and attaining acore Tier 1 capital ratio under Basel I II o at least 10% by 2013. The

core Tier 1 ratio strengthened to a solid 11.9% under Basel II and10.4% under Basel III by the end o the ourth quarter 2012 (on apro-orma basis, taking into account the impact o new accounting

rules on pensions, IAS 19R, which came into eect on January 2013).ING was also able to achieve a liquidity coverage ratio o more than100% in 2012; a level we aimed at or 2015. In line with Ambition

2015, ING Banks balance sheet optimisation is on track. The balancesheet was reduced by EUR 137 billion since September 2011 o whichEUR 85 billion was related to the sales o ING Direct Canada and ING

Direct USA.

ING Banks decrease o its underlying result beore tax was mainly

driven by higher loan losses, losses rom active de-risking, negativecredit and debt valuation adjustments and the Dutch bank levy.Our strong unding position enabled us to continue supporting


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(more conservative requirements or unding, liquidity and leverage),societal drivers (e.g. households and governments need to reducedebt), and a weaker economic environment.

However, ING Bank was able to continue delivering on its priorities

to strengthen its nancial position, reduce risks, meet therestructuring measures as approved by the European Commissionand to build a stronger bank. The Bank has made good progresson the ambitions or 2015, dened in January 2012. The mainpillars on which the Banks strategy is based are customer centricity,

operational excellence and optimising the balance sheet. Customercentricity is about restoring trust through transparency and airpricing, improving service and ocusing on providing solutions or

customers. Operational excellence goes beyond cost cutting and isabout streamlining processes and improving eciency (simpliyingthe organisation to reach a structural and sustainable new level o

eciency). This is an imperative competitive edge as regulatorycosts rise. Optimising the balance sheet entails managing the

balance sheet to optimise returns to help oset the impact ohigher capital requirements.

Among the short-term and medium-term ocus areas or ING Bank

are strengthening the capital and liquidity position, optimisingthe balance sheet (including in each country), adjusting thegovernance structure o individual business units and countries

(including the appointment o CEOs or each country), and creatinga consolidated Bank Treasury unction or the entire Bank whichhelps it better coordinate its programme o unding, liquidity and

investment portolio.

A longer-term ambition is to develop a mature banking model in

each country where ING operates. ING Bank has a good starting

position and a competitive edge, with leading banking positionsin its home markets o the Netherlands, Belgium, Luxembourg,

Germany and Poland. Furthermore, ING has key positions in otherWestern, Central and Eastern European countries and Turkey,along with growth potential outside o Europe.

ING Bank has strong deposit gathering capabilities and a goodunding mix. It has a well-known brand and it uses the Net Promoter

Score (NPS) methodology to increase customer loyalty. The Bankis used to operating in lean, competitive markets which has helpedit become a leader in innovative distribution. It has a prominent

position in internet banking with a direct rst, advice when neededmodel and a relationship-driven commercial bank oering

competitive products in terms o price, eciency and eectiveness.

Since customer centricity remains crucial to all we do, we areconverging our retail banking business models in terms o productoerings and distribution channels. We believe that operational

excellence is crucial or meeting the demands o our customers,especially when regulatory costs and bank taxes increase costs. Inorder to remain competitive and to be able to ace the challenging

external environment, it has been necessary to cut costs. However,at the same time we ocus on achieving true operational excellence,helping our customers obtain simple products through convenient

and sae multi-channel access while at the same time streamliningour organisation and systems. These initiatives will oset some othe increasing regulatory costs and bank taxes, helping ING Bank

to lower its current cost/income ratio o 62.5% in 2012 to 50-53%by 2015. Once the restructuring o the Group is complete and the

Bank is a stand-alone business, the emphasis will be on increasingour deposit base and integrating the balance sheet by matching thedeposits o ING Direct with loans rom Commercial Banking. This

will allow us to increase the size o the business without growingthe balance sheet. ING Bank aims to produce a competitive return

on (IFRS-EU) equity o 10% to 13% through low costs and with alow-risk balance sheet.

ING aims to build on its leading position as a predominantly

European bank with a strong international network ocused onproviding customers with consistently high-quality services. INGsmain priority is to nance the real economy, even in a volatile

economic and regulatory environment.

INSURANCE/INVESTMENT MANAGEMENT

ING Insurance/IM will continue to ocus on its customers anddistributors by providing exemplary products and service as itcontinues to restructure in preparation or a stand-alone uture.

In 2012, ING Insurance/IM as a whole urther rened its salesprocesses and the process or the development o new productsto ensure they continue to be ully compliant in terms o customer

suitability. A ve point gauge was developed in monitoringcompliance. The ve points include NPS, customer complaints,welcome call analysis, policy persistency rate and agent turnover

rate. ING Insurance/IM continued to use insights rom its NetPromoter Score (NPS) programme in 17 countries to make processimprovements in 2012. Businesses in Europe and Asia revised

written customer communications to ensure the language usedwas clear and ree o jargon. INGs tied agency transormationprogramme reviewed agents in many countries, which improved

agent productivity. ING Insurance/IMs strategy o being a

customer-driven business providing rst-class products and servicesthrough multi-distribution channels was recognised in several

awards and special mentions received during the year. Awards werewon by the Insurance businesses in Romania, the Czech Republic,Slovakia, Hungary, Greece and at ING Investment Management.

The Insurance/IM businesses have made progress towardsindependent utures. The sale o a large part o the Asian insurance

and asset management business was announced and ING U.S.took another step towards its planned IPO by ling an initialregistration statement on Form S-1 with the SEC in connection with

its proposed IPO. It also made progress towards a stand-alonecapital structure by successully raising USD 5 billion in a credit

acility and a urther USD 850 million in debt issuance.

Towards the end o 2012, ING announced a Restructuring Plan or itsEuropean insurance/investment management operations. This involves

the acceleration o a transormation programme at Nationale-Nederlanden to sharpen its strategic ocus and improve processesand systems. These measures, together with reorganising support

unctions, are expected to urther improve the eciency o thebusinesses and to result in annual savings o approximately EUR 200million by the end o 2014. Unortunately, these initiatives will result

in a reduction in the workorce o 1,350 ull-time equivalents (FTEs)in 2013-2014. This reduction will be carried out with the utmost care.For urther explanation on how ING is building stronger bankingand insurance/investment management businesses see the Banking

overview and Insurance overview sections o this Annual Report.


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ING IN SOCIETY

INGs business is centred on people and trust. Only by acting withproessionalism and integrity can we maintain our stakeholders

condence and preserve the companys reputation. At the hearto our values are the ING Business Principles, which are the global

standard or the behaviour expected o every employee.

Our ambition to be a world-class and trustworthy nancialinstitution includes being a company that takes its responsibilitiestowards people and the environment seriously. We leverage our

unique resources, skills and expertise to contribute to economicgrowth, general well-being and positive change.

ING believes that customers, employees, shareholders and the resto society no longer live in separate worlds that meet intermittently,but have become more integrated. This mutual interdependence

o business and society means that organisations must ollow theprinciple o shared value. It is our conviction that, to be a successul

company, our business decisions must be in line with theexpectations and interests o those to whom we owe our licenceto operate our stakeholders. Thereore, we do not engage inactivities that seriously damage the environment or violate human

rights. We strive to achieve our business goals while making apositive and responsible contribution to society everywhere wedo business.

We strengthened our commitment to minimising any potentialunethical, illegal or harmul consequences o our business activities,

investments or transactions by applying strict policies andprinciples. An example o integration into our business practiceis that ING became one o the ounding signatories to the United

Nations Principles or Sustainable Insurance. These were launched

at the UN Conerence on Sustainable Development in Rio de Janeiroin 2012.

Our commitment to sustainable development is also clearly refectedin our sustainability key perormance indicators (KPIs). In 2012, we

began the process o sharpening our goals and KPIs to enhance ouraccountability. Our rened sustainability KPIs refect our ambitionto provide suitable products and services that enhance the nancial

capabilities o our customers and that help provide solutions toproblems that stem rom long-term social trends in such areas asclimate change, education and health. They indicate that ING is

committed to playing its part to stimulate economic development,a sustainable environment and a stable society.

The voices and views o our stakeholders are an essential compass

in identiying the risks and opportunities or our business. Wethereore seek eedback rom stakeholders on various issues andtry to engage them in a constructive dialogue. Such engagements

range rom conducting large studies among our customers aboutour brand values, and the co-creation o new products togetherwith customers, to meeting employee representatives, shareholders

or civil society organisations. We are also member or partner oa wide range o international organisations, which helps prioritiseissues and take action where necessary.

CONCLUSIONS AND AMBITIONS

In a challenging environment INGs capital and unding improved,our liquidity position remained strong and earnings remained

resilient. This enabled us to continue to support our customers.Beside strengthening our nancial position, we were also able to

make good progress on our other strategic priorities or ING Group:restructuring, streamlining the portolio, repaying state aid andbuilding stronger banking and insurance and investmentmanagement businesses. We continued to build our banking and

our insurance businesses based on sound business ethics and goodcorporate citizenship. The Bank will continue to ocus on restoringtrust and customer centricity, on operational excellence and on

optimising its balance sheet to meet its strategic goals.

Despite volatile markets, we have continued to work towards the ull

separation o our insurance and investment management companieswith the goal o being ready to move ahead in time with the basecase IPOs or ING U.S. and ING Insurance/IM Europe, as well as with

the sale o the remaining insurance and investment managementbusinesses in Asia. ING will make urther eorts to simpliy thestructure o the company, to ocus on core activities, to improve

our risk prole and to bolster the capital base. In light o changingcustomer expectations and demands or more simplicity, easy accessand sustainable entrepreneurship, ING has stepped up its eorts to

take charge o these changes. We have been working hard to regainthe trust o all o our stakeholders, but particularly o our customers,who are at the heart o our businesses; or example by simpliying the

product range and making products more transparent, while ensuringsuitability and a reasonable, attractive price. In spite o the challengingnancial and regulatory environment, we are determined to stay trueto our roots and keep helping customers build their uture. We intend

to remain ambitious in making urther improvements to our

businesses and in strengthening customer relationships.


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Active capital management is an important actor in achievingINGs strategic and nancial objectives. At a time o turbulence inthe nancial markets and in depressed economic conditions, capital

adequacy at all levels within the organisation, and generating valueor our shareholders, are top priorities. Maintaining sucient

nancial fexibility is especially needed, given the rapidly changingregulatory landscape and the restructuring measures that havebeen approved by the European Commission.

ING Group apital struture

in EUR billion 2012 2011

Equity 54.4 46.7Core Tier 1 securities 2.3 3.0

Core debt 7.1 7.9

Hybrids 9.2 9.3

Total apital Group 72.9 66.9

Most signifant divestments losed in ull year 2012

in EUR billionIFRS-EU

Book valueSale

Proeeds

ING BANK ING Direct USA 6.3 6.9

Capital One (INGs stake in)* 2.0 2.4

ING Direct Canada 1.4 2.4

ING INSURANcE Malaysia 0.6 1.3

* Capital One shares received as part o ING Direct USA proceeds.

cAPITAL MANAGEMENT AT THREE LEVELSING Group continues to manage capital on a consolidated basisat three levels ING Group, ING Insurance and ING Bank due to

the act that ING has set strategic objectives at each o those levels.Within ING Bank and ING Insurance there are dierent entities

that have their own ratings and capital requirements. The overallapproach o ING Groups Capital Management is to meet theserequirements, but also to challenge them constantly to ensureoptimal use o capital. At the same time the ungibility o capital isbeing preserved t

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