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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
Commission File Number 1-14642
ING Groep N.V.
Amstelveenseweg 500
1081 KL Amsterdam
The Netherlands
     Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F þ      Form 40-F o
     Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T rule 101(b) (1): o
     Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T rule 101(b) (7): o
     Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes o       No þ
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b).
THIS REPORT ON FORM 6-K TOGETHER WITH OUR REPORT ON FORM 6-K SUBMITTED ON SEPTEMBER 8, 2009 (EXCEPT IN EACH CASE FOR REFERENCES THEREIN TO “UNDERLYING RESULT BEFORE TAX” AND ANY OTHER NON-GAAP FINANCIAL MEASURE AS SUCH TERM IS DEFINED IN REGULATION G UNDER THE SECURTIES EXCHANGE ACT OF 1934, AS AMENDED) SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THE REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-155937) OF ING GROEP N.V. AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED. FOR THE AVOIDANCE OF DOUBT, THE DISCLOSURE CONTAINING REFERENCES TO “UNDERLYING RESULT BEFORE TAX” AND ANY OTHER NON-GAAP FINANCIAL MEASURE CONTAINED IN THE ATTACHED REPORT IS NOT INCORPORATED BY REFERENCE INTO THE ABOVE-MENTIONED REGISTRATION STATEMENT OF ING GROEP N.V.
 
 

 


 

     This Form 6-K provides Consolidated Financial Statements and related Form 20-F disclosures revised to include amounts in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, consistent with the presentation set forth in the Company’s Form 6-K submitted on September 8, 2009 in respect of the period ending June 30, 2009.
TABLE OF CONTENTS
         
       Page  
1. Presentation of Information
    3  
 
       
2. Item 3: Key Information
    4  
 
       
3. Item 5: Operating and Financial Review and Prospects
    8  
 
       
3.1 Introduction
       
3.2 Consolidated results of operations
    12  
 
       
4. Additional Information — Selected Statistical Information on Banking Operations
    48  
 
       
5. Item 18: ING Group Consolidated Financial Statements (IFRS-IASB)
    F-1  
 
       
5.1 Condensed consolidated balance sheet
    F-3  
5.2 Condensed consolidated profit and loss account
    F-4  
5.3 Condensed consolidated statement of cash flows
    F-5  
5.4 Condensed consolidated statement of changes in equity
    F-6  
5.5 Notes to the condensed consolidated interim accounts
    F-8  
 
6. Consents of Independent Registered Accounting Firms
       
 
6.1 Consent of Ernst & Young Accountants
    A-1  
6.2 Consent of KPMG Accountants
    A-2  
6.3 Consent of Ernst & Young Reviseurs d’Enterprises SCCRL
    A-3  

 

 


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PRESENTATION OF INFORMATION
In this Annual Report, and unless otherwise stated or the context otherwise dictates, references to “ING Groep N.V.”, “ING Groep” and “ING Group” refer to ING Groep N.V. and references to “ING”, the “Company”, the “Group”, “we” and “us” refer to ING Groep N.V. and its consolidated subsidiaries. ING Groep N.V.’s primary insurance and banking subsidiaries are ING Verzekeringen N.V. (together with its consolidated subsidiaries, “ING Insurance”)  and ING Bank N.V. (together with its consolidated subsidiaries, “ING Bank”), respectively. References to “Executive Board” or “Supervisory Board” refer to the Executive Board or Supervisory Board of ING Groep N.V.
ING presents its consolidated financial statements in euros, the currency of the European Economic and Monetary Union. Unless otherwise specified or the context otherwise requires, references to “US$” and “Dollars” are to the United States dollars and references to “EUR” are to euros.
Solely for the convenience of the reader, this Annual Report contains translations of certain euro amounts into U.S. dollars at specified rates. These translations should not be construed as representations that the translated amounts actually represent such dollar or euro amounts, as the case may be, or could be converted into U.S. dollars or euros, as the case may be, at the rates indicated or at any other rate. Therefore, unless otherwise stated, the translations of euros into U.S. dollars have been made at the rate of euro 1.00 = $ 1.2674, the noon buying rate in New York City for cable transfers in euros as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”) on March 6, 2009.
The financial information contained herein is prepared under International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”). International Financial Reporting Standards as issued by the IASB provide several options in accounting policies. ING Group’s accounting policies under International Financial Reporting Standards, as issued by the IASB and its decision on the options available, are set out in the section ‘Principles of valuation and determination of results’ below. In this document the term “IFRS-IASB” is used to refer to International Financial Reporting Standards as issued by the IASB, including the decisions ING Group made with regard to the options available under International Financial Reporting Standards as adopted by the IASB.
IFRS-EU refers to International Financial Reporting Standards as adopted by the European Union (“EU”), including the decisions ING Group made with regard to the options available under IFRS as adopted by the EU. The published 2008 Consolidated Annual Accounts of ING Group are presented in accordance with IFRS-EU. The Annual Accounts of ING Group will remain to be prepared under IFRS-EU. IFRS-EU differs from IFRS-IASB in respect of certain paragraphs in IAS 39 ‘Financial Instruments: Recognition and Measurement’ regarding hedge accounting for portfolio hedges of interest rate risk.
Under IFRS-EU, ING Group applies fair value hedge accounting for portfolio hedges of interest rate risk (fair value macro hedges) in accordance with the EU ‘carve out’ version of IAS 39. Under the EU ‘IAS 39 carve-out’, hedge accounting may be applied, in respect of fair value macro hedges, to core deposits and hedge ineffectiveness is only recognized when the revised estimate of the amount of cash flows in scheduled time buckets falls below the original designated amount of that bucket and is not recognized when the revised amount of cash flows in scheduled time buckets is more than the original designated amount. Under IFRS-IASB, hedge accounting for fair value macro hedges can not be applied to core deposits and ineffectiveness arises whenever the revised estimate of the amount of cash flows in scheduled time buckets is either more or less than the original designated amount of that bucket.
The financial information contained herein is prepared under IFRS-IASB. This information is prepared by reversing the hedge accounting impacts that are applied under the EU ‘carve out’ version of IAS 39. Financial information under IFRS-IASB accordingly does not take account of the fact that had ING Group applied IFRS-IASB as its primary accounting framework it may have applied alternative hedge strategies where those alternative hedge strategies could have qualified for IFRS-IASB compliant hedge accounting, which could have resulted in different shareholders’ equity and net result amounts compared to those disclosed herein.
A reconciliation between IFRS-EU and IFRS-IASB is included in Note 2.1 Basis of preparation.
Effective March 4, 2008, amendments to Form 20-F permit Foreign Private Issuers to include financial statements prepared in accordance with IFRS-IASB without reconciliation to US GAAP.
Unless otherwise indicated, gross premiums, gross premiums written and gross written premiums as referred to in this Annual Report include premiums (whether or not earned) for insurance policies written during a specified period, without deduction for premiums ceded, and net premiums, net premiums written and net written premiums include premiums (whether or not earned) for insurance policies written during a specified period, after deduction for premiums ceded. Certain amounts set forth herein may not sum due to rounding.
Although certain references are made to information available on ING’s website, no materials from ING’s website or any other source are incorporated by reference into this Annual Report, except as specifically stated herein.
References herein to “Items” are, to the extent such items are not included herein, to the relevant item in our Annual Report on Form 20-F for the year ended December 31, 2008.

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Item 3. Key Information
The selected consolidated financial information data set forth below is derived from the consolidated financial statements of ING Group. ING Group adopted IFRS as of 2005.
The following information should be read in conjunction with, and is qualified by reference to the Group’s consolidated financial statements and other financial information included elsewhere herein.

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    Year ended December 31,  
    2008     2008     2007(2)     2006(2)     2005(2)     2004(2)  
    USD(1)     EUR     EUR     EUR     EUR     EUR  
    (in millions, except amounts per share and ratios)  
IFRS-IASB Consolidated Income Statement Data
                                               
Income from insurance operations:
                                               
Gross premiums written:
                                               
Life
    49,261       38,868       40,732       40,501       39,144       36,975  
Non-life
    6,266       4,944       6,086       6,333       6,614       6,642  
 
                                   
Total
    55,527       43,812       46,818       46,834       45,758       43,617  
Commission income
    2,624       2,070       1,901       1,636       1,346       1,198  
Investment and Other income
    11,369       8,970       13,488       11,172       10,299       10,787  
 
                                   
Total income from insurance operations
    69,519       54,851       62,208       59,642       57,403       55,602  
Income from banking operations:
                                               
Interest income
    124,460       98,201       76,859       59,262       48,342       25,471  
Interest expense
    110,410       87,115       67,823       49,927       39,180       16,772  
 
                                   
Net interest result
    14,050       11,085       9,036       9,335       9,162       8,699  
Investment income
    (3,117 )     (2,459 )     1,969       849       937       363  
Commission income
    3,669       2,895       2,926       2,681       2,401       2,581  
Other income
    (4,436 )     (3,500 )     1,182       1,513       1,348       1,035  
 
                                   
Total income from banking operations
    10,167       8,022       15,113       14,378       13,848       12,678  
Total income (3)
    79,316       62,582       77,097       73,804       71,120       68,159  
 
                                   
 
                                               
Expenditure from insurance operations:
                                               
Life
    65,426       51,622       49,526       49,106       47,156       44,988  
Non-life
    6,165       4,864       6,149       5,601       6,269       6,292  
 
                                   
Total expenditure from insurance operations
    71,590       56,486       55,675       54,707       53,425       51,280  
 
                                               
Total expenditure from banking operations
    14,680       11,583       10,092       9,190       8,932       9,260  
 
                                   
Total expenditure(3)(4)
    85,902       67,778       65,543       63,681       62,226       60,419  
 
                                   
 
                                               
Result before tax from insurance operations:
                                               
Life
    (2,720 )     (2,146 )     5,314       3,436       2,666       2,647  
Non-life
    648       511       1,219       1,499       1,312       1,675  
 
                                   
Total
    (2,072 )     (1,635 )     6,533       4,935       3,978       4,322  
Result before tax from banking operations
    (4,513 )     (3,561 )     5,021       5,188       4,916       3,418  
 
                                   
Result before tax
    (6,585 )     (5,196 )     11,554       10,123       8,894       7,440  
Taxation
    (2,113 )     (1,667 )     1,665       1,961       1,379       1,709  
Minority interests
    (47 )     (37 )     267       341       305       276  
 
                                   
Net result
    (4,426 )     (3,492 )     9,622       7,821       7,210       5,755  
 
                                   
Dividend on Ordinary shares
    1,901       1,500       3,180       2,865       2,588       2,359  
Addition to shareholders’ equity
    (5,788 )     (4,567 )     6,442       4,956       4,622       3,396  
Payable on non-voting equity securities (7)
                                    (539 )     (425 )
Net result attributable to equity holders of the Company
    (924 )     (729 )     9,241       7,692       7,210       5,755  
Basic earnings per share(5)
    (2.17 )     (1.71 )     4.49       3.62       3.32       2.71  
Diluted earnings per share(5)
    (2.17 )     (1.71 )     4.46       3.59       3.32       2.71  
Dividend per Ordinary share (5)
    0.94       0.74       1.48       1.32       1.18       1.07  
Interim Dividend
    0.94       0.74       0.66       0.59       0.54       0.49  
Final Dividend
                0.82       0.73       0.64       0.58  
Number of Ordinary shares outstanding (in millions)
    2,063.1       2,063.1       2,226.4       2,205.1       2,204.9       2,204.7  
Dividend pay-out ratio (6)
    n.a.       n.a.       34.3 %     37.0 %     35.5 %     39.5 %

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    Year ended December 31,
    2008     2008     20072)     2006(2)     2005(2)     2004(2)  
    USD(2)     EUR     EUR     EUR     EUR     EUR  
            (in billions, except amounts per share and ratios)          
IFRS-IASB Consolidated Balance Sheet Data
                                               
Total assets
    1,683.9       1,328.6       1,313.2       1,226.5       1,158.6       876.4  
Investments:
                                               
Insurance
    138.8       109.5       132.3       140.5       144.5       112.1  
Banking
    188.6       148.8       160.4       171.1       180.1       164.2  
 
                                   
Total
    327.4       258.3       292.6       311.6       324.6       276.3  
Loans and advances to customers
    781.7       616.8       553.7       474.6       439.2       330.5  
Insurance and investment contracts:
                                               
Life
    270.0       213.0       232.4       237.9       232.1       205.5  
Non-life
    8.6       6.8       9.6       10.1       12.8       11.4  
Investment contracts
    26.7       21.1       23.7       20.7       18.6          
 
                                   
Total
    305.3       240.8       265.7       268.7       263.5       216.9  
Customer deposits and other funds on deposit:
                                               
Savings accounts of the banking operations
    347.6       274.3       275.1       283.1       269.4       219.4  
Other deposits and bank funds
    314.9       248.5       250.1       213.6       196.3       129.8  
 
                                   
Total
    662.6       522.8       525.2       496.7       465.7       349.2  
Amounts due to banks
    193.0       152.3       167.0       120.8       122.2       95.9  
Share capital (in millions)
            2,063.1       2,242.4       2,268.1       2,292.0       2,291.8  
Shareholders’ equity
    19.1       15.1       37.7       38.4       36.7       24.1  
Non-voting equity securities
    12.8       10.0                                  
Shareholders’ equity per Ordinary share 5)
    9.43       7.44       17.73       17.78       16.96       12.95  
 
(1)   Euro amounts have been translated into U.S. dollars at the exchange rate of $ 1.2674 to EUR 1.00, the noon buying rate in New York City on March 6, 2009 for cable transfers in euros as certified for customs purposes by the Federal Reserve Bank of New York.
 
(2)   For the impact of divestments see “Item 5. Operating and Financial Review and Prospects” .
 
(3)   After elimination of certain intercompany transactions between the insurance operations and the banking operations. See Note 2.1. to the consolidated financial statements.

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(4)   Includes all non-interest expenses, including additions to the provision for loan losses. See “Item 5, Operating and Financial Review and Prospects — Liquidity and Capital Resources”.
 
(5)   Net result per share amounts have been calculated based on the weighted average number of Ordinary shares outstanding and equity per share amounts have been calculated based on the number of Ordinary shares outstanding at the end of the respective periods. For purposes of this calculation ING Groep N.V. shares held by Group companies are deducted from the total number of Ordinary shares in issue. Shareholders’ equity per share is based on Ordinary shares outstanding at end of period. In 2008, amounts include coupon to Dutch State payable on the non-voting equity securities.
 
(6)   The dividend pay-out ratio is based on net result attributed to equity holders of the Company.
 
(7)   For details of the agreements with the Dutch State see Note 12 of Note 2.1 to the consolidated financial statements.
EXCHANGE RATES
Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar amounts received by owners of shares or ADSs on conversion of dividends, if any, paid in euros on the shares and will affect the U.S. dollar price of the ADSs on the New York Stock Exchange.
The following table sets forth, for the periods and dates indicated, certain information concerning the exchange rate for U.S. dollars into euros based on the Noon Buying Rate.
                                 
    U.S. dollars per euro
    Period   Average        
Calendar Period   End(1)   Rate(2)   High   Low
     
2004
    1.3538       1.2478       1.3625       1.1801  
2005
    1.1842       1.2397       1.3476       1.1670  
2006
    1.3197       1.2661       1.3327       1.1860  
2007
    1.4603       1.3794       1.4862       1.2904  
2008
    1.3919       1.4695       1.6010       1.2446  
2009 (through March 6, 2009) (2)
    1.2674       1.2710       1.3718       1.2549  
 
(1)   The Noon Buying Rate at such dates differ from the rates used in the preparation of ING’s consolidated financial statements as of such date. See Note 2.1 to the consolidated financial statements.
 
(2)   The average of the Noon Buying Rates on the last business day of each full calendar month during the period.
The table below shows the high and low exchange rate of the U.S. dollar per euro for the last six months.
                 
    High   Low
September 2008
    1.4737       1.3939  
October 2008
    1.4058       1.2446  
November 2008
    1.3039       1.2525  
December 2008
    1.4358       1.2634  
January 2009
    1.3718       1.2804  
February 2009
    1.3064       1.2547  
March 2009 (through March 6, 2009)
    1.2674       1.2549  
The Noon Buying Rate for euros on December 31, 2008 was EUR 1.00 = $ 1.3919 and the Noon Buying Rate for euros on March 6, 2009 was EUR 1.00 = $ 1.2674.

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Item 5. Operating and financial review and prospects
The following review and prospects should be read in conjunction with the consolidated financial statements and the related Notes thereto included elsewhere herein. The consolidated financial statements have been prepared in accordance with IFRS-IASB. Unless otherwise indicated, financial information for ING Group included herein is presented on a consolidated basis under IFRS-IASB.
FACTORS AFFECTING RESULTS OF OPERATIONS
ING Group’s results of operations are affected by demographics (particularly with respect to life insurance) and by a variety of market conditions, including economic cycles, insurance industry cycles (particularly with respect to non-life insurance), banking industry cycles and fluctuations in stock markets, interest and foreign exchange rates. See Item 3. “Risk Factors” for more factors that can impact ING Group’s results of operations.
General market conditions
Demographic studies suggest that over the next decade there will be growth in the number of individuals who enter the age group that management believes is most likely to purchase retirement-oriented life insurance products in ING’s principal life insurance markets in the Netherlands, the Rest of Europe, the United States, Asia and Australia. In addition, in a number of its European markets, including the Netherlands, retirement, medical and other social benefits previously provided by the government have been, or in the coming years are expected to be, curtailed. Management believes this will increase opportunities for private sector providers of life insurance, health, pension and other social benefits-related insurance products. Management believes that ING Insurance’s distribution networks, the quality and diversity of its products and its investment management expertise in each of these markets, positions ING Insurance to benefit from these developments. In addition, the emerging markets in Central and Eastern Europe, Asia and Latin America, in which ING Insurance has insurance operations, generally have lower gross domestic products per capita and gross insurance premiums per capita than the countries in Western Europe and North America in which ING Insurance has insurance operations. Management believes that insurance operations in these emerging markets provide ING Insurance with the market presence which will allow it to take advantage of anticipated growth in these regions. In addition, conditions in the non-life insurance markets in which ING Insurance operates are cyclical, and characterized by periods of price competition, fluctuations in underwriting results, and the occurrence of unpredictable weather-related and other losses.
Fluctuations in equity markets
Our insurance and asset management operations are exposed to fluctuations in equity markets. Our overall investment return and fee income from equity-linked products are influenced by equity markets. The fees we charge for managing portfolios are often based on performance and value of the portfolio. In addition, fluctuations in equity markets may affect sales of life and pension products, unit-linked products, including variable business and may increase the amount of withdrawals which will reduce related management fees. In addition, our direct shareholdings that are classified as investments are exposed to fluctuations in equity markets. The securities we hold may become impaired in the case of a significant or prolonged decline in the fair value of the security below its cost. Our banking operations are also exposed to fluctuations in equity markets. ING Bank maintains an internationally diversified and mainly client-related trading portfolio. Accordingly, market downturns are likely to lead to declines in securities trading and brokerage activities which we execute for customers and therefore to a decline in related commissions and trading results. In addition to this, ING Bank also maintains equity investments in its own non-trading books. Fluctuations in equity markets may affect the value of these investments.
Fluctuations in interest rates
Our insurance operations are exposed to fluctuations in interest rates through impacts on sales and surrenders of life insurance and annuity products. Declining interest rates may increase sales, but may impact profitability as a result of a reduced spread between the guaranteed interest rates to policyholders and the investment returns on fixed interest investments. Declining interest rates may also affect the results of our reserve adequacy testing which may in turn result in reserve strengthening. Rising interest rates may increase the surrender of policies which may require liquidation of fixed interest investments at unfavorable market prices. This could result in realized investment losses. Our banking operations are exposed to fluctuations in interest

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rates. Our management of interest rate sensitivity affects the results of our banking operations. Interest rate sensitivity refers to the relationship between changes in market interest rates on the one hand and on the other hand to changes in both net interest income and the results of our trading activities for our own account. Both the composition of our banking assets and liabilities and the fact that interest rate changes may affect client behavior in a different way than assumed in our internal models result in a mismatch which causes the banking operations’ net interest income and trading results to be affected by changes in interest rates
Market developments in 2008
Like other financial institutions, ING has not been immune to the financial crisis. The financial crisis started in the US subprime mortgage market in early 2007 and intensified over 2008 as prices fell across most major asset classes throughout the world. Equity markets lost significant ground and real estate prices were generally under pressure. Credit spreads widened significantly, both in the US and Europe. As liquidity became tight, central banks around the world were quick to provide funding to prevent the interbank market from drying up. There were also a number of significant financial institutions that failed during the year. As the financial crisis spread beyond the financial sector it also affected consumer confidence, other sectors and economic growth. All of these factors placed major strains on risk management departments in financial services companies, including ING, and emphasized the importance of having a robust risk management organisation in place that can take forceful measures to reduce risk. For details regarding the impact of the credit and liquidity crisis on ING’s assets and results, see Note 2.1 “Risk Management” to the consolidated financial statements.
Impact of financial crisis
Impact on pressurised asset classes
As a result of the deteriorating market conditions throughout 2008 ING Group incurred negative revaluations on its investment portfolio, which impacted shareholders’ equity. Furthermore, ING Group incurred impairments, fair value changes and trading losses, which impacted its profit and loss account (P&L).
The table below shows the exposures and negative revaluations and losses taken on US sub-prime and US Alt-A residential mortgage backed securities (RMBS), Collateralised Debt Obligations (CDOs) and Collateralised Loan Obligations (CLOs) during 2008.
US Subprime RMBS, US Alt-A RMBS and CDOs/CLOs exposures, revaluations and losses
                                                 
    December 31, 2008                   December 31, 2007
            Revaluations   Change in 2008           Revaluations
            through Equity   Write-downs through                   through Equity
(EUR millions)   Market value   (pre-tax)   P&L (pre-tax)   Other changes   Market value   (pre-tax)
US Subprime RMBS
    1,778       (839 )     (120 )     (52 )     2,789       (307 )
US Alt-A RMBS
    18,847       (6,538 )     (2,064 )     (33 )     27,482       (936 )
CDOs/CLOs
    3,469       (218 )     (394 )     2,186       1,895       (134 )
 
                                               
Total
    24,094       (7,595 )     (2,578 )     2,101       32,166       (1,377 )
-   ING Group’s total EUR 1.8 billion exposure to US sub-prime assets relates to non originated loans acquired as investments in RMBS and represents 0.1% of total assets. At December 31, 2008 approximately 77% of ING’s US sub-prime portfolio was rated AA or higher. ING Group does not originate sub-prime mortgages. The vast majority of the total mortgage backed securitisations (MBS) are (residential) mortgages that are not classified as sub-prime.
 
-   ING Group’s total US Alt-A RMBS exposure at December 31, 2008 was EUR 18.8 billion. About 65% of this portfolio was AAA rated. The majority of the exposure (EUR 16.3 billion) was held by ING Direct. ING’s Available-for-Sale Alt-A investments are measured at fair value in the balance sheet. The substantial amount of negative pre-tax revaluation and impairments on this portfolio are mainly caused by the illiquid market.
 
-   Net investments in CDOs/CLOs at December 31, 2008 were 0.3% of total assets. The vast majority of the CDOs/CLOs has investment grade corporate credit as underlying assets, only EUR 1 million has US subprime mortgages underlying.
EUR 23.7 billion of the EUR 24.1 billion exposure on US Subprime RMBS, US Alt-A RMBS and CDOs/CLOs is booked at fair value. An analysis of the method applied in determining the fair values of financial assets and

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liabilities is provided in Note 33 of Note 2.1 to the consolidated financial statements. At December 31, 2008 the fair value of US Subprime RMBS, US Alt-A RMBS and CDOs/CLOs was as follows:
Fair value of US Subprime RMBS, US Alt-A RMBS and CDOs/CLOs
                                 
    Reference to            
    published price   Valuation technique   Valuation technique    
    quotations in   supported by market   not supported by    
(EUR millions)   active markets   inputs   market inputs   Total
2008
                               
US Subprime RMBS
    20       26       1,732       1,778  
US Alt-A RMBS
            244       18,244       18,488  
CDOs/CLOs
    3,273       162       34       3,469  
 
                               
Total
    3,293       432       20,010       23,735  
 
                               
2007
                               
US Subprime RMBS
    2,636       153               2,789  
US Alt-A RMBS
    23,312       4,170               27,482  
CDOs/CLOs
    281       1,597       17       1,895  
 
                               
Total
    26,229       5,920       17       32,168  
Assets classified in Valuation technique not supported by market inputs consist mainly (approximately 87 %) of investments in asset backed securities in the United States. These assets are valued using external price sources that are obtained from third party pricing services and brokers. As at December 31, 2007, these assets were classified in Reference to published price quotations in active markets as valuation is based on independent quotes and trading in the relevant markets was active at that time. During 2008, the trading volumes in the relevant markets reduced significantly and these have now become inactive. The dispersion between prices for the same security from different price sources increased significantly. As a result, an amount of EUR 25 billion of mortgage backed securities in the United States was reclassified from Reference to published price quotations in active markets to Valuation technique not supported by market inputs in the third quarter of 2008.
Impact on Real Estate
By the end of 2008 ING Group’s total exposure to real estate was EUR 15.5 billion of which EUR 9.8 billion was subject to revaluation through the profit and loss account. In 2008, ING recorded EUR 1,184 million pre-tax negative revaluations and impairments. ING’s real estate portfolio has high occupancy rates and is diversified over sectors and regions, but is clearly affected by the negative real estate markets throughout the world.
Impact on Equity securities – available-for-sale
Direct equity exposure at December 31, 2008 in this caption was EUR 5.8 billion (public) and EUR 0,4 billion (private). During 2008 ING booked EUR 1,707 million of pre-tax impairments on this direct public equity exposure. ING generally decides to impair a listed equity security based on two broad guidelines: when the fair value of the security is below 75% of the cost price or when the market price of the security is below the cost price for longer than six months.
Impact on other asset classes
Negative impact on results 2008 (pre-tax) from private equity and alternative assets amounted to EUR 399 million. Negative impact on results 2008 (pre-tax) from debt securities other than mentioned above amounted to EUR 292 million.
Impact on counterparty risk
In the third quarter a number of financial institutions were no longer expected to fulfil their obligations. ING incurred EUR 483 million pre-tax losses (excluding loan losses) on Lehman Brothers, Washington Mutual and the Icelandic banks. The loss included impairments of debt securities, trading losses and derivative positions, including the costs to replace derivatives on which the banks were counterparty.
Impact on Liquidity profile
Due to the financial crisis liquidity became scarce and central banks around the world provided funding to prevent the interbank market drying up. ING’s liquidity position remained sound. ING Bank has a favourable funding profile as the majority of the funding stems from client deposits.

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Fluctuations in exchange rates
ING Group is exposed to fluctuations in exchange rates. Our management of exchange rate sensitivity affects the results of our operations both through the trading activities for our own account and because of the fact that we publish our consolidated financial statements in euros. Because a substantial portion of our income and expenses are denominated in currencies other than euros, fluctuations in the exchange rates used to translate foreign currencies, particularly the U.S. dollar, the Australian dollar, the Canadian dollar, the Turkish lira, the Japanese yen, the Korean won, the Pound sterling and the Polish zloty into euros will impact our reported results of operations and cash flows from year to year. This exposure is mitigated by the fact that realized results in non-Euro currencies are translated into euro by monthly hedging. See Note 23 of Note 2.1 to the consolidated financial statements for a description of our hedging activities with respect to foreign currencies. Fluctuations in exchange rates will also impact the value (denominated in euro) of our investments in our non-Euro reporting subsidiaries. The impact of these fluctuations in exchange rates is mitigated to some extent by the fact that income and related expenses, as well as assets and liabilities, of each of our non-euro reporting subsidiaries are generally denominated in the same currencies. For the main foreign currencies, in which ING’s income and expenses are denominated namely the U.S. dollar, Pound sterling, Canadian dollar, Australian dollar, Turkish lira and Polish zloty, the translation risk is managed taking into account the effect of translation results on the Tier-1 ratio. For all other currencies the translation risk is managed within a Value-at-Risk limit.
The weakening of most currencies against the euro during 2008 had a negative impact of EUR 163 million on (underlying) net result. In 2007 and 2006 exchange rates influenced net result, respectively, by EUR 159 million negatively and EUR 20 million positively.
For the years 2008, 2007 and 2006, the year-end exchange rates (which are the rates ING uses in the preparation of the consolidated financial statements for balance sheet items not denominated in euros) and the average quarterly exchange rates (which are the rates ING uses in the preparation of the consolidated financial statements for income statement items and cash flows not denominated in euros) were as follows for the currencies specified below:
                                                 
                    Average1)                    
    4Q 2008     3Q 2008     2Q 2008     1Q 2008     2007     2006  
U.S. dollar
    1.345       1.511       1.566       1.514       1.375       1.257  
Australian dollar
    1.922       1.694       1.664       1.674       1.639       1.664  
Canadian dollar
    1.590       1.559       1.579       1.509       1.470       1.422  
Pound sterling
    0.844       0.796       0.792       0.761       0.686       0.682  
Japanese yen
    130.787       161.518       162.530       159.662       161.685       146.188  
South Korean won
    1,748.405       1,640.581       1,589.017       1,438.373       1,275.559       1,199.328  
Turkish lira
    1.995       1.825       1.973       1.838       1.786       1.798  
Polish zloty
    3.741       3.327       3.425       3.566       3.781       3.897  
 
1)   Average exchange rates are calculated on a quarterly basis as from 2008 and on an annual basis before 2008.
                         
    Year-end
    2008   2007   2006
U.S. dollar
    1.396       1.472       1.318  
Australian dollar
    2.026       1.676       1.669  
Canadian dollar
    1.710       1.444       1.528  
Pound sterling
    0.956       0.734       0.671  
Japanese yen
    126.354       164.819       156.768  
South Korean won
    1758.273       1,378.094       1,225.971  
Turkish lira
    2.143       1.718       1.865  
Polish zloty
    4.175       3.586       3.832  
Critical Accounting Policies
See Note 2.1. to the consolidated financial statements.

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CONSOLIDATED RESULTS OF OPERATIONS
The following information should be read in conjunction with, and is qualified by reference to the Group’s consolidated financial statements and other financial information included elsewhere herein. ING Group evaluates the results of its insurance operations and banking operations, including Insurance Europe, Insurance Americas, Insurance Asia/Pacific, Wholesale Banking, Retail Banking and ING Direct, using the financial performance measure of underlying result before tax. Underlying result before tax is defined as result before tax and, excluding, as applicable for each respective segment, either all or some of the following items: gains/losses from divested units, realized gains/losses on divestitures and special items such as certain restructuring charges and other non-operating income/expense.
While these excluded items are significant components in understanding and assessing the Group’s consolidated financial performance, ING Group believes that the presentation of underlying result before tax enhances the understanding and comparability of its segment performance by highlighting result before tax attributable to ongoing operations and the underlying profitability of the segment businesses. For example, we believe that trends in the underlying profitability of our segments can be more clearly identified without the effects of the realized gains/losses on divestitures as the timing is largely subject to the Company’s discretion, influenced by market opportunities and ING Group does not believe that they are indicative of future results. Underlying result before tax is not a substitute for result before tax as determined in accordance with IFRS-IASB. ING Group’s definition of underlying result before tax may differ from those used by other companies and may change over time. For further information on underlying result before tax as well as the reconciliation of our segment underlying result before tax to our result before taxation see “ Item 5. Operating and Financial Review and Prospects — Segment Reporting” and Note 49 of Note 2.1 to the consolidated financial statements.
The following table sets forth the consolidated results of the operations of ING Group and its insurance and banking operations for the years ended December 31, 2008 and 2007:
                                                                 
    Insurance     Banking     Eliminations     Total  
    2008     2007     2008     2007     2008     2007     2008     2007  
    (EUR millions)  
Premium income
    43,812       46,818                                       43,812       46,818  
Interest result banking operations
                    11,085       9,036       43       60       11,042       8,976  
Commission income
    2,070       1,901       2,895       2,926                       4,965       4,827  
Investment and Other income
    8,970       13,488       (5,959 )     3,151       248       163       2,763       16,476  
 
                                               
Total income
    54,851       62,208       8,022       15,113       291       223       62,582       77,097  
 
                                                               
Underwriting expenditure
    49,485       48,833                                       49,485       48,833  
Other interest expenses
    1,269       1,326                       291       223       978       1,103  
Operating expenses
    5,422       5,515       10,303       9,967                       15,725       15,481  
Impairments/additions to the provision for loan losses
    310       1       1,280       125                       1,590       126  
 
                                               
Total expenditure
    56,486       55,675       11,583       10,092       291       223       67,778       65,543  
 
                                                               
Result before tax
    (1,635 )     6,533       (3,561 )     5,021                       (5,196 )     11,554  
Taxation
    (483 )     775       (1,184 )     889                       (1,667 )     1,665  
 
                                                   
Result before minority interests
    (1,152 )     5,758       (2,377 )     4,132                       (3,529 )     9,889  
Minority interests
    31       155       (69 )     112                       (38 )     267  
 
                                                   
Net result
    (1,183 )     5,603       (2,309 )     4,019                       (3,492 )     9,622  
 
                                                               
Result before tax
    (1,635 )     6,533       (3,561 )     5,021                       (5,196 )     11,554  
Gains/losses on divestments(1)
    (8 )     (382 )             (32 )                     (8 )     (414 )
Result/loss divested units
    88       (39 )                                     88       (39 )
Special items (2)
    321               301       489                       622       489  
 
                                                   
Underlying result before tax
    (1,235 )     6,113       (3,260 )     5,478                       (4,495 )     11,591  
 
                                                   
 
(1)   Divestments Insurance: sale of Chile Health (EUR 55 million, 2008), sale of Mexico (EUR 182 million, 2008), sale NRG (EUR (15) million, 2008),sale Taiwan (EUR (214) million, 2008), sale of Belgian broker business (EUR 418 million, 2007), sale of NRG (EUR (129) million, 2007), IPO SulAmerica in Brazil (EUR 93 million, 2007); Divestments Banking : sale of RegioBank (EUR 32 million, 2007);
 
(2)   Special items Insurance: integration costs CitiStreet (EUR (93) million, 2008), Nationalization/Annuity business Argentina (EUR (228) million, 2008); Special items Banking: impairment costs for not launching ING Direct Japan (EUR (30) million, 2008), provision for combining ING Bank and Postbank (EUR (271) million, 2008 and EUR (299) million, 2007) and restructuring provisions and hedge on purchase price Oyak Bank acquisition (EUR 190 million, 2007).

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The following table sets forth the consolidated results of the operations of ING Group and its insurance and banking operations for the years ended December 31, 2007 and 2006:
                                                                 
    Insurance     Banking     Eliminations     Total  
    2007   2006 2007     2006   2007     2006     2007     2006  
    (EUR millions)  
Premium income
    46,818       46,834                                       46,818       46,834  
Interest result banking operations
                    9,036       9,335       60       143       8,976       9,192  
Commission income
    1,901       1,636       2,926       2,681                       4,827       4,317  
Investment and Other income
    13,488       11,172       3,151       2,362       163       73       16,476       13,461  
 
                                               
Total income
    62,208       59,642       15,113       14,378       223       216       77,097       73,804  
 
                                                               
Underwriting expenditure
    48,833       48,188                                       48,833       48,188  
Other interest expenses
    1,326       1,233                       223       216       1,103       1,017  
Operating expenses
    5,515       5,275       9,967       9,087                       15,481       14,362  
Impairments/additions to the provision for loan losses
    1       11       125       103                       126       114  
 
                                               
Total expenditure
    55,675       54,707       10,092       9,190       223       216       65,544       63,681  
 
                                                               
Result before tax
    6,533       4,935       5,021       5,188                       11,554       10,123  
Taxation
    775       702       889       1,259                       1,665       1,961  
 
                                                   
Result before minority interests
    5,758       4,233       4,132       3,929                       9,889       8,162  
Minority interests
    155       281       112       60                       267       341  
 
                                                   
 
                                                               
Net result
    5,603       3,952       4,019       3,869                       9,622       7,821  
 
                                                               
Result before tax
    6,533       4,935       5,021       5,188                       11,554       10,123  
Gains/losses on divestments(1)
    (382 )     (49 )     (32 )     112                       (414 )     63  
Result divested units
    (39 )     (79 )             (65 )                     (39 )     (144 )
Special items
                    489                               489          
 
                                                   
Underlying result before tax
    6,113       4,807       5,478       5,235                       11,591       10,042  
 
                                                   
 
(1)   Divestments Insurance: sale of Belgian broker business (EUR 418 million, 2007), sale of NRG (EUR (129) million, 2007), IPO SulAmerica in Brazil (EUR 93 million, 2007), unwinding Piraeus (EUR 34 million, 2006), sale of Australia non-life (EUR 15 million, 2006);. Divestments Banking: sale of RegioBank (EUR 32 million, 2007), sale of Willams de Broë (EUR (9) million, 2006), sale of Deutsche Hypothekenbank (EUR (80) million, 2006), sale of Degussa Bank (EUR (23) million, 2006).

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GROUP OVERVIEW
Year ended December 31, 2008 compared to year ended December 31, 2007
Total result before tax decreased by EUR 16,750 million, or 145.0%, from EUR 11,554 million in 2007 to EUR (5,196) million in 2008 and total underlying result before tax decreased by EUR 16,086 million or 138.8% from EUR 11,591 million in 2007 to EUR (4,495) million in 2008. The worldwide financial crisis led to extreme market volatility and sharp declines in asset prices, especially in the third and fourth quarters of 2008 which led to losses in the insurance operations and a decline in result of the banking operations in 2008. The decrease in total result before tax is also impacted by divestments which resulted in a gain of EUR 8 million and EUR 414 million for 2008 and 2007, respectively, and special items in 2008 and 2007 influenced result before tax negatively by EUR 622 million and EUR 489 million, respectively.
Net result decreased by EUR 13,114 million, or 136.3%, from EUR 9,622 million in 2007 to EUR (3,492) million in 2008. This lower loss compared with the decrease in result before tax was due to a conversion from a large profit into a loss, which resulted in a change in taxation from EUR 1,665 million in 2007 to EUR (1,667) million in 2008. Underlying net result decreased from EUR 9,589 million in 2007 to EUR (2,934) million in 2008.
Basic earnings per share decreased to EUR (1.71) in 2008 from EUR 4.49 in 2007.
Currency impact
Exchange rate differences had a negative impact of EUR 163 million on net result and EUR 229 million on result before tax, mainly due to the weakening of the US dollar, the Australian dollar and the South Korea won, partly offset by a strengthening of the Polish zloty and Pound sterling. In 2007 currency rate differences had a negative impact of EUR 159 million on net result and EUR 211 million on result before tax.
Capital Ratios
ING calculates certain capital ratios on the basis of adjusted capital (see the discussion under “Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources – ING Group Consolidated Cash Flows”), which differs from total equity attributable to equity holders of the Company in that it excludes unrealized gains and losses on debt securities, the cash flow hedge reserve and goodwill and includes hybrid capital. On this basis, the debt/equity ratio of ING Group increased to 13.5% in 2008 compared with 9.5% in 2007, partly due to the buyback of ING’s own shares, dividend payments and the recorded loss, partly offset by the issuance of Core Tier-1 Securities. The capital coverage ratio of ING Verzekeringen N.V. increased to 256% of E.U. regulatory requirements at the end of December 2008, compared with 244% at the end of December 2007, as the decrease in available capital was more than offset by the decline in required capital. The tier-1 ratio of ING Bank N.V. stood at 9.32% (based on Basel II risk weighted assets) at the end of 2008, up from 7.39% (based on Basel I risk weighted assets) at the end of 2007, well above the 7.20% target. Tier-1 capital increased from EUR 29.8 billion to EUR 32.0 billion, mainly thanks to net capital injections of EUR 3.0 billion by ING Group. Following the introduction of Basel II in 2008, risk weighted assets dropped from EUR 402.7 billion on December 31, 2007 to EUR 293.0 billion on January 1, 2008. During the year risk weighted assets increased to EUR 343.4 billion at year-end 2008.
INSURANCE OPERATIONS
Income
Total premium income decreased 6.4%, or EUR 3,006 million from EUR 46,818 million in 2007 to EUR 43,812 million in 2008. Underlying life premiums decreased 3.7%, or EUR 1,506 million from EUR 40,254 million in 2007 to EUR 38,748 million in 2008. Excluding Taiwan and currency impacts, underlying life premiums increased 3.3%, mainly driven by the US, Australia, and most countries in Asia. Underlying non-life premiums decreased 8.1%, or EUR 388 million from EUR 4,790 million in 2007 to EUR 4,402 million in 2008.
Investment and Other income decreased 33.5%, or EUR 4,518 million from EUR 13,488 million in 2007 to EUR 8,970 million in 2008, reflecting the market turmoil in the second half of 2008. Moreover, in 2007 capital gains on ABN AMRO and Numico shares of EUR 2,087 million were recorded. Commission income increased 8.9%, or EUR 169 million from EUR 1,901 million in 2007 to EUR 2,070 million in 2008, driven by the US and Latin America.
Underwriting Expenditure
Underwriting expenditure increased by EUR 652 million, or 1.3% from EUR 48,833 million in 2007 to EUR 49,485 million in 2008. The underwriting expenditure of the life insurance operations increased by EUR 1,657 million, or 3.8%. The underwriting expenditure of the non-life insurance operations decreased by EUR 1,005 million, or 21.2%.

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Expenses
Operating expenses from the insurance operations decreased 1.7%, or EUR 93 million to EUR 5,422 million in 2008, from EUR 5,515 million in 2007, as ongoing cost reduction helped to offset most of the costs to support growth of the business in Asia/Pacific and Central and Rest of Europe. The expense ratios for the life insurance operations reflected the change in product mix as clients preferred traditional business over investment-linked business in the course of the year. Expenses as a percentage of assets under management for investment products deteriorated to 0.86% in 2008 compared with 0.76% in 2007. Expenses as a percentage of premiums for life products decreased to 14.0% in 2008 from 14.3% in 2007. The cost ratio for the non-life operations went up slightly to 32.2% in 2008 from 31.8% in 2007.
Result before tax and net result
Total result before tax from Insurance decreased 125.0%, or EUR 8,168 million, to a loss of EUR 1,635 million in 2008 from a profit of EUR 6,533 million in 2007, mainly due to the deterioration of the financial markets in the second half of 2008, as well as EUR 2,087 million gains on the sale of ING’s stakes in ABN AMRO and Numico in 2007. The impact of divestments amounted to EUR 8 million in 2008 and EUR 382 million in 2007. Divested units contributed a loss of EUR 88 million before tax in 2008 and a profit of EUR 40 million to result before tax in 2007. Special items had a negative impact of EUR 321 million in 2008 compared to no impact in 2007. The net result from insurance deteriorated by 121.1%, or EUR 6,786 million to a loss of EUR 1,183 million in 2008 from a profit of EUR 5,603 million in 2007.
Underlying result before tax
The underlying result before tax (excluding the impact of divestments and special items) decreased to a loss of EUR 1,235 million in 2008 from a profit of EUR 6,113 in 2007. The sharp decline in results was mainly due to the deterioration of the financial markets in the second half of 2008, as well as EUR 2,087 million gains on the sale of ING’s stakes in ABN AMRO and Numico in 2007. The underlying result from life insurance decreased by EUR 6,575 million to a loss of EUR 1,744 million from a profit of EUR 4,831 in 2007. Investment income was negatively impacted by capital losses and impairments on equity and debt securities, as well as negative fair value changes on real estate and private equity investments. Further, the result was negatively impacted by deferred acquisition cost (DAC) unlocking in the U.S. as well as losses on the SPVA business in Japan due to hedge losses. Underlying profit before tax from non-life insurance declined 60.3% to EUR 509 million from EUR 1,282 million in 2007, due primarily to capital losses and impairments on equities, as well as unfavourable underwriting results in Canada.
BANKING OPERATIONS
Income
Total income from banking decreased 46.9%, or EUR 7,091 million, to EUR 8,022 million in 2008 from EUR 15,113 million in 2007. This decrease was experienced despite an increase in the interest result, which was primarily attributable to a sharp increase in margins. The sharp increase in margins was more than offset, however, by decreases in investment income and other income.
The net interest result increased by EUR 2,049 million, or 22.7%, to EUR 11,085 million in 2008 from EUR 9,036 million in 2007, driven by higher interest results in all business lines, but especially in Wholesale Banking. The interest margin in 2008 was 1.07%, an increase from 0.94% in 2007, due to higher margins in Wholesale Banking (especially Financial Markets and General Lending) and in ING Direct (particularly influenced by the more favorable interest rate environment in the US).
Commission income decreased 1.1%, or EUR 31 million to EUR 2,895 million in 2008 from EUR 2,926 million in 2007. The decrease in commission income was primarily due to the strong decline of management fees by EUR 145 million (especially ING Belgium, ING Real Estate and Retail Netherlands). Fees from securities business decreased by EUR 56 million (especially ING Belgium and Retail Netherlands), but funds transfer fees increased by EUR 102 million (mainly Wholesale Banking and Retail Central Europe) and brokerage and advisory fees increased by EUR 23 million.
Investment income decreased by EUR 7,625 million to a loss of EUR 6,168 million in 2008 from a profit of EUR 1,457 million in 2007. The decrease was partly entirely due to results on securities (including impairments) and fair value changes on real estate investments, changing from a profit of EUR 487 million in 2007 to a loss of EUR 2,739 million in 2008. Of this loss, EUR 2,087 million relates to debt securities (mainly impairments on the Alt-A portfolio at ING Direct), EUR 302 million relates to equity securities and EUR 350 million is attributable to real estate investments. Furthermore, rental income decreased by EUR 46 million and other investment income decreased by EUR 78 million. In addition, the decrease was partly due to negative fair value changes on derivatives for which no hedge accounting is applied under IFRS-IASB.

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Other income decreased by EUR 1,484 million, or 87.7%, to EUR 209 million in 2008 from EUR 1,693 million in 2007. Net trading income declined EUR 1,154 million from a profit of EUR 749 million in 2007 to a loss of EUR 405 million in 2008. The share of profit from associates decreased by EUR 448 million from EUR 238 million in 2007 to a loss of EUR 210 million in 2008, mainly due to the downward valuation of listed funds at ING Real Estate. Other revenues, including income from operating lease, were EUR 88 million lower. These developments were partly offset by an increase of EUR 206 million in valuation results from non-trading derivatives, for which hedge accounting is not applied.
Expenses
Total operating expenses increased by EUR 336 million, or 3.4%, to EUR 10,303 million in 2008 from EUR 9,967 million in 2007. In 2008, special items were EUR 271 million in provisions and costs related to the Retail Netherlands strategy (combining ING Bank and Postbank) and EUR 30 million impairment costs of not launching ING Direct Japan. In 2007, special items were EUR 295 million in provisions and costs related to the Retail Netherlands Strategy, EUR 94 million in restructuring provision for Wholesale Banking and EUR 56 million in restructuring provision for Retail Banking. Excluding these special items, total operating expenses increased by EUR 480 million, or 5.0%, mainly at Retail Banking, due to the inclusion of ING Bank Turkey and investments to support activities in developing markets, and at ING Direct to support the growth of the business.
The addition to the provision for loan losses
The total addition to the provision for loan losses in 2008 was EUR 1,280 million compared to EUR 125 million in 2007, an increase of EUR 1,155 million reflecting the worsening of economic conditions. Retail Banking showed an increase by EUR 203 million, from EUR 198 million in 2007 to EUR 401 million in 2008 and ING Direct showed an increase by EUR 215 million, from EUR 68 million in 2007 to EUR 283 million in 2008. The net release in Wholesale Banking of EUR 142 million in 2007 turned into an addition to the loan loss provision of EUR 596 million in 2008. As a percentage of average credit-risk weighted assets (based on Basel II), the addition to the provision for loan losses in 2008 was 48 basis points.
Result before tax and net result
Total result before tax decreased 170.9%, or EUR 8,582 million, to EUR (3,561) million in 2008 from EUR 5,021 million in 2007. Special items (mostly provision for the merger of Postbank and ING Bank Netherlands) had a negative impact of EUR 301 million on result before tax in 2008. In 2007, divestments and special items had a negative impact of EUR 458 million on result before tax, including EUR 489 million in special items, partly offset by EUR 32 million realized gains on divestments.
Net result from banking declined 157.5%, or EUR 6,328 million, from EUR 4,019 million in 2007 to EUR (2,309) million in 2008. The decrease in net result is smaller than the decrease in result before tax due to the tax rebate of EUR 1,184 million for 2008, which was supported by the revision of tax returns from previous years, compared with the taxation of EUR 889 million for 2007 (effective tax rate 17.7%).
Underlying result before tax
Excluding the effects of divestments and excluding special items, ING’s banking operations showed a decrease in underlying result before tax of EUR 8,738 million, or 159.5%, from EUR 5,478 million in 2007 to EUR (3,260) million in 2008. Underlying net result decreased by EUR 6,404 million, or 146.8%, from EUR 4,363 million in 2007 to EUR (2,041) million in 2008, due to the tax rebate.
GROUP OVERVIEW
Year ended December 31, 2007 compared to year ended December 31, 2006
Total result before tax increased by EUR 1,431 million, or 14.1% from EUR 11,554 million in 2006 to EUR 11,553 million in 2007 and total underlying result before tax increased by EUR 1,549 million or 15.4% from EUR 10,042 million in 2006 to EUR 11,591 million in 2007. The increase in result before tax was supported by EUR 2,087 million in gains on the sale of stakes in ABN AMRO and Numico. However, the result before tax of ING Direct decreased by 23.3% due to losses related to repositioning the UK business as well as an impairment on asset-backed commercial paper in Canada in the fourth quarter 2007. The increase in total result before tax is also impacted by divestments which resulted in a gain of EUR 414 million and a loss of EUR 63 million for 2007 and 2006, respectively. Special items in 2007 influenced result before tax negatively by EUR 489 million, in 2006 there were no special items.

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Net result rose by EUR 1,801 million, or 23.0% from EUR 7,821 million in 2006 to EUR 9,622 million in 2007. This higher growth compared with the increase in result before tax was due to a lower effective tax rate in 2007. The effective tax rate decreased to 14.4% in 2007 from 19.4% in 2006 mainly due to high tax-exempt gains on equity investments (ABN AMRO and Numico) in 2007 compared to 2006. Underlying net result increased from EUR 7,810 million in 2006 to EUR 9,589 million in 2007.
Earnings per share attributable to equity holders of the Company increased to EUR 4.49 in 2007 from EUR 3.62 in 2006.
Currency impact
Currency rate differences had a negative impact of EUR 159 million on net result and EUR 211 million on result before tax, mainly due to the weakening of the US dollar, the Canadian dollar and the South Korea won. In 2006 currency rate differences had a positive impact of EUR 20 million on net result and EUR 48 million on result before tax.
Capital Ratios
ING calculates certain capital ratios on the basis of adjusted capital (see the discussion under “ Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources – ING Group Consolidated Cash Flows”), which differs from total equity attributable to equity holders of the Company in that it excludes unrealized gains and losses on debt securities, the cash flow hedge reserve and goodwill and includes hybrid capital. On this basis, the debt/equity ratio of ING Group increased to 9.5% in 2007 compared with 9.0% in 2006, partly due to the buyback of own shares. The capital coverage ratio of ING Verzekeringen N.V. decreased to 244% of E.U. regulatory requirements at the end of December 2007, compared with 274% at the end of December 2006, due to the decrease in available capital. The tier-1 ratio of ING Bank N.V. stood at 7.39% at the end of 2007, down from 7.63% at the end of 2006, but remained above the 7.20% target. This decrease was caused by strong growth in risk-weighted assets and the deduction of EUR 1.2 billion in goodwill and other intangibles related to the purchase of Oyak Bank, partly compensated by a capital injection of EUR 2.2 billion from ING Group to ING Bank in the fourth quarter. Total risk-weighted assets of the banking operations increased by EUR 64.8 billion, or 19.2%, to EUR 402.7 billion as of December 31, 2007 from EUR 337.9 billion as of December 31, 2006, driven by growth in Wholesale Banking and Retail Banking.
INSURANCE OPERATIONS
Income
Total premium income decreased EUR 16 million from EUR 46,834 million in 2006 to EUR 46,818 million in 2007. Life premiums increased 0.6%, or EUR 231 million to EUR 40,732 million in 2007 from EUR 40,501 million in 2006, primarily due to growth in the United States, Asia, all countries with the exception of Japan, and Central Europe and the Rest of Europe partly offset by a decline in premium income in the Netherlands. Non-life premiums decreased 3.9%, or EUR 247 million, from EUR 6,333 million in 2006 to EUR 6,086 million in 2007, as lower premiums in Europe and Latin America were only partly offset by higher premiums in Canada.
Investment and Other income increased 20.7%, or EUR 2,316 million to EUR 13,488 million in 2007 from EUR 11,172 million in 2006, reflecting higher dividend income and capital gains on equities (ABN AMRO and Numico). Commission income increased 16.2%, or EUR 265 million to EUR 1,901 million in 2007 from EUR 1,636 million in 2006 supported by robust net inflows and growth in assets under management across all lines of business.
Underwriting Expenditure
Underwriting expenditure increased by EUR 645 million, or 1.3% from EUR 48,188 million in 2006 to EUR 48,833 million in 2007. The underwriting expenditure of the life insurance operations increased by EUR 440 million, or 1.0%. The underwriting expenditure of the non-life insurance operations increased by EUR 205 million, or 4.5%, resulting in an overall higher non-life claims ratio of 65.2% in 2007 compared with 58.7% in 2006, primarily attributable to a higher claims ratio in the Netherlands and Canada.
Expenses
Operating expenses from the insurance operations increased 4.5%, or EUR 240 million to EUR 5,515 million in 2007, from EUR 5,275 million in 2006, mainly due to ongoing cost reduction initiatives offset by higher start-up costs in 2007 to support our growth in Central Europe and the Rest of Europe and Asia. The efficiency ratios for the life insurance operations deteriorated mainly reflecting the investments in growth areas. Expenses as a percentage of assets under management for investment products deteriorated slightly to 0.76% in 2007 compared with 0.75% in 2006. Expenses as a percentage of premiums for life products decreased to 14.3% in 2007 from 13.3% in 2006. The cost ratio for the non-life operations was flat at 31.8%.

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Result before tax and net result
Total result before tax from insurance increased 32.4%, or EUR 1,598 million, to EUR 6,533 million in 2007 from EUR 4,935 million in 2006, mainly due to the gains on equities. This increase was also impacted by divestments which resulted in a profit of EUR 382 million in 2007 and a gain of EUR 49 million in 2006. Divested units contributed EUR 79 million result before tax in 2006 and EUR 42 million to result before tax in 2007. Net result from insurance increased by 41.8%, or EUR 1,651 million to EUR 5,603 million in 2007 from EUR 3,952 million in 2006 due to a decrease in minority interests to EUR 155 million in 2007 from EUR 281 million in 2006, but especially the high tax exempt gains on equity investments caused a reduction of the effective tax rate from 14.2% in 2006 to 11.9% in 2007.
Underlying result before tax
Underlying result before tax from the insurance operations increased by 27.2%, or EUR 1,306 million to EUR 6,113 million in 2007 from EUR 4,807 million in 2006, primarily due to the gains on the sale of ING’s stakes in ABN AMRO and Numico. Underlying result before tax from life insurance increased 43.4%, or EUR 1,461 million from EUR 3,370 million in 2006 to EUR 4,831 million in 2007. The life insurance activities in the US, Central Europe, the Rest of Europe and Latin America showed strong profit growth, supported by increased sales, growth in assets under management and investment gains. The non-life operations decreased by 10.8%, or EUR 155 million from EUR 1,437 million in 2006 to EUR 1,282 million in 2007. In the Netherlands, the deterioration was mainly caused by rate pressure as well as high one-off claims provisions related to last year. Canada results declined due to lower underwriting results and a decrease in investment gains.
BANKING OPERATIONS
Income
Total income from banking increased 5.1%, or EUR 735 million, to EUR 15,113 million in 2007 from EUR 14,378 million in 2006. This increase was experienced despite a decrease in the interest result, which was primarily attributable to a sharp decline in margins, but which was more than offset by increases in commission income and investment income.
The net interest result decreased by EUR 299 million, or 3.2%, to EUR 9,036 million in 2007 from EUR 9,335 million in 2006, driven by lower interest results in Wholesale Banking and ING Direct, which were only partially offset by higher interest results in Retail Banking. The interest margin in 2007 was 0.94%, a decrease from 1.06% in 2006, due to the flattening or even inverse yield curves, pressure on client margins and intensified competition for savings and deposits.
Commission income increased 9.1%, or EUR 245 million to EUR 2,926 million in 2007 from EUR 2,681 million in 2006. The increase in commission income was primarily due to the strong growth of management fees (mainly from ING Real Estate) by EUR 169 million. Fees from funds transfer and brokerage and advisory fees also increased, but fees from securities business decreased slightly by EUR 38 million.
Investment income increased by EUR 791 million, or 118.9%, to EUR 1,457 million in 2007 from EUR 666 million in 2006. The increase was partly due to EUR 56 million in gains recognized on divestments in 2007 and losses of EUR 78 million on divestments in 2006. Furthermore, rental income increased EUR 113 million and realized gains on equities grew EUR 181 million compared to 2006, mainly due to the substantial capital gains following the sale of shares in the stock exchange and the derivatives market in Sao Paulo and a sizeable gain from the sale of an equity stake at Wholesale Banking.
Other income decreased by EUR 3 million, or 0.2%, to EUR 1,693 million in 2007 from EUR 1,696 million in 2006. Net trading income declined EUR 151 million and valuation results from non-trading derivatives, for which hedge accounting is not applied, were EUR 11 million lower. This was largely offset by an increase of EUR 104 million in other revenues, including higher income from operating lease. The share of profit from associates increased by EUR 55 million from EUR 183 million in 2006 to EUR 238 million in 2007, mainly due to associates at ING Real Estate.
Expenses
Total operating expenses increased by EUR 880 million, or 9.7%, to EUR 9,967 million in 2007 from EUR 9,087 million in 2006. The increase is for EUR 445 million attributable to special items in 2007, comprising EUR 295 million in provisions and costs related to the Retail Netherlands Strategy (combining ING Bank and Postbank), EUR 94 million in restructuring provision for Wholesale Banking and EUR 56 million in restructuring provision

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for Retail Banking. Divestments in 2006 had a mitigating impact of EUR 111 million on expense growth, but an additional increase of EUR 546 million or 6.1%, was experienced in 2007 due, in part, to investments to support the growth of the business, notably at ING Direct, ING Real Estate and the Retail Banking activities in developing markets.
The addition to the provision for loan losses
The total addition to the provision for loan losses in 2007 was EUR 125 million compared to EUR 103 million in 2006, an increase of 21.4% or EUR 22 million. Retail Banking showed an increase by EUR 22 million, from EUR 176 million in 2006 to EUR 198 million in 2007 and ING Direct showed an increase by EUR 8 million, from EUR 60 million in 2006 to EUR 68 million in 2007. The net release in Wholesale Banking increased by EUR 10 million to EUR 142 million in 2007. As a percentage of average credit-risk weighted assets, the addition to the provision for loan losses in 2007 was 4 basis points, up slightly from 3 basis points in 2006.
Result before tax and net result
Total result before tax decreased 3.2%, or EUR 167 million, to EUR 5,021 million in 2007 from EUR 5,188 million in 2006. Divestments and special items had a negative impact of EUR 458 million on result before tax in 2007, including EUR 489 million in special items, partly offset by EUR 32 million realized gains on divestments. In 2006, divestments resulted in a realized loss of EUR 112 million. The divested units contributed EUR 65 million to result before tax in 2006.
Net result from banking increased 3.9%, or EUR 150 million from EUR 3,869 million in 2006 to EUR 4,019 million in 2007. This decrease is moderated due to the effective tax rate for ING’s banking operations which decreased from 24.3% (EUR 1,259 million) for 2006 to 17.7% (EUR 889 million) for 2007, caused by high tax-exempted gains, the release of some tax liabilities, a lower corporate tax rate in the Netherlands and the impact of a tax asset in Germany.
Underlying result before tax
Excluding the effects of divestments and excluding special items, ING’s banking operations showed an increase in underlying result before tax of EUR 243 million, or 4.6%, from EUR 5,235 million in 2006 to EUR 5,478 million in 2007. Underlying net result increased by EUR 418 million, or 10.6%, from EUR 3,945 million in 2006 to EUR 4,363 million in 2007, due to the low effective tax rate.

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CONSOLIDATED ASSETS AND LIABILITIES
The following table sets forth ING Group’s consolidated assets and liabilities for the years ended December 31, 2008, 2007 and 2006:
                         
    2008   2007   2006
    (EUR billions, except amounts per share)
Investments
    258.3       292.7       311.6  
Financial assets at fair value through the profit and loss account
    280.5       327.1       317.5  
Loans and advances to customers
    616.8       553.7       474.6  
Total assets
    1,328.6       1,313.2       1,226.5  
Insurance and investment contracts:
                       
Life
    213.0       232.4       237.9  
Non-life
    6.7       9.6       10.1  
Investment contracts
    21.1       23.7       20.7  
 
                       
Total insurance and investment contracts
    240.8       265.7       268.7  
Customer deposits and other funds on deposits (1)
    522.8       525.2       496.7  
Debt securities in issue/other borrowed funds
    127.7       94.1       107.8  
Total liabilities (including minority interests)
    1,301.9       1,273.2       1,188.1  
Non-voting equity securities
    10.0                  
Shareholders’ equity
    15.1       37.7       38.4  
Shareholders’ equity per Ordinary share (in EUR)
    7.44       17.73       17.78  
 
(1)   Customer deposits and other funds on deposits consists of savings accounts, other deposits, bank funds and debt securities privately issued by the banking operations of ING.
Year ended December 31, 2008 compared to year ended December 31, 2007
Total assets increased by 1.2% in 2008 to EUR 1,328.6 billion, mainly due to increased loans and advances to customers, partly offset by decreased investments and financial assets at fair value through the profit and loss account. Investments decreased by EUR 34.4 billion, or 11.7%, to EUR 258.3 billion in 2008 from EUR 292.7 billion in 2007, representing a decrease of EUR 22.8 billion in insurance investments and a decrease of EUR 11.6 billion in banking investments.
Loans and advances to customers increased by EUR 63.1 billion, or 11.4%, rising to EUR 616.8 billion at the end of December 2008 from EUR 553.7 billion at the end of December 2007. Loans and advances to customers of the insurance operations decreased EUR 1.9 billion. Loans and advances of the banking operations increased by EUR 70.1 billion. The Netherlands operations increased by EUR 34.9 billion and the international operations by EUR 33.3 billion.
Shareholders’ equity decreased by 60.0% or EUR 22,638 million to EUR 15,080 million at December 31, 2008 compared to EUR 37,718 million at December 31, 2007. The decrease is mainly due to the negative net result from the year 2008 (EUR (3,492) million), unrealized revaluation equity and debt securities (EUR (18,971) million), changes in treasury shares (EUR (2,030) million) and the cash dividend to shareholders/coupon on the Core Tier-1 Securities (EUR (3,600) million), partially offset by realized gains equity securities released to profit and loss (EUR 2,596 million) and the change in cashflow hedge reserve (EUR 746 million).
Year ended December 31, 2007 compared to year ended December 31, 2006
Total assets increased by 7.1% in 2007 to EUR 1,313.2 billion, mainly due to increased loans and advances to customers and financial assets at fair value through the profit and loss account. Investments decreased by EUR 18.9 billion, or 6.1%, to EUR 292.7 billion in 2007 from EUR 311.6 billion in 2006, representing a decrease of EUR 8.2 billion in insurance investments and a decrease of EUR 10.7 billion in banking investments.
Loans and advances to customers increased by EUR 79.1 billion, or 16.7%, rising to EUR 553.7 billion at the end of December 2007 from EUR 474.6 billion at the end of December 2006. Loans and advances to customers of the insurance operations decreased EUR 10.0 billion. Loans and advances of the banking operations increased

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by EUR 89.1 billion. The Netherlands operations increased by EUR 30.7 billion and the international operations by EUR 58.4 billion. The impact of the inclusion of Oyak Bank was EUR 4.8 billion. ING Direct contributed EUR 25.1 billion to the increase, of which EUR 28.0 billion was due to personal lending.
Shareholders’ equity decreased by 1.8% or EUR 677 million to EUR 37,718 million at December 31, 2007 compared to EUR 38,395 million at December 31, 2006. Net result from the year 2007 added EUR 9,622 million to equity and unrealized revaluation shares added EUR 2,997 million, partially offset by unrealized revaluations debt securities of EUR 4,725 billion, realized gains equity securities released to profit and loss of EUR 3,044 million, change due to treasury shares of EUR 2,304 million and a cash dividend of EUR 2,999 million.
ING does not have any significant non-consolidated SPEs or other off-balance sheet arrangements for which it is reasonably likely that these may have to be consolidated in future periods, and/or could have a significant impact on our income from operations, liquidity and capital resources. Reference is made to Note 27 of the Consolidated Financial Statements.

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SEGMENT REPORTING
ING Group’s segments are based on the management structure of the Group, which is different from its legal structure. The following table sets forth the contribution of our six business lines to our underlying result before tax for each of the years 2008, 2007 and 2006 See Note 49 of Note 2.1 to the consolidated financial statements for further disclosure of our segment reporting.
                                                                 
2008   Insurance     Insurance     Insurance     Wholesale     Retail                     Total  
(EUR millions)   Europe     Americas     Asia/Pacific     Banking(3)     Banking (3)     ING Direct     Other(1)     Group  
Total income
    14,489       27,738       14,159       398       7,399       878       (2,479 )     62,852  
 
Total expenditure
    13,838       28,327       14,372       3,498       5,979       2,033       (269 )     67,778  
 
                                               
 
Result before tax
    651       (589 )     (213 )     (3,100 )     1,420       (1,155 )     (2,210 )     (5,196 )
Gains/losses on divestments
            (237 )     214                               15       (8 )
Result before tax from divested units
            (28 )     115                                       88  
Special items
            321                       271       30               622  
 
                                               
Underlying result before tax
    651       (534 )     116       (3,100 )     1,691       (1,125 )     (2,194 )     (4,495 )
 
                                               
                                                                 
2007   Insurance     Insurance     Insurance     Wholesale     Retail                     Total  
(EUR millions)   Europe     Americas     Asia/Pacific     Banking     Banking     ING Direct     Other 1) 2)     Group  
Total income
    16,262       29,681       14,383       5,312       7,483       2,196       1,781       77,097  
Total expenditure
    13,962       27,529       13,807       2,836       5,405       1,667       338       65,544  
 
                                               
Result before tax
    2,300       2,152       576       2,476       2,079       530       1,443       11,554  
Gains/losses on divestments
    (418 )     (93 )                     (32 )             129       (414 )
Result before tax from divested units
    (42 )     3                                               (39 )
Special items
                            94       355               40       489  
 
                                               
Underlying result before tax
    1,840       2,062       576       2,570       2,402       530       1,611       11,591  
 
                                               
                                                                 
2006   Insurance     Insurance     Insurance     Wholesale     Retail                     Total  
(EUR millions)   Europe     Americas     Asia/Pacific     Banking     Banking     ING Direct     Other 1)     Group  
Total income
    16,170       29,779       13,378       4,921       7,166       2,289       101       73,804  
Total expenditure
    13,808       27,787       12,742       2,686       4,803       1,598       258       63,681  
 
                                               
Result before tax
    2,362       1,992       636       2,235       2,363       691       (157 )     10,123  
Gains/losses on divestments
    (34 )             (15 )     89               23               63  
Result before tax from divested units
    (79 )                     (45 )             (20 )             (144 )
Special items
                                                               
 
                                               
Underlying result before tax
    2,249       1,992       621       2,279       2,363       694       (157 )     10,042  
 
                                               
 
(1)   Other mainly includes items not directly attributable to the business lines and intercompany relations. See Note 49 of Note 2.1 to the consolidated financial statements for further disclosure of our segment reporting.
 
(2)   Includes the gains on the sale of stakes in ABN AMRO and Numico
 
(3)   Mid-corporate clients in the home markets Netherlands, Belgium, Poland and Romania have been transferred retroactively from Wholesale Banking to Retail Banking. Figures for 2007 and 2006 have been restated accordingly.

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The business lines are analyzed on a total basis for Income, Expenses and Result before tax, the geographical analyses are based on underlying figures.
INSURANCE EUROPE
                         
    Insurance Europe
    2008   2007   2006
    (EUR millions)
Premium income
    10,194       10,616       10,552  
Commission income
    491       477       348  
Investment and Other income
    3,804       5,169       5,270  
 
                       
Total income
    14,489       16,262       16,170  
 
                       
Underwriting expenditure
    11,559       11,595       11,458  
Other interest expenses
    513       591       544  
Operating expenses
    1,764       1,774       1,805  
Other impairments
    2       1       1  
 
                       
Total expenditure
    13,838       13,962       13,808  
 
                       
Result before tax
    651       2,300       2,362  
Gains/losses on divestments
            (418 )     (34 )
Result before tax from divested units
            (42 )     (79 )
 
                       
Underlying result before tax
    651       1,840       2,249  
 
                       
Year ended December 31, 2008 compared to year ended December 31, 2007
Income
Total premium income decreased by EUR 422 million to EUR 10,194 million in 2008 from EUR 10,616 million in 2007, primarily due to the impact from the divestment of the Belgian broker and employee benefits business in September 2007 (EUR 363 million). Excluding this impact, premium income decreased EUR 59 million as sales from investment products suffered across Europe due to volatile equity markets and increased competition from bank deposits. Non-life premium income was flat despite fierce competition as market share was maintained. In Central and Rest of Europe, premium income increased to EUR 2,486 million from EUR 2,436 million, mainly due to growth in Poland as a result of higher sales of traditional products.
Expenses
Operating expenses decreased by EUR 10 million to EUR 1,764 million in 2008 from EUR 1,774 million in 2007. Excluding the divestment of the Belgian broker and employee benefits business, operating expenses increased by EUR 38 million, of which EUR 23 million came from Belgium and Luxembourg and EUR 29 million came from Central and Rest of Europe, offset by the Netherlands where operating expenses decreased by EUR 15 million due to lower reorganization expenses. In Belgium and Luxembourg, the expense increase was partly related to the legal transfer of ING’s investment management operations in Brussels from ING Bank to ING Insurance. The increase in operating expenses in Central and Rest of Europe reflected business growth as well as investments for a multi-year operational efficiency program that started in 2008.
Result before tax
Result before tax decreased by EUR 1,649 million to EUR 651 million in 2008 from EUR 2,300 million in 2007, primarily due to lower investment income across most asset classes. There were no material divestments in 2008. However, the sale of the of Belgian broker and employee benefits business led to a gain of EUR 418 million in 2007.
Underlying result before tax
Underlying result before tax for Insurance Europe declined by EUR 1,189 million to EUR 651 million in 2008 from EUR 1,840 million in 2007 due to lower investment income across most asset classes. Income from real

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estate of EUR (278) million decreased from EUR 371 million a year ago due to negative revaluations of properties in the United Kingdom and continental Europe. Income from private equity of EUR (296) million compares to EUR 160 million in 2007. Financial market distress also led to EUR 80 million impairment on fixed income funds. In Central and Rest of Europe, underlying profit declined marginally to EUR 329 million in 2008 from EUR 332 million in 2007. Despite market turmoil, Poland, which accounts for about half the region’s result, was able to increase its profit by EUR 23 million. However, this was offset by lower profit contributions by Spain (EUR (10) million) and Hungary (EUR (11) million).
The Netherlands
Underlying result before tax in the Netherlands decreased to EUR 242 million in 2008 from EUR 1,444 million in 2007 due to investment losses across most asset classes. Income from real estate dropped to EUR (278) million from EUR 371 million in 2007 due to negative revaluations of properties in the United Kingdom and continental Europe. Negative revaluations and impairments on private equity investments resulted in income of EUR (296) million in 2008, down from EUR 160 million in 2007. Furthermore, the capital upstream of EUR 5.0 billion to the Corporate Line Insurance in 2007 contributed to lower investment income in 2008.
The underlying result before tax for life insurance decreased to EUR (49) million in 2008 from EUR 1,029 million in 2007. Income from real estate dropped to EUR (258) million from EUR 345 million in 2007 due to negative revaluations of properties in the United Kingdom and continental Europe. In November, ING’s Dutch insurance subsidiaries reached an agreement in principle with consumer organizations regarding individual unit-linked life policies that were sold in the Netherlands. This agreement is non-binding for individual policyholders. There was no material P&L impact as adequate provisions had already been established. Capital gains on debt securities and fixed income funds decreased to EUR (79) million in 2008 compared to EUR 20 million in 2007. Life premium income life stayed flat at EUR 1,590 in 2008 versus EUR 1,587 million in 2007 despite the weak investment climate. Termination of low-return group contracts and cessation of the sale of traditional unit-linked products were offset by higher sales of group life products through indexation, as well as higher sales due to single premium fixed annuities in the Netherlands.
Underlying result before tax for non-life insurance decreased to EUR 292 million in 2008 from EUR 415 million in 2007 primarily due to negative revaluations of real estate and private equity investments. The combined investment income from real estate and private equity declined EUR 111 million year over year. Furthermore, higher releases of technical provisions in 2007 than in 2008 contributed to lower results in 2008. Non-life premium income was flat at EUR 1,590 million in 2008 versus EUR 1,587 million in 2007 as market share was maintained despite fierce competition due to new entrants and an increasing number of insurers offering their services through the internet.
Belgium
Underlying result before tax in Belgium increased to EUR 77 million in 2008 from EUR 54 million in 2007 due to lower profit-sharing for the Optima product which added EUR 10 million to the underlying result, as well as a higher release of EUR 10 million in technical provisions in 2008. Premium income from life insurance decreased to EUR 1,064 million in 2008 from EUR 1,160 million in 2007 due to the weak investment climate and competition from banks for retail savings.
Central and Rest of Europe
Underlying result before tax declined marginally to EUR 329 million in 2008 from EUR 332 million in 2007. Underlying pre-tax profit was down in Spain to EUR 35 million from EUR 44 million in 2007, and in Hungary to EUR 68 million from EUR 79 million in 2007, which was offset by Poland where pre-tax profit increased to EUR 158 million in 2008 from EUR 135 million in 2007. Results in Hungary and Spain were impacted by impairments on fixed income securities and equity hedge losses. Life premium income increased to EUR 2,446 million from EUR 2,394 as higher premiums in Poland were partially offset by lower premiums in Hungary and Spain. Premium income in Spain and Hungary was impacted by lower sales of unit linked products and variable annuities amidst unfavorable market conditions. The successful introduction of a single premium investment product in Poland generated EUR 542 million in sales, which were not reflected in gross premiums.
Year ended December 31, 2007 compared to year ended December 31, 2006
Income
Total premium income increased by 0.6%, or EUR 64 million to EUR 10,616 million in 2007 from EUR 10,552 million in 2006, as continued strong life premium growth in Central and Rest of Europe was largely offset by lower life premiums in the Netherlands and Belgium, including the impact of the divestment of the Belgian broker and employee benefits business in September 2007. Life production slowed down in the second half of 2007 due to faltering stock markets and less intensive marketing for investment products in Belgium. Unit-linked volumes in the Netherlands were impacted by negative media attention concerning cost loads. Non-life premium

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income declined by 6.8%, or EUR 135 million to EUR 1,839 million from EUR 1,974 million in 2006, due to lower premiums in all regions after rate reductions in the Benelux as well as the disposition of bond insurer Nationale Borg in the Netherlands and the broker and employee benefits business in Belgium.
Commission income advanced by 37.1%, or EUR 129 million to EUR 477 million in 2007 from EUR 348 million in 2006 fuelled by higher management fees in all regions. Investment and Other income declined by 1.9%, or EUR 101 million from EUR 5,270 million in 2006 to EUR 5,169 million in 2007, driven by lower capital gains and fair value changes on real estate and private equity investments. In the Netherlands direct investment income decreased EUR 136 million, after the deconsolidation of a real estate mutual fund at year-end 2006 and the distribution of EUR 5.0 billion in extraordinary dividends to the Corporate Line Insurance during 2007. Direct investment income in Belgium included the EUR 418 million gain on the divestment of the broker and employee benefits business.
Expenses
Operating expenses declined by 1.7%, or EUR 31 million to EUR 1,774 million in 2007 from EUR 1,805 million in 2006, with the decline concentrated in the Benelux. In the Netherlands, expenses decreased 1.5%, or EUR 21 million to EUR 1,350 million in 2007 from EUR 1,371 million in 2006, as regular cost increases related to inflation and merit salary increases were offset by staff reductions following the completion and implementation of a new insurance administration platform at Nationale-Nederlanden and EUR 33 million software impairments in 2006. The 2007 release of provisions for employee benefits in the Netherlands almost matched similar releases in 2006. Operating expenses in Belgium declined from EUR 150 million in 2006 to EUR 96 million in 2007, following the disposition of the broker and employee benefits business. Expenses in Central and Rest of Europe were EUR 44 million higher at EUR 324 million, after EUR 30 million higher investments in greenfields (business in new country) in Romania and Russia and organic business growth across the region.
Result before tax
Result before tax in 2007 included a gain of EUR 418 million from the sale of Belgian broker and employee benefits business, whereas the 2006 pre-tax result reflected a EUR 34 million gain on the unwinding of a cross-shareholding with Bank Piraeus in Greece. Notwithstanding those gains, total profit before tax of Insurance Europe declined by 2.6%, or EUR 62 million to EUR 2,300 million in 2007 from EUR 2,362 million in 2006.
Underlying result before tax
Underlying result before tax from Insurance Europe declined by 18.2%, or EUR 409 million from EUR 2,249 million in 2006 to EUR 1,840 million in 2007, driven by lower insurance results in the Netherlands following lower capital gains and fair value changes on real estate and private equity investments and significant disability provision releases in 2006. Central Europe continued to show strong growth of life underwriting results, partly compensated by EUR 26 million higher greenfield strain in Romania and Russia. Underlying pre-tax profit from life insurance declined by 15.7%, or EUR 263 million to EUR 1,412 million in 2007 from EUR 1,675 million in 2006, mostly resulting from a EUR 327 million decrease in life results from the Netherlands partly offset by a EUR 51 million increase in Central and Rest Europe, primarily in Hungary and Poland as well as the Czech and Slovakia republics. Underlying result from non-life insurance declined by 25.4%, or EUR 146 million from EUR 574 million in 2006 to EUR 428 million in 2007, including 2006 releases of actuarial provisions caused by the introduction of a new long-term disability act in the Netherlands.
Netherlands
In the Netherlands, underlying result before tax decreased by 24.4%, or EUR 466 million to EUR 1,445 million in 2007 from EUR 1,911 million in 2006, as lower investment income and actuarial provision releases more than offset the slight decline in operating expenses. Results included EUR 217 million lower gains and revaluations from real estate investment declining from EUR 443 million in 2006 to EUR 226 million in 2007 and EUR 42 million lower gains and revaluations from private equity investments from EUR 166 million in 2006 to EUR 124 million in 2007, as well as a EUR 98 million release of disability provisions triggered by the introduction of a new long-term disability act in 2006. In 2007, the increase in the shortfall in investment guarantees on certain group pension contracts deteriorated EUR 74 million compared to 2006.
Underlying result before tax from the life insurance businesses declined by 24.1%, or EUR 327 million from EUR 1,357 million in 2006 to EUR 1,030 million in 2007 driven by lower investment income, especially lower gains and revaluations on real estate and private equity investments. Life premium income declined by 4.2%, or EUR 374 million from EUR 5,230 million in 2006 to EUR 5,008 million in 2007, mainly due to lower single-premium sales due to enhanced pricing discipline to improve profitability and negative media attention around unit-linked products.
Underlying result before tax from the non-life insurance businesses decreased by 25.1%, or EUR 139 million from EUR 554 million in 2006 to EUR 415 million in 2007, driven by EUR 98 million disability provision releases

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in 2006 as well as lower results from real estate and private equity investments. Non-life premiums declined by 1.2% to EUR 1,587 million, a decrease of EUR 19 million compared to EUR 1,606 million in 2006 largely attributable to the disposition of guarantee insurer Nationale Borg in the second quarter of 2006. Increased distribution through the proprietary bank channel more than compensated for the impact of rate pressure in automobile and group income insurance.
Belgium
In Belgium, underlying result before tax from insurance rose by 8.8%, or EUR 3 million from EUR 57 million in 2006 to EUR 62 million in 2007, due to higher results from life insurance. Underlying result from life insurance, including Luxembourg, rose by EUR 12 million, or 25.5% to EUR 59 million in 2007 from EUR 47 million in 2006, driven by higher sales and investment income. Underlying result before tax from non-life insurance, declined sharply to EUR 3 million in 2007 from EUR 10 million in 2006, partly caused by a strengthening of the claims provisions for disability based on recent claims experience. Following the divestment of the broker and employee benefits business in 2007, the insurance activities in Belgium are focused exclusively on the sale of insurance products through ING’s proprietary bank channels (ING Bank and Record Bank). Life premium income increased by 15.0%, to EUR 1,160 million in 2007 from EUR 1,009 million in 2006, due to strong sales of investment products with a capital guarantee and high profit participation potential. Non-life premiums were up 12.5%, mainly due to the compulsory natural disaster cover introduced in 2007.
Central and Rest of Europe
In Central and Rest of Europe, underlying result before tax increased by 17.7%, or EUR 50 million to EUR 332 million in 2007 from EUR 282 million in 2006, driven by a 18.8% increase in life results to EUR 323 million. The new life operation in Russia and second-pillar pension fund in Romania caused a EUR 26 million higher greenfield strain on underlying pre-tax result. The Czech Republic, Hungary, Poland and Slovakia all showed strong growth in life and pensions, driven by higher premiums and pension fund inflows. Life premium income rose by 25.6%, or EUR 488 million from EUR 1,906 million in 2006 to EUR 2,394 million in 2007, propelled by high sales of unit-linked products in Greece and the Czech Republic, group life in Spain as well as the launch of the variable annuities in Hungary and Spain.
INSURANCE AMERICAS
                         
    Insurance Americas
    2008   2007   2006
    (EUR millions)
Premium income
    22,549       23,537       24,118  
Commission
    1,254       1,036       984  
Investment and Other income
    3,935       5,108       4,677  
 
                       
Total income
    27,738       29,681       29,779  
 
                       
Underwriting expenditure
    25,319       24,682       24,981  
Other interest expenses
    222       328       316  
Operating expenses
    2,574       2,519       2,490  
Other impairments
    212       0       0  
 
                       
Total expenditure
    28,327       27,529       27,787  
 
                       
Result before tax
    (589 )     2,152       1,992  
Gains/losses on divestments
    (237 )     (93 )        
Result before tax from divested units
    (28 )     2          
Special items
    321       0       0  
 
                       
Underlying result before tax
    (534 )     2,061       1,992  
 
                       
Year ended December 31, 2008 compared to year ended December 31, 2007
Income
Total premium income decreased by 4.2%, or EUR 988 million, from EUR 23,537 million in 2007 to EUR 22,549 million in 2008. Underlying life premiums increased by 0.8%, or 8.8% excluding currency impacts to EUR 19,216 million, primarily attributable to the US (increase of 8.4% in local currency) driven by variable annuities, retirement services and fixed annuities. Underlying non-life premium income decreased by 12.6%, mainly due to the sale of the health business in Chile in the first quarter of 2008. Premium income in Canada decreased by 4.2%, but increased by 1.7% excluding currency impacts due to an increase in average premiums, while the number of new risks insured decreased.

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Commission income increased by 21.0%, or EUR 218 million to EUR 1,254 million in 2008 from EUR 1,036 million in 2007, primarily due to the acquisitions of the annuity and pension business from Santander in Latin America at the end of 2007. Investment and Other income decreased 23.0% or EUR 1,173 million from EUR 5,108 million in 2007 to EUR 3,935 million in 2008 due to credit related losses and impairments, unfavorable results on non-trading derivatives and losses from limited partnerships.
Expenses
Operating expenses increased by 2.2%, or EUR 55 million from EUR 2,519 million in 2007 to EUR 2,574 million in 2008. Underlying expenses increased 10.5% excluding currency impacts, mainly due to integration and operating expenses triggered by the acquisition of CitiStreet in the US and the acquisition of pension business from Santander in Latin America. Expenses as a percentage of assets under management for investment products deteriorated from 0.74% to 0.87%, while expenses as a percentage of premiums for life products improved to 14.6% in 2008.
Result before tax
Result before tax in 2008 included a gain of EUR 55 million, which resulted from the divestment of Chile health business in the first quarter of 2008 and a gain of EUR 182 million which resulted from the divestment of Mexico insurance business in the third quarter of 2008. In addition, the result before tax in 2008 includes EUR 28 million profit generated by the Mexico divested insurance businesses. The special items in 2008 related to integration expenses for CitiStreet in the US (EUR 90 million before tax), losses from annuity and pension businesses in Argentina following the nationalization of the private pension business in the fourth quarter of 2008 (EUR 228 million before tax), and restructuring charges in several countries in Latin America (EUR 3 million before tax).
Underlying result before tax
Underlying result before tax from Insurance Americas decreased to a loss of EUR 534 million in 2008 from a profit of EUR 2,062 million in 2007. Underlying result before tax in the US decreased by EUR 2,473 million from a profit of EUR 1,356 million in 2007 to a loss of EUR 1,117 in 2008, primarily due to net investment losses and negative impact from deferred acquisition costs unlocking. The Canadian business had a 22.6%, or EUR 106 million decrease in underlying result before tax from EUR 470 million in 2007 to EUR 364 million in 2008 due to lower underwriting income, including higher catastrophe claims. In Latin America underlying profit before tax decreased by 6.8%, or EUR 16 million to EUR 220 million in 2008 from EUR 236 million in 2007. The underlying profit before tax in the life businesses decreased by EUR 44 million due to lower investment gains in 2008 (especially in Mexico), and lower investment results on the legally-required capital in the pension businesses (especially in Chile and Peru). The underlying profit before tax in the non-life businesses increased EUR 28 million, due to higher non-life results in Brazil, including a tax reserve release of EUR 24 million.
United States
Premium income increased by 0.3%, or 8.4% excluding currency impact to EUR 18,736 million in 2008 from EUR 18,677 million in 2007. This increase was mainly due to higher sales of retirement services, variable annuities and fixed annuities. Operating expenses increased 2.3%, or 10.1% excluding currency impact to EUR 1,531 million due to the acquisition of CitiStreet in the second quarter of 2008, partly offset by lower personnel-related expenses. Underlying result before tax decreased to a loss of EUR 1,117 million from a profit of EUR 1,356 million in 2007. The negative result before tax in 2008 included investment losses (pre-DAC) of EUR 965 million. In addition, deferred acquisition costs unlocking had a negative impact of EUR 1,180 million in 2008, compared with a positive impact of EUR 14 million in 2007. The further decrease of underlying result was due to lower fee income in 2008 from lower assets under management in retirement services, higher cost of guaranteed benefits in 2008 in variable annuities, negative limited partnerships result in 2008, and lower result from private equity investments.
Canada
Premium income decreased by 4.2%, from EUR 2,788 million in 2007 to EUR 2,671 million in 2008, but increased 1.7% excluding currency impact. The increase was primarily attributable to rate increases and average premium increases in personal lines which compensated for a lower the number of insured risks. Operating expenses of EUR 544 million in 2008 decreased by 1.6% compared to 2007, but increased 4.3% excluding currency impact. Underlying profit before tax decreased by 22.6%, or EUR 106 million from EUR 470 million in 2007 to EUR 364 million in 2008, due to lower underwriting results, partially offset by higher investment income, including lower impairments of fixed income securities. Underwriting results decreased in 2008 following higher claims (including higher catastrophe claims). The claims ratio deteriorated to 69.5% in 2008 from 65.7% in 2007, and the expense ratio deteriorated from 28.5% to 29.1%. The combined ratio deteriorated to 98.6% in 2008 from 94.2% in 2007.

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Year ended December 31, 2007 compared to year ended December 31, 2006
Income
Premium income decreased by 2.4%, or EUR 581 million, from EUR 24,118 million in 2006 to EUR 23,537 million in 2007. Excluding unfavorable currency effects of EUR 1,905 million, premium income rose by 6.0%, due to an increase in Life premium of 6.6%, primarily attributable to the US (increase of 6.7%) driven by variable annuities and retirement services, partly offset by lower fixed annuities; Latin America (increase of 3.8%) driven by annuities in Chile and Argentina and group life premiums in Mexico, and an increase in Non-life premium of 3.0%, attributable to Canada (increase of 2.7%) due to an increase in the number of insured risks and Latin America (increase of 3.4%) through higher premiums from health business.
Commission income increased by 5.3%, or EUR 52 million to EUR 1,036 million in 2007 from EUR 984 million in 2006, primarily as a result of higher assets under management, which were due to sales, persistency and positive fund performance. Investment and Other income increased 9.2% or EUR 431 million from EUR 4,677 million in 2006 to EUR 5,108 million in 2007, mainly due to net investment gains, including the gain on the initial public offering of shares by the Brazilian composite insurer SulAmérica, in which ING is a major shareholder as well as the disposition of a minority equity investment in the US, and higher private equity gains, partly offset by credit related losses and impairments.
Expenses
Operating expenses increased by 1.2%, or EUR 29 million from EUR 2,490 million in 2006 to EUR 2,519 million in 2007. Excluding unfavorable currency impact of EUR 183 million,, operating expenses increased 9.2%, due to the acquisitions of the annuity and pension business from Santander in Latin America, marketing and organic business growth, mainly in the US. Expenses as a percentage of assets under management for investment products deteriorated from 0.72% to 0.74%, while expenses as a percentage of premiums for life products deteriorated from 14.3% in 2006 to 14.7% in 2007.
Result before tax
Result before tax in 2007 included a gain of EUR 93 million, which resulted from the dilution of ING’s share in Brazil’s SulAmérica, following an initial public offering.
Underlying result before tax
Underlying result before tax from Insurance Americas increased by 3.4%, or EUR 67 million from EUR 1,992 million in 2006 to EUR 2,059 million in 2007. Underlying result before tax in the US grew by 12.7%, or EUR 153 million from EUR 1,203 million in 2006 to EUR 1,356 million in 2007, due to net investment gains and commission income, partially offset by increased operating expenses . The Canadian business had a 22.3%, or EUR 135 million decrease in underlying result before tax from EUR 605 million in 2006 to EUR 470 million in 2007, due to less favorable developments in current and prior-year reserves and impairments and investment losses. In Latin America underlying result before tax increased 27.3%, or EUR 50 million to EUR 233 million in 2007 from EUR 183 million in 2006, due to life operations increase, partly offset by non-life operations. Life operations rose 84.6% or EUR 99 with higher results across the region, including investment gains in Mexico. Non-life operations decreased 74.2% or EUR 49 million, due to higher fire and weather-related claims and provision strengthening in automobile insurance in Mexico, partly offset by the results from the health business in Brazil.
United States
Underlying premium income decreased 2.4%, or EUR 453 million to EUR 18,677 million in 2007 from EUR 19,130 million in 2006. The decrease is attributable to the depreciation of the US dollar against the EUR. Excluding this impact, premium income increased 6.7%, mainly due to higher sales of variable annuity and retirement services, but was partially offset by lower premiums from fixed annuities. Operating expenses were almost flat as they increased only by 0.9%, or EUR 14 million. Excluding unfavorable currency impact of EUR 127 million, operating expenses increased 10.4%, due to marketing, continued business growth and personnel-related expenses. Underlying result before tax rose by 12%.7%, or EUR 153 million from EUR 1,203 million in 2006 to EUR 1,356 million in 2007. Net investment gains, including the EUR 21 million gain on the disposition of a minority equity investment, contributed EUR 83 million to the underlying result growth in the US. Excluding investment gains, underlying result before tax increased 5.5% to EUR 1,316, due to higher fee income from higher assets under management, higher result from private equity investments and positive impact from equity related deferred acquisition costs and reserves unlocking.

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Canada
Underlying premium income of EUR 2,788 million EUR in 2007 was almost flat compared with 2006. Excluding the impact of the depreciation of Canadian dollar against the EUR, premium income increased 2.7% primarily attributable to the increase in the number of insured risks. Operating expenses of EUR 553 million in 2007 was almost flat compared with 2006. Excluding unfavorable currency impact of EUR 18 million, operating expenses rose by 4.3%. Underlying result before tax decreased 22.3%, or EUR 135 million from EUR 605 million in 2006 to EUR 470 million in 2007, due to lower underwriting results and investment losses. Underwriting results decreased in 2007 after a deterioration of the automobile insurance results and higher property insurance losses. The claims ratio deteriorated to 65.7% in 2007 from 59.2% in 2006, but the expense ratio improved to 28.5% from 29.9%. The combined ratio deteriorated to 94.2% in 2007 from 89.1% in 2006.
INSURANCE ASIA/PACIFIC
                         
    Insurance Asia/Pacific
    2008   2007   2006
    (EUR millions)
Premium income
    11,040       12,632       12,136  
Commission
    319       382       298  
Investment and Other income
    2,800       1,369       944  
 
                       
Total income
    14,159       14,383       13,378  
 
                       
Underwriting expenditure
    12,611       12,517       11,745  
Other interest expenses
    720       175       22  
Operating expenses
    1,040       1,115       965  
Other impairments
    0       0       10  
 
                       
Total expenditure
    14,372       13,807       12,742  
 
                       
Result before tax
    (213 )     576       636  
Gains/losses on divestments
    214               (15 )
Result before tax from divested units
    115                  
 
                       
Underlying result before tax
    116       576       621  
 
                       
Year ended December 31, 2008 compared to year ended December 31, 2007
Income
Premium income decreased by 12.6%, or EUR 1,592 million to EUR 11,040 million in 2008 from EUR 12,632 million in 2007. Excluding Taiwan, premiums fell 7.7%. Double digit growth was recorded in local terms in Australia, Korea and Rest of Asia. However, this was more than offset by a sharp decline in single premium variable annuity premiums in Japan.
Commission income decreased by 16.5%, or EUR 63 million to EUR 319 million in 2008 from EUR 382 million in 2007, mainly due to negative market performance and currency impact in Australia.
Expenses
Operating expenses decreased by 6.7%, or EUR 75 million to EUR 1,040 million in 2008 from EUR 1,115 million in 2007. Excluding Taiwan and currency effects, operating expenses increased 7.0%, as cost containment helped to offset most of the increased expenses from a higher in-force base in some countries and continued investment in greenfield operations, to support the growth in premium income in these markets.
Result before tax
On October 20, 2008, ING reached an agreement with Fubon Financial Holding Co. Ltd. to sell ING Life Taiwan for a consideration of USD 600 million (EUR 447 million). The transaction closed on February 11, 2009, and the total loss before tax of the transaction, comprising of the loss on divestment (EUR 214 million) and negative results from the divested unit related to impairments (EUR 115 million), was EUR 329 million (EUR 292 million after tax). As a consequence of the sale, Taiwan was separately reported from Insurance Asia/Pacific’s results beginning with the fourth quarter of 2008. Including the loss on the divestment and the result from the divested unit, result before tax decreased by 137.0%, or EUR 789 million to a loss of EUR 213 million in 2008 from a profit of EUR 576 million in 2007.

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Underlying result before tax
Underlying result before tax decreased by 79.9%, or EUR 460 million to EUR 116 million in 2008 from EUR 576 million in 2007. Japan recorded a loss of EUR 167 million in 2008 compared to a profit of EUR 24 million in 2007, driven by losses on the variable annuity business as a consequence of extreme market volatility. Turmoil in the global financial markets led to negative revaluations on credit and equity linked securities, and impairments on fixed income investments, which further contributed to the decrease in the underlying result. Excluding Japan and currency impacts, underlying profit before tax declined by 15.5%.
Australia and New Zealand
Underlying result before tax decreased by 41.4%, or EUR 89 million, to EUR 126 million in 2008 from EUR 215 million in 2007. This was driven by reduced fee income due to a decline in assets under management and lower investment earnings. New sales in life risk products and favourable in-force retention drove life premium income up 6.2%, or EUR 17 million, to EUR 292 million in 2008 from EUR 275 million in 2007. Operating expenses decreased by 5.0%, but were up 1.6% excluding currency effects, to EUR 211 million in 2008 from EUR 222 in 2007. The increase was driven by a higher in-force base, investments in select business transformation projects and restructuring costs.
South Korea
In South Korea, underlying result before tax decreased by 45.7%, or 33.3% excluding currency effects, to EUR 163 million in 2008 from EUR 300 million in 2007. The decline was mainly due to market related impacts, comprising negative revaluations on an equity derivative fund and credit linked securities and impairments on fixed income securities. Results in 2007 had also been supported by the one-off recognition of EUR 10 million in dividend income from the consolidation of equity funds. Premium income decreased by 8.8%, but was up 13.8% excluding currency effects, to EUR 3,291 million in 2008 from EUR 3,607 million in 2007 due to favourable retention and stable new sales. Operating expenses decreased by 9.5%, but were up 13.6% excluding currency effects, to EUR 229 million in 2008 from EUR 253 million in 2007 to support business growth.
Taiwan
ING Life Taiwan was sold to Fubon Financial Holding Co. Ltd in February 2009. ING recorded zero underlying result before tax for Taiwan in 2008, as in 2007, due to strengthening of reserves in a low interest rate environment.
Japan
In Japan, underlying result before tax decreased by EUR 191 million to a loss of EUR 167 million in 2008 from a profit of EUR 24 million in 2007. The swing was primarily driven by adverse hedge results on the variable annuities business due to extraordinary market volatility, especially in the month of October. This was partially offset by an increase in profits on the Corporate Owned Life Insurance (COLI) business on an increased premium base and improved investment results. The turbulent financial market environment severely impacted single premium variable annuity (SPVA) sales. As a result, premium income declined 14.2% to EUR 4,026 million from EUR 4,693 million in 2007. Despite this decrease, ING is a top 3 player in the COLI segment and a top 4 player in the SPVA segment.
Year ended December 31, 2007 compared to year ended December 31, 2006
Income
Premium income increased by 4.1%, or EUR 496 million to EUR 12,632 million in 2007 from EUR 12,136 million in 2006, due primarily to sales of unit-linked products and high persistency in South Korea, new sales in life risk and personal investment products, along with favorable in-force business in Australia and sales of investment-linked products in Taiwan, in part offset by lower premiums in Japan caused by regulatory changes and economic volatility. Double-digit growth rates in premium income were recorded in local currency terms in most of Asia/Pacific’s other markets.
Commission income increased by 28.2%, or EUR 84 million to EUR 382 million in 2007 from EUR 298 million in 2006, due to higher funds under management arising from strong investment markets and higher net inflows in Australia and New Zealand as well as the full year consolidation of asset management business in Taiwan, which was acquired in the fourth quarter of 2006.
Expenses
Operating expenses increased by 15.5%, or EUR 150 million to EUR 1,115 million in 2007 from EUR 965 million in 2006, reflecting the increase of business volumes and the focus in building organizational capabilities and investing in greenfield operations. Expenses as a percentage of assets under management for investment products improved from 0.83% in 2006 to 0.81% in 2007, but expenses as a percentage of premiums for life products deteriorated from 8.2% in 2006 to 9.4% in 2007.

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Result before tax
Following the sale of Australia’s non-life business in 2004, provisions were made for claims experience of several lines of business. As claims experience was favorable, the hold-back provision was released in 2006 resulting in a result before tax of EUR 15 million. Including the result from the divested unit, result before tax decreased by 9.4%, or 60 million to EUR 576 million in 2007 from EUR 636 million in 2006.
Underlying result before tax
Underlying result before tax decreased by 7.2%, or EUR 45 million to EUR 576 million in 2007 from EUR 621 million in 2006. This decrease was primarily due to Japan, which recorded a profit before tax of EUR 24 million in 2007 from EUR 156 million in 2006 largely due to the impact of market volatility on its Single Premium Variable Annuity or SPVA business, and a EUR 24 million Collateralized Debt Obligation or CDO markdown in the Corporate-Owned Life Insurance or COLI business. Excluding Japan, the underlying result was up 19%, driven by business in South Korea experiencing growth in investment-linked product sales and in-force premium as well as a one-off recognition of EUR 10 million from the consolidation of Best Equity Fund and business in Australia/New Zealand experiencing funds under management growth, investment earnings and release of provisions.
Australia and New Zealand
Underlying result before tax increased 33.5%, or EUR 54 million to EUR 215 million in 2007 from EUR 161 million in 2006 driven by funds under management growth, investment earnings and release of provisions. Life premium income rose by 19.6%, or EUR 45 million to EUR 275 million in 2007 from EUR 230 million in 2006, driven by new sales in life risk and personal investment products, along with favorable in-force business. Operating expenses increased 14.4% due to higher volume-driven expenses such as investment management, direct campaign and stamp duty costs.
South Korea
In South Korea, underlying result before tax rose by 14.1%, or EUR 37 million to EUR 300 million in 2007 from EUR 263 million 2007, driven primarily by growth of investment-linked product sales and in-force premium as well as a one-off recognition of EUR 10 million from the consolidation of Best Equity Fund. Premium income rose by 11.9%, or EUR 383 million to EUR 3,607 million in 2007 from EUR 3,224 in 2006, driven primarily by sales of unit-linked products as well as continued high persistency on existing contracts. Operating expenses rose by 29.1%, or EUR 57 million, from EUR 196 million in 2006 to EUR 253 million in 2007 due to the support provided for the growing and future business.
Taiwan
As in 2006, ING recorded zero profit for Taiwan in 2007 due to measures taken to strengthen reserves . A total charge of EUR 110 million was taken in 2007 to strengthen reserves, compared with EUR 182 million in 2006. For the reserve adequacy position please see the discussion under “Risk Management — ING Insurance — ING Insurance — Liquidity Risk — Reserve Adequacy” of Note 2.1 to the consolidated financial statements.
Japan
In Japan, underlying result before tax decreased by 84.6%, or EUR 132 million to EUR 24 million in 2007 from EUR 156 million in 2006 largely due to the impact of market volatility on its SPVA business, and a EUR 24 million CDO markdown in the COLI business. Sales momentum slowed down triggered by regulatory changes and economic volatility. Consequently, premium income declined by 5.0%. Operating expenses increased by 6.6%, mainly due to higher promotional and branding activities.

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WHOLESALE BANKING
                         
    Wholesale Banking
(EUR millions)   2008   2007   2006
Interest result
    3,240       1,748       1,953  
Commission income
    1,213       1,235       1,170  
Investment income
    (314 )     780       320  
Other income
    (3,741 )     1,549       1,477  
 
                       
Total income
    398       5,312       4,921  
 
                       
Operating expenses
    2,902       2,978       2,818  
Additions to the provision for loan losses
    596       (142 )     (132 )
 
                       
Total expenditure
    3,498       2,836       2,686  
 
                       
Result before tax
    (3,100 )     2,476       2,235  
Gains/losses on divestments
                    89  
Result before tax from divested units
                    (45 )
Special items
            94          
 
                       
Underlying result before tax
    (3,100 )     2,570       2,279  
 
                       
Year ended December 31, 2008 compared to year ended December 31, 2007
Income
Total income decreased by 92.5%, or EUR 4,914 million, to EUR 398 million in 2008 from EUR 5,312 million in 2007. The total interest result increased by 85.4%, or EUR 1,492 million, to EUR 3,240 million in 2008 from EUR 1,748 million in 2007, due to both higher margins and increased volumes. Commission income declined 1.8%, or EUR 22 million, to EUR 1,213 million in 2008 from EUR 1,235 million in 2007. Investment and other income declined by EUR 6,384 million, to a loss of EUR 4,055 million in 2008 from a profit of EUR 2,329 million in 2007. ING Real Estate contributed EUR 947 million to this decrease, of which EUR 450 million lower fair value changes in the investment portfolio and EUR 415 million lower result from associates. Investment and other income at Financial Markets was EUR 797 million lower, of which EUR 298 million investment income and EUR 499 million Other income, but this was more than compensated for by the EUR 901 million increase in interest result. Further more, Investment and other income decreased due to negative fair value changes on derivatives for which no hedge accounting is applied under IFRS-IASB.
Expenses
Operating expenses decreased by EUR 76 million, or 2.6%, to EUR 2,902 million in 2008 from EUR 2,978 million in 2007. Excluding EUR 94 million in special items in 2007, operating expenses rose by EUR 18 million or 0.6% from EUR 2,884 million in 2007. This increase can be attributed to ING Real Estate whose expenses increased by EUR 72 million, or 12.6%, driven by impairments on development projects. The EUR 94 million in special items related to provisions for initiatives started in 2007 to stimulate growth and reduce operating expenses, including EUR 45 million for the reduction of 300 full-time functions across Wholesale Banking and EUR 49 million to reinforce its Financial Markets business in selected developing markets. The cost/income ratio deteriorated to 70.7% in 2008 compared with 62.0% in 2007. Excluding the impact of special items, the underlying cost/income ratio in 2008 was 60.1%.
The net addition to the provision for loan losses was EUR 596 million in 2008 compared with a net release of EUR 142 million in 2007, reflecting the worsening of the economic conditions. The net addition in 2008 equalled 41 basis points of average credit-risk-weighted assets.
Result before tax
Result before tax decreased by EUR 5,576 million, or -225.2%, to EUR (3,100) million in 2008 from EUR 2,476 million in 2007. Special items in 2007 (provisions for initiatives to stimulate growth and reduce operating expenses) had a negative impact of EUR 94 million.

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Underlying result before tax
Underlying result before tax from Wholesale Banking declined by 220.6%, or EUR 5,670 million, to EUR (3,100) million in 2008 from EUR 2,570 million in 2007. Lower underlying results before tax were recorded in all product lines except for Financial Markets. The results of General Lending & PCM and Structured Finance declined despite strong income growth due to higher additions to the provision for loan losses. Leasing & Factoring was down due to lower results in car leasing and higher risk costs in general leasing. ING Real Estate turned into a loss driven by negative revaluations on real estate investments and impairments on development projects.
General Lending & PCM
In General Lending & Payments and Cash Management (PCM), underlying result before tax declined 39.9%, or EUR 201 million, to EUR 303 million in 2008 from EUR 504 million in 2007, fully due to higher additions to the provision for loan losses. Total income increased by 24.5%, or EUR 214 million, to EUR 1,083 million in 2008 from EUR 870 million in 2007, driven by an increase in interest margins and growth in volumes. Operating expenses increased by 7.5%, or EUR 41 million, to EUR 590 million in 2008 from EUR 549 million in 2007. The addition to the provision for loan losses rose to EUR 190 million in 2008 from a net release of EUR 183 million in 2007.
Structured Finance
In Structured Finance, underlying result before tax declined by 18.2%, or EUR 72 million, to EUR 323 million in 2008 from EUR 395 million in 2007. Income increased by 30.2%, or EUR 222 million, to EUR 957 million in 2008 from EUR 735 million in 2007, mainly in the product lines Natural Resources and International Trade & Export Finance. Operating expenses increased by 5.6%, or EUR 19 million, to EUR 357 million in 2008 from EUR 338 million in 2007. The addition to the loan loss provision rose from EUR 2 million in 2007 to EUR 277 million in 2008, largely attributable to Leveraged Finance and Trade & Commodity Finance.
Leasing & Factoring
In Leasing & Factoring, underlying result before tax decreased by 22.2%, or EUR 34 million, to EUR 119 million in 2008 from EUR 153 million in 2007. Total income rose by 2.0%, or EUR 8 million, to EUR 406 million in 2008 from EUR 398 million in 2007, driven by growth in general leasing and factoring, partly offset by lower income in car leasing due to deterioration in the used vehicle market. Operating expenses increased by 8.6%, or EUR 19 million, to EUR 239 million in 2008 from EUR 220 million in 2007, due to investments to grow the business, including the impact of the acquisition of Citileasing in Hungary. The addition to the loan loss provisions increased from EUR 25 million in 2007 to EUR 48 million in 2008, mainly related to general leasing.
Financial Markets
Underlying result before tax from Financial Markets decreased by 513.6%, or EUR (4,165) million, to EUR (3,354) million in 2008 from EUR 811 million in 2007, in spite of increased impairments and credit-related markdowns due to the financial crisis and negative fair value changes on derivatives for which no hedge accounting is applied under IFRS-IASB. Total income decreased by 277.0%, or EUR (4,139) million, to EUR (2,645) million in 2008 from EUR 1,494 million in 2007, as higher results from Asset & Liability Management and the client-related business within Financial Markets. This was partially offset by EUR 400 million of impairments and credit-related markdowns in 2008 compared with EUR 118 million in 2007. Operating expenses increased by 4.1%, or EUR 28 million, to EUR 707 million in 2008 from EUR 679 million in 2007. The addition to the loan loss provisions in 2008 was only EUR 2 million.
Other Wholesale products
Underlying result before tax from the Other Wholesale products turned into a loss of EUR 195 million in 2008 from a profit of EUR 43 million in 2007. The decrease is mainly caused by lower results from the Asset Management and Equity Markets business as well as lower capital gains not allocated to the product groups.
ING Real Estate
Underlying result before tax of ING Real Estate decreased by EUR 961 million, to a loss of EUR 297 million in 2008 from a profit of EUR 664 million in 2007. Total income declined by 65.6%, or EUR 810 million, to EUR 425 million in 2008 from EUR 1,235 million in 2007, mainly due to negative revaluations caused by declining property values. Operating expenses increased by 12.6%, or EUR 72 million, to EUR 642 million from EUR 570 million in 2007, driven by impairments on development projects and EUR 18 million one-off restructuring costs. Result before tax of the Investment Management activities decreased by 48.7%, or EUR 76 million to EUR 80 million in 2008, due to lower fee income and restructuring costs. The result of the Investment Portfolio turned into a loss of EUR 695 million in 2008 reflecting negative revaluations on investments. Result at the Finance activities increased by 12.1% to EUR 240 million in 2008, driven by growth in the lending portfolio. Result from Development increased to EUR 78 million in 2008 from EUR 33 million in 2007, supported by EUR 60 million of positive fair value changes from a reclassification of some land positions in Spain from projects under construction to “available for sale” and higher gains on the sale of completed projects, which more than offset the impairments on development projects.

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Year ended December 31, 2007 compared to year ended December 31, 2006
Income
Total income increased 7.9%, or EUR 391 million, to EUR 5,312 million in 2007 from EUR 4,921 million in 2006. Excluding the impact of the divestment of Williams de Broë and Deutsche Hypothekenbank in 2006, income increased 1.6% or EUR 405 million. The total interest result declined 10.5%, or EUR 205 million, to EUR 1,748 million in 2007 from EUR 1,953 million in 2006, due to divestments and pressure on margins. Commission, investment and other income rose by 20.1%, or EUR 596 million, to EUR 3,564 million in 2007 from EUR 2,968 million in 2006. ING Real Estate contributed EUR 169 million to this rise, driven by growth in the investment management activities and by higher realized gains and fair value changes in the investment portfolio. The remaining increase mainly includes higher capital gains on equities partly offset by the direct impact of the market and credit crisis in the second half of 2007.
Expenses
Operating expenses increased by EUR 160 million, or 5.7%, to EUR 2,978 million in 2007 from EUR 2,818 million in 2006. Excluding the impact of divestments in 2006, and excluding EUR 94 million in special items in 2007, operating expenses rose by EUR 121 million or 4.4% to EUR 2,884 million. Of this increase 3.4%-point can be attributed to fast growing ING Real Estate. The EUR 94 million in special items related to provisions for initiatives started in 2007 to stimulate growth and reduce operating expenses, including EUR 45 million for the reduction of 300 full-time functions across Wholesale Banking and EUR 49 million to reinforce its Financial Markets business in selected developing markets. The cost/income ratio deteriorated to 62.0% in 2007 compared with 59.5% in 2006. Excluding the impact of divestments and special items, the underling cost/income ratio deteriorated to 60.1% from 58.5% in 2006.
The addition to the provision for loan losses was a net release of EUR 142 million in 2007 compared with a net release of EUR 132 million in 2006. Gross additions remained low, reflecting the strong quality of the credit portfolio. The net release equalled 10 basis points of average credit-risk-weighted assets in 2007.
Result before tax
Result before tax increased EUR 241 million, or 10.8%, to EUR 2,476 million in 2007 from EUR 2,235 million in 2006. Special items in 2007 (provisions for initiatives to stimulate growth and reduce operating expenses) had a negative impact of EUR 94 million. The divestment in 2006 of Williams de Broë and Deutsche Hypothekenbank resulted in a loss of EUR 89 million, while these divested units contributed EUR 45 million to result before tax in 2006.
Underlying result before tax
Underlying result before tax from Wholesale Banking increased 12.8%, or EUR 291 million, to EUR 2,570 million in 2007 from EUR 2,279 million in 2006. Higher underlying results before tax were recorded in General Lending & Payments and Cash Management, ING Real Estate and the Other Wholesale Products. Underlying result from Structured Finance decreased 22.5% to EUR 395 million, including a markdown of EUR 29 million on the Leveraged Finance book in the third quarter of 2007. Financial Markets result declined 37.7% to EUR 300 million, mainly due to the sub-prime crisis and related issues.
General Lending & PCM
In General Lending & Payments and Cash Management (PCM), underlying result before tax rose 47.2%, or EUR 162 million, to EUR 504 million in 2007 from EUR 343 million in 2006, supported by a lower cost level and higher releases from the provision for loan losses. Total income increased by 0.7%, or EUR 6 million, to EUR 870 million in 2007 from EUR 864 million in 2006 and operating expenses decreased by 14.5%, or EUR 93 million, to EUR 549 million in 2007 from EUR 642 million in 2006. The decrease of operating expenses is partly due to the reclassification of Trade Finance Services from General Lending to Structured Finance. The net release from the loan losses provisions increased to EUR 183 million in 2007 from a net release of EUR 121 million in 2006, supported by the recovery of a single provision of EUR 115 million in the fourth quarter of 2007.
Structured Finance
In Structured Finance, underlying result before tax declined 22.5%, or EUR 115 million, to EUR 395 million in 2007 from EUR 510 million in 2006. Income decreased 4.0%, or EUR 31 million, to EUR 735 million in 2007 from EUR 767 million in 2006, mainly caused by the disruption in the Leveraged Finance market, including a EUR 29 million markdown on Leveraged Finance deals in the third quarter of 2007. Operating expenses increased by 16.2%, or EUR 47 million, to EUR 338 million in 2007 from EUR 290 million in 2006, caused by the reclassification of Trade Finance Services from General Lending to Structured Finance and higher personnel and deal-related costs to support growth initiatives. The addition to the loan loss provisions changed from a net release of EUR 34 million in 2006 to a net addition of EUR 2 million in 2007.

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Leasing & Factoring
In Leasing & Factoring, underlying result before tax slightly increased to EUR 153 million from EUR 152 million in 2006. Total income rose by 3.1%, or EUR 12 million, to EUR 398 million in 2007 from EUR 386 million in 2006, driven by volume growth in general leasing, car leasing and factoring, partly offset by lower margins. Operating expenses increased by 6.8%, or EUR 14 million, to EUR 220 million in 2007 from EUR 206 million in 2006, mainly due to investments to grow the business. The addition to the loan loss provisions decreased to EUR 25 million from EUR 28 million in 2006.
Financial Markets
Underlying result before tax from Financial Markets increased 22.3%, or EUR 148 million, to EUR 811 million from EUR 663 million in 2006, mainly due to the EUR 106 million in losses related to sub-prime (residential mortgage-backed securities) and monoline insurers in the proprietary trading and credit markets business in the fourth quarter of 2007. Total income increased 11.1%, or EUR 149 million, to EUR 1,494 million in 2007 from EUR 1,345 million in 2006, mainly in the proprietary trading and credit markets business, partly offset by higher income from the client-related business within Financial Markets. Operating expenses decreased 0.4%, or EUR 3 million, to EUR 679 million in 2007 from EUR 682 million in 2006. The addition to the loan loss provisions in 2007 was only EUR 4 million or 2 basis points of average credit-risk weighted assets compared with nil in 2006.
Other Wholesale products
Underlying result before tax from the Other Wholesale products turned to a profit of EUR 43 million in 2007 from a loss of EUR 21 million in 2006, supported by higher results from Corporate Finance & Equity Markets as well as higher capital gains not allocated to the product groups, including the gain on the sale of stakes in the stock and derivatives exchanges in Sao Paulo.
ING Real Estate
Underlying result before tax of ING Real Estate increased 5.2%, or EUR 33 million, to EUR 664 million in 2007 from EUR 631 million in 2006. Total income rose 11.7%, or EUR 129 million, to EUR 1,235 million in 2007 from EUR 1,106 million in 2006, while operating expenses increased by 19.7%, or EUR 94 million, to EUR 570 million from EUR 476 million in 2006. Result before tax of the Investment Management activities increased 13.9% to EUR 156 million supported by continued growth of the assets under management. The result of the Investment Portfolio rose 31.2% to EUR 261 million reflecting higher realized gains and fair value changes on investments. Result at the Finance activities increased 16.9% to EUR 214 million, driven by strong growth in the lending portfolio. Result from Development declined to EUR 33 million from EUR 112 million in 2006 when results included exceptionally high gains on the sale of completed projects.

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RETAIL BANKING
                         
    Retail Banking
(EUR millions)   2008   2007   2006
Interest result
    5,556       5,354       5,320  
Commission income
    1,535       1,591       1,429  
Investment income
    66       122       150  
Other income
    242       417       267  
 
                       
Total income
    7,399       7,483       7,166  
 
                       
Operating expenses
    5,578       5,206       4,627  
Additions to the provision for loan losses
    401       198       176  
 
                       
Total expenditure
    5,979       5,405       4,803  
 
                       
Result before tax
    1,420       2,079       2,363  
Gains/losses on divestments
            (32 )        
Special items
    271       355          
 
                       
Underlying result before tax
    1,691       2,402       2,363  
 
                       
Year ended December 31, 2008 compared to year ended December 31, 2007
Income
Total income decreased by 1.1%, or EUR 84 million, to EUR 7,399 million in 2008 from EUR 7,483 million in 2007 as lower interest margins driven by the intensified competition for savings and a decline in asset management fees due to deterioration of equity markets offset the impact of the inclusion of ING Bank Turkey. Excluding the EUR 32 million gain on the divestment of RegioBank in 2007 , underlying income declined 0.8%.
Expenses
Operating expenses increased by 7.1%, or EUR 372 million, to EUR 5,578 million in 2008 from EUR 5,206 million in 2007. In 2008, EUR 271 million of special items is included related to the Retail Netherlands Strategy (combining ING Bank and Postbank). In 2007, special items amounted to EUR 351 million, of which EUR 295 million results from a provision and costs related to the Retail Netherlands Strategy and EUR 45 million to streamline the lending process in General Lending. Excluding these special items, operating expenses rose EUR 452 million or 9.3%, of which 6.3%-point can be attributed to the inclusion of ING Bank Turkey. The cost/income ratio increased to 75.4% in 2008 from 69.6% in 2007. Excluding divestments and special items, the underlying cost/income ratio rose to 71.7% from 65.1%.
The addition to the provision for loan losses increased by EUR 203 million, to EUR 401 million in 2008 from EUR 198 million in 2007, mainly caused by higher risk costs in the mid-corporate segment and at Private Banking (as underlying collateral for loans decreased significantly), and by the inclusion of ING Bank Turkey. The total addition equalled 53 basis points of average credit-risk-weighted assets in 2008.
Result before tax and underlying result before tax
Result before tax decreased by 31.7%, or EUR 659 million, to EUR 1,420 million in 2008 from EUR 2,079 million in 2007. Excluding divestments and special items, underlying result before tax decreased by EUR 711 million, or 29.6% to EUR 1,691 million.
Netherlands
In the Netherlands, underlying result before tax declined by 25.4%, or EUR 431 million, to EUR 1,269 million in 2008 from EUR 1,700 million in 2007. Income declined by 7.6% to EUR 4,346 million in 2008 from EUR 4,705 million in 2007 as margins declined due to the continued competition for savings combined with lower fee income. Average retail balances were up 5%. Underlying operating expenses increased by 0.2% to EUR 2,826 million. The addition to the loan loss provisions increased by EUR 66 million to EUR 251 million in 2008 due to higher risk costs in the mid-corporate segment, small business lending and the residential mortgage portfolio.

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Belgium
In Belgium, underlying result before tax declined by 24.8%, or EUR 117 million, to EUR 355 million in 2008 from EUR 472 million in 2007. Income decreased by 3.6% to EUR 1,842 million. The 7% growth in average retail balances could not compensate for lower management and securities fees and the margin pressure on savings products. Operating expenses increased by 3.3% to EUR 1,455 million due to the inflation effect on salaries and investments in the branch network. The net addition to the loan loss provisions remained flat at EUR 32 million.
Central Europe
In Central Europe, underlying result before tax decreased by 86.3% to EUR 17 million in 2008 from EUR 124 million in 2007. Total income rose by 77.4% to EUR 878 million, largely due to the inclusion of ING Bank Turkey. Excluding ING Bank Turkey, income was up 9.5% to EUR 542 million. Operating expenses doubled to EUR 795 million in 2008, but excluding ING Bank Turkey they were 23.8% higher due to investments in distribution channels and advertisement campaigns. The addition to the loan loss provisions in 2008 was EUR 65 million compared with a net release of EUR 24 million in 2007. In Poland, result before tax declined to EUR 75 million from EUR 146 million in 2007, driven by higher expenses and risk costs as a net release of EUR 27 million in 2007 turned into a EUR 5 million net addition in 2008. ING Bank Turkey reported a loss before tax of EUR 17 million.
Asia
In Asia, underlying result before tax decreased by 53.3% to EUR 50 million in 2008 from EUR 107 million in 2007 driven by a higher addition to the provision for loan losses and lower fee income. Income declined by 3.2% to EUR 333 million in 2008 as the financial crisis affected asset management and securities fees at Private Banking Asia. The addition to the provision for loan losses rose to EUR 52 million from EUR 5 million in 2007. The increase was mainly due to Private Banking Asia as prices of assets that served as underlying collateral for loans decreased significantly in the last quarter of 2008.
Year ended December 31, 2007 compared to year ended December 31, 2006
Income
Total income increased by 4.4%, or EUR 317 million, to EUR 7,483 million in 2007 from EUR 7,166 million in 2006 as strong growth in most products helped offset the impact of challenging market conditions as inverse yield curves persisted and competition intensified for retail savings. Excluding the EUR 32 million gain on the divestment of RegioBank in 2007 and the EUR (4) million in special items related to the Retail Netherlands Strategy, underlying income rose 4.0%. The impact of composition changes in Retail Banking, like the transfer of mortgage portfolios from ING Insurance, the sale of RegioBank as well as the transfer from a SME portfolio in Poland from Wholesale to Retail Banking resulted in EUR 117 million additional income, against EUR 45 million in 2006. Excluding these composition changes and the EUR 44 million gain on the sale of Banksys shares in Belgium in 2006, income increased 3.7%.
Expenses
Operating expenses increased by 12.5%, or EUR 579 million, to EUR 5,206 million in 2007 from EUR 4,627 million in 2006. The increase is for EUR 351 million attributable to special items in 2007, of which EUR 295 million results from a provision and costs related to the Retail Netherlands Strategy (combining ING Bank and Postbank) and EUR 45 million to streamline the lending process in General Lending. Excluding these special items, operating expenses rose EUR 229 million or 4.9%, driven by investments to grow the business in Poland, India, Romania and the Private Banking activities in Asia. The cost/income ratio increased to 69.6% in 2007 from 64.6% in 2006. Excluding divestments and special items, the underlying cost/income ratio slightly deteriorated to 65.1% from 64.6%.
The addition to the provision for loan losses increased by 12.5%, or EUR 22 million, to EUR 198 million in 2007 from EUR 176 million in 2006. In the Netherlands the addition rose EUR 36 million to EUR 185 million, mainly due to provisions for an isolated SME lending portfolio. This was partly offset by decreases in Poland, Asia and Belgium. The total addition equalled 14 basis points of average credit-risk-weighted assets in 2007, the same as in 2006.
Result before tax and underlying result before tax
Result before tax decreased by 12.0%, or EUR 284 million, to EUR 2,079 million in 2007 from EUR 2,363 million in 2006. Divestments in 2007 contributed EUR 32 million to result before tax, representing the capital gain from the sale of RegioBank. Special items, mainly the aforementioned provision and costs related to the Retail Netherlands Strategy, had a negative effect of EUR 355 million on result before tax. Excluding divestments and special items, underlying result before tax increased by EUR 39 million or 1.7%.

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Netherlands
In the Netherlands, underlying result before tax rose by 5.9%, or EUR 95 million, to EUR 1,700 million in 2007 from EUR 1,605 million in 2006, as volume growth in almost all products offset the impact of a flattening and in the second half of 2007 even inverse yield curve combined with the increasing competition for retail savings. The residential mortgage portfolio in the Netherlands grew by 16.8% to EUR 116.1 billion, supported by the EUR 11.5 billion transfer of portfolios from ING Insurance, partly offset by the sale of RegioBank. Also excluding the impact of these portfolio changes, underlying result before tax rose by 4.5%, with income up 2.6%, while operating expenses were flat due to efficiency improvements and lower compliance costs. Risk costs increased to 19 basis points of average credit-risk-weighted assets from 17 basis points in 2006, due to a catch-up in provisions in an isolated SME lending portfolio.
Belgium
In Belgium, underlying result before tax declined 27.8%, or EUR 182 million, to EUR 472 million in 2007 from EUR 654 million in 2006, due to 6.0% lower income and 4.6% higher expenses. The decline in income was next to a EUR 44 million gain on the sale of Banksys shares in 2006, mainly caused by margin pressure. Margins came under pressure as competition intensified, while customers shifted from variable savings to lower margin term deposits. Average retail balances grew by 10%. Operating expenses increased 4.6% partly caused by the impact of allocation refinements and some one-offs. Risk costs decreased from a net addition of 12 basis points of average credit-risk-weighted assets in 2006 to a net addition of 10 basis points in 2007.
Central Europe
In Central Europe, underlying result before tax increased 74.6%, or EUR 53 million, driven by strong volume growth and partly due to the shift at ING Bank Slaski of SME companies from Wholesale Banking to Retail Banking. Excluding this shift result before tax rose 54.9%, as income increased strongly, partly offset by higher expenses due to strong business growth and investments in the franchise distribution network. Net releases from the loan loss provisions increased to EUR 24 million compared with a net release of EUR 16 million in 2006, reflecting the significant strengthening of credit risk management, especially in Poland.
Asia
Retail Banking Asia posted an underlying result before tax of EUR 107 million, an increase of EUR 73 million compared with 2006, mainly due to higher results in India and from the Private Banking activities in Asia as well as the high dividend received from Kookmin Bank.
ING DIRECT
                         
    ING Direct
(EUR millions)   2008   2007   2006
Interest result
    2,517       1,932       2,148  
Commission income
    150       98       86  
Investment income
    (1,853 )     53       20  
Other income
    63       113       35  
 
                       
Total income
    878       2,196       2,289  
 
                       
Operating expenses
    1,750       1,598       1,538  
Additions to the provision for loan losses
    283       68       60  
 
                       
Total expenditure
    2,033       1,667       1,598  
 
                       
Result before tax
    (1,155 )     530       691  
Gains/losses on divestments
                    23  
Special items
    (30 )             (20 )
 
                       
Underlying result before tax
    (1,125 )     530       694  
 
                       
Year ended December 31, 2008 compared to year ended December 31, 2007
Income
Total income decreased by 60.0%, or EUR 1,318 million, to EUR 878 million in 2008 from EUR 2,196 million in 2007. The decline was mainly due to EUR 1,906 million lower investment income related to large impairments on the asset-backed portfolio which could only be partly offset by a EUR 585 million higher interest result. The

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increase in the interest result is mainly driven by the widening of the interest margin to 0.94% from 0.75% in 2007 as a result of significant rate cuts by central banks worldwide and despite the intensified competition for retail funds as a result of the global liquidity crisis. The total client retail balances in 2008 grew EUR 12.6 billion or 4.1%, to EUR 322.7 billion at year-end, including the acquired deposits from Kaupthing Edge and Heritable Bank in October 2008. At comparable exchange rates, total client balances were up EUR 24.4 billion. Commission income increased supported by the acquisition of Sharebuilder Corporation in the US in the fourth quarter of 2007 and Interhyp in Germany in the third quarter of 2008. Investment income was down EUR 1,906 million, due to lower realised gains on the sale of bonds and a sharp increase in impairments on the investment portfolio mainly driven by a strong deterioration in the US housing market. Total impairments rose from EUR 29 million in 2007 to EUR 1,891 million in 2008. The impairments in 2008 consist of EUR 1,776 million for the Alt-A RMBS portfolio, EUR 30 million on subprime RMBS, EUR 81 million on Washington Mutual and EUR 4 million on asset-backed commercial paper in Canada.
Expenses
Operating expenses rose by 9.5%, or EUR 152 million, to EUR 1,750 million in 2008 from EUR 1,598 million in 2007. Excluding EUR 30 million in special items in 2008, related to impairment costs following the Group’s decision not to launch ING Direct in Japan, operating expenses rose by EUR 122 million, or 7.6%, to EUR 1,720 million. This increase is driven by higher expenses related in part to retention and win-back campaigns and the acquisitions of Sharebuilder and Interhyp. Excluding impairments, the underlying cost/income ratio improved to 62.1% in 2008 from 71.8% in 2007. The operational cost to client retail balance ratio, which excludes marketing expenses, rose to 0.40% compared with 0.37% in 2007. The number of full-time staff increased to 9,980 at the end of 2008 from 8,883 a year earlier, of which 479 came from Interhyp.
The addition to the provision for loan losses increased to EUR 283 million in 2008 from EUR 68 million in 2007, driven by an increase in the US reflecting higher rate of delinquencies in the mortgages market and lower recovery.
Result before tax
Result before tax from ING Direct declined by EUR 1,685 million to a loss of EUR 1,155 million in 2008 from a profit of EUR 530 million in 2007. The decrease is fully caused by high impairments on the asset-backed portfolio, mainly driven by the deterioration of the US housing market.
Underlying result before tax
The loss before tax from ING Direct in 2008 included EUR 30 million in special items related to the decision not to launch ING Direct Japan. Excluding special items, the underlying loss before tax was EUR 1,125 million compared with a profit of EUR 530 million in 2007.
Country developments
Excluding impairments, ING Direct’s underlying result before tax rose by EUR 207 million, or 37.0%, to EUR 766 million in 2008 from EUR 559 million in 2007. In the US, result before tax (excluding impairments) increased to EUR 343 million from EUR 78 million in 2007, driven by the improved interest environment. In Canada (also excluding impairments), result before tax almost doubled to EUR 59 million from EUR 30 million in 2007. The UK showed good progress by reducing its loss (excluding impairments) to EUR 72 million in 2008 from a loss of EUR 120 million in 2007. All other countries reported lower results due to the intensified competition for retail funds and an increase in risk costs.
Year ended December 31, 2007 compared to year ended December 31, 2006
Income
Total income decreased by 4.0%, or EUR 93 million, to EUR 2,196 million in 2007 from EUR 2,289 million in 2006, as the increases in commission income, investment income (including realized gains on bonds) and other income (including realized gains on loans) could only partly offset the EUR 216 million lower interest result. The decrease in the interest result was mainly driven by the narrowing of the interest margin to 0.75% from 0.89% in 2006 as a result of higher central bank rates in the Euro, British pound and Australian currency zones and the intensified competition for retail funds. The total client retail balance in 2007 grew EUR 27.7 billion or 9.8%, to EUR 310.1 billion at year-end, including EUR 5.3 billion from add-on acquisitions in the fourth quarter. The EUR 5.3 billion consists of a EUR 3.9 billion mortgage portfolio acquired by ING-DiBa in Germany and EUR 1.4 billion in off-balance sheet funds following the acquisition of Sharebuilder Corporation in the United States. Commission income increased due to further growth in off-balance sheet funds. Investment and other income was up EUR 111 million, supported by higher gains on the sale of bonds and loans and increased net trading income. This was in part offset by an EUR 29 million impairment on asset-backed commercial paper in Canada in the fourth quarter of 2007. The divestment of Degussa Bank at the end of 2006 had a negative effect on income of EUR 56 million, including the loss of EUR 23 million on the sale. Excluding the divestment, underlying income decreased EUR 37 million, or 1.7%.

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Expenses
Operating expenses rose by 3.9%, or EUR 60 million, to EUR 1,598 million in 2007 from EUR 1,538 million in 2006. Excluding the EUR 56 million expenses of the divested Degussa Bank in 2006, underlying operating expenses increased by 7.8%, or EUR 116 million, to EUR 1,598 million, reflecting higher staff numbers to drive the growth in mortgages and payments accounts, preparations for the launch of ING Direct in Japan, the consolidation of Sharebuilder in the US, as well as costs for repositioning the UK business. The underlying cost/income ratio increased to 72.8% in 2007 from 66.4% in 2006. The operational cost to client retail balance ratio, which excludes marketing expenses, rose to 0.37% compared with 0.36% in 2006. The number of full-time staff increased to 8,883 at the end of 2007 from 7,565 a year earlier.
The addition to the provision for loan losses increased by 13.3%, or EUR 8 million, to EUR 68 million in 2007 from EUR 60 million in 2006. The addition equalled 9 basis points of average credit-risk-weighted assets, up from 7 basis points in 2006.
Result before tax
Result before tax from ING Direct declined by 23.3%, or EUR 161 million, to EUR 530 million in 2007 from EUR 691 million in 2006, primarily driven by a narrowing of the interest margin, the outflow of funds entrusted in the UK and an impairment in Canada.
Underlying result before tax
Result before tax from ING Direct in 2006 included a loss of EUR 23 million on the sale of Degussa Bank, while the operating profit from Degussa Bank was EUR 20 million. Excluding both the loss and the profit, ING Direct’s underlying result before tax declined by 23.6%, or EUR 164 million, to EUR 530 million from EUR 694 million in 2006.
Country developments
ING Direct’s overall result was driven by the business units in Germany/Austria, Australia, US, Spain, Italy and France. In the UK, ING Direct posted a pre-tax loss of EUR 120 million compared with a profit of EUR 19 million in 2006. The decrease is mainly caused by a 39% net outflow of funds entrusted from rate-sensitive customers as it lagged rate increases by the Bank of England. Measures have been taken to reposition the business. Savings rates were increased and marketing has been stepped up to attract less rate-sensitive customers. Result before tax in ING Direct Canada declined to EUR 30 million (excluding an impairment of EUR 29 million on asset-backed commercial paper investments) from EUR 60 million in 2006. This was caused by lower interest results.
LIQUIDITY AND CAPITAL RESOURCES
ING Groep N.V. is a holding company whose principal assets are its investments in the capital stock of its primary insurance and banking subsidiaries. The liquidity and capital resource considerations for ING Groep N.V., ING Insurance and ING Bank vary in light of the business conducted by each, as well as the insurance and bank regulatory requirements applicable to the Group in the Netherlands and the other countries in which it does business. ING Groep N.V. has no employees and substantially all of ING Groep N.V.’s operating expenses are allocated to and paid by its operating companies.
As a holding company, ING Groep N.V.’s principal sources of funds are funds that may be raised from time to time from the issuance of debt or equity securities and bank or other borrowings, as well as cash dividends received from its subsidiaries. ING Groep N.V.’s total debt and capital securities outstanding to third parties at December 31, 2008 was EUR 18,841 million, at December 31, 2007, EUR 14,709 million and at December 31, 2006, EUR 12,376. The EUR 18,840 million of debt outstanding at December 31, 2008, consisted of EUR 10 million principal amount of 9.000% perpetual debt securities issued in September 2008, EUR 1,393 million principal amount of 8.500% perpetual debt securities issued in June 2008, EUR 1,474 million principal amount of 8.000% perpetual debt securities issued in April 2008, EUR 1,048 million principal amount of 7.375% perpetual debt securities issued in October 2007, EUR 731 million principal amount of 6.375% perpetual debt securities issued in June 2007, EUR 1,071 million principal amount of 8.439% perpetual debt securities issued in December 2000, EUR 563 million principal amount of 7.05% perpetual debt securities issued in July 2002, EUR 773 million principal amount of 7.20% perpetual debt securities issued in December 2002, EUR 684 million principal amount perpetual debt securities with a variable interest rate issued in June 2003, EUR 348 million principal amount of 6.20% perpetual debt securities issued in October 2003, EUR 939 million principal amount perpetual debt securities with a variable interest rate issued in 2004, EUR 497 million principal amount of 4.176%

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perpetual debt securities issued in 2005, EUR 487 million principal amount of 6.125% perpetual debt securities issued in 2005 EUR 711 million principal amount of 5.775% perpetual debt securities issued in 2005, EUR 623 million principal amount of 5.14% perpetual debt securities issued in 2006, and EUR 7,488 million debentures. The details with respect to the debentures are as follows:
                     
                Balance sheet
Interest rate (%)     Year of issue   Due date   value
(EUR millions)
  5.625     2008  
September 3, 2013
    1,053  
  4.699     2007  
June 1, 2035
    117  
  4.75     2007  
May 31, 2017
    1,830  
  variable     2006  
June 28, 2011
    749  
  variable     2006  
April 11, 2016
    996  
  4.125     2006  
April 11, 2016
    745  
  6.125     2000  
January 4, 2011
    999  
  5.5     1999  
September 14, 2009
    999  
           
 
       
           
 
    7,488  
At December 31, 2008, 2007 and 2006, ING Groep N.V. also owed EUR 1,254 million, EUR 174 million and EUR 35 million, respectively, to ING Group companies pursuant to intercompany lending arrangements. Of the EUR 1,254 million owed by ING Groep N.V. to ING Group companies at December 31, 2008, EUR 2 million was owed to ING Insurance companies, EUR 1,252 million was owed to ING Bank companies and EUR 0 million was owed to direct subsidiaries of ING Group companies, as a result of normal intercompany transactions.
In October 2008 ING issued Core Tier-1 Securities to the Dutch State for a total consideration of EUR 10,000 million. This capital injection qualifies as Core tier-1 capital for regulatory purposes. Such securities were not issued in the years before.
At December 31, 2008, 2007 and 2006, ING Groep N.V. had EUR 33 million, EUR 162 million and EUR 103 million of cash, respectively. Dividends paid to the Company by its subsidiaries amounted to EUR 7,050 million, EUR 5,900 million and EUR 3,450 million in 2008, 2007 and 2006, respectively, in each case representing dividends declared and paid with respect to the reporting calendar year and the prior calendar year. Of the amounts paid to the Company, EUR 2,800 million, EUR 4,600 million and EUR 1,650 million were received from ING Insurance in 2008, 2007 and 2006, respectively; EUR 4,250 million, EUR 1,300 million and EUR 1,800 million were received from ING Bank in 2008, 2007 and 2006, respectively, and for 2008 EUR 0 million was received from other ING Group companies. On the other hand, the Company injected EUR 12,650 million, EUR 2,200 million and EUR 0 million into its direct subsidiairies during the reporting year 2008, 2007, and 2006, respectively. Of the amounts injected by the Company, EUR 5,450 million, EUR 0 million and EUR 0 million were injected into ING Insurance in 2008, 2007 and 2006, respectively; EUR 7,200 million, EUR 2,200 million and EUR 0 million were injected into ING Bank in 2008, 2007 and 2006, respectively, and for 2008 EUR 0 million was injected into other ING Group companies. Repayments to ING by its subsidiaries amounted to EUR 0 million, EUR 0 million and EUR 563 million in 2008, 2007 and 2006, respectively, of the amounts paid to the Company, EUR 0 million and EUR 563 million were received from ING Bank in 2007 and 2006, respectively and EUR 0 million in 2008 from other ING Group companies. ING and its Dutch subsidiaries are subject to legal restrictions on the amount of dividends they can pay to their shareholders. The Dutch Civil Code provides that dividends can only be paid by Dutch companies up to an amount equal to the excess of a company’s shareholders’ equity over the sum of (1) paid-up capital and (2) shareholders’ reserves required by law. Further, certain of the Group companies are subject to restrictions on the amount of funds they may transfer in the form of cash dividends or otherwise to ING Groep N.V.
In addition to the restrictions in respect of minimum capital and capital base requirements that are imposed by insurance, banking and other regulators in the countries in which the Group’s subsidiaries operate, other limitations exist in certain countries. For example, the operations of the Group’s insurance company subsidiaries located in the United States are subject to limitations on the payment of dividends to their parent company under applicable state insurance laws. Dividends paid in excess of these limitations generally require prior approval of the Insurance Commissioner of the state of domicile.
ING Group Consolidated Cash Flows
ING’s Risk Management, including liquidity, is discussed in Risk Management of Note 2.1 to the consolidated financial statements.
Year ended December 31, 2008 compared to year ended December 31, 2007
Net cash provided by operating activities amounted to EUR 12,823 million for the year ended December 31, 2008, an increase of 9.5% compared to EUR 11,708 million for the year ended December 31, 2007. This increase was mainly due to trading assets/trading liabilities and offset by a lower cash flow from customer deposits and other funds on deposit. The cash flow generated through the customer deposits and other funds on deposit of the banking operations was EUR 6,831 million, offset by other financial liabilities/assets at fair value through profit and loss. The cash outflow employed in lending increased from a cash flow of EUR 75,501 million in 2007 to a cash outflow of EUR 76,215 million in 2008.

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Net cash used in investment activities in 2008 was EUR 10,003 million, compared to EUR 13,933 million in 2007. The increase was mainly caused by higher disposals and redemptions of available-for-sale investments.
Net cash flow from financing activities was EUR 45,726 million in 2008, compared to EUR (12,831) million in 2007. The increase of EUR 58,557 million in net cash flow from financing activities is mainly due to a higher repayments/proceeds of borrowed funds and debt securities.
The operating, investing and financing activities described above resulted in net cash and cash equivalents at year-end 2008 of EUR 31,271 million, compared to EUR (16,811) million at year-end 2007, an increase of EUR 48,082 million from 2007 levels
                 
    2008   2007
    (EUR millions)
Treasury bills and other eligible bills
    7,009       4,130  
Amounts due from/to banks
    2,217       (33,347 )
Cash and balances with central banks
    22,045       12,406  
 
               
Cash and cash equivalents at end of year
    31,271       (16,811 )
 
               
Year ended December 31, 2007 compared to year ended December 31, 2006
Net cash provided by operating activities amounted to EUR 11,708 million for the year ended December 31, 2007, an increase of 22.3% compared to EUR 9,570 million for the year ended December 31, 2006. This increase was mainly due to trading assets/trading liabilities, a lower cash flow from customer deposits and other funds on deposit due to less funds by large customers as well as, on balance, from amounts due to/from banks not available on demand. The cash flow generated through the provisions for insurance and investment contracts of EUR 26,494 million and through the customer deposits and other funds on deposit of the banking operations of EUR 28,640 million. The cash outflow employed in lending increased from a cash flow of EUR 59,800 million in 2006 to a cash outflow of EUR 75,501 million in 2007.
Net cash used in investment activities in 2007 was EUR 13,933 million, compared to EUR 31,320 million in 2006. The increase was mainly caused by higher disposals and redemptions of available-for-sale investments.
Net cash flow from financing activities was EUR (12,831) million in 2007, compared to EUR 17,005 million in 2006. The decrease of EUR 29,836 million in net cash flow from financing activities is mainly due to a higher repayments of borrowed funds and debt securities.
The operating, investing and financing activities described above resulted in net cash and cash equivalents at year-end 2007 of EUR (16,811) million, compared to EUR (1,795) million at year-end 2006, a decrease of EUR 15,016 million from 2006 levels, mainly reflected in a decrease in amounts due from/to banks, as well as higher balances of borrowed funds and debt securities.
                 
    2007   2006
    (EUR millions)
Treasury bills and other eligible bills
    4,130       4,333  
Amounts due from/to banks
    (33,859 )     (20,454 )
Cash and balances with central banks
    12,918       14,326  
 
               
Cash and cash equivalents at end of year
    (16,811 )     (1,795 )
 
               
ING Insurance Cash Flows
The principal sources of funds for ING Insurance are premiums, net investment income and proceeds from sales or maturity of investments, while the major uses of these funds are to provide life policy benefits, pay surrenders and profit sharing for life policyholders, pay non-life claims and related claims expenses, and pay other operating costs. ING Insurance generates a substantial cash flow from operations as a result of most premiums being received in advance of the time when claim payments or policy benefits are required. These positive operating cash flows, along with that portion of the investment portfolio that is held in cash and highly liquid securities, have historically met the liquidity requirements of ING Insurance’s operations, as evidenced by the growth in investments. See “Risk Management” of Note 2.1 to the consolidated financial statements.

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Year ended December 31, 2008 compared to year ended December 31, 2007
Premium income and Investment and Other income totaled EUR 43,812 million and EUR 8.970 million in 2008, and EUR 46,818 million and EUR 13,488 million in 2007. Uses of funds by ING Insurance include underwriting expenditures (reinsurance premiums, benefits, surrenders, claims and profit sharing by life policyholders) and employee and other operating expenses, as well as interest expense on outstanding borrowings. Underwriting expenditures, employee and other operating expenses and interest expense for ING Insurance totaled EUR 49,485 million, EUR 5,422 million and EUR 1,269 million in 2008 and EUR 48,833 million, EUR 5,515 million and EUR 1,326 million in 2007.
ING Insurance’s liquidity requirements are met on both a short- and long-term basis by funds provided from insurance premiums collected, investment income and collected reinsurance receivables, and from the sale and maturity of investments. ING Insurance also has access to commercial paper, medium-term note and other credit facilities. ING Insurance’s balance of cash and cash equivalents was EUR 14,440 million at December 31, 2008 and EUR 3,115 million at December 31, 2007.
                 
    2008   2007
    (EUR millions)
Cash and bank balances
    4,389       2,648  
Short term deposits
    10,051       467  
 
               
Total
    14,440       3,115  
 
               
Net cash provided by operating activities was EUR 13,129 million in 2008 and EUR 23,118 million in 2007.
Net cash used by ING Insurance in investment activities was EUR 8,034 million in 2008 and EUR 15,072 million in 2007.
Cash provided by ING Insurance’s financing activities amounted to EUR 6,275 million and EUR (7,941) million in 2008 and 2007, respectively.
Year ended December 31, 2007 compared to year ended December 31, 2006
Premium income and Investment and Other income totaled EUR 46,818 million and EUR 13,488 million in 2007, and EUR 46,834 million and EUR 11,172 million in 2006. Uses of funds by ING Insurance include underwriting expenditures (reinsurance premiums, benefits, surrenders, claims and profit sharing by life policyholders) and employee and other operating expenses, as well as interest expense on outstanding borrowings. Underwriting expenditures, employee and other operating expenses and interest expense for ING Insurance totaled EUR 48,833 million, EUR 5,515 million and EUR 1,326 million in 2007 and EUR 48,188 million, EUR 5,275 million and EUR 1,233 million in 2006.
ING Insurance’s liquidity requirements are met on both a short- and long-term basis by funds provided from insurance premiums collected, investment income and collected reinsurance receivables, and from the sale and maturity of investments. ING Insurance also has access to commercial paper, medium-term note and other credit facilities. ING Insurance’s balance of cash and cash equivalents was EUR 3,115 million at December 31, 2007 and EUR 3,017 million at December 31, 2006.
                 
    2007   2006
    (EUR millions)
Cash and bank balances
    2,648       4,333  
Short term deposits
    467       334  
 
               
Total
    3,115       3,017  
 
               
Net cash provided by operating activities was EUR 23,118 million in 2007 and EUR 13,769 million in 2006.
Net cash used by ING Insurance in investment activities was EUR 15,072 million in 2007 and EUR 12,798 million in 2006.

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Cash provided by ING Insurance’s financing activities amounted to EUR (7,941) million and EUR (485) million in 2007 and 2006, respectively.
Capital Base Margins and Capital Requirements
In the United States, since 1993, insurers, including the companies comprising ING Insurance U.S. operations, have been subject to risk-based capital (“RBC”) guidelines. (See Item 4, “Information on the Company — Regulation and Supervision — Insurance — Americas.”)
ING Bank Cash Flows
The principal sources of funds for ING Bank’s operations are growth of the retail funding, which mainly consists of current accounts, savings and retail deposits, repayments of loans, disposals and redemptions of investment securities (mainly bonds), sales of trading portfolio securities, interest income and commission income. The major uses of funds are advances of loans and other credits, investments, purchases of investment securities, funding of trading portfolios, interest expense and administrative expenses (see Item 11, “Quantitative and Qualitative Disclosure of Market Risk”).
Year ended December 31, 2008 compared to year ended December 31, 2007
At December 31, 2008 and 2007, ING Bank had EUR 27,395 million and EUR (19,389) million, respectively, of cash and cash equivalents. The increase in Cash and Cash Equivalents is mainly attributable to the overnight deposit and current account position with Central and Commercial Banks.
The EUR 21,462 million increase in ING Bank’s operating activities, consist of EUR 12,255 million cash inflow for the year ended December 31, 2008, compared to EUR 9,207 million cash outflow for the year ended December 31, 2007. The improved cash flow from operating activities was largely due to improved cash flow from Trading (cash inflow in 2008 of EUR 36,836 million compared to cash inflow in 2007 of EUR 22,673 million), from Amounts due to and from Banks (cash inflow in 2008 of EUR 20,372 million compared to cash inflow in 2007 of EUR 6,724 million) and offset by a decrease in cash inflow from Customer deposits (cash inflow in 2008 of EUR 18,750 compared to cash inflow in 2007 of EUR 32,748 million).
Specification of cash position (EUR millions):
                 
    2008   2007
    (EUR millions)
Cash
    18,169       9,829  
Short dated government paper
    7,009       4,130  
Banks on demand
    38,639       19,655  
 
               
Cash balance and cash equivalents
    63,817       33,614  
Overnight deposits
    1,908       (25,871 )
 
Repo’s/reverse repo’s
    (38,330 )     (27,132 )
 
               
 
Cash balance and cash equivalents
    27,395       (19.389 )
 
               
Net cash flow for investment activities was EUR 4,101 million cash outflow and EUR 1,526 million cash inflow in 2008 and 2007, respectively. Investment in interest-earning securities was EUR 95,036 million and EUR 95,546 million in 2008 and 2007, respectively. Dispositions and redemptions of interest-earning securities was EUR 96,616 million and EUR 101,119 million in 2008 and 2007, respectively.
Net cash inflow from financing activities in 2008 amounted to EUR 39,048 million compared to a cash outflow of EUR 7,403 million in 2007, as ING started the Commercial Paper Funding Facility program in October 2008. The cash outflow of 2007 was related to the ‘buy back program’ of the own issued debt securities of Mane, Mont Blanc and Simba Funding Corporation, which was due to the financial crisis and the implementation of Basel 2 in 2007.
The operating, investment and financing activities described above resulted in a positive net cash flow of EUR 47,202 million in 2008 and a negative net cash flow of EUR 15,084 million in 2007.
Year ended December 31, 2007 compared to year ended December 31, 2006
At December 31, 2007 and 2006, ING Bank had EUR (19,389) million and EUR (4,352) million, respectively, of cash and cash equivalents. The decrease in Cash and Cash Equivalents is mainly attributable to a large change in overnight funding (contracts with a maturity of one day) from non bank financial institutions to banks.

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The EUR 6,753 million decrease in ING Bank’s operating activities, consisting of EUR 9,207 million cash outflow for the year ended December 31, 2007, compared with a EUR 2,454 million cash outflow for the year ended December 31, 2006, was largely attributable to the liquidity crisis. Non-bank financial institutions demanded higher rates for the short term funding. Consequently ING decided to switch to the cheaper inter-bancaire market to maintain or improve interest margins. This change has major impact on the Cash position in the Cash Flow Statement because short-term inter-bancaire funding is deducted from the Cash position while short term funding from non-banks is not deducted. The negative impact on the Cash position amounts to EUR 10.6 billion. In addition to the overnight contracts, the repurchase agreements or Repos and Reverse Repos had a negative impact on cash at the end of the period of respectively EUR 5.8 billion.
Specification of cash position (EUR millions):
                 
    2007   2006
    (EUR millions)
Cash
    9,829       11,769  
Short dated government paper
    4,130       4,333  
Banks on demand
    19,655       16,164  
 
               
Cash balance and cash equivalents
    33,614       32,266  
Overnight deposits
    (25,871 )     (15,240 )
 
Repo’s/reverse repo’s
    (27,132 )     (21,378 )
 
               
 
Cash balance and cash equivalents
    (19,389 )     (4,352 )
 
               
Net cash generated from investment activities was EUR 1,526 million cash inflow and EUR 19,132 million cash outflow in 2007 and 2006, respectively. Investment in interest-earning securities was EUR 95,546 million and EUR 106,902 million in 2007 and 2006, respectively. Dispositions and redemptions of interest-earning securities was EUR 101,119 million and EUR 91,247 million in 2007 and 2006, respectively. In 2007 ING acquired the Oyak Bank which led to a cash outflow of EUR 1,830 million.
Net cash outflow from financing activities in 2007 amounted to EUR 7,403 million compared to a cash inflow of EUR 16,372 million in 2006, as ING ended the securitization programs of SIMBA and Mane.
The operating, investment and financing activities described above resulted in a negative net cash flow of EUR 15,084 million in 2007 and a negative net cash flow of EUR 5,214 million in 2006.
Capital Adequacy
Capital adequacy and the use of capital are monitored by ING Bank and its subsidiaries, employing techniques based on the guidelines developed by the Basel Committee on Banking Supervision and implemented by the EU and the Dutch Central Bank for supervisory purposes. See “Item 4, Information on the Company”.
The following table sets forth the risk-weighted capital ratios of ING Bank N.V. as of December 31, 2008, 2007 and 2006.
                         
    Year ended December 31,
    2008   2007   2006
    (EUR million, other than percentages)
Risk-Weighted Assets
    343,388       402,727       337,926  
Consolidated group equity:
                       
Tier 1 Capital
    32,019       29,772       25,784  
Tier 2 Capital
    11,870       14,199       12,367  
Tier 3 Capital
                    330  
Supervisory deductions
            (2,407 )     (1,250 )
 
                       
Total qualifying capital
    43,889       41,564       37,230  
 
                       
 
                       
Tier 1 Capital Ratio
    9.32 %     7.39 %     7.63 %
Total Capital Ratio (Tier 1, 2 and 3)
    12.78 %     10.32 %     11.02 %
ING Group’s management believes that working capital is sufficient to meet the current and reasonably foreseeable needs of the Company.

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Adjusted Capital
ING calculates certain capital ratios on the basis of “adjusted capital”. Adjusted capital differs from Shareholders’ equity in the consolidated balance sheet. The main differences are that adjusted capital excludes unrealized gains and losses on debt securities, goodwill and the cash flow hedge reserve and includes hybrid capital and the Core Tier-1 Securities. Adjusted capital for 2008 and 2007 is reconciled to shareholders’ equity as follows:
                 
    2008   2007
    (EUR million)
Shareholders’ equity
    15,080       37,718  
Difference between IFRS-IASB and IFRS-EU
    2,254       (510
Core Tier-1 Securities
    10,000          
Group hybrid capital
    11,655       8,620  
Revaluation reserves debt securities and other
    6,769       (963 )
 
               
Adjusted capital
    45,758       44,865  
 
               
“Group hybrid capital” comprises subordinated loans and preference shares issued by ING Group, which qualify as (Tier-1) capital for regulatory purposes, but are classified as liabilities in the consolidated balance sheet.
“Revaluation reserves debt securities and other” includes unrealized gains and losses on available-for-sale debt securities and revaluation reserve crediting to policyholders of EUR 11,221 million in 2008, EUR 1,895 million in 2007 and EUR (1,709) million in 2006, the cash flow hedge reserve of EUR (1,177) million in 2008, EUR (431) million in 2007 and EUR (1,357) million in 2006 and capitalized goodwill of EUR (3,275) million in 2008, EUR (2,420) million in 2007 and EUR (286) million in 2006.
ING uses adjusted capital in calculating its debt/equity ratio, which is a key measure in ING’s capital management process. The debt/equity ratio based on adjusted capital is used to measure the leverage of ING Group and ING Insurance. The target and actual debt/equity ratio based on adjusted capital are communicated internally to key management and externally to investors, analysts and rating agencies on a quarterly basis. ING uses adjusted capital for these purposes instead of Shareholders’ equity presented in the balance sheet principally for the following reasons:
  adjusted capital is calculated based on the criteria in the capital model that is used by Standard and Poor’s to measure, compare and analyze capital adequacy and leverage for insurance groups, and the level of our adjusted capital may thus have an impact on the S&P ratings for the Company and its operating insurance subsidiaries;
 
  ING believes its Standard and Poor’s financial strength and other ratings are one of the most significant factors looked at by our clients and brokers, and accordingly are important to the operations and prospects of our insurance operating subsidiaries, and a major distinguishing factor vis-à-vis our competitors and peers.
To the extent our debt/equity ratio (based on adjusted capital) increases or the components thereof change significantly period over period, we believe that rating agencies and regulators would all view this as material information relevant to our financial health and solvency. On the basis of adjusted capital, the debt/equity ratio of ING increased to 13.5% in 2008 from 9.5% in 2007. The debt/equity ratio of ING Group between December 31, 2002 and December 31, 2006 has been in the range of 19.9% to 9.0% and has declined consistently during this period as a result of capital management action and favorable equity markets. Although rating agencies take many factors into account in the ratings process and any of those factors alone or together with other factors may affect our rating, we believe that an increase of our debt/equity ratio in a significant way, and for an extended period of time, could result in actions from rating agencies including a possible downgrade of the financial strength ratings of our operating subsidiaries. Similarly, although regulatory authorities do not currently set any explicit leverage requirements for ING Group, such an increase of our debt/equity ratio could also likely result in greater scrutiny by regulatory authorities. ING has targeted a 15% debt/equity ratio for ING Group during 2008. This target is reviewed at least once a year and approved by the Executive Board. During the yearly review many factors are taken into account to establish this target, such as rating agency guidance, regulatory guidance, peer review, risk profile and strategic objectives. During the year, the ratio is managed by regular reporting, forecasting and capital management actions. Management has full discretion to change the target ratio if circumstances change.

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Off-Balance-Sheet-Arrangements
See Note 26 of Note 2.1 to the consolidated financial statements.
                                                 
            Less   More           Less   More
            than   than           than   than
    Total   one   one   Total   one   one
    2008   year   year   2007   year   year
                    (EUR millions)                
Insurance operations
                                               
Commitments concerning investments in land and buildings
    10       10               181       171       10  
Commitments concerning
fixed-interest securities
    2,724       2,673       51       2,436       2,189       247  
Guarantees
    2,460               2,460       173               173  
Other
    1,486       945       541       1,860       1,189       671  
 
                                               
Banking operations
                                               
Contingent liabilities in respect of:
                                               
- discounted bills
    1       1               1       1          
- guarantees
    22,391       13,344       9,047       19,018       10,862       8,156  
- irrevocable letters of credit
    10,458       8,019       2,439       11,551       10,160       1,391  
- other
    453       406       47       350       263       87  
 
                                               
Irrevocable facilities
    89,081       38,568       50,513       100,707       50,337       50,370  
 
                                               
Total
    129,064       63,966       65,098       136,277       75,172       61,105  
 
                                               
Contractual obligations
The table below shows the cash payment requirements from specified contractual obligations outstanding as of December 31, 2008:
                                         
    Payment due by period
            Less                   More
            than 1   1-3   3-5   than 5
    Total   year   years   years   years
2008           (EUR millions)        
Operating lease obligations
    1,004       209       348       281       166  
Subordinated loans of Group companies
    15,869       553       2,560       2,358       10,398  
Preference shares of Group companies
    1,071                               1,071  
Debenture loans
    96,488       62,852       15,372       8,212       10,052  
Loans contracted
    8,472       5,590       1,126               1,756  
Loans from credit institutions
    5,786       4,580       459       1       746  
Insurance provisions (1)
    159,163       12,352       17,719       18,336       110756  
 
                                       
Total
    287,853       86,136       37,584       29,188       134,945  
 
                                       
 
(1)   Amounts included in the table reflect best estimates of cash payments to be made to policyholders. Such best estimate cash outflows reflect mortality, retirement, and other appropriate factors, but are undiscounted with respect to interest. As a result, the sum of the cash outflows shown for all years in the table differs from the corresponding liability included in our consolidated financial statements at December 31, 2008.
Furthermore, the table does not include insurance or investment contracts for risk of policyholders, as these are products where the policyholder bears the investment risk.

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ADDITIONAL INFORMATION
SELECTED STATISTICAL INFORMATION ON BANKING OPERATIONS
The information in this section sets forth selected statistical information regarding the Group’s banking operations. Information for 2008, 2007 and 2006 is set forth under IFRS-IASB. Unless otherwise indicated, average balances, when used, are calculated from monthly data and the distinction between domestic and foreign is based on the location of the office where the assets and liabilities are booked, as opposed to the domicile of the customer. However, the Company believes that the presentation of these amounts based upon the domicile of the customer would not result in material differences in the amounts presented below.
                         
    Year Ended December 31,  
    2008     2007     2006  
Return on equity of the banking operations
    1.8 %     16.7 %     19.4 %
Return on equity of ING Group
    (2.1 )%     24.2 %     23.5 %
Dividend pay-out ratio of ING Group
    n.a.       34.3 %     37.0 %
Return on assets of ING Group
    (0.2 )%     0.7 %     0.6 %
Equity to assets of ING Group
    2.0 %     3.0 %     3.1 %
Net interest margin of the banking operations
    1.1 %     0.9 %     1.1 %
AVERAGE BALANCES AND INTEREST RATES
The following tables show the banking operations, average interest-earning assets and average interest-bearing liabilities, together with average rates, for the periods indicated. The interest income, interest expense and average yield figures do not reflect interest income and expense on derivatives and other interest income and expense not considered to be directly related to interest-bearing assets and liabilities. These items are reflected in the corresponding interest income, interest expense and net interest result figures in the consolidated financial statements. A reconciliation of the interest income, interest expense and net interest result figures to the corresponding line items in the consolidated financial statements is provided hereunder.

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ASSETS
                                                                         
    Interest-earning assets
    2008   2007   2006
    Average   Interest   Average   Average   Interest   Average   Average   Interest   Average
    balance   income   yield   balance   income   yield   balance   income   yield
    (EUR millions)   %   (EUR millions)   %   (EUR millions)   %
Time deposits with banks
                                                                       
domestic
    22,685       895       3.9       25,730       960       3.7       13,138       522       4.0  
foreign
    40,557       1,764       4.3       61,531       2,381       3.9       51,553       1,799       3.5  
Loans and advances
                                                                       
domestic
    308,796       12,926       4.2       270,588       11,290       4.2       243,398       9,566       3.9  
foreign
    339,812       17,577       5.2       296,055       17,044       5.8       273,383       13,520       4.9  
Interest-earning securities(1)
                                                                       
domestic
    30,398       1,234       4.1       34,993       1,295       3.7       38,310       1,248       3.3  
foreign
    158,844       8,747       5.5       173,248       8,660       5.0       185,411       8,003       4.3  
Other interest-earning assets
                                                                       
domestic
    13,713       547       4.0       8,208       514       6.3       5,910       165       2.8  
foreign
    14,844       540       3.6       11,520       517       4.5       9,743       333       3.4  
 
                                                                       
Total
    929,649       44,230       4.8       881,873       42,661       4.8       820,846       35,156       4.3  
Non-interest earning assets
    73,994                       57,980                       51,317                  
 
                                                                       
Derivatives assets
    49,042                       33,025                       27,212                  
 
                                                                       
 
                                                                       
Total assets(1)
    1,052,685                       972,878                       899,375                  
 
                                                                       
 
                                                                       
Percentage of assets applicable to foreign operations
    59.7 %                             61.1 %                     63.6 %        
Interest income on derivatives
            53,037                       33,622                       23,521          
other
            933                       576                       585          
 
                                                                       
Total interest income
            98,200                       76,858                       59,262          
 
                                                                       
 
(1)   Substantially all interest-earning securities held by the banking operations of the Company are taxable securities.

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LIABILITIES
                                                                         
    Interest-bearing liabilities
    2008   2007   2006
    Average   Interest   Average   Average   Interest   Average   Average   Interest   Average
    balance   expense   yield   balance   expense   yield   balance   expense   yield
    (EUR millions)   %   (EUR millions)   %   (EUR millions)   %
Time deposits from banks
                                                                       
domestic
    49,198       2,020       4.1       40,487       1,801       4.4       46,930       1,979       4.2  
foreign
    43,046       2,176       5.1       37,583       1,991       5.3       34,368       1,255       3.7  
Demand deposits(5)
                                                                       
domestic
    115,827       1,574       1.4       106,597       1,682       1.6       92,488       1,293       1.4  
foreign
    46,832       766       1.6       40,173       1,060       2.6       32,533       692       2.1  
Time deposits(5)
                                                                       
domestic
    35,048       1,449       4.1       28,535       1,388       4.9       27,983       1,168       4.2  
foreign
    33,303       1,671       5.0       35,281       1,338       3.8       31,160       1,205       3.9  
Savings deposits(5)
                                                                       
domestic
    57,537       1,630       2.8       63,109       1,475       2.3       66,845       1,562       2.3  
foreign
    229,149       9,070       3.9       228,030       8,603       3.8       228,656       7,682       3.4  
Short term debt
                                                                       
domestic
    11,511       558       4.8       5,557       285       5.1       4,133       165       4.0  
foreign
    40,760       1,927       4.7       46,548       2,685       5.8       35,605       1,768       5.0  
Long term debt
                                                                       
domestic
    20,379       1,110       5.4       12,903       813       6.3       14,050       798       5.7  
foreign
    23,325       1,277       5.5       21,155       1,063       5.0       40,291       1,532       3.8  
Subordinated liabilities
                                                                       
domestic
    20,238       1,124       5.6       18,938       1,079       5.7       18,713       1,023       5.5  
foreign
    1,293       61       4.7       1,574       82       5.2       2,229       119       5.3  
Other interest-bearing liabilities
                                                                       
domestic
    92,042       3,174       3.4       77,426       3,220       4.2       46,096       1,260       2.7  
foreign
    100,179       3,527       3.5       90,157       5,131       5.7       72,665       2,471       3.4  
 
                                                                       
Total
    919,667       33,114       3.6       854,053       33,696       3.9       794,745       25,972       3.3  
Non-interest bearing liabilities
    62,947                       64,768                       57,126                  
Derivatives liabilities
    48,243                       30,591                       25,706                  
Total Liabilities
    1,030,857                       949,412                       877,577                  
Group Capital
    21,828                       23,466                       21,798                  
 
                                                                       
Total liabilities and capital
    1,052,685                       972,878                       899,375                  
 
                                                                       
 
                                                                       
Percentage of liabilities applicable to foreign operations
    57.0 %                             59.2 %                     61.4 %        
Other interest expense:
                                                                       
interest expenses on derivatives
            52,790                       33,298                       23,243          
other
            1,211                       828                       712          
 
                                                                       
Total interest expense
            87,115                       67,822                       49,927          
 
                                                                       
 
                                                                       
Total net interest result
            11,085                       9,037                       9,335          
 
                                                                       
 
(5)   These captions do not include deposits from banks.

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ANALYSIS OF CHANGES IN NET INTEREST INCOME
The following table allocates changes in the Group’s interest income and expense and net interest result between changes in average balances and rates for the periods indicated. Changes due to a combination of volume and rate have been allocated to changes in average volume. The net changes in interest income, interest expense and net interest result, as calculated in this table, have been reconciled to the changes in interest income, interest expense and net interest result in the consolidated financial statements. See introduction to “Average Balances and Interest Rates” for a discussion of the differences between interest income, interest expense and net interest result as calculated in the following table and as set forth in the consolidated financial statements.
                                                 
    2008 over 2007   2007 over 2006
    Increase (decrease)   Increase (decrease)
    due to changes in   due to changes in
    Average   Average   Net   Average   Average   Net
    volume   rate   change   volume   rate   change
    (EUR millions)   (EUR millions)
Interest-earning assets
                                               
Time deposits to banks
                                               
domestic
    (114 )     49       (65 )     500       (62 )     438  
foreign
    (812 )     195       (617 )     348       234       582  
Loans and advances
                                               
domestic
    1,664       (28 )     1,636       1,055       669       1,724  
foreign
    2,519       (1,986 )     533       1,121       2,403       3,524  
Interest-earning securities
                                               
Domestic
    (170 )     109       (61 )     (108 )     155       47  
foreign
    (720 )     807       87       (525 )     1,182       657  
Other interest-earning assets
                                               
domestic
    345       (312 )     33       64       285       349  
foreign
    149       (126 )     23       61       123       184  
Interest income
                                               
domestic
    1,725       (182 )     1,543       1,511       1,047       2,558  
foreign
    1,136       (1,110 )     26       1,005       3,942       4,947  
 
                                               
Total
    2,861       (1,292 )     1,569       2,516       4,989       7,505  
 
                                               
Other interest income
                    19,773                       10,092  
 
                                               
Total interest income
                    21,342                       17,597  
 
                                               

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    2008 over 2007   2007 over 2006
    Increase (decrease)   Increase (decrease)
    due to changes in   due to changes in
    Average   Average   Net   Average   Average   Net
    volume   rate   change   volume   rate   change
    (EUR millions)   (EUR millions)
Interest-bearing liabilities
                                               
Time deposits from banks
                                               
domestic
    388       (169 )     219       (272 )     94       (178 )
foreign
    289       (104 )     185       117       619       736  
Demand deposits
                                               
domestic
    146       (254 )     (108 )     197       192       389  
foreign
    176       (470 )     (294 )     163       205       368  
Time deposits
                                               
domestic
    317       (256 )     61       23       197       220  
foreign
    (75 )     408       333       159       (26 )     133  
Savings deposits
                                               
domestic
    (130 )     285       155       (87 )             (87 )
foreign
    42       425       467       (21 )     942       921  
Short term debt
                                               
domestic
    305       (32 )     273       57       63       120  
foreign
    (334 )     (424 )     (758 )     543       374       917  
Long term debt
                                               
domestic
    471       (174 )     297       (65 )     80       15  
foreign
    109       105       214       (728 )     259       (469 )
Subordinated liabilities
                                               
domestic
    74       (29 )     45       12       44       56  
foreign
    (15 )     (6 )     (21 )     (35 )     (2 )     (37 )
Other interest-bearing liabilities
                                               
domestic
    608       (654 )     (46 )     856       1,103       1,959  
foreign
    570       (2,174 )     (1,604 )     595       2,065       2,660  
Interest expense
                                               
domestic
    2,179       (1,283 )     896       721       1,773       2,494  
foreign
    762       (2,240 )     (1,478 )     793       4,436       5,229  
 
                                               
Total
    2,941       (3,523 )     (582 )     1,514       6,209       7,723  
 
                                               
 
                                               
Other interest expense
                    19,875                       10,171  
 
                                               
Total interest expense
                    19,293                       17,894  
 
                                               
Net interest
                                               
domestic
    (454 )     1,101       647       790       (727 )     63  
Foreign
    374       1,130       1,504       211       (494 )     (282 )
 
                                               
Net interest
    (80 )     2,231       2,151       1001       (1,221 )     (219 )
 
                                               
Other net interest result
                    102                       (79 )
 
                                               
Net interest result
                    2,049                       (298 )
 
                                               

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INVESTMENTS OF THE GROUP’S BANKING OPERATIONS
The following table shows the balance sheet value under IFRS-IASB of the investments of the Group’s banking operations.
                         
    Year ended December 31
    2008   2007   2006
    (EUR millions)
Debt securities available for sale
                       
Dutch government
    6,726       4,741       6,106  
German government
    5,789       5,960       8,076  
Central banks
    219       331       213  
Belgian government
    8,198       11,017       14,225  
Other governments
    29,435       26,090       27,959  
Corporate debt securities
                       
Banks and financial institutions
    37,486       36,860       26,791  
Other corporate debt securities
    1,417       2,145       9,900  
U.S. Treasury and other U.S. Government agencies
    56       163       322  
Other debt securities
    42,176       52,699       57,941  
 
                       
Total debt securities available for sale
    131,502       140,006       151,533  
 
                       
Debt securities held to maturity
                       
Dutch government
                       
German government
    787       789       790  
Other governments
    819       969       564  
Banks and financial institutions
    12,929       14,249       13,970  
Other corporate debt securities
    39       39       40  
U.S. Treasury and other U.S. Government agencies
    36       102       233  
Other debt securities
    830       605       2,063  
 
                       
Total debt securities held to maturity
    15,440       16,753       17,660  
 
                       
Shares and convertible debentures
    1,863       3,626       1,898  
Land and buildings (1)
    4,331       4,997       5,005  
 
                       
Total
    153,136       165,382       176,096  
 
                       
 
(1)   Including commuted ground rents
Banking investment strategy
ING’s investment strategy for its investment portfolio related to the banking activities is formulated by the Asset and Liability Committee (“ALCO”). The exposures of the investments to market rate movements are managed by modifying the asset and liability mix, either directly or through the use of derivative financial products including interest rate swaps, futures, forwards and purchased option positions such as interest rate caps, floors and collars. See “Item 11. Quantative and Qualitative Disclosure of Market Risk”.
The investment portfolio related to the banking activities primarily consists of fixed-interest securities. Approximately 33% of the land and buildings owned by ING Bank are wholly or partially in use by Group companies.

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Portfolio maturity description
                                                 
    1 year or less   Between 1 and 5 years   Between 5 and 10 years
    Book value   Yield(1)   Book value   Yield(1)   Book value   Yield(1)
    (EUR   %   (EUR   %   (EUR   %
    millions)       millions)       millions)    
Debt securities available for sale
                                               
Dutch government
    3,022               2,975               729          
German government
    1,013               3,052               1,724          
Belgian government
    674               5,208               2,238          
Central banks
    219                                          
Other governments
    3,115               14,280               9,320          
Banks and financial institutions
    9,236               18,509               8,137          
Corporate debt securities
    607               566               219          
U.S. Treasury and other U.S. Government agencies
    1               55                          
Other debt securities
    1,419               11,870               6,726          
 
                                               
Total debt securities available for sale
    19,306       3.7       56,515       4.6       29,093       4.2  
 
                                               
                         
    Over 10 years   Total
    Book           Book
    value   Yield(1)   value
    (EUR   %   (EUR
    millions)       millions)
Debt securities available for sale
                       
Dutch government
                    6,726  
German government
                    5,789  
Belgian government
    78               8,198  
Central banks
                    219  
Other governments
    2,720               29,435  
Banks and financial institutions
    1,604               37,486  
Corporate debt securities
    25               1,417  
U.S. Treasury and other U.S. Government agencies
                    56  
Other debt securities
    22,161               42,176  
 
                       
Total debt securities available for sale
    26,588       4.0       131,502  
 
                       
 
(1)   Since substantially all investment securities held by the banking operations of the Company are taxable securities, the yields are on a tax-equivalent basis.

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    1 year or less   Between 1 and 5 years   Between 5 and 10 years
    Book value   Yield(1)   Book value   Yield(1)   Book value   Yield(1)
    (EUR   %   (EUR   %   (EUR   %
    millions)       millions)       millions)    
Debt securities held to maturity
                                               
Dutch government
                                               
German government
    200               587                          
Belgian government
                                               
Central banks
                                               
Other governments
    116               653               50          
Banks and financial institutions
    963               9,256               2,610          
Corporate debt securities
                    39                          
U.S. Treasury and other U.S. Government agencies
    36                                          
Other debt securities
    7               223               234          
 
                                               
Total debt securities held to maturity
    1,322       3.9       10,758       3.9       2,894       3.9  
 
                                               
                         
    Over 10 years   Total
    Book           Book
    value   Yield(1)   value
    (EUR   %   (EUR
    millions)       millions)
Debt securities held to maturity
                       
Dutch government
                       
German government
                    787  
Belgian government
                       
Central banks
                       
Other governments
                    819  
Banks and financial institutions
    100               12,929  
Corporate debt securities
                    39  
U.S. Treasury and other U.S. Government agencies
                    36  
Other debt securities
    366               830  
 
                       
Total debt securities held to maturity
    466       3.0       15,440  
 
                       
 
(1)   Since substantially all investment securities held by the banking operations of the Company are taxable securities, the yields are on a tax-equivalent basis.
On December 31, 2008, ING Group also held the following securities for the banking operations that exceeded 10% of shareholders’ equity:
                 
    2008
    Book value   Market value
    (EUR millions)
Dutch government
    6,726       6,726  
Belgian government
    8,198       8,198  
German government
    6,576       6,693  

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LOAN PORTFOLIO
Loans and advances to banks and customers
Loans and advances to banks include all receivables from credit institutions, except for cash, current accounts and deposits with other banks (including central banks). Lending facilities to corporate and private customers encompass among others, loans, overdrafts and finance lease receivables. The following table sets forth the gross loans and advances to banks and customers as of December 31, 2008, 2007, 2006, 2005 and 2004 under IFRS-IASB.
IFRS-IASB
                                         
    Year ended December 31
    2008   2007   2006   2005   2004
    (EUR millions)
By domestic offices:
                                       
Loans guaranteed by public authorities
    16,288       14,679       16,450       13,907       7,296  
Loans secured by mortgages
    158,861       141,314       120,753       111,257       103,594  
Loans to or guaranteed by credit institutions
    15,528       16,347       6,747       4,573       7,323  
Other private lending
    7,158       6,975       6,484       9,943       6,420  
Other corporate lending
    123,758       105,808       90,182       80,540       35,897  
 
                                       
Total domestic offices
    321,593       285,123       240,616       220,220       160,530  
 
                                       
 
                                       
By foreign offices:
                                       
Loans guaranteed by public authorities
    10,099       8,961       9,503       17,535       17,118  
Loans secured by mortgages
    145,090       132,614       87,457       69,855       53,156  
Loans to or guaranteed by credit institutions
    25,810       31,929       32,072       23,721       26,471  
Other private lending
    20,389       17,784       16,422       15,200       8,474  
Other corporate lending
    118,958       100,601       89,547       84,355       88,639  
 
                                       
Total foreign offices
    320,346       291,889       235,001       210,666       193,858  
 
                                       
Total gross loans and advances to banks and customers
    641,939       577,012       475,617       430,886       354,388  
 
                                       
Maturities and sensitivity of loans to changes in interest rates
The following table analyzes loans and advances to banks and customers by time remaining until maturity as of December 31, 2008.
                                 
    1 year   1 year   After    
    or less   to 5 years   5 years   Total
    (EUR millions)
By domestic offices:
                               
Loans guaranteed by public authorities
    4,478       1,312       10,498       16,288  
Loans secured by mortgages
    10,492       16,410       131,959       158,861  
Loans guaranteed by credit institutions
    13,984       1,405       139       15,528  
Other private lending
    5,157       533       1,468       7,158  
Other corporate lending
    102,795       15,398       5,563       123,756  
 
                               
Total domestic offices
    136,906       35,058       149,627       321,591  
 
                               
 
                               
By foreign offices:
                               
Loans guaranteed by public authorities
    3,805       2,835       3,459       10,099  
Loans secured by mortgages
    13,217       24,969       106,904       145,090  
Loans guaranteed by credit institutions
    19,820       4,548       1,442       25,810  
Other private lending
    12,244       3,602       4,543       20,389  
Other corporate lending
    42,527       44,183       32,250       118,960  
 
                               
Total foreign offices
    91,613       80,137       148,598       320,348  
 
                               
Total gross loans and advances to banks and customers
    228,519       115,195       298,225       641,939  
 
                               

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The following table analyzes loans and advances to banks and customers by interest rate sensitivity by maturity as of December 31, 2008.
                         
    1 year or   Over 1    
    less   year   Total
    (EUR millions)
Non-interest earning
    4,343       408       4,751  
Fixed interest rate
    74,449       125,089       199,538  
Semi-fixed interest rate(1)
    5,392       170,333       175,725  
Variable interest rate
    144,335       117,590       261,925  
 
                       
Total
    228,519       413,420       641,939  
 
                       
 
(1)   Loans that have an interest rate that remains fixed for more than one year and which can then be changed are classified as “semi-fixed”
Loan concentration
The following industry concentrations were in excess of 10% of total loans as of December 31, 2008:
         
    Total outstanding  
Financial institutions
    30.9 %
Private individuals
    34.4 %
Risk elements
Loans Past Due 90 days and Still Accruing Interest
Loans past due 90 days and still accruing interest are loans that are contractually past due 90 days or more as to principal or interest on which we continue to recognize interest income on an accrual basis in accordance with IFRS-IASB.
Under IFRS-IASB prior to the implementation of IAS 32 and IAS 39 and under Dutch GAAP, loans were placed on non-accrual status when a loan was in default as to payment of principal and interest for 90 days or more, or when, in the judgment of management, the accrual of interest should cease before 90 days. Any accrued, but unpaid, interest was reversed against the same period’s interest revenue. Interest payments received on a cash basis during the period were recorded as interest income.
In 2005 with the implementation of IAS 32 and IAS 39, once a loan has been written down as a result of an impairment loss, interest income is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. As all loans continue to accrue interest under IFRS-IASB, the non-accrual loan status is no longer used to identify ING Group’s risk elements. Therefore, as from 2005, no loans are reported as non-accrual and there is an increase in the amount of loans reported as Loans past due 90 days and still accruing interest, compared to the prior years reported, due to the interest accrual on impaired loans.
The following table sets forth the outstanding balance of the loans past due 90 days and still accruing interest and non-accrual loans for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 under IFRS-IASB.
                                         
    Year ended December 31  
    2008     2007     2006     2005     2004  
IFRS-IASB   (EUR millions)  
Loans past due 90 days and still accruing interest
                                       
Domestic
    2,799       1,159       1,317       1,664       577  
Foreign
    2,634       1,892       2,426       2,112       510  
 
                             
Total loans past due 90 days and still accruing interest
    5,433       3,051       3,743       3,776       1,087  
 
                             
 
                                       
Non-accrual
                                       
Domestic
                                    1,143  
Foreign
                                    2,284  
 
                                     
Total non-accruals
                                    3,427  
 
                                     
 
                                       
Total loans past due 90 days and still accruing interest and non-accrual loans
    5,433       3,051       3,743       3,776       4,514  
 
                             

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As of December 31, 2008, EUR 5,433 million of the loans past due 90 days and still accruing interest have a loan loss provision. Total loans with a loan loss provision, including those loans classified as past due 90 days and still accruing interest with a provision and troubled debt restructurings with a provision, amounts to EUR 7,489 million as of December 31, 2008.
Troubled Debt Restructurings
Troubled debt restructurings are loans that we have restructured due to deterioration in the borrower’s financial position and in relation to which, for economic or legal reasons related to the borrower’s deteriorated financial position, we have granted a concession to the borrower that we would not have otherwise granted.
The following table sets forth the outstanding balances of the troubled debt restructurings as of December 31, 2008, 2007, 2006, 2005 and 2004 under IFRS-IASB.
                                         
    Year ended December 31
IFRS-IASB   2008   2007   2006   2005   2004
    (EUR millions)
Troubled debt restructurings:
                                       
Domestic
    51       45       163       495       197  
Foreign
    354       47       199       582       651  
 
                                       
Total troubled debt restructurings
    405       92       362       1,077       848  
 
                                       
Interest Income on Troubled Debt Restructurings
The following table sets forth the gross interest income that would have been recorded during the year ended December 31, 2008 on troubled debt restructurings had such loans been current in accordance with their original contractual terms and interest income on such loans that was actually included in interest income during the year ended December 31, 2008.
                         
    Year ended December 31, 2008
    (EUR millions)
    Domestic   Foreign    
    Offices   Offices   Total
Interest income that would have been recognized under the original contractual terms
    4               4  
Interest income recognized in the profit and loss account
    2               2  
Potential Problem Loans
Potential problem loans are loans that are not classified as loans past due 90 days and still accruing interest or troubled debt restructurings and amounted to EUR 4,439 million as of December 31, 2008. Of this total, EUR 3,132 million relates to domestic loans and EUR 1,307 million relates to foreign loans. These loans are considered potential problem loans as there is known information about possible credit problems causing us to have serious doubts as to the ability of the borrower to comply with the present loan repayment terms and which may result in classifying the loans as loans past due 90 days and still accruing interest or as troubled debt restructurings. Appropriate provisions, following ING Group’s credit risk rating system, have been established for these loans.
Cross-border outstandings
Cross-border outstandings are defined as loans (including accrued interest), acceptances, interest-earning deposits with other banks, other interest-earning investments and any other monetary assets that are

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denominated in euro or other non-local currency. To the extent that material local currency outstandings are not hedged or are not funded by local currency borrowings, such amounts are included in cross-border outstandings.
Commitments such as irrevocable letters of credit are not considered as cross border outstanding. Total outstandings are in line with Dutch Central Bank requirements. On December 31, 2008, there were no outstandings exceeding 1% of total assets in any country where current conditions give rise to liquidity problems which are expected to have a material impact on the timely repayment of interest or principal.
The following tables analyze cross-border outstandings as of the end of December 31, 2008, 2007 and 2006 stating the name of the country and the aggregate amount of cross-border outstandings to borrowers in each foreign country where such outstandings exceed 1% of total assets, by the following categories.
                                                 
    Year ended December 31, 2008
            Banks &                        
    Government   other                        
    & official   financial   Commercial                   Cross-border
    institutions   Institutions   & industrial   Other   Total   Commitments
    (EUR millions)
United Kingdom
    143       12,228       29,094       1,159       42,624       4,698  
United States
    83       3,065       12,170       15,427       30,745       10,787  
France
    7,636       10,396       6,137       2,449       26,617       1,964  
Germany
    5,671       6,338       4,298       3,327       19,634       7,882  
Italy
    8,974       5,082       3,625       1,019       18,701       1,534  
Spain
    2,573       7,940       5,967       96       16,576       3,134  
Belgium
    1,987       7,163       7,851       2,277       19,278       17,161  
                                                 
    Year ended December 31, 2007
            Banks &                        
    Government   other                        
    & official   financial   Commercial                   Cross-border
    institutions   Institutions   & industrial   Other   Total   Commitments
    (EUR millions)
United Kingdom
    144       27,501       44,621       1,403       73,669       6,018  
United States
    33       4,035       26,821       14,852       45,741       13,050  
France
    5,777       17,811       6,864       4,474       34,926       2,295  
Germany
    4,839       10,361       4,499       4,428       24,127       9,500  
Italy
    10,381       4,642       4,378       1,117       20,518       1,318  
Spain
    2,375       7,749       6,183       685       16,992       2,139  
Belgium
    2,638       5,782       3,607       1,683       13,710       14,999  
                                                 
    Year ended December 31, 2006
            Banks &                        
    Government   other                        
    & official   financial   Commercial                   Cross-border
    institutions   Institutions   & industrial   Other   Total   Commitments
    (EUR millions)
United Kingdom
    60       29,787       51,344       2,437       83,628       9,840  
United States
    114       7,241       33,388       4,102       44,845       11,353  

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    Year ended December 31, 2006
            Banks &                        
    Government   other                        
    & official   financial   Commercial                   Cross-border
    institutions   Institutions   & industrial   Other   Total   Commitments
    (EUR millions)
France
    4,831       12,012       5,658       3,491       25,992       2,776  
Germany
    6,855       10,233       4,244       1,906       23,238       7,898  
Italy
    11,819       4,011       5,704       1,118       22,652       1,445  
Spain
    2,494       7,766       8,194       923       19,377       2,071  
There were no cross-border outstandings between 0.75% and 1% of total assets, at year-end 2008 and 2007. On December 31, 2006, Ireland and Belgium had EUR 10,049 million and EUR 9,523 million, respectively, of cross-border outstandings between 0.75% and 1% of total assets.
Summary of Loan Loss Experience
For further explanation on loan loss provision see “Loan Loss Provisions” in Note 2.1 to the consolidated financial statements.
The application of the IFRS-IASB methodology has reduced the amount of the unallocated provision for loan losses that ING Group provided in prior years to adequately capture various subjective and judgmental aspects of the credit risk assessment which were not considered on an individual basis.
The following table presents the movements in allocation of the provision for loan losses on loans accounted for as loans and advances to banks and customers for 2008, 2007, 2006, 2005 and 2004 under IFRS-IASB.
                                         
    Calendar period
IFRS-IASB   2008   2007   2006   2005   2004
    (EUR millions)
Balance on January 1
    2,001       2,642       3,313       4,262       4,671  
Implementation IAS 32 and IAS 39 (1)
                            (398 )        
Change in the composition of the Group
    1       98       (101 )     (4 )     (38 )
Charge-offs:
                                       
Domestic:
                                       
Loans guaranteed by public authorities
                                    (1 )
Loans secured by mortgages
    (34 )     (22 )     (32 )     (8 )     (3 )
Loans to or guaranteed by credit institutions
    (36 )     (11 )     (11 )     (12 )     (22 )
Other private lending
    (126 )     (115 )     (108 )     (107 )     (57 )
Other corporate lending
    (133 )     (189 )     (136 )     (164 )     (156 )
Foreign:
                                       
Loans guaranteed by public authorities
    (16 )     (25 )             (9 )     (13 )
Loans secured by mortgages
    (6 )     (11 )     (26 )     (23 )     (31 )
Loans to or guaranteed by credit institutions
            (2 )     (5 )     (4 )     20  
Other private lending
    (114 )     (104 )     (70 )     (78 )     (57 )
Other corporate lending
    (263 )     (473 )     (303 )     (437 )     (589 )
 
                                       
Total charge-offs
    (728 )     (952 )     (691 )     (842 )     (909 )
 
                                       
Recoveries:
                                       
Domestic:
                                       
Loans guaranteed by public authorities
                                    6  
Loans secured by mortgages
                                    3  
Loans to or guaranteed by credit institutions
            2       4                  
Other private lending
    36       3       11       6          
Other corporate lending
                    1                  
Foreign:
                                       
Loans guaranteed by public authorities
                                       
Loans secured by mortgages
            1                       (1 )
Loans to or guaranteed by credit institutions
                                    23  
Other private lending
    27       30       49       39       11  
Other corporate lending
    27       23       21       16       42  
 
                                       
Total recoveries
    90       59       86       61       84  
 
                                       
Net charge-offs
    (638 )     (893 )     (605 )     (781 )     (825 )
 
                                       
Additions and other adjustments (included in value Adjustments to receivables of the Banking operations)
    1,247       154       35       234       454  
 
                                       

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    Calendar period
IFRS-IASB   2008   2007   2006   2005   2004
    (EUR millions)
Balance on December 31
    2,611       2,001       2,642       3,313       4,262  
 
                                       
 
                                       
Ratio of net charge-offs to average loans and advances to banks and customers
    0.10 %     0.16 %     0.12 %     0.17 %     0.24 %
 
(1)   Consists of release of unallocated provision for loan losses of EUR (592) million and reclassification from other assets for provision for interest on impaired loans of EUR 194 million.
Additions to the provision for loan losses presented in the table above were influenced by developments in general economic conditions as well as certain individual exposures.
The following table shows the allocation of the provision for loan losses on loans accounted for as loans and advances to banks and customers for 2008, 2007, 2006, 2005 and 2004 under IFRS-IASB.
                                                                                 
    Year ended December 31
    2008   2007   2006   2005   2004
    EUR   %(1)   EUR   %(1)   EUR   %(1)                   EUR   %(1)
IFRS-IASB   (EUR millions)
Domestic:
                                                                               
Loans guaranteed by public authorities
            2.54               2.56               3.46       1       3.23       1       2.06  
Loans secured by mortgages
    167       24.76       96       24.62       96       25.40       93       25.82       198       29.23  
Loans to or guaranteed by credit institutions
    68       2.42       11       2.85               1.42               1.06               2.07  
Other private lending
    120       1.12       181       1.21       357       1.36       230       2.31       181       1.81  
Other corporate lending
    474       19.24       377       17.91       280       18.93       594       18.69       692       10.13  
 
                                                                               
Total domestic
    829       50.08       665       49.15       733       50.57       918       51.11       1,072       45.30  
Foreign:
                                                                               
Loans guaranteed by public authorities
    2       1.57       1       1.56       2       2.00       2       4.07       36       4.83  
Loans secured by mortgages
    425       22.61       203       23.10       177       18.40       273       16.20       213       15.00  
Loans to or guaranteed by credit institutions
    17       4.02       3       5.56       6       6.75       13       5.51       23       7.47  
Other private lending
    533       3.18       374       3.10       408       3.45       408       3.53       344       2.39  
Other corporate lending
    805       18.54       755       17.53       1,316       18.83       1,699       19.58       2,574       25.01  
 
                                                                               
Total foreign
    1,782       49.92       1,336       50.85       1,909       49.43       2,395       48.89       3,190       54.70  
 
                                                                               
Total
    2,611       100.00       2,001       100.00       2,642       100.00       3,313       100.00       4,262       100.00  
 
                                                                               
 
(1)   The percentages represent the loans in each category as a percentage of the total loan portfolio for loans and advances to banks and customers.
DEPOSITS
The aggregate average balance of all the Group’s interest-bearing deposits (from banks and customer accounts) increased by 2.3% to EUR 681,766 million for 2008, compared to 2007. Interest rates paid reflect market conditions. The effect on net interest income depends upon competitive pricing and the level of interest income that can be generated through the use of funds.
Deposits by banks are primarily time deposits, the majority of which are raised by the Group’s Amsterdam based money market operations in the world’s major financial markets.
Certificates of deposit represent 44% of the category ‘Debt securities’ (31% at the end of 2007). These instruments are issued as part of liquidity management with maturities generally of less than three months.

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The following table includes the average deposit balance by category of deposit and the related average rate.
                                                 
    2008   2007   2006
    Average   Average   Average   Average   Average   Average
    deposit   rate   deposit   rate   deposit   rate
    (EUR millions)   %   (EUR millions)   %   (EUR millions)   %
Deposits by banks
                                               
In domestic offices:
                                               
Demand —non-interest bearing
    9,797               4,278               2,404          
—interest bearing
    11,821       3.8       20,909       5.3       16,118       4.5  
Time
    49,147       3.7       58,601       3.1       31,896       4.3  
Other
    12,213       3.6       1,900       4.1       1,474       4.0  
 
                                               
Total domestic offices
    82,978               85,688               51,892          
In foreign offices:
                                               
Demand —non-interest bearing
    3,374               2,149               1,556          
—interest bearing
    12,175       3.9       7,295       5.8       4,184       3.2  
Time
    40,425       5.1       35,679       5.3       33,802       3.4  
Other
    31,121       4.8       31,975       4.7       31,520       4.5  
 
                                               
Total foreign offices
    87,095               77,098               71,062          
 
                                               
Total deposits by banks
    170,073               162,786               122,954          
 
                                               
 
                                               
Customer accounts
                                               
In domestic offices:
                                               
Demand —non-interest bearing
    15,041               16,702               15,804          
—interest bearing
    108,589       1.7       100,618       2.1       86,748       1.8  
Savings
    57,475       2.8       63,001       2.3       66,765       2.3  
Time
    34,856       4.1       35,767       3.9       20,062       4.6  
Other
    7,202       3.6       1,578       4.8       1,809       4.5  
 
                                               
Total domestic offices
    223,163               217,666               191,188          
In foreign offices:
                                               
Demand —non-interest bearing
    4,581               4,887               4,401          
—interest bearing
    52,089       2.8       41,519       3.5       33,403       2.3  
Savings
    229,149       3.9       228,030       3.8       228,636       3.4  
Time
    33,018       5.0       34,987       3.8       28,149       3.9  
Other
    2,486       4.9       4,672       3.6       9,673       1.4  
 
                                               
Total foreign offices
    321,323               314,095               304,262          
 
                                               
Total customers accounts
    544,486               531,761               495,450          
 
                                               
 
                                               
Debt securities
                                               
In domestic offices:
                                               
Debentures
    13,379       4.8       5,054       5.0       5,481       4.4  
Certificates of deposit
    8,887       4.6       3,441       4.7       2,531       3.8  
Other
    2,691       5.4       2,216       5.7       1,722       4.2  
 
                                               
Total domestic offices
    24,957               10,711               9,734          

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    2008   2007   2006
    Average   Average   Average   Average   Average   Average
    deposit   rate   deposit   rate   deposit   rate
    (EUR millions)   %   (EUR millions)   %   (EUR millions)   %
In foreign offices:
                                               
Debentures
    8,552       6.0       8,609       5.8       23,197       3.8  
Certificates of deposit
    25,665       5.4       17,815       5.9       11,027       5.0  
Other
    18,611       3.5       32,008       5.3       28,150       4.7  
 
                                               
Total foreign offices
    52.828               58,432               62,374          
 
                                               
Total debt securities
    77,785               69,143               72,108          
 
                                               
For the years ended December 31, 2008, 2007 and 2006, the aggregate amount of deposits by foreign depositors in domestic offices was EUR 77,958 million, EUR 78,227 million and EUR 69,838 million, respectively.
On December 31, 2008, the maturity of domestic time certificates of deposit and other time deposits, exceeding EUR 20,000, was:
                                 
    Time certificates of    
    deposit   Other time deposits
    (EUR   %   (EUR   %
    millions)           millions)        
3 months or less
    5,374       82.8       82,307       81.4  
6 months or less but over 3 months
    733       11.3       8,952       8.8  
12 months or less but over 6 months
    235       3.6       7,678       7.6  
Over 12 months
    149       2.3       2,196       2.2  
 
                               
Total
    6,491       100       101,133       100  
 
                               
The following table shows the amount outstanding for time certificates of deposit and other time deposits exceeding EUR 20,000 issued by foreign offices on December 31, 2008.
         
    (EUR millions)
Time certificates of deposit
    20,400  
Other time deposits
    100,784  
Total
    121,184  
 
       
Short-term Borrowings
Short-term borrowings are borrowings with an original maturity of one year or less. Commercial paper and securities sold under repurchase agreements are the only significant categories of short-term borrowings within our banking operations.
The following table sets forth certain information relating to the categories of our short-term borrowings.
                         
    Year ended December 31
    2008   2007   2006
    (EUR millions,
IFRS-IASB   except % data)
Commercial paper:
                       
Balance at the end of the year
    18,444       14,393       35,682  
Monthly average balance outstanding during the year
    17,949       30,403       26,416  
Maximum balance outstanding at any period end during the year
    19,319       37,304       35,682  
Weighted average interest rate during the year
    3.80 %     5.80 %     4.87 %
Weighted average interest rate on balance at the end of the year
    3.70 %     6.02 %     3.60 %

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    Year ended December 31
    2008   2007   2006
    (EUR millions,
IFRS-IASB   except % data)
Securities sold under repurchase agreements:
                       
Balance at the end of the year
    110,202       127,111       101,239  
Monthly average balance outstanding during the year
    148,613       124,723       103,951  
Maximum balance outstanding at any period end during the year
    178,185       142,753       122,619  
Weighted average interest rate during the year
    3.17 %     4.66 %     3.03 %
Weighted average interest rate on balance at the end of the year
    4.27 %     4.57 %     3.11 %

64


 

Item 18: ING Group Consolidated Financial Statements (IFRS-IASB)
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
     
  F — 2
 
   
  F — 3
 
   
  F — 4
 
   
  F — 5
 
   
  F — 6
 
   
  F — 8
 
   
  F — 27
 
   
  F — 28
 
   
  F — 63
 
   
  F — 88
 
   
  F — 99
 
   
  F — 104
 
   
  F — 105
 
   
  F — 163
 
   
  F — 169
 
   
  F — 171
 
   
  F — 184
 
   
  F — 185
 
   
  F — 187
 
   
  F — 197
 
   
  F — 198
 
   
  F — 199
 
   
  F — 200

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders, the Supervisory Board and the Executive Board of ING Groep N.V.
We have audited the accompanying consolidated balance sheets of ING Groep N.V. (‘ING Group’), as of December 31, 2008 and 2007, and the related consolidated profit and loss accounts, consolidated statements of cash flows and consolidated statements of changes in equity for each of the three years in the period ended December 31, 2008 as included in this Form 6-K. Our audits also included the financial statement schedules listed in the Index at Item 18. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We did not audit the consolidated financial statements of ING Bank N.V., a wholly owned subsidiary, for the years ending December 31, 2007 and 2006. In our position we did not audit capital base, as defined in Note 2.2.2 of the notes to the consolidated financial statements, constituting 41% in 2007 and net profit constituting 32% in 2007 and 38% in 2006 of the related consolidated totals of ING Groep N.V. These data were reported on by other auditors whose report has been furnished to us, and our opinion insofar as it relates to data included for ING Bank N.V. is based solely on the report of the other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts (including the conversion of the financial statements of ING Bank N.V. to International Financial Reporting Standards as issued by the International Accounting Standards Board as of December 31, 2007 and for each of the two years in the period then ended) and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the ING Groep N.V. as of December 31, 2008 and 2007, and the consolidated results of its operations, and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of ING Groep N.V.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2009 expressed an unqualified opinion thereon.
Amsterdam, the Netherlands
October 23, 2009
Ernst & Young Accountants LLP

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CONSOLIDATED BALANCE SHEET OF ING GROUP AS AT DECEMBER 31,
Before profit appropriation
                 
amounts in millions of euros   2008     2007  
 
ASSETS
               
Cash and balances with central banks 1)
    22,045       12,406  
Amounts due from banks 2)
    48,447       48,875  
Financial assets at fair value through profit and loss 3)
               
— trading assets
    160,378       193,213  
— investments for risk of policyholders
    95,366       114,827  
— non-trading derivatives
    16,484       7,637  
— designated as at fair value through profit and loss
    8,277       11,453  
Investments 4)
               
— available-for-sale
    242,852       275,897  
— held-to-maturity
    15,440       16,753  
Loans and advances to customers 5)
    616,776       553,658  
Reinsurance contracts 17)
    5,797       5,874  
Investments in associates 6)
    4,355       5,014  
Real estate investments 7)
    4,300       4,829  
Property and equipment 8)
    6,396       6,237  
Intangible assets 9)
    6,915       5,740  
Deferred acquisition costs 10)
    11,843       10,692  
Other assets 11)
    62,977       40,099  
       
Total assets
    1,328,648       1,313,204  
       
 
               
EQUITY
               
Shareholders’ equity (parent) 12)
    15,080       37,718  
Non-voting equity securities 12)
    10,000          
     
 
    25,080       37,718  
Minority interests
    1,594       2,323  
       
Total equity
    26,674       40,041  
       
 
               
LIABILITIES
               
Preference shares 13)
            21  
Subordinated loans 14)
    10,281       7,325  
Debt securities in issue 15)
    96,488       66,995  
Other borrowed funds 16)
    31,198       27,058  
Insurance and investment contracts 17)
    240,790       265,712  
Amounts due to banks 18)
    152,265       166,972  
Customer deposits and other funds on deposit 19)
    522,783       525,216  
Financial liabilities at fair value through profit and loss 20)
               
— trading liabilities
    152,616       148,988  
— non-trading derivatives
    21,773       6,951  
— designated as at fair value through profit and loss
    14,009       13,882  
Other liabilities 21)
    59,771       44,043  
       
Total liabilities
    1,301,974       1,273,163  
       
 
               
     
Total equity and liabilities
    1,328,648       1,313,204  
       
References relate to the notes starting on page F-28. These form an integral part of the consolidated annual accounts.

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CONSOLIDATED PROFIT AND LOSS ACCOUNT OF ING GROUP
For the years ended December 31,
                                                 
amounts in millions of euros   2008     2008     2007     2007     2006     2006  
 
Interest income banking operations
    97,011               76,749               59,170          
Interest expense banking operations
    (85,969 )             (67,773 )             (49,978 )        
 
                                         
Interest result banking operations 34)
            11,042               8,976               9,192  
Gross premium income 35)
            43,812               46,818               46,835  
Investment income 36)
            4,664               13,352               10,907  
Net gains/losses on disposals of group companies
            17               430               1  
Gross commission income
    7,504               7,693               6,867          
Commission expense
    (2,539 )             (2,866 )             (2,551 )        
 
                                         
Commission income 37)
            4,965               4,827               4,316  
Valuation results on non-trading derivatives 38
            (1,409 )             (50 )             272  
Net trading income 39)
            (749 )             1,119               1,172  
Share of profit from associates 6)
            (404 )             740               638  
Other income 40)
            644               885               471  
 
                                         
Total income
            62,582               77,097               73,804  
 
                                               
Gross underwriting expenditure 41)
    18,831               51,818               53,065          
Investment result for risk of policyholders
    32,408               (1,079 )             (2,702 )        
Reinsurance recoveries
    (1,754 )             (1,906 )             (2,175 )        
 
                                         
Underwriting expenditure 41)
            49,485               48,833               48,188  
Addition to loan loss provisions 5)
            1,280               125               103  
Intangible amortization and other impairments 42)
            464               15               35  
Staff expenses 43)
            8,764               8,261               7,918  
Other interest expenses 44)
            978               1,102               1,016  
Other operating expenses 45)
            6,807               7,207               6,421  
 
                                         
Total expenses
            67,778               65,543               63,681  
 
                                               
 
                                         
Result before tax
            (5,196 )             11,554               10,123  
 
                                               
Taxation 46)
            (1,667 )             1,665               1,961  
 
                                         
Net result (before minority interests)
            (3,529 )             9,889               8,162  
 
                                         
 
                                               
Attributable to:
                                               
Equityholders of the parent
            (3,492 )             9,622               7,821  
Minority interests
            (37 )             267               341  
 
                                         
 
            (3,529 )             9,889               8,162  
 
                                         
                         
amounts in euros   2008     2007     2006  
 
Basic earnings per ordinary share 47)
    (1.71 )     4.49       3.62  
Earnings — after attribution to non-voting equity securities — per ordinary share 47)
    (1.92 )     4.49       3.62  
Diluted earnings per ordinary share 47)
    (1.71 )     4.46       3.59  
Dividend per ordinary share 48)
    0.74       1.48       1.32  
References relate to the notes starting on page F-88. These form an integral part of the consolidated annual accounts.

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CONSOLIDATED STATEMENT OF CASH FLOWS OF ING GROUP
For the years ended December 31,