avatar SRH N.V. Finance, Insurance, And Real Estate

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    Table of contents 1 Report of the Management Board 1 Key figures 1 2 Foreword 2 3 Profile and brands 6 4 Mission, core value and strategy 8 5 SWOT analysis, strategic challenges and ambitions 11 6 Strategy update 15 7 Outlook 2012 21 8 Financial outlines 24 9 Developments SNS Bank 26 10 Developments Property Finance 38 11 Risk and capital management 42 12 Funding and credit ratings 49 13 Our people 52 58 Report of the Supervisory Board 14 Report of the Supervisory Board 58 61 Corporate governance 15 Corporate governance 61 66 Financial statements 16 Consolidated financial statements 66 17 Accounting principles for the consolidated financial statements 72 18 Segmented financial statement 98 19 Acquisitions 103 20 Risk and capital management 104 21 Financial risk management 118 22 Financial instruments and hedge accounting 145 23 Notes to the consolidated financial statements 153 24 Company financial statements 181 25 Notes to the company financial statements 183 26 Overview of principal subsidiaries 190 27 Other information 191 28 Pillar III 194


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    Report of the Management Board 1 Key figures Key figures In € millions 2011 2010 2009 2008 2007 Balance Sheet Total assets 81,272 78,918 80,251 76,695 70,584 Loans and advances to customers 64,778 65,013 67,479 65,794 60,236 Of which mortgage loans 52,920 50,888 50,878 48,684 46,172 Loans and advances to banks 1,682 1,681 2,715 2,783 1,092 Amounts due to customers 40,557 37,880 34,270 32,043 27,025 Of which savings 30,342 27,398 24,435 21,859 19,179 Amounts due to credit institutions 4,716 3,096 7,119 6,491 5,066 Debt certificates 27,361 29,523 30,739 30,282 32,182 Shareholders' equity 1,723 1,580 2,165 2,134 2,209 Capital base 2,961 3,694 3,590 3,495 3,521 Net interest income 803 871 672 773 783 Other income 239 114 426 183 155 Of which net commission and management fees 86 92 99 116 129 Net result 38 (431) (99) 144 272 Net result SNS Retail Bank 248 139 120 116 186 Net result SNS SME 38 73 Net result Property Finance (248) (643) (219) 28 86 Ratios Return on shareholders' equity (ROE) 2.2% (27.3%) (4.6%) 6.7% 12.6% Efficiency ratio 49.1% 57.8% 57.0% 62.8% 60.3% BIS ratio 14.4% 16.7% 13.9% 14.0% 11.5% Tier 1 ratio 12.2% 10.7% 10.7% 10.5% 8.4% Number of branches SNS Bank 155 143 133 140 146 Number of agencies RegioBank 529 537 602 672 727 Number of cash dispensers 507 490 516 571 513 Number of employees (FTE's, average) 2,426 2,639 3,270 3,212 3,223 As of 1 January 2011, the business units Property Finance and SNS Bank have been regrouped. SNS Bank comprises the sub segments SNS Retail Bank and SNS SME. Comparative figures for 2010 have been adjusted accordingly. For more information see paragraph 17.3.4 BIS ratio and Tier 1 ratio are calculated based on Basel II, taking into account the 80% floor of Basel I. SNS Bank Annual Report 2011 1


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    2 Foreword A sense of satisfaction at the close of a troubling year Despite the difficulties that confronted us during financial year 2011, it was nonetheless a year which I feel we were able to conclude with a certain sense of satisfaction. It was a year of change marked by returning to profit in 2011 after the loss of 2010. We posted a net result for the whole of SNS Bank of € 38 million, while our core activities generated € 286 million. At the same time, we retained a sharp focus on our mission and ambition. Through our mission of Simplicity in finance we aim to become the most customer-friendly financial services provider in the Netherlands. During 2011, we made further important strides towards achieving this. Hard decisions had to be made in positioning our seven brands more clearly and consistently to better engage with our customers and ensure that they can be confident that we put their interests first. Our aim is to sell transparent and effective products at a fair price. This is not too lofty and intangible a goal - SNS Bank is a customer-facing company. It can emulate the many other Dutch companies for whom a strong notion of customer confidence forms the basis for its earnings. Another challenging year Financial year 2011 initially appeared to be slightly easier than the difficult 2010. Economic forecasts were encouraging, with financial markets appearing to regain stability and show modest improvement. This optimism was quickly quenched as the Greek sovereign debt crisis flared up. Following Greece, Portugal also sought emergency assistance. Soon the continued existence of the entire European Monetary Union was under discussion. This looming threat, in addition to the natural disasters that had engulfed Japan, led to unprecedented volatility in financial markets and to a shrinking economy instead of the growth which had been anticipated in the second half of 2011. Due to uncertainty about the continued existence of the European currency union, investors in EU bond markets retreated from the weaker Euro countries and sought security in sovereign debts in Germany and other strong member states, including the Netherlands. Bond rates declined to historically low levels. The considerable drop in prices and turnover on the stock exchanges were other negative factors. Recovery in the fourth quarter was unable to compensate for the damage sustained during the previous quarters. The housing market, too, was negatively impacted, due to lower prices and fewer transactions. Robust financial results In the face of these chiefly unpredictable negative developments, we managed to achieve strong financial results. SNS Retail Bank pushed its net profit up to € 248 million and Property Finance ended the year in red, though much less than in 2010. Profits and losses of the various business units within the company together led to a positive result of € 38 million. Considering that SNS Bank recorded sharp losses in 2010, this was a swing in the right direction. Our capital position in 2011 remained solid. The bank has a core Tier 1 ratio of 9.2%. Based on the European Banking Authority (EBA) norm, SNS Bank had a shortfall of € 159 million in September, but that shortfall has now partly been eliminated. As a systemically important bank. It is SNS Bank’s ambition to raise its core Tier 1 ratio to 10%. SNS Bank’s liquidity position of € 11.1 billion is strong and remains on track for meeting the future requirements of Basel III. Further reinforcing the foundation Reinforcing our financial foundation continues to be a priority. Strategically, our priorities are to repay the capital support we received from the State and to phase-out the property finance portfolio of Property Finance. The target for 2011 was to reduce the commitments of the core and non-core portfolio of the property finance business by € 2 billion. This ambitious goal was surpassed by € 1 billion. In 2011 the international loan portfolio was reduced by 30% to € 2.2 billion compared. The phasing-out of the property finance portfolio is a process which will involve several years. Aside from its loan portfolio, Property Finance has also reduced its impairment charges on loans considerably. In 2010, Property Finance reported a loss of € 643 million. In the year under review, this was reduced to € 248 million. SNS Bank Annual Report 2011 2


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    International and Dutch real estate markets remain in a turbulent situation which is expected to continue during 2012. Unfortunately, too many new buildings are still being constructed; offices for the most part. A wiser choice would be to make existing office buildings sustainable. Building for the future Despite the many challenges, we continued to build for the future during 2011. We are devoting strong attention to corporate responsibility through our mission of Simplicity in finance, our core value CARE! and engagement with the client. We continued to develop new products that made financial affairs simpler and more understandable. This annual report therefore boasts the title Innovation through simplicity. By way of example, SNS Bank was the first major bank in the Netherlands to introduce an interest-bearing current account. SNS Bank and RegioBank have made great progress in making the complaints procedure more efficient and effective. Frequent customer satisfaction surveys showed an upward trend in 2011, proving that we are heading in the right direction in meeting our clients' needs. The Net Promotor Score also rose for all brands. This instrument measures how many clients recommend us to their family and friends. With the rise of social media, personal recommendations have also become a crucial factor in restoring consumer trust. Many new customers We succeeded in attracting considerable numbers of new clients and achieving a high customer retention level. SNS Bank welcomed more than 100,000 new clients. Saving deposits increased by € 2.9 billion. Our bank savings product also succeeded in meeting the client’s need with SNS Bank maintaining a leading position in this market. The explicit choice for a multi-brand strategy was an important strategic milestone in 2011. Many of our competitors invest in one strong brand, preferably with an international appeal, often supported by large budgets for media campaigns and sponsorship. The disadvantage is that these brands are a 'one size fits all' in which customers preferences are lost within a broad group with which they cannot identify. Global brands for financial products have lost a great deal of prestige in this crisis. Nationally and locally, clearly defined brands which will inspire confidence. ASN Bank, with its tremendous expansion in its number of clients is a perfect example of this. The success of RegioBank, our community bank, shows that it is crucial to engage closely with customers. Four strong brands SNS Bank has four strong brands: SNS Bank, ASN Bank, RegioBank and BLG. Through sharper brand positioning, we remain closer to different customer groups and reach a greater proportion of Dutch consumers. This is also a good fit with the multiform society of the Netherlands. By sharing as many systems and processes as possible, we can achieve considerable cost-savings and increase economies of scale in the back office, while shortening new product introduction times. An example is the joint production facility for bank savings and the number two market position we worked hard on in 2011. Looking to the future of our company, our capacity to operate cost-effectively is absolutely essential. Only then can we offer good-quality products at a fair price. The company as a whole is participating in a programme to structurally reduce its cost base. Today's customers are not only looking for transparent and efficient products at a fair price they also want socially responsible customer service from an organisation that is part of a sustainable chain. For SNS Bank, with its social roots and its core value CARE!, this is self-evident. Starting from personal leadership, we take the lead by incorporating corporate responsibility (CR) in our strategic plans and reporting. SNS Bank Annual Report 2011 3


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    Sustainable and responsible Today's customers not only demand transparent and effective products at a fair price; they also want responsible customer service from an organisation which is part of a sustainable chain. Corporate responsibility is part and parcel of SNS Bank. Our mission of Simplicity in finance focuses on responsible service provision and our core value CARE! means that our concern is not only with financial results but also the care we exercise with respect to each other, the customer and society. CARE! is the vehicle by which corporate responsibility is integrated into how our people function, the services we offer and our business operations. The pillars of our company strategy are designed to reinforce our foundations and to build for the future of SNS Bank, ambitions which can only be achieved through continual dialogue with our stakeholders. With our efforts guided by the feedback from this dialogue we can be confident of focusing on concrete issues - topics which really matter. Corporate responsibility means that in addition to offering responsible services we also aim to operate as a responsible organisation. In concrete terms, it means acting as a responsible employer. SNS Bank offers its personnel an attractive combination of primary and secondary employment conditions. Determining factors are, of course, meeting our financial possibilities as well as the wishes of society. Three years ago, we therefore introduced a moderate remuneration policy for the Executive Board and senior management. Remuneration is now in line with the recommendations of the Banking Code and other relevant regulations. Continued retrenchment SNS Bank plans to continue its austerity policy during the current financial year. All financial institutions, SNS Bank included, are moving towards a new yield model involving lower volumes and lower margins. In order to generate a sustainable yield, structurally different employment conditions are essential. This inevitably leads to discussion of the fair price for a financial product. The year 2011 was not an easy one for our personnel. Nonetheless, employee satisfaction rose from 7.0 to 7.3 (on a scale of 1-10). In spite of retrenchment, SNS Bank remained an attractive and modern employer. Progress with introducing flexible working arrangements (Het Nieuwe Werken) played an important role. This new concept assigns additional responsibility to employees, allowing for a better balance between their working and private lives. Our mission of "Simplicity in finance" and our core value CARE! also enhance employee satisfaction. CARE! was further pursued in 2011 through a large number of activities both inside and outside the company. An important theme remained helping people become financially independent. With this aim in mind, we actively participated in organisations such as Stay on Top of Your Spending. We also gave 550 guest lessons at primary schools during Money Smart Week. In these straightened times, financial awareness has taken on a new importance. Old certainties are falling away. People increasingly have to think ahead and take future financial concerns into their own hands. The financial sector and the government both have a responsibility to ensure this is a development that proceeds smoothly. Ready for the ban on commission 2012 will undoubtedly be another challenging year with continued uncertainty and a decrease in purchasing power. The housing market will remain weak. We do not anticipate it recovering from its current low level. Moreover, we need to respond to large-scale changes in our product markets. Furthermore, we are moving towards ruling out commission on complex products, the Customer Agreed Remuneration (CAR), which SNS Bank fully supports. We consider CAR to be an opportunity to offer cost-efficient advisory solutions, and on our own initiative started adopting this working procedure back in 2009. SNS Bank Annual Report 2011 4


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    Mobilising our strengths Clearly, we once again have to give of our best in 2012. We will devote particular attention to reinforcing the foundation by continued phase-out of Property Finance and preparations for repaying the capital support to the State. This is no minor undertaking in an environment that is bound to be difficult and can change greatly each quarter. Fortunately, we have significant strength on which to call. In 2011, we proved our capacity to achieve good results with our core activities in difficult circumstances. We managed to attract more clients, reach higher customer satisfaction levels, reduce the cost base and raise more capital. Our employees are increasingly taking on board the implications of the core value CARE! and are motivated promotors of our mission of "Simplicity in finance". I would like to thank all SNS Bank employees and all those who have devoted themselves to helping achieve our mission and ambitions. E.J.G.V. Boers SNS Bank Annual Report 2011 5


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    3 Profile and brands SNS Bank, part of SNS REAAL, is a financial services provider engaged in banking, with a particular focus on the Dutch retail market, including small and medium sized enterprises. The product range consists of two core product groups: mortgages and property finance, and savings and investments. SNS Bank has a balance sheet total of approximately € 81 billion and 2.426 employees (FTEs), which makes it a major player in the Dutch market. SNS Bank has its head office in Utrecht. 3.1 General 3.1.1 Rooted in society As a banker, SNS Bank has strong roots in Dutch society. Through the first savings banks with a public utility function, SNS Bank has a 200-year banking history. 3.1.2 Simplicity in finance SNS Bank wants to stay close to its customers and society. What matters most is that every client gets the right product at the right time. However different our brands are, they share the same basic principles. SNS Bank wants to keep both feet on the ground and doesn’t want to make financial matters more complicated than necessary. All our brands represent our core belief in "Simplicity in finance". We want to increase our clients’ financial independence through clear, accessible products and services. 3.1.3 Having an eye for the customer We want to deserve our customers, both private and business customers. We want to be their financial specialist. We want to be the best at serving, helping and retaining customers. At SNS Bank, each brand gives its own meaning and direction to this. Our ultimate aim is to build sustainable relationships with our customers and stakeholders. 3.2 Our brands There is no such thing as a general customer. Everyone has different wishes, requirements and preferences. We want to serve all these people in a way that suits them best. That is why we do not hold a "one client, one bank" vision. We choose for different brands that each serves its customers in a way that suits them best. Each brand has its own working method, characteristics, mentality and products, from savings and investments. SNS Bank customers can go to more than 200 shops, ASN Bank is a full online bank, clients choose the coverage that best suits their pet and RegioBank works with personal advisors. 3.2.1 SNS Bank SNS Bank is the consumer brand with a wide and accessible range of banking and insurance products. SNS Bank is a bank where customers can decide how, when and where they take care of their banking business: online, by phone, at their own home with an advisor or via one of the 200 SNS Shops. SNS Bank also focuses on SME businesses. Products: savings, current accounts, investments, loans, mortgages, company loans on property and insurance. www.snsbank.nl SNS Bank Annual Report 2011 6


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    3.2.2 ASN Bank ASN Bank connects people who want to contribute to a sustainable society and offers financial products that contribute to such a society. Many clients are socially involved and well disposed towards a sustainable society. ASN Bank involves these clients into identifying themes to execute its mission. Products: savings, current accounts, investments and asset management. www.asn.nl 3.2.3 RegioBank RegioBank is the regional banking formulae with a network of some 530 independent advisors. You will find RegioBank in many smaller municipalities. Local and personal service is key. Products: mortgages, savings, current accounts, loans and investments. www.regiobank.nl 3.2.4 BLG Hypotheken BLG Hypotheken (Mortgages) is the specialist brand in mortgages for intermediaries. BLG Hypotheken offers flexible mortgages, so that intermediaries can compose a product that will optimally suit their client, even for exceptional situations or homes. Products: mortgages. www.blg.nl SNS Bank Annual Report 2011 7


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    4 Mission, core value and strategy SNS Bank’s mission is "Simplicity in Finance". We want to increase the financial independence of our customers. We do so by providing simple and accessible products and by offering assistance in making the right choices. 4.1 Simplicity in finance Our mission "Simplicity in finance" follows from the origins of our company nearly 200 years ago. Even then, openness, simplicity and solidarity were the pillars supporting our operations. Our aim is to use those same pillars to aid today’s customers in enhancing their ability to manage their financial affairs. Simplicity in finance is intended to gain and retain customers' and companies' trust. 4.2 CARE! and corporate responsibility We wish to operate responsibly for all our stakeholders. Our core value CARE! represents the responsibility we bear for our customers, for each other and for society, as well as for the results this produces for our shareholders and other investors. CARE! inspires and helps us to better embed corporate responsibility in our conduct, our organisation and our products. 4.3 Strategy Our mission, core value and strategy meet in the picture of our strategic house presented. The foundation supporting this house is a tight-knit and effective organisation, filled with committed and ambitious employees. Inspired by our core value CARE!, they define how they put corporate responsibility into practice. Based on our market positioning and a SWOT analysis, we have identified four strategic priorities: • Phasing out Property Finance. • Strong capital policy aimed at repaying the State and the Foundation. • Winning, helping and retaining clients. • Reducing the cost base. The phase-out of Property Finance and a strong capital policy are strengthening SNS Bank’s foundation. We build our future by winning, helping and retaining clients and reducing the cost base. This strategy fine-tunes the strategic pillars: ‘deserve customers’, ‘dare to choose’, ‘winning, helping and retaining customers’ and ‘decisive on result’. Accentuating our choices, all these elements are included in the strategic priorities. We have also created a distinction between building the foundation and building the future. 4.3.1 Phasing out Property Finance Developments in the financial sector in the past few years, particular in the property markets, led to a strategic reorientation of our Property Finance business. SNS Bank made two strategic choices: • The creation of a new business unit SNS SME as from 1 January 2011. SNS SME comprises part of the Dutch loans of Property Finance, the SME loan portfolio and SNS Bank’s SME savings. This will optimise and simplify portfolio management and improve our financing options. • Phase-out of the remaining loans at Property Finance. These loans are the international portfolio and part of the Dutch portfolio. This will improve SNS Bank’s risk profile and financing of the Banking activities. Following the Property Finance phase-out, SNS Bank will focus exclusively on the Dutch market. SNS Bank Annual Report 2011 8


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    4.3.2 Strong capital policy aimed at repayment of the Dutch State and the Foundation We are pursuing a strong capital policy to add to our strategic flexibility and the trust of customers, lenders and other SNS Bank stakeholders. In doing so, our focus is on: • Independent, solid capital position. It is our goal to repay the capital support received from the Dutch State and the Foundation in a responsible manner. • Capital release programme. • Strong risk identification and management. 4.3.3 Winning, helping and retaining customers We aim to provide our customers with suitable products through their preferred distribution channels and brands. Multiple brands and channels generate better effectiveness on our sales and marketing efforts and ensure maximum coverage of our entire target group. In this process, we use IT resources and production and service centres shared within the Group. In pursuing its goal to attract, help and retain customers, it is SNS Bank’s ambition to increase the focus on customers’ interests, improving customer satisfaction and the sustainable growth of its brands. Improved attention to customer interests and higher customer satisfaction can be achieved by: • Measuring customer satisfaction in a better way, targeting specific groups of customers. • Continuous dialogue with our customers, allowing us to improve our products and services anytime. • Improving customer contact and service levels. • Providing transparent and relevant products and advice. • Customers can easily determine if a product suits their needs either by themselves or with the help of a financial advisor. Sustainable growth of our brands will be achieved by: • New, successful products. Transparent product features and rates are crucial and are achieved by listening attentively to our customers and involving them in the product development process. Before launching new products, we make a careful estimate of the customer value, return and risks. • Multi-brand strategy. We serve our customers using a multi-brands strategy where each brand serves a specific customer group. • Attracting new customers. This requires clear brand positioning and targeted marketing and sales efforts. • Retaining customers and offering them a wider range of products and services. This requires a high level of service, knowledge of individual customer conduct and timely notification of (potentially) relevant products. SNS Bank Annual Report 2011 9


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    4.3.4 Reducing the cost base Reducing our organisation’s cost base improves our capital position and competitiveness, which allows us to generate the return we aim at, even in contracting markets and with higher capital requirements. A major tool in reducing the cost base is standardisation and alignment of IT systems and service centres. Combined with our multi-brand strategy, this allows us to quickly and efficiently respond to changing customer needs or simply broaden our product range. 4.4 Basis: Corporate responsibility and CARE! Our employees are fundamental in achieving our strategic goals. Inspired by our core value CARE!, they define how they put corporate responsibility into practice. In 2011, SNS Bank enhanced focus on its corporate responsibility strategy. Based on an integral vision that serves our stakeholders, we aim to better manage initiatives in this area and bring these together. As a result, our business units are responsible for achieving their own results - within preset frameworks - more than previously. Dutch financial institutions are subject to an extensive system of laws and regulations safeguarding the quality and safety of financial products and services. To SNS Bank, proper compliance with those laws and regulations comes natural. Corporate responsibility, however, takes things a step further, allowing us to do business on the basis of our own convictions and our own responsibilities. We aim to take the interests of customers, each other, shareholders and society into account. We have defined four themes to make measurable progress in these areas. The themes apply to all business units and staff departments: • Personal leadership. If you want to change the world, you must be the first to change, which is why we expect our managers and employees to take the lead in making our products and services more sustainable. Setting an example to others, we all propagate the core value CARE! in a recognisable way. • Responsible services. When developing, improving and offering our products and services, we place our customers’ interests first. ‘Responsible’ means that we acknowledge any positive and negative effects on people and the environment in all aspects of our daily work. • Responsible organisation. We want to be a responsible employer that our employees enjoy working for. We encourage their personnel development, wish to offer a good work-life balance and give responsible remuneration. We encourage our employees to assume responsibility for their work and career development. • Sustainable supply chain and the environment. SNS Bank is part of numerous product and service chains. As a major buyer, we exercise influence to make the supply chain more sustainable in cooperation with our partners. We do so by focussing on the responsible use of energy, housing, waste disposal and mobility. 4.5 Business units' strategies In implementing SNS Bank’s strategy, the business units SNS Retail Bank and SNS SME make their own choices regarding the best possible products and services. For the strategies pursued by the business units, see paragraph 9.1 SNS Retail Bank and paragraph 9.8 SNS SME. SNS Bank Annual Report 2011 10


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    5 SWOT analysis, strategic challenges and ambitions SNS Bank’s strategic challenges are based in part on the organisation’s market position and an analysis of its strengths and weaknesses and the opportunities and threats in the market. 5.1 Market position SNS Bank focuses primarily – and, in the future, solely – on the Dutch markets for mortgages and property finance, savings and investments. Our customers are especially private individuals and small and medium-sized enterprises (SME). We want to stand out with: • Several brands, allowing us to offer our customers the most suitable products through their preferred brands and distribution channels. • Our focus on clients interests by developing and offering transparent and accessible products combined with good service and advice. • Strong market positions based on transparent products with attractive price/quality ratios. • A clear structured and cost-efficient organisation with shared IT systems and service centres to achieve economies of scale. 5.2 SWOT analysis 5.2.1 Strengths • Focus on the Netherlands, customer groups and core products. This means bundling resources, management focus and expertise in developing, selling and distributing financial products in the Netherlands. Following the Property Finance phase-out, SNS Bank will only be active in the Netherlands. SNS Bank is one of the medium sized players in the Dutch markets for mortgages and savings. • Several brands. Our broad range of distinctive brands allows us to optimise our services to customers with different customer needs and thus increase our customer coverage. We manage our brands at the Group level. • Efficient organisation. This refers to our short time-to-market, our ability to perform integrations quickly and efficiently, and our relatively low cost base. • Corporate responsibility. We are committed to responsible products, service and operations. ASN Bank is the largest sustainable bank in the Netherlands. 5.2.2 Weaknesses • Limited strategic flexibility due to capital support. In 2008 SNS Bank issued core Tier 1 capital securities in order to increase its core capital. Repurchase of this capital support has high priority, resulting in reduced strategic flexibility until the moment the capital securities are repurchased in full. • Rating and financing costs. Due to the financial crisis of recent years, and particularly due to the organisation's exposure to the real estate markets, rating agencies have lowered the credit rating. This leads to higher financing costs. • Brand recognition. Compared to the brands of the major players, some of SNS Banks’ brands are lesser-known. • International property finance portfolio. The property markets conditions are particularly difficult in a number of countries. SNS Bank Annual Report 2011 11


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    5.2.3 Opportunities • Risk spreading and customer diversification. Growing numbers of customers purchase their financial products from different providers and brands. They do not always stick to the same brand and/or distribution channel. Customers also look for added value in brands they can identify with. Our multi-brand strategy allows us to capitalise on this aspect. • Restoring confidence in financial institutions. Our mission Simplicity in finance and our core value CARE!, are focused on putting the client's interest first and helping to restore consumers' confidence in SNS Bank and in the financial sector as a whole. • Rise of communities. New social media make it easier to set up communities of people with shared interests, for example on the basis of age, lifestyle, hobbies or social issues. SNS Bank’s multi-brand strategy allows it to capitalise on this aspect. Each of the brands can focus on the things relevant to their target groups. • SME market. The SME market is a steadily growing market with often attractive margins on account of the specific services provided. • Distribution of third-party products. The sale of third-party banking products in some product groups is unique in the Dutch market. This enhances our total product range and profitable growth and does not entail any additional demands on capital. 5.2.4 Threats • Downward pressure on margins. Legislative and regulatory changes, increasing market transparency and the demand for affordable and simple products lead to new terms of competition and new market entrants. All market parties will have to bring their cost prices even more in line with the value of products and customer advice. • Lack of confidence in financial institutions. The financial crisis has shaken consumer trust in financial institutions. If the financial sector does not succeed in restoring consumer trust, the demand for financial products will decline even further. • Economy and the real estate and residential property markets. The real estate markets in which SNS Bank operates largely continue to be weak. The impairments on international property loans decrease, but maintain evident. The Netherlands is experiencing a (mild) recession, rising unemployment rates and a drop in prices and stagnation in the residential property market. This may lead to mortgage impairments, including lower sales volumes of home-related banking and other parts of the Dutch real estate market. • Vulnerability in the event of capital market developments. Banks companies are dependent on the developments in the money and capital markets and are exposed to changes in interest rates and share prices. These markets are very volatile at the moment, in part because of their dependence on euro-related political policies and the high debts of a number of European countries. Financing our activities and protection of our capitalisation through the capital market can become more difficult and expensive as a result. • New capital requirements, contribution to deposit guarantee scheme (DGS) and taxes. Regulations of regulatory authorities and developments in the financial markets lead to stricter requirements with regard to the amount and quality of the required capital. This will lead to higher capital and liquidity costs and possibly lower returns. Banks may be facing a change to the deposit guarantee scheme, with a requested advance contribution, and the introduction of a banking tax. This could lead to higher capital requirements and lower returns. • Numerous legislative and regulatory changes. The laws and regulations applicable in the financial sector put material pressure on the sector and SNS bank’s organisation. Expectations are that this pressure will continue. In this respect think for instance of adjustments to products and product terms and conditions, data management, the risk management framework, reports and further education and training of employees. The increased regulatory pressure and the current climate in which the SNS Bank Annual Report 2011 12


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    financial sector now finds itself also result in a more (pro)active approach of national and international regulators. Their questions, consultations and requests, including an increased number of (stress) tests, put pressure on the organisation. This could come at the expense of productivity, innovation and results of financial institutions. Moreover, the risk of legal claims is increasing. • Products sold in the past are evaluated on current standards. In the past, financial institutions sold a number of products that, if judged by today’s standards, one could deem to be non-transparent, too expensive and/or ill-suited. Also increasing the risk of legal claims. 5.3 Strategic challenges Based on the SWOT analysis, SNS Bank has established the following strategic challenges: • The Property Finance phase-out in order to improve the risk profile and financing options. This will put pressure on profitability. • Strong capital management with a focus on terminating the capital support received from the State and SNS Foundation responsibly. The goal is to enhance the organisation’s strategic flexibility and to maintain and enhance the trust that customers, lenders and other stakeholders place in SNS Bank. • Winning, helping and retaining customers in order to raise our brands’ vitality and the scale of our activities to a level that safeguards the implementation of our mission ‘Simplicity in finance’. • Reducing the cost base in order to further enhance the organisation’s competitive edge and capital position. Structural cost reductions are necessary on account of - the growing demand for affordable, simple products - compete with new market entrants - increased market transparency - more stringent capital and liquidity requirements. The phase-out of Property Finance and strong capital management are strengthening SNS Bank’s foundation. We build our future by winning, helping and retaining clients and reducing the cost base. These strategic challenges determine our priorities in the years ahead. Chapter 4, Mission, core value and strategy includes a comprehensive overview of our strategy. Chapter 6, Strategy update presents the results we achieved in 2011 when facing our strategic challenges. 5.4 Ambitions 5.4.1 Net profit Given the volatile and challenging market conditions, SNS Bank currently does not have any specific profit ambitions. We continue to build on an organisation returning to healthy profitability. 5.4.2 Capital and liquidity ratio Our ambitions are as follows: • A core Tier 1 ratio according to the EBA (European Banking Authority) standard of at least 9% before the end of June 2012. • A core Tier 1 ratio of at least 10%. • A loan to deposit ratio between 125% and 150%. End of 2011 this was 160%. SNS Bank Annual Report 2011 13


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    5.4.3 Market share ambitions Market share targets Ambition 2011 2011 market share Ambition 2012 Savings 10% 10% 12-15% Mortgages (new inflow) 8-10% 6% 6% Market share banksavings is SNS Bank's own estimate 5.4.4 Aiming for measurable results We want to reinforce our aim on measurable results. We have primary performance indicators that dovetail with our core value CARE! These are the following: • Result and capital: net profit, efficiency ratios, solvency ratios, core Tier 1 ratio and liquidity ratios. • Customers: Net Promotor Score, market shares. • Each other: employee satisfaction, absenteeism. 5.4.5 Leading in corporate responsibility It is SNS Bank’s ambition to be leading in the Dutch market in financial services in corporate responsibility as from 2014. This means that SNS Bank will focus on the following for 2012 and beyond: • Integrating corporate responsibility throughout our organisation’s operations. This means in the governance structure, at the management and control levels of all of SNS Bank’s business units and staff departments. • Clear recognition and appreciation of corporate responsibility from our customers and other stakeholders. • Additional growth in market share through corporate responsibility. SNS Bank Annual Report 2011 14


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    6 Strategy update This chapter gives an overview of the progress made in our strategic priorities and the extent to which our ambitions for 2011 have been realised. SNS Bank established its strategic priorities and ambitions on the basis of its market position and a SWOT analysis. For the SWOT analysis, strategic challenges and ambitions see chapter 5. We are fixing the foundations of SNS Bank through the priorities of phasing out Property Finance and strong capital management aimed at repaying the Dutch State (the State). We are building for the future through the priorities winning, helping and retaining customer and reducing the cost base. 6.1 Phasing out Property Finance With the phasing out of Property Finance we are improving our risk profile and funding possibilities. For the moment this phase-out puts pressure on the profitability. Despite the difficult circumstances in the real estate and financial markets, we have made strong progress with the phase-out of Property Finance. Commitments (gross loans including undrawn loans) have been reduced by € 1.3 billion to € 5.5 billion (-20%). The risk-weighted assets were strongly reduced. For more details on Property Finance see chapter 10. 6.2 Strong capital management to repay the State and the Foundation Strong capital management increases our strategic flexibility and the confidence of customers, investors and other stakeholders in SNS Bank. 6.2.1 Independent, solid capital position The focus is on repurchasing the received capital support (core Tier 1 capital securities received from the State) in a responsible manner, while maintaining a strong capital position by the end of 2013. As a result of the cooperative position of the SNS Foundation, we are not compelled to repurchase the core Tier 1 capital securities of the Foundation at the same moment as the Dutch State. In light of this premise - maintaining our capital position - we did not repurchase any core Tier 1 capital securities in 2011. This is partly related to the increased capital requirements and the troubled financial market circumstances. Besides this, it is our ambition for SNS Bank to obtain a minimum core Tier 1 ratio of 10% in the long term. In 2011 the Dutch Central Bank (DNB) asked the Dutch banks to draw up a Basel III migration plan. SNS Bank presented her Basel III migration plan mid 2011. Based on the current requirements this plan shows that no important additional measures have to be taken to satisfy the new requirements. For further explanation of Basel III see paragraph 11.3.2. 6.2.2 EBA standard for core Tier 1 capital within reach SNS Bank had reported a core Tier 1 ratio of 8.6% as per 30 September 2011, based on Basel II including the 80% transition floor of Basel I for RWA calculation. Applying the EBA methodology, which includes the capital buffer in relation to sovereign debt, the core Tier 1 ratio was 8.2% as per 30 September 2011. To reach the EBA core Tier 1 ratio of 9%, SNS Bank needed to address a capital shortfall of € 159 million. In the fourth quarter of 2011, SNS Bank’s EBA core Tier 1 ratio had already increased from 8.2% to 8.8%, driven by both an increase of available core Tier 1 capital and a reduction of risk-weighted assets. In all, the EBA capital shortfall was reduced to € 32 million per 31 December 2011. SNS Bank will make sure it will have addressed the remaining shortfall by the end of June 2012. SNS Bank Annual Report 2011 15


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    The BIS ratio decreased from 16.7% at year-end 2010 to 14.4% as a result of redemptions of Tier 2 capital in the first half of 2011. In anticipation of these redemptions, SNS Bank had attracted € 500 million of Tier 2 capital in the fourth quarter of 2010. Furthermore, the BIS ratio decreased due to the lower Tier 2 exchange transaction in the fourth quarter of 2011 whereby lower Tier 2 debt was exchanged for senior debt. 6.2.3 Capital release programme update Due to the very volatile financial markets, a major part of the positive impact on solvency of the released capital was offset in 2011. On balance, in 2011, SNS Bank managed to release approximately € 350 million in capital to year-end 2011 as a result of: • The reduction of the SNS SME loan portfolio by € 1.6 billion in 2011 resulted in a decrease of risk-weighted assets by approximately € 1.2 billion, freeing up around € 96 million. • Buy-backs of own funding paper, including the Tier 2 exchange in the fourth quarter, resulting in a capital release of approximately € 95 million. 6.2.4 Strong risk management SNS Bank pursues a prudent risk management policy in line with the requirements of the Banking Code. In 2011, the main indicators were: • Based on the outlook for 2012, qualifying conditions for new mortgages were made more stringent. • Property Finance’s credit risk management was enhanced. As a result, the management of complex loans improved and losses in relation to these loans were limited as much as possible. • Solid solvency: core Tier 1 ratio 9.2% and Tier 1 ratio 12.2%. The ambition for the core Tier 1 ratio was increased from 8% to 10% in the long term. • Total liquidity remained high at € 11.1 billion end of 2011, against € 11.9 billion end of 2010. • The KPIs of senior management have additional elements included which relate to prudent risk management. • Explicit statement on the possibility of adequate risk management upon introduction and changes to products. • A lower concentration risk is actively pursued by reducing relative extensive financing. • Strategy and policy are tested for, and adjusted if needed based on insights from the stress and scenario analysis. 6.3 Winning, helping and retaining clients By winning, helping and retaining clients, we bring the vitality of our brands on to a level that secures the execution of our mission "Simplicity in finance" – also in the long term. The same applies to the scale and costs of our activities. We want to put our customers’ interests first, structurally improve customer satisfaction and grow our brands in a long-term sustainable manner. 6.3.1 Customers' interests and satisfaction Improved and more focused measurement In 2011, SNS Bank brands collaborated on better methods to measure and monitor customer satisfaction. An important step was the introduction of the NPS (Net Promotor Score) measurement method for all retail brands. We use this method to measure the number of clients that is positive about a brand so that they would recommend it to family and friends. From this result, we deduct the number of clients that would advise against the brand. The NPS statistics, based on a representative sample, are conducted twice a year by an external agency. By standardising measurements, we can combine efforts to make improvements and learn from each other. We saw progress in all brands through the course of the year. Only ASN Bank scored well right from the start. SNS Bank Annual Report 2011 16


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    The most important scores, in percentages: • SNS Bank from -50 at the start of 2011 to -33 year-end 2011 • RegioBank from -27 at the start of 2011 to -18 year-end 2011 • ASN Bank from 32 at the start of 2011 to 34 year-end 2011 Customer satisfaction in the entire financial sector has come under increased pressure in recent years as a result of developments in the financial sector. Among all surveyed Dutch banks and insurers, few had a positive NPS score in 2011, including ASN Bank. Learning from client dialogues SNS Bank improved the opportunities for clients to directly respond to, or give their opinion about products and services by adding special feedback pages on the website. Social media such as Twitter and Facebook too, make it easy for clients to comment on products and ask questions. SNS Bank set up a Client Advisory Council in 2010. Four times a year, directors of SNS Bank meet with a mixed group of some twenty clients. In many cases, a member of the Executive Board of SNS REAAL is also present. Topics discussed are for instance; customer service and SNS Bank’s policy, the situation in the financial sector and corporate responsibility. Each meeting, the directors of SNS Bank given an update on what concrete action SNS Bank has taken with the advice from previous meetings. In 2011, our clients talked with us about a broad range of personal experiences, such as the follow-up of mortgage advice, notifications of interest rate changes, the structure of mortgage and savings rates, activating a new debit card, closing or converting a current account, the lack of contact with SNS Bank after closing a savings account, improved web features for investors and combining mortgage advice with other financial advice. At SNS Bank’s request, clients assessed various services and working methods in terms of accessibility, simplicity and personal touch. Since August 2010, SNS Bank has launched SNS Community, an online platform for all SNS Bank clients who: • Want to express their opinion on statements, campaigns or commercials. • Want to join in discussions and news polls or want to bring up subjects themselves. • Want to ask SNS Bank employees questions and want to be kept informed on important developments within SNS Bank. As of January 2012 we have a renewed platform SNS Community. This platform has increased functionality and more possibilities to do research. Every other week we put a simple or complex research question forward, upon which clients can give their opinion. SNS Bank uses the information from this group of clients for improvement of her services. At this moment there are 1,050 members. With the aid of the new platform and new strategy we want to increase the number of members. ASN Bank makes the ‘Voor de wereld van morgen’ (For Tomorrow’s World) platform available to clients and interested parties, organises events and involves its clients in all kinds of sustainable initiatives, such as crowd funding and contests. Moreover, ASN Bank gave further meaning to dialogues with clients by the way it is moving forward towards implementation of its sustainable mission. Improving customer contact and service levels Service levels at SNS Bank improved. The number of complaints at SNS Bank declined considerably (37%). Contactability of SNS Customer service remained high (94%). SNS Bank and RegioBank want to be close to their clients. We devote a lot attention to personal contact through the 204 SNS Shops, 67 of which are licensed to franchisees. Clients who were assisted by one of our employees will also be called by that same employee for the follow up. Whereas many banks are moving away from smaller municipalities, SNS Bank Annual Report 2011 17


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    RegioBank is expanding its local network. The number of independent advisors rose. RegioBank is our banking formula for independent intermediaries who want to distinguish themselves when it comes to personal contact and advice. ASN Bank gauges customer satisfaction after opening an account every month. Customers’ tips and ideas are used to make the process simpler and easier. Simple, relevant products and appropriate advice Offering simple products is an assignment for all our business units. However, simplification is a process which takes time, and furthermore not possible to apply to products already sold. In developing new simple products and services we use feedback from our clients. SNS Bank for example asks feedback from her clients at every customer contact. The main results were: SNS Bank, RegioBank and BLG have for the most part switched to the non-commission fee based sale of mortgages. Instead, the client pays a fixed advisory fee. In doing so, these brands are ahead of a legal prohibition on mortgage commission fees to be enforced in 2013. SNS Bank is a great advocate of the new tariff structure. It enhances transparency in the market and objective and expert advice. ASN Bank reduced the number of regular savings accounts from five to one: ASN Ideaalsparen. Most clients now have better conditions. Customer fees on ASN's current account were reduced and terms and conditions improved. ASN Bank changed the names of five of its seven investment funds to better communicate the sustainable character of these funds. RegioBank reduced the number of current accounts from two to one and reduced its fee. SNS Bank had already strongly improved and simplified its range of savings products in 2010, at which time the number of savings products were reduced to six. SNS Bank organised free e-banking workshops for clients and potential clients at various locations throughout the country. 6.3.2 Sustainable growth of our brands Multi brand strategy SNS Bank distinguishes itself in the Dutch market through a multi-brand strategy. This allows efficient and effective response to market developments. It allows us to direct common indicators, minimise brand overlap and take advantage of specific market opportunities. We enhanced our formula policy in 2011 by ongoing segmentation and a stronger focus on growth opportunities and value creation. When positioning the brands, we pay more attention to the social-economic status, personal values and self reliance of customers these determine the client’s preferred distribution channel. This multi-brand strategy brings us closer to our clients’ needs and desired brand perception than a one brand strategy would. The increase of our market share in the savings market from 9.5% to 10.0% can be partly related to this strategy. Various product improvements and marketing and communication initiatives contributed to the strengthening of the brands. You will find more information in chapter 9 Developments SNS Bank. Attracting new clients The total number of clients of our retail bank brands increased with more than 100,000 to over 2.9 million. This was mainly due to the attractive payment and savings products. As a result, total savings deposits rose from € 27.4 billion to € 30.3 billion (+11%). The introduction (SNS Bank) and improvement (ASN Bank) of interest-bearing current accounts contributed to this. Each brand developed its own tailor-made commercial initiatives to optimally achieve the target group. In the mortgage market, SNS Bank preferred risk control and increased liquidity buffers to growth. As a result, the market share in new mortgages declined from 6.4% to 5.8%. Retaining clients and offering a broader range of products SNS Bank expanded its range of third party mortgage products, allowing more clients to get an attractive offer that best suits their wishes and possibilities. Third party mortgage sales increased significantly. SNS Bank Annual Report 2011 18


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    The retention rate of existing mortgages was high. SNS Bank chooses retention of and providing high-quality service to its existing clients is more important than attracting new clients. At the end of 2011, SNS Bank decided to cease selling mortgages through intermediaries, mainly due to the shortage in the capital market and more stringent requirements on the capital buffer. Now that the number of SNS Shops and advisors has increased, SNS Bank is also able to serve more clients itself. For more information, see chapter 9 Developments SNS Bank, More sales, less production. Successfull new products SNS Bank launched SNS Betalen, an interest-bearing current account. The new current account has a number of extra advantages, such as SNS Kasboek (cashbook). This provides clients insight into the pattern of their spending and to compare it to other households. The launch was accompanied by a comprehensive advertising campaign with the message that everyone should be entitled to receive credit interest on their current account. SNS Bank launched "SNS Jeugd Sparen" targeted at increasing savings among youngsters, an online account, including MijnSNS, the personal banking environment on the Internet. 6.4 Reducing the cost base A cost base reduction will enhance competitiveness and result in an improved capital position, allowing the organisation to make a profit even in shrinking markets coupled with higher capital requirements. Compared to 2010, the total adjusted operating expenses decreased from € 536 million to € 514 million (-4%). An important element was a reduction in the average number of FTEs from 2,639 to 2,426 (-8%). SNS Bank benefited from increased online sales and the conversion of SNS offices to SNS Shops. Other important contributions to the cost reductions were cost synergies through the harmonisation and standardisation of IT-systems, more sharp procurement and adjustment of employment conditions. Investments made by SNS Bank were mainly aimed at the continued improvement of the cost base in the coming years. The most important investments were related to the New World of Work and IT. 6.5 Realisation of ambitions 6.5.1 Net profit At this moment SNS bank has no concrete profit ambition, given the volatile and challenging market circumstances. The changing circumstances on the financial markets, the deteriorated economic prospects and heavily modified laws and regulations made this necessary. We will continue to build an organisation that returns to healthy profit levels. 6.5.2 Market share ambitions See paragraph 5.4.3 Market share ambitions for the realised market shares in 2011 and the ambitions set for these market shares. 6.5.3 Management by performance indicators SNS Bank wants to enhance management by means of quantifiable results. SNS Bank has key performance indicators that are in line with our core value CARE!. For realised capital and liquidity ratios, we refer to the section above and for other realised financial ratios to our Key figures. In 2011, SNS Bank launched the Net Promotor Score (NPS) to measure and monitor customer satisfaction throughout the Group. For more information on employee satisfaction and absenteeism, see chapter 13 Our people. SNS Bank Annual Report 2011 19


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    6.5.4 Corporate responsibility update In 2011, the Corporate Responsibility (CR) strategy was reformulated and tightened. The CR department developed policies to further embed CR in our daily activities. For their core activities, the major business units included CR objectives and ambitions in their operating plans for 2012. Thus, customer and employee satisfaction is structurally measured. SNS Bank Annual Report 2011 20


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    7 Outlook 2012 The debt crisis in Europe has led to government spending cuts, low consumer confidence, and shortages on the capital market. Banks must take precautions and retain a lot of liquidity and capital as a result of stricter requirements. This puts profitability in the sector under pressure and limits lending. SNS Bank is focusing on improving its capital position and risk profile, and increasing its profitability. We are doing this by continuing to reduce property financing, achieving growth in savings, increasing returns on sales, and lowering costs. We distinguish ourselves with transparent, accessible products and high quality service. 7.1 Financial markets in 2012 7.1.1 Equities: moderately positive with many uncertainties The Netherlands and the majority of other European countries will probably be confronted by a mild recession. Unemployment is expected to increase and the disposable income of many Dutch people will decrease. However, the forecast for global economic development is moderately positive, despite the problems in Europe. The economic recovery in the United States appears to be continuing, and the monetary policy of central banks is no longer restraining growth in emerging markets. At the start of 2012, equities appeared to be inexpensive in relation to current and anticipated profits. Although the macroeconomic developments are moderately positive, prudence is recommended. The risks are extremely high due to the major uncertainties arising from the euro crisis. 7.1.2 Interest rates low, risk surcharges high and volatile Economic growth slowed down in the euro zone at the end of 2011. The European Central Bank then cut its official interest rate in two steps to 1.00%. As a result of the uncertainties in the financial markets, the risk surcharges that investors charge banks and peripheral euro countries are, however, very high. These risk surcharges will remain high as long as there are no political solutions or clear economic improvements in the debt positions of the peripheral euro countries. Due to the high borrowing charges on the capital market, banks will focus even more sharply on the savings market and borrowing at the ECB. Competition between banks may result in lower savings margins and on available funding. The ECB’s interest rate policy depends mainly on the inflation trend. With a deepening of the debt crisis, inflation may turn out to be moderate. With returning confidence in the euro as a result of political solutions, inflation and thus the ECB’s interest rate can increase somewhat. But, in that case, the risk surcharges can decrease again. 7.2 Trend: changes in the distribution landscape The financial sector’s distribution landscape is changing significantly under pressure of laws and social trends. Major changes that SNS Bank has had to face – and will have to cope with in future – are: Tax benefits via bank savings products. Up until 2008, it was mainly the life insurers that provided the distribution of products for tax-assisted capital growth. Bank savings products were introduced in 2008, which provide customers with banking alternatives. Bank savings products have grown strongly since then, at the expense of more complex life insurance products that combine capital growth with guarantees and/or insurance policies. Bank savings products are often combined with pure life insurance products, such as term insurance policies and immediate annuities. SNS Bank is well positioned in this market with its combination of banking and insurance operations. Bank savings products are expected to remain a growth market for the time being. Remuneration via agreement between customer and advisor. Effective from 1 January 2013, commission will be prohibited for complex products for capital growth and mortgages. Instead of this commission, the advising body (bank or intermediary) will receive remuneration on the basis of an agreement with the customer. The separation between product price and advisors’ fee means more transparency for the customer. For producers and advisors this means that, to remain competitive, they must align the prices they offer more SNS Bank Annual Report 2011 21


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    strictly to the customer value they deliver. SNS Bank has already partly changed over to this new pricing model and is adapting the organisation further in order to respond properly to these requirements. Ban of distribution fee for investment funds. The Ministry of Finance has stated it wants ban on the distribution fee from providers of investment funds to distribution partners. The current fee concept includes the possibility that investment advice from distributors is (partly) based on financial gain and is thus not objective. Financial institutions must therefore develop a new business model for distribution of investment funds. Increase in direct selling of simple products. For simple products, consumers are increasingly opting for purchasing a product without the intervention of an intermediary. Gathering information and comparing products oneself has become increasingly easier as a result of the improvement and expansion of information available online. This trend is clearly visible, especially with savings and private non-life insurance policies. SNS Bank can respond well to this development with its multi-brand strategy and diversification of distribution channels. For example, the selling of non-life insurance via SNS Bank is increasing considerably. Our own advisers and intermediaries remain essential for many products, but cost efficiency and the provision of demonstrable customer value are more important. 7.3 Product markets in 2012 SNS Bank mainly expects growth in the market for (bank) savings. The markets for investing, mortgages and property finance are not likely to show growth. • Mortgage market remains under pressure • Continued growth of (bank) savings • Still no turnaround in property market 7.3.1 Mortgage market remains under pressure We expect a decline in the mortgage market in 2012. House prices will probably continue to fall and the number of transactions will continue at a low level. The development of the market will also depend on the progress of the euro crisis and economic developments that are partly related to this situation. The political decision-making concerning income tax friendly policies related to interest on mortgages and the issue of whether or not to stimulate the housing market will also play a major role. The number of owners of mortgages with payment arrears will probably increase. Reasons could include: lower income due to unemployment, double mortgage payments when the old property remains unsold, and/or negative equity, a mortgage value that is higher than the price realised when the house is sold. SNS Bank holds a mortgage portfolio with a risk profile in line with the Dutch market. The profitability of new mortgages could develop healthily as a result of reducing costs reductions and increased efficiency. We are achieving this with our focus on selling via SNS Shops and intermediaries who sell our BLG mortgages. In 2012, SNS Bank will no longer sell mortgages under the SNS or BLG brand to large chains and service providers. The increased number of SNS Shops and SNS advisors means we can serve more customers ourselves. In a period of capital scarcity, SNS Bank prefers to serve existing customers rather than attracting new customers. Contrary to the above mentioned healthy developments of the mortgages, credit losses are expected to increase. Due to the high percentage of NHG (guaranteed) mortgages and the vigilant and proactive management of mortgages with payment arrears, these losses will be less than the market average. SNS Bank Annual Report 2011 22


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    7.3.2 Continued growth of (bank) savings The euro crisis and the economic situation is encouraging thriftiness in 2012. Because the income of many households is declining or not growing, growth is not expected to be large. A positive incentive is based on maturing investment insurance policies. This is especially true for bank savings. This market is continuing to grow strongly. The bank savings products are a tax-beneficial, simple, and low risk solution for capital growth in the long term. Whether the enthusiasm for investing will increase again in 2012 is uncertain. Since the start of the financial crisis in 2009, the interest among private individuals has not yet returned to its level of the preceding years. SNS Bank, with its multi-brand strategy, is well positioned to continue gaining market share in the savings market in 2012. Success factors include: • Trusted brands and spreading of risks. In uncertain times, people opt for trusted brands and for spreading the risks. SNS Bank, with various retail bank brands, can therefore be beneficial. • Positioning in bank savings. In the market for bank savings, as a bank-insurer with a strong and extensive distribution network, SNS Bank can benefit well from the anticipated growth. Competition in the savings market is likely to increase because of developments in capital markets and regulation. This will put pressure on the margins. 7.3.3 Still no turnaround in property market Market conditions remain difficult in the majority of property markets in which Property Finance operates. The situation in the Netherlands will probably worsen in 2012. Demand is starting to pick up slowly in some regions of the United States. Property Finance will be reducing its portfolio during the next years. SNS SME also expects its portfolio to be further reduced in 2012, due to the maturing of loans and possible sales of sub-portfolios. By reducing risk-weighted assets, SNS Bank wants to increase its buffer capital and free up capital for the redemption of the capital support. The SNS SME portfolio comprises SME mortgages and investment financing in the Netherlands. SNS Bank Annual Report 2011 23


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    8 Financial outlines SNS Bank excluding Property Finance reported a net profit of € 286 million. SNS Retail Bank showed a healthy growth in net profit. The problems in Property Finance made it appropriate to make a big step towards a solution. For this reason the provisions were strengthened. As a result SNS Bank reported a loss of € 431 million in 2010. Capital and funding positions are solid, despite this loss. 8.1 Results 2011 compared to 2010 For the year 2011, SNS Bank reported a net profit of € 38 million, compared to a net loss of € 431 million for the year 2010. The main factor behind this rebound was the sharply lower net loss at Property Finance which decreased by € 395 million. Excluding Property Finance, the core activities of SNS Bank posted a net profit of € 286 million compared to € 431 million for the year 2010. SNS Bank’s net profit increased strongly in spite of a € 20 million net impairment charge on Greek government bonds and higher loan impairment charges. This increase was due mainly to the net gain of € 84 million from the lower Tier 2 exchange transaction and higher net interest income. At Property Finance, the net loss narrowed sharply, with lower loan impairments and the absence of goodwill impairments which impacted the 2010 result adversely more than compensating for lower net interest income. 8.2 Impact of one-off items At SNS Bank, the net impact of one-off items amounted to € 20 million negative, consisting of an impairment charge on Greek government bonds to reflect the market value. The Greek bonds mature in March 2012. Impact of one-ff items on SNS Bank's net result In € millions 2011 2010 Net result for the period at SNS Bank 262 212 Net result for the period at Property Finance (248) (643) Total net result for the period 14 (431) Impact of one-off items at SNS Bank (20) -- Impact of one-off items at Property Finance -- (68) Total one-off items (20) (68) Adjusted net result for the period at Retail Bank 282 212 Adjusted net result for the period at Property Finance (248) (575) Total adjusted net result for the period 34 (363) 8.3 Operating expenses Total operating expenses in 2011 decreased by € 3 million (-1%). Total adjusted operating expenses decreased by € 22 million (-4%). This decrease was driven by lower expenses at SNS Bank (- € 21 million) and Property Finance (- € 2 million). SNS Bank Annual Report 2011 24


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    Total operating expenses SNS Bank In € millions 2011 2010 Change Total operating expenses 573 576 (1%) Adjustments Restructuring charge at SNS Bank (SNS SME) 4 4 SNS Retail Bank's share in savings guarantee scheme (1) -- Expenses related to winding down portfolio Property Finance 56 36 Total adjustments 59 40 Total adjusted operating expenses SNS Bank 514 536 (4%) At SNS Retail Bank, the targeted annual cost savings from the new distribution strategy of € 35 million were realised by year-end 2011. SNS Bank Annual Report 2011 25


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    9 Developments SNS Bank As of 1 January 2011, the activities of the business unit SNS Bank consist of SNS Retail Bank and SNS SME. SNS Bank’s total net result rose from € 212 million to € 262 million (+24%), driven by an increase in net interest income, savings portfolio growth, cost savings and a lower Tier 2 exchange transaction. These amply exceeded the higher impairments on loans. The total number of unique customers of the retail bank brands grew by more than 100,000 to over 2.7 million. SNS Bank In € millions 2011 2010 Change SNS Retail Bank 248 139 78% SNS SME 38 73 (48%) SNS Bank 286 212 35% 9.1 SNS Retail Bank 9.1.1 Strategy The clients of our retail bank brands are mainly private individuals in the Netherlands. The brands’ products are savings, payments, mortgages and investments. The SNS Retail Bank brands complement each other, in line with SNS Bank’s multi-brand strategy. The brands differ in their product ranges, distribution channels, primary target groups and brand experience, but profit from efficiency benefits resulting from close collaboration in ICT, product development and procurement. All brands want to be close to their customers and help them to be financially independent, whereby each brand has its distinctive approach to this. A brief description of the different formulas: • SNS Bank is the broad and accessible consumer brand for banking and insurance products with an emphasis on sales and information over the internet and telephone. It provides additional information and advice through its own shops, franchisers’ shops and advisors. • ASN Bank is the brand for sustainable savings, investment and payments and sells its products solely over the internet, telephone and by mail. • RegioBank is the bank formula for intermediaries not located in large cities, focusing on local and personal service. • BLG Hypotheken is the specialist intermediary brand for mortgages. SNS Retail Bank seeks to reinforce its distribution capabilities. SNS Retail Bank’s key objectives are to further develop on-line sales, even closer mutual collaboration, a nationwide network of compact SNS Shops and RegioBank intermediaries, a complete product range based on its own standardised products as well as third-party products, and continued growth. SNS Bank Annual Report 2011 26


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    9.2 Financial developments SNS Retail Bank SNS Retail Bank In € millions 2011 2010 Change Result Net interest income 606 566 7% Net fee and commission income 79 85 (7%) Investment income 45 47 (4%) Result on financial instruments 155 9 1622% Other operating income 2 1 100% Total income 887 708 25% Impairment charges to loans and advances 82 59 39% Other impairment charges 119 4 2875% Total operating expenses 355 459 (23%) Total expenses 556 522 7% Result before tax 331 186 78% Taxation 83 47 77% Net result for the period 248 139 78% One-off items (20) -- 0% Adjusted net result for the period 268 139 93% Efficiency ratio 51.8% 64.8% Impairment charges to loans and advances as a % of gross outstanding loans to customers 0.15% 0.11% Risk-weighted assets Basel I (80%) 12,001 11,555 4% Savings 30,342 27,398 11% Loans and advances to customers 54,338 52,030 4% Impairment charges as a % of average gross outstanding loans to customers are for 2010 figures not calculated on the basis of average figures because these are not available for the new segment classification of SNS SME and Property Finance. 9.2.1 Results 2011 compared to 2010 Both commercially and financially, 2011 was a good year for SNS Retail Bank. The bank welcomed 104,000 new customers with overall customer satisfaction levels improving. ASN Bank continues to have one of the highest customer satisfaction rates in the industry and expanded its customer base supported by an award-winning TV advertising campaign. The repositioning of RegioBank is nearing completion and its increased presence in smaller communities is paying off. RegioBank is contributing to the growth of SNS Bank, particularly in bank savings. Net profit increased by € 109 million to € 248 million (+78%). Adjusted for the one-off impairment charge on Greek government bonds of € 20 million net, net profit was up by € 129 million, due mainly to a gain of € 84 million net from the lower Tier 2 exchange transaction. Excluding the impairment on Greek bonds and the gain from the lower Tier 2 exchange transaction, net profit increased by € 21 million due to higher net interest income and lower operating expenses, compensating for considerably higher loan impairments. 9.3 Income Net interest income increased markedly by € 40 million (+7%) driven by an improved funding profile. Net interest income in 2011 benefitted from the implementation of the harmonisation of the funding costs methodology between SNS Retail Bank, SNS SME and Property Finance. The savings portfolio increased by € 2.9 billion (+11%), with the second half of the year registering a slight decline. Bank saving balances, included in total saving balances, grew strongly by € 628 million to € 1,331 million (+89%). The increase in saving balances was supported by SNS Bank’s competitive interest rates and the good performances of ASN Bank and RegioBank. SNS Retail Bank’s market share in savings increased to 10.0% (2010: 9.5%). The loan-to-deposit ratio of SNS Retail Bank improved from 156% at year-end 2010 to 147%. SNS Bank Annual Report 2011 27


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    Net interest income from mortgages was impacted by the sale of subordinated RMBS tranches (e-notes) and the sale of a mortgage portfolio to REAAL as part of the capital release programme in the fourth quarter of 2010. SNS Retail Bank’s residential mortgage portfolio of € 51.4 billion was up € 2.1 billion. Of this, € 2.2 billion was caused by the transfer of mainly securitised retail mortgages from DBV as at 1 January 2011. The transfer of these mortgages did not have a material impact on net interest income. Organically, SNS Retail Bank’s residential mortgage portfolio remained almost stable, supported by high retention rates. The market for new residential mortgages in the Netherlands decreased by 1.5% in 2011. SNS Retail Bank’s market share of new residential mortgages was 5.8%, down compared to 2010 (6.4%). Net fee and commission income decreased, due mainly to lower fees on insurance products related to retail mortgages. Management fees increased significantly. Compared to year-end 2010, assets under management increased by € 1.3 billion to € 6.0 billion, fully driven by the rebranding of € 1.7 billion of AXA investment funds to SNS investment funds. Assets under management at SNS Fundcoach declined by 20% to € 611 million due to lower equity markets. Investment income remained stable at € 45 million and consisted mainly of trading results and realised results on the fixed-income portfolio. The result on financial instruments increased by € 146 million, driven fully by buy-back results on own funding paper. These results amounted to € 156 million, including a gain on the lower Tier 2 exchange transaction in the fourth quarter of € 112 million (€ 84 million net). In 2010, buy-back results had amounted to € 26 million. The higher buy-back results were partly offset by negative fair value movements of the DBV mortgage portfolio. 9.4 Expenses Total operating expenses were € 16 million lower (-3%) driven by a reduction in the number of staff. Costs in 2011 included a release of € 1 million related to SNS Retail Bank’s share in the savings guarantee scheme comprising a charge of € 6 million in the first half year followed by a release of € 7 million in the second half due to the final calculations of SNS Retail Bank’s share related to Icesave and DSB. SNS Retail Bank has completed its repositioning programme. The related targeted annual cost savings of € 35 million were realised by year-end 2011 and will have a full-year impact in 2012. The lower operating expenses in combination with higher total income, driven mainly by the gain from a lower Tier 2 exchange, led to a sharp improvement of the efficiency ratio to 51.8%. Excluding the gain from the Tier 2 exchange, the efficiency ratio was 59.6% (2010: 64.8%). Impairment charges to loans and advances increased sharply by € 23 million to 15 basis points of group outstanding loans from 11 basis points in 2010. This increase was due mainly to a charge in the fourth quarter related to increased prudence in credit risk models, to reflect the current market environment. Furthermore, impairment charges increased due to lower recovery amounts on mortgages as a result of pressure on housing prices. Other impairment charges amounted to € 31 million and consisted mainly of the impairment of Greek government bonds of € 27 million, classified as available for sale, to reflect market value. Impairments on tangible fixed assets amounted to € 3 million. 9.5 Credit risk Housing prices in the Netherlands declined throughout 2011. The price index of existing home sales fell 2.3% year-on-year and the number of homes sold was down 4.3% year-on-year. The weak housing market lengthens the recovery period of loans in default and lowers the final recovery amount. A new code of conduct for banks operating in the Netherlands came into effect as of 1 August 2011. The code limits new residential mortgages to 104% (plus tax, currently 2%) of the purchase price, instead of the previous limit of 112% (plus 6% tax). It also requires, in addition to a more thorough assessment of the financial capacity of the borrower, a compulsory redemption of 50% of the market value during the maturity of 30 years. The new code and the uncertain economic outlook are expected to keep activity on the mortgage market subdued. SNS Bank Annual Report 2011 28


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    As a result of the modest economic growth and weak housing market in the Netherlands, loans in arrears at SNS Retail Bank increased from € 1.616 million to € 1.792 million at year-end 2011 and as percentage of gross loans from 3.10% to 3.28%. However, as of the second half of 2011 the increase in arrears is slowing down compared to both the second half of 2010 and the first half of 2011. Also, the quality of new inflow of mortgages is improving thanks to stricter standards and an increase in mortgages covered by the Dutch Mortgage Guarantee Scheme (NHG). At SNS Bank 55% of new mortgage production in 2011 was covered by the Dutch Mortgage Guarantee Scheme (NHG). Of the total mortgage portfolio, 18.0% is now covered by NHG. The weighted average indexed Loan to Foreclosure Value (LtFV) stood at 92% as at end 2011 compared to 88% at year-end 2010. 9.6 Organisation and distribution 9.6.1 SNS Bank: innovation through simplicity SNS Bank has made online banking even simpler and more comprehensive for its customers. In 2011 SNS Bank offered, first of the large Dutch banks, as a novelty an interest-bearing current account. In 2010 SNS Bank strongly simplified its range of savings products. Furthermore SNS Bank alerts customers if they can transfer to a savings account with better terms. On the website customers can indicate after a search order directly if they are satisfied with the information offered. This direct feedback enables SNS Bank to continue further improvement of her website. In addition the SNS Kasboek (cashbook) has been introduced for improved budget management. On the customer service page, customers can now simply provide their input or ask questions through social media such as Twitter. Since 2011, SNS Bank has also maintained contact with its customers through Facebook. The SNS Bank website offers all kinds of tools for disabled people. SNS Bank remained the only bank in the Netherlands in 2011 to have received the title ‘Drempelvrij’ by Stichting Waarmerk Drempelvrij, which testifies to the accessibility of its website. SNS Bank involves customers in the development and improvement of products and services, for example through the SNS Community, the customer forum and contests. One example in 2011 is the new iPhone app, which has been developed based on ideas generated through a contest. SNS Bank wants to be close to its customers by means of its shops and advisors. The number of old SNS offices decreased further to 18 and the number of new SNS Shops rose from 89 to 137. The number of franchisers’ shops of the bank grew from 47 to 67. Many former insurance intermediaries are attracted to our franchise formula. The new SNS shops are often situated on category A locations and facilitate easy access to information and personal advice as well as assistance with online banking. Consultations, after prior arrangement, take place at the shops, at customers’ homes or elsewhere. Customer satisfaction at SNS Bank, based on the NPS measurement method, rose from -50% at the beginning of 2011 to -33% at the end of 2011. The number of complaints fell considerably by 37%. With a 94% service level, the accessibility of the SNS customer services remained at a high level. 9.6.2 ASN Bank: continued growth ASN Bank again reinforced its leading position in the sustainable-banking market. The total number of customers rose by 58,442 (+11.3%). ASN Bank connects people who wish to help build a sustainable society and offers products that contribute to just such a society. Years of consistency in sustainability policy, product policy, customer service and marketing have created a strong brand reputation and high customer satisfaction levels. ASN Bank mainly focuses on market for private individuals. In addition, she also accepts social organisations and companies as customers, on the condition that they act according to the responsible business principles of ASN Bank. In 2011, ASN Bank further elaborated its dialogue with customers about the specifics of its sustainability mission. ASN Bank involved its customers and other interested parties in the amendment of its human rights policy. Through social media (crowd sourcing) and a meeting, ASN Bank availed itself of the vision and expertise of hundreds of customers, SNS Bank Annual Report 2011 29


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    stakeholders and experts like John Ruggie. She used this in order to fine-tune its issue paper on human rights. In June 2011 the UN human rights council adopted the Guiding Principles on Business & Human Rights. ASN Bank incorporated these guidelines into her issue paper on human rights. In addition the bank gave substance to the themes chosen by customers through collaboration with strategic partners. On behalf of customers with Ideaalsparen (Ideal savings account) and credit card holders ASN Bank supports projects of these partners. Each year a portion of the profits flows directly to the projects associated with the chosen themes. ASN Bank was the first bank to introduce a switch-support service for new customers with a personal switch-over team. She improved also the website’s navigation structure. The first TV advertising campaign was launched in 2011 in order to enhance people’s knowledge of ASN Bank and its sustainability policy. Surveys revealed that many people who are interested in sustainability or sustainable banking did not yet know ASN Bank. Furthermore the bank expanded her Sustainability and Research Department. ASN Bank now independently performs all activities regarding policy-making, company assessments and research. Customer satisfaction at ASN Bank, based on the NPS measurement method, rose from 32% at the beginning of 2011 to 34% at the end of 2011. 9.6.3 RegioBank: personal contact and advice RegioBank is our banking formula for independent advisors (intermediaries). The formula is based on personal contact and advice. As many other banks are leaving the less crowded towns, RegioBank meets a growing need for local bank branches that provide personal service, including teller services. RegioBank has a flexible and low cost structure, in part because of the good alignment with the common systems of our retail bank brands. It appeared that the difference between SNS Regio Bank and SNS Bank was not clearly enough perceived by various target groups, despite different positioning. Therefore, in January 2011, SNS Regio Bank name was changed into RegioBank. This change is well received by customers and intermediaries. At the end of 2011, RegioBank collaborated with approximately 530 independent advisors throughout the Netherlands. Customer satisfaction at RegioBank, based on the NPS measurement method, rose from -29% at the beginning of 2011 to -18% at the end of 2011. The satisfaction of independent advisors working together with RegioBank rose from 63% to 82%. 9.6.4 Efficiency through central service centres Transaction processing of all brands of the SNS Bank business unit is centralized in service centres with respect to payments, savings, mortgages, investments and customer processes. In 2011, the quality of services rendered to customers has been further enhanced, in part by means of the standardisation and automation of processes. It is now even easier for customers to choose products they can identify with. The following in particular contributed to increased efficiency and customer focus: • Increased automation for opening current or savings accounts, which has made this even easier and faster. • Integration of processes of various mortgage activities. • Outsourcing of part of the investment processes. • Enhanced harmonisation between service centres and the bank’s internet channel and between SNS Bank and REAAL. The speed and accuracy of sales and administrative processing of insurance policies at SNS Bank increased as a result. • System modifications for more efficient compliance with new regulations, including assessing customers’ creditworthiness and identifying money-laundering schemes. SNS Bank Annual Report 2011 30


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    9.6.5 Awards Our retail bank brands again received many awards in areas such as customer service, customer friendliness, customer focus, best financial website, best online presence, online opening of savings accounts, most flexible current account, most flexible mortgage and best investment funds. 9.7 Commercial developments SNS Retail Bank 9.7.1 Savings and payments Further market share growth The total Dutch savings market, including bank savings, grew from € 291 billion to € 306 billion (+5.2%). SNS Retail Bank’s market share continued to grow, increasing from 9.5% to 10.0%. As at year-end 2011, total savings amounted to € 30.6 billion, representing an increase of approximately 58% in four years. As a result, retail funding rose from 64% to 67%, further decreasing the bank’s funding dependence on the capital market. Savings balances strongly increased in the first six months in particular. Customer interest rates rose in the second half of the year. The strong growth was the result of a number of factors. The product range, which was strongly simplified in 2010, makes it even easier for our customers to compare and select products online. When they can switch to a savings account with better terms and conditions, they receive a message from MijnSNS (their personal banking environment) or a telephone call. This service is much appreciated by our customers. The number of customers who left us in 2011 fell, compared to 2010. Interest on SNS Bank current account attracts customers In 2011, SNS Bank was the first major Dutch bank to introduce an interest-bearing current account. This new product was only introduced at the end of the year, nevertheless attracted almost 21,000 new SNS Bank customers in 2011. The introduction was underpinned by an intensive campaign, spreading the message that everyone is entitled to receive interest on their current accounts. A new service available to all customers with a current account is SNS Kasboek, which makes it easy to track income and expenses. Customers can set budgets and (anonymously) compare their income and expenses with those of other SNS Kasboek users. SNS Kasboek is in line with SNS Bank’s mission to help customers gain financial independence by giving them control of and insight into their finances. Strong growth ASN Bank savings balances ASN Bank contributed approximately 31% to SNS Retail Bank’s total net savings growth, mainly driven by a strong increase in the number of customers and high customer loyalty. As from 1 January 2011, ASN Bank reduced its five regular savings accounts to a single simple and transparent product without restrictive conditions: ASN Ideaalsparen. All customers who did not yet have an ASN Ideaalsparen account consequently received an account subject to better terms and conditions. In addition to this standard savings account, ASN Bank maintained its special young people savings account, its account for combined savings and investment, fixed-term deposit account and its life-course and salary savings account. In addition, the bank introduced the ASN Jongerenrekening, a current account for young people aged 12 to 25. During 2011, ASN Bank improved the terms and conditions of its interest-bearing current account, which was offered as one of the first banks. The monthly fee for the principal account holder and the credit interest rate in the event of overdrafts were both lowered. ASN Bank also introduced an iPhone app for up-to-date balance information. Customer retention high at RegioBank RegioBank contributed approximately 21% to the net savings growth at SNS Retail Bank. Customer retention was very high, partly as a result of its local and personal service. RegioBank reduced the number of regular current accounts for private individuals from two to one. All customers with the SNS Bank Annual Report 2011 31


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    more expensive package, Basis Betalen, were transferred to the cheaper package, Plus Betalen. In addition, RegioBank has an account for children, that offers increasingly more options as the children grow up. Partly because of RegioBank’s involvement in the foundation Weet Wat Je Besteedt , the minimum age for requesting an overdraft was raised from 15 to 18 years. In 2011, RegioBank enhanced its payment services for SME and self-employed persons with fixed and mobile payment terminals and online payment options. At the end of 2011, RegioBank introduced a special account for self-employed persons, the ZZP Rekening, on the basis of transaction bundles and online banking. The ZZP Rekening is easy to combine with a personal account in one personal internet environment. In 2011, RegioBank was praised in many surveys regarding the quality of its products, including the following: • Highest score and best buy for various savings products according to the Dutch Consumers’ Association in February and December. • Maximum valuation for Eigen Huis Sparen, Spaar-op-Maat Vrij and Bonus Sparen by Moneyview in June. • Third rank current account package Plus Betalen at the Dutch Consumers’ Association in July. • Lijfrente Opbouw most flexible life annuity product according to Moneyview in November. Continuing growth bank savings Bank savings increased with € 628 million to € 1.3 billion. Bank saving products are simple, transparent products with relative low risks and low costs enabling our customers to benefit from tax exemption to the greatest possible extent. That explains their growing popularity. In 2010, SNS Bank expanded its product range, in collaboration with the other retail bank brands and REAAL. Sales of pension related products and severance pay were up approximately 90% in 2011. The figures are exclusive of bank saving for mortgage redemption. RegioBank improved its support to independent advisors. The advisor has an option with bank savings products for supplementary pension accruals to convert their product fee into a higher interest rate for customers and additionally charge a separate fee. RegioBank and REAAL improved their approach of visitors to the website. By means of a calculation model, customers can gain insight into the financial impact of products on their own situation and immediately request a meeting with an advisor. At the end of 2011, all brands had the best interest rates in the market on the interest periods most commonly used at our organisation. Bank savings products can be divided into wealth creation products and benefit products. You can create Wealth creation is an addition to a pension and/or following a severance payment. The benefit products serve as an addition to the pension and/or for the payment of an amount that has been built up following a severance payment. Bank savings can also be used for mortgage redemption. 9.7.2 Mortgages Losses still limited despite stagnation in residential property market Volumes in the Dutch new mortgages market showed a limited decline, from € 67 billion in 2010 to € 64 billion in 2011. The number of mortgage transactions decreased by approximately 4.6% to 246,000, while the average transaction amount increased about 2%. The number of defaults at SNS Retail Bank rose slightly and the scope of write-downs increased. The number of write-downs (611) was only limited, but still increased. The number of payment arrears on mortgages showed a limited increase as well of 2.7%. SNS Bank’s risk profile remained moderate as a result of the high rate of new mortgages covered by the National Mortgage Guarantee Scheme (NHG). This rate grew from 48.3% to 55.2%. The lower and middle segments of the residential property market, in which SNS Retail Bank is well represented, still had only a limited exposure to price drops in 2011. The average amount of registered new mortgage loans extended by SNS Retail Bank in 2011 was € 220,000 compared to a nationwide average of € 267,000. In consultation with the Ministry of Finance, the Dutch banks agreed on stricter rules for taking out a mortgage. The mortgage may not exceed the maximum of 104% of the property plus transfer tax. For interest-only mortgages this upper limit is set at 50%. SNS Bank Annual Report 2011 32


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    In addition there are stricter income composition standards that determine the maximum amount. In this way banks are limiting the risks on new mortgages. Consumers themselves are also becoming more cautious. A growing number of home owners create additional wealth to repay their mortgage loans. Sharing ideas, also with payment difficulties Since 2010, SNS Retail Bank has a Special Credits department responsible for customers who want to pay their mortgages but are no longer able to do so. The account managers try to offer solutions and provide assistance. The number of customers facing financial difficulties has increased since last year, for example as a result of unemployment, divorce or lower income. SNS Bank wants to make a distinction between people with poor payment ethics and people who act entirely in good faith. The SNS Bank account managers visit customers at home, familiarise themselves with the financial situation, make suggestions to limit expenses and/or increase income and then try to find a solution together with the customer. Such a solution is always much more beneficial to both parties than a foreclosure sale by means of an auction. More sales, less production SNS Bank wants to establish more firmly its position as advisor. The growth in the number of SNS Shops, the range of third-party mortgages and additional training for our advisors underpinned this development. SNS Bank introduced fixed advisory fees, anticipating the ban on commission fees scheduled to take effect in 2013. This enhances the market’s transparency and removes any (alleged) benefit of the sales person in maximising the mortgage amount. At the end of 2011, the decision was made to discontinue the sale of SNS mortgages through intermediaries under our own brand name. As a result, SNS Bank has become the exclusive house brand within the range of direct sales. Mortgages under the brand name BLG will continue to be available through the independent intermediaries. The main reason is that the business unit SNS Bank finds it more important to serve existing customers well instead of attracting new customers. SNS Bank’s own mortgage, the SNS Plafondrente Hypotheek (capped rate mortgage), remained popular in 2011, comprising approximately 21% of the sales effected through its own sales channel. This product positively capitalises on customers’ need for a limitation of risks. Customers taking out this mortgage benefit from interest rate decreases, but are also assured that interest rates will never exceed the agreed interest rate cap. In collaboration with the website Huislijn, SNS Bank introduced the home searching service Mail Mijn Huis, which informs (potential) customers by e-mail about the current supply of owner-occupied and rented homes that meet their desires. This service brings (potential) customers in contact with SNS Bank in a positive way even before they start looking for a mortgage. In 2011 there were also various promotions, such as an interest discount of 0.2% on the interest rate cap of the SNS Plafondhypotheek and four free insurance policies with an SNS mortgage. Most mortgages through RegioBank and BLG Hypotheken The indirect channel was responsible for the majority of sales (excluding franchisers’ shops), with 74% (2010: 83%), 18% of which (2010: 23%) was achieved by RegioBank advisors and 61% (2010: 77%) by independent intermediaries carrying our intermediary brand BLG Hypotheken. With its campaign ‘Oplossing voor uw Aflossing’ (Solution to Your Redemption), RegioBank was one of the first banks to focus attention on the importance of wealth creation with a view on mortgage redemption. The introduction of the mortgage without commission fees was very well received. In 2011, 85% of all mortgage applications were effectuated without commission fees. SNS Bank Annual Report 2011 33


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    9.7.3 Investments Limited upturn in investor sentiment Our customers’ appetite for investment showed a limited increase, despite the euro crisis and uncertain economic conditions. Total assets under management were up € 1.6 billion, from € 4.8 billion to € 6.4 billion, largely attributed to an internal transfer for the benefit of the SNS Investment Funds. In the middle of 2011, the securities processing operations for the customer group Zelf Beleggen were outsourced to BinckBank. Investors receive more information and more options for setting up their portfolios on the investment site of BinckBank. SNS Bank customers can invest independently through SNS Fundcoach or SNS Zelf Beleggen. SNS Fundcoach offers a selection of more than three hundred major international and specialist investment fund providers. SNS Zelf Beleggen gives customers the opportunity to invest in shares, bonds, options and a limited number of investment funds. The number of transactions effected through SNS Zelf Beleggen showed a limited decrease. Investment management and advice-based investing for assets of € 250,000 or more in respect of individual shares are provided by SNS Securities. This part of SNS Bank specialises in investments, loans and financial transactions. SNS Bank received various awards for its investment funds. SNS Beleggingsfondsen won the Lipper Award in the mixed assets category for the third year in a row. The Lipper Awards are awarded to investment funds and investment houses that consistently outperform the market average in the longer term. The Eurofonds Grand Prix was won in the smaller investment houses category on account of the best return, adjusted for the risk profile, over the past three years. Sustainable names for ASN Bank investment funds ASN Bank offers its customers only sustainable investment funds based on unequivocal admission and exclusion criteria, which can be found at www.asnbank.nl. In May, ASN Bank changed the names of five of its seven investment funds in order to better highlight the sustainable nature of these funds. The word ‘sustainable’ (in Dutch: duurzaam) was added to the names of four funds: ASN Duurzaam Aandelenfonds, ASN Duurzaam Obligatiefonds, ASN Duurzaam Mixfonds and ASN Duurzaam Small & Midcapfonds. ASN-Novib Fonds’ name was changed to ASN-Novib Microkredietfonds in order to better indicate the type of investments made by this fund. Various ASN Bank funds again received awards. The ASN Milieu & Waterfonds won the Groene Stier (‘Green Bull’) award – the public award for the best sustainable investment product, organised by Belegger.nl – for the fifth year in a row, and also won the FD Morningstar Award 2011. The ASN Duurzaam Aandelenfonds was chosen product of the year by De Telegraaf’s OverGeld.nl, winning in a competition that also included non-sustainable products of renowned Dutch and foreign financial institutions. One of the distinguishing features of the ASN Duurzaam Aandelenfonds is its strong focus on limiting carbon emissions. ASN Bank acquired a majority interest in ASN Asset Management (formerly NBC Duurzaam Vermogensbeheer). ASN Asset Management composes portfolios on the basis of ASN Bank’s special investment criteria, so that customers can rest assured that their capital is only invested in entities, countries and projects that take human well being and the environment into account. ASN Asset Management is intended for private individuals, foundations, associations and social institutions with investable assets of € 200,000 or more. Profit contributions SNS Securities SNS Securities’ profit contribution decreased due to the challenging market conditions. The customer and securities deposits of high-net-worth SNS Bank customers were transferred to SNS Securities in Amsterdam at the end of 2010. Thus the various wealth propositions within SNS REAAL are more closely coordinated. SNS Securities wants to continue its growth in the area of high-net-worth individuals. SNS Securities provides securities services (shares, bonds and derivatives) to national and international professional investors. In addition, it supports SME and larger companies in private and public capital market transactions and offers investment management and securities services to high-net-worth private investor’s. The securities research conducted SNS Bank Annual Report 2011 34


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    by SNS Securities mainly focuses on Dutch small-cap and mid-cap funds. The macroeconomic research is also used for SNS REAAL’s risk management. 9.8 SNS SME 9.8.1 Strategy SNS SME’s clients are mainly SME companies, self employed persons and property investors. The main products for this market are savings, payments, mortgages, loans based on the value of business premises, and insurance. Simplicity in finance in the corporate market is considered just as important as in the retail market. Since 1 January 2011, SNS SME is a combination for the former SME activities of SNS Retail Bank and part of Property Finance’s Dutch investment finance portfolio. It has a moderate risk profile, but is subject to deteriorating market conditions. SNS SME focuses on loans secured by property collateral and based on limited contract size. 9.9 Financial developments SNS SME SNS SME In € millions 2011 2010 Change Result Net interest income 144 168 (14%) Net fee and commission income 7 7 0% Result on financial instruments (6) -- 0% Other operating income -- 3 (100%) Total income 145 178 (19%) Impairment charges to loans and advances 46 26 77% Total operating expenses 48 53 (9%) Total expenses 94 79 19% Result before tax 51 99 (48%) Taxation 13 26 (50%) Net result for the period 38 73 (48%) Efficiency ratio 33.1% 29.8% Impairment charges to loans and advances as a % of gross outstanding loans to customers 0.71% 0.36% Risk-weighted assets Basel I (80%) 4,115 5,314 (23%) Loans and advances to customers 5,656 7,199 (21%) Impairment charges as a % of average gross outstanding loans to customers are for 2010 figures not calculated on the basis of average figures because these are not available for the new segment classification of SNS SME and Property Finance. 9.9.1 Result 2011 compared to 2010 SNS SME posted a net profit of € 38 million compared to € 73 million for the year 2010. This decrease was fully driven by lower total income (-19%) and higher impairment charges. Operating expenses were markedly lower. Total income declined due mainly to the reduction of the loan portfolio as part of SNS REAAL’s capital release programme. The strengthening of provisions for non-performing loans required higher impairment charges. SNS Bank Annual Report 2011 35


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    9.10 Income SNS SME’s total income declined by € 33 million due to lower net interest income and a lower result on financial instruments. Net interest income was negatively influenced by the lower loan portfolio and lower SME savings balances. SME savings included in ‘Other amounts due to customers’, decreased from € 3.7 billion at year-end 2010 to € 3.3 billion. Furthermore, net interest income was negatively impacted by the implementation of a harmonisation of funding costs methodology between SNS Retail Bank and SNS SME. The negative result on financial instruments resulted from the sale of € 330 million non-provisioned loans with a small discount of € 6 million. Other operating income was nil, whereas the year 2010 had benefitted from some gains on the sale of rental objects. 9.11 Expenses Total operating expenses decreased by € 5 million supported by a reduction in the number of staff. However, as a result of the decrease in total income, the efficiency ratio increased from 29.8% to 33.1%. Impairment charges to loans and advances increased by € 20 million to € 46 million mainly due to the need to strengthen provisioning levels in the former Property Finance SME loan portfolio. Non-performing loans increased by € 32 million to € 249 million equating to 4.3% of loans outstanding. The coverage ratio of SNS SME increased from 36.4% to 41.8%. The average LtV of the former Property Finance loan portfolio included in SNS SME increased by 4.2 percentage points from 70.2% at year-end 2010 to 74.4% as collateral values were updated based on a reappraisal of a representative part of the portfolio. Although recent valuations reflect careful interpretations of comparable transactions, valuation ranges remain relatively wide. SNS Bank Annual Report 2011 36


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    9.12 Development portfolio Breakdown SNS SME Portfolio In € millions PF SME SNS Retail Bank SNS SME SME Total portfolio December 2011 Commitments 4,144 1,613 5,757 Undrawn commitments (14) -- (14) Outstanding loan portfolio (gross) 4,158 1,613 5,771 Loan provision 42 62 104 Outstanding loan portfolio 4,116 1,551 5,667 Property projects 7 -- 7 Total exposure 4,123 1,551 5,674 Non performing loans 41 208 249 Non performing loans as % of loans outstanding 1.0% 12.9% 4.3% Coverage ratio 103.2% 29.8% 41.8% Total portfolio December 2010 Commitments 5,714 1,673 7,387 Undrawn commitments 97 -- 97 Outstanding loan portfolio (gross) 5,617 1,673 7,290 Loan provision 11 68 79 Outstanding loan portfolio 5,606 1,605 7,211 Property projects 11 -- 11 Held for sale 27 -- 27 Total exposure 5,644 1,605 7,249 Non performing loans 12 205 217 Non performing loans as % of loans outstanding 0.2% 12.3% 3.0% Coverage ratio 91.7% 33.2% 36.4% Portfolios based on former business unit structure As part of SNS REAAL’s capital release programme, commitments at SNS SME were reduced from € 7.4 billion at the end of 2010 to € 5.7 billion (-22%). Total exposure was reduced by € 1.6 billion to € 5.7 billion. The decline of outstanding loans was due to redemptions and the sale of a number of loans. Assets held for sale decreased from € 27 million as at year-end 2010 to nil. Property projects decreased slightly to € 7 million. 9.13 Commercial developments SNS SME SNS SME signed a sustainability covenant with ABN Amro, FGH Bank, ING Real Estate Finance and Syntrus Achmea Vastgoed. The parties involved aim to promote sustainable real estate construction and sustainable renovation. A core group of property financiers of the Dutch Green Building Council (DGBC) took the initiative for this covenant. The co-signers aim to further embed sustainability in their own organisations and put more weight to sustainability when making a choice in the real estate to be financed and the financing conditions. The co-signers will develop a strategy to integrate sustainability in the real estate sector and promote the sustainable construction of new homes and to increase the sustainability of existing properties of their clients. SNS Bank Annual Report 2011 37


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    10 Developments Property Finance Net loss sharply lower at € 248 million, driven by lower impairment charges. Total exposure reduced by € 1.0 billion to € 5.3 billion (-16%). Net interest income sharply lower due to lower loan portfolio and higher funding costs. Coverage ratio lower at 34% of virtually stable non-performing loans (year-end 2010: 41%). Operating expenses impacted by costs related to phasing out of loan portfolio. 10.1 Financial developments at Property Finance Property Finance In € millions 2011 2010 Change Result Net interest income 53 137 (61%) Result on financial instruments (30) (29) (3%) Result assets and liabilities held for sale (4) -- 0% Other operating income (9) (9) 0% Total income 10 99 (90%) Total operating expenses 82 64 28% Impairment charges 251 784 (68%) Impairment charges goodwill -- 68 (100%) Total expenses 333 916 (64%) Result before tax (323) (817) 60% Taxation (75) (174) 57% Net result for the period (248) (643) 61% One-off items -- (68) 100% Adjusted net result for the period (248) (575) 57% Impairment charges as a % of gross outstandings to customers 3.9% 11.1% Risk-weighted assets Basel I (80%) 4,418 5,261 (16%) Loans and advances to customers 4,784 5,784 (17%) Property projects 505 456 11% Assets held for sale -- 94 (100%) Impairment charges as a % of average gross outstandings are for 2010 figures not calculated on the basis of average figures because these are not available for the new segment classification of SNS SME and Property Finance. 10.2 Results 2011 compared to 2010 Property Finance posted a net loss of € 248 million, an improvement of € 395 million compared to 2010. Adjusted for the goodwill impairment of € 68 million in 2010, the net loss fell by € 327 million. This decrease was due fully to lower impairments, more than compensating for lower net interest income and higher operating expenses. 10.3 Income Net interest income declined by 61%. The winding down of the loan portfolio reduced interest income substantially and also led to lower interest-related fee and commission income included in net interest income. Approximately one third of the decline was due to higher funding costs as a result of the implementation of a harmonisation of funding methodology between SNS Retail Bank and Property Finance. The result on financial instruments of € 30 million negative consisted mainly of discounts on sales of non-provisioned loans, especially in the second half year. The result of financial instruments for the whole of 2011 was almost stable compared to 2010. Operational and transaction results related to assets and liabilities held for sale amounted to € 4 million negative. Other operating income was stable at € 9 million negative and consisted mainly of negative results on property projects. SNS Bank Annual Report 2011 38


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    10.4 Expenses Operating expenses increased by € 18 million to € 82 million, as legal and advisory costs related to winding down the loan portfolio rose to € 56 million compared to € 36 million in 2010. Adjusted for these costs, operating expenses declined by € 2 million driven by a decrease in FTEs. Impairment charges decreased sharply by € 533 million to € 251 million (-68%) and consisted of € 163 million of impairments on loans, € 91 million of impairments on property projects and € 3 million reversal of earlier impairments on participations. Impairment charges on the Dutch portfolio amounted to € 123 million compared to € 174 million in 2010. In the international portfolio, impairment charges decreased to € 128 million from € 610 million in 2010, following the strengthening of provisioning levels in 2010 and due to the progress in winding down the portfolio in 2011. Impairments in the second half of 2011 amounted to € 113 million compared to € 138 million for the first half of 2011. This decrease was due mainly to a release of a provision related to the restructuring of a non performing loan in the fourth quarter. 10.5 Portfolio development Dutch and international real estate markets experienced another tough year. Circumstances in international real estate markets remained difficult, keeping real estate values under pressure. Real estate markets in the Netherlands weakened in 2011 as well, as reflected in high vacancy ratios in the retail and office sectors and a pressure on rent levels. In general, the availability of credit for real estate financing declined. This resulted in a level of impairments that remained high. The impairments reflect the changes in the expected cash flows of the underlying assets. Expected cash flows are driven by projections, based on defined exit plans, of rental income, price per square metre, construction costs, interest costs and exit values as reflected in reports provided by independent professional appraisers. Due to the deterioration in real estate markets, the average LtV of the total loan portfolio increased by 6.9 percentage point from 96.4% to 103.3%. The average LtV of the international portfolio decreased from 97.6% to 94.4%, due mainly to the sale of and foreclosure on non-performing loans in the United States and Spain. Net of provisions the average LtV of the international portfolio amounted to 82.4% at year-end 2011. In contrast to the international portfolio, the average LtV of the Dutch portfolio increased from 95.8% to 110.0%. Net of provisions the average LtV of the Dutch portfolio amounted to 99.2% at year-end 2011. Loans with LtVs above 100% are monitored stringently. Furthermore, additional measures are taken such as additional guarantees and cross-collateralisation. Collateral values have been updated based on reappraisal of a representative part of the portfolio. Market circumstances have led to a reduction of recent and comparable transactions, with recent transactions sometimes reflecting sellers in financial difficulties. Although recent valuations reflect careful interpretations of comparable transactions, valuation ranges remain relatively wide. 10.6 Total portfolio Total commitments declined from € 6.8 billion at the end of 2010 to € 5.5 billion (-20%). Total exposure declined from € 6.3 billion at year-end 2010 to € 5.3 billion (-16%), corresponding to a decline in risk-weighted assets by € 0.9 billion. Total non-performing loans decreased by € 33 million to € 1,728 million. This was due mainly to the sale of non-performing loans and the foreclosure and reclassification of non-performing loans to property projects of € 372 million gross and € 160 million net. This was largely offset by new inflow, of which 67% related to Dutch loans. Total non-performing loans as a percentage of gross loans increased from 27% to 32% driven by the decline in the portfolio. Compared to year-end 2010, the loan provision decreased by € 133 million to € 595 million due to the reduction of the loan portfolio and the foreclosure and reclassification of non-performing loans to property projects. The coverage ratio decreased from 41% to 34%. In the Netherlands and North America, the coverage ratios remained stable at 29% and SNS Bank Annual Report 2011 39


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    54% respectively. The coverage ratio in Europe declined from 49% to 38%, due mainly to new inflow of non-performing loans in Germany. Compared to year-end 2010, property projects (real estate projects where Property Finance has taken control) increased from € 456 million to € 505 million due mainly to new foreclosures, partly compensated by impairments and sales. The foreclosures in 2011 largely consisted of projects in the USA and Spain. Held for sale, consisting of projects expected to be sold in the near future, decreased from € 94 million at year-end 2010 to nil. This mainly related to the sale of the 55 West project in the USA in the first half of 2011. Table 14: Breakdown Property Finance portfolio In € millions 2011 2010 Total portfolio Commitments 5,480 6,840 Undrawn commitments 102 328 Outstanding loan portfolio (gross) 5,378 6,512 Loan provision 595 728 Outstanding loan portfolio 4,783 5,784 Property projects 505 456 Held for sale -- 94 Total exposure 5,288 6,334 Non performing loans 1,728 1,761 Non performing loans as % of loans outstanding 32.1% 27.0% Coverage ratio 34.4% 41.3% Average loan-to-value (LtV) 103.3% 96.4% Dutch portfolio Commitments 3,323 3,763 Undrawn commitments 75 216 Outstanding loan portfolio (gross) 3,248 3,547 Loan provision 324 222 Outstanding loan portfolio 2,924 3,325 Property projects 29 -- Total exposure 2,953 3,325 Non performing loans 1,130 788 Non performing loans as % of loans outstanding 34.8% 22.2% Coverage ratio 28.7% 28.2% Average loan-to-value (LtV) 110.0% 95.8% International portfolio Commitments 2,157 3,077 Undrawn commitments 27 112 Outstanding loan portfolio (gross) 2,130 2,965 Loan provision 271 506 Outstanding loan portfolio 1,859 2,459 Property projects 476 456 Held for sale -- 94 Total exposure 2,335 3,009 Non performing loans 598 973 Non performing loans as % of loans outstanding 28.1% 32.8% Coverage ratio 45.3% 52.0% Average loan-to-value (LtV) 94.4% 97.6% SNS Bank Annual Report 2011 40


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    10.7 Dutch portfolio Total commitments declined from € 3.8 billion at year-end 2010 to € 3.3 billion (-12%). Total exposure declined from € 3.3 billion at year-end 2010 to € 3.0 billion (-11%), mainly through redemptions. Non-performing Dutch loans increased by € 342 million compared to year-end 2010 due mainly to new inflow reflecting the weakening and challenging of domestic real estate markets. The outflow was limited. Total non-performing loans as a percentage of gross loans outstanding increased from 22% at year-end 2010 to 35%. The coverage ratio was almost stable at 29%. 10.8 International portfolio Total commitments declined from € 3.1 billion at year-end 2010 to € 2.2 billion (-30%). Total exposure declined from € 3.0 billion at year-end 2010 to € 2.3 billion (-22%). The international loan portfolio was reduced through redemptions, the sale of loans, movements in foreign exchange rates (-€ 20 million) and reclassifications from loans to property projects. As a result of restructuring activities, non-performing international loans decreased by € 375 million in 2011. New inflow in 2011 related to North America and Germany, the outflow mainly related to North America, Spain and Denmark. As a percentage of gross loans outstanding, non-performing loans decreased from 33% at year-end 2010 to 28%. The coverage ratio of the international non-performing loans decreased from 52% to 45%, mainly due to the reclassification of non-performing loans to property projects and to new inflow in Germany. SNS Bank Annual Report 2011 41


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    11 Risk and capital management Risk levels rose in 2011. This was mainly due to the uncertainty in Europe (particularly related to the euro), volatility in the financial markets and the deteriorating economic situation. 11.1 Key risks for SNS Bank The main risks for SNS Bank end of 2011 were: • Growing uncertainty over credit losses caused by a deterioration of the macro-economic environment. This is particularly true for Property Finance, SNS Bank SME and the mortgage portfolio. • Potentially higher losses on foreclosures caused by developments on the housing market. Uncertainties in the market, for example with regard to economic developments and possible limitations on the mortgage interest deduction, negatively impacts people’s readiness to buy a house, home moving and the development of house prices. • All euro-related risks including the risk of a partial default of a European Union member state are considerable. • The long-term interest rate in Germany and the Netherlands is very low. In addition, the relationships between the interest rate levels of government bonds, corporate bonds and derivatives in Europe are very volatile. SNS Bank is fairly well protected against generic interest rate fluctuations, but remains vulnerable for mutual relationships of the interest rate levels, especially for differences in interest rates between countries in Europe and various fixed-income instruments. • The liquidity position of SNS Bank is good. However, maintaining a large liquidity buffer comes at the expense of revenue-generating capital. In addition, in determining their liquidity positions, banks must in general take into account uncertainty in the financial markets, the ratings of financial institutions which are under pressure, and fluctuating savings volumes. • Changing supervisory regulations and uncertainty over the rate of implementation make it difficult to manage the balance sheet of a financial institution and as a result the profitability. • Given the pressure on the revenue models, the ability to generate capital has been affected negatively. This is enhanced by the volatility in the financial markets in combination with the developments of the real economy. 11.2 Risk management in exceptional circumstances Numerous external developments have affected the choice for more or less risk tolerance: • Since the end of 2009, the risk in the investment portfolio of European government bonds increased substantially because partial defaults of members of Eurozone are no longer considered unfeasible. Increasingly, market participants question the viability of the euro in its present form. As a consequence, SNS Bank has implemented additional risk indicators and limits. This resulted in an exposure reduction to peripheral countries which reduced the risk appetite for this type of risk. • The housing market is weak in terms of volume and price developments. In case of arrears, an important question is when to foreclose on a house. This is a difficult choice, both from the interests of the customer and the bank. SNS Bank pursues a balanced policy in this respect. • Property Finance’s total outstanding loans were sharply reduced. The reduction of these loans is one of SNS Bank’s strategic priorities. Despite the ongoing challenging conditions in the financial and property markets, total commitments of Property Finance were further reduced in 2011. All things considered, risks related to the conditions in which SNS Bank is operating significantly increased SNS Bank’s risk profile. On the other hand, risks were reduced as a result of measures taken by SNS Bank’s management. SNS Bank Annual Report 2011 42


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    11.3 New regulation and implementation thereof 11.3.1 New regulation In 2011, the Basel Committee published final documents (Basel III) aimed at strengthening global capital adequacy and liquidity regulations. These documents covered areas such as the (quality of the) capital base, a countercyclical capital framework, the leverage ratio and minimum liquidity standards. In July 2011, the European Commission issued proposals amending the Capital Requirements Directive (CRD IV), broadly in line with the Basel Committee proposals. Yet, the interaction between Basel III, CRD IV and other potential national and international regulatory changes means that there is still uncertainty on the impact and implementation date of the proposed amendments. In a period in which financial institutions have to do with relatively large uncertainties these regulatory changes and the discretionary power at national level will result in higher capital and liquidity requirements. Along with the Dutch Central Bank (DNB), the Ministry of Finance announced in 2011 to give substance to national policy in the coming years for the Dutch systemically important banks, including SNS Bank. Characteristics of a systemically important bank are that its position in the (Dutch) banking sector can bring risks on financial stability and the real economy. The new policy of the Ministry and DNB focuses on enhancing the resilience and improve the unwinding opportunities in distressed situations. 11.3.2 Basel III migration plan In 2011, the Dutch Central Bank (DNB) requested the Dutch banks to submit a Basel III migration plan. SNS Bank submitted its Basel III migration plan mid-2011. Based on the current requirements, this plan shows that no significant additional measures are needed to fulfil the new requirements. Apart from the further phase-out of Property Finance, the mortgage production will be limited and only take place via SNS Bank’s own distribution channel. The net mortgage portfolio will either remain stable or decrease slightly through regular redemptions and because of the general condition of the mortgage market. Moreover, SNS Bank will focus on attracting savings deposits, including bank savings, in a responsible way. These measures will, in preparation for Basel III, bring about improvement in the Loan-to-Deposit ratio. In a letter to the Dutch banks, DNB indicated that, in response to the migration plans submitted, the entire industry started from overly optimistic profit forecasts and sharp growth of savings deposits. SNS REAAL meets these findings by the abovementioned combination of lower growth on the asset side and its focus on attracting savings deposits in a responsible way. 11.4 Developments in capital and solvency In 2011, the most important solvency ratios for SNS Bank improved. At the end of 2011, the core Tier 1 ratio stood at 9.2% (year-end 2010: 8.1%) and the Tier 1 ratio at 12.2% (year-end 2010: 10.7%). This improvement was due mainly to the decline in risk-weighted assets, driven by the reduction in commitments at Property Finance and SNS SME. At the end of 2011, risk-weighted assets amounted to € 20.5 billion compared to € 22.1 billion at year-end 2010. The BIS ratio decreased from 16.7% at year-end 2010 to 14.4% as a result of redemptions of Tier 2 capital in the first half of 2011. In anticipation of these redemptions, SNS Bank had attracted € 500 million of Tier 2 capital in the fourth quarter of 2010. The BIS ratio also decreased as a result of the lower Tier 2 exchange transaction in the fourth quarter of 2011, in which lower Tier 2 debt was exchanged for senior unsecured debt. The long-term aim is to achieve a core Tier 1 ratio of 10% for SNS Bank, taking the additional capital surcharge for systematically important banks into consideration. SNS REAAL also downstreamed capital for an amount of € 50 million to SNS Bank. In 2011, the European Commission (EC) reconfirmed its approval for the capital support by the Dutch State to SNS SNS Bank Annual Report 2011 43


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    REAAL. The reconfirmation of approval follows the renotification of the capital support earlier this year. In 2012, the Dutch State will provide to the European Commission a Monitoring Report for 2011, as well as a capital update based on the interim report. 11.5 Capital Adequacy ICAAP 2011 SNS Bank periodically assesses the capital adequacy under Basel II by means of the Capital Adequacy Assessment Process (ICAAP). There is uncertainty as to the future ICAAP regulations and the applicability thereof. In the ICAAP, the required amount of capital is determined by the statutory directors of SNS Bank and the Executive Board. Points of departure are the balance sheet, (planned) strategy, risk appetite and existing risks. The assessment includes the questions of how risks are dealt with and whether the capitalisation of SNS Bank in current and possibly future circumstances is sufficiently robust to absorb the risks. Risks are identified using the business strategy and are tested against risk tolerance levels within the risk appetite framework defined. This also enables the integration of risk management according to the recommendations of the Dutch Banking Code. The robustness of capital levels is tried by performing stress tests. SNS REAAL performed an internal stress test on the Banking activities in 2011 as part of the ICAAP. A thorough analysis of the risks involved was performed and these were tried by means of the stress test. SNS REAAL uses its own specific economic scenarios for this stress test. Moreover, the economic capital and the regulatory capital (Basel II, pillar 1) are part of the ICAAP as well and the capital management process is reviewed. With reference to the Supervisory Review and Evaluation Process (SREP) SNS REAAL is in continuous dialogue with the Dutch Central Bank on the ICAAP results. SNS Bank improved its ICAAP process in 2011, making it more transparent and easier to test for both internal and external parties. 11.6 Temporary solvency buffer EBA In December 2011, SNS REAAL issued a press release in response to announcements by the European Banking Authority (EBA) and the Dutch Central Bank regarding the requirement for banks to strengthen their capital position by building up a temporary capital buffer against the current market prices of their sovereign debt exposures. The EBA required banks to establish buffers such that the core Tier 1 ratio reaches a level of 9% by the end of June 2012, whereby the sovereign debt exposures are valued at the market prices of September 2011. As at 30 September 2011, SNS Bank reported a core Tier 1 ratio of 8.6% based on Basel II, taking into account the 80% floor of Basel I for the RWA calculation. Using the EBA methodology, which includes the capital buffer for sovereign debt, the core Tier ratio as at 30 September 2011 stood at 8.2%. To achieve the core Tier 1 ratio according to the EBA standard of 9%, SNS Bank needed to make up a capital shortfall of € 159 million. In the fourth quarter of 2011, SNS Bank’s core Tier 1 ratio according to the EBA standard had already risen from 8.2% to 8.8% due to a rise in available core Tier 1 capital and the aforementioned drop in RWA. In total the EBA capital shortfall has dropped to € 32 million as per 31 December 2011. SNS Bank will ensure that the remainder of the shortfall will have been made up by end of June 2012. SNS Bank Annual Report 2011 44


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    11.7 Funding, liquidity position 11.7.1 Banking activities In 2011, SNS Bank’s wholesale funding activities on the capital market were negligible. By attracting savings deposits SNS Bank could fully provide its financing requirements. In 2011, savings deposits rose by € 2.9 billion (+11%) compared to year-end 2010 due to a strong inflow of deposits and a high retention rate. Bank savings, part of the total savings deposits, grew by € 628 million to € 1.3 billion. As a result, the loan-to-deposit ratio improved from 172% to 159%. Total liquidity remained high. At year-end 2011, liquidity stood at € 11.1 billion, compared to € 11.9 billion at the end of 2010. The cash position was positively impacted by the increase in savings in combination with a limited growth in mortgages and the reduction of commitments at SNS SME and Property Finance. This was partly reversed because of loan redemptions. In the fourth quarter of 2011, € 1.5 billion was drawn on ECB credit facilities, as a result of which the liquidity position rose with the same amount and the quantity of underlying assets which are ECB eligible and readily available decreased. In February 2012 the ECB made another issue in which SNS also participated. 11.7.2 Liquidity SNS Bank tested with ILAAP The Dutch Central Bank introduced the ILAAP (Internal Liquidity Adequacy Assessment Process) in 2011. SNS Bank, together with a number of other banks went through this process for the first time in 2011. In the ILAAP, the level of liquidity is determined by the statutory directors of SNS Bank and the Executive Board. Points of departure are the balance sheet, (planned) strategy, risk appetite and existing risks. The assessment includes questions on risk management and whether SNS Bank’s liquidity is sufficiently robust in current and future circumstances to absorb the risks. Liquidity stress testing is part of the ILAAP. In this stress test, the drying up of funding in the money and capital markets is taken into account. To this end, SNS Bank has drawn up its own scenarios, taking institution-specific risks into account. Based on the ILAAP, it is ascertained that the level of liquidity of SNS Bank is sufficient in relation to actuality. The ILAAP will be further integrated to be able to prove the extent of control. 11.8 Developments in market risk 11.8.1 Duration In 2011, the yield curve flattened. In the first half, the short-term interest rates went up and from mid-2011 the long-term interest rates went down due to economic developments. At the same time, interest rates were very volatile in 2011. The interest rate sensitivity of the fair value of shareholders’ equity is expressed in the duration of the shareholders’ equity. During 2011 the strategic bandwidth for the duration of the shareholders’ equity was 0 to 10. Due to the volatility of the interest rate, the duration was kept at a low level in 2011, between 2 and 5. At year-end 2011 the duration of equity was 3.8. As per January 2012, the strategic bandwidth has been reduced to 0 to 8. 11.8.2 Earnings-at-risk The Earnings-at-Risk (EaR) reflect the interest rate sensitivity of the net interest income of SNS Bank on a 12-months horizon. The EaR is calculated on the basis of a number of scenarios with significant interest rate shocks. In 2011, there were no strong movements in the EaR and the EaR averaged € 10 million. At year-end 2011, the EaR was € 7 million. SNS Bank Annual Report 2011 45


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    11.8.3 Spread risk In 2011, spreads on the so-called peripheral countries widened further as a result of the increased credit risk. SNS Bank monitors position and spread development on a very frequent basis. To limit the risks, SNS Bank reduced its position in sovereign debt of GIIPS countries in 2011 by 52% to € 486 million. The market value of the exposure of SNS Bank to GIIPS countries decreased from 29% (year-end 2010) to 14% of the total exposure to government bonds. Positions in French, Austrian and Belgian sovereign debt were also reduced considerably. The revenues were primarily reinvested in German government bonds. The fair value of Irish government bonds rose due to lower credit risk surcharges. 11.8.4 Trading risk SNS Bank has a small trading portfolio that fits its moderate risk profile. In line with this profile, the total limit in terms of Value-at-Risk (99% confidence level on a daily basis) was established at € 2.4 million. In 2011, SNS Bank only made limited use of the allowable limit. 11.9 Developments in credit risk The total loan portfolio amounted to € 64.8 billion at year-end 2011. Most of the loan portfolio (79%) consisted of Dutch residential mortgages. The main developments in the field of credit risk in 2011 were the falling housing prices and the stagnating market for both existing and new owner-occupied homes in the Netherlands. The market for national and international property projects also continued to deteriorate. 11.9.1 SNS Retail Bank The loan portfolio of SNS Retail Bank was € 54 billion at year-end 2011, € 51 billion of which comprised residential mortgages. 15% of these mortgages are covered by the National Mortgage Guarantee. The market for owner-occupied residential property was weak in 2011, as it was in 2010. Despite measures taken by the Government, such as reducing the transfer tax, both the number of housing transactions and the average house price fell. The number of housing transactions was at a historic low and house prices fell for the third consecutive year. The falling house prices and the stagnating residential property market led to longer foreclosure periods and larger losses on foreclosures. 11.9.2 SNS SME Sentiment in the national property and funding markets deteriorated in 2011. The average vacancy rates in the markets for office space, retail stores and industrial property increased considerably. These developments led to an increase in the number of loan defaults and to higher decreases in value, although still limited in relation to the average net exposure. As part of SNS REAAL's program to free up capital, the commitments at SNS SME were reduced from € 7.4 billion to € 5.7 billion (-22%). The net exposure was reduced by € 1.6 billion to € 5.7 billion. The decrease in loans outstanding was the result of redemptions and the sale of a number of credits. The assets held for sale decreased from € 27 million to nil. Property projects decreased slightly to € 7 million. SNS Bank Annual Report 2011 46


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    11.9.3 Property Finance National and international real estate markets experienced another difficult year in 2011. The conditions on the international real estate markets remained difficult and kept the value of real estate under pressure. The real estate markets deteriorated in the Netherlands in 2011, which is visible in high vacancy rates in the commercial and office sector and pressure on rents. Since adapting the strategy in 2009 and 2010, Property Finance’s focus has been entirely on reduction of the portfolio and limiting the losses. Reduction of commitments in 2011 was realised through a combination of regular redemptions, loan sales, restructuring and through foreclosure and the following transfer of loans to property projects and assets held for sale. The total commitments decreased from € 6.8 billion to € 5.5 billion (-20%). The net exposure fell from € 6.3 billion to € 5.3 billion (-16%). This corresponds to a decrease in the risk-weighted assets of € 0.9 billion. The total of provisioned loans decreased by € 33 million to € 1.728 million. This was mainly due to sales of provisioned loans and the foreclosure and reclassification of provisioned loans to property projects of € 372 million gross (€ 160 million net of provisions). This decline was largely offset by new inflows, of which 67% related to Dutch loans. The total of provisioned loans expressed as a percentage of the gross loan portfolio increased from 27% to 32%. 11.10 Management of non-financial risks The Financial crisis and the subsequent public debate on the financial services industry has revealed that culture and behaviour are essential to restore trust in the financial services industry. In 2009, SNS Bank formulated a new mission, core value and strategy with a focus on putting the client’s best interests first. Besides the conditions imposed on financial robustness, the emphasis on non-financial risk management based on ‘lessons learned’ has increased. Non-financial risk management is based on compliance with external and internal regulation and having and maintaining corporate integrity. 11.10.1 Existing factors The main existing factors for managing of non-financial risks are: • A clear governance structure, including a transparent assignment of duties and responsibilities and escalation procedures, boosted/supported by the new risk management structure SNS Bank implemented a so-called ‘Three Lines of Defence’ model, making line management primarily responsible for recognising and managing risks and taking decisions in that respect. Along with several other Group staff departments, CS&O has an important role to play in the second Line of Defence. The third Line of Defence is formed by Group Audit, which tests the set-up and operation of the system as a whole. • CS&O annually executes a monitoring programme in consultation with Group Audit. On the basis of the risk-based analysis, they decide which means are used for what issues each year. • CS&O draws up a non-financial risk report on a quarterly basis, giving an overview of the main developments in non-financial risks, progress in the follow-up of action items and the implementation of new/adjusted regulations and an analysis of the developments in incidents. • In addition to other Group staff departments, CS&O provides advice in the business units’ product development, approval and periodic review processes. • The training & awareness programme comprises information meetings, e-learning programmes, presentations and ‘train the trainer’ workshops. • As second Line of Defence, CS&O formulates the Group (wide) policy on operational integrity with respect to non-financial risks. The first Line is responsible for the implementation (and compliance) of this policy and will draw up an implementation plan. If required, CS&O provides advice on the implementation in the business units. • By means of semi-annual in-control statements (ICSs), the management teams of each business unit reports about how the real risks are managed, providing demonstrable foundations. In the ICS, management reports on the main SNS Bank Annual Report 2011 47


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    risks and accompanying control measures, the improvements realised over the previous period and the progress on improvement measures. • To calculate the capital requirement for the operational risk, a standardised approach is used. This implies that, based on a fixed percentage of the turnover per business line of the bank, we allocate an amount for the Pillar 1 capital. This Pillar 1 capital is assessed under the ICAAP, in which greatest risks to the bank are validated on probability of occurrence and impact. For this reason, SNS Bank’s ICS is important input device. 11.10.2 New developments The main new developments to manage non-financial risks are: • The risk committee structure was adjusted in 2011 to create an efficient and well-functioning organisation structure. To achieve this, responsibilities were univocally defined and a clear division was brought about between policy formulation and policy execution. A Group Risk Committee was set up, which is the primary policy-formulating body within SNS Bank. • An operational risk framework was developed. The aim is to support SNS Bank’s management in the managing of operational risks within the scope of the regulations and objectives of SNS Bank. • In 2011, a study into the corporate integrity climate within SNS Bank was conducted. The results of the study in 2011, which was once more conducted in collaboration with KPMG, show that corporate integrity and compliance have improved compared to the study in 2010. Employees are very committed to integrity and compliance. On all counts, SNS REAAL scored better than other respondents in the Financial Industry Benchmark 2011. • Employees can now report irregularities such as fraud, undesirable behaviour and information security breaches to the newly set up compliance hotline. Here, they can also anonymously report irregularities (Whistleblowing procedure). The aim is to get risks reported in a timely manner to prevent or limit consequential loss and to be able to take adequate measure to prevent similar irregularities. • A social development that also has consequences for SNS Bank is the increasing threat of cybercrime. Suitable measures are taken to avert this threat. SNS Bank Annual Report 2011 48

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