The lender will pay a 50 per cent penalty when it returns the cash early in May, bringing the actual amount repaid to €3bn.
ING was bailed out by the Dutch state in a €10bn rescue package at the height of the financial crisis.
It has already repaid €5m to the government and will now exercise its option to repay a further €2bn at the next coupon reset date. The Dutch Central Bank has given its approval for a repurchase of the sum in core Tier 1 securities ahead held by the bank.
The payment will leave it with a Tier 1 ratio of above 8.5 per cent, after it had increased its position to 9.6 per cent over the year to 31 December 2010.
ING was one of the worst hit lenders in Europe following the financial crisis, after suffering heavy losses as a result of its exposure to the US housing market.
Yet it has hit the road to recovery, posting a €3.22bn profit for last year after a €900m loss a year earlier.
It will attempt to repay the final amount it owes to the Dutch state by May 2012, as it looks to free itself from European Commission restrictions.
The Commission ordered ING to split its banking business from its insurance operations, with plans to spin out the latter with two share offerings later this year. ING chief executive Jan Hommen said the move marked an “important milestone”. “The strong recovery of the banking business in 2010 has enabled us to accelerate the repurchase of the core Tier 1 securities from retained earnings, while maintaining a robust capital position post repayment,” he added.