Aug. 21 (Bloomberg) -- The cost of protecting ING Bank NV’s subordinated bonds from default jumped by the most this year, according to CMA DataVision prices for credit-default swaps.

Contracts on subordinated debt sold by the ING Groep NV unit climbed 20.5 basis points to 138 as of 4 p.m. in London, CMA prices show. That means it costs 138,000 euros a year to protect 10 million euros ($14.3 million) of ING’s junior bonds from default for five years.

Fitch Ratings downgraded hybrid securities of eight European lenders yesterday, including ING Bank’s parent ING Groep, on concern regulators will force bailed-out banks to defer coupon payments on junior bonds. Default swaps tied to the other lenders’ subordinated bonds either fell or were little changed today, CMA prices show, with contracts on Lloyds Banking Group Plc falling 4 basis points to 339 and ABN Amro Holding NV dropping 4 to 215.

The Markit iTraxx Financial subordinated index of credit- default swaps on 25 banks and insurers also fell 10 basis points to 170 today, according to JPMorgan Chase & Co. prices. A decline in the contracts signals an improvement in perceptions of credit quality.

Swaps tied to Amsterdam-based ING Bank’s senior bonds rose 6.5 basis points to 79, the largest increase since March, according to CMA. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.

Apart from ING Groep, Lloyds and ABN Amro, New York-based Fitch also cut ratings on hybrid bonds issued by Royal Bank of Scotland Group Plc, Dexia Group, SNS Bank, Fortis Bank Nederland, and France’s BPCE.

Hybrid bonds are a kind of subordinated debt that banks sell to meet regulatory capital requirements. The notes may have no maturity and typically have coupons that can be deferred without penalty.

To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net

Last Updated: August 21, 2009 11:50 EDT