By Gilbert Kreijger and Reed Stevenson

ING, which booked its first-ever loss in the third quarter as it was hit by the credit crisis, said the transaction will raise the core capital ratio of its banking operations, boost the balance sheet of its insurance business and reduce the debt-to-equity ratio of the group.

ING has a market value of 15.3 billion euros based on Friday's closing price, when its shares slumped 27.5 percent.

At an evening news conference at the Dutch central bank's headquarters, both Finance Minister Wouter Bos and central bank governor Nout Wellink sought to reassure customers and shareholders that ING was a well-run firm with sound finances.

"The market environment has changed over the last two weeks and the expectations for capital levels have changed following massive capital injections in financial institutions worldwide," ING Chief Executive Michel Tilmant said.

"We have accepted the consequences of this situation and welcome the support of the Dutch state," he said.

The bank had the trust of its customers and had not seen any meaningful outflow of funds, Tilmant said.

ING will issue 1 billion of non-voting core tier-1 securities to the Dutch state at a price of 10 euros per security. The Netherlands will have a position similar to common shareholders and the transaction is designed not to dilute shareholder capital.

ING can buy back the securities at any time at 150 percent of the issue price or convert them into ordinary shares -- one for one. The coupon on the securities of at least 8.5 percent is only due if a dividend is paid on common shares.

As governments around the world pour in billions of dollars of state cash to help stabilize their banks, the Dutch government has set aside 20 billion euros to pump capital into its financial institutions.

ING said on Friday it expected to post a net loss of about 500 million euros ($674 million) for the third quarter, its first quarterly loss since the group was formed in 1991. That sent its shares to a 13-year low.

ING's results had initially proven to be more resilient through the credit crisis than many of its peers, such as Belgian-Dutch rival Fortis , which was broken up earlier this month, partly nationalized by the Dutch government and partly sold off to French rival BNP Paribas .

ING follows similar steps taken by several British and Swiss banks this week that also tapped emergency funding lifelines from their respective governments.

(Additional reporting by Catherine Hornby and Niclas Mika; Editing by Bernard Orr)