Note 13 - Capital adequacy

The Ministry of Finance adopted on 22 August 2014 amendments to regulations on capital requirements taking effect on 30 September 2014. The amendments bring Norwegian legislation into line with the EU’s new capital requirements framework (CRR/CRD IV). This framework is for the present not incorporated into the EEA agreement, although its most important provisions have been incorporated in the Financial Institutions Act and the Securities Trading Act. The adjusted legislation entered into force on 1 July 2013, and requires a gradual increase in minimum requirements on Common Equity Tier 1 (CET1) capital in the period to 1 July 2016.

As of 31 March 2015 the capital conservation buffer requirement is 2.5 per cent and the systemic risk requirement is 3 per cent. These requirements are additional to the requirement of 4.5 per cent CET1 capital, so that the overall minimum requirement on CET1 capital is 10 per cent. On 30 June 2015 a countercyclical buffer requirement of 1 percentage point will become effective, bringing the overall minimum CET1 requirement to 11 per cent.

SpareBank 1 SMN utilises the Internal Rating Based Approach (IRB) for credit risk. Use of IRB imposes wide-ranging requirements on the bank’s organisational set-up, competence, risk models and risk management systems. As from 31 March 2015 the bank has received permission to apply the Advanced  IRB Approach to those corporate portfolios that were previously reported under the  Basic Indicator Approach.

SpareBank 1 SMN has reviewed the intention for the bond portfolios and on that basis reclassified certain portfolios from trading to banking in the first quarter of 2015. This is reflected in reduced debt risk and increased credit risk under the standardised approach.

In connection with changed requirements on conditions governing hybrid capital, hybrid capital not meeting the new requirements over time will not be eligible as other core capital. The bonds will subject to a stepwise reduction of 30 per cent in 2015 and 10 per cent thereafter. As at 31 March 2015 SpareBank 1 SMN held hybrid capital worth NOK 450m that will be subject to stepwise reduction. Finanstilsynet may require the hybrid capital to be written down in proportion to equity capital if the bank’s CET1 capital ratio falls below 5.125 per cent.

The parent bank calculates capital charges against credit risk using the standardised approach. In the case of subsidiaries, the basic indicator approach is applied.  

Capital adequacy figures are stated in accordance with the new reporting requirements as from 30 September 2014. Comparatives have not been restated.

Parent Bank   Group
31 Dec 2014 31 Mar 2014 31 Mar 2015 (NOKm) 31 Mar 2015 31 Mar 2014 31 Dec 2014
2,597 2,597 2,597 Equity capital certificates 2,597 2,597 2,597
-0 -0 -0  - Own holding of ECCs -0 -0 -0
895 895 895 Premium fund 895 895 895
3,122 2,496 3,122 Dividend equalisation fund 3,122 2,496 3,122
3,619 3,276 3,619 Savings bank's reserve 3,619 3,276 3,619
292 - - Recommended dividends - - 292
160 - - Provision for gifts - - 160
139 195 139 Unrealised gains reserve 148 206 148
- - - Other equity and minority interest 1,622 1,357 1,620
- - - Minority interests 78 62 72
- 450 389 Net profit 441 500 -
10,824 9,909 10,761 Total book equity 12,521 11,389 12,524
-447 -447 -447 Deferred taxes, goodwill and other intangible assets -569 -613 -566
- - - Part of reserve for unrealised gains, associated companies 120 98 120
-452 - - Deduction for allocated dividends and gifts - -4 -452
- -413 - 50 % deduction for subordinated capital in other financial institutions - -120 -
- -275 - 50 % deduction for expected losses on IRB, net of write-downs - -259 -
- - - 50 % capital adequacy reserve - -623 -
- - - Minority interests recognised in other equity capital -78 - -72
- - - Minority interests eligible for inclusion in CET1 capital 36 - 35
-4 -80 -4 Surplus financing of pension obligations - -78 -
- -450 -389 Net profit -441 -500 -
- 329 270 Year-to-date profit included in core capital (73 per cent pre tax of group profit) 322 365 -
-31 - -30 Value adjustments due to requirements for prudent valuation -44 - -45
-325 - -277 Positive value of adjusted expected loss under IRB Approach -381 - -419
- - - Direct, indirect and synthetic investments in financial sector companies  -477 - -451
9,565 8,574 9,884 Total common equity Tier one  11,008 9,655 10,674
1,449 1,433 950 Hybrid capital, core capital 1,217 1,647 1,716
- - 497 Hybrid capital covered by transitional provisions 497 - -
- - - Direct, indirect and synthetic investments in financial sector companies  -9 - -9
11,014 10,007 11,331 Total core capital 12,713 11,303 12,382
             
      Supplementary capital in excess of core capital      
1,906 1,874 1,000 Subordinated capital 1,692 2,592 2,598
- - 786 Subordinated capital covered by transitional provisions 786 - -
- -413 - 50 % deduction for subordinated capital in other financial institutions - -120 -
- -275 - 50 % deduction for expected losses on IRB, net of write-downs - -259 -
- - - 50 % capital adequacy reserve - -623 -
-43 - -43 Direct, indirect and synthetic investments in financial sector companies  -43 - -43
1,864 1,187 1,743 Total supplementary capital 2,435 1,591 2,555
12,878 11,194 13,074 Net subordinated capital 15,147 12,893 14,937
             
             
      Minimum requirements subordinated capital      
1,632 1,508 1,258 Involvement with spesialised enterprises 1,506 1,508 1,887
1,331 1,380 987 Other corporations exposure 1,038 1,381 1,371
829 703 1,089 Mass market exposure, property 1,447 1,153 1,280
149 136 141 Mass market exposure, SMBs 149 145 159
49 37 54 Other retail exposure 54 43 51
1,111 1,225 1,160 Equity investments 0 - 0
5,102 4,989 4,689 Total credit risk IRB 4,194 4,229 4,748
397 281 199 Debt risk 200 281 397
- - - Equity risk 2 3 1
- - - Currency risk 0 - 0
292 292 316 Operational risk 452 416 416
849 579 911 Exposures calculated using the standardised approach 2,025 2,186 1,971
- -69 - Deductions - -126 -
42 - 42 Credit value adjustment risk (CVA) 97 - 92
- - - Transitional arrangements 163 - -
6,682 6,072 6,158 Minimum requirements subordinated capital 7,134 6,989 7,625
83,523 75,900 76,969 Risk weigheted assets (RWA) 89,171 87,361 95,317
3,759   3,464 Minimum requirement on CET1 capital, 4.5 per cent 4,013   4,289
      Capital Buffers      
2,088   1,924 Capital conservation buffer, 2.5 per cent 2,229   2,383
2,506   2,309 Systemic rick buffer, 3.0 per cent 2,675   2,860
4,594   4,233 Total buffer requirements on CET1 capital 4,904   5,242
1,212   2,187 Available CET1 capital after buffer requirements 2,091   1,143
      Capital adequacy      
11.5 % 11.3 % 12.8 % Common equity Tier one ratio 12.3 % 11.1 % 11.2 %
13.2 % 13.2 % 14.7 % Core capital ratio 14.3 % 12.9 % 13.0 %
15.4 % 14.7 % 17.0 % Capital adequacy ratio 17.0 % 14.8 % 15.7 %

 

 

1st quarter 2015

Report and notes

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