Note 4 - Capital adequacy

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.

As of 30 June 2016 the capital conservation buffer requirement is 2.5 per cent, the systemic risk requirement is 3.0 per cent and countercyclical buffer is 1.5 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 11.5 per cent. The countercyclical buffer increased to 1.5 per cent from 1.0 per cent with effect from 30 June 2016.

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 40 per cent in 2016 and 10 per cent thereafter. As at 30 June 2016 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 operational risk using the standardised approach. In the case of subsidiaries, the basic indicator approach is applied.  

 

Parent Bank   Group
31 Dec 2015 30 June 2015 30 June 2016 (NOKm) 30 June 2016 30 June 2015 31 Dec 2015
2,597 2,597 2,597 Equity capital certificates 2,597 2,597 2,597
-0 -0 -0  - Own holding of ECCs -7 -0 -21
895 895 895 Premium fund 895 895 895
3,790 3,122 3,790 Dividend equalisation fund 3,783 3,122 3,790
4,105 3,619 4,105 Savings bank's reserve 4,105 3,619 4,105
292 - - Recommended dividends - - 292
40 - - Provision for gifts - - 40
279 139 221 Unrealised gains reserve 233 148 290
- - 5 Other equity 1,681 1,639 1,597
- - - Non-controlling interests 403 301 318
- 1,117 938 Net profit 771 871 -
11,998 11,489 12,552 Total book equity 14,460 13,191 13,904
-447 -447 -473 Deferred taxes, goodwill and other intangible assets -715 -664 -662
- - - Part of reserve for unrealised gains, associated companies 169 120 264
-332 - - Deduction for allocated dividends and gifts - - -332
- - - Non-controlling interests recognised in other equity capital -403 -301 -318
- - - Non-controlling interests eligible for inclusion in CET1 capital 203 47 132
-93 -4 -93 Surplus financing of pension obligations -94 - -43
- -1,117 -938 Net profit -771 -871 -
- 882 707 Year-to-date profit included in core capital (73 per cent pre tax of group profit) 540 636 -
-33 -30 -36 Value adjustments due to requirements for prudent valuation -58 -43 -55
-164 -240 -124 Positive value of adjusted expected loss under IRB Approach -187 -318 -239
- - - Direct, indirect and synthetic investments in financial sector companies  -389 -355 -458
10,928 10,533 11,594 Total common equity Tier one  12,757 11,443 12,192
950 950 950 Hybrid capital, core capital 1,362 1,217 1,310
495 491 493 Hybrid capital covered by transitional provisions 493 491 495
- - - Direct, indirect and synthetic investments in financial sector companies  -9 -9 -9
12,373 11,974 13,037 Total core capital 14,604 13,142 13,988
             
      Supplementary capital in excess of core capital      
1,000 1,000 1,000 Subordinated capital 1,647 1,692 1,647
786 786 673 Subordinated capital covered by transitional provisions 673 786 786
-43 -43 -43 Direct, indirect and synthetic investments in financial sector companies  -43 -43 -43
1,743 1,743 1,631 Total supplementary capital 2,278 2,435 2,390
14,116 13,717 14,668 Net subordinated capital 16,882 15,577 16,378
             
             
      Minimum requirements subordinated capital      
1,027 1,148 1,027 Involvement with spesialised enterprises 1,169 1,391 1,213
1,049 927 1,095 Other corporations exposure 1,143 965 1,105
1,093 1,104 1,137 Mass market exposure, property 1,596 1,514 1,557
157 173 160 Mass market exposure, SMEs 170 185 167
38 13 39 Other retail exposure 43 13 40
1,221 1,148 1,238 Equity investments 3 0 0
4,585 4,513 4,696 Total credit risk IRB 4,123 4,068 4,082
64 199 18 Debt risk 19 200 64
- - - Equity risk 10 8 10
- - - Currency risk 1 0 -
316 316 334 Operational risk 479 457 457
922 1,001 1,033 Exposures calculated using the standardised approach 1,931 1,926 1,805
53 30 47 Credit value adjustment risk (CVA) 90 71 106
- - - Transitional arrangements 585 471 634
5,939 6,060 6,127 Minimum requirements subordinated capital 7,237 7,201 7,157
74,243 75,746 76,592 Risk weighted assets (RWA) 90,464 90,010 89,465
3,341 3,409 3,447 Minimum requirement on CET1 capital, 4.5 per cent 4,071 4,050 4,026
      Capital Buffers      
1,856 1,894 1,915 Capital conservation buffer, 2.5 per cent 2,262 2,250 2,237
2,227 2,272 2,298 Systemic rick buffer, 3.0 per cent 2,714 2,700 2,684
742 757 1,149 Countercyclical buffer, 1.5 per (1.0 per cent) 1,357 900 895
4,826 4,923 5,361 Total buffer requirements on CET1 capital 6,332 5,851 5,815
2,761 2,201 2,786 Available CET1 capital after buffer requirements 2,354 1,542 2,351
      Capital adequacy      
14.7 % 13.9 % 15.1 % Common equity Tier one ratio 14.1 % 12.7 % 13.6 %
16.7 % 15.8 % 17.0 % Core capital ratio 16.1 % 14.6 % 15.6 %
19.0 % 18.1 % 19.2 % Capital adequacy ratio 18.7 % 17.3 % 18.3 %
9.1 % 8.7 % 9.1 % Leverage ratio 6.8 % 6.5 % 6.7 %
© SpareBank 1 SMN