Note 4 - Capital adequacy

Capital adequacy is calculated and reported in accordance with the EU capital requirements regulations for banks and investment firms (CRR/CRD IV). SpareBank 1 SMN utilises the Internal Rating Based Approach (IRB) for credit risk. Advanced IRB Apporoach is used for the corporate portfolios. Use of IRB imposes wide-ranging requirements on the bank’s organisational set-up, competence, risk models and risk management systems.

As of 30 June 2022 the overall minimum requirement on CET1 capital is 13.0 per cent. The capital conservation buffer requirement is 2.5 per cent, the systemic risk requirement for Norwegian IRB-banks is 4.5 per cent and the Norwegian countercyclical buffer is 1.5 per cent. These requirements are additional to the requirement of 4.5 per cent CET1 capital. In addition the financial supervisory authority has set a Pillar 2 requirement of 1.9 per cent for SpareBank 1 SMN, however not below NOK 1,794 million in monetary terms. From 30 April 2022, SpareBank 1 SMN has received a new Pillar 2 requirement. The rate of 1.9 per cent is unchanged, but in addition the bank must have an additional 0.7 per cent in Pillar 2 requirements until the application for adjusting IRB-models has been processed. The Norwegian countercyclical buffer will rise to 1.5 per cent with effect from 30 June 2022, and to 2.0 per cent from 31 December 2022.

Under the CRR/CRDIV regulations the average risk weighting of exposures secured on residential property in Norway cannot be lower than 20 per cent. As of 30 June 2022 an adjustment was made in both the parent bank and the group to bring the average risk weight up to 20 per cent. This is presented in the note together with ‘mass market exposure, property’ under ‘credit risk IRB’.

The systemic risk buffer stands at 4.5 per cent for the Norwegian exposures. For exposures in other countries, the particular country’s systemic buffer rate shall be employed. As of 30 June 2022 the effective rate for the parent bank and for the group is accordingly 4.4 per cent.

The countercyclical buffer is calculated using differentiated rates. For exposures in other countries the countercyclical buffer rate set by the authorities in the country concerned is applied. If that country has not set a rate, the same rate as for exposures in Norway is applied unless the Ministry of Finance sets another rate. For the second quarter of 2022 both the parent bank and the group is below the capital deduction threshold such that the Norwegian rate is applied to all relevant exposures.

Parent Bank   Group
31 Dec 2021 30 June 2021 30 June 2022 (NOKm) 30 June 2022 30 June 2021 31 Dec 2021
19,356 19,231 19,245 Total book equity 22,993 22,382 23,241
-1,250 -1,221 -1,218 Additional Tier 1 capital instruments included in total equity -1,259 -1,262 -1,293
-458 -504 -456 Deferred taxes, goodwill and other intangible assets -954 -1,000 -961
-1,517 -627 - Deduction for allocated dividends and gifts - -627 -1,517
- - - Non-controlling interests recognised in other equity capital -894 -829 -989
- - - Non-controlling interests eligible for inclusion in CET1 capital 637 505 568
- -1,433 -1,443 Net profit -1,400 -1,523 -
- 657 727 Year-to-date profit included in core capital (50 per cent (50 per cent) pre tax of group profit) 684 747 -
-41 -39 -51 Value adjustments due to requirements for prudent valuation -71 -54 -56
-495 -585 -196 Positive value of adjusted expected loss under IRB Approach -258 -617 -560
- - - Cash flow hedge reserve -4 7 3
-202 -187 -219 Deduction for common equity Tier 1 capital in significant investments in financial institutions -496 -312 -648
15,393 15,292 16,390 Common equity Tier 1 capital 18,977 17,416 17,790
1,250 1,250 1,250 Additional Tier 1 capital instruments 1,616 1,594 1,581
-48 - -46 Deduction for significant investments in financial institutions -46 - -48
16,595 16,542 17,594 Tier 1 capital 20,547 19,011 19,322
-            
-     Supplementary capital in excess of core capital      
1,750 1,750 2,067 Subordinated capital 2,571 2,250 2,226
-214 -155 -209 Deduction for significant investments in financial institutions -209 -155 -214
1,536 1,595 1,858 Additional Tier 2 capital instruments 2,362 2,095 2,011
18,130 18,137 19,452 Total eligible capital 22,910 21,105 21,333
Eksporter til Excel

 

 

      Minimum requirements subordinated capital      
1,049 1,132 1,068 Specialised enterprises 1,269 1,309 1,248
1,016 919 1,003 Corporate 1,026 930 1,030
1,400 1,415 1,347 Mass market exposure, property 2,396 2,207 2,384
93 98 122 Other mass market 125 101 95
1,000 1,083 1,201 Equity positions IRB - 1 1
4,558 4,647 4,741 Total credit risk IRB 4,816 4,549 4,758
             
3 3 3 Central government 4 5 4
106 105 113 Covered bonds 156 149 133
398 493 395 Institutions 292 396 299
1 - 128 Local and regional authorities, state-owned enterprises 148 27 29
188 33 153 Corporate 361 283 432
7 15 10 Mass market 568 496 466
25 16 34 Exposures secured on real property 108 120 128
279 272 90 Equity positions 495 441 521
92 97 70 Other assets 143 157 142
1,098 1,034 995 Total credit risk standardised approach 2,274 2,074 2,154
             
35 47 45 Debt risk 47 47 36
- - - Equity risk 23 20 34
- - - Currency risk and risk exposure for settlement/delivery 4 3 1
433 421 433 Operational risk 810 772 817
26 34 28 Credit value adjustment risk (CVA) 98 149 93
6,150 6,183 6,241 Minimum requirements subordinated capital 8,073 7,613 7,893
76,873 77,288 78,018 Risk weighted assets (RWA) 100,910 95,167 98,664
3,459 3,478 3,511 Minimum requirement on CET1 capital, 4.5 per cent 4,541 4,283 4,440
             
      Capital Buffers      
1,922 1,932 1,950 Capital conservation buffer, 2.5 per cent 2,523 2,379 2,467
3,459 3,478 3,511 Systemic risk buffer, 4.5 per cent  4,541 4,283 4,440
769 773 1,170 Countercyclical buffer, 1.0 per cent 1,514 952 987
6,150 6,183 6,632 Total buffer requirements on CET1 capital 8,577 7,613 7,893
5,784 5,631 6,248 Available CET1 capital after buffer requirements 5,859 5,520 5,457
             
      Capital adequacy      
20.0 % 19.8 % 21.0 % Common equity Tier 1 capital ratio 18.8 % 18.3 % 18.0 %
21.6 % 21.4 % 22.6 % Tier 1 capital ratio 20.4 % 20.0 % 19.6 %
23.6 % 23.5 % 24.9 % Capital ratio 22.7 % 22.2 % 21.6 %
             
      Leverage ratio      
191,697 186,273 200,857 Balance sheet items 287,881 264,565 269,857
10,782 9,313 8,904 Off-balance sheet items 7,908 10,028 11,341
-1,042 -1,128 -51 Regulatory adjustments -67 -1,822 -2,110
201,437 194,457 209,710 Calculation basis for leverage ratio 295,722 272,770 279,088
16,595 16,542 17,594 Core capital 20,547 19,011 19,322
8.2 % 8.5 % 8.4 % Leverage Ratio 6.9 % 7.0 % 6.9 %
Eksporter til Excel
© SpareBank 1 SMN