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 September 2024 the overall minimum requirement on CET1 capital is 14.0 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 2.5 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 for SpareBank 1 SMN. From 31 December 2023, the requirement is 1.7 per cent and must be met with a minimum of 56.25 per cent. 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. 

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 September 2024, the average risk weights are over 20 per cent for the group. 

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 September 2024 the effective rate for the group is 4.44 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. As of 30 September 2024 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 2023 30 Sep 2023 30 Sep 2024 (NOKm) 30 Sep 2024 30 Sep 2023 31 Dec 2023
25,150 23,725 25,301 Total book equity 29,674 27,471 28,597
-1,800 -1,416 -2,006 Additional Tier 1 capital instruments included in total equity -2,095 -1,451 -1,903
-812 -842 -772 Deferred taxes, goodwill and other intangible assets -2,238 -1,433 -1,625
-2,591 0 - Deduction for allocated dividends and gifts - 0 -2,591
- - - Non-controlling interests recognised in other equity capital -788 -919 -666
- - - Non-controlling interests eligible for inclusion in CET1 capital 691 805 679
- -2,483 -2,538 Net profit -3,540 -2,441 -
- 1,222 360 Year-to-date profit included in core capital (50 per cent (50 per cent) pre tax of group profit) 940 1,177 -
-53 -78 -55 Value adjustments due to requirements for prudent valuation -76 -94 -72
-412 -311 -387 Positive value of adjusted expected loss under IRB Approach -612 -416 -546
- - - Cash flow hedge reserve -2 -7 -4
-350 -305 -350 Deduction for common equity Tier 1 capital in significant investments in financial institutions -267 -292 -278
19,131 19,512 19,553 Common equity Tier 1 capital 21,688 22,400 21,589
1,800 1,500 1,943 Additional Tier 1 capital instruments 2,456 1,930 2,252
-48 -47 -48 Deduction for significant investments in financial institutions -48 -47 -48
20,883 20,965 21,448 Tier 1 capital 24,097 24,283 23,793
-            
-     Supplementary capital in excess of core capital      
2,150 2,342 2,789 Subordinated capital 3,686 2,880 2,822
-216 -213 -226 Deduction for significant investments in financial institutions -226 -213 -216
1,934 2,129 2,563 Additional Tier 2 capital instruments 3,460 2,667 2,606
22,817 23,094 24,011 Total eligible capital 27,557 26,950 26,399
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      Risk weighted assets (RWA)      
15,701 15,595 17,671 Specialised enterprises 21,247 18,918 19,226
11,303 12,355 11,126 Corporate 11,339 12,676 11,634
19,617 19,600 20,845 Mass market exposure, property 38,404 36,133 36,333
1,545 1,464 1,506 Other mass market 1,593 1,495 1,577
18,558 17,011 18,614 Equity positions IRB - - -
66,724 66,026 69,762 Total credit risk IRB 72,583 69,221 68,770
             
40 55 16 Central government 414 75 68
1,188 1,209 1,385 Covered bonds 2,172 1,687 1,908
4,659 4,517 4,335 Institutions 3,261 3,130 3,495
1,371 1,733 1,155 Local and regional authorities, state-owned enterprises 1,329 2,058 1,829
3,101 2,406 3,320 Corporate 6,621 5,422 6,325
49 218 225 Mass market 9,330 9,044 8,785
467 516 627 Exposures secured on real property 1,514 1,671 1,573
792 1,187 889 Equity positions 5,649 5,874 5,809
1,400 1,383 1,567 Other assets 2,682 2,328 2,224
13,069 13,223 13,519 Total credit risk standardised approach 32,971 31,289 32,016
             
279 452 471 Debt risk 465 473 279
- - - Equity risk 111 198 82
- - - Currency risk and risk exposure for settlement/delivery 27 16 21
6,810 6,101 6,810 Operational risk 11,262 11,246 11,548
472 228 478 Credit value adjustment risk (CVA) 1,672 1,350 1,918
87,354 86,031 91,040 Risk weighted assets (RWA) 119,092 113,793 114,633
6,988 6,882 7,283 Minimum requirements subordinated capital 9,527 9,103 9,171
3,931 3,871 4,097 Minimum requirement on CET1 capital, 4.5 per cent 5,359 5,121 5,159
             
      Capital Buffers      
2,184 2,151 2,276 Capital conservation buffer, 2.5 per cent 2,977 2,845 2,866
3,896 3,828 4,060 Systemic risk buffer, 4.44 per cent  5,279 5,041 5,081
2,184 2,151 2,276 Countercyclical buffer, 2.5 per cent 2,977 2,845 2,866
8,264 8,130 8,612 Total buffer requirements on CET1 capital 11,234 10,731 10,813
6,937 7,511 6,844 Available CET1 capital after buffer requirements 5,096 6,549 5,618
             
      Capital adequacy      
21.9 % 22.7 % 21.5 % Common equity Tier 1 capital ratio 18.2 % 19.7 % 18.8 %
23.9 % 24.4 % 23.6 % Tier 1 capital ratio 20.2 % 21.3 % 20.8 %
26.1 % 26.8 % 26.4 % Capital ratio 23.1 % 23.7 % 23.0 %
             
      Leverage ratio      
221,334 223,857 230,079 Balance sheet items 342,513 323,045 323,929
7,559 7,874 7,829 Off-balance sheet items 9,409 8,951 8,984
-513 -436 -489 Regulatory adjustments -736 -558 -666
228,380 231,295 237,419 Calculation basis for leverage ratio 351,186 331,438 332,247
20,883 20,965 21,448 Core capital 24,097 24,283 23,793
9.1 % 9.1 % 9.0 % Leverage Ratio 6.9 % 7.3 % 7.2 %
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