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 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 June 2024, the average risk weights are over 20 per cent. 

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 2024 the effective rate for the group is 4.45 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 June 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 Jun 2023 30 Jun 2024 (NOKm) 30 Jun 2024 30 Jun 2023 31 Dec 2023
25,150 23,367 24,232 Total book equity 27,879 26,975 28,597
-1,800 -1,708 -1,734 Additional Tier 1 capital instruments included in total equity -1,825 -1,744 -1,903
-812 -850 -803 Deferred taxes, goodwill and other intangible assets -1,697 -1,414 -1,625
-2,591 0 - Deduction for allocated dividends and gifts - 0 -2,591
- - - Non-controlling interests recognised in other equity capital -718 -906 -666
- - - Non-controlling interests eligible for inclusion in CET1 capital 700 769 679
- -1,843 -1,742 Net profit -2,098 -1,701 -
- 964 203 Year-to-date profit included in core capital (50 per cent (50 per cent) pre tax of group profit) 555 821 -
-53 -79 -54 Value adjustments due to requirements for prudent valuation -74 -95 -72
-412 -291 -277 Positive value of adjusted expected loss under IRB Approach -500 -398 -546
- - - Cash flow hedge reserve -4 -5 -4
-350 -305 -350 Deduction for common equity Tier 1 capital in significant investments in financial institutions -266 -257 -278
19,131 19,256 19,474 Common equity Tier 1 capital 21,951 22,044 21,589
1,800 1,766 1,800 Additional Tier 1 capital instruments 2,313 2,195 2,252
-48 -47 -48 Deduction for significant investments in financial institutions -48 -47 -48
20,883 20,975 21,226 Tier 1 capital 24,216 24,192 23,793
-            
-     Supplementary capital in excess of core capital      
2,150 2,587 2,650 Subordinated capital 3,473 3,124 2,822
-216 -210 -216 Deduction for significant investments in financial institutions -216 -210 -216
1,934 2,377 2,434 Additional Tier 2 capital instruments 3,257 2,913 2,606
22,817 23,351 23,660 Total eligible capital 27,474 27,106 26,399
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      Risk weighted assets (RWA)      
15,701 16,213 17,581 Specialised enterprises 21,001 19,275 19,226
11,303 12,573 11,219 Corporate 11,483 12,882 11,634
19,617 19,145 20,177 Mass market exposure, property 37,820 35,352 36,333
1,545 1,451 1,563 Other mass market 1,615 1,486 1,577
18,558 16,965 19,137 Equity positions IRB - - -
66,724 66,348 69,677 Total credit risk IRB 71,919 68,995 68,770
             
40 41 25 Central government 377 77 68
1,188 1,244 1,213 Covered bonds 2,000 1,679 1,908
4,659 5,428 4,358 Institutions 2,993 4,329 3,495
1,371 1,843 1,557 Local and regional authorities, state-owned enterprises 1,742 2,050 1,829
3,101 2,663 3,258 Corporate 6,460 5,599 6,325
49 328 258 Mass market 9,118 9,022 8,785
467 606 678 Exposures secured on real property 1,631 1,760 1,573
792 1,190 889 Equity positions 6,009 5,933 5,809
1,400 861 1,560 Other assets 3,195 1,879 2,224
13,069 14,202 13,798 Total credit risk standardised approach 33,525 32,327 32,016
             
279 425 587 Debt risk 588 446 279
- - - Equity risk 111 187 82
- - - Currency risk and risk exposure for settlement/delivery 42 47 21
6,810 6,195 6,810 Operational risk 11,273 11,376 11,548
472 441 380 Credit value adjustment risk (CVA) 1,383 1,836 1,918
87,354 87,611 91,252 Risk weighted assets (RWA) 118,842 115,215 114,633
6,988 7,009 7,300 Minimum requirements subordinated capital 9,507 9,217 9,171
3,931 3,942 4,106 Minimum requirement on CET1 capital, 4.5 per cent 5,348 5,185 5,159
             
      Capital Buffers      
2,184 2,190 2,281 Capital conservation buffer, 2.5 per cent 2,971 2,880 2,866
3,896 3,899 4,070 Systemic risk buffer, 4.5 per cent  5,268 5,104 5,081
2,184 2,190 2,281 Countercyclical buffer, 1.0 per cent 2,971 2,880 2,866
8,264 8,279 8,632 Total buffer requirements on CET1 capital 11,210 10,865 10,813
6,937 7,034 6,735 Available CET1 capital after buffer requirements 5,393 5,995 5,618
             
      Capital adequacy      
21.9 % 22.0 % 21.3 % Common equity Tier 1 capital ratio 18.5 % 19.1 % 18.8 %
23.9 % 23.9 % 23.3 % Tier 1 capital ratio 20.4 % 21.0 % 20.8 %
26.1 % 26.7 % 25.9 % Capital ratio 23.1 % 23.5 % 23.0 %
             
      Leverage ratio      
221,334 216,517 228,597 Balance sheet items 333,472 325,004 323,929
7,559 6,724 8,313 Off-balance sheet items 9,939 9,525 8,984
-513 -382 -380 Regulatory adjustments -622 -540 -666
228,380 222,858 236,530 Calculation basis for leverage ratio 342,789 333,990 332,247
20,883 18,519 21,226 Core capital 24,216 24,192 23,793
9.1 % 8.3 % 9.0 % Leverage Ratio 7.1 % 7.2 % 7.2 %
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