Notes to the consolidated financial statements

48. Capital management

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Capital adequacy management is aimed to ensure that the Group’s equity level is not lower than the one required by internal and external regulations. The regulations link the required capital level with the scale of operations and risks assumed by the Group.

Considering the above, the Group regularly:

• identifies risks material for its business;
• manages material risks;
• determines internal capital to be maintained should the risk materialize;
• calculates and reports capital adequacy measures;
• allocates internal capital to individual business areas;
• performs stress tests;
• compares its capital needs with the level of equity held;
• integrates the capital adequacy assessment with development of the Bank’s Strategy, financial and sales plans;

In 2013, the supervisory solvency ratio and internal solvency ratio of the Group was above the required regulatory minimum.

Equity and solvency ratio

The Group’s equity consists of Tier 1 and Tier 2 capital. In 2013, Tier 1 capital included:

• core capital: share capital, supplementary capital and reserve capital;
• general risk reserve;

and was reduced by:

• the carrying amount of intangible assets;
• loss on measurement of financial instruments classified as available for sale;
• other items, as specified in supervisory regulations.

Tier 2 capital of the Group in 2013 included:

• a portion of gains on measurement of debt instruments classified as available for sale, as determined by the applicable regulations;
• cash obtained from a subordinate loan received in 2011 and two issues of subordinate bonds (carried out in 2011 and 2012, respectively);
• other items, as specified in supervisory regulations.

The table below presents the equity, solvency ratio and Tier 1 capital as at 31 December 2013 and 31 December 2012.

Equity (PLN’000)	Balance as at 31 December 2013	Balance as at 31 December 2012 (restated)
I. Tier 1 capital	360,121	329,660
1. Core capital	267,220	224,776
a) Share capital	97,290	97,290
b) Supplementary capital	34,068	33,761
c) Reserve capital	135,862	93,725
2. Additional items of Tier 1 capital	142,372	140,294
a) General risk reserve	106,345	101,345
b) Net profit for the period	36,027	38,949
3. Items reducing Tier 1 capital, including:	(49,471)	(35,410)
a) Carrying amount of intangible assets	(30,215)	(27,339)
b) Prior year loss	(16,476)	(7,981)
c) Other	(2,780)	(90)
II. Tier 2 capital, including:	123,810	135,946
1. Subordinated liabilities classified as Tier 2 capital	123,140	131,740
2. Other	670	4,206
Equity	483,931	465,606

Equity (PLN’000)	Balance as at 31 December 2013	Balance as at 31 December 2012 (restated)
Capital requirements for credit, counterparty credit, dilution and settlement risk, including for exposures	267,672	233,697
with 0% risk weight	0	0
with 20% risk weight	5,884	6,800
with 35% risk weight	45,440	42,305
with 50% risk weight	1,091	737
with 75% risk weight	145,771	121,279
with 100% risk weight	69,086	61,232
with 150% risk weight	400	1,344
other risk weights	0	0
Capital requirement for operational risk	35,390	33,179
Total capital requirement	303,062	266,876
Solvency ratio	12.8%	14.0%
Tier 1	9.5%	9.9%