Notes to the consolidated financial statements

46.6. Capital management

Download note 46.6 in XLS

The Group’s capital adequacy is managed on the Bank level. It is aimed to ensure that the Bank'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 Bank.
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 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.

The Group prepares the following cyclical reports to monitor its capital adequacy on an ongoing basis:

• monthly report for the ALCO and the Management Board;
• quarterly report for the ALCO, the Management and Supervisory Board.

In 2014 the solvency ratio, Tier 1 and internal solvency ratio of the Group was above the required regulatory minimum.
In order to ensure high standards of equity management, compliant with best banking practices, once a year the Group reviews the applicable policies and procedures.

Equity and solvency ratio
For the purpose of equity calculation, the Group applies methods arising from Regulation of the European Parliament and of the Council (EU) no. 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending the Regulation (EU) no. 648/2012 (CRR). The Group’s equity consists of Tier 1 (CET1) and Tier 2 funds recognized on a separate basis (based on CRR provisions, the Bank is exempted from the obligation to determine capital requirements on the consolidated level).
In 2014, Tier 1 capital included:

• equity instruments meeting the conditions addressed in CRR;
• agio related to the instruments referred to above;
• retained earnings, to include current period gains or annual profit before a formal decision confirming the final financial performance for a given year following an approval of a competent body;
• accumulated other comprehensive income;
• reserve capital;
• general risk reserve;
• unrealized gains and losses measured at fair value (in amounts including transitionary regulations referred to in Articles 467 and 468 of the CRR);
• other Tier 1 items as determined in CRR;

and was reduced by:

• carrying amount of intangible assets;
• loss on measurement of debt instruments classified as available for sale.

In 2014, Tier 2 funds in the Group included cash obtained from a subordinate loan received in 2014 from Poczta Polska and two issues of subordinate bonds (carried out in 2011 and 2012, respectively).
The following table presents the amounts of equity, solvency ratio and Tier 1 as at 31 December 2014 and 31 December 2013 (calculation of equity and the capital requirements as at 31 December 2013 pursuant to Resolution no. 76/2010 of the Polish Financial Supervision Authority of 10 March 2010 on the scope and detailed principles of determining capital requirements for each risk type).