Notes to the consolidated financial statements
48. Capital management
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 Asset-Liability Committee and the Management Board;
- quarterly report for the Asset-Liability Committee, the Management and Supervisory Board.
In 2015 the solvency ratio, Tier 1 and internal solvency ratio of the Group were above the required regulatory minimum.
In order to ensure high standards of capital 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 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 exempt from the obligation to determine capital requirements on the consolidated level).
In 2015, Tier 1 capital included:
- equity instruments meeting the conditions specified 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 transitional provisions referred to in Articles 467 and 468 of CRR);
- ther Tier 1 items as determined in CRR,
and reduced by:
- carrying amount of intangible assets;
- loss on measurement of debt instruments classified as available for sale.
In October 2015 the Bank issued ordinary registered C1 series shares with the total par value of PLN 12,842,480.00 and the issue value of PLN 60,000,066.56. The capital increase was recorded in the National Court Register on 20 November 2015. Subsequently, on 15 December 2015 the Bank obtained a consent of the Polish Financial Supervision Authority to classify the equity instruments in question to Tier 1 capital (file No. DBK/DBK2/7105/26/7/2015/AN).
In 2015, Tier 2 capital 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 table below presents the equity, solvency ratio and Tier 1 capital as at 31 December 2015 and 31 December 2014.
Balance as at | Balance as at | |
---|---|---|
Equity | 31 December 2015 | 31 December 2014 |
PLN’000 | PLN’000 | |
Tier 1 capital | 480 417 | 399 481 |
Equity instruments paid for | 110 133 | 94 378 |
Adjustments related to instruments in Tier 1 capital in the transition period | 0 | 2 330 |
Agio | 55 691 | 8 600 |
Retained earnings, including: | 25 086 | 38 179 |
- profit | 25 086 | 38 179 |
Accumulated other comprehensive income | 11 908 | 3 571 |
Adjustments related to unrealized gains/losses on instruments in Tier 1 capital* | (8 146) | (5 532) |
Reserve capital | 225 577 | 183 019 |
Funds for general banking risk | 114 345 | 108 345 |
Other intangible assets | (53 362) | (32 307) |
Additional value adjustments arising from prudent measurement requirements | (815) | (1 102) |
Tier 2 capital | 126 138 | 130 872 |
Equity instruments and subordinated loans classified as Tier 2 capital | 93 000 | 93 000 |
Adjustments related to instruments in Tier 2 capital in the transition period | 33 138 | 37 872 |
Equity | 606 555 | 530 353 |
* The adjustment regards elimination of a portion of the positive valuation due to unrealized gains in the transition period.
Balance as at | Balance as at | |
---|---|---|
Capital adequacy | 31 December 2015 | 31 December 2014 |
PLN’000 | PLN’000 | |
Capital requirements for credit, counterparty credit, dilution and settlement risk, including for exposures | 293 364 | 278 431 |
with 0% risk weight | 0 | 0 |
z wagą ryzyka 4%** | 9 | 0 |
with 20% risk weight** | 4 128 | 4 955 |
with 35% risk weight | 43 364 | 43 135 |
with 50% risk weight | 2 535 | 1 154 |
with 75% risk weight | 176 316 | 162 333 |
with 100% risk weight | 57 038 | 59 528 |
with 150% risk weight | 5 454 | 2 491 |
with 250% risk weight | 4 520 | 4 835 |
other risk weights | 0 | 0 |
Credit valuation adjustment (CVA) | 51 | 39 |
Capital requirement for currency risk | 1 201 | 0 |
Capital requirement for operational risk | 41 270 | 37 495 |
Total capital requirement | 335 886 | 315 965 |
Solvency ratio | 14,4% | 13,4% |
Tier 1 | 11,4% | 10,1% |
** Rounded up risk weight for exposures due to payments to central counterparty in case of default.