Regulatory and Economic Capital Management
ING Bank Śląski Group is managing its capital on the basis of Banking Law, EU Regulations, PFSA Resolutions and relevant internal rules. There are two basic internal documents on capital management:
- “Capital Management and ICAAP Process Policy at ING Bank Śląski S.A.”,
- “Stress testing Policy at ING Bank Śląski S.A.”
These documents describe allocation and scope of responsibilities and regulations connected to capital requirements and the capital base calculation, allocation, planning, monitoring and reporting, rules of stress testing process and actions required in the case of a solvency crisis.
Group’s organisational structure and the model of management are in line with the guidelines of the European and local regulations. The resolutions of the European Parliament and Council Regulations (EU) No. 575/2013 from 26 June 2013 concerning the prudential requirements for credit and investment institutions (Regulation (EU) No. 575/2013) have been implemented. The Group is currently implementing the specific resolutions of legal acts and guidelines as well. In order to improve this operation, the Group has introduced a process of identification and monitoring of implementing the regulations published by the European Commission.
The Group maintains sufficient capital to facilitate the efficient and effective realization of the development plan and the conduct of current operations.
Regulatory capital (Pillar I)
For the purpose of 2014 reporting, the Group calculated the credit risk capital requirement using Advanced Internal Ratings Based approach, as well as the Standardised Approach. Bank and ING Lease Polska Sp. z o.o. received an approval from the Polish Financial Supervision Authority and De Nederlandsche Bank on implementation of AIRB methodology for corporates and credit institutions. Credit risk is managed by the Credit Risk Modelling Department, Credit Risk Reporting Department, Credit Risk Policy Department, Corporate Credit Restructuring Department, Central Credit Risk Department and Regional Credit Risk Department as well as relevant units of the subsidiaries.
In the area of operational risk Group uses the BIA (Basic Indicator Approach) methodology. This area is managed by each business unit with the support of the Non-financial Risk Area units including Operational Risk Management Department, Compliance Department and Anti-fraud Department, as well as similar departments of Bank’s subsidiaries.
In the market risk area the Group uses standard methods following the Regulation (EU) No. 575/2013. The area is managed by Market Risk Management Department.
The Group also sets the capital requirements of concentration risk, settlement risk and credit value adjustment risk (CVA). In all the cases the requirements are set in compliance with the Regulation (EU) No. 575/2013.
The level of own funds is adequate as the total capital ratio exceeds 12.5%.
The table below presents the detailed calculation of basic figures of regulatory capital and capital ratio for the Group.
Regulatory capital base and solvency ratio
|end of 2014||end of 2013|
|A. Own equity in the statement of financial position, of which:||10,456.6||8,628.6|
|A.I. Own equity included in tier 1 capital, of which::||7,491.5||7,755.8|
|- share capital||130.1||130.1|
|- supplementary capital - agio||956.3||956.3|
|- retained earnings||6,408.6||6,397.1|
|- supplementary capital - other||149.0||136.8|
|- reserve capital||5,012.8||4,715.1|
|- general risk fund||1,060.2||1,010.2|
|- retained profit of past years||186.6||145.9|
|- net profit of current period in audited part||-||389.1|
|- revaluation reserve from measurement of available-for-sale financial assets (unrealised losses)||-3.5||-25.3|
|- revaluation reserve from measurement of available-for-sale financial assets (unrealised gains)||0.0||295.3|
|- non-controlling interests||-||2.3|
|A.II. Own equity excluded from own funds calculation, of which:||2,965.1||872.8|
|- revaluation reserve||1,877.8||254.3|
|- revaluation reserve from measurement of available-for-sale financial assets||564.7||3.7|
|- revaluation reserve from measurement of property, plant and equipment||31.4||43.2|
|- revaluation reserve from measurement of cash flow hedging instruments||1,278.3||205.5|
|- actuarial gains / losses||3.4||1.9|
|- revaluation of share-based payment||48.2||46.1|
|- retained earnings||1,036.5||572.4|
|- retained profit of past years||-4.2||-|
|- net profit of current period in unaudited part||1,040.7||0.0|
|- dividend declared to shareholders||-||572.4|
|- non-controlling interests||2.6||-|
|B. Other elements of own funds (decreases and increases), of which::||-508.1||-504.5|
|- goodwill and other intangible assets||-371.4||-365.9|
|- capital commitments in financial institutions||-||-40.0|
|- amount of expected losses||-136.7||-98.6|
|C. Short-term capital||-||34.7|
|Own funds taken into account in total capital ratio calculation (A.I. + B + C.)||6,983.4||7,286.0|
|- Capital requirements for credit risk, credit counterparty, dilution and delivery of instruments for future settlement||3,291.1||2,900.1|
|- Capital requirements for the risk of settlement - delivery||10.3||10.3|
|- Capital requirements for operational risk||459.3||437.6|
|- Capital requirements for general interest rate risk||33.8||24.5|
|- Supplement to the overall level of capital requirements||147.0||0.0|
|Total capital requirement||3,941.5||3,372.5|
|Total capital ratio (solvency ratio)*||14.17%||17.28%|
*) As of 01 January 2014, new provisions of the Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 (CRR for short) are applicable to own funds and capital adequacy. The total capital ratio (solvency ratio previously) as at 31 December 2014 was calculated under the CRR guidelines. The ratios presented as at 31 December 2013 were calculated under the laws effective by the 2013 year end and provided in PFSA Resolution No. 76/2010 on the Scope and Detailed Principles of Capital Requirement Determination for Individual Risk Types of 10 March 2010. As at 31 December 2013, the estimated amount of the total capital ratio computed under the CRR principles would be 14.9%.
Starting from the report as at 30 June 2013, ING Bank Śląski S.A. and ING Lease Polska Sp. z o.o. report capital requirement for credit risk on the basis of the AIRB approach. The Group acts in this way pursuant to the letter of De Nederlandsche Bank (DNB) dated 4 July 2013, wherein DNB together with the Polish Financial Supervision Authority give the Bank permission to apply the full AIRB approach for the exposure classes: corporates and credit institutions.
Irrespective of the above mentioned consent, pursuant to Regulation (EU) No. 575/2013, when determining the total capital requirement the Group takes account of the so called regulatory floor which amounts to 80% of the total comparable capital requirement (it is the sum of capital requirements for individual risk types computed by means of the standard approaches). Should the total capital requirement be lower than 80% of the total comparable capital requirement, the Group will include the difference as “a supplement to the overall level of capital requirements”.
Economic capital (Pillar II)
Economic capital is a name for internal capital defined as amount of capital required to cover all kinds of risk in Group’s activity. The amount of economic capital should cover assumed level of unexpected losses which Group is endangered to in the future. During calculation of capital required to cover unfavorable influence of risk a year time horizon and confidence level corresponding to Group’s rating (99.95%) are assumed.
Group identifies and measures economic capital consisting of:
- capital to cover credit risk (default and counterparty risk, concentration risk, residual risk, other non-credit obligation assets risk; residual value risk),
- capital to cover market risk (risk of loss due to negative changes in financial market, like: interest rate risk, exchange rate risk, property value risk),
- capital to cover operational risk (risk of direct or indirect material loss or loss of reputation resulting from incompatibility and unreliability of internal processes, employees and systems or external events, including legal risk),
- capital to cover business risk (strategic risk, macroeconomic risk),
- capital to cover model risk,
- capital to cover liquidity and funding risk
During a 2014 workshop on the significance of risks the Group assessed the transfer risk and recognized the risk as non-material. As a consequence the Group has discontinued of estimation the capital in respect of transfer risk. Additionally, the definition of default and counterparty risk has been extended with settlement risk. A new risk has been identified as well: other non-credit assets risk.
During the year 2014 the level of own funds was above the level of internal capital.
Disclosure requirements (Pillar III)
Regulatory disclosures are made Corep and Finrep reporting as well as publication of additional qualitative and quantitative information, based on the European and local regulations. The Bank analyzed the regulations valid on the 31 December 2014 and published the required information on its Website.