Capital adequacy and solvency

At the end of the period, the Common Equity Tier 1 capital ratio of Aktia Bank Group (Aktia Bank plc and all its subsidiaries except Aktia Life Insurance Ltd) was 18.0 (19.5) %. After deductions, Common Equity Tier 1 capital decreased by EUR 14.2 million during the period which affected the CET1 capital ratio by -0.7 percentage points. The change is mainly attributable to the increase of intangible assets, the decrease in the fund at fair value as well as the dividend pay-out. At a total, risk-weighted commitments increased by EUR 82.5 million which reduced the CET1 capital ratio by 0.8 percentage points. During the period, risk-weighted assets grew as a result of an increase of corporate lending.
 
Aktia Bank Group applies internal risk classification (IRB) to the calculation of capital requirement for retail and equity exposures. For other exposures the standardised approach is used. A total of 54 (56) % of the Bank Group's exposures are calculated according to the IRB approach. The work continues on migration to internal models for exposure to corporates and credit institutions.
 
 
 
 
Capital adequacy, % 31 Dec 2018 31 Dec 2017 31 Dec 2016
  IRB IRB IRB
Bank Group      
CET1 Capital ratio 17.5 18.0 19.5
T1 Capital ratio 17.5 18.0 19.5
Total Capital ratio 20.5 23.4 26.3
Aktia Bank      
CET1 Capital ratio 16.9 17.9 16.1
T1 Capital ratio 16.9 17.9 16.1
Total Capital ratio 20.0 23.2 21.7
Aktia Real Estate Mortgage Bank      
CET1 Capital ratio - - 193.9
T1 Capital ratio - - 193.9
Total Capital ratio - - 193.9

 

The capital requirement of banking business increased at the beginning of 2015 as the requirement for capital conservation buffer and the countercyclical buffer requirement were introduced to Finland. The requirement for capital conservation buffer will increase the minimum requirement by 2.5 percentage points. The countercyclical buffer requirement will vary between 0.0 and 2.5 percentage points. The board of the Financial Supervisory Authority will decide quarterly the magnitude of the requirement for the countercyclical capital buffer on the basis of analysis of macroeconomic stability. The latest decisions on the requirement (22 December 2017) placed no countercyclical capital buffer requirement on the banks for Finnish exposures, and the policy for macroeconomic stability was not tightened up by other means either. The European Commission did not object to the decision taken earlier by the Finnish Financial Supervisory Authority to introduce a minimum level of 15 % for the average risk weight on residential mortgage loans for credit institutions that have adopted the IRB approach. Thus the minimum level was applied as from 1 January 2018. At the end of the period, Aktia Bank Group's average risk weight on households' exposures with residential real estate collateral calculated according to the IRB approach was 13.0 (13.5) %, i.e. the minimum level of risk weight on residential mortgage loans would lead to a decrease of CET1 by approximately 0.7 percentage points.
 
The countercyclical buffer is calculated taking the geographic distribution of exposures into account. Authorities in some other countries have set higher requirements for countercyclical buffers. This requirement also applies to certain exposures in the Bank Group's liquidity portfolio. Aktia Bank Group's requirement for a countercyclical buffer amounted to 0.06 % as per 31 December 2017, taking the geographic distribution of exposures into account. When taking its latest macro-prudential decision, the Financial Supervisory Authority also updated the list of Other Systemically Important Institutions (O-SIIs) in Finland, and set buffer requirements for them. No O-SII buffer requirement was set for Aktia.
 
The Financial Supervisory Authority has on 16 December 2016, supported by the Credit Institutions Act, set a consolidated buffer requirement based on assessment for Aktia. The requirement is based on the Financial Supervisory Authority's assessment (Supervisory Review and Evaluation Process, SREP). The buffer requirement amounts to a total of 1.75%, including concentration risk within credit risk and structural interest rate risk. For these there are no specific capital requirements in the EU's Capital Requirements Regulation (CRR). According to the decision, the requirements shall be met with CET1 capital. The requirement entered into force on 30 June 2017. Taking all buffer requirements into account, the minimum capital adequacy level for the Bank Group was 12.31 %, and 10.31 % for CET1 at the end of the period.
 
The Aktia Group has implemented IFRS 9 as of 1 January 2018. The transition to IFRS 9 had a marginal impact on the Bank Group's capital adequacy.
 
Aktia Bank Group's leverage ratio was 4.5 (4.7) % based on end of quarter figures.
 
 
Leverage Ratio* 31 Dec 2017 31 Dec 2016
Tier 1 capital 375 390
Total exposures 8,259 8,206
Leverage Ratio, % 4.5 4.7
* The leverage ratio is calculated based on end of quarter figures
 
During the second quarter the Financial Stability Board set the minimum requirement for Aktia Bank on eligible liabilities that can be written down (MREL requirement). The requirement set is twice the minimum capital requirement, including the total buffer requirement according to the Finnish Credit Institutions Act, however, at least 8 % of the balance sheet total. The requirement will enter into force on 31 December 2018.
 
As of 1 January 2016, the life insurance company follows the Solvency II directive, in which the solvency calculations deviate from previous solvency requirements, as technical provisions are measured at market value. According to Solvency II, the company calculates its Solvency Capital Requirement (SCR) and Minimum Capital Requirement (MCR) and identifies its available solvency capital within Solvency II. Aktia Life Insurance applies the standard formula for SCR, with consideration of the transitional measure for technical provisions in accordance with the permission granted by the Financial Supervisory Authority.
 
At the end of December 2017, SCR amounted to EUR 85.1 (80.6) million, MCR to EUR 23.9 (24.4) million and the available capital to EUR 169.5 (144.7) million. Thus the solvency ratio was 199.2 (179.4) %. Without transitional measures SCR amounted to EUR 98.6 (80.8) million, MCR to EUR 26.1 (26.7) million and the available capital to EUR 116.3 (87.9) million. The solvency ratio without transitional measures was 117.9 (108.7) %. In the solvency figures 31 December 2017 the consideration of adjustments for deferred taxes has changed from previous periods, thus increasing SCR requirements. The transition to IFRS 9 had no impact on the solvency of Aktia Life Insurance.
 
The financial conglomerate's capital adequacy ratio was 164.5 (188.6) %. The financial conglomerate's capital adequacy decreased during the period, following the introduction of the SREP requirement. The statutory minimum stipulated in the Act on the Supervision of Financial and Insurance Conglomerates is 100%. The transition to IFRS 9 had no significant impact on the conglomerate's capital adequacy.