CHANGE RULES SHIFT HAPPENS

24.09.2013 CHANGE RULES – SHIFT HAPPENS… Spar Nord’s view on the implications of the new CRD IV regime ABG Sundal Collier Funding Seminar Carsten L. ...
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24.09.2013

CHANGE RULES – SHIFT HAPPENS… Spar Nord’s view on the implications of the new CRD IV regime ABG Sundal Collier Funding Seminar Carsten L. Jakobsen, SVP Risk and Funding

CRD IV HAS IMPLICATIONS ACROSS THE PALETTE

Capital ratios Higher capital requirements

=

Capital

New demands on quality

 Conservation buffer

 Phasing-out of hybrid capital

 Counter-cyclical buffer

 Deduction rules

 Systemic risk buffer

 Stake in Nørresundby Bank  Shares in sector companies

/

RWA

New definitions of RWA  Extended definition of default and high risk customers  New calculation of counterparty risk/CVA  Higher RWA on financial counterparties  Discount on SME lending

side 2

STRONG TREND IN CET1 & SOLVENCY RATIO – UNAIDED BY MAGIC MODELS SOLVENCY RATIO

CORE TIER 1 RATIO

+ 48% 16,8 0,2

+ 51%

3,1

13,4

11,3 1,6 0,8

8,9

13,4 8,9

Q4 2008

Q2 2013

Q4 2008 Core tier 1

Q2 2013 Tier 1

Tier 2

side 3

STRENGTHENING OF EQUITY IS THE MAIN DRIVER FOR DELEVERAGING LENDING AND GUARANTEES (DKKb)

EQUITY (DKKb)

- 13% 49,9

+ 55% 6,2

7,4

43,4

2,2

2,9 0,6

40,4

39,9

Q4 2008

Q2 2013

4,0

Q4 2008

Q2 2013

Lending, Leasing activities Lending, Reverse transactions Lending and guarantess, Banking activities

side 4

WELL ABOVE STRATEGIC TARGETS ON CAPITAL RATIOS SOLVENCY RATIO

CORE TIER 1 RATIO

16,8 15 13,4 12

Q2 2013

Strategic target

Q2 2013

Strategic target

side 5

CAPITAL REQUIREMENTS SOLVENCY RATIO

CORE TIER 1 RATIO 15 pct. Including own buffer

12 pct. Including own buffer

12,5 pct. 3,0- 0,5 pct. Additional buffer

10,5 pct.

9 pct. incl. ICAAP

Incl. ICAAP

0- 2,5 pc t

Counter-cyclical buffer

Min. requirment

8,0 pct. 7 pct. Min. requirment

2 pct

ICAAP buffer

2,5 pc t.

Conservation buffer

4,5 pc t.

Min. requirements for common equity

2,5- 0 pc t.

Additional buffer

0- 2,5 pc t

Counter-cyclical buffer

2 pc t

ICAAP buffer

2,5 pc t.

Conservation buffer

3,5 pc t.

Hybrid and subordinated capital

4,5 pc t.

Min. requirements for common equity

legal requirements

page 6

SPAR NORD AND SIFI REQUIREMENTS CORE TIER 1 RATIO

 

SOLVENCY RATIO

SIFI requirements are specified ex. ICAAP For comparison a 2 pct. ICAPP buffer is added

side 7

CRD IV IMPACT ON RISK WEIGHTED ASSETS CRD IV impact on RWA (DKKm)

2014

Fully phased in Comments

 Increased RWA from changes in deductions rules

Changed default criteria High risk exposure SME discount

CVA and CCP clearing Financial counterparties

Total impact

~ 300

~ 1.400



~ 300

~ 700

~ 1.300

~ 300

RWA treatment of elements that otherwise would have been deducted from CET1 Over 80 pct. comes from Nørresundby Bank



Broader definition of the default criteria  increases RWA



High risk exposure is a new risk category  increases RWA



Support factor - SME exposure  decreases RWA



Higher capital requirements for OTC derivatives by introducing a capital charge for CVA risk



Higher capital requirements for loans to financial intermediaries

~ 700

~ 2.400

side 8

NØRRESUNDBY BANK – A COMPLEX AFFAIR 

Changes in the deduction rules will have a negative impact on core tier 1 ratio



However, the same rules will boost solvency ratio

Impact from shares in Nørresundby Bank

Basel II

Deductions (DKKm)

Impact on capital ratio (Pct.)

0

0

700

-1,7

Deductions (DKKm)

Impact on capital ratio (Pct.)

Core tier 1 ratio

400

-0,8

Solvency ratio

400

-0,9

Deductions (DKKm)

Impact on capital ratio (Pct.)

Core tier 1 ratio

400

-0,8

Solvency ratio

-300

0,8

Core tier 1 ratio





When the ownership interest exceeds 10 pct., deductions are split between capital deductions and increased RWA Impact on RWA are expressed as a capital deduction

Solvency ratio

CRD IV

Changes

side 9

IMPACT FROM REPAYMENT OF STATE HYBRID CAPITAL



Repayment of DKKm 1.265 mid 2014



In connection with the repayment, we expect to issue new Tier 2 capital.



Timing and amount TBD.



After the repayment the solvency ratio will still exceed 15 pct.

Impact from repayment of state hybrid capital

Capital ratios

Impact

Tier 1 ratio

3,0%

Solvency ratio

3,2%

side 10

CORE TIER 1 RATIO - CAPITAL SCENARIO UNTIL 2015

14,3 13,1

13,2

Q1

Q2

12,1

Q3

Q4

12,8

Q1

2012

13,8

13,9

13,5

13,6

13,8

13,9

13,4

13,5

13,4

13,5

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

2013

Basel II

 

13,4

2014

2015

Phasing in CRD IV

Phasing in of CRD IV leads to visible deductions in CET1 In a base scenario with modest growth and possible dividend, CET1 remains comfortably above target

side 11

CONCLUSIONS 

The new regulatory regime leads to number of changes and it has implications across the palette



Non-IRB status (lower leverage) and non-SIFI status adds a certain flexibility to capital policy – comfortable with targets of 12% CET1 and 15% solvency



CRD IV leads to visible deductions – in a base scenario with modest growth CET1 remains comfortably above target



Nørresundby Bank is no no-brainer – multiple scenarios are thinkable



In connection with repayment of state hybrid capital, we plan to issue Tier 2 capital – timing and amount TBD

side 12

QUESTIONS

side 13