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
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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
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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
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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
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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
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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
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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
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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
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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
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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%
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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
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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
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