Disclosure Report. LGT Group Capital Requirements Regulation Part 8

Transcription

1 Disclosure Report LGT Group Capital Requirements Regulation Part 8 Reporting date: 31 December

2 Content Preface 3 Risk management objectives and policies 3 Scope of application 4 Own funds 5 Capital requirements 10 Exposure to counterparty credit risk 11 Capital buffers 11 Indicators of global systemic importance 11 Credit risk adjustments 11 Unencumbered assets 14 Use of external credit assessment institutions 15 Exposure to market risk 19 Operational risk 19 Exposures in equities not included in the trading book 19 Exposure to interest rate risk on positions not included in the trading book 19 Exposure to securitization positions 19 Remuneration policy 20 Leverage 24 Use of the IRB Approach to credit risk 25 Use of credit risk mitigation techniques 26 Use of the Advanced Measurement Approaches to operational risk 27 Use of Internal Market Risk Models 27 Glossary 27 2

3 Preface Prudential rules for banks and investment companies are contained in EU Regulation 575/2013 (the Capital Requirements Regulation, CRR ) and in the EU Directive 2013/36/EU (the Capital Requirements Directive, CRD 4), as implemented into Liechtenstein law, which came into force on 1st of February Due to CRR Part 8 banks have increased disclosure requirements regarding the prudential and commercial structure, own funds, the general risk management system and the risk management of individual risk types. LGT Group fulfills those disclosure requirements with this document. The disclosure report is updated annually and published on our homepage ( If not stated otherwise, all information refer to LGT Group (LGT) on a consolidated basis as of Risk management objectives and policies Declaration on the adequacy of risk management arrangements The risk management arrangements of LGT Group comply with common standards and are geared to the risk content of the exposures within the scope of proportionality. The arrangements are adequate for ensuring the risk-bearing capacity at all times. The risk objectives defined are made measurable, transparent and controllable by the processes employed. They are consistent with the strategy of LGT Group. Risk statement on the overall risk profile The business strategy of LGT Group acts as the starting point for drawing up and consistently deriving our risk strategy. This provides a binding framework for the assumption of risk taking into account the risk bearing capacity and risk tolerance together with the management of risk. Our risk profile and the risk tolerance specified by the management for LGT Group are reflected in the limit system and the breakdown by risk type. Number of directorships Members of LGT Group Foundation Board: 5 Number of directorships: 19 Recruitment policy During the selection process for members of the Foundation Board, due consideration is given to ensure the presence and complementary nature of experience and skills in various segments of relevance to LGT Group s strategic orientation (markets, financials, risk management, internationality, etc.). The Financial Market Supervisory Authority s Fit and Proper requirements are observed and adhered to during this process. The current composition of LGT Group s Foundation Board is in line with the applicable internal and supervisory authority standards. Policy on diversity In terms of the composition of the LGT Group Foundation Board, due consideration is given to diversity as regards the nationality, ethnicity, cultural background, etc. of the individual members. These criteria are met in the current composition of LGT Group s Foundation Board. In addition, there is intention to give greater consideration to gender diversity in the selection of new members of the LGT Group Foundation Board in the future, and to give precedence to the underrepresented sex, if, in an objective evaluation of all the selection criteria, the same qualifications exist as regards suitability, competence and professional achievements as for the candidates of the other sex. Risk committee LGT Group has set up a separate risk committee. In 2015 the risk committee has met once. Information flow on risk to the management body Risk reporting to the foundation board takes the form of an annual detailed risk management report. Given its importance for the successful continuation of LGT Group, complying to the regulations stated by its risk appetite represents the main point for the risk management report. 3

4 Scope of application Basis of consolidation for accounting and prudential purposes For LGT Group there are no differences in the basis of consolidation for accounting and prudential purposes. Material impediment to the prompt transfer of own funds or repayment of liabilities There is no practical or legal impediment to the prompt transfer of own funds or repayment of liabilities among the parent undertaking and its subsidiaries. 4

5 Own funds Main features of capital instruments (TCHF) Foundation capital Subordinated medium-term note 1 1 Issuer LGT Bank AG 2 Unique identifier (eg CUSIP,!SIN or Bloomberg identifier for private placement) n/a n/a 3 Governing law(s) of the instrument Liechtenstein Liechtenstein 4 Transitional CRR rules Common Equity Tier 1 capital Tier 2 capital 5 Post-transitional CRR rules Common Equity Tier 1 capital Tier 2 capital 6 Eligible at solo/(sub-)consolidated/ solo & (sub-)consolidated Solo and (Sub-) Consolidated Solo and (Sub-) Consolidated 7 Instrument type (types to be specified by each jurisdiction) Paid-in capital Subordinated loan 8 Amount recognized in regulatory capital (TCHF, as of most recent reporting date) 339' Nominal amount of instrument 339' a Issue price 100% 100% 9b Redemption price n/a 100% 10 Accounting classification Subscribed capital Liability - amortized cost 11 Original date of issuance n/a Perpetual or dated Perpetual dated 13 Original maturity date n/a Issuer call subject to prior supervisory approval No No 15 Optional call date, contingent call dates and redemption amount n/a n/a 16 Subsequent call dates, if applicable n/a n/a 17 Fixed or floating dividend/coupon Floating Fixed 18 Coupon rate and any related index n/a % 19 Existence of a dividend stopper No No 20a Fully discretionary, partially discretionary or mandatory (in terms of timing) Fully discretionary Mandatory 20b Fully discretionary, partially discretionary or mandatory (in terms of amount) Fully discretionary Mandatory 21 Existence of step up or other incentive to redeem No No 22 Noncumulative or cumulative Non-cumulative Non-cumulative 23 Convertible or non-convertible Non-convertible Non-convertible 24 If convertible, conversion trigger(s) n/a n/a 25 If convertible, fully or partially n/a n/a 26 If convertible, conversion rate n/a n/a 27 If convertible, mandatory or optional conversion n/a n/a 28 If convertible, specify instrument type convertible info n/a n/a 29 If convertible, specify issuer of instrument it converts into n/a n/a 30 Write-down features No No 31 If write-down, write-down triggers n/a n/a 32 If write-down, full or partial n/a n/a 33 If write-down, permanent or temporary n/a n/a 34 If temporary write-down, description of write-up mechanism n/a n/a 35 Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) Last Subordinated 36 Irregular features of the converted instruments No No 37 Description of any irregular features n/a n/a 5

6 Subordinated medium-term note 2 Subordinated medium-term note 3 Subordinated medium-term note 4 Subordinated medium-term note 5 Subordinated medium-term note 6 LGT Bank AG LGT Bank AG LGT Bank AG LGT Bank AG LGT Bank AG n/a n/a n/a n/a n/a Liechtenstein Liechtenstein Liechtenstein Liechtenstein Liechtenstein Tier 2 capital Tier 2 capital Tier 2 capital Tier 2 capital Tier 2 capital Tier 2 capital Tier 2 capital Tier 2 capital Tier 2 capital Tier 2 capital Solo and (Sub-) Consolidated Solo and (Sub-) Consolidated Solo and (Sub-) Consolidated Solo and (Sub-) Consolidated Solo and (Sub-) Consolidated Subordinated loan Subordinated loan Subordinated loan Subordinated loan Subordinated loan % 100% 100% 100% 100% 100% 100% 100% 100% 100% Liability - amortized cost Liability - amortized cost Liability - amortized cost Liability - amortized cost Liability - amortized cost dated dated dated dated dated No No No No No n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Fixed Fixed Fixed Fixed Fixed % % % % % No No No No No Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory No No No No No Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a No No No No No n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Subordinated Subordinated Subordinated Subordinated Subordinated No No No No No n/a n/a n/a n/a n/a 6

7 Own funds Common Equity Tier 1 (CET1) capital: instruments and reserves TCHF CRR 1 Capital instruments and the related share premium accounts 339' (1), 27, 28, 29 of which: Instrument type EBA list 26 (3) of which: Instrument type 2 n/a EBA list 26 (3) of which: Instrument type 3 n/a EBA list 26 (3) 2 Retained earnings 1'935' (1) (c) 3 Accumulated other comprehensive income (and other reserves) 1'054' (1) 3a Funds for general banking risk n/a 26 (1) (f) 4 Amount of qualifying items referred to in Article 484 (3) and the related share premium accounts subject to phase out from CET1 n/a 486 (2) 5 Minority interests (amount allowed in consolidated CET1) a Independently reviewed interim profits net of any foreseeable charge or dividend n/a 26 (2) 6 Common Equity Tier 1 (CET1) capital before regulatory adjustments 3'328'779 Common Equity Tier 1 (CET1) capital: regulatory adjustments 7 Additional value adjustments (negative amount) n/a 34,105 8 Intangible assets (net of related tax liability) (negative amount) -377' (1) (b), 37 9 Empty set in the EU n/a 10 Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability where the conditions in Article 38 (3) are met) (negative amount) n/a 36 (1) (c), 38, 11 Fair value reserves related to gains or losses on cash flow hedges (1) (a) 12 Negative amounts resulting from the calculation of expected loss amounts n/a 36 (1) (d), 40, Any increase in equity that results from securitized assets (negative amount) n/a 32 (1) 14 Gains or losses on liabilities valued at fair value resulting from changes in own credit standing n/a 33(1) (b) 15 Defined-benefit pension fund assets (negative amount) n/a 36 (1) (e), Direct and indirect holdings by an institution of own CET1 instruments (negative amount) Direct, indirect and synthetic holdings of the CET 1 instruments of financial sector entities where those entities have reciprocal cross holdings with the institution designed to inflate artificially the own funds of the institution (negative amount) Direct, indirect and synthetic holdings by the institution of the CET1 instruments of financial sector entities where the institution does not have a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount) Direct, indirect and synthetic holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount) 20 Empty set in the EU n/a 20a Exposure amount of the following items which qualify for a RW of 1250%, where the institution opts for the deduction alternative n/a 36 (1) (f), 42 n/a 36 (1) (g), 44 n/a n/a n/a 36 (1) (h), 43, 45, 46, 49 (2) (3), (1) (i), 43, 45, 47, 48 (1) (b), 49 (1) to (3), (1) (k) 20b of which: qualifying holdings outside the financial sector (negative amount) n/a 36 (1) (k) (i), 89 to 91 20c of which: securitization positions (negative amount) n/a 36 (1) (k) (ii), 243 (1) (b), 244 (1) (b), d of which: free deliveries (negative amount) n/a 36 (1) (k) (iii), 379 (3) 21 Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability where the conditions in Article 38 (3) are met) (negative amount) n/a 36 (1) (c), 38, 48 (1) (a) 22 Amount exceeding the 15% threshold (negative amount) n/a 48 (1) 23 of which: direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities 24 Empty set in the EU n/a n/a 36 (1) (i), 48 (1) (b) 25 of which: deferred tax assets arising from temporary differences n/a 36 (1) (c), 38, 48 (1) (a) 7

8 25a Losses for the current financial year (negative amount) n/a 36 (1) (a) 25b Foreseeable tax charges relating to CET1 items (negative amount) n/a 36 (1) (l) 27 Qualifying AT1 deductions that exceed the AT1 capital of the institution (negative amount) 28 Total regulatory adjustments to Common Equity Tier 1 (CET1) -377' Common Equity Tier 1 (CET1) capital 2'951'444 n/a 36 (1) (j) Sum of rows 7 to 20a, 21, 22 and 25a to 27 Additional Tier 1 (AT1) capital: instruments 30 Capital instruments and the related share premium accounts n/a 51, of which: classified as equity under applicable accounting standards n/a 32 of which: classified as liabilities under applicable accounting standards n/a Amount of qualifying items referred to in Article 484 (4) and the related share premium accounts subject to phase out from AT1 Qualifying Tier 1 capital included in consolidated AT1 capital (including minority interests not included in row 5) issued by subsidiaries and held by third parties n/a 486 (3) n/a 85, of which: instruments issued by subsidiaries subject to phase out n/a 486 (3) 36 Additional Tier 1 (AT1) capital before regulatory adjustments n/a Sum of rows 30, 33 and Additional Tier 1 (AT1) capital: regulatory adjustments Direct and indirect holdings by an institution of own AT1 instruments (negative amount) Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where those entities have reciprocal cross holdings with the institution designed to inflate artificially the own funds of the institution (negative amount) Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where the institution does not have a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount) Direct, indirect and synthetic holdings by the institution of the AT1 instruments of financial sector entities where the institution has a significant investment in those entities (net of eligible short positions) (negative amount) 41 Empty set in the EU n/a 42 Qualifying T2 deductions that exceed the T2 capital of the institution (negative amount) n/a 52 (1) (b), 56 (a), 57 n/a 56 (b), 58 n/a 56 (c), 59, 60, 79 n/a 56 (d), 59, Total regulatory adjustments to Additional Tier 1 (AT1) capital n/a Sum of rows 37 to Additional Tier 1 (AT1) capital n/a 45 Tier 1 capital (T1 = CET1 + AT1) 2'951'444 Sum of row 29 and row 44 n/a 56 (e) Tier 2 (T2) capital: instruments and provisions 46 Capital instruments and the related share premium accounts 23 62, Amount of qualifying items referred to in Article 484 (5) and the related share premium accounts subject to phase out from T2 Qualifying own funds instruments included in consolidated T2 capital (including minority interests and AT1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third parties n/a 486 (4) n/a 87, of which: instruments issued by subsidiaries subject to phase out n/a 486 (4) 50 Credit risk adjustments n/a 62 (c) & (d) 51 Tier 2 (T2) capital before regulatory adjustments Tier 2 (T2) capital: regulatory adjustments Direct and indirect holdings by an institution of own T2 instruments and subordinated loans (negative amount) Holdings of the T2 instruments and subordinated loans of financial sector entities where those entities have reciprocal cross holdings with the institution designed to inflate artificially the own funds of the institution (negative amount) Direct and indirect holdings of the T2 instruments and subordinated loans of financial sector entities where the institution does not have a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount) n/a 63 (b) (i), 66 (a), 67 n/a 66 (b), 68 n/a 66 (c), 69, 70, 79 8

9 55 Direct and indirect holdings by the institution of the T2 instruments and subordinated loans of financial sector entities where the institution has a significant investment in those entities (net of eligible short positions) (negative amount) 56 Empty set in the EU n/a n/a 66 (d), 69, Total regulatory adjustments to Tier 2 (T2) capital n/a Sum of rows 52 to Tier 2 (T2) capital 23 Row 51 minus row Total capital (TC = T1 + T2) 2'951'467 Sum of row 45 and row Total risk weighted assets 14'691'044 Capital ratios and buffers 61 Common Equity Tier 1 (as a percentage of total risk exposure amount) 20.1% 92 (2) (a) 62 Tier 1 (as a percentage of total risk exposure amount) 20.1% 92 (2) (b) 63 Total capital (as a percentage of total risk exposure amount) 20.1% 92 (2) (c) 64 Institution specific buffer requirement (CET1 requirement in accordance with article 92 (1) (a) plus capital conservation and countercyclical buffer requirements, plus systemic risk buffer, plus systemically important institution buffer expressed as a percentage of risk exposure amount) 65 of which: capital conservation buffer requirement 2.5% 66 of which: countercyclical buffer requirement 0.0% 67 of which: systemic risk buffer requirement 2.5% 67a 68 of which: Global Systemically Important Institution (G-SII) or Other Systemically Important Institution (O-SII) buffer Common Equity Tier 1 available to meet buffers (as a percentage of risk exposure amount) 69 [non-relevant in EU regulation] n/a 70 [non-relevant in EU regulation] n/a 71 [non-relevant in EU regulation] n/a 9.5% 0.0% CRD 128, 129, 130, 131, % CRD Amounts below the thresholds for deduction (before risk weighting) Direct and indirect holdings of the capital of financial sector entities where the institution does not have a significant investment in those entities (amount below 10% threshold and net of eligible short positions) Direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities (amount below 10% threshold and net of eligible short positions) 74 Empty set in the EU n/a 75 Deferred tax assets arising from temporary differences (amount below 10% threshold, net of related tax liability where the conditions in Article 38 (3) are met) n/a 36 (1) (h), 46, (c), 59, (c), 69, 70 n/a 36 (1) (i), 45, 48 n/a 36 (1) (c), 38, Applicable caps on the inclusion of provisions in Tier 2 Credit risk adjustments included in T2 in respect of exposures subject to standardized approach (prior to the application of the cap) n/a Cap on inclusion of credit risk adjustments in T2 under standardized approach n/a Credit risk adjustments included in T2 in respect of exposures subject to internal ratings-based approach (prior to the application of the cap) Cap for inclusion of credit risk adjustments in T2 under internal ratings-based approach Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2014 and 1 Jan 2022) n/a 62 n/a Current cap on CET1 instruments subject to phase out arrangements n/a 484 (3), 486 (2) & (5) 81 Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities) n/a 484 (3), 486 (2) & (5) 82 Current cap on AT1 instruments subject to phase out arrangements n/a 484 (4), 486 (3) & (5) 83 Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) n/a 484 (4), 486 (3) & (5) 84 Current cap on T2 instruments subject to phase out arrangements n/a 484 (5), 486 (4) & (5) 85 excluded from T2 due to cap (excess over cap after redemptions and maturities) n/a 484 (5), 486 (4) & (5) 9

10 Capital requirements Summary of approach to assess internal capital LGT Group has institutionalized an internal process to ensure its risk bearing capacity on a permanent basis (ICAAP or "Internal Capital Adequacy Assessment Process"). The aim of this process is to ensure the necessary capital resources based on economic considerations. For this purpose, all material risks are quantified and aggregated to an overall amount, the economic required capital. That economic capital is compared with the available capital. The foundation board is informed about the current development of allocation of own funds on a semiannual basis. Risk weighted exposure amounts Capital requirements (TCHF) Approach Credit Risk Standard Exposure to central governments 5'478 Exposure to regional governments or local authorities 6'637 Exposure to public sector entities 2'548 Exposure to multilateral development banks 0 Exposure to international organizations 0 Exposure to institutions 108'545 Exposures to corporates 160'708 Retail exposures 152'072 Exposures secured by mortgages on immovable property 127'914 Exposures in default 2'777 Exposures associated with particularly high risk 226'099 Exposures in form of covered bonds 0 Items representing securitization positions 0 Exposure to institutions and corporates with a short-term credit assessment 47'737 Exposures in the form of shares in collective investment undertakings (CIUs) Equity exposures 43'744 Other items 20'040 Total credit risk 904'331 Settlement risk 0 Market risk Standard 100'395 Operational risk Basic indicator 152'694 Exposure for credit value adjustments Standard 17'863 Total capital requirements 32 1'175'283 10

11 Exposure to counterparty credit risk Measures for exposure value For calculating the exposure value LGT Group uses the Mark-to-market Method according to article 274 CRR. Capital buffers Currently not relevant for LGT Group Indicators of global systemic importance Currently not relevant for LGT Group Credit risk adjustments Definitions for accounting purposes of 'past due' and 'impaired' Loans and advances to banks and to customers of which the contractual interest or principal payments are past due but an impairment is not appropriate yet. LGT has to distinguish between the three categories: Past due put to 30 days Past due days Past due more than 60 days On every closing date at least, each Group company is to determine whether objective criteria indicate that an asset may have declined in value. If this is the case, the company is to effect an impairment. Impairments represent corrections made to assets in respect of value declines which have already taken place or which are expected to occur. Impairments are therefore to be allocated to specific assets or group of assets. They may not be recorded on the liabilities side of the balance sheet. Impairments are made indirectly, i.e. via a separate allowance account. Approaches for determining specific and general credit risk adjustments LGT has various processes in place for the identification of acute loss risks in the credit portfolio (overdraft lists, risk-based frequency for the review of credit limits, regular reporting to the Chief Credit Officer regarding risk-relevant circumstances, assessments through internal credit ratings, etc.). The Lombard loan and mortgage loan portfolios are also subject to periodic stress tests. In cases where necessary for economic reasons, a value adjustment is made for the portfolio to cover general, latent credit risks on the valuation date. An incurred loss model using historic data is applied to determine the amount of the value adjustment for the portfolio. For interest payments that are past due by over 90 days, a credit value adjustment is automatically made for the corresponding position. In the case of receivables for which it is objectively unlikely that the borrower will be able to honor its future obligations, an individual value adjustment is made. A full value adjustment is always made for each receivable amounting to up to CHF For receivables in excess of this amount, net present value is applied for the calculation of the amount required for the individual value adjustment. 11

12 Counterparty exposure under the Standardized Approach Exposure classes (TCHF) Average 2015 Exposure to central governments 4'794'243 4'504'569 Exposure to regional governments or local authorities 415' '442 Exposure to public sector entities 158' '001 Exposure to multilateral development banks 341' '167 Exposure to international organizations 0 0 Exposure to institutions 7'419'204 7'125'101 Exposures to corporates 4'310'863 4'723'114 Retail exposures 6'117'519 5'671'657 Exposures secured by mortgages on immovable property 4'082'874 4'054'773 Exposures in default 94'728 94'853 Exposures associated with particularly high risk 1'884'159 1'895'013 Exposures in form of covered bonds 0 0 Items representing securitization positions 0 0 Exposure to institutions and corporates with a short-term credit assessment 3'090'399 3'025'081 Exposures in the form of shares in collective investment undertakings (CIUs) 404 1'772 Equity exposures 546' '461 Other items 283' '960 Total 33'540'771 33'028'963 Geographic distribution of exposures Exposure classes (TCHF) Switzerland Liechtenstein Europe Other Total Exposure to central governments 4'296' ' '192 4'794'243 Exposure to regional governments or local authorities 320' ' '740 Exposure to public sector entities 9'660 3' '335 27' '577 Exposure to multilateral development banks ' ' '966 Exposure to international organizations Exposure to institutions 2'953'350 87'719 3'821' '997 7'419'204 Exposures to corporates 509' '314 1'286'979 1'629'229 4'310'863 Retail exposures 575' '496 1'479'558 3'842'340 6'117'519 Exposures secured by mortgages on immovable property 1'746'024 1'627' ' '398 4'082'874 Exposures in default 12'661 15'626 26'031 40'411 94'728 Exposures associated with particularly high risk '884'159 1'884'159 Exposures in form of covered bonds Items representing securitization positions Exposure to institutions and corporates with a short-term credit assessment 739'845 26'745 1'343' '404 3'090'399 Exposures in the form of shares in collective investment undertakings (CIUs) Equity exposures 7' ' ' '801 Other items 87' '173 8'663 21' '295 Total 11'257'674 3'032'871 9'019'994 10'230'232 33'540'771 12

13 Distribution of exposures by industries Exposure classes (TCHF) Retail NFC 1 RFC 2 Other Total Exposure to central governments 0 282'991 4'511' '794'243 Exposure to regional governments or local authorities 0 415' '740 Exposure to public sector entities 0 68'582 89' '577 Exposure to multilateral development banks 0 341' '966 Exposure to international organizations Exposure to institutions 0 0 7'419' '419'204 Exposures to corporates 0 1'300'231 2'675' '185 4'310'863 Retail exposures 3'051'552 3'065' '117'519 Exposures secured by mortgages on immovable property 2'912' ' '079 99'848 4'082'874 Exposures in default 67'955 18'971 3'061 4'741 94'728 Exposures associated with particularly high risk '599' '980 1'884'159 Exposures in form of covered bonds Items representing securitization positions Exposure to institutions and corporates with a short-term credit assessment 0 477'065 2'613' '090'399 Exposures in the form of shares in collective investment undertakings (CIUs) Equity exposures 0 10' ' '801 Other items 218'345 9'087 55' '295 Total 6'250'148 6'767'573 19'799' '758 33'540'771 1 NFC: Non-financial counterparty 2 RFC: Regulatory financial counterparty Contractual residual maturities Exposure classes (TCHF) Within More than 1 More than 1 More than Total 1 month and less than 12 months and less than 5 years 5 years Exposure to central governments 4'691'050 19'467 65'088 18'638 4'794'243 Exposure to regional governments or local authorities 110' '175 87' '740 Exposure to public sector entities 83 38' '118 8' '577 Exposure to multilateral development banks 56'420 68' '763 5' '966 Exposure to international organizations Exposure to institutions 1'783'261 5'079' '430 40'015 7'419'204 Exposures to corporates 2'072'822 1'037' ' '784 4'310'863 Retail exposures 3'529'129 1'650' '030 78'318 6'117'519 Exposures secured by mortgages on immovable property 1'748' ' ' '749 4'082'874 Exposures in default 73'471 14'095 4'765 2'397 94'728 Exposures associated with particularly high risk 1'881'956 2' '884'159 Exposures in form of covered bonds Items representing securitization positions Exposure to institutions and corporates with a short-term credit assessment 2'239' ' '090'399 Exposures in the form of shares in collective investment undertakings (CIUs) Equity exposures 544' ' '801 Other items 303'998-51'810 12'453 18' '295 Total 19'035'123 9'836'041 3'728' '361 33'540'771 13

14 Impaired exposures and past due exposures Exposure classes (TCHF) Retail NFC RFC Other Total Exposures in default 67'955 18'971 3'061 4'741 94'728 Specific allowance 14'488 4' '170 Portfolio allowance 8'079 8'079 Total '443 23'623 3'082 4' '977 Impaired exposures and past due exposures by geographical areas Exposure classes (TCHF) Switzerland Liechtenstein Europe Other Total Exposures in default 12'661 15'626 26'031 40'411 94'728 Specific allowance 2'924 3'070 12' '170 Portfolio allowance 8'079 8'079 Total '585 18'696 38'746 40' '977 Unencumbered assets Assets (TCHF) Carrying amount of encumbered Fair value of encumbered assets Carrying amount of unencumbered Fair value of unencumbered assets assets assets Assets of the reporting institution 704' '534'427 0 Equity instruments 0 0 4'695'353 4'695'353 Debt securities 333' '283 3'637'210 3'637'210 Other assets 371' '201'864 0 Collateral received (TCHF) Fair value of encumbered collateral received or own debt securities issued Fair value of collateral received or own debt securities issued available for encumbrance Collateral received by the reporting institution 0 3'375'247 Equity instruments 0 0 Debt securities 0 3'375'247 Other collateral received 0 0 Own debt securities issued other than own covered bonds or ABSs 0 0 Encumbered assets/collateral received and associated liabilities (TCHF) Matching liabilities, contingent liabilities or securities lent Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered Collateral received by the reporting institution 299' '524 14

15 Use of external credit assessment institutions Description of external credit assessment institutions (ECAIs) LGT uses the recognized external credit assessment institutions Standard & Poor s Rating Services (S&P) and Moody s for purposes of the CRR. This applies to the exposure classes of central governments, regional governments or local authorities, public sector entities, multilateral development banks, institutions, corporates and institutions and corporates with a short-term credit assessment. LGT is using the standard allocation. Exposure value associated with each quality step Exposure classes (TCHF) 1 2 Exposure to central governments 315'034 22'467 Exposure to regional governments or local authorities 288'413 0 Exposure to public sector entities 128'813 14'783 Exposure to multilateral development banks 337'877 0 Exposure to international organizations 0 0 Exposure to institutions 2'541'487 2'513'284 Exposures to corporates 258' '341 Retail exposures 0 0 Exposures secured by mortgages on immovable property 0 0 Exposures in default 0 0 Exposures associated with particularly high risk 0 0 Exposures in form of covered bonds 0 0 Items representing securitization positions 0 0 Exposure to institutions and corporates with a short-term credit assessment 2'390' '264 Exposures in the form of shares in collective investment undertakings (CIUs) 0 0 Equity exposures 0 0 Other items 0 0 Total 6'260'515 3'557'139 15

16 Total 7'725 59' ' ' ' ' ' ' '663' '052 76' '052' ' '973 3'090' ' ' '973 10'983'223 16

17 Exposure value associated with each quality step after CRM Exposure classes (TCHF) 1 2 Exposure to central governments 315'034 22'467 Exposure to regional governments or local authorities 288'413 0 Exposure to public sector entities 128'813 14'783 Exposure to multilateral development banks 337'877 0 Exposure to international organizations 0 0 Exposure to institutions 1'692'594 1'743'937 Exposures to corporates 258' '341 Retail exposures 0 0 Exposures secured by mortgages on immovable property 0 0 Exposures in default 0 0 Exposures associated with particularly high risk 0 0 Exposures in form of covered bonds 0 0 Items representing securitization positions 0 0 Exposure to institutions and corporates with a short-term credit assessment 2'289' '522 Exposures in the form of shares in collective investment undertakings (CIUs) 0 0 Equity exposures 0 0 Other items 0 0 Total 5'311'537 2'468'051 17

18 Total 7'725 59' ' ' ' ' ' ' '001' '052 76' '052' ' '973 2'652' ' ' '973 8'883'675 18

19 Exposure to market risk LGT Group uses the Standardized Approach for purposes of calculating the capital required to cover market risk. There was an equity capital requirement of total TCHF The following table shows the breakdown of equity capital requirements: Market risk (TCHF) Own funds requirements Thereof interest rate risk 49'931 Thereof equity position risk 6'477 Thereof foreign exchange risk 10'802 Thereof commodities risk 33'185 Total 100'395 In 2015 LGT Group had no capital requirement for settlement risk. Operational risk LGT Group uses the Basic Indicator Approach (regarding Art. 315 CRR) for the purposes of calculating the capital required to cover operational risk. In this context, the average gross earnings from the last three financial years are weighted with the factor of 15%. In 2015, the capital required to cover operational risk totaled TCHF (previous year: TCHF ). Exposures in equities not included in the trading book Currently not relevant for LGT Group Exposure to interest rate risk on positions not included in the trading book See Section Risk Management in Annual Report of LGT Group Exposure to securitization positions Currently not relevant for LGT Group 19

20 Remuneration policy LGT Group s remuneration report describes the remuneration policy and practices of LGT in accordance with Liechtenstein law, in particular appendix 4.4 of the Bank Verordnung (BankV). It outlines the governance, i.e. the underlying remuneration principles, the decision-making processes and competencies, and introduces the employee remuneration model, in particular as regards the group of employees subject to specific regulatory requirements, including the Executive Board. Governance of remuneration Remuneration principles As a family-run company, LGT acts in accordance with the values of long-term commitment, stability and independence. LGT builds on the achievements, ideas and dedication of its employees in order to meet the needs of its clients and successfully implement its business strategy. An appropriate, sustainable and market-based remuneration model is a central part of the attractive and inspirational working environment offered by LGT. LGT s remuneration model is based on the following principles: The remuneration model is consistent with LGT s corporate culture, values and objectives. The remuneration model creates incentives that support LGT s capital, liquidity and risk situation, as well as its long-term success. The remuneration model allows for attractive, appropriate and fair compensation. It is straightforward and transparent, and adheres to the principle of equal treatment. Incentives are designed in such a way as to avoid conflicts of interest and the assumption of excessive risk. Responsibilities The Foundation Board of LGT is responsible for the formulation of the compensation strategy and policy at the Group level. The Human Resources Compensation Committee (HRCCG) 1, which has decision-making authority, was established by the Foundation Board for this purpose. The HRCCG is responsible for the implementation and regular review of LGT s remuneration policy and practices, and issues directives accordingly. At the bank level, the HRCCG can delegate the implementation and review of the compensation policy and practices to the respective Board of Directors, or to the compensation committee if such a committee is in place. The HRCCG and the bodies of the bank tasked with this responsibility adhere to the national regulatory requirements. The banks responsible bodies can implement their own systems of remuneration, insofar as these conform with the directives of the Group s remuneration policy. Where appropriate, auditors are involved in this process. A review of the remuneration policy and practices is conducted annually and comprises, among other elements, the development and suitability of the remuneration systems, and the components of total compensation, as well as the alignment of remuneration with the Group s remuneration principles. The Board of Directors or the compensation committee of the bank reports to the HRCCG on a regular basis regarding the developments and the results of the ordinary review. At 4 meetings held during the year under review, the HRCCG performed its assigned tasks and took minutes. 1 Members: Dr. Rodolfo Bogni, Dr. Phillip Colebatch 20

21 Remuneration model Components of remuneration The remuneration model for all employees of LGT consists of a fixed basic salary, a variable remuneration component and benefits. The following table provides a summary of the individual remuneration components. Characteristics Elements Plan participants Brief description Purpose Fixed Basic salary Employees Monthly market-based remuneration in accordance with position Reflects abilities, skills and level of responsibility Granted and paid annually. Bonus amount depends on business Variable Cash Cash Incentive Bonus Employees performance and individual performance during the respective business year. For Identified Staff: depending on risk profile, one part deferred for 3 years To reward above-average commitment, outstanding performance and successes achieved with integrity Instruments Deferred Incentive LTIS 1 Senior management and employees in key positions as well as Identified Staff Options on LGT profit participation certificate instruments granted annually. Three-year blocked period, after which exercise of options possible within four years To reinforce the long-term alignment of interests between employees, owners and clients. Possibility for plan participants to participate in the value created by the company Benefits Benefits/ Fringe benefits Employees Pension, insurance, discounts on bank products, right to a sabbatical To provide competitive benefits 1 Long Term Incentive Scheme Basic salary The fixed monthly basic salary is paid in cash and compensates employees for performing the range of tasks related to their specific position, for their personal abilities and skills, and for any management responsibility that they have assumed. LGT regularly checks the basic salaries against market-specific benchmarking studies to ensure that they are in line with the market, and makes any necessary changes. LGT does not grant any automatic salary increases. Variable remuneration In principle, total variable remuneration is based on the success of LGT s business and reflects the bank s risk profile. Final determination of the total amount of variable remuneration (total pool) is made at the discretion of the HRCCG or the individual HRCCBs at the bank level. Quantitative performance indicators, qualitative performance and risk criteria, and other indicators are taken into account when determining this amount. Variable remuneration for Identified Employees 2 must not exceed twice the fixed remuneration. In principle, it can be paid immediately as an annual cash bonus and be compensated within the scope of the Long Term Incentive Scheme (LTIS) in the form of options. The ratio of immediate to deferred remuneration is determined on the basis of the employee s risk profile. For Identified Employees, which include the members of the Executive Board, the proportion of deferred remuneration is in accordance with the regulatory requirements. Parts of variable remuneration can be subject to a forfeiture clause. Where appropriate, claims to variable remuneration can be forfeited, for example in the case of extraordinary terminations, serious breaches of the law and significant financial losses for the Group (see graph). 2 Employees whose functions have a significant influence on the overall risk profile. 21

22 Cash incentive (bonus) All LGT employees can benefit from the cash incentive. The amount of the individual bonus is linked to performance as it relates to quantitative and qualitative criteria. The quantitative criteria relate to performance at the Group, subsidiary, business area and individual level, which is measured against predefined target values. The qualitative criteria include, for example, risk behavior, compliance with the code of conduct, specialist expertise, interpersonal skills, personality and leadership skills. These are assessed on the basis of the competencies in the employee qualification system (BSC Balanced Scorecard). This approach allows LGT to reward employees above-average commitment, outstanding performance and successes achieved with integrity. Deferred incentive (LTIS Long Term Incentive Scheme) LGT has set up an internal Long Term Incentive Scheme (LTIS) in the form of options-based instruments in order to enable employees who notably promote the development of the company as a result of their position, their knowledge or their abilities, to participate in the company s long-term success. This reinforces the alignment of interests of employees and the owners, which is an important element of LGT s philosophy. The long-term nature of the LTIS rewards loyalty to the company and, at the same time, encourages a conscious and prudent approach to opportunities and risks in the interests of the entire company and the cohesion of the Group. The LTIS allows plan participants to participate in the development of the economic value added, which is measured using a predefined formula. Operating profit, the performance of the Princely Portfolio and the Group s capital costs are applied in this calculation. The LTIS instruments are granted annually and can be exercised after a three-year blocked period up to and including the seventh year (see chart). Benefits/Fringe benefits Benefits are a further component of the LGT remuneration model. These can come, for example, in the form of a pension, insurance, discounts on bank products or the right to a sabbatical. LGT works with various pension funds, which principally invest in insurance products or funds under trusteeship. 22

23 Quantitative overview remuneration for Identified Employees 2015 (TCHF) Fixed remuneration Variable remuneration Immediate cash incentive Deferred incentive By employment category Basic salary Bonus Bonus and LTIS Board of Directors and Executive Board, total Other Identified Employees Identified Employees by consolidated company, total LGT Group Foundation, LGT Bank Ltd. (incl. Austria branch) The number amounted to 10 people in The number amounted to 10 people in Board of Directors and Executive Board Other Identified Employees Deferred incentive bonus and LTIS from previous years ( ) Of which paid out in Of which reduced 0 0 Sign-on bonus 3 Board of Directors and Executive Board Other Identified Employees Number of beneficiaries 1 0 Severance payments Number of beneficiaries 0 0 Highest amount paid Because of data protection, no disclosure. Remuneration levels 2015 Number of beneficiaries >

24 Leverage Summary reconciliation of accounting assets and leverage ratio exposures (TCHF) 1 Total assets as per published financial statements 34'239'234 2 Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation 0 3 (Adjustment for fiduciary assets recognized on the balance sheet pursuant to the applicable accounting framework but excluded from the leverage ratio exposure measure in accordance with Article 429(13) of Regulation (EU) No 575/2013 "CRR") 0 4 Adjustments for derivative financial instruments 1'126'288 5 Adjustments for securities financing transactions "SFTs" 331'525 6 Adjustment for off-balance sheet items (ie conversion to credit equivalent amounts of off-balance sheet exposures) 1'376'822 EU-6a EU-6b (Adjustment for intragroup exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (7) of Regulation (EU) No 575/2013) 0 (Adjustment for exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (14) of Regulation (EU) No 575/2013) 0 7 Other adjustments -620'677 8 Total leverage ratio exposure 36'453'192 Leverage ratio common disclosure (TCHF) On-balance sheet exposures (excluding derivatives and SFTs) 1 On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including collateral) 33'454'586 2 (Asset amounts deducted in determining Tier 1 capital) -620'677 3 Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets) (sum of lines 1 and 2) 32'833'909 Derivative exposures 4 Replacement cost associated with all derivatives transactions (ie net of eligible cash variation margin) 784'648 5 Add-on amounts for PFE associated with all derivatives transactions (mark-to-market method) 1'126'288 EU-5a Exposure determined under Original Exposure Method 0 6 Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the applicable accounting framework 0 7 (Deductions of receivables assets for cash variation margin provided in derivatives transactions) 0 8 (Exempted CCP leg of client-cleared trade exposures) 0 9 Adjusted effective notional amount of written credit derivatives 0 10 (Adjusted effective notional offsets and add-on deductions for written credit derivatives) 0 11 Total derivative exposures (sum of lines 4 to 10) 1'910'936 Securities financing transaction exposures 12 Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions 3'547' (Netted amounts of cash payables and cash receivables of gross SFT assets) -3'215' Counterparty credit risk exposure for SFT assets 0 Derogation for SFTs: Counterparty credit risk exposure in accordance with Article 429b (4) and 222 of Regulation (EU) No EU-14a 575/ Agent transaction exposures 0 EU-15a (Exempted CCP leg of client-cleared SFT exposure) 0 16 Total securities financing transaction exposures (sum of lines 12 to 15a) 331'525 Other off-balance sheet exposures 17 Off-balance sheet exposures at gross notional amount 10'706' (Adjustments for conversion to credit equivalent amounts) -9'329' Other off-balance sheet exposures (sum of lines 17 to 18) 1'376'822 Exempted exposures in accordance with CRR Article 429 (7) and (14) (on and off balance sheet) (Exemption of intragroup exposures (solo basis) in accordance with Article 429(7) of Regulation (EU) No 575/2013 (on and off EU-19a balance sheet)) 0 EU-19b (Exposures exempted in accordance with Article 429 (14) of Regulation (EU) No 575/2013 (on and off balance sheet)) 0 24

25 Capital and total exposures 20 Tier 1 capital 2'951' Total leverage ratio exposures (sum of lines 3, 11, 16, 19, EU-19a and EU-19b) 36'453'192 Leverage ratio 22 Leverage ratio 8.1% Choice on transitional arrangements and amount of derecognized fiduciary items EU-23 Choice on transitional arrangements for the definition of the capital measure fully phased-in EU-24 Amount of derecognized fiduciary items in accordance with Article 429(11) of Regulation (EU) NO 575/ Split-up of on balance sheet exposures (excluding derivatives, SFTs and exempted exposures) (in TCHF) CRR leverage ratio exposures EU-1 Total on-balance sheet exposures (excluding derivatives, SFTs, and exempted exposures), of which: 32'833'909 EU-2 Trading book exposures 2'001'854 EU-3 Banking book exposures, of which: 30'832'056 EU-4 Covered bonds 0 EU-5 Exposures treated as sovereigns 6'499'814 EU-6 Exposures to regional governments, MDB, international organizations and PSE NOT treated as sovereigns 1'605'359 EU-7 Institutions 4'956'390 EU-8 Secured by mortgages of immovable properties 3'673'121 EU-9 Retail exposures 3'725'014 EU-10 Corporate 5'139'383 EU-11 Exposures in default 94'728 EU-12 Other exposures (e.g. equity, securitizations, and other non-credit obligation assets) 5'138'246 Use of the IRB Approach to credit risk Currently not relevant for LGT Group 25

26 Use of credit risk mitigation techniques Information on credit risk mitigation techniques The following information outlines the bank s general techniques for credit risk mitigation. The bank pursues a prudent policy as regards the extension of credit to clients. It grants almost exclusively secured loans ( Lombard loans ) against pledged securities, and mortgages that focus on residential properties linked to private banking assets, in particular in Liechtenstein and Switzerland. In addition to the borrower s credit rating, credit risk is determined to a significant degree based on the scope and the value of the available collateral. This approach is limited to financial or immovable property as collateral, but reflects only one part of the multilayered process for credit risk mitigation implemented by the bank. The processes for valuation and hypothecation of collateral are set out in the bank s lending principles. These define the collateral accepted by the bank, as well as the respective procedures for valuation, and indicate the frequency for the verification of collateral values in accordance with regulatory requirements. Unless a higher frequency is specified in the lending principles, collateral valuations are conducted prior to each loan decision as well as at regular intervals throughout the term of the loan, and where required, the lending value is adjusted. In principle, collateral is marked-to-market on a daily basis to establish the market value for Lombard loans. In the mortgage segment, external experts are regularly consulted with the frequency of a revaluation subject to the risk profile of the property. Collateral management is conducted using the bank s own IT system, which generates the information used for credit risk mitigation purposes. For OTC derivatives trading in the interbank market, the bank utilizes the credit risk mitigating effect of netting agreements offered by the standardized ISDA Master Agreements. Further to this, collateral management agreements in the form of Credit Support Annexes (CSA) under the Master Agreement were concluded with the major trading counterparties. The principle whereby only products for which there is a sufficient understanding are traded and sold continues to apply. In order to manage its liquidity, LGT grants short-term loans within the interbank market, predominantly to high-quality European counterparties. A large proportion of these loans are transacted on SIX Securities Services well-established repo platform. Only highquality collateral in accordance with the SIX guidelines is accepted in these instances. Such collateral is valued at market value and subject to a haircut Exposure value before and after credit risk mitigation (CRM) Exposure classes (TCHF) Exposure value before CRM Exposure value after CRM Collateral Exposure to central governments 4'794'243 4'794'243 0 Exposure to regional governments or local authorities 415' ' Exposure to public sector entities 158' '481 3'096 Exposure to multilateral development banks 341' '966 0 Exposure to international organizations Exposure to institutions 7'419'204 5'337'972 2'081'233 Exposures to corporates 4'310'863 2'385'302 1'925'561 Retail exposures 6'117'519 1'975'423 4'142'096 Exposures secured by mortgages on immovable property 4'082'874 3'996'198 86'676 Exposures in default 94'728 32'201 62'527 Exposures associated with particularly high risk 1'884'159 1'884'159 0 Exposures in form of covered bonds Items representing securitization positions Exposure to institutions and corporates with a short-term credit assessment 3'090'399 2'652' '732 Exposures in the form of shares in collective investment undertakings (CIUs) Equity exposures 546' '801 0 Other items 283' '295 0 Total 33'540'771 24'800'562 8'740'209 26

27 Use of the Advanced Measurement Approaches to operational risk Currently not relevant for LGT Group Use of Internal Market Risk Models Currently not relevant for LGT Group Glossary Rounding Numbers presented throughout this report may not add up precisely to the totals provided as they may contain rounding differences. 27

28 LGT Group Foundation Herrengasse 12, FL-9490 Vaduz Tel , UID: CHE