BASEL II PILLAR III DISCLOSURE

Transcription

1 BASEL II PILLAR III DISCLOSURE Page 1

2 1. SCOPE AND APPLICATION Ithala Limited is a wholly owned subsidiary of Ithala Development Finance Corporation Limited. Ithala Development Finance Corporation Limited is not registered as a controlling Company in terms of the Banks Act, and as such Basel II Pillar III disclosure requirements apply only to Ithala Limited. However, the financial results of Ithala Limited are consolidated and presented in the consolidated annual financial statements of Ithala Development Finance Corporation Limited. 2. BASIS OF COMPILATION The following information is compiled in terms of Regulation 43 of the Bank s Act 1990 (as amended) the ( Regulations ) which incorporates Basel II, Pillar III requirements on market discipline. All disclosures presented below are consistent with those disclosed in terms of the Company s accounting policies, unless otherwise stated. 3. PERIOD OF REPORTING This report covers the six months ended 30 September. Comparative information is presented for the previous year end to. 4. CAPITAL MANAGEMENT 4.1. Capital Structure Tier l capital consists of issued ordinary shares, share premium and retained income. Tier ll capital is calculated as 1.25% of credit risk weighted exposures limited to the amount of general allowance for credit impairments. September 30 September R'000 R'000 Share capital Share premium Reserves (73 061) (38 633) Prescribed deductions against capital and reserve funds (4 540) (2 769) Total Tier l capital General Provision Total Tier II capital Total qualifying capital In terms of the shareholder approved injection, a total amount of R80 million has been received to 30 September Capital adequacy Capital requirements are calculated using the Standardised Approach for credit risk and the Basic Indicator approach for operational risk. Other relates to other assets, which in terms of Regulation 23 of the Banks Act are grouped with credit risk for the purposes of calculating regulatory capital, effectively using the same approach as for credit risk. Page 2

3 Regulatory Capital requirements as at 30 September Exposure Risk weighted exposure Capital requirements 30 September 30 September Credit risk Operational risk Other Total Capital Adequacy Ratio as at 30 September Minimum Capital requirements Actual 30 September Capital Adequacy ratio 10% 12.73% 11.06% Primary share capital and reserve funds adequacy ratio 7% 11.88% 10.26% Total risk weighted assets () As at 30 September the capital adequacy ratio was 12.73% ( : 11.06%) The Company s capital adequacy ratio was above the minimum level required by the South African Reserve Bank of 10%. 5. CREDIT RISK EXPOSURES 5.1 Major types of credit risk exposures The aggregate amount of gross credit exposure after the effect of set-off but before the effects of credit risk-mitigation techniques is displayed below: Total Gross Exposure Outstanding Impairment Carrying Realisable of Outstanding Impairment Carrying Realisable of 30 September R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 Commercial Loans Property development loans Housing loans > R500k Sub-total Other loans Total Page 3

4 Average Gross Exposures Outstanding Impairment Carrying Realisable of Outstanding Impairment 30 September Carrying Realisable of R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 Commercial Loans Property development loans Housing loans > R500k Sub-total Other loans Total The average gross exposures are determined by dividing the period end balance by the number of loan exposures outstanding at the end of the reporting period. 5.2 Geographical distribution of credit exposures Ithala operates solely in the province of KwaZulu-Natal and lends mainly to individuals in the housing mortgage sector. All exposures are within KwaZulu-Natal, South Africa. 5.3 Sectoral Analysis of Loans and Advances The table below displays the distribution of exposures based on industry: Sectoral Analysis 30 September % 30 September % Real Estate 1% Construction 1% Retail-mortgage 79% Retail-other 19% Total 100% September Assets that are neither past due nor impaired Assets that are past due but not yet impaired Financial assets that are impaired Credit Impairments Category of Assets Total Real Estate Construction Retail-Mortgage Retail-Other Total Category of Assets Page 4

5 Category of Assets Assets that are neither past due nor impaired Assets that are past due but not yet impaired Financial assets that are impaired Credit Total Impairments Real Estate Construction Retail-Mortgage Retail-Other Total Credit Impairment Reconciliation Portfolio Impairments Impaired Accounts Written Off Impairments Raised/(Released) 30 September Category of Assets Real Estate (15) 156 Construction Retail-Mortgage Retail-Other Total Category of Assets 2012 Impaired Accounts Written Off Impairments Raised/(Released) Real Estate (37) 171 Construction 23 - (22) 1 Retail-Mortgage Retail-Other (873) Total Specific Impairments Impaired Accounts Written Off Impairments Raised/(Released) 30 September Category of Assets Real Estate (6) Construction Retail-Mortgage (1 238) (87) Retail-Other (49) Total (1 287) Page 5

6 2012 Impaired Accounts Written Off Impairments Raised/(Released) Category of Assets Real Estate Construction (1 378) (1 763) Retail-Mortgage (7 463) Retail-Other (9 645) Total (18 486) Total Credit Impairments Impaired Accounts Written Off Impairments Raised/(Released) 30 September Category of Assets Real Estate (21) Construction Retail-Mortgage (1 238) Retail-Other (49) Total (1 287) Impaired Accounts Written Off Impairments Raised/(Released) Category of Assets Real Estate Construction (1 378) (1 785) Retail-Mortgage (11 463) Retail-Other (5 645) (2 057) Total (18 486) Counterparty credit exposures The table below displays the major types of counterparties that Ithala is exposed to: Type of counterpart y credit exposure Carrying Realisable of Carrying Realisable of Outstanding Impairment Outstanding Impairment 30 September R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 Individuals Non individuals Banks Total Counterparty credit exposure includes amounts held at the South African Reserve Bank (SARB) of R145 million ( : R218 million), banks, individual and non-individual. Exposures in banks are invested in fixed deposit, call and money market accounts Page 6

7 6. Maturity Analysis of Credit Risk Exposures Residual maturity analysis for credit risk exposures is as follows: 30 September Credit Risk Exposure relating to on Up to 1 Month From 1 to 6 months From 6 months to 1 year From 1 year to 5 years After 5 year TOTAL statement of financial position assets: Cash Statutory Liquidity Assets Deposits with Banks Loans and Advances to Customers Receivables and Prepayment Total Assets subject to credit risk Credit Risk Exposure relating to off statement of financial position assets: Letters of Undertaking Issued Credit Risk Exposure relating to on statement of financial position assets: Up to 1 Month From 1 to 6 months From 6 months to 1 year From 1 year to 5 years After 5 year TOTAL Cash Statutory Liquidity Assets Deposits with Banks Loans and Advances to Customers Receivables and Prepayment Total Assets subject to credit risk Credit Risk Exposure relating to off statement of financial position assets: Letters of Undertaking Issued Age analysis of assets past due but not impaired 30 September Less than 30 days 31 to 60 days 61 to 90 days More than 90 days Total Realisable of Housing loans Personal Loans Commercial property loans Total Less than 30 days 31 to 60 days 61 to 90 days More than 90 days Total Realisable of Housing loans Personal Loans Commercial property loans Total Page 7

8 7. INTEREST RATE RISK IN THE BANKING BOOK The table below demonstrates the re-pricing gap between The Company's assets and liabilities upon the application of a change in market interest rates. The table shows the impact of a 2% increase / decrease in interest rates on the net interest income of the Company. The scenario analysis is limited to the impact on interest income and expenditure over the period of 12 months. The application of the change in interest rates is applied to a static balance sheet and is in accordance with Regulation 30 of the Banks Act, The sensitivity analysis below has been presented on a net interest income basis to reflect the operations of the Company: At 30 September R'000 At R'000 Increase: Impact of increase in yield on assets on comprehensive income Increased net interest income percentage 38% 35% Impact of increase in cost of funds on comprehensive income (28 473) (24 606) Decreased net interest income percentage (25%) (23%) Decrease: Impact of decrease in yield on assets on comprehensive income (44 037) (38 787) Decreased net interest income percentage (38%) (36%) Impact of decrease in cost of funds on comprehensive income Increased net interest income percentage 16% 15% 8. QUALITATIVE DISCLOSURES AND ACCOUNTING POLICIES The regulations require that certain qualitative disclosures and statements on accounting policy be made. These disclosures and statements on accounting policy were made in the annual report for the financial year ended. The above disclosures should be read in conjunction with these qualitative disclosures. Page 8

9 ANNEXURE A COMPOSITION OF CAPITAL DISCLOSURE ITHALA LIMITED SIX MONTHS ENDED 30 SEPTEMBER Basel III common disclosure template to be used during the transition of regulatory adjustments (ie from 1 June to 1 January 2018) Common Equity Tier 1 capital: instruments and reserves 1 Directly issued qualifying common share capital (and equivalent for non-joint stock companies) plus related stock surplus Retained earnings 3 Accumulated other comprehensive income (and other reserves) 4 Directly issued capital subject to phase out from CET1 (only applicable to non-joint stock companies) Public sector capital injections grandfathered until 1 January Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET1) 6 Common Equity Tier 1 capital before regulatory adjustments Common Equity Tier 1 capital: regulatory adjustments 7 Prudential valuation adjustments 8 Goodwill (net of related tax liability) 9 Other intangibles other than mortgage-servicing rights (net of related tax liability) Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) 11 Cash-flow hedge reserve 12 Shortfall of provisions to expected losses 13 Securitisation gain on sale 14 Gains and losses due to changes in own credit risk on fair valued liabilities 15 Defined-benefit pension fund net assets 16 Investments in own shares (if not already netted off paid-in capital on reported balance sheet) 17 Reciprocal cross-holdings in common equity 18 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above 10% threshold) Page 9

10 19 Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions (amount above 10% threshold) 20 Mortgage servicing rights (amount above 10% threshold) 21 Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability) 22 exceeding the 15% threshold 23 of which: significant investments in the common stock of financials 24 of which: mortgage servicing rights 25 of which: deferred tax assets arising from temporary differences 26 National specific regulatory adjustments Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and Tier 2 to cover deductions 28 Total regulatory adjustments to Common equity Tier Common Equity Tier 1 capital (CET1) Additional Tier 1 capital : instruments 30 Directly issued qualifying Additional Tier 1 instruments plus related stock surplus 31 of which: classified as equity under applicable accounting standards 32 of which: classified as liabilities under applicable accounting standards 33 Directly issued capital instruments subject to phase out from Additional Tier 1 34 Additional Tier 1 instruments (and CET1 instruments not included in line 5) issued by subsidiaries and held by third parties (amount allowed in group AT1) 35 of which: instruments issued by subsidiaries subject to phase out 36 Additional Tier 1 capital before regulatory adjustments - Additional Tier 1 capital: regulatory adjustments 37 Investments in own Additional Tier 1 instruments 38 Reciprocal cross-holdings in Additional Tier 1 instruments 39 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation,net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above 10% threshold) 40 Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) - 41 National specific regulatory adjustments Page 10

11 42 Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover - deductions 43 Total regulatory adjustments to Additional Tier 1 capital - 44 Additional Tier 1 capital (AT1) - 45 Tier 1 capital (T1 = CET1 + AT1) Tier 2 capital and provisions 46 Directly issued qualifying Tier 2 instruments plus related stock surplus 47 Directly issued capital instruments subject to phase out from Tier 2 48 Tier 2 instruments (and CET1 and AT1 instruments not included in lines 5 or 34) issued by subsidiaries and held by third parties (amount allowed in group Tier 2) 49 of which: instruments issued by subsidiaries subject to phase out 50 Provisions Tier 2 capital before regulatory adjustments Tier 2 capital : regulatory adjustments 52 Investments in own Tier 2 instruments 53 Reciprocal cross-holdings in Tier 2 instruments 54 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold) 55 Significant investments in the capital banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) 56 National specific regulatory adjustments - 57 Total regulatory adjustments to Tier 2 capital - 58 Tier 2 capital (T2) Total capital (TC = T1 + T2) Total risk weighted assets Capital ratios 61 Common Equity Tier 1 (as a percentage of risk weighted assets) 11.89% 62 Tier 1 (as a percentage of risk weighted assets) 11.89% 63 Total capital (as a percentage of risk weighted assets) 12.73% 64 Institution specific buffer requirement (minimum CET1 requirement plus capital conservation buffer plus countercyclical buffer requirements plus G-SIB buffer requirement, expressed as a percentage of risk weighted assets) 65 of which: capital conservation buffer requirement Page 11

12 66 of which: bank specific countercyclical buffer requirement 67 of which: G-SIB buffer requirement 68 Common Equity Tier 1 available to meet buffers (as a percentage of risk weighted assets) National Minima (if different from Basel 3) 69 National Common Equity Tier 1 minimum ratio (if different from Basel 3 minimum) 4.50% 70 National Tier 1 minimum ratio 6.00% 71 National total capital minimum ratio 9.50% s below the threshold for deductions (before risk weighting) 72 Non-significant investments in the capital of other financials 73 Significant investments in the common stock of financials 74 Mortgage servicing rights (net of related tax liability) 75 Deferred tax assets arising from temporary differences (net of related tax liability) Applicable caps on the on the inclusion of provisions in Tier 2 76 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to standardised approach (prior to application of cap) 77 Cap on inclusion of provisions in Tier 2 under standardised approach 78 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based approach (prior to application of cap) 79 Cap for inclusion of provisions in Tier 2 under internal ratings-based approach Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2018 and 1 Jan 2022) 80 Current cap on CET1 instruments subject to phase out arrangements 81 excluded from CET1 due to cap (excess over cap after redemptions and maturities) 82 Current cap on AT1 instruments subject to phase out arrangements 83 excluded from AT1 due to cap (excess over cap after redemptions and maturities) 84 Current cap on T2 instruments subject to phase out arrangements 85 excluded from T2 due to cap (excess over cap after redemptions and maturities) Page 12