Information on capital adequacy. of Bank Polska Kasa Opieki S.A. Group. as at 31 December 2009

Transcription

1 Information on capital adequacy of Bank Polska Kasa Opieki S.A. Group as at 31 December 2009 Warsaw. May 2010

2 INFORMATION ON CAPITAL ADEQUACY OF BANK POLSKA KASA OPIEKI S.A. GROUP AS AT 31 DECEMBER 2009 The scope and principles of publishing information specified in Resolution No. 385/2008 of the Polish Financial Supervision Authority (PFSA) of 17 December 2008 on detailed principles related to the manner of publishing disclosures by banks with regard to qualitative and quantitative information regarding capital adequacy and the scope of information subject to disclosure, defines the Information Policy of Bank Pekao S.A., published on the Bank s website. Information Policy was implemented by the Resolution of the Management Board and approved by the Supervision Board. The Bank announces the information (see 3.4 of PFSA Resolution No. 385/2008) on the top country level of consolidation, i.e. based on the data for Bank Pekao S.A. Capital Group. Quantitative disclosures are based on calculations consistent with the rules valid on 31 December EQUITY OF THE CAPITAL GROUP Equity is comprised of the capital and funds generated by the companies of the Capital Group in accordance with the binding regulations i.e. the appropriate laws, statutes and agreements of companies. Equity also includes prior period profit (loss). The items comprising the equity of subordinated entities other than statutory capital are added to the appropriate positions of the parent entity s equity in portions in which the parent entity owns the subsidiaries. The equity of the Capital Group includes only those parts of the subsidiaries equity which were created after the date of purchase of shares or stocks by the parent entity. In particular this applies to the change in equity resulting from profit or loss or from revaluation. Capital for calculation of capital adequacy ratio was established in compliance with Article 127 of the Banking Act taking into account adjustments resulting from Resolution No. 381/2008 of the Polish Financial Supervision Authority of 17 December Components of the capital used to calculate the capital adequacy ratio (CAR) as of the end of December 2009 are shown in the Table below: 2

3 Capital for the CAR calculation at the consolidated level (in PLN thousand) Core capital (Tier 1) Principal funds: Share capital Surplus capital Reserve capital Minority capital Additional items of the core capital: General banking risk provision Undivided profit from the previous years Current period net profit reduced by the expected burdens and dividends 0 Deductions from the core capital: Intangible assets Prior period losses 0 Unrealised loss on the available for sale debt and capital instruments Capital exposure to financial entities Foreign exchange differences Supplementary funds (Tier 2) 0 Unrealised gains on the available for sale debt and capital instruments Deductions from the supplementary capital: Capital exposure to financial institutions Capital for CAR calculation Below, individual components of capital for CAR calculation are described: A) Principal funds o Statutory capital relates only to the capital of the Bank as the parent entity and is presented at nominal value specified in the Statute and in the entry in the Enterprises Registry. The total number of shares amounted to All shares are ordinary bearer shares paid in full, with a par value of PLN 1 per share. o Surplus capital is created from appropriations of profits and premiums arising on the issue of shares in accordance with the Statutes of the companies. Moreover the change of the value of the minorities shareholding caused by the increase of the share of the parent company in the share capital of the Bank was reflected as an increase of this item according to the accounting principles applied by Unicredit Group. The total amount of surplus capital PLN ths. comprises of a share premium (coming from the sale of shares in excess of the nominal value of the shares) in the amount of PLN ths. and other items of the surplus capital in the amount of PLN ths. o Reserve capital reserve capital at the level of PLN ths. comprises of the following items: - Other reserve capital: PLN ths. (created from appropriations of profits and served to objectives defined in the Statute) 3

4 o - Bonds convertible into equity: PLN ths. (bonds convertible into equity cover the equity fair value of financial instruments issued as part of transactions settled in equity instruments. Minority capital, the additional item of the capital at the consolidated level, is a share in the equity of the subsidiary entity consolidated under the full method and belonging to entities other than those constituting the Capital Group. B) Additional items of the core capital o General banking risk provision (PLN ths.) created in the Bank out of net profit after tax in accordance with the terms of the Banking Act of 29 August o Undivided profit from the previous years (PLN ths.) comprises undivided profits from the previous years for fully consolidated entities. o Current period net profit reduced by the expected burdens and dividends in accordance with Article 127 of the Banking Act, this item can be contained in core capital in amounts not exceeding the profit amounts verified by external auditors. As at 31 December 2009 no part of the Bank s 2009 profit is included in this position. C) Deductions from the core funds o Intangible assets intangible assets (PLN ths.) are deducted from the core capital in the full amount. o Prior period losses comprise prior period uncovered losses of the companies consolidated under the full method. As at 31 December 2009 there was 0 in this position. o Unrealised loss on the available for sale debt and capital instruments - in compliance with PFSA Resolution No. 381/2008 of December 17, 2008, unrealised losses are deducted from the core capital in 100%. As of the end of December 2009, they amounted to PLN ths., from which amount equal to PLN ths. is assigned to debt instruments and 10 PLN ths to capital instruments classified as available for sale. o Capital exposure to financial companies Total deductions from the capital concerning capital exposure to financial companies (i.e. capital exposure to domestic and foreign banks, credit institutions and financial institutions, meeting requirements stipulated in 5, Section 1 of PFSA Resolution No. 381/2008) amounted to PLN ths. and covered items presented in the table below: Capital exposure to financial companies (in PLN thousand) inclusive of: shares or interests held amounts qualified as subordinated liabilities 0 - other capital exposures 0 4

5 o By virtue of 2, Section 1, point 1 and Section 2, and 4 of PFSA Resolution No. 381/2008, the capital exposure to financial companies is included in 50% of their amount in deductions from the core funds, and the remaining 50% in the supplementary funds. However, if 50% of the capital exposure in financial companies exceeds the supplementary funds, the difference should be deducted from the core capital. Thus, the core capital deductions equalled to PLN ths. Exchange rate differences, the additional item of the capital at the consolidated level, cover negative exchange rate differences arising from recalculation of the result of a foreign branch at the weighted average exchange rate on the balance sheet date in relation to the average NBP exchange rate and exchange rate differences resulting from valuation of net assets in foreign entities D) Supplementary funds - unrealised gain on the available for sale debt and capital instruments The only item of the Group s supplementary funds are unrealized gains on debt and capital instruments classified as available for sale. As of the end of December 2009, they amounted to PLN ths. and they are in full related to the debt instruments available for sale. In compliance with 3, Section 1-2 of PFSA Resolution No. 381/2008 unrealized gains on instruments available for sale are presented in supplementary funds in 60% of their amount, equalling to PLN ths. E) Deductions from supplementary funds o Deductions from supplementary funds include the capital exposure to financial companies totalling PLN ths. (vide explanations in point C) Capital exposure to financial companies). F) Short-term capital The Bank does not include the short-term capital (conf. Article 128 of the Banking Act and 5 of PFSA Resolution No. 380/2008) in its own capital calculation. Following the prudential rules, the Bank assumes that the short term capital equals to 0. 5

6 REGULATORY CAPITAL REQUIREMENTS Regulatory capital requirements calculation as of is based on PFSA Resolution No. 380/2008 of 17 December Capital requirements concerning individual risk types as at are presented in the table below: Regulatory capital requirements in PLN thousand Credit risk Market risk including: Foreign exchange risk 0 - Commodities risk 0 - Equity risk 5 - Specific risk of debt instruments General risk of interest rates Settlement/delivery and counterparty risk Exceeding the exposure concentration limit and the large exposure limit 0 Exceeding the capital concentration threshold 0 Operational risk Total capital requirement Capital Capital Adequacy Ratio 16,24% Capital requirement for credit risk, which is calculated on the basis of the standard method (Annex No. 4 to PFSA Resolution No. 380/2008 of 17 December 2008), constitutes 81% of the total capital requirement. Credit risk capital requirement is composed of: o capital requirement for balance sheet exposures in the amount PLN ths, o capital requirement for granted off-balance-sheet contingent liabilities and off-balance-sheet transactions in the amount PLN ths. Capital requirement for operational risk constitutes 15% of the total capital requirement. Calculation of operational risk capital requirement at the Bank is based on the standard approach (Annex No. 14 to the PFSA Resolution No. 380/2008 of 17 December 2008). 6

7 Credit risk capital requirement structure by exposure classes as at is shown in the table below: Credit risk capital requirement structure by exposure classes (balance sheet exposures and exposures resulting from granted off-balance-sheet contingent liabilities and off-balance-sheet transactions). Exposure class in PLN thousand Exposures or contingent exposures to central governments and central banks Exposures or contingent exposures to local governments and local authorities 224 Exposures or contingent exposures to administrative bodies and noncommercial undertakings Exposures or contingent exposures to multilateral development banks 395 Exposures or contingent exposures to international organisations 0 Exposures or contingent exposures to institutions Exposures or contingent exposures to corporates Exposures or contingent retail exposures Exposures or contingent exposures collaterised by real estate Past due exposures Exposures belonging to regulatory high risk categories Exposures in the form of covered bonds 0 Securitisation positions 0 Short term exposures to institutions and corporates Exposures in the form of collective investments undertakings 0 Other exposures Total The objective of capital adequacy assessment according to regulatory requirement is to meet requirements of external regulations. These regulations aim at ensuring that banks operate at minimum required capital levels calculated using simplified common framework. INTERNAL CAPITAL ADEQUACY ASSESSMENT For the purpose of assessing internal capital adequacy (started since January 2008), the Bank has been using the methods developed internally, which should better reflect the real risk profile of the Bank. While assessing the internal capital adequacy, the Bank takes into consideration the following risks, considered material: credit risk (including counterparty credit risk, concentration risk, country risk and residual risk), market risk (including interest rate risk in trading book, exchange rate risk, equity risk, commodity risk and volatility risk), liquidity risk (including liquidity mismatch risk, liquidity contingency risk, market liquidity risk, operational liquidity risk, funding risk and margin calls liquidity risk), interest rate risk in banking book, 7

8 real estate risk, operational risk, compliance risk, reputation risk, business risk, strategic risk, financial investments risk. For each risk deemed material, the Bank develops and applies assessment and measurement methodology. Two approaches to risk assessment are applied by the Bank: qualitative, for risks which are hard to measure or for which capital cannot absorb losses (compliance, liquidity, strategic and reputation risks), quantitative, for risks that can be measured by economic capital (remaining risks). The targeted methodology of risk measurement and assessment of the resulting capital requirements, to be applied by the Bank, are Value at Risk models based on assumptions stemming from risk appetite (99,97% confidence level and one year time horizon). The above-mentioned methods are compliant with the UCI Group guidelines and complemented with stress-tests or scenario analyses. For risks, for which this methodology has not been developed and implemented yet, the Bank applies the interim methodology (standard approach plus stress testing). Economic capital figures for compensating the risks that can be assessed quantitatively are aggregated into one economic capital figure inclusive of diversification effect. After the diversification effect between different risks is included, total aggregated economic capital is not greater (is equal or smaller) than the sum of economic capital figures for individual risks. According to Polish regulations, capital adequacy, from both: the regulatory capital requirements perspective (Pillar I) and the internal capital perspective (Pillar II), is referred to the regulatory own funds. It should be stressed that regulatory capital should cover not only Pillar I risks but also all material risks which the Bank incurs (Pillar II). 8