Capital adequacy

At the end of June 2019, the Savings Banks Amalgamation had a strong capital structure, consisting primarily of CET1 capital. Own funds totalled EUR 1 025,0 million (EUR 978,0million), of which CET1 capital accounted for EUR 1 002,9  million (EUR 948,2million). The growth of CET1 capital was due to the profit for the period. During the review period, Tier 2 (T2) capital accounted for EUR 22,1 million (EUR 29,7 million), comprised of debentures. Risk-weighted assets amounted to EUR 5,486,3  million (EUR 5,385,6 million), i.e. they were 1,9 % higher than at the end of the previous year. The capital ratio of the Savings Banks Amalgamation was 18,7 % (18.2%) and the CET1 capital ratio was 18,3  % (17.6%).

The capital requirement of Savings Banks Amalgamation was EUR 605,1 million (EUR 593,9 million) that equals to 11.0 % of risk-weighted assets. The components of the capital requirement have remained unchanged compared to the previous year. The capital requirement is formed by:

• Minimum capital requirements set by Capital Requirement Regulation (CRR) that include capital ratio of 8%,
• 2.5% CET1 capital conservation buffer of according to the Act on Credit Institutions,
• 0.5% CET1 pillar 2 requirement of set by the Financial Supervisory Authority and
• the country-specific countercyclical CET1 capital requirements of foreign exposures.

The Finnish Financial Supervisory Authority is responsible for domestic macro prudential decision making after hearing the Bank of Finland, Ministry of Finance and Ministry of Social Affairs and Health. Decisions on the activation of macro prudential instruments are taken on a quarterly basis expect for decisions on O-SII buffers, risk weights for loans secured by mortgages on immovable property (CRR Article 124 and 164) and systematic risk Buffer. Decisions on the activation of these instruments have taken at least once a year. 

In the beginning of the year 2018 Credit Institution Act was changed to include a new macroprudential measure, Systemic Risk Buff er. Due to this change FIN-FSA is allowed to use a new macro prudential measure which purpose is to handle the fi nancial system risks from the long term perspective and outside the business cyclicals. FIN-FSA made decision to keep the level of SRB unchanged on 28th of June 2019. The systemic risk buff er requirement for Savings Banks Amalgamation will be 1 % of risk weighted assets, and this requirement enters into eff ect at the Amalgamation level on 1 July 2019 based on decision made before.

Board of Financial Supervisory Authority has set a discretionary additional capital requirement to Savings Banks Amalgamation according to the Act on Credit Institutions’ chapter 11 6th article in their meeting on 4th of July 2019. Financial Supervisory Authority has determined the discretionary additional capital requirement as 1,25 % of total risk amount according to the Act on Credit Institutions’ chapter 11 6th article’s 2 moment’s fi rst paragraph’s a) subparagraph. The requirement percentage is based on the methodology of SREP (Supervisory Review and Evaluation Process) for LSI banks from ECB, where the percentage of additional capital requirement is determined from the overall rating of FSA’s assessment. Additional capital requirement is to be fulfi lled by Common Equity Tier 1 (CET1) capital referred in EU’s Capital Requirement Regulation (CRR) (EU 575/2013). The capital requirement ruling the Savings Banks Amalgamation is eff ective from 31st of March 2020 and is valid maximum 3 years until 31st of March 2023. The discretionary additional capital requirement is valid on 30 June 2019 as 0,5% of the total risk amount.

The decision made by the FIN-FSA Board to lower the maximum LTC ratio from 90 % to 85 % for residential mortgage loans other than fi rst-home loans came into eff ect on 1 July 2018. In the year 2018 FIN-FSA decided not to impose countercyclical buff er requirement (CCyB) on credit institutions, and therefore CCyB remained at zero. CCyB can vary from 0-2.5% of risk weighted assets. FIN-FSA did not impose additional O-SII capital requirement for Savings Banks Amalgamation.

The Financial Supervisory Authority has granted a permission not to deduct internal holdings of credit institutions included in the Amalgamation from own funds instruments when calculating own funds at the individual institution level and sub-consolidation group level. In addition, the Financial Supervisory Authority has granted a permission to apply a 0 per cent risk weight to internal credit institution liabilities included within the scope of the Amalgamation’s joint and several liability. These permissions are based on the European Union Capital Requirements Regulation (EU 575/2013) and the Act on the Amalgamation of Deposit Banks (599/2010).

The Financial Supervisory Authority has granted permission to the Central Institution of the Amalgamation to waive fully the application of the requirements regarding liquidity set out in part six of Regulation (EU) No 575/2013 and its amending and supplementing acts to the Amalgamation’s member credit institutions.

The standard method is used to calculate the capital requirement to the credit risk of the Savings Banks Amalgamation. The capital requirement to the operational risk is calculated by using the basic method. The capital requirement relating to the market risk is calculated by the basic method on the foreign exchange position.

*The capital requirement is formed by the statutory minimum capital adequacy requirement of 8%, the capital conservation buffer of 2.5% according to the Act on Credit Institutions, the 0,5 % Pillar II requirement set by the Financial Supervisory Authority and the country-specific countercyclical capital requirements of foreign exposures.

The leverage ratio of the Savings Banks Amalgamation was 8,5 % (8,6%). The leverage ratio has been calculated according to the known regulation, and it describes the ratio of the Amalgamation’s Tier 1 capital to total liabilities. The Savings Banks Amalgamation monitors excessive indebtedness as part of the ICAAP process.

 Pillar III note includes the information in accordance with the EU’s Capital Requirements Regulation (575/2013) regarding the capital adequacy of the Amalgamation.