Capital adequacy

The business operations of Savings Banks Group are based on low-risk retail banking. The strategic goals are profitable growth, better capital adequacy than the industry as a whole, and a financial standing that is healthy with respect to its capital buffers.

Our risk-bearing capacity is good and our risk-taking policy is conservative. The member organisations of the Savings Banks Amalgamation form a financial entity as defined in the Act on the Amalgamation of Deposit Banks, in which the Savings Banks’ Union Coop and its member credit institutions are jointly liable for each other’s liabilities and commitments.

Capital adequacy

At the end of June 2017, the Savings Banks Amalgamation had a strong capital structure, consisting primarily of CET1 capital. Total own funds were EUR 969.5 million (EUR 936.6 million) of which CET1 capital accounted for EUR 919 million (EUR 887.9 million). The growth in CET1 capital was due to the profit for the period. Tier 2 (T2) capital accounted for EUR 50.5 million (EUR 48.7 million), which consisted of debentures in the financial year. Risk-weighted assets amounted to EUR 5012.9 million (EUR 4,805.4 million), i.e. they were 4.3% higher than at the end of the previous year. The most significant change related to the increase in risk-weighted assets was the growth in the mortgage portfolio. The capital ratio of the Savings Banks Amalgamation was 19.3% (19.5%) and the CET1 capital ratio was 18.3% (18.5%).

At the beginning of 2015, the capital requirement on banks became higher as Finland adopted the capital conservation buffer and the countercyclical capital buffer. The capital conservation buffer increased the capital adequacy requirement from 8% to 10.5%, when calculated on the basis of risk-weighted assets. The countercyclical capital buffer will vary between 0% and 2.5%. The decision on the adoption and percentage of the countercyclical capital buffer is made quarterly by the Board of the Financial Supervisory Authority on the basis of its macroprudential analysis. During the beginning of 2017, the Financial Supervisory Authority did not set a countercyclical capital buffer for Finnish credit institutions.

In December 2016, the Financial Supervisory Authority set a discretionary capital conservation buffer for the Amalgamation of Savings Banks in accordance with the Act on Credit Institutions as part of the supervisor’s assessment (SREP) related to the process. The discretionary capital conservation buffer is 0.5 percentages in size, and it shall be filled with CET1 capital. The discretionary capital conservation buffer entered into force on 30 June 2017.

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 the basic method. The capital requirement relating to market risk is calculated by the basic method for the foreign exchange exposure.

The main components of solvency calculation of the Savings Banks Amalgamation

Capital requirement (EUR 1,000)	30 June 2017	31 Dec 2016
CET1 capital before statutory adjustments	945 710	915 685
The statutory adjustments to the CET1 capital	-26 689	-27 835
Total CET1 capital (CET1)	919 021	887 850
Additional Tier 1 capital before statutory adjustments	0	0
The statutory adjustments to the AT1 capital	0	0
Additional Tier 1 capital (AT1)	0
Tier 1 capital (T1 = CET1 + AT1)	919 021	887 850
Tier 2 (T2) capital before statutory adjustments	50 455	48 717
The statutory adjustments to the T2 capital	0	0
Total Tier 2 capital (T2)	50 455	48 717
Total capital (TC = T1 + T2)	969 476	936 567
Total risk-weighted assets	5 012 865	4 805 436
of which the share of credit risk	4 478 122	4 250 278
of which capital requirement for credit valuation adjustment (CVA)	75 544	98 561
of which the share of market risk	37 749	35 147
of which the share of operational risk	421 450	421 450
Common Equity Tier 1 capital (CET1) in relation to risk-weighted assets (%)	18,3 %	18,5 %
Tier 1 capital (T1) in relation to risk-weighted assets (%)	18,3 %	18,5 %
Total capital (TC) in relation to risk-weighted assets (%)	19,3 %	19,5 %
Capital requirement
Total capital requirement	969 476	936 567
Capital requirement total *	527 570	504 571
Capital buffer	441 905	431 996
Pilar 2 additional capital requirement	25 064
Capital buffer after additional capital requirement	416 841

*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, and the country-specific countercyclical capital requirements of foreign responsibilities. The Pilar 2 requirement of 0.5 percentage point set by the Financial Supervisory Authority has its own row in the capital requirement table.

(EUR 1,000)	30.6.2017	31.12.2016
Tier 1 capital	919 021	887 850
Total liability	9 899 582	9 801 832
Leverage ratio	9,3 %	9,1 %

Capital adequacy

Capital adequacy

The main components of solvency calculation of the Savings Banks Amalgamation

Leverage ratio