Capital adequacy

Capital adequacy is a process which objective is to ensure that the level of risk, which is assumed by the PKO Bank Polski SA Group associated with development of its business activity, may be covered with capital held, taking into account given risk tolerance level and time horizon. The process of capital adequacy management comprises in particular compliance with prevailing regulations of supervisory authorities and risk tolerance level determined within the Group as well as the process of capital planning, including policy of capital acquiring sources.

The objective of capital adequacy management is to maintain capital in a continuous manner on a level adequate to the risk scale and profile of the Group’s activities.

The process of managing the Group’s capital adequacy comprises:

  • identifying and monitoring of all of significant risks,
  • assessing internal capital to cover the particular risk types and total internal capital,
  • monitoring, reporting, forecasting and limiting of capital adequacy,
  • performing internal capital allocations to business areas, client segments and the Group entities in connection with profitability analyses,
  • using tools affecting the capital adequacy level (including: tools affecting the level of own funds, the scale of own funds item reductions and the level of the loan portfolio).

The fundamental regulation applicable in the capital adequacy assessment process as at 31 December 2015 is the Regulation (EU) No. 575/2013 of the European Parliament and of the Council as of 26 June 2013 on prudential requirements for credit institutions and investment firms, amending the Regulation (EU) No. 648/2012, hereinafter called ‘CRR Regulation’

As at 31 December 2015 the Bank meets requirements relating to capital adequacy measures defined within the CRR Regulation.

The level of the PKO Bank Polski SA Group’s capital adequacy in 2015 remained at a safe level, significantly above the supervisory limits.

Capital adequacy of the PKO Bank Polski SA Group (in PLN million)

As at 31 December 2015 compared with 31 December 2014, the Group’s total capital ratio increased by 1.6 p.p. to the level of 14.61% which was caused mainly by taking actions affecting the capital adequacy purposes and decreasing risk-weighted assets (AWR).

As at 31 December 2015 in the Group’s own funds increased by PLN 2 348 259 thousand mainly because of including net profit for 2015 to funds and lack of dividend payments.

In accordance with the Regulation of the European Parliament and of the Council (EU) No. 575/2013 of 26 June 2013 being in force since 1 January 2014 on prudential requirements for institutions and investment firms amending Regulation (EU) No. 648/2012/ The Group calculates requirements in respect of own funds of the following risk types:

  • credit– using the standardised method,
  • operational for the Bank– in accordance with the Base Indicator Approach (BIA) in the activities of the branch of the Bank in the Federal Republic of Germany and in accordance with the Advanced Measurement Approach (AMA) in respect of other activities of the Bank, and for the entities of the Group taken under prudential consolidation – under BIA approach
  • market– using basic methods.

The total requirement in respect of Group’s own funds comprises the sum of the own funds capital requirements in respect of:

  1. credit risk, including counterparty credit risk,
  2. market risk,
  3. risk of credit valuation adjustment (CVA),
  4. the risk in relation to exposures to a central counterparty (CCP),
  5. settlement and delivery risk,
  6. operational risk.

Capital requirements of PKO Bank Polski SA Group (in PLN million)

The decrease in the capital requirement of the own funds of credit risk in 2015 was mainly due to the growth of actions taken by the Bank that affects the reduction of risk-weighted assets (AWR). The most important source of optimization was to improve the data quality, mainly

through the inclusion in the category of retail exposures to SMEs that meet customer segmentation criteria and review of off-balance sheet liabilities, including verification of assigned risk weights of the product.

The decrease in own funds requirement in respect of operational risk for the Group of the amount of PLN 759 million (as at 31 December 2014) to approx.. PLN 663 million (as at 31 December 2015) is mainly due to the completion of the merger process of the Bank with Nordea Bank Polska SA.