The risk of excessive leverage is defined as the risk resulting from vulnerability due to financial leverage or conditional leverage that may require unintended corrective actions of business plans, including emergency sale of assets which could result in losses or result in the need for valuation adjustments of other assets. The risk of excessive leverage materializes as a mismatch of scale of activities and structure of the sources of financing and insufficient equipment of Group’s own funds.
The objective of managing the risk of excessive leverage is therefore ensuring a sound relationship between the size of the core capital (Tier 1) and the sum of the balance sheet assets and off-balance sheet liabilities granted by the Bank and the Group.
For the purpose of measuring the risk of excessive leverage, bank leverage ratio is calculated in accordance with Article 429 of CRR Ordinance ie. as a measure of Tier 1 capital divided by the measure of total exposure and is expressed as a percentage rate.
The following parameters are in particular subject to monitoring of the risk of excessive leverage:
- value of the leverage ratio,
- Threshold of the risk of excessive leverage,
- Deviation of the leverage ratio from forecasts.
The values are monitored on a quarterly basis/
The risk of excessive leverage of the Group is reported on quarterly basis. The receivers of reports on the risk of excessive leverage are RC, the Management Board, the Risk Supervisory Board Committee and the Supervisory Board. Reports include, among others, information on the value of leverage ratio, the threshold values for excessive leverage risk and a forecast of the risk of excessive leverage.