9. DETERMINACION DE CONTROLES DE SEGURIDAD
9.2 DECLARACIÓN DE APLICABILIDAD
Acquisitions of other companies are recognised in the accounts using the acquisition method, ref. IFRS 3. In the acquisition met- hod, an acquisition analysis is carried out with full purchase price allocation, where the purchase price is allocated to identifiable assets and liabilities in the acquired company. A positive diffe- rence between the fair value of the purchase sum paid and the fair value of the identifiable assets and liabilities is recognised as goodwill. Any badwill can, subject to certain criteria, be recog- nised as income in the income statement in the acquisition year. The acquisition analysis can be regarded as preliminary or final. Acquisition analyses contain both concrete calculations and the exercising of best judgement. Estimated items are always asso- ciated with some uncertainty, but they are, to the extent possible, supported by calculations of expected cash flows, comparable transactions, etc. Please also see notes 33 and 40.
Management has made an assessment of which business areas are deemed reportable with respect to the form of distribution, products and customers. The primary format of reporting takes as a starting point risk and yield profiles of various assets and reporting is divided into retail banking sector, corporate sector, Markets and wholly-owned subsidiaries.
The Bank operates in a limited geographical area and reporting along the lines of geographic secondary segments provides little additional information. Significant types of assets (loans) allocated geographically are included in a separate note under loans.
31.12.15
Amounts in NOK million Retail banking sector Corporate sector Leasing Markets Unallocated Total
Net interest income 713 456 188 6 149 1 512
Net fee- and commission income 442 7 384 833
Other operating income 247 89 51 -38 349
Operating costs 1 014 154 86 29 178 1 461
Profit before losses 388 398 102 28 317 1 233
Net losses on loans and guarantees 10 131 11 2 46 200
Profit before income tax 378 267 91 26 271 1 033
Loans and advances to customers 39 495 20 128 4 430 64 053
Individual write-down for impaired value -25 -129 -15 -169
Group write-down for impaired value -40 -194 -13 -247
Other assets 39 21 727 21 766
Total assets per business area 39 430 19 805 4 441 21 727 85 403
Liabilities to- and deposits from customers 28 686 15 929 3 472 48 087
Other liabilities and equity 10 742 3 878 969 21 727 37 316
Total equity and liabilities per business area
39 428 19 807 4 441 21 727 85 403
31.12.14
Amounts in NOK million Retail banking sector Corporate sector Leasing Markets Unallocated Total
Net interest income 933 287 166 22 18 1 426
Net fee- and commission income 548 168 20 230 866
Other operating income 29 573 702
Operating costs 781 240 44 36 227 1 328
Profit before losses 700 215 122 35 593 1 666
Net losses on loans and guarantees 25 98 6 192 321
Profit before income tax 675 117 116 35 401 1 345
Loans and advances to customers 36 163 21 236 3 985 61 384
Individual write-down for impaired value -24 -249 -11 113 -171
Group write-down for impaired value -37 -178 -10 -11 -236
Other assets 22 346 22 346
Total assets per business area 36 102 20 809 3 964 22 448 83 323
Liabilities to- and deposits from customers 27 007 18 754 45 761
Other liabilities and equity 9 027 1 988 3 964 22 448 37 427
Total equity and liabilities per business area
36 034 20 742 3 964 22 448 83 188
In 2014, the Ministry of Finance stipulated amendments to the capital requirements regulations with effect from 30.09.14. The amendments are adjustments implemented to comply with the EU's new capital adequacy regulations for banks and securities undertakings (CRD IV/CRR) and entail the minimum require- ment for common equity Tier 1 capital ratio gradually increas- ing in the run up to 01.07.16.
SpareBank 1 Nord-Norge has, from 2015, been authorised by the Financial Supervisory Authority of Norway to use advanced internal calculation methods (Advanced Internal Rating Based approach). This authorisation means that SpareBank 1 Nord-Norge will use internal models, including for loss given default (LGD) in the cor- porate market portfolio, for calculating the necessary require- ments for compulsory savings.
The use of IRB places great demands on the bank’s organisation, competence, risk models and risk management systems. As a re- sult of transitional rules relating to the new directive mentioned above, IRB banks would not experience the full impact of the reduced regulatory capital requirements until 2010. Until 2010, banks reported on a parallel basis, both according to the old cap- ital adequacy calculations (Basel I) and Basel II. During the period
2007-2010, an annual reduction of the risk-adjusted calculation basis in relation to the old method (so-called correction of the 'floor') was permitted. The floor is continued in CRD IV until 2017. The Financial Supervisory Authority of Norway assumes that the floor will be continued in Norway as a lower limit for the basis for calculation. The basis for calculation in 2015 amounted to 80% of the calculated basis pursuant to the Basel I regulations, as long as the basis calculated pursuant to IRB was not lower.
SpareBank 1 Nord-Norge's goal is to maintain unquestionable fi- nancial strength and satisfy the statutory minimum equity require- ments for capital adequacy. The Group's goal is to have an internal capital buffer of at least one-half of one percentage point above the statutory minimum requirement. The Group's long-term goal for the common equity tier 1 capital ratio is currently 14.5%.
The Group uses proportional consolidation for its capital adequ- acy reporting for SpareBank 1 Boligkreditt, SpareBank 1 Nærings- kreditt and BN Bank. SpareBank 1 Nord-Norge's goal is to have an internal capital buffer of at least 1 percentage point above the statutory minimum requirement. The Group's long-term goal for Core Tier 1 capital ratio is currently 14.5%.
NOTE 5 - EQUITY AND CAPITAL ADEQUACY RATIO
PARENT BANK GROUP
31.12.14 31.12.15 Amounts in NOK million 31.12.15 31.12.14
EQUITY AND RELATED CAPITAL RESOURCES
Tier 1 Capital
1 807 1 807 Equity Certificate capital 1 807 1 807
843 843 Equity Certificate premium reserve 843 843
3 745 4 074 The Saving Bank's Fund 4 074 3 745
1 020 1 179 Dividend Equalisation Fund 1 179 1 020
332 180 Donations 180 332
80 Fair Value Reserve 80 -30
-12 35 Other equtiy capital 1 798 1 611
Minority interests 15
7 735 8 198 Total equity 9 961 9 343
Adjusted Tier 1 capital from consolidated financial institutions -48 75
-405 -260 Allocated dividends -260 -522
-20 -22 Adjustments to CET 1 due to prudential filters -23 -30
Goodwill and other intangible assets -55 -82
-150 -95 IRB shortfall of credit risk adjustments to expected losses -309 -385
-50 -82 Defined benefit pension fund assets gross amount -82 -50
-81 CET 1 instruments of financial sector entities where the institution have significant investment over 10% threshold limit. -817 -591
7 110 7 658 Common equity Tier 1 Capital (CET 1 Capital) 8 367 7 758
500 500 Hybrid Tier 1 bonds 756 687
Own hybrid Tier 1 bonds -13 -6
500 500 Additional Tier 1 Capital (AT 1) 743 681
NOTE 5 - EQUITY AND CAPITAL ADEQUACY RATIO
PARENT BANK GROUP
31.12.14 31.12.15 Amounts in NOK million 31.12.15 31.12.14
Tier 2 Capital
850 850 Subordinated loans eligible as T2 Capital 1 341 1 284
-43 -61 T2 instruments of financial sector entities where the institution have significant investment -93 -43
807 789 Tier 2 Capital (T2 Capital) 1 248 1 241
8 417 8 947 Equity and related capital resources 10 358 9 680
Total risk exposure amount
34 053 31 713 Credit risk internal rating based approach (IRB) 33 670 36 638
7 949 6 964 Credit risk standardised based approach 15 573 19 137
1 072 1 984 AT1 and T2 instruments of fincial sector entities where the institution have significant investment 2 358 1 320
43 074 40 661 Total credit risk 51 601 57 095
235 157 Traded debt instruments 156 235
118 39 Equity 219 500
143 Foreign Exchange 143
Operational Basic indicator approach (BIA) 114 56
3 121 3 422 Operational Standarised indicator approach (STA) 3 422 3 121
237 278 Credit Valuation Adjustment (CVA) 751 688
46 928 44 557 Total risk exposure amount (IRB) 56 263 61 838
Transitional rule Basel I 4 064
46 928 44 557 Total risk exposure amount 60 327 61 838
20.0 % 20.0 % Transitional rule Basel I 20.0 % 20.0 %
Capital requirements
1 101 717 Corporates - specialised lending 850 1 283
135 125 Corporates - other 165 163
420 406 Corporate - small and medium entities (SME) 413 469
674 855 Retail - secured by real estate 1 215 976
30 39 Retail - other 40 28
364 395 Equity IRB 12 12
2 724 2 537 Total IRB capital requirements 2 695 2 931
722 716 Total standardised capital requiremetns 1 434 1 644
Capital Requirements Directive (CRD IV): 2013 2014 2015 2016
4.5 % 4.5 % Minimum common Tier 1 Equity Capital 2.0 % 4.5 % 4.5 % 4.5 % 4.5 % 4.5 %
Capital buffers:
2.5 % 2.5 % Capital conservation buffer 2.5 % 2.5 % 2.5 % 2.5 % 2.5 %
3.0 % 3.0 % Systemic risk buffer 3.0 % 3.0 % 3.0 % 3.0 % 3.0 %
1.0 % Countercyclical capital buffer 1.0 % 1.5 % 1.0 %
5.5 % 6.5 % Total capital buffers Tier 1 Capital 5.5 % 6.5 % 7.0 % 6.5 % 5.5 %
5.2 % 6.2 % Available Common Equity Tier 1 Capital 2.0 % 10.0 % 11.0 % 11.5 % 2.9 % 2.5 %
8.2 % 8.7 % Leverage Ratio 6.0 % 5.9 %
31.12.14 31.12.15 Amounts in NOK million 31.12.15 31.12.14
19 13 Traded debt instruments 12 19
9 3 Equity 18 40
11 Foreign Exchange 0 11
Operational Basic indicator approach (BIA) 9 4
250 274 Operational Standarised indicator approach (STA) 274 250
75 22 CVA 60 55
Transitional rule Basel I 325
3 810 3 565 Capital requirements 4 827 4 954
16.2 % 18.3 % Tier 1 Capital 15.1 % 13.6 %
1.7 % 1.8 % Tier 2 Capital 2.1 % 2.0 %
17.9 % 20.1 % Capital Adequacy 17.2 % 15.6 %
15.2 % 17.2 % Common Equity Tier 1 Capital 13.9 % 12.5 %
16.2 % 18.3 % Tier 1 Capital IRB 16.2 % 13.6 %
17.9 % 20.1 % Capital Adequacy IRB 18.4 % 15.7 %
Risk management at SpareBank 1 Nord-Norge should support the group’s strategic development and achievement of targets, and it shall contribute to ensuring financial stability and safe and secure asset management through:
• A strong organisational structure characterised by high risk management awareness
• Striving towards an optimal application of capital within the adopted business strategy
• Striving for an equal risk-adjusted return on customers over time within the adopted business strategy • Exploitation of synergy and diversification effects • Having sufficient core/subordinated capital
according to the chosen risk profile
The principal aim is to ensure that the group’s aggregate risk le- vel is moderate and within the limits set by the group’s subordi- nated capital and other provisions. Through good risk manage- ment, the group should have a stable and predictable earnings and profit performance. A business strategy and overall targets represent the Board of Directors’ instruments for managing the group’s risk profile and financial development. The Chief Execu- tive Officer is responsible for presenting this to the Board of Di- rectors at least once a year, or whenever other circumstances in- dicate such a presentation. The group's minimum goal is to main- tain its current international rating in order to ensure a long-term ample supply of ordinary borrowing from the capital markets. The group’s risk is quantified for example through calculation of: • Expected losses that describe the amount that the Bank
must statistically expect to lose during a 12-month period. • Unexpected losses that describe how much capital
(risk-adjusted) the group must have in order to cover the actual risk involved.
The risk-adjusted capital should cover 99.9% of possible, unex- pected losses. Statistical methods are used as a basis for the cal- culations involved, but qualitative evaluations are also applied in some cases. During 2015, the Group developed models for fully allocating book equity to the business areas in which regulatory and internal risk models provide a basis for allocation. This must ensure that the business areas' profit contributions can be aggre- gated up to the Group's overarching profitability target. The return on the fully allocated capital is an important strategic result- related target for the internal management of the Group. Signi- ficant business areas are allotted capital in relation to the cal- culated risk relating to the activities, and the return on capital is followed up. The calculation of risk-adjusted capital enables the comparison of risk across risk groups and business areas. In addi- tion, risk is measured and followed up through the reporting of the use of limits and important portfolio risk targets.
In order to ensure an effective and appropriate process for risk and capital management, the framework has been based on the following elements, which reflect the manner in which the Board of Directors and the management manage the group:
• Strategy
• Organisation and organisational culture • Risk and capital management
• Reporting • Follow-up • Contingency plans • Compliance
For further information, reference is made to the “Pillar III Report” on the Bank´s website.
A more detailed description of financial risk management relating to the credit risk, liquidity risk and market risk is provided below.