Integrated Report 2020

Own funds and capital ratios

The Bank's total capital ratio as at 31 December 2020 amounted to 19.46% and increased by 3.81 p.p. compared to December 2019. The Bank's stand-alone Common Equity Tier 1 (CET I) capital ratio and stand-alone Tier 1 (Tier 1) capital ratio as at 31 December 2020 were identical at 14.16% (up 0.84 p.p. compared to the end of 2019).

Total own funds as at 31 December 2020 increased by PLN 3,136,909 thousand compared to 31 December 2019.

Pursuant to the Resolution of the Ordinary General Shareholders' Meeting of BNP Paribas Bank Polska S.A. of 29 June 2020, the entire profit of the Bank for 2019, amounting to PLN 628,696 thousand, was allocated to reserve capital.

On 28 December 2020, the Bank received the decision of the Polish Financial Supervision Authority to approve the inclusion of subordinated loan in the amount of PLN 2.3 bilion as an instrument in the Bank’s Tier II capital. The subordinated loan agreement was signed by the Bank with BNP Paribas S.A. on 7 December 2020 to meet the minimum requirement of the level of own funds and eligible liabilities (MREL).

The total risk exposure as at 31 December 2020 amounted to PLN 81,145,806 thousand and increased by PLN 293,243 thousand compared to 31 December 2019.

In accordance with the Act of 5 August 2015 on macroprudential supervision over the financial system and crisis management in the financial sector and Regulation of the Minister of Finance, since 1 January 2019 the capital requirements binding for Polish banks increased due to:

  • introduction of the systemic risk buffer at the level of 3%,
  • increase of the capital conservation buffer from 1.875% to 2.5%.

On 19 March 2020, the Regulation of the Minister of Finance (Journal of Laws of 2020, item 473) of 18 March 2020 on the system risk buffer entered into force – reduction of the buffer from 3% to 0%.

On 27 June 2020, Regulation (EU) 2020/873 of the European Parliament and of the Council of 24 June 2020 amending Regulations (EU) No 272/2013 and (EU) 2019/876 as regards certain adjustments in response to the COVID-19 pandemic entered into force, allowing, among others, for the reduction of risk weights for selected SME loans.

in PLN ‘000 31.12.2020 31.12.2019 change
in PLN ‘000 %
Tier I capital
– share capital 147,419 147,419 0 0,0%
– supplementary capital 7,259,316 7,259,316 0 0,0%
– reserve capital 3,425,961 2,797,264 628,696 22.5%
– funds for general banking risk 627,154 627,154 0 0.0%
– intangible assets (651,202) (519,124) (132,078) 25.4%
– other components of equity included in Tier I capital 644,674 460,064 217,610 47.3%
Total Tier I capital 11,486,322 10,772,093 714,229 6.6%
Tier II capital
– subordinated liabilities classified as Tier II capital 4,302,575 1,879,895 2,422,680 128.9%
Total own funds 15,788,897 12,651,988 3,136,909 24.8%
Risk exposure due to:
– credit risk 71,778,685 71,910,197 (131,512) (0.2%)
– market risk 1,265,023 876,152 388,871 44.4%
– operational risk 7,994,887 7,789,712 205,175 2.6%
– CVA adjustment 107,211 276,502 (169,291) (61.2%)
Total risk exposure 81,145,806 80,852,563 283,243 0.4%
Bank’s capital ratios
Total Capital Ratio (TCR) 19.46% 15.65% 3.81 p.p.
Tier I Capital Ratio 14.16% 13.32% 0.84 p.p.

On 8 August 2018, the Bank received a letter from the Polish Financial Supervision Authority informing about the PFSA’s review of the adequacy of the buffer rate of other systemically important institution. As a result of the review, the PFSA concluded that there were no reasons to repeal or amend the PFSA’s Decision of 4 October 2016, as set out in the PFSA Decision of 19 December 2017 on the Bank (on a consolidated and stand-alone levels) of the buffer of other systemically important institutions equivalent to 0.25% of the total risk exposure amount.

On 10 July 2019, the Bank received a decision of the Polish Financial Supervision Authority, dated 9 July 2019, confirming the expiry of the PFSA decision of 15 October 2018, on the basis of which the PFSA recommended that the Bank should maintain own funds to cover an additional capital requirement in order to hedge the risk resulting from FX mortgage loans for households at the level of 0.36 p.p. higher than the Total Capital Ratio, 0.27 p.p. over the Tier I Capital Ratio and 0.20 p.p. higher than Common Equity Tier I Capital Ratio as stated in art. 92 paragraph 1 of the EU Parliament and EU Council Regulation No 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms („Regulation No 575/2013”).

As a result of the above changes, the minimum levels of capital adequacy ratios resulting from legal regulations and administrative decisions issued by the Polish Financial Supervision Authority („PFSA”) as at 31 December 2020, are as follows:

Minimum levels of capital adequacy ratios of the Bank and Capital Group 31.12.2020
Common Equity Tier I (CET I) capital ratio 7.25%
Tier I capital ratio 8.75%
Total capital ratio (TCR) 10.75%

On 12 December 2017, the European Parliament and the EU Council adopted Regulation No. 2017/2395 amending the Regulation (EU) No 575/2013 regarding transitional arrangements to mitigate the impact of the introduction of IFRS 9 on equity and on the treatment of large exposures to entities in the sector publicly denominated in the national currency of any Member State. This Regulation entered into force on the day following its publication in the Official Journal of the European Union and has been applicable since 1 January 2018. The European Parliament and the Council (EU) decided that the application of IFRS 9 could lead to a sudden increase in allowances for expected credit losses, and hence, the decrease in Tier 1 capital.

The Bank, after analysing the requirements of Regulation No. 2017/2395, decided to apply the transitional provisions provided for in this Regulation, which means that the full impact of the implementation of IFRS 9 will not be taken into account for the assessment of capital adequacy of the Bank.  As a result of adjusting the calculation of regulatory capital requirements, it was estimated that taking into account the full impact of the implementation of IFRS 9 on the total capital ratio of the Bank would reduce its value by 29 basis points as at the date of IFRS 9 implementation.

Minimum requirement for own funds and eligible liabilities (MREL)

On 16 March 2020 the Bank received a letter from the Bank Guarantee Fund concerning a joint decision of the resolution authorities, i.e. the Single Resolution Board, the Central Bank of Hungary, Finanstilsynet, Bank of England and the Bank Guarantee Fund, on the minimum level of own funds and eligible liabilities (MREL). This decision is based on the BNP Paribas Group’s forced restructuring strategy assuming a Single Point of Entry (SPE).

The MREL requirement for the Bank was set at the sub-consolidated level at 16.001% of total liabilities and own funds („TLOF”), which corresponds to 20.866% of total risk exposure („TRE”). This requirement should be achieved by 31 December 2022. In addition, the Bank Guarantee Fund has set MREL interim targets at sub-consolidated level, which in relation to the TLOF are: 12.363 % at the end of 2020 and 14.182 % at the end of 2021; and in relation to the TRE are: 16.122% at end 2020 and 18.494% at end 2021.

The MREL requirement was determined on the basis of consolidated balance sheet data as at 31 December 2018 and the required buffers valid as at 1st January 2019 and the additional capital requirement of the Polish Financial Supervision Authority valid as at 9 July 2019 (on 9 July 2019 the Bank was released from the obligation to maintain that requirement).

According to the Bank Guarantee Fund announcement of 26 March 2020, as a consequence of lifting of the systemic risk buffer, the MREL requirements will be significantly reduced and the target date for compliance will be extended to 1st January 2024 (instead of 1st January 2023) as well as the deadline for meeting the first binding medium-term target to 1st January 2022 (instead of 1 January 2021). The Bank informs that binding decisions on the MREL requirements for the Bank are issued at the Single Resolution Board level in agreement with the Bank Guarantee Fund and have not changed as of the date of publication of this Report.

The Bank met the defined MREL requirements at the end of 2020.

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