MünchenerHyp uses the Internal Ratings Based Approach (IRBA) to calculate its equity capital requirements.
The Liquidity Coverage Ratio (LCR) was comfortably met throughout the entire year with figures considerably higher than 100 percent. Furthermore, the Net Stable Funding Ratio (NSFR) was also continuously over 100 percent.
Within the framework of Basel III a leverage ratio with a limit of 3 percent for the entire nominal volume of loans made by a bank in relation to its equity capital was also introduced. Up until now this ratio only had to be reported. However, as of 1 January 2019 this new rule will become a mandatory requirement for banks. At the end of 2017 MünchenerHyp’s leverage ratio stood at 3.43 percent.
The Basel Committee on Banking Supervision (BCBS) finalised new standards for equity rules for credit institutions at the end of 2017. The regulatory standards are particularly focused on revising the standard approach as well as the internal approaches used to calculate risk weight for credit risks; establishing a binding definition of a new standard approach for operational risks, and the introduction of a floor of 72.5 percent to limit the effects of internal approaches compared to standard approaches. The finalised standards reflect the content of the most recent discussions to a great extent. Above all, this means that banks operating with a low level of risk, like MünchenerHyp, will be impacted by the changes as the introduction of the floor will have a negative effects on MünchenerHyp’s equity capital ratios. Based on the current state of information, we do not expect that we will have to raise additional equity capital due to our very good level of capital.
We are attentively following current discussions and publications of various authorities regarding regulatory requirements. It is difficult to comprehensively prepare to meet future requirements at this time as widely varying positions are still regularly held by the different institutions involved in the current discussions at national, European and international levels. For this reason, we will continue to prepare to the greatest extent possible, although we will wait until the final version of the individual rules have been approved before we begin to implement them. We therefore believe it is necessary for the regulators to provide an appropriate amount of time – especially IT requirements – for implementation purposes.
All regulatory issues were, and are being, monitored by a central unit within MünchenerHyp, transmitted to the responsible departments and implemented in various projects. Up until today all of the requirements have been implemented on time. The enormous flood of new requirements mandated by the supervisory authority does, however, generate significant costs and requires us to continually create new plans to utilise the Bank’s tight resources.
The ECB again conducted its Supervisory Review and Evaluation Process (SREP) in 2017 that carefully examined the Bank’s business model, its internal governance as well as its available capital and liquidity. The results indicate if additional equity capital or liquidity is required. The results of the SREP for MünchenerHyp revealed a mandatory minimum required ratio of 7.88 percent for the Bank’s Common Equity Tier 1 capital.
The MaRisk was updated at the end of 2017. As no major changes were made compared to the last versions, we anticipate that the Bank will be able to implement the updated requirements on time.
The Recovery Plan was updated. Furthermore information required for the Resolution Plan was provided to the resolution authority. Only minor adjustments were required in comparison to the previous year.