The Group set the capital management process that is completed based on principles defined by Management Board and Supervisory Board of Bank Millennium SA.
The main goal of the Group is to observe the requirements defined in external regulations (ensuring regulatory capital adequacy) as well as to observe internal long-term targets (limits) defined in the Group Risk Strategy and Risk Appetite Statement.
In 2016, all capital targets were met with a surplus. It relates both to actual ratios, and the same ratios calculated with assumptions of stressed conditions. The Group’s capital adequacy is assessed as satisfactory and assuring a smooth and steady development of banking activity.
In a scope of capital management process, there is also a capital planning process. The goal of capital planning is to designate the own funds (capital base that is risk-taking capacity) and capital usage (regulatory capital requirements and economic capital) in a way to ensure that capital targets/limits shall be met, given forecasted business strategy and risk profile – in normal and stressed macroeconomic conditions.
Capital requirements and ratios of the Group and Bank Millennium are presented in the below table:
Capital adequacy indicators
|IRB with regulatory floor (*)||IRB with regulatory floor (*)|
|Risk-weighted assets (RWA) for Group||36 730.6||37 129.6|
|Risk-weighted assets (RWA) for Bank||36 198.7||36 755.7|
|Own funds requirements for Group||2 938.4||2 970.4|
|Own funds requirements for Bank||2 895.9||2 940.5|
|Own funds for Group||6 390.7||6 208.9|
|Own funds for Bank||6 252.4||6 081.3|
|Total Capital Ratio for Group (TCR)||17.40%||16.72%|
|Total Capital Ratio for Bank (TCR)||17.27%||16.55%|
|Common Equity Tier 1 Ratio for Group (**)||17.31%||16.35%|
|Common Equity Tier 1 Ratio for Bank (**)||17.18%||16.17%|
|Minimum Total Capital Ratio for Group||16.30%||15.75%|
|Minimum Total Capital Ratio for Bank||16.34%||15.83%|
|Leverage ratio for Group (***)||8.97%||9.15%|
|Leverage ratio for Bank (***)||8.86%||9.02%|
(*) Risk-weighted assets and own funds requirements are calculated with 70% „Regulatory floor” set in the IRB decision issued in December 2014
(**) Common Equity Tier 1 Capital ratio is equal to Tier 1 Capital ratio
(***) Leverage ratio – Ratio of T1 capital to total exposure measure
More information on capital adequacy is presented in a separate report titled “Capital Adequacy, Risk and Remuneration Policy for 2016”.
The Group’s goal is to have a strong capital base, providing a solid support for business development, a buffer for a potential deterioration of macroeconomic situation, and amortisation of a potential adverse changes in regulatory environment. In the normal scenario and assuming no external shocks, the Group does not plan a further own funds increase by new issue of shares. Own funds will be increased due to internal generation of capital (retained earnings).
Thus, the Bank has approved a dividend policy of distributing between 35% to 50% of net profit what is also subject to regulatory recommendations. Considering additional capital requirements to FX mortgage loans for households and capital conservation buffer (described above), and presented below KNF dividend policy, the Management Board of the Bank will submit to the Annual General Shareholders Meeting a proposal to retain in own funds the full profit of 2016 year.
In December 2016 KNF published its position on dividend policy for banks (among other entities) in 2017. KNF recommends 50% dividend ratio may be paid out in banks meeting together all below criteria:
- Bank is not under rehabilitation program
- BION (SREP) score not worse than 2.5
- Financial leverage higher than 5%
- T1 ratio higher than 15.82% (value calculated as for Bank Millennium SA based on KNF criteria for OSII)
- TCR higher than 16,59% (value calculated as for Bank Millennium SA based on KNF criteria for OSII)).
At the same time KNF published for banks materially involved in FX denominated mortgage loans granted to households, two additional corrective criteria, based on the share of the given portfolio in total portfolio and the share of loans granted in years 2007 and 2008 in the given portfolio.
The Bank and the Group meet all 5 main criteria enabling 50% dividend payout, nevertheless given corrective criteria, dividend payout is not possible.