As at 2019 end, capital adequacy in Bank Millennium Group remained on very high and safe level. Total Capital Ratio stayed at year end at 20.09% level for the Group (20.00% for the Bank) and Common Equity Tier 1 Capital ratio (equals T1 ratio) was at 16.91% for the Group (16.77% for the Bank). Therefore, minimum capital levels required by KNF for Bank and Group were achieved with a surplus.
TCR of the Group decreased during one year period by ca 1.6 pp (by 1.5 pp for the Bank). It was caused by a faster risk-weighted assets than own funds growth. In 2019, risk-weighted assets of the Group went up by ca PLN 11.5 billion (i.e. by 31%), mainly as a result of Euro Bank takeover. The Group’s Own Funds raised by ca PLN 1.7 billion in 2019, mainly as a result of retention of net earnings (total net earnings for 2018 and net earnings for first half of 2019), and subordinated debt issue.
Bank Millennium has a dividend policy of distributing from 35% to 50% of net profit, subject to regulatory recommendations. In December 2019 KNF sent the individual dividend policy recommendation, in which it set the following additional buffers for dividend distribution (above the minimum required as at 2019 end for TCR): + 1.5% to pay 75%; + additional Stress test add-on to pay 100%. That add-on was measured as the Bank’s sensitivity to an adverse macroeconomic scenario and was set at 3.01% on the top of TCR, including regulatory adjustments. KNF kept also additional criteria for banks with FX mortgage portfolio (K1 based on FX mortgage share in total portfolio and K2 based on share of 2007-2008 vintages in total FX mortgage portfolio).
Capital ratios at the end of 2019 would allow paying dividend if not additional K1 and K2 criteria for banks with FX mortgage loan portfolio. Taking above into account and to provide a reliable capital support for growth a business activity, the Management Board of the Bank will submit to AGM a proposal of full retention of 2019 net profit in Bank’s own funds. Assuming acceptance of this proposal by AGM, positive impact on T1 and TCR ratio will be approximately 0.4-0.5 pp (to levels 17.4% and 20.6% for Group, respectively).
Leverage ratio stood at the safe level of 8%-9%, with small periodic changes and exceeds almost three times a value deemed as safe (3%).
In a long perspective, capital adequacy level of Bank and Group is evaluated as satisfactory.
The Bank received a letter from „BFG regarding the minimum level of own funds and liabilities subject to write down or conversion (MREL). In accordance with the regulation, the MREL requirement should be achieved by January 1, 2023 and maintained at all times from that date. BFG has determined a linear path to reach the required target. The MREL limit for the Bank was set on the basis of data as at December 31, 2018 and the value of required buffers valid as at January 1, 2019. As at December 31, 2019, the Bank fulfils the MREL limits set up by BFG. In order to fulfil and maintain required MREL limits, the Group may issue MREL eligible instruments that could cause increase of financing costs for the Group.
More information about capital management and adequacy is presented in a separate report titled “Capital Adequacy, Risk and Remuneration Policy Report of Bank Millennium Capital Group for 2019”.