BASEL III
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 continually over 100 percent.
Within the framework of Basel III a leverage ratio will be introduced and set at 3 percent for the entire nominal volume of loans made by a bank in relation to its equity capital. Up until now this ratio only had to be reported. However, banks will have to observe this new requirement starting 1 January 2019. As a result of the successful additional increase in Common Equity Tier 1 capital during the year under review, MünchenerHyp’s leverage ratio stood at 3.35 percent at the end of 2016.
The Basel Committee on Banking Supervision (BCBS) is currently negotiating new standards for capital rules for credit institutions. These are referred to as Basel IV within the banking sector. The committee is aiming to adopt these new regulatory standards as soon as possible, and is especially 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 use of floors to limit the effects of internal approaches compared to standard approaches. It remains to be seen just how pronounced the changes will be. The current proposals regarding the required level of underlying equity for loans, however, indicate that banks operating with a low level of risk, like MünchenerHyp, in particular, will be impacted by the planned increases. Based on our very good level of capital we do not expect that we will have to raise additional equity 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. As the example of LCR showed, significant changes can still occur during the proceedings. 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 and implemented by the affected departments 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.