Rating, Sustainability and Regulatory Conditions

REGULATORY CONDITIONS

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.



SINGLE SUPERVISORY SYSTEM FOR EU BANKS

The ECB again conducted its Supervisory Review and Evaluation Process (SREP) in 2016 that carefully examines a bank’s business model, its internal governance as well as its available capital and liquidity. The results were again presented as a score. The score indicates if additional equity capital or and liquidity is needed. The results of the SREP for MünchenerHyp revealed a mandatory minimum required ratio of 7.25 percent for the Bank’s Common Equity Tier 1 capital, which was very significantly exceeded by 15.6 percentage points on 31 December 2016.



MINIMUM REQUIREMENTS FOR RISK MANAGEMENT (MaRisk)

No changes have been made to the MaRisk since 15 December 2012. The long-discussed amendment remained unapproved in 2016. As a result, no changes had to be made to MünchenerHyp’s proven processes.



RECOVERY PLAN

The Recovery Plan was updated in December 2016. Only minor adjustments were necessary.