Grønlandsbanken A/S

CVR no. 80050410

The Bank of Greenland

Adequate capital base and solvency requirement

Report Q1 2024

The Bank of Greenland Report Q1 2024

2

Method to calculate adequate capital base

The Bank's method of assessing whether the internal capital is sufficient to support current and future activities (the solvency re- quirement) follows the Bank's ICAAP (Internal Capital Adequacy Assessment Process).

In the ICAAP, the risks to which the Bank is exposed are identified, in order to assess the risk profile. Once the risks have been identified, it is assessed how these risks can be reduced, for example via procedures, contingency plans, etc. It is also assessed which risks entail a capital requirement.

The internal capital (solvency requirement) is the Bank's own assessment of the capital requirement, as a consequence of the risks assumed by the Bank. On a quarterly basis, the Bank's Board of Directors discusses the determination of the internal capital (solvency requirement), in order to ensure that it is adequate to support current and future activities. The discussions are based on a recommendation from the Bank's Executive Management Board. The recommendation includes the proposed size of the internal capital (solvency requirement). Based on the discussions, the Board of Directors adopts the calculation of the Bank's internal capital (solvency requirement), which must be sufficient to cover the Bank's risks and support current and future activities.

In addition, once a year the Board of Directors exhaustively discusses the method of calculating the Bank's internal capital (solvency requirement), including the risk areas and benchmarks which should be taken into consideration on calculating the internal capital (solvency requirement).

The internal capital (solvency requirement) is compiled on the basis of an 8+ method, which includes the risk types for which capital is assessed to be required: credit risks, market risks, operational risks, other risks, and supplements for statutory requirements. The assessment is based on the Bank's risk profile, capital and forward-looking considerations that may be of significance, including the budget.

The Danish Financial Supervisory Authority has issued a "Guide concerning adequate capital base and solvency requirements for credit institutions". The Association of Local Banks, Savings Banks and Cooperative Banks in Denmark has also issued a solvency requirement model. Both the FSA's guide and the Association of Local Banks' solvency requirement model, which the Bank uses, are based on the 8+ method, for which the starting point is the minimum requirement of 8% of the total risk-weighted exposures (pillar 1 requirement), with additions for risks and conditions that are not fully reflected in the calculation of the risk-weighted items.

In addition, the FSA's guide sets out benchmarks for when the FSA in principle assesses that pillar 1 is not adequate within the individual risk areas, so that supplements must be allocated in the solvency requirement. Furthermore, to an extensive extent methods have been set up for the calculation of the size of the supplement within the individual risk areas.

Even though the Danish FSA sets out benchmarks for most areas, for all areas the Bank assesses whether the stated benchmarks take sufficient account of the Bank's risks, and individual adjustments are made to the necessary extent. The Bank's own history is used for this purpose.

The Bank of Greenland Report Q1 2024

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The Bank applies the following template on compiling the internal capital (solvency requirement)

DKK 1,000

%

1) Pillar 1 requirement (8% of the total risk exposure)

8

  • 2) Revenue (capital to cover risk as a consequence of weak revenue)
  • 3) Growth in lending (capital to cover organic growth in the business volume)
  • 4) Credit risks, of which

4a) Credit risks on major customers in financial difficulties

4b) Other credit risks

4c) Name concentration risks

4d) Sectoral concentration risks + 5) Market risks, of which

5a) Interest rate risks

5b) Share risks

5c) Currency risks

  • 6) Liquidity risks (capital to cover a higher cost of liquidity)
  • 7) Operational risks (capital to cover operational risks in addition to pillar 1)
  • 8) Gearing (capital to cover risks as a consequence of high gearing)
  • 9) Any supplements as a consequence of statutory requirements

Total = capital requirement/solvency requirement

  • Of which for credit risks (4)
  • Of which for market risks (5)
  • Of which for operational risks (7)
  • Of which for other risks (2+3+6+8)
  • Of which supplements as a consequence of statutory requirements (1+9)

The total risk exposure

In the view of the BANK of Greenland, the risk factors included in the model cover all of the risk areas which legislation requires the Bank's management to take into account on determining the internal capital (solvency requirement), and the risks which the management finds that the Bank has assumed.

In addition, the Board of Directors and Executive Management Board must assess whether the capital base is adequate to support coming activities. For the Bank, this assessment is part of the general determination of the internal capital (solvency requirement)

The Bank of Greenland Report Q1 2024

4

Solvency requirement and adequate capital

The BANK of Greenland's reported individual capital requirement

Q1 2024

2023

Capital requi-

Solvency re-

Capital requi-

Solvency re-

rement

guirement

rement

guirement

Pillar 1 requirement

439,691

8.0%

445,843

8.0%

Credit risk

123,998

2.2%

120,061

2.2%

Market risk

21,585

0.4%

22,404

0.4%

Operational risk

15,592

0.3%

15,646

0.3%

Other risk

11,379

0.2%

12,256

0.2%

Capital and solvency requirement

612,245

11.1%

612,574

11.1%

The bank has on the basis of the capital requirement calculated an immediate excess cover of TDKK 832,773, which constitutes the difference between the present capital requirement (solvency need) and the actual capital (capital ratio).

Surplus liquidity cover, end of Q3 2023 in DKK 1,000

Actual core capital

1,380,649

Supplementary capital

64,369

Capital base

1,445,018

Capital base

1,445,018

Adequate capital

612,245

Surplus liquidity cover

832,773

Capital ratio

26,3 %

Required internal capital (solvency requirement)

11.1 %

Surplus solvency in % points

15.2 %

Solvency excess cover as above (percentage point)

15.2 %

SIFI buffer requirement

1.5 %

Capital reserve buffer requirement

2.5 %

Surplus hereafter

11.2 %

Actual core capital ratio

25.1 %

The Bank of Greenland Report Q1 2024

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Credit risk: Risk of loss as a consequence of debtors' or counterparties' default on actual payment obligations, in addition to what is covered by pillar 1, including major customers facing financial difficulties, and concentration risk on individual exposures and sectors as well as NPE backstop etc.

Market risk: Risk of loss as a consequence of potential changes in interest rates, share prices and exchange rates, in addition to the risk covered by pillar 1. The starting point is the maximum risks which the Bank can assume within the limits set by the Board of Directors for the Executive Management Board's authority to assume market risks, in accordance with the Danish Financial Business Act.

Operational risk: Risk of loss as a consequence of inadequate or deficient internal procedures, human errors, IT systems, etc. and external events, including legal risks, in addition to those covered by pillar 1. The Bank applies the basic indicator method to compile the solvency requirement for the operational risk.

Other risk: Any capital to cover risk as a consequence of weak revenue, any capital to cover growth in the business volume, and any capital to cover a higher cost of liquidity from professional investors.

Other risk areas assessed in relation to determining the solvency requirement.

  • External risks related to legislation and compliance
  • Other factors - recruitment, method risk, etc.

The determination of the influence of these areas on the solvency requirement ratio is either calculated directly via supplementary calculations, the Bank's history, or by the management's estimated assessment of these risk areas' influence on the compilation of the solvency requirement.

Statutory requirement: Covers the 8% requirement in pillar 1, cf. Section 124(2) 1) of the Danish Financial Business Act, and any supplements in relation to the situations where the requirements in the Financial Business Act give a direct supplement to the solvency requirement. At the present time, the BANK of Greenland has not allocated further capital for this in addition to the 8% requirement, since the other requirements are not assessed to require a supplement at the present time..

The Bank of Greenland Report Q1 2024

6

Minimum capital requirement of 8% for each exposure class

Since the Bank uses the standard method to calculate the risk-weighted exposures, the minimum capital requirement of 8% is shown per exposure class.

Minimum capital requirement of 8 %

Q1 2024

End of 2023

Exposures to central governments and central banks

-

-

Exposures to regional and local authorities

-

-

Exposures to public entities

-

-

Exposures to multilateral development banks

-

-

Exposures to international organisations

-

-

Exposures to institutions

2,496

2,6101

Exposures to companies

166,422

157,037

Retail exposures

80,308

83,229

Exposures secured by real estate mortgages

56,650

54,154

Exposures on default

10,180

17,242

Exposures related to a particularly high risk

5,678

11,375

Exposures in the form of covered bonds and covered mortgage-credit bonds

-

-

Items representing securitisation positions

-

-

Exposures to institutions and companies with short-term credit assessment

-

-

Exposures which are units or shares in CIUs

-

-

Share exposures

11,941

10,849

Other items

30,463

32,117

Credit- and counterpart risks in total

364,138

368,614

The Bank of Greenland Report Q1 2024

7

Risk-weighted exposures

Risk-weighted exposures in DKK 1,000

Q1 2024

End of 2023

Credit risk

4,551,730

4,607,677

Market risk

212,705

233,494

Operational risk

721,601

721,601

CVA Risiko

10,098

10,267

Total risk-weighted exposures

5,496,134

5,573,039

Risk-weighted items for market risk in DKK 1,000

Q1 2024

End of 2023

Debt instruments

209,057

228,827

Shares

0

0

Exchange rate risk

3,648

4,667

Total items with market risk

212,705

233,494

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Disclaimer

Bank of Greenland A/S published this content on 13 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 13 May 2024 14:42:12 UTC.