Capital adequacy*

Capital adequacy is the maintenance of a level of own funds by the PKO Bank Polski SA Group which exceeds higher of the: sum of regulatory capital requirements (the so-called Pillar 1) and sum of internal capital requirements (the so-called Pillar 2).

The objective of capital adequacy management is to maintain capital in a continuous manner on a level that is adequate to the risk scale and profile of the Group's activities.

The process of managing the Group’s capital adequacy comprises:

• identifying and monitoring of all of significant risks,
• assessing internal capital to cover the particular risk types and total internal capital,
• monitoring, reporting, forecasting and limiting of capital adequacy,
• performing internal capital allocations to business segments, client segments and entities of the Group in connection with profitability analyses,
• using tools affecting the capital adequacy level (including: tools affecting the level of own funds, the scale of own funds item reductions and the level of the loan portfolio). 

The main measures of capital adequacy are:

• the capital adequacy ratio of which minimum level in accordance with the Banking Law is 8%,
• the ratio of own funds to internal capital of which minimum level in accordance with the Banking Act is 1.0,
• the capital adequacy ratio of common equity Tier 1 (Common Equity Tier 1 Ratio).

The level of the PKO Bank Polski SA Group’s capital adequacy in 2013 remained at a safe level, significantly above the statutory limits.

Capital adequacy of the PKO Bank Polski SA Group (in PLN million)

As at 31 December 2013 compared with 31 December 2012, the Group’s capital adequacy ratio increased by 0.7 pp. to the level of 13.58%, as a result of the increase in the Group’s own funds by 5.6% y/y accompanied by the increase in the Group’s total capital requirement by 0.2% y/y. As at 31 December 2013 compared with 31 December 2012, the Group’s total capital requirement increased by PLN 27.1 million, mainly as a result of an increase in the capital requirement in respect of credit risk while the Group’s own funds increased by PLN 1 127.3 million, mainly as a result of including in funds Bank’s net profit for 2012 less dividend paid (in amount PLN 1 431.2 million).

The Group calculates capital requirements in accordance with the Resolution No. 76/2010 of the Polish Financial Supervision Authority of 10 March 2010 on the scope and detailed principles of determining capital requirements for particular types of risk (Official Journal of the PFSA No. 2, item 11 of 9 April 2010 with subsequent amendments): in respect of credit risk – using the standard method, in the respect of the Bank’s operational risk – the advanced measurement approach (AMA) and for the Group entities –the basic index (BIA), in respect of market risk - the basic methods.

Capital requirements of the PKO Bank Polski SA Group (in PLN million)

An increase in the capital requirement in respect of credit risk by 2.0% y/y to the level of PLN 11 594.0 million contributed an increase in the loan portfolio.
A decrease in the capital requirement in respect of market risk by 33.8% to the level of PLN 327.3 million comprise mainly of securities underwriting agreements of corporate bonds and corporate bonds’ portfolio (the total decrease in the requirement in respect of exchangeable bonds by aprox. 57%).
There was also an insignificant decrease in the capital requirement in respect of operational risk by 4.4% y/y to the level of PLN 630.9 million. 

*Own funds for the purposes of capital adequacy are calculated in accordance with the provisions of the Banking Law and Resolution of the Polish Financial Supervision Authority No. 325/2011 of 20 December 2011 on deductions from own funds, their amount, scope and conditions of their deduction from a bank's own funds, other statement of financial position items included in supplementary funds, their amount, scope and conditions of their inclusion in bank’s supplementary funds, deductions from supplementary funds, their amount, scope and conditions of their deduction from supplementary funds and the scope and manner of treating the activity of banks that are members of conglomerates in calculating own funds (Official Journal of PFSA No. 13, item 49 of 30 December 2011).