Outcome of SREP and AS LHV Group internal capital targets
In October, the Estonian FSA, Finantsinspektsioon, presented LHV Group with this year’s outcome of Supervisory Review and Evaluation Process (SREP), which sets additional capital requirements for capital adequacy calculation. In comparison with last year there are some changes in composition of capital charges.
According to the decision of FSA, on consolidated level LHV Group should keep in additional capital in the amount of 1.53% (compared to 1.89% in 2017 SREP), from which at least 0.39% (0.37% in 2017) should be covered by Core Tier 1 capital and at least 0.52% (0.49% in 2017) should be covered by Tier 1 capital. In addition FSA added an additional capital charge for non-resident financial intermediates' deposits in the amount of 0,2% from deposit amount.
In a council meeting on 17 October, the Supervisory Board of LHV Group based on the FSA decision and adding to it internal buffers decided to set total CAD target ratio at 15.50% (previously 15.06%), Tier 1 ratio at 12.10%% (previously 12.29%) and Core Tier 1 ratio to 10.40% (previously 10.61%). These internal capital targets take into account also increased O-SII buffers valid from 1st of January 2019.
The components of the target are as follows:
| ||Core Tier 1||Tier 1||Total CAD|
|Pillar II additional capital charge||0.39%||0.52%||1.53%|
|Non-resident financial intermediates' deposits according to financial plan||0.28%||0.28%||0.28%|
|Total SREP capital requirement||5.17%||6.80%||9.81%|
|Capital conservation buffer||2.50%||2.50%||2.50%|
|Systemic importance buffer (O-SII)||1.00%||1.00%||1.00%|
|Systemic risk buffer||1.00%||1.00%||1.00%|
|Discretionary counter-cyclical buffer||0.00%||0.00%||0.00%|
|Combined buffer in total||4.50%||4.50%||4.50%|
|Minimal regulatory requirement||9.67%||11.30%||14.31%|
|Additional internally decided buffers||0.73%||0.80%||1.19%|
|Group’s internal capitalization targets||10.40%||12.10%||15.50%|
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