Wrap Text
Basel III Pillar 3 disclosure as at 31 March 2020
ABSA GROUP LIMITED ABSA BANK LIMITED
(Incorporated in the Republic of South Africa) (Incorporated in the Republic of South Africa)
(Registration number: 1986/003934/06) (Registration number: 1986/004794/06)
ISIN: ZAE000255915 ISIN: ZAE000079810
JSE share code: ABG JSE share code: ABSP
(Absa Group Limited) (Absa Bank)
ABSA GROUP LIMITED – BASEL III PILLAR 3 DISCLOSURE AS AT 31 MARCH 2020
This quarterly Pillar 3 disclosure contains the quantitative Pillar 3 disclosure requirements in respect of Absa Group Limited (Absa Group or the Group)
and Absa Bank Limited (Absa Bank or the Bank). The quarterly report provides a view of the Group’s regulatory capital and risk exposures, and it complies
with:
- The Basel Committee on Banking Supervision (BCBS) revised Pillar 3 disclosure requirements (Pillar 3 standard).
- Regulation 43 of the Regulations relating to Banks (Regulations), issued in terms of the Banks Act, 1990 (Act No. 94 of 1990), where not
superseded by the revised Pillar 3 disclosure requirements.
1. Key prudential metrics and RWA
In line with regulatory and accounting requirements, the capital and leverage position of the Group and the Bank in this document are reflected on a
regulatory basis (which requires unappropriated profits to be excluded), and in accordance with IFRS accounting rules (which requires the impact of the
contribution amounts received from Barclays PLC as part of the separation to be included). However, the capital and leverage position of the Group is
also managed on a statutory, normalised basis (which includes unappropriated profits, and excludes the impact of the contribution amounts received
from Barclays PLC). The summary table below provides key capital adequacy and liquidity information on both normalised and statutory, IFRS basis as
at 31 March 2020.
1.1 Capital adequacy and liquidity
Normalised Normalised IFRS IFRS
Board target Minimum RC Group Group Group Group
ranges requirements performance performance performance performance
% % 31 Mar 2020 31 Dec 2019 31 Mar 2020 31 Dec 2019
Statutory capital ratios (includes unappropriated
profits) (%)
Common equity tier 1 (CET1) 11.00 – 12.00 11.1 11.8 11.3 12.1
Tier 1 12.00 – 13.00 12.0 12.7 12.2 13.0
Total capital adequacy requirement (CAR) 14.50 – 15.50 14.8 15.5 15.0 15.8
Leverage 5.00 – 7.00 6.6 7.0 6.7 7.2
RC ratios (excludes unappropriated profits) (%)
CET1 7.5 11.0 11.6
Tier 1 9.3 11.9 12.5
Total CAR 11.5 14.7 15.3
Leverage 4.0 6.6 6.9
Liquidity coverage ratio (LCR) (%) 120.8 134.4
Net stable funding ratio (%) 112.1 112.7
Page 1 of 8
Capital
The capital adequacy ratios remain strong, above the minimum regulatory requirements and within Board target range. Absa Group’s statutory CET1
ratio (calculated on a normalised basis) declined by 70bps over Q1 2020, driven by payment of the final 2019 dividend of R5.2bn or 55bps of the
decrease. Higher capital deductions due to higher valuation reserves and a higher available for sale reserve, together with the IFRS 9 transitional
adjustment contributed to the remaining reduction.
- Capital demand increased by R69.4bn, of which R40bn related to Rand weakness. The increased capital demand due to currency movements was
offset by R6bn additional supply from Absa Regional Operations (ARO) entities due to the weaker exchange rate.
- Constant currency RWA growth of R29bn was primarily in Corporate and Investment Banking (CIB) due to asset growth, probability of default (PD)
migration and FX volatility. Counterparty credit risk and market risk were also a drag on consumption, given the market dislocation in March. An
offset of R9bn came from the sale of the Edcon storecard book which concluded in February 2020.
- Capital deductions reduced the capital ratio, as the stressed market environment in March resulted in a quarter-on-quarter (QoQ) increase in
valuation reserves and available for sale reserve which increased from R0.6bn to R2.5bn combined.
- The IFRS 9 phasing adjustment reduced capital supply by R0.9bn and will be fully phased in by 2021.
- The Group redeemed R2.5bn and issued R2.7bn of Tier 2 capital during February 2020. The capital markets for further issuances are currently
uncertain, although the Group has minimal redemptions for the remainder of 2020.
The leverage ratio (calculated on a normalised basis) has reduced from 7.0% to 6.6%. This is due to an increase in leverage exposures as the balance
sheet grew due to customer and interbank lending in combination with the weaker currency, which was only partially offset by a growth in Tier 1 capital.
In response to the COVID-19 stress, the Prudential Authority issued Directive 2 of 2020, which temporarily reduces the current Pillar 2A minimum capital
from 50bps at a CET1 level, 75bps at a Tier 1 level and 100bps at a total capital level to zero. The capital conservation buffer of 2.5% has also been
made available for banks to utilize during the COVID-19 stress. The Prudential Authority Directive 2 of 2020 is effective from 6 April 2020.
Liquidity
- The liquidity coverage ratio and net stable funding ratio remain strong, above the minimum regulatory requirements and within risk appetite.
- The QoQ decrease in the liquidity coverage ratio from 134.4% to 120.8% was mainly attributable to an increase in net cash outflows as a result of
wholesale funding clients reducing the duration of their deposits, given the stressed financial market conditions in March 2020. The Prudential
Authority released Directive 1 of 2020, reducing the LCR minimum from 100% to 80% due to the COVID-19 market stress. The Prudential Authority
Directive 1 of 2020 is effective from 1 April 2020.
- The net stable funding ratio decreased slightly QoQ, from 112.7% to 112.1%, due to the above-mentioned shortening in duration of wholesale
funding.
Page 2 of 8
1.2 KM1: Key metrics (at consolidated group level)
In line with the requirements of IFRS 9, which became effective on 1 January 2018, the Group moved from the recognition of credit losses on an
incurred loss basis to an expected credit loss (ECL) basis. The Group elected to utilise the transition period of three years for phasing in the regulatory
capital impact of IFRS 9, as afforded by Directive 5. The table below reflects the capital and leverage position of the Group on a fully loaded basis, as
well as on a transitional basis.
The Prudential Authority have issued Directive 2 of 2020 which temporarily reduces Pillar 2A minimum capital requirement to zero. This relief is effective
from 6 April 2020; therefore, the disclosures below do not include the Pillar 2A reduction.
31 Mar 31 Dec 30 Sep 30 Jun 31 Mar
2020 2019 2019 2019 2019
Group Rm Rm Rm Rm Rm
Available capital (Rm)
1 CET1 transitional basis 103 450 100 637 100 115 95 034 95 984
1a Fully loaded ECL accounting model 102 586 98 909 98 387 93 306 94 256
2 Tier 1 transitional basis 111 636 109 062 107 216 102 101 101 341
2a Fully loaded ECL accounting model Tier 1 110 772 107 334 105 488 100 373 99 613
3 Total capital transitional basis 137 789 133 411 130 726 124 669 122 187
3a Fully loaded ECL accounting model total capital 136 924 131 683 128 998 122 941 120 459
RWA (Rm)
4 Total RWA transitional basis 939 800 870 406 884 742 844 332 832 028
4a Fully loaded RWA 936 226 863 260 877 595 837 186 824 882
Risk-based capital ratios as a percentage of RWA (%)
5 CET1 ratio transitional basis (1) 11.0 11.6 11.3 11.3 11.5
5a Fully loaded ECL accounting model CET1 (1) 11.0 11.5 11.2 11.2 11.4
6 Tier 1 ratio transitional basis 11.9 12.5 12.1 12.1 12.2
6a Fully loaded ECL accounting model Tier 1 ratio 11.8 12.4 12.0 12.0 12.1
7 Total capital ratio transitional basis 14.7 15.3 14.8 14.8 14.7
7a Fully loaded ECL accounting model total capital ratio 14.6 15.2 14.7 14.7 14.6
Additional CET1 buffer requirements as a percentage of RWA (%)
8 Capital conservation buffer requirement 2.5 2.5 2.5 2.5 2.5
9 Countercyclical buffer requirement (2) - - - - -
10 Bank G-SIB and/or D-SIB additional requirements (3) - - - - -
11 Total of bank CET1 specific buffer requirements (Row 8 + row 9 2.5 2.5 2.5 2.5 2.5
+ row 10)
12 CET1 available after meeting the bank’s minimum capital 3.5 4.1 3.8 3.8 4.0
requirements
Basel III leverage ratio
13 Total Basel III leverage ratio exposure measure (Rm) 1 703 322 1 572 845 1 638 103 1 597 486 1 586 022
14 Basel III leverage ratio (%) (row 2 / row 13) transitional basis 6.6 6.9 6.5 6.4 6.4
14a Fully loaded ECL accounting model Basel III leverage ratio (%) 6.5 6.8 6.4 6.3 6.3
(row 2a / row 13)
Liquidity coverage ratio (4)
15 Total high-quality liquid assets (HQLA) (Rm) 176 982 182 093 183 757 179 203 187 500
16 Total net cash outflow (Rm) 146 514 135 510 149 051 141 104 160 559
17 LCR (%) 120.8 134.4 123.3 127.0 116.8
Net stable funding ratio
18 Total available stable funding (ASF) (Rm) 928 531 866 368 868 808 834 432 827 614
19 Total required stable funding (RSF) (Rm) 828 278 768 850 769 183 749 331 750 073
20 Net stable funding ratio (NSFR) (%) 112.1 112.7 113.0 111.4 110.3
Page 3 of 8
1.3 OV1: Overview of RWA
Group Bank (5)
31 Mar 31 Dec 31 Mar 31 Mar 31 Dec 31 Mar
2020 2019 2020 2020 2019 2020
RWA RWA MCR(6) RWA RWA MCR(6)
Rm Rm Rm Rm Rm Rm
1 Credit risk (excluding counterparty credit risk (CCR)) 692 173 632 682 79 600 463 177 444 506 53 266
2 Of which: standardised approach (SA) 216 319 183 801 24 877 266 9 083 31
3 Of which: foundation internal rating based (FIRB) approach - - - - - -
4 Of which: supervisory slotting approach - - - - - -
5 Of which: advanced internal ratings based (AIRB) approach 475 854 448 881 54 723 462 911 435 423 53 235
6 CCR 18 926 15 703 2 176 16 838 14 546 1 936
7 Of which: SA-CCR (7) 18 926 15 703 2 176 16 838 14 546 1 936
8 Of which: internal model method (IMM) - - - - - -
9 Of which: other CCR - - - - - -
10 Credit valuation adjustment (CVA) 9 291 12 092 1 068 9 291 12 092 1 068
11 Equity positions under the simple risk weigh approach 4 822 4 252 555 1 798 1 865 207
12 Equity investments in funds – look-through approach 7 761 7 761 893 496 367 57
13 Equity investments in funds – mandate-based approach - - - - - -
14 Equity investments in funds – fall-back approach - - - - - -
15 Settlement risk 1 359 817 156 1 309 765 150
16 Securitisation exposures in banking book 232 232 27 232 232 27
17 Of which: IRB ratings-based approach (SEC-IRBA) 232 232 27 232 232 27
18 Of which: securitisation external RBA (SEC-ERBA), including - - - - - -
internal assessment approach (IAA)
19 Of which: securitisation SA (SEC-SA) - - - - - -
20 Traded market risk 48 184 39 231 5 541 32 631 25 874 3 752
21 Of which: SA 23 322 18 540 2 682 7 769 5 183 893
22 Of which: internal model approach (IMA) 24 862 20 691 2 859 24 862 20 691 2 859
23 Capital charge for switch between trading book and banking - - - - - -
book
24 Operational risk 102 915 102 915 11 835 63 105 63 105 7 257
Non-customer assets 28 444 27 331 3 271 19 897 20 381 2 288
25 Amounts below the thresholds for deduction (subject to 250% 16 260 17 957 1 870 3 581 5 077 412
risk weight)
26 Floor adjustment (8) 9 433 9 433 1 085 13 090 13 090 1 505
27 Total (1+6+10+11+12+13+14+15+16+20+23+24+25+26+non- 939 800 870 406 108 077 625 445 601 900 71 926
customer assets)
Page 4 of 8
1.4 CR8: RWA flow statements of credit risk exposures under IRB
31 Mar 2020
RWA
Rm (9)
1 RWA as at end of previous reporting period 441 374
2 Asset size 30 906
3 Asset quality -
4 Model updates -
5 Methodology and policy -
6 Acquisitions and disposals -
7 Foreign exchange movements -
8 Other -
9 RWA as at end of reporting period 472 280
1.5 MR2: RWA flow statements of market risk exposures under IMA
31 Mar 2020
Total
capital
Total require-
VaR sVaR IRC (10) CRM Other RWA ment (11)
Rm Rm Rm Rm Rm Rm Rm
1 RWA at previous quarter end 6 370 14 321 - - - 20 691 2 379
2 Movements in risk levels 2 298 1 873 - - - 4 171 480
3 Model updates/changes - - - - - - -
4 Methodology and policy - - - - - - -
5 Acquisitions and disposals - - - - - - -
6 Other - - - - - - -
7 RWA at end of reporting period 8 668 16 194 - - - 24 862 2 859
Page 5 of 8
2. Leverage
Consistent with the treatment in table KM1, the leverage position below is shown on a regulatory, IFRS basis.
2.1 LR1: Summary comparison of accounting assets versus leverage ratio exposure measure
Group Bank
31 Mar 2020 31 Dec 2019 31 Mar 2020 31 Dec 2019
Rm Rm Rm Rm
1 Total consolidated assets 1 587 583 1 399 175 1 310 417 1 159 827
2 Adjustment for investments in banking, financial, insurance or commercial (35 779) (37 820) - -
entities that are consolidated for accounting purposes but outside the scope
of regulatory consolidation
3 Adjustment for fiduciary assets recognised on the balance sheet pursuant to - - - -
the operative accounting framework but excluded from the leverage ratio
exposure measure
4 Adjustments for derivative financial instruments (54 450) (3 887) (52 966) (3 381)
5 Adjustments for securities financing transactions (i.e. repos and similar - - - -
secured lending)
6 Adjustments for off-balance sheet items (i.e. conversion to credit equivalent 217 874 227 361 170 842 179 450
amounts of off-balance sheet exposures)
7 Other adjustments (11 906) (11 984) (10 364) (10 442)
8 Leverage ratio exposure measure 1 703 332 1 572 845 1 417 929 1 325 454
2.2 LR2: Leverage ratio common disclosure template
Group Bank
31 Mar 2020 31 Dec 2019 31 Mar 2020 31 Dec 2019
Rm Rm Rm Rm
On-balance sheet exposures
1 On-balance sheet exposures (excluding derivatives and securities financing 1 354 128 1 229 978 1 114 431 1 028 847
transactions (SFTs), but including collateral)
2 (Asset amounts deducted in determining Basel III Tier 1 capital) (11 236) (11 752) (9 899) (9 911)
3 Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of 1 342 892 1 218 226 1 104 532 1 018 936
rows 1 and 2)
Derivative exposures
4 Replacement cost associated with all derivative transactions (where 33 974 21 909 33 974 21 909
applicable net of eligible cash variation margin and/ or with bilateral netting)
5 Add-on amounts for PFE associated with all derivative transactions 30 156 26 228 30 156 26 228
6 Gross-up for derivatives collateral provided where deducted from the - - - -
balance sheet assets pursuant to the operative accounting framework
7 (Deductions of receivable assets for cash variation margin provided in - - - -
derivatives transactions)
8 (Exempted CCP leg of client-cleared trade exposures) - - - -
9 Adjusted effective notional amount of written credit derivative 9 458 8 925 9 458 8 925
10 (Adjusted effective notional offsets and add-on deductions for written credit - - - -
derivatives)
11 Total derivative exposures (sum of rows 4 to 10) 73 588 57 062 73 588 57 062
Security financing transaction exposures
12 Gross SFT assets (with no recognition of netting), after adjusting for sale 68 968 70 196 68 967 70 004
accounting transactions
13 (Netted amounts of cash payables and cash receivables of gross SFT - - - -
assets)
14 CCR exposure for SFT assets - - - -
15 Agent transaction exposures - - - -
16 Total securities financing transaction exposures (sum of rows 12 to 15) 68 968 70 196 68 967 70 004
Other off-balance sheet exposures
17 Off-balance sheet exposures at gross notional amount 398 127 391 354 335 936 332 915
18 (Adjustments for conversion to credit equivalent amounts) (180 253) (163 993) (165 094) (153 465)
19 Off-balance sheet items (sum of rows 17 and 18) 217 874 227 361 170 842 179 450
Capital and total exposures
20 Tier 1 capital (excluding unappropriated profits) 111 636 109 062 73 275 76 306
21 Total exposures (sum of lines 3, 11, 16 and 19) excluding IFRS 9 adjustment 1 703 322 1 572 845 1 417 929 1 325 454
Leverage ratio
22 Basel III leverage ratio (12) 6.6 6.9 5.2 5.8
Page 6 of 8
3. Liquidity
3.1 LIQ1: Liquidity coverage ratio (LCR)
Group (13) Bank (14)
31 Mar 2020 31 Mar 2020
Total Total Total Total
unweighted weighted unweighted weighted
value value value value
(average) (average) (average) (average)
Rm Rm Rm Rm
High-quality liquid assets (HQLA)
1 Total HQLA 176 982 159 547
Cash outflows
2 Retail deposits and deposits from small business customers, of which: 372 168 28 033 282 317 20 380
3 Stable deposits - - - -
4 Less stable deposits 372 168 28 033 282 317 20 380
5 Unsecured wholesale funding, of which: 366 102 194 684 299 835 164 491
Operational deposits (all counterparties) and deposits in networks of
6 cooperative banks 109 109 27 277 109 109 27 277
7 Non-operational deposits (all counterparties) 249 672 160 086 185 635 132 123
8 Unsecured debt 7 321 7 321 5 091 5 091
9 Secured wholesale funding 1 855 1 855
10 Additional requirements, of which: 318 501 35 528 288 511 32 116
Outflows related to derivative exposures and other collateral
11 requirements 13 158 13 158 12 440 12 440
12 Outflows related to loss of funding on debt products - - - -
13 Credit and liquidity facilities 305 343 22 370 276 071 19 676
14 Other contractual funding obligations 467 467 467 467
15 Other contingent funding obligations 194 508 9 423 155 320 7 591
16 Total cash outflows 269 990 226 900
Cash inflows
17 Secured lending (e.g. reverse repos) 29 364 7 821 29 364 7 821
18 Inflows from fully performing exposures 131 331 106 262 100 118 84 260
19 Other cash inflows 9 912 9 393 6 259 5 740
20 Total cash inflows 170 607 123 476 135 741 97 821
Total weighted value Total weighted value
High-quality liquid assets (HQLA)
21 Total HQLA (Rm) 176 982 159 547
22 Total net cash outflows (Rm) 146 514 129 079
23 LCR (%) 120.8 123.6
Page 7 of 8
Notes:
(1) The difference between the CET1 ratio on a transitional basis and the fully loaded ECL accounting model total capital ratio is less than 5bps, hence
no difference is shown.
(2) The countercyclical buffer is not required for banks in South Africa.
(3) The D-SIB add on is not required to be disclosed.
(4) The Group LCR reflects an aggregation of the Absa Bank LCR and the LCR of ARO. For this purpose, a simple average of the relevant 3 month-
end data points is used in respect of ARO. In respect of Absa Bank, the LCR was calculated as a simple average of 90 calendar-day LCR
observations.
(5) Absa Bank Limited includes subsidiary undertakings, special-purpose entities, joint ventures, associates and offshore holdings.
(6) The 2020 minimum regulatory capital requirement of 11.5% includes the capital conservation buffer but excludes the bank-specific individual capital
requirement (Pillar 2b add-on) and the domestically systemically important bank (D-SIB) add-on. The Pillar 2A reduction of 100bps per the guidance
in the SARB directives has not been taken into account in determining the minimum regulatory capital requirement above as this is only effective
from 1 April 2020.
(7) SA-CCR amount is calculated using the current exposure method (CEM).
(8) Includes the operational risk floor.
(9) Excludes R3.57bn relating to IFRS9 RWA impact phase in.
(10) IRC: incremental risk charge
(11) Calculated at 11.5% of RWA
(12) Numbers reported are on a regulatory basis and include the contribution amounts from Barclays PLC as part of the separation.
(13) The Group LCR reflects an aggregation of the Absa Bank LCR and the LCR of Absa Regional Operations (ARO). For this purpose, a simple average
of the relevant 3 month-end data points is used in respect of ARO. In respect of Bank, the LCR was calculated as a simple average of 90 calendar-
day LCR observations.
(14) The Bank LCR is calculated on a simple average of 90 calendar-day LCR observations.
Johannesburg
26 May 2020
Enquiries:
Alan Hartdegen
E-mail: Alan.Hartdegen@absa.africa
Lead Independent Sponsor:
J.P. Morgan Equities South Africa Proprietary Limited
Joint Sponsor:
Corporate and Investment Bank – a division of Absa Bank Limited
Page 8 of 8
Date: 26-05-2020 01:05:00
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