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ABSA GROUP LIMITED - BASEL III PILLAR 3 DISCLOSURE AS AT 30 SEPTEMBER 2019

Release Date: 29/11/2019 10:58
Code(s): ABG ABSP     PDF:  
 
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BASEL III PILLAR 3 DISCLOSURE AS AT 30 SEPTEMBER 2019

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 30 SEPTEMBER 2019

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the Regulations relating to Banks (Regulations), issued in terms of the Banks Act, 1990 (Act No. 94 of 1990), where not superseded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 risk weighted assets (RWA)

In line with regulatory and accounting requirements, the capital and leverage position of Group and Bank in this document is 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 basis. For reference, the summary table below provides key capital and leverage information on a statutory, IFRS basis as at 30 September
2019.

Capital adequacy

The Group remains capitalised above the minimum regulatory capital requirements. Absa Group continues to optimise the level and composition of capital
resources. In line with this objective, the Group will continue to raise Basel III compliant capital instruments as and when appropriate, in the domestic
and/or international capital markets.
The Absa Group statutory CET 1 ratios (calculated on an IFRS basis) have reduced by 70bps over Q3 2019, driven by the impact of the interim dividend
of R4.2bn combined with RWA growth.


                                                                                                          30 Sep 2019                       30 Jun 2019
                                                                                                                 IFRS                              IFRS
    Group                                                                                                           %                                 %
     Statutory capital ratios (includes unappropriated profits)
     Common Equity Tier 1 (CET1)                                                                                  11.8                              12.5
     Tier 1 capital                                                                                               12.6                              13.3
     Total capital adequacy requirement (CAR)                                                                     15.2                              16.0
     Leverage                                                                                                      6.8                               7.0

The remainder of this document reflects the capital and leverage position of Group and Bank on an IFRS, regulatory basis.




                                                                                                                                             Page 1 of 7
1.   Key prudential metrics and RWA



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.

 Group                                                                                        30 Sep         30 Jun        31 Mar         31 Dec         30 Sep
                                                                                                2019          2019           2019           2018        2018 (1)
 Available capital (Rm)
 1        CET1 transitional basis                                                            100 115        95 034         95 984         92 829         94 638
 1a       Fully loaded ECL accounting model                                                   98 387        93 306         94 256         90 237         92 062
 2        Tier 1 transitional basis                                                          107 216       102 101        101 341         98 547         98 993
 2a       Fully loaded ECL accounting model Tier 1                                           105 488       100 373         99 613         95 955         96 417
 3        Total capital transitional basis                                                   130 726       124 669        122 187        119 835        120 961
 3a       Fully loaded ECL accounting model total capital                                    128 998       122 941        120 459        117 243        118 385
 RWA (Rm)
 4        Total RWA transitional basis                                                       884 742       844 332        832 028        818 592        780 897
 4a       Fully loaded RWA                                                                   877 595       837 186        824 882        807 872        770 177
 Risk-based capital ratios as a percentage of RWA (%)
 5        CET1 ratio transitional basis                                                         11.3           11.3           11.5           11.3              12.1
 5a       Fully loaded ECL accounting model CET                                                 11.2           11.2           11.4           11.2              11.9
 6        Tier 1 ratio transitional basis                                                       12.1           12.1           12.2           12.0              12.7
 6a       Fully loaded ECL accounting model Tier 1 ratio                                        12.0           12.0           12.1           11.9              12.5
 7        Total capital ratio transitional basis                                                14.8           14.8           14.7           14.6              15.5
 7a       Fully loaded ECL accounting model total capital ratio                                 14.7           14.7           14.6           14.5              15.4
 Additional CET1 buffer requirements as a percentage of RWA %
 8        Capital conservation buffer requirement (2.5% from 2019)                              2.5            2.5            2.5            1.9                1.9
 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 + row 10)              2.5            2.5            2.5            1.9                1.9
 12       CET1 available after meeting the bank’s minimum capital requirements                  3.8            3.8            4.0            3.9                4.7
 Basel III leverage ratio
 13       Total Basel III leverage ratio exposure measure (Rm)                             1 638 103      1 597 486     1 586 022      1 494 861      1 431 094
 14       Basel III leverage ratio (%) (row 2 / row 13) transitional basis                       6.5            6.4           6.4            6.6            6.9
          Fully loaded ECL accounting model Basel III leverage ratio (%) (row 2a /
                                                                                                  6.4            6.3           6.3            6.4               6.7
 14a      row13)
 Liquidity coverage ratio (4)
 15       Total high quality liquid assets (HQLA) (Rm)                                       183 757       179 203        187 500        189 979        180 750
 16       Total net cash outflow (Rm)                                                        149 051       141 104        160 559        172 903        167 234
 17       LCR (%)                                                                              123.3         127.0          116.8          109.9          108.1
 Net stable funding ratio
 18       Total available stable funding (ASF) (Rm)                                          868 808       834 432        827 614        808 351        799 054
 19       Total required stable funding (RSF) (Rm)                                           769 183       749 331        750 073        733 786        704 855
 20       NSFR (%)                                                                             113.0         111.4          110.3          110.2          113.4




                                                                                                                                              Page 2 of 7
1.       Key prudential metrics and RWA

OV1: Overview of RWA

                                                                                      Group                                      Bank
                                                                          30 Sep        30 Jun       30 Sep           30 Sep      30 Jun        30 Sep
                                                                            2019          2019          2019            2019        2019           2019
                                                                            RWA          RWA         MCR(5)             RWA        RWA          MCR(5)
                                                                             Rm            Rm            Rm              Rm          Rm             Rm
    1      Credit risk (excluding counterparty credit risk (CCR))        644 552       606 312        74 123         443 390     426 041         50 990
    2      Of which: standardised approach (SA)                          197 289       176 964        22 688           9 226       9 408          1 061
           Of which: foundation internal rating-based (FIRB)
    3                                                                            -             -             -               -           -            -
           approach
    4      Of which: supervisory slotting approach                               -             -             -               -           -            -
           Of which: advanced internal ratings based (AIRB)
    5                                                                    447 263       429 348        51 435         434 164     416 633        49 929
           approach
    6      CCR                                                             15 713       16 894          1 807         14 630      15 867         1 682
    7      Of which: SA-CCR (6)                                            15 713       16 894          1 807         14 630      15 867         1 682
    8      Of which: internal model method (IMM)                                -            -              -              -           -             -
    9      Of which: other CCR                                                  -            -              -              -           -             -
    10     Credit valuation adjustment (CVA)                                8 030        9 483            923          8 030       9 483           923
           Equity positions under the simple risk weigh
    11                                                                      3 879         3 921           446           1 815       1 815          209
           approach
    12     Equity investments in funds – look-through approach              7 600         7 607           874             353         358           41
           Equity investments in funds – mandate-based
    13                                                                           -             -             -              0            -           0
           approach
    14     Equity investments in funds – fall-back approach                     -             -             -               0           -            0
    15     Settlement risk                                                  1 605           905           185           1 510         837          174
    16     Securitisation exposures in banking book                            28            28             3              28          28            3
    17     Of which: IRB ratings based approach (SEC-IRBA)                     28            28             3              28          28            3
           Of which: securitisation external RBA (SEC-ERBA),
    18                                                                           -             -             -              0            -           0
           including internal assessment approach (IAA)
    19     Of which: securitisation SA (SEC-SA)                                 -            -              -              0           -             0
    20     Market risk                                                     43 254       41 885          4 974         29 455      32 843         3 388
    21     Of which: SA                                                    21 275       16 891          2 447          7 476       7 849           860
    22     Of which: internal model approaches (IMA)                       21 979       24 994          2 527         21 979      24 994         2 528
           Capital charge for switch between trading book and
    23                                                                           -             -             -               -           -            -
           banking book
    24     Operational risk                                                97 483       97 483        11 210          59 186      59 186         6 806
           Non-customer assets                                             29 615       27 964         3 406          22 008      20 998         2 531
           Amounts below the thresholds for deduction (subject
    25                                                                     16 935       15 802          1 948           4 710       3 147          542
           to 250% risk weight)
    26     Floor adjustment (7)                                            16 048       16 048          1 846         18 524      18 524         2 130
           Total
    27     (1+6+10+11+12+13+14+15+16+20+23+24+25+26+                     884 742       844 332       101 745         603 639     589 127        69 419
           non customer assets)


The key drivers of change in RWA consumption from 30 June 2019 to 30 September 2019 were as follows:

-        Credit risk: The increase of R38.2bn is attributable to increases in the IRB portfolios of R17.9bn and standardised portfolios of R20.3bn. The primary
         driver for the increase in the South African IRB portfolios is exposure growth in Retail and Business Banking (RBB). The R20.3bn increase in the
         standardised portfolios is as a result of balance sheet growth of R12.5bn and foreign exchange movements of R7.5bn.
-        CCR & CVA: The decreases in CCR of R1.2bn and in CVA of R1.5bn are mainly attributable to market volatility.
-        Market Risk: The increase of R1.7bn is primarily as a result of specific risk capital on local currency sovereign bonds held by ARO.




                                                                                                                                                  Page 3 of 7
1.   Key prudential metrics and RWA

CR8: RWA flow statements of credit risk exposures under IRB
                                                                                                                    30 Sep 2019
                                                                                                                  RWA Amounts
                                                                                                                            Rm
     1   RWA as at end of previous reporting period                                                                     429 348
     2   Asset size                                                                                                      14 577
     3   Asset quality                                                                                                    2 803
     4   Model updates                                                                                                      535
     5   Methodology and policy                                                                                               -
     6   Acquisitions and disposals                                                                                           -
     7   Foreign exchange movements                                                                                           -
     8   Other                                                                                                                -
     9   RWA as at end of reporting period                                                                              447 263



MR2: RWA flow statements of market risk exposures under IMA
                                                                                 30 Sep 2019
                                                                                                                             Total capital
                                                      VaR      sVaR     IRC(8)          CRM                Total RWA
                                                                                                   Other                  requirement (9)
                                                      Rm          Rm      Rm             Rm          Rm           Rm                  Rm
     1   RWA at previous quarter end                9 200     15 794                                          24 994                2 874
     2   Movements in risk levels                 (1 495)     (1 520)        -                 -       -      (3 015)               (347)
     3   Model updates/changes                          -           -        -                 -       -            -                    -
     4   Methodology and policy                         -           -        -                 -       -            -                    -
     5   Acquisitions and disposals)                    -           -        -                 -       -            -                    -
     6   Other                                          -           -        -                 -       -            -                    -
     7   RWA at end of reporting period             7 705     14 274         -                 -       -      21 979                2 527




                                                                                                                        Page 4 of 7
2.    Leverage

Consistent with the treatment in table KM1, the leverage position below is shown on a regulatory, IFRS basis.

LR1: Summary comparison of accounting assets versus leverage ratio exposure measure

                                                                                            Group                                Bank
                                                                                       30 Sep            30 Jun             30 Sep             30 Jun
                                                                                         2019              2019               2019               2019
                                                                                          Rm                Rm                 Rm                 Rm
 1      Total consolidated assets as per published financial statements             1 406 208         1 376 705          1 163 460          1 154 828
        Adjustment for investments in banking, financial, insurance or
 2      commercial entities that are consolidated for accounting purposes            (37 738)           (38 140)                  -                    -
        but outside the scope of regulatory consolidation
        Adjustment for fiduciary assets recognised on the balance sheet
 3      pursuant to the operative accounting framework but excluded from                     -                   -                -                    -
        the leverage ratio exposure measure
 4      Adjustments for derivative financial instruments                                4 107            12 702              4 407                18 596
        Adjustments for securities financing transactions (i.e. repos and
 5                                                                                           -                   -                -                    -
        similar secured lending)
        Adjustments for off-balance sheet items (i.e. conversion to credit
 6                                                                                    277 327           257 316           231 457                211 370
        equivalent amounts of off-balance sheet exposures)
 7      Other adjustments                                                             (11 801)          (11 097)            (9 897)            (9 971)
 8      Leverage ratio exposure measure                                             1 638 103         1 597 486          1 389 427          1 374 823


LR2: Leverage ratio common disclosure template
                                                                                             Group                                        Bank
                                                                                        30 Sep             30 Jun           30 Sep                30 Jun
                                                                                          2019              2019              2019                 2019
                                                                                           Rm                 Rm               Rm                    Rm
        On-balance sheet exposures
        On-balance sheet exposures (excluding derivatives and securities
 1                                                                                   1 247 886         1 217 735         1 043 486           1 039 113
        financing transactions (SFTs), but including collateral)
 2      (Asset amounts deducted in determining Basel III Tier 1 capital)               (11 801)          (10 838)           (9 897)               (9 713)
        Total on-balance sheet exposures (excluding derivatives and SFTs)
 3                                                                                   1 236 085         1 206 897         1 033 589           1 029 400
        (sum of rows 1 and 2)
        Derivative exposures
        Replacement cost associated with all derivatives transactions (where
 4      applicable net of eligible cash variation margin and/ or with bilateral         19 199             22 483            19 199               23 285
        netting)
 5      Add-on amounts for PFE associated with all derivatives transactions             41 209             41 981            41 209               42 227
        Gross-up for derivatives collateral provided where deducted from the
        balance sheet assets pursuant to the operative accounting                                -                   -                -                 -
 6      framework
        (Deductions of receivable assets for cash variation margin provided
                                                                                                 -                   -                -                 -
 7      in derivatives transactions)
 8      (Exempted CCP leg of client-cleared trade exposures)                                     -                   -                -                 -
 9      Adjusted effective notional amount of written credit derivatives                         -                   -                -                 -
        (Adjusted effective notional offsets and add-on deductions for written
                                                                                                 -                   -                -                 -
 10     credit derivatives)
 11     Total derivative exposures (sum of rows 4 to 10)                                60 408             64 464            60 408               65 512
        Security financing transaction exposures
        Gross SFT assets (with no recognition of netting), after adjusting for
 12                                                                                     64 282             68 809            63 973               68 541
        sale accounting transactions
        (Netted amounts of cash payables and cash receivables of gross
                                                                                                 -                   -                -                 -
 13     SFT assets)
 14     CCR exposure for SFT assets                                                              -                   -                -                 -
 15     Agent transaction exposures                                                              -                   -                -                 -
        Total securities financing transaction exposures (sum of rows 12 to
 16                                                                                     64 282             68 809            63 973               68 541
        15)
        Other off-balance sheet exposures
 17     Off-balance sheet exposures at gross notional amount                            400 447           375 350           343 055            318 002
 18     (Adjustments for conversion to credit equivalent amounts)                     (123 120)         (118 034)         (111 598)          (106 632)
 19     Off-balance sheet items (sum of rows 17 and 18)                                 277 327           257 316           231 457            211 370
        Capital and total exposures
 20     Tier 1 capital (excluding unappropriated profits)                              107 216           102 101            75 225              71 016
 21     Total exposures (sum of lines 3, 11, 16 and 19)                              1 638 103         1 597 486         1 389 427           1 374 823
        Leverage ratio
 22     Basel III leverage ratio (10)                                                       6.5                 6.4             5.4                  5.2


                                                                                                                                            Page 5 of 7
3. Liquidity

LIQ1: Liquidity coverage ratio (LCR)


                                                                                   Group (11)                    Bank (12)
                                                                                   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                                                                                183 757                      162 359
 Cash outflows
      Retail deposits and deposits from small business customers, of
  2
      which:                                                                   362 059         27 139       274 165         19 828
  3     Stable deposits                                                              -              -             -              -
  4     Less stable deposits                                                   362 059         27 139       274 165         19 828
  5 Unsecured wholesale funding, of which:                                     320 961        171 748       266 693        143 374
        Operational deposits (all counterparties) and deposits in networks
  6
        of cooperative banks                                                   105 684         26 421       105 455         26 364
  7     Non-operational deposits (all counterparties)                          202 727        132 777       155 133        110 905
  8     Unsecured debt                                                          12 550         12 550         6 105          6 105
  9 Secured wholesale funding                                                                   1 033                        1 033
 10 Additional requirements, of which:                                         302 762         32 102       272 143         27 100
        Outflows related to derivative exposures and other collateral
 11
        requirements                                                            10 587         10 587         8 268          8 268
 12     Outflows related to loss of funding on debt products                         -              -             -              -
 13     Credit and liquidity facilities                                        292 175         21 515       263 875         18 832
 14 Other contractual funding obligations                                            -              -             -              -
 15 Other contingent funding obligations                                       171 721          8 350       138 764          6 864
 16 Total cash outflows                                                                       240 372                      198 199
 Cash inflows
 17 Secured lending (eg reverse repos)                                          19 909          5 201        19 909          5 201
 18 Inflows from fully performing exposures                                    108 013         76 499        74 049         59 873
 19 Other cash inflows                                                          10 250          9 621         6 250          5 621
 20 Total cash inflows                                                         138 172         91 321       100 208         70 695

                                                                                 Total weighted value         Total weighted value

 21   Total HQLA (Rm)                                                                         183 757                      162 359
 22   Total net cash outflows (Rm)                                                            149 051                      127 504
 23   LCR (%)                                                                                   123.3                        127.3




                                                                                                                                 Page 6 of 7
Notes:
 (1) These numbers have been restated. Refer to reporting changes overview on the inside front cover of the Group results booklet for the period ended
      30 June 2019.
 (2) The countercyclical buffer is not required for banks in South Africa.
 (3) Bank-specific confidential requirement.
 (4) The Group LCR reflects an aggregation of the Bank LCR and the LCR of the 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. The December 2018 and March 2019 Group LCR was restated post a change in certain assumptions.
 (5) The 2019 minimum regulatory capital requirement is calculated at 11.5% (2018: 11.13%), which includes the capital conservation buffer but excludes
      the bank-specific individual capital requirement (Pillar 2b add-on) and the D-SIB add-on.
 (6) SA-CCR amount is calculated using the current exposure method (CEM).
 (7) Includes the operational risk floor.
 (8) IRC: incremental risk charge.
 (9) Calculated at 11.5% of RWA.
 (10) Numbers reported are on a regulatory basis, and include the contribution amounts from Barclays PLC as part of the separation.
 (11) The Absa Group LCR for 30 September 2019 reflects an aggregation of the Absa Bank and Absa Regional Operations (ARO) LCR. The ARO LCR
      is calculated as a simple average of the relevant 3 month-end data points. The surplus HQLA of ARO in excess of the minimum requirement of
      100% has been excluded from the calculation of the ARO LCR.
 (12) The Absa Bank Limited quarterly LCR is calculated on a simple average of 90 calendar-day observations.




Johannesburg

29 November 2019
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 Banking – a division of Absa Bank Limited




                                                                                                                                          Page 7 of 7

Date: 29-11-2019 10:58:00
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