4

Capital adequacy management

The composition of the Group’s eligible own funds is as follows:

Eligible own funds (Millions of euros)

31/12/2020 31/12/2019 31/12/2018
AMOUNT AS % AMOUNT AS % AMOUNT AS %
Net equity 25,278 25,151 24,058
Shareholders’ equity 27,118 26,247 25,384
Capital 5,981 5,981 5,981
Profit/(loss) 1,381 1,705 1,985
Reserves and other 19,756 18,561 17,418
Minority interests and OCI (1,840) (1,096) (1,326)
Other CET1 instruments 268 (1,037) (801)
Adjustments applied to the eligibility of minority interests and OCI (107) 6 (43)
Other adjustments (1) 375 (1,043) (758)
CET1 Instruments 25,546 24,114 23,257
Deductions from CET1 (5,892) (6,327) (6,457)
Intangible assets (3,873) (4,232) (4,250)
Deferred tax assets (1,789) (1,875) (1,977)
Other deductions from CET1 (230) (220) (230)
CET1 19,654 13.6% 17,787 12.0% 16,800 11.5%
AT1 instruments (2) 2,984 2,236 2,233
AT1 Deductions
TIER 1 22,638 15.7% 20,023 13.5% 19,033 13.0%
T2 instruments 3,407 3,224 3,295
T2 Deductions
TIER 2 3,407 2.4% 3,224 2.2% 3,295 2.3%
TOTAL CAPITAL 26,045 18.1% 23,247 15.7% 22,328 15.3%
Other eligible subordinated instruments MREL (3) 6,664 5,680 2,303
SUBORDINATED MREL 32,709 22.7% 28,927 19.6% 24,631 16.9%
Other eligible instruments. MREL (4) 5,111 3,362 2,943
MREL (5) 37,820 26.3% 32,289 21.8% 27,574 18.9%
RISK WEIGHTED ASSETS (RWA) 144,073 147,880 145,942

(1) Mainly includes the forecast for dividends, and IFRS 9 transitional adjustment.

(2) An AT1 issue of EUR 750 million was completed in October.

(3) An issue of EUR 1,000 million of Senior non-preferred debt was made in November.

(4) Two issues of EUR 1,000 million each of Senior preferred debt were made in 2020 (in January and July).

(5) In relation to the MREL requirement, the new recovery and resolution directive (BRRD2) provides that as from 1 January 2022, at consolidated level, CaixaBank must comply with a total MREL requirement of 22.09% of RWAs (16.26% with subordinated instruments) and 6.09% of leverage ratio exposure (LRE). In December 2020, the total MREL ratio reached 9.4% of LRE.

At individual level, at 31 December 2020, CaixaBank has the following ratios: CET1 15.1%, Tier 1 capital 17.4% and Total Capital 20.0%, with RWAs of EUR 132,806 million.

The following chart sets out a summary of the minimum requirements of eligible own funds:

Minimum requirements (Millions of euros)

31/12/2020 31/12/2019 31/12/2018
AMOUNT AS % AMOUNT AS % AMOUNT AS %
BIS III minimum requirements  
CET1 (*) 11,670 8.10% 12,983 8.78% 12,770 8.75%
Tier 1 14,236 9.88% 15,201 10.28% 14,959 10.25%
Total capital 17,658 12.26% 18,159 12.28% 17,878 12.25%

(*) For 2020, and taking into account the anticipation by the ECB of article 104 of DRC V in relation to Pilar 2R, the ECB required CaixaBank to maintain – at consolidated level – a CET1 ratio of 8.10%. This comprised the general minimum requirement for Pillar 1 of 4.5%, a specific Pillar 2R requirement of 1.5% (0.84% of which must comply with CET1), a capital conservation buffer of 2.5%, an O-SII buffer of 0.25%, and a specific countercyclical capital buffer of 0.01%.

The same requirements for 2020 are upheld in 2021, but it must be borne in mind that the countercyclical capital buffer must be updated quarterly.

The following chart provides a breakdown of the leverage ratio:

Leverage ratio (Millions of euros)

31/12/2020 31/12/2019 31/12/2018
Exposure 403,659 341,681 344,485
Leverage ratio (Tier 1/Exposure) 5.6% 5.9% 5.5%

The changes in eligible own funds are as follows:

Changes in eligible own funds (Millions of euros)

      31/12/2020 31/12/2019
AMOUNT AS % AMOUNT AS %
CET1 AT THE START OF THE YEAR 17,787 12.0%   16,800 11.5%
Changes in CET1 instruments 1,432 856
Benefit 1,381 1,705
Expected dividends (216) (897)
Reserves 386 303
Valuation adjustments and other (1) (119) (255)
Changes in deductions from CET1 435 131
Intangible assets 359 18
Deferred tax assets 85 102
Other deductions from CET1 (9) 11
CET1 AT THE END OF THE YEAR 19,654 13.6% 17,787 12.0%
ADDITIONAL TIER 1 AT THE START OF THE YEAR 2,236 1.5% 2,233 1.5%
Changes in AT1 instruments (2) 748 3
ADDITIONAL TIER 1 AT THE END OF THE YEAR 2,984 2.1% 2,236 1.5%
TIER 2 AT THE START OF THE YEAR 3,224 2.2% 3,295 2.3%
Changes in Tier 2 instruments 183 (71)
TIER 2 AT THE END OF THE YEAR 3,407 2.4% 3,224 2.2%

(1) Includes IFRS 9 transitional adjustment

(2) An AT1 issue of EUR 750 million was completed in October 2020.

The causative details of the main aspects of the financial year that have influenced the CET1 ratio are set out below:

Change in CET1

The increase of +161 basis points in the year, includes +32 basis points from the extraordinary impact of reducing the established dividend against 2019 earnings, as one of the measures adopted by the Board of Directors due to COVID-19, plus +55 basis points due to the adoption of the transitional period of IFRS 9.

The remaining accumulated performance is explained by +99 basis points due to the organic variation, -15 basis points from the forecast of dividends for the year and -10 basis points caused by the performance of the markets and other, which includes the impact of the partial sale of Comercia, the provision established on the interest held in Erste Group Bank and the new treatment of software coming into effect 10.

Information on capital requirements by risk calculation method is presented below:

Breakdown of risk-weighted assets by method (Millions of euros)

31/12/2020 31/12/2019 31/12/2018
AMOUNT % AMOUNT % AMOUNT %
Credit risk (1) 111,827 77.6% 113,947 77.1% 111,740 76.6%
Standardised approach 63,832 44.3% 62,069 42.0% 60,612 41.5%
IRB approach 47,995 33.3% 51,878 35.1% 51,128 35.0%
Shareholder risk 16,729 11.6% 18,309 12.4% 19,177 13.1%
PD/LGD method 4,056 2.8% 5,915 4.0% 7,436 5.1%
Simple method 12,673 8.8% 12,394 8.4% 11,709 8.0%
VaR method 0 0.0% 0 0.0% 32 0.0%
Market risk 2,267 1.6% 2.224 1.5% 1,916 1.3%
Standardised approach 1,158 0.8% 1,232 0.8% 1,177 0.8%
Internal models (IMM) 1,109 0.8% 992 0.7% 739 0.5%
Operational risk 13,250 9.2% 13,400 9.1% 13,109 9.0%
Standardised approach 13,250 9.2% 13,400 9.1% 13,109 9.0%
TOTAL 144,073 100.0%   147,880 100.0%   145,942 100.0%

(1) Includes credit valuation adjustments (CVA), deferred tax assets (DTAs) and securitisations.