3152019 Universal registration document and annual financial report - BNP PARIBAS
5risks and CaPital adequaCy Pillar 3
5
Capital management and capital adequacy
The Risk-Weighted Assets Committee is tasked with:
■ monitoring and discussing the forecasts of the Group s risk-weighted assets for each business line,
■ identifying the main assumptions underlying these forecasts and checking their accuracy,
■ identifying any evolution factors and quantifying their impacts,
■ proposing adjustments if required;
■ the Capital Committee: it meets at least quarterly and is chaired by the Chief Operating Officer. The Committee s mission is to validate the Group s targets in terms of solvency ratios and Total Loss-Absorbing Capacity (TLAC) requirements as well as the trajectory to achieve these targets; monitor compliance with this trajectory; and, where necessary, propose corrective measures, consistent with the Group s Risk Appetite Statement (RAS). The Committee ensures, in this respect, internal capital adequacy is taken into account in the ICAAP as well as in the results of the global stress tests processes.
The Capital Committee is tasked with:
■ monitoring, validating and anticipating changes in the business lines risk-weighted assets as well as changes in the Group s prudential ratios, and monitoring these indicators relative to the Group s Risk Appetite, which is stated in the Risk Appetite Statement. This includes the solvency ratios, the additional requirement for financial conglomerate, the TLAC ratio and the leverage ratio,
■ identifying any evolution factors and quantifying their impacts,
■ defining trends in short/medium-term capital consumption and proposing the ensuing arbitrages to the Group s Executive Committee,
■ monitoring internal capital adequacy as part of the ICAAP,
■ monitoring the impacts of global stress test results,
■ monitoring the implementation of the supervisor s decisions that have an impact on the Group s solvency ratio or the amount of its risk-weighted assets.
The Capital Committee is also the Group s competent Executive Management authority for all issues related to the internal credit and operational risk model and the methodologies used in the ICAAP.
Monitoring indicators
Capital management at the consolidated level rests on the following indicators:
■ the solvency ratios:
BNP Paribas uses the CET1 ratio as its main internal capital management indicator;
■ risk-weighted assets:
the risk-weighted assets are calculated per business line and per type of risk. The change in risk-weighted assets is analysed per type of effect (in particular: volume effect, parameters effect, perimeter effect, currency effect and method effect);
■ notional equity:
the capital allocation transfers the capital constraints to all Group divisions and thus represents a major constraint concerning the Group s development and management. The evaluation of the business lines performance includes the analysis of their pre-tax Return On Notional Equity (RONE) indicators. The equity component of this ratio is the notional equity, which corresponds to the business lines consumption of capital.
This management rests on two major processes which are closely linked:
■ a detailed quarterly analysis of actual capital consumption by divisions/ business lines and of the Group s solvency ratios, as well as quarterly forecasts of these indicators throughout the year;
■ the yearly budget process, which plays a central role in the Bank s strategic planning process.
CAPITAL MANAGEMENT AT LOCAL LEVEL The Group has to allocate available capital among its different entities. To ensure a free and efficient flow of capital throughout the Group, the capital allocation process within the Group is centralised at head office level. It is mainly based on two principles: compliance with local regulatory requirements and analysis of the local business needs of the entity and growth prospects. In line with these two principles, the aim is to minimise capital dispersion.
With respect to the first principle, the local Chief Financial Officers are responsible for the daily management and reporting of their subsidiaries capital requirements. When a capital need arises, it is analysed on a case- by-case basis by the Group, taking into consideration the subsidiary s present position and future strategy. Furthermore, each year, the Group manages the subsidiaries earnings repatriation process. The Group general policy stipulates that the entire distributable profit of every entity, including retained earnings, must be paid out, with exceptions reviewed on a case-by-case basis. This policy ensures that the capital remains centralised at BNP Paribas SA level and also contributes to reducing the foreign exchange risk.
Local Chief Executive Officers are responsible for ensuring the subsidiary s ongoing financial viability and competitiveness in terms of capital, where relevant. However, any capital action requested by a subsidiary is assessed by and subject to authorisation from head office.
With respect to the second principle, the needs of each entity are analysed by dedicated teams in light of the Group s strategy in the relevant country, the entity s growth prospects and the macroeconomic environment.
In addition, every year the Group examines the branches capital allocations in order to maintain an adequate level of capital in light of the different regulations.
