2018 Registration document and annual fi nancial report - BNP PARIBAS316
5 RISKS AND CAPITAL ADEQUACY PILLAR 3
5
Capital management and capital adequacy
The capital adequacy assesment relies on two perspectives:
■ the regulatory perspective, described in the CRD 4/CRR, according to which all Pillar 1 risks must be covered by regulatory capital;
■ the internal perspective, built around a comprehensive review of the Pillar 1 risks specifi ed by Basel regulations, as well as the Pillar 2 risks defi ned in the Group s risk appetite framework and identifi ed as material within the framework of the Group s risk inventory system. From this perspective, Pillar 1 and Pillar 2 risks are assessed using internal quantitative approaches, supplemented, as necessary, by qualitative approaches and dedicated monitoring frameworks.
Capital planning is based on the most recent actual and estimated fi nancial data available at the time. These data are used to project future capital requirements, in particular by factoring in the Group s goal of maintaining a fi rst-class credit rating to protect its origination capability, its business development targets and anticipated regulatory changes.
Capital planning consists of comparing the capital ratio targets defi ned by the Group with future projected capital requirements, then testing their robustness in a stressed macroeconomic environment.
The definitions of SREP and ICAAP have been updated in the EBA s Guidelines on the revised common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing published on 19 July 2018. These guidelines offer supervisors a common and detailed methodology that enables them to successfully complete the SREP according to a European standard.
Notifi cation of SREP results The results of the SREP process are notifi ed annually to BNP Paribas s Executive Management by the ECB. The results of the regulatory stress test carried out in 2018 were included in the 2018 SREP (see section Stress testing in section 5.3 Risk management).
Since 2016, SREP decision comprises two factors: a requirement known as the Pillar 2 requirement , and a non-public guidance called Pillar 2 guidance . Following the ECB s notification of the outcome of the 2018 annual SREP, the Common E quity Tier 1 (CET1) capital Pillar 2 requirement for the Group is unchanged at 1.25%. This requirement also applies to Tier 1 and Total capital.
Overall capital requirements The Group s CET1 ratio, Tier 1 ratio and Total capital ratio must satisfy at all times the following requirements corresponding to the limits of applicable distribution restrictions (Maximum Distributable Amount MDA):
■ the minimum CET1 ratio, Tier 1 ratio and Total capital ratio, respectively, in accordance with article 92 (1) points a), b) and c) of the CRR;
■ the Pillar 2 r equirement ;
■ the total buffer requirement defi ned in article 128 (6) of CRD 4, as transposed into the respective national laws.
➤ TABLE 19: OVERALL CET1 REQUIREMENT
2018(***) 2019
CET1: M inimum requirements (Pillar 1) 4.5% 4.5%
Pillar 2 r equirement(* ) 1.25% 1.25%
Capital conservation buffer 1.875% 2.5%
G-SIBs buffer applicable to BNP Paribas 1.5% 1.5 %
Countercyclical capital buffer(**) 0.03% 0.08%
TOTAL CET1 9.155% 9.83%
(*) Only the Pillar 2 requirement is made public. (**) Countercyclical capital buffer as at 1 January 2018 and 1 January 2019. (***) Transitional arrangements implementation.
➤ TABLE 20: OVERALL TIER 1 REQUIREMENT
2018(***) 2019
Tier 1 (CET1 + AT1): M inimum requirement (Pillar 1) 6.0% 6.0%
Pillar 2 r equirement(* ) 1.25% 1.25%
Capital conservation buffer 1.875% 2.5%
G-SIBs buffer applicable to BNP Paribas 1.5% 1.5%
Countercyclical capital buffer(**) 0.03% 0.08%
TOTAL TIER 1 10.655% 11.33%
(*) Only the Pillar 2 requirement is made public. (**) Countercyclical capital buffer as at 1 January 2018 and 1 January 2019. (***) Transitional arrangements implementation.
