Comfortable capital levels

Bankinter's capital management, business model and prudent risk policy allow it to operate with comfortable levels of capital, of high quality and far above that the requirements of the regulatory authorities and supervisors.

In 2019, one of Bankinter’s strategic priorities was to continue actively managing its capital to strengthen its leadership position in terms of solvency and carry out the acquisition of the EVO Group without this significantly impacting its capital ratios. The Group's CET1 ratio (the ratio between Common Equity Tier 1 capital and risk weighted assets) was at 11.61% at the close of the year, 14 basis points lower than in the previous year, partly offsetting the impact of the inclusion of the EVO Group's balance sheets, which was -28 basis points.

Throughout the year, the main variations in CET1 were due to the following factors:

• The organic generation of results, that improved for yet another year compared to the previous year and allowed the volume of capital to be raised by 67 basis points, after the distribution of 50% of profit after tax as cash dividends.
• The growth in credit risk-weighted assets, as a result of the positive performance of the ordinary business. It should be noted that for the purposes of regulatory capital consumption, the European Central Bank authorised the implementation of an internal credit risk model for the very large companies portfolio, which led to a reduction in the associated risk-weighted assets. Further, on 1 January 2019 IFRS 6 Leases came into force, which had a negative impact on the Group's solvency. Operational risk-weighted assets also increased due to the increased revenue generation.
• Other aspects, such as market performance (which has an impact on underlying capital gains on the fixed income portfolio built to manage interest rate risk), or investment in technology, had a negative impact of 19 basis points on the capital ratio.
• The acquisition of EVO Group, which was included in Bankinter's consolidated balance sheet, deducted a further 28 basis points.

New requirement

In May 2019, Bankinter received notification regarding the minimum requirement for eligible liabilities (MREL) applicable to it, which has been set by the Single Resolution Board. From 1 July 2020, Bankinter must have a buffer of instruments with lossabsorption capacity of 8.52% of the Group's total liabilities and own funds, which corresponds to 18.85% of the risk-weighted assets calculated at the close of 2017 (reference date). Throughout the year, the Group built up a buffer of eligible liabilities to comply with the MREL requirement. In addition to capital generation and balance sheet management, Bankinter launched a 750 million senior non preferred debt issue.

Examination passed with flying colours

In late 2019, the Single Supervisory Mechanism, part of the European Central Bank, notified European banks of the outcome of the Supervisory Review and Evaluation Process (SREP), the examination carried out by the supervisory authority to determine the individual minimum capital requirements with which they must operate in 2020. According to the results of the exercise, Bankinter must have a minimum CET1 1 capital ratio 8.20%, the same as last year. This ratio is made up of 4.50% of the capital required by the so-called Pillar 1 of the regulation (which sets the minimum threshold for all banks), 1.20% of Pillar 2 (the result of the specific supervisor judgement for each bank's risk profile) and a capital conservation buffer (CCB) of 2.50%.

Once again, the minimum capital requirements imposed on Bankinter by the supervisor are the lowest of all Spanish banks and among the lowest in Europe. The entity comfortably meets (more than a three point difference) the regulatory requirements and has one of the largest gaps between its CET1 levels and its regulatory requirements in the Spanish banking system.

If the comparison is made in terms of total capital, which in addition to CET1 includes lower quality capital, the conclusion is equally favourable. The supervisor's requirement is 11.70%, while Bankinter recorded a ratio of 13.94% at the end of 2019.

Freedom in dividend payments

Ample compliance with capital levels required by the supervisor allows Bankinter to consolidate its position in terms of capital adequacy and asset quality, which is higher than that of comparable Spanish and European banks. As a result, the Bank can freely decide on dividend payments, variable remuneration or hybrid instrument coupons such as Additional Tier 1 (AT1) issues.