Risk management

Prudence, growth and asset quality

fotografiaOnce again, Bankinter grew in terms of loans and receivables above the sector average and maintained the high quality of its assets, its main hallmark. Both asset quality and profitability (RoE) indicators head up the field.

Risk management is one of the cornerstones of Bankinter's competitive strategy. The Bank has a risk management model of proven effectiveness that is in line with regulatory standards and best international practices, in proportion to the scale and complexity of its business activities.

The board of directors is ultimately responsible for risk management. It approves the risk strategy and, in particular, defines the risk appetite framework. This internal governance document defines the type and levels of the different risks that the Group considers reasonable to take on in developing its business strategy. Further, it establishes a set of metrics and key indicators to monitor and manage risks.

The Risk Appetite Framework also establishes the general lines of the Group's risk strategy:

Risk appetite statement. To maximise its long-term value, Bankinter carries out its business activities with a prudent risk profile, pursuing a stable balance sheet and a recurring and sound income statement.

Risk management principles. The risk appetite and tolerance are in line with the following principles:

  • Prudent strategies, policies, organisation and management systems adapted adjusted to the size, environment and complexity of the Group’s activities, based on quality banking practices.
  • The entity’s respect for and conformance with established requirements, limits and regulatory restrictions, ensuring proper compliance with prevailing legislation at all times.
  • Maintenance of a low or moderate exposure to credit risk with a nonperforming loan ratio in the lowest range of the Spanish financial system.
  • Appropriate hedging of problem assets.
  • Appropriate return on equity to ensure minimum returns over the risk-free rate throughout the cycle.
  • Maintenance of a low level of market risk, so that in stress scenarios the losses generated have a reduced impact on the Bank’s income statement.
  • Growth in the priority strategic SMEs segments.
  • Balance of the loans and receivables portfolio between individuals and legal entities.
  • Balanced growth in retail funds.
  • Diversification of wholesale funding sources by instruments and markets, and maintaining a balanced maturity schedule.
  • Optimisation of retail funding costs, maintaining a balance between the return on the loan and market interest rates.
  • Use of a risk diversification policy to avoid excessive concentration levels that might translate into difficulties for the Bank.
  • Limitation on activities in sensitive industries that might pose a risk to the Group’s sustainability, such as industries associated with real estate development or construction, or that might have a negative impact on its reputation and/or respectability.
  • Moderate appetite for interest rate risk.
  • A very small structural position in foreign currencies.
  • Strengthened control of the Bank’s reputational positioning (e.g. good corporate governance, systemic risks).
  • Willingness to round out the level of services Bankinter offers its Private Banking and Corporate Banking customers with limited-risk Investment Banking services.
  • Optimisation of the cost-to-income ratio.
  • Maximisation of shareholder value creation throughout cycles through both dividends and increase in share price, all underpinned by a strong capital and liquidity base.
  • Maintenance of a Common Equity Tier 1 (CET1) ratio within the fluctuation band set by the Group, above minimum regulatory requirements. Bankinter also has a corporate governance model that is in line with the most demanding supervisory standards. To stimulate and reaffirm its sound risk culture, it has a highly qualified team supported by advanced information systems.

Regulation and supervision

2019 was another year of extremely intensive activity in regard to adapting to regulations. A large number of rules and regulatory and supervisory directives entered into force. This required a great deal of effort in the area of regulatory compliance in addition to improvements in different risk management standards and procedures. The main developments were as follows:

Internal capital and liquidity adequacy assessment. In January, the new guidelines issued by the European Central Bank (ECB) on the ICAAP (capital adequacy assessment) and ILAAP (liquidity capital assessment) came into force. The aim is to ensure entities have a comprehensive overview of their capital and liquidity needs under harmonised criteria. Meanwhile, the European Banking Authority (EBA) approved guidelines for performing stress tests.

Contagion groups. In January, the new guidelines for connected customers were applied, setting down the conditions under which a group of customers should be treated as a single risk, and introducing contagion as a key factor for establishing risk groups.

ECB guidelines for internal models. In July, the final version of these guidelines was published, including the experiences collected from the TRIM (transversal review of internal models in the industry) carried out by the European Central Bank. In addition to the publication of EBA technical standards and guidelines, which require a great of adaptation work.

In 2019, various rules
and regulatory and
supervisory directives
entered into force. This
required a great deal
of effort in the area of
regulatory compliance in
addition to improvements
in different risk
management standards
and procedures.EBA guidelines on non-performing and forborne exposures. In June, these guidelines entered into force to improve the management of and reduce non-performing and forborne exposures and establishing additional obligations for companies with NPL ratios of over 5%. In addition to this initiative, the European Parliament has approved the so-called backstops, a prudential coverage requirement (Pillar 1) for non-performing exposures of a certain age.

EBA guidelines for interest rate risk management. These important guidelines, in force since June, establish greater rigour in the management of interest rate risk in the loan book, addressing aspects such as credit spread risk, negative rates scenarios or the inclusion of the explicit or implicit optionality (e.g., prepayments in credit transactions or cancellation of deposits).

CRR II and CRD V: In June, the European Parliament and the Council approved the amendment to regulation (CRR II) and directive on capital requirements (CRD V), in addition to the bank restructuring and resolution directives (BRRD II and SRMR II). With regard to amendments to the CRR, the expected changes in the leverage ratio, calculation of NSFR (the net stable funding ratio), the new treatment of market risk (FRTB), the new standard method for counterparty risk (SACCR), extension of the application of the SME factor or the requirement to establish limits on large exposures in terms of TIER 1 capital. Although these rules will be implemented progressively, they oblige entities to make far-reaching changes to adapt to them.

Bankinter earmarks significant resources to complying with these regulatory developments and rigorously applying them in its risk management.

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