To view the PDF file, sign up for a MySharenet subscription.

ABSA GROUP LIMITED - Absa Group Limited Basel III Pillar 3 Disclosure as at 30 September 2020

Release Date: 19/11/2020 07:33
Code(s): ABG ABSP     PDF:  
Wrap Text
Absa Group Limited – Basel III Pillar 3 Disclosure as at 30 September 2020

ABSA GROUP LIMITED                                                         ABSA BANK LIMITED
(Incorporated in the Republic of South Africa)                            (Incorporated in the Republic of South Africa)
(Registration number: 1986/003934/06)                                     (Registration number: 1986/004794/06)
ISIN: ZAE000255915                                                        ISIN: ZAE000079810
JSE share code: ABG                                                       JSE share code: ABSP
(Absa Group Limited)                                                      (Absa Bank)


ABSA GROUP LIMITED – BASEL III PILLAR 3 DISCLOSURE AS AT 30 SEPTEMBER 2020

This Pillar 3 disclosure contains the quantitative Pillar 3 disclosure requirements in respect of Absa Group Limited (Absa Group or the Group) and
Absa Bank Limited (Absa Bank or the Bank). The quarterly report provides a view of the Group’s regulatory capital and risk exposures, and it complies
with:

-     The Basel Committee on Banking Supervision (BCBS) revised Pillar 3 disclosure requirements (Pillar 3 standard).
-     Regulation 43 of the Regulations relating to Banks (Regulations), issued in terms of the Banks Act, 1990 (Act No. 94 of 1990), where not
      superseded by the revised Pillar 3 disclosure requirements.



1. Key prudential metrics and RWA


In line with regulatory and accounting requirements, the capital and leverage positions of the Group and the Bank in this document are reflected on a
regulatory basis (which requires unappropriated profits to be excluded). However, the capital and leverage positions of the Group are also managed
on a statutory basis (which includes unappropriated profits). The summary table below provides key capital adequacy and liquidity information on both
a regulatory and statutory basis as at 30 September 2020. As at 30 September 2020 all profits in the Group and Bank were appropriated, with the
result that regulatory and statutory basis were identical.

1.1 Capital adequacy and liquidity

                                                                                                  Group                                 Bank
                                                                                             Actual          Actual              Actual           Actual
                                                  Board target        Minimum RC             30 Sep          30 Jun              30 Sep           30 Jun
                                                   ranges (1)      requirements (2)            2020           2020                 2020            2020
                                                            %                    %               %               %                    %               %

    Statutory capital ratios (includes unappropriated
    profits)
    Common equity tier 1 (CET1)                  11.00 – 12.00                                 11.3             11.0                10.7             10.6
    Tier 1                                       12.00 – 13.00                                 12.2             11.9                11.7             11.7
    Total capital adequacy requirement
    (CAR)                                        14.50 – 15.50                                 15.1             14.9                15.7             15.8
    Leverage                                        5.00 – 7.00                                  6.5             6.5                  5.0             5.1
    Regulatory Capital ratios (excludes unappropriated
    profits)
    CET1                                                                         7.5           11.3             11.0                10.7             10.6
    Tier 1                                                                       9.3           12.2             11.9                11.7             11.7
    Total CAR                                                                  11.5            15.1             14.9                15.7             15.8
    Leverage                                                                     4.0             6.5             6.5                  5.0             5.1
    Liquidity coverage ratio (LCR) (%)                                                          139             127                  147             133
    Net stable funding ratio (%)                                                                119             117                  113             112


Capital
-     The Group’s CET1 capital position was well above minimum regulatory requirements as at 30 September 2020 and within the Board target range
      of 11 - 12%.
-     Group RWAs decreased by R14.6bn from R935.7bn to R921.1bn from June 2020 to September 2020 mainly within the Absa Regional Operations.
      This was driven by rand strength combined with the impact of the Group deploying more of its surplus liquidity into low risk securities rather than
      deposits with banks.
-     Group CET1 capital increased by R1.3bn due to higher capital supply supported by improved profitability. At a total capital level, this was offset
      by a decrease in Tier 2 capital of R1.5bn post the call of subordinated debt during September 2020.
-     The Bank leverage ratio has decreased marginally from June 2020. This is due to an increase in leverage exposure as a result of balance sheet
      growth mainly in investment securities and loans to customers which was partially offset by improvements in capital supply. The Group leverage
      ratio remained flat due to additional capital supply generated by Group entities.




                                                                                                                                       
Liquidity
-     The liquidity risk position of the Group is in line with risk appetite, and well above the minimum regulatory requirements.
-     The Group liquidity coverage ratio increased to 139% (June 2020: 127%) as the liquidity resources of the Group strengthened over the third
      quarter of the year and included Absa Bank investing in alternative forms of high-quality liquid assets (HQLA) as the Bank reduces reliance on
      the committed liquidity facility (CLF), in line with the phase out requirements set out by the Prudential Authority.
-     The Group net stable funding ratio strengthened to 119% (June 2020: 117%) with strong core deposit growth from retail and corporate clients.




1.2 KM1: Key metrics (at consolidated group level)
In line with the requirements of IFRS 9, which became effective on 1 January 2018, the Group moved from the recognition of credit losses on an
incurred loss basis to an expected credit loss (ECL) basis. The Group elected to utilise the transition period of three years for phasing in the regulatory
capital impact of IFRS 9, as afforded by Directive 5 issued by the Prudential Authority. The table below reflects the capital and leverage position of
the Group on a fully loaded basis, as well as on a transitional basis.


                                                                                    30 Sep         30 Jun         31 Mar            31 Dec       30 Sep
                                                                                      2020          2020            2020              2019         2019
    Group                                                                              Rm             Rm             Rm                Rm           Rm

    Available capital (Rm)
     1    Common equity tier 1 (CET1) transitional basis                           104 119        102 818        103 450            100 637     100 115
     1a   Fully loaded ECL accounting model                                        103 255        101 954        102 586             98 909      98 387
     2    Tier 1 transitional basis                                                112 189        110 885        111 636            109 062     107 216
     2a   Fully loaded ECL accounting model Tier 1                                 111 325        110 021        110 772            107 334     105 488
     3    Total capital transitional basis                                         139 143        139 411        137 789            133 411     130 726
     3a   Fully loaded ECL accounting model total capital                          138 279        138 547        136 924            131 683     128 998
    RWA (Rm)
     4    Total RWA transitional basis                                             921 129        935 766        939 800            870 406     884 742
     4a   Fully loaded RWA                                                         917 556        932 193        936 226            863 260     877 595
    Risk-based capital ratios as a percentage of RWA (%)
     5     CET1 ratio transitional basis (3)                                           11.3           11.0           11.0              11.6         11.3
     5a    Fully loaded ECL accounting model CET (3)                                   11.3           10.9           11.0              11.5         11.2
     6     Tier 1 ratio transitional basis                                             12.2           11.9           11.9              12.5         12.1
     6a    Fully loaded ECL accounting model Tier 1 ratio                              12.1           11.8           11.8              12.4         12.0
     7     Total capital ratio transitional basis (3)                                  15.1           14.9           14.7              15.3         14.8
     7a    Fully loaded ECL accounting model total capital ratio (3)                   15.1           14.9           14.6              15.2         14.7
    Additional CET1 buffer requirements as a percentage of RWA (%)
    8      Capital conservation buffer requirement (2.5% from 2019)                     2.5            2.5            2.5               2.5          2.5
    9      Countercyclical buffer requirement (4)                                         -              -              -                 -            -
    10     Bank G-SIB and/or D-SIB additional requirements (5)                          0.5            0.5            0.5               0.5          0.5
           Total of bank CET1 specific buffer requirements (Row 8 + row
     11    9 + row 10)                                                                  3.0            3.0            3.0               3.0          3.0
           CET1 available after meeting the bank’s minimum capital
     12    requirements (5)                                                             3.8            3.5            3.0               3.6          3.3
    Basel III leverage ratio
    13     Total Basel III leverage ratio exposure measure (Rm)                  1 733 777      1 707 091      1 703 322       1 572 845      1 638 103
    14     Basel III leverage ratio (%) (row 2 / row 13) transitional basis            6.5            6.5            6.6             6.9            6.5
           Fully loaded ECL accounting model Basel III leverage ratio (%)
    14a (row 2a / row 13)                                                               6.4            6.4            6.5               6.8          6.4
    Liquidity coverage ratio (6)
     15    Total high-quality liquid assets (HQLA) (Rm)                            235 845        215 229        176 982            182 093     183 757
     16    Total net cash outflow (Rm)                                             169 516        169 966        146 514            135 510     149 051
     17    LCR (%)                                                                     139            127            121                134         123
    Net stable funding ratio
    18      Total available stable funding (ASF) (Rm)                              951 963        952 906        928 531            866 368     868 808
    19      Total required stable funding (RSF) (Rm)                               800 811        813 876        828 278            768 850     769 183
    20      Net stable funding ratio (NSFR) (%)                                        119            117            112                113         113




                                                                                                                                          
1.3 OV1: Overview of RWA


                                                                                   Group                         Bank (7)
                                                                         30 Sep    30 Jun    30 Sep    30 Sep     30 Jun     30 Sep
                                                                           2020      2020      2020      2020       2020       2020
                                                                           RWA       RWA       MCR       RWA        RWA     MCR (8)
                                                                            Rm        Rm         (8)      Rm         Rm         Rm
                                                                                                Rm

   1    Credit risk (excluding counterparty credit risk (CCR))           674 198   680 504    77 533   462 530    455 608     53 191
   2       Of which: standardised approach (SA)                          200 791   213 908    23 091       112        172         13
   3       Of which: foundation internal rating based (FIRB) approach          -         -         -         -          -          -
   4       Of which: supervisory slotting approach                             -         -         -         -          -          -
   5       Of which: advanced internal ratings based (AIRB) approach     473 407   466 596    54 442   462 418    455 436     53 178
   6    CCR                                                               17 638    17 719     2 028    15 662     15 701      1 801
   7       Of which: SA-CCR (9)                                           17 638    17 719     2 028    15 662     15 701      1 801
   8       Of which: internal model method (IMM)                               -         -         -         -          -          -
   9       Of which: other CCR                                                 -         -         -         -          -          -
  10    Credit valuation adjustment (CVA)                                  9 225     9 469     1 061     9 225      9 469      1 061
  11    Equity positions under the simple risk weigh approach              3 970     4 074       457     1 569      1 741        180
  12    Equity investments in funds – look-through approach                7 894     8 435       908       508        507         59
  13    Equity investments in funds – mandate-based approach                   -         -         -         -          -          -
  14    Equity investments in funds – fall-back approach                       -         -         -         -          -          -
  15    Settlement risk                                                      789     1 359        91       717        792         82
  16    Securitisation exposures in banking book                           2 743     2 830       315     2 743      2 830        315
  17       Of which: IRB ratings-based approach (SEC-IRBA)                 2 743     2 830       315     2 743      2 830        315
           Of which: securitisation external RBA (SEC-ERBA), including
 18        internal assessment approach (IAA)                                  -         -         -         -          -          -
 19        Of which: securitisation SA (SEC-SA)                                -         -         -         -          -          -
 20     Traded market risk                                                43 429    48 759     4 994    30 933     34 786      3 557
 21        Of which: SA                                                   20 243    19 736     2 328     7 747      5 763        891
 22        Of which: internal model approach (IMA)                        23 186    29 023     2 666    23 186     29 023      2 666
        Capital charge for switch between trading book and banking
  23    book                                                                   -         -         -         -          -          -
  24    Operational risk                                                 107 648   107 648    12 380    68 440     68 440      7 871
        Non-customer assets                                               27 604    27 940     3 174    19 767     19 726      2 273
        Amounts below the thresholds for deduction (subject to 250%
  25    risk weight)                                                      17 993    19 031     2 069     4 328      4 049        498
  26    Floor adjustment (10)                                              7 998     7 998       920     5 763      5 763        663
        Total (1+6+10+11+12+13+14+15+16+20+23+24+25+26+non-
  27    customer assets)                                                 921 129   935 766   105 930   622 185    619 412     71 551



1.4 CR8: RWA flow statements of credit risk exposures under IRB
                                                                                                                      30 Sep 2020
                                                                                                                     RWA amounts
                                                                                                                              (11)
                                                                                                                               Rm

    1    RWA as at end of previous reporting period                                                                         466 596
    2    Asset size                                                                                                          12 777
    3    Asset quality                                                                                                       (4 046)
    4    Model updates                                                                                                             -
    5    Methodology and policy                                                                                                    -
    6    Acquisitions and disposals                                                                                            (954)
    7    Foreign exchange movements                                                                                            (966)
    8    Other                                                                                                                     -
    9    RWA as at end of reporting period                                                                                  473 407




                                                                                                                    
1.5 MR2: RWA flow statements of market risk exposures under IMA
                                                                                                                 30 Sep 2020
                                                                                                                                                       Total
                                                                                        VaR        sVaR        IRC (12)       CRM      Other           RWA
                                                                                         Rm          Rm            Rm          Rm        Rm             Rm

       1    RWA at previous quarter end                                               11 483     17 540              -            -           -       29 023
       2    Movements in risk levels                                                  (2 882)    (2 955)             -            -            -      (5 837)
       3    Model updates/changes                                                           -          -              -            -           -            -
       4    Methodology and policy                                                          -          -              -            -           -            -
       5    Acquisitions and disposals                                                      -          -              -            -           -            -
       6    Other                                                                           -          -              -            -           -            -
       7    RWA at end of reporting period                                              8 601    14 585               -            -           -      23 186



2. Leverage
Consistent with the treatment in table KM1, the leverage position below is shown on a regulatory, IFRS basis.

2.1 LR1: Summary comparison of accounting assets versus leverage ratio exposure measure


                                                                                                       Group                           Bank
                                                                                                  30 Sep           30 Jun         30 Sep            30 Jun
                                                                                                    2020            2020            2020             2020
                                                                                                     Rm               Rm             Rm                Rm

   1       Total consolidated assets                                                            1 582 826       1 566 319      1 303 520       1 291 777
           Adjustment for investments in banking, financial, insurance or commercial
           entities that are consolidated for accounting purposes but outside the scope of
   2       regulatory consolidation                                                              (35 524)         (36 368)              -                 -
           Adjustment for fiduciary assets recognised on the balance sheet pursuant to the
           operative accounting framework but excluded from the leverage ratio exposure
   3       measure                                                                                      -                -              -                 -
   4       Adjustments for derivative financial instruments                                      (30 213)         (42 372)       (29 181)          (41 501)
           Adjustments for securities financing transactions (i.e. repos and similar secured
   5       lending)                                                                                        -              -             -                 -
           Adjustments for off-balance sheet items (i.e. conversion to credit equivalent
   6       amounts of off-balance sheet exposures)                                                229 009         231 791        184 967         186 116
   7       Other adjustments                                                                      (12 321)        (12 279)        (9 626)        (10 933)
   8       Leverage ratio exposure measure                                                      1 733 777       1 707 091      1 449 680       1 425 459




                                                                                                                                            
2.1   LR2: Leverage ratio common disclosure template

                                                                                                  Group                      Bank
                                                                                             30 Sep         30 Jun      30 Sep         30 Jun
                                                                                               2020          2020         2020          2020
                                                                                                Rm             Rm          Rm             Rm

 On-balance sheet exposures
      On-balance sheet exposures (excluding derivatives and securities financing
  1 transactions (SFTs), but including collateral)                                         1 378 220    1 328 473     1 136 861     1 090 805
  2 (Asset amounts deducted in determining Basel III Tier 1 capital)                         (11 471)     (11 909)       (9 964)       (9 918)
      Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of rows
  3 1 and 2)                                                                               1 366 749    1 316 564     1 126 897     1 080 887
 Derivative exposures
      Replacement cost associated with all derivative transactions (where applicable net
  4 of eligible cash variation margin and/ or with bilateral netting)                         26 634        27 955       26 634        27 955
  5 Add-on amounts for PFE associated with all derivative transactions                        29 494        29 109       29 494        29 109
      Gross-up for derivatives collateral provided where deducted from the balance
  6 sheet assets pursuant to the operative accounting framework                                     -             -            -             -
      (Deductions of receivable assets for cash variation margin provided in derivatives
  7 transactions)                                                                                  -             -            -             -
  8 (Exempted CCP leg of client-cleared trade exposures)                                           -             -            -             -
  9 Adjusted effective notional amount of written credit derivative                            8 854         9 262        8 854         9 262
      (Adjusted effective notional offsets and add-on deductions for written credit
 10 derivatives)                                                                                   -             -            -             -
 11 Total derivative exposures (sum of rows 4 to 10)                                          64 982        66 326       64 982        66 326
 Security financing transaction exposures
      Gross SFT assets (with no recognition of netting), after adjusting for sale
 12 accounting transactions                                                                   73 037        92 410       72 834        92 130
 13 (Netted amounts of cash payables and cash receivables of gross SFT assets)                     -             -            -             -
 14 CCR exposure for SFT assets                                                                    -             -            -             -
 15 Agent transaction exposures                                                                    -             -            -             -
 16 Total securities financing transaction exposures (sum of rows 12 to 15)                   73 037        92 410       72 834        92 130
 Other off-balance sheet exposures
 17 Off-balance sheet exposures at gross notional amount                                     374 591        376 196     312 787       313 631
 18 (Adjustments for conversion to credit equivalent amounts)                              (145 582)      (144 405)   (127 820)     (127 515)
 19 Off-balance sheet items (sum of rows 17 and 18)                                          229 009        231 791     184 967       186 116
 Capital and total exposures
 20 Tier 1 capital (excluding unappropriated profits)                                        112 189      110 885        73 043        72 176
 21 Total exposures (sum of lines 3, 11, 16 and 19) excluding IFRS 9 adjustment            1 733 777    1 707 091     1 449 680     1 425 459
 Leverage ratio
 22 Basel III leverage ratio (13)                                                                6.5            6.5         5.0           5.1




                                                                                                                            
3. Liquidity

3.1 LIQ1: Liquidity coverage ratio (LCR)

The Group LCR reflects an aggregation of the Bank LCR and the LCR of Absa Regional Operations (ARO). For this purpose, the Bank LCR is
calculated as a simple average of 90 calendar-day LCR observations and the ARO LCR is derived from a simple average of the relevant 3 month-
end data points.

                                                                                      Group                              Bank
                                                                                   30 Sep 2020                       30 Sep 2020
                                                                                    Total        Total                Total         Total
                                                                             unweighted      weighted           unweighted      weighted
                                                                                   value         value                value         value
                                                                               (average)     (average)            (average)     (average)
                                                                                     Rm            Rm                   Rm            Rm

 High-quality liquid assets (HQLA)
 1    Total HQLA                                                                                235 845                            219 074
 Cash outflows
      Retail deposits and deposits from small business customers of
 2    which:                                                                     382 379         28 905            302 078          22 130
 3      Stable deposits                                                                -              -                  -               -
 4      Less stable deposits                                                     382 379         28 905            302 078          22 130
 5    Unsecured wholesale funding of which:                                      432 181        227 887            347 506         190 271
        Operational deposits (all counterparties) and deposits in networks
 6      of cooperative banks                                                     135 609         33 902            135 609          33 902
 7      Non-operational deposits (all counterparties)                            288 743        186 156            205 196         149 668
 8      Unsecured debt                                                             7 829          7 829              6 701           6 701
 9    Secured wholesale funding                                                                     523                                523
 10   Additional requirements of which:                                          312 180         40 936            281 843          38 143
        Outflows related to derivative exposures and other collateral
 11     requirements                                                              18 610         18 610             18 422          18 422
 12     Outflows related to loss of funding on debt products                           -              -                  -               -
 13     Credit and liquidity facilities                                          293 570         22 326            263 421          19 721
 14   Other contractual funding obligations                                            -              -                  -               -
 15   Other contingent funding obligations                                       194 696          9 428            171 486           8 431
 16   Total cash outflows                                                                       307 679                            259 498
 Cash inflows
 17   Secured lending (e.g. reverse repos)                                        40 503          5 833             40 503           5 833
 18   Inflows from fully performing exposures                                    138 060        116 844            114 653          98 740
 19   Other cash inflows                                                          16 350         15 486              7 235           6 372
 20   Total cash inflows                                                         194 913        138 163            162 391         110 945

                                                                                   Total weighted value              Total weighted value

 High-quality liquid assets (HQLA)
 21 Total HQLA (Rm)                                                                             235 845                            219 074
 22 Total net cash outflows (Rm)                                                                169 516                            148 553
 23 LCR (%)                                                                                         139                                147




                                                                                                                             
Notes:

 (1)    IFRS capital ratios (including unappropriated profits) are managed against Board capital target ranges.
 (2)    The 2020 minimum regulatory capital requirements of 11.5% includes the capital conservation buffer but excludes the bank-specific individual
        capital requirement (Pillar 2B add-on).
 (3)    The difference between the CET1 and Total capital ratio on a transitional basis and the fully loaded ECL accounting model CET1 and Total
        capital ratio is less than 5bps, hence no difference is discernible
 (4)    The countercyclical buffer is not required for banks in South Africa.
 (5)    SARB Directive 4/2020 requires the D-SIB add on to be disclosed. Previously the disclosure of the D-SIB add on was not a disclosure
        requirement. Comparatives have been restated to allow for better comparability with prior period disclosures.
 (6)    The Group LCR reflects an aggregation of the Absa Bank LCR and the LCR of ARO. For this purpose, a simple average of the relevant 3
        month-end data points is used in respect of ARO. In respect of Absa Bank, the LCR was calculated as a simple average of 90 calendar-day
        LCR observations.
 (7)    Absa Bank Limited includes subsidiary undertakings, special-purpose entities, joint ventures, associates and offshore holdings.
 (8)    The 2020 minimum regulatory capital requirements of 11.5% includes the capital conservation buffer but excludes the bank-specific individual
        capital requirement (Pillar 2B add-on).
 (9)    SA-CCR amount is calculated using the current exposure method (CEM).
 (10)   Includes the operational risk floor.
 (11)   IFSR9 RWA phase excluded
 (12)   IRC: incremental risk charge
 (13)   Numbers reported are on a regulatory quarter-end basis.


 Johannesburg
 19 November 2020

 Enquiries:
 Alan Hartdegen
 E-mail: Alan.Hartdegen@absa.africa

 Lead Independent Sponsor:
 J.P. Morgan Equities South Africa Proprietary Limited

 Joint Sponsor:
 Corporate and Investment Bank – a division of Absa Bank Limited




                                                                                                                                  

Date: 19-11-2020 07:33:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Share This Story