Uncertainty around the macro-financial situation of the global and Spanish economy remained high in 2023, with inflation, central bank actions and geopolitical tensions being the main focal points, exacerbated by the new conflict in the Middle East.
The weakness of some eurozone economies and the expectation of restrictive long-term monetary policy undermined prospects for growth and reaffirmed the downside risks. However, the tightening of monetary policy helped to moderate prices and stabilised the risks associated with high inflation. Vulnerabilities related to high levels of public debt and the financial situation of companies and households persisted, although those related to financial intermediation capacity decreased.
2023 was also marked by problems at some American regional banks, with the bankruptcy of Silicon Valley Bank being the most significant example, and by the acquisition of Credit Suisse by UBS, which generated substantial volatility in the market for subordinated debt.
In the European banking system, in its December 2023 report, the European Banking Authority (EBA) recognised that the sector had demonstrated its resilience amid banking turbulence and that capitalisation remained high. The high levels of interest rates facilitated increased margins and improved results for entities. But rising rates also create risks in some areas. Asset quality is robust and liquidity is still abundant with a trend to return to normal.
In its Financial Stability Report for October 2023, Banco de España aligned itself with the European Banking Authority's opinion of the resilience of the sector. However, it highlighted that, although no problems are foreseen for the generation of capital and liquidity in its central scenario for the next year, loss absorption could be required if the risks identified materialise. Banco de España recommends that entities should enhance their resilience to potential adverse scenarios by taking advantage of the current favourable profitability levels.
Throughout the year, Bankinter's business model and its prudent risk policy and management of its own funds enabled the Group to operate with comfortable levels of high quality capital that are well above the requirements of the regulatory authorities and supervisors, despite the current economic environment.
In 2023, active and efficient management of its capital remained one of Bankinter's strategic priorities. The objective is to strengthen its capital adequacy position, fostering the flow of credit to households and companies without affecting its capital ratios and preserving its usual 50% pay out level.
The Group's highest-quality capital, represented by the CET1 ratio (the ratio of Common Equity Tier 1 capital to risk-weighted assets), was 12.30% at the end of the year, 44 basis points above the previous year's ratio. This increase was possible despite the growth in lending, the temporary windfall tax and the impact of the transaction in the fourth quarter to set up the consumer credit partnership in Portugal.
Strong results and maintenance of the risk profile were key factors in the positive trend in capital adequacy, given the worsening macroeconomic conditions. The positive result for the year allowed the retention of 118 basis points of capital after applying the Group's traditional dividend policy (50% of profit).
Demand for credit was satisfactory. Investment in companies experienced strong growth, both nationally and internationally. Growth in the mortgage business (which is mitigated for capital purposes due to collateral) continued to outstrip the sector.There was growth in all other activities.As a result, the performance of the business cut 52 basis points from the CET1 ratio, with a sharp increase in capital consumption for operational risk due to the growth in ordinary income (-20 basis points).
The other items that comprise CET1, including those related to portfolios measured at fair value, generated 5 basis points of CET1. Two extraordinary events took place during the year: the banking windfall tax and the new consumer credit joint venture in Portugal, which consumed 11 and 16 basis points of CET1, respectively. The CET1 ratio would be 12.57% without these impact.
At the end of the year, CET1 was 457 basis points (equivalent to 1,785 million euros) above the minimum requirement for common capital (CET1%) set by the European Central Bank (ECB) for Bankinter Group in 2023, which was set at 7.726%. The total capital ratio was 16.09%, 430 basis points (1,679 million euros) higher than the 11.79% requirement.
Supervisory assessment
In November 2023, Bankinter was notified by the ECB of the results of the Supervisory Evaluation and Review Process (SREP) and the minimum capital requirements for 2024, with Bankinter's risk profile being unchanged compared to previous years and the entity continuing to be one of the Spanish and European banks with the lowest capital requirements.
At the consolidated level, the SREP requirement is for Bankinter Group to maintain a minimum CET1 ratio of 7.802% and a minimum total capital ratio of 11.91%. Both of these requirements include a Pillar 2 (P2R) requirement of 1.39%, of which 0.09% is determined based on the ECB's expectations of prudent provisions. The Pillar 2 requirement reflects the entity's strong risk profile, as it is the fourth lowest of all those set for banks under ECB supervision.
In addition to the annual ECB assessment, which enables it to determine the capital requirements banks must maintain to cope with potential adverse situations, the EBA, in collaboration with the ECB and the European Systemic Risk Board (ESRB), performs stress tests every two years on the main banks in the European banking sector using a very adverse hypothetical macroeconomic scenario.
Bankinter once again obtained the best rating for a Spanish bank in the 2023 test. These exercises help us understand the capacity of banks to absorb losses and sustain their capital adequacy in the event of a very serious economic crisis. According to the results published by the EBA, the proposed stress scenario would have an impact, or capital depletion, of 165 basis points on Bankinter, well below the average for the seventy banks involved in the exercise, which was 459 basis points. This means Bankinter would suffer the least impact on its capital adequacy of any Spanish bank in the stress scenario, and the fifth lowest impact of all the European banks analysed. This reaffirms Bankinter's leadership from the 2021 stress tests and confirms its excellent capital adequacy and the robustness of its balance sheet.
In December 2023, Bankinter received notification of the Minimum Requirement for Eligible Liabilities (MREL) set by the Single Resolution Board for 2024. This decision sets a total binding MREL requirement - which must be met from 1 January 2024 - of 18.29% of its total risk exposure amount (TREA) and 5.31% of its leverage ratio exposure (LRE). It also establishes that, on 1 June 2024, subordinated instruments must be used to meet the MREL equivalent to 16.27% of TREA and 6.45% of LRE. As of that date, the total MREL requirement at the consolidated level is 18.29% of TREA and 6.45% of LRE.
Throughout 2023, the Group continued to build the buffer of eligible liabilities to comply with the MREL through organic capital generation, issuance of eligible instruments and balance sheet management.At year-end 2022, the level of MREL-eligible instruments stood at 22.64% (20.14% excluding the capital to be dedicated to cover the combined buffer requirement of 2.5% of risk-weighted assets), and 7.88% of the leverage ratio exposure.
Objectives
For 2024, Bankinter is still seeking to generate organic capital growth so that it can operate with comfortable ratios higher than those established by the supervisor and maintain its normal dividend policy, i.e. a cash distribution of 50% of profits.
At the same time, one of Bankinter's main objectives continues to be to provide credit to the real economy and to contribute to economic development and to manage the risk-return trade-off in such a way as to enable it to maintain its capital adequacy, profitability and risk profile.
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