Pillar III 3Q2017 Relevance Report Pillar III Relevance Report Pillar III 3Q2017 Prudential Relevance

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  • Prudential Relevance Report Pillar III 3Q2017

    Prudential Relevance Report Pillar III 3Q2017

    Prudential Relevance Report Pillar III 2018

    Prudential Relevance Report Pillar III 3Q2017

  • The English language version of this report is a free translation from the original, which was prepared in Spanish. All possible care has been taken, to ensure that the translation is an accurate presentation of the original. However, in all matters of interpretation, views or opinion expressed in the original language version of the document in Spanish take precedence over the translation.

    Contents

    Contents ..................................................................................................................................................... 1

    Glossary ..................................................................................................................................................... 3

    Correspondence between the sections of Pillar III and the Group's Consolidated Annual Report ............ 7

    Index of tables .......................................................................................................................................... 10

    Index of charts .......................................................................................................................................... 14

    Executive summary .................................................................................................................................. 16

    Introduction ............................................................................................................................................... 19

    Regulatory environment in 2018 ........................................................................................................... 19

    Contents of the 2018 Prudential Relevance Report ............................................................................. 21

    Composition of Capital .......................................................................................................................... 26

    1. General information requirements ........................................................................................................ 30

    1.1. Corporate name and differences between the consolidated group for the purposes of the solvency regulations and accounting criteria ........................................................................................ 30

    1.2. Identification of dependent institutions with capital resources below the minimum requirement. Possible impediments to capital transfer ......................................................................... 37

    1.3. Exemptions from capital requirements at the individual or sub-consolidated level ................ 37

    2. Own funds and Capital ......................................................................................................................... 38

    2.1. Characteristics of the eligible capital resources ..................................................................... 38

    2.2. Amount of capital .................................................................................................................... 41

    2.3. IFRS9 Transitional Arrangements .......................................................................................... 44

    2.4. Bank risk profile ...................................................................................................................... 45

    2.5. Breakdown of minimum capital requirements by risk type ..................................................... 47

    2.6. Procedure employed in the internal capital adequacy assessment process ......................... 50

    3. Risks ..................................................................................................................................................... 51

    3.1. General Risk Management and Control Model ...................................................................... 52

    3.2. Credit and counterparty risk ................................................................................................... 63

    3.3. Market risk ............................................................................................................................ 138

    3.4. Structural risk in the equity portfolio ..................................................................................... 155

    3.5. Structural exchange-rate risk ............................................................................................... 159

    3.6. Interest-Rate Risk ................................................................................................................. 160

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    3.7 Liquidity Risk ........................................................................................................................ 163

    3.8 Operational risk .................................................................................................................... 176

    4 Leverage Ratio ................................................................................................................................ 185

    4.1. Leverage Ratio definition and composition .......................................................................... 185

    4.2. Trends in the ratio ................................................................................................................ 187

    4.3. Governance .......................................................................................................................... 187

    5. Information on remuneration ....................................................................................................... 188

    5.1. Information on the decision-making process used to establish remuneration policy for the Identified Staff ..................................................................................................................................... 188

    5.2. Description of the different types of employees included in the Identified Staff ................... 192

    5.3. Key features of the remuneration system ............................................................................ 193

    5.4. Information on the link between the remuneration of Identified Staff and the performance of the Group ............................................................................................................................................ 199

    5.5. Description of the criteria used to take into consideration present and future risks in the remuneration processes ..................................................................................................................... 200

    5.6. Main parameters and reasons for any component of the possible variable remuneration plans and other non-cash benefits...................................................................................................... 201

    5.7. Ratios between the fixed and variable remuneration of Identified Staff ............................... 201

    5.8. Quantitative information on remuneration of the Identified Staff .......................................... 202

    6. Information on the Corporate Governance system ......................................................................... 206

    7. Subsequent events ......................................................................................................................... 207

    Annexes .................................................................................................................................................. 208

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    Glossary

    ALM (Asset - Liability Management) Mechanism for managing structural balance-sheet risk for possible mismatch between assets and liabilities and for various factors (interest rate, exchange rate, liquidity, etc.)

    AMA Advanced method approach used by the entity for calculating the consolidated capital requirements by operational risk

    AT1 (Additional Tier 1) Additional Tier 1 capital consists of hybrid instruments, basically CoCos and preferred securities

    Basel III Set of proposals for reforming banking regulation, published starting December 16, 2010 and to be implemented in a phased approach

    BCBS (Basel Committee on Banking Supervision)

    An international forum for cooperation in banking supervision, whose mission is to enhance the quality of banking supervision at global level

    BIS (Bank for International Settlements)

    An independent international organization that promotes international financial and monetary cooperation and acts as a bank for central banks

    CCF (Credit Conversion Factor) The ratio between the actual amount available for a commitment that could be used and therefore, would be outstanding at the time of default, and the actual amount available for the commitment

    CCP (Central Counterparty Clearing House)

    Entity which stands between the counterparty entities, acting as a buyer against the sellers and as a seller against the buyers

    CDS (Credit Default Swap) A financial derivative between a Beneficiary and Guarantor by which the Beneficiary pays the Guarantor a premium in exchange for receiving protection in the case of credit events for a determined period of time

    CET 1 (Common Equity Tier 1) The entity's highest-quality capital

    Counterparty Credit Risk This is a risk that arises from the possibility o