24.09.2013

Spar Nord’s view on the implications of the new CRD IV regime

ABG Sundal Collier Funding Seminar

Carsten L. Jakobsen, SVP Risk and Funding

CHANGE RULES – SHIFT HAPPENS…

side 2

CRD IV HAS IMPLICATIONS ACROSS THE PALETTE

Capital

ratios = Capital / RWA

Higher capital requirements

Conservation buffer

Counter-cyclical buffer

Systemic risk buffer

New demands on quality

Phasing-out of hybrid capital

Deduction rules

Stake in Nørresundby Bank

Shares in sector companies

New definitions of RWA

Extended definition of default and high risk customers

New calculation of

counterparty risk/CVA

Higher RWA on financial

counterparties

Discount on SME lending

side 3

STRONG TREND IN CET1 & SOLVENCY RATIO – UNAIDED BY MAGIC MODELS

CORE TIER 1 RATIO SOLVENCY RATIO

8,9

13,4

Q4 2008 Q2 2013

+ 51%

8,9

13,4

0,8

3,1

1,6

0,2

11,3

16,8

Q4 2008 Q2 2013

Core tier 1 Tier 1 Tier 2

+ 48%

40,4 39,9

2,2 0,6

7,4

2,9

49,9

43,4

Q4 2008 Q2 2013Lending, Leasing activities

Lending, Reverse transactions

Lending and guarantess, Banking activities

- 13%

4,0

6,2

Q4 2008 Q2 2013

+ 55%

side 4

STRENGTHENING OF EQUITY IS THE MAIN DRIVER FOR DELEVERAGING

EQUITY (DKKb) LENDING AND GUARANTEES (DKKb)

16,8

15

Q2 2013 Strategic target

13,4

12

Q2 2013 Strategic target

side 5

WELL ABOVE STRATEGIC TARGETS ON CAPITAL RATIOS

CORE TIER 1 RATIO SOLVENCY RATIO

CAPITAL REQUIREMENTS

CORE TIER 1 RATIO

page 6

7 pct. Min. requirment

12 pct.Including

own buffer

SOLVENCY RATIO

15 pct.Including

own buffer

10,5 pct. Min. requirment9 pct.

incl. ICAAP

12,5 pct. Incl. ICAAP

8,0 pct. legal requirements

0-2,5 pct Counter-cyclical buffer

Additional buffer3,0-0,5 pct.

Min. requirements for common equity

Conservation buffer

2 pct ICAAP buffer

4,5 pct.

2,5 pct.

0-2,5 pct Counter-cyclical buffer

2,5-0 pct. Additional buffer

2 pct ICAAP buffer

2,5 pct. Conservation buffer

4,5 pct.

Hybrid and subordinated capital3,5 pct.

Min. requirements for common equity

side 7

SPAR NORD AND SIFI REQUIREMENTS

CORE TIER 1 RATIO SOLVENCY RATIO

SIFI requirements are specified ex. ICAAP

For comparison a 2 pct. ICAPP buffer is added

CRD IV impact on RWA (DKKm) 2014 Fully phased in Comments

Increased RWA from changes in deductions rules

~ 300 ~ 1.400

Changed default criteriaHigh risk exposureSME discount

~ 300 ~ 300

CVA and CCP clearingFinancial counterparties

~ 700 ~ 700

Total impact ~ 1.300 ~ 2.400

CRD IV IMPACT ON RISK WEIGHTED ASSETS

side 8

RWA treatment of elements that

otherwise would have been deducted

from CET1

Over 80 pct. comes from

Nørresundby Bank

Broader definition of the default

criteria increases RWA

High risk exposure is a new risk

category increases RWA

Support factor - SME exposure

decreases RWA

Higher capital requirements for OTC

derivatives by introducing a capital

charge for CVA risk

Higher capital requirements for loans

to financial intermediaries

Impact from shares in Nørresundby Bank

NØRRESUNDBY BANK – A COMPLEX AFFAIR

side 9

Changes in the deduction rules

will have a negative impact on core tier 1 ratio

However, the same rules will

boost solvency ratio

When the ownership interest

exceeds 10 pct., deductions are split between capital

deductions and increased RWA

Impact on RWA are expressed

as a capital deduction

Basel II Deductions (DKKm) Impact on capital ratio (Pct.)

Core tier 1 ratio 0 0

Solvency ratio 700 -1,7

CRD IV Deductions (DKKm) Impact on capital ratio (Pct.)

Core tier 1 ratio 400 -0,8

Solvency ratio 400 -0,9

Changes Deductions (DKKm) Impact on capital ratio (Pct.)

Core tier 1 ratio 400 -0,8

Solvency ratio -300 0,8

IMPACT FROM REPAYMENT OF STATE HYBRID CAPITAL

side 10

Impact from repayment of state hybrid capital

Capital ratios Impact

Tier 1 ratio 3,0%

Solvency ratio 3,2%

Repayment of DKKm 1.265

mid 2014

In connection with the repayment, we expect to

issue new Tier 2 capital.

Timing and amount TBD.

After the repayment the

solvency ratio will still exceed 15 pct.

side 11

CORE TIER 1 RATIO - CAPITAL SCENARIO UNTIL 2015

Basel II Phasing in CRD IV

Phasing in of CRD IV leads to visible deductions in CET1

In a base scenario with modest growth and possible dividend, CET1 remains comfortably above target

13,1 13,214,3

12,112,8 13,4 13,8 13,9 13,5 13,6 13,8 13,9 13,4 13,5 13,4 13,5

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2012 2013 2014 2015

CONCLUSIONS

side 12

The new regulatory regime leads to number of changes and it has implications

across the palette

Non-IRB status (lower leverage) and non-SIFI status adds a certain flexibility to capital policy – comfortable with targets of 12% CET1 and 15% solvency

CRD IV leads to visible deductions – in a base scenario with modest growth CET1

remains comfortably above target

Nørresundby Bank is no no-brainer – multiple scenarios are thinkable

In connection with repayment of state hybrid capital, we plan to issue Tier 2

capital – timing and amount TBD

side 13

QUESTIONS