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Note 34 - Capital adequacy

The information in this note includes information that is required to be disclosed pursuant to FFFS 2008:25, including applicable amendments, regarding annual reports for credit institutions and FFFS 2014:12, including applicable amendments, concerning supervisory requirements and capital buffers. The information refers to the Hoist Finance AB (publ) consolidated situation (“Hoist Finance”) and Hoist Finance AB (publ), the regulated entity.

The Company’s statutory capital requirements are determined primarily by Regulation (EU) No 575/2013 of the European Parliament and of the Council and the Capital Buffers Act (SFS 2014:966). These laws are aimed at ensuring that the regulated entity and its consolidated situation manages its risks and protects its customers.

The difference between the consolidated accounts and the consolidated situation for capital adequacy purposes is as follows. Joint ventures are consolidated with the equity method in the consolidated accounts, whereas the proportional method is used for the consolidated situation. Securitised assets are recognised in the consolidated accounts but are removed from the accounting records for the consolidated situation. Hoist Finance’s participating interest in the securitised assets is always covered.

There are no existing or anticipated actual or legal obstacles to the immediate transfer of own resources or debt repayment between companies and their subsidiaries.

Additional information on capital adequacy is available in the company’s Pillar 3 report available on www.hoistfinance.com.

Transitional rules, IFRS 9

After obtaining Swedish Financial Supervisory Authority’s approval, Hoist Finance has decided to apply the transitional rules regarding IFRS 9 for the period 30 April 2018 through 31 December 2022. Application of these transitional rules allow the gradual phase-in of expected credit losses to capital adequacy.

Own funds

The table below shows own funds used to cover the capital requirements for Hoist Finance consolidated situation and the regulated entity Hoist Finance AB (publ).

 Hoist Finance consolidated situationHoist Finance AB (publ)
SEK m31 Dec 202131 Dec 202031 Dec 202131 Dec 2020
Common Equity Tier 1 (CET1) capital: instruments and reserves
Capital instruments and related share premium accounts1,9131,9131,913 1,913
Retained earnings1,9932,0441,039 924
Accumulated other comprehensive income and other reserves-10 -1694 698
Independently reviewed interim profits net of any foreseeable charge or dividend1)-113 50-53 255
CET1 capital before regulatory adjustments3,783 4,0063 593 3,790
CET1 capital: regulatory adjustments
Additional value adjustments-5-7-4-7
Intangible assets (net of related tax liability)-292 -284-125-113
Deferred tax assets that rely on future profitability-160 -93-7-1
Exposure amount of securitisation positions which qualify for a RW of 1,250 %, where the institution opts for the deduction alternative-12 -8-12-8
Transitional rules regarding IFRS93 31 2
Total regulatory adjustments to CET1-466 -389-147 -127
CET1 capital3,317 3,6173,446 3,663
Additional Tier 1 (AT1) capital: instruments
Capital instruments and the related share premium accounts1,1061,1061,1061,106
AT1 capital1,106 1,1061,1061,106
Tier 1 (T1) capital4,423 4,7234,552 4,769
Tier 2  (T2) capital: instruments and provisions
Capital instruments and the related share premium accounts837 821837821
T2 capital837 821837 821
Total capital (TC = T1+ T2)5,260 5,5445,389 5,590

1) The Board will propose to the Annual General Meeting not to pay a dividend for the year 2021, as the net result for the year is negative. As a result, no dividend deduction has been included.

As presented in the above table, issued Tier 1 capital instruments and Tier 2 capital instruments are both used in calculating own funds. These instruments are described briefly below.

Additional Tier 1 capital

Additional Tier 1 capital is comprised of three issues of write-down instruments with a nominal amount of EUR 30m, EUR 40m and EUR 40m, respectively, and with coupon rates of 8.625 per cent, 8 per cent and 7.75 per cent, respectively. The convertibles were issued to improve Hoist Finance’s capital structure. The instruments have no scheduled maturity date, although the issuer may redeem the instruments in full at specified dates. The first possible redemption dates are 21 June 2023, 1 September 2023 and 26 February 2025, respectively.

Tier 2 capital instruments

In May 2017 Hoist Finance issued a subordinated loan of EUR 80m, which is included as Tier 2 capital in Hoist Finance’s own funds. The subordinated loan matures on 19 May 2027 with possibility for early redemption after five years and carries a fixed coupon rate of 3.875 per cent. The instrument is listed on the Dublin Stock Exchange.

Revaluation reserve

Hoist Finance’s own funds include a revaluation reserve of SEK 72m in other reserves, of which SEK 64m pertains to a revaluation of shares in subsidiary Hoist Finance UK Ltd during 2013 and SEK 8m pertains to revaluation of acquired loan portfolios.

Capital requirement

The tables below show the risk-weighted exposure amounts and own funds requirements per risk category for Hoist Finance and the regulated entity Hoist Finance AB (publ).

 Hoist Finance consolidated situationHoist Finance AB (publ)
Risk-weighted exposure amounts, SEK m31 Dec 202131 Dec 202031 Dec 202131 Dec 2020
Exposures to central governments or central banks000 0
Exposures to regional governments or local authorities0 00 0
Exposures to institutions761 670516 411
of which, counterparty credit risk192 72192 72
Exposures to corporates253 46213,341 12,594
Retail exposures15 2712 23
Exposures secured by mortgages on immovable property324 35285 83
Exposures in default26 431 25,01210,316 9,258
Exposures in the form of covered bonds350 408350 408
Equity exposures- -863 816
Other items382 470149 164
Credit risk (standardised approach)28,516 27,40125,632 23,757
Securitisation positions in the banking book1,741 1,9541,741 1,954
Market risk (foreign exchange risk – standardised approach)0 00 0
Operational risk (standardised approach)4,272 4,2082,326 2,213
Credit valuation adjustment (standardised approach)181 62181 62
Total risk-weighted exposure amount34,710 33,62529,879 27,986
 Hoist Finance consolidated situationHoist Finance AB (publ)
Capital requirements, SEK m31 Dec 202131 Dec 202031 Dec 202131 Dec 2020
Pillar 1  
Exposures to central governments or central banks0 00 0
Exposures to regional governments or local authorities0 00 0
Exposures to institutions61 5441 33
of which, counterparty credit risk6 615 6
Exposures to corporates20 371,067 1,007
Retail exposures1 21 2
Exposures secured by mortgages on immovable property26 287 7
Exposures in default2,114 2,001825 741
Exposures in the form of covered bonds28 3328 33
Equity exposures- -69 65
Other items31 3812 13
Credit risk (standardised approach)2,881 2,1932,051 1,901
Securitisation positions in the banking book139 156139 156
Market risk (foreign exchange risk – standardised approach)0 00 0
Operational risk (standardised approach)342 337186 177
Credit valuation adjustment (standardised approach)14 514 5
Total own funds requirement – Pillar 12,777 2,6912,390 2,239
Pillar 2  
Concentration risk233 234289 267
Interest-rate risk in the banking book303 96144 41
Pension risk0 00 0
Other Pillar 2 risks27 2727 27
Total own funds requirement – Pillar 2563 357459 335
Capital buffers  
Capital conservation buffer868 841747 700
Countercyclical buffer0 00 0
Total own funds requirement – Capital buffers868 841747 700
Total capital requirements4,204 3,8893,596 3,274

Capital ratios and capital buffers

Regulation (EU) No 575/2013 of the European Parliament and the Council requires credit institutions to maintain Common Equity Tier 1 capital of at least 4.5 per cent, Tier 1 capital of at least 6 per cent and a total capital ratio (capital in relation to risk-weighted exposure amount) of 8 per cent. Credit institutions are also required to maintain specific capital buffers. Hoist Finance is currently required to maintain a capital conservation buffer of 2.5 per cent of the total risk-weighted exposure amount and an institutional specific countercyclical buffer of 0 per cent of the total risk-weighted exposure amount.

The table below shows CET1 capital, Tier 1 capital and the total capital ratio in relation to the total risk-weighted exposure amount for Hoist Finance consolidated situation and for the regulated entity Hoist Finance AB (publ). It also shows the total regulatory requirements under each pillar and the institution-specific CET1 capital requirements. All capital ratios exceed the minimum requirements and capital buffer requirements.

 Hoist Finance consolidated situationHoist Finance AB (publ)
Capital ratios and capital buffers, %31 Dec 202131 Dec 202031 Dec 202131 Dec 2020
CET1 ratio9.56 10.7611.71 13.09
Tier 1 capital ratio12.74 14.0515.41 17.04
Total capital ratio15.16 16.4918.21 19.97
Institution-specific CET1 requirements7.00 7.007.00 7.00
of which, capital conservation buffer requirement2.50 2.502.50 2.50
of which, countercyclical buffer requirement0.00 0.000.00 0.00
CET1 capital available to meet buffers (as a percentage of risk exposure amount)1)5.06  6.26 7.218.59

1) CET1 ratio as reported, less minimum requirement of 4.5 per cent (excluding buffer requirements) and less any CET1 items used to meet the Tier 1 and total capital requirements.

Internally assessed capital requirement

As per 31 December 2021, the internally assessed capital requirement for Hoist Finance was SEK 3,340m (3,048), of which SEK 563m (357) was attributable to Pillar 2.

 Hoist Finance Consolidated situationHoist Finance AB (Publ)
Leverage ratio31 Dec 202131 Dec 202031 Dec 202131 Dec 2020
Exposure measure for leverage ratio calculation31,00331,17731,502 31,167
Tier 1 capital4,423 4,7234,604 4,768
Leverage ratio, %14.27 15.1514.62 15.30

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