The leverage ratio is a regulatory measure (not risk-based) complementing capital designed to guarantee the soundness and financial strength of institutions in terms of indebtedness.
In January 2014, the Basel Committee on Banking Supervision published the final version of the “Basel III leverage ratio framework and disclosure requirements”, which has been included through a delegated act that amends the definition of leverage ratio in the CRR regulation.
Pursuant to article 451, section 2 of the CRR, on June 15, 2015 the EBA published the final draft of the Implementing Technical Standard (ITS, leverage ratio disclosures) for breaking down the leverage ratio, which has been applied in this report.
The leverage ratio is defined as the quotient of eligible Tier 1 capital and exposure.
Described below are the elements making up the leverage ratio, in accordance with the “EBA FINAL draft Implementing Technical Standards on disclosure of the leverage ratio under Article 451(2) of Regulation (EU) No. 575/2013 (Capital Requirements Regulation – CRR) - Second submission following the EC’s Delegated Act specifying the LR(1)” published by the EBA on June 15, 2015:
- Tier 1 capital (letter h in the above table): section 2.2. of this document presents details of the eligible capital, which has been calculated based on the criteria defined in the CRR.
- Exposure: as set out in article 429 of the CRR, the exposure measurement generally follows the book value subject to the following considerations:
- On-balance-sheet exposures other than derivatives are included net of allowances and accounting valuation adjustments.
- Measurement of the Group’s total exposure is composed of the total assets as per financial statements adjusted for reconciliation between the accounting perimeter and the prudential perimeter.
Total exposure for the purpose of calculating the Group’s leverage ratio is composed of the sum of the following items:
- On-balance asset positions: book balance of assets corresponding to the financial statements, excluding the derivative headings.
- Adjustments for reconciliation between the accounting perimeter and the solvency perimeter: the balance resulting from the difference between the accounting balance sheet and the regulatory balance sheet is included.
- Exposure in derivatives: the exposure referred to the EAD used in the measurement of capital use for counterparty risk, which includes both the replacement cost (market-to-market) and the future potential credit exposure (add- on). The cost of replacement is reported adjusted by the variation margin in cash and by effective notional amounts.
- Securities financing transactions (SFTs): in addition to the exposure value, an addition for counterparty risk determined as set out in article 429 of the CRR in included.
- Off-balance-sheet items: these correspond to risks and contingent liabilities and commitments associated with collateral, which are mainly available. A minimum floor of 10% is applied to the conversion factors (CCF), in line with article 429, section 10 a) of the CRR.
- Adjustments for intragroup exposures: The exposures of the Group’s financial institutions and insurance companies that are consolidated at accounting level but not at regulatory level were included in this line in December 2014.
- Tier 1 deductions: all those amounts of assets that have been deducted in the determination of the eligible Tier 1 capital are deducted, in order not to duplicate exposures. The main deductions are intangible assets, loss carry forwards and other deductions defined in article 36 of the CRR and indicated in section 2.2. of this report.
The leverage ratio trends favorably throughout the year, due mainly to limited volatility and growing development in regulatory capital offsetting the increase in exposure due to the incorporation of CX and Garanti. Additionally, the application of the solvency scope for the consolidation purposes as defined by the delegated act (in force since January 2015) entails a reduction in exposure (section f. of the table) and a consequential increase in ratio. The performance of macro variables and other external aspects has not had any relevant impacts on the exposure.
(1) http://www.eba.europa.eu/regulation-and-policy/leverage-ratio/draft-implementing-technical-standards-its-on-disclosure-for-leverage-ratio/-/regulatory-activity/press-release.The table below shows a breakdown of the items making up the leverage ratio as of December 31, 2015 and December 31, 2014:
As can be seen, the Group maintains a phased leverage ratio of 6.3% and a fully- loaded ratio of 6.0%, well above the minimum level required.
Table 76: Elements comprising the leverage ratio
2015
(Millions of euros)
| Summary table of accounting assets and leverage ratio exposure conciliation |
31/12/15 Phased-in |
31/12/15 Fully-loaded |
31/12/14 Phased-in |
31/12/14 Fully-loaded |
|
|---|---|---|---|---|---|
| a) | Total assets as per published financial statements | 750,078 | 750,078 | 631,942 | 631,942 |
| b) | Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation | –16,920 | –16,920 | 5,629 | 5,629 |
| c) | Adjustments for derivative financial instruments | –23,056 | –23,056 | –22,688 | -22,688 |
| d) | Adjustments for securities financing transactions "SFTs" | 37 | 37 | –9,539 | -9,539 |
| e) | Adjustment for off-balance sheet items (ie conversion to credit equivalent amounts of off-balance sheet exposures) | 68.609(1) | 68.609(1) | 54.402(1) | 54.402(1) |
| f) | (Adjustment for intragroup exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (7) of Regulation (EU) No 575/2013) | 0 | 0 | 20,991 | 20,991 |
| g) | Other adjustments | –12,159 | –12,746 | –9,656 | -10,668 |
| Total leverage ratio exposure | 766,589 | 766,001 | 671,081 | 670,069 | |
| h) | Tier 1 | 48,554 | 45,796 | 41,831 | 39,037 |
| Total leverage ratio exposures | 766,589 | 766,001 | 671,081 | 670,069 | |
| Leverage ratio |
|
|
|
|
|
| Leverage ratio | 6.33% | 5.98% | 6.23% | 5.83% | |