Standard Bank Group PILLAR 3 REPORT standard bank group pillar 3 report as at 31 march 2020 4uboebse...

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019 Standard Bank Group

PILLAR 3 REPORT as at 31 March 2020

Standard Bank Group 1Q20 pillar 3 disclosure

1

ABOUT THIS REPORT This report sets out the Standard Bank Group (group/SBG) and The Standard Bank of South Africa Limited group (SBSA) quarterly disclosures in accordance with the Basel Committee on Banking Supervision’s revised pillar 3 disclosure requirements, the South African Reserve Bank (SARB) Directives 1/2019 issued in terms of section 6(6) of the Banks Act No. 94 of 1990 and Regulation 43 of the regulations relating to banks. Certain tables for SBSA, being a significant bank subsidiary, are also included where appropriate. This pillar 3 report covers our financial services activities. Shareholders are advised that all disclosures in this report are unaudited. All amounts are in rand millions unless otherwise stated.

1Q20 refers to the period ended 31 March 2020 FY19 refers to the year ended 31 December 2019 3Q19 refers to the period ended 30 September 2019

1H19 refers to the period ended 30 June 2019 1Q19 refers to the period ended 31 March 2019.

Pillar 3 table references (OV1, CR8 etc) have been included in the table headings for ease of use. The group’s and SBSA’s risk weighted assets (RWA) have increased largely as a result of client demand for extensions and drawdowns of facilities stemming from COVID-19 market conditions, risk grade migration and foreign exchange movements including ZAR depreciation. This, combined with lower earnings growth and accrual for the FY19 dividend payment have resulted in lower capital adequacy ratios compared to FY19. The group and SBSA remain adequately capitalised and have sufficient liquidity to comply with minimum regulatory requirements and internal risk appetite.


2

KEY PRUDENTIAL REGULATORY METRICS

The following tables provide an overview of the SBG and SBSA prudential regulatory metrics.

FY19 3Q19 1H19 1Q19

1 Common equity tier I (CET I) 140 222 142 327 137 193 133 630

1a Fully loaded expected credit losses (ECL) accounting model CET I

137 091 138 979 133 843 130 246

2 Tier I 147 981 150 772 145 808 142 513 2a Fully loaded ECL accounting model tier I 144 851 147 424 142 458 139 129 3 Total capital 169 983 176 369 172 537 162 485 3a Fully loaded ECL accounting model total capital 168 744 174 912 171 079 160 992

4 Total RWA 1 099 528 1 107 849 1 063 866 1 067 746

5 CET I ratio (%) 12.8 12.8 12.9 12.5 5a Fully loaded ECL accounting model CET I (%) 12.5 12.6 12.6 12.2 6 Tier I ratio (%) 13.5 13.6 13.7 13.4 6a Fully loaded ECL accounting model tier I ratio (%) 13.2 13.3 13.4 13.0 7 Total capital ratio (%) 15.5 15.9 16.2 15.2

7a Fully loaded ECL accounting model total capital ratio (%) 15.4 15.8 16.1 15.2

8 Capital conservation buffer requirement (2.5% from 2019) (%) 2.5 2.5 2.5 2.5

9 Countercyclical buffer requirement (%)3 0.0329 0.0311 0.0295 0.0207

10 Bank G-SIB and/or D-SIB additional requirements (%)4

11 Total of bank CET I specific buffer requirements (%) (row 8 + row 9 + row 10)

2.5 2.5 2.5 2.5

12 CET I available after meeting the bank’s minimum capital requirements (%)

3.8 4.3 4.6 3.7

13 Total Basel III leverage ratio exposure measure (Rm) 1 969 404 1 969 019 1 911 414 1 862 636

14 Basel III leverage ratio (%) (row 2/row 13) 7.5 7.7 7.6 7.7 14a Fully loaded ECL accounting model Basel III leverage ratio

(%) (row 2a/row 13) 7.4 7.5 7.5 7.5

15 Total high-quality liquid assets (HQLA) (Rm) 293 594 283 257 264 327 272 306 16 Total net cash outflow (Rm) 212 109 210 710 213 663 219 933 17 LCR ratio (%) 138.4 134.4 123.7 123.8 18 Total available stable funding (Rm) 1 171 157 1 163 167 1 125 252 1 097 352 19 Total required stable funding (Rm) 980 118 988 631 946 806 944 637 20 NSFR ratio (%) 119.5 117.7 118.8 116.2

1 On 1 January 2018 the group adopted IFRS 9 - Financial Instruments (IFRS 9). For more information on the IFRS 9 transition adjustment, please refer to the group’s IFRS 9 Transition Report which is available on the group’s Investor Relations website. In terms of the SARB Directive 5/2017, the group elected the three-year transition period. All metrics are presented on the basis of applying this transition period with the exception of those metrics referred to as ‘fully loaded’.

2 Excluding unappropriated profit. 3 There is currently no requirement for the countercyclical buffer add-on in South Africa or in other jurisdictions in which the group has significant exposures. 4 Bank-specific confidential requirement.


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FY19 3Q19 1H19 1Q19

1 CET I 78 675 77 230 76 415 76 339

1a Fully loaded ECL accounting model 77 289 75 844 75 004 74 954

2 Tier I 84 150 82 697 81 855 81 801

2a Fully loaded ECL accounting model tier I 82 764 81 311 80 444 80 416

3 Total capital 102 876 104 779 105 362 98 544

3a Fully loaded ECL accounting model total capital 102 791 104 696 105 253 98 462

4 Total RWA 669 571 669 076 648 365 657 818

5 CET I ratio (%) 11.7 11.5 11.8 11.6

5a Fully loaded ECL accounting model CET I (%) 11.5 11.3 11.6 11.4

6 Tier I ratio (%) 12.6 12.4 12.6 12.4

6a Fully loaded ECL accounting model tier I ratio (%) 12.4 12.2 12.4 12.2

7 Total capital ratio (%) 15.4 15.7 16.3 15.0

7a Fully loaded ECL accounting model total capital ratio (%) 15.4 15.6 16.2 15.0

8 Capital conservation buffer requirement (2.5% from 2019) (%) 2.5 2.5 2.5 2.5

9 Countercyclical buffer requirement (%)3 0.0216 0.0192 0.0188 0.0164

10 Bank G-SIB and/or D-SIB additional requirements (%)4 11 Total of bank CET I specific buffer requirements (%) (row 8 + row 9 +

row 10) 2.5 2.5 2.5 2.5

12 CET I available after meeting the bank’s minimum capital

requirements (%) 3.8 4.1 4.7 3.5

13 Total Basel III leverage ratio exposure measure (Rm) 1 593 527 1 617 060 1 570 218 1 519 572

14 Basel III leverage ratio (%) (row 2/row 13) 5.3 5.1 5.2 5.4 14a

Fully loaded ECL accounting model Basel III leverage ratio (%) (row 2a/row 13)

5.2 5.0 5.1 5.3

15 Total HQLA (Rm) 205 349 186 558 172 793 178 465

16 Total net cash outflow (Rm) 165 096 146 204 133 373 136 790

17 LCR ratio (%) 124.4 127.6 129.6 130.5

18 Total available stable funding (Rm) 830 874 826 285 812 340 784 622

19 Total required stable funding (Rm) 763 595 753 087 746 944 739 388

20 NSFR ratio (%) 108.8 109.7 108.8 106.1

1 On 1 January 2018 the group adopted IFRS 9 - Financial Instruments (IFRS 9). For more information on the IFRS 9 transition adjustment, please refer to the group’s IFRS 9 Transition Report which is available on the group’s Investor Relations website. In terms of the SARB Directive 5/2017, the group elected the three-year transition period. All metrics are presented on the basis of applying this transition period with the exception of those metrics referred to as ‘fully loaded’.

2 Excluding unappropriated profit. 3 There is currently no requirement for the countercyclical buffer add-on in South Africa or in other jurisdictions in which SBSA has significant exposures. 4 Bank-specific confidential requirement.


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CAPITAL MANAGEMENT OVERVIEW OF RISK-WEIGHTED ASSETS

The table below is an overview of RWA and measurement approach.

FY19 Rm

768 308

Of which: standardised approach2 333 306

Of which: internal rating-based (IRB) approach 435 002

31 912

Of which: standardised approach for CCR 17 945

Of which: IRB approach 13 967

5 700

463

Of which: IRB approach 268

Of which: IRB supervisory formula approach 195

75 383

Of which: standardised approach 60 795

Of which: internal model approach (IMA) 14 588

165 819


Of which: advanced measurement approach (AMA) 76 729

Amounts below the thresholds for deduction (subject to 250% risk weight)

51 943

1 099 528

1 Measured at 11.5% in line with Basel III requirements and excludes any bank-specific capital requirements. In response to the COVID-19 crisis the Prudential Authority has reduced Pillar

2A buffer requirements with effect from 6 April 2020. This will reduce the minimum capital requirement to 10.5% from that date (approximately R12.7 billion reduction in total minimum regulatory capital requirements based on 1Q20 results). There is currently no requirement for the countercyclical buffer add-on in South Africa or in other jurisdictions in which the group has significant exposures.

2 Portfolios on the standardised approach relate to the group's Africa Regions and portfolios for which application to adopt the IRB approach has not been submitted, or for which an application has been submitted but approval has not yet been granted.


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FY19

Rm

482 537

Of which: standardised approach2 45 673


25 430

Of which: standardised approach for CCR 11 370


2 327

463

Of which: IRB approach 463

Of which: IRB supervisory formula approach

46 770


Of which: IMA 14 588

99 434


Of which: AMA 76 729

Amounts below the thresholds for deduction (subject to 250% risk weight) 12 610

669 571

1 Measured at 11.5% in line with Basel III requirements and excludes any bank-specific capital requirements. In response to the COVID-19 crisis the Prudential Authority has reduced pillar 2A buffer requirements with effect from 6 April 2020. This will reduce the minimum capital requirement to 10.5% from that date (approximately R7.3 billion reduction in total minimum regulatory capital requirements based on 1Q20 results). There is currently no requirement for the countercyclical buffer add-on in South Africa or in other jurisdictions in which SBSA has significant exposures.

2 Portfolios on the standardised approach relate to portfolios for which application to adopt the IRB approach has not been submitted, or for which an application has been submitted but approval has not yet been granted.


6

LEVERAGE RATIO The non-risk-based leverage measure is designed to complement the Basel III risk-based framework. The tables below show the reconciliation of the total assets in the financial statements to the leverage ratio exposure measure and detailed breakdowns of the components of the leverage ratio for the group and SBSA.

FY19

Rm

1 836 652

Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation

11 182

Adjustment for fiduciary assets recognised on the balance sheet pursuant to the operative accounting framework but excluded from the leverage ratio exposure measure Adjustments for derivative financial instruments (10 862) Adjustment for securities financing transactions (SFT) (repos and similar secured lending) 1 628

Adjustment for off-balance sheet items (conversion to credit equivalent amounts of off-balance sheet exposures)

113 436

Other adjustments 17 368

1 969 404

1 Banking activities and other banking interests.

FY19

Rm

1 480 748

Adjustment for derivative financial instruments (12 761)

Adjustments for SFT (i.e. repos and similar securities lending) 1 634

Adjustment for off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet)

97 262

Other adjustments 26 644

1 593 527


7

FY19

Rm

1 730 899

On-balance sheet exposures (excluding derivatives and SFTs, but including collateral) 1 753 358

Less: asset amounts deducted in determining Basel III tier I capital (22 459)

55 962

Replacement cost associated with all derivatives transactions (where applicable net of eligible cash variation margin and/or with bilateral netting)

16 636

Add-on amounts for potential future exposures (PFE) associated with all derivatives transactions 49 008

Less: deductions of receivables assets for cash variation margin provided in derivatives transactions (7 078)

Less: exempted central counterparty (CCP) leg of client-cleared trade exposures (16 998)

Adjusted effective notional amount of written credit derivatives 14 394

69 107

Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions (Netted amounts of cash payables and cash receivables of gross SFT assets)

67 479

CCR exposure for SFT assets 1 628

113 436

Off-balance sheet exposure at gross notional amount 362 912

Less: adjustments for conversion to credit equivalent amounts (249 476)

Tier I capital1 147 981

Total exposures 1 969 404

Basel III leverage ratio (%) 7.5

Basel III leverage ratio (including unappropriated profits) (%) 8.2

1 Excluding unappropriated profits.


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` FY19

Rm

1 376 033

On-balance sheet exposures (excluding derivatives and SFT), but including collateral) 1 388 621

Less: asset amounts deducted in determining Basel III tier I capital (12 588)

53 630

Replacement cost associated with all derivatives transactions (where applicable net of eligible cash variation margin and/or with bilateral netting)

14 008

Add-on amounts for PFE associated with all derivatives transactions 49 675

Less: deductions of receivables assets for cash variation margin provided in derivatives transactions

(7 449)

Less: exempted CCP leg of client-cleared trade exposures (16 998)

Adjusted effective notional amount of written credit derivatives 14 394

66 602

Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions

64 968

CCR exposure for SFT assets 1 634

97 262

Off-balance sheet exposure at gross notional amount 295 157

Less: adjustments for conversion to credit equivalent amounts (197 895)

Tier I capital1 84 150

Total exposures 1 593 527

Basel III leverage ratio 5.3

Basel III leverage ratio (including unappropriated profits) 5.9

1 Excluding unappropriated profits.


9

CREDIT RISK The table below explains the variations in credit RWA under the IRB approach attributable to each of the key risk drivers. Note the following:

• asset size represents organic changes in the book size and composition • asset quality represents changes in borrower risk, such as risk grade migration or similar effects • foreign exchange movements are changes driven by changes in foreign exchange rates.

FY19

Rm

435 307

Asset size 32 029

Asset quality (5 897)

Model updates (23 578)

Foreign exchange movements (2 694)

Other (165)

435 002

MARKET RISK We have approval from the SARB to adopt the IMA for most asset classes and across most market variables in SBSA with the balance of exposures on the standardised model. We use the historical value-at-risk (VaR) and stressed VaR (SVaR) approach to quantify market risk under normal and stressed conditions. For risk management purposes, VaR is based on 251 days of unweighted recent historical data updated at least monthly, a holding period of one day and a confidence level of 95%. SVaR uses a similar methodology to VaR but is based on a 251-day period of financial stress which is reviewed quarterly and assumes a ten-day holding period and a worst case loss. Where we have received internal model approval, the market risk regulatory capital requirement is based on VaR and SVaR; both of which use a confidence level of 99% and a ten-day holding period. VaR is calculated on the basis of exposures outstanding at the close of business and, therefore, does not necessarily reflect intra-day exposures. VaR is unlikely to reflect loss potential on exposures that only arise under significant market movements.

FY19

VaR SVaR Total RWA

Rm Rm Rm

5 115 8 719 13 834

Movement in risk levels 1 073 (349) 724

Model updates/changes 30 30

6 188 8 400 14 588


10

FUNDING AND LIQUIDITY RISK

The LCR is designed to promote short-term resilience of the 30 calendar day liquidity profile, by ensuring that banks have sufficient HQLA to meet potential outflows in a stressed environment.

Total HQLA

Retail deposits and deposits from small business customers, of which:

Stable deposits

Less stable deposits

Unsecured wholesale funding, of which:

Operational deposits (all counterparties) and deposits in networks of cooperative banks

Non-operational deposits (all counterparties)

Unsecured debt

Secured wholesale funding

Additional requirements

Outflows related to derivative exposures and other collateral requirements

Outflows related to loss of funding on debt products

Credit and liquidity facilities

Other contractual funding obligations

Other contingent funding obligations

Secured lending

Inflows from fully performing exposures

Other cash inflows

¹ Simple average of 91 days of daily observations over the quarter ended 31 March 2020 for SBSA, SBSA Isle of Man branch, Stanbic Bank Ghana, Stanbic Bank Uganda, Stanbic IBTC Bank Nigeria, Standard Bank Namibia, Standard Bank Isle of Man Limited and Standard Bank Jersey Limited and the simple average of three month-end data points ended 31 January 2020, 29 February 2020 and 31 March 2020 for the other Africa Regions banking entities.

² Simple average of 91 days of daily observations over the quarter ended 31 March 2020 excluding foreign branches. ³ Unweighted value represents the outstanding balances maturing or callable within 30 days (for inflows and outflows). ⁴ Total weighted value is calculated after the application of respective haircuts (for HQLA) (for inflow and outflows). ⁵ Adjusted value calculated after the application of both (i) haircuts and inflow and outflow rates; and (ii) any applicable caps (i.e. cap on level 2B a and level 2 assets for HQLA and cap on

inflows).

CONTACT AND OTHER DETAILS

Standard Bank Group LimitedRegistration No. 1969/017128/06 Incorporated in the Republic of South Africa

Investor relationsSarah Rivett-Carnac Tel: +27 11 631 6897

Group financial directorArno Daehnke Tel: +27 11 636 3756

Group secretaryZola Stephen Tel: +27 11 631 9106

Registered office9th Floor, Standard Bank Centre5 Simmonds Street, Johannesburg 2001PO Box 7725, Johannesburg 2000www.standardbank.com

Please direct all annual report queries and comments to: [email protected]

Please direct all customer-related queries and comments to: [email protected]

Please direct all investor relations queries and comments to: [email protected]

Disclaimer

This document may contain certain statements that are ‘forward-looking’ with respect to certain of the group’s plans, goals and expectations relating to its future performance, results, strategies and objectives. Words such as “may”, “could”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “aim”, “outlook”, “believe”, “plan”, “seek”, “predict” or similar expressions typically identify forward-looking statements. These forward-looking statements are not statements of fact or guarantees of future performance, results, strategies and objectives, and by their nature, involve risk and uncertainty because they relate to future events and circumstances which are difficult to predict and are beyond the group’s control, including but not limited to, domestic and global economic conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities (including changes related to capital and solvency requirements), the impact of competition, as well as the impact of changes in domestic and global legislation and regulations in the jurisdictions in which the group and its affiliates operate. The group’s actual future performance, results, strategies and objectives may differ materially from the plans, goals and expectations expressed or implied in the forward-looking statements. The group makes no representations or warranty, express or implied, that these forward-looking statements will be achieved and undue reliance should not be placed on such statements. The group undertakes no obligation to update the historical information or forward-looking statements in this document and does not assume responsibility for any loss or damage arising as a result of the reliance by any party thereon.

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