Capital management (ICAAP)

Alior Bank manages its capital in such a way as to ensure safe and effective operations. 

To ensure secure operations, the Bank defines, within the framework of its risk appetite, appropriate own funds coverage levels (as well as Tier 1 capital) of a potential unexpected loss due to major risks determined under the ICAAP process, as well as the risks identified under the process of calculating the regulatory capital. 

Under the ICAAP process, the Bank identifies and evaluates the materiality of all risks it is exposed to in doing its business. 

For particular risks identified as material risks, the bank estimates internal capital requirement using its in-house risk estimation models. Internal capital is estimated for the following risks: 

• credit risk based on the VaR portfolio method as 99.95 quantile of the distribution of losses on the credit portfolio; 
• operational risk based on AMA method; 
• liquidity risk based on liquidity gap models taking into account a stress scenario; 
• market risk and interest rate risk in the banking book based on the VaR method; 
• reputation risk based on the VaR model of the distribution of frequency and amount of losses; 
• business risk based on the outcome of stress tests; 
• model risk based on the outcome of stress tests. 

The total internal capital so determined and the calculated regulatory capital is secured with the amount of own funds (as well as Tier 1) taking into account appropriate security buffers. 

Capital ratios of the Bank Group 

Having regard to the need to ensure balanced growth, in 2019 the Bank has expanded its available capital base by reinvesting all of its profits, and intensively worked to optimise the amount of risk-weighted assets, using in this regard instruments to transfer the risk of credit portfolio.  

In particular, for credit risk, the Bank operationally launched on 7 June 2019 a transaction of synthetic securitisation of the credit portfolio of Business Customers with investors from the European Investment Fund, and with the European Investment Bank as the counter-guarantor. The transaction expanded the Bank’s funding capacity in the SME segment.  

Due to EBI support under the “Juncker Plan”, the securitisation transaction also provided Alior Bank Group with additional lending capacity in the SME segment on more favourable terms, in the form of lower interest.  

The transaction is structured into three tranches, i.e., junior, mezzanine and senior, where the tranche risk remains with Alior Bank, but the risk of mezzanine and senior tranches is transferred to EFI and EBI. 

It is the first such transaction in Poland conducted under the regime of the EU’s CRR (Capital Requirements Regulation).