Regulatory disclosures

1 Capital adequacy requirements (Pillar I)

In addition to the Banking Law and Banking Ordinance of the Principality of Liechtenstein, the legal basis of the capital adequacy requirements is formed by the Basel Committee on Banking Supervision (Basel III), as adapted by the European Union in the form of the Capital Requirements Regulation (CRR).

Banks may choose from various approaches to calculate the credit requirements for credit, market and operational risks in accordance with Basel III. The LLB Group applies the standard approach for credit risks, the basic indicator approach for operational risks and the standard approach for market risks (trading book activities of insignificant materiality in accordance with article 94, para.1 CRR). The determination of capital requirements and tier capital is carried out on the basis of the IFRS consolidated financial statement of the scope of consolidated companies according to supervisory law, which differs slightly from the scope of consolidation of the LLB Group according to commercial law. Further information regarding the regulatory framework and key figures of the LLB Group can be found in the separately published Disclosure Report 2019.

1.1 Segmentation of credit risks

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Regulatory risk weighted

in CHF thousands

 

0 %

 

10 %

 

20 %

 

35 %

 

50 %

 

75 %

 

100 %

 

150 %

 

250 %

 

Total

31.12.2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Central governments or central banks

 

5'499'644

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

5'499'644

Regional governments or local authorities

 

111'788

 

0

 

99'402

 

0

 

0

 

0

 

0

 

0

 

0

 

211'190

Public sector entities

 

80'839

 

0

 

37'435

 

0

 

5'106

 

0

 

0

 

0

 

0

 

123'381

Multilateral development banks

 

60'399

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

60'399

International organisations

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

Institutions

 

125'432

 

0

 

1'700'445

 

0

 

77'525

 

0

 

33'304

 

0

 

0

 

1'936'705

Corporates

 

0

 

0

 

236'916

 

0

 

109'598

 

0

 

1'210'226

 

29'120

 

0

 

1'585'860

Retail

 

0

 

0

 

0

 

0

 

0

 

310'152

 

735'471

 

0

 

0

 

1'045'623

Secured by mortgages on immovable property

 

0

 

0

 

0

 

8'672'566

 

1'860'026

 

0

 

768'054

 

0

 

0

 

11'300'647

In default

 

0

 

0

 

0

 

0

 

0

 

0

 

72'836

 

59'287

 

0

 

132'123

Items associated with particular high risk

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

Covered bonds

 

0

 

794'881

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

794'881

Institutions and corporates with a short-term credit assessment

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

Collective investment undertakings (CIU)

 

0

 

0

 

0

 

0

 

0

 

0

 

40'864

 

0

 

0

 

40'864

Equity exposures

 

0

 

0

 

0

 

0

 

0

 

0

 

76'911

 

0

 

32

 

76'943

Other items

 

76'476

 

0

 

355

 

0

 

0

 

0

 

191'984

 

0

 

15'538

 

284'352

Total

 

5'954'578

 

794'881

 

2'074'553

 

8'672'566

 

2'052'256

 

310'152

 

3'129'650

 

88'407

 

15'570

 

23'092'612

Total previous year

 

5'901'221

 

357'496

 

2'885'450

 

8'268'203

 

2'076'180

 

329'159

 

3'390'127

 

126'859

 

20'800

 

23'355'495

1.2 Mitigation of credit risk

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31.12.2019

 

31.12.2018

in CHF thousands

 

Covered by recognised financial collateral

 

Covered by guarantees

 

Other credit commitments

 

Total

 

Covered by recognised financial collateral

 

Covered by guarantees

 

Other credit commitments

 

Total

Balance sheet positions

 

683'676

 

4'258

 

0

 

687'933

 

880'537

 

6'656

 

0

 

887'193

Off-balance sheet positions

 

55'123

 

0

 

0

 

55'123

 

56'482

 

0

 

0

 

56'482

Derivatives

 

11'368

 

0

 

0

 

11'368

 

1'427

 

0

 

0

 

1'427

Total

 

750'166

 

4'258

 

0

 

754'424

 

938'446

 

6'656

 

0

 

945'101

1.3 Leverage Ratio (LR)

The leverage ratio is another integral part of the Basel III package. With its comparison of unweighted on-balance sheet and off-balance sheet risk positions on the one hand, and equity held, on the other, it tries to prevent the danger of financial institutes becoming excessively indebted. Following the application of CRR 2 in 2021, the leverage ratio is to be limited to 3 per cent. Up to that date, it is being monitored by the supervisory authorities and does not yet have to be legally observed.

As at 31 December 2019, the leverage ratio of the LLB Group stood at 7.1 per cent (31.12.2018: 6.7 %).

1.4 Liquidity Coverage Ratio (LCR)

The regulations in European legislation regarding the liquidity coverage ratio are meant to ensure that banks possess a reasonable level of liquidity to cover their liquidity requirements in the case of a liquidity stress scenario within 30 calendar days. As the only currently binding regulatory liquidity reference figure, the LCR represents both an important indicator for liquidity risk measurement and for liquidity risk management.

At the end of 2019, a regulatory LCR lower limit of 100 per cent was applicable for the LLB Group. With a value of 156.7 per cent, the LLB Group’s ratio was substantially higher than the legal requirements.

2 Internal capital and liquidity adequacy assessment process (pillar II)

2.1 Internal capital adequacy assessment process (ICAAP)

For the purposes of ensuring a continual capital adequacy, the LLB Group has in place sound, effective and comprehensive strategies and processes. The bank’s internal capital adequacy assessment process is an important instrument of risk management for the LLB Group. Its goal is to make a significant contribution to the continued existence of the LLB Group by measuring and safeguarding the bank’s capital adequacy from various perspectives.

From the normative internal perspective, an assessment is made of to what extent the LLB Group is in a position over the medium term to fulfil its quantitative regulatory and supervisory capital requirements and targets, as well as other external financial constraints.

The normative internal perspective is complemented by an economic internal perspective, within the scope of which all major risks are identified and quantified which, from an economic point of view, could cause losses and substantially reduce the amount of internal capital. In line with the economic perspective, the LLB Group ensures all its risks are adequately covered by the availability of internal capital.

The adequacy of the Group’s capital resources from the individual perspective is tested using internal models. The quantified risks arising from the individual risk categories are aggregated in a total risk potential and are compared with the capital available to cover these potential losses. This process enables the extent to be determined to which the LLB Group is in a position to bear potential losses.

The LLB Group’s financial strength should remain unimpaired by fluctuations on the capital markets. Scenario analyses and stress tests are employed to simulate external influences and assess their impact on equity capital. Where necessary, measures are implemented to mitigate risks.

The ICAAP is documented in internal regulations and guidelines and is reviewed and revised annually.

2.2 Internal liquidity adequacy assessment process (ILAAP)

The LLB Group has in place robust strategies, principles, processes and systems, which it employs to monitor, measure and manage liquidity risks over an appropriate number of time periods. In addition, it ensures an appropriate balance between short-term liabilities and available resources and readily marketable assets. Providing a stable refinancing basis is another priority.

An adequate liquidity base consists of components from pillars 1 and 2, whereby the minimum requirements for short-term and structural liquidity risks are covered by components of pillar 1. Pillar 2 covers the not completely covered minimum requirements or the uncovered risks, as well as those that cannot be influenced by the bank. Both individual and consolidated, sound, effective and comprehensive strategies and processes are employed to determine the necessary liquidity resources.

Even in the case of fluctuations on the markets, the LLB Group’s liquidity resources must continue to be adequate. Scenario analyses and stress tests are employed to simulate external influences and assess their impact on equity capital. Where necessary, measures are implemented to mitigate risks.

The bank’s internal liquidity adequacy assessment process is documented in internal regulations and guidelines and is reviewed and revised annually.