Page 79 - Capricorn IAR 2020

Capital risk Capital risk is the risk that the Group will be unable to (a) meet its capital requirements and (b) fund business expansion when needed. It includes the risk that regulatory requirements are not adhered to and the resultant costs of non-compliance, as well as the fact that insufficient capital will adversely affect the ability to raise funds.
2020 INTEGRATED ANNUAL REPORT
How we mitigate this risk
The objectives of the Group when managing capital includes:
• Complying with minimum regulatory capital requirements in all operating jurisdictions
• Safeguarding the ability of the Group to continue as a going concern
• Maintaining a sufficient capital base to support business development
To mitigate capital risk, the board approved thresholds for capital adequacy, and capital was managed monthly within these parameters on a Group and entity level.
The parameters are set using a red, amber and green (“RAG”) status indicator. A threshold above the minimum regulatory requirements is applied as can be seen from the Bank Windhoek example below.
GOVERNANCE OVERSIGHT
Capital is tracked at Group and entity ALCOs and executive management teams and reported to the board on a quarterly basis.
MORE INFORMATION
Read more about the composition of regulatory capital and the ratios of the Group in note 3.7 of the consolidated annual financial statements from pages 207 to 208.
Bank Windhoek
Descriptor
Regulatory capital adequacy compared to minimum regulatory capital adequacy ratio of 10%
Leverage ratio (regulatory minimum 6%)
Tier 1 capital (regulatory minimum 7%)
RAG status
Red Amber
Green
<12.5%
12.5 – 14.5%
>14.5%
<7%
7%–8%
>8%
<8%
8%–9%
>9%
PRIORITIES FOR 2020 AND PROGRESS MADE
Capital adequacy is reviewed at ALCO level monthly. Any emerging risks are managed proactively.
The regulators announced a relaxation of capital adequacy requirements as part of a stimulus package to counter the economic effects of the COVID-19 pandemic.
The Bank of Namibia reduced the capital conservation buffer rate to 0% for at least a 24-month period to support banking institutions to supply credit to the economy. The Bank of Botswana reduced the minimum capital adequacy ratio from 15% to 12.5% for the same reason. No relief in terms of capital requirements was available to Cavmont Bank.
During these uncertain economic times, it is important to ensure
our business is well capitalised. By maintaining healthy capital buffers, we ensure our businesses are resilient to economic shocks.
Key risk indicators
Key regulatory capital figures for Capricorn Group
Tier 1 ratio
Total capital ratio Leverage ratio
Tier 1 (N$’000)
Tier 2 capital (N$’000) Total capital (N$’000) Risk-weighted assets (N$)
2019 Variation
12.3% 1.5% 14.9% (0.2%) 10.9% 1.2% 6,135 384
55 399 6,190 783 42,568 4,553
Total capital – Capricorn Group (N$’000)
FUTURE FOCUS AREAS
Remain well-capitalised with sufficient capital buffers to sustain economic shocks and support future business expansion.
2020
13.8%
14.7%
12.1%
6,519
454
6,973
47,121
7,000 6,000 5,000 4,000 3,000 2,000 1,000
0
2020
Tier 1
2019
Tier 2
77
6,519 454
6,135 55