REGULATORY UPDATES Moratorium on Dividend Increases and Share Repurchase Programs
In March 2020, OSFI mandated that federally-regulated financial institutions halt dividend increases and suspend the use of share buyback programs to support the economy and maintenance of strong capital positions. On November 4, 2021, OSFI announced that dividend increases and the establishment and use of share repurchase programs may resume, effective immediately.
Basel III Reforms and Pillar 3 Disclosures The Basel Committee on Banking Supervision (BCBS) finalized Basel III reforms in fiscal 2017. In October 2018, OSFI released a discussion paper that provided a preliminary overview of the scope and timing of the proposed implementation of the final Basel III reforms in Canada in their capital adequacy requirement guidelines (CAR 2023). The proposed changes included adjustments to the calculation of risk-weighted assets under both the Standardized approach and the internal ratings-based approach to credit risk, operational risk, and credit valuation adjustments, as well as to the AIRB capital floors. In March 2021, OSFI launched an industry consultation, which closed in June 2021, on proposed regulatory changes to introduce the latest and final round of Basel III reforms into its capital, leverage and liquidity requirements, and related disclosure guidelines. The revisions compared to the discussion paper previously released included changes to reflect specific capital and liquidity requirements applicable to small and medium-sized banks (SMSBs). The CAR 2023 guidelines, once finalized, are expected to become effective for fiscal 2023. In August 2021, OSFI also launched a public consultation regarding the draft Pillar 3 disclosure guideline for SMSBs, which closed in September 2021. The draft guideline lists the disclosures required for each SMSB category and their respective implementation date. The new quarterly requirements are expected to become effective for fiscal 2023. New Minimum Qualifying Rate for Uninsured Mortgage In May 2021, OSFI released updated guidelines on the minimum qualifying rate for uninsured mortgages. The new guidance establishes a qualifying rate based on a fixed floor rather than a current benchmark rate, effective June 1, 2021. The new qualifying rate for uninsured mortgages is the higher of the contractual mortgage rate plus 2%, or a minimum floor of 5.25%. OSFI has committed to review the floor, at a minimum, every December as well as in advance of the high-volume housing spring season. This change has not had a significant impact on our residential mortgage lending.
REGULATORY CAPITAL AND CAPITAL ADEQUACY RATIOS Table 21 - Capital Structure and Regulatory Ratios at Year End ($ thousands)
Change from 2020
2021
2020
Regulatory Capital, Net of Deductions Common equity Tier 1 (1)
$
2,601,438 3,176,438 3,650,366
$
2,371,753 2,936,845 3,418,997
$
229,685 239,593 231,369
Tier 1 (1)
Total
Capital Ratios Common equity Tier 1
8.8 %
8.8 %
- bp
Tier 1
10.8 12.4
10.9 12.6
(10) (20)
Total
Leverage Ratio (2)
8.6
8.5
10
(1) The implementation of the transitional arrangement related to the capital treatment of the performing loan allowance, net of related tax, resulted in a $6 million increase to CET1 and Tier 1 capital (October 31, 2020 – $21 million) and had a negligible impact on the CET1 and Tier 1 ratios at October 31, 2021 (October 31, 2020 – increase of approximately 10 basis points). The transitional arrangement has no impact on the Total capital ratio. (2) Sovereign-issued securities that qualify as HQLA under the LAR guideline are temporarily excluded from the leverage ratio exposure measure until December 31, 2021. This exclusion increased our leverage ratio by approximately 30 basis points at October 31, 2021 (October 31, 2020 – approximately 10 basis points).
bp – basis point
Our CET1 capital ratio of 8.8% was stable compared to last year as the benefit of earnings net of dividends and common shares issued under our ATM program were offset by the combined impact of strong risk-weighted asset growth and a reduction in accumulated other comprehensive income (AOCI) related to a decline in the fair value of derivatives designated as cash flow hedges and debt securities measured at FVOCI as a result of an upward shift in market interest rates.
The Tier 1 and Total capital ratios declined 10 and 20 basis points as strong risk-weighted asset growth and the decline in AOCI outweighed the impact of earnings net of dividends and common shares issued under our ATM program.
Our Basel III leverage ratio of 8.6% was very strong compared to the regulatory minimum of 3.0%, where a higher ratio indicates lower leverage.
CWB Financial Group 2021 Annual Report | 39
Powered by FlippingBook