Disclosure of Information

Joint Stock Company "Baltic International Bank" includes the information relating to

•  risks inherent in the Bank’s activities

•  risk management objectives, techniques and policies

•  own funds requirements and internal capital adequacy 

in the Bank’s financial statements and makes the information available in accordance with the requirements of the Credit Institutions Law of the Republic of Latvia, the Information Disclosure Regulations adopted by the Financial and Capital Market Commission, and other national laws and regulations that are legally binding and directly applicable.

According to the ICAAP Policy, JSC Baltic International Bank (hereinafter referred to as the Bank) conducts an internal capital adequacy assessment process (ICAAP) for assessing its overall capital adequacy.

The purpose of the Bank’s ICAAP is to ensure that

• the Bank maintains, on an ongoing basis, an amount of internal capital sufficient to cover material risks inherent in the Bank’s activities

• the Bank’s capital is sufficient to absorb losses during periods of possible economic downturn.

To adequately capture all inherent risks, Bank assesses capital adequacy under the Pillar 1 + approach. To support all the risks in Bank’s business, Bank determines the required capital levels based on the minimum regulatory capital requirements plus additional capital charges which -- according to Bank’s internal capital assessment -- are required to hedge against other significant inherent risks.

In determining the required capital charges for various risk profiles, the Bank identifies and evaluates the following material risks to which the Bank is exposed:

• risks that are subject to the minimum regulatory requirements;
• risks that are not subject to the minimum regulatory requirements.

In addition, the Bank assesses the impact of possible adverse events on the Bank’s capital.

With regard to risks subject to the minimum regulatory requirements, the Bank assesses whether adherence to the minimum regulatory capital requirements ensures that the Bank’s capital is adequate for covering future possible losses associated with the risks. To this end, Bank measures the following risks:

• credit risk;
• market risk;
• operational risk.

To calculate the required capital level based on the minimum regulatory capital requirements, the Bank applies the following methods:

• credit risk capital requirements – the standardised approach;
• market risk capital requirements – the standardised approach;
• operational risk capital requirements – the basic indicators approach.

To determine the amount of risk, Bank relies on credit ratings assigned by Moody’s Investors Service.

Bank uses two techniques of credit risk mitigation: funded credit protection and unfunded credit protection.

In the case of funded credit protection, Bank uses:

• the on-balance sheet netting of mutual claims between Bank and its counterparty, where eligibility is limited to reciprocal cash balances between Bank and the counterparty (i.e. loans and deposits);
• the Financial Collateral Simple Method.

Application of credit risk mitigation technique to the Bank’s non-trading book

ths.LVL

	Central governments or central banks	Regional governments and local authorities	Public entities	Commercial organisations	Past due exposures	High-risk exposures	Other items
Total risk-weighted exposure amount (on- and off-balance sheet items) before applying risk mitigation technique	21786	10872	108187	64292	8941	351	30904
Total exposure after netting				1513			369
Total exposure hedged by third-party guarantees or credit derivatives		10872			2967
Total exposure hedged by eligible financial collateral
Total risk-weighted exposure amount after applying risk mitigation technique	21786	0	108187	59812	8941	351	30535

With regard to risks with no minimum regulatory requirements, the Bank measures the probability of loss to be incurred as a result of inherent material risks. Therefore the Bank analysis:

• concentration risk;
• interest rate risk in the non-trading (banking) book (the Bank measures the risk each half-year);
• liquidity risk;
• ML/TF risk;
• other material risks inherent in Bank's business.

To assess the impact of possible negative events on the Bank’s capital, the Bank uses a scenario analysis method, including stress testing for the capital adequacy. The Bank determines the size of the capital buffer to ensure that the Bank’s capital is sufficient:

• to support banking activities upon the occurrence of possible adverse events;
• throughout the economic cycle.

The total required capital charge, as determined by the Bank as part of the ICAAP, represents the sum of the capital charges for all risks plus the capital buffer.

As part of its overall business planning, the Bank conducts internal capital planning on a forward-looking basis, i.e., for at least the next three years.

Capital Adequacy Ratio As Of 31 December 2012 (in THS. of LVL)

Items	GROUP	BANK
Tier 1 capital elements
Paid-in share capital	20 772	20 772
Reserve capital and other reserves	545	545
Retained earnings	1 690	1 674
Profit for the current year	437	394
Intangible assets	-3 213	-3 213
Specific decline in Tier 1 capital, as stipulated by the applicable law	-13	-13
Lеss revaluation of investment property	-706	-366
Tier 1 Core Capital	19 512	19 793
Tier 2 capital elements
Subordinated liabilities	2 662	2 662
Specific decline in Tier 2 capital, as stipulated by the applicable law	-13	-13
Tier 2 Supplementary Capital	2 649	2 649
TOTAL CAPITAL	22 161	22 442
Сapital charge for credit risk inherent in the Bank‟s book, including the breakdown of exposures by categories:	9 333	9 333
Central governments or central banks	22	22
Public entities	1 913	1 914
Commercial companies	4 357	4 472
Past due  exposures*	1 056	1 056
High-risk exposures	42	42
Other items	1 970	1 827
The total capital charge for market risks	332	332
Сapital charge for operational risk	1 251	1 248
Total capital charge	10 943	10 912
Capital adequacy ratio	16,20%	16,45%

* Past due exposures: exposures that are 90 days or more past due

According to the results of the ICAAP as of 31 December 2012, the Bank’s capital is sufficient to support all material risks inherent in the Bank’s activities.

Below is some information about loans.

 Loan profile by geographic location

			Group
	Gross loans	Allowances	Net loans
	31.12.2012	31.12.2012	31.12.2012
	LVL	LVL	LVL
Residents of the Republic of Latvia	26 094 484	(2 696 593)	23 397 891
Residents of other EU countries	20 705 760	(427 524)	20 278 236
Residents of non-EU OECD countries	5 891 040	(259 539)	5 631 501
Residents of CIS countries	3 079 902	(117 754)	2 962 148
Residents of other countries	9 696 347	(191 144)	9 505 203
	65 467 533	(3 692 554)	61 774 979
			Bank
Residents of the Republic of Latvia	27 771 445	(2 975 071)	24 796 374
Residents of other EU countries	20 705 760	(427 524)	20 278 236
Residents of non-EU OECD countries	5 891 040	(259 539)	5 631 501
Residents of CIS countries	3 079 902	(117 754)	2 962 148
Residents of other countries	9 696 347	(191 144)	9 505 203
	67 144 494	(3 971 032)	63 173 462
Industry analysis of the loan portfolio
			Group
	Gross loans	Allowances	Net loans
	31.12.2012	31.12.2012	31.12.2012
	LVL	LVL	LVL
Trade	25 509 740	(922 893)	24 586 847
Real estate	14 208 409	(1 937 758)	12 270 651
Finance	9 291 516	(274 190)	9 017 326
Manufacturing	1 747 661	-	1 747 661
Information and communication services	1 593 029	-	1 593 029
Energy	1 061 468	-	1 061 468
Other	1 899 107	(79 480)	1 819 627
Loans to individuals	10 156 603	(478 233)	9 678 370
	65 467 533	(3 692 554)	61 774 979
			Bank
Trade	25 509 740	(922 893)	24 586 847
Real estate	15 885 370	(2 216 236)	13 669 134
Finance	9 291 516	(274 190)	9 017 326
Manufacturing	1 747 661	-	1 747 661
Information and communication services	1 593 029	-	1 593 029
Energy	1 061 468	-	1 061 468
Other	1 899 107	(79 480)	1 819 627
Loans to individuals	10 156 603	(478 233)	9 678 370
	67 144 494	(3 971 032)	63 173 462

More detailed information is availiable in the Bank's Annual Report. To access the information, please click  Records of the financial performance.