UBI Banca Group

illion) and on the other hand for the negative effects of further changes (-€43 million) mainly
attributable to filters and deductions.
Compliance with capital adequacy requirements determined an absorption of capital of €7.3
billion, a decrease of €0.3 billion compared to the previous year, mainly the result of less
absorption for credit and counterparty risk (-€0.2 billion). The latter change, which was
negative on aggregate, was connected with falls in volumes of business over twelve months,
which was only partially offset by the greater requirement, estimated at almost €70 million,
following the downgrade of the ratings for UBI Banca that occurred in the last quarter of 2011.
The other capital requirements also decreased, although more moderately: -€33.1 million for
market risks, due mainly to a decrease in the generic risk on debt and equity instruments,
and -€28.6 million for operational risk as a result of the fall in gross income at consolidated
level.
As a consequence, risk weighted assets, consisting principally of credit and counterparty risk,
fell by over €3.3 billion to €91 billion.
The changes in the aggregates reported above caused a generalised improvement in all the
capital ratios calculated as at 31 st December 2011: on that date the core tier one ratio and the
tier one ratio stood at 8.56% (6.95% at the end of 2010) and 9.09% (7.47%) respectively, while
the total capital ratio rose to 13.50% (11.17%) 4 .
The impairment losses recognised on goodwill had no impact on the capital ratios and the
supervisory capital was calculated inclusive of the effects of the distribution of a dividend of
0.05 euro per share.
The European stress test
UBI Banca, together with four other Italian banks, took part in the 2011 European stress tests
conducted by the European Banking Authority (EBA) – in co-operation with the Bank of Italy,
the European Central Bank (ECB), the European Commission (EC) and the European
Systemic Risk Board (ESRB) – on 90 banks representing more than 65% of the total assets of
the European banking system. The results were published simultaneously on 15 th July 2011.
The tests were designed to assess the ability of European banks to resist sever shocks and their degree of
capital adequacy if hypothetical stress events occurred under particularly adverse conditions.
The hypotheses and the methodology of the exercise were designed to assess the capital adequacy of
banks using a benchmark of a core tier one ratio of 5% and to increase market confidence in the soundness
of the banks taking part in the exercise.
The adverse scenario used was defined by the ECB and covered a time horizon of two years (2011-2012) 5 .
The stress test was conducted assuming that the balance sheets of the banks had remained unchanged
compared to December 2010, without considering the effects of company strategies and/or future
management initiatives and it did not constitute a profit forecast of the single banks taking part.
UBI Banca passed the stress test with a level of capitalisation well above the benchmark set
[and also above the observation threshold set (5%-6%)], which confirmed the soundness of the
Group. In the adverse scenario hypothesised, the core tier one ratio, estimated on the
consolidated figures for UBI Banca, resulted to have risen from 7% in December 2010 to 7.4%
at the end of 2012. This last figure incorporated the effects of the increase in the share capital,
which was fully underwritten and announced to the market in a binding manner before 30 th
April 2011, but excluded the impacts of future action taken to strengthen capital available to
management.
4 As already reported, savings shares and privileged shares have been excluded from the core tier one capital since 31 st December
2010, while they are included in the tier one capital.
5 The scenario involved a decrease in GDP and adverse performance by all the main macroeconomic variables with a related estimated
impact on PD and LGD and, as a result, on forecasts of impairment losses in the lending portfolio. A greater than expected increase
in interest rates was hypothesised together with a widening of sovereign debt spreads with a consequent increase in the cost of
funding and falls in equity prices.
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