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Basel III Capital and Liquidity Requirements

Regulations are demanding a more resilient banking sector by strengthening the solvency of the banks and introducing strict liquidity requirements, such as those developed by the Basel Committee on Banking Supervision. Based on the latest available information, Triodos Bank already complies with the capital and liquidity requirements that will be fully implemented from 2019, known as Basel III.

Triodos Bank’s capital strategy is to be strongly capitalised. This has become an even more important strategic objective as the regulation introduces new measures to strengthen the capital base of all the banks as a consequence of the financial crisis. Triodos Bank aims for a Common Equity Tier 1 ratio of at least 16%, well above its own internal economic capital adequacy models to guarantee a healthy and safe risk profile. The quality of capital is important as well as the solvency rate. All of Triodos Bank’s solvency comes from common equity. Economic capital is calculated periodically and supports Triodos Bank’s own view of capital adequacy for the purpose of the yearly Internal Capital Adequacy Assessment Process, which is reviewed by the Dutch Central Bank.

In 2016, Triodos Bank successfully raised capital from its customers of over EUR 97 million. This has helped it to maintain a regulatory Common Equity Tier 1 of 19.2% at the end of 2016, well above both external and its own internal requirements.

Triodos Bank’s liquidity position remained very strong during 2016. Its policy is to invest excess liquidities in highly liquid assets and/or inflow generating assets in the country where it has branches. In The Netherlands Triodos Bank has invested its liquidities mainly in (green) bonds of the Dutch government, agencies, and banks, cash loans to municipalities, deposits with commercial banks and the Dutch Central Bank. In Belgium most of its liquidity has been invested in (local) Belgian government bonds. In Spain the liquidity surplus is invested in bonds of the Kingdom of Spain, Spanish regions and agencies and deposited with commercial banks and the Spanish Central Bank. In the UK the excess liquidity is invested in UK government bonds and placed on deposits with commercial banks and the Bank of England. In Germany, surplus liquidities are placed with local governments and with commercial banks including the German Central bank.

The Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) are both well above the minimum limits of Basel III.

More detailed information about Triodos Bank’s approach to risk is included in the Annual Accounts section of this report starting on page 149.

In Control statement

The Executive Board is responsible for designing, implementing and maintaining an adequate system for internal control over financial reporting. Financial reporting is the product of a structured process carried out by various functions and branches under the direction and supervision of the financial management of Triodos Bank.

The Executive Board is responsible for the risk management function and compliance function. The risk management function works together with management to develop and execute risk policies and procedures involving identification, measurement, assessment, mitigation and monitoring of the financial and non-financial risks. The compliance function plays a key role in monitoring Triodos Bank’s adherence to external rules and regulation and internal policies. The adequate functioning of the risk management and compliance function as part of the internal control system is frequently under discussion with the Audit and Risk Committee. It is further supported by the Triodos culture as a key element of our soft controls.

Triodos Bank’s Internal Audit function provides independent and objective assurance of Triodos Bank’s corporate governance, internal controls, compliance and risk management systems. The Executive Board, under the supervision of the Supervisory Board and its Audit and Risk Committee, is responsible for determining the overall internal audit work and for monitoring the integrity of these systems.

The enterprise risk management framework is the basis for an integrated in control statement process. The Executive Board indicates that this process should lead to an internal statement providing positive assurance in the coming years.

The Executive Board has no indication that the risk management and control systems have not functioned adequately and effectively in 2016.

The risk management and control systems provide reasonable, but not absolute, assurance regarding the reliability of financial reporting and the preparation and fair presentation of its financial statements.