Capital requirements and Basel III regulations

At the same time as its lending and savings grow, Triodos Bank will continue to be, strongly capitalised. This has become an important issue as demands for capital increase following the financial crisis. Triodos Bank aims for a solvency ratio of approximately 14%, well above its own internal economic capital calculations, in order to guarantee a healthy and safe risk profile for its depositors. Economic capital is calculated as a result of the yearly Internal Capital Adequacy Assessment Process, which is reviewed by the Dutch Central Bank.

Regulations too are changing, such as those developed by the Basel Committee on Banking Supervision, designed to build a more resilient banking sector by strengthening the solvency of the banks and introducing strict liquidity requirements. Triodos Bank complies with both new capital and liquidity requirements, as recently published by the Basel Committee, and better known as Basel III. The regulations are required to be fully implemented by 2019.

In 2011, Triodos Bank successfully raised capital from its own investors and customers, exceeding targets and raising over EUR 75 million. This has helped it to maintain a solvency BIS ratio of 14.4%, at the end of 2011, well above its requirements.

Triodos Bank’s financial position remained very liquid during 2011. Its policy is to invest excess liquidities in highly liquid assets in the country where it has raised the funds. In The Netherlands Triodos Bank has invested its liquidities in Dutch government bonds, municipalities and banks. In Belgium it has fewer alternatives and most of its liquidity has been invested in Belgian government bonds. This caused an increase of its Belgian government bonds portfolio in 2011 from EUR 143 to EUR 258 million. In the other countries where Triodos Bank operates, it has invested its surplus liquidities with other banks.

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. Triodos Bank’s Internal Audit function provides independent and objective assurance of Triodos’ 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 a statement providing positive assurance in the coming years.

Triodos Bank’s Executive Board states that it has no indication that the risk management and control systems have not functioned adequately and effectively in 2011.

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.