Off-balance sheet liabilities granted
At the end of 2016, guarantees and other financial off-balance sheet liabilities granted with respect to related parties of the PKO Bank Polski SA amounted to PLN 7 776 million and decreased by PLN 5 472 million as compared to the end of 2015.
The largest off-balance sheet liabilities granted are related to the following entities:
- PKO Leasing SA and its subsidiaries – PLN 6 112 million,
- PKO Bank Hipoteczny SA– PLN 1 506 million.
In 2016, the Bank did not conclude any material transactions with its related parties other than on an arm’s length basis.
At the end of 2016, guarantees and other financial off-balance sheet liabilities granted with respect to related parties of the PKO Bank Polski SA.
At the end of 2016, guarantees and other financial off-balance sheet liabilities granted with respect to related parties of the PKO Bank Polski SA amounted to PLN 22 million and decreased by PLN 19 million as compared to the end of 2015. The largest amount of off-balance sheet liability granted relates to Centrum Elektronicznych Usług Płatniczych eService Sp. z. o. o. (PLN 21 million)
Reacquisition of own shares
During the period covered by this Report, PKO Bank Polski SA did not re-acquire its shares on its own account.
Information about the activities of the PKO Bank Polski SA Group outside the territory of the Republic of Poland
|Data in PLN million||Revenue*||Profit (loss) before income tax||Income tax||Net profit (loss)||Headcount (in FTEs)|
|In the EU Member States|
|- Poland||14 047||3 897||-869||3 028||26 741|
|In third countries:|
|- Ukraine||259||42||-11||31||2 170|
* revenue defined as sum on interest and similar income, fee and commission income and other operating income
The Bank and its’ related parties, in principle of Art. 4, clause 1, point 48 of the Regulation of the European Parliament and of the Council no. 575/2013, are based on the territory of Poland, Ukraine, Sweden and Irleand. In accordance with the Regulation, for the purpose of prudential consolidation, the Group consists of: PKO Bank Polski SA, PKO Leasing SA Group, PKO BP BANKOWY PTE SA, PKO Towarzystwo Funduszy Inwestycyjnych SA, KREDOBANK SA Group, PKO Finance AB, Finansowa Kompania ‘Prywatne Inwestycje’ Sp. z o.o., PKO BP Finat Sp. z o.o. and PKO Bank Hipoteczny SA.
In companies with their headquarters in Sweden and Irleand, members of the Boards hold their functions on the basis of corporate contracts.
Significant contracts and important agreements with the Central Bank or supervisory authorities
In 2016 (up until 3 July 2016) SA disclosed in its current reports all the agreements with customers for which the total value of services arising from long-term agreements with the given customer meets the criteria defined in the Decree of the Minister of Finance of 19 February 2009 on current and periodical information submitted by issuers of securities and the conditions of considering as equivalent the information required by law of a non-member country (Journal of Laws No. 33, item 259). Since 3 July 2016 the Bank provided information about the conclusion of significant agreements in accordance with the requirements of Regulation (EU) of the European Parliament and of the Council No 596/2014 on market abuse, which came into force on that date.
On 7 December 2016, the Group issued its customer a promise based on which the Bank undertook to grant the customer a loan of up to PLN 3.2 million intended for financing the customer’s investment activities. The Promise agreed by the Bank and the customer provides that the Loan will be granted on the basis of a loan agreement whose contents will be finally negotiated by 30 April 2017. The framework terms of the Loan Agreement were set out in an appendix to the Promise and provide for, among other things, securing the Bank’s receivables in the form of financial and registered pledges, as well as the Bank receiving a declaration of submission to enforcement proceedings from the customer.
The principles for issuing the promise and the terms of the loan agreement do not differ from the standard ones used in the Bank or from the arm’s length terms used in financing with a comparable credit risk profile. The promise is the Bank’s first exposure to the customer and its subsidiaries in respect of agreements concluded over the past 12 months, therefore, the Bank’s total exposure (including the value of the loan agreement) is PLN 3 200 million. The Bank will provide information about the conclusion of the Loan Agreement in a separate report.
On 2 November 2016, PKO Bank Polski SA (as the guarantor), Raiffeisen Bank International AG (RBI) (as the seller) and PKO Leasing SA (the Bank’s subsidiary) (as the purchasers) signed a Share Purchase Agreement on the sale of 100% of shares of Raiffeisen-Leasing Polska SA by RBI to PKO Leasing SA. The transaction was closed on 1 December 2016.
As a result of the above-mentioned transaction, PKO Leasing SA purchased all of the shares of Raiffeisen-Leasing Polska SA and PKO Bank Polski SA replaced the financing granted to Raiffeisen-Leasing Polska SA and its subsidiaries by Raiffeisen Bank International AG or its Group entities.
In 2016, the Bank did not conclude any significant agreements with the Central Bank or the supervisory authorities. In 2016 PKO Bank Polski SA subsidiaries did not conclude any significant contracts and did not conclude material contracts with the Central Bank or with the regulators.
Published forecasts related to financial results for 2016
PKO Bank Polski SA did not publish forecasts related to financial results for 2016.
Guarantees and loan commitments granted
As at 31 December 2016 the total value of guarantees and loan commitments granted amounted to PLN 58.1 billion with loan commitments making up 79.5% of this amount. Total rate of growth of guarantees and loan commitments granted amounted to 1.8% y/y, mainly in effect of an increase in financial liabilities granted to non-financial entities and a drop in guarantee liabilities granted to non-financial entities.
Off-balance sheet liabilities granted (in PLN million)
|31.12.2016||31.12.2015||Change (in PLN million)||Change(%)|
|Loan commitments||46 144.6||42 544.4||3 600.2||8.5%|
|financial entities||2 763.3||2 306.2||457.1||19.8%|
|non-financials||39 525||36 157.8||3 367.2||9.3%|
|budgetary entities||3 856.3||4 080.4||-224.1||-5.5%|
|of which: irrevocable||31 077.9||30 513.9||564||1.8%|
|The guarantees granted:||11 930.5||14 527.4||-2 596.9||-17.9%|
|non-financials||11 264.4||14 231.6||-2 967.2||-20.8%|
|Total||58 075.1||57 071.8||1 003.3||1.8%|
Loans and advances taken, guarantees and warranties agreements
In 2016, PKO Bank Polski SA and the companies of the Group did not take out any loans or advances or receive any guarantees or warranties that were not related to operating activity.
Underwriting agreements and guarantees granted to subsidiaries
As at 31 December 2016 issues of bonds of PKO Bank Hipoteczny SA were regulated by the Agreement for the Bond Issue Programme dated 30 September 2015, pursuant to which the maximum value of bonds issued and not redeemed based on the programme is PLN 2 billion, and the Guarantee Agreement dated 30 September 2015 (annexed on 26 October 2016), pursuant to which PKO Bank Polski SA is the underwriter of the bonds issue up to a total value of PLN 1 billion. The annexe signed in 2016 increased the guaranteed amount from PLN 500 million to PLN 1 billion.
As at 31 December 2016 PKO Bank Hipoteczny SA’s liability in respect of the bonds issued, in nominal terms, amounted to PLN 1 156 million. All the bonds were taken up by investors other than PKO Bank Polski SA.
As of 26 October 2016 issues of bonds of PKO Leasing SA are regulated by the new Bond Issue Agreement. Issues of bonds issued based on the said Agreement are not covered by guarantees of PKO Bank Polski SA.
In 2016, PKO Bank Polski SA granted the following guarantees relating to its subsidiaries, active as at the end of 2016:
- it issued a guarantee of up to EUR 52 million to the Council of Europe Development Bank (CEB) for the repayment of a loan granted to RLPL; the guarantee was issued for the period to 29 August 2021;
- it issued a guarantee of up to EUR 44 million to the European Investment Bank (EBI) for the repayment of a loan granted to PKO Leasing SA; the guarantee was issued for the period to 25 November 2025;
- it issued a guarantee of up to PLN 1 250 thousand in connection with the lease of office space and parking spaces by RLPL; the guarantee was issued for the period to 31 December 2017;
- it issued four guarantees of up to PLN 261 thousand in total and two guarantees of up to EUR 20 thousand in total and increased the amount of one guarantee by PLN 44 thousand in connection with the lease of office space and parking spaces by PKO Leasing SA; the guarantees were issued for the maximum period to January 2022;
- it issued four guarantees of up to EUR 212 thousand in connection with the lease of office space and parking spaces by PKO Życie Towarzystwo Ubezpieczeń SA; the guarantee was issued for the period to 30 April 2017,
- it issued four guarantees of up to USD 2 130 thousand in total to KREDOBANK SA for the repayment of loans granted by KREDOBANK SA to its customers and one guarantee of up to EUR 49 thousand related to granting a tender bond to a customer; the guarantees were issued for the maximum period to November 2019.
Enforceable titles issued
As from 27 November 2015, the amendment to the Banking Act waived banks’ rights to issue bank enforceable titles. The Bank does not issue any other enforceable titles – it only applies for such title (mainly in the form of a court ruling) or it receives it from a customer (a Notarial Deed with a statement of submission to enforcement proceedings)
In the case of KREDOBANK SA, the Ukrainian law does not allow to issue enforceable titles as defined in the Polish Banking Law. In accordance with the Ukrainian law, bank liabilities are pursued in a court of law based on the provisions of the Code of Civil Procedure and Code of Economic Procedure.
The PKO Bank Polski SA Group in 2016 reduced a credits and loans impairment write-off to customers amounted to PLN 1 867 million.
Proceedings pending before the court, arbitration tribunal or public administrative authority
As at 31 December 2016, the total amount in litigation where the Bank is the defendant, and litigation in which other PKO Bank Polski SA Group companies are defendants (suits) was PLN 448.7 million, including PLN 43.8 million in respect of litigation in Ukraine (as at 31 December 2015 the total amount of the said litigation was PLN 638 million), and the total amount of litigation (suits) as at 31 December 2016 where the Bank is the plaintiff and litigation where other PKO Bank Polski SA Group companies are plaintiffs was PLN 1 232.3 million, including PLN 42.2 million in respect of litigation in Ukraine (as at 31 December 2015 the total amount under the said litigation was PLN 697 million).
The Bank and the Group companies had not been parties to any proceedings before courts, arbitration bodies or public administration bodies relating to liabilities or receivables with a value of at least 10% of the equity of PKO Bank Polski SA.
Proxies, Management Board meetings and execution of the resolutions of the General Shareholders’ Meeting
As at 31 December 2016 there were 5 proxies of the Bank.
- two proxies were dismissed – Jarosław Orlikowski and Paweł Borys,
- one proxy was granted – to Justyna Borkiewicz.
In 2016, the Bank’s Management Board held 50 meetings and adopted 664 resolutions.
Major actions and decisions of the Management Board, which affected the Bank’s financial position and operations, are presented in different parts of this Directors’ Report.
Factors which will affect future financial performance of the PKO Bank Polski SA
In the near future, the results of the PKO Bank Polski SA Group will be affected by economic processes which will take place in Poland and in the global economy as well as by reactions of the financial markets. The interest rate policy applied by the Monetary Policy Council and key central banks will also have a great impact on future performance. Specific predictions about trends in the economy are covered in section2.7.
The continued regulatory risk, including the one arising from the resolution of the question of foreign currency loans (including the implementation of the recommendation of the Financial Stability Committee dated 13 January 2017 concerning the restructuring of the housing loans portfolio in foreign currencies),
required capital ratios, the amounts of individual fees paid by banks towards a deposit guarantee system in 2017 taking into account, among other things, the exposure on the mortgage loan market, will be a considerable challenge for the Polish banking sector.
The tax on the assets of certain financial institutions, which came into force as from February 2016, will have a negative effect on the results and profitability of banks. This charge will determine the level of the costs incurred by banks. In the medium term, it will contribute to a reduction in the banks’ potential to develop lending activity, constituting a particular challenge for banks with low return on assets and, at the same time, a high financial leverage.
Central Assessment Mechanism of the National clearing chamber
Joining the system of new reporting to the National Clearing Chamber in connection with the Central Assessment Mechanism, which is being prepared, and using this database will be a challenge for banks, including PKO Bank Polski SA.
Bank as a systemically important institution
The financial results within the following quarters will be affected by the decision of the Polish Financial Supervision Authority dated 10 October 2016, on the identification of the Bank as another systemically important institution and on the imposition of a buffer on the Bank of 0.75% of its total risk exposure calculated in accordance with Article 92(3) of Regulation (EU) No 575/2013. As at the date of preparation of the information about the receipt of the decision, the Bank met the PFSA requirements regarding the minimum capital ratios, both on a standalone and consolidated basis.
On 18 October 2016, it received the decision of the Polish Financial Supervision Authority recommending that the Bank should comply with an additional own funds requirement. The PFSA recommended that the Bank should maintain its own funds to cover an additional capital requirement in order to hedge the risk arising from foreign currency mortgage loans to households, at the standalone level of 0.83 p.p. (vs. 0.76 p.p. to date), in excess of the value of the total capital ratio. According to Article 11, clause 2, point 21 of the Banking Act, the PFSA’s decision has the power of a final administrative decision and is subject to immediate execution.
Political and economic situation of Ukraine
The results of the PKO Bank Polski SA Group will be impacted also by the political and economic situation in Ukraine where operate the Group entities: KREDOBANK SA and financial and debt collection companies. It is conducted current analysis of impact of political and economic situation in Ukraine on financial results and on risk of assets deterioration of the PKO Bank Polski SA Group. PKO Bank Polski SA continues its activities to provide safe functioning its subsidiaries in Ukraine i.a. through enhance of their controlling activities, including monitoring of regulatory requirements determined by the National Bank of Ukraine. Information on the economic conditions and the banking sector in Ukraine is presented in the paragraph on international operating conditions – the Ukrainian market.
Seasonality or cyclicality of activities in the reporting period
PKO Bank Polski SA is a universal bank, which provides services on the territory of Poland, and thus its activities are exposed to similar seasonal fluctuations to those affecting the entire Polish economy. The operations of the other PKO Bank Polski SA Group companies do not show any material traits of seasonality or cyclicity.
Information on the conclusion by the issuer or its subsidiary of one or more transactions with related parties, if they are significant and were concluded on other than market conditions
In 2016 PKO Bank Polski SA provided on an arm’s length basis the following services to related (subordinated) entities: services regarding maintaining bank accounts, accepting deposits, granting loans and advances, issuing debt securities, granting guarantees and concluding foreign exchange transactions and offering participation units in investment funds, lease products, factoring products and insurance products offered by the PKO Bank Polski SA Group entities. Simultaneously PKO Bank Polski SA provided for PKO Bank Hipoteczny SA services of brokering the sales of mortgage loans to individuals, providing post sales service activities to these loans and support activities within an outsourcing agreement. PKO Bank Hipoteczny SA rented office space to selected entities of Banks Group and along with Centrum Elektronicznych Usług Płatniczych eService Sp. z o.o. provided payment transaction settlement services.
The list of significant transactions between PKO Bank Polski SA and its subsidiaries, including credit debt of these entities to the Bank as at 31 December 2016 was presented in the Standalone financial statements of PKO Bank Polski SA for the year ended 31 December 2016.
1) On 2 January 2017, Raiffeisen-Leasing Polska SA received a call from Raiffeisen Bank Polska SA for the early redemption of the bonds issued by the Company and held in the portfolio of said bank. On 31 January 2017, the Company conducted an early redemption of bonds with a nominal value of PLN 227 million. The redemption was financed from funds received from PKO Bank Polski SA in the form of a loan, based on an agreement signed in December 2016.
2) In January 2017, PKO Bank Polski SA acquired 100% of shares in ZenCard Sp. z o.o. and took up shares in the increased capital of the Company. ZenCard Sp. z o.o. is a technology company which has built a platform for retailers enabling them to create discount and loyalty programmes which also allows the virtualization of loyalty cards. The platform is integrated with a POS terminal and makes it possible to resign from many separate loyalty cards or separate applications installed on a phone and replace them with a single card which is also a payment card. CEUP eService Sp. z o.o., one of the largest clearing agents in Poland, is the Company’s strategic partner. The Bank is interested in using the Company’s know-how in the area of developing the solutions produced and using the Company’s products in the Bank’s Group. The acquisition of the Company is an important step towards strengthening relations with the customers and taking advantage of modern tools created by the progressing digitization.
3) On 13 January 2017, the Financial Stability Committee adopted resolution no. 14/2017 on the recommendation for restructuring the portfolio of housing loans in foreign currencies, and issued the following recommendations:
- to the minister competent for financial institutions:
- increasing to 150% the risk weight for exposures in foreign currencies which are fully and wholly secured with a mortgage on a residential property;
- increasing, by banks using IRB, the minimum value of LGD for exposures in foreign currencies secured with a mortgage on a residential property;
- amending the rules for the functioning of the Borrowers’ Support Fund;
- neutralizing tax effects for borrowers and banks which decided to convert housing loans into PLN;
- imposing a systemic risk buffer of 3%.
- to the Polish Financial Supervision Authority:
- updating the SREP methodology and expanding it by including the rules to allow assigning the appropriate level of capital charge
- amending additional capital requirements relating to the operational, market and credit risk currently used as part of Pillar 2
- issuing a supervisory recommendation on good practices when restructuring foreign-currency portfolios of housing loans.
- to the Bank Guarantee Fund – taking into account the risk associated with housing loans in foreign currencies in the methodology of determining contributions to the banks’ guarantee fund.
The final impact of the recommendations on the Group will be possible to estimate after the competent bodies have formulated the recommendations.
4) In January 2017, one proxy was cancelled (Błażej Borzym) and one proxy was granted (Maciej Wyszoczarski). The number of proxies did not change (5).
5) On 26 January 2017, the Supervisory Board of PKO Bank Polski SA selected KPMG Audyt Spółka z ograniczoną odpowiedzialnością spółka komandytowa as the entity authorized to audit and review the financial statements of the Bank and consolidated financial statements of the PKO Bank Polski SA Group for 2017 - 2019.
6) On 2 February 2017, PKO Bank Hipoteczny SA issued mortgage bonds denominated in EUR with a value of EUR 25 million and a redemption period of 7 years from the date of issue. Mortgage bonds were taken up under a non-public issue. The mortgage bonds issued will be listed on the Luxembourg Stock Exchange.
7) On 2 February 2017, PKO Bank Hipoteczny SA concluded with PKO Bank Polski SA the Agreement for a revolving working capital loan in the current account up to the limit of PLN 1 500 million, to be made available in instalments. The loan was granted for the period to 2 February 2020. On 2 February 2017, PLN 600 million was made available as part of the loan.
8) On 6 February 2017, PKO Bank Hipoteczny SA acquired another portfolio of receivables from mortgage-secured housing loans of PLN 337.6 million under the Framework Receivables Sale Agreement concluded on 17 November 2015 with PKO Bank Polski SA.
9) An Extraordinary Shareholders Meeting was convened for 13 March 2017 to consider, among other things, draft resolutions submitted by the State Treasury represented by the Minister of Development and Finance, on the following topics:
- the rules for determining the remuneration of the Management Board members;
- determining the rules for remunerating Supervisory Board members.
The Minister of Development and Finance, in execution of the rights from shares in PKO Bank Polski SA held by the State Treasury, submitted a motion to include these resolutions on the agenda of the Extraordinary Shareholders’ Meeting, in order to adapt the existing rules for remunerating members of the Bank’s Management and Supervisory Boards to the provisions of the Act on determining the remuneration of persons managing certain companies. The proposed remuneration rules are intended to replace the rules
for remunerating members of the Management and Supervisory Boards currently applicable in PKO Bank Polski SA. The proposed remuneration of members of the Management and Supervisory Boards of PKO Bank Polski S.A. was determined in accordance with the provisions of the Act on determining the remuneration of persons managing certain companies.
Declaration of the Management Board
The Management Board of PKO Bank Polski SA certifies that, to the best of its knowledge:
- the annual financial statements and comparative data have been prepared in accordance with binding accounting and reporting standards and present a true, fair and transparent view of financial condition and results of the PKO Bank Polski SA Group,
- the annual Directors’ Report of the PKO Bank Polski SA Group presents a true view of the development and achievements as well as condition of the PKO Bank Polski SA Group, including a description of the basic risks and threats.
The Management Board of PKO Bank Polski SA certifies that the entity authorized to audit the financial statements and which is performing the audit of annual consolidated financial statements, has been elected in compliance with applicable laws. The entity as well as the certified auditors performing the audit fulfilled all criteria for providing unbiased and independent audit opinion in compliance with applicable laws and professional norms.