This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
PKO Bank Hipoteczny SA
Directors’ Report
for the year ended 31 December 2022
Selected financial data for the period from 1 January 2022 to 31 December 2022
|
INCOME STATEMENT IN PLN M
|
01.01.2022 – 31.12.2022 |
01.01.2021 – 31.12.2021 |
Change y/y |
|
Net interest income |
(320.8) |
305.6 |
(626.4) |
|
Net fee and commission income |
(0.2) |
(5.7) |
5.5 |
|
Net gain/(loss) on financial instruments measured at fair value through profit or loss |
0.0 |
0.0 |
0.0 |
|
Net foreign exchange gains/(losses) |
0.3 |
0.5 |
(0.2) |
|
Net allowances for expected credit losses |
(6.1) |
(3.2) |
(2.9) |
|
Net other operating income and expenses |
0.2 |
0.2 |
0.0 |
|
Administrative expenses |
(43.3) |
(47.1) |
3.8 |
|
Regulatory charges |
(37.3) |
(24.8) |
(12.5) |
|
Tax on certain financial institutions |
(69.6) |
(83.8) |
14.2 |
|
Operating profit |
(476.8) |
141.7 |
(618.5) |
|
Profit before tax |
(476.8) |
141.7 |
(618.5) |
|
Corporate income tax |
71.0 |
(46.8) |
117.8 |
|
Net profit |
(405.8) |
94.9 |
(500.7) |
|
|
|
|
|
|
STATEMENT OF FINANCIAL POSITION IN PLN M |
31.12.2022 |
31.12.2021 |
|
|
Cash and balances with the Central Bank |
60.7 |
50.4 |
|
|
Amounts due from banks |
0.1 |
0.5 |
|
|
Derivative hedging instruments |
508.1 |
841.5 |
|
|
Securities |
1,017.4 |
1,870.7 |
|
|
Loans and advances to customers |
22,848.6 |
||
|
Other assets[1] |
138.8 |
8.7 |
|
|
TOTAL ASSETS |
20,680.5 |
25,620.4 |
|
|
Amounts due to banks |
5,635.9 |
6,544.5 |
|
|
Derivative hedging instruments |
25.7 |
2.0 |
|
|
Liabilities in respect of mortgage covered bonds issued |
12,063.6 |
13,146.4 |
|
|
Liabilities in respect of bonds issued |
1,495.9 |
3,728.2 |
|
|
Other liabilities and provisions[2] |
55.1 |
85.6 |
|
|
Equity |
1,404.3 |
2,113.7 |
|
|
TOTAL LIABILITIES AND EQUITY |
20,680.5 |
25,620.4 |
|
TABLE OF CONTENTS
2. External Operating Conditions
2.1. Macroeconomic environment
2.2. Residential real estate market
2.4. Mortgage Covered Bonds Market
2.5. Regulatory and Legal Environment
3. Financial performance and capital adequacy
3.1. Key financial indicators of PKO Bank Hipoteczny SA
3.2. Statement of financial position of PKO Bank Hipoteczny SA
3.3. Income statement of PKO Bank Hipoteczny SA
3.4. Requirements Regarding Own Funds (Pillar I)
3.5. Internal capital (Pillar II)
4. Business of PKO Bank Hipoteczny SA
4.1. Sales of residential mortgage loans under the agency model
4.2. Acquisition of residential mortgage loan receivables
4.3. Structure of the residential mortgage loan portfolio
4.5. Financial Market Operations
4.6. Bonds – Issue programme concluded with PKO Bank Polski SA
5. Internal Operating Conditions
5.1. Lending process and cooperation with PKO Bank Polski SA
5.5. Measurement of residential mortgage loan collaterals
5.6. Cover Pool for Mortgage Covered Bonds
6. Organization and Governing Bodies of PKO Bank Hipoteczny SA
6.2. Organizational structure of PKO Bank Hipoteczny SA
6.3. Competences of the governing bodies and committees of PKO Bank Hipoteczny SA
6.4. Management Board of PKO Bank Hipoteczny SA
6.5. The Supervisory Board of PKO Bank Hipoteczny SA
6.6. Remuneration Policy and Human Resources Management
6.7. Benefits for Key Management of PKO Bank Hipoteczny SA
7. Corporate Governance and Investor Information
7.1. Representation on Compliance with the Rules for Corporate Governance
8. Representation of the Management Board of PKO Bank Hipoteczny SA
1. Introduction
PKO
Bank Hipoteczny SA (the “Bank”) specializes in granting residential
mortgage loans to individual customers and purchasing receivables in
respect of such loans. The Bank acquires loans for its portfolio based
on strategic cooperation with PKO Bank Polski SA.
PKO Bank Hipoteczny SA is the leader of the Polish mortgage bank market in terms of total assets and the balance of mortgage residential loans. The Bank is Poland’s largest issuer of mortgage-covered bonds on Polish and international markets. It was the only bank in Poland to carry out benchmark issues of euro-denominated mortgage covered bonds, in the total number of six to 31 December 2022. The outstanding mortgage covered bonds issued by the Bank account for over 57% of the total value of outstanding mortgage covered bonds issued by Polish mortgage banks.
In 2022, the Bank’s total assets exceeded PLN 20.7 billion, of which PLN 19.0 billion were a high quality portfolio of residential loans.
Evaluation of PKO Bank Hipoteczny SA’s financial credibility – ratings
The financial credibility of PKO Bank Hipoteczny SA and the mortgage covered bonds issued by the Bank is assessed by the Moody’s Investors Service Ltd international rating agency (“Moody’s”).
As at 31 December 2022, PKO Bank Hipoteczny SA had the following ratings assigned by Moody’s:
|
|
Rating |
Outlook |
Date of initial rating/rating confirmation date |
|
Long-term issuer rating |
A3 |
Stable |
20.12.2022
|
|
Short-term issuer rating |
P-2 |
n/a |
|
|
Opinion on long-term counterparty risk |
A2(cr) |
n/a |
|
|
Opinion on short-term counterparty risk |
P-1(cr) |
n/a |
|
|
Long-term counterparty risk rating |
A2 |
n/a |
|
|
Short-term counterparty risk rating |
P-1 |
n/a |
The ratings given reflect Moody’s assessment of the Bank’s mutual relations with its Parent – PKO Bank Polski SA – and determining that the risk of the Parent reducing the priority of the Bank carrying out its obligations in view of the Parent’s or Group’s financial difficulties is low.
As at 31 December 2022, the mortgage covered bonds of PKO Bank Hipoteczny SA had the following ratings assigned by Moody’s:
|
|
Rating |
Rating confirmation date |
|
Mortgage covered bonds denominated in PLN |
Aa1 |
09.12.2020 |
|
Mortgage covered bonds denominated in EUR |
Aa1 |
07.07.2022 |
The rating assigned to the mortgage covered bonds of PKO Bank Hipoteczny SA is the highest rating achievable by Polish securities. The limit for the ratings is the Polish country ceiling[3] for debt instruments, which currently is at the level of Aa1.
Issues of Mortgage Covered Bonds
In 2022 PKO Bank Hipoteczny SA conducted one issue of Series 8 green mortgage covered bonds denominated in EUR with a nominal value of EUR 500 million, for which the issue date was set at 4 July 2022. This was the first issue of its kind in the CEE region.
The value of outstanding mortgage covered bonds issued by PKO Bank Hipoteczny SA was PLN 12 billion as at 31 December 2022.
Borrowers Support
In connection with a cycle of interest rate increases in the first three quarters of 2022, and the COVID-19 pandemic, PKO Bank Hipoteczny SA took action aimed at increasing security of its customers.
With respect to customer support:
• Until the Act on crowdfunding for businesses and aid to borrowers came into force in July 2022, the Bank continued to offer the option of suspending exercising the agreements to customers with mortgage loans who lost their jobs or other key source of income, under “Shield 4.0”.
• In accordance with the provisions of the Act on crowdfunding for businesses and aid to borrowers, the Bank enables its customers to suspend loan repayment for a period of up to 8 months in the years 2022 – 2023, and implemented new policies of servicing the programme under the operation of the Borrowers Support Fund.
War in Ukraine and its impact on the Bank’s operations
On 24 February 2022 the Russian Federation (Russia) invaded Ukraine. The beginning of a military conflict at Polish borders had a direct impact on the Bank’s activities concerning additional allowances for expected credit losses on loans granted to the citizens of the areas afflicted by the conflict of PLN 1.9 million.
The Bank also identifies the following factors which have or may have an indirect impact on the Bank’s operations:
• impact of geopolitical risk on the Bank as an issuer;
• changes on the real estate market, in particular on the lease market, in connection with the displacement crisis.
The Bank monitors the conflict in Ukraine and accordingly adapts the actions taken.
PKO Bank Polski SA’s strategy for the years 2020 – 2022
In the first quarter of 2020 the Bank’s Management Board adopted and the Supervisory Board approved an updated Strategy of PKO Bank Hipoteczny SA for the years 2020 – 2022. The update consisted of adopting a new strategic horizon for the years 2020 – 2022.
The updated Strategy covered determined:
• the Bank’s mission and its strategic goals;
• the Bank’s market position;
• the Bank’s operating model;
• the Bank’s strategic operating directions;
• the Bank’s financial position in the years 2020 – 2022.
The necessity of updating the Strategy and extending its time horizon to the end of 2022 resulted from:
• updating the PKO Bank Polski Group strategy which redefines the role of PKO Bank Hipoteczny within the Group;
• the new strategy horizon developed by PKO Bank Polski (for 2020 – 2022), therefore, the strategy horizon of PKO Bank Hipoteczny SA was extended to 2022;
• changes in the regulatory environment, mainly the new regulatory requirement as to minimum own funds and eligible liabilities (MREL) which have a significant impact on the planned funding structure of the Group.
The Bank’s strategic goals under the strategy comprise:
In the second half of 2022 the Bank began work on developing a strategy for the following years. The implementation of the new strategy is planned for the first quarter of 2023.
Selected projects
Green mortgages: obtaining funding by way of issuing green covered bonds
The Bank offers financing residential real estate on preferential terms and conditions to customers who submit an energy performance certificate meeting the energy consumption criteria specified by the Bank.
As of the first quarter of 2022 the Bank prepares large-scale quarterly reports on the portfolios of mortgage loans and green assets in accordance with the reporting standard applied according to the Energy Efficient Mortgage Label initiative, to which the Bank acceded in February 2021. Under this reporting the Bank presents, among other things, the structure of green assets in terms of their maturities, size of the portfolio, year of construction of the real estate, use of energy or types of energy certificates. This initiative is aimed at creating a standard for green mortgage loans and supporting the EU Green Deal.
In June 2022 the Bank published an updated methodology of selecting green assets and updated policies for issuing green mortgage covered bonds secured with green assets. These policies were determined in the PKO BH Green Covered Bond Framework (GCBF). The update consisted mainly on taking into account the verification of whether the criteria of identifying assets as green adopted by the Bank are consistent with the standard set by the Climate Bond Initiative for residential real estate in Poland and whether these policies meet the requirements specified in the ICMA Green Bond Principles. To additionally verify this the GCBF was subjected to the assessment of a third party firm specializing in the assessment of companies and their actions with respect to environmental and social protection, and corporate governance. The assessment resulted in a positive opinion (the so-called Second Party Opinion) which was issued in June 2022 by Sustainalytics.
Implementing a modification to the credit product which makes it more efficient for customers
The actions aimed at enhancing covered the development of remote processes, including: a functionality enabled by the Bank which makes it possible to submit requests for mortgage loans via iPKO, and the possibility of putting in selected customer orders for post-sale services via iPKO.
All implementation work was conducted in cooperation with PKO Bank Polski SA which is the entity that offers the Bank’s products.
Analyses / publications on mortgage banking and the real estate market
In cooperation with the Economic Analyses Department of PKO BP, the Bank prepares materials and expert analyses on the most current issues related to the real estate market, and publishes them under the title Puls Nieruchomości. These publications are more and more popular from month to month. Both the number of subscribers interested in the publications on the real estate market and the number of downloads of Puls Nieruchomości from the Bank’s site https://www.pkobh.pl – news section and on https://www.pkobp.pl/centrum-analiz/ – real estate market section are on the rise.
Active participation in legislative work to adapt Polish law to the Covered Bonds Directive
On 8 July 2022 the provisions of the amended Act on Mortgage Covered Bonds and Mortgage Banks implementing to Polish legislature the provisions of Directive (EU) 2019/2162 of the European Parliament and of the Council of 27 November 2019 on the issue of covered bonds and covered bond public supervision and amending Directives 2009/65/EC and 2014/59/EU (the Covered Bond Directive) became binding. During the legislative process, the Bank, in cooperation with the PBA and other mortgage banks, actively participated in providing opinions on the draft act and draft secondary legislation to the act, providing many comments to the provisions of the draft legislation.
2. External Operating Conditions
|
Macroeconomic environment Residential real estate market Residential loan market Mortgage covered bonds market Regulatory and legal environment |
2.1. Macroeconomic environment
The macroeconomic factors which shaped the national economy in 2022 are presented below.
Gradual slowing down of the economy in response to external shocks
|
|
The beginning of 2022 was a period of very high growth in the national economy, but during the year the pace slowed down from 8.5% y/y in Q1 to 3.6% y/y in Q3, and the negative trends deepened even more in Q4. The cost shock related to the outbreak of war in Ukraine, most visible in energy resources and the prices of agricultural produce, had a negative impact on activity, but thanks to the good beginning of the year, 2022 was closed according to initial data with a GDP growth of 4.9%. Despite the high uncertainty, capital expenditure grew, which reflected the actions of companies to limit the negative effects of electricity price increases (improved efficiency, investments in alternative energy sources). The drop in the purchasing power of income led to a gradual drop in private consumption. The household consumption increase was achieved mainly by the expenses of the Ukrainian exiles whose inflow to Poland after the war broke out increased Poland’s population by approx. 4%. Despite the slowdown noted in the global economy, Polish exports managed to keep on the rise, to which unblocking of the global value-added chains and price competitiveness of Polish products contributed. The fast increase in import prices contributed to a significant increase in trade deficit and on the current account in the balance of payments. Similar trends were noted in all the states that imported energy of the CEE region.
Improvement of Labour Market Conditions
|
|
In 2022 the situation on the labour market continued to improve. Although in the second part of the year economic conditions for consumers indicated an increase in concerns about unemployment growth, the concerns were not corroborated by actual labour market data. In December the registered unemployment rate was 5.2% and 0.6 p.p. lower than at the end of 2021. In 2022 the domestic labour market absorbed an unprecedented number of war refugees - approx. 440 thousand refugees from Ukraine took up work in Poland. The percentage of war refugees in the working age group exceeded 60%. In Q3 the number of vacancies in the economy continued to be high and amounted to 135 thousand, in Q4 entrepreneurs in market conditions surveys continued to report in finding qualified employees – both these factors limit the space for high unemployment increase, even if economic conditions deteriorate. During the year wages and salaries increased at a double-digit rate, but in the second half of the year the rate of their increase in the enterprise sector was lower than inflation which means that they dropped in real terms. Above-average, higher than inflation rates of wage and salary increases were noted only in several sectors (transport, mining, energy), in others the wage and salary dynamics were moderate, which suggests that the wage-price spiral phenomenon did not occur. In the second half of 2022 the labour market adapted to the lower pace of economic growth mainly by reducing the rate of real wage and salary increases and demand for new employees, and not by reducing the number of employees and thus increasing unemployment.
Increased Inflation
|
|
In 2022 CPI was at a significantly high level and the intensity of inflationary processes grew after Russia’s attack on Ukraine. CPI increased visibly, from 8.6% y/y at the end of 2021 to a peak at 17.9% y/y in October 2022, despite the government’s implementation of the Anti-Inflation Shield which reduced the annual price growth rate by 2-3 p.p. The growth of inflation was driven mainly by energy and fuel prices, and in the second half of the year also by food prices. In December inflation dropped to 16.6% y/y, reflecting the downward trend in prices of fuel used for engines and heating The price increase observed in the economy during the year had a wide reach and covered almost all categories of prices in the inflation basket, which reflects the universal transfer of higher operating expenses to the final consumer (the so-called second-round effects). In December base inflation (CPI net of food and energy prices) increased to a record 11.5% y/y. In 2022 the increase in inflation was of a global nature and its intensity was especially noticeable in Europe, which had to cope with quickly rising prices of energy carriers in connection with Russia’s aggression on Ukraine. CEE countries had to deal with the particularly high inflation.
Public Finance in a Crisis
|
|
After Q3 2022 the government deficit (ESA) was 2.3% of GDP (compared with 1.5% of GDP after Q2 and 1.8% of GDP in 2021). The increase in deficit in Q3 resulted mainly from increases in social transfers, in particular those related to helping displaced people. In 2022 there was a downward trend in public debt and in Q3 it constituted 50.3% of annual GDP compared with 53.8% of GDP as at the end of 2021. Public finance was supported by a strong nominal increase in the tax base (consumption, results of enterprises) and the transfer of profit from the National Bank of Poland. As a result, despite increasing costs of the Anti-Inflation Shield (decrease in tax proceeds) and helping Ukraine, until November (latest available data) there was a budget surplus (PLN 18.3 billion).
Cycle of Increases in Interest Rates
In the first three quarters of 2022 the Monetary Policy Council (MPC) continued the cycle of increases in interest rates in reaction to the deterioration in inflation prospects commenced in October 2021. The reference rate increased from 1.75% as at the end of 2021 to 6.75% in September 2022; from the beginning of the cycle in September 2022 the NBP reference rent was increased by a total of 665 b.p., which makes this cycle the fastest and highest in history. During Q3 the MPC began indicating that the cycle of interest rate increases is coming to an end, and in October the MPC announced it would suspend the cycle which prevailed until the end of 2022. The MPC emphasized that the cycle of increases was not definitely ended and may be resumed should it be necessary. According to NBP projections from November 2022, the CPI should return to target within the horizon of monetary policy influence, which allows suspending the cycle of interest rate increases at the very least. In Q4 2022 the suspension of increases in NBP interest rates and stopping inflation increases significantly changed market expectations concerning further changes in monetary policy. FRA contracts ceased indicating further interest rate increases, measuring the scenario of stabilizing the reference rate at 6.75% throughout 2023.
NBP interest rates (at the end of the period):
|
Rate |
Q4 2022 [%] |
Q4 2021 [%] |
|
reference |
6.75 |
1.75 |
|
bill of exchange rediscount |
6.80 |
1.80 |
|
bill of exchange discount |
6.85 |
1.85 |
|
lombard |
7.25 |
2.25 |
|
deposit |
6.25 |
1.25 |
2.2. Residential real estate market
Situation on the Residential Real Estate Market in Poland
In 2022 the market conditions on the residential real estate market deteriorated. The volume of sales of new apartments dropped, as well as the turnover on the secondary market and started constructions of houses by individual investors and developers. Demand factors mainly contributed to the drops, of which the drop in availability of residential loans caused by the increases in interest rates and the tightening of credit policies by banks should be considered the most important. In addition, high inflation contributed to a drop in real income and a deterioration in consumer sentiments.
However, the cooling market did not lead to decreases in apartment prices. Both the primary and secondary markets noted high, more than ten percent rate of growths in prices. The increase in residential real estate prices on the primary market was determined mainly by an almost twenty percent increase in construction costs. In addition, a significant limitation in the supply of new apartments (a drop in the number of developer construction projects started) in the second half of 2022 reduced the imbalance between supply and demand in conditions of lower sales.
Primary Market
According to RedNet Property Group Sp. z o.o. (RedNet), in the segment of six most liquid local markets[4] the rate of increases in sold apartment prices in 2022 was at a level between 8-13%, depending on the city. A similar rate of price growths in the above segment is also confirmed by the data published by the NBP. In the segment of the six most liquid local markets[5] price increases were at a level of 10% y/y. Prices in the segment of 10 medium cities[6] grew a little faster, at a rate of 14% in Q4 according to NBP data.
Data on the activity on the developer market on the six most liquid local markets published by JLL shows that in 2022 sales dropped until Q3 2022 and rebounded (+29% Q/Q) in Q4 2022. Throughout the year sales were at a level of 35 thousand apartments, which constituted a 50% drop compared to the very good sales in 2021.
Supply was adapted to the dropping sales by the developers, although the delay amounted to two quarters. According to JLL data, in the first half of 2022 the number of new apartments in the offer was 16% lower than in the corresponding period of 2021, but already in the second half of 2022 a 50% drop was noted compared the corresponding period of 2021. The drop in supply referred to above led to restoring the balance between the number of apartments sold and the number of new apartments on offer in the second half of 2022.
The current level of the developers’ offer is approx. at six quarters of sales – on the assumption that sales would remain at the level noted in Q4 2022. Therefore, the average period of sales of an offer is at a level similar to that observed in 2009-2012, which is the period preceding the recent boom on the residential real estate market. However, currently developers are in a slightly better position because only 11% of the offer are ready apartments, while in the period referred to above it was almost 40%.
The above results may suggest that the residential real estate market has already seen the lowest volumes of sales and that in the following quarters sales will stabilize at a level higher than that in Q3 2022 when they were the lowest. The end of the cycle of interest rate increases expected by the market, in view of the Polish Statistics’ (GUS) reports about a drop in inflation in November and December 2022, should contribute to a slow recovery of sales. However, a more significant increase in the sales of apartments should be expected only after the MPC starts to reduce interest rates, which probably will not be before the turn of 2023/2024.
The factor which led to the sudden drop in sales of apartments on the primary market not leading to a drop in prices or even in their high growth dynamics in 2022 was the fast increase in construction costs. According to quotation rates of SEKOCENBUD the costs of construction (without the cost of land) of selected single- and multiple-family residential developments increased by 18%-22% y/y. In view of such a significant increase in construction costs, reducing the growing pace of increase in residential prices could well lead to the negative profitability of the development projects. However, to date, the drop in sales volume did not disrupt the developers’ liquidity sufficiently to force them to activate sales at the expense of a significant drop in profitability.
Secondary Market
The data published by NBP shows that in 2022 the increase trend in residential real estate prices was maintained on the secondary market. In the first half of 2022 the pace of growth of prices was 14-18%, and in the second half of the year it started slowing down. In Warsaw the rate of the increase trend as at the end of the year was at 6%, in the segment of 6 large cities[7] 11%, and in the segment of 10 medium cities[8] the pace of growth was at 13% during the year.
Similarly as in the case of the primary market, in 2022 there was a large drop in the number of transactions concluded on the secondary market. The data in the real estate database of the PKO BP Group indicates that the scale of the decrease could be as high as 50%. Such a large decrease in turnover in residential real estate was primarily caused by a drop in the purchasing power of potential purchasers. On the other hand, the factor which slowed the homeowners’ propensity to reduce prices in view of the drop in demand was the growing attractiveness of apartment leases. The return to stationary forms of work and study, the inflow of war refugees from Ukraine and the drop in the ratio of availability of apartments caused the rent rates to increase by over 30% in Warsaw and in six large cities, and by over 20%[9] in medium-sized cities in 2022.
Supply and Demand on the Residential Real Estate Market
The situation on the residential real estate market translated into a drop in activity in the residential development sector. According to Polish Statistics the number of notifications or permits for the development of residences was 13% lower in 2022 than in 2021. At the same time, the number of apartments whose construction began dropped by 28%. It should be noted that the most significant drop in residential development activities was in the second half of 2022. In the second half of 2022, 25% less permits were issued and the development of 39% less apartments started than in the corresponding period of 2021. The largest, 44% drop was noted in the number of apartments which the developers started to construct. This means that developers rather quickly – after the lapse of two quarters – adapted the supply of new apartments to the decreased demand.
The synthetic measure of availability of apartments in Poland published by the Association of Polish Banks (Centrum Amron) – the Index of Availability of M3-class Apartments noted a visible drop in 2022 from 196 points in Q4 2021 to 94 points in Q3 2022 (previously such a low index was noted in Q3 2007). The high scale of decrease is the result of an increase in interest rates on residential loans, tightening of the terms and conditions of granting such loans by banks (including primarily using an additional buffer for the risk of changes in interest rates of 5 percentage points), a higher rate of growth of living costs and or prices of residential real estate vs. the average rate of increase in wages and salaries.
Purchases of residential real estate are financed with funds from mortgage loans and household savings. According to NBP data, the estimated share of cash purchases of residential real estate on the six most liquid primary local markets was 62% in Q3 2022. In accordance with the Polish Statistics data, the nominal value of household deposits noted a 3.5% increase y/y in Q3 2022 (compared with 7% in 2021 and 11% in 2020). This indicates not only a drop in the pace of growth, but also a drop in the real purchasing power of household deposits (in December 2022 annual inflation was 16.6%).
2.3. Residential Loan Market
Based on NBP data, the banks’ receivables in respect of residential loans in Poland were PLN 498.9 billion as at 31 December 2022, down by 3.0% y/y. As at 31 December 2022, the balance of loans in PLN was PLN 396.9 billion (79.5% of the total amounts due to banks in respect of residential loans in Poland) and decreased by 1.6% y/y.
The total balance of residential loans in relation to the Gross Domestic Product expressed at market prices stood at 17.5% at the end of the third quarter of 2022. This amount was significantly below the average for EU Member States, which was approx. 38.6% as at the end of Q3 2022. This shows the large development potential of the residential loan market in Poland.
2.4. Mortgage Covered Bonds Market
As at 31 December 2022, five mortgage banks were operating in Poland:
• PKO Bank Hipoteczny SA;
• mBank Hipoteczny SA;
• Pekao Bank Hipoteczny SA;
• ING Bank Hipoteczny SA;
• Millennium Bank Hipoteczny SA.
The Polish mortgage covered bond market is relatively small and moderately liquid. At the end of December 2022, the total value of outstanding mortgage covered bonds issued by the mortgage banks operating in Poland amounted to PLN 20.9 billion, i.e. PLN 2.1 billion less than at 31 December 2021. As at 31 December 2022, outstanding mortgage covered bonds issued by Polish banks corresponded to 4.22% of the amount of residential loans granted by banks.
PKO Bank Hipoteczny SA is Poland’s largest issuer of mortgage-covered bonds on the Polish market. The value of outstanding mortgage covered bonds issued by PKO Bank Hipoteczny SA was PLN 12 billion as at 31 December 2022, which constituted over 57% of the total value of outstanding mortgage covered bonds issued by Polish mortgage banks.
2.5. Regulatory and Legal Environment
In 2022, the following legal and regulatory solutions significantly affecting the operations of PKO Bank Hipoteczny SA came into force:
|
SOLUTION |
IMPACT |
|
The Bank’s Core Activities |
|
|
The Act of 7 April 2022 on amending the Act on Mortgage Covered Bonds and Mortgage banks, and certain other acts. |
Implementation to the Polish legislature of the provisions of the Directive of the European Parliament and of the Council (EU) 2019/2162 of 27 November 2019 on the issue of covered bonds and covered bond public supervision and amending Directives 2009/65/EC and 2014/59/EU (the Covered Bond Directive). |
|
Mortgage Loans |
|
|
The Act of 7 July 2022 on Crowdfunding For Businesses And Aid To Borrowers. |
Allowing suspending the repayment of up to 8 instalments of mortgage loans in total in the years 2022-2023. Determining the procedure for defining a replacement reference index to WIBOR. Ability to charge lenders that meet the indicated criteria with an additional fee payable to the Borrowers’ Support Fund. |
|
The Act of 5 August 2022 on amending the Act on mortgage loans and on supervision over mortgage loan intermediaries and agents, and the Act on amending the Act on personal income tax, the Act on corporate income tax and certain other acts. |
Introducing the obligation to refund additional costs incurred by borrowers in the period of waiting for entry of the mortgage to the land and mortgage register. |
|
Corporate Regulations |
|
|
The Act of 9 February 2022 on amending the Act – the Commercial Companies Code, and certain other acts. |
Changes in the scope of operations of supervisory boards in joint-stock companies aimed at increasing their effectiveness and precisely define the mutual relations between the companies’ bodies. |
|
Credit Risk |
|
|
The position of the Polish Financial Supervision Authority on actions aimed at limiting the level of credit risk dated 7 March 2022. |
The recommendations of the supervisory authority relating to the process of assessing creditability, including accepting minimum changes in interest rates of 5 p.p. by all banks. |
|
Capital Adequacy |
|
|
The PFSA letters dated 10 February 2022 and 23 December 2022 on imposing an additional capital charge under Pillar II (P2G). |
The recommendations of the supervisory authority with respect to maintaining, at the separate and consolidated levels, own funds to cover a capital surcharge of 0.50 p.p. (February 2022) and 1.19 p.p. (December 2022) above the total capital ratio to absorb potential losses in the event that stress conditions occur. The surcharge should consists exclusively of Tier I capital. |
3. Financial performance and capital adequacy
|
Key financial indicators of PKO Bank Hipoteczny SA Statement of financial position of PKO Bank Hipoteczny SA Income statement of PKO Bank Hipoteczny SA Requirements regarding own funds (Pillar I) Internal capital (Pillar II) Disclosures (Pillar III) |
3.1. Key financial indicators of PKO Bank Hipoteczny SA
|
|
31.12.2022 |
31.12.2021 |
|
Total assets (in PLN million) |
20,680.5 |
25,620.4 |
|
ROA[10] |
- |
0.4% |
|
ROE[11] |
- |
4.5% |
|
Total capital ratio (TCR) |
18.9% |
20.9% |
|
Leverage ratio (LR) |
7.7% |
8.0% |
|
Cost to income ratio (C/I) [12] |
- |
23.9% |
3.2. Statement of financial position of PKO Bank Hipoteczny SA
|
In PLN million |
31.12.2022 |
31.12.2021 |
|
Cash and balances with the Central Bank |
60.7 |
50.4 |
|
Amounts due from banks |
0.1 |
0.5 |
|
Derivative hedging instruments |
508.1 |
841.5 |
|
Securities |
1,017.4 |
1,870.7 |
|
Loans and advances to customers |
18,955.4 |
22,848.6 |
|
Other assets [13] |
138.8 |
8.7 |
|
TOTAL ASSETS |
20,680.5 |
25,620.4 |
|
in PLN million |
31.12.2022 |
31.12.2021 |
|
Amounts due to banks |
5,635.9 |
6,544.5 |
|
Derivative hedging instruments |
25.7 |
2.0 |
|
Liabilities in respect of mortgage covered bonds issued |
12,063.6 |
13,146.4 |
|
Liabilities in respect of bonds issued |
1,495.9 |
3,728.2 |
|
Other liabilities and provisions[14] |
55.1 |
85.6 |
|
Equity |
1,404.3 |
2,113.7 |
|
TOTAL LIABILITIES AND EQUITY |
20,680.5 |
25,620.4 |
As at 31 December 2022 the total assets of PKO Bank Hipoteczny SA amounted to PLN 20,680.5 million. Residential loans were the key component of the Bank’s assets. Their carrying amount, taking into account allowances for expected credit losses recognized as at 31 December 2022, amounted to PLN 18,955.4 million, of which loans granted by PKO Hipoteczny SA amounted to PLN 10,023.1 million, whereas loans purchased from PKO Bank Polski SA amounted to PLN 8,932.2 million.
As at the end of December 2022, the carrying amount of mortgage covered bonds was PLN 12,063.6 million, i.e. 58.3% of the balance sheet total. This is 8.2% down compared with the end of 2021, due to the redemption of mortgage covered bonds which matured in 2022 and the impact of the EUR/PLN exchange rate on the measurement of mortgage covered bonds denominated in EUR.
As at 31 December 2022, financial liabilities to PKO Bank Polski SA constituted a significant item of the Bank’s liabilities and equity. They consisted of liabilities in the form of loans, limited overdraft facilities, liabilities in respect of the mortgage covered bonds and unsecured bonds acquired by PKO Bank Polski SA and other liabilities to PKO Bank Polski SA. Their total balance was PLN 5,524.8 million. Unsecured bonds issued by the Bank also constituted a significant source of funding the Bank’s operations. As at 31 December June 2022 they amounted to PLN 1,495.9 million, which is a 59.9% decrease compared with the end of 2021.
3.3. Income statement of PKO Bank Hipoteczny SA
|
in PLN million |
01.01.2022 – 31.12.2022 |
01.01.2021 – 31.12.2021 |
Change y/y |
|
Net interest income |
(320.8) |
305.6 |
(626.4) |
|
Net fee and commission income |
(0.2) |
(5.7) |
5.5 |
|
Net gain/(loss) on financial instruments measured at fair value through profit or loss |
0.0 |
0.0 |
0.0 |
|
Net foreign exchange gains/(losses) |
0.3 |
0.5 |
(0.2) |
|
Net allowances for expected credit losses |
(6.1) |
(3.2) |
(2.9) |
|
Net other operating income and expenses |
0.2 |
0.2 |
0.0 |
|
Administrative expenses |
(43.3) |
(47.1) |
3.8 |
|
Regulatory charges |
(37.3) |
(24.8) |
(12.5) |
|
Tax on certain financial institutions |
(69.6) |
(83.8) |
14.2 |
|
Operating profit |
(476.8) |
141.7 |
(618.5) |
|
Profit before tax |
(476.8) |
141.7 |
(618.5) |
|
Corporate income tax |
71.0 |
(46.8) |
117.8 |
|
Net profit |
(405.8) |
94.9 |
(500.7) |
In 2022 PKO Bank Hipoteczny SA incurred a net loss of PLN (405.8) million. The loss is caused by recognizing an adjustment reducing the gross carrying amount of mortgage loans of PLN 667.8 million in connection with the Act on crowdfunding for businesses and aid to borrowers.
In the period under analysis the Bank generated interest income of PLN 814.5 million. It comprised mainly interest income on residential loans measured at amortized cost of PLN 1408.5 million and net income/(expense) of PLN (655.0) million, including corrections decreasing the gross carrying amount of mortgage loans in connection with the Act on crowdfunding for businesses and aid to borrowers coming into force PLN (667.8) million. In that period the Bank incurred interest expense of PLN 1,135.2 million. They were primarily the mortgage covered bonds issued and the costs of hedging transactions. The respective interest expense amounted to PLN 700.1 million in total. The Bank also incurred interest expense of PLN 334.5 million with respect to loans received and using the bank overdraft and PLN 100.6 million with respect to bonds issued.
The Bank’s turnover in 2022 (understood as the total value of interest income and fee and commission income) amounted to PLN 823.2 million. The realized turnover was generated entirely from the Bank’s operations in Poland.
In 2022, the Bank incurred administrative expenses of PLN 43.3 million. Non-personnel costs of PLN 25.6 million, including costs related to services rendered by PKO Bank Polski SA under an outsourcing agreement of PLN 19.6 million, were a significant component of administrative expenses. Costs of employee benefits amounted to PLN 16.3 million.
In 2022, the Bank also incurred regulatory expenses totalling PLN 37.3 million. The main item of such expenses was the contribution to the mandatory resolution fund of the Bank Guarantee Fund of PLN 27.6 million, which is a PLN 6.5 million increase compared with 2021. Moreover, in connection with the Act on crowdfunding for businesses and aid to borrowers coming into force, the Bank recognized in its books of account the cost of additional contributions to the Borrowers Support Fund (“BSF”) of PLN 6.0 million. The high level of costs of regulatory charges has a material impact on reducing the Bank’s profitability.
Tax on certain financial institutions (bank tax), which amounted to PLN 69.6 million in the reporting period, was also a significant cost of the Bank’s activities.
The Bank’s costs resulting from allowances for expected credit losses amounted to PLN 6.1 million in 2022, which translated to a credit risk cost ratio of 0.03%. In 2021 they amounted to PLN 3.2 million and 0.01% respectively. Higher costs of allowances in 2022 resulted mainly from recording additional credit allowances of PLN 1.9 million on loans granted to people from the area afflicted by the conflict between Russia and Ukraine, and worse macroeconomic forecasts taken into consideration in the model of estimating allowances in the context of measuring the expected credit loss. Despite this, the cost of risk in terms of respective indices is still at a very low level in consequence of maintaining strict control of credit risk, which translates into the very good quality of the credit portfolio.
Payment of Dividend
On 28 April 2022 the General Shareholders’ Meeting of PKO Bank Hipoteczny SA passed a resolution on appropriating the Bank’s profit for 2021, according to which:
• PLN 7.6 million, i.e. 8% of the profit was earmarked for transferring to the Bank’s supplementary capital pursuant to Article 348 and Article 396 of the Commercial Companies Code;
• PLN 87.3 million, i.e. the remaining portion of the profit was earmarked for payment of dividend. On 29 April 2022 the Bank transferred the funds for payment of dividend to PKO Bank Polski SA to the register of the non-public market maintained by PKO BP Biuro Maklerskie SA.
The Bank’s Funding Structure
The table below presents the structure of the Bank’s funding sources:
|
|
31.12.2022 |
31.12.2021 |
|
Mortgage covered bonds issued |
58.3% |
51.3% |
|
Funds from the parent entity |
26.6% |
25.5% |
|
Bonds issued |
7.2% |
14.6% |
|
Equity |
6.8% |
8.3% |
|
Other |
1.1% |
0.3% |
|
Total |
100.0% |
100.0% |
As at 31 December 2022 and as at 31 December 2021 the Bank had no liabilities in respect of which it would be in contractual default.
The Impact of the Act of 7 July 2022 on Crowdfunding for Businesses and Aid to Borrowers on the Bank’s Performance
On 14 July 2022, the President of the Republic of Poland signed the Act of 7 July 2022 on crowdfunding for businesses and aid to borrowers (the “Aid to Borrowers Act”) which contains a package of support measures for mortgage loan customers, e.g. the possibility of suspending the repayment of mortgage loans (the so-called “loan repayment holidays”), loan subsidies from the Borrowers Support Fund and an announcement of the use of a replacement for the WIBOR index.
In accordance with the Aid to Borrowers Act:
• statutory loan repayment holidays relate to mortgage loans granted in the Polish zloty for own housing needs;
• it is possible to suspend the repayment of a loan for as much as 8 months in the years 2022-2023 – for two months each in the third and fourth quarter of 2022 and for one month in each of the four quarters of 2023;
• suspension of loan repayment is available to customers, if a loan agreement before 1 July 2022 and the lending period end after 31 December 2022;
• loan repayment holidays may be used for only one loan;
• the loan instalment repayment schedule is prolonged by the number of months used for loan repayment holidays.
In the Bank’s opinion, the customers’ right to take advantage of the loan repayment suspension constitutes a statutory modification of cash flows which occurred on the date of the Aid to Borrowers Act being signed by the President, i.e. on 14 July 2022. Therefore, the Bank adjusted the gross carrying amount of mortgage loans by PLN 667.8 million by reducing interest income. The correction was determined as the difference between the present value of estimated cash flows following from loan contracts and accounting for the suspension of payments of instalments and the present gross carrying amount of the loan portfolio. The loss was calculated based on the assumption that 63% of the entitled customers would decide to avail themselves of the full period of the loan repayment holidays, i.e. 8 months (customer participation ratio).
The table below shows sensitivity to the loss amount to a change in the customer participation ratio of +/- 10 p.p. (in PLN thousands):
|
IMPACT ON THE LOSS CAUSED BY THE LOAN REPAYMENT HOLIDAYS (“+” INCREASE; “()” DECREASE) |
Increase of customer participation rate of 10 p.p. |
Decrease of customer participation rate of 10 p.p. |
|
106,000 |
(106,000) |
Until 31 December 2022, 67 thousand of the Bank’s customers filed requests for suspending repayment of mortgage loans, and the total number of suspended loan instalments amounted to PLN 434 thousand (of which 191 thousand related to 2023), which was 47% of the maximum number of instalments to be suspended for all the entitled customers.
As at 31 December 2022 the Bank assessed the level of loss caused by the loan repayment holidays in terms of value, adopting the following assumptions:
• the degree of participation of customers in the loan repayment holidays in 2023 will be similar to that from 2022 – the analysis is based on a classification of customers into four groups reflecting their previous degree of activity based on which the potential activity in 2023 was determined;
• for the group of customers who applied for loan repayment holidays in 2022, but did not file requests for suspending principal and interest instalments for 2023 at the end of the year, the effect of reassessing interest rates calculated based on the changes in base rates between the date of recognizing the loss on the loan repayment holidays and 31.12.2022 was taken into account;
• the loss relating to all the suspensions of the principal and interest instalments realized in 2022 and applied for 2023 was decreased by the effect of prepayments observed based on customer behaviours in the second half of 2022 and that forecast for 2023, adjusted prudently due to the uncertainty of possible prepayments in 2023:
• based on monthly data on the inflow of new applications in 2022, the trend of the applications which may be filed until the end of the programme was assessed using extrapolation, based on which using interest rates prevailing as at 31 December 2022 the potential loss was estimated.
The results of the analysis confirmed that the loss on loan repayment holidays recognized by the Bank of PLN 667.8 million is at an adequate level. An increase in the customer participation coefficient in the future, and therefore also the respective costs, could potentially have an impact on such factors as the level of unemployment, a change in customer behaviour and an increase in market interest rates.
The Aid to Borrowers Act also introduced changes in the operation of the Borrowers Support Fund which offers support to borrowers of up to PLN 2,000 per month for as long as 36 months. The support is repaid after two years in 144 equal and interest-free instalments. The support may be partially forgiven for customers who have repaid the first 100 instalments on a timely basis. A customer may take advantage of the support when one of the following conditions has been met:
• at least one of the borrowers has the status of an unemployed person;
• the monthly costs of servicing the housing loan exceed 50% of the monthly income;
• the monthly income, after deducting the monthly costs of servicing the loan in 2022 have not exceeded PLN 1,552 per person in a single-person household and PLN 1,200 in a multi-person household.
In 2022, the Bank made a contribution to the Borrowers Support Fund of PLN 6.3 million, presented under “Regulatory charges”.
The Aid to Borrowers Act also assumes that the WIBOR index will be replaced by another index, as discussed in Note 5 “IBOR interest rate benchmark reform” in the financial statements of PKO Bank Hipoteczny SA for the year ended 31 December 2022.
3.4. Requirements Regarding Own Funds (Pillar I)
General Information
In accordance with the CRR, the Bank calculates requirements in respect of own funds for the following risk types:
• credit risk – according to the standardized approach;
• credit valuation adjustment (CVA) risk – according to the standardized approach;
• settlement and delivery risk – according to the standardized approach;
• operational risk– according to the basic indicator approach (BIA);
• market risk (foreign exchange risk only) – using basic methods.
At 31 December 2022, the own funds requirements concerning the credit valuation adjustment, settlement and delivery, and market risk were nil, therefore the total own funds requirement comprised the requirements for credit and operational risks.
|
Own funds requirements |
31.12.2022 |
31.12.2021 |
|
Credit risk (in PLN millions) |
614.5 |
714.6 |
|
Operational risk (in PLN millions) |
47.0 |
44.3 |
|
Total own funds requirement (in PLN millions) |
661.5 |
758.9 |
|
Common equity Tier 1 capital ratio (CET1) |
18.9% |
20.9% |
|
Tier 1 capital ratio 1 (T1) |
18.9% |
20.9% |
|
Total capital ratio (TCR) |
18.9% |
20.9% |
The tables below show the exposure amounts, risk weighted assets (RWA) and the own funds requirements broken down by particular exposure classes:
|
31.12.2022 |
Gross exposure |
Exposure value[15] |
Risk-weighted assets (RWA) |
Own funds requirement |
|
Retail exposures[16] |
1,864.8 |
1,834.1 |
1,375.6 |
110.1 |
|
Exposures secured by mortgages on real estate |
17,152.4 |
17,108.7 |
5,988.0 |
479.0 |
|
Exposures to central governments or central banks |
1,170.8 |
1,170.7 |
232.2 |
18.6 |
|
Exposures to institutions |
1,417.9 |
1,417.9 |
- |
- |
|
Exposures in default |
61.7 |
38.1 |
39.3 |
3.1 |
|
Other exposures |
45.9 |
46.0 |
45.9 |
3.7 |
|
Total |
21,713.5 |
21,615.5 |
7,681.0 |
614.5 |
|
31.12.2021 |
Gross exposure |
Exposure value[17] |
Risk-weighted assets (RWA) |
Own funds requirement |
|
Retail exposures[18] |
2,208.9 |
2,171.7 |
1,628.8 |
130.3 |
|
Exposures secured by mortgages on real estate |
20,720.6 |
20,688.4 |
7,240.9 |
579.3 |
|
Exposures to central governments or central banks |
1,921.1 |
1,921.1 |
- |
- |
|
Exposures to institutions |
2,030.5 |
2,030.5 |
- |
- |
|
Exposures in default |
57.3 |
48.3 |
53.2 |
4.3 |
|
Other exposures |
8.7 |
8.7 |
8.7 |
0.7 |
|
Total |
26,947.1 |
26, 868.7 |
8,931.6 |
714.6 |
Credit risk adjustments
For the purpose of specific credit risk adjustments, the Bank uses impairment loss, which was recognized in the Bank’s Tier 1 capital in accordance with the CRR and implementing legislation.
The approach applied by the Bank to identifying exposures at risk of impairment and methods for estimating allowances for expected credit losses and provisions for financial liabilities granted are described in Note 40.2 “Impairment loss on credit exposures” to the financial statements of PKO Bank Hipoteczny SA for the year ended 31 December 2022.
Use of Credit Risk Mitigation Techniques
The Bank uses mortgage collateral for the classification of exposures to classes of exposures secured by mortgages on real estate and the use of preferential risk weights. Detailed information about the main types of collateral adopted by the Bank and the method of determining the mortgage lending value is presented in Note 42 “Residual risk management” to the financial statements of PKO Bank Hipoteczny SA for the year ended 31 December 2022.
3.5. Internal capital (Pillar II)
Internal capital is the estimated amount of capital required to cover all identified material risks in the Bank’s activities, as well as the effect of changes in the business environment, taking into account the expected level of risk.
PKO Bank Hipoteczny SA regularly monitors the materiality of different risks involved in the Bank’s operations.
The Bank separately assesses its internal capital for the following risks considered to be material:
• credit risk;
• liquidity risk;
• operational risk;
• interest rate risk;
• business risk;
• model risk.
In connection with the loan repayment holidays the Bank decided the business risk is material and as of November 2022 it started calculating internal capital to cover potential business risk losses.
Internal capital required to cover particular risks is calculated in accordance with the methods determined in the Bank’s internal regulations. Total internal capital is the sum of the internal capital necessary to cover risks material for the Bank.
|
Structure of internal capital |
31.12.2022 |
31.12.2021 |
|
For credit risk |
76.0% |
87.1% |
|
For liquidity risk |
2.7% |
2.5% |
|
For operational risk |
5.8% |
5.4% |
|
For interest rate risk |
5.1% |
4.8% |
|
For business risk |
10.1% |
- |
|
For model risk |
0.2% |
0.2% |
|
Total |
100.0% |
100.0% |
As at 31 December 2022 the proportion of own funds to the Bank’s internal capital was above both the statutory and internal limit.
To estimate the amount of capital necessary to engage in prudent operations in unfavourable market conditions the Bank regularly conducts stress tests.
3.6. Disclosures (Pillar III)
Considering the scale and specific nature of its operations, in the financial statements and in the Directors’ Report the Bank discloses in particular the following information:[19]
• risk management objectives and strategies;
• own funds for capital adequacy purposes;
• capital buffers;
• financial leverage;
• capital requirements;
• credit risk adjustments;
• credit risk mitigation techniques used;
• the Bank’s remuneration policies, pursuant to Recommendation Z;
• the key provisions of the Rules of managing conflicts of interest, pursuant to Recommendation Z;
• the requirements referred to in Article 111a of the Banking Law and Recommendation H;
• operational risk in accordance with Recommendation M;
• credit risk and information on financial assets impairment in accordance with Recommendation R and IFRS 9;
• liquidity risk management system and the liquidity position, in accordance with Recommendation P;
• impact of the use of interim solutions with respect to implementing International Financial Reporting Standard 9 (IFRS 9) on capital adequacy.
Being part of the PKO Bank Polski Group, the Bank also supplies information to the parent for consolidation purposes.
Details of the scope of information disclosed, the method of its verification and publication are presented in PKO Bank Hipoteczny SA Capital Adequacy Information Policies and other information to be published, which is available on the Bank’s website (www.pkobh.pl).
4. Business of PKO Bank Hipoteczny SA
|
Sales of residential mortgage loans under the agency model Acquisition of residential mortgage loan receivables Structure of the residential mortgage loan portfolio Mortgage covered bonds Financial market operations Bonds – emission programme concluded with PKO Bank Polski SA |
4.1. Sales of residential mortgage loans under the agency model
PKO Bank Hipoteczny SA has been granting residential loans in Polish zloty since 1 April 2015. Residential loans are sold under the agency model, through Poland’s largest network of branches, agents and intermediaries of PKO Bank Polski SA. The Bank accepts apartments and single-family houses as collateral.
As of 2020, pursuant to the strategy for the years 2020 – 2022 sales of residential mortgage loans according to the agency model were systematically reduced. In 2022 the Bank granted mortgage loans of PLN 236 million.
In accordance with Recommendation S of the Polish Financial Supervision Authority, the Bank only grants loans for which the loan-to-value ratio does not exceed 80%. Where a low down payment insurance policy is used, the Bank approves loans for which this ratio was not higher than 90%. Moreover, in compliance with the Polish Act on Mortgage Covered Bonds and Mortgage Banks, the Bank only grants loans whose value in relation to the mortgage lending value of the real estate does not exceed 100%.
The following table shows the main criteria applied by PKO Bank Hipoteczny SA in the process of granting loans secured by mortgages:
|
Criteria |
Agency Model |
|
Loan amount/market value of the real estate |
Max 80%[20] |
|
Loan amount/mortgage lending value of the real estate |
Max 100% |
|
Legal title to the real estate |
Ownership or perpetual usufruct |
|
Loan collateral |
Mortgage recorded as the first in Section IV of the Land and Mortgage Register |
|
Currency |
PLN |
|
Purpose |
Residential |
The Bank offers both variable-interest loans and loans bearing interest based on a five-year fixed base rate. It also allows the option of changing the variable rate to fixed-interest rate in a period of five years.
4.2. Acquisition of residential mortgage loan receivables
The purchase of residential mortgage loan receivables based on a framework agreement signed in 2015 with PKO Bank Polski SA is an element of the business of PKO Bank Hipoteczny SA.
In 2022, PKO Bank Hipoteczny SA did not acquire any residential mortgage loan receivables portfolios from PKO Bank Polski SA.
The following table shows the main criteria applied by PKO Bank Hipoteczny SA in the process of acquiring loans secured by mortgages.
|
Criteria |
Pooling Model |
|
Loan amount/mortgage lending value of the real estate |
Max 100% |
|
Legal title to the real estate |
Ownership or perpetual usufruct |
|
Loan collateral |
Mortgage recorded as the first in Section IV of the Land and Mortgage Register |
|
Currency |
PLN |
|
Days past due or impairment indicators |
None |
|
Purpose |
Residential |
4.3. Structure of the residential mortgage loan portfolio
Portfolio structure by LtV
The structure of the gross portfolio of loans granted to customers in the statement of financial position of PKO Bank Hipoteczny SA according to the LtV ratio based on market valuation[21] and the LtV ratio based on the MLV is presented in the following tables.
|
Gross loans granted to customers at LtV based on market valuation |
31.12.2022 |
31.12.2021 |
|
Below 50% |
82.6% |
63.9% |
|
51% - 60% |
13.8% |
21.8% |
|
61% - 70% |
2.9% |
11.5% |
|
71% - 80% |
0.6% |
2.8% |
|
80% - 90% |
0.1% |
0.0% |
|
over 90% |
0.0% |
0.0% |
|
Total, gross |
100% |
100% |
|
Average LtV based on market valuation |
37.4% |
44.0% |
|
Gross loans granted to customers at LtV based on mortgage lending value |
31.12.2022 |
31.12.2021 |
|
below 50% |
21.8% |
18.9% |
|
51% - 60% |
12.7% |
11.7% |
|
61% - 70% |
16.8% |
16.0% |
|
71% - 80% |
22.5% |
23.1% |
|
80% - 90% |
23.1% |
25.0% |
|
over 90% |
3.1% |
5.3% |
|
Total, gross |
100% |
100% |
|
Average LtV based on MLV |
65.1% |
67.3% |
In 2022 the average LtV based on the market valuation of the loan portfolio dropped by 6.6 p.p. (in 2021, it dropped by 6.0 p.p.), which is the effect of the depreciation of the portfolio accompanied by further growth in the market values of the real estate constituting the collateral for the loans granted by the Bank. With respect to LtV based on MLV the drop is much smaller and results exclusively from the depreciation of the portfolio. The MLV determined as at the moment of granting the loans did not require updating – in the Bank’s opinion it is at a safe level, lower than the market value, and meets the requirements of the Rules for Setting the MLV of Real Estate by PKO Bank Hipoteczny SA.
Interest on loans
The Bank grants loans bearing an interest rate based on WIBOR 6M and a periodically fixed interest rate. In the past, the Bank also offered loans based on WIBOR 3M.
The base reference rates used for the Bank’s loans are the WIBOR 6M and WIBOR 3M and a fixed base rate, which on average amounted to 6.28%, 6.02% and 6.23% respectively in 2022.
4.4. Mortgage covered bonds
The key objective of PKO Bank Hipoteczny SA is issuing mortgage covered bonds which are the main source of the long-term funding for loans secured with real estate.
Domestic Issues of Mortgage Covered Bonds
From the beginning of its operations, PKO Bank Hipoteczny SA has issued thirteen series of Polish mortgage covered bonds, including two issues of Green Covered Bonds.
The total value of outstanding mortgage covered bonds issued by PKO Bank Hipoteczny SA for the domestic market (at the nominal value) was PLN 2,490 million as at the end of 2022.
All series of domestic mortgage covered bonds issued are traded on the Warsaw Stock Exchange parallel regulated market and on the BondSpot regulated market. They are also accepted in repo transactions by the National Bank of Poland.
In 2022 PKO Bank Hipoteczny SA did not carry out any domestic issues of mortgage covered bonds.
In 2022, PKO Bank Hipoteczny SA redeemed two series of mortgage covered bonds with a total nominal value of PLN 600 million.
|
|
PLN-denominated mortgage covered bonds of PKO Bank Hipoteczny SA issued and outstanding until 31 December 2022:
|
Series |
Mortgage covered bond number (ISIN) |
Issue date |
Redemption date |
Series value (in PLN million) |
Interest rate |
Currency |
Rating of the issue |
Listing |
|
6 |
PLPKOHP00066 |
27.10.2017 |
27.06.2023 |
500 |
WIBOR3M +0.60% |
PLN |
Aa1 |
Bondspot, WSE parallel regulated market |
|
7 |
PLPKOHP00074 |
27.04.2018 |
25.04.2024 |
700 |
WIBOR3M +0.49% |
PLN |
Aa1 |
Bondspot, WSE parallel regulated market |
|
9 |
PLPKOHP00090 |
27.07.2018 |
25.07.2025 |
500 |
WIBOR3M +0.62% |
PLN |
Aa1 |
Bondspot, WSE parallel regulated market |
|
10 |
PLPKOHP00108 |
24.08.2018 |
24.08.2028 |
60 |
3.4875% |
PLN |
Aa1 |
Bondspot, WSE parallel regulated market |
|
11 |
PLPKOHP00116 |
26.10.2018 |
28.04.2025 |
230 |
WIBOR3M +0.66% |
PLN |
Aa1 |
Bondspot, WSE parallel regulated market |
|
12 |
PLPKOHP00132 |
10.06.2019 |
30.09.2024 |
250 |
WIBOR3M +0.60% |
PLN |
Aa1 |
Bondspot, WSE parallel regulated market |
|
13 |
PLPKOHP00199 |
02.12.2019 |
02.12.2024 |
250 |
WIBOR3M +0.51% |
PLN |
Aa1 |
Bondspot, WSE parallel regulated market |
International Issues of Mortgage Covered Bonds
From the beginning of its operations, PKO Bank Hipoteczny SA has issued eight series of international mortgage covered bonds, including six benchmark issues and two private placements.
|
|
The total value of outstanding mortgage covered bonds issued by PKO Bank Hipoteczny SA for the international market (at the nominal value) was EUR 2,025 million as at the end of 2022.
All series of international mortgage covered bonds issued are traded on the Luxembourg Stock Exchange and in addition series 3, 4, 6 and 8, on the parallel regulated market of the Warsaw Stock Exchange. They are also accepted in repo transactions by the European Central Bank.
In 2022 PKO Bank Hipoteczny SA conducted one issue of Series 8 Green Covered Bonds denominated in EUR with the nominal value of EUR 500 million, for which the issue date was set at 4 July 2022. This was the first issue of EUR-denominated Green Covered Bonds in EUR in the CEE region
In 2022, PKO Bank Hipoteczny SA redeemed two series of EUR-denominated mortgage covered bonds with a total nominal value of PLN 654 million.
EUR-denominated mortgage covered bonds of PKO Bank Hipoteczny SA issued and outstanding until 31 December 2022:
|
Series |
Mortgage covered bond number (ISIN) |
Issue date |
Redemption date |
Series value (EUR M) |
Coupon |
Price |
Currency |
Rating of the issue |
Listing |
|
2 |
XS1559882821 |
02.02.2017 |
02.02.2024 |
25 |
0.82% |
100.00% |
EUR |
Aa1 |
LuxSE |
|
3 |
XS1588411188 |
30.03.2017 |
24.01.2023 |
500 |
0.625% |
99.972% |
EUR |
Aa1 |
LuxSE, WSE parallel regulated market |
|
4 |
XS1690669574
|
27.09.2017 |
27.08.2024 |
500 |
0.75% |
99.906% |
EUR |
Aa1 |
LuxSE, WSE parallel regulated market |
|
6 |
XS1795407979 |
22.03.2018 |
24.01.2024 |
500 |
0.75% |
99.892% |
EUR |
Aa1 |
LuxSE, WSE parallel regulated market |
|
8 |
XS2495085784 |
04.07.2022 |
25.06.2025 |
500 |
2.125% |
99.980% |
EUR |
Aa1 |
LuxSE, WSE parallel regulated market |
The funds raised from the issues of mortgage covered bonds have been used by PKO Bank Hipoteczny SA to grant residential loans and to purchase mortgage loan receivables from PKO Bank Polski SA.
Premium Label
Pursuant to Article 7d of the Polish Covered Bonds and Mortgage Banks Act of 29 August 1997, mortgage covered bonds may be labelled as European Covered Bonds or European Covered Bonds (premium). Mortgage covered bonds of PKO Bank Hipoteczny are labelled as European Covered Bonds (premium). The “premium” label allows easy and unequivocal identification of whether the mortgage covered bonds meet the requirements of Article 129 of the CRR, which is to facilitate assessment of their quality by investors and therefore increase their attractiveness as an investment instrument both in the EU and in other countries.
The list of mortgage covered bonds issued on which European Mortgage Bonds and European Mortgage Bonds (premium) are included is on the PFSA website:
https://www.knf.gov.pl/podmioty/Podmioty_sektora_bankowego/banki_hipoteczne_wykaz_emisji_listow_zastawnych
The Covered Bond Label
On 6 February 2018 PKO Bank Hipoteczny as the first issuer of mortgage covered bonds from Poland joined The Covered Bond Label. The Covered Bond Label is a quality certificate, whose purpose is to build awareness of the safety and high quality of assets such as mortgage covered bonds among investors.
The Bank’s details on the website of The Covered Bond Label are available at:
https://coveredbondlabel.com/issuer/132-pko-bank-hipoteczny-spolka-akcyjna
Energy Efficient Mortgage Label
The Energy Efficient Mortgage Label was created by the European Mortgage Federation – European Bond Council (EMF-ECBC) as a clear and transparent quality label for consumers, lenders and investors, aimed at identifying energy-efficient residential mortgage loans.
PKO Bank Hipoteczny was the first Polish bank to join the Energy Efficient Mortgage Label. This initiative is aimed at supporting the Green Deal and climate neutrality by 2050, and at adapting the product portfolio to regulatory changes such as the new EU taxonomy.
The Bank’s details on the website of Energy Efficient Mortgage Label are available at:
https://www.energy-efficient-mortgage-label.org/issuers/directory
Green Covered Bonds
In 2019, PKO Bank Hipoteczny SA for the first time published the Green Covered Bond Framework - GCBF). In June 2022 the GCBF was published by the Bank in an updated version, in connection with the planned issue of Green Covered Bonds. The GCBF specifies, among other things, the principles for selecting assets to secure the Green Covered Bond issues. Green issues by PKO Bank Hipoteczny SA are secured with mortgages that meet the highest energy efficiency and CO2 emissions standards.
The proceeds from Green Covered Bonds are used exclusively to provide full or partial funding or refunding of new and/or existing projects which have been classified as green assets. The Green Covered Bonds of PKO Bank Hipoteczny SA satisfy the criteria set by the International Capital Market Association (ICMA), which are known as Green Bond Principles (GBP). The GBP are a set of guidelines concerning the purpose of funding, assessment and selection of assets, managing the proceeds from the issue and reporting the allocation of funds.
In June 2019 and then in June 2022 PKO Bank Hipoteczny SA obtained a second party opinion for its Green Covered Bond Framework from Sustainalytics, a specialized and certified international institution. PKO Bank Hipoteczny SA’s Green Covered Bonds are certified by the Climate Bond Initiative.
At least once a year the Bank publishes a report on allocation and the impact of the issues of the Green Covered Bonds on the environment.
For more detailed information concerning Green Covered Bonds issued by the Bank, please visit:
https://www.pkobh.pl/listy-zastawne/zielone-listy-zastawne/
4.5. Financial Market Operations
PKO Bank Hipoteczny SA executes treasury transactions on the wholesale financial market. The purpose of the transactions is to manage liquidity (over short-, mid- and long-term time horizons) and the Bank’s foreign-currency position. Additionally, the Polish Covered Bonds and Mortgage Banks Act imposes an obligation on PKO Bank Hipoteczny SA to mitigate the risk caused by fluctuations in exchange rates.
For the purpose of funding the granting of residential loans and the purchase of receivables for residential loans granted by PKO Bank Polski SA, PKO Bank Hipoteczny SA issues mortgage covered bonds, unsecured bonds, and takes out credit lines and assumes liabilities for purchased receivables.
In the Management Board’s opinion, as at 31 December 2022, there were no indications of a risk of late payment of the liabilities incurred by the Bank. As at 31 December 2022, the Bank complied with all internal and regulatory liquidity limits. Details of the levels of the Bank’s liquidity limits are provided in Note 43 “Liquidity risk management” to the financial statements of PKO Bank Hipoteczny SA for the year ended 31 December 2022.
As far as the issue of EUR-denominated mortgage covered bonds is concerned, for the purpose of hedging interest-rate risk and foreign exchange risk, PKO Bank Hipoteczny SA entered into Cross-Currency Interest Rate Swap (CIRS) transactions, under which the Bank pays a coupon in PLN based on a variable interest rate, and receives a coupon based on a fixed interest rate for EUR. If PKO Bank Hipoteczny SA is declared bankrupt by a court, the CIRS transactions will automatically be extended by 12 months on the terms set on the transaction date. Additionally, the Bank has executed a series of FX-Forward contracts, which hedge currency exposures with maturities on the payment dates of the coupons for the EUR-denominated mortgage covered bonds.
As far as the issue of fixed-interest rate mortgage covered bonds in PLN is concerned, PKO Bank Hipoteczny SA entered into IRS transactions to hedge interest rate risk. Under the IRS transactions, the Bank pays a coupon based on a floating PLN rate, and receives a coupon based on a fixed PLN rate.
4.6. Bonds – Issue programme concluded with PKO Bank Polski SA
On 30 September 2015 PKO Bank Hipoteczny SA concluded a Bonds Issue Programme agreement with PKO Bank Polski SA based on which zero-coupon, variable coupon and fixed coupon bonds may be issued with a maximum tenor of 36 months.
In 2022 under this Programme the Bank issued bonds with a total nominal value of PLN 2,790.0 million. At the same time, the Bank redeemed bonds with a total nominal value of PLN 5,001.0 million. The balance of bonds issued was PLN 1,519.5 million as at 31 December 2022. The Bank intends to continue raising funds under this Programme.
5. Internal Operating Conditions
|
Lending process and cooperation with PKO Bank Polski SA Internal control system Risk management Measurement of residential mortgage loan collaterals Cover pool for mortgage covered bonds Cover Pool Monitor Statutory limits |
5.1. Lending process and cooperation with PKO Bank Polski SA
PKO Bank Hipoteczny SA purchases residential mortgage loans for its portfolio as part of its strategic cooperation with PKO Bank Polski SA. The banks work together under two models:
• agency model;
• pooling model.
The cooperation with PKO Bank Polski SA is governed in detail by an outsourcing agreement concluded on 16 January 2015. The agreement governs the scope of the cooperation and describes in detail the method of performing the outsourced functions, first and foremost in the area of offering and administering residential loans and performing support functions for PKO Bank Hipoteczny SA. Additionally, the agreement imposes obligations on PKO Bank Polski SA to properly perform the functions entrusted to it, as well as broad reporting and controlling obligations towards PKO Bank Hipoteczny SA.
On 17 November 2015, the Receivables Sale Framework Agreement was signed with PKO Bank Polski SA. On the basis thereof, the Bank has been acquiring portfolios of receivables in respect of residential mortgage loans from PKO Bank Polski SA since December 2015.
5.2. Internal governance
An effective and transparent internal governance system is operative in the Bank, as specified in PKO Bank Hipoteczny SA’s Articles of Association and the adopted internal regulations which comprise:
• the Bank’s management system;
• the Bank’s organization; and
• operating principles, rights, duties and responsibilities, and mutual relationships between the Bank’s particular authorities and organizational units, including the Supervisory Board, Management Board and key employees.
The key elements of internal governance, its goals and relationships between them and the basic principles of the Bank’s organization are defined in the Bank’s management strategy.
The Bank’s Management System covers all the aspects of the Bank’s functioning, and in particular strategic planning and managing the Bank’s Strategy, the internal control system, risk management system, ethical principles, procedures for anonymous notification of violations of the law and the ethical procedures and standards binding in the Bank, capital adequacy, the manner of shaping products, managing human resources and remuneration policy.
The Bank conducts its activities in a responsible manner, taking into consideration the principles of internal governance, guided by the need to take the highest diligence, professionalism and ethics. The Bank discharges its duties under the binding legal regulations, complies with the requirements for regulated institutions imposed by the Polish Financial Supervision Authority in the form of recommendations and good practices addressed to the banking sector, the Corporate Governance Framework for supervised institutions, and guidelines specified by the European Banking Authority adopted pursuant to the supervisory practice in the Member States in the scope relating to the Bank’s operations and the adopted business model, in consideration of the scale, specificity and nature of the Bank’s operations. The above rules support the Bank in its endeavours to reinforce operating transparency and maintain the safety of its operations.
The Bank’s Management Board is responsible for designing, implementing and abiding by and the correct functioning of its internal governance, taking into account all of its components. The Bank’s Management Board regularly informs the Bank’s Supervisory Board of the state of the governance strategy realized by the Bank and the risk management strategy, and of the most important related issues, and if necessary, it immediately notifies of events and circumstances material for the assessment of the Bank’s position and its management.
The Bank’s Supervisory Board oversees the implementation and functioning of the internal governance and assesses its adequacy and effectiveness. The assessment takes into account primarily all the elements comprising the internal governance and potential material changes in internal and external factors which may have an impact on the Bank’s operations
Pursuant to Recommendation Z of the PFSA, the Bank’s Management Board analysed the results of the periodical reviews and evaluations of particular areas comprising the internal governance functioning within the Bank within the scope of the year 2022. The results of the analysis were summarized in the “Report on the assessment of the functioning of internal governance in PKO Bank Hipoteczny SA for the year 2022”. No oversights or non-compliance with the legal regulations and regulatory requirements were noted with respect to the Bank’s internal governance. Particular assessments of the internal governance components indicate an adequate and effective application of internal governance principles, which allows the Management Board to recommend a positive opinion on the assessment of the Bank’s internal governance to the Supervisory Board.
Taking into account the recommendation of the Management Board and the results of periodical reviews and evaluations of particular fields comprising the Bank’s internal governance disclosed in the comprehensive “Report on the assessment of the functioning of internal governance in PKO Bank Hipoteczny SA for the year 2022”, the Supervisory Board has assessed the internal governance implemented in the Bank as satisfactory, which means that it is adequate to the business model adopted by the Bank and functions effectively with respect to its particular components.
5.3. Internal control system
The internal control system in PKO Bank Hipoteczny SA is one of the elements of managing the Bank. The objective of the internal control system is to support the Bank’s decision-making processes to ensure:
• effectiveness of the Bank’s operations;
• reliability and accuracy of financial reporting, administrative and accounting procedures, and reliable internal and external reporting;
• compliance with the risk management policy;
• compliance of the Bank’s operations with the generally applicable laws, internal regulations and market standards adopted by the Bank, taking into account regulatory recommendations.
The Bank’s internal control system includes:
• the control function designed to ensure compliance with controls relating, in particular, to risk management; this function covers all of the Bank’s business units which are responsible for carrying out the tasks assigned to this function;
• the compliance function, which, together with the business units, is responsible for identifying, assessing, controlling and monitoring the risk of the Bank’s non-compliance with the generally applicable laws and with the Bank’s internal regulations and market standards adopted by the Bank, taking into account regulatory recommendations, and for the submission of the relevant reports;
• the independent internal audit function to evaluate and assess, independently and objectively, the adequacy and effectiveness of the risk management system, the internal control system, and corporate governance, except for the aspects relating to the internal audit function itself.
The internal control system is arranged at the Bank on three independent levels:
• the first level consists of organizational structures that perform operational tasks to manage exposure to risk, which operate under the internal regulations;
• the second level comprises operations of the compliance function and the identification, measurement or estimation, controlling, monitoring and reporting the Bank’s material risks, and the recognized threats and irregularities – these tasks are performed by specialized organizational structures operating under applicable policies, methodologies and procedures. The purpose of such structures is to ensure that actions at the first level are properly designed and effectively mitigate risks, support risk measurement and analysis, and to ensure the effectiveness of operations;
• the third level is internal audit, which carries out independent audits of elements of the Bank’s management system, including the risk management system and the internal control system. The internal audit function operates separately from, and can support the activities carried out by, the first and second level. The support involves consultation without affecting the decisions made.
The Bank’s Management Board ensures the continuity of operation of the internal control system and proper cooperation of all business units within the internal control system in place. The Management Board also identifies corrective actions to be taken to remedy any irregularities identified by the internal control system, including specific corrective and disciplinary measures. The Bank’s Management Board approves criteria for distinguishing the relevant processes taking into account the management strategy, the business model and the impact on the Bank’s financial performance and capital adequacy, as well as risk tolerance. The Bank’s Management Board also approves the list of significant processes and their connection with the internal control system’s objectives.
Supervision over the internal control system is exercised by the Supervisory Board with the support of the Audit and Finance Committee of the Bank’s Supervisory Board. The Supervisory Board approves, in particular, the principles of operation of the internal control system and assesses the adequacy and effectiveness of the system. The Audit and Finance Committee supports the Supervisory Board by monitoring and reviewing the adequacy and effectiveness of the internal control system based on the reports obtained from compliance, internal audit and the control function matrix coordinator, as well as by reviewing draft resolutions of the Management Board in terms of the internal control system, the approval of which falls within the competence of the Supervisory Board.
The results of monitoring and testing the controls functioning under the internal control system and actions taken to enhance and correct its functioning showed that in 2022 the internal control system in PKO Bank Hipoteczny SA was effective and commensurate with the business model and the scale of the Bank’s operations.
5.4. Risk Management
The risk management process is a key process in PKO Bank Hipoteczny SA. Its purpose is to ensure the Bank’s financial stability, protect the values and safety of the mortgage covered bonds issued and to ensure that the funds derived from the issue of bonds and the Bank’s other funding sources are secure by striving to maintain the risk level within the adopted tolerance level. The purpose of the risk management system is also to ensure proper and possibly the most complete information about the risk taken in decision-making, and effective placement of risk management in the Bank’s organizational culture. The assumed level of risk is an important element of the planning and decision-making processes.
Risk management in the Bank is based in particular on the following principles:
• the Bank manages all identified types of risk associated with its operations;
• the process of risk management is adequate to the scale of the Bank’s operations and to the materiality, scale and complexity of a given risk;
• the risk management process supports the execution of the Bank’s management strategy, while maintaining compliance with the risk management strategy, in particular with respect to the risk tolerance level;
• the process of risk management is continuously adjusted to new factors and sources of risk;
• methods of risk management and risk measurement systems are adjusted to the scale and complexity of the Bank’s operations and to the nature and size of the risk to which the Bank is exposed;
• methods of risk management are periodically reviewed and validated;
• risk management is integrated with planning and controlling processes;
• the risk level is regularly monitored and compared against the system of limits that apply in the Bank, while the Bank’s management receives regular information on the level of risk;
• the risk management process is cohesive with the risk management principles in the PKO Bank Polski SA Group.
PKO Bank Hipoteczny SA identifies and manages the following types of risk:
|
Material risks |
• Credit risk • Liquidity risk including funding risk • Interest rate risk • Model risk • Business risk, including macroeconomic risk • Operational risk |
|
Monitored risks |
• Concentration risk • Residual risk • Foreign exchange risk • Derivative instruments risk • Compliance risk • Reputation risk • Capital adequacy risk, including excessive leverage risk |
While determining the criteria of considering a certain risk to be material, the impact of such risk on the Bank’s activities is taken into account, and three levels of risk are distinguished:
• material risks – which are subject to active management;
• risks subject to monitoring – which are monitored for materiality;
• other risks which have not been defined or do not arise in the Bank (immaterial and unmonitored).
For monitored risks, PKO Bank Hipoteczny SA performs periodic monitoring of whether they should be designated as material. The Bank has defined materiality criteria, which when exceeded, a risk will be recognized as material.
In its Risk Management Strategy, the Bank has defined a number of strategic limits which define its tolerance for different risks. The Bank monitors these limits on an ongoing basis. As at the end of July 2022, in connection with introducing the so-called loan repayment holidays, the strategic limit for the C/I ratio was exceeded. Exceeding the strategic limit was caused by a one-off event, following directly from the provisions of the Act, and has no negative impact on the Bank’s future ability to generate positive financial results. None of the other ratios was exceeded, either in 2022, or throughout the remaining period of the Bank’s operations.
A detailed description of the Bank’s risk management objectives and methods is provided in the financial statements of PKO Bank Hipoteczny SA for the year ended 31 December 2022, in the chapter “Objectives and principles of risk management”. These financial statements also provide important information on the level of financial risk in the Bank’s operations, together with the methods of hedging significant types of planned transactions for which hedge accounting is applied.
5.5. Measurement of residential mortgage loan collaterals
PKO Bank Hipoteczny SA’s policy concerning loan collaterals and their measurement is based on the provisions of the following legal acts:
• the Act on Mortgage Covered Bonds and Mortgage Banks;
• the Act on Land and Mortgage Registers and Mortgage;
• The Banking Law.
Additionally, the question of loan collaterals is addressed by:
• the recommendations of the PFSA, including Recommendations F, S and J;
• the Bank’s internal regulations.
The Bank has in place and applies the Rules for Setting the MLV of Real Estate, approved by the PFSA. The Rules take into account the provisions of Recommendation F concerning the basic criteria applied by the Polish Financial Supervision Authority in approving rules for setting the mortgage lending value of real estate issued by mortgage banks.
The MLV of real estate is the value determined by the mortgage bank which, in the Bank’s opinion, reflects the level of risk associated with the real estate as the loan collateral. The MLV of real estate is used to determine the maximum amount of a loan that can be secured by a mortgage on a given real estate, and to make a decision on whether a receivable secured by a particular real estate can be purchased by the Bank. The mortgage lending value of real estate is determined in a prudent manner, taking into consideration long-term parameters.
PKO Bank Hipoteczny SA determines the MLV on the basis of expert valuations of the mortgage lending value of real estate. Such valuations are carried out with due diligence and prudence. They take into account only those real estate characteristics and expenditures necessary for its construction, which will be of a permanent nature and which any real estate holder will be able to obtain assuming rational exploitation. The expert valuation, made on a specified date, documents assumptions and parameters underlying the analysis, the process of determining the MLV and the resulting MLV proposal. The expert opinion takes into account analyses and forecasts concerning specific parameters for a given real estate, which influence the evaluation of credit risk, as well as factors of a general nature, e.g. population growth, the unemployment rate and urban development planning.
The process of determining the MLV is carried out in the Bank by a dedicated team.
In the agency model, the process of setting the mortgage lending value of real estate comprises three stages:
|
Preparation of the MLV expert opinion |
Real estate appraiser with appropriate experience and the ability to estimate banking risk in connection with securing residential mortgage loans or a dedicated organizational unit of the Bank – the Collateral Valuation Team, based on the report from the inspection of the real estate prepared by real estate appraiser |
|
Verification of the MLV opinion |
PKO Bank Polski SA under the Outsourcing Agreement, or a dedicated business unit of the Bank: the Collateral Valuation Team |
|
Determining the Mortgage Lending Value of real estate |
A dedicated organizational unit of the Bank: the Collateral Valuation Team |
In the case of the purchase of a receivable, the process of setting the mortgage lending value of real estate comprises four stages:
|
Confirmation of the real estate’s legal status |
PKO Bank Polski SA, under the outsourcing agreement |
|
Preparation of real estate inspection protocol, together with market research |
Appraiser with appropriate experience and the ability to estimate banking risk in the area of securing residential mortgage loans |
|
Preparation of the MLV expert opinion |
A dedicated business unit of the Bank: the Collateral Valuation Team |
|
Determining the mortgage lending value of the real estate |
A dedicated business unit of the Bank: the Collateral Valuation Team |
The processes of preparing an MLV expert opinion and setting the mortgage lending value of real estate described above are executed by two independent individuals.
5.6. Cover Pool for Mortgage Covered Bonds
PKO Bank Hipoteczny SA maintains a cover pool for its mortgage covered bonds.
The manner of maintaining the cover pool is governed by:
• The Polish Covered Bonds and Mortgage Banks Act of 29 August 1997 (Journal of Laws of 2022 item 581, as amended) (hereinafter the “Act”);
• Resolution No. 633/2015 of the Polish Financial Supervision Authority dated 1 December 2015 on defining the form of the cover pool;
• Recommendation K of the PFSA of 9 February 2016 concerning the principles for maintaining the cover pool by mortgage banks.
The Cover Pool Monitor and his/her Deputy are responsible for supervising the cover pool.
The Bank includes in the cover pool residential loan receivables secured with the first mortgage entered in the Land and Mortgage Register, and rights and funds that constitute the basis for issuing mortgage covered bonds, as well as additional funds that constitute the excess to cover interest on mortgage covered bonds in circulation which is due in the following six months. The mortgage covered bonds are secured by the highest priority mortgage. The following Bank’s funds can also constitute the basis for issuing mortgage covered bonds:
• invested in securities issued or guaranteed by the National Bank of Poland, the European Central Bank, governments and central banks of members of the Member States of the European Union and/or the Organization for Economic Cooperation and Development, excluding countries that are restructuring or have restructured their foreign debt in the past five years;
• deposited with the National Bank of Poland;
• deposited in domestic banks or the credit institution referred to in Article 18. 3 of the Act.
The nominal value of loans entered in the Bank’s cover pool representing collateral for the mortgage covered bonds issued totalled PLN 18,560.2 million at 31 December 2022. The nominal value of the over-collateralization in the form of securities issued by the State Treasury, denominated in PLN, stood at PLN 285 million. As at 31 December 2021 it amounted to PLN 21,778.5 million and PLN 130 million respectively. The Bank’s mortgage covered bonds cover pool also included CIRS hedging foreign exchange risk and interest rate risk of the mortgage covered bonds denominated in EUR and IRS transactions hedging the interest rate risk of fixed rate covered issued in PLN.
In 2022 and in the previous years the cover pool did not include asset-backed securities (ABS), which do not meet the requirements specified in paragraph 1 of Article 80 of the Guideline (EU) 2015/510 of the European Central Bank of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (ECB/2014/60) (recast).
The following table presents basic data on the cover pool as at 31 December 2022 and 31 December 2021:
|
|
31.12.2022 |
31.12.2021 |
|
Total cover pool, including (in PLN million) |
18,845.2 |
21,908.5 |
|
loans secured by mortgages (in PLN million) |
18,560.2 |
21,778.5 |
|
other assets[22] (in PLN million) |
285.0 |
130.0 |
|
Liquidity buffer[23] (in PLN million) |
268.1 |
136.0 |
|
Nominal value of hedging transactions[24] (in PLN million) |
9,551.2 |
10,079.2 |
|
Number of loans |
107,171 |
120,246 |
|
Average loan value (in PLN thousand) |
173.2 |
181.1 |
|
Average weighted time since loan issuance (seasoning) (months) |
74.8 |
64.8 |
|
Average maturity (months) |
245.1 |
248.4 |
|
Average LtV (loan amount to market value) (%) |
36.9 |
43.3 |
|
Average weighted loan to mortgage lending value of real estate (%) |
64.8 |
67.1 |
|
Over-collateralization[25] (%) |
62.8 |
72.2 |
5.7. Cover Pool Monitor
The purpose of the cover pool monitor is to ensure protection of the material interests of the holders of mortgage covered bonds. The Act on Mortgage Covered Bonds and Mortgage Banks guarantees protecting the independence of the monitor and his deputy. Monitors are appointed by the Polish Financial Supervision Authority, upon the request of the Bank’s Supervisory Board, for a period of six years.
Due to the lapse of the six-year period referred to above, on 5 March 2021 the PFSA appointed the Cover Pool Monitor and the Deputy Cover Pool Monitor for PKO Bank Hipoteczny SA, and the same persons were reappointed:
|
|
Position |
Appointment date |
Date of dismissal / resignation |
|
Tadeusz Swat |
Cover Pool Monitor |
05.03.2021 |
- |
|
Grzegorz Kędzia |
Deputy Monitor |
05.03.2021 |
- |
5.8. Statutory limits
Acting under the Act on Mortgage Covered Bonds and Mortgage Banks, PKO Bank Hipoteczny SA is obliged to monitor and comply with designated limits related to the operations of a mortgage bank.
On 8 July 2022 the amended Act on Mortgage Covered Bonds and Mortgage Banks came into force. By that date, the Bank made the necessary changes to its internal regulations to ensure compliance with the amended wording of the act.
The statutory limits and the level to which they have been met as at 31 December 2022 and 31 December 2021 were as follows:
|
Limit |
Legal basis |
Limit level |
Actual level |
|
|
31.12.2022 |
31.12.2021 |
|||
|
Value of funds received from the issue of mortgage covered bonds designated for refinancing loans secured by mortgages or receivables on such loans acquired from other banks, in proportion to 80% of the mortgage lending value of particular residential properties that constitute the collateral |
Article 14 |
≤100% |
63.7% |
58.9% |
|
Total value of acquired shares in other entities, in proportion to the Bank’s own funds |
Article 15.1(5) |
≤10% |
0.0% |
0.0% |
|
Total value of loans and advances taken out and bonds issued, in proportion to the Bank’s own funds |
Article 15.2 |
≤1000%[26] |
471.6% |
519.9% |
|
Total amount of loans and advances taken out and bonds issued, in proportion to the amount designated for refinancing of activities described in Article 12 of the Act, i.e. issue of loans secured and unsecured by mortgages, receivables purchased from other banks on loans granted by them and secured or unsecured by mortgage |
Article 15.3 |
≤100% |
37.9% |
45.0% |
|
Total nominal value of mortgage covered bonds outstanding, in proportion to the Bank’s own funds and general risk provision |
Article.17 |
≤4000% |
791.3% |
663.5% |
|
Ratio of nominal amounts due secured with mortgages and amounts of the Bank’s additional rights and funds entered to the cover pool, which constitute the basis for issuing mortgage covered bonds to the total nominal value of the mortgage covered bonds in circulation (including hedging instruments) |
Article 18.1 |
≥105%[27] |
162.8% |
172.3% |
|
Ratio of nominal amounts due secured with mortgages, which constitute the basis for issuing mortgage covered bonds to the total nominal value of the mortgage covered bonds in circulation |
Article 18.1 |
≥85% |
154.8% |
165.8% |
|
Ratio of interest expense on mortgage covered bonds in circulation (overnight interest as at the date of account transfer) to interest income on mortgage-secured amounts due and amounts of the Bank’s additional rights and funds entered to the cover pool (overnight interest as at the date of transfer of the account), with the exception of assets in default within the meaning of Article18.2a of the Act |
Article 18.2 |
≤100% |
30.2% |
21.8%[28] |
|
Ratio of the Bank’s funds constituting the excess referred to in Article 18.3a and c of the Act to the maximum cumulative outflows of net liquidity over the following 180 days. Outflow of net liquidity constitutes outflows of payments maturing on the given payment date including payments of the nominal value of mortgage covered bonds plus interest and payments with respect to derivative instruments under the mortgage covered bonds programme, after deducting inflows of payments from assets securing the mortgage covered bonds maturing on the same date. To calculate the amount of payment of the nominal value of a mortgage covered bond, the period to maturity of the mortgage covered bonds extended by 12 months is used |
Article 18.3a, 3aa, 3b and 3d |
≥100% |
5541.3% |
- |
|
Ratio of the value of amounts due secured by mortgages set up during a construction process to the total value of amounts due in respect of mortgage covered bonds constituting the basis for issuing mortgage covered bonds |
Article 23.1 sentence 1 |
≤10% |
1.6% |
3.3% |
|
Ratio of amounts due secured with mortgages set up on real estate earmarked for development, in accordance with the local zoning plan to the value of amounts due secured with mortgages set up during the performance of the construction projects, constituting the basis for issuing mortgage covered bonds |
Article 23.1 sentence 2 |
≤10% |
0.0% |
0.0% |
The Bank obtained positive results of the liquidity tests and coverage balance tests conducted as at the end of 2022 and 2021.
6. Organization and Governing Bodies of PKO Bank Hipoteczny SA
|
Qualified staff Organizational structure of PKO Bank Hipoteczny SA Competences of the governing bodies and committees of PKO Bank Hipoteczny SA The Management Board of PKO Bank Hipoteczny SA The Supervisory Board of PKO Bank Hipoteczny SA Remuneration and Human Resources Policy Benefits of key management of PKO Bank Hipoteczny SA |
6.1. Qualified staff
The Bank implements tools and procedures to guarantee that the Bank’s staff has the highest qualifications in its key areas of operation. The Bank systematically raises the qualifications of its staff and tries to ensure employment stability. These factors have a significant impact on the pursuit of the Bank’s strategy and its business objectives, and therefore on its operations and performance.
6.2. Organizational structure of PKO Bank Hipoteczny SA
PKO Bank Hipoteczny SA is managed on the basis of the organizational structure presented in the chart below and within the framework of the duties of the Bank’s Governing Bodies, described in the following section of this chapter.
6.3. Competences of the governing bodies and committees of PKO Bank Hipoteczny SA
The competences of the General Shareholders’ Meeting of the Bank include in particular:
• appointing and dismissing members of the Supervisory Board and determining the principles for remunerating them and covering the costs related to the performance of the function of a Supervisory Board member by the Bank;
• determining the procedures for redeeming shares, the compensation for such redeemed shares and granting consent for the purchase of the Bank’s treasury shares for redemption purposes;
• creating and dissolving special funds created from net profit;
• adopting resolutions on the issue of bonds convertible into shares or other instruments entitling the holder to acquire or take up shares in the Bank;
• adopting resolutions on the liquidation, disposal or lease of the enterprise of the Bank or its organized part and establishing limited property rights over them;
• adopting resolutions on the settlement of claims for damage caused at the establishment of the Bank, or by the exercise of management or supervision;
• granting consent for the Bank taking up, acquiring within the scope allowed by the Act, as well as for selling or encumbering shares in companies by the Bank, redeeming shares in companies held by the Bank, as well as making additional payments to such companies by the Bank, making contributions, investing and disinvesting in companies and granting consent for the purchase and sale of bonds or other securities convertible into shares;
• assessing whether the remuneration policy used by the Bank contributes to the development and safety of the Bank’s operations;
• granting consent to manage intangible fixed assets, property, plant and equipment, including making contributions to a company or cooperative if the market value of the assets exceeds 5% of total assets determined on the basis of the latest approved financial statements, and offering these assets for use to another entity, for a period longer than 180 days in a calendar year, based on a legal transaction, if the market value of the subject matter of the legal transaction exceeds 5% of total assets;
• granting consent to purchasing property, plant and equipment with a value exceeding PLN 100,000,000 or 5% of total assets determined on the basis of the latest approved financial statements;
• assessing the adequacy of internal regulations relating to the functioning of the Supervisory Board and assessing the effectiveness of the operations of the Supervisory Board.
The competences of the Bank’s Supervisory Board include in particular:
• approving the Bank’s annual financial plan and long-term development plans (in particular the Bank’s strategy);
• approving the compliance policies of the Bank;
• approving the Bank’s management strategy, the risk management strategy, including the general level of risk at the Bank, the policy for estimating internal capital and capital management and reviewing the internal capital assessment strategies and procedures and capital management procedures;
• approving the policies for creating and changing the Bank’s products;
• approving the audit charter, the internal audit function’s strategy, the annual and long-term internal audit plans and the principles for cooperation with the internal audit function at PKO Bank Polski SA and the statutory auditor;
• approving and periodically reviewing the remuneration policy concerning persons whose professional activities significantly affect the Bank’s risk profile;
• approving the operating principles of internal controls, the criteria for assessing the adequacy and effectiveness of the internal control system and the principles for classifying irregularities discovered by the internal controls;
• approving the Management Board regulations;
• approving the Regulations for Setting the Mortgage Lending Value of real estate, which take effect after the approval by the PFSA;
• affirming the Code of Ethics and the Rules for the Management of Conflicts of Interest;
• approving the framework organizational structure of the Bank, adjusted to the scale and profile of the risk taken on by the Bank;
• approving and reviewing the performance of the cooperation agreements concluded with PKO Bank Polski SA;
• adopting the Supervisory Board Rules;
• appointing and dismissing individual members of the Management Board, including specifying the detailed principles and procedures of conducting qualification procedures for Management Board members;
• for important reasons, suspending particular or all of the Members of the Management Board in their functions and delegating members of the Supervisory Board to temporarily perform the functions of the members of the Management Board who were suspended, resigned or cannot perform their functions for other reasons, for a period of no longer than three months;
• giving consent to a member of the Management Board to conducts competitive activities or participate in a competitive company as a partner in a civil law partnership or general partnership, or as a member of the authorities of a commercial company, or to participate in another competitive legal person or member of its authorities;
• giving consent to creating and winding up the Bank’s branches and other business units of the Bank in Poland and abroad, granting prior permission to the Management Board to acquire, encumber or sell real estate, interest in real estate or the right of perpetual usufruct therein; the permit is not required if the acquisition of the real estate, interest in the real estate or its perpetual usufruct being sold is conducted under executory, bankruptcy, composition proceedings or another type of arrangement with the Bank’s debtor;
• giving opinions on entertainment expenses and expenses on legal, marketing, PR and social communication, and management advisory services;
• giving consent for the Bank to conclude a contract and for amending a contract concluded by the Bank for legal, marketing, public relations, social communication and management advisory services, if the amount of the total remuneration stipulated with respect to the provision of such services in the given contract or in other contracts concluded with the same entity exceeds PLN 500,000 net during one year and in which the maximum remuneration is not defined;
• giving consent for the conclusion of a donation agreement or another agreement with a similar effect exceeding PLN 20,000 or 0.1% of the value of total assets determined based on the latest approved financial statements;
• giving consent for the conclusion of a loan forgiveness agreement or another agreement with a similar effect exceeding PLN 50,000 or 0.1% of the value of total assets determined based on the latest approved financial statements;
• providing opinions on the use of good practices;
• representing the Bank in agreements with members of the Management Board;
• approving the policy and procedures for selecting an audit firm responsible for auditing the Bank’s financial statements and the policy for providing permitted non-audit services by the audit firm performing the audit, its related entities and members of its network;
• selecting an audit firm to conduct an audit or review of the Bank’s financial statements;
• assessing the Directors’ Report on the Bank’s activities and the financial statements for the previous financial year in terms of their consistency with the books of account and documents, and the status quo, and the proposals of the Management Board concerning the distribution of profit or the offsetting of losses and presenting a written annual report on the results of these assessments to the General Shareholders’ Meeting;
• assessing the adequacy and effectiveness of the internal control system operating in the Bank, including the control function, the compliance unit and the internal audit units, as well as assessing the adequacy and effectiveness of the risk management system;
• assessing the effectiveness of managing the compliance risk by the Bank;
• assessing the adequacy and effectiveness of the whistleblowing procedure with respect to violations of the law and of the procedures and ethical standards in force at the Bank;
• supervising the implementation of the management system and assessing the adequacy and effectiveness of the system;
• applying to the PFSA for consent to appoint two members of the Management Board, including the President of the Management Board and the member of the Bank’s Management Board responsible for managing risks material to the Bank’s operations, and to entrust the function of the member of the Management Board responsible for supervising the management of risks material to the Bank’s operations to an appointed member of the Management Board;
• informing the PFSA about including on the agenda of a Supervisory Board meeting items concerning: (i) dismissing the President of the Management Board; (ii) dismissing a member of the Management Board supervising material risk management or entrusting his/her duties to another member of the Management Board;
• applying to the PFSA for consent to the appointment of a Bank cover pool monitor and deputy cover pool monitor;
• granting consent to appointing and removing the person managing the compliance and internal audit unit;
• granting consent to changing the registered office or location (address) of the Bank;
• assessing the functioning of the Bank’s remuneration policy and submitting relevant reports to the General Shareholders’ Meeting;
• assessing the application of the Principles of Corporate Governance for Supervised Institutions by the Bank.
In 2022, the Supervisory Board committees which operated in the Bank had, in particular, the following competences:
|
Audit and Finance Committee
|
• monitoring and expressing periodic opinions on (i) the adequacy and effectiveness of the internal control system; (ii) the adequacy and effectiveness of the risk management system and internal audit, including financial reporting; (ii) the effectiveness of the Bank’s compliance risk management and the adequacy of the compliance unit; (iii) the application of the Corporate Governance Principles for Supervised Institutions and implementation and application of internal governance, and its adequacy and effectiveness; (iv) the adequacy and effectiveness of the whistleblowing policy and the ethical procedures and standards in force at the Bank, using the information obtained from the Bank, the Risk Committee, independent statutory auditor and from other sources; • giving opinions on the proposed annual and tri-annual internal audit plans; • giving opinions on Management Board information relating to the operation of the internal control system, the manner of ensuring independence of the internal audit and the compliance units, and ensuring funds for the purpose of performing tasks and improving the qualifications and skills of the units’ staff; • monitoring the financial reporting process including the review of the Bank’s interim and annual financial statements, and expressing opinions on them; • monitoring financial audit proceedings, in particular the audits performed by external audit firms, in consideration of all the conclusions and determinations of the Audit Supervision Committee following from the inspection of the audit firm; • controlling and monitoring of the independence of the statutory auditor and the audit firm, in particular when other, non-audit services are provided to the Bank by the audit firm; • obtaining a representation confirming the independence of the audit firm and of the auditors performing the audit of the Bank’s financial statements annually; • developing a policy for selecting an audit firm to conduct the audit and providing the Supervisory Board with recommendations as to the policy adopted; • developing a procedure for selecting the audit firm to conduct an audit and providing the Supervisory Board with recommendations as to the procedure adopted; • developing a policy for providing permitted non-audit services by the audit firm which conducts the audit, its related entities, and by a member of the audit firm’s network, and presenting recommendations on adopting the policy to the Supervisory Board; • providing the Supervisory Board with recommendations as to the appointment of the audit firm to conduct the audit of the Bank’s financial statements; • giving consent for the provision of permitted non-audit services by the auditor, the audit firm which conducts the audit, and in the event that the auditor or audit firm are part of a network – for every member of such a network; • assessing the reasons for terminating a contract with the audit firm conducting the audit; • agreeing the policies for conducting audit activities by the audit firm performing the audit, in consideration of the proposed audit plan; • informing the Supervisory Board of the audit results and explaining how the audit contributed to the fairness of the Bank’s financial reporting and what was the role of the Committee in the audit process; • analysing the effectiveness of functioning of the internal controls and credit risk management system with respect to the correct determination of the allowances for expected credit losses; • assuring compliance with all the requirements relating to the independence of a statutory auditor by external audit firms participating in the development of the IFRS 9 models and the processes of estimating allowances for expected credit losses; • submitting an additional audit report referred to in Article 11 of the Regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014 to the Management and Supervisory Boards; • submitting recommendations aimed at ensuring the fairness of the Bank’s financial reporting to the Supervisory Board; • giving opinions on the Bank’s strategic and financial plans; • giving opinions on Management Board resolutions with respect to the internal control system, the approval of which is the responsibility of the Supervisory Board; • analysing information and periodic reports in the area of particular internal control components; • meeting with the manager of the finance and accounting function at least once a year; • meeting with the manager of the internal audit unit and the manager of the compliance unit at least once a year – without the participation of members of the Bank’s Management Board; • giving opinions on appointing and dismissing, as well as on the remuneration of the manager of the internal audit unit and of the compliance unit. |
|
Risk Committee |
• giving opinions on the Bank’s overall current and future risk appetite; • giving opinions on the risk management strategy developed by the Management Board and the information on the said strategy submitted by the Management Board; • supporting the Supervisory Board in overseeing the implementation of the Bank’s operational risk management strategy by higher level management; • reviewing the prices of liabilities and assets offered to customers to check whether they are fully compliant with the Bank’s business model and its risk management strategy, and if they do not appropriately reflect the types of risk pursuant to this model and strategy, presenting proposals to ensure the adequacy of the prices of liabilities and assets with respect to risk to the Bank’s Management Board; • monitoring compliance of the Bank’s policy in the area of taking on risk with the strategy and financial plan; • analysing periodic risk reports, including the utilization of strategic risk tolerance limits and developing relevant guidelines on their basis; • giving opinions on capital adequacy, creditworthiness evaluation principles, the risk measurement model, the impairment measurement model; • reviewing the principles of the disclosure policy regarding capital adequacy, and capital adequacy, liquidity risk, operational risk and model risk management, and impairment measurement; • giving opinions on the draft Rules on setting the Mortgage Lending Value of real estate; • submitting information significant for monitoring the effectiveness and adequacy of the Bank’s risk management system to the Audit and Finance Committee; • assessing the information received on potential non-compliance with the management strategy adopted by the Bank, its risk management strategy, adopted risk appetite and other policies approved by the Bank’s Management Board. |
|
Remuneration And Nomination Committee |
• annually assessing the structure, size, composition and effectiveness of the Bank’s Management Board and recommending potential changes in this respect to the Supervisory Board; • annually assessing the knowledge, competences and experience of the Management Board as a whole, and of particular members of the Board, and informing the Management Board of the results of the assessment; • periodically reviewing the Policy on assessing the appropriateness of candidates for members of the Management Board and key employees, and presenting respective recommendations to the Management Board; • recommending candidates for members of the Management Board and the scope of their responsibilities; • submitting proposals relating to appropriate forms of contracts with members of the Bank’s Management Board to the Supervisory Board; • preparing opinions on the Code of Ethics and the Principles for Management of Conflicts of Interest; • preparing opinions on requests concerning the consent for a member of the Management Board to engage in competitive activities or to participate in a competing company as a partner in a civil law company, a sole proprietorship or as a member of a governing body of a commercial company, or to participate in another competing legal person as a member of its governing body; • evaluating and performing periodic reviews, subject to the approval of the Supervisory Board, of the general principles of the policy for remunerating individuals whose actions have a material impact on the Bank’s risk profile; • supporting the Supervisory Board in the process of giving opinions on the functioning of the Bank’s remuneration policy and respective reporting to the General Shareholders’ Meeting; • giving opinions on and monitoring the variable remuneration components of individuals whose activities have a significant impact on the Bank’s risk profile, second-level risk management, the compliance unit manager and the internal audit unit manager; • giving opinions on the amount of fixed remuneration for the manager of the internal audit unit and of the compliance unit; • giving opinions on the detailed rules and procedures for recruiting members of the Bank’s Management Board and assessing the suitability of members of the Bank’s Management Board; • preparing and carrying out, with potential support from external independent entities, the programme for raising the qualifications of members of the Supervisory Board. |
|
Commercial Committee |
• assessing the results of the functioning of cooperation agreements concluded between PKO Bank Polski SA and the Bank; • providing opinions on material changes to the criteria for qualifying products for the Bank; • providing opinions on introducing new products to the Bank’s offer and the directions of change in the Bank’s product offer; • monitoring and supervising the outsourcing of internal processes. |
The competences of the Bank’s Management Board include in particular:
• defining PKO Bank Hipoteczny SA’s strategy, taking into account the operational risk and the strategy for prudential and stable management of the Bank;
• determining the risk management strategy, accounting for the Bank’s risk tolerance level;
• determining the annual financial plan of the Bank, including the terms and conditions for its performance;
• creating and dissolving the Bank’s standing committees and determining their responsibilities;
• adopting Regulations: (i) for managing special funds created from net profit, (ii) organizational regulations and the principles for segregating duties, (iii) of the Management Board, (iv) for determining the Mortgage Lending Value of Real Estate;
• appointing proxies and determining the principles for their appointment in the Bank;
• determining the principles of operation of internal controls and annual internal audit plans;
• creating, transforming and winding up the Bank’s branches and other business units in Poland and abroad;
• deciding on issues of mortgage covered bonds;
• determining the operating principles of the management system, including in particular: (i) the principles of capital adequacy information policy, (ii) the assumptions of the compliance risk management policy, (iii) the principles of managing capital adequacy and equity which relate to the estimation of internal capital, capital management, capital planning and dividend policy, (iv) the rules for managing particular risks;
• periodically assessing and verifying compliance with the Bank’s internal governance, including assessing the adequacy of the Bank’s internal regulations governing the operations of the Management Board and their effectiveness;
• determining changes in accounting policies;
• approving the Bank’s annual financial statements;
• developing a remuneration policy;
• specifying the Bank’s products;
• determining the principles of the Bank’s participation in companies and other organizations;
• deciding on payment of interim dividend to the shareholders;
• deciding on the Bank’s conclusion of contracts with third parties the value of which equals or exceeds PLN 500,000.00 (in words: five hundred thousand zlotys) or the total value of which equals or exceeds PLN 2,000,000.00 (in words: two million zlotys);
• convening the General Shareholders’ Meetings, making the announcements in the manner specified in legal regulations and notifying of circumstances which are subject to the duty of entering to the National Court Register;
• making decisions on issues requested by a member of the Management Board or submitted for review by the Supervisory Board.
The Bank’s Management Board appointed the following standing committees with the following competences as at 31 December 2022:
|
The Asset and Liability Committee |
• supporting the management functions for liquidity, interest rate, business risks – including macroeconomic, currency, capital risk – including leverage risk – and the related risk of models for their measurement; • managing of the Bank’s capital adequacy; • reviewing documents concerning capital adequacy, equity, internal capital, stress testing, the risks mentioned above and the risk tolerance limits for those risks; • making decisions concerning the Bank’s operations, particularly regarding the risk measures and limits, risk management, the result of validation of the risk models, stress-test assumptions, hedging strategies under hedge accounting and recommendations for the Management Board with regard to launching emergency measures relating to capital and emergency procedures relating to liquidity; • issuing recommendations for the relevant governing bodies of the Bank, business units, members of the Bank’s Management Board, project teams or task forces – within the scope of its competences. |
|
Credit Committee |
• supporting the functions that manage credit, concentration and residual risks, as well as the risk of the models measuring such risks; • reviewing documents concerning the risks mentioned above, the profile and quality structure of the loan portfolio, impairment losses on assets, acquisition of loan portfolios and the real estate market; • making decisions concerning the Bank’s operations, particularly regarding the risk measures and limits, the results of the validation of the risk models, the methodologies and models of calculation of impairment losses on credit assets, cut-offs used in the assessment of credit risk, loan receivables purchased by the Bank and individual loan transactions; • issuing recommendations for the relevant governing bodies of the Bank, organizational units, members of the Bank’s Management Board, project teams or task forces – within the scope of its competences. |
|
Operational Risk and Data Quality Committee
|
• effective management of operational risk, improving the safety of the Bank’s operating activities; • outsourcing risk management; • determining the directions of operational risk management development; • supervising the functioning of operational risk management, including tasks relating to ensuring the Bank’s business continuity and the information and telecom security environment; • setting tasks in the event of failures putting the Bank’s image at risk, which could lead to operating losses; • determining the directions of operations in the area of managing the quality of data and data architecture in the Bank, in the context of the Data Management System (DMS); • supervising the Data Management System, including assessing its effectiveness and actions of the Bank’s particular organizational entities; • issuing recommendations for the relevant governing bodies of the Bank, business units, members of the Bank’s Management Board, project teams or task forces – within the scope of its competences. |
|
Strategy and Business Initiatives Committee |
• specifying the strategic planning directions and managing the Bank’s strategy and the IT strategy; • determining the directions and monitoring the implementation of initiatives related to the pursuit of the Bank’s strategy and the IT strategy; • determining the directions of change in the product offer and in the lending process; • determining the directions of work on the products’ profitability; • managing the reputation risk and compliance risk; • issuing recommendations for the relevant governing bodies of the Bank, organizational units, members of the Bank’s Management Board, project teams or task forces – within the scope of its competences. |
|
Green Covered Bonds Committee |
• supervising the issue of Green Covered Bonds, including determining the directions of change with respect to the Green Covered Bonds and assessing and selecting assets qualifying for funding with the Green Covered Bonds; • examining materials relating to the guidelines and principles set by the International Capital Markets Association (ICMA) for the Green Covered Bonds market, domestic regulations on the binding energy efficiency standards, reporting on the allocation of funds earned on emissions and the impact on the funding environment gained by issuing the Green Covered Bonds, in accordance with the rules for issuing the Green Covered Bonds in force at the Bank, investor information with respect to the Green Covered Bonds; • making decisions relating to the Bank’s operations, among other things, in the scope of assessing and selecting qualified loans according to the methodology adopted by the Bank and adopting the rules for issuing the Green Covered Bonds by the Bank pursuant to appropriate guidelines; • issuing recommendations for the relevant governing bodies of the Bank, business units, members of the Bank’s Management Board, project teams or task forces – within the scope of its competences. |
6.4. Management Board of PKO Bank Hipoteczny SA
As at the date of preparing this report and throughout 2022, the composition of the Management Board of PKO Bank Hipoteczny SA was as follows:
|
|
Position |
Position holding period |
|
Katarzyna |
President of the Management Board
Vice President of the Management Board responsible for managing the work of the Management Board |
27.01.2023 – until now
01.10.2022 – 26.01.2023
|
|
Piotr Kochanek |
Vice President of the Management Board |
01.01.2019 – until now |
|
Stanisław Skoczylas |
Vice President of the Management Board |
06.10.2022 – until now |
|
Katarzyna Surdy |
Vice President of the Management Board |
01.10.2021 – until now |
|
Jakub Niesłuchowski |
Member of the Supervisory Board delegated to perform the functions of member of the Management Board responsible for managing the work of the Management Board |
02.08.2022-30.09.2022 |
|
Daniel Goska |
President of the Management Board
Vice President of the Management Board responsible for managing the work of the Management Board |
26.01.2022 – 31.07.2022
01.10.2021 – 25.01.2022
|
On 26 January 2022 the PFSA unequivocally gave its consent to the appointment of Daniel Goska to the position of President of the Management Board of PKO Bank Hipoteczny SA.
On 25 July 2022 Daniel Goska resigned from the function with effect as at the end of the day on 31 July 2022.
On 2 August 2022 the Supervisory Board of PKO Bank Hipoteczny SA delegated Jakub Niesłuchowski, member of the Supervisory Board, to temporarily act as member of the Management Board of PKO Bank Hipoteczny S.A., until a member of the Management Board responsible for the work of the Management Board is appointed, however, not longer than until 1 November 2022.
On 19 September 2022 the Supervisory Board of PKO Bank Hipoteczny SA appointed Katarzyna Kurkowska-Szczechowicz to the position of President of the Management Board on the condition of the PFSA’s consent to her appointment for the joint four-year term of the Bank’s Management Board, however, no earlier than as of 1 October 2022.
Until obtaining the consent of the PFSA, the Supervisory Board appointed Katarzyna Kurkowska-Szczechowicz Vice President of the Management Board as of 1 October 2022, under the joint four-year term of the Management Board and entrusted her with managing the Management Board’s work.
On 6 October 2022 the Supervisory Board of PKO Bank Hipoteczny SA appointed Stanisław Skoczylas Vice President of the Management Board as of 6 October 2022 under the joint four-year term of the Bank’s Management Board.
The Supervisory Board specified the following internal segregation of key competences within the Bank’s Management Board, which was as follows as at 31 December 2022:
|
KATARZYNA KURKOWSKA-SZCZECHOWICZ |
Vice President of the Management Board managing the work of the Management Board responsible for supervising internal audit, compliance risk management and human resources management |
|
Other functions performed: |
Chairperson of the Strategy and Business Initiatives Committee Chairperson of the Asset and Liability Committee |
|
Piotr Kochanek |
Vice President of the Management Board responsible for supervising management of all risks relating to the Bank’s operations, with the exclusion of compliance and reputational risk and supervision over the process of assessing creditworthiness and determining the Mortgage Lending Value of real estate, restructuring and debt collection processes, and settling and confirming treasury transactions. |
|
Other functions performed: |
Chairperson of the Credit Committee Chairperson of the Operational Risk and Data Quality Committee Deputy Chairperson of the Asset and Liability Committee Deputy Chairperson of the Green Mortgage Bonds Committee Member of the Strategy and Business Initiatives Committee |
|
KATARZYNA SURDY |
Vice-President of the Management Board responsible for supervision over reputational risk management, legal services, communication, outsourcing, supervision over the creation and development of the product offer, coordination of product sales and acquiring loan receivables as well as the process of their further handling, functioning and effectiveness of IT resources, as well as issuing securities and raising funds |
|
Other functions performed: |
Chairperson of the Green Covered Bonds Committee Deputy Chairperson of the Strategy and Business Initiatives Committee Deputy Chairperson of the Operational Risk and Data Quality Committee Member of the Asset and Liability Committee Member of the Credit Committee |
|
STANISŁAW SKOCZYLAS |
Vice President of the Management Board responsible for supervising accounting and financial reporting issues |
|
Other functions performed: |
Member of the Strategy and Business Initiatives Committee Member of the Asset and Liability Committee |
Other management functions of the Management Board members
|
|
Function |
Position holding period |
|
Katarzyna Kurkowska-Szczechowicz |
Did not perform any additional functions of member of the Management or Supervisory Boards and did not hold any other director positions |
During the period of holding the position |
|
Piotr Kochanek |
Did not perform any additional functions of member of the Management or Supervisory Boards and did not hold any other director positions |
Throughout the reporting period |
|
Katarzyna Surdy |
Did not perform any additional functions as a member of the Management Board or of the Supervisory Board and did not hold any other director positions |
Throughout the reporting period |
|
Stanisław Skoczylas |
Did not perform any additional functions of member of the Management or Supervisory Boards and did not occupy any other director positions |
During the period of holding the position |
Recruitment policy concerning the selection of Management Board members and evaluation of Management Board members
The process of selecting and evaluating candidates for members of the Management Board in PKO Bank Hipoteczny SA is carried out by the Remuneration and Nominations Committee of the Bank’s Supervisory Board. The Committee takes into consideration the guidelines of the European Banking Authority on the assessment of the suitability of members of the management body and key function holders (EBA Guidelines) and the Regulation of the Minister of Development and Finance of 10 March 2017 on information and documents concerning the founders and the management board of the bank to be submitted to the PFSA, as well as the Methodology for assessing the appropriateness of members of the bodies of entities supervised by the PFSA. During the evaluation of a candidate, the Committee also verifies whether the profile, scope and scale of operations of PKO Bank Hipoteczny SA. In assessing the candidate the Committee also verifies whether the candidate’s experience and knowledge will strengthen the abilities of other members of the Bank’s Management Board, and complement them, so as to ensure the coverage of all areas managed in the Bank. The purpose of examination of this criterion is to ensure variety in the selection of members of the managing body, its purposes, tasks and scope of operation.
Before their appointment, all members of the Management Board of PKO Bank Hipoteczny SA were subjected to an evaluation of their suitability, in accordance with the EBA and PFSA guidelines.
Members of the Management Board are subject to a continuous evaluation by the Supervisory Board’s Remuneration and Nomination Committee and the Supervisory Board, beginning from the moment of recruitment and continuing through their entire term of office. Moreover, pursuant to Article 395 § 2(3) of the Commercial Companies Code, each year the Annual General Shareholders’ Meeting grants each individual member of the Management Board a vote of approval. The granting of this vote of approval constitutes an evaluation of the Management Board members, which is independent of the approval of the Bank’s Directors’ Report by the General Shareholders’ Meeting.
The process described above for appointments to perform functions on the Management Board and the positive evaluation of members of the Bank’s Management Board constitutes confirmation of the proper performance of their duties, based on adequate knowledge, abilities and experience, in accordance with the requirements of Article 22aa of the Banking Law.
6.5. The Supervisory Board of PKO Bank Hipoteczny SA
In 2022, the composition of the Supervisory Board of PKO Bank Hipoteczny SA was as follows:
|
|
Function on the Supervisory Board |
Appointment date |
Date of dismissal / resignation |
||||||
|
Mieczysław Król |
Chairman |
27.08.2021 |
|
√ |
|
|
|
C |
M |
|
Paweł Metrycki |
Deputy Chairman
Member of the Supervisory Board |
07.10.2019
05.05.2022 |
05.05.2022
|
√ |
|
D |
C |
|
D |
|
Maciej Brzozowski |
Member of the Supervisory Board
Deputy Chairman |
28.04.2022
05.05.2022 |
05.05.2022 |
√ |
|
|
D |
|
|
|
Piotr Kwiecień |
Member of the Supervisory Board |
18.10.2017 |
27.04.2022 |
√ |
√ |
C |
M |
|
M |
|
Jakub Niesłuchowski |
Member of the Supervisory Board |
28.04.2022
|
|
√ |
|
|
|
|
M |
|
Ilona Wołyniec |
Member of the Supervisory Board |
30.03.2019 |
|
√ |
|
|
M |
D |
C |
|
Lucyna Kopińska |
Member of the Supervisory Board |
01.09.2019 |
|
√ |
|
|
|
|
M |
|
Jadwiga Lesisz |
Member of the Supervisory Board |
01.09.2019 |
|
√ |
√ |
C |
|
|
|
|
Elżbieta Bugaj |
Member of the Supervisory Board |
28.04.2022 |
21.12.2022 |
|
√ |
|
|
|
|
|
Tomasz Baum |
Member of the Supervisory Board |
06.12.2022 |
|
|
√ |
M |
|
|
|
C – Chairperson of the Committee, D – Deputy Chairperson of the Committee, M – Member of the Committee
The composition of the Committees is presented as at 31 December 2022.
Pursuant to Article 395 § 2 item 3 of the Commercial Companies Code once a year the Annual General Shareholders’ Meeting grants a vote of approval to each individual member of the Supervisory Board. Granting this vote of approval constitutes an evaluation of the Supervisory Board members, independent of the approval of the Supervisory Board’s report on the Bank’s operations by the General Shareholders’ Meeting.
The above constitutes confirmation of the proper performance of duties of members of the Bank’s the Supervisory Board, based on adequate knowledge, abilities and experience, in accordance with the requirements of Article 22aa of the Banking Law.
Information on the Audit and Finance Committee
In 2022, the composition of the Audit and Finance Committee of PKO Bank Hipoteczny SA was as follows:
|
|
Position on the Audit and Finance Committee |
Appointment date |
Dismissal / resignation date |
|||
|
Piotr Kwiecień |
Member of the Committee
|
18.10.2017
07.10.2019 |
27.04.2022 |
√ |
√ |
√ |
|
Paweł Metrycki |
Deputy Chairperson of the Committee |
07.10.2019 |
|
|
√ |
√ |
|
Jadwiga Lesisz |
Member of the Committee
Chairperson of the Committee |
07.10.2019
05.05.2022 |
|
√ |
√ |
√ |
|
Elżbieta Bugaj |
Member of the Committee |
05.05.2022 |
21.12.2022 |
√ |
|
|
|
Tomasz Baum |
Member of the Committee |
15.12.2022 |
|
√ |
√ |
√ |
In 2022, six meetings of the Audit and Finance Committee took place.
6.6. Remuneration Policy and Human Resources Management
Employment
As at 31 December 2022, PKO Bank Hipoteczny SA employed 57 people. This is an increase of three employees compared with the end of 2021.
Remuneration Policy
The basic internal regulation with regard to the remuneration policy is the Remuneration Policy of PKO Bank Hipoteczny SA approved by the Supervisory Board. This policy specifies:
• the functions of particular structures and bodies within the Bank in the implementation and application of the Policy and the identification of positions of Material Risk Takers (MRT);
• the functioning of fixed and variable components of remuneration of the members of the Bank’s Management Board, Material Risk Takers (MRT) and employees other than members of the Management Board and MRT;
• benefits other than remuneration available to the employees.
In addition, the Bank complies with the Remuneration Regulations of PKO Bank Hipoteczny SA implemented on the order of the President of the Management Board. According to the Regulations, the Bank’s employees are entitled to the following remuneration components:
• basic salary;
• bonuses and awards for special achievements in their work;
• additional remuneration for overtime work and night work.
The remuneration policy of PKO Bank Hipoteczny SA is consistent with the principles of proper and effective risk management.
The Bank has no employee share programme.
Basic Salary
The Bank has a gender-neutral remuneration policy. Fixed remuneration is calculated with regard to the complexity of the tasks performed in a given organizational structure, the level of responsibility related to a given position, the work results achieved and the evaluation of an employee’s competences.
Variable Remuneration
The Bank regulates the process of granting variable remuneration in the Bank Hipoteczny SA Remuneration Policy, the Principles for employing and remunerating members of the Bank’s Management Board and the Principles for granting bonuses to Bank employees whose actions have a material impact on Bank Hipoteczny SA’s risk profile – Material Risk Takers – and the Principles of granting bonuses to the Bank’s employees.
The targets assigned are aimed at ensuring that the risk associated with the Bank’s operations is taken into account. All targets result from target grids approved by the Bank’s Management Board, which are cascaded to the employees of the individual structures. MRTs are additionally responsible for special projects aimed at executing the Bank’s strategy.
MRTs, who have significant influence on the safety level and stable development of the Bank, are subject to additional remuneration restrictions. Variable remuneration components are granted to MRTs, including the Management Board members, for a particular appraisal year (calendar year) following the settlement of bonus targets in non-deferred and deferred form. In order to ensure that the results are sustainable, deferred variable remuneration components can be reduced if the Bank’s financial results have deteriorated, the Bank incurred a loss or other variables deteriorated.
Moreover, part of the value of each component is payable in the form of a financial instrument linked to the carrying amount of the Bank’s net assets. Bonus parametrization takes into account the Bank’s situation and the market benchmarks of the financial sector.
The Supervisory Board had rights to approve bonus parameters for the Management Board, and the Management Board for MRTs and other employees.
Irrespective of the bonus system, an employee awards system functions in the Bank, as part of which an award fund is created, designated for individual discretionary awards for employees who achieve distinctive results in their professional work or for achievements as a result of which important outcomes are achieved for the Bank.
Employee benefits
|
Extra medical care |
The Bank provides its employees with extra medical care (in addition to occupational medical care provided in accordance with the Labour Code). Different medical packages are assigned to specific job categories. |
|
Group Insurance |
The Bank’s employees have the possibility of joining group insurance, which is paid for by the employees through the Bank. |
|
MyBenefit cafeteria system |
Under this system, every employee of the Bank can manage the funds assigned to him/her from the Company Social Fund as he/she chooses via an internet platform. |
|
Employee Pension Scheme (PPE) |
Employees have the possibility of joining the Employee Pension Scheme where the base premium is fully funded by the employer. |
Principles for remunerating Members of the Bank’s Management Board
On 17 December 2021 the Policy for employing and remunerating members of the Management Board of the Bank was adopted by Resolution of the Supervisory Board No. 90/2021. Based thereon, members of the Bank’s Management Board are entitled to:
• fixed remuneration, whose level is set by the Bank’s Supervisory Board in a resolution, separately for each of the members of the Management Board;
• variable remuneration – additional remuneration granted and payable after the appraisal period, in particular in the form of bonuses, rewards for special achievements at work, severance pay (other than fixed remuneration and benefits granted based on the applicable laws).
The information on remuneration components and other benefits payable to Management Board members in the reporting period is presented in the financial statements of PKO Bank Hipoteczny SA for the year ended 31 December 2022 (Note 36.4).
Variable remuneration components for Members of the Management Board and Material Risk Takers
In accordance with the requirements of CRD, i.e. Commission Delegated Regulation (EU) 2021/923 (as amended) supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards with respect to qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile, referred to in Article 92 (3) of the Directive, as well as in connection with the Regulation of the Minister of Finance, Funds and Regional Policy of 8 June 2021 on the risk management system, the internal control system, and the remuneration policy in banks, the following regulations laying down the principles of determining variable remuneration components are in force in the Bank:
• The Policy for employing and remunerating members of the Management Board of the Bank, adopted by a Resolution of the Supervisory Board;
• The principles of remunerating persons whose professional activities significantly affect the Bank’s risk profile (MRTs);
• The list of positions where professional activities have a significant impact on the institution’s risk profile and identification of key functions in the Bank (the list of MRTs).
As at 31 December 2022 the policy on variable remuneration components for Management Board members and MRTs was applicable to 4 Management Board members, 5 former Management Board members and 13 MRT positions.
Variable remuneration components are awarded for the purpose of the achievement of objectives assigned as part of the Management by Objectives (MbO) system. The maximum amount of variable remuneration cannot exceed 50% of the fixed remuneration for a given appraisal period.
Variable salary components are awarded and paid in the following forms:
• non-deferred;
• deferred.
In 2022 variable remuneration components were paid out based on resolutions passed in previous periods. In connection with the continued state of the COVID-19 epidemic in Poland, in particular the temporary extraordinary administrative restrictions relating to business operations and the potential economic consequences of this state and their expected impact on the financial sector, taking into consideration the statement of the European Banking Authority dated 15 December 2020 and of the PFSA dated 17 April 2020 on the expectations with respect to banks’ actions relating to paying out variable remuneration components, the decision was taken to temporarily limit the amount of funds for the variable portion of remuneration of members of the Management Board and key managers for 2020.
Both non-deferred and deferred remuneration is granted in cash and in the form of financial instruments (i.e. phantom shares) converted into cash after the retention period, and in the case of deferred remuneration – after the period of deferral.
Each of the accrued components of variable remuneration may be reduced as a consequence of:
• material violations of duties following from the employment contract or contract for services;
• irregularities in the performance of the assigned professional duties;
• material non-compliance with the legal regulations or customer service standards;
• material violation of the principles of community life in relation to other employees and co-workers.
For members of the Management Board, variable remuneration may only be assigned and paid provided that the Directors’ Report and the financial statements for the previous financial year have been approved and the Management Board member has been granted a discharge in respect of his/her duties. Variable remuneration may be reduced by the Supervisory Board up to total deprivation of the right to such remuneration in the event that up to the date of payment (in particular within the last three years) a member of the Management Board was responsible for the irregularities referred to above.
A member of the Management Board is entitled to severance pay as a result of the termination of his/her contract for services if he/she ceases to perform the functions of a Management Board member, in an amount equal to three times the permanent portion of remuneration on condition that the function of Management Board member was performed for at least twelve months before the termination of the contract; the period of performing a function on the Management Board includes a period of constant performance of the function directly before the date of concluding the management contract. A member of the Management Board is entitled to compensation in respect of the ban to engage in competitive activities over a period of six months after termination of the management contract, in the amount of 100% of the fixed portion of remuneration for providing managerial services, following from the contract for services, as at the date of its termination. A member of the Management Board is entitled to contributions to the Employee Pension Fund over a period of performing the duties of member of the Management Board, which are accrued on the fixed and variable components of remuneration and which are not included in the fixed and variable remuneration; the amount of the contributions is the same as for the Bank’s employees.
In 2022, none of the employees at PKO Bank Hipoteczny SA received total remuneration of at least EUR 1 million.
The policy on variable remuneration components for members of the Management Board and Material Risk Takers is reviewed annually by the Internal Audit Office, the Remuneration and Nomination Committee of the Bank’s Supervisory Board and by the Supervisory Board of PKO Bank Hipoteczny SA.
In the reporting period, six meetings of the Remuneration and Nomination Committee of the Supervisory Board of PKO Bank Hipoteczny SA were held.
Contracts Concluded by and Between the Bank and management Board Members
Within the meaning of the provisions of § 2 (1) (30)(a) of the Regulation of the Minister of Finance of 29 March 2018 on current and periodical information to be reported by issuers of securities and the conditions for treating information required by the laws of a state other than a Member State as equivalent, the persons managing the Bank are the Management Board members.
In 2022 each of the members of the Bank’s Management Board performed their functions based on the contracts for providing management services concluded with the Bank, which determined – among other things – the terms and conditions relating to remuneration and the ban on performing competitive activities.
6.7. Benefits for Key Management of PKO Bank Hipoteczny SA
Benefits for members of the Supervisory Board
In accordance with the Resolution of the General Shareholders’ Meeting held on 1 August 2022, the members of the Supervisory Board of PKO Bank Hipoteczny SA do not receive remuneration for the functions performed. Independent members of the Supervisory Board are an exception; they receive monthly remuneration equal to the basis of measurement referred to in Article 1 (3) (11) of the Act of 9 June 2016 on the principles of Determining the Salaries of Persons Managing Certain Companies. The remuneration is increased by 10% when an independent member of the Supervisory Board participates in at least one standing committee of the Supervisory Board.
|
Benefits for independent members of the Supervisory Board (PLN ‘000) |
01.01.2022 – 31.12.2022 |
01.01.2021– 31.12.2011 |
|
Tomasz Baum |
6 |
|
|
Elżbieta Bugaj |
49 |
|
|
Piotr Kwiecień |
23 |
68 |
|
Jadwiga Lesisz |
80 |
68 |
|
Total |
158 |
136 |
Benefits for members of the Management Board received, receivable and potentially receivable
|
BENEFITS FOR MEMBERS OF THE MANAGEMENT BOARD (in PLN’000) |
01.01.2022 – 31.12.2022 |
|||||
|
Short-term employee benefits |
Other long-term employee benefits – variable cash remuneration[31] |
Short-term employee benefits |
||||
|
Remuneration 01.01.2022-31.12.2022[32] |
Other received 01.01.2022- 31.12.2022 |
Received 01.01.2022-31.12.2022 |
Potentially receivable as at 31.12.2022 |
Received 01.01.2022-31.12.2022 |
Potentially receivable as at 31.12.2022 |
|
|
Katarzyna Kurkowska-Szczechowicz |
149.1 |
|
- |
- |
- |
- |
|
Piotr Kochanek |
480.0 |
|
101.3 |
93.1 |
85.2 |
121.0 |
|
Stanisław Skoczylas |
99.3 |
|
- |
- |
- |
- |
|
Katarzyna Surdy |
420.0 |
|
15.7 |
10.5 |
- |
13.6 |
|
Daniel Goska |
282.1 |
|
65.8 |
47.5 |
12.3 |
61.8 |
|
Members of the Management Board who have not performed their functions in 2022 |
- |
|
261.0 |
152.6 |
281.5 |
198.5 |
|
Total benefits for members of the Management Board |
1,430.6 |
|
443.8 |
303.7 |
379.0 |
394.9 |
|
BENEFITS FOR MEMBERS OF THE MANAGEMENT BOARD (in PLN’000) |
01.01.2021 - 31.12.2021 |
|||||
|
Short-term employee benefits |
Other long-term employee benefits – variable cash remuneration [33] |
Short-term employee benefits |
||||
|
Remuneration 01.01.2021-31.12.2021[34] |
Others received 01.01.2021-31.12.2021 |
Remuneration 01.01.2021-31.12.2021 |
Potentially receivable as at 31.12.2021 |
Remuneration 01.01.2021-31.12.2021 |
Potentially receivable as at 31.12.2021 |
|
|
Paulina Strugała |
459.0 |
|
104.8 |
123.0 |
135.5 |
160.0 |
|
Piotr Kochanek |
480.0 |
|
73.3 |
81.0 |
92.4 |
109.0 |
|
Katarzyna Surdy |
105.0 |
|
- |
- |
- |
- |
|
Daniel Goska |
420.0 |
|
12.4 |
10.5 |
- |
10.5 |
|
Members of the Management Board who have not performed their functions in 2021 |
- |
|
246.8 |
156.0 |
314.1 |
190.0 |
|
Total benefits for members of the Management Board |
1,464.0 |
|
437.4 |
370.5 |
517.3 |
469.5 |
Benefits after the term of the contract for services
In 2022 Daniel Goska was paid a post-employment benefit with respect to the ban on competition of PLN 205 thousand.
In 2022 Paulina Strugała was paid a post-employment benefit with respect to the ban on competition of PLN 153 thousand.
Benefits in respect of the termination of the contract for services
In the period from 1 January to 31 December 2022 Paulina Strugała was awarded a benefit in respect of the termination of her contract for services of PLN 45.9 thousand.
In the period from 1 January to 31 December 2022 Agnieszka Krawczyk was awarded a benefit in respect of the termination of her contract for services of PLN 6.3 thousand.
7. Corporate Governance and Investor Information
Representation on compliance with the rules for corporate governance
Audit firm
Other information
7.1. Representation on Compliance with the Rules for Corporate Governance
The Bank’s general principles of corporate governance, i.e. the internal regulations for managing the Bank and controlling its operations, follow from generally binding legal regulations, in particular the Commercial Companies Code, the Banking Law and the principles issued by the Polish Financial Supervision Authority, i.e. the Principles of Corporate Governance for Supervised Institutions and Recommendation Z concerning internal governance in banks.
The Bank has adopted the Principles of Corporate Governance for Supervised Institutions, as issued by the Polish Financial Supervision Authority, on the basis of the following decisions by the Bank’s bodies:
• the Resolution of the Bank’s Management Board of 15 December 2014 – in relation to the powers and duties of the Management Board, i.e. conducting the Bank’s affairs and its representation, in accordance with the generally applicable laws and the Bank’s Articles of Association;
• the Resolution of the Bank’s Supervisory Board of 18 December 2014 – in relation to the powers and duties of the Supervisory Board, i.e. supervising the conduct of the Bank’s affairs, in accordance with the generally applicable laws and the Bank’s Articles of Association;
• the Resolution of the General Shareholders’ Meeting of 22 December 2015 – in relation to the powers reserved for the General Shareholders’ Meeting.
Pursuant to and to the extent arising from the aforementioned decisions, the Bank opted out of the following provisions of the Principles of Corporate Governance for Supervised Institutions:
• the provisions referring to the principles of cooperation and rights of multiple shareholders (§ 8 (4), § 9 (1) and (6), § 10 (3), § 11 (3) and § 31 (3)), which are not applied because the Bank only has a single shareholder;
• chapter 9, concerning the management of assets at the customer’s risk, because the Bank does not conduct operations in this area;
• the principle described in § 22 (1), concerning the independence of Supervisory Board members, manifesting itself primarily in the lack of direct and indirect ties to the supervised institution, members of the management and supervisory bodies, significant shareholders and related parties; in addition, two members meeting the independence requirements set out in the Act of 11 May 2017 on statutory auditors, audit firms and public supervision were appointed as members of the Bank’s Supervisory Board. (Journal of Laws, item 1089 as amended).
In accordance with the requirement arising from § 27 of the Principles of Corporate Governance for Supervised Institutions, on 12 May 2022, the Supervisory Board evaluated the application of the said Principles in the Bank in 2021. The Supervisory Board positively evaluated the application of the Principles in the Bank confirming that the Principles adopted by the Bank and its authorities were applied adequately to the scale, nature of operations and the specific character of the Bank.
The text of the Principles is available on the website of the Polish Financial Supervision Authority:
In 2021 the Bank implemented and abides by Recommendation Z relating to the principles of internal governance in banks, in accordance with the principle of proportionality and adequacy following from the scale, nature and specific character of the Bank.
The Bank represents that when the scope of Recommendation Z does not comply with the scope of Corporate Governance Principles for Supervised Entities, the provisions of Recommendation Z prevail. In the scope not regulated by Recommendation Z, the Corporate Governance Principles for Supervised Entities prevail.
The text of Recommendation Z on corporate governance in banks is available on the website of the Polish Financial Supervision Authority:
https://www.knf.gov.pl/knf/pl/komponenty/img/Rekomendacja_Z_70998.pdf
Diversity Policy
Diversity management at the Bank concerns all employees, key managers and the Bank’s authorities. Diversity activities affect many aspects of the Bank’s operations and are aimed at respecting other persons, equal treatment of the employees and making use of their potential. Diversity means that people are important regardless of their gender, age, health, sexual orientation, religion, marital status or country of origin. Therefore, the following solutions were implemented in the form of regulations, processes and HR policies:
• The Code of Ethics and the Rules and regulations of the Bank’s operations concerning, among other things, preventing discrimination due to gender, age, disability, race, religion, nationality, political views, trade union membership, ethnicity, religion or sexual orientation, as well as due to employment for a specified or unspecified period or full- or part-time;
• When conducting recruitment projects, the Bank observes the principles of equal treatment during the hiring process and at work; the processes of selecting candidates are based on the principles of objectivity, and their individual stages follow the established patterns and principles;
• The Code of Ethics specifies the values, principles, standards of proceeding and ethical conduct in relationships with Customers and in the Bank’s business operations, and in the Bank’s relations with the environment;
• The Bank unconditionally reacts to and prevents mobbing, harassment and discrimination, and other forms of unequal and inappropriate treatment.
Diversity policy concerning the management and supervisory staff as at 31 December 2022
Diversity management also concerns the PKO Bank Hipoteczny SA’s Supervisory Board and Management Board members and the key managers. The management and supervisory staff includes persons of different gender, age and experience.
|
Gender |
Female |
Male |
|
Supervisory Board |
3 |
5 |
|
Management Board |
2 |
2 |
|
Key managers |
7 |
6 |
|
Age |
30 – 40 years |
41 – 50 years |
51 – 60 years |
Over 60 years |
|
Supervisory Board |
1 |
4 |
2 |
1 |
|
Management Board |
0 |
3 |
1 |
- |
|
Key managers |
3 |
9 |
1 |
- |
|
Period of employment with PKO Bank Hipoteczny SA |
up to 1 year |
1 – 5 years |
Over 5 years |
|
Supervisory Board |
3 |
5 |
0 |
|
Management Board |
2 |
0 |
2 |
|
Key managers |
1 |
6 |
6 |
Main characteristics of the internal control system in Relation to the Process of Preparing the Financial Statements
To ensure the reliability and accuracy of the financial reporting process, the Bank designed and introduced a number of control mechanisms embedded in the reporting systems and the internal regulation of these processes. Such mechanisms involve, among other things, continued verification and reconciliation of reporting data with the books of account, subsidiary ledgers and other documents which provide the basis for the preparation of the financial statements.
The process of preparing the financial statements is verified regularly, in particular with regard to arithmetical correctness, technical analysis and reliability of information. In accordance with the internal regulations, the financial statements are approved by the Management Board of PKO Bank Hipoteczny SA and an opinion on them is issued by the Audit and Finance Committee of the Supervisory Board of PKO Bank Hipoteczny SA. The annual financial statements are additionally assessed by the Supervisory Board of PKO Bank Hipoteczny SA.
The Director of the Finance and Accounting Office is responsible for ensuring compliance with controls in the area of financial reporting, while the internal audit function reviews and independently evaluates the adequacy and effectiveness of controls over the financial reporting processes and evaluates risk management in these processes, in accordance with the approved internal audit plans. No issues which would cast doubt on the reliability of the financial reporting have been observed so far as part of the internal audit operations.
List of Direct or Indirect Holders of Significant Blocks of Shares with an Indication of the Number of Shares Held and the Number of Votes Attached to these Shares
As at 31 December 2022 the share capital of PKO Bank Hipoteczny SA amounted to PLN 1,611.3 million and comprised 1,611,300,000 shares, each with PLN 1 nominal value. The shares are fully paid up. The amount of share capital did not change compared to the end of 2021. The PKO Bank Hipoteczny SA shares are non-preferred shares. The holders of PKO Bank Hipoteczny SA shares do not have any control rights due to holding such shares. 100% of the shares of PKO Bank Hipoteczny SA are held by Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna.
Structure of the share capital of PKO Bank Hipoteczny SA:
|
Series |
Type of shares |
Number of shares |
Nominal value per share |
Number of votes at GSM |
Amount paid in for the shares |
|
A |
Ordinary registered shares |
300,000,000 |
PLN 1 |
300,000,000 |
PLN 300,000,000.00 |
|
B |
Ordinary registered shares |
200,000,000 |
PLN 1 |
200,000,000 |
PLN 200,000,000.00 |
|
C |
Ordinary registered shares |
200,000,000 |
PLN 1 |
200,000,000 |
PLN 200,000,000.00 |
|
D |
Ordinary registered shares |
100,000,000 |
PLN 1 |
100,000,000 |
PLN 100,000,000.00 |
|
E |
Ordinary registered shares |
150,000,000 |
PLN 1 |
150,000,000 |
PLN 150,000,000.00 |
|
F |
Ordinary registered shares |
150,000,000 |
PLN 1 |
150,000,000 |
PLN 150,000,000.00 |
|
G |
Ordinary registered shares |
100,000,000 |
PLN 1 |
100,000,000 |
PLN 100,000,000.00 |
|
H |
Ordinary registered shares |
95,000,000 |
PLN 1 |
95,000,000 |
PLN 95,000,000.00 |
|
I |
Ordinary registered shares |
100,000,000 |
PLN 1 |
100,000,000 |
PLN 100,000,000.00 |
|
J |
Ordinary registered shares |
131,500,000 |
PLN 1 |
131,500,000 |
PLN 131,500,000.00 |
|
K |
Ordinary registered shares |
84,800,000 |
PLN 1 |
84,800,000 |
PLN 84,800,000.00 |
|
|
TOTAL |
1,611,300,000 |
|
1,611,300,000 |
PLN 1,611,300,000.00 |
|
Shareholder |
31.12.2022 |
31.12.2021 |
||
|
Number of shares |
Number of votes at GSM |
Number of shares |
Number of votes at GSM |
|
|
Powszechna Kasa Oszczędności Bank Polski SA |
1,611,300,000 |
100% |
1,611,300,000 |
100% |
Description of the rules for appointing and dismissing managers
Members of the Management Board are appointed and dismissed by resolution of the Supervisory Board. When appointing Management Board members, the Supervisory Board determines their number. The appointment of two members of the Management Board, including the President and the member responsible for risk, requires the consent of the Polish Financial Supervision Authority. The terms of office of members of the Management Board expire on the date on which the General Shareholders’ Meeting approves the financial statements for the last full financial year during which a member served, at the latest. Additionally, the term of office of a Management Board member also expires as a result of his/her death, resignation or dismissal from the Management Board, as of the date of the event causing the expiration, unless the resolution on dismissal provides a different date of expiration. Management Board members may be dismissed before the end of their term of office at any time.
The Supervisory Board notifies the Polish Financial Supervision Authority of the composition of the Management Board and of any changes in the composition thereof immediately after its appointment or after any changes in the composition thereof. The Supervisory Board also notifies the Polish Financial Supervision Authority of the members of the Management Board who, as a result of the segregation of duties, are in charge of the risk management and the internal audit unit. The Supervisory Board notifies the Polish Financial Supervision Authority of its intention to dismiss, and the reasons for dismissal of, a member of the Management Board who, as a result of the segregation of duties, is in charge of risk management and the internal audit unit, immediately after the relevant item has been placed on the agenda of the Supervisory Board meeting.
Additional information on the powers of management are provided in chapter 6. Organization and Governing Bodies of PKO Bank Hipoteczny SA.
Description of Authorizations to Decide on Share Issues or Redemptions
The powers of the General Shareholders’ Meeting include adopting resolutions on establishing the share redemption procedures and the level of compensation for redeemed shares, approving the acquisition of the Bank’s treasury shares for redemption, and approving the issue of bonds convertible into shares or other instruments giving the right to purchase or take up shares in the Bank.
Indication of any Limitations on the Transfer of Ownership Rights to the Issuer’s Securities
There are no limitations on the transfer of ownership rights to the issuer’s securities.
Principles for amending the Bank’s Articles of Association
Amendments to the Bank’s Articles of Association require a resolution of the General Shareholders’ Meeting and must be entered in the Register of Businesses of the National Court Register. To the extent defined by Article 34 (2) of the Banking Law, an amendment to the Articles of Association requires the consent of the Polish Financial Supervision Authority.
Composition and Changes during the Last Financial Year, and a Description of the Operations of the Management, Supervisory and Administrative Bodies of the Issuer, and of their Committees
Information concerning the description of the management, supervisory and administrative bodies of the issuer, their committees and their composition and changes during the last financial year is presented in Chapter 6. Organization and Governing Bodies of PKO Bank Hipoteczny SA.
The General Shareholders’ Meeting and relations with shareholders
The method of operation of the General Shareholders’ Meeting and its key powers as well as a description of the shareholder rights and the method of their execution follow directly from the applicable laws and the Bank’s Articles of Association. In consideration of the fact that all shares in the Bank’s share capital are held by a single shareholder, i.e. PKO Bank Polski SA, the resolutions of the General Shareholders’ Meeting are adopted without formally convening a General Shareholders’ Meeting, in accordance with the principles arising from Article 405 of the Polish Commercial Companies Code.
7.2. Audit Firm
In accordance with the policy for selecting an audit firm to perform an audit of the Bank’s financial statements, the Supervisory Board conducts an open tender procedure to commission an audit of the financial statements. The Audit and Finance Committee of the Bank’s Supervisory Board makes a recommendation concerning the audit firm selection to the Supervisory Board. Unless it concerns renewing an existing audit contract, the recommendation contains at least two suggestions with justifications and indicates the preferred firm. The Bank’s Supervisory Board selects an audit firm based on the recommendation of the Audit and Finance Committee of the Bank’s Supervisory Board. The offers made by audit firms are assessed based on transparent and non-discriminatory selection criteria.
In accordance with the policy for providing permitted non-audit services to the Bank by the audit firm conducting the audit, its related entities and members of its network, the provision of non-audit services by the audit firm conducting the audit, its related entities and members of its network to the Bank requires the consent of the Audit and Finance Committee of the Bank’s Supervisory Board and of the Audit Committee of the Supervisory Board of PKO Bank Polski SA.
In accordance with the provisions of the Policy and Procedures for selecting an audit firm to conduct an audit of the Bank’s financial statements, on 29 October 2021 the Supervisory Board of PKO Bank Hipoteczny SA, based on § 18 (1)(4) of the Bank’s Articles of Association and the recommendation of the Audit and Finance Committee of the Bank’s Supervisory Board, appointed PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp. k. as the audit firm to conduct the audit and review of the Bank’s financial statements for the years 2022–2023.
On 22 December 2021 a contract for conducting an audit and review of the Bank’s financial statements for the years 2022 – 2023 was concluded by and between PKO Bank Hipoteczny SA and PwC. Therefore, PwC was appointed to continue to audit and review the Bank’s financial statements over the next two years.
PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp. k. with its registered office in Warsaw, ul. Polna 11, is entered on the list of audit firms maintained by the Polish Agency for Audit Oversight with the number 144.
The following table presents the services provided by audit firms and the fees for such services:
|
Net fee of the audit firm (PLN’000). |
2022 |
2021 |
|
Audit of the financial statements |
140.4 |
140.4 |
|
Review of the financial statements, audit and review of group packages |
87.4 |
87.4 |
7.3. Other Information
Changes in the holding of shares and rights to shares in PKO Bank Hipoteczny SA by individuals in management and supervisory roles
In 2022 there were no changes in the holding of shares and rights to shares in PKO Bank Hipoteczny SA by individuals in management and supervisory roles. 100% of the shares are held by PKO Bank Polski S.A.
Significant and Material Agreements with the Central Bank or Supervisory Bodies
In 2022 PKO Bank Hipoteczny SA did not conclude any significant or material agreements with the Central Bank or with supervisory bodies.
Financial and guarantee commitments granted
In 2022 PKO Bank Hipoteczny SA did not issue any guarantees.
As at 31 December 2022 financial liabilities with respect to loans granted and not disbursed amounted to PLN 37.3 million, which is a PLN 19.7 million decrease compared with 31 December 2021.
Off-Balance-Sheet Liabilities Granted to Related Parties
In 2022, PKO Bank Hipoteczny SA did not grant any off-balance sheet liabilities to related parties.
Loans Taken out and Loan and Guarantee Agreements Unrelated to the Bank’s Operations
In 2022, Bank Hipoteczny SA did not take out any loans or enter into any loan, guarantee or warranty agreements unrelated to the Bank’s operations.
Underwriting Agreements
In 2022 PKO Bank Hipoteczny SA did not conclude any underwriting agreements.
Identification of Proceedings Pending Before Courts, Arbitration Bodies or Public-Administration Authorities
As at 31 December 2022, no material proceedings were pending before courts, arbitration bodies or public administration bodies concerning liabilities or receivables of PKO Bank Hipoteczny SA.
Factors which will Influence Future Financial Performance over the Horizon of at Least One Quarter
Among the significant factors and threats which may affect the Bank’s results over the consecutive quarter, the following should be mentioned:
In the global economy:
• the war in Ukraine and its business consequences, including mainly restricted access to energy resources;
• reaction of the global economy to the significant tightening of the monetary policy, including the decisive increases in interest rates in the USA and in the Euro Area, which will probably be continued at least at the beginning of 2023;
• slowing of the pace of global economic growth with a potential recession in Germany caused by the energy crisis;
• changes in global supply chains related to reshoring;
• changes in the economic conditions in China, where a significant economic revival is expected in 2023 due to the departure from the zero-Covid policy, which may lead to an increase in global demand, improving growth prospects for the global economy, but at the same time may become an additional source of inflationary pressure;
• changes in the climate policy, including an accelerated energy transformation and an increase in restrictions and meaning of environmental requirements.
In the Polish economy:
• the direction of further changes in the NBP interest rates and in the level of the mandatory reserve;
• the reaction of the household sector to the increased NBP interest rates, including the profile of consumer demand, loan demand and the ability to service the liabilities already incurred;
• the intensity and permanency of the factors with an influence on inflation and regulatory actions directed at limiting the scale of inflation growth;
• a slowing in the economy resulting from a weakening of global demand, high inflation and a tightening of monetary policy;
• migratory flows, including their impact on employee supply and aggregated demand in the economy;
• the situation on the financial markets which may reflect an increase in geopolitical risk related to the potential escalation in the armed conflict in Ukraine.
In the legal environment:
• possible further court decisions as to the PLN-denominated loans based on WIBOR rates;
• the UOKIK President’s investigation into irregularities in settling the costs of loans with borrowers in the event of full or partial prepayment, including the impact of the CJEU resolution on the result of the investigation;
• investigation of the UOKIK President into the irregularities in allowing borrowers to take loan repayment holidays;
• further recommendations of the PFSA influencing the process of calculating the creditworthiness of customers applying for mortgage loans.
Information on loan guarantees or other guarantees issued by the Bank or its subsidiary – in aggregate to a single entity or its subsidiary, if the total amount of the existing guarantees is equivalent to at least 10% of the issuer’s equity
In 2022, PKO Bank Hipoteczny SA did not grant any loan guarantees or other guarantees to a single entity or a subsidiary of such an entity with a total value equivalent to at least 10% of the Bank’s equity.
Information on Loan and Advance Contracts Concluded or Terminated in a Given Financial Year
On 11 February 2022 PKO Bank Hipoteczny SA concluded a Non-Revolving Working Capital Loan Agreement with PKO Bank Polski SA, denominated in PLN, of PLN 400 million for a period of six years. The loan will be disbursed for one year from the date of concluding the Agreement, in tranches, each of which will be repayable within five years of drawing the tranche. The tranches bar interest determined separately for each drawing.
On 7 April 2022 PKO Bank Hipoteczny SA concluded an Annexe to the Non-Revolving Working Capital Loan Agreement with PKO Bank Polski SA, denominated in PLN, dated 11 February 2022, increasing the maximum amount of the loan from PLN 400 million to PLN 1,000 million.
On 10 May 2022, PKO Bank Hipoteczny SA and PKO Bank Polski SA concluded annexe no. 2 to the agreement dated 11 February 2022 on a non-revolving working capital loan in PLN increasing the maximum amount of the facility from PLN 1,000 million to PLN 2,000 million.
On 19 May 2022, PKO Bank Hipoteczny SA concluded an annexe to a medium-term current account overdraft facility agreement of up to PLN 150 million with an external financial institution, extending the repayment deadline until 15 June 2023.
Information on transaction(s) with related parties concluded by the issuer or its subsidiary, if material and not concluded on an arm’s length basis
PKO Bank Polski SA and PKO Bank Polski SA Group entities are the Bank’s related parties in terms of equity.
In 2022, PKO Bank Hipoteczny SA did not conclude any material non-arm’s length transactions with related parties.
Information on changes in the key principles of managing the Bank’s enterprise
In 2022 there were no changes in the key principles of managing the Bank’s enterprise in PKO Bank Hipoteczny SA.
Funding support agreements
PKO Bank Hipoteczny SA did not conclude funding support agreements with other entities subject to consolidated supervision operating within the same holding, or with closely related parties.
Deposits, and guarantees and sureties issued
PKO Bank Hipoteczny SA does not accept any deposits or issue any guarantees or sureties.
Information on the value of security established on the accounts or assets of borrowers
In 2022 PKO Bank Hipoteczny SA did not set up any security on the borrowers’ accounts.
As at 31 December 2022, the value of collateral in respect of residential mortgage loans secured with real estate was PLN 64.9 billion compared with PLN 63.3 billion as at 31 December 2021.
Events after the end of the reporting period
Financing from PKO Bank Polski SA
On 3 January 2023, the Bank concluded with PKO Bank Polski SA a non-revolving working capital facility agreement in PLN with a limit of PLN 300,000 thousand for a period of 7 years. The loan will be disbursed over a period of 2 years of the date of conclusion in tranches, each of which is repayable within 5 years of its drawing. The tranches bear interest at a fixed rate, which is determined for each drawing separately.
In connection with the conclusion of the said agreement, also on 3 January 2023, the Bank concluded with PKO Bank Polski SA Annex No. 3 to the non-revolving working capital facility agreement in PLN dated 11 February 2022, based on which the amount of the loan was reduced from PLN 2,000,000 thousand to PLN 1,700,000 thousand.
On 17 January 2023, the Bank concluded with PKO Bank Polski SA Annex No. 6 to the overdraft facility agreement of 10 July 2019, based on which the amount of the loan was reduced from PLN 5,000,000 thousand to PLN 4,478,000 thousand.
Approval of the Polish Financial Supervision Authority
On 27 January 2023, the Polish Financial Supervision Authority issued its unanimous consent to the appointment of Ms Katarzyna Kurkowska-Szczechowicz as President of the Management Board of the Bank.
Issue of mortgage covered bonds
On 2 February 2023, the Bank conducted a subscription for series 9 mortgage covered bonds in PLN issued as part of the Mortgage Covered Bonds Issue Programme for the European market with a nominal value of EUR 500 thousand to be issued on 9 February 2023 and maturing on 9 February 2026. The securities bear a floating interest rate of WIBOR 3M+ 0.85 p.p. margin.
Appointment of a Supervisory Board Member
On 13 February 2023, the Extraordinary Shareholders Meeting of the Bank appointed Mr Piotr Jaworski as a Supervisory Board Member for a joint four-year term of office.
8. Representation of the Management Board of PKO Bank Hipoteczny SA
The Management Board of PKO Bank Hipoteczny SA represents that, to the best of their knowledge:
• the financial statements of the PKO Bank Hipoteczny SA for the year ended 31 December 2022 have been prepared in accordance with the applicable accounting principles, and give a true, fair and clear view of the economic and financial position of PKO Bank Hipoteczny SA, and of its financial result;
• the Directors’ Report on the activities of PKO Bank Hipoteczny SA in the year ended 31 December 2022 includes a true reflection of the development and achievements, and of the position of PKO Bank Hipoteczny SA, including a description of the basic risks and threats.
The Management Board of PKO Bank Hipoteczny SA represents that the audit firm which conducted the audit of the financial statements of PKO Bank Hipoteczny SA for the year ended 31 December 2022 was selected in compliance with the applicable laws, and that both the entity and the statutory auditor who conducted the audit fulfilled all the criteria for providing an unbiased and independent audit report on the financial statements, in compliance with the applicable laws and professional standards.
This Directors’ Report on the activities of PKO Bank Hipoteczny SA for the year ended 31 December 2022 comprises 62 sequentially numbered pages.
Signatures of all the Members of the Bank’s Management Board
|
01.03.2023 |
Katarzyna Kurkowska-Szczechowicz |
President of the Management Board |
|
Signed on Polish original ...................................................... (signature) |
|
01.03.2023 |
Piotr Kochanek |
Vice President of the Management Board |
|
Signed on Polish original ...................................................... (signature) |
|
01.03.2023 |
Stanisław Skoczylas |
Vice President of the Management Board |
|
Signed on Polish original ...................................................... (signature) |
|
01.03.2023 |
Katarzyna Surdy |
Vice President of the Management Board |
|
Signed on Polish original ...................................................... (signature) |