Credit risk
Credit risk means uncertainty about the Client’s compliance with the financing agreements concluded with the Group i.e. repayment of the principal and interest in the specified time, which may cause a financial loss to the Group.
The credit policy pursued in the Group is based on a set of principles such as:
- centralization of the credit decision process;
- using specific scoring/rating models for each Client segment/type of products;
- using IT information (workflow) in order to support the credit process at all stages;
- existence of specialized credit decisions departments for particular Client segments;
- regular credit portfolio monitoring, both at the level of each transaction in the case of major exposures, and at credit sub-portfolio level (by the Client segment, type of product, distribution channels, etc.);
- using the structure of limits and sub-limits for credit exposure in order to avoid credit concentration and promote the effects of credit portfolio diversification;
- separate unit responsible for granting rating to corporate Client, thus separating the credit capacity assessment and credit transaction granting from his creditworthiness assessment.
In the area of credit risk, the Group focused in 2016 year on adjustment of credit policy to changing economic conditions and improved the tools and credit risk management frameworks, in particular:
- updated the Risk Strategy, for the years 2017-2019;
- developed of a new rating model for corporate customers;
- updated sector risk classification and limits;
- optimised the methodology, tools, and processes of credit risk management for retail clients
During 2016 the Bank sold PLN 315 million on balance sheet impaired receivables and PLN 110 million off balance (written off in charge of provisions), with higher than average coverage ratio. The balance sale included corporate portfolio (PLN 187 million) and retail portfolio (PLN 128 million).
Loan portfolio quality +
Bank Millennium Group maintains a solid asset quality of the loan portfolio. The share of impaired loans in the consolidated portfolio decreased during the year from 4.61% to 4.50%, it is much lower compared to the Polish banking system and the share of past-due more than 90 days loans dropped in this time from 2.78% to 2.63%.
The improvement of quality portfolio was observed for leasing and other corporates portfolios. Impaired ratio in leasing dropped to 4.45% and past-due over 90 days ratio to 1.34%. These ratios for other corporates decreased respectively to 5.30% and 3.55%.
Two other portfolios of impaired ratio registered some increases: higher in mortgage portfolio and non-material in non-mortgage retail loans. However, quality of mortgage portfolio remains very good, with impaired loans ratio at 2.47% and past due over 90 days at 1.18%. These ratios remain lower when compared to the Polish banking system average.
The coverage ratio, defined as the share of total provisions in total impaired loans, decreased during 2016 year from 66% to 63% (partially due to impaired portfolio sale) and coverage of loans past-due over 90 days decreased from 110% to 107%.
The evolution of main indicators of the Group’s loan portfolio quality:
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| Total portfolio quality indicators | 31.12.2016 | 31.12.2015 |
|---|---|---|
| Total impaired loans (PLN million) | 2 179 | 2 204 |
| Loans past-due over 90 days (PLN million) | 1 273 | 1 331 |
| Total impairment provisions (PLN million) | 1 365 | 1 461 |
| Impaired over total loans ratio (%) | 4.5% | 4.6% |
| Past-due over 90 days over total loans ratio (%) | 2.6% | 2.8% |
| Total impairment provisions/impaired loans (%) | 62.6% | 66.3% |
| Total impairment provisions/ Loans past-due over 90 days (%) | 107.2% | 109.7% |
The evolution of the Group’s loan portfolio quality by main products groups:
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| Portfolio quality by products: | Loans past-due > 90 days ratio |
Impaired loans ratio |
||
|---|---|---|---|---|
| 31.12.2016 | 31.12.2015 | 31.12.2016 | 31.12.2015 | |
| Mortgage | 1.18% | 0.94% | 2.47% | 2.13% |
| Other retail (*) | 8.39% | 8.33% | 11.82% | 11.77% |
| Leasing | 1.34% | 1.75% | 4.45% | 4.66% |
| Other Corporates | 3.55% | 5.22% | 5.30% | 7.34% |
| Total loan portfolio | 2.63% | 2.78% | 4.50% | 4.61% |
(*) incl. Microbusiness, annual turnover below PLN 5 million
Concentration of the loan portfolio +
Taking into consideration segments and activity sectors concentration risk, the Group defines internal concentration limits in accordance with the risk appetite allowing it to keep well diversified loan portfolio.
The main items of loan book are mortgage loans (57%) and cash loans (10%). The portfolio of loans to companies (including leasing) from different sectors like industry, construction, transport and communication, retail and wholesale business, financial intermediation and public sector represents 30% of the total portfolio.
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|
Sector name |
2016
Balance Exposure (mln zł) |
share
(%) |
2015
Balance Exposure (mln zł) |
share
(%) |
|---|---|---|---|---|
| Credits for individual persons | 34 084.2 | 70.4% | 33 615.2 | 70.3% |
| Mortgage | 27 815.7 | 57.5% | 27 954.6 | 58.4% |
| Cash loan | 4 919.0 | 10.1% | 4 437.1 | 9.3% |
| Credit cards and other | 1 349.5 | 2.8% | 1 223.5 | 2.6% |
| Credit for companies* | 14 300.7 | 29.6% | 14 215.1 | 29.7% |
| Wholesale and retail trade; repair | 3 706.8 | 7.7% | 3 900.8 | 8.2% |
| Manufacturing | 3 967.2 | 8.2% | 3 845.3 | 8.0% |
| Construction | 914.2 | 1.9% | 1 012.2 | 2.1% |
| Transportation and storage | 2 293.1 | 4.7% | 2 137.8 | 4.5% |
| Public administration and defence | 308.4 | 0.6% | 394.9 | 0.8% |
| Information and communication | 408.9 | 0.8% | 331.3 | 0.7% |
| Other Services | 696.7 | 1.4% | 609.8 | 1.3% |
| Financial and insurance activities | 144.7 | 0.3% | 73.6 | 0.2% |
| Real estate activities | 715.7 | 1.5% | 612.6 | 1.3% |
| Professional, scientific and technical services | 337.9 | 0.7% | 334.8 | 0.7% |
| Mining and quarrying | 118.5 | 0.2% | 233.5 | 0.5% |
| Water supply, sewage and waste | 99.0 | 0.2% | 110.3 | 0.2% |
| Electricity, gas, water | 111.9 | 0.2% | 180.8 | 0.4% |
| Accommodation and food service activities | 157.0 | 0.3% | 123.3 | 0.3% |
| Education | 31.8 | 0.1% | 47.5 | 0.1% |
| Agriculture, forestry and fishing | 103.6 | 0.2% | 96.7 | 0.2% |
| Human health and social work activities | 161.9 | 0.3% | 148.2 | 0.3% |
| Culture, recreation and entertainment | 23.4 | 0.0% | 21.7 | 0.0% |
| Total (gross) | 48 385.0 | 100.0% | 47 830.3 | 100.0% |
(*) incl. Microbusiness, annual turnover below PLN 5 million
Concentration ratio of the 20 largest customers in the Group’s loan portfolio (considering groups of connected entities) at the end of 2016 is 5.4% comparing with 5.2% at the end of 2015. Concentration ratio in 2016 also increased marginally for the 10 largest customers: to 3.7% from 3.4% at the end of the previous year, in line with risk appetite policy of the Bank.
More information on credit risk management can be found in chapter 8 of the Annual Consolidated Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2016.