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2018 Financial and Social Report

The credit risk is one of the most important risk types for the Group and therefore considerable attention is given to management of credit risk-bearing exposures. Credit risk is connected with balance-sheet credit exposures as well as off-balance sheet financial instruments, such as granted and unutilized credit lines, guarantees and letters of credit, as well as limits for transactions in financial instruments.

The credit policy is subject to periodic reviews and verification process taking into account the prevailing market conditions and changes in the Group’s regulatory environment.

The Group uses several rating systems to manage credit risk depending on the type of exposure and the customer segment involved. A rating system is a set of methods (models), processes, controls, data collection procedures and IT systems that identify and measure credit risk, sort levels of exposure by grades or pools (granting of credit rating), and quantify probability of default and expected loss estimates for specific types of exposure.

Measurement of Credit Risk

Measurement of credit risk, for the purpose of the credit portfolio management, on the level of individual customers and transactions, on account of granted loans is done with the consideration of three base parameters:

(i) Probability of Default (PD) of a customer or counterparty as regards their liability;

(ii) amount of Exposure At Default (EAD) and

(iii) the ratio of Loss Given Default (LGD) regarding the customer’s liability.

(i) The Group assesses the probability of default (PD) of individual counterparties, using internal rating models adapted to various categories of customers and transactions. Models were developed in-house or at the level of the BCP Group, or with help of external providers, and combine statistical analysis with assessment by a credit professional. The Group’s customers are divided into 15 rating classes, which for the purposes of this Report have been grouped into 6 main brackets. The Group’s Master Ratings Scale, presented below, also contains the scale of probabilities of non-compliance with the liabilities specified for a given class/rating group. Rating models are subject to regular reviews and whenever necessary to relevant modification. Modifications of models are confirmed by Validation Committee.

The Group regularly analyses and assesses rating results and their predictive power with respect to cases of default. The process of assigning client risk assessments is performed by Rating Department independently from credit decision process and transactions are supported by IT systems, obtaining and analyzing information from internal and external databases.

The Group’s internal rating scale
Master scale Description of rating
1-3 Highest quality
4-6 Good quality
7-9 Medium quality
10-12 Low quality
13-14 Watched/Procedural
15 Default

(ii) EAD – amount of exposure at default – concerns amounts which according to the Group’s predictions will be the Group’s receivables at the time of default against liabilities. Liabilities are understood by the Group to mean every amount disbursed plus further amounts, which may be disbursed until default, if such occurs.

(iii) LGD – loss given default is what the Group expects will be its losses resulting from actual cases of default, with the consideration of internal and external costs of recovery and the discount effect.

Based on guidelines of IFRS 9, on the application date of the new Standard, the impaired definition was adapted to a more conservative default definition used in the capital requirement calculation process (including in the IRB approach). The main difference in both definitions, before the change, was related to the approach to a quarantine for restructured exposures. The approach is more restrictive in respect to the default definition. Therefore, ever since it implemented IFRS 9, the Group has used a uniform definition of default, both in the area of capital calculation and to determine impairment.

  • DPD>90 days considering materiality thresholds for due amount: 500 zł retail and 3000 zł corporates
  • Restructured loans (annexes and agreements)
  • Loans in vindication process
  • Qualitative triggers identified in the individual analysis
  • The Group is using cross-default approach for all segments.

Debt securities from State Treasury and from the Central Bank are monitored on the basis of Polish rating. Whereas the economic and financial situation of issuers of municipal debt securities is monitored on a quarterly basis based on their finance reporting.

The Group doesn’t apply Low Credit Risk (LCR) exemption neither for State Treasury and Central Bank exposures nor for any other groups of exposures.

The Group maintains strict control over the limits of net open derivative positions both with respect to amounts and transaction maturities. Credit risk exposures resulting from derivatives are managed as part of total credit limits defined for individual customers calculated on the basis of verification of natural exposure and analysis of customer’s financial situation, and also as part of counterparties’ limits.

The Group offers Treasury products for FX risk or interest rate risk only for hedging purposes and under Treasury limits assigned to clients or secured by specific collateral (deposit).

Most of the Group’s agreements include the possibility of calling the client to replenish the margin deposit, (if the valuation of the client’s open position exceeds treasury limit, the so-called margin call); and if the client does not supplement the deposit, the Group has the right to close the position.

Credit risk-based off-balance sheet liabilities include guarantees, letters of credit as well as granted credit lines. The main purpose of these instruments is to enable the customer to use the funds granted by the Group in a specific way.

Guarantees and letters of credit of standby type (liability similar to guarantee) bears at least the same credit risk as loans (in the case of guarantees and stand-by letters of credit type when valid claim appears, the Group must make a payment).

Documentary and commercial letters of credit are a written, irrevocable and final obligation of the Group to accept payments based on compliant documents within the time limits specified in the letters of credit and are connected with a guarantee-like risk.

The available credit line balance is the non-utilised part of previously accepted amounts pertaining to credit liabilities, available for use in the form of loans, guarantees or letters of credit. Considering the credit risk of undertakings to grant credit, the Group is potentially exposed to a loss in an amount equal to the sum of non-utilised liabilities. However the probable loss amount is usually lower than the total value of non-utilised liabilities, because most of the undertakings to disburse credit depend on customers’ particular credit conditions.

The Group monitors the period remaining to maturity of off-balance liabilities because long-term liabilities usually involve a higher degree of credit risk than short-term liabilities.

Limits control and risk mitigation policy

The Group measures, monitors and controls large credit exposures and high credit risk concentrations, wherever they are identified. Concentration risk management process encompasses single-name exposures with respect to an individual borrower or group of connected borrowers (with material capital, organizational or significant economic relations) and sectoral concentration – to economic industries, geographical regions, countries, and the real estate financing portfolio (including FX loans), portfolio in foreign currencies and other. Above types of sectoral exposures are subject to internal limits system. Information about the utilization of limits are presented at the Supervisory Board and the Risk Committee.

The internal (mentioned above) limits are monitored quarterly. Limits are subject to annual or more frequent review, when deemed appropriate. The limits are approved by the Supervisory Board or the Risk Committee.

Management of credit risk exposure is also performed through regular monitoring of customers’ economic and financial situation and/or track record of their relationship with the Group from the point of view of punctual repayment of their principal and interest liabilities.

The Group accepts collateral to mitigate its credit risk exposure; the main role of collateral is to minimize loss in the event of customers’ default in repayment of credit transactions in contractual amounts and on contractual dates by ensuring an alternative source of repayment of due and payable amounts.

Collateral is accepted in accordance with the credit policy principles defined for each customer segment. The key principle is that collateral for credit transaction should correspond to the credit risk incurred by the Group, taking into account the specific nature of the transaction (i.e. its type, amount, repayment period and the customer’s rating).

The credit policy defines the types, kinds and legal forms of collateral accepted in the Group as well as more detailed requirements that are to ensure the probability of selling collateral of respective types in the context of the Group’s recovery experiences.

The Group pays special attention to the correct determination of collateral value. It defined the rules for preparing and verifying collateral valuation and does its utmost to ensure that such valuations are objective, conservative and reflect the true value of the collateral. In order to ensure effective establishment of collateral, the Group has developed appropriate forms of collateral agreements, applications, powers-of-attorney and representations.

In the retail segment, accepted collateral consists mainly of residential real property (mortgage loans) and financial assets. In the corporate segment, are taken primarily all types of property (residential, commercial, land) as well as the assignment of receivables from contracts.

Temporary collateral is also accepted in the period before the final collateral is established. Additionally, the Group uses various forms of instruments supplementing the collateral, which facilitate enforcement or increase probability of effective repayment of debt from a specific collateral. Those instruments include: statement of submitting to enforcement in the form of a notarial deed, blank promissory note, power-of-attorney to a bank account, assignment of rights under an insurance agreement.

The Group monitors the collateral to ensure that it satisfies the terms of the agreement, i.e. that the final collateral of the transaction has been established in a legally effective manner or that the assigned insurance policies are renewed. The value of the collateral is also monitored during the term of the credit transaction.

In accordance with credit policy adopted in the Group it is also allowed to grant a transaction without collateral, but this takes place according to principles, which are different depending on the client’s segment. But in the case of the deterioration of the debtor’s economic and financial situation, in documents signed with the client the Group stipulates the possibility of taking additional collateral for the transaction.

Policy with respect to impairment and creation of impairment charges

The process of impairment identification and measurement with respect to loan exposures is regulated in the internal instruction introduced with IFRS9 application. The document defines in detail the mode and principles of individual and collective analysis, including algorithms for calculating particular parameters.

The methodology and assumptions adopted for determining credit impairments are regularly reviewed in order to reduce discrepancies between the estimated and actual losses. In order to assess the adequacy of the impairment determined both in individual analysis and collective analysis a historical verification (backtesting) is conducted from time to time (at least once a year), which results will be taken into account in order to improve the quality of the process.

Supervision over the process of estimating impairment charges and provisions is exercised at the Group by the Risk Department (DMR), which also has direct responsibility for individual analysis in the business portfolio at the Bank, as well as collective analysis. In addition to DMR, the process also involves recovery and restructuring units. These are the Corporate Recovery Department – DNG (individual analysis for the recovery-restructuring portfolio for corporate customers) and the Retail Liabilities Collection Department – DDN (individual analysis of individually significant retail impairments, mainly mortgages). DMR is an unit not connected with the process of lending; it is supervised by the Management Board Member responsible for risk management. Similarly organized is the impairment process at Millennium Leasing.

The Management Board of the Bank plays an active role in the process of determining impairment charges and provisions. The results of credit portfolio valuation are submitted to the Management Board for acceptance in a monthly cycle with a detailed explanation of the most important changes with an impact on the overall level of impairment charges and provisions, in the period covered by the analysis. Methodological changes resulting from the validation process and methodological improvements are presented at the Validation Committee, and subsequently at the Risk Committee which includes all the Management Board Members.

In monthly periods detailed reports are prepared presenting information about the Group’s retail portfolio in various cross-sections, including the level of impairment charges and provisions, their dynamics and structure. The recipients of these reports are Members of the Management Board, supervising the activity of the Group in the area of finance, risk and management information.

Since 1 January 2018, impairment estimation model within the Group has been based on the concept of “expected credit loss”, (hereinafter: ECL). As a direct result of this change, impairment charges now have to be calculated based on expected credit losses and forecasts of expected future economic conditions have to be taken into account when conducting evaluation of credit risk of an exposure.

The implemented impairment model applies to financial assets classified in accordance with IFRS 9 as financial assets measured at amortized cost or at fair value through other comprehensive income, except for equity instruments.

According to IFRS 9, credit exposures are classified in the following categories:

  • Stage 1 – non-impaired exposures, for which expected credit loss is estimated for the 12-month period,
  • Stage 2 – non-impaired exposures, for which a significant increase in risk has been identified (SICR) and for which expected credit loss is estimated for the remaining life time of the financial asset,
  • Stage 3 – credit impaired exposures, for which expected credit loss is estimated for the remaining life time of the financial asset.
  • POCI (purchased or originated credit impaired) – exposures which, upon their initial recognition in the balance sheet, are recognized as impaired, expected losses are estimated for the remaining life of the financial asset.

Assets, for which there has been identified a significant increase in credit risk compared to the initial recognition in the balance sheet, are classified in Stage 2. The significant increase in credit risk is recognized based on qualitative and quantitative criteria. The qualitative criteria include:

  • repayment delays of more than 30 days,
  • forborne exposures in non-default status,
  • procedural rating, which is reflecting early delays in payments,
  • taking a risk-mitigating decision for corporate clients, triggered by the early warning system,
  • events related to an increase in credit risk, the so called “soft signs” of impairment, identified as part of an individual analysis involving individually significant customers.

The quantitative criterion involves a comparison of the lifetime PD value determined on initial recognition of an exposure in the balance sheet, with the lifetime PD value determined at the current reporting date. If an empirically determined threshold of the relative change in the lifetime PD value is exceeded then an exposure is automatically transferred to Stage 2. The quantitative assessment does not cover exposures analyzed individually.

Individual analysis contains customers identified as significantly important both for business portfolio and recovery portfolio. Credit exposures are selected for individual analysis on the basis of materiality criteria which ensure that case-by case analysis covers at least 50% of the Group’s business corporate portfolio and 80% of the portfolio managed by entities responsible for the recovery and restructuring of corporate receivables.

Principal elements of the process of individual analysis:

1) Identification of soft signs of impairment being one of qualitative triggers of Significant Increase of Credit Risk (SICR);
This process covers biggest business corporate customers, for which financial-economic situation is analyzed on a quarterly basis based on: latest financial statement, events connected with company activities, information concerning related entities and economic environment, expectation about future changes, etc. There was defined catalogue of so called “soft signs of impairment”, identification of which means significant increase of credit risk (SICR) and causing classification of all exposures of such customer to Stage 2.

2) Identification of impairment triggers;
The Group defined impairment triggers for individual analysis and adjusted them to its operational profile. The catalogue of triggers is treated as qualitative part of default definition and contains among others following elements:

  • The economic and financial situation pointing to the Customer’s considerable financial problems,
  • Breach of the contract, e.g. significant delays in payments of principal or interest
  • Stating the customer’s unreliability in communicating information about his economic and financial situation,
  • Permanent lack of possibility of establishing contact with the customer in the case of violating the terms of the agreement,
  • High probability of bankruptcy or a different type of reorganizing the Customer’s enterprise/business,
  • Declaring bankruptcy or opening a recovery plan with respect to the Customer,
  • Granting the Customer who has financial difficulties, facilities concerning financing conditions (restructuring).

Internal regulations allow to discover above-mentioned triggers by indicating specific cases and situations corresponding to them, in particular with respect to triggers resulting from the Customer’s considerable financial problems, violating the critical terms of the agreement and high probability of a bankruptcy or a different enterprise reorganization.

3) Scenario approach in calculation of impairment allowances for individually analyzed customers;
If at least one of impairment triggers has been identified during the individual analysis, all exposures of given customer are classified in Stage 3 and then detailed analysis of forecasted cash-flows should be performed. Since introducing IFRS9 the Group is using scenario approach. It means that analyst should define at least two recovery scenarios which reflect described and approved recovery strategies: the main and alternative ones with assigned probabilities of realization. Scenarios can be based on restructuring or vindication strategy, mixed solutions are also used. The whole process of individual analysis is supported by specially dedicated Case-By-Case IT Tool especially useful in terms of calculation impairment amount with usage of scenario approach.

Every scenario contains two general types of recoveries: direct cash-flows from customers and recovered amounts from collateral.

4) Estimating expected cash-flows;
One element of the impairment calculation process is the estimation of the probability of cash flows included in the timetable, pertaining to the following items: principal, interest and other cash flows. The probability of realizing cash flows included in the timetable results from the conducted assessment of the customer’s economic and financial situation (indication of the sources of potential repayments) must be justified and assessed on the basis of current documentation and knowledge (broadly understood) of his situation with the inclusion of financial projections. This information is gathered by an analyst prior to the actual analysis in accordance with the guidelines specified in appropriate Group regulations.

In the event of estimating the probability of cash flows for customers in the portfolio managed by restructuring-recovery departments analysts will take into account the individual nature of each transaction pointing among others to the following elements which may have an impact on the value of potential cash flows:

  • Operational strategy with respect to the Customer adopted by the Group,
  • Results of negotiations with the customer and his attitude, i.e. willingness to settle his arrears,
  • Improvement/deterioration of his economic and financial situation,

The Group also uses the formal terms of setting and justifying the amount of probability and amount of the payment by the Bank of funds under the extended off-balance sheet credit exposure such as guarantees and letters of credit.

5) Estimation of the fair value of collateral, specifying the expected date of sale and estimation of expected revenues from the sale after deduction of the costs of the recovery process;
The inclusion of cash flows from realization of collateral must be preceded by an analysis of how realistically it can be sold and estimation of its fair value after recovery costs.

In order to ensure the fairness of the principles of establishing collateral recoveries, the Group prepared guidelines for corporate segment with respect to the recommended parameters of the recovery rate and recovery period for selected collateral groups. Depending on the place of the exposure in the Bank’s structure (business portfolio, restructuring-recovery portfolio) and type of exposure (credit, leasing) separate principles have been specified for particular portfolio types: business, restructuring-recovery and leasing portfolio. The recommended recovery rates and period of collateral recovery are verified in annual periods.

Subject to collective analysis are the following receivables from the group of credit exposures:

  • Individually insignificant exposures;
  • Individually significant exposures for which there has not been recognized impairment triggers as a result of an individual analysis.

For the purposes of collective analysis the Group has defined homogenous portfolios consisting of exposures with a similar credit risk profile. These portfolios have been created on the basis of segmentation into business lines, types of credit products, number of days of default, type of collateral etc. The division into homogenous portfolios is verified from time to time for their uniformity.

The expected credit loss in a collective analysis is calculated using Probability of Default (PD), Exposure at Default (EAD), and Loss Given Default (LGD) parameters, which are the outcome of the following models:

  • The PD model, is based on empirical data concerning 12-month default rates, which are then used to estimate lifetime PD values using appropriate statistical and econometric methods. The segmentation adopted for this purpose at the customer level is consistent with the segmentation used for capital requirement calculation purposes. Additionally, the Bank has been using rating information from internal rating models to calculate PDs. The value of the PD parameter for estimating ECL over a 12-month time horizon corresponds to the value from IRB models (after excluding prudential haircuts).
  • The LGD models for the retail portfolio used by the Group in the capital calculation process were adjusted to IFRS 9 requirements in the area of estimating impairment. The main components of these models are the probability of cure and the recovery rate estimated on the basis of discounted cash flows. The necessary adaptations to IFRS 9 include, among other things, exclusion of the conservatism buffer, indirect costs, adjustments for economic slowdown.For the corporate portfolio, a completely new LGD model has been developed that fully satisfies the requirements of the new standard. The model is based on a component determining parameterized recovery for the key types of collateral and a component determining the recovery rate for the unsecured part. All the parameters were calculated on the basis of historical data, including discounted cash flows achieved by the corporate debt recovery unit.
  • The EAD model used in the Group includes calculation of parameters such as: average limit utilization (LU), credit conversion factor (CCF), prepayment ratio and behavioral lifetime. Segmentation is based on the type of customer (retail, corporate, leasing) and product (products with/without a schedule).

The results of models employed in collective analysis are subject to periodical verification. The parameters and models are also covered by the process of models management governed by the document „Principles of Managing Credit Risk Models”, which specifies, among others, the principles of creating, approving, monitoring and validation, and historical verification of models.

In the process of calculation of expected credit losses, the Group uses forward-looking information (FLI) about future macroeconomic events. In particular FLI is used in PD, LGD, EAD as well as in the process of determination of SICR and allocation of exposures to Stage 2 (Transfer Logic). The Macroeconomic Analysis Office prepares three macroeconomic scenarios (base, optimistic and pessimistic) and determines the probability of their occurrence. Forecasts translate directly or indirectly into the values of estimated parameters and exposures and their impact vary by model, product type, rating-class etc. The Group uses macroeconomic forecasts prepared only internally. Forecasts are provided on a quarterly basis for a 3-year time horizon.

As with any economic forecasts, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected.

Economic variable assumptions

The most significant period-end assumptions used for the ECL estimate as at 31 December 2018 are set out below.

Macroeconomic variable Scenario 2019 2020 2021
Gross Domestic Product Base 103.9 103.2 102.9
Optimistic 105.0 104.2 103.7
Mild recession 101.1 101.7 102.2
Reference Interest Rate Base 1.50 2.00 2.00
Optimistic 2.25 2.50 2.25
Mild recession 1.50 1.50 1.50
Unemployment rate Base 5.6 5.7 6.0
Optimistic 4.8 4.8 4.9
Mild recession 6.7 7.9 8.4
The weightings assigned to each economic scenario at 31 December 2018 were as follows:
Base Optimistic Mild recession
Applied weighting 70% 15% 15%

ECL sensitivity to macroeconomic scenarios

For the purpose of assessing the sensitivity of ECL for future macroeconomic conditions, the Group calculated unweighted ECL for each defined scenario separately. The impact for ECL of application of each of the scenario separately does not exceed  1,5%.

Impairment Instruction being core document of Internal regulations, provides a detailed definition of the principle of reversing impairment losses. In principle, reversing a loss and elimination of a revaluation charge is possible in the case of cessation of the impairment triggers, including the repayment of arrears or exclusion from the recovery portfolio (reclassification to the Non-Impaired category) or in the case of selling receivables. Reclassification to the Non-Impaired category in the case of exposures subject to restructuring is possible only when the customer has successfully passed the „quarantine” period, during which he will not show delay in the repayment of principal or interest above 30 days. The quarantine period only starts counting after any eventual grace period that may be granted on the restructuring.

The above does not pertain to the Corporate Recovery restructuring portfolio, for which there have been defined separate conditions of transfer to the Non-Impaired category.

Furthermore for leasing transactions the quarantine period is equal to the period of staying in the restructuring portfolio, plus an additionally defined period. Within its duration delays in repayments must not exceed 30 days.

In 2018 in Bank there was a sale of PLN 13,3 million of on-balance sheet Impaired receivables. The sale included selected corporate receivables.

Maximum exposure to credit risk

31.12.2018 31.12.2017
Exposures exposed to credit risk connected with balance sheet assets 77 023 940 68 185 690
Deposits, loans and advances to banks and other monetary institutions 731 252 254 205
Loans and advances to customers: 52 711 680 47 411 078
Mandatorily at fair value through profit or loss: 1 250 525
Loans to private individuals: 1 232 494
Receivables on account of payment cards 759 280
Credit in current account 473 214
Loans to companies and public sector 18 031
Valued at amortized cost: 51 461 155 47 411 078
Loans to private individuals: 34 015 349 32 012 824
Receivables on account of payment cards 525 722 348
Cash loans and other loans to private individuals 6 208 042 5 537 658
Mortgage loans 27 806 782 25 752 818
Loans to companies 17 227 563 15 129 506
Loans to public entities 218 243 268 748
Financial derivatives and Adjustment from fair value hedge 226 873 1 078 545
Debt instruments held for trading 693 242 338 359
Debt instruments mandatorily at fair value through profit or loss 43 187
Debt instruments at fair value through other comprehensive income 22 104 639 19 016 855
Repurchase agreements 250 284 0
Other financial assets 262 783 86 650
Credit risk connected with off-balance sheet items 9 855 664 9 121 526
Financial guarantees 1 431 850 1 222 236
Credit commitments 8 423 814 7 899 290

The table above presents the structure of the Group’s exposures to credit risk as at 31st December 2018 and 31st December 2017, not taking into account risk-mitigating instruments. As regards balance-sheet assets, the exposures presented above are based on net amounts presented in the balance sheet.


Loans and advances to customers mandatorily at fair value through profit or loss

31.12.2018 31.12.2017
Mandatorily at fair value through profit or loss* 1 250 525
Companies 17 944
Individuals 1 232 494
Public sector 87
*The above data includes the fair value adjustment, in the amount of: (72 943)

The credit quality of financial assets

as of the end of 2018
Stage 1 (12-month ECL) Stage 2 (lifetime ECL) Stage 3 (lifetime ECL) POCI Total
Balance exposures exposed to credit risk 71 474 402 3 097 748 2 388 484 15 410 76 976 045
Balance impairment 232 576 184 451 1 343 418 (1 576) 1 758 868
Loans and advances to banks (external rating Fitch: from BBB to AAA; Moody’s: from B3 to Aaa; S&P: from B+ to AAA ) 731 268 731 268
Loans and advances to private individuals (according to Master Scale): 31 901 909 1 581 911 1 597 129 15 410 35 096 359
·       1-3 Highest quality 18 986 783 9 988 0 0 18 996 771
·       4-6 Good quality 6 422 656 171 289 0 4 6 593 948
·       7-9 Medium quality 5 192 651 282 731 0 8 5 475 390
·       10-12 Low quality 1 031 929 358 918 0 10 1 390 857
·       13-14 Watched 0 758 795 0 67 758 863
·       15 Default 0 0 1 597 129 15 321 1 612 450
·      Without rating* 267 891 189 0 0 268 080
Impairment 73 640 121 530 887 106 (1 576) 1 080 700
Loans and advances to companies (according to Master Scale): 7 515 196 784 615 507 031 0 8 806 842
·       1-3 Highest quality 28 835 0 0 0 28 835
·       4-6 Good quality 1 598 962 39 852 0 0 1 638 814
·       7-9 Medium quality 3 587 730 293 248 0 0 3 880 978
·       10-12 Low quality 1 426 388 403 382 0 0 1 829 770
·       13-14 Watched 0 14 103 0 0 14 103
·       15 Default 0 0 506 770 0 506 770
·      Without rating* 873 281 34 029 261 0 907 572
Impairment 97 889 31 829 313 879 0 443 596
Loans and advances to public entities (according to Master Scale): 198 803 1 937 0 0 200 741
·       1-3 Highest quality 0 0 0 0 0
·       4-6 Good quality 0 0 0 0 0
·       7-9 Medium quality 0 0 0 0 0
·       10-12 Low quality 0 0 0 0 0
·       13-14 Watched 0 498 0 0 498
·       15 Default 0 0 0 0 0
·      Without rating* 198 803 1 439 0 0 200 242
Impairment 241 3 0 0 244
Factoring (according to Master Scale): 2 398 100 181 186 31 167 0 2 610 453
·       1-3 Highest quality 0 0 0 0 0
·       4-6 Good quality 580 470 71 0 0 580 541
·       7-9 Medium quality 1 252 918 40 992 0 0 1 293 909
·       10-12 Low quality 275 181 138 594 0 0 413 775
·       13-14 Watched 0 0 0 0 0
·       15 Default 0 0 31 167 0 31 167
·      Without rating* 289 531 1 529 0 0 291 060
Impairment 27 193 7 384 27 500 0 62 077
Leasing (according to Master Scale): 5 704 373 548 098 253 157 0 6 505 628
·       1-3 Highest quality 6 289 0 0 0 6 289
·       4-6 Good quality 521 028 32 578 0 0 553 606
·       7-9 Medium quality 1 295 470 43 337 0 0 1 338 807
·       10-12 Low quality 400 597 172 927 0 0 573 524
·       13-14 Watched 0 1 358 0 0 1 358
·       15 Default 0 0 238 775 0 238 775
·      Without rating* 3 480 988 297 898 14 382 0 3 793 268
Impairment 33 613 23 704 114 933 0 172 250
Derivatives and adjustment from fair value hedge (according to Master Scale): 226 873 0 0 0 226 873
·       1-3 Highest quality 25 516 25 516
·       4-6 Good quality 38 235 38 235
·       7-9 Medium quality 4 399 4 399
·       10-12 Low quality 27 455 27 455
·       13-14 Watched 0 0
·       15 Default 0 0
·      Without rating* 1 474 1 474
·        fair value adjustment due to hedge accounting 4 293 4 293
·        Valuation of future FX payments 0 0
·        Hedging derivative 125 501 125 501
Trading debt securities (State Treasury** bonds) 693 242 693 242
Investment debt securities (State Treasury**, Central Bank**, Local Government , EIB) 22 104 639 22 104 639
Receivables from securities bought with sell-back clause 0 0


(*) the group of clients without an internal rating includes, among others, exposures related to loans to local government units as well as investment projects and some leasing clients;
(**) rating for Poland in 2018 A- (S&P), A2 (Moody’s), A- (Fitch)


The credit quality of financial assets, which were neither past-due(*), nor impaired
as of the end of 2017
Balance exposures exposed to credit risk not past due and not impaired: 65 866 562
Loans and advances to banks (external rating Fitch: from BBB to AAA; Moody’s: from B3 to Aaa; S&P: from B+ to AAA ) 254 205
Loans and advances to clients (according to Master Scale): 45 178 599
·         1-3 Highest quality 17 734 981
·         4-6 Highest quality 8 274 048
·         7-9 Medium quality 10 354 286
·         10-12 Low quality 3 937 005
·         13-14 Watched 218 783
·         15 Default** 193 468
·        Without rating*** 4 466 028
Trading debt securities (State Treasury**** bonds) 338 359
Derivatives and adjustment from fair value hedge (according to Master Scale): 1 078 544
·         1-3 Highest quality 63 420
·         4-6 Good quality 67 980
·         7-9 Medium quality 14 902
·         10-12 Low quality 37 795
·         13-14 Watched 49
·         15 Default 0
·        Without rating 730
·        fair value adjustment due to hedge accounting 7 784
·        Valuation of future FX payments 4
·        Hedging derivative 885 880
Investment debt securities (State Treasury****, Central Bank****, Local Government , EIB) 19 016 855
Receivables from securities bought with sell-back clause 0

(*) Loans overdue not more than 4 days are treated as technical delay and are shown in this category.
(**) Receivables without impairment, due to fact that discounted cash flow from collaterals fully cover the exposure and exposures that used to be classified as impaired in the past but are cured now but according to default definition used in IRB process are still presented as Rating 15.
(***) The group of customers without internal rating including i.a. exposures connected with loans to municipal units as well as investment projects and some leasing clients.
(****) Rating of Poland in 2017 BBB+ (S&P), A2 (Moody’s), A- (Fitch).


Gross exposure in ‘000 PLN 31.12.2017
Loans and advances to customers Loans and advances to banks
Not overdue and without impairment 45 178 599 254 205
Overdue*, but without impairment (amort. cost) 1 497 041 0
Overdue*, but without impairment (fair value)
Total without impairment (IBNR/stage1+2)

Total without impairment (IBNR/stage1+2)

46 675 640 254 205
With impairment for amortized cost

incl. POCI

2 232 666 0
Fair value without revaluation treated as stage 3
Loans and advances, gross 48 908 306 254 205
Impairment allowances together with IBNR (1 497 228) 0
Fair value revaluation
Loans and advances, net 47 411 078 254 205
Loans with impairment + fair value without revaluation treated as stage 3/ total loans 4.57% 0.00%
Loans with stage 2 (with fair value)/total loans

(*) Loans overdue not more than 4 days are treated as technical delay and are not shown in this category.

Loans past due below 90 days are not considered as impaired exposures, unless other impairment triggers are identified. The gross amount of loans past due but without impairment, divided between customer segments, as at the end of 2017 were as follows:

Gross exposure in ‘000 PLN 31.12.2017
Loans and advances to customers Loans and advances to banks Total
Companies Mortgages Other retail
Delay 5-30 days* 463 247 502 173 220 042 0 1 185 462
Delay 31-60 days 64 967 102 230 50 489 0 217 686
Delay 61-90 days 10 680 26 796 21 503 0 58 979
Delay above 90 days** 33 472 11 1 431 0 34 914
Total delay more than 4 days 572 366 631 210 293 465 0 1 497 041

(*) loans overdue not more than 4 days are treated as technical delay and are not shown in this category
(**) receivables past due over 90 days, but not included in the impaired portfolio, displaying impairment triggers but not demonstrating impairment due to estimated cash flows or below the minimum threshold

The gross amount of impaired loans and advances broken down into customer segments is as follows:

Gross exposure in ‘000 PLN 31.12.2018
Loans and advances to customers Loans and advances to banks Total
Companies Mortgages Other retail
By type of analysis
Case by case analysis 541 425 211 092 2 433 0 754 950
Collective analysis 250 011 585 885 813 048 0 1 648 944
Total 791 436 796 977 815 481 0 2 403 894
Gross exposure in ‘000 PLN 31.12.2017
Loans and advances to customers Loans and advances to banks Total
Companies Mortgages Other retail
By type of analysis
Case by case analysis 536 113 182 390 3 021 0 721 524
Collective analysis 239 989 476 384 794 769 0 1 511 142
Total 776 102 658 774 797 790 0 2 232 666

The quantification of the value of the portfolio subjected to case-by-case analysis as well as of the value of created charges, split between impaired receivables (and respectively charges) is presented in financial notes.

The tables below present the structure of the impaired portfolio subjected to case-by-case analysis.

31.12.2018 31.12.2017
Amount in ‘000 PLN Share % Coverage by impairment provisions Amount in ‘000 PLN Share % Coverage by impairment provisions
PLN 580 470 76.9% 57.6% 580 437 80.5% 62.9%
CHF 128 734 17.1% 22.6% 103 311 14.3% 27.4%
EUR 44 874 5.9% 41.2% 37 552 5.2% 45.3%
USD 872 0.1% 20.5% 224 0.0% 40.2%
Total (Case by Case impaired) 754 950 100.0% 50.6% 721 524 100.0% 56.9%
31.12.2018 31.12.2017
Amount in ‘000 PLN Share % Amount in ‘000 PLN Share %
Up to 20% 222 534 29.5% 166 405 23.0%
20% do 40% 106 059 14.0% 85 295 11.8%
40% do 60% 123 934 16.4% 147 214 20.4%
60% do 80% 72 446 9.6% 53 806 7.5%
Above80% 229 977 30.5% 268 804 37.3%
Total (Case by Case impaired) 754 950 100.0% 721 524 100.0%

At the end of 2018, the financial impact from the established collaterals securing the Group’s receivables with impairment recognized under individual analysis (Case by Case) amounted to PLN 291,4 million (at the end of 2017 respectively PLN 230,3 million). It is the amount, by which the level of required provisions assigned to relevant portfolio would be higher if flows from collaterals were not to be considered in individual analysis.

The restructuring of receivables is done by dedicated units (separately for corporate and retail receivables).

The restructuring of both corporate and retail receivables allows the Group to take effective action towards the customers, the purpose of which is to minimize losses and mitigate, as quickly as possible, any risks to which the Group is exposed in connection with client transactions giving rise to the Group’s off-balance sheet receivables or liabilities.

The restructuring process applies to the receivables which, based on the principles in place in the Group, are transferred to restructuring and recovery portfolios and includes setting new terms of transactions which are acceptable for the Group (including in particular the terms of their repayment and their collateral and possibly obtaining additional collateral).

Recovery of retail receivables is a fully centralized process implemented in two stages:

  • warning process – conducted by Direct Banking Department,
  • restructuring and execution proceedings – implemented by Retail Liabilities Collection Department.

Process performed by Direct Banking Department involves, direct, telephone contacts with Customers and obtaining repayment of receivables due to the Group. In case of failure to receive repayment or in case the Customer applies for debt restructuring, the case is taken over by the Retail Liabilities Collection Department and involves any and all restructuring and execution activities.

Recovery process is supported by specialized IT system covering the entire Customer portfolio, fully automated at the stage of portfolio monitoring and supporting actions undertaken in later restructuring and recovery phases. The behavioral scoring model constitutes an integral component of the system, used at the warning stage. The system is used for retail liabilities collection process applicable to all retail Customer segments.

The scoring model is based on internal calculations including, inter alia, Customer’s business segment type of credit risk based product (applicable, primarily, to mortgage products) and history of cooperation with the Customer relative to previous restructuring and execution activities. Late receivables from retail customers are sent to the IT system automatically no later than 4 days after the date of the receivable becoming due and payable.

The restructuring and recovery process applicable to corporate receivables (i.e. balance and off-balance receivables due from corporate and SME customers) is centralized and performed by the Corporate Recovery Department. Recovery of corporate receivables aims to maximize the recovery amounts and to mitigate risk incurred by the Group in the shortest possible periods of time by carrying out the accepted restructuring and recovery strategies towards:

  • the customer,
  • corporate receivables,
  • collateral ensuring their repayment.

The actions performed as part of those strategies include, among others: setting the terms and conditions of Customer financing, terms and conditions of restructuring corporate receivables (also within court restructuring proceedings), including the terms on which they will be repaid and secured, obtaining valuable and liquid collateral, achieving amicable repayment, recovery of due and payable receivables (also by court executive officer), also from collateral, actions performed within debtors’ bankruptcy proceedings, conducting required legal actions.

Corporate Recovery Department manages the corporate receivable restructuring and recovery process by using IT applications supporting the decision-making process and monitoring. They provide instantaneous information on receivables, collateral, approach used and key actions and dates.

All restructured exposures are classified directly after signing sufficient annex/agreement to Stage 3. In terms of regular payments such exposure can be cured when fulfil internally defined quarantine rules. Cured restructured cases are classified to Stage 2 for at least following 2 years after cure in accordance to EBA technical standards for forborne exposures.

The table below presents the loan portfolio with recognized impairment managed by the Group’s organizational units responsible for loan restructuring.

Gross exposure in ‘000 PLN 31.12.2018 31.12.2017
Loans and advances to private individuals 832 975 713 659
Loans and advances to companies 246 542 250 413
Total 1 079 517 964 072


Collateral transferred to the Group

In 2018 there were no major seizures by the Bank or sale of fixed assets constituting loan collateral. The above situation was caused by the implementation of other more cost-effective paths of satisfying oneself from lien or transfers of title (more effective in terms of time and money with the limitation of costs), i.e. leading to the sale of the object of collateral under the Bank’s supervision and with the allocation of obtained sources for repayment. A variety of such action is concluding agreements with official receivers on the basis of which the receiver for an agreed fee secures and stores objects of collateral and in agreement with the Bank puts them up for sale and actually sells them (also as part of selling organized parts or the debtor’s whole enterprise). Funds obtained in such a way are allocated directly for repayment of the Bank’s receivables (such debt-collection procedure is implemented without recording transferred collateral on the so-called “Fixed Assets for Sale”).

At the same time, a subsidiary of Bank – Millennium Leasing, takes control over some of assets leased and leads active measures aimed at their disposal. Data about the value of these assets and their changes during the reporting period are shown in note (29) “Non-current assets held for sale” of the consolidated balance sheet.

Policy for writing off receivables

Credit exposures, with respect to which the Group no longer expects any cash flows to be recovered and for which impairment provisions (or fair value adjustments in case of overdue receivables originated from derivatives) have been created fully covering the outstanding debt are written-off the balance sheet against said provisions and transferred to off-balance. This operation does not cause the debt to be cancelled and the legal and recovery actions, reasonable from the economic point of view, are not interrupted in order to enforce repayment.

In most of cases the Group writes off receivables against impairment provisions when said receivables are found to be unrecoverable i.e. among other things:

  • obtaining a decision on ineffectiveness of execution proceedings;
  • death of a debtor;
  • confirmation that there are no chances to satisfy claims from the estate in bankruptcy;
  • exhaustion of all opportunities to carry out execution due to the lack of assets of the main debtor and other obligors (e.g. collateral providers)
Gross exposure write-offs  in ‘000 PLN In 2018 r.
Loans and advances to customers Loans and advances to banks Total
Companies Mortgages Other retail
Receivables written-off excluded from enforcement activity 1 966 1 731 3 301 0 6 998
Receivables written-off being subject to enforcement activity 103 946 31 133 191 341 0 326 420
Total written-off 105 912 32 864 194 642 0 333 418

Concentration of risks of financial assets with exposure to credit risk

The table below presents the Group’s main categories of credit exposure broken down into components, according to category of customers.

31.12.2018 Financial intermediation Industry and constructions Wholesale and retail business Transport and communication Public sector Mortgage loans Consumer loans* Other sectors Total
Loans and advances to banks 731 268 0 0 0 0 0 0 0 731 268
Loans and advances to customers (Amortized cost) 261 101 6 282 355 4 877 840 2 514 447 184 911 28 319 185 6 777 096 4 003 087 53 220 022
Loans and advances to customers
291 4 011 4 981 2 141 5 0 1 232 494 6 601 1 250 524
Trading securities 104 0 0 0 693 242 0 0 0 693 346
Instruments valued at amort. cost 0 0 0 0 44 904 0 0 0 44 904
Instruments mandatorily at fair value through P&L 64 796 0 0 0 0 0 0 0 64 796
Derivatives and adjustment due to fair value hedge 202 012 11 212 4 175 773 0 0 0 8 701 226 873
Investment securities 28 968 5 004 0 287 22 104 651 0 0 32 22 138 942
Repurchase agreements 250 284 0 0 0 0 0 0 0 250 284
Total 1 538 824 6 302 582 4 886 996 2 517 648 23 027 713 28 319 185 8 009 590 4 018 421 78 620 959


(*) including: credit cards, cash loans, current accounts overdrafts

31.12.2017 Financial intermediation Industry and constructions Wholesale and retail business Transport and communication Public sector Mortgage loans Consumer loans* Other sectors Total
Loans and advances to banks 254 205 0 0 0 0 0 0 0 254 205
Loans and advances to customers 172 828 5 836 781 4 037 554 2 343 036 245 345 26 104 033 6 849 047 3 319 682 48 908 306
Trading securities 19 65 10 0 338 351 0 0 16 338 461
Derivatives and adjustment due to fair value hedge 1 013 703 21 647 21 011 92 0 0 0 22 091 1 078 544
Investment securities 131 035 5 960 0 142 18 935 737 0 0 31 19 072 905
Receivables from securities bought with sell-back clause 0 0 0 0 0 0 0 0 0
Total 1 571 790 5 864 453 4 058 575 2 343 270 19 519 433 26 104 033 6 849 047 3 341 820 69 652 421



Taking into consideration segments and activity sectors concentration risk, the Group defines internal concentration limits in accordance with the risk tolerance allowing it to keep well diversified loan portfolio.

The main items of loan book are mortgage loans (52%) and cash loans (12%). 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 33% of the total portfolio.

Sector name 2018
Balance Exposure
(PLN million)
Share (%) 2017
Balance Exposure
(PLN million)
Share (%)
Credits for individual persons 36 399.7 66.7% 32 953.1 67.4%
Mortgage 28 319.2 51.9% 26 104.0 53.4%
Cash loan 6 450.2 11.8% 5 332.4 10.9%
Credit cards and other 1 630.3 3.0% 1 516.6 3.1%
Credit for companies* 18 143.8 33.3% 15 955.2 32.6%
Wholesale and retail trade; repair 4 883.5 9.0% 4 037.6 8.3%
Manufacturing 5 170.3 9.5% 4 836.7 9.9%
Construction 1 116.2 2.0% 1 000.1 2.0%
Transportation and storage 2 516.9 4.6% 2 343.0 4.8%
Public administration and defense 184.9 0.3% 245.3 0.5%
Information and communication 540.3 1.0% 574.0 1.2%
Other Services 972.2 1.8% 774.6 1.6%
Financial and insurance activities 261.6 0.5% 172.8 0.4%
Real estate activities 861.3 1.6% 843.2 1.7%
Professional, scientific and technical services 485.2 0.9% 364.7 0.7%
Mining and quarrying 59.8 0.1% 60.0 0.1%
Water supply, sewage and waste 99.8 0.2% 104.9 0.2%
Electricity, gas, water 463.0 0.8% 90.9 0.2%
Accommodation and food service activities 168.9 0.3% 156.0 0.3%
Education 77.0 0.1% 63.3 0.1%
Agriculture, forestry and fishing 100.4 0.2% 94.1 0.2%
Human health and social work activities 158.3 0.3% 169.1 0.3%
Culture, recreation and entertainment 24.1 0.0% 24.9 0.0%
Total (gross) 54 543.5 100.0% 48 908.3 100.0%

(*) 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 2018 is 7,0% comparing with 5,9%% at the end of 2017. Concentration ratio in 2018 also increased for the 10 largest customers: to 4.8% from 4,1% at the end of the previous year, in line with risk tolerance policy of the Group.