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2018 Financial and Social Report

Balance Sheet and Off – Balance Sheet items

Assets

The Group’s assets as at 31 December 2018 reached PLN 80,459 million, which means an increase by 13.1% compared to the end of 2017. The structure of Group’s assets and changes of their particular components are presented in the table below:

Group's Assets (PLN million)
31.12.2018 31.12.2017 Change y/y
Value Structure Value Structure (%)
Cash and operations with the Central Bank 2 450.2 3.0% 2 080.2 2.9% 17.8%
Loans and advances to banks 731.3 0.9% 254.2 0.4% 187.7%
Loans and advances to Clients 52 711.7 65.5% 47 411.1 66.6% 11.2%
Receivables from securities bought with sell-back clause 250.3 0.3% 0.0 0.0%
Debt securities 22 886.0 28.4% 19 355.2 27.2% 18.2%
Derivatives (for hedging and trading) 226.9 0.3% 1 078.5 1.5% -79.0%
Shares and other financial instruments* 51.0 0.1% 50.2 0.1% 1.6%
Tangible and intangible fixed assets** 307.1 0.4% 265.6 0.4% 15.6%
Other assets 844.6 1.0% 646.4 0.9% 30.7%
Total assets 80 458.9 100.0% 71 141.4 100.0% 13.1%

(*) including investments in associates

(**) excluding fixed assets for sale

 

Higher assets level resulted primarily from the growth of loans to clients by PLN 5,301 (or by 11.2%) and debt securities by PLN 3,531 million (or by 18.2%), including predominantly debt securities issued by the Polish State Treasury and the National Bank of Poland (the central bank), which was accompanied by strong decrease of  derivatives by PLN 852 million.

Total net loans of Bank Millennium Group reached PLN 52,712 million as at the end of December 2018, which means a considerable growth of 11.2% year-on-year.

The growth of loans without foreign currency mortgage portfolio presented strong pace of 16.9% year-on-year reflecting dynamic increase in all key groups of lending activity (PLN mortgage, consumer loans and companies), whereas FX mortgage portfolio continues its gradual amortisation (a yearly decrease by 1.7% or 7,6% in currency) limited by strengthening CHF to PLN in 2ndhalf of the year.

The net value of loans granted to households as at the end of December 2018 totalled PLN 35,248 million and grew by 10.1% compared to the balance recorded a year ago. But when excluding amortising FX mortgage loans, all other segments presented strong annual growth rates: PLN mortgages +20.7% year-on-year and consumer loans +18.9% year-on-year. Annual sale of new cash loans and PLN mortgages presents high dynamics well exceeding the rate of 30% and achieving the levels of PLN 3.2 billion and PLN 3.3 billion respectively.

Net value of loans to companies amounted to PLN 17,464 million as at the end of December 2018 and grew strongly by 13.4% year-on-year, recording the fastest growth of companies loans in the last 5 years.

The growth was well balanced, at high pace in all main product groups (gross): factoring (+22% y/y), leasing (+13% y/y) and other loans (+12% y/y). Leasing and factoring maintained double-digit growth in yearly sales: +15% y/y and +18% y/y respectively.

 

The structure and evolution of loans to Clients of the Group is presented in the table below:

Loans and advances to Clients (PLN million)
31.12.2018 31.12.2017 Change y/y (%)
Loans to households 35 247.8 32 012.8 10.1%
– PLN mortgage loans 13 485.8 11 176.9 20.7%
– FX mortgage loans 14 321.0 14 575.9 -1.7%
– consumer loans 7 441.1 6 260.0 18.9%
Loans to companies and public sector 17 463.8 15 398.3 13.4%
– leasing 6 333.6 5 605.8 13.0%
– other loans to companies and factoring 11 130.2 9 792.5 13.7%
Net Loans & Advances to Clients 52 711.7 47 411.1 11.2%
Net Loans and Advances to Clients excluding FX mortgage loans 38 390.7 32 835.2 16.9%
Impairment write-offs 1 831.8 1 497.2 22.3%
Gross* loans and advances to Clients 54 543.5 48 908.3 11.5%

(*) Including, besides provisions for credit risk, also fair value adjustment of loan portfolio presented in fair value as well as modification. Includes also IFRS9 initial adjustment. Gross loan portfolio in this case presents value of loans and advances before mentioned provisions and adjustments.

The average interest rate of the Bank’s loan portfolio in 2018 was 4.33%. This interest rate includes interest income on hedging derivative transactions (mostly cross-currency interest rate swaps), connected with loans granted in foreign currencies, which are compensating for the lower nominal interest rate of such loans.

The value of debt securities equalled PLN 22,886 million at the end of December 2018 and increased strongly by PLN 3,531 million (i.e. 18.2%) year-on-year. Major part of debt securities (i.e. 99.3%) were bonds and bills issued by the Polish State Treasury and the National Bank of Poland (the central bank). The share of debt securities in Group’s Total Assets increased during the year from 27.2% to 28.4% as at the end of 2018, thus making a strong liquidity surplus.

Value of derivatives (designated for trading and hedging) totalled PLN 227 million at the end of December 2018, which means a strong decrease by 79% compared to 31 December 2017, due to FX rates changes (mainly depreciation of Polish currency vs. Swiss Franc).

Loans and advances to banks (including interbank deposits) amounted to PLN 731 million as at the end of December 2018, which means a strong increase by 187.7% year-on-year due to the increase of value of collateral deposits securing hedging transaction placed in counterparty banks, as a result of changes in the valuation of such transactions (mainly due to FX rate variation).

Shares and other financial instruments amounted to PLN 51 million as at the end of December 2018 and were the minor item in the balance sheet with only 0.1% share. The item increased slightly by 1.6% year-on-year.

Group’s tangible and intangible fixed assets amounted to PLN 307 million as at the end of December 2018, which means an increase by 15.6% yearly.

Total capital expenditure (CAPEX) of the Group during 2018 amounted to PLN 84.8 million, of which PLN 30.7 million spentfor the Bank’s physical infrastructure (branches, ATMs, security etc.) and PLN 51.4 million spent on software and IT infrastructure. The remaining expenditures, i.e. PLN 2.7 million, refers to the Bank’s subsidiaries. The Bank Millennium Group plans to increase investment expenditures to PLN 135.3 million in 2019. About 60% of the investments refers to IT area, especially – to further development of internet and mobile banking.

Bank’s Assets

The non-consolidated Bank’s assets as at 31 December 2018 reached PLN 79,279 million, presenting an increase by 12.2% compared to the end of 2017, so it was only slightly lower scale of growth compared to the consolidated Group. The structure of Bank’s assets and the changes of their particular components is presented in the table below:

Bank's Assets (PLN million)
31.12.2018 31.12.2017 Change y/y
Value Structure Value Structure (%)
Cash and operations with the Central Bank 2 450.2 3.1% 2 080.2 2.9% 17.8%
Loans and advances to banks 731.2 0.9% 254.2 0.4% 187.7%
Loans and advances to Clients 51 786.8 65.3% 47 144.5 66.7% 9.8%
Receivables from securities bought with sell-back clause 250.3 0.3% 0.0 0.0%
Debt securities 22 872.4 28.9% 19 341.7 27.4% 18.3%
Derivatives (for hedging and trading) 228.2 0.3% 1 079.0 1.5% -78.9%
Shares and other financial instruments 140.7 0.2% 134.1 0.2% 4.9%
Tangible and intangible fixed assets* 287.4 0.4% 246.5 0.3% 16.6%
Other assets 531.9 0.7% 356.8 0.5% 49.0%
Total assets 79 279.0 100.0% 70 637.0 100.0% 12.2%

(*) excluding fixed assets for sale

The key difference of non-consolidated Bank’s and Group’s assets is the value of loans to clients. First of all it refers to receivables from clients of the leasing company (although significant part of those receivables was acquired by the Bank) and also to elimination of mutual transactions between the Bank and other companies of the Capital Group in consolidated financial statements.

Total net loans to clients of the Bank reached PLN 51,787 million as at the end of December 2018, which means 9,8% growth year-on-year. With the exception of leasing receivables, the value and annual changes of other key components of Bank’s loans are very similar or the same as for the Capital Group.

The value of debt securities in the Bank’s assets equalled PLN 22,872 million at the end of December 2018 and increased strongly by 18.3% year-on-year. The evolution and composition of this portfolio was very similar as for the Group (as described above).

Shares and other financial instruments presented in the financial statements of the Bank, unlike Group’s statements, included valuation of shares in subsidiaries. The value of this item as at 31 December 2018 amounted to PLN 141 million, which means an increase by 4.9% year-on-year.

Tangible and intangible fixed assets of the Bank amounted to PLN 287 million as at the end of December 2018, which means an increase by 16.6% year-on-year.

The values and annual changes of other key assets items are similar compared to those of the consolidated Group, which have been commented above in the text.

Liabilities

The structure of Group’s liabilities and equity and the changes of their particular components is presented in the table below:

Group's Liabilities and Equity (PLN million)
31.12.2018 31.12.2017 Change y/y
Value Structure Value Structure (%)
Deposits from banks 1 788.9 2.5% 2 353.1 3.7% -24.0%
Deposits from Customers 66 243.8 91.9% 57 273.3 90.4% 15.7%
Liabilities from securities sold with buy-back clause 50.3 0.1% 0.0 0.0%
Financial liabilities valued at fair value through P&L and hedging derivatives 608.4 0.8% 367.0 0.6% 65.8%
Liabilities from issue of debt securities 809.7 1.1% 1 156.5 1.8% -30.0%
Provisions 112.5 0.2% 67.8 0.1% 66.0%
Subordinated debt 701.9 1.0% 702.0 1.1% 0.0%
Other liabilities* 1 759.1 2.4% 1 449.3 2.3% 21.4%
Total liabilities 72 074.5 100.0% 63 368.8 100.0% 13.7%
Total equity 8 384.4 7 772.6 7.9%
Total liabilities and equity 80 458.9 71 141.4 13.1%

(*) including tax liabilities

 

As at the end of December 2018, liabilities accounted for 89.6%, while Group’s equity accounted for 10.4% of the total liabilities and equity.

As at 31 December 2018, Group’s total liabilities amounted to PLN 72,075 million and increased strongly by PLN 8,706 million (or 13.7%) relative to the value as on 31 December 2017. The increase resulted, primarily, from growth in Customer deposits (by PLN 8,971 million).

Deposits from Customers constituted the Group’s main liability and as on 31 December 2018 they accounted for  91.9% of total liabilities. Deposits from Customers provide the main source of financing of the Group’s activities and include, mainly, Customer funds deposited on current, saving and term deposit accounts.

The evolution of Clients Deposits is presented in the table below:

 

Customer Deposits (PLN million)
31.12.2018 31.12.2017 Change y/y
Deposits of individuals 47 730.3 40 343.6 18.3%
Deposits of companies and public sector 18 513.5 16 929.7 9.4%
Total deposits 66 243.8 57 273.3 15.7%

 

Deposits of Bank Millennium Group grew strongly by 15.7% yearly reaching total balance of PLN 66,244 million as at 31 December 2018.

Deposits of households reached PLN 47,730 million as at 31 December 2018, after remarkable growth of 18.3% yearly, which has accelerated in the last quarter: PLN 3,5 billion and 8% growth. Strong growth in number of customers and accounts caused a visible increase of current and saving accounts volume by c.a. 31% year on year and their share in total deposits of individuals extended to the level of c.a. 69%.

Deposits from companies and public sector increased visibly by 9.4% during the year to PLN 18,514 million, with especially high growth rate in 4Q 2018: +15.4% q/q. Currents accounts were the main driver growing by c.a. 22% year-on-year.

The average interest rate of all deposits placed with the Bank in 2018 was 1.09%.

Deposits from banks, including received loans, as at 31 December 2018 amounted to PLN 1,789 million, accounting for 2.5% of the Group’s liabilities. The value of that item decreased strongly by 24% vs. the balance as at 31 December 2017, first of all due to PLN 838 million lower value of deposits from other banks (mostly driven by lower collateral deposits from counterparty banks securing hedging transactions), whereas the balance of loans from financial institutions increased by PLN 263 million (or by 27.4%) year-on-year and amounted to PLN 1,224 million (expressed in PLN) as at 31 December 2018. These loans included financing from European Investment Bank and European Bank for Reconstruction and Development (in EUR, CHF and PLN) with original maturities up to 7 years, which were the important items of wholesale long-term and medium-term funding received by the Group.

Financial liabilities valued at fair value through profit and loss and derivatives included, primarily, negative valuation of derivatives designated for trading or hedging as well as the liabilities from securities sold short. As at 31 December 2018 the value of this item amounted to PLN 608 million and increased by PLN 241 million (or 65.8%) relative to the balance of 31 December 2017, first of all due to the increase of negative valuation of derivatives used for hedging purpose (mainly CIRS) by PLN 118 million year-on-year. This resulted mostly from changes in FX rates, which is commented above in the text regarding derivatives valuation in assets. In addition to that, the liabilities from securities sold short increased by PLN 124 million due to trading positions related to market making activities.

Debt securities issued by the Group as at 31 December 2018 amounted to PLN 810million, which means a decrease by PLN 347 million (or by 30.0%) relative to the balance recorded as at 31 December 2017. At the end of December 2018 the value of bank debt securities issued by the Bank and possessed by individual Customers as savings products amounted to PLN 318 million, whereas the value of the Bank’s bonds possessed mostly by institutional investors amounted to PLN 301 million (which are traded on Catalyst – ASO BondSpot debt instruments exchange in Warsaw). Apart from the Bank’s debt securities and bonds, the Bank’s subsidiary Millennium Leasing issued bonds for private and institutional investors. The balance sheet value of bonds issued by this company as at 31 December 2018 was PLN 190 million. The main reason of the yearly decrease of the balance of Group’s liabilities from issued debt securities was maturing series of bonds for institutional holders of the total nominal value of PLN 330 million.

The value of subordinated debt amounted to PLN 702million as at 31 December 2018 and did not change year-on-year. The Bank issued in December 2017 ten-year subordinated bonds in PLN of the total nominal value PLN 700 million. The issue of subordinated debt supports Group’s and Bank’s capital adequacy and constitute the stable long-term source for funding of business activity.

As at 31 December 2018 the equity of the Group amounted to PLN 8,384 million and grew by PLN 612 million or 7.9% year-on-year. The main reason of the growth of equity was net profit generated during the 2018 financial year, without payment of any dividend for 2017 as decided by AGM of the Bank held on 26 March 2018. The impact of changes in Other comprehensive income (mainly revaluation of financial instruments) on this growth was positive (PLN 94 million). On the other hand, corrections resulting from implementation of IFRS 9 on the balance opening day resulted in the decrease of the Group’s equity by PLN 243 million.

In connection with KNF maintained position on banks’ dividend policy (announced in January 2019) and the planned acquisition of Euro Bank S.A., the Bank intends to retain entire net profit of 2018 year in its Own Funds in order to strengthen capital ratios. Based on this intention, the Management Board of the Bank will submit to the General Shareholders Meeting a proposal to retain in own funds the full net profit of 2018.

The information about capital adequacy is presented in Chapter VIII of this document and in a separate report titled “Capital Adequacy, Risk and Remuneration Policy Report of Bank Millennium Capital Group for 2018”.

Bank’s Liabilities and Equity

The non-consolidated Bank’s liabilities as at 31 December 2018 reached PLN 71,143 million, which means an increase by 12.8% compared to the end of 2017 – a little smaller pace of growth vs. the consolidated Group. The structure of Bank’s Liabilities and Equity and the changes of their particular components are presented in the table below:

 

Bank's Liabilities and Equity (PLN million)
31.12.2018 31.12.2017 Change y/y
Value Structure Value Structure (%)
Deposits from banks 1 055.7 1.5% 2 353.1 3.7% -55.1%
Deposits from Customers 66 399.8 93.3% 57 398.9 91.0% 15.7%
Liabilities from securities sold with buy-back clause 50.3 0.1% 0.0 0.0%
Financial liabilities valued at fair value through P&L and hedging derivatives 608.4 0.9% 367.1 0.6% 65.7%
Liabilities from issue of debt securities 620.0 0.9% 879.0 1.40% -29.5%
Provisions 112.0 0.2% 66.8 0.1% 67.6%
Subordinated debt 701.9 1.0% 702.0 1.1% 0.0%
Other liabilities* 1 594.9 2.2% 1 329.5 2.1% 20.0%
Total liabilities 71 143.1 100.0% 63 096.5 100.0% 12.8%
Total equity 8 136.0 7 540.5 7.9%
Total liabilities and equity 79 279.0 70 637.0 12.2%

(*) including tax liabilities

 

The key difference between non-consolidated Bank’s and Group’s liabilities is the value of liabilities from issued securities of the leasing company of PLN 190 million (presented in the Group’s statements).

The value of Bank’s deposits from customers amounted to PLN 66,400 million as at 31 December 2018 and were higher by PLN 156 million than the balance for the Group (mostly the impact of intragroup eliminations). The deposits recorded an increase by 15.7% year-on-year (the same as the increase of Group’s deposits).

The values and annual changes of other key liabilities items of the Bank are similar compared to those of the consolidated Group, which has been commented above in this part of the report.

The Bank’s total shareholder equity as at 31 December 2018 amounted to PLN 8,136 million and increased by 7.9% year-on-year (similar growth as for consolidated Group’s equity).

Contingent liabilities

The structure of contingent liabilities of the Group is presented in the table below:

 

Group's Contingent Liabilities (PLN million)
31.12.2018 31.12.2017 Change y/y (%)
Total contingent liabilities 10 229.6 9 353.3 9.4%
1. Liabilities granted: 9 855.7 9 121.5 8.0%
     a) financial 8 423.8 7 899.3 6.6%
     b) guarantees 1 431.9 1 222.2 17.2%
2. Liabilities received: 373.9 231.8 61.3%
     a) financial 0.0 0.0
     b) guarantees 373.9 231.8 61.3%

 

In the course of its operations, the Group executes transactions in effect of which contingent liabilities arise. The main contingent liability items (granted) include: (i) financial commitments, mainly to extend loans (including, inter alia, not utilised credit card limits, not used overdraft facilities, not utilised investment loan tranches) and (ii) guarantees, including mainly guarantees and letters of credit issued by the Group (providing security for performance, by the Group Customers, of their commitments relative to third parties). Contingent liabilities granted cause that the Group is exposed to various risk types including credit risk. The Group creates provisions against irrevocable risk based contingent liabilities, booked in the item „Provisions” in the liabilities side of the Balance Sheet.

As on 31 December 2018, the total value of contingent liabilities of the Group amounted to PLN 10,230 million, including commitments granted by the Group of PLN 9,856 million. During 2018 the value of contingent financial liabilities granted by the Group increased by 6.6% and the value of guarantee commitments increased by 17.2%.

More information on contingent liabilities can be found in Chapter 12 of the Annual Report of Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2018.

The structure of contingent liabilities of the non-consolidated Bank is presented in the table below:

 

Bank's Contingent Liabilities (PLN million)
31.12.2018 31.12.2017 Change y/y (%)
Total contingent liabilities 10 994.6 9 391.2 17.1%
1. Liabilities granted: 10 617.9 9 156.6 16.0%
     a) financial 8 424.5 7 900.7 6.6%
     b) guarantees 2 193.4 1 256.0 74.6%
2. Liabilities received: 376.7 234.5 60.6%
     a) financial 0.0 0.0
     b) guarantees 376.7 234.5 60.6%

 

The value  of total contingent liabilities granted and received by the Bank amounted to PLN 10,995 million and increased by 17.1% year-on-year. The main difference between this value and the value of Group’s contingent liabilities was the balance of guarantees granted: on the Bank’s level there were presented guarantees granted for the Group’s companies, which are eliminated on the Group’s level. The key item of those guarantees were loan repayment guarantees granted to Millennium Leasing company in the total amount of PLN 730 million. The evolution of the other contingent liabilities granted and received by the Bank is similar as in the Group’s case, described above.