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2018 Financial and Social Report

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 2018 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 2019-2021;
  • optimised the methodology, tools and processes of credit risk management for retail clients;
  • rebuilding rating models using new data sources to increase their discriminatory power;
  • developed of a new rating model for corporate customers;
  • updated sector risk classification and limits.

In retail segment particular attention was focused on the implementation of changes in the area of ​​consumer lending policy, but also on development in the area of ​​mortgage loans. The new solutions concerned, among others:

  • scope and sources of information and documentation obtained from clients in the process of granting consumer loans;
  • the rules for granting credit products to customers with a relationship with Bank Millennium;
  • improvements in the area of ​​making credit decisions in the mortgage process;
  • new processes in electronic sales channels.

In the corporate segment, the Group  focused on adapting its lending policies and regulations to changing legal conditions (particularly restructuring and bankruptcy law) and on measures to streamline and accelerate credit processes. The new rating model has been introduced, including behavioral data in addition to financial and qualitative data. The industry policy and risk tolerance for particular sectors were also updated. As in previous periods, work was continued on the improvement of IT tools supporting processes, particularly the monitoring process and the extension of credit offer.

All the changes mentioned above should allow the Group  to achieve the defined goals referring to the growth dynamics of corporate portfolio while maintaining the level of risk at an acceptable level as defined in the Risk Strategy.

Loan portfolio quality

The year 2018 brought the new reporting standard IFRS9, which required a change of definition of some asset quality ratios. Share of impaired loans in total loan portfolio, now based on stage 3 portfolio, was at the end of December 2018 on the level of 4,52%. This means a decrease from 4.57% a year ago, but when looking into its evolution during this year using the same accounting standard, the ratio decreased from 5.17% at the beginning of 2018 and from 4.68% quarter before, which means a consequent improvement of the quality of the loan portfolio during 2018 year. Thus, the Group still enjoys one of the best asset quality among Polish banks

Share of loans past-due more than 90 days in total portfolio has decreased slightly during last year from 2.9% in 2017 to 2.5% in December 2018.

Coverage ratio of impaired loans, now defined as all risk provisions over stage 3 loans, improved during the year from 67% in December 2017 to 74% now, partially thanks to the effect of increasing provisions after implementation of IFRS9 reporting standard. Coverage by total provisions of loans past-due more than 90 days also increased from 107% one year ago to 133% now.


The evolution of main indicators of the Group’s loan portfolio quality is presented below:

Group loans quality indicators 31.12.2018 31.12.2017
Total impaired loans (PLN million) 2 463 2 233
Total provisions (PLN million) 1 832 1 497
Impaired over total loans ratio (%) 4.52% 4.57%
Loans past-due over 90 days /total loans (%) 2.52% 2.87%
Total provisions/impaired loans (%) 74.4% 67.1%
Total provisions/loans past-due (>90d) (%) 133.1% 106.9%

Impaired loans ratios in particular product segments showed strong reduction in corporate portfolio (from 4.3% to 3.9%), whereas the ratio for retail portfolio grew slightly during the year from 4.7% to 4.8% (of which for mortgage loans from 2.52% to 2.81%).

Last year the value of the FX mortgage loans decreased by ca. 1% (in PLN) despite the exchange rate variation (+7% year-on-year) and due to higher repayment of the portfolio. As a result, its share in the total loans has been reduced to 26.6%. The improvement in the currency structure of the mortgage loan portfolio was supported by a significant increase in the sale of loans in PLN.


The evolution of the Group’s loan portfolio quality by main products groups:

Portfolio quality by products: Loans past-due > 90 days ratio Impaired loans Ratio
31.12.2018 31.12.2017 31.12.2018 31.12.2017
   Mortgage 1.24% 1.30% 2.81% 2.52%
   Other  retail* 7.19% 8.69% 11.30% 12.22%
Total retail* clients 2.63% 2.94% 4.80% 4.67%
   Leasing 1.92% 1.71% 3.89% 4.57%
   Other loans to companies 2.52% 3.30% 3.93% 4.18%
Total companies 2.30% 2.71% 3.92% 4.33%
Total loan portfolio 2.52% 2.87% 4.52% 4.57%

(*) incl. Microbusiness, annual turnover below PLN 5 million

The Group’s portfolio is characterized by appropriate diversification, both due to the concentration of the largest exposures and due to the concentration in the economy sectors. The share of the 10 largest exposures is at a safe level of 4.8%. The share of main sectors in the Group’s portfolio is presented in the chart below: