Balance sheet and off – balance sheet items

Total net loans of Bank Millennium Group reached PLN 69,755 million as at the end of December 2019 after the strong growth of 32.3% y/y. The growth of loans without foreign currency mortgage portfolio presented much higher growth rate of 43.7% y/y reflecting dynamic increases in all key groups of lending activity (PLN mortgage, consumer loans and companies). FX mortgage portfolio continued to decrease at a fairly rapid rate – not only due to natural amortisation, but also thanks to early repayments. Without FX portfolio taken over from Euro Bank (c.a. PLN 1 billion), FX mortgage loans of Bank Millennium decreased by 4.8% y/y (or by 7.5% y/y in original currency) and its share in total gross loans has dropped during the year to the level of 19.2%.

The net value of loans granted to households as at the end of December 2019 totalled PLN 51,138 million and was 45.1% higher compared to the balance recorded the year ago. All main product categories, except FX mortgage loans, presented very strong annual growth rates supported by acquired Euro Bank’s portfolios: PLN mortgages +59.2% y/y and consumer loans of +102.5% y/y.

Net value of loans to companies amounted to PLN 18,617 million as at the end of December 2019 and grew by 6.6% yearly.

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

Average interest rate on the Bank’s portfolio in 2019 was 4.61%. This rate reflects net interest income on hedging derivatives (mainly FX and interest rate SWAPs) regarding loans granted in foreign currencies, which offsets the nominally lower interest rate on these loans.

Value of debt securities reached PLN 22,866 million at the end of December 2019, which means a slight decrease of 0.1%) in annual terms. An important part of the debt securities portfolio (99.3%) were bonds and bills issued by the Polish State Treasury and National Bank of Poland (Central Bank). The share of debt securities in the Group’s total assets was 23.3% at end of 2019, pointing to a strong liquidity position.

The value of derivatives (for trading and hedging) totalled PLN 156 million at end of December 2019, which constitutes a significant drop of 31.4% vs 31 December 2018 in result of FX rate changes (mainly in result of depreciation of the Polish currency to the Swiss franc).

Loans and advances to banks (including interbank deposits) stood at PLN 784 million at the end of December 2019, which means a 7.3% increase in annual terms, largely in result of growth of balances on current accounts.

Value of equities/shares and other financial instruments amounted to PLN 96 million at the end of December 2019 and constituted immaterial balance sheet item with the share of as low as 0.1%. Value of this line item increased by 89.1% in annual terms in connection with higher valuation of equities and shares held.

Tangible fixed assets and intangibles and goodwill of the Group amounted to PLN 1,009 million at the end of December 2019 i.e. very significant increase by PLN 702 million i.e. by 229% y/y, mainly in effect of acquisition of Euro Bank assets, including recognition of initial right to use real property in the amount of PLN 370 million and booking of the goodwill in the amount of PLN 162.8 million. The other relevant impact came from implementations of IFRS16.

Total investment outlays of the Group in 2019 amounted to PLN 147.9 million, including PLN 33.0 million allocated to Euro Bank integration. Outlays to the bank’s physical infrastructure (branches, ATMs, security etc.) amounted to PLN 49.0 million (including PLN 8.9 million for integration), and PLN 97.2 million for software and IT infrastructure (including integration at PLN 24 million). Value of other outlays i.e. PLN 1.7 million, relates to Bank’s subsidiaries.

The Bank Millennium Group plans investment capital expenditures in 2020 in the amount of PLN 154.1 million (including further PLN 24.5 million allocated to finance integration, mainly in the area of Bank’s physical infrastructure). Without integration expenditures, ca. 60% of capital expenditures will be allocated to IT projects including further internet and mobile banking development.

Customer deposits constituted the main line item under the Group’s accounting for, as on 31 December 2019, 91.4% of total liabilities. Customer deposits constitute the main source of financing of Group’s activities and incorporate, primarily, customer funds on current and saving accounts as well as on term deposit accounts.

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

Total deposits increased by 23% annually to the level of PLN 81,455 million. Euro Bank deposits constituted the main source of this growth (practically in majority retail segment deposits) in the amount of PLN 8,791 million. But even without Euro Bank deposits, Bank Millennium recorded a strong increase of deposit base: at 9.7% y/y.

Household deposits amounted to PLN 61,092 million as on 31 December 2019 after solid growth of 28% p.a. Within this volume of deposits, current and saving accounts continued to grow at a very fast pace i.e. by 33% p.a.; therefore their share in total individual customer deposits increased to the level of 72%.

Corporate and public sector deposits clearly increased by 10% within the year reaching the value of PLN 20,363 million. The said increase resulted, primarily, from current accounts (increase by 19% y/y).

Average interest rate on all deposits in the Bank in 2019 amounted to 1.08%

Deposits of banks, including credits received, as on 31 December 2019, amounted to PLN 1,579 million, accounting for 1.8% of the Group’s liabilities. Value of this item declined by 11.7% relative to the balance as on 31 December 2018, mainly in effect of lower, by PLN 135 million, value of term deposits opened by banks (mainly in effect of lower level of deposits opened by banks-counterparties to secure hedging transactions) while the balance of credits received from financial institutions dropped by PLN 62 million (or by 5.1%) y/y amounting to PLN 1,162 million (expressed in PLN) as on 31 December 2019. The said credits include funds received from the European Investment Bank and the European Bank for Reconstruction and Development (in EUR, CHF and PLN) with original maturities of up to 7 years, constituting an important line item within long-term and medium-term wholesale financing obtained by the Group.

Financial liabilities valued at fair value through Profit and Loss Account and derivative instruments included, primarily, negative valuation of derivatives for trading or hedging and liabilities resulting from securities subject to short sale. Value of this item, as on 31 December 2019, amounted to PLN 780 million, recording high increase by 28.2% relative to the balance as on 31 December 2018, mainly due to increasing negative valuation of hedging derivatives (mainly FX swaps) by PLN 93 million y/y. The above was caused, primarily, by changing FX rates as described above in the part on valuation of derivatives in assets. In addition, liabilities resulting from short sale of securities increased by PLN 79 million in effect of adoption of trading position relative to activities of market maker.

Securities issued by the Group amounted to PLN 1,183 million as on 31 December 2019 recording significant increase by PLN 374 million (or 46.1%) relative to the balance as on 31 December 2018. The increase was recorded mainly in effect of liabilities under Euro Bank S.A. bonds taken over at nominal value ads on 31.12.2019 amounting to PLN 250 million.

As at the end of December 2019, the value of debt securities issued by the Bank and undertaken by individual customers as saving products amounted to PLN 451 million while the value of Bank bonds taken up by institutional investors amounted to PLN 301 million (bonds are traded on the Catalyst market – debt instrument exchange ASO BondSpot in Warsaw). Besides Bank’s debt securities and bonds, Bank subsidiary – Millennium Leasing – issued bonds placed amongst private and institutional investors. The balance sheet value of bonds issued by the said company, as on 31 December 2019, amounted to PLN 180 million.

The value of subordinated debt amounted to PLN 1,546 million as on 31 December 2019, showing significant increase by 120.3% y/y. In January 2019, the Bank issued ten-year subordinated bonds in PLN to the total nominal value of PLN 830 million besides already outstanding ten-year bonds in PLN at the total nominal value of PLN 700 million. Issue of subordinated debt supports capital adequacy of the Group and the Bank and constitutes stable, long-term source of financing of business activity.

As on 31 December 2019, equity capitals of the Group amounted to PLN 8,942 million and recorded increase by PLN 557 million or 6.6% year-on-year. Equity increase resulted from, in the first place, the net profit generated in 2018 at the level of PLN 561 million, without payment of dividend for 2018 in accordance with decision of the Bank’s AGM, which took place on 25 March 2019. Other Total Income (mainly valuation of debt securities and instruments in hedge accounting) had no significant impact upon the value of own equity PLN -4 million).

The Bank Management Board will present, to the General Meeting of Shareholders, proposal to retain the entire net profit for 2019 in own funds to support capital ratios.