2019 Financial
and Social Report

The market risk encompasses current and prospective impact on earnings or capital, arising from changes in the value of the Group’s portfolio due to adverse market movement (prices).

The interest rate risk arising from Banking Book activities (IRRBB) encompasses current or prospective impact to both the earnings and the economic value of the Group’s portfolio arising from adverse movements in interest rates that affect interest rate sensitive instruments. The risk includes gap risk, basis risk and option risk.

The framework of market risk and interest rate risk management and its control are defined on a centralized basis with the use of the same concepts and metrics which are used in all the entities of the BCP Group.

The main measure used by the Group to evaluate market risks is the parametric VaR (Value at Risk) model – an expected loss that may arise on the portfolio over a specified period of time (holding period) with a required probability (confidence level) due to an adverse market movement. The market risk measurement is carried out daily, both on an individual basis for each of the areas responsible for risk taking and risk management, and also in consolidated terms for Global Bank, Banking Book and Trading Book considering the effect of the diversification that exists between the particular portfolios.

VaR ratios reflect total exposure to market risk in the Group. In 2019, open positions included just interest-rate instruments and FX risk instruments. In 2019 the total risk exposure for the Group, that is jointly Trading Book and Banking Book, were relatively low and remained on average at the level of approx. PLN 27.3 million (12 % of the internal limit) and VaR indicators for Trading Book stayed on average at approx. PLN 1.8 million (6 % of the internal limit). FX open position (Intraday as well as Overnight) remained below 2% of Own Funds and well below the maximum limits in place.

In 2019, the total market risk exposure in terms of VaR as well as FX open position was kept within limits in place (no excesses were detected).

All eventual excesses of market risk limits are reported, documented and ratified at the proper competence level.

Apart from daily measurement at the level of each book and market risk area, the VaR model is mainly applicable and analysed at the Trading Book level, where the policy intention is to trade positions on the regular basis (mostly daily). On contrary, following the supervisory guidelines, the interest rate risk in Banking Book is additionally covered by both earnings-based and economic value measures, in particular by measuring:

  • the impact on the net interest income over a time horizon of next 12 months resulting from one-off interest rate shock of upward/downward yield curve shift by 100 basis points,
  • the impact on the economic value of equity (EVE) resulting from different upward/downward basis points shocks, including scenarios defined by the supervisor (standard, supervisory test assuming sudden parallel +/-200 basis points shift of the yield curve as well supervisory outlier test, SOT with set of six interest rate risk stress scenarios).

In 2019, the further steps were taken in order to implement the revised Guidelines on the management of interest rate risk arising from non-trading book activities (EBA Guidelines, EBA/GL/2018/02) that came due on 30th June 2019. In May 2019, the Capital, Assets and Liability Committee revised and approved the behavioural assumptions for measurement IRRBB (behaviour of customer with embedded customer optionality and accounts without specific repricing dates) as well as adjust the IRRBB measurement tools in order to monitor and report on regular basis the results of six stress tests scenarios under supervisory outlier test (SOT) according to the EBA IRRBB Guidelines.

The supervisory stress tests results as at December 2019 show that even under the most severe outlier test scenario, the decline of EVE for Banking Book is far below supervisory limit of 15% of Tier 1. Similarly, decline of EVE under standard scenario of sudden parallel +/-200 basis points shift of the yield curve also stayed far below supervisory maximum of 20% of Own Funds.

The impact of interest rate change on Net Interest Income is asymmetrical and it is negative in case of decreasing interest rates. This is due to the Polish legal system and the fact that the interest rate of consumer loans and credit cards is limited (it cannot exceed twice Reference Rate of the National Bank of Poland increased by 7 percentage points). The strength of impact on net interest income in face of decrease of the interest rate depends, among other factors, on the percentage of the loan portfolio that is affected by the new maximum rate.

The impact on net interest income in the next 12 months after 31st December 2019 (based on annualized 4Q 2019 net interest income), in a scenario of immediate parallel yield curve decrease for position in Banking Book in Polish Zloty, is the following:

Sensitivity of NII for PLN interest rate change 31.12.2019 31.12.2018
parallel yield curve increase by 100 bp 1.2% 3.4%
parallel yield curve decrease by 100 bp -3.4% -4.6%


More information on market risk and interest rate risk management can be found in chapter 9.4 of the Annual Consolidated Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2019.

Liquidity risk reflects the possibility of incurring significant losses as a result of deteriorated financing conditions (financing risk) and/or of the sale of assets for less than their market value (market liquidity risk) to meet the funding needs arising from the Group’s obligations.

The process of the Group’s planning and budgeting covers the preparation of a Liquidity Plan in order to make sure that the growth of business will be supported by an appropriate liquidity financing structure and supervisory requirements in terms of quantitative liquidity measures will be met.

In 2019, the Group was still characterized by solid liquidity position, despite deterioration of all the supervisory and internal liquidity indicators at the day of Euro Bank’s acquisition. However, all ratios remained within limits in place (no excesses for both supervisory as well as internally defined limits).

Due to merge of Bank Millennium with Euro Bank, the Group’s Loan-to-Deposit ratio increased and was equalled to 86% at the end of December 2019 (comparing to level of 80% as at the end of December 2018). Apart from the increase, the Group kept its Loan-to-Deposit ratio well below 100% in line with its risk appetite defined for 2019.

Keeping the comfortable liquidity position was possible mainly due to actions planned by and taken by the Group before the merge with Euro Bank. The Group mainly increased stable deposit base from individuals and issued ten years subordinated bonds in total nominal amount of PLN 830.0 million with maturity date on 30 January 2029, so that in advance allowed to improve its liquidity buffer and as at Euro Bank’s acquisition date enable the Group to repay Euro Bank’s external financing as well as completely covered the purchase price by liquidating part of accumulated liquidity surplus (liquidity assets portfolio). Thanks to this no additional sources of funding was required with simultaneous safe liquidity position kept.

The liquidity assets portfolio, that is portfolio of government debt securities, supplemented by the cash and exposures to the National Bank of Poland, is treated as the Group’s liquidity reserve, which will overcome crisis situations. After finalizing the transaction of Euro Bank’s acquisition, any liquidity surplus was again invested in the portfolio of liquid assets in order to rebuild liquidity buffer. At the end of 2019, the share of Polish government securities (including NBP Bills) in total securities portfolio amounted to 99% and allowed to reach the level of approx. PLN 22.5 billion (23% of total assets), that is the level observed at the end of December 2018 (PLN 22.7 billion, 28% of total assets) (see Table below).

Main liquidity ratios 31.12.2019 31.12.2018
Loans/Deposits ratio (%) 86% 80%
Liquid assets portfolio (PLN million) * 22 795 22 836
Liquidity Coverage requirement, LCR (%) 171% 212%
(*) Liquid Assets Portfolio: The sum of cash, exposure to Central Bank (the surplus above the required obligatory reserve), Polish Government debt securities, NBP-Bills and due from banks with maturity up to 1 month. The debt securities portfolio is reduced by NBP haircut for repo transactions and securities encumbered for non-liquidity purposes


Consequently, the large, diversified and stable funding from retail, corporate and public sector Clients remains the main source of financing of the Group. The source of medium-term funding remains also medium-term loans, subordinated debt, own bonds issue and bank’s securities.

The Group manages its FX liquidity through the use of FX-denominated bilateral loans as well as subordinated debt, FX swaps and cross-currency interest rate swaps transactions. The swaps portfolio is diversified in term of counterparties and maturity dates. For the majority of counterparties the Bank has signed a Credit Support Annex to the master agreements.

The estimation of the Group’s liquidity risk is carried out both with the use of the ratios defined by the supervisory authorities and own indicators, for which exposure limits were also established. In 2019 both internal as well as supervisory liquidity measures were kept well above the minimum limits in place, including the liquidity coverage requirement (LCR) calculated according to the Regulation of European Parliament and Council no 575/2013 on prudential requirements for credit institutions and investment firms (CRR). The regulator minimum of 100% for LCR valid in 2019 was compiled by the Group (as at the end of December 2019 the LCR reached the level of 171%). After Euro Bank’s acquisition, the LCR was kept at comfortable level mainly due to increase of the number of active retail Clients connected with the merge and maintenance of high share of funds from individuals. At the end of 2019 total Clients’ deposits of the Group reached the level of PLN 81.5 billion, of which the share of individuals equalled to approx. 75.0% (respectively PLN 66.2 billion and 72,1% at the end of December 2018).

In 2019, the Group also regularly calculated net stable funding requirement (NSFR). In each of the quarter, the NSFR was above planned supervisory minimum of 100% (supervisory minimum will be valid in June 2021).

Additionally, the Group employs an internal structural liquidity analysis based on cumulative liquidity gaps calculated on an actuarial basis (i.e. assuming a certain probability of cash flow occurrence). In 2019 all the liquidity gaps were maintained at the levels significantly above the minimum limits.

Liquidity stress tests are performed at least quarterly, in order to understand the Group’s liquidity-risk profile and to ensure that the Group is in a position to fulfil its obligations in the event of a liquidity crisis and to update the Liquidity Contingency Plan and management decisions.

The liquidity risk management process is regulated in the internal policy that is a subject of the Bank’s Management Board approval

The Group has also emergency procedures for situations of increased liquidity risk – the Liquidity Contingency Plan. The Liquidity Contingency Plan establishes the concepts, priorities, responsibilities and specific measures to be taken in the event of a liquidity crisis. The Liquidity Contingency Plan is tested and revised at least once a year.

More information on liquidity risk management can be found in chapter 9.5 of the Annual Consolidated Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2019.

Operational risk management is based on the processes structure implemented in the Group and overlapping the traditional organizational structure. Current management of the specific processes, including the management of the profile of process operational risk, is entrusted to Process Owners, who report to all other units participating in the risk management process and are supported by these units.

In order to manage the fraud risk, the Group has in its structure a special organizational unit to develop, implement and monitor the Group’s policy for management of this risk in cooperation with other organizational units of the Group and in accordance with its internal regulations. Fraud Risk Management Team in the Security Department is a centre of competence for the fraud prevention process.

Lack of legal compliance of internal regulations and the ensuing risk of legal or regulatory sanctions, material losses or reputation risk, is one of the areas threatening the banking activity. By monitoring compliance with both internal and external regulations, Bank Millennium considers it to be particularly important:

  • Preventing money laundering and financing of terrorism;
  • Ensuring consistency of Bank Millennium’s internal normative acts with generally binding laws as well as recommendations issued by supervisory authorities,
  • Counteracting and managing conflicts of interest,
  • Observance of ethical principles,
  • Monitoring personal transactions and protecting confidential information related to Bank Millennium, financial instruments issued by the Bank as well as information connected with purchase/sale of such instruments.
  • Monitoring and ensuring compliance of the investment products covered by MiFID II.

Bank Millennium undertakes appropriate actions for the purpose of ongoing and continuous tracking of changes occurring in generally binding legal regulations as well as recommendations and guidance given by supervisory authorities, both national as well as of the European Union. In order to ensure compliance of the Bank’s operation with the generally applicable laws, the Compliance Department undertakes a number of activities such as:

  • informing about changes in law,
  • periodically reviewing all internal normative acts binding at the Bank in terms of compliance with applicable laws and standards,
  • analysing new products and services,
  • measuring compliance risk in processes operating at the Bank,
  • issuing opinions,
  • participating in key implementation projects, and
  • staff training.

The Bank’s operations may generate a conflict of interest between Bank’s interests and the interests of Customers. The Bank’s main principle is to take all reasonable steps to identify a conflict of interest between the Bank and its Customers, as well as between individual Customers, and also to establish rules ensuring that such conflicts have no adverse impact on Customers’ interests.

The Bank Millennium Group undertakes also appropriate actions to ensure conduct concerning personal transactions, which is compliant with standards and laws. These actions and measures are meant to, according to the circumstances, to restrict or prevent performance of personal transactions by Relevant Persons in situations, which may cause a conflict of interest or be involved with access to confidential information or to data about Customers’ transactions.

Shares of Bank Millennium are admitted to public trading on the Warsaw Stock Exchange. Such status requires special attention and observance of the obligation to maintain highest standards for transparency of financial markets. The policy of Bank Millennium is to maintain strict control as regards protection of the flow of confidential information (including in accordance with the requirements of Regulation No. 596/2014 of the European Parliament and of the Council of 16 April 2014 on abuses on the market abuse, MAR). The Bank prohibits the use and disclosure of confidential information in any form. Purchasing and selling the Bank’s shares, derivative rights concerning the Bank’s shares or any other financial instruments thereto related is forbidden during closed periods.

The Anti-Money Laundering and Counter Terrorism Financing programme (AML/CTF), applied by Bank Millennium, is a comprehensive system of identification of threats related to money laundering crimes.

Actions launched under this programme include in particular:

  • application of financial security measures to Customers, depending on the degree of risk and based on „Know your Client” or (KYC) principle – the key concept of the program,
  • transaction registration and reporting,
  • identification of suspicious transactions,
  • cooperation with the General Inspector of Financial Information.

Bank Millennium adjusts its reports to the analysis of suspected transactions on the on-going basis, taking into account up-to-date patterns (sectors, cash-flow routes, Customer behaviour) for effective identification and reporting of transactions suspected of money laundering. Implemented internal procedures, organizational solutions and employee training programmes ensure efficient operation of the programme.

Bank Millennium, with view to protecting Customers who invest their funds in investment products with varied degree of risk, strictly monitors compliance of these products, their offering and handling process with relevant internal regulations, laws and external guidelines – on the domestic and European Union level. A specific compliance monitoring programme also covers consumer loans and insurance products (including insurance – investment products) addressed to consumers.

The Bank has mechanisms and internal regulations allowing for anonymous reporting of violations of law and internal regulations and ethical standards (the so-called whistleblowing) to the Chairman of the Management Board, and in the case of notification concerning a Member of the Management Board – to the Supervisory Board. The Bank will verify each application, ensuring that the reporting person will be protected by acts of repressive, discriminatory and unfair nature.

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