Balance sheet and off – balance sheet items

Total net loans of Bank Millennium Group reached PLN78,603mn as at the end of December 2021 and grew 7% y/y. The growth of loans without foreign currency mortgage portfolio was visibly higher, at 15% y/y. FX mortgage loans net of provisions decreased visibly during the last twelve months (down 28%) and the share of FX mortgage loans (excluding these taken over with Euro Bank) in total gross loans has dropped substantially during the year to 11.4% on 31 December 2021 from 17% a year ago.

The net value of loans to households amounted to PLN59,546mn as at the end of December 2021, showing a growth of 8% y/y. Within this line PLN mortgages grew strongly by 29% y/y while growth rate of consumer loans slowed down to 4% y/y.

In 4Q21 disbursements of mortgage loans reached PLN2.8bn (the record quarterly value) and PLN9.75bn in the whole 2021, translating into an exceptionally high annual growth of 46%.

The net value of consumer loans reached PLN15,833mn growing by 4% y/y. Origination of cash loans rebounded in 2021 reaching the value of PLN5.6bn. The annual growth was high and reached +21% y/y.

Net value of loans to companies amounted to PLN19,058mn as at the end of December 2021 and increased by 4% y/y supported by rebound in leasing business (+8% y/y), after a period of deceleration due to adverse effect of the COVID-19 pandemic on new lending to companies.

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 2021 was 3.4%. 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 PLN18,220mn at the end of December 2021, which means a decrease of 4% y/y. An overwhelming part of the debt securities portfolio (99.6%) were bonds and bills issued by the Polish State Treasury and National Bank of Poland (Central Bank). The decrease of debt securities portfolio was a consequence of assets/liabilities and interest margin management policy and was correlated with the changes of loans and deposits. The share of this group of debt securities in the Group’s total assets was at 17.5% at end of December 2021 reflecting a satisfactory liquidity position of the Group.

The value of derivatives (for trading and hedging) totalled PLN100mn at end of December 2021, which constitutes an decrease of 43% vs 31 December 2020, due to higher CHF/PLN rate.

Loans and advances to banks (including interbank deposits) stood at PLN771mn at the end of December 2021, which means an increase by 23% y/y as a result of higher of balances on current accounts and higher balances of term deposits.

Value of equities/shares and other financial instruments amounted to PLN167mn at the end of December 2021 and decreased by 27% y/y chiefly due to partial sale of Visa shares.

Tangible fixed assets and intangibles and goodwill of the Group amounted to PLN942mn at the end of December 2021 and declined slightly by 2% y/y, mainly as a result of lower value of tangible fixed assets.

Total investment of the Group in 2021 amounted to PLN114.0mn. Outlays for the Bank’s physical infrastructure (branches, ATMs, security etc.) amounted to PLN18.7mn and PLN94.2mn for software and IT infrastructure. Value of other outlays i.e. PLN1.1mn, relates to Bank’s subsidiaries.

The Bank Millennium Group plans investment capital expenditures in 2022 in the amount of PLN187.9mn, out of which ca. 63% will be allocated to IT projects (i.e. further internet and mobile banking developments and capacity extensions).

Bank’s unconsolidated assets, as on 31 December 2021 reached the value of PLN103,388mn and were 7% higher compared to the level as at the end of 2020. Structure of the Bank’s assets and changes of individual components are presented in table below:

The key difference between the level of assets of Bank standalone and the consolidated Group is the value of loans to customers. In the first place it relates to receivables due from leasing company customers in the amount of PLN6,805mn (although significant part of the said receivables was acquired by the Bank) and relates to elimination of mutual transactions between the Bank and other companies from the Capital Group in consolidated financial statements.

Total Loans to customers in the Bank amounted to PLN78,238mn at the end of December 2021, representing the growth of 7% y/y (similar growth as for the Group). Except for leasing receivables, values and annual changes of other key components of Bank credits are similar or exactly the same as for the Capital Group.

Value of debt securities in the Bank’s assets reached PLN18,175mn at the end of December 2021. Both the portfolio dynamics and structure remained similar as in the case of the Group (as described above).

Equities/shares and other financial instruments presented in the Bank’s financial statements, unlike in the case of Group reports, incorporated valuation of shares in subsidiaries. The value of this item, as on 31 December 2021, amounted to PLN376mn, recording a decrease by 14% y/y.

The Bank’s fixed assets and intangibles amounted to PLN914mn at the end of December 2021 and stayed on similar level as in the previous year.

Values and annual changes to other asset groups presented in the table above are similar to the corresponding items of consolidated Group, as described earlier in this document.

Customer deposits constituted the main line item under the Group’s accounting for, as on 31 December 2020, 94.1% 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 amounted to PLN91,448mn as at 31 December 2021 and presented a robust increase by 12% y/y (+1% q/q). Deposits on current and saving accounts increased by PLN8.2bn vs. 31 December 2020 (or by 12%).

Deposits of individuals reached PLN66,022mn as on 31 December 2021, growing 7% y/y and 2% q/q. Current and saving accounts of individuals continued to grow at a considerable pace (up 11% y/y) whereas term deposits dropped 11% y/y. The share of current accounts and saving accounts in total deposits of individuals increased to 85% as at the end of December 2021 from 81% as at the end of 2020.

Total deposits of companies and public sector reached PLN25,425mn as at the end of December 2021 and grew strongly by 29% y/y. This considerable growth was partly due to a low base effect as term

Average interest rate on all deposits in the Bank in 2021 amounted to 0.08%

Deposits of banks, including credits received, as on 31 December 2021, amounted to PLN539mn. Value of this item declined by PLN518mn (or by 49%) relative to the balance as on 31 December 2020, mainly in effect of lower, by PLN375mn, term deposits and lower balance of credits received from financial institutions by PLN149mn. 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 2021, amounted to PLN758mn, recording a decrease by 17% relative to the balance as on 31 December 2020, mainly due to decreasing negative valuation of hedging derivatives by PLN 124mn y/y. The above was caused  by maturing CIRS instruments replaced by FX swaps, but also by changing FX rates and interest rates on the Polish market.

The value of provisions as on 31 December 2021 was PLN596mn which signifies strong growth by PLN437mn or 275% y/y. The reason for the increase was creating new provisions for legal issues, especially claims related to FX mortgage loans agreements.

Securities issued by the Group amounted to PLN40mn as on 31 December 2021 recording significant decrease by PLN519mn (or 93%) relative to the balance as on 31 December 2020. The decrease resulted from the lower balances of bonds and other debt securities issued by the Bank by PLN234mn, repurchase of bonds issued by Euro Bank taken over by the Bank (PLN250mn) and the repurchase of securities issued by its subsidiary Millennium Leasing of PLN34mn.

The value of subordinated debt amounted to PLN1,541mn as on 31 December 2021, and stayed on similar level vs. the end of 2020 (a very minor difference results from interest accrued). The subordinated debt line includes ten-year subordinated bonds in PLN at the total nominal value of PLN830mn maturing in January 2029 and ten-year bonds in PLN at the total nominal value of PLN700mn maturing in December 2027.

As on 31 December 2021, equity capital of the Group amounted to PLN6,697mn and recorded a material decrease by PLN2,394mn or 26% y/y. Apart from the net loss incurred in 2021 the main factor of the decline of equity was a negative valuation of debt securities of PLN792mn and hedging derivative instruments of PLN271mn since 31 December 2020.

Information on capital adequacy was presented in Chapter 8 of this document and will also be available in a separate report titled ‘Report on capital adequacy, risk and remuneration policy in the Bank Millennium Capital Group for 2021’ to be published at a later stage.

The non-consolidated Bank’s liabilities as at 31 December 2021 reached the value of PLN96,756mn million and were 10% higher compared to the end of 2020. Structure of the Bank’s liabilities and own equity capitals as well as changes of their particular components are presented in the table below:

The key difference between non-consolidated Bank’s and Group’s liabilities is the value of liabilities from issued securities of the leasing company (PLN40mn presented in the Group’s statements) whereas for the unconsolidated Bank there were no such liabilities as at the end of December 2021.

The value of customer deposits of the Bank reached PLN91,672mn as on 31 December 2021 and was higher by PLN225mn than the balance for the Group (mainly effect of intra-group elimination). Deposits, similar to the Group’s case, grew by 12% year-on-year.

The values and annual changes of such liabilities lines of the Bank’s balance sheet as Liabilities from securities sold with buy-back clause, Financial liabilities at fair value through P&L and hedging derivatives, Provisions and Subordinated debt are similar to those of their equivalents in the consolidated reports for the Group, as discussed above in this part of the report.

Bank’s equity, as on 31 December 2021, amounted to PLN6,632mn and recorded a decrease by 25% y/y (similar level of decline as in the case of Group’s consolidated equity).