Profit and loss account

Net interest income in 2021 reached PLN2,713mn and increased by 5% y/y supported by accelerated quarterly growth (PLN767mn in 4Q21, +15% q/q) and strengthening the already positive quarterly trend in 2021.

The three interest rate hikes by Monetary Policy Council in October, November and December 2021 (base rate increased from 0.1% to 1.75%, i.e. by 165 bps) was an additional help for the Group to partly offset the negative impact of interest rates cuts in 2020 (down 140 basis points in March through May 2020) after the Group managed to minimise this impact during the first three quarters of the reported year.

Net interest margin (over average interest earning assets) (NIM) in 2021 reached 2.70% and was 9 basis points higher compared to 2020. Similarly to net interest income, the quarterly improvement of NIM can be observed year to date. 4Q21 NIM jumped to 2.98%, i.e. was higher by 37 basis points compared to 3Q21 (2.61%) and 49bps above the lowest level (3Q20) after rates cuts by the MPC.

Net commission income in 2021 amounted to PLN831mn, growing 11% vs. 2020 financial year. The main source of the improvement was growing commissions from banking transactions (accounts, loans and cards) supported by change in fee levels and fee mix. Fees on mutual funds also increased year-on-year.

Core income, defined as a combination of net interest and net commission income, reached PLN3,544mn in 2021 showing 6% growth compared to the previous year.

Other non-interest income, which comprises FX result, results on financial assets and liabilities (without interest margin on derivatives and fair value adjustment on credit portfolio) and net other operating income and costs, amounted to PLN14mn in 2021 and decreased strongly vs. the previous year. The negative items were first of all the costs related to amicable settlements negotiated with FX mortgage borrowers (PLN-356mn), but also the cost resulting from a negative for the Bank court decision regarding a corporate client claim in the material amount of PLN103mn reported in 4Q21. On the other hand, in 2021 other operating income was supported by some compensation of provisions for FX mortgage book, resulting from indemnity and guarantees clauses referring to the portfolio of former Euro Bank and positive valuation of shares in VISA.

Total operating income of the Group reached PLN3,558mn in 2021 and was slightly lower (-1%) than in 2020 due to lower ‘other non-interest income’ result.

Total costs amounted to PLN1,642mn in 2021 translating into 6% decrease vs. 2020 financial year, mainly due to administrative costs directly related to Euro Bank acquisition, merger and integration process incurred in 2020 (PLN66mn in 2020, of which PLN41.4mn for staff restructuring) and lower contribution to Banking Guarantee Fund (BFG) funds. Total costs excluding BFG fees and integration stayed flat vs. the previous year.

Personnel costs amounted to PLN815mn and decreased by 5% y/y. After incorporating employees coming from Euro Bank (2.4 thousand FTEs in May 2019) and growing the total number of FTEs above 8.5 thousand the Group gradually reduced its personnel to 6,942 FTEs at the end of December 2021 and in annual terms it reduced 550 FTEs (-7% y/y). Without employees absent due to long leaves (‘active FTEs’), the headcount was much lower, i.e. at 6,245 staff. Without allocated costs resulting from integration and restructuring in 2020, the personnel costs stayed at similar level as in 2020.

Other administrative costs (including depreciation) reached PLN827mn in 2021 and decreased by 8% y/y with some higher level in 4Q21 due to visibly higher costs of marketing and promotion as well as legal and advisory services. The costs without BFG and integration costs increased by 1% y/y. Euro Bank acquisition resulted in an initial very strong increase in the number of outlets which subsequently saw a reduction in line with the Bank’s branch network optimization policy accelerated by the changes resulting from the pandemic. At the end of December 2019, the total number of branches (including Euro Bank) was 830 and has since been reduced (mostly Bank’s own branches) to 655 outlets at the end of December 2021 (annual reduction of 47 outlets).

Cost-to-income ratio for 2021 amounted to 46.2% and was lower by 2.8 percentage points vs. the level for 2020 (49%). Cost-to-income ratio without extraordinary items mentioned above, reached 42.2% in 2021 and was 3.6 percentage points lower compared to the 2020 level.

Total cost of risk, which comprised net impairment provisions, fair value adjustment (of a part of credit portfolio) and result on modifications, bore by the Group amounted to PLN299mn in 2021 and was 52% lower than in 2020. The higher base level of provisions from 2020 had resulted from additional provisions for risk related to COVID-19 impact in 2020 (amounting to PLN133mn) as well as changes in the risk model in the retail segment with introduction of more conservative default definition.

Risk charges for retail segment in 2021 stood at PLN290mn, while for the corporate segment and other they amounted to PLN9mn. In relative terms, the cost of risk (i.e. net charges to average gross loans) for 2021 reached 37 basis points compared to 83 basis points in 2020.

In 2021, the Bank sold portfolios of consumer NPLs. The transactions generated PLN57mn positive pre-tax result.

Additionally, in 2021 the Bank continued to create provisions for legal risk related to FX-mortgage portfolio. These were a significant item in P&L statement, reaching PLN2,305mn (PLN2,086mn excluding loans generated by former Euro Bank as they are subject to indemnity clauses and guarantees from Societe Generale). The balance of provisions increased to PLN3,333mn or PLN3,079mn excluding loans originated by Euro Bank, the latter being an equivalent of 25.7% of the FX-mortgage outstanding portfolio originated by Bank Millennium.

Pre-income tax result in 2021 was negative and amounted to PLN1,001mn (PLN407mn loss in 4Q21). This was mostly the result of the above-mentioned high FX-mortgage provisions as the pre-provision profit amounted to PLN1,916mn and was up 5% y/y. In addition to provisions, banking tax had significant impact on the value of losses decreasing the operating result by PLN313mn.

In 2021 the Group reported net loss of PLN1,332mn (PLN509mn loss in 4Q21). The net loss was substantially higher that the pre-tax loss due to negative impact of corporate income tax in the amount of PLN 331mn. Adjusted for the abovementioned extraordinary items (i.a. FX-mortgage related costs) the Group would achieve the net profit of PLN1,123mn in 2021, which is 46% higher compared to adjusted 2020 net profit of PLN768mn.

Reported 2021 return on equity (ROE) stood at -16.3% but when adjusted for extraordinary items it reached 13.8% compared to 8.4% in 2020. Reported Return on Assets (ROA) was -1.3%

The breakdown of Group’s Net Profit by the Group’s companies is presented in the table below:

Changes of particular key items of the Bank’s Profit and Loss Account in 2021 are shown in the table below.

The Bank’s 2021 net interest income amounted to PLN2,614mn and increased by 5% y/y, similar scale as in the Group’s case. Net commission income grew 12% y/y, slightly more than for the Group. In view of the above, core income grew 6% year-on-year to reach PLN3,330mn in 2021.

Other non-interest income of the Bank in 2020 stood at PLN70.4mn and decreased strongly by 76% y/y, first of all due to the impact of similar extraordinary items as it was described above for the Group (mostly costs and FX losses related to FX mortgage loans and settlements with the borrowers). This item includes dividends, largely from the Capital Group’s subsidiaries (eliminated in reports on the Group level). Dividend income in 2021 reached PLN52mn, which means a significant increase by 33% y/y.

As a result of the evolution of the abovementioned items the Bank’s total operating income in 2021 amounted to PLN 3,400mn and fell slightly by 1% y/y.

The Bank’s operating costs reached the total amount of PLN1,574mn in 2021 and was 7% lower compared to 2020. The reasons for the annual decrease of costs are the same as in case of the consolidated data for the whole Capital Group. Cost/income ratio for the Bank in 2021 was 46.3%, so it dropped visibly (by 3.2 p.p.) vs. 2020.

Impairment write-offs and other costs of risk of the Bank were PLN257mn in 2021, which means -52% decrease y/y – the same scale as in the Group’s case.

Besides provisions for credit risk, in 2020 the Bank created a provision for legal risk related to FX mortgage loans in the amount of PLN2,305mn, which was explained above in the part referring to the whole Group.

The Bank reported pre-tax loss for 2021 of PLN 1,048mn and net loss of PLN1,357mn.

Return on the Bank’s assets (ROA) reached -1.4%.