All the above changes in both the retail and corporate segment enabled the Group to maintain the risk at an acceptable level defined in the Risk Strategy as well as prepared the Group to new challenges and to act in changed conditions.
Credit risk
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) 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 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, in 2021, the Group focused on adjusting the principles of its credit policy to changing economic conditions and on improving the tools and processes of credit risk management, in particular:
- updated the Risk Strategy for the years 2022-2024;
- optimised the methodology, tools, and processes of credit risk management for retail and corporate clients;
- updating the industry risk classification and industry limits.
In the retail segment, special attention was paid to adapting and optimizing the lending policy to the market situation resulting from the changing conditions of the COVID-19 coronavirus pandemic. Several development activities in the area of mortgage loans were undertaken to optimize, automate and digitize the process. Similar activities were also undertaken in the area of business clients as part of granting products for financing activities, at the same time emphasizing increasing the level of portfolio security with guarantees provided by BGK. Further efforts were also made in terms of overall digitization and automation of credit processes.
In the corporate segment, the Group focused on the optimal use of capital while maintaining the current profitability and maintaining a good risk profile. The Group also carried out activities aimed at improving and accelerating credit processes, including decision-making processes. The Bank focused especially on investment loans, including those with public support – the Bank verified and improved processes in this area as a whole, preparing for the planned increase in the portfolio of these loans. As in previous periods, work continued improving IT tools supporting the credit process. The Group also continued the close monitoring of the loan portfolio as well as the individual monitoring of the largest exposures.
Loan portfolio quality
Share of impaired loans, including stage 3 portfolio and POCI Assets (Purchased or Originated Credit Impaired) in default, in total loan portfolio was at the end of December 2021 on the level of 4.39 per cent. This means a decrease from 4.95 per cent a year ago. It should also be noted that the evolution of this indicator throughout the year showed a stable and even decline (March’21 – 4.85 per cent, June’21 – 4.71 per cent and September’21 – 4.65 per cent). This is largely due to the Group’s sales and write-offs policy of impaired portfolio. 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 also decreased during last year from 2.74 per cent in 2020 to 2.27 per cent in December 2021.
Coverage ratio of impaired loans, now defined as relation of all risk provisions for stage 3 loans and POCI in default, has increased during the year from 66 per cent in December 2020 to 69 per cent. Coverage by total provisions of loans past-due more than 90 days also increased from 119 per cent one year ago to 133 per cent now. Both these ratios improved despite the elimination from the Group’s loans portfolio in 2021 of appr. PLN345mn of receivables covered of provisions with 100 per cent (write-off).
The evolution of main indicators of the Group’s loan portfolio quality is presented below:
Group loans quality indicators
31.12.2021
31.12.2020
Total impaired loans (PLN million)
3 557
3 792
Total provisions (PLN million)
2 441
2 489
Impaired over total loans ratio (%)
4.39%
4.95%
Loans past-due over 90 days /total loans (%)
2.27%
2.74%
Total provisions/impaired loans (%)
68.6%
65.7%
Total provisions/loans past-due (>90d) (%)
132.6%
118.8%
(*) Purchase Price Allocation (PPA) implied consolidation of Euro Bank impaired (stage 3) portfolio at net value
Impaired loan ratios by segment show a downtrend both in the retail portfolio from 4.9 per cent to 4.55 per cent (including mortgage portfolio had a decreasing characteristic from 2.48 per cent to 2.17 per cent), as well as in the corporate portfolio, in which the ratio decrease during the year from 5.11 per cent to 3.86 per cent (in leasing portfolio reported decrease equalled to 1.31pp while for portfolio of other corporate loans it was 1.19pp). Last year, the value of foreign currency mortgage loans decreased as much by app. 30 per cent year-on-year (in PLN terms). Additionally, it should be noted that ex-Euro Bank mortgage portfolio, in amount app PLN 0.8 billion, enjoys a guarantee and indemnity from Société Genéralé. Excluding this portfolio, the share of FX mortgage loans (net) in the total loan portfolio fell from 17.4 per cent to 11.4 per cent. The improvement in the currency structure of the mortgage loan portfolio was supported by a significant increase in sales 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 | ||
|---|---|---|---|---|
| 31.12.2021 | 31.12.2020 | 31.12.2021 | 31.12.2020 | |
| Mortgage | 0.90% | 1.00% | 2.17% | 2.48% |
| Other retail* | 6.57% | 7.30% | 10.37% | 10.70% |
| Total retail clients* | 2.54% | 2.86% | 4.55% | 4.90% |
| Leasing | 1.29% | 2.16% | 3.16% | 4.47% |
| Other loans to companies | 1.42% | 2.44% | 4.27% | 5.46% |
| Total companies | 1.38% | 2.34% | 3.86% | 5.11% |
| Total loan portfolio | 2.27% | 2.74% | 4.39% | 4.95% |
(*) 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 sectors of the economy. Participation of The 10 largest exposures remain at a safe, low level of 4.5 per cent (decrease in 2021 from 5.0 per cent).
The share of main sectors in the Group’s portfolio is presented in the chart below: