Further risk factors

Further risk factors: 

• Risk connected with cash loans fees return in case of early repayment. On 11 September, 2019 the Court of Justice of the European Union ruled in the case of Lexitor against SKOK Stefczyka, Santander Consumer Bank and mBank (case C 383/18) in which it stated that consumer has rights to demand the reduction of the total loan cost corresponding to interest and costs for the remaining term of the agreement in case of early repayment of loan. Taking into consideration this verdict, Bank Millennium Group created in 2019 a provision in the amount of PLN 66.4 million (split between Net Interest Income and Other Operating Costs), for potential returns to the clients. In 2020, the provision was increased by additional PLN142mn. No increase of provision took place in 2021. The provision was estimated based on the maximum amount of potential returns and the probability of payment being made. 
• Risk of financing costs increase due to a need of MREL eligible instruments issuance. On November 18, 2021, the Bank received a letter from the Banking Guarantee Fund on MREL (minimum requirement for own funds and eligible liabilities) requirements set for December 31, 2023 as well as interim target levels. The Bank is still to meet its YE21 target MREL level due to the net loss booked in 2021 (higher-than-initially planned provisions against legal risk related to FX-mortgage portfolio) and the fact that an issue of senior non-preferred bonds on the Polish market initially planned for 4Q21 was not possible to execute due to a gap in the Polish bond law. Due to this fact, the Bank decided to alternatively prepare and launch a new EMTN programme that will allow the international issue of senior non-preferred bonds, to be executed in the first half of 2022. On January 28, 2022, the Bank’s Supervisory Board approved the Eurobond Issue Programme of the total nominal value not higher than EUR 3 billion.  
• In 2020, the systemic risk buffer was lowered to 0% from 3% which contributed to a decrease in the level of MREL requirements. If the level of systemic risk buffer was to would increase in the future, it would influence the level of MREL requirements and the issuance volume needs.  
• Risk of reduced franchise network. The franchise network has significantly increased the Bank’s distribution network in 2019 along with the take-over of Euro Bank. Its size remained practically unchanged since.  
• Cyber-risk is among the highest ranked risks that banks are facing globally and the Polish banking market is no exception. The rapid development of new technologies, digitalisation of the economy and increasingly sophisticated cyber-attacks make cyber-risk a likely constant risk factor that banks going forward will need to put increasing resources to mitigate. 
• Regulatory environment remains a big challenge for the banking sector and further tightening of rules and introduction of new ones by either European or local regulators cannot be ruled out. Competition is becoming increasingly intense in the financial services sector. While historically banks had to mostly combat threats from their peers, the relaxation of access to customer data that results from the recent introduction of PDS2 directive accelerates the potential entry of bigtechs and fintechs onto the market. Furthermore, the ongoing consolidation of the domestic banking market is likely to further increase competitive pressures further out. As a result larger players are likely to benefit from the economies of scale to the detriment of smaller banks. The increasing share of State owned/controlled banks in the sector is another risk factor worth highlighting. 

Risk factors presented above do not constitute a complete list of potential risks that the Bank and the BM Group are, or may be, exposed to.