Financial results of the Group

Annual report

Key financial indicators

The effect of the results achieved by the PKO Bank Polski SA Group in 2018 are the key financial effectiveness ratios at the levels presented in the table below.

Key financial indicators of the PKO Bank Polski SA

31.12.2018 31.12.2017 Change
ROA net (net profit/average total assets) 1.2% 1.1% +0.1 p.p.
ROE net (net profit/average total equity) 10.0% 9.0% +1.0 p.p.
C/I (cost to income ratio) 44.2% 46.0% -1.8 p.p.
Net interest margin (net interest income/average interest bearing assets) 3.4% 3.3% +0.1 p.p.
Share of impaired loans 4.9% 5.5% -0.6 p.p.
Cost of risk -0.59% -0.71% +0.12 p.p.
Total capital ratio (own funds/total capital requirement* 12.5) 18.88% 17.37% +1.51 p.p.
Tier 1 capital ratio 17.54% 16.50% +1.04 p.p.

Consolidated income statement

The consolidated net profit of the PKO Bank Polski SA Group earned in 2018 amounted to PLN 3 741 million and was PLN 637 million (+20.5%) higher than in the corresponding period of 2017.

In the income statement of the PKO Bank Polski SA Group for 2018 the result on business activities amounted to PLN 13 347 million and was PLN 787 million, i.e. 6.3% higher y/y, mainly as a result of an increase in net interest income.

Income statement of the PKO Bank Polski SA Group (in PLN million)

2018 2017 Zmiana
(w mln PLN)
Zmiana (w %)
Net interest income 9,353 8,606 747 8.7%
Net fee and commission income 3,013 2,969 44 1.5%
Net other income 981 985 -4 -0.4%
Divident income 12 12 0 0.0%
Result on financial transactions 163 54 109 3x
Net foreign exchange gains/losses 489 452 37 8.2%
Net other operating income and expenses 317 467 -150 -32.1%
Result on business activities 13,347 12,560 787 6.3%
General administrative expenses -5 905 -5,784 -121 2.1%
Tax on certain financial institutions -950 -932 -18 1.9%
Net operating profit/(loss) 6,492 5,844 648 11.1%
Net write-downs and impairment -1,451 -1,617 166 -10.3%
Share in profits and losses of associates and joint ventures 37 22 15 68.2%
Profit before tax 5,078 4,249 829 19.5%
Corporate income tax -1,336 -1,140 -196 17.2%
Net profit (including non-controlling interests) 3,742 3,109 633 20.4%
Profit (loss) attributable to non-controlling shareholders 1 5 -4 -80.0%
Net profit 3,741 3,104 637 20.5%

In 2018 net interest income amounted to PLN 9 353 million, i.e. PLN 747 million higher than in the previous year. The higher net interest income y/y was determined mainly by an increase in income on financing granted to Customers, in effect, both by the increase in the volume and net interest margin.

Interest income (in PLN million)
Interest expense (in PLN million)

Interest income1 amounted to PLN 11 594 million and was PLN 675 million higher than in the previous year, mainly in effect of:

  • an increase in financing granted to Customers of PLN 671 million y/y – related to the increase in the average volume of amounts due in respect of loans of PLN 8.3 billion and amounts due in respect of leases of PLN 1.6 billion, with a change in their structure (an increase in the share of consumer loans and lease receivables offset by a decrease in foreign currency housing loans), with unchanged levels of market interest rates for PLN, CHF and EUR;
  • higher income on derivative hedges (+PLN 33 million y/y), mainly in effect of an increase in the volume and average interest on CIRS hedges;
  • a drop in other revenues of PLN 44 million y/y, resulting from the drop in interest income on the mandatory reserve of PLN 61 million in connection with the introduction of a new interest rate on those funds by the Monetary Policy Council as of the beginning of 2018 (reduction from 1.35% to 0.50%).
Average interest rates and interest margin (in %)

Interest expense amounted to PLN 2 241 million and were PLN 72 million lower than in 2017. The lower level of interest expense was mainly the effect of a reduction in the costs of the deposit base of PLN 67 million y/y, resulting from the change in their term structure in favour of current deposits, whose share increased by 6 p.p. y/y to approx. 62% of the amounts due to Customers;

The net interest margin increased by approx. 0.1 p.p. y/y to 3.4% as at the end of 2018. As at the end of 2018 the average interest rate on PKO Bank Polski Group SA loans was 4.7%, and the average interest rate on total deposits was 0.7%, compared with 4.5% and 0.8% respectively as at the end of 2017.

1 To ensure data comparability interest income was adjusted: income from non-Treasury bonds, which are recognized in income from debt securities in the Financial Statements were transferred to income from loans and advances to Customers.

Net fee and commission income earned in 2018 amounted to PLN 3 013 million and was PLN 44 million higher than in the corresponding period of the prior year. The level of the net commission income was determined – among other things – by:

  • higher net income on loans and insurance (+ PLN 51 million y/y), mainly in effect of an increase in sales of insurance products linked to consumer and housing loans, and to leased assets;
  • higher net income on cards (+ PLN 28 million y/y), in effect of a higher number of cards and higher volumes of non-cash transactions;
  • lower net income on investment funds, pension funds and brokerage activities (- PLN 9 million y/y), mainly due to lower net income from brokerage activities (- PLN 31 million y/y), accompanied by a PLN 22 million y/y higher net income on investment and pension funds;
  • lower net income on servicing bank accounts and on other activities (- PLN 26 million y/y), related – among other things – to a change in the structure of Customer accounts who decide to switch to accounts with lower maintenance charges.
Net fee and commission income (in PLN million)

Net interest income earned in 2018 amounted to PLN 981 million and was PLN 4 million lower than in the prior year.

A drop was noted in annualized other operating income and expenses, net, caused by:

  • recognizing a provision of PLN 62.5 million in connection with the issue of a binding decision by the President of the Office of Competition and Consumer Protection in the proceedings concerning practices of violating collective interests of consumers;1
  • recognizing additional revenue of PLN 111 million in respect of the completion of a development project and starting to transfer the apartments to Customers of one of the companies of the Bank’s Group.
Net other income (in PLN million)

Compared with the result realized in 2017 net result on financial transactions increased (+ PLN 109 million y/y), mainly due to sales of securities (recognized under net gains/(losses) on derecognition of financial instruments not measured at fair value through profit or loss).

1 Information on setting up the provision was published on 27 June 2018 in current report No. 24/2018. On 27 August 2018 the President of UOKiK issued a consent decree. The decree became final and binding on 4 October 2018.

In 2018 general administrative expenses amounted to PLN 5 905 million and were 2.1% higher y/y. Their level was mainly determined by:

  • an increase in employee benefits of PLN 49 million, i.e. of 1.7%;
  • an increase in overheads of PLN 87 million, i.e. of 6.3%, mainly in connection with an increase in the following expenses:
    • marketing (of PLN 73 million – including mainly on the Bank’s activities in respect of its image, of PLN 25 million, and promoting banking products, of PLN 17 million);
    • postal services (increase of PLN 19 million – mainly in connection with sending information to Customers about product changes as a result of the Act on amendments to the Act on payment services PSD2, sending commission and fee tariffs, and the PAD Directive (Payment Accounts Directive));
  • an increase of PLN 26 million, i.e. 6.5% in contributions and payments to the Bank Guarantee Fund (BGF) – costs in respect of the BGF amounted to PLN 427 million, of which PLN 167 million was the contribution for mandatory restructuring of banks. In the corresponding period of the prior year costs in respect of the BGF were PLN 401 million, of which the contribution for mandatory restructuring was PLN 209 million;
  • a drop of PLN 18 million, i.e. 10.0% in the costs of taxes and fees, mainly as a result of costs of withheld tax on issues of foreign bonds which were PLN 25 million lower and the PFSA costs which were PLN 8 million higher;
  • a PLN 23 million, i.e. 2.7% decrease in amortization and depreciation, including mainly amortization at the Bank (total accumulated amortization of software licences), accompanied by an increase in amortization and depreciation in PKO Leasing SA due to a higher volume of operating leases.

The effectiveness of operations of the PKO Bank Polski SA Group measured with C/I on an annual basis was 44.2% and improved by 1.8 p.p. y/y in consequence of better results on business activities (+6.3% y/y), with a simultaneous increase in general administrative expenses (+2.1% y/y).

General administrative expenses (in PLN million)

* includes contributions and payments do BGF, fees to the PFSA, taxes and charges

Components of the C/I ratio (annualized)

Net write-downs and impairment reflect the Bank’s Group’s conservative approach to recognizing and measuring credit risk. In 2018 they amounted to PLN 1 451 million. The improvement in the result (+ PLN 166 million y/y) was mainly due to more favourable net write-downs on exposure to the portfolio of amounts due from enterprises in connection with the good economic conditions.

Net write-downs and impairment (in PLN million)

The share of impaired loans amounted to 4.9% as at the end of 2018 (a 0.6 p.p. decrease compared with 2017).

The cost of risk was 0.59% as at the end of 2018, which is a 0.12 p.p. improvement compared with the corresponding period of the prior year.

The improvement in risk ratios accompanied by an increase in gross loans and advances to Customers of approx. 7% y/y is the effect of continuing the current conservative credit risk management policy of the Bank’s Group and of strict monitoring of the receivables portfolio.

Cost of risk of the Bank's Group
Quality of the Bank's Group's loan portfolio

Consolidated statement of financial position

Main items of the Statement of financial position

As at the end of 2018 The PKO Bank Polski SA Group’s total assets, and total liabilities and equity rose to a record level exceeding PLN 324 billion, which reflected an approx. PLN 27 billion increase since the beginning of the year. Thus, the PKO Bank Polski SA Group maintained its leading position in terms of size on the Polish banking market.

The Bank’s Group noted an increase in financing granted to Customers, in cash and balances with the Central Bank and in the securities portfolio. In respect of the sources of financing, the most stable types of liabilities increased since the beginning of the year, i.e. Customer deposits and issues of securities, at a lower level of amounts due to banks in effect of the repayment of the whole amount due to Nordea AB in Q1 2018.

Structure of assets (in PLN billion)
Structure of equity and liabilities (in PLN million)

As at the end of 2018, financing granted to Customers of the Bank’s Group exceeded PLN 230.4 billion and increased by over PLN 16 billion y/y.

Housing loans and amounts due from businesses were the main items in the structure of net loan portfolio by type, with shares of 48.9% and 39.6% of the portfolio as at the end of 2018.

In 2018 a further increase was noted in the most profitable consumer loans (of PLN 1.9 billion) and business loans (of PLN 7.6 billion). Housing loans extended by the Bank increased by PLN 6.6 billion y/y.

In the term structure of loans and advances to Customers long-term loans dominate, which is mainly due to the high share of housing loans in the loan portfolio.

Financing granted to Customers by type (in PLN billion)

*Including other than Treasury bonds (excluding held for trading)

Amounts due to Customers constitute the basic source of financing the assets of the Bank’s Group. As at the end of 2018 they amounted to PLN 242.8 billion, which is a PLN 21.9 billion increase y/y. The increase in deposits placed by individuals (+ PLN 13.7 billion y/y) and in deposits placed by budget entities (+ PLN 5.1 billion y/y) contributed to the increase in the deposit base.

In the break-down of amounts due to Customers by type, the largest component are the amounts due to individuals, whose share in the structure of liabilities was 69% as at the end of 2018. The second largest component were amounts due to business entities (23% of the portfolio as at the end of 2018).

Amounts due to Customers by type (in PLN billion)

* Including liabilities from insurance products

Ageing structure of amounts due to Customers (in %)

* Other liabilities include repotransactions, loans and advances received and liabilities from insurance products

The share of current deposits in the break-down of total deposits increased and amounted to 63.1% (+1.3 p.p. compared with the end of 2017).

The PKO Bank Polski SA Group is an active participant of the debt securities markets, both Polish and international. Such activities are aimed at diversifying the sources of financing operations and adapting them to the regulatory requirements.

As at the end of 2018 the level of long-term external financing was approx. PLN 35.7 billion and it increased compared with the beginning of the year the year by nearly PLN 3.7 billion. The following factors had an impact on the level of of borrowings:

  • continued issue of mortgage bonds by PKO Bank Hipoteczny SA (with a nominal value of EUR 0.5 billion and EUR 1.6 billion);
  • issue of subordinated debt by PKO Bank Polski SA (with a nominal value of PLN 1 billion);
  • complete repayment of the remaining portion of the credit facility from Nordea Bank AB and gradual amortization of the bonds issued by the PKO Leasing SA Group under the lease portfolio securitization plan.

Current repayments of the remaining loans from financial institutions and the effect of foreign exchange rates related to the weakening of the Polish zloty had an impact on the level of external sources of financing.

Detailed information about the issues conducted by the PKO Bank Polski SA Group and the loans obtained are described in Notes 36, 38 and 39 of the Consolidated Financial Statements of the PKO Bank Polski SA Group for the year ended 31 December 2018.

External financing (in PLN billion)

*In this section potential differences in totals, shares and dynamics resulted from rounding the amounts to PLN millions and rounding percentage amounts to one place after the decimal point.

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