PERFORMANCE AND MARKET ENVIROMENT
Economy and the banking sector in 2015
|Key macroeconomic parameters||2015||Banking sector indicators||2015|
|Real GDP growth rate (forecast)||3.5%||Base interest rate||1.5%|
|Nominal GDP per capita (EUR)||10,300*||Loan to Deposit ratio||99.1%|
|GDP per capita in PPS (EU-28=100)||68%*||Non-performing loans ratio||7.4%|
|Average annual inflation rate||-0.7%||Total Capital Ratio (TCR)||15.6%*|
|Unemployment rate||7.5%||Return on Assets (ROA)||0,8%|
|Population||38 M||Return on Equity (ROE)||6,8%|
Source: Eurostat, Polish Financial Supervision Authority
* Data as at December 31, 2015, or latest available
Summary of 2015
2015 was a year of changes. For the first time in 10 years, interest rates in the US were raised. At the same time, 2015 turned out well for the economy; however, in search of positive aspects one should go way beyond bald statistics of the national accounts because the GDP growth (according to estimates) was only slightly higher than the 2014 figure: 3.6% year on year compared with 3.3% in 2014. The change in growth composition and positive developments on the labour market are particularly worth highlighting.
In 2015, the growth was driven by consumption (3.2% compared with 2.6%) rather than investments (6.6% compared with 9.8% in 2014); consumption was based mainly on domestic resources, which reduced growth in import, while growth in export came only slightly below the 2014 figure, which improved the GDP growth statistics owing to a positive contribution to net export growth (2015 was a record-breaking year in terms for the combined trade surplus in goods and services).
Higher growth in consumption was a direct consequence of changes on the labour market: higher growth in salaries (in real terms: 4.6% compared with 3.2% in 2014) and continued decrease in unemployment rate, which slid below 10% in 2015, coupled with a major rise in the number of available job vacancies on the labour market: by the end of 2015 the number of job vacancies per one unemployed reached a historic high. Additionally, low level of activity was also overcome in the employment statistics. Q4, which saw the number of new jobs created in the corporate sector reach 32 thousand, was the best quarter since 2007.
Although the national accounts and the processes observed on the labour market painted a positive picture of the Polish economy, high frequency data (production, sales, construction) turned out to be a source of many negative surprises, especially in the first half of the year, which were seen as signs of an economic downturn. Amid an upward pressure on the Polish zloty observed in Q1 and deflation growing quickly, the Monetary Policy Council (MPC) decided to cut interest rates in March by 50 basis points in one move, bringing the reference rate down to 1.50%. Until the end of the year interest rates remained stable, while the RPP’s rhetoric drifted towards a stabilisation of monetary policy parameters.
After hitting the lowest level in April (3.9650), the Polish zloty continued its depreciation trend until the year’s end amid expectations of a more relaxed monetary policy in the Eurozone, to reach 4.2580 against the Euro at the end of 2015. The depreciation was caused by global factors (weaker sentiment towards emerging markets related to high FX debt burden at a number of developing countries and upcoming increase in interest rates in the United States and weakening global growth) as well as local and political factors connected not only with the uncertainty about a possible change in power (presidential and parliamentary elections) and the economic programme of the new government (banking tax, a rather unfavourable stance on Open-end Pension Funds), but also the previous proposals of converting CHF denominated mortgage loans formulated across the political spectrum during the election campaign.
The yields on 10-year T-bonds hit their lowest level on January 29 (1.939) only to lose value by June, reaching 3.40% (maximum reported on June 16). Although a part of the decline was compensated for over the following months (2.94% at the end of 2015), the performance of the debt instruments with long maturities became more variable and prone to global factors and sell-offs (these factors include a rise in the Fed’s interest rates, fears surrounding China); Polish bonds displayed greater correlation with emerging market countries, whose economies are structured differently than the Polish economy (Russia, Republic of South Africa, Turkey), which could be a sign that foreign investors place Polish debt in one basket with that of emerging market countries. At the same time, 5-year bonds performed similarly. The difference was particularly visible in the case of 2-year bonds whose yields, supported by the expected easing of the monetary policy, continued their downward trend. Apart from Fed’s interest rates hike and the negative surprise from the European Central Bank, the sell-off in December, just like in the case of 5-year bonds, was also caused by the plans (ultimately not realised) to impose tax on T-bonds being a component of banks’ assets, which previously were fairly popular among banks as a security for credit portfolios and a liquidity management tool.
What will 2016 be like for the Polish economy?
In 2016, the GDP growth rate is expected to stabilise around ca. 3.5%. The structure of growth will still be based on consumption and export, while investments will recede into the background; however in the case of investments 2016 is expected to be a transition period.
Poland, being a country with high value added in export (which means that a major part of export is generated in Poland) takes full advantage of the weakening foreign exchange rate. Supported by strong labour market (which is close to becoming an employee’s market, continuation of processes started in 2015) and the expected launch of the government’s 500+ programme, consumption may grow by nearly 4% annually.
In 2016, public investments will be curbed (in fact, only road construction expenditures will be rising; traditionally, the period between EU perspectives entails railways’ problems with using funds, suspension of investment plans in the energy industry and restrictions at the local government level). The beginning of the year will also be unfavourable to private investments due to political uncertainty (as shown by a study of the National Bank of Poland). However, if the economy remains on an upward trajectory, it will help to resume private investment programmes in the face of extensive use of production capacity.
Poland will face the deflation until autumn when a considerable rise in prices is expected (helped by: statistical base effect, slow growth in prices of food and raw materials, pressure on prices of services connected with pay rises, tax on supermarkets). Since RPP takes an opportunistic view on interest rate cuts, there is little chance of any reductions at the beginning of the year, which means that a decrease in the exchange rate volatility should rather be expected.
Złoty and Polish bonds
Polish assets have started to show more features typical of emerging markets. Over the next few months it will remain unknown whether we will be facing an escalation of internal risks or rather a normalisation; however, the economic parameters such as current account surplus, GDP growth, low USD debt, and inflow of EU funds suggest that the złoty is presently undervalued. In addition, the złoty should benefit from a more expansive policy of the main central banks. However, the room for appreciation of the zloty is smaller than the fundamental models would suggest. In Q1, the deflationary pressure will continue.
Compared with the previous years, there are fewer arguments in favour of a convergence between Polish long-term interest rates and European rates. The pursued strategy of lowering dependence on foreign investors (which involves greater use of domestic capital, including banks’ capital, to finance the budget deficit) is expected to reduce the steepness of the yield curve (up to 5 years) in the coming months. Consequently, in the next few months the yields on Polish bonds may even go down. In the following months, the trend on the base markets may become less favourable for bonds. At this point, we would like to point out the historically strong correlation between bond yields and inflation. The latter will pick up in H2 2016.
Banking sector and monetary aggregates
As a result of increasing interest rates (loan margins had been rising even before the introduction of the banking tax), stricter requirements concerning the LtV ratio and relatively low attractiveness of mortgage loans caused by additional burdens imposed on banks, the growth in mortgage loans will slow down. This will be offset by faster growth in consumer loans (driven, among others, by the positive impact of the government’s 500+ programme on creditworthiness) as well as the dynamic growth in corporate loans where the banking tax should initiate limited restructuring and consolidation.
Although a significant decline in interest on deposits may be expected (another effect of the banking tax and the restructuring of balance sheet size), it should not have a major impact on the growth in household deposits. At present, investment alternatives are unattractive, while higher nominal income (driven by both higher salaries and social benefits) translate into more deposits in the banking sector.
Changes in recommendations of the Polish Financial Supervision Authority (KNF), legal acts concerning banks in Poland
Changes in recommendations of the Polish Financial Supervision Authority (KNF) and legal acts concerning banks in Poland are presented in the table below:
|A legal act / Recommendation||Date of entry into force and a summary of new challenges||Influence on the main areas of the Bank|
|YES – the regulation has an impact on a given area
NO – the regulation has no impact on a given area, or has a limited impact on a given area
|Basel III (CRD IV/CRR regulatory package)||2015|
|01.01.2014 ->2019||Defines requirements concerning, among others, capital base, liquidity, leverage ratio, corporate governance and remuneration policy. Transposition of provisions into Polish legislation has been carried out mainly by Act on macroprudential supervision, amending the Banking Law, but accompanying standards and documents are systematically being issued.||
|Banking Recovery and Resolution Directive (BRRD)||01.01.2015
||The directive introduces framework for managing recovery and resolution of banks. It imposes the need to prepare respective plans (recovery – by banks, resolution – by resolution authority, in Poland – BFG) and establishes a resolution fund to provide for assistance in managing bank’s failure. It also constitutes minimum requirement for own funds and eligible liabilities allowing for effective bail-in of sufficient amount of liabilities and avoiding contagion or a bank run (MREL, binding since beginning of 2016, but delay in implementation on both European and domestic level is observed).||
|Act on Foreign Account Compliance Act (FATCA) agreement||01.12.2015
||The adopted Act constitutes a legal framework for implementing FATCA provisions, obliging Polish banks to identify, collect, process and transmit information about US citizens and residents’ accounts to America’s Tax Office. An automatic information exchange will be performed on the basis of reciprocity.||
|Act on macroprudential supervision over the financial system and crisis management||Q4 2015/01.01.2016
||The Act introduces additional capital buffers described in CRD IV to Polish legal framework. It implements also provisions concerning corporate governance, disclosure framework and crisis management principles, establishing the BFG as a resolution authority in Poland equipped with the resolution tools (BRRD partial implementation). The Act influences dividend policy of the banks by setting maximum distributable amount of dividend depending on the joint buffer requirement fulfilment.||
||Recommendation P issued by KNF aims at updating the standards of liquidity risk management in line with market practice (and EBA guidelines). It provides for defining the acceptable liquidity risk, liquidity measurement and management, especially versus other types of risk, intraday liquidity measurement, stress-testing and disclosures. Additionally, it contains requirements towards liquidity cost allocation within a fund transfer pricing system.||
|Banking Law and other Acts||27.11.2015
||An amendment to banking law and other acts concerns mainly liquidation of banking enforcement title, which served debt collection process, and regulating procedure of managing accounts of deceased and their takeover by the heirs.||
|Recommendation on Internet payments security||December 2015
||KNF Recommendation aims at setting uniform minimum requirements concerning security of payment transactions performed via Internet. Its provisions address i.e. process management, control and risk assessment as well as education of customers with this respect.||
|Act on payment
||Amendment to the Act introduces the cap on maximum level of interchange fee of 0.2% for debit cards and 0.3% for credit cards, beginning from February 1, 2015. In Q4 2015, change concerning transitional period until December 8, 2018 for the small (max 3% market share), eligible payment services was made in order to promote development of Polish payment services companies.||
|nagation of some nrovisions/||Addresses financial markets functioning, in particular risk mitigator. It requires transactions to be cleared centrally through Central Counterparty and sets margining requirements.||
|Act on Bank
||An amendment to an Act is going to implement the EU Directives: on Deposit Guarantee Scheme (DGS) and the BRRD (in respect to recovery plans, MREL, BRR fund). Main differences compared to these documents concern increased target levels for DGS fund (2.8% instead of 0.8%) and Resolution fund (1.4% instead of 1.0%). Collection period for the target volume of funds is set at 2024. Banks’ contributions are going to depend on their market share in the respective calculation and the risk profile of an institution.
Under the currently binding regime, the annual contribution rate for 2015 (to be paid in 2016) was set at the level of 0.167% of total risk exposure amount (TREA) (0.189% in 2014) and prudential fee rate at 0.079% of TREA (0.05% in 2014).
|Act on assistance
to borrowers in
||The Act aims at providing financial support to indebted individuals, fulfilling certain requirements who ran into financial difficulties and are not able to repay mortgage on their own. Financial help will be provided from the ‘assistance fund’, financed by the banks (initial value of PLN 600 million) proportionally to volumes of their portfolios of mortgage loans to households, for which the delay in repayment exceeds 90 days.||
||Recommendation W, on model risk management was issued by the KNF in July, 2015. It aims at setting the standards of the model risk management process as well as framework for building models and assessing their quality with the aim to ensure appropriate corporate governance.||
||The draft of Recommendation Z on corporate Governance was submitted to public consultation by the KNF on December 23, 2015. It covers the elements of corporate governance resulting from other regulations, such as Banking Law (implementing majority of CRD IV provisions of corporate governance in banks) in a detailed way, also based on the KNF’s observations and BION assessment results. The recommendation is expected to become binding from November 1, 2016.||
|Act on tax on
||The Act imposes monthly tax of 0.0366% (0.44% annually) from selected financial institutions, including banks. Tax will be calculated based on the assets volume subject to several deductions, including own funds and treasury bonds.||
|MIFID II i MIFIR||2018|
||The set of ESMA technical standards on transparency requirements for trading venues and investment firms and on the obligation for investment firms to execute transactions in certain shares on a trading venue or a systematic internaliser has been published in 2015. The implementation date is set for January 1, 2018.||
Impact of the appreciation of the Swiss franc on the position of borrowers, the banking sector, and mBank
The Polish Banks Association’s proposal
Several days after the Swiss franc’s abrupt surge in mid-January 2015 the Polish Banks Association (ZBP) proposed solutions to help CHF borrowers repay inflated credit instalments.
The package of solutions included:
- Taking into account the negative CHF LIBOR
- Narrowing the currency spread for 6 months
- Extending the repayment period at the client’s request
- Not requesting new collateral or loan insurance from the borrowers who repay their instalments on time
- Converting the loans using the fixing rate of the National Bank of Poland (NBP)
- Introducing more flexible rules for restructuring mortgage loans applicable to clients.
In May 2015, the ZBP followed up with new measures. Banks declared financial and organisational involvement in the introduction of additional support for clients who took out housing loans, especially loans in foreign currencies. These measures include:
- Extending the applicability period of the first ZBP package by the end of 2015 with an option to extend the applicability of certain solutions even further
- Setting up internal stabilization funds dedicated solely to CHF borrowers
- Allocating PLN 125 million from banks’ own resources to the Mortgage Loans Restructuring Support Fund whose creation by way of an act is requested by the banks declaring financial support
- Making it possible for the borrowers who took out mortgage loans in foreign currencies to meet their own housing needs to transfer mortgage collateral in order to facilitate the sale or exchange of flats.
The subsidies from internal stabilization funds would be granted if the exchange rate of the Swiss franc exceeded a pre-defined threshold. This solution would be available to the borrowers who are ready to undertake to convert their loans at a specified exchange rate and meet the specific income criteria. The support would be addressed to the borrowers whose income at the time of requesting for an amending annex is below the average monthly income in the national economy and whose flat or house is not bigger than 75 or 100 square metres respectively. Another condition is regular repayment. In accordance with the declaration signed by banks, the subsidies would be granted when the CHF exchange rate exceeded PLN 5, yet the amount of the subsidy cannot be higher than PLN 0.33 per 1 CHF. According to ZBP’s estimations, in 10 years the amount of subsidies paid by banks from the stabilization funds would reach approx. PLN 3.5 billion. Certain aspects of the ZBP proposals were later incorporated into the Presidential Bill on the Borrowers Support Fund.
The Mortgage Loan Restructuring Support Fund aims at helping mortgage borrowers regardless of the loan currency who found themselves in financial straits due to an adverse event such as unemployment or illness. The support would account for up to 100% of the principal and interest instalment over 12 months, but no more than PLN 1,500 monthly. Except for special cases, the support would be reimbursable. (for more information see table 4.2)
Presidential proposal on restructuring of FX loans
On January 15, 2016 the President’s Office published his proposal for FX mortgage loans bill proposing the conversion of Swiss franc denominated mortgage loans held by individuals (other than entrepreneurs using loan’s interest as a tax shield) into PLN and ways of compensating borrowers for excessive FX spreads. The proposal includes three mechanisms of loan restructuring. The first two solutions are based on conversion of FX mortgage loan at “fair” rate of exchange, which is calculated by comparison of FX rate at origination, corrected by the accumulated difference in servicing costs of FX mortgage loan in comparison to a similar PLN denominated mortgage loan. Loan restructuring solutions are as follows:
- Voluntary conversion, based on terms agreed between a client and a bank. The loan is converted into PLN and switched to WIBOR.
- Forced conversion of FX mortgage loan at “fair rate”. A loan will stay on bank’s balance sheet in FX, it will be repaid at fixed fair rate of exchange (calculated individually for each loan by a bank, according to the formula described in the bill) and monthly instalments will be based on LIBOR. “Fair” rate exchange cannot be lower than historical rate at which borrower has drawn the obligation, and higher than current exchange rate. The conversion to PLN will be gradual, until the maturity of the loan, but always at the “fair” FX rate. The intention of the President’s Office is to spread the losses of conversion over time, rather than incurring them at once. mBank’s Management Board agrees with the views of various professionals working in the Accounting and Audit industry, namely that under the applicable International Financial Reporting Standards rules the impact caused by this solution would have to be recognized up front.
- Transfer of the property to the bank, and release of the debtor from the debt only if “voluntary” or “forced” conversion would not have taken place. The borrower, in order to be eligible to transfer the mortgaged property, must meet the following criteria: the amount of loan must be higher than 130% of the loan amount at origination, and monthly instalment needs to exceed 20% of customer’s monthly income. It cannot be applied to individuals:
a. who over the last 12 months had an average income denominated in the currency of the FX loan in the amount sufficient to pay monthly instalments
b. whose 12-month average monthly instalment is lower than 20% of 12-month average income.
Moreover, banks will be obliged to return FX spreads charged on the clients in the past and pay interest for delayed payment on FX spreads by deducting the amount from the value of outstanding debt. The bill also allows partial deduction of losses connected to the restructuring from the banking tax up to 20% of the monthly tax amount. The unused part of the deduction is cumulated for the future reduction in the banking tax.
If a proposal concerning Swiss francs loan conversion is adopted, it might require banks to reflect large write-offs in the financial statements. The costs of conversion are being calculated by Polish Financial Supervision Authority (KNF) before presenting the bill in the Parliament.
mBank Group and the Polish banking sector performance in 2015
mBank’s performance relative to the overall banking sector in 2015 was very strong, as presented in the comparisons of key efficiency and profitability ratios in the following graphs:
Source: Own calculations, based on statistics published by the Polish Financial Supervision Authority (data as of December 31, 2015)
Demographic profile of mBank Group clients
mBank stands out with its favourable demographic profile of clients. As a Bank actively using new technologies, mBank has always had a special appeal for younger people, who have been surrounded by technological innovations from a relatively early age. The charts below present the demographic structure of mBank’s clients and the Polish society in 2014:
The majority of mBank’s clients represent the working age population aged 25-44 (62%), while in Poland this age group accounts for 31%. The second largest group of mBank's clients are people aged 19-24, who at the same time are the least numerous age group in Poland (7%).
Among mBank’s clients there are also children and young people aged below 19, as well as middle-aged people and seniors, i.e. people aged 55+, yet these groups are relatively small (2% and 12% respectively), especially in view of the demographic situation. This is due to the fact that, despite rising popularity of accounts dedicated to young clients, many parents are still reluctant to open accounts for their children.
In turn, clients aged 55+ typically take a conservative approach to finances and technological innovations, which prevents those who do not have an account from opening one or those who already have a relationship with one bank from switching to a different bank, even if another financial institution offers more attractive products and services.
According to demographic forecasts, the Polish society is aging. Therefore, it is particularly important for mBank to enhance interest in its offer among young people and working age population, who in several dozen years, being seniors, will be the largest demographic group in Poland’s demographic structure. It is worthy to note that by 2050 people over the age of 60 will be a completely different, new generation of seniors for whom the Internet and modern technologies hold no mystery.
The situation on the property market in Poland in 2015 was driven, similarly to 2014, by a slow but steady economic growth, as well as the relatively low interest rates maintained by the Monetary Policy Council (MPC). Consequently, banks relaxed their credit policies, as mirrored by the mortgage loan offer becoming more attractive.
The Polish mortgage lending market saw no revolution in 2015 despite the regulatory changes introduced a year earlier. Although the Recommendation S of the Polish Financial Supervision Authority (KNF) changed the rules applicable to lending in Poland, no major change on the property market or, consequently, the mortgage lending market, has been observed since the Recommendation was issued.
In 2015, MPC stabilised interest rates at a record low level. The reference rate was set at 1.5%, while WIBOR 3M stood at 1.65% in March 2015 and then remained at a stable level of 1.73-1.74% until the end of the year. As a result, new loans (including mortgage loans) offered very low costs to borrowers; due to low interest rates and a more attractive credit offer, their creditworthiness was stronger.
The introduction of reverse mortgage in December 2014 did not affect the property market in 2015. Reverse mortgage is a loan for persons who have a legal title to a property, secured by a mortgage on the property. However, no bank in Poland has launched reverse mortgage products to date.
Situation on the private property market (in six major Polish cities)
The situation on the private property market was stable throughout 2015. Transaction prices of apartments on the primary and secondary market in the largest Polish cities changed only slightly. In the analysed cities, the transaction price per square meter on the primary market changed by approx. 2.2% year on year, while the prices on the secondary market remained stable.
From January to September 2015 banks signed 132.6 thousand credit agreements worth PLN 28.7 billion in total, compared with about 131.1 thousand loans worth PLN 27.6 billion granted in the same period of 2014. Therefore, new lending in the entire 2015 is likely to be a little higher than in 2014.
Housing demand was boosted by low interest rates, cash purchases of apartments, improvement on the labour market, rising households’ income, higher limits and changes in the government’s programme Mieszkanie dla Młodych (Apartments for the Young). The biggest change in the programme was the inclusion of transactions on the secondary market. Moreover, the programme became more family-friendly with subsidised own contributions and an option for any person to accede to the credit agreement together with the borrower. Consequently, about 43% of applications were related to second-hand apartments and about 57% with primary market apartments. Additionally, in view of a risk that the funds allotted to the programme in 2016-2018 will turn out insufficient, many people may be encouraged to hasten their decision to buy an apartment.
The housing construction market indices in 2015 reflect heightened activity of investors. According to preliminary data released by the Central Statistical Office (GUS), the number of completed apartments rose by about 3.2% year on year, the number of apartments whose construction has begun grew by about 13.7%, while the number of apartments with building permits issued went up by about 20.5% year on year. Over the 12 months ended in November 2015, developers started the construction of more than 83.7 thousand apartments, thus establishing a new record for the number of agreements (which breaks the previous record set in June 2008 - 82.3 thousand agreements).
2015 was a successful year for real property developers. The total number of transactions on the six analysed markets reached a record level of nearly 13.2 thousand apartments in Q3 2015. Over the last four quarters, almost 48.6 thousand apartments were sold on the primary market, which represents an increase by nearly 13% compared with the record-breaking 2014 when the figure stood at 43 thousand. In Q3 2015, nearly 15.9 thousand apartments were offered for sale (up by about 20% quarter on quarter). Until then, the only quarter that had seen a higher number of apartments put up for sale was Q4 2007, which was the peak of the housing market boom.
The chart below presents situation on the private property market in Poland:
In total, over the last four quarters there were about 50.8 thousand apartments offered for sale. Despite strong sales, the number of apartments offered on the primary market rose by about 3 thousand to reach 51.4 thousand at the end of Q3 2015. The biggest rise was reported in Warsaw (approx. 11% quarter on quarter), Wrocław (approx. 9% quarter on quarter) and Kraków (approx. 6% quarter on quarter). In Poznań and Łódź the number of apartments on offer remained unchanged, while in Tricity (Trójmiasto) it fell by about 5% quarter on quarter.
High sales materially affected the structure of offer on the primary housing market, especially as far as the sale of ready-for-sale apartments is concerned. At the end of Q3 2015, apartments completed in 2014 and before accounted for merely about 10% of all apartments offered by real property developers, apartments scheduled for completion in 2015 accounted for about 17%, while those scheduled for completion in 2016 and later accounted for 44% and 29% respectively.
In the majority of analysed cities, the time needed to sell all apartments on offer at the current rate of sales was stable and ranged from 4 to 5 quarters. Tricity, where demand clearly outweighs supply and the average selling time is 3.2 quarter, was an exception. Therefore, the above data show that the supply of apartments is at a safe level, assuming that the current rate of sales is maintained.
Over the next few quarters the upward trend in prices may be mildly reinforced. On the other hand, a rise in demand is driven by low interest rates, alternative sources of funding the purchase of apartments, improvement on the labour market, rising households’ income, and changes in the programme Mieszkanie dla Młodych. The main threat looming over the property market (and causing a shift in price trends) is the uncertainty about the regulatory environment (prospective regulations resulting in higher costs of banks’ operation) and the external environment. In the long-term perspective, demographic developments are the fundamental factor affecting housing demand. The decline in population and ageing of the society forecast by the Central Statistical Office (GUS) will contribute to a slowdown in demand for apartments.
Situation on the commercial property market
The volume of investment transactions on the Polish property market exceeded EUR 4 billion in 2015. It was the second best year in the history of the Polish property market (EUR 4.7 billion in 2006). The record-breaking result was helped mainly by two major transactions involving the purchase of shares in Echo Investment SA by Oaktree and PIMCO funds, and the partial takeover of Trigranit special purpose vehicles by TPG Real Estate. The markets saw a decline in capitalisation rates for the best assets. The rates for “prime” properties on the office space market stood at 6.0-6.5%, approximately 6% on the commercial property market, and approximately 7% on the warehouse space market.
The volume of transactions on the commercial properties market increased by about 285% compared with 2014, reaching a record high level of EUR 2.2 billion. Investment transactions accounted for 55% of the total volume, which represents a rise by 37 percentage points year on year. Such a surge in transaction volume was driven predominantly by heightened investors’ activity in Q4 2015.
The trend towards changing of the business model, re-commercialising, and upgrading older commercial properties so that they meet present market standards continues. The extension of gastronomic areas is a special trend connected with adjusting older commercial properties to the latest solutions. Such an upgrade results, among others, from changing life styles and growing purchasing power of the society. Moreover, bigger space earmarked for gastronomic services may encourage international brands which so far have not been present on the Polish market to expand into Poland.
In the past months there has been no considerable change in rents for commercial space. Warsaw, where the monthly “prime” rents for the best premises of up to 100 square metres in the most prestigious shopping malls exceed EUR 100 per square metre, still remains the most expensive location.
The vacancy rate in commercial properties located in the largest Polish cities is still relatively low (from 1.5% to 4.5%).
The volume of transactions on the office space market in seven major cities in Poland (with an approx. 32% share in the total value of transactions) fell by about 27% year on year. As before, Warsaw remains the largest office space market in Poland. High supply of new space under construction and pressure on rents contributed to suspending new investments in the capital city and shifting investors’ interest to regional cities. Transactions on regional markets accounted for more than half of previous year’s volume in the office space sector.
The asking price for space to lease remained stable. Developers are still highly flexible as far as negotiations of lease terms other than rent are concerned, such as participation in refurbishment costs or rent-free periods.
High level of new space under construction (approx. 1.2 million square metres in the main cities of Poland) may trigger a growth in vacancy rate in 2016. In particular, older office buildings (B-class) and ones with less convenient location are threatened by higher vacancy rate.
Investment activity on the warehouse space market in seven major regions in 2015 was slightly below the level reported in the record-breaking 2014 and reached EUR 470 million in volume. Investors are still deeply interested in the warehouse space market, while the fall in volume was caused by the absence of projects for sale matching their expectations.
The activity of developers on the warehouse space market is still high. The share of speculative projects in new projects, currently at 42.3% of supply in construction, is on the rise.
Despite record low vacancy rate (approx. 6%), effective rates in new warehouse projects in the area of Poznań, Warszawa, and Upper Silesia follow a downward trend. In addition, the gap between offered and effective rents is widening. The highest rates are still charged in the urban area of Warsaw and the lowest ones in central Poland and on the outskirts of Warsaw.
In 2016, the volume of transactions is expected to be similar to that reported in 2015. At the same time, a modest rise in the share of the office space sector in the total volume of transactions should be expected, mainly due to big transactions expected in Warsaw and on regional markets.
Financial position of mBank Group in 2015
Profit and loss account of mBank Group
mBank Group reported a profit before tax of PLN 1,617.9 million in 2015, compared with PLN 1,652.7 million in 2014 (-PLN 34.8 million, i.e. -2.1%). The net profit attributable to the shareholders of mBank reached PLN 1,301.2 million, compared with PLN 1,286.7 million in 2014 (+ PLN 14.5 million, i.e. +1.1%).
Summary of financial results of mBank Group
|PLN M||2014||2015||Change in PLN M||Change in %|
|Net impairment losses on loans and
|Overhead costs and amortization||-1,770.6||-2,054.2||-283.6||16.0%|
|Profit before income tax||1,652.7||1,617.9||-34.8||-2.1%|
|Net profit attributable to:||1,286.7||1,301.2||14.5||1.1%|
|Cost / Income ratio||44.9%||50.2%|
|Net interest margin||2.3%||2.1%|
|Common Equity Tier 1 ratio||12.2%||14.3%|
|Total capital ratio||14.7%||17.3%|
The main drivers of the financial results of mBank Group in 2015 included:
- Increase in total income which stood at PLN 4,093.3 million. The increase was recorded in net interest income, gains less losses from investment securities, investments in subsidiaries and associates. In 2015, mBank Group reported gains on the sale of BRE Ubezpieczenia TUiR and signing of agreements accompanying the sale with AXA Group companies and on the sale of 4,731,170 PZU shares.
- Increase in operating expenses (including amortisation) to PLN 2,054.2 million compared with 2014. In 2015, mBank Group reported one-off costs related to payments of guaranteed funds to the deposit holders of Spółdzielczy Bank Rzemiosła i Rolnictwa in Wołomin and contribution to the Borrowers Support Fund.
- Decrease in efficiency as measured by the cost/income ratio which stood at 50.2% at the end of 2015 compared with 44.9% at the end of 2014. Excluding the one-off costs and the gains on the sale of shares of BRE Ubezpieczenia TUiR and PZU the cost/income ratio stood at 49.3% in 2015.
- Lower costs of risk at 54 bps, compared with 72 bps in 2014.
- Continued organic growth and business expansion as demonstrated by:
- Increase in the individual client base in Poland, the Czech Republic and Slovakia, and clients of Orange Finance, to 4,947 thousand (+396 thousand clients compared with the end of 2014). Due to the migration of former Multibank and Private Banking clients to mBank transactional platform in Q4 2015 and differences in methods of identifying each customer before and after the migration, the number of clients dropped thereafter with preserved high-growth dynamics.
- Increase in the number of corporate clients to 19,562 clients (+1,775 clients compared with the end of 2014).
Gross loans and advances increased by 5.2% year on year while customer deposits increased by 12.0%. Consequently, the loan to deposit ratio decreased from 103.0% at the end of 2014 to 96.7%.
The changes in the Group’s results translated into the following profitability ratios:
- Gross ROE of 14.7% (16.9% at the end of 2014).
- Net ROE of 11.8% (13.1% at the end of 2014).
mBank Group’s capital ratios remained high. Total Capital Ratio stood at 17.3% at the end of December 2015, compared with 14.7% in 2014. Common Equity Tier 1 capital ratio reached 14.3%, compared with 12.2% at the end of 2014.
Income of mBank Group
Total income generated by mBank Group was PLN 4,093.3 million in 2015, compared with PLN 3,939.2 million in 2014, representing an increase by PLN 154.1 million, i.e. 3.9%. The increase was mainly driven by improved net interest income, gains less losses from investment securities and investments in subsidiaries and associates.
|PLN M||2014||2015||Change in PLN M||Change in %|
|Net interest income||2,490.7||2,511.4||20.7||0.8%|
|Fee and commission income||1,399.6||1,434.0||34.4||2.5%|
|Fee and commission expense||-497.9||-536.8||-38.9||7.8%|
|Net fee and commission income||901.7||897.2||-4.5||-0.5%|
|Net trading income||369.2||292.9||-76.3||-20.7%|
|Gains less losses from investment securities. investments in subsidiaries and associates||51.9||314.4||262.5||505.8%|
|The share in profits (losses) of investments in joint ventures||0.0||-0.1||-0.1||-|
|Other operating income||346.9||245.9||-101.0||-29.1%|
|Other operating expenses||-241.2||-185.9||55.3||-22.9%|
Similar to 2014, net interest income remained mBank Group’s largest revenue source in 2015. It stood at PLN 2,511.4 million, compared with PLN 2,490.7 million in 2014 (+0.8%). Stable net interest income resulted mainly from a decrease in interest expense and a drop in interest income triggered by low interest rates maintained by the Monetary Policy Council.
Net interest margin, calculated as a relation between net interest income and average interest-earning assets, stood at 2.1% compared with 2.3% in 2014.
The average interest rate of mBank’s deposits and loans is presented in the table below:
|Average interest rate at mBank|
|Retail Banking (Poland and foreign branches)||Corporate and Investment
Similar to 2014, loans and advances to customers remained the main source of the Group’s interest income (70.6%). Due to lower annual average market interest rates in 2015, total interest income decreased year on year and stood at PLN 3,660.5 million. Interest income from investment securities decreased by PLN 85.9 million, i.e. 10.3% in 2015 due to lower average Treasury bond yields in 2015. Interest income from debt securities held for trading increased by PLN 3.2 million, i.e. 6.7%, Interest income on derivatives concluded under the fair value hedge increased by 153.3%, compared with 2014, to PLN 46.6 million due to an increase in the volume of such transactions. Interest income from cash and short-term deposits decreased in 2015 (-PLN 23.4 million, i.e. 31.9%).
|PLN M||2014||2015||Change in
|Change in %|
|Loans and advances including the unwind of the impairment provision discount||2 833.2||2 584.6||-248.6||-8.8%|
|Cash and short-term placements||73.3||49.9||-23.4||-31.9%|
|Trading debt securities||47.9||51.1||3.2||6.7%|
|Interest income on derivatives classified into banking book||138.1||157.5||19.4||14.0%|
|Interest income on derivatives concluded under the fair value hedge||18.4||46.6||28.2||153.3%|
|Interest income on derivatives concluded under the cash flow hedge||1.4||14.1||12.7||907.1%|
|Total interest income||3,956.3||3,660.5||-295.8||-7.5%|
The decrease in interest expenses in 2015 was mainly driven by lower costs of settlements with clients (a decrease by PLN 196.1 million, i.e. 22.0%) due to lower interest rates on deposits resulting from a decrease in average annual market interest rates and the consequent changes in the prices of deposit products. Interest expenses paid to banks decreased by PLN 95.3 million, i.e. 50.0% mainly due to the repayment of some of mBank’s loans granted by Commerzbank Group for the total amount of CHF 850 million and lower average market interest rates, in particular lower CHF LIBOR. Interest expenses on issued debt securities increased by PLN 35.7 million, i.e. 15.6% in 2015, mainly driven by diversification of funding sources and increased activity on the covered bond market. Interest expenses on subordinated debt remained almost unchanged compared with the level reported in 2014 (an increase by PLN 1.7 million, i.e. 2.2%).
Net fee and commission income, accounting for 21.9% of mBank Group’s total income, dropped slightly year on year. In the discussed period it stood at PLN 897.2 million, which represents a drop by PLN 4.5 million, i.e. 0.5%.
|PLN M||2014||2015||Change in
|Change in %|
|Payment cards-related fees||413.6||342.3||-71.3||-17.2%|
|Credit-related fees and commissions||254.3||287.3||33.0||13.0%|
|Commissions for agency service regarding sale of products of external financial entities||116.7||149.7||33.0||28.3%|
|Commissions for brokerage services and for organising issues||119.5||123.0||3.5||2.9%|
|Commissions from bank accounts||157.5||165.8||8.3||5.3%|
|Commissions from money transfers||97.7||102.8||5.1||5.2%|
|Commissions due to guarantees granted and trade finance commissions||46.6||49.0||2.4||5.2%|
|Commissions for agency service regarding sale of products of external financial entities||88.3||114.0||25.7||29.1%|
|Commissions on trust and fiduciary activities||21.1||22.3||1.2||5.7%|
|Fees from portfolio management services and other management-related fees||13.4||14.9||1.5||11.2%|
|Fees from cash services||38.6||39.7||1.1||2.8%|
|Total fee and commission income||1,399.6||1,433.9||34,3||2.5%|
Commission income increased by PLN 34.3 million, i.e. 2.5% year on year. Payment card-related commission income decreased by PLN 71.3 million, i.e. 17.2% year on year. The decrease was driven by two reductions in interchange fees: on July 1, 2014 and January 29, 2015. Fees and commissions on loans increased by PLN 33.0 million, i.e. 13.0% mainly due to bigger sales of mortgage loans. In 2015, commissions from insurance activity increased by 28.3% year on year (an increase of PLN 33.0 million). Commissions from Bank accounts increased (by PLN 8.3 million, i.e. 5.3%) driven by a growing client base. Development of transactional banking and a higher number of transactions translated into an increase in commissions from money transfers (+5.2%). Commissions for agency service regarding sale of products of external financial entities increased by 29.1%, in connection with the growth in the number and value of sold financial products. In 2015, commission income from the brokerage business and debt securities issues increased (an increase by PLN 3.5 million, i.e. 2.9%). It was mainly driven by a growth in commission income generated by Dom Maklerski mBanku and the Bank’s activity in the scope of issuing Non-Treasury debt securities for corporate customers.
Dividend income amounted to PLN 17.5 million in 2015, compared with PLN 20.0 million in 2014. The decrease was due to lower dividend payments received from PZU.
Net trading income amounted to PLN 292.9 million in 2015 and was lower by PLN 76.3 million, i.e. 20.7% compared with 2014. The decrease was caused by a drop in other trading income and net income on hedge accounting (PLN 4.2 million compared with PLN 136.1 million in 2014). It was mainly driven by the valuation of interest rate derivatives.
Gains less losses on investment securities in 2015 amounted to PLN 314.4 million (PLN 51.9 million in 2014). In 2015, mBank Group reported gains on the sale of BRE Ubezpieczenia TUiR and signing of agreements accompanying the sale with AXA Group companies amounting to PLN 194.3 million and on the sale of PZU shares totalling PLN 125.0 million. The result also covers gains on the sale of minority interests in two companies listed on the Warsaw Stock Exchange, which was related to the Bank’s management of its non-strategic assets.
Other operating result (other operating income net of other operating expenses) amounted to PLN 60.0 million in 2015, representing a decrease by PLN 45.7 million, i.e. 43.2% year on year. In 2015, mBank Group reported lower income from insurance activity compared with 2014, generated until the sale of BRE Ubezpieczenia TUiR (i.e. only in Q1 2015), and lower income from the sale of apartments by mLocum.
Net impairment losses on loans and advances
Net impairment losses on loans and advances in mBank Group amounted to PLN 421.2 million in 2015, compared with PLN 515.9 million in 2014, which represents a decrease by PLN 94.7 million, i.e. 18.4%. The cost of risk in 2015 was 54 basis points in 2015, compared with 72 basis points in 2014.
Net impairment losses on loans and advances in Corporates and Financial Markets stood at PLN 178.5 million in 2015, compared with PLN 212.6 million in 2014. The drop in provisions reported in 2015 was caused by a release of credit risk provisions in K1 segment. On the other hand, provisions in K3 and K2 segments, mFactoring and mLeasing rose in the analysed period.
Net impairment losses on loans and advances in Retail Banking stood at PLN 224.3 million in 2015, compared with PLN 303.3 million in 2014. The coverage ratio increased slightly in the reporting period.
Costs of mBank Group
Total overhead costs of mBank Group (including amortisation) stood at PLN 2,054.2 million, representing an increase by 16.0% year on year. The increase was driven predominantly by one-off costs related to a PLN 141.7 million payment of guaranteed funds to the deposit holders of Spółdzielczy Bank Rzemiosła i Rolnictwa in Wołomin and by a PLN 52.1 million contribution to the Borrowers Support Fund.
|PLN M||2014||2015||Change in PLN
|Change in %|
|Taxes and fees||29.8||28.3||-1.5||-5.0%|
|Contributions and transfers to the Bank Guarantee Fund||70.8||278.2||207.4||292.9%|
|Contributions to the Borrowers Support Fund||0.0||52.1||52.1||-|
|Contributions to the Social Benefits Fund||7.0||7.2||0.2||2.9%|
|Total overhead costs and amortization||1,770.6||2,054.2||283.6||16.0%|
|Cost / Income ratio||44.9%||50.2%||-||-|
|Employment (FTE)||6 318||6 540||222||3.5%|
Personnel costs increased by PLN 10.7 million, i.e. 1.3% in 2015. The change was driven by higher remuneration costs as a consequence of an increased headcount of mBank Group, which increased from 6,318 as at the end of 2014 to 6,540 as at the end of 2015. The increase took place mainly in the area of Retail Banking, due to the implementation of new strategy in foreign branches as well as in call center and IT area.
Material costs remained relatively stable and increased by PLN 6.3 million, i.e. 1.0% in the period under review. mBank Group reported higher material costs in the IT area in 2015, among others due to the implementation of innovative mobile banking solutions.
The contribution to the Bank Guarantee Fund (BFG) paid by mBank Group increased from PLN 70.8 million in 2014 to PLN 278.2 million in 2015. The rise was driven by higher annual premium and prudential levy paid in 2015 and one-off obligatory payment related to bankruptcy of Spółdzielczy Bank Rzemiosła i Rolnictwa in Wołomin.
Amortisation charges increased in 2015 due to higher amortisation of intangible assets.
Changes to the income and costs of mBank Group contributed to an increase in the cost/income ratio which stood at 50.2% at the end of 2015, compared with 44.9% in 2014. Excluding the one-off costs in 2015 and gains on the sale of shares in BRE TUiR Ubezpieczenia and PZU, the cost/income ratio stood at 49.3%.
Contribution of business lines and segments to the financial results
Data based on internal management information of mBank Group.
Financial results of mBank Group’s business lines
The Retail Banking segment made the highest contribution to the profit before tax of mBank Group at 65.6%, compared with 38.2% for the Corporates and Financial Markets segment including Corporate and Investment Banking (33.2%) and Financial Markets (5.0%).
The charts below present gross profit contribution by business segments:
Changes in the consolidated statement of financial position
Changes in assets of mBank Group
The assets of mBank Group increased by PLN 5,537.2 million, i.e. 4.7% in 2015. Total assets stood at PLN 123,523.0 million as at December 31, 2015.
The table below presents the year-on-year change in the asset lines of mBank Group.
|PLN M||2014||2015||Change in
|change in %|
|Cash and balances with Central Bank||3,054.5||5,938.1||2,883.6||94.4%|
|Loans and advances to banks||3,751.4||1,897.3||-1,854.1||-49.4%|
|Derivative financial instruments||4,865.5||3,349.3||-1,516.2||-31.2%|
|Net loans and advances to customers||74,582.4||78,433.5||3,851.1||5.2%|
|Tangible fixed assets||717.4||744.5||27.1||3.8%|
Loans and advances to customers retained the largest share in the balance sheet of the Group at the end of 2015. They represented 63.5% of total assets at December 31, 2015, compared with 63.2% at the end of 2014.
|PLN M||2014||2015||Change in
|Loans and advances to individuals||41,560.5||46,258.7||4,698.2||11.3%|
|Loans and advances to corporate entities||32,841.0||33,446.6||605.6||1.8%|
|Loans and advances to public sector||1,924.4||1,520.7||-403.7||-21.0%|
|Total (gross) loans and advances to customers||77,373.2||81,409.4||4,036.2||5.2%|
|Provisions for loans and advances to customers (negative amount)||-2,790.8||-2,975.9||-185.1||6.6%|
|Total (net) loans and advances to customers||74 582.4||78 433.5||3,851.1||5.2%|
The net volume of loans and advances to customers increased by PLN 3,851.1 million, i.e. 5.2% year on year.
Gross loans and advances to retail customers increased by PLN 4,698.2 million, i.e. 11.3%. The volume of mortgage and housing loans increased by PLN 3,673.7 million, i.e. 12.0% year on year, mainly due to active sales of new loans. In 2015, mBank Group sold PLN 4,503.0 million of mortgage loans, which implies an increase in the volume of sales by 41.8% compared with 2014. mBank Group continued its strategic support for mBank Hipoteczny and the development of Poland’s covered bond market in 2015 as it increased sales of mortgage loans directly by mBank Hipoteczny. In 2015, mBank Hipoteczny sold PLN 1,457.0 million of mortgage loans. In addition, the Group granted PLN 4,866.5 million of non-mortgage loans, representing an 8.5% increase in sales. Net of the FX effect, loans and advances to retail customers grew by ca. 6.3%.
At the same time, gross loans and advances to corporate customers increased by PLN 605.6 million, i.e. 1.8%. Net of reverse repo/buy sell back transactions and the FX effect, loans and advances to corporate customers increased by ca. 11.2% year on year. The volume of gross loans and advances to the public sector decreased by PLN 403.7 million, i.e. 21.0%.
Investment securities constituted mBank Group’s second largest asset category (24.9%). In 2015, their value increased by PLN 3,058.3 million, i.e. 11.0%. The government bond portfolio decreased by 1.5% year on year while the portfolio of debt instruments issued by the central bank increased by 66.1%.
The other asset lines on mBank Group’s balance sheet represented 11.6% of total assets in aggregate.
Changes in liabilities and equity of mBank Group
The table below presents changes in liabilities and equity of the Group in 2015.
|PLN M||2014||2015||Change in
|Change in %|
|Amounts due to other banks||13,383.8||12,019.3||-1,364.5||-10.2%|
|Derivative financial instruments and other trading liabilities||4,719.1||3,173.6||-1,545.5||-32.7%|
|Amounts due to customers||72,422.5||81,140.9||8,718.4||12.0%|
|Debt securities in issue||10,341.7||8,946.2||-1,395.5||-13.5%|
|Total liabilities and equity of mBank Group||117,985.8||123 523.0||5 537.2||4.7%|
Amounts due to customers remained the dominant funding source of mBank Group. They accounted for 65.7% of liabilities and equity at the end of 2015, compared with 61.4% at the end of 2014.
Amounts due to customers increased by PLN 8,718.4 million, i.e. 12.0% to PLN 81,140.9 million in 2015. The change was driven by an increase of amounts due to both retail and corporate customers.
Amounts due to retail customers rose by PLN 6,832.3 million, i.e. 17.4%. Current accounts increased by 16.1%. Term deposits of retail customers increased by 21.4% year on year.
Amounts due to corporate customers increased by PLN 2,186.8 million, i.e. 6.8%.
Amounts due to other banks decreased by PLN 1,364.5 million, i.e. 10.2% year on year to PLN 12,019.3 million at the end of 2015. The change was mainly driven by the repayment of CHF 850 million of loans granted by Commerzbank Group.
The share of debt securities in issue in mBank Group’s total liabilities and equity decreased from 8.8% at the end of 2014 to 7.2% at the end of 2015. The change was driven mainly by the lack of euro note issues in 2015 compared with 2014 and reduction of EUR 500 million eurobonds.
At the end of 2015, the share of equity in liabilities and equity of mBank Group was 9.9% compared with 9.4% at the end of December 2014 due to full retention of 2014 earnings.
According to the Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (“CRR Regulation”), mBank (“the Bank”) is a significant subsidiary of EU parent institution, responsible for the preparation of the consolidated prudentially financial data to fulfil the requirement of disclosures described in IAS 1.135 Presentation of Financial Statements.
Financial information presented below does not represent IFRS measures as defined by the standards.
mBank S.A. Group (“the Group”) consists of entities defined in accordance with the rules of prudential consolidation, specified by the CRR Regulation.
Basis of the preparation of the consolidated financial data
mBank S.A. Group consolidated financial data based on the rules of prudential consolidation specified by the CRR Regulation (“Consolidated prudentially financial data”) have been prepared for the 12-month period ended December 31, 2015 and for the 12-month period ended December 31, 2014.
The consolidated profit presented in the consolidated prudentially financial data may be included in consolidated Common Equity Tier 1 for the purpose of the calculation of consolidated Common Equity Tier 1 capital ratio, consolidated Tier 1 capital ratio and consolidated total capital ratio with the prior permission of the Polish Financial Supervisory Authority or after approval by the General Meeting of shareholders.
The accounting policies applied for the preparation of the Group consolidated prudentially financial data are identical to those, which have been applied to the mBank S.A Group consolidated financial data for the year 2015, prepared in compliance with International Financial Reporting Standard (“IFRS”), except for the consolidation standards presented below.
The consolidated prudentially financial data includes the Bank and the following entities:
|Company||Share in voting rights (directly and indirectly)||Consolidation rights||Share in voting Consolidation rights (directly and method indirectly)||Consolidation method|
|Dom Maklerski mBanku S.A.||100%||full||100%||full|
|mBank Hipoteczny S.A.||100%||full||100%||full|
|mCentrum Operacji Sp. z o.o.||100%||full||100%||full|
|mLeasing Sp. z o.o.||100%||full||100%||full|
|MLV 45 Sp. z o.o. spółka komandytowa||-||-||100%||full|
|mWealth Management S.A.||100%||full||-||-|
|Tele-Tech Investment Sp. z o.o.||100%||full||-||-|
|mFinance France S.A.||99.998%||full||99.98%||full|
Entities included in the scope of prudential consolidation are defined in the Regulation CRR – institutions, financial institutions or ancillary services undertakings, which are subsidiaries or undertakings in which a participation is held, except for entities in which the total amount of assets and off-balance sheet items of the undertaking concerned is less than the smaller of the following two amounts:
- EUR 10 million;
- 1% of the total amount of assets and off-balance sheet items of the parent undertaking or the undertaking that holds the participation.
The consolidated financial data combine items of assets, liabilities, equity, income and expenses of the parent with those of its subsidiaries eliminating the carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiary. Thus arises goodwill. If goodwill has negative value, it is recognised directly in the income statement. The profit or loss and each component of other comprehensive income is attributed to the Group’s owners and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. If the Group loses control of a subsidiary, it shall account for all amounts previously recognised in other comprehensive income in relation to that subsidiary on the same basis as would be required if the Group had directly disposed of the related assets or liabilities
Intra-group transactions, balances and unrealised gains on transactions between companies of the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
In 2015 the income of the Group, calculated as the sum of net interest income, net fee and commission income, dividend income, net trading income, gains less losses from investment securities, investments in subsidiaries and associates, other operating income and other operating expenses, amounted to PLN 4,086,739 thousand (2014 – PLN 3,759,919 thousand). This income relates in whole to the activity conducted within the European Union.
In 2015, the rate of return on assets of the Group, calculated as net profit divided by the average total assets, amounted to 1.07%.
In 2015, the Group did not received any public subsidies, in particular on the basis of the Act on the Government support for the financial institutions dated February 12, 2009 (Journal of Laws of 2014, No 158).
As at December 31, 2015 the employment in the Group was 6,483 FTEs and 8,529 persons (December 31, 2014 respectively: 6,043 FTEs and 7,284 persons).
Consolidated prudentially income statement
|Net interest income||2,506,782||2,462,259|
|Fee and commission income||1,448,741||1,358,468|
|Fee and commission expense||(535,835)||(482,126)|
|Net fee and commission income||912,906||876,342|
|Net trading income, including:||292,020||366,232|
|Foreign exchange result||288,558||233,341|
|Other net trading income and result on hedge accounting||3,462||132,891|
|Gains less losses from investment securities, investments in subsidiaries and associates, including:||348,898||29,205|
|Gains less losses from investment securities||133,213||55,373|
|Gains less losses from investments in subsidiaries and associates||215,685||(26,168)|
|Other operating income||107,338||137,734|
|Net impairment losses on loans and advances||(421,222)||(515,903)|
|Other operating expenses||(99,105)||(141,986)|
|Profit before income tax||1,628,195||1,556,819|
|Income tax expense||(307,887)||(333,587)|
|Net profit attributable to:|
|- Owners of mBank S.A.||1,320,308||1,223,232|
Consolidated prudentially statement of financial position
|Cash and balances with the Central Bank||5,938,132||3,054,548|
|Loans and advances to banks||1,897,233||3,727,309|
|Derivative financial instruments||3,349,328||4,865,517|
|Loans and advances to customers||78,464,673||74,697,423|
|Hedge accounting adjustments related to fair value of hedged items||130||461|
|Non-current assets held for sale||-||291,829|
|Intangible assets, including:||519,049||456,522|
|Current income tax assets||1,721||61,336|
|Deferred income tax assets||357,207||238,980|
|LIABILITIES AND EQUITY|
|L i a b i l i t i e s|
|Amounts due to the Central Bank||-||-|
|Amounts due to other banks||12,019,331||13,383,829|
|Derivative financial instruments||3,173,638||4,719,056|
|Amounts due to customers||81,185,025||72,615,316|
|Debt securities in issue||8,946,195||10,341,742|
|Hedge accounting adjustments related to fair value of hedged items||100,098||103,382|
|Liabilities held for sale||-||91,793|
|Current income tax liabilities||50,126||1,441|
|Provisions for deferred income tax||981||1,980|
|T o t a l l i a b i l i t i e s||111,236,264||106,864,195|
|E q u i t y|
|Equity attributable to Owners of mBank S.A.||12,272,144||10,809,655|
|- Registered share capital||168,956||168,840|
|- Share premium||3,366,802||3,355,063|
|- Profit from the previous years||6,983,272||5,512,997|
|- Profit for the current year||1,320,308||1,223,232|
|Other components of equity||432,806||549,523|
|T o t a l e q u i t y||12,272,144||10,809,657|
|T o t a l l i a b i l i t i e s a n d e q u i t y||123,508,408||117,673,852|
mBank Group capital and funding
mBank Group capital base
Structure of own funds including CET 1 and Tier 2 capita
The amount of capital maintained by mBank Group meets the regulatory requirements and allows for the planned business expansion at a defined risk appetite level. This is reflected in the Common Equity Tier 1 (CET 1) capital ratio (14.29% at the end of 2015) and the Total Capital Ratio (TCR, 17.25% at the end of 2015), which are safely above the levels recommended in 2015 by the Polish Financial Supervision Authority (KNF), According to general the KNF requirements in 2015 banks’ CET 1 Ratio shouldn’t be below 9% and TCR shouldn’t be below 12%. Since January 1, 2016, the KNF increased abovementioned requirements by 1.25 percentage point due to introduction of the conservation buffer. Accordingly, a minimal level for CET 1 and TCR should stand at 10.25% for and 13.25%, respectively.
Moreover, in October 2015, the KNF introduced for 14 banks additional capital requirements, resulting from risk related to foreign exchange mortgage loans. mBank Group was recommended to maintain own funds to cover the additional capital requirement at the level of 4.39 percentage points, in order to secure the risk resulting from foreign exchange mortgage loans for households, which should include at least 75% of Tier I equity (which corresponds to 3.29 percentage points).
In February 2016, the KNF explained, that recommended levels regarding capital ratios (addressed to the whole banking sector and those addressed to the selected banks in October 2015 concerning risk resulting from foreign exchange mortgage loans for households) should be applied both on an individual and consolidated basis.
Taking into account the above described additional capital requirement as well as the conservation buffer of 1.25% enforced on January 1, 2016 on the basis of the Act on Macro-prudential Supervision over the Financial System and Crisis Management in the Financial System, starting from January 1, 2016 the Bank as well as mBank Group should maintain, on the stand alone and consolidated level respectively, the Common Equity Tier 1 ratio on the level not lower than 13.54% and the total capital ratio on the level not lower than 17.64%, which compares against 14.29% and 17.25% respectively reported by mBank Group as of December 31, 2015. As of January 31, 2016 on consolidated level the reported total capital ratio was below the afore-mentioned target ratio of 17.64%, whereas consolidated Common Equity Tier 1 ratio remained to well exceed the new target ratio, similar to the respective ratios on mBank stand alone level. The Management Board of mBank believes that with the decisions to be made by the upcoming mBank Ordinary General Meeting (planned on March 24, 2016) the Group will exceed the total capital ratio target level of 17.64%.
mBank Group has a strong capital base, as reflected in its capital structure. Own funds stood at PLN 12.0 billion at the end of 2015, of which PLN 9.9 billion (83%) constituted CET 1 capital. The main components of CET 1 capital include: share premium, other reserve capital and general risk fund. Tier 1 capital is strengthened mainly through retained earnings.
Tier 2 capital stood at PLN 2.1 billion at the end of 2015, which represents an increase year on year. The rise in Tier II capital was caused mainly by the inclusion of funds raised in a new issue. On December 17, 2014 mBank successfully completed an issue of subordinated bonds in the nominal amount of PLN 750 million maturing on January 17, 2025. Following KNF’s approval granted on January 8, 2015, the amount was added to the supplementary capital of mBank.
A decrease in Tier 2 capital denominated in CHF was driven by an early repayment of a subordinated debt with a limited capital credit and a gradual withdrawal of bonds without a fixed maturity in accordance with CRR.
On June 18, 2015, the Bank made an early repayment of a subordinated debt issue amounting to CHF 70 million. As a result of the early repayment, the instrument with nil capital credit was redeemed in whole. Moreover, on June 24, 2015 the Bank made an early repayment of a subordinated debt issue with a limited capital credit of CHF 90 million.
The Bank plans to successively increase the share of instruments denominated in PLN in the structure of Tier 2 instruments. In 2016-2018 the Bank plans additional issues of subordinated debt in PLN.
The table below presents the balances of mBank Group’s subordinated debt as at December 31, 2015:
Subordinated debt with a fixed maturity included in own funds is subject to amortisation on a daily basis over five years prior to final maturity. In addition, subordinated debt without a fixed maturity in the table above is being gradually withdrawn starting from 2014 and is included in own funds according to the percentage rate set by the Polish Financial Supervision Authority (KNF) for each year until the end of 2021. The percentage was 70% in 2015 and is set at 60% in 2016.
The current structure of the Bank’s capital base derives from prior decisions regarding retained earnings and additional capital increases. Between 2002 and 2011 mBank retained all of its earnings by decision of the General Shareholders’ Meeting, while the 2012 dividend constituted 35% of mBank’s net profit followed by a 67% dividend payment in 2013. The profit for 2014 was included in whole in the Bank’s own funds.
Capital and liquidity norms under Basel 3 and EU regulations
The recommendations of the Basel Committee put forward in the new capital accord Basel 3 form the basis for strengthening the capital base, tightening liquidity requirements, and maintaining the acceptable level of leverage in financial institutions. The primary objective of Basel 3 is to ensure such levels of own funds as are necessary to effectively manage an institution, even in financial distress, without the need for a bailout with taxpayers’ money.
The recommendations of Basel 3 have been introduced into the European Union legislation in the CRD IV / CRR package, which took effect on January 1, 2014, subject to respective transitional periods. Moreover, the European Banking Authority (EBA) gradually issues technical standards for CRD IV and CRR, i.e. detailed descriptions of procedures, instruments, indicators, rules, and their calibration, making it possible for financial institutions to fully implement the requirements imposed on their capital, liquidity, as well as corporate governance and management standards. As a regulation, CRR directly applicable in the EU member states without the need to implement legislative amendments in their jurisdictions. CRD IV was transposed into Polish law in 2015 by the Act on Macro-prudential Supervision on the Financial System and Crisis Management in the Financial System whereby the regulations applicable so far were amended accordingly. One of the most important requirements laid down in the Act concerns capital buffers which can be imposed on banks in Poland. These include:
- Capital conservation buffer – designed to ensure that banks build up capital buffers outside periods of stress which can be drawn down as losses are incurred. Target for this buffer is set at the level of 1.25% of total risk exposure amount (TREA) starting from January 1, 2016, rising to 1.875% from 2017 and finally reaching CRD IV level of 2.5% by 2019.
- Buffer for Globally Systematically Important Institution (G-SII) or Other Systematically Important Institution (O-SII) – kept by institutions characterized by particular scale of activities and institution's contribution to systemic risk. Basel III indicates on maximum level of 2% for O-SII buffer and maximum limit for G-SII set at the level of 3.5%.
- Systemic risk buffer – set out in order to prevent and limit long-term non-cyclical systemic or macroprudential risk. Buffer can be set at the level up to 5% by means of Resolution of Minister of Finance.
- Countercyclical buffer - maintained to counteract the effects of the economic cycle on banks’ lending activity, thus making the supply of credit less volatile. Maximum level of this buffer is 2.5%, also to be set by MF’s resolution.
In 2012, after ten years, mBank resumed the payment of the dividend to its shareholders. In its decision recommending the dividend payment to the Supervisory Board, the Management Board of mBank mainly considers current recommendations of the Polish Financial Supervision Authority concerning dividend payments by banks. In 2015, the PFSA issued the recommendation that a dividend could be paid only by banks meeting the criteria below:
- the bank is not subject to a restructuring programme;
- in case of banks where non-financial client deposits on the bank’s balance sheet represent more than 5% of the aggregate non-financial client deposits in the banking sector: where the Tier 1 ratio (CET1) increased by the security capital is higher than 13.25% plus 75% of possible offset capital on the risk of FX loans individually imposed by the KNF on October 23, 2015
- in case of other banks: where the Tier 1 ratio (CET1) increased by the security capital is higher than 11.25% plus 75% of possible offset capital on the risk of FX loans individually imposed by the KNF on October 23, 2015
- with financial leverage (LR) level higher than 5%
- with the overall SREP (supervisory review and evaluation made by KNF) capital score of at least 2.5
It is recommended that a dividend up to 50% of the profit generated in 2015 may be paid:
- when the Total Capital Ratio is higher than 13.25% plus 100% of additional capital requirement related to the risk of FX loans, individually imposed by the KNF on October 23, 2015
It is recommended that a dividend up to 100% of the profit generated in 2015 may be paid:
- in case of banks where non-financial client deposits on the bank’s balance sheet represent more than 5% of the aggregate non-financial client deposits in the banking sector: in case the Total Capital ratio is higher than 16.25% plus 100% of possible additional capital requirement related to the risk of FX loans, individually imposed by the KNF on October 23, 2015
- in case of other banks: when the Total Capital Ratio is higher than 14.25% plus 100% of possible possible additional capital requirement related to the risk of FX loans, individually imposed by the KNF on October 23, 2015
Based on the financial results of banks as at December 31, 2015, the banks will receive individual recommendations on the dividend policy in form of a letter of the KNF Chairman.
Notwithstanding the foregoing, the PFSA will ask the Financial Stability Committee (KSF), as macroprudential supervision in the understanding of the Act of August 5, 2015 on macroprudential supervision over the financial system and crisis management in the financial system for a possible indication of the assessment of the KSF about the capital position and the dividend policy of banks where non-financial client deposits on the bank’s balance sheet represent more than 5% of the aggregate non-financial client deposits in the banking sector.
The table below presents information on mBank’s dividend payments since 2012.
MREL and TLAC and their potential impact on mBank
Apart from requirements set on institutions’ capital base, there are also regulations concerning other elements of potentially loss absorbing liabilities: MREL (the minimum requirement of own funds and eligible liabilities) and TLAC (the Total Loss Absorbing Capacity). Both of these ratios address the need to ensure adequate level of funding, which can be converted into capital in case of financial distress and consequently enable its recovery of resolution without use of taxpayers’ money.
The minimum requirement of own funds and eligible liabilities, MREL, stipulated in the Banking Recovery and Resolution Directive and has been described in details in the respective EBA Technical Standard (EBA/RTS/2015/05). MREL requirement constitutes a regulatory tool aiming at structuring institution’s liabilities in a way allowing for effective bail-in of sufficient amount of liabilities avoiding contagion or bank run. It will be set for each institution on case-by-case basis by a resolution authority (in Poland BFG), taking into account both common criteria stipulated in regulations and resolution authority’s assessment. Principally bail-inable liabilities kept by an institution should provide for capacity to absorb losses and contribute to recapitalization to the extent determined by the resolution authority towards this institution. MREL-eligible liabilities are going to be limited to issued and fully paid up instruments, which are not secured or guaranteed by the institution itself, with maturity of at least one year. Covered deposits are excluded from the ratio calculation. MREL applies to all banks in the EU and refers to the total balance sheet volume. The requirement will become binding from January 1, 2016, but the transitional phase can be devised by resolution authorities, no longer than 24 months. MREL is going to be domestically implemented by the Act on the Bank Guarantee Fund, the deposit guarantee scheme and resolution (the "Act on the BFG "). Due to the delay in the local transposition of the BRRD the implementation of the ratio is likely be postponed as well.
The Total Loss Absorbing Capacity (TLAC) serves the same purpose as MREL, but it applies to global systematically important banks (G-SIB) obliging them to maintain an adequate loss-absorbing and recapitalization capacity allowing to perform critical functions in case of institution’s resolution. The eligible liabilities, including paid in, unsecured instruments of residual maturity over one year must constitute at least 16% of risk weighted assets and 6% of the Basel III leverage ratio denominator starting from January 1, 2019, and 18% and 6,75% respectively since the beginning of 2022. In 2014 Commerzbank was assessed by FSB as the G-SIB, afterwards it was removed from the G-SIB list due to a declining systemic importance. Nevertheless, if Commerzbank returns on the list, mBank will inherit some requirements like TLAC which is going to influence also G-SIB’s material subsidiaries (The FSB provides the following quantitative criteria as determinants of ‘material’ subsidiary: (a) has more than 5% of the G-SIB’s consolidated RWA, (b) generates more than 5% of the G-SIB’s consolidated revenues, or (c) has total leverage exposure that is more than 5% of the G-SIB’s total leverage exposure) through internal TLAC requirement, in line with distribution of loss-absorbing capacity within entities located in various jurisdictions.
mBank Group funding
The One Bank Strategy for 2012-2016 provides for optimisation of the Bank’s balance sheet in terms of its profitability and structure by increasing the share of client deposits in funding, further diversification of the funding base, and a bigger share of high-yield assets.
The graph below presents the structure of mBank Group’s sources of funding at the end of 2015.
Bonds issued under the EMTN Programme
After the successful first eurobond issue in October 2012 and issue of CHF bonds in October 2013, mBank Group completed further issues under the EUR 3 billion EMTN Programme in 2014.
On October 12, 2015 a tranche on EUR 500 million was redeemed.
Following table presents a summary of outstanding tranches:
mBank continues its efforts aimed to diversify the sources of funding and to ensure stable refinancing on attractive terms.
Activity on the covered bond market
mBank Hipoteczny (mBH) is one of three mortgage banks currently active on the Polish market (next to Pekao Bank Hipoteczny and PKO Bank Hipoteczny) and the leader in covered bond issues with a market share of 75.6% at the end of December 2015.
In 2015, mBank Hipoteczny became an even more active player on the debt securities market. mBH placed seven series of covered bonds during the year. The total nominal value of the covered bonds in issue exceeded PLN 1.5 billion. Consequently, mBH successfully achieved its target for 2015.
It was the best year in the fifteen-year history of mBank Hipoteczny as measured by the scale of issuing activity. It was the best year in the fifteen-year history of mBank Hipoteczny as measured by the scale of issuing activity. In 2015, mBH conducted a record-breaking single issue of covered bonds worth PLN 500 million (in September), while the value of new and outstanding covered bonds issued by mBH crossed the mark of PLN 4 billion in the end of 2015.
The scale of mBH’s issuing activity in 2015 and the parameters of individual issues mark a significant change in the Bank’s policy, whose main function is to raise funding and refinance long-term mortgage loans through the issue of covered bonds. The main focus is on narrowing the maturity gap of assets and liabilities, reducing the currency gap, and cutting the cost of new funding.
When analysing the series issued in 2015, attention should be paid to long maturities of the covered bonds issued by mBH (minimum maturity - 5 years, maximum maturity - 10 years) and the relatively high nominal values of the covered bonds issued in PLN, as compared with the previous years (minimum transaction value - PLN 200 million, maximum transaction value - PLN 500 million).
As far as PLN issues are concerned, it is especially worth mentioning the PLN 0.5 billion issue of mortgage bonds conducted in mid-September 2015. Not only was it a record-breaking transaction for mBH, which proved its potential for refinancing mortgage loans through the issue of covered bonds, but also it was the highest issue of covered bonds in terms of volume in the entire history of mortgage banking in Poland.
Taking advantage of the positive foreign investor sentiment, mBH additionally raised EUR 81 million in three transactions in 2015.
A summary of mBH issue activity in 2015 is presented in the following table.
|Volume||Currency||Date of issue||Maturity||Tenor (in years)||Coupon|
|200 M||PLN||20.02.2015||28.04.2022||7.2||WIBOR 6M + 78pb|
|20 M||EUR||25.02.2015||25.02.2022||7.0||Fixed (1,135%)|
|250 M||PLN||15.04.2015||16.10.2023||8.5||WIBOR 6M + 87pb|
|11 M||EUR||24.04.2015||24.04.2025||10.0||Fixed (1,285%)|
|50 M||EUR||24.06.2015||24.06.2020||5.0||EURIBOR 3M + 69pb|
|500 M||PLN||17.09.2015||10.09.2020||5.0||WIBOR 3M + 110pb|
|255 M||PLN||02.12.2015||20.09.2021||5.8||WIBOR 3M + 115pb|
Legislative changes concerning covered bonds
On August 4, 2015, the President of the Republic of Poland signed into law the Bill on Amending the Act on Covered Bonds and Mortgage Banks and Certain Other Acts. The new law, which entered into force on 1 January 2016, aims at improving the security of investments in covered bonds and the protection offered to covered bond holders, reducing the cost of bond issues, and narrowing the maturity gap of assets and liabilities on the balance sheets of mortgage banks.
The amendment outlines the bankruptcy process of mortgage banks and sets out detailed rules of satisfying claims under covered bonds and using assets in the collateral register. In accordance with the amended act, each covered bond creditor will have the same rights to a separate pool of bankruptcy assets. Moreover, the legislator envisaged also a soft bullet mechanism (the maturity of all outstanding covered bonds is extended by twelve months, provided that coupon payments are continued on a regular basis) and a conditional pass through mechanism (partial repayments of covered bonds are made in relation to inflows from the cover assets) triggered by a shortage of collateral in the register. The clarification of the rules of satisfying creditors’ claims under covered bonds issued by a bankrupt bank will largely increase the safety of investors and the certainty of trading.
Starting from 2016, mortgage banks will be subject to the requirement to hold statutory over-collateralisation of covered bonds equal to at least 10% of the value of issue and to hold a liquidity buffer necessary to cover interest on covered bonds for a period of 6 months. In accordance with the amended regulations, mortgage banks will also be in a position to increase the value of issued covered bonds to 80% of the mortgage lending value of property for retail mortgage loans, up from the previous cap of 60% (which remains in force for commercial mortgage loans), which will allow banks to increase the value of their mortgage bond issues.
The amendments will certainly improve credit ratings of mortgage banks and ratings assigned by rating agencies to covered banks, thus reducing the cost of refinancing mortgage banks’ operations.
In addition, covered bonds will become more attractive to investors, in particular foreign investors, thanks to a package of tax-related amendments proposed to the Act on Corporate Income Tax. In accordance with the amended regulations, interest on covered bonds will be exempted from taxation at source, while the status of loans granted by mortgage banks will be equal to the status of purchased loans. In turn, the amendments to the Act on Organisation and Operation of Pension Funds and the Act on Co-operative Savings and Loan Associations will expand the opportunities for pension funds and co-operative savings and loan associations to invest in covered bonds.
In 2015, the Bank spent PLN 230.1 million on investments, compared with PLN 160.5 million a year earlier.
The majority of investment spending at the Bank (PLN 191.9 million) was related to the IT area (salary of IT segment employees working on IT projects). The largest project financed in the IT systems area was the migration of former Multibank clients to mBank.
Spending in the logistics and security area, totalling PLN 38.1 million, was allotted to continued development and modernisation of the branch network and the Head Office as well as additional equipment for retail outlets. Moreover, some part of the spending was connected with new outlets opened as part of the One Network project.
Corporates and Financial Markets
The Corporates and Financial Markets segment serves 19,562 corporate clients including large enterprises (K1 - annual sales exceeding PLN 500 million), mid-sized enterprises (K2 - annual sales of PLN 30 – 500 million) and small enterprises (K3 - annual sales below PLN 30 million) through a network of dedicated 47 branches. mBank Group’s offer of products and services for corporate clients focuses on traditional banking products and services (including corporate accounts, domestic and international money transfers, payment cards, cash services, and liquidity management products), corporate finance products, hedging instruments, equity capital market (ECM) services, debt capital market (DCM) instruments, mergers and acquisitions (M&A), leasing and factoring. The segment comprises two areas: Corporates and Investment Banking, and Financial Markets.
Corporate and Investment Banking
Summary of Corporate and Investment Banking segment activity (mBank only)
|Number of corporate clients||16,333||17,787||19,562||10.0%|
|Loans to corporate clients, including||26,281||30,113||22,103||-26.6%|
|Reverse repo/buy sell back transactions||3,285||3,840||1,031||-73.2%|
|Deposits of corporate clients, including||24,555||29,203||30,236||3.5%|
|Distribution network||31.12.2013||31.12.2014||31.12.2015||YoY change|
|Advisory Centres within "One Network" Project||-||1||4|
Summary of Corporate and Investment Banking segment financial results
The Corporate and Investment Banking segment generated a profit before tax of PLN 537.4 million in 2015, which represents a rise by PLN 17.9 million, i.e. 3.4% year on year.
Corporate and Investment Banking - decomposition of profit before tax
|PLN M||2014||2015||Change in PLN M||YoY change|
|Net interest income||746.5||755.2||8.7||1.2%|
|Net fee and commission income||387.9||376.7||-11.2||-2.9%|
|Net trading income||184.1||215.8||31.7||17.2%|
|Gains less losses from investment securities, investments in subsidiaries and associates||10.1||19.1||9.0||89.1%|
|Net other operating income||57.5||29.9||-27.6||-48.0%|
|Net impairment losses on loans and advances||-211.6||-177.8||33.8||-16.0%|
|Overhead costs and amortization||-672.2||-695.7||-23.5||3.5%|
|Profit before tax of Corporate and Investment Banking||519.5||537.4||17.9||3.4%|
The profit before tax of Corporate and Investment Banking in 2015 was driven by the following factors:
- Increase in total income by PLN 7.6 million (+0.5%) year on year to PLN 1,410.9 million. Net interest income rose by PLN 8.7 million, i.e. 1.2% while net fee and commission income fell by PLN 11.2 million, i.e. 2.9% year on year. Dividend income decreased due to a lower dividend paid by PZU.
- Increase in operating costs (including amortisation) to PLN 695.7 million in 2015 (increase by PLN 23.5 million, i.e. 3.5%).
- Decrease in net impairment losses on loans and advances by PLN 33.8 million, i.e. 16.0% year on year. The drop in provisions reported in 2015 was caused by a release of credit risk provisions in K1 segment. On the other hand, provisions in K3 and K2 segments, mFactoring and mLeasing rose in the analysed period.
Activity of Corporate and Investment Banking segment in 2015
2015 was a time of reasonable and stable economic growth, which translated into stronger business activity of large enterprises. On the other hand, banks had to continue their activity in an environment of record-low interest rates, reduced interchange fees, increased contributions to the Bank Guarantee Fund (BFG), and uncertainty about the size of the potential financial burden arising from the banking tax, CHF loans and additional contributions to the BFG as well as to the Borrowers Support Fund.
Economic conditions in Poland positively impacted the volume of corporate loans and deposits. The corporate loans market grew by 7.4% year on year while the corporate deposits market grew by 10.5%. mBank grew at a higher rate than the market, resulting in an increase of its market shares to 6.3% in loans and 9.8% in deposits, compared to 6.3% and 8.8% in 2014, respectively.
In 2015, the Bank intensified its efforts to atract new corporate clients, which resulted in record-high acquisition of companies – the corporate client base increased by 1,775 companies year on year to 19,562 clients.
The acquisition of new clients boosted the balances deposited on current accounts, which stood at PLN 8,467 million at the end of 2015, representing an increase of 26.2% year on year. The high volume of current deposits is a springboard for further growth of transactional banking, which is of special relevance to the Bank with respect to the growth potential and forging of closer relations with clients.
In 2015, the Bank continued to pursue its strategy of increasing its share in the sector of small and medium-sized enterprises (SME). One of the key factors of success in this segment is client acquisition - steady development of the client base as a potential for growth of profitable and long-term relationships. 2015 was record-breaking in terms of acquisition, when over 2,500 new clients started cooperation with mBank. At the same time, as part of implementation of the strategy of building long-term business relationships with clients and providing opportunities for smooth development of cooperation along with a company’s growth, nearly 200 SMEs (K3 client segment), to whom advanced corporate banking solutions were made available, were transferred to K2 segment.
High level of acquisition resulted mainly from a number of initiatives improving service quality, including initiatives aimed at streamlining the process of opening an account, faster access to funding and increasing its flexibility.
Following the consolidation of Corporate and Investment Banking activities in 2014, the Bank became more active on the corporate debt origination market. At the end of December 2015, the Bank held an 12.4% market share on the corporate bond market. The low yield environment provided an additional support to market growth. The segment increasingly focused on closer relations with non-bank financial institutions as well as clients from the agricultural and food industry.
Special focus on relations with the clients in the segment was mirrored in levels of customer satisfaction, measured by NPS (Net Promoter Score). Net Promoter Score, a recommendation indicator, is the key indicator on which mBank continuously focuses in satisfaction surveys. For corporate clients who indicated mBank as their main bank, NPS in 2015 reached 30, and was higher by 4 percentage points year on year.
Sound level of NPS in the Corporate and Investment Banking segment was caused by the implementation of NPS programme - mSatysfakcja project. The main goal of the project is to increase the level of genuine satisfaction of corporate clients resulting from mBank’s offer and service, focusing on clients feedback and improving relationships with them in the context of promoting one of the most significant values of mBank – client-centricity.
The most important element of the NPS programme developed in previous year was the closed loop process - conversations held between mBank’s advisors and representatives of a corporate client, directly following the survey, aimed at collecting customer feedback and identifying the reasons behind low recommendations of detractors and the reasons for which promoters willingly recommend mBank to their business partners.
The NPS survey for corporate clients has been conducted at mBank since 2010.
Products and services on offer
The value of loans granted by mBank to corporate clients (excluding repo transactions) stood at PLN 21,072 million at the end of 2015, representing an increase of 6.2% year on year (PLN 19,840 million at the end of 2014).
The value of loans to enterprises (NBP category, enabling comparison with the banking sector results) stood at PLN 19,442 million at the end of 2015, which represents an increase of 8.8% year on year (PLN 17,874 million at the end of 2014). The market of loans granted to enterprises grew by 7.4% year on year. The market share of mBank’s loans to enterprises in total loans of the sector was 6.3% at the end of 2015, compared to the same level at the end of 2014. The loan-to-deposit ratio of enterprises in mBank stood at 75.9% at the end of 2015, which was much below the market benchmark of 118.1%.
The value of loans granted to local governments stood at PLN 931 million at the end of 2015, compared to PLN 1,324 million at the end of 2014.
The value of corporate client deposits gathered at mBank (excluding repo transactions) stood at PLN 30,203 million at the end of 2015, representing an increase of 17.0% year on year (PLN 25,807 million at the end of 2014).
The value of mBank’s current corporate deposits amounted to PLN 8,467 million at the end of 2015, an increase of 26.2% year on year (PLN 6,709 million at the end of 2014).
The value of corporate client deposits (NBP category, enabling a comparison to banking sector results) stood at PLN 25,629 million at the end of 2015, representing an increase of 23.8% year on year (PLN 20,709 million at the end of 2014). The market of deposits of enterprises grew by 10.5% in that period. The market share of deposits of enterprises at mBank in the total deposits of enterprises was 9.8% at the end of 2015, compared to 8.8% at the end of 2014.
The value of deposits of local governments stood at PLN 193 million at the end of 2015, compared to PLN 213 million at the end of 2014.
Structured finance, project finance, syndicated loans
As part of the Corporate and Investment Banking segment, the Structured Finance area offers the following types of financing: M&A finance, project finance, mezzanine finance and syndicated finance. In 2015, the Bank was a major market player and participated in 72 syndicated and bilateral products. mBank’s total exposure under syndicated and bilateral products stood at PLN 4,300 million.
The Bank maintained its commitment to the government’s "Supporting Entrepreneurship through BGK Sureties and Guarantees" program with allocated limit for guarantees at PLN 1,300 million (the limit was increased by PLN 400 million based on an Annex dated May 11, 2015). As at December 31, 2015, the amount drawn under the limit reached PLN 1,081 million.
Moreover, on October 29, 2015, mBank signed an agreement with Bank Gospodarstwa Krajowego on the basis of which it may offer loans secured with BGK guarantees to clients as part of the Portfolio Guarantee Line with counter-guarantee provided by EIB (European Investment Bank) under the COSME (Competitiveness of SMEs) programme. The BGK guarantee limit for mBank stands at PLN 120 million. COSME is the European Union programme for the competitiveness of enterprises running in 2014-2020. The budget of the programme is EUR 2.3 billion and its main objective is to stimulate lending and capital investments among SME.
European Union financing
On November 3, 2015, mBank concluded a cooperation agreement with Bank Gospodardstwa Krajowego on Smart Growth Operational Programme for the years between 2014 and 2020, called Action 3.2.2. Loan for technological innovations. Projects consisting of implementation of technological innovations will be supported as part of the effort. Total value of funds for funding innovative projects is EUR 422 million.
Issuing debt securities for corporate clients
The share of mBank in the non-treasury debt market at the end of December 2015 is presented in the chart below.
The value of debt securities issued by banks but not kept on primary books (excluding „road” bonds issued by Bank Gospodarstwa Krajowego) arranged by mBank amounted to circa PLN 11.3 billion, compared to PLN 9.9 billion at the end of 2014, which makes mBank the leader with a market share of 35.8%. The largest issue arranged by mBank in 2015 included a PLN 1,205 million and EUR 81 million of Bank Hipoteczny covered bond issues and PLN 696 million bonds for BGK.
Other relevant transactions on bonds issued by banking institutions included a PLN 240 million bond issue by Eurobank, a PLN 180 million bond issue by BOS Bank, and a PLN 145 million bond issue by Bank Pocztowy S.A.
In the growing corporate bond market, mBank ranked fourth with a market share of 12.4%.
Development of transactional banking
Cash management is an area of Corporate and Investment Banking, which offers state-of-the-art solutions to facilitate planning, monitoring and management of the most liquid assets, cash processing, as well as electronic banking. The solutions facilitate daily financial operations, enhance effective cash flow management, and optimise interest income and costs.
The balances of corporate current accounts crossed the mark of PLN 8 billion for the first time in history in 2015. The year on year growth rate of transactional products in 2015 was as follows:
|Number of outgoing domestic transfers||+11.3%|
|Number of mass transfer transactions||+28.2%|
|Number of payment identification transactions||+6.4%|
|Number of corporate cards||+7.1%|
|Cash service turnovers||+7.3%|
|Number of foreign and SEPA transfers sent||+19.0%|
|Number of foreign and SEPA transfers received||+18.8%|
In addition, attractive transactional products were added to mBank offer in 2015, including:
- New module at mBank CompanyNet - Housing Escrow Accounts
As part of the Internet platform mBank CompanyNet a new module was added. It enables the service of Housing Escrow Accounts combined with identification of payments (collect service). The new module allows property developers to manage the collection of receivables related to particular investments (developer undertakings):
- Ensures quick access to data on investments,
- Presents information on payments made by individual buyers,
- Presents the history of turnovers on virtual accounts assigned to individual buyers,
- Presents the overdue amounts that should have been paid to the property developer by the buyers (according to the works schedule of a given investment),
- Generates detailed reports and imports deposit-related data from external systems concerning individual investments.
As part of the module detailed personal data of buyers can be collected.
- Touch ID technology at mBank CompanyMobile - since July 2015 mBank has offered its corporate clients a new version of mBank CompanyMobile application, allowing faster authentication via the Touch ID solution. The new authentication method requires scanning the user’s fingerprint, which eliminates the need to remember a number of complicated access passwords. Therefore, it is more comfortable to use the application, when at the same time top security standards are met - Touch ID is even an additional guarantee of security. mBank CompanyMobile is the first mobile banking application in Poland and the second in Europe which allows to log in with the use of biometrics of the fingertip.
- Offering a new functionality of outgoing SWIFT MT101 messages in MultiCash electronic banking system (active role of the Bank). The new service allows mBank to serve global corporate clients having their accounting and treasury centres in Poland, who need tools enabling them to manage their accounts held with domestic and foreign banks via a single electronic banking system offered by mBank.
- Bearing international clients in mind, mBank launched a solution enabling the mutual clients of Commerzbank and mBank to directly access their mBank accounts via Commerzbank systems.
- Open cash withdrawal in Poczta Polska (the Polish Post) branches – a service enabling a person indicated by mBank’s corporate client to withdraw cash in a Poczta Polska branch. At present, Poczta Polska operates approximately 9,000 branches.
- The customer experience area was improved considerably, including:
- Optimisation of operational processes in the scope of improving system integration with outsourcers of banking services,
- Completion of foreign payments automation project.
In the scope of transactional banking mBank strengthened its position in the area of cash service of large retail sales networks. The Group also started the service of large volumes of receivables for companies from the utilities sector, and consequently increased its market share. In 2015 mBank entered the market of servicing lenders, increased its exposure to the sector of courier companies. mBank remains a strong leader in servicing Housing Escrow Accounts and escrow accounts.
Summary of Financial Markets segment results
The Financial Markets segment generated a profit before tax of PLN 80.2 million in 2015, compared with PLN 152.9 million posted in 2014.
Financial Markets - decomposition of profit before tax
|PLN M||2014||2015||Change in PLN M||YoY change|
|Net interest income||139.7||191.7||52.0||37.2%|
|Net fee and commission income||-6.0||-1.8||4.2||-70.0%|
|Net trading income||69.7||-17.4||-87.1||-125.0%|
|Gains less losses from investment securities, investments in subsidiaries and associates||45.3||5.8||-39.5||-87.2%|
|Net other operating income||1.2||0.7||-0.5||-41.7%|
|Net impairment losses on loans and advances||-1.1||-0.8||0.3||27.3%|
|Overhead costs and amortization||-96.1||-98.1||-2.0||2.1%|
|Profit before tax of Financial Markets||152.9||80.2||-72.7||-47.5%|
The profit before tax of Financial Markets in 2015 was driven by the following factors:
- Decrease in total income by PLN 71.0 million (-28.4%) year on year to PLN 80.2 million. Net interest income increased by PLN 52.0 million and net trading income dropped by PLN 87.1 million, mainly due to a loss on interest rate instruments.
- Increase in operating costs (including amortisation) to PLN 98.1 million (by PLN 2.0 million, i.e. 2.1%) due to higher material costs.
Financial Markets segment activity in 2015
Financial Markets area covers:
- Direct sale of financial market products to Corporate Banking clients and non-banking financial institutions (such as insurance companies, pension and investment funds and asset management companies) as well as selected Private Banking clients;
- Management of mBank's liquidity as well as its assets and liabilities (including deposit and credit portfolio interest risk management). Liquidity management involves money market transactions, currency swaps, interest rate derivative transactions, T-bill, T-bond and NBP bill purchase transactions, repo transactions etc.;
- Management of mBank's interest rate and currency risk, trading in FX instruments on the interbank market (spot transactions and derivatives), trading in interest rate instruments (T-bills and T-bonds, interest rate derivatives), commodity derivatives, shares, equity and stock index derivatives, trading in non-Treasury securities;
- Offering the service of a depositary and a trustee in particular to non-banking financial institutions;
- Supervision over brokerage house operations with regard to its cooperation with financial institutions.
In 2014, activities connected with arranging issues of debt securities for Corporate Banking clients and banks, as well as trading in and sales of these securities were transferred to the Corporate and Investment Banking Line (previously Corporates and Institutions). For more information please see section 8.1. Corporate and Investment Banking.
2015 in the financial markets area was characterised by a dynamic increase in recurring transactions turnover and in the number of active clients, both in respect of recurring transactions and derivative transactions. The development of the currency platform enabled access to a broader group of clients, also in the areas where dealer service has not been available before.
As far as derivative transactions are concerned, increase in margins and turnover was reported in every product category helped by valid client demand.
In H2 2015, the dealer-developer project was launched in the segment with the purpose to further acquire clients for recurring transactions and activate the bank’s client base.
The number of active clients almost doubled, which caused the growth of margins on transactions in 2015.
The individual, biggest derivative transactions include:
- Transaction with Andels
- Transaction with Wirtualna Polska
- Transaction with Wagony Świdnica
Market shares of mBank in specific financial instrument markets as at the end of December 2015 are presented below:
Relations with financial institutions are managed by Financial Markets business line. The activities include, among others, funding from other banks and placements with other banks.
At December 31, 2015, the Bank had 18 active loans amounting to the equivalent of PLN 23,349 million, of which PLN 12,973 million were drawn. In 2015, two subordinated loans denominated in CHF and one loan in EUR, amounting to PLN 870 million in total, were repaid at maturity. Additionally, the Bank took out one new loan in EUR amounting to PLN 426 million and one new loan in USD amounting to PLN 195 million. The Bank’s total exposure under loans from other banks was by PLN 2,103 million lower than at the end of 2014. At 2014 exchange rates the decrease would amount to PLN 1,933 million.
At the end of December 2015, mBank’s exposure under loans granted to other banks reached the equivalent of PLN 2.9 billion. The Bank’s portfolio included 44 short-term and medium-term active loans granted to other financial institutions from Poland and abroad.
Main highlights of the activities of the Financial Institutions Department in 2015 include:
- Obtaining further, considerable funding from the European Investment Bank (EIB). Taking into account the current portfolio, mBank ranks first as EIB’s largest borrower in the Polish banking sector.
- 2015 was also marked by further acquisition of loro accounts. The Bank managed to maintain its position as one of the leading Polish banks in handling settlements in PLN.
Moreover, in 2015 the Financial Institutions Department continued to actively support trade transactions concluded by Polish exporters by offering short-term financing to financial institutions, mainly from Belarus. At the same time, the Bank was still serving banks from the Commonwealth of Independent States and offering them medium-term loans secured with KUKE insurance policies.
mBank’s Custody Services
mBank’s custody clients are mainly local and foreign financial institutions, banks which offer custodian and investment services, pension funds and investment funds, insurance companies, asset management institutions, and non-financial institutions.
mBank provides services including settlement of transactions in securities registered in local and foreign markets, safe-keeping of clients’ assets, maintenance of securities accounts and registers of securities in non-public trading, and processing corporate actions. As a depositary bank mBank maintains registers of pension funds’ and investment funds’ assets and monitors valuations of those assets. 2015 was a record-breaking year in terms of growth in the number of offered investment funds and in the value of registered assets. The number of investment funds for which mBank acts as depositary rose by 54.0% compared with the end of 2014, while the total value of assets of investment and pension funds increased by 65.0%.
mBank’s Retail Banking segment serves 4,947.3 thousand individual clients and microenterprises in Poland, the Czech Republic and Slovakia online, directly through the call centre, via mobile banking and other state-of-the-art technological solutions, as well as in a network of 278 branches. The Bank offers a broad range of products and services including current and savings accounts, accounts for microenterprises, credit products, deposit products, payment cards, investment products, insurance products, brokerage services, and leasing for microenterprises. In 2013, the Bank launched a modern, user-friendly online platform (New mBank) designed from scratch, which provides more than 200 new functionalities, solutions and improvements.
Summary of the activity of Retail Banking (mBank and mBank Hipoteczny)
|Number of retail clients, including:||4,229.4||4,551.5||4,947.3||8.7%|
|The Czech Republic||486.4||534.2||573.1||7.3%|
|Loans to retail clients, including:||38,233.8||41,444.0||46,168.7||11.4%|
|The Czech Republic||1,712.0||2,250.5||2,899.6||28.8%|
|Deposits of retail clients, including:||33,897.9||38,999.4||45,645.4||17.0%|
|The Czech Republic||3,076.8||3,788.6||4,488.0||18.5%|
|Investment funds (Poland)||4,489.3||5,252.1||5,736.2||9.2%|
|Advisory Centres within "One Network" Project||-||1||4|
|Light branches within "One Network" Project||-||2||9|
|mBank (former Multibank)||133||131||123|
|mKiosks (incl. Partner Kiosks)||68||67||83|
|Aspiro Financial Centres||24||23||23|
|Czech Republic and Slovakia||35||35||36|
Data in the table based on internal management system.
Summary of Retail Banking segment financial results
The Retail Banking segment generated a profit before tax of PLN 1,060.7 million in 2015, which represents an increase by PLN 43.8 million, i.e. 4.3% year on year.
Retail Banking - decomposition of profit before tax
|PLN M||2014||2015||Change in PLN M||YoY change|
|Net interest income||1,611.3||1,565.6||-45.7||-2.8%|
|Net fee and commission income||506.1||507.3||1.2||0.2%|
|Net trading income||115.1||95.7||-19.4||-16.9%|
|Gains less losses from investment securities, investments in subsidiaries and associates||-0.7||194.0||194.7||-27,814.3%|
|Net other operating income||51.2||3.4||-47.8||-93.4%|
|Net impairment losses on loans and advances||-303.3||-224.3||79.0||-26.0%|
|Overhead costs and amortization||-962.9||-1,081.1||-118.2||12.3%|
|Profit before tax of Retail Banking||1,016.9||1,060.7||43.8||4.3%|
The profit before tax of Retail Banking in 2015 was driven by the following factors:
- Increase in total income by PLN 83.0 million, i.e. 3.6% year on year to PLN 2,366.1 million. Net interest income fell by PLN 45.7 million, i.e. 2.8% due to a decline in average interest rate in the segment of mortgage and non-mortgage loans, while net fee and commission income remained stable and rose by 0.2%, i.e. PLN 1.2 million year on year. Moreover, the rise in income was helped by the sale of BRE Ubezpieczenia TUiR, a subsidiary, and by the signing of agreements accompanying the sale with AXA Group companies.
- Increase in operating expenses (including amortisation) by PLN 118.2 million, i.e. 12.3% year on year, driven mainly by personnel and material costs and by higher contribution to the Bank Guarantee Fund (BFG), as well as the contribution to the Borrower Support Fund.
- Decrease in net impairment losses on loans and advances by PLN 79.0 million, i.e. 26.0% year on year.
Retail Banking in Poland
Retail Banking (including Private Banking) in Poland in 2015
In 2015, the efforts in the Retail Banking segment were strongly focused on better understanding of clients’ needs. New solutions were introduced and existing ones were used more effectively. Among others, clients were offered new attractive financial and functional benefits, and the Bank continued the development of its mobile application, which, starting from 2015, allows clients to make mobile BLIK payments. For more information on BLIK payments, see chapter Innovations at mBank Group.
The quality-based approach to building customer relations has already produced tangible effects, which are reflected in particular in the number of newly acquired accounts, which rose by 15.0% compared with 2014. According to a ranking compiled by Bankier.pl portal, mBank came second in terms of acquisition in the banking sector.
In 2015, mBank’s marketing and acquisition efforts in the credit cards area were focused mainly on growing the portfolio of Miles & More credit cards, offered primarily to affluent clients.
In the area of mBank’s Retail Banking, 2015 was a period of continued cooperation on the strategic project related to the alliance with Orange, one of the largest telecom operators in Poland, and with fine tuning the product offer as part of the Orange Finanse project launched in October 2014.
The offer, which has been unique on the market since the project’s launch, was devised by a team of employees representing both organisations, drawing from the experience of the global telecom operator and one of the best mobile and transactional banks in Poland.
The basic offer covers personal account and complementary products such as deposits, unsecured loans, products dedicated to micro-enterprises and a package of benefits for the clients of Orange. Moreover, clients can also use NFC debit cards allowing them to pay by their mobiles without the need to install any additional applications (the card is integrated directly with the mobile application of Orange Finanse) and a new form of mobile payments offered by Polski System Płatności - BLIK (Orange Finanse was one of the first banks to introduce this functionality). For more information on NFC payments and BLIK service, see chapter Innovations at mBank Group.
Thanks to its innovative offer, after only a year upon its launch, Orange Finanse became mBank’s important acquisition channel. By the end of 2015, more than 250,000 accounts were opened via Orange Finanse, including almost 210,000 in 2015.
H2 2015 was a period of mobile finance development with a number of improvements being introduced, such as adding Windows Phone to the list of operating systems compatible with the mobile application of Orange Finanse or enabling the payment of invoices using QR codes, which takes only seconds to complete and requires no transfer data to be entered manually, and starting the sale of cash loans in Orange stores. It was also a period when a new joint offer for Orange clients was presented, promoting active users of Orange Finanse.
The activities outlined above gained recognition, which was reflected in the awards won by Orange Finanse in 2015. For example, the Savings Account offered by Orange Finanse won the September ranking of savings accounts compiled by TotalMoney.pl portal.
In October 2015, Orange Finanse brand was ranked among the top global players participating in the contest for the best banking projects organised by Efma (organization formed by bankers and insurers, which specialises in financial marketing and distribution) and came second in the Best New Product and Service category. Efma is an organisation associating more than 3.3 thousand financial institutions from over 130 countries, including 80% of Europe’s largest retail financial institutions. The purpose of the competition is to award the most interesting and innovative projects of financial institutions worldwide, addressed to retail clients. In 2015, 211 financial institutions from 59 countries entered the competition with 500 innovations. For more information on awards won by mBank Group, see chapter Awards and distinctions. For more on cooperation with Orange, see chapter Strategic partnerships.
In 2015, mBank Group continued to develop its long-term cooperation with AXA Group, which translated into enhanced product offer and top quality service. mBank’s clients were offered a full range of insurance products available via electronic and mobile platform and in brick-and-mortar branches. The following products were for the first time added to the joint offer:
- mBrave insurance, which provides financial support to a client diagnosed with cancer
- Term Life Insurance 24h
The following products were redesigned and upgraded:
- Life insurance offered together with mortgage loans
- mHealth package covering healthcare benefits and their costs (private healthcare)
- Commercial real property insurance for borrowers
For more information on mBank Group’s cooperation with AXA Group, see chapter Strategic partnerships.
Activity in the SME (Small and Medium-Sized Enterprises) segment
In 2015, mBank pursued its growth strategy in the small and medium-sized (SME) enterprises sector, focusing on better understanding of clients’ needs, which was achieved, among others, by numerous face-to-face meetings with clients. As a result, specific initiatives were launched and enhanced products were offered to micro-enterprises as part of the offer of Orange Finanse, such as Account for Companies with an option to receive a limit of up to PLN 10 thousand, debit cards, savings account and Auxiliary Accounts.
Moreover, the quality of the offer dedicated to SMEs was improved by enhanced functionalities of the transaction service, such as multi-person transfer authorisation, company book of recipients or implementation of daily and monthly statements. These services are dedicated to the most profitable and active segment of companies served by the Bank’s Retail segment.
The development of functionalities of the transfers basket in the application was yet another improvement identified based on surveys conducted among SME clients. Further development of the mobile channel is the key area of mBank’s strategy, which fully addresses the needs of business clients.
mBank was also actively involved in building a cooperation with innovative start-up companies to seek and implement new, value-adding ideas for clients. The mBank StartUP Challenge contest organised together with Polska Przedsiębiorcza (owner of a network of Business Link entrepreneurship incubators) fits into the strategy of meeting clients’ expectations. mBank’s experts assessed the best new business ideas, and the winner will work in cooperation with the bank on implementing his concept in the banking industry. By entering into cooperation with start-ups, mBank wants to secure its position of a leader of technological change. For more information about the contest, see chapter Innovations at mBank Group.
The initiatives outlined above resulted in a dynamic growth in acquisition in the SME sector. Proactive approach to the market and the use of multiple channels, such as synergistic cross sell activities in cooperation with mLeasing, boosted the number of new accounts by 27.6%, compared with 2014.
Intensive efforts on forging long-term relations with retail clients were also confirmed by a number of prizes awarded to mBank. In particular, the bank was appreciated by Forbes magazine, which named mBank the Best Bank in Poland in the category “direct contact channels” and by Bankier.pl portal, which awarded the Golden Banker prize to mBank for the best corporate account. For more information on awards granted to mBank Group, see chapter Awards and distinctions.
Development of the retail banking offer in Poland
The loan portfolio structure of Retail Banking in Poland (household loans) at the end of December 2015 was as follows:
As far as non-mortgage loans are concerned, in line with the Bank’s strategy concentrated around meeting clients’ needs, mBank has been implementing a programme focused primarily on providing clients with access to reliable and precise information. At the same time, the style and language of mBank’s banking documentation addressed to clients underwent a major overhaul, which is expected to help build honest and solid relations with clients based on full understanding of agreements being signed. Moreover, the strategy provides also for offering support to the clients whose credit applications were rejected. In addition, the policy aims to ensure high quality service of applications submitted by clients in direct channels.
The sales of non-mortgage loans increased by 8.5% year on year to PLN 4,866.6 million in 2015.
Furthermore, in 2015, mBank in co-operation with mBank Hipoteczny pursued a long-term project designed to issue covered bonds secured with liabilities backed by mortgage loans. As part of the project, mBank Hipoteczny grants loans to individuals through mBank. Another important milestone of the project was completed in 2015 with the transfer of a PLN 338 million loan portfolio from mBank to mBank Hipoteczny. The transfer will allow for issuing covered bonds secured with the loans transferred to mBH.
Mortgage loans are among key products in the mBank offer because they strengthen the relationship of mBank with clients. The value of mortgage loans sold in 2015 reached PLN 3,443.7 million, which represents an increase by 50.0% compared with 2014.
The key characteristics of the portfolio of mortgage loans for individuals (excluding Private Banking clients) are summarised below:
|Balance sheet value (PLN billion)||27.6||30.4|
|Average maturity (years)||20.3||20.0|
|Average value (PLN thousand)||275.4||284.7|
|Average LtV (%)||80.7%||82.2%|
* The NPL ratio calculated in accordance with a more strict client perspective methodology; data based on internal management system.
Deposits and investment funds
In 2015, the balance of savings products (term deposits and savings accounts) grew by PLN 3,846 million, which represents a 16.0% rise compared with the end of 2014. The strong sales results generated in the area of savings products were possible thanks to a number of initiatives taken, including focused management of the product offer, smart pricing of deposits targeting selected client segments, as well as the implementation and use of behavioral segmentation of clients. The balances of deposit products increased while the financial discipline was maintained.
The growth in clients’ deposit base was accompanied by a rise in spending on investment products. In H1 2015, mBank reported a significant rise in assets allocated to higher-risk investment funds, while in H2 clients were offered new solutions eliminating (in the case of structured deposits) or reducing the risk of losses (in the case of structured certificates and certain investment funds).
2015 was yet another important year in which mBank worked towards strengthening its position in savings and investments. A major increase in balances was helped, among others, by new products, in particular:
- Promotional offer of term deposits aimed at acquiring new clients and attracting new funds
- The first Deposit Lottery in the Bank’s history
- Special offers supporting cross-selling - promotional offer of Open-end Investment Funds combined with term deposits
- Introduction of subscriptions for investment certificates of Closed-end Investment Funds and structured certificates
- Enabling clients to invest in new subscriptions for structured deposits
- Introduction of public offering of bonds for retail clients
In 2015, the value of payment card transactions carried out by mBank’s retail banking clients exceeded PLN 21.6 billion, which represents a rise by 22.9% year on year. As the frequency of card transactions made by mBank’s clients increased by some 36% year on year in combination with smaller average amount of card payments, mBank managed to maintain its market share in non-cash transactions at 12%. The average amount of card payments in mBank reached almost PLN 71, which represents a decline compared with the end of 2014, as clients became more willing to use their cards for smaller payments.
As part of its payment development strategy, mBank implemented new payment instruments:
- BLIK mobile payments for the clients of Orange Finanse (for more information on BLIK payments, see chapter Innovations at mBank Group)
- NFC mobile payments for the clients of Orange Finanse (for more information on NFC mobile, see chapter Innovations at mBank Group)
Retail Banking in the Czech Republic and Slovakia
Economy and banking sector in the Czech Republic
|Key macroeconomic parameters||2015||Banking sector indicators||2015|
|Real GDP growth rate (forecast)||4.5%||Base interest rate||0.05%|
|Nominal GDP per capita (EUR)||14,100*||Loan to Deposit ratio||79.0%|
|GDP per capita in PPS (EU-28=100)||85%*||Non-performing loans ratio||5.8%|
|Average annual inflation rate||0.3%||Total Capital Ratio (TCR)||17.3%*|
|Unemployment rate||5.1%||Return on Assets (ROA)||1.3%*|
|Population||10.5 mln||Return on Equity (ROE)||14.3%*|
Source: Eurostat, Česká národní banka (ČNB).
* Cumulative 9 month data (as of September 30, 2015) or latest available
GDP, inflation, interest and FX rates
Economic growth in the Czech Republic is expected to have risen to 4.5% in 2015 on the back of strong domestic demand, after it recorded 2.0% in 2014. As an exceptional boost to growth from EU co-financed investment fades, growth is forecasted to slow to 2.3% in 2016 before picking up again to 2.7% in 2017.
Household consumption probably rose by 2.9% in real terms in 2015, amid rising wages and employment as well as low inflation. Also, investment contributed strongly to real GDP growth, particularly due to a high increase in public investment, which was driven by a greater use of EU funds. In contrast, net exports are likely to have contributed negatively to real GDP growth in 2015, reflecting the high import intensity of rising consumption.
On November 7, 2013, the Czech National Bank (CNB) committed to sell the Czech crowns and buy euros as needed in order to prevent the crown from appreciating beyond the historically low rate of CZK 27 per euro, while the currency floats freely on the weaker side of this threshold. In February 2016, the CNB repeated that it was ready to intervene on the foreign exchange market in case of prolonged strengthening of pressures for a price fall or if inflation expectations decrease and risks of deflationary development in the domestic economy are renewed. The crown exchange rate commitment is not a monetary policy objective, but an instrument the central bank has been using to fulfil the inflation target. The CNB may intervene automatically for an unlimited period of time and there is no limit on the amount of the purchases of foreign currency.
In 2013-2015, interest rates remained unchanged and the repo rate was maintained at 0.05%.
The year on year growth of consumer prices amounted to 0.1% in December 2015, remaining stable compared to the end of 2014. The average inflation rate reached 0.3% for 2015, dropping by 0.1 percentage point from the preceding year level of 0.4%, and was the lowest since 2003. While labour market conditions are expected to contribute to domestic inflationary pressures, particularly in the services sector, inflation is forecasted to average at only 0.4% in 2016, mainly due to further declines in commodity prices, particularly oil.
The strengthening of the Czech economy is reflected in improving labour market parameters. The country’s unemployment rate has stabilised at the lowest level in the Central and Eastern Europe (CEE) region. The seasonally adjusted unemployment rate reached 5.1% in December 2015 and decreased by 1.0 percentage point year on year. Compensation per employee is expected to have grown by 2.4% in 2015 and the overall wage bill by 4.1%, due to strong employment growth.
The developments recorded in the Czech financial sector in 2015 were mostly positive. In an environment of economic recovery, banks increased their profitability and strengthened their capital adequacy. Funding and liquidity profiles continued to be solid with the sector’s loan to deposit ratio of 79.0%. Asset quality remained resilient as demonstrated by a slight decrease of NPL ratio to 5.8% at the end of 2015 from 6.1% observed a year earlier. The relatively contained levels of NPL ratios in the Czech Republic reflect the country’s relatively strong industrial base, and limited foreign-currency lending (predominantly to corporate customers and almost non-existent in retail segment) compared to some other countries in the CEE region. The main challenge for Czech banks is a permanent low interest rate environment. Loan yields have continued to decline, causing pressure on net interest margins.
Overall, the profitability of the Czech banking sector is among the highest in the CEE region, as measured by a return on equity of 14.3% and a return on assets of 1.3%. It is expected to stabilise at current levels, as robust capital buffers will enable Czech banks to take advantage of the growth in mortgage lending and those corporate sectors which are more favourably affected by the strong economic activity.
After subdued growth in corporate loan volume in 2014, the year on year dynamics accelerated visibly during 2015, exceeding in December 5.2%. The share of non-performing loans in the total volume of loans to non-financial corporations has been constantly declining since 2011 and amounted to 5.7% at the end of 2015. Following better business perspectives the growth pace of corporate deposits showed gradual improvement and oscillated on average above 10% in 2015.
The growth in total retail lending was predominantly driven by mortgage loans, which expanded by 8.8% in 2015, while the volume of consumer and other loans showed a slower increase of 5.4% during the same period. The share of non-performing loans in the total volume of loans to households was 4.1% in December 2015, declining from 4.7% at the end of 2014. The annual growth pace of household deposits remained stable in 2015 and reached in December 5.8%. However, the maturity structure of deposit base has been evolving significantly over the last two years, with demand deposits rising at double-digit rate and term deposits falling by around 5% annually. Thanks to a high volume of residents’ deposits, the Czech banking sector has been independent of foreign funding sources.
Economy and banking sector in Slovakia
|Key macroeconomic parameters||2015||Banking sector indicators||2015|
|Real GDP growth rate (forecast)||3.5%||Base interest rate||0.05%|
|Nominal GDP per capita (EUR)||13,500*||Loan to Deposit ratio||95.6%|
|GDP per capita in PPS (EU-28=100)||77%*||Non-performing loans ratio||4.2%|
|Average annual inflation rate||-0.3%||Total Capital Ratio (TCR)||17.4%*|
|Unemployment rate||11.5%||Return on Assets (ROA)||1.0%|
|Population||5.4 M||Return on Equity (ROE)||8.5%|
Source: Eurostat, Národná banka Slovenska (NBS).
* Cumulative 9 month data (as of September 30, 2015) or latest available
GDP, inflation and interest rates
Economic growth in Slovakia is expected to have strengthened to 3.5% in 2015, due to a substantial rise in domestic demand. Investment benefited from intensified drawing of EU funds, as the possibility to make use of funding available under the 2007-2013 programming period came to an end. Household consumption was supported by positive labour market developments, sound wage growth, continued low inflation and favourable credit conditions. However, net exports are expected to have contributed negatively to growth, as imports were boosted by elevated investment activity.
Slovakia’s recovery is forecasted to continue in both 2016 and 2017, with real GDP growth of more than 3% per year. Accelerating household expenditure looks set to become the strongest driver of growth in 2016 and thereafter. Private consumption is expected to expand by 3.4% in 2016, buttressed by steady gains in employment. The continued fall in energy prices also strengthens household budgets.
In Slovakia, as a member of euro zone, the key interest rate, set by the European Central Bank (ECB), was kept unchanged at 0.05% in 2015. The last reduction by 0.1 percentage point was decided on September 10, 2014, following the earlier cut from 0.25% taken on June 11, 2014.
In December 2015, annual inflation stood at -0.5%, compared to a contraction of consumer prices at 0.1% recorded at the end of 2014. The drop was mainly driven by the sharp fall in energy prices. The average annual inflation rate for 2015 reached -0.3%, dropping from -0.1% in 2014. Deflationary pressures observed in 2015 are expected to slowly dissipate, mirroring the pickup in consumer spending. Headline inflation is set to turn positive but remain close to zero in 2016, with the ongoing decline in energy prices being offset by a recovery in the prices of services.
Throughout 2014 and 2015 unemployment in Slovakia was gradually decreasing in line with the improvement in economic activity. The seasonally adjusted unemployment rate reached 11.5% in December 2015 and was lower by 1.7 percentage point year on year. The unemployment rate is expected to further decline to around 9.3% in 2017 on the back of robust economic expansion. The activity rate increased substantially in 2015, but long-term unemployment remained elevated. Nominal wage growth picked up in 2015 and is expected to rise to 3% in 2016, providing a substantial boost to household purchasing power in a low-inflation environment.
Slovak banks have seen a stronger operating environment as economic growth rebounded. Even with slightly stronger loan growth, the overall loan to deposit ratio in the sector is expected to be kept close to its current level of 95%, as banks remain keen to use deposits to fund their lending activity and the reliance on wholesale funding sources is very low. The Slovak banking sector’s capital adequacy is among the highest in the CEE region, along with the Czech Republic.
The overall improvement of the NPL ratio was mainly the result of the high growth in mortgage loans and stabilisation in the stock of non-performing loans. The NPL ratio for Slovakia is the lowest in the CEE region at 4.2% at the end of December 2015. The asset quality can potentially improve further mainly due to strengthening business activities and raising household income.
The profitability of the Slovak banking sector improved slightly in 2015 and some further upside potential for the current level of return on equity of 8.5% and return on assets of around 1.0% is seen. While a pressure on net interest margin persists, a sound credit growth, especially in the higher-yielding retail business, accompanied by lower credit costs position the banks to generate decent profits. On the other hand, the recent requirement to pay contributions to the resolution fund is expected to weigh negatively on the performance of Slovak banking sector.
Accelerating economic recovery and low interest rates provided banks with favourable lending opportunities. Total loans grew by 9.3% in 2015, compared with 7.7% in 2014. After only moderate expansion in corporate loan volume observed in 2014 and until Autumn 2015, the commercial books of banks recorded a higher growth of 5.7% at the end of 2015. The share of non-performing loans in the total volume of loans to non-financial corporations decreased to 6.9% at the end of 2015 from 7.9% in 2014. The corporate deposit base showed rapid growth in H2 2015 and the annual growth pace accelerated to 11.3% at the end of the year. The negative trends in corporate deposits recorded at the turn of 2014 and 2015 partially resulted from the high base effect.
The improving economy and low credit costs have promoted strong development of household loans in Slovakia. Retail lending has continued to rise rapidly over the recent years, mainly due to housing loan acceleration, with the year on year growth pace exceeding 13% in 2015. The share of non-performing loans in the total volume of loans to households declined to 3.9% in December 2015 from 4.3% at the end of 2014. Development of retail deposits have shown clearly increasing trend since Q1 2014, with the annual dynamics reaching 8.9% in 2015, compared to 4.1% a year earlier. Since the mid-2013 the opposite trends within the structure of household deposit base have been observed. The volume of term deposits has been decreasing over the past quarters, what is more than compensated by continuously accelerating retail demand deposits, which expanded by 17.9% in 2015.
Summary of foreign operations of mBank
mBank provides retail banking services to individuals in both the Czech Republic and Slovakia, being the only Polish bank, which successfully replicated its Polish business model on foreign markets - in 2007 it started its retail operations in the Czech Republic and Slovakia. The Bank offers products such as current accounts, savings accounts, payment and credit cards, overdrafts or housing loans. Additionally, clients of mBank in the Czech Republic are provided with financial advisory services. During the period between 2007 and 2015, mBank in the Czech Republic and Slovakia acquired 819.7 thousand retail customers (individuals and microfirms).
As at December 31, 2015, total loan portfolio of mBank’s foreign branches stood at PLN 3,824.0 million and increased by 31.1% year on year. The volume of mortgage loans reached PLN 3,319.9 million, while non-mortgage loans amounted to PLN 504.1 million. Focus on lending acceleration resulted in growth of credit products, in particular sales of mortgage loans increased by 20.2% to PLN 1,059.3 million in 2015. Total deposits in both markets stood at PLN 6,371.8 million and rose by 13.4% year on year. The fastest growth of 26.2% was recorded on current accounts, reflecting both strong acquisition of new clients and rising transactionality of existing customer base. In 2015, number of mBank’s clients in the Czech Republic increased by 39.0 thousand to 573.1 thousand, while in Slovakia it expanded by 18.9 thousand and reached 246.5 thousand at the end of 2015. This dynamic growth in volumes and the number of accounts indicates possibilities of further development of mBank in the foreign markets.
The activity of mBank in the Czech Republic and Slovakia in 2015 was focused on building the position of a mobile bank and intensifying its lending efforts, especially in the area of unsecured loans.
The new mobile application launched at the turn of 2014 and 2015 was enhanced with a QR reader feature in 2015. In Q4 2015, a version dedicated to Windows Phone mobile devices was made available to users. The marketing campaign “Mobility Icon” and other promotional activities encouraging clients to switch to mobile devices resulted in the mobile application having been installed on 165 thousand devices in the Czech Republic and Slovakia (data as oDecember 31, 2015). mBank’s mobile application was considered the most client-friendly solution among mobile applications offered by the leading Czech banks in a survey conducted by Tyinternety.cz, a website dealing with new technologies and innovations. mBank ranked second in the innovation category of the Zlata Koruna contest with its new mobile application.
In 2015, the foreign branches expanded their credit offer with cash loan refinancing and consolidation. Q4 2015 was also marked by the introduction of three new innovative credit cards. In 2015, for the first time in the history of the foreign branches, two promotional campaigns advertising cash loans were launched.
Another major event from the viewpoint of building client relations was the implementation of CRM tools enabling, among others, real-time communication (real-time marketing).
In 2015, the foreign branches did not only develop their own, remote distribution channels, but also started the cooperation with one of the largest financial brokers on the market - Broker Consulting running a network of 70 outlets and 1,200 agents in the Czech Republic. The new partner will support the distribution of accounts as well as non-mortgage and mortgage loans of mBank.
Business activity of mBank Group subsidiaries
Summary of financial results of mBank Group subsidiaries
Total profit before tax of the subsidiaries of mBank Group stood at PLN 258.0 million in 2015, compared with PLN 183.0 million in 2014 (net of dividend paid by BRE Ubezpieczenia TUiR S.A. to Aspiro S.A. in 2014 and gains on the sale of BRE Agent Ubezpieczeniowy Sp. z o.o. and BRE Ubezpieczenia Sp. z o.o. by BRE Ubezpieczenia TUiR S.A. in 2015).
The table below presents profit before tax posted by individual subsidiaries in 2015 compared with 2014:
|PLN M||2014||2015||Change in PLN M||Change in %|
|Dom Maklerski mBanku||19.5||28.2||8.7||44.6%|
|BRE Ubezpieczenia TUiR*||53.5||7.1||-46.4||-86.7%|
|Profit before tax of mBank Group subsidiaries||183.0||258.0||75.0||41.0%|
* The company was sold to AXA Group at the end of Q1 2015
# Other subsidiaries include mFinanceFrance, MLV-45, mCentrumOperacji, BDH Development, Garbary, and Transfinance in 2014; Tele-Tech Investment has been consolidated since Q3/15
In particular, the following subsidiaries improved their results in comparison with 2014: mLeasing, Dom Maklerski mBanku, mWealth Management and Aspiro.
Business activity of selected subsidiaries
|The largest mortgage bank in Poland|
|Focusing on financing of commercial projects, the public sector and individual clients, market analysis and advisory services for investors and operators of commercial real estate industry|
|The largest issuer of covered bonds in Poland – 76% market share; almost PLN 4 billion securities outstanding|
The gross loan portfolio of mBank Hipoteczny (mBH) reached PLN 7.5 billion at the end of 2015 compared to 5.4 billion a year before. The change was driven mainly by implementation of the Strategy of mBank Group, i.e. by a steady increase in the portfolio of new mortgage loans for retail clients of mBank Group, where sales reached PLN 1.5 billion at the end of 2015. In addition mBank Hipoteczny acquired from mBank PLN 468.7 million retail receivables and PLN 218.5 million corporate receivables in loan pooling.
In 2015, profit before income tax of mBank Hipoteczny amounted to PLN 26.8 million compared to PLN 29.5 million a year before, with a decrease by 9.2%. The decrease was caused mainly by higher provisions created on loans and advances to customers under individual valuation, together with changes in methodology of estimating the value of commercial portfolio provisions as well as in an increase of operational costs.
In 2015 mBank Hipoteczny became an even more active player on the debt securities market. mBH placed seven series of covered bonds during the year. The total nominal value of the covered bonds in issue exceeded PLN 1.5 billion. Consequently, mBH successfully achieved its target for 2015.
It was the best year in the fifteen-year history of mBank Hipoteczny as measured by the scale of issuing activity. In 2015 mBH conducted a record-breaking single issue of covered bonds worth PLN 0.5 biillion (in September), while the value of new and outstanding covered bonds issued by mBH crossed the mark of PLN 4 billion in the end of 2015.
The scale of mBH’s issuing activity in 2015 and the parameters of individual issues mark a significant change in the Bank’s policy, whose main function is to raise funding and refinance long-term mortgage loans through the issue of covered bonds. The main focus is on narrowing the maturity gap of assets and liabilities, reducing the currency gap, and cutting the cost of new funding.
When analysing the series issued in 2015, attention should be paid to long maturities of the covered bonds issued by mBH (minimum maturity - 5 years, maximum maturity - 10 years) and the relatively high nominal values of the covered bonds issued in PLN, as compared with the previous years (minimum transaction value - PLN 200 million, maximum transaction value - PLN 500 million).
As far as PLN issues are concerned, it is especially worth mentioning the abovementioned PLN 0.5 billion issue of mortgage bonds conducted in mid-September 2015. Not only was it a record-breaking transaction for mBH, which proved its potential for refinancing mortgage loans through the issue of covered bonds, but also it was the highest issue of covered bonds in terms of volume in the entire history of mortgage banking in Poland.
Taking advantage of the positive foreign investor sentiment, mBH additionally raised EUR 81 million in three transactions in 2015.
Table with detailed information on mBH covered bonds issues can be found in the chapter mBank Group funding.
The value of contracts executed by mLeasing in 2015 reached PLN 3.8 billion, compared to PLN 3.2 billion in 2014 (+19.9% year on year). As demand increased in 2015, the sales grew year on year, mainly driven by an increase in the sales of vehicles, machinery and equipment. In 2015, the company ranked second by aggregate volume of executed contracts (movables and real estate), including the five position in movables and the first position in real estate. The value of contracts on movables concluded in 2015 amounted to PLN 3.3 billion compared to PLN 2.9 billion a year before (+13.8% year on year), while the value of contracts executed on real estate stood at PLN 0.5 billion compared to PLN 0.3 billion in 2014 (+66.7% year on year).
The profit before tax of mLeasing in 2015 was PLN 57.2 million, representing an increase of 24.6% year on year.
The “Leasing in Retail” project continued in 2015 pursuant to the “One Bank” Strategy geared to developing a comprehensive offer for clients. The initiative is dedicated to SME clients who can conclude a leasing agreement using special leasing processes. Thanks to the combined efforts of Retail Banking and mLeasing, the company financed PLN 413.4 million of fixed assets, estimated by the price of buy.
The chart below presents the value of leasing contracts executed under the “Leasing in Retail” project:
mFaktoring holds second position on the factoring market in Poland, with 7.8% market share. The turnover in the sector increased by 17.4% in 2015 (according to the Polish Factors Association) and the value of financed invoices was PLN 134.3 billion.
The company generated a loss before tax of PLN 22.2 million compared to a profit of PLN 20.0 million at the end of 2014. The negative result was caused due to provisions created on a defaulted exposure. The operating profit was PLN 40.0 million, representing an increase of 8.6% year on year.
Turnover (the value of purchased invoices) was at PLN 10.4 billion in 2015, with an increase of 15.1% year on year. The limits under new contracts increased to PLN 622 million, compared to PLN 556 million in 2014.
|Comprehensive brokerage and capital market services for individuals and institutions as well as issues|
|The largest number of brokerage accounts on the Polish market, handling nearly 300 thousand customers|
|Equities trading market share – 5.0% and 9th position on the market|
|Futures trading market share – 16.1% and 2nd position on the market|
|Options trading market share – 12.8% and 4th position on the market|
Dom Maklerski mBanku (mDM) provides brokerage services to the largest Polish institutional investors (pension funds, investment funds, asset managers), foreign funds, and retail clients. mDM enables clients to trade on regulated markets in Poland and abroad as well as on the FOREX/CFD market.
At the end of 2015, mDM had 299.0 thousand clients (including 4.9 thousand forex-related accounts), representing an increase by 2.7 thousand year on year.
In 2015, mDM arranged IPOs of two companies: Uniwheels AG (PLN 504 million, acting as Global Coordinator), Wirtualna Polska Holding S.A. (PLN 294 million, acting as Co-manager); two ABB transactions: PZU S.A. (PLN 178 million, acting as Global Co-coordinator), Prime Car Management S.A. (PLN 300 million, acting as Co-manager); SPO of Pfleiderer Grajewo S.A. (PLN 561 million, acting as Co-manager), private placement of Ursus S.A. (PLN 22 million, as Bookrunner), two public bond issues: BEST S.A. (PLN 35 million, acting as Lead Manager/Issue Agent), Polnord S.A. (PLN 50 million, acting as Lead Manager/Issue Agent), and two public issues of investment certificates of Medyczny Publiczny FIZ (PLN 29 million in total, acting as Lead Manager/Issue Agent).
In 2015, the market share of mDM in equity trading on the WSE was 5.0%, which ranks the company as the ninth biggest player on the market. mDM had the second position in the market of futures with a market share of 16.1% and the fourth position on the market of options with a market share of 12.8%.
mDM generated a profit before tax of PLN 28.2 million in 2015, representing a 44.6% increase year on year (PLN 19.5 million in 2014), primarily as a result of higher income from commissions on IPO transactions, improved turnover on Forex/CFD market and foreign markets, and rising income from proprietary transactions (market maker, issuer’s market maker).
As at the end of 2015, Aspiro offered products of 22 financial service providers, including mBank. The offer comprised 41 products, including, among others, mortgage loans, cash loans, insurance products, investment products, leasing and factoring.
The company reported an increase of the volume of mortgage loan sales in 2015 (+47.4% year on year) mainly achieved through sales of the mortgage loan offer of mBank and mBank Hipoteczny.
The company’s profit before tax in 2015 was at PLN 122.6 million compared to a profit before tax of PLN 16.3 million in 2014 (+652.1% year on year), excluding the dividend paid by BRE Ubezpieczenia TUiR S.A. to Aspiro S.A. in 2014 and gains on the sale of BRE Agent Ubezpieczeniowy Sp. z o.o. and BRE Ubezpieczenia Sp. z o.o. by BRE Ubezpieczenia TUiR S.A. The increase results from adjusted allocation of responsibilities within the Group introduced in March 2015, and recognition of results generated by BRE Ubezpieczenia Sp. z o.o. and BRE Agent Ubezpieczeniowy Sp. z o.o., whose operations were merged with those of Aspiro on March 2, 2015.
In 2015, the company continued dynamic growth of car loans market share (+105% year on year). In December 2015, it became the only sales agent for Volvo car loans. It is the second premium brand, after BMW, in which the company exclusively offers this kind of financing.
In March 2015, Aspiro SA broadened its operations by acquisition of BRE Ubezpieczenia Sp. z o.o. and BRE Agent Ubezpieczeniowy Sp. z o.o., which influenced profits of the company. Since March 2, 2015, Aspiro operates as insurance agent in the scope of mortgage, cash, account, cards and leasing loans insurances within mBank Group.
In 2015, the company continued to develop comprehensive wealth management services, including investment advisory and asset management. Assets under management reached PLN 5.3 billion at the end of 2015, representing an increase of 3.0% year on year.
As far as financial performance is concerned, 2015 was a record-breaking year for the company. The company generated an operating profit of PLN 47.1 million, which represents an increase by 28.7% year on year. Profit before tax reached PLN 27.4 million, up from PLN 18.5 million reported in 2014.
In acknowledgement of the company’s success and top quality services, mWM received the Euromoney award for the best private banking and wealth management offer in Poland for the eighth time.
In 2015 the company together with other subsidiaries from mBank Group actively participated in research and development projects in the area of system migrations and new mobile solutions, of which the most important was participation in the project of migration of former Multibank clients to mBank. Additionally, the company took part in Orange Finanse project in the field of services offered to mBank customers and continued partnership with mBank Hipoteczny in terms of mMove Mortgage process optimisation.
The company’s profit before tax in 2015 stood at PLN 50.3 thousand compared to a profit before tax of PLN 5,793.6 thousand in 2014, which was caused by impairment on fixed assets owned by mCentrum Operacji.
mLocum is a property developer active on the primary real estate market. The company is engaged in housing development projects in Poland’s biggest cities including Kraków, Łódź, Warszawa, Wrocław, Poznań and Sopot. The company sold 278 apartments in 2015, compared to 240 apartments in 2014.
The profit before tax generated by the company in 2015 was PLN 17.9 million, compared to PLN 16.7 million in 2014. The increase of the profit was owed to improved conditions on the primary market of housing real estate, resulting in higher sales margins.
mFinance France S.A.
The core business of mFinance France (mFF) is to raise funds for mBank in international markets through Eurobond issues. The Eurobond programme (EMTN) was relaunched in 2012. In 2014, mFF issued two tranches of bonds, EUR 500 million each, maturing in 2019 and 2021. In 2015, no bonds were issued due to the less favourable market conditions.
mFF generated a loss before tax of PLN 10 thousand in 2015, compared to a profit of PLN 36 thousand posted in 2014, due to the provision created on FX loss resulting from differences in methods of valuation in French system accounting.
Garbary Sp. z o.o.
The company is part of the Bank’s portfolio since May 2004. The only asset of Garbary is a plot of land situated at Garbary st. 101/111 in Poznań with a meat plant development (currently not in operation) subject to strict urban heritage conservation.
BDH Development Sp. z o.o.
mBank acquired 100% of BDH Development Sp. z o.o. in November 2013. The core business of the company is to implement and complete property development projects using housing real estate taken over by mBank Group companies in debt restructuring and enforcement of investment loans in order to recover the biggest possible value from properties taken over.
The company posted a loss before tax of PLN 4.6 million in 2015, in part due to a revaluation of properties held by the company.
Tele-Tech Investment Sp. z o. o.
In Q3 2015, the company Tele-Tech Investment Sp. z o. o was consolidated. It deals with securities transactions and trade in receivables, management of subsidiaries and advisory with regard to business and management.