Risk management foundations and challenges of 2015


mBank Group manages risk on the basis of regulatory requirements and best market practice by developing risk management strategies, policies and guidelines.

Lines of defence

Risk management roles and responsibilities in mBank Group are organised around three lines of defence model:

  • The first line of defence is Business (business lines) responsible for risk and capital management. Its task is to take risk and capital aspects into consideration when making business decisions, within the risk appetite set for the Group.
  • The second line of defence, mainly Risk (risk management area), IT Security and Compliance function, supports Business by creating strategies of managing particular risk types and relevant policies determining guidelines for Business with regard to decisions on taking risk by Business. The main purpose of the second line of defence is supporting Business in implementing strategies and policies as well as supervising the control functions in the Group and risk exposure.
  • The third line of defence is Internal Audit, ensuring independent assessment of the first and the second line of defence.

Pillars of risk management

The framework for risk management at mBank Group derives from the concept of three pillars:

  • Customer Focus – striving to understand and balance specific needs of the Risk’s diverse stakeholders (Business, the Management Board, the Supervisory Board, shareholders, regulators).
  • One Risk understood as an integrated approach to risk management and responsibility to the clients for all risks (defined in Risk Catalogue of mBank Group).
  • Risk vs Rate of Return perspective – supporting business decision-making process on the basis of long-term relationship between risk and rate of return avoiding tail risks.

Risk is the key partner to business segments and the Management Board in creating lasting value for the Bank and ensuring a long-term balance between the expected rate of return for investors and the safety of the Bank. These strategic objectives require an integrated approach to risk, capital, financing and profitability management.

As a consequence of the foregoing, at the end of 2015 the Risk Management Strategy was updated taking into account new challenges to be faced by Risk in 2016.

Implementation of Customer Focus Integrated Risk initiative

The risk control and management process in mBank Group is subject to continuous improvement with emphasis on the improvement of customer-oriented integrated risk management.

The Customer Focus Integrated Risk initiative has been introduced within the One Bank Strategy. The initiative is realized in the following five key streams:

  • strengthening the Business-Risk Dialogue,
  • risk appetite,
  • improvement of the credit process,
  • improvement of Risk employees’ competences,
  • simplification and integration of the Risk IT architecture,

Selected projects implemented in 2015 are described below:

Internal Control System Self-assessment (ICS)

Implementation of ICS will allow for a comprehensive assessment of operational risk involved in the key processes of the Bank and the Group subsidiaries, in particular by:

- identification of material operational risks,

- inventory of control mechanisms dedicated to mitigate those risks,

- assessment of adequacy and effectiveness of control mechanisms,

- and assessment of the risk level and the development and implementation of the necessary corrective action plans.

ICS implementation was divided into two stages. In the middle of 2015, the second stage of ICS implementation was finalised; therefore, the ICS system covered the whole area of the Bank’s operation. In Q4 2015, the implementation of the ICS process was launched in the subsidiaries of the Group.

Additionally, the implementation of the ICS process within the Bank will enable to optimize and integrate the existing operational risk controlling tools in order to better match the new risk and control self-assessment process to the Group’s business profile.

CRE policy – modification of the “Credit policy of mBank Group concerning the financing of incomegenerating real properties within mBank Group” (the first common policy at the level of mBank Group). Determining in the form of a dialogue with Business of the framework for risk appetite and acquisition development of mBank Group on this market, in particular developing the definition of commercial incomegenerating real properties, risk identification and implementation of the mitigants of those risks, creating tools to monitor the CRE portfolio at the level of mBank Group.

Credit Committee of mBank Group established at the turn of 2014 and 2015 is mainly responsible for supervising the concentration risk and large exposures at the level of mBank Group by making decisions and issuing recommendations. The Committee also takes decisions at the Bank on converting debt into shares, interests, etc. and decisions on taking over properties in return for debts.

Mtm Migration (migration of former Multibank and Private Banking clients to mBank transactional platform). The risk management area was a key partner in the strategic project of migration of retail clients to the new transaction platform. The operation completed in October 2015 provides all clients with access to a modern platform and to the mobile solutions it offers.

mMove Project consisted in optimising the mortgage process for retail individual clients. Owing to the solutions implemented, the process is simpler, shorter and fully predictable.

Programme of continuous increase of work efficiency in the Risk Area based on the Lean Management rules, putting special emphasis on introducing the culture of responsibility and mechanisms for continuous process improvement. The purpose of the programme is to allow the growing number of tasks accompanying business growth and dramatically increasing number of regulatory requirements to be absorbed by more effective use of existing resources. The programme started in 2015 and will be continued in the following years.

Basel III regulatory standards

The new rules on prudential requirements for banks set out in the Capital Requirements Regulation (CRR) on prudential requirements for credit institutions and investment companies and the Capital Requirements Directive (CRD IV) on access to the activity of banks and the prudential supervision, implementing provisions of Basel III, have been effective in the European Union as of January 1, 2014. The amendments introduced under Basel III include:

  • stricter capital requirements including a universal definition and components of the bank’s capital as well as implementation of capital ratio specified in relation to the funds of the highest quality,
  • introduction of own funds requirement associated with credit valuation adjustment,
  • implementation of financial leverage ratio,
  • introduction of additional capital buffers, including a capital conservation buffer, a countercyclical buffer, a global systemically important financial institutions buffer and systemic risk buffer,
  • liquidity requirements, measured by the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR).

The implemented regulatory amendments are mainly designed to protect the capital of banks against adverse effects of financial crises.

The new regulatory provisions of CRD IV had to be implemented into national legislation, what was completed in 2015 by adopting the Act on Macroprudential Supervision over the Financial System and Crisis Management in the Financial System and relevant update of the Banking Law. CRR takes effect as of January 1, 2014 without harmonisation with national laws.


Main risks of mBank Group’s business


The Management Board of mBank takes measures necessary to ensure that mBank manages all significant risks arising from the implementation of the adopted business strategy.

Within the Group’s risk inventory process implemented under the principles of ICAAP (Internal Capital Adequacy Assessment Process), the following risks were inherent to the operations of the Group in 2015:

  1. Credit risk
  2. Operational risk
  3. Market risk
  4. Business risk (including strategic risk)
  5. Liquidity risk
  6. Reputation risk
  7. Model risk
  8. Capital risk (including risk of excessive leverage)

The Bank monitors all the aforementioned risks within ICAAP. Due to the specificity and characteristics of the portfolio, the section presents the rules of monitoring credit risk, operational risk, liquidity risk, market risk of the trading book as well as interest rate risk of the banking book in mBank Group using risk measures applied by mBank and taking into account differences in the profile and scale of business of the Group.

Moreover, as part of the process of reviewing and formulating risk appetite for 2015 and 2016, the bank verified a number of other risk types, taking into account the analysis result in the perspective for 2016 and onwards.

In particular the package of non-financial risks was subject to analysis, such as cyber risk, strategic risk, urban infrastructure failure risk, mis-selling risk, conduct risk, physical safety risk, long-term PR crisis risk, illegal transactions risk, model risk, social communication risk.

The aforementioned package of non-financial risks was assessed by the Management Board of the Bank in terms of the probability of an event and potential impact on the organisation, and then risk types mitigants were defined for selected. Conclusions from the analysis contribute to the update of strategic assumptions for 2016.

Business and Risk Forum of mBank Group

In the credit risk management process, the Bank attaches high importance to the communication between the Risk and the business segments. The Business and Risk Forum of mBank Group, established in 2014, is a formal decision and communication platform for the risk management area and business lines of the Group.

The Business and Risk Forum is constituted by the following bodies:

  1. Retail Banking Risk Committee,
  2. Corporate and Investment Banking Risk Committee,
  3. Financial Markets Risk Committee.

The committees are composed of the representatives of business lines and respective risk management departments.

Each committee is responsible for the all types of risk generated by business activity of the given business line and performs the following tasks:

  • Discussing and taking decisions concerning:
    • introduction of new products/instruments,
    • rules for managing the risk of products/instruments offered or planned to be offered by business lines,
    • risk appetite of the business lines, e.g. approval of risk limits imposed on the business lines,
    • approval of the risk policies applicable to particular client segments,
    • client segments desired from the point of view of the expected risk portfolio structure,
    • priorities and directions of changes in the organisation of processes and risk assessment tools,
    • risk models.
  • Exchange of information about current and planned actions and projects, including sales plans and their implementation, sales campaigns, modifications to risk models, etc.
  • Monitoring of the following aspects on the basis of submitted reports and information:
    • quality and effectiveness of the risk-bearing portfolios held by business lines,
    • operational risk and other non-financial risk types,
    • quality of data used in risk management processes,
    • early symptoms of risk,
    • agreeing on preventive or remedial measures.

Credit risk

The Bank organises credit risk management processes in line with the principles and requirements set out in the resolutions and recommendations of the Polish Financial Supervision Authority (in particular Recommendation S and T) and CRR/CRDIV, which address issues related to credit risk management.

Tools and measures

Credit risk inherent in financing of mBank Group clients is assessed based on shared statistical models developed for the AIRB (Advanced Internal Rating-Based) approach and uniform tools, and is based on common definitions of terms and parameters used in the credit risk management and rating process. The Bank ensures their cohesion at the Group level.

The Group uses different models for particular client segments. The rules governing clear assignment of clients to a system are defined in the Bank and Group subsidiaries internal regulations.

The Bank and Group subsidiaries in their credit risk management process use the core risk measures defined under the AIRB approach:

  • PD – Probability of Default (%),
  • LGD – Loss Given Default (%),
  • EAD – Exposure at Default (amount),
  • EL – Expected Loss (amount),

as well as related measures including:

  • RD – Risk Density, which is defined as EL to EAD (%),
  • LAD - Loss at Default (amount of LGD).

In the decision-making process, for reporting and communication with business units, PD and EL are expressed in the language of rating classes whose definitions (Masterscale) are uniform across the Commerzbank Group.

In its credit risk management process, the Bank also attaches great importance to the assessment of unexpected loss risk. Capital required to cover unexpected loss is estimated at a confidence level of 99.91%. For this purpose, the Bank uses the following measure:

  • RWA – Risk Weighted Assets used under the AIRB approach to calculate regulatory capital required to cover credit risk (unexpected loss).

In managing mortgage-secured credit exposures for different types of real estate and also for different products, the Group uses the LtV ratio (Loan to Value), i.e., the value of the loan to the market value (or mortgage banking calculated value) of the real estate which secures the loan.

Thanks to its simplicity, this measure is broadly used in communication with clients and in the construction of price matrices for credit products.

Stress testing is an additional tool of credit risk assessment which supplements CVaR (Credit Value at Risk) measurement of unexpected loss. Stress testing of the economic capital required to cover credit risk is measured quarterly.

Stress tests of credit risk are two-dimensional, analysed separately and jointly:

  • The analysis of sensitivity of ECVaR model indications to assumptions concerning credit exposures (e.g., correlation) – i.e., parametric tests.
  • The analysis of extreme credit losses on the assumption of an unfavourable macroeconomic situation – i.e., macroeconomic tests in which an econometrical model forecasts values of input parameters for the economic capital model (PD, LGD) based on assumptions of the Chief Economist about macro parameters in the case of the negative economic scenario. The risk parameters developed according to the above scenario form the basis for calculating economic capital both before and after the assumptions of parametric tests are taken into account.

In addition to the tools listed above, which are applied both in corporate and in retail credit risk measurement, the Group uses tools specific to these areas.

For corporate credit risk, the Group estimates maximum exposure to a client/group of related clients using the following credit risk mitigating measures:

  • MBPZO – Maximum Safe Total Exposure, which defines the maximum level of financial debt of an entity from financial institutions calculated under the Bank’s methodology, approved by the Bank’s competent decision-making body.
  • LG – General Limit, which defines the level of credit risk financial exposure to a client/group of related clients acceptable to the Group, approved by the Bank’s competent decision-making body. LG includes a structured limit and products granted outside the structured limit, including exposures of both mBank and the Group’s companies.

To minimise credit risk, the Group uses a broad range of collateral for credit products, also necessary to actively manage the capital requirement. In their assessment of the quality of risk products, mBank and mLeasing use the MRV ratio (Most Realistic Value), which reflects the worst-case scenario of debt enforcement through forced sale of collateral.

In addition, the decision-making process and the assessment of profitability per client in the CRM system use the RAROC ratio (Return on Risk Adjusted Capital), or return on the capital invested in risk products.

Retail credit risk measures are constructed to reflect the characteristics of this customer segment and, in the case of portfolio measures, the high granularity of the loan portfolio:

  • DtI – Debt-to-Income, i.e. monthly credit payments to the net income of a household, used for individual customers.
  • DPD – Days-Past-Due, a family of portfolio risk measures based on the number of days past due date (e.g. share of contracts which are from 31 to 90 days past due date in the total portfolio by number or by value).
  • Vintage ratios, which represent the quality of cohorts of loans at a different phase of their lifetime taking into account disbursement time (e.g. each quarter), clients’ characteristics etc., based on DPD.
  • RC LLP – Risk Cost LLP, cost of risk for a loan portfolio (segment), i.e. increment in loan loss provisions to the performing loan portfolio balance,
  • Roll-rates, which measure the migration of contracts between days-past-due brackets (1-30, 31-60, 61-90 DPD, etc.).


Corporate and Investment Banking

The Strategy of the corporate credit risk management in mBank Group closely correlated with the One Bank Strategy was updated in H1 2015. The main goal of mBank Group in corporate credit risk management is to unlock potential synergies in the Group by integrating the offer of the Bank and Group subsidiaries in sales of risk-bearing products to mBank Group clients, ensuring closer co-operation in credit risk measurement and management, defining a safe level of integrated risk appetite. The Strategy is complemented by sector policies, the limit book, the credit process rules, decision-making powers and detailed banking procedures both in mBank and the Group subsidiaries which generate credit risk and impact the quality of corporate credit risk management. The implementation of uniform risk measures and risk controlling processes at the Group level takes into account the specificities of the Group entities. The Bank makes sure that the process does not affect client relations.

In order to structure and unify mBank Group’s approach to financing commercial real estate (CRE), the mBank Group Credit Policy of Financing Commercial Real Estate was drafted and approved in H1 2015. A uniform approach to CRE finance was adopted in mBank and mBank Group subsidiaries including client service standards and CRE finance risk assessment. CRE finance competence centres were established in mBank Group, ensuring a clear scope of responsibilities. A framework was set up to safely build a CRE finance exposures portfolio by defining the preferred acquisition market and outlining the recommended terms of financing. Uniform definitions of commercial real estate and conditions of CRE finance transactions were put in place.

In May 2015, KRK approved the mBank Food & Agribusiness (F&A) Client Finance Policy which defines the F&A risks and the outlook of F&A segments that determines the F&A finance risk appetite. The finance rules will ensure the development of mBank’s safe food and agribusiness loan portfolio with a special emphasis on agricultural production and processing.

During second half of 2015 the Bank concentrated its efforts on IT development of new process for F&A sector. The new worklow allows to manage, monitor and report credit applications dedicated to F&A corporate segment.

One of the key priorities was to adjust the organizational structure in corporate real estate valuation process to Recommendation S. The implemented solution includes the new list of documents, calculator valuations with the possibility of comparison with the market and the new decision-making paths taking into account definition of EKZH. Simultaneously Bank started extensive works on adjusting to Rek J. Retail & corpo process teams worked on mapping requirements for Recommendation J. Majority of matched data for New Real Estate Database is completed. Implementation is expected in 2016.

Bank also implemented checklist for verification of economically related companies and reviewed its portfolio based on the new CRR definition (CRR / Basel III). The final implementation of the new relation and full reporting is planned for 2016.

In regard to RWA proper management for small exposures, Bank signed the Agreement for new COSME Program with BGK. COSME is a successor of the BGK de minimis form of guarantees. The process was implemented by end of 2015.

The diversified approach to corporate clients is tied to the client’s risk level as measured by PD and credit risk concentration measured with LAD of a client or group of related clients, taking into account the exposure of the Group subsidiaries.

The credit decision-making system is consistent with the Corporate Credit Risk Management Strategy and the approved principles of the Credit Risk Policy. The competent decision-making levels are defined in a decision-making matrix. On that basis, depending on the EL rating and the aggregate exposure for a client or group of related clients, the appropriate decision-making level responsible for the credit decision is assigned.

mBank follows a simplified credit decision-making procedure for a defined group of clients and transactions, in particular transactions under fast credit procedures (FCP), which enhances effectiveness while ensuring compliance with all legal and supervisory requirements and good practice of credit risk management.

The restructuring of the process also includes phased implementation of anti-fraud mechanism. The new strategy has enabled not only the development of a new workflow platform but also in accordance with the spirit of ‘Client centric’ simplified documentation, required and delivered to client, and its digitisation in credit process.

The Group actively manages credit risk aiming to optimise profitability in relation to return on risk. Analyses of the Group’s risks are performed on an on-going basis. Risk management is supported by analyses of the Group’s credit portfolio structure and the resulting formal limits, guidelines and recommendations on the Group’s exposure to selected companies, sectors and geographic markets. In its current credit risk management and determination of concentration risk, the Bank performs quarterly portfolio analyses using a Steering Matrix which incorporates PD rating and LAD.

In order to mitigate the risk of lending and guarantees, the Bank classifies and monitors credit risk products. The Group uses write-offs and provisions under the International Financial Reporting Standards (IFRS). The Bank also monitors credit portfolio on a quarterly basis including an analysis of the dynamics of change in size and (sector) segmentation of the credit portfolio, client risk (PD rating), quality of collateral against credit exposures, the scale of change in EL, Risk Density, and default exposures.

In Corporate Banking, the Group avoids concentration in industries and sectors whose credit risk is considered excessively high. The acceptable risk level is defined taking into account market segmentation and sector concentration limits. In compliance with Recommendation S of the Polish Financial Supervision Authority, the Bank has identified a mortgage-secured credit exposure portfolio, not only in Retail Banking but also in Corporate Banking. The Bank manages the mortgage-secured credit exposure portfolio risk with a focus on defining an optimised portfolio structure in terms of quality (rating), currencies, country regions, tenors, and types of properties. The main principles of mortgage-secured credit exposure risk management in Corporate and Investment Banking, the risk profile, division of responsibilities, rules of determining internal limits, and rules of reporting are set out in the mBank Mortgage-Secured Credit Exposure Risk Management Policy.

mBank Group strives to unlock synergies with Commerzbank more broadly in syndicated finance of selected Group clients. For international companies, non-banking financial institutions and biggest corporate clients, mBank Group promotes innovative products which are low in capital consumption, in particular products of Investment Banking (ECM, DCM, M&A), Transactional Banking and Financial Markets, as well as arrangement of syndicated finance for selected big ticket clients to ensure satisfactory profitability and mitigate the risk of high concentration of individual clients/groups of related companies.

mBank promotes financing alternative to banking loans by arranging public and private programmes and club deals for bonds issued by clients with a stable financial position.

Retail Banking

Lending in Retail Banking is a key segment of the Group’s business model, both in terms of the share in total assets and the contribution to its profits.

The Bank’s retail credit offer covers a broad range of products financing the needs of individual customers (OF) and micro-companies (MF). The scope and construction of the offer derive from the One Bank Strategy, whereby credit products in combination with the state-of-the-art transactional platform, savings and insurance products address all financial needs of clients within the Group.

Apart from the Polish market, Retail Banking credit products are offered (since 2007) through the foreign branches (OZ) of the Bank in the Czech Republic and Slovakia in an online banking model similar to that operating in Poland since 2000. The share of the foreign branches’ exposure portfolio was around 8% of the aggregate retail portfolio at the end of 2015 (by value). The Bank ensures the coherence of the credit risk management policy on all markets; any differences in specific rules or parameter values derive from the specificities of local markets or different goals of business strategies and are at each time subject to approval by the Retail Banking Risk Committee.

As credit exposures are highly granular (more than 2 million active loans), the Retail Banking credit risk management process is based on a portfolio approach. This is reflected in the statistical profile of risk rating models including the models which fulfil the regulatory requirements of the Advanced Internal RatingsBased approach (AIRB). The AIRB parameters (PD, LGD and EL) are used widely in order to estimate credit requirements, to determine acceptance criteria and terms of transactions, and to report risks.

Furthermore, Retail Banking credit risk management has the following characteristics:

  • high standardisation and automation of the credit process, including decision-making, both in acquisition, post-sale services, and debt collection;
  • little (as compared to Corporate Banking) discretionary competences in the decision-making process (e.g. no discretionary adjustment of clients’ ratings);
  • alignment of decision-making endowment with mass acquisition, including automation of decisionmaking for selected transactions;
  • extensive risk reporting system based on portfolio analysis of credit exposure quality, including vintage analysis and roll-rates analysis.

Under the portfolio approach, exposures are classified (separately for each market) as ML (mortgagesecured products) or NML (unsecured products or products with collateral other than mortgage). Furthermore, the segmentation includes products for individuals (ML OF, NML OF) and products for business clients (ML MF, NML MF). The segmentation serves two main functions:

  • ensuring correct alignment of risk rating methods (models, procedures, required documentation) with the client’s risk profile, exposure and business requirements,
  • defining homogeneous transaction sub-portfolios to enable assessment of their quality in the context of the generated income margin.

The main point of reference in the Retail Banking credit risk management process is risk appetite defined in correlation with the One Bank Strategy which provides for:

  • optimisation of the balance-sheet structure in terms of profitability and financing by reducing the growth rate of credit portfolios with long tenors (and low margins) while supporting growth of shortterm loans (with high margins),
  • developing long-term financing of the Group’s lending with mortgage bonds issued against retail mortgage loans.

Taking into account the above assumptions, the general principle underlying the lending strategy of the Group is to address the offer to clients who have an established relationship with the Bank or to address it to new clients for whom the loan is a product initiating a long-term relationship of highly transactional nature. Consequently, the Bank continues to focus its NML policies on lending to existing clients with a high creditworthiness while systematically growing the acquisition of external clients.

These initiatives include lending to clients under a joint project of mBank and one of the biggest telecom operators (Orange Finanse Project). Furthermore, the Bank increasingly provides financing to clients who are shop online. To reduce operational risks of accepting new clients, the Bank develops its credit policy using, among others, credit testing and is actively developing its fraud prevention system.

For long-term loans (ML segment - mortgage loans), the Bank maintains a conservative policy of borrower creditworthiness and credit rating to offset the higher probability of systematic risk materialising within the lifetime of a loan. In view of the current historically low interest rate environment, in its creditworthiness rating the Bank focuses among others on long-term interest rate estimates.

In retail mortgage lending, in order to mitigate the risk of impairment of mortgage collateral in relation to the value of credit exposure, the Bank addresses its credit offer mainly to clients who buy properties within large urban areas.

As of 2015, the Bank implemented yet another reduction of the maximum LtV, which already meets requirements imposed by Recommendation S for 2017.

The modifications facilitate a programme of co-operation between mBank and mBank Hipoteczny which aims at sales of mortgage loans to retail clients. According to the assumptions, the retail mortgage loan portfolio of mBank Hipoteczny is financed with new issues of mortgage bonds.

In its credit risk management process, the Bank attaches great importance to communication between Risk and Retail Banking. The Retail Banking Risk Committee, established in 2010, is a platform of decisionmaking and dialogue between the two areas. As of 2014, the Committee covers both credit risk and all secondary risks derived from accepted credit risk (reputation risk, legal risk, operational risk, data quality risk, etc.).

Quality of the loan portfolio

As at end of 2015, the share of impaired exposures in the total (gross) amount of loans and advances granted to clients decreased from 6.4% at to 5.7%.

Provisions for loans and advances to customers decreased from PLN 2,790.8 million at the end of 2014 to PLN 2,975.9 million at the end of 2015. The IBNI (Incurred But Not Identified) loss provision increased from PLN 242.4 million to PLN 247.2 million in that period.

The ratio of provisions to non-performing loans increased from 51.9% at the end of 2014 to 58.9% at the end of 2015.

To assess impairment, the Bank applies credit risk parameters based on those derived from the A-IRB methodology.

The manner of identifying evidence of default is based on all available credit data of a given client and encompasses all of the client’s liabilities towards the Bank.

At the end of 2015, the Group’s loans and advances (net) to customers rose by almost 2%, where the increase was mainly driven by the rising exposure for SME customers.

The table below presents the quality of mBank Group’s credit portfolio as at the end of 2014, June 2015 and end of 2015:

Quality of mBank Group’s Loan Portfolio 31.12.2015 30.06.2015 31.12.2014
(in thousand PLN) (in thousand PLN) (in thousand PLN)
Loans and advances to individuals: 46,258 683 45,328,730 41,560,477
- current accounts 5,897,129 5,800,143 5,442,653
- term loans, including: 40,361,554 39,528,587 36,117,824
- housing and mortgage loans 34,184,208 33,521,442 30,510,513
- other - - -
Loans and advances to corporate entities: 33,446,644 32,226,547 32,841,046
- current accounts 3,976,187 4,218,458 3,701,490
- term loans: 26,976,422 25,752,358 23,977,679
- corporate & institutional enterprises 5,825,318 5,843,425 5,751,583
- medium & small enterprises 21,151,104 19,908,933 18,226,096
- reverse repo / buy-sell back transactions 1,031,029 842,093 3,838,553
- other 1,463,006 1,413,638 1,323,324
Loans and advances to public sector 1,520,728 1,661,475 1,924,395
Other receivables 183,355 1,043,880 1,047,273
Total (gross) loans and advances to customers 81,409,410 80,260,632 77,373,191
Provisions for loans and advances to customers (negative amount) (2,975,864) (3,019,034) (2,790,841)
Total (net) loans and advances to customers 78,433,546
77,241,598 74,582,350
Short-term (up to 1 year) 26,169,938 23,188,113 26,964,700
Long-term (over 1 year) 52,263,608 54,053,485 47,617,650
Incurred but not identifies losses
Gross balance sheet exposure 76,777,938 75,411,743 72,458,578
Impairment provisions for exposures analysed according to portfolio approach (247,198) (261,858) (242,401)
Net balance sheet exposure 76,530,740 75,149,885 72,216,177
Receivables with impairment
Gross balance sheet exposure 4,631,472 4,848,889 4,914,613
Provisions for receivables with impairment (2,728,666) (2,757,176) (2,548,440)
Net balance sheet exposure 1,902,806 2,091,713


Market risk

mBank organises market risk management processes in line with the principles and requirements set out in the resolutions and recommendations of the PFSA which address issues related to market risk management, in particular Recommendations A and I.

Tools and measures

In its business, mBank is exposed to market risk, i.e., the risk of unfavourable changes in the present value of financial instruments in the Bank’s portfolios due to changes in market risk factors: interest rates, FX rates, prices of securities, the implied volatility of options, and credit spreads. The Bank identifies market risk related with positions of the trading book measured at fair value (using the direct measurement method or the model measurement method) which may materialise in the form of losses reflected in mBank’s financial performance. Moreover, the Bank attributes market risk to the banking book positions, regardless of the methods for calculating earnings generated from those positions used for the purpose of accounting reporting. In particular, in order to measure the interest rate risk of Retail and Corporate Banking products without a fixed interest revaluation date or with rates administered by the Bank, the Bank uses replicating portfolio models. Since 2013, the Bank uses the capital modelling concept, which is reflected in market risk measurement at the level of the Bank’s internal organisational structures. Market risk measures of the interest positions of the banking book are calculated with the use of net present value (NPV) models. Market risk exposure is quantified by measurement of Value at Risk (VaR) and by use of stress tests.

Stress testing reflects the hypothetical change in the present valuation of mBank’s portfolios that would occur as a result of stress-test scenarios, i.e., specific stressed values of risk factors in a one-day time horizon.

Stress testing includes a standard stress test defined for standard risk factors: FX rates, interest rates, stock prices and their volatility, as well as a stress test including change of credit spreads. This addresses among others the requirement for stress tests to cover independent impact of underlying risk (spread between T-bond yields and IRS rates) to which the Bank is exposed by holding a portfolio of T-bonds.

Value at Risk measures the potential loss of market value (of a financial instrument, a portfolio, an institution) such that the probability of generating or exceeding it within a set time horizon is equal to the set tolerance (confidence) level assuming an unchanged portfolio structure within a defined period of time. mBank calculates and limits one-day Value at Risk at a 97.5% confidence level. In addition, VaR is calculated for the following risk factors: interest rates, FX rates and their volatility, stock prices and their volatility, and credit spreads.

Market risk, in particular interest rate risk of the banking book, is also quantified by measurement of Earnings at Risk (EaR) of the banking book.


The implementation of market risk management strategy involves managing the Bank’s positions in a way enabling to maintain market risk profile within the risk appetite defined by the Bank. The Bank is focused on meeting customers’ business needs, while reducing trade in derivatives in terms of currency, currency pairs, nominal values and tenors of transactions, as well as applying the principle of lack of commodity open positions.

The market risk profile is derived from the strategic goals of business units, the policy of Committee (ALCO) in charge of shaping the structure of the Group’s assets and liabilities and the limits on market risk exposure established by the Financial Markets Risk Committee (KRF) at the Bank level, and by the Management Board and Supervisory Board at the Group level. The system of limits reflects in a quantitative manner the defined risk appetite.

In accordance with the previously described general principles of risk management, market risk management is organized under so-called three lines of defence. The main principle of organisation of the market risk management process stipulates separation between the market risk monitoring and control function and the functions related with opening and maintaining open market risk positions. The market risk monitoring and control functions (assigned to the second line of defence) are performed by the Financial Markets Risk Department (DRR) in the Risk Area of the Bank supervised by the Vicepresident of the Management Board, Chief Risk Officer, whereas operational management of market risk positions (assigned to the first line of defence) takes place in the Financial Markets Department (DFM), the Brokerage Bureau (BM) and the Treasury Department (DS) supervised by the Vicepresident of the Management Board, Head of Financial Markets, as well as in the Debt Securities Issue Department (DCM) and Structured and Mezzanine Finance Department supervised by the Vicepresident of the Management Board, Head of Corporate and Investment Banking. BM is an organisational unit of mBank which was separated from the DFM structure and carries out its operations focusing on financial instruments traded on the Warsaw Stock Exchange (WSE). The Debt Securities Issue Department (DCM) is responsible for debt origination and management of positions in non-Treasury securities on the banking book. Investment positions sensitive to market risk factors are managed by the Structured and Mezzanine Finance Department (DFS). In addition, the Bank applies the rule of organizational separation between managing banking book operations (including portfolios of Treasury Department, Debt Securities Issue Department and Structured and Mezzanine Finance Department) and trading book operations (including portfolios of Financial Markets Department and Brokerage Bureau).

In order to limit the level of exposure to market risk, the Bank’s Management Board (for the Bank portfolio) and the Financial Markets Risk Committee operating as part of the Risk and Business Forum (for portfolios of business units) set VaR limits, stress test limits, as well as maturity gap limits which are warning thresholds. These limits are cascaded to lower levels in accordance with the principles of the management of specific types of market risk and the internal procedures of the front-office units, which are dedicated to individual portfolios or risk positions. This is aimed at conscious development of the required market risk structure and acceptable level of exposure to individual type of market risk.

In Q1 2015, the Bank finalised a review of the mBank Group Market Risk Management Strategy. The modified Strategy was approved by the Bank’s Management Board on 10 March 2015, received a positive opinion of the Risk Committee of the Supervisory Board, and was finally approved by the Supervisory Board on 30 March 2015.

Measuring mBank’s risk


Value at Risk

In 2015, the Bank’s market risk exposure, measured by Value at Risk (VaR, for one day holding period, at 97.5% confidence level), was moderate in relation to the VaR limits. The average utilisation of VaR limits for the portfolio of the Financial Markets Department (DFM), whose positions consist primarily of trading book portfolios, amounted to 41% (PLN 2.3 million), for the Brokerage Bureau (BM) 13% (PLN 0.2 million), and for the Treasury Department (DS), whose positions are classified solely in the banking book, 64% (PLN 27.0 million) for the positions without capital modelling, and 56% (PLN 23.5 million) for the positions with capital modelling. The average utilisation of the VaR limit for the positions of the Debt Securities Issue Department (DCM) was 18% (PLN 0.4 million). The average utilisation of the VaR limit for the positions of the Structured and Mezzanine Finance Department (DFS) in shares listed on the Warsaw Stock Exchange was 57% (PLN 5.1 million). In 2015, the VaR figures for the Bank’s portfolio were driven mainly by portfolios of instruments sensitive to interest rates and to selected credit spread – T-bonds portfolios managed by DS in the banking book and managed by DFM in the trading book including interest rate swap positions. The second major factor impacting the Bank’s risk profile was the DFS equities portfolio, where the PZU share price is a significant risk due to the maintained material position in the company by the Bank. The DFM portfolios of instruments sensitive to changes in exchange rates, such as FX futures and options, and the exposure of the BM portfolios to equity price risk and the risk of implied variability of options traded on the WSE had a relatively low impact on the Bank’s risk profile.

The table below presents VaR statistics of mBank’s portfolio in 2015:

PLN thousand 2015 2014
31.12.15 average max min 31.12.2014 average max min
VaR IR 13,688 16,085 23,329 12,739 16,457 14,693 19,081 8,122
VaR FX 496 685 1,096 453 937 348 1,162 95
VaR EQ 79 5,17 6,588 67 6,243 6,507 7,647 5,836
VaR CS 26,32 23,916 26,345 20,426 25,142 27,245 31,279 25,049
VaR 29,943 27,877 34,881 21,266 33,393 29,448 36,453 15,968

VaR IR – interest rate risk
VaR FX - FX risk
VaR EQ – stock price risk
VaR CS – credit spread risk

The graph below presents changes in VaR for mBank in 2015 (PLN M):


VaR statisticks in deteriorating environment

Since the beginning of September 2015 a new VaR statisticks in deteriorating environment (it is a tracked measure). The table below presents VaR statistics in deteriorating environment for Q4 2015:

PLN thousand 2015
31.12.2015 average max min
Stressed VaR IR 37,742 35,742 39,293 31,053
Stressed VaR FX 1,338 1,376 2,933 516
Stressed VaR EQ 4 8,721 13,074 4
Stressed VaR CS 73,992 75,255 77,899 73,530
Stressed VaR 103,06 111,038 116,945 102,035


Stress testing

The utilisation of stress tests in 2015 is presented in the table below:

PLN M 2015 2014
31.12.2015 average max min 31.12.2014 average max min
Base stress test 78 111 139 72 89 85 134 43
CS stress test 647 691 772 613 701 699 762 634
Total stress test 725 802 905 705 789 784 894 683

Base stress test – standard stress test
CS stress test – stress test with scenarios including credit spread changes
Total stress test – total stress test (sum of the standard stress test and the stress test with scenarios including credit spread changes)

In 2015, the average utilisation of the stress test limits in mBank was 65% (PLN 856.3 million). The average utilisation of the stress test limits in 2015 was 70% (PLN 666.2 million) for the portfolio held by DS without capital modelling and 66% (PLN 629.8 million) with capital modelling. The average utilisation of the limit was 48% (PLN 120.8 million) for the DFM portfolio, 12% (PLN 0.9 million) for the BM portfolio, 63% (PLN 38.7 million) for the DCM portfolio, and 67% (PLN 33.7 million) for the DFS portfolio. The main part of the presented stress test results is the value of stress tests for change of the credit spread of T-bond portfolios because the stress test scenarios assume on average a 100 bps increase of interest rates.

Interest rate risk of the banking book

In 2015, the interest rate risk of the banking book as measured by EaR, i.e., potential decrease of interest income within 12 months assuming an unfavourable 100 bps change of market interest rates (parallel shift of the curve by 100 basis points) and based on a stable value of the portfolio over the period, was as presented in the table below:

PLNM 2015 2014
31.12.15 average max min 31.12.14 average max min
PLN 99.4 55.4 122.2 8.4 32.8 28.4 69.8 4.2
USD 3.7 2.4 7.5 0.7 1.0 1.4 4.0 0.2
EUR 52.5 37.3 63.1 0.0 4.5 6.6 12.6 1.4
CHF 2.4 8.1 38.8 0.0 13.3 0.8 15.7 0.0
CZK 2.7 2.3 4.8 1.3 2.3 4.2 8.5 2.2


Measuring mBank Group’s market risk

The main sources of market risk of the Group are mBank’s positions. The table below shows VaR statistics (VaR at a 97.5% confidence level for a one-day holding period) for mBank Group in 2015 for individual members of the Group in which market risk positions were identified (i.e., portfolios of mBank, mBank Hipoteczny, mLeasing, Dom Maklerski mBanku) and their decomposition to the VaRs corresponding to the main risk factor types – interest rate risk (VaR IR), foreign exchange risk (VaR FX), stock prices/index value risk (VaR EQ), and credit spread risk (VaR CS).

The table below presents VaR statistics at the end of 2015.

PLN thousand mBank Group mBank mBH mLeasing DM mBanku
VaR IR average 16,437 16,085 29 348 7
VaR FX average 687 685 23 17 22
VaR EQ average 5,192 5,17 0 0 98
VaR CS average 23,916 23,916 0 0 0
VaR average 28,265 27,877 40 349 100
VaR max 35,005 34,881 492 462 161
VaR min 21,591 21,266 12 241 47
VaR 31.12.2015 30,158 29,943 99 273 56


For comparison, at the end of 2014, VaR for mBank Group was PLN 33,513 thousand, including VaR of mBank at PLN 33,393 thousand, mBank Hipoteczny – PLN 53 thousand, mLeasing – PLN 424 thousand, Dom Maklerski mBanku – PLN 112 thousand.

The graph below presents changes in VaR for mBank Group in 2015 (PLN M):


Liquidity risk

mBank organises liquidity risk management processes in line with the principles and requirements defined in PFSA Resolution No. 258/2011 of 4 October 2011, PFSA Resolution No. 386/2008 of 17 December 2008 on establishing liquidity measures binding on banks, and best practice, in particular PFSA recommendations on liquidity risk management (Recommendation P).

Tools and measures

In its operations, mBank is exposed to liquidity risk, i.e., the risk of being unable to honour its payment obligations, arising from the Bank’s balance-sheet and off-balance-sheet positions, on terms favourable to the Bank and at a reasonable price.

In terms of its sources, liquidity risk may result from internal factors (reputation risk resulting for instance in excessive withdrawal of cash by Bank clients, materialisation of credit risk) and external factors (turbulences and crises in the financial markets, country risk, turbulences in the operation of clearing systems).

For this purpose, the Bank has defined a set of liquidity risk measures and a system of limits and warning thresholds which protect the Bank’s liquidity in the event of unfavourable internal or external conditions. Independent measurement, monitoring and controlling of liquidity risk is performed daily by the Financial Markets Risk Department. The main measures used in liquidity risk management of the Bank include ANL Stress (Available Net Liquidity), the regulatory measures (M1, M2, M3, M4), and LCR and NSFR for analysis only. ANL Stress reflects the projected future cash flow gap of assets, liabilities and off-balance-sheet commitments of the Bank, which represents potential risk of being unable to meet liabilities within a specific time horizon and under a certain scenario. ANL Stress cash flow projections are based on crisis scenarios which include excessive withdrawal of cash by the Bank’s clients and being unable to liquidate some assets due to an external crisis.

In order to support the process of liquidity risk management, a system of early warnings indicators (EWI) was developed in the Bank in 2015. It is composed of indicators monitoring the level of regulatory and internal limits and additionally, indicators monitoring significant changes of market factors, as well as changes in the Bank’s balance sheet.

In October 2015, came into force the Commission Delegated Regulation (EU) No 2015/61 of 10.10.2014 to supplement Regulation (EU) 575/2013. However, pending the publication of a new, final reporting standard for reporting the LCR ratio, the Bank reports to the NBP according to existing standards. In terms of the NSFR works have been carried out to adapt to the guidelines set out in the document BIS Basel III: the net stable funding.


The liquidity strategy is pursued by active management of the balance sheet structure and future cash flows as well as maintenance of liquidity reserves adequate to liquidity needs depending on the activity of the Bank and the current market situation as well as funding needs of the Group subsidiaries.

The Bank manages liquidity risk at two levels: strategic (within committees of the Bank) and operational (Treasury Department).

Liquidity risk limiting covers supervisory and internal measures.

The first category includes four liquidity measures determined by the Polish Financial Supervision Authority: M1, M2, M3 and M4. Liquidity measures required by the CRD IV/CRR: LCR (Liquidity Coverage Ratio) and NSFR (Net Stable Funding Ratio) are monitored, and LCR is additionally reported to the National Bank of Poland.

The liquidity risk internal limit system is based mainly on defining acceptable level of gaps in defined tenors for ANL Stress measure in stress conditions in specific time horizons and for different liquidity risk profiles (for all currencies in aggregate converted to PLN) and for specific foreign currencies. In order to implement the requirements of amended Recommendation P new scenarios have been worked out.

The Bank has introduced a centralised approach to the Group’s funding management in order to increase the efficiency of liquidity resources used. According to its principles, mBank Hipoteczny raises additional funding in the market by issuance of covered bonds and from mBank, while mLeasing and other subsidiaries raise almost all of their funding from mBank. Financing of subsidiaries is done via the Treasury Department.

The centralised approach to the financing of the Group subsidiaries enables to ensure better matching of the tenors of funding and a uniform treatment of particular subsidiaries within the unified system of transactional rates.

In Q1 2015, the Bank finalised a review of the mBank Group Liquidity Risk Management Strategy. The modified Strategy was approved by the Bank’s Management Board on 10 March 2015, received a positive opinion of the Risk Committee of the Supervisory Board, and was finally approved by the Supervisory Board on 30 March 2015.

The Contingency Plan in case of the threat of losing financial liquidity is in place in the Bank, that sets the strategy and procedures in the event of a situation related to the threat of loss of liquidity by the Group of mBank to neutralize this. The regulation defines the division of responsibility for monitoring, identifying threats and actions during the emergency. Contingency Plan is tested annually. The testing of Contingency Plan was performed in 2015. The scope of the test covered the functioning of the process and raising funds.

Since early March 2015, a limit of the volume of foreign currency funding of mBank with FX-swaps and CIRS is set in order to determine the relevant risk appetite accepted by the Bank. In addition, the limit is decomposed into individual limits for CIRS and FX-swaps as well as limits for funding in EUR and CHF. The limit structure reflects the Bank’s preference for currency funding with long tenors.

Moreover a draft law concerning the conversion of mortgage loans denominated in foreign currencies appeared in H2 2015. As a result the Bank made adjustment in its strategy of liquidity risk management until this issue is ultimately solved. The decision was made not to conclude long-term swap transactions and to replace them with short-term ones. Such strategy allows more flexibility in liquidity risk management as well as minimizes losses occurred in case of unwinds of long-term transactions in case of loans conversion. Adopted strategy is associated with increased risk of short term transactions concentration and their frequent rollovers. For this purpose the monitoring of concentration in fx-swap transactions with maturities below 12 months was introduced with MAT on concentration in particular terms. Moreover the requirement of Liquidity Reserves was increased by the component covering additional need for collateral resulting from unfavorable market factors influencing the valuation of fx-swap and CIRS transactions.

Measuring mBank’s liquidity risk

The liquidity of mBank remained safe in 2015, as reflected in the high surplus of liquid assets over shortterm liabilities in the ANL Stress tenors and in the regulatory measures.

The table below presents the ANL Stress gap for tenors up to 1M and 1Y in 2015 as well as the regulatory measures M1, M2, M3, M4 and LCR:

Measure * 2015
31.12.2015 average max min
ANL Stress 1M 8,933 8,355 13,968 3,442
ANL Stress 1Y 10,15 9,752 13,886 4,551
M1 13,388 9,655 14,789 4,657
M2 1.47 1.34 1.59 1.15
M3 4.68 5.22 6.08 4.29
M4 1.33 1.30 1.33 1.25
LCR mBank 144% 132% 154% 111%
LCR mBank Slovakia 338% 385% 428% 338%

* ANL Stress and M1 are shown in PLN million, M2 is a relative measure presented as a decimal.

Measuring the Group’s liquidity risk

The Group’s liquidity risk measurement includes mBank Hipoteczny, mLeasing and, as of 1 August 2014, also Dom Maklerski mBanku. mBank monitors liquidity risk of the subsidiaries in the ANL Stress tenors so as to protect liquidity also at Group level in the event of adverse events (crises).

The Group’s liquidity was safe in 2015, as reflected in the high surplus of liquid assets over short-term liabilities in the ANL Stress tenors calculated at Group level.

The table below presents the ANL Stress gap for tenors up to 1M and 1Y at mBank Group level:

PLN M 2015
31.12.2015 average max min
ANL Stress 1M 10,749 9,957 15,446 5,288
ANL Stress 1Y 11,901 11,721 15,721 6,963


Operational risk

mBank organises the operational risk management process taking into account the rules and requirements set out in the Resolution No. 76/2010 of the Polish Financial Supervision Authority of 10 March 2010 as well as in the Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013. The abovementioned regulations as well as recommendations of the Polish Financial Supervision Authority (including Recommendations M, H and D, in particular) constitute a starting point for developing the framework of the operational risk control and management system in mBank Group.

Tools and measures

The Bank understands operational risk as the possibility of incurring a loss arising from inadequate or defective internal processes, systems, errors or actions taken by the Bank’s employee or from external events. In particular, operational risk includes legal risk.

Operational risk accompanies all processes at banks (inadequate or defective internal processes, systems, human errors or external events) and its consequences can be often very harmful. It is characterized by an asymmetric distribution of losses; overwhelmingly, these are small value losses. Large losses are rare but the size of such a loss may exceed the sum of all the remaining operational losses in a given reporting period.

In order to effectively manage operational risk (identification, monitoring, measurement, assessment, reporting as well as reduction, avoidance, transfer or acceptance of operational risk), the bank applies quantitative and qualitative methods and tools. The tools applied by the Bank intend to cause-oriented operational risk management.

The basic qualitative tool is the self-assessment of internal control system carried out by the Bank’s organizational units. The Bank has just completed implementing the Internal Control System Selfassessment, which replaced formerly existing Risk Self-assessment Surveys and the functional control process. The Internal Control System Self-assessment includes assessment of key operational risks and control mechanisms applied for mitigating those risks, and then to develop corrective action plans for identified weaknesses. The process will be repeated periodically, once a year, and its results are accepted by the Management Board, and then presented to the Risk Committee of the Supervisory Board and the Audit Committee of the Supervisory Board. In Q4 2015 Bank starts implementation of ICS in the mBank Group companies.

Another tool - the key risk indicators (KRI) - enables identification and evaluation in particular areas of the Bank’s operations, of operational risk factors that have an ongoing impact on that risk level in those areas and, therefore, also in the entire Bank.

The Bank prepares also scenario analyses describing risks associated with rare operational risk events with potentially very serious consequences. Quantitative tools of the operational risk methodology include mainly collection of data on operational incidents and effects. With the use of the database available at the mBank Group, data on operational risk losses are recorded with an emphasis on the cause. Recorded data are analysed by the Integrated Risk and Capital Department and at organizational units, which allows organizational units to carry out ongoing monitoring of their current risk profile.

The implementation of qualitative elements and comprehensive collection of operational loss data is required for both the standard and the advanced measurement method (AMA) for the calculation of regulatory capital in accordance with the requirements of the New Capital Accord and in order to fulfil the relevant Pillar II requirements.


The operational risk control and management system,, forms an organisational basis in order to enable effective control and management of operational risk at every level of mBank’s organisational hierarchy. The structure of operational risk control and management covers in particular the role of the Management Board of the Bank, the Business and Risk Forum, the Chief Risk Officer, the Integrated Risk and Capital Management Department, and the tasks assigned to persons managing operational risk in particular organisational units and business areas of the Bank. The operational risk control and management process at mBank is developed and co-ordinated by the central operational risk control function while operational risk management takes place in every organisational unit of the Bank and in every subsidiary of mBank Group. It consists in identifying and monitoring operational risk and taking actions aimed to avoid, mitigate or transfer operational risk.

The entire operational risk control process is supervised by the Supervisory Board of the Bank through its Risk Committee.

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Capital adequacy


Maintaining an adequate level of capital is one of the main tasks of managing the balance sheet of the Bank. The Management Board of mBank ensures consistency of the capital and risk management process by means of a system of strategies, policies, procedures and limits for the management of particular risks which constitute the ICAAP architecture. Furthermore, in line with the Capital Management Policy applicable at mBank, mBank maintains an optimum level and structure of own funds, guaranteeing maintenance of the capital adequacy ratio at a level higher than the statutory minimum, at the same time covering all significant risks identified in the Bank’s operations. mBank’s capital targets are being set based on the regulatory requirements and simulated capital needs to cover unfavourable changes in the external environment and within the Bank.


The Capital Management Policy at mBank is based on two main pillars:

  • Maintenance of an optimal level and structure of own funds, with the use of available methods and means (retained net profit, issue of shares, subordinated bonds, etc.).
  • Effective use of the existing capital among others by applying a system of capital utilisation measures resulting in reduction of the activity that is not generating the expected return and development of products with lower capital absorption.

The capital ratios of mBank Group in 2015 were driven by the following factors:

  • addition of PLN 750 million to the own funds: it is the Group’s subordinated liability following the issuance of subordinated bonds on December 17, 2014, approved by the PFSA on January 8, 2015;
  • early repayment of a subordinated loan of CHF 90 million (face value), approved by the PFSA on 8 January 2015, previously partly included in the own funds;
  • including in Common Equity Tier 1 capital the net profit of mBank Group for the year 2014, reduced by every foreseeable charges;
  • including in Common Equity Tier 1 capital the verified net profit of mBank Group for the 1st half of 2015, reduced by every foreseeable charges, on the basis of the KNF permission from 20 October 2015;
  • including subsidiaries: Aspiro (in March 2015), Tele-Tech Investment Sp. z o. o. (in July 2015) and mWealth Management (in December 2015) into the scope of prudential consolidation;
  • expanded application of the advanced internal rating based approach to calculation of own funds requirements for credit and counterparty credit risk following the approvals of the PFSA and BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht, the Federal Financial Supervisory Authority) for the Bank’s exposures to commercial banks and retail mortgage-secured exposures (micro-companies) obtained in H1 2015;
  • changes and recalibrations of AIRB models;
  • expansion of mBank Group business activity.

Additionally, as a result of risk assessment carried out by the Polish Supervisory Authority (KNF) within the supervisory review and evaluation process, in particular with regard to evaluation of risk related to portfolio of foreign exchange retail mortgage loans, mBank (on the individual and consolidated level) received an individual recommendation to maintain own funds to cover additional capital requirement of 4,39 basis points in order to mitigate the risk (3.29 p.p. for Tier 1 capital).

High level of additional capital requirement was a result of the Polish Financial Supervision Authority (KNF) applying one methodology to all banks in Poland, which fails to take account of the specificity of individual banks, such as mBank, which use internal models approved by the regulator to calculate capital requirements for credit risk. According to this methodology, the calculation of the additional capital requirement for all banks uses a risk weight under the standardised approach (100%), regardless of the results generated by internal models. Consequently, more than half of the additional capital requirement calculated by the KNF for mBank is a result of “aligning” the capital requirement to the requirement calculated under the standardised approach.

mBank meets the KNF’s recommendations: its capital ratios on an individual and consolidated basis were above the target values, i.e. 16.39% at the level of own funds and 12.29% at the level of Tier 1 capital.

As at December 31, 2015, the non-consolidated total capital ratio of mBank stood at 20.18% and the Common Equity Tier 1 ratio at 16.70%.

As at December 31, 2015, the consolidated total capital ratio of mBank Group stood at 17.25% and the Common Equity Tier 1 ratio at 14.29%.

Stress tests

The integrated stress tests are conducted assuming a scenario of unfavourable economic conditions that may adversely affect the Bank’s financial position in at least a full two-year time horizon (for liquidity risk, in a one-year horizon). The risk scenario, i.e., the most plausible (in at least a full two-year time horizon) scenario of negative deviations from the base scenario, expressed in terms of macroeconomic and financial ratios, is common for all risk types, applied at Group level and aligned with the corresponding scenario accepted by the consolidating entity.

The Group and the Bank carry out reverse stress tests, the goal of which is to identify events potentially leading to unviability of the Group and the Bank.

The Group and the Bank take part in regulatory stress tests conducted by the PFSA in order to determine the impact of assumed macroeconomic stress scenarios on the Group’s balance sheet and P&L as well as on external supervisory norms.