Summary of mBank Group’s fiancial results
* Change related to the introduction of IFRS 9 – in 2017 line titled Net impairement losses on loans and advances
Total income – calculated as the sum of net interest income, net fee and commission income, dividend income, net trading income, other income, other operating income and other operating expenses.
Total overhead costs (including deprecation) – calculated as the sum of total overhead costs and depreciation.
Net impairment losses and fair value change on loans and advances – in 2017 comprised impairment or reversal of impairment on financial assets not measured at fair value through profit or loss. In 2018 calculated as the sum of impairment or reversal of impairment on financial assets not measured at fair value through profit or loss and gains or losses from non-trading loans and advances mandatorily measured at fair value through profit or loss.
ROA net – calculated by dividing net profit attributable to Owners of the bank by the average total assets. The average total assets are calculated on the basis of the balances as at the end of each month.
ROE gross – calculated by dividing profit before income tax by the average equity attributable to Owners of the bank net, of the year’s results. The average equity is calculated on the basis of the balances as at the end of each month.
ROE net – calculated by dividing net profit attributable to Owners of the bank by the average equity attributable to Owners of the bank, net of the year’s results. The average equity is calculated on the basis of the balances as at the end of each month.
Cost/ Income ratio – calculated by dividing overhead costs and depreciation by total income comprising: net interest income, net fee and commission income, dividend income, net trading income, other income, other operating income and other operating expenses. In 2017 other income comprises gains less losses from investment securities, investments in subsidiaries and associates. In 2018 other income comprises gains less losses from financial assets and liabilities not measured at fair value through profit or loss and gains or losses on non-trading financial assets mandatorily at fair value through profit or loss’ related to equity instruments and debt securities (without loans and advances).
Net interest margin – calculated by dividing net interest income by average interest earning assets. Interest earning assets are a sum of cash and balances with the Central Bank, loans and advances to banks, debt securities (in 2018 in all valuation methods) and loans and advances to customers (net; in 2018 in all valuation methods). The average interest earning assets are calculated on the basis of the balances as at the end of each month.
Income of mBank Group
Total income generated by mBank Group was PLN 5,059.2 million. It represents an increase by PLN 605.6 million or 13.6%. The increase was mainly driven by improved net interest income and net trading income as well as profit from the sale of an organised part of enterprise of mFinanse.
Similarly to 2017, net interest income remained mBank Group’s largest income source in 2018 (69.1%). It reached PLN 3,496.5 million, compared with PLN 3,135.7 million in 2017 (+11.5%). High net interest income was mainly driven by an increase in interest income.
Net interest margin, calculated as a relation between net interest income and average interest-earning assets, stood at 2.6% compared with 2.5% in 2017.
Interest income grew by PLN 466.1 million or 11.5% year on year to PLN 4,518.2 million. With a share of 75.0%, loans and advances were the main source of the Group’s interest income. Interest income from loans and advances increased by PLN 372.8 million or 12.4% on the previous year to PLN 3,387.6 million. The growth resulted mainly from an expanding volume of loans and a change in the structure of the loans portfolio – rising share of high-margin products, with a simultaneous decrease in the share of mortgage loans in foreign currencies characterised by lower margin. In 2018, interest income from investment securities remained stable. Interest income from derivatives classified into banking book amounted to PLN 180.4 million, going up by 35.0% year on year, due to increased volumes of CIRS transactions and change in the structure of FX swap transactions.
| PLN M | 2017 | 2018 | Change in PLN M |
Change in % |
|---|---|---|---|---|
| Loans and advances | 3,014.8 | 3,387.6 | 372.8 | 12.4% |
| Investment securities | 693.2 | 692.1 | -1.1 | -0.2% |
| Cash and short-term placements | 59.9 | 55.7 | -4.2 | -7.0% |
| Trading debt securities | 62.8 | 72.4 | 9.6 | 15.2% |
| Interest income on derivatives classified into banking book | 133.6 | 180.4 | 46.8 | 35.0% |
| Interest income on derivatives concluded under the fair value hedge | 66.8 | 84.4 | 17.6 | 26.4% |
| Interest income on derivatives concluded under the cash flow hedge | 15.8 | 40.4 | 24.6 | 155.7% |
| Other | 5.2 | 5.2 | 0.0 | -0.6% |
| Total interest income | 4,052.1 | 4,518.2 | 466.1 | 11.5% |
In the period under review, interest expenses rose by 11.5%, which is mainly attributable to higher costs of settlements with customers (up by PLN 83.2 million or 16.9%). This was driven by a substantial inflow of deposits, especially those of individual customers, observed in 2018. mBank Group recorded also an increase in expenses arising from the issue of debt securities by PLN 38.7 million or 13.8% as a result of a higher value of issued debt securities (EMTN tranche in the amount of CHF 180 million and EUR 500 million and three public issues of covered bonds totalling PLN 1.6 billion carried out by mBank Hipoteczny). Interest expenses related to loans received decreased by PLN 26.2 million or 47.3% mainly due to a drop in the balance of received loans and advances (repayment of mBank’s loans granted by Commerzbank Group in the total amount of CHF 750 million). This was accompanied by a growth in interest expenses on subordinated debt (by 9.1%), pushed up by a higher value of such liabilities.
Net fee and commission income, accounting for 21.8% of mBank Group’s total income, dropped slightly year on year. In the period under review, it stood at PLN 975.9 million, which represents a decrease by PLN 16.3 million or 1.6%. The reason was mainly a decrease of income.
Fee and commission income decreased slightly in 2018 (by PLN 17.9 million or 1.1% year on year). The largest growth was observed in the credit-related fees and commissions (up by PLN 57.2 million or 17.6%) due to a higher volume of loans sold. Payment cards-related fees rose by PLN 17.1 million or 4.6% compared to the previous year. The growth was stimulated by a higher number of customers and issued payment cards as well as by the number and volume of transactions (value of non-cash transactions grew by 21.2% year on year and the number of transactions rose by 23.3%). Driven by a growing customer base, commissions from bank accounts were on an upward trend (+PLN 21.3 million or +11.4%). The development of transactional banking translated into an increase in commissions from money transfers (+11.2%). This was accompanied by a hike in commissions from guarantees granted and trade finance commissions (+18.7%). Owing to the Q1 2018 sale of an organised part of enterprise of mFinanse, which acted as an agent in the scope of group insurance, commissions for agency service regarding the sale of insurance products of external financial entities in 2018 shrank by PLN 86.7 million or 46.3%. A 24.4% decrease (by PLN 33.4 million) was also reported in commissions for agency service regarding the sale of products of external financial entities due to a limited interest of customers in the investment fund market and regulatory changes on the market. Fees from brokerage activity and debt securities issue decreased by 22.9% (PLN 31.0 million), which was connected with the unfavourable situation on the capital market and a substantial drop in turnover on the Warsaw Stock Exchange.
PLN M
2017
2018
Change in PLN M
Change in %
Payment cards-related fees
372.9
390
17.1
4.6%
Credit-related fees and commissions
324.8
382
57.2
17.6%
Commissions for agency service regarding sale of insurance products of external financial entities
187.4
100.6
-86.7
-46.3%
Fees from brokerage activity and debt securities issue
135.5
104.5
-31
-22.9%
Commissions from bank accounts
186.7
207.9
21.3
11.4%
Commissions from money transfers
119.9
133.3
13.4
11.2%
Commissions due to guarantees granted and trade finance commissions
71.4
84.7
13.3
18.7%
Commissions for agency service regarding sale of products of external financial entities
136.6
103.2
-33.4
-24.4%
Commissions on trust and fiduciary activities
26.3
26.5
0.1
0.5%
Fees from portfolio management services and other management-related fees
14.8
11.6
-3.2
-21.6%
Fees from cash services
53.3
54.8
1.5
2.9%
Other
30.3
42.7
12.4
41.1%
Total fee and commission income
1,659.7
1,641.8
-17.9
-1.1%
Fee and commission expenses remained almost unchanged in the analysed period (-0.2%). The highest growth was recorded in other fees and commissions paid to external entities for sale of the bank’s products. At the same time, payment cards-related fees declined.
Dividend income amounted to PLN 3.6 million in 2018, compared with PLN 3.4 million in 2017.
Net trading income stood at PLN 347.3 million in 2018 and was higher by PLN 53.3 million or 18.1% compared with 2017. The growth was driven mainly by a higher foreign exchange result (+PLN 34.4 million or 11.9%). Gains or losses on financial assets and liabilities held for trading rose by PLN 13.0 million or 73.6% and gains or losses from hedge accounting dropped by PLN 5.9 million or 47.0%. The dynamically developing and ever more popular FX Platform (mPlatforma Walutowa) contributed significantly to the higher foreign exchange result in 2018.
2018 saw an increase in other income, including gains less losses from investment securities and investments in subsidiaries and associates (in 2017), gains less losses from financial assets and liabilities not measured at fair value through profit or loss and investments in subsidiaries and associates and gains or losses from non-trading equity instruments and debt securities mandatorily measured at fair value through profit or loss (as of 2018). The increase was mainly sparked by profits from bond sales and valuation of the shares in Visa Inc. after their reclassification to non-trading financial assets measured at fair value through profit or loss. Gains less losses from investment securities and investments in subsidiaries and associates in 2017 was negative due to revaluation in subsidiaries and associates.
Net other operating income (other operating income net of other operating expenses) amounted to PLN 214.7 million in 2018 v. PLN 32.2 million in 2017. The surge was sparked by the profit from selling an organised part of enterprise of mFinanse in Q1 2018 in the amount of PLN 219.7 million.
Costs of mBank Group
In 2018, the total overhead costs (including depreciation) of mBank Group stood at PLN 2,163.9 million, which represents an increase of 5.9% compared to the previous year. The rise was triggered by higher staff-related expenses and material costs as well as depreciation charges.
| PLN M | 2017 | 2018 | Change in PLN M |
Change in % |
|---|---|---|---|---|
| Staff-related expenses | -902.9 | -952.3 | -49.4 | 5.5% |
| Material costs | -705.2 | -744.9 | -39.7 | 5.6% |
| Taxes and fees | -23.2 | -26 | -2.8 | 12.1% |
| Contributions and transfers to the Bank Guarantee Fund | -180.1 | -180.4 | -0.4 | 0.2% |
| Contributions to the Social Benefits Fund | -7.6 | -7.7 | -0.1 | 1.5% |
| Depreciation | -224.2 | -252.6 | -28.4 | 12.7% |
| Total overhead costs and depreciation | -2,043.2 | -2,163.9 | -120.8 | 5.9% |
| Cost/ Income ratio | 45.9% | 42.8% | – | – |
| Employment (FTE) | 6,455 | 6,524 | 69 | 1.1% |
In 2018 staff-related expenses increased by PLN 49.4 million or 5.5%. They were pushed up by higher remuneration costs, especially the costs connected with selling of the bank’s products. More information on the employee benefits in section “Engaged employees”.
Material costs increased by PLN 39.7 million or 5.6% in the period under review. In 2018, mBank Group reported higher material costs in the marketing area due to promotional campaigns addressed mainly to young customers and SMEs, and in the IT area due to measures aimed at strengthening the bank’s position as a leader of digital banking.
Depreciation rose by 12.7% compared to 2017 as a result of continuous investments in IT systems.
Development of income and expenses resulted in an improvement of the Cost/Income ratio, which stood at 42.8% (45.9% in 2017). Based on recurrent income, the ratio also improved and reached 44.7%.
Impairment on and change in the fair value of loans and advances
In 2018, net impairment losses and fair value change on loans and advances of mBank Group (calculated as the sum of two items: impairment or reversal of impairment on financial assets not measured at fair value through profit or loss and gains or losses from non-trading loans and advances mandatorily measured at fair value through profit or loss) stood at -PLN 694.4 million, including impairment or reversal of impairment on financial assets not measured at fair value through profit or loss of -PLN 527.6 million, and gains or losses from non-trading loans and advances mandatorily measured at fair value through profit or loss amounting to -PLN 166.8 million. Compared with 2017, impairment on and change in the fair value of loans and advances increased by PLN 186.7 million or 36.8%. Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss is related to the part of the portfolio of loans and advances measured at amortised cost, while gains or losses from non-trading loans and advances mandatorily measured at fair value through profit or loss is related to the credit risk of the portfolio of loans and advances measured with the use of that method.
As a result, the cost of risk in 2018 stood at 78 bps, compared with 61 bps in 2017.
The quality of loans portfolio improved in 2018 and NPL ratio declined from 5.2% at the end of 2017 to 4.8% at the end of 2018. Asset quality improved mainly in the retail loan portfolio, where NPL ratio declined from 5.2% at the end of 2017 to 4.7% at the end of 2018 (mainly as a result of the sale of impaired receivables). NPL ratio for the corporate loan portfolio also recorded a slight decline and reached 5.1% compared to 5.3% at the end of 2017.
| PLN M | 2017 | 2018 | Change in PLN M |
Change in % |
|---|---|---|---|---|
| Retail Banking | -342.6 | -456.1 | -113.5 | 33.1% |
| Corporates and Financial Markets | -166.0 | -237.9 | -71.9 | 43.3% |
| Other | 0.9 | -0.4 | -1.3 | +/- |
| Net impairment losses and fair value change on loans and advances |
-507.7 | -694.4 | -186.7 | 36.8% |
Net impairment losses and fair value change on loans and advances in Retail Banking stood at PLN 456.1 million in 2018 compared with PLN 342.6 million in 2017. Risk costs were pushed up by higher volume and changes in the structure of the retail credit portfolio with a growing value of non-mortgage loans (unsecured loans) as well as changes in risk models triggered by the implementation of IFRS 9 as of the beginning of 2018.
Net impairment losses and fair value change on loans and advances in Corporate Banking and Financial Markets stood at PLN 237.9 million in 2018 compared with PLN 166.0 million in 2017. Risk costs were pushed up by higher provisions created on corporate exposures from various sectors and the revaluation of corporate bonds in the portfolio of non-trading financial assets mandatorily measured at fair value through profit or loss.