Summary of financial performance of mBank Group
|PLN M||2018||2019||Change in
|Net intrest income||3,496.5||4,002.8||506.3||14.5%|
|Fee and commision income||1,630.3||1,704.6||74.3||4.6%|
|Fee and commision expense||-654.5||-740||-85.5||13.1%|
|Net fee and commison income||975.9||964.6||-11.2||-1.2%|
|Net trading income||347.3||440.5||93.2||26.8%|
|Other operating income||405||234.5||-170.5||-42.1%|
|Other operating expenses||-170||-307.7||-137.7||81.0%|
|Net impairment losses and fair value change on loans and advances||-694.4||-793.8||-99.4||14.3%|
|Result on provisions for legal risk related to foreign currency loans||-20.3||-387.8||-367.4||1,805.7%|
|Overhead costs and depreciation||-2,163.9||-2,329.2||-165.2||7.6%|
|Taxes on bank balance sheet items||-415.4||-458.7||-43.2||10.4%|
|Share in profits of entities under equity method||1.2||0||0||0.0%|
|Profit before income tax||1,786.6||1,555.0||-231.6||-13.0%|
Income tax expense
|– attributable to Owners of mBank S.A.||1,302.8||1,010.4||-292.4||-22.4%|
|– Non-controlling interests||-0.1||-0.1||0||19.5%|
|Cost/income ratio (%)||42.6%||42.2%|
|Net margin (%)||2.6%||2.7%|
|Common Equity Tier 1 ratio (%)||17.5%||16.5%|
|Total capital ratio (%)||20.7%||19.5%|
|Leverage ratio (%)||8.6%||8.3%|
Core income – calculated as the sum of net interest income and net fee and commission income.
Other income – calculated as 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 financial assets (including equity instruments and debt securities) mandatorily measured at fair value through profit or loss (except for 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.
Overhead costs and depreciation – calculated as the sum of total overhead costs and depreciation.
Net impairment losses and fair value change on loans and advances – 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.
Net ROA – calculated by dividing net profit attributable to the owners of mBank by the average total assets. The average total assets are calculated on the basis of the balances as at the end of each month. Net profit attributable to the owners of mBank is annualised based on the number of days in the analysed period (the annualisation ratio is calculated as the quotient of the number of days in a year and the number of days in the analysed period).
Gross ROE – calculated by dividing profit before income tax by the average equity (net of the year’s results). The average equity is calculated on the basis of the balances as at the end of each month. Profit before income tax is annualised based on the number of days in the analysed period (the annualisation ratio is calculated as the quotient of the number of days in a year and the number of days in the analysed period).
Net ROE – calculated by dividing net profit attributable to the owners of mBank by the average equity (net of the year’s results). The average equity is calculated on the basis of the balances as at the end of each month. Net profit attributable to the owners of mBank is annualised based on the number of days in the analysed period (the annualisation ratio is calculated as the quotient of the number of days in a year and the number of days in the analysed period).
Cost/Income ratio – calculated by dividing overhead costs and depreciation by total income (excluding tax on balance sheet items of the Group).
Net interest margin – calculated by dividing net interest income by average interest earning assets. Interest earning assets are the sum of cash and balances with the Central Bank, loans and advances to banks, debt securities (in all valuation methods) and loans and advances to clients (net; in all valuation methods). The average interest earning assets are calculated on the basis of the balances as at the end of each month. Net interest income is annualised based on the number of days in the analysed period (the annualisation ratio is calculated as the quotient of the number of days in a year and the number of days in the analysed period).
The main drivers of the financial results of mBank Group in 2019 included:
- Increase in total income, which stood at PLN 5,524.4 million. Net interest income remained its main growth driver. It reached PLN 4,002.8 million and was 14.5% higher than a year ago. This high dynamics was accompanied by further improvement of net interest margin, supported by the changing asset mix and a slight reduction of funding costs. The rise in core income achieved in 2019 twice surpassed the profit from the sale of an organised part of the enterprise of mFinanse recorded in 2018;
- Increase in operating expenses (including depreciation) to PLN 2,329.2 million. In particular, contributions and transfers to the Bank Guarantee Fund and staff-related expenses grew in 2019;
- Improved efficiency measured by the Cost/Income ratio, which stood at 42.2% in 2019 v. 44.5% in 2018 (net of the impact of one-off events);
- Stable cost of risk at 79 bps, compared with 78 bps in 2018;
- Continued organic growth and business expansion as demonstrated by:
- Increase in the number of corporate clients to 26,476 (+2,770 clients compared with the end of December 2018);
- dynamic growth in the sales of housing loans (PLN 8,176.4 million in 2019, i.e. +77% compared with 2018) and growing sales of non-mortgage loans (PLN 10,260.0 million in 2019, i.e. +14.9% compared with 2018).
At the same time, the number of retail clients dropped to 5,603,900, mainly due to the accounts of inactive Kompakt Finanse clients being closed in 2019.
Net loans and advances increased by PLN 10,581.7 million or 11.2% compared with the end of 2018 and reached PLN 105,347.5 million. At the same time, amounts due to clients grew by PLN 14,652.1 million, i.e. 14.4% year on year reaching PLN 116,661.1 million at the end of 2019. Consequently, the loan-to-deposit ratio decreased to 90.3% from 92.9% a year earlier.
The changes in the Group’s results translated into the following profitability ratios:
- Gross ROE of 10.2% (12.9% in 2018);
- Net ROE of 6.6% (9.4% in 2018).
Capital ratios of mBank Group went down in 2019. At the end of 2019, the consolidated Total Capital Ratio stood at 19.5% compared with 20.7% in the previous year. The Common Equity Tier 1 capital ratio reached 16.5% v. 17.5% at the end of 2018. The leverage ratio stood at 8.3% at the end of December 2019, compared with 8.6% a year before.
Income of mBank Group
Total income generated by mBank Group was PLN 5,524.4 million in 2019, compared with PLN 5,079.5 million in 2018, which represents an increase by PLN 444.9 million or 8.8%. Despite the profit from selling an organised part of enterprise of mFinanse in the amount of PLN 219.7 million, which was posted in 2018, the 2019 increase in income significantly exceeded this amount. The increase was mainly driven by improved net interest income, net trading income, and other income.
Similarly to 2018, net interest income remained mBank Group’s largest income source in 2019 (72.5%). It reached PLN 4,002.8 million, compared with PLN 3,496.5 million in 2018 (+14.5%). 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 2.7% compared with 2.6% in 2018.
Interest income grew by PLN 553.5 million or 12.5% year on year to PLN 5,071.7 million. With a share of 78.0%, loans and advances were the main source of the Group’s interest income. Interest income from loans and advances increased by PLN 565.0 million or 16.7% on the previous year to PLN 3,953.9 million. The growth resulted mainly from an expanding volume of loans and a change in the structure of the loans portfolio, i.e. rising share of higher-margin products with a simultaneous decrease in the share of mortgage loans in foreign currencies characterised by lower margin. In 2019, interest income from investment securities increased marginally (+PLN 12.9 million or +1.9%) and so did the value of the portfolio. Interest income from debt securities held for trading went down by PLN 23.8 million, i.e. 32.9%. This resulted from lower average value of the portfolio in 2019 compared with the previous year.
in PLN M
Loans and advances including the unwind of the impairment provision discount
Cash and short-term placements
Trading debt securities
Interest income on derivatives classified into banking book
Interest income on derivatives concluded under the fair value hedge
Interest income on derivatives concluded under the cash flow hedge
Total interest income
In the period under review, interest expenses rose by 4.6%, which was mainly attributable to higher deposit costs (up by PLN 84.9 million or 14.7%). In 2019, we continued to observe a substantial inflow of deposits, especially those of individual clients. Interest expenses related to loans received decreased by PLN 15.6 million or 53.4% mainly due to a drop in the balance of received loans and advances (repayment of mBank’s loans granted by ICBC and EIB). Costs of issued debt securities went down by PLN 24.6 million or 7.7% due to a decrease in the value of liabilities from the issue of debt securities (redemption of an EMTN tranche in the amount of EUR 500 million in April 2019 and of two tranches of covered bonds).
Net fee and commission income, accounting for 17.5% of mBank Group’s total income, dropped slightly year on year. In the period under review, it stood at PLN 964.6 million, which represents a decrease by PLN 11.2 million or 1.2%. The primary reason was an increase in costs.
in PLN M
|Payment cards-related fees||390.0||435.9||45.9||11.8%|
|Credit-related fees and commissions||370.6||417.9||47.3||12.8%|
|Commissions for agency service regarding sale of insurance products of external financial entities||100.6||100.4||-0.2||-0.2%|
|Fees from brokerage activity and debt securities issue||104.5||87.0||-17.5||-16.7%|
|Commissions from bank accounts||207.9||210.9||3.0||1.4%|
|Commissions from money transfers||133.3||145.8||12.5||9.4%|
|Commissions due to guarantees granted and trade finance commissions||84.7||93.0||8.3||9.8%|
|Commissions for agency service regarding sale of products of external financial entities||103.2||82.2||-21.0||-20.4%|
|Commissions on trust and fiduciary activities||26.5||28.0||1.5||5.9%|
|Fees from portfolio management services and other management-related fees||11.6||14.2||2.6||22.1%|
|Fees from cash services||54.8||48.6||-6.2||-11.3%|
|Total fee and commission income||1,630.3||1,704.6||74.3||4.6%|
Fee and commission income increased in 2019 (by PLN 74.3 million or 4.6% year on year). The largest growth was observed in the credit-related fees and commissions (up by PLN 47.3 million or +12.8%) due to a higher volume of loans sold. Payment card-related fees rose by PLN 45.9 million or 11.8% compared to the previous year. The growth was stimulated by a higher number of clients and issued payment cards as well as by the number and volume of transactions (value of non-cash transactions grew by 22.0% year on year and the number of transactions rose by 23.4%). The development of transactional banking translated into an increase in commissions from money transfers (+9.4%). A 20.4% decrease (by PLN 21.0 million) was reported in commissions for agency services regarding the sale of products of external financial entities due to a limited interest of customers in the investment fund market and regulatory changes in this respect. Fees from brokerage activity and debt securities issue decreased by PLN 17.5 million or 16.7%, which was connected with the unfavourable situation on the capital market and a substantial drop in turnover on the Warsaw Stock Exchange.
Commission expenses rose by PLN 85.5 million (13.1%) in the period under review. The highest growth was recorded in other fees and commissions paid to external entities for the sale of the bank’s products (+PLN 49.1 million or 34.7%). Payment card-related expenses grew by PLN 17.6 million or 12.9% year on year.
Dividend income amounted to PLN 4.2 million in 2019, compared with PLN 3.6 million in 2018.
Net trading income stood at PLN 440.5 million in 2019 and was higher by PLN 93.2 million or 26.8% compared with 2018.The growth was driven mainly by a higher foreign exchange result (+PLN 58.1 million or 18.0%). Gains or losses on financial assets held for trading rose by PLN 20.2 million or 66.1% and gains or losses from hedge accounting went up by PLN 14.9 million.
Other income, including 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, grew by PLN 164.2 million in 2019. This resulted from the revaluation of shares of Visa Inc. and other companies (among others, Polski Standard Płatności Sp. z o.o., Biuro Informacji Kredytowej S.A.)
Net other operating income (net other operating income/expense) amounted to PLN -73.2 million in 2019 v. PLN 235.0 million in 2018. The negative figure was due to the creation of provisions for future commitments, including potential costs related to settlements with clients who made early repayments of consumer loans and the provision connected with early termination of lease agreements pertaining to two buildings in Warsaw in connection with the planned relocation. In 2018, we generated a profit from selling an organised part of enterprise of mFinanse in the amount of PLN 219.7 million.
Result on provisions for legal risk related to foreign currency loans
In 2019, provisions for legal risk related to foreign currency loans grew by PLN 367.4 million compared to 2018. This was a consequence of the application of a new methodology of calculating provisions for legal risk related to individual court cases pertaining to indexation clauses in mortgage and housing loans in CHF. The methodology is described in detail in Note 4 to the Consolidated Financial Statements of mBank S.A. Group for 2019.
Costs of mBank Group
In 2019, the total overhead costs (including depreciation) of mBank Group stood at PLN 2,329.9 million, which represents a 7.6% increase on the previous year. The increase was mainly due to higher contributions to the Bank Guarantee Fund and higher staff-related expenses.
in PLN M
Taxes and fees
Contributions and transfers to the Bank Guarantee Fund
Contributions to the Social Benefits Fund
Total overhead costs and depreciation
Cost / Income ratio
In 2019 staff-related expenses increased by PLN 67.0 million or 7.0%. They were pushed up by higher remuneration costs, especially the costs connected with selling of the bank’s products and hiring new staff in mBank Group.
Material costs dropped by PLN 105.8 million or 14.2% in the period under review, in particular, as a result of implementation of IFRS 16, which replaced some real property administration and maintenance costs (rents) with depreciation and interest expenses. Depreciation rose by PLN 122.9 million compared to 2018.
Another important factor that impacted the cost base in 2019 was contribution and transfers to the Bank Guarantee Fund. In 2019 it was higher by PLN 75.3 million, i.e. 41.7% compared to the previous year. The contribution to the Resolution Fund amounted PLN 197.3 million in 2019, while in 2018 it stood at PLN 97.1 million.
Development of income and expenses resulted in an improvement of the Cost/Income ratio, which stood at 42.2% (42.6% in 2018). Taking into account recurrent income, the ratio improved even more significantly, as in 2018 it stood at 44.5%.
Impairment on and change in the fair value of loans and advances
In 2019, 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 793.8 million. Compared to 2018, impairment on and change in the fair value of loans and advances increased by PLN 99.4 million or 14.3%. 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 2019 stood at 79 bps, compared with 78 bps in 2018.
in PLN M
|Corporates and Financial Markets||-237.9||-281.3||-43.4||18.3%|
|Net impairment losses and fair value change
on loans and advances
Cost of risk in Retail Banking was 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).
Cost of risk in Corporate Banking and Financial Markets increased due to higher provisions created on corporate exposures from various sectors.
Contribution of business lines and segments to the financial results
A summary of financial results of individual business lines of mBank Group is presented in the table below.
in PLN M
in gross profit
|Corporates and Investment Banking||545.7||629.1||83.4||15.3%||40.5%|
|Profit before tax of mBank Group||1,786.6||1,555.0||-231.6||-13.0%||100.0%|
Changes in the consolidated statement of financial position of mBank Group
Changes in the assets of mBank Group
The assets of mBank Group increased by PLN 12,940.0 million, i.e. 8.9% in 2019. Total assets stood at PLN 158,720.6 million as at December 31, 2019.
The table below presents changes in particular items of mBank Group assets.
in PLN M
|Cash and balances with Central Bank||9,199.3||7,897.0||-1,302.3||-14.2%|
|Loans and advances to banks||2,546.3||4,341.8||1,795.4||70.5%|
|Financial assets held for trading and derivatives held for hedges||2,091.6||2,693.3||601.8||28.8%|
|Net loans and advances to customers||94,765.8||105,347.5||10,581.7||11.2%|
|Total assets of mBank Group||145,780.6||158,720.6||12,940.0||8.9%|
Loans and advances to customers – the sum of loans and advances to customers recognised in: financial assets measured at amortised cost, non-trading financial assets mandatorily measured at fair value through profit or loss and financial assets held for trading
Investment securities – the sum of debt securities included in financial assets measured at fair value through other comprehensive income, debt securities included in assets measured at amortised cost and non-trading equity and debt securities mandatorily measured at fair value through profit or loss.
Loans and advances to customers remained the largest asset category of mBank Group at the end of 2019. As at December 31, 2019, they accounted for 66.4% of the total balance sheet compared with 65.0% at the end of 2018. The net volume of loans and advances to customers increased by PLN 10,581.7 million, i.e. 11.2%, year on year.
|PLN M||31.12.2018||31.12.2019||Change in PLN M||Change
|Loans and advances to individuals||52,925.4||60,360.7||7,435.3||14.0%|
|Loans and advances to corporate entities||44,233.1||47,785.7||3,552.6||8.0%|
|Loans and advances to public sector||649.8||391.4||-258.4||-39.8%|
|Total (gross) loans and advances to customers||97,808.3||108,537.8||10,729.5||11.0%|
|Provisions for loans and advances to customers||-3,042.5||-3,190.3||-147.7||4.9%|
|Total (net) loans and advances to customers||94,765.8||105,347.5||10,581.7||11.2%|
Gross loans and advances to retail customers increased by PLN 7,435.3 million, i.e. 14.0% annually. Net of the FX effect, loans and advances to individuals grew by 13.4% in 2019. The sales of mortgage loans grew by 77.0% (in 2019 it stood at PLN 8,176.4 million against PLN 4,618.3 million in the previous year). In addition, in 2019, mBank Group sold PLN 10,260.0 million worth of non-mortgage loans, which represents an upturn by 14.9% year on year.
The volume of gross loans and advances to corporate clients increased by PLN 3,552.6 million, i.e. 8.0%, compared with the end of 2018. Excluding reverse repo/buy sell back transactions and the FX effect, the value of loans and advances to corporate clients increased by 11.2% against the end of 2018.
The volume of gross loans and advances to the public sector decreased by PLN 258.4 million or 39.8% in 2019.
Investment securities constituted mBank Group’s second largest asset category (21.6%). During 2019, their value grew by PLN 835.5 million, i.e. by 2.5%. The portfolio of treasury and municipal bonds shrank by PLN 1,480.2 million or 5.1%, while the portfolio of debt securities issued by the central bank increased by PLN 2,629.7 million, i.e. more than four times.
The balance of financial assets held for trading and derivatives held for hedges grew in 2019 by PLN 601.8 million, i.e. 28.8% driven mainly by the increased portfolio of treasury and municipal bonds.
Changes in liabilities and equity of mBank Group
The table below presents changes in the equity and liabilities of the Group in 2019:
in PLN M
|Amounts due to other banks||3,108.8||1,166.9||-1,942.0||-62.5%|
|Financial liabilities held for trading and derivatives held for hedges||981.1||948.8||-32.4||-3.3%|
|Amounts due to customers||102,009.1||116,661.1||14,652.1||14.4%|
|Debt securities in issue||18,049.6||17,435.1||-614.4||-3.4%|
|Total Liabilities and Equity of mBank Group||145,780.6||158,720.6||12,940.0||8.9%|
Amounts due to customers are the main source of funding of mBank Group. Their share in the Group’s funding structure has been increasing systematically. They accounted for 73.5% of the Group’s equity and liabilities at the end of 2019, compared with 70.0% at the end of 2018.
in PLN M
|Public sector customers||739.2||858.9||119.7||16.2%|
|Total amounts due to customers||102,009.1||116,661.1||14,652.1||14.4%|
Amounts due to customers were growing rapidly in 2019 to reach PLN 116,661.1 million at the end of the year, compared with PLN 102.009.1 million at the end of 2018 (+14.4%). From the perspective of funding cost, in 2019 we observed a continuation of a positive trend reflected in higher dynamics of inflows to current accounts than to term deposits.
Amounts due to retail customers rose by PLN 11,740.8 million, i.e. 17.8% compared with the end of 2018. Current and saving accounts increased by 20.3%, while term deposits went up by 8.6%.
Amounts due to corporate clients increased by PLN 2,791.6 million or 7.9% in 2019, driven mainly by higher volumes on current accounts (+14.9%). Term deposits of corporate clients increased by 1.1% in 2019. The total growth of corporate deposits was partly offset by a drop in the value of repo transactions (-75.4%) and in the amount of loans and advances received (-13.8%), triggered largely by a partial repayment of loans from the European Investment Bank. Excluding repo transactions, amounts due to corporate clients rose by 9.6% compared with the end of 2018.
Amounts due to other banks slid by PLN 1,942.0 million, i.e. by 62.5% compared with the end of 2018 and at the end of 2019 reached 1,166.9 million. The strongest decline was recorded in repo / sell buy back transactions, whose value decreased by 87.5% compared to the end of 2018. A decrease was also reported in loans and advances received (by 74.6%) and funds from other banks placed on accounts with mBank.
The share of debt securities in issue in mBank Group’s funding structure decreased from 12.4% at the end of 2018 to 11.0% at the end of 2019. This change is attributable mainly to the issuances and redemption of bonds under the EMTN programme and covered bonds of mBank Hipoteczny.
In 2019, subordinated liabilities grew by 1.1% year on year, which was caused by the impact of the PLN depreciation (vis-a-vis the Swiss franc) on the PLN equivalent of the subordinated loan with a nominal value of CHF 250 million.
Total equity went up by PLN 982.1 million (+6.5%) in 2019 as a consequence of an increase in retained earnings, while its share in total equity and liabilities of mBank Group amounted to 10.2% at the end of 2019 (compared with 10.4% as at the end of 2018).
Changes in off-balance sheet items, changes in guarantees granted to mBank Group subsidiaries and other agreements
More information on significant off-balance sheet items of mBank Group can be found in Note 33 of the mBank S.A. Group IFRS Consolidated Financial Statements for 2019.
The funds raised by mFinance France S.A. (mFF) from the eurobond issues under the EMTN programme have been deposited with mBank as a result of the guarantees granted by the bank related to the guarantee payment of all amounts to be settled in respect of debt securities issued under the EMTN Programme. In 2019, the value of the guarantee dropped as a result of redemption of the tranche in the nominal value of CHF 500 million redeemed on April 1, 2019.
As at December 31, 2019 mBank S.A. did not have any agreements referred to in Article 141t.1 of the Banking Law Act.