Source: http://raportroczny2014.pkobp.pl/pkobppl-en/financials/notes-consolidated-financial-statement/objectives-and-principles-risk-management/53
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53. Credit risk management | Annual Report 2014
The Bank and subsidiaries of the Group apply in particular the following principles of credit risk management:
credit risk relating to loan transactions is measured on the stage of examining loan application on a regular basis as a part of monitoring process, taking into consideration changes in external conditions and in the financial standing of the borrowers,
The above-mentioned principles are executed by the Bank through the use of advanced credit risk management methods, both on the level of individual credit exposures and on the level of the whole credit portfolio of the Bank. These methods are verified and developed to ensure compliance with the internal ratings based requirements (IRB) i.e. advanced credit risk measurement method, which can be used while calculating requirements as regards own funds for credit risk after being approved by the Polish Financial Supervision Authority.
The Group entities, which have significant credit risk levels (the KREDOBANK SA Group, the PKO Leasing SA Group, the BTK SA Group and a subsidiary: Finansowa Kompania ‘Prywatne Inwestycje’ Sp. z o.o.) manage their credit risk individually, but the methods used by them for credit risk assessment and measurement are adjusted to the methods used by PKO Bank Polski SA, taking into account the specific nature of the activities of these companies.
The PKO Leasing SA Group, the BTK SA Group, the KREDOBANK SA Group and subsidiary: Finansowa Kompania ‘Prywatne Inwestycje’ Sp. z o.o. measure credit risk regularly and the results of such measurements are submitted to the Bank.
The KREDOBANK SA Group, the PKO Leasing SA Group and the BTK SA Group have organisational units responsible for risk in their organisational structures, which are in particular responsible for:
The process of credit decision-making in the KREDOBANK SA Group, the PKO Leasing SA Group and the BTK SA Group is supported by credit committees, which are involved in the case of credit transactions which generate increased credit risk level.
53.1. Measurement and assessment of credit risk
share and structure of impaired loans (according to IAS),
coverage ratio of impaired loans with impairment (according to IAS) allowances (coverage ratio),
The Bank extends regularly the scope of credit risk measures used, taking into account the internal rating-based method (IRB) requirements, and extends the use of risk measures to cover the whole Bank’s loan portfolio with these methods.
The portfolio credit risk measurement methods allow i.a. to reflect the credit risk in the price of products, determine the optimum conditions of financing availability and determine impairment allowances.
The Bank performs analysis and stress-tests regarding the influence of potential changes in macroeconomic environment on the quality of the Bank’s loan portfolio. The test results are reported to the Bank’s authorities. The above-mentioned information enables the Bank to identify and take measures to limit the negative influence of unfavourable market changes on the Bank’s performance.
The Bank assesses the risk of individual credit transactions with the use of scoring and rating methods, which are created, developed and supervised by the Banking Risk Division. The assessment methods are supported by specialist IT application software.
The scoring method is defined by Bank’s internal regulations, whose main aim is to ensure uniform and objective assessment of credit risk during the lending process.
Rating models for corporate clients The evaluation of credit risk related to financing corporate clients is performed in two dimensions: in respect of the client and of the transaction. The assessment measures comprise the assessment of the credibility of the client, i.e. rating: and the assessment of the transaction, i.e. liability repayment capacity in the specified amount and timing.
Rating models for corporate clients were prepared using internal data of the Bank which ensures that they are tailored to the risk profile of the Bank's clients. Models are based on a statistical dependence analysis between the default and a customer's risk scoring. Scoring includes an assessment of the financial indicators, qualitative factors and evaluation of behavioural factors. The client's risk assessment depends on the size of the enterprise for which analysis is made. In addition, the Bank has implemented a model for assessment of credited entrepreneurs in the formula of specialist financing, which allows adequate credit risk assessment of large projects involving real estate financing (e.g. office space, retail areas, industrial areas) and infrastructure projects (e.g. telecommunications, industrial, public utility infrastructure).
In 2014 in respect of credit risk, the Bank continued to adapt to the requirements of Recommendation S of the Polish Financial Supervision Authority amended in June 2013, relating to best practice in respect of management of mortgage-secured loan exposures. All recommendations were implemented in the Bank in accordance with expected two-stage period i.e. until 31 December 2013 and 30 June 2014.
In the case of corporate clients from the small and medium enterprises segment that meet certain criteria, the Bank assesses credit risk using the scoring method. Such assessment refers to low-value, uncomplicated loan transactions and it is performed in two dimensions: clients’ borrowing capacity and his creditworthiness. The assessment of borrowing capacity involves examination of the client’s economic and financial situation, whereas the creditworthiness assessment involves scoring and evaluation of the client’s credit history obtained from internal records of the Bank and external databases. In other cases rating method is widely used.
The information about ratings and scoring is widely used in the Bank for the purposes of credit risk management, the system of credit decision-making powers, determining the conditions in which credit assessment services are activated and in the credit risk assessment and reporting system.
In the case of corporate clients in the corporate client segment, the Bank made improvements in functioning of the lending process. These changes relate to changes in portfolio segmentation, organisational changes which meet client needs in a much better way and, on the other hand, allow comprehensive credit risk assessments to be made independently of the offered corporate and transaction banking products.
Forecasting and monitoring of credit risk
The Group’s exposure to credit risk divided into impaired and not impaired, and into not past due and past due
Amounts due from banks impaired, of which:
362 28,891
- 28,543
Amounts due from banks not impaired, of which:
2,486,435 1,893,133
2,486,797 1,922,024
(111) (28,583)
Net total by carrying amount
2,486,686 1,893,441
note_53_01.xlsx
Loans and advances impaired, of which:
12,977,310 12,861,352
5,615,878 5,532,429
Loans and advances not impaired, of which:
174,542,551 143,412,690
169,950,801 139,700,612
4,591,750 3,712,078
past due up to 4 days
1,645,065 1,081,196
past due over 4 days
2,946,685 2,630,882
187,519,861 156,274,042
(8,022,477) (6,650,780)
179,497,384 149,623,262
note_53_02.xlsx
Investment securities available for sale - debt securities
Debt securities impaired, of which:
Debt securities not impaired, of which:
21,961,102 13,864,573
with external rating
14,054,512 9,429,681
with internal rating
7,906,590 4,434,892
21,961,102 13,870,733
- (3,296)
21,961,102 13,867,437
note_53_03.xlsx
Investment securities held to maturity - debt securities
233,358 38,005
note_53_04.xlsx
Other assets - other financial assets
Other assets impaired
62,081 65,209
Other assets not impaired, of which:
707,741 609,904
698,688 601,289
9,053 8,615
769,822 675,113
(59,473) (63,800)
710,349 611,313
note_53_05.xlsx
Items of the statement of financial position
Current account in the central bank
7,772,859 4,018,340
Trading assets - debt securities
1,915,120 467,931
issued by the State Treasury
1,825,454 395,202
issued by local government bodies
50,563 41,907
issued by non-financial institutions
22,146 23,892
2,326 6,762
14,631 168
5,494,822 3,000,860
Financial instruments designated upon initial recognition at fair valuethrough profit and loss - debt securities
13,804,860 15,204,756
10,998,812 13,997,228
2,478,708 956,893
253,817 250,635
73,012 -
financial sector (excluding banks)
1,620,708 2,981,207
1,309,856 942,784
receivables due from repurchase agreements
310,852 2,038,423
167,791,997 139,434,111
95,797,964 74,900,220
49,656,279 44,508,259
20,321,718 19,213,873
2,016,036 811,759
10,084,679 7,207,944
7,265,003 6,125,098
2,819,676 977,181
- 105,665
Investment securities - debt securities
12,781,051 8,818,500
4,480,325 3,440,753
3,475,594 997,253
1,224,132 610,931
233,358 26,886
- 11,119
233,876,540 188,725,345
note_53_06.xlsx
Irrevocable liabilities granted
7,943,931 7,708,424
9,265,599 6,344,816
Guarantees of issuance
4,571,158 3,550,421
Letters of credit granted
702,768 491,768
22,483,456 18,095,429
note_53_07.xlsx
Financial assets neither past due nor impaired
2,204,355 1,518,290
282,080 374,843
147,203,666 125,199,355
22,747,135 14,501,257
165,049,744 135,300,966
with internal rating - customers of financial, non-financial and public sector (corporate loans)
41,359,649 38,313,981
A (first rate)
1,059,550 1,414,115
1,455,548 1,247,527
2,721,287 4,164,801
5,663,335 5,803,780
12,096,148 9,869,180
F (acceptable)
14,628,386 7,012,781
G (poor)
3,735,395 8,801,797
with internal rating - customers of non-financial sector (consumer and housing loans)
103,891,292 84,848,494
74,155,239 59,604,586
10,614,538 13,546,734
11,313,955 5,261,693
5,802,187 4,648,762
2,005,373 1,786,719
without internal rating - customers of financial, non-financial and public sector (consumer, housing and other loans)
19,798,803 12,138,491
4,383,999 3,534,099
1,952,725 2,036,880
A2 (first rate)
11,842 9,317
A3 (very good)
99,765 111,924
A4 (good)
254,096 262,562
A5 (satisfactory)
465,501 552,834
A6 (average)
727,634 868,695
B1 (acceptable)
336,196 187,170
B2 (poor)
41,360 38,060
C (bad)
16,331 6,318
without internal rating
2,431,274 1,497,219
without rating - customers of non-financial and financial sector of the other PKO Bank Polski SA Group entities
517,058 865,547
Trading assets - debt securities - with internal rating
Debt securities available for sale - with internal rating
- 53,776
37,815 336,547
1,381,794 1,026,669
2,000,235 912,529
1,769,303 1,277,585
2,239,109 755,984
478,334 71,802
173,135,924 142,195,034
note_53_08.xlsx
The following loan portfolios are covered by the rating system:
housing market corporate clients,
Structure of debt securities, amounts due from banks, neither past due nor impaired by external rating classes is presented in the table below:
Portfolio/Rating
CCC- to CCC+
Caa2*
512,042 1,467,044 175,958 10,438 175 36,927 1,771 - 282,080 2,486,435
- 1,826,259 12,007 14,590 - - - - - 62,264 1,915,120
- 1,825,454 - - - - - - - - 1,825,454
- 805 - - - - - - - 49,758 50,563
- - - 14,590 - - - - - 41 14,631
issued by other financial institutions
- - - - - - - - - 2,326 2,326
- - 12,007 - - - - - - 10,139 22,146
Financial instruments measured at fair value through profit and loss - debt securities
73,012 13,564,960 140,393 - - - - - 26,495 - 13,804,860
- 10,998,812 - - - - - - - - 10,998,812
- 2,452,213 - - - - - - 26,495 - 2,478,708
- 113,935 139,882 - - - - - - - 253,817
73,012 - - - - - - - - - 73,012
- - 511 - - - - - - - 511
- 13,795,752 - 49,773 - - - 8,921 179,815 20,251 14,054,512
- 12,601,236 - - - - - - 179,815 12,781,051
- 40,717 - - - - - - - 40,717
- 1,153,799 - 49,773 - - - 8,921 - 11,639 1,224,132
- - - - - - - - - 8,612 8,612
- 40,337 - - - - - - 193,021 - 233,358
585,054 30,694,352 328,358 74,801 175 36,927 1,771 8,921 399,331 364,595 32,494,285
note_53_09.xlsx
140,193 1,210,067 118,302 1,230 42,963 5,535 - - 374,843 1,893,133
- 395,587 21,031 - - - - - 51,303 467,921
- 395,202 - - - - - - - 395,202
- 227 - - - - - - 41,680 41,907
- 158 - - - - - - - 158
- - - - - - - - 6,762 6,762
- - 21,031 - - - - - 2,861 23,892
- 15,042,488 136,700 - - - 25,568 - - 15,204,756
- 13,997,228 - - - - - - - 13,997,228
- 931,325 - - - - 25,568 - - 956,893
- 113,935 136,700 - - - - - - 250,635
- 9,125,800 49,530 - - - 216,575 11,131 26,645 9,429,681
- 8,616,516 - - - - 201,984 - - 8,818,500
- - - - - - - - 250 250
- 509,284 49,530 - - - 14,591 11,131 26,395 610,931
- - - - - - 38,005 - - 38,005
- - - - - - 26,886 - - 26,886
- - - - - - 11,119 - - 11,119
140,193 25,773,942 325,563 1,230 42,963 5,535 280,148 11,131 452,791 27,033,496
note_53_10.xlsx
53.2. Concentration of credit risk within the Group
The Group defines credit concentration risk as one of arising from a considerable exposure to single entities or to group of entities whose repayment capacity depends on a common risk factor. The Group analyses the concentration risk in respect of:
The Banking Law specifies maximum concentration limits for the Bank, which has an influence upon the Group. According to Article 71, item 1 of the Banking Law, the total value of the Bank's exposures, off-balance sheet liabilities granted by the Bank or shares held by the Bank directly or indirectly in another entity, additional payments into a limited liability company as well as contributions or limited partnership sums – whichever is higher - in a limited partnership or limited joint-stock partnership with a risk of one entity or a group of entities related by capital or management, cannot exceed concentration limit, which is 25% of the recognised consolidated equity.
As at 31 December 2014 and as at 31 December 2013, those concentration limits had not been exceeded. As at 31 December 2014, the level of concentration risk in Group with respect to individual exposures was low – the largest exposure to a single entity was equal to 12.9% of the recognised consolidated equity. Among 20 largest borrowers of the Group there are exclusively clients of PKO Bank Polski SA.
Total exposure of the Group towards the 20 largest non-banking clients:
Credit exposure includes loans, advances, purchased debts, discounts on bills of exchange, realised guarantees and interest receivable and off-balance sheet and capital exposures*
Share in credit portfolio, which includes
off-balance sheet and capital exposures
1. 3,193,998 1.27% 1. 2,080,000 1.01%
2. 2,474,087 0.99% 2. 2,074,380 1.01%
3. 2,266,960 0.90% 3. 2,035,172 0.99%
4. 2,172,936 0.87% 4. 1,435,697 0.70%
5. 2,080,000 0.83% 5. 1,084,585 0.53%
6. 1,643,091 0.66% 6. 1,078,879 0.53%
7. 1,266,301 0.51% 7. 794,068 0.39%
8. 1,177,916 0.47% 8. 777,215 0.38%
9. 1,130,843 0.45% 9. 690,184 0.34%
10. 1,007,768 0.40% 10. 673,507 0.33%
11. 957,362 0.38% 11. 631,454 0.31%
12. 911,026 0.36% 12. 600,000 0.29%
13. 904,016 0.36% 13. 658,194 0.32%
14. 890,858 0.36% 14. 542,805 0.26%
15. 834,655 0.33% 15. 539,467 0.26%
16. 794,693 0.32% 16. 524,686 0.26%
17. 793,137 0.32% 17. 513,197 0.25%
18. 746,933 0.30% 18. 505,820 0.25%
19. 714,037 0.29% 19. 500,232 0.24%
20. 712,771 0.28% 20. 500,000 0.24%
Total 26,673,388 10.65% Total 18,239,542 8.89%
*off-balance sheet exposure includes liability resulting from derivative transactions in the amount of their equivalent in the statement of financial position (according to the provisions of paragraph 2.1 point 2 of the Resolution No. 208/2011 of the PFSA dated on 22 August 2011)
note_53_11.xlsx
The greatest exposure of the PKO Bank Polski SA Group towards a capital group of borrowers amounted to 1.39% of the Group’s loan portfolio.
The 5 largest capital groups include only clients of PKO Bank Polski SA.
As at 31 December 2014 and 31 December 2013, the concentration risk level by the capital groups was low - the greatest exposure concentration of the Group amounted to 14.1% and 12.9% of the Group’s recognised equity.
Total exposure of the Group towards the 5 largest capital groups:
1 3,498,120 1.39% 1 3,536,942 1.72%
2 3,194,479 1.27% 2 2,790,997 1.36%
3 2,972,486 1.19% 3 2,056,058 1.00%
4 2,315,214 0.92% 4 1,960,687 0.95%
5 2,189,608 0.87% 5 1,446,402 0.70%
Total 14,169,907 5.64% Total 11,791,086 5.73%
note_53_12.xlsx
As compared with 31 December 2013 the exposure of the Group in industry sectors has increased by approx. PLN 7.9 billion. The total exposure in the four largest industry sectors: ‘Industrial processing’, ‘Maintenance of real estate’, ‘Wholesale and retail trade (...)’ and ‘Public administration and national defence (…)’ amounted to approx. 57% of the total loan portfolio covered by an analysis of the sector.
The structure of exposure by industry segments as at 31 December 2014 and as at 31 December 2013 is presented in the table below:
Industrial processing 16.63% 10.37% 18.45% 10.68%
Maintenance of real estate 16.57% 15.95% 15.89% 15.69%
Wholesale and retail trade; repair of motor vehicles 14.88% 21.50% 15.43% 22.52%
Construction 8.91% 10.10% 10.53% 10.92%
Public administration and national defence, obligatory social security 9.09% 0.46% 9.08% 0.38%
Electricity, gas, water vapour, hot water and air conditioning production and supply 1.78% 0.18% 2.06% 0.17%
32.14% 41.44% 28.56% 39.64%
note_53_13.xlsx
The above-mentioned industry structure does not include exposure arising from debt securities reclassified from the category ‘available for sale’ to ‘loans and advances’.
The structure of the loan portfolio by geographical regions is identified in the Group due to the Bank’s client area – a separate area for the retail market (ORD) a separate area for the corporate and investing banking (OKI).
11 geographical regions are distinguished within ORD. As at 31 December 2014, the largest concentration of the ORD loan portfolio occurs in region of Warsaw and Poznań (ca. 22% of the ORD portfolio).
Within OKI, the Bank distinguishes 7 macro-regions and the headquarter. As at 31 December 2014, the largest concentration of the OKI loan portfolio occurs in the Bank’s headquarter and in the central macro-region (26% and 16% of the Corporate Client Area (ORK) loan portfolio, respectively).
As at 31 December 2014, the share of exposure in convertible currencies, other than PLN, in the total portfolio of the Group amounted to 26.2%. An increase compared to 31 December 2013 resulted from the Legal Merger of PKO Bank Polski SA and Nordea Bank Polska SA, as a result of which the Nordea Bank Polska SA portfolio was included in the Bank’s loan portfolio.
The greatest part of the Group’s currency exposures are those in CHF and they relate mainly to the loan portfolio of the Bank. As a result of the above-mentioned merger, the share of loans in CHF increased by 4.0 pp. compared to 2013. In case of the Group entities, the situation is different, i.e. in the foreign currency portfolio of the PKO Leasing SA Group and BTK SA, the greatest currency exposures are those in EUR (94% and 93% of the foreign currency portfolio of these Groups, respectively). Whereas, for the KREDOBANK SA Group and in the company Finansowa Kompania ‘Prywatne Inwestycje’ (i.e. entities operating in Ukraine) - USD denominated loans constitute the largest part (63% and 81% of the foreign currency loan portfolio of these entities, respectively).
73.79% 79.59%
Foreign currencies, of which:
26.21% 20.41%
16.60% 12.64%
7.89% 5.65%
1.36% 1.46%
note_53_14.xlsx
In accordance with the Recommendations S and T of the Polish Financial Supervision Authority, the Bank uses internal limits on credit exposures related to the Bank’s customers defining the appetite for the credit risk.
As at 31 December 2014, these limits have not been exceeded.
53.3. Forbearance practices
The Bank takes as forbearance actions aimed at making changes in the contract terms agreed with a debtor or an issuer, forced by his difficult financial situation (restructuring activities). The aim of the forbearance is to restore a debtor or an issuer the ability to correct execution of the agreement and to maximise the efficiency of non-performing loans management, i.e. obtaining the highest recoveries while minimising the incurred costs, related to these recoveries, which are very high in case of executive proceedings.
Forbearance activities include a change in payment terms which is individually agreed on an each contract basis. Such changes may concern:
spreading of debt repayable into instalments,
change in a repayment schedule,
spreading of payments into instalments (introducing of payment schedule),
suspending of payment,
change in payments formulas (annuity instalments, diminishing instalments),
loans reduction,
change in withdrawal period.
As a result of signing and a timely service of forbearance agreement, the loan being restructured is reset from overdue to current. Evaluation of the ability of a debtor to fulfil the forbearance agreement conditions (debt repayment according to the agreed schedule) constitutes an element of the forbearance process. Concluded forbearance agreements are monitored on an on-going basis. Signing of the forbearance agreement, amending the contractual terms due to the financial difficulties of a debtor or an issuer, is one of indications of individual impairment and results in the necessity of analysing the situation in terms of recording impairment charges or provisions revaluating the exposure value resulting from this fact.
Loans and advances cease to be subject of forbearance if the following conditions are met simultaneously:
3 consecutive payments under the forbearance agreement schedule were settled,
at least 60 days from the date of the first instalment determined in accordance with the forbearance agreement schedule have elapsed,
other contractual arrangements are realised on a regular basis and not raising concerns,
a loan is not covered by the outsourcing of debt collection activities.
of which forbearance:
4,202,198 4,318,155
4,201,826 4,317,682
3,423,519 2,439,686
463,241 1,437,655
315,066 440,341
Impairment allowances on loans and advances to forbearance customers
(820,134) (991,371)
Loans and advances to customers, net forbearance
3,382,064 3,326,784
note_53_15.xlsx
Loans and advances to customers subjected to forbearance by geographical region (gross)
4,087,258 4,318,155
2,290,823 1,772,532
227,406 434,487
242,818 401,978
291,598 337,180
102,259 242,532
88,688 233,365
190,859 206,303
166,150 205,842
133,577 160,294
170,065 157,392
126,644 101,949
56,371 64,301
114,940 -
note_53_16.xlsx
Exposure by gross carrying amount
Loans and advances to customers subjected to forbearance
Loans and advances impaired
2,393,496 3,107,480 236,232 173,583
1,808,702 1,210,675 182,183 83,947
1,220,190 880,476 65,245 18,220
588,512 330,199 116,938 65,727
4,202,198 4,318,155 418,415 257,530
note_53_17.xlsx
Change in carrying amounts of loans and advances to customers subject to forbearance at the beginning and at the end of the period
Carrying amount at the beginning of the period, net
3,326,784
Loans and advances derecognised in the period, gross
(2,325,524)
Loans and advances recognised in the period, gross
Other changes/repayment
Carrying amount at the end of the period, net
note_53_18.xlsx
3,068,604
(2,124,716)
note_53_19.xlsx
Loans and advances to customers gross by applied changes in terms of repayment for forbearance
Spreading of debt repayable into instalments
2,261,777 2,482,200
Change in a repayment schedule
1,392,606 1,540,718
Spreading of payments into instalments (introducing of payment schedule)
812,775 808,174
Suspending of payment
530,642 -
Change in payments formulas (annuity instalments, diminishing instalments)
521,071 702,804
428,549 586,314
Loans reduction
196,579 307,501
Change in withdrawal period
10,469 -
note_53_20.xlsx
For a given loan exposure subject to forbearance more than one change in terms of repayment may be applied.
The amount of recognised interest income related to loans and advances to customers, which are subject to forbearance amounted to
PLN 404 782 thousand as at 31 December 2014 (as at 31 December 2013 it amounted to PLN 391 983 thousand respectively).
53.4. Past due of financial assets
3,504,077 837,553 250,120 4,591,750
3,403,093 822,429 217,787 4,443,309
100,984 15,124 32,331 148,439
4,369 726 3,958 9,053
3,508,446 838,279 254,078 4,600,803
note_53_21.xlsx
2,529,235 885,979 296,864 3,712,078
14 273 - 287
2,466,927 875,420 296,864 3,639,211
62,294 10,286 - 72,580
934 361 7,320 8,615
2,530,169 886,340 304,184 3,720,693
note_53_22.xlsx
53.5. Financial assets assessed on an individual basis for which individual impairment has been recognised by carrying amount gross
5,609 3,927
5,593,388 5,522,293
4,134,858 3,944,961
1,248,389 1,371,261
99,297 101,334
110,844 104,737
16,881 6,209
60 6,260
issued by financial entities
issued by non-financial entities
5,615,938 5,567,232
note_53_23.xlsx
for loans and advances to customers: ceiling mortgages and ordinary mortgages, registered pledges, promissory notes of the debtor and transfers of receivables and property right for cash. The financial effect of the collateral held in respect of the amount that best represents the maximum exposure to credit risk as at 31 December 2014 amounted to PLN 3 593 245 thousand (as at 31 December 2013 the amount was PLN 4 022 319 thousand respectively).
for investment securities available for sale: blank promissory notes, guarantee, registered pledges on the bank account and on debtor’s shares.
restructuring actions taken and payment reliefs applied,
53.6. Allowances for credit losses
The PKO Bank Polski SA Group performs a monthly review of loan exposures in order to identify loan exposures threatened with impairment, measure the impairment of loan exposures and recognition impairment charges or provisions.
registering in the Group’s IT systems the events that are material from the point of view of identifying indications of impairment of credit exposures,
The method of determining the amount of impairment charges is dependent on the type of indications of impairment identified and the individual significance of a credit exposure. The events considered as indications of individual impairment are, in particular, as follows:
delay in payment of the principal or interest longer than 90 days,
entering into restructuring agreement or granting a discount concerning debt repayment (the indication of impairment is recognised, if the convenience granted to the consumer are forced by economic or legal considerations arising from its financial situation).
53.7. Impairment estimating methods
The PKO Bank Polski SA Group applies three methods of estimating impairment:
a group basis (IBNR) applied in respect of the loans for which no objective evidence of individual impairment was identified, but there is a possibility of losses incurred but not recognised occurring.
Impairment allowances in respect of a loan exposure correspond to the difference between the carrying amount of the exposure and the present value of the expected future cash flows from a given exposure:
an impairment charge in respect of loan exposures assessed on a portfolio basis or a group basis corresponds to the difference between the carrying amount of the exposures and the present value of the expected future cash flows estimated using statistical methods, based on historic observations of exposures from homogenous portfolios.
53.8. Off-balance sheet provisions
With regard to off-balance sheet credit exposures, the provision is determined as the difference between the expected amount of exposure in the statement of financial position, which will arise as a result of an off-balance sheet liabilities granted (from the date at which the assessment is performed till the date of overdue amounts due arising considered as constituting an indication of individual impairment) and the present value of the expected future cash flows obtained from the exposure in the statement of financial position arising out of the off-balance sheet liability granted.
The structure of the loan portfolio and impairment allowances of the PKO Bank Polski SA Group’s loan exposures are presented in the table in the note 22 ‘Loans and advances to customers’.
53.9. Credit risk of financial institutions
As at 31 December 2014, the largest exposures of the PKO Bank Polski SA Group were as follows:
Interbank exposure*
- 9,031 585,246 594,277
384,162 - - 384,162
- 169,566 - 169,566
51,175 75,202 - 126,377
- 93,074 - 93,074
- 31,165 50,000 81,165
- 73,060 - 73,060
- 62,516 - 62,516
Counterparty 9
- 59,435 - 59,435
Counterparty 10
- 37,743 - 37,743
Counterparty 11
- 29,418 - 29,418
Counterparty 12
- 24,333 - 24,333
Counterparty 13
- 23,420 - 23,420
Counterparty 14
- 22,583 - 22,583
Counterparty 15
- 16,465 - 16,465
Counterparty 16
- 15,887 - 15,887
Counterparty 17
- 12,912 - 12,912
Counterparty 18
10,000 3,789 - 13,789
Counterparty 19
10,000 (7,178) - 10,000
Counterparty 20
- 9,195 - 9,195
note_53_24.xlsx
For comparison, the largest exposures of the PKO Bank Polski SA Group on the interbank market as at 31 December 2013 presents the table below:
325,000 (48,464) 325,000
Counterparty 24
200,000 4,706 204,706
- 74,384 74,384
Counterparty 25
- 58,479 58,479
Counterparty 26
- 56,339 56,339
Counterparty 27
50,000 (4,830) 50,000
- 46,844 46,844
- 39,817 39,817
22,349 15,318 37,667
Counterparty 28
- 33,641 33,641
5,000 18,131 23,131
Counterparty 29
20,000 1,601 21,601
- 18,806 18,806
Counterparty 31
12,600 - 12,600
Counterparty 32
12,528 - 12,528
Counterparty 30
12,204 - 12,204
Counterparty 33
11,118 - 11,118
Counterparty 34
10,377 - 10,377
- 9,617 9,617
- 9,583 9,583
note_53_25.xlsx
For the purpose of determining exposures: deposits and securities issued by the counterparties are stated at nominal values, while derivative instruments are stated at market values, excluding the collateral established by the counterparty. Total exposure to each counterparty (column ‘Total’) is the sum of exposures arising from deposits and securities, increased by the exposure arising from derivative instruments, if it is positive (otherwise the exposure arising from derivatives is not included in total exposure). Exposure arising from all instruments is calculated from the moment of entering into transaction.
As at 31 December 2014 the Bank had signed master agreements (in accordance with ISDA/PBA standards) with 24 local banks and 57 foreign banks and credit institutions, collateral agreements CSA/PBA standards with 21 local banks and 45 foreign banks and credit institutions. Additionally the Bank was a party of 12 agreements on repo transactions (in accordance with ISMA/GMRA).
The counterparties generating the 20 largest exposures as at 31 December 2014 come from the following countries (classified by location of registered office):
1 Belgium Counterparty 13
2 France Counterparty 7, Counterparty 20
3 Germany Counterparty 3, Counterparty 10
4 Norway Counterparty 2
5 Poland Counterparty 1, Counterparty 4, Counterparty 6, Counterparty 8, Counterparty 14, Counterparty 15, Counterparty 16, Counterparty 18, Counterparty 19
6 Switzerland Counterparty 12
7 USA Counterparty 9
8 The United Kingdom Counterparty 5, Counterparty 11, Counterparty 17
note_53_26.xlsx
Exposure structure by rating is presented in the table below. The ratings were determined based on external ratings granted by Moody’s, Standard&Poor’s and Fitch agencies (when a rating was granted by two agencies, the lower rating was applied, whereas when a rating was granted by three agencies, the middle rating was applied). Rating for counterparties from 1 to 20 was accepted as at 31 December 2014.
A Counterparty 1, Counterparty 2, Counterparty 3, Counterparty 5, Counterparty 7, Counterparty 9, Counterparty 10, Counterparty 11, Counterparty 12, Counterparty 13, Counterparty 17, Counterparty 20
BBB Counterparty 4, Counterparty 8, Counterparty 14, Counterparty 18, Counterparty 19
BB Counterparty 6, Counterparty 15
without rating Counterparty 16
note_53_27.xlsx
53.10. Credit risk of financial institutions on a retail market
In addition to the interbank market exposure discussed above, as at 31 December 2014 the Group had an exposure to financial institutions on the retail market (exposure generated by Entities other than Treasury Department, including e.g. loans granted, bonds purchased outside the interbank market).
The structure of exposures over PLN 10 million is presented in the table below (in PLN thousand):
Nominal value of exposure
Country of the counterparty
500,000 - Poland
Counterparty 21
53,978 6,021 Poland
Counterparty 22
101,808 - Poland
Counterparty 23
50,000 - Poland
note_53_28.xlsx
note_53_29.xlsx
53.11. Management of foreclosed collateral
Foreclosed collaterals as a result of restructuring or debt collection activities are either used by the Group for internal purposes or designated for sale. Details of the foreclosed assets are analysed in order to determine whether they can be sold or used by the Group for internal purposes. All of the assets taken over as a result of restructuring and debt collection activities in the years ended 31 December 2014 and 31 December 2013, respectively, were designated for sale.
Activities undertaken by the Group are aimed at selling assets as soon as possible. In individual and justified cases, assets may be withheld from sale. This occurs only if circumstances indicate that the sale of the assets at a later date is likely to generate greater financial benefits. The primary procedure for a sale of assets is open auction. Other procedures are acceptable in cases where they provide a better chance of finding a buyer and generate higher proceeds for the Group.
The Group takes steps to disseminate broadly to the public the information about assets being sold by publishing it on the Group’s website, placing announcements in the national press, using Internet portals i.a. Internet auctions and sending offers. In addition, the Group cooperates with external firms operating all over Poland in respect of collection, transportation, storage and intermediation in the sale of assets taken over by the Group as a result of restructuring and debt collection activities. The Group has also entered into cooperation agreements with external companies, which perform valuations of the movable and immovable properties that the Group has foreclosed or would like to foreclose in the course of realisation of collateral.
The carrying amounts of non-financial assets held by the Group, taken over in exchange for debts as at 31 December 2014 amounted to PLN 170 194 thousand and as at 31 December 2013 amounted to PLN 125 725 thousand. The above-mentioned amounts are presented in the note 30 ‘Other assets’, in line item ‘Other’ (PLN 3 241 thousand and PLN 12 346 thousand respectively) and in line item ‘Assets for sale’ (PLN 67 786 thousand and PLN 7 594 thousand respectively), and also in the note 27 ‘Inventories’, in line item ‘Supplies’ (PLN 99 167 thousand and PLN 105 785 thousand respectively).
53.12. Credit risk reporting
The Bank prepares monthly and quarterly credit risk reports. The reporting of credit risk covers cyclic information on the scale of risk exposure of the credit portfolio. In addition to the information concerning the Bank, the reports also contain information about the credit risk level of the Group’s subsidiaries (i.a. KREDOBANK SA and the PKO Leasing SA Group), which have a significant credit risk level.
53.13. Management actions concerning credit risk
minimum transaction requirements (risk parameters) determined for a given type of transaction (e.g. minimum LTV amount, maximum loan amount, required collateral),
the principles of defining credit availability, including cut-offs – the minimum number of points awarded in the process of creditworthiness assessment with the use of a scoring system (for a retail client) or the client’s rating class or cumulative rating class (for a corporate client), which a client must obtain to receive a loan,
concentration limits – the limits defined in the Article 71, item 1 of the Banking Law,
industry-related limits – limits which reduce the risk level related to financing corporate clients that conduct business activities in industries characterised by high level of credit risk,
limits on credit exposures related to the Bank's customers – the limits defining the appetite for credit risk as result of i.a. the Recommendations S and T,
credit limits defining the Bank’s maximum exposure to a given counterparty or country in respect of wholesale operations and settlement limits and limits for the period of exposure,
competence limits – they define the maximum level of credit decision-making powers with regard to the Bank’s clients, the limits depend primarily on the amount of the Bank’s credit exposure to a given client (or a group of related clients) and the loan transaction period; the competence limit depends on the credit decision-making level (in the Bank’s organisational structure),
minimum credit margins – credit risk margins relating to a given credit transaction concluded by the Bank with a given corporate client but the interest rate offered to a client cannot be lower than the reference rate plus credit risk margin.
Collateral management policy plays a significant role in establishing minimum transaction terms as regards credit risk. The Bank’s and the Group entities collateral management policy is aimed to secure properly the credit risk to which the Group is exposed, including first of all the establishing collateral that will ensure the highest possible level of recovery in the event of realisation of collateral.
The Bank applies the following rules with respect to accepting legal collateral for loan exposures:
in the case of substantial loans (in terms of value), several types of collateral are established, if possible, personal guarantees are combined with collateral established on tangible assets,
liquid types of collateral i.e. collateral established on tangible assets, which the disposal is possible without a substantial reduction in their prices at a time, which does not expose the Bank to change the value of the collateral because of the appropriate prices fluctuation of a particular collateral are preferred,
when tangible asset is accepted as collateral, an assignment of rights from the insurance policy relating to this asset or the insurance policy for the Bank are accepted as additional collateral,
The policy regarding legal collateral is defined by internal regulations of the Group’s subsidiaries.
The type of collateral depends on the product and the type of the client. With regard to real estate financing products, collateral is required to be established as mortgage on the property. Until an effective mortgage is established, the following types of collateral are used (depending on type and amount of loan): an increased credit margin or/and a collateral in the form of a cession of receivables related to the construction agreement, a cession of a development contract and an open/closed fiduciary account/guarantee, bill of exchange or warranty.
With regard to retail banking loans for individuals, usually personal guarantees are used (a civil law surety/guarantee, a bill of exchange) or collateral is established on the client’s bank account, car or securities.
With regard to loans for the financing of small and medium enterprises and corporate clients, collateral can be established on i.a.: trade receivables, bank accounts, movable property, real estate or securities.