About report

For the second time now, the ING Bank Śląski S.A. Group has compiled the annual report in line with the best global practices of integrated reporting. To help readers use the interactive tools, we prepared a user guide with key features. We encourage you to watch a short animated video before reading the report.

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Prudent and long-term approach to risk management (credit risk management included) is one of the key elements of our strategy. We do not follow fads or temporary trends. We see tangible results of that approach: our risk cost margin and our share of impaired loans are clearly lower than the sector average. We want to develop further and we are open to new solutions. We apply innovative credit risk analysis methods when cooperating with start-ups and other fintechs.
Patricka Roesink
Vice-President of the Bank Management Board

Risk management system

The risk management system is an integrated collection of rules, tools and mechanisms (including but not limited to policies and procedures) for risk processes. The role of the risk management system is to continuously identify, measure or estimate as well as monitor the Bank’s risk and secure against potential losses through adequate controls, system of limits and adequate level of provisions as well as of capitals and liquidity buffers.

Under the risk management system, the Bank:

  • applies formal risk tolerance determination rules and risk management rules,
  • applies formal procedures intended to identify, measure or estimate and monitor risk, also accounting for projected future risk,
  • applies formal risk limits and rules of conduct in the event of limit overrun,
  • applies the approved management reporting system that allows risk level monitoring,
  • has the organisational framework matching the amount of profile of risk borne by the Bank.

Risk management rules

ING Bank Śląski S.A. manages credit, market and operational risk as required by the Polish law, regulations of the Polish Financial Supervision Authority and other competent bodies, and also in compliance with the ING Group standards as far as admissible under the aforementioned regulations and best practice documents.

Irrespective of the need to ensure legal and regulatory compliance, the Bank does not treat credit, market and operational risk management as a compliance issue mainly, but sees it as a fundamental and integral part of the end-to-end Bank management process.

Internal capital adequacy assessment process

At ING Bank Śląski S.A. Group, the internal capital adequacy assessment process (ICAAP) is regulated by the ING Bank Śląski S.A. Capital Management Policy. The document governs the process of material risks identification, the key elements regarding risk quantification as well as the capital adequacy management principles. Based on the above-referred document, the following risks are identified at the Group:

  • difficult-to-measure risk – the risk wherefor in the Group’s opinion neither quantitative nor qualitative measures that would correctly quantify the risk size can be developed;
  • permanently material risk – the risk which due to the nature of the Group’s operations is material now and will be such in the future. Under the nature of the Group’s operations we construe the business being provision of deposit and credit services and the related operations: financial performance, liquidity management, interest rate and FX risk management, as well as risk management with regard to mismatch or unreliability of internal processes, people and technical systems or external events;
  • material risk – the risk which may trigger potential losses, with the frequency of occurrence of the values that qualify them as material in line with the table:

 

The frequency of occurrence of values that qualify the risk as significant

 

Potential loss (PLN) up to 0.2% of own funds from 0.2% to 1% of own funds from 1% to 5% of own funds above 5% of own funds
At least once a year immaterial material material material
At least every 5 years immaterial immaterial material material
Less often than every 5 years immaterial immaterial immaterial material

Every month, standalone and consolidated reports are compiled by the Group; they read the realised capital requirements for all material risks and planned metrics values. Reports are delivered to the Assets and Liabilities Committee (ALCO) and the Bank Management Board. The Supervisory Board is advised every quarter of capital adequacy of the Bank and Group, internal capital adequacy included.

The ICAAP is reviewed once a year. The review report is delivered to the Management Board and Supervisory Board of ING Bank Śląski S.A. Further, the internal audit function performs an independent audit of the process on an annual basis.

The ICAAP was implemented at significant Bank subsidiaries (as at 2017 yearend at ING Commercial Finance S.A. and ING Lease (Polska) Sp. z o.o.), In those companies, it is conducted independently from the Bank. The Capital Management Department and the units responsible for individual risks at the Bank oversee the risk management process at subsidiaries. ICAAP review reports for the said subsidiaries are enclosed with the Report on ICAAP Process Review at ING Bank Śląski S.A. and are relayed to the Bank Management Board and Supervisory Board.

Risk categories

In 2017, the workshops on risk materiality assessment were carried out in the first quarter. They did not result in changes to the identified risks, their materiality or measurement difficulty. Client behaviour risk was moved from the funding and liquidity risk to the market risk. Kategorie ryzyk prezentuje poniższa tabela.

Risk Permanently material Material Immaterial Difficult-to-measure
Credit risk          
Default risk and counterparty risk1
Residual risk2
Concentration risk
Residual value risk
Transfer risk
Risk of other non-credit obligation assets
“Default” definition risk
Market risk  
Financial Markets operations risk FX risk
Trading book high-level and specific interest rate risk
Banking book interest rate risk: total mismatch
Banking book interest rate risk: underlying risk
Banking book interest rate risk: option risk
Risk of investments in commercial real property and real property owned for own purposes
Equities risk Banking book equities risk
Trading book high-level and specific equities risk
Client behaviour risk
Business risk
Financial result risk
Macroeconomic risk
FX mortgage portfolio risk
Excessive financial leverage risk
Funding and liquidity risk
Funding and liquidity risk
Operational risk
Operational risk3
Model risk
Model risk

1 The risk definition covers the delivery settlement risk
2 Capital requirement quantified in the approach for the default risk and counterparty risk
3 It includes, inter alia, the compliance risk and legal risk as well as the IT risk managed within that risk

Risk appetite

The risk appetite sets the maximum risk the Group is willing to accept while supporting its stability and further growth. As part of capital and risk management at the Group, the risk appetite parameters are set within the so-called Risk Appetite Statement (RAS) in the following areas:

  • RAS for capital adequacy,
  • RAS for liquidity and funding plus market risk,
  • RAS for credit risk, and
  • RAS for operational risk.

The RAS for capital adequacy agrees with Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 which provides for the duty to keep the capital ratios at least at the following levels:

4.5%
Common Equity Tier 1 ratio (CET1),
6.0%
Tier 1 ratio (T1), and
8.0%
Total Capital ratio (TCR)

The Group is required to maintain the Tier 1 ratio and the Total Capital ratio of at least 10.75% and 13.75%, respectively. The requirement arises from the guidelines of the Polish Financial Supervision Authority (PFSA) and incorporates:

  • provisions of Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 in conjunction with the existing approach of the PFSA to maintaining increased levels of ratios (9% for T1 and 12% for TCR), and
  • the capital buffers determined in keeping with the Act on macroprudential supervision over the financial system and crisis management in the financial system of 5 August 2015 (in 2017, the capital conservation buffer was 1.25% and the buffer of other systemically-important institution (O-SII) was 0.5% as imposed by the PFSA decision of 4 October 2016 and revised with the PFSA decision of 19 December 2017).

As part of the RAS for the capital adequacy, capital limits on risk categories are set too.

The primary metrics listed in the RAS for the funding and liquidity risk are discussed in the „2017 Consolidated Financial Statements of ING Bank Śląski S.A. Group” on page 167. Further, the RAS metrics for market risk were discussed in the „2017 Consolidated Financial Statements of ING Bank Śląski S.A. Group” on page 161.

The RAS for credit risk and operational risk is set every year.

More information on the risk appetite in the credit risk area can be found here.

More information on the risk appetite in the operational risk area can be found here.

 

Economic capital, own funds and capital requirement

The capital management objective at the Bank is to have a sufficient and effective capitalisation to implement the business strategy and development plans, while at the same time fulfilling all internal and external capital requirements. Such an approach ensures capital and financial flexibility ¬ in current and future environment ¬ in order to adjust to variable regulatory and market conditions.
Marcin Tryba
Senior Expert in Capital Management Department

ING Bank Śląski S.A. Group quantifies capital for each identified permanently material and material risk:

  • default risk and counterparty risk as well as residual risk,
  •  other non-credit obligation assets risk,
  •  concentration risk,
  •  residual value risk,
  •  FX risk,
  •  trading book high-level and specific interest rate risk,
  •  banking book interest rate risk: total mismatch,
  •  client behaviour risk,
  •  financial result risk,
  •  macroeconomic risk,
  •  FX mortgage portfolio risk,
  •  funding and liquidity risk,
  •  model risk,
  •  operational risk.

Every month, standalone and consolidated reports are compiled; they read the realised economic capital values for all material risks and planned metrics values. Reports are delivered to the Assets and Liabilities Committee (ALCO), the Non-Financial Risk Committee (NFRC) and the Management Board. The Supervisory Board is advised of capital adequacy, internal capital adequacy included, on an ongoing basis.

In 2017, own funds were above the internal capital.

The own funds of the Group encompass:

  1. Tier 1 capital which as at 2017 yearend was PLN 10,299.1 million in the Group and PLN 10,130.0 million at the Bank,
  2. Tier 2 capital which as at 2017 yearend was PLN 612.1 million in the Group and PLN 613.3 million at the Bank.

As at 31 December 2017, the Group did not identify additional Tier 1 capital (AT1).

For the purpose of 2017 reporting, the Group calculated the credit risk capital requirement using Advanced Internal Ratings Based approach as well as the Standardised Approach. The Group received the approval from the Polish Financial Supervision Authority and De Nederlandsche Bank to apply AIRB approach for exposure classes: corporates and credit institutions for the Bank and ING Lease Sp. z o.o. For operational risk, the Group uses the Basic Indicator Approach. For market risk, the Group uses the Standardised Approach. The Group also sets the capital requirements for concentration risk, settlement and delivery risk and credit value adjustment risk (CVA). In all the cases, the requirements are set in compliance with the Capital Requirements Regulation.

The total capital requirement is dominated by the credit risk capital requirement. As at 2017 yearend, its share accounted for as much as 87%.

 

ING Bank Śląski S.A. Group capital requirement structure (%)

 

2016 

 

2017

 

1Supplement to the overall level of capital requirements

As at 31 December 2017, the TCR for the ING Bank Śląski S.A. Group was 16.7% versus 14.7% as at 2016 yearend. The Tier 1 ratio for the Group went up from 13.7% as at the end of December 2016 to 15.8% as at 2017 yearend. Despite business volume growth, both ratios improved y/y mainly due to:

  • recognition in own funds of the entire 2016 net profit less the amount which the Bank already included in own funds in 2016 (PLN 900.2 million) and a portion of Bank’s profit for the first 9 months of 2017 (PLN 665.4 million),
  •  discontinuation of recognition of the regulatory floor in the capital requirement,
  •  lowering of the effective risk weight for the portfolio of retail mortgage loans (following the changes to risk weights which took effect on 2 December 2017; the risk weight for FX mortgage loans went up from 100% to 150%, while the effective risk weight for PLN mortgage loans was reduced – the weight of 35% can be attributed to the 80% of the effective collateral worth (earlier 50% only).

 

ING Bank Śląski S.A. Group capital ratios (%)

Stress tests

According to the ING Bank Śląski S.A. Stress-Testing Policy, the Capital Management Department is responsible for the coordination of the stress testing process for economic capital and capital requirement. As part of its tasks, the Department gathers the results of tests made by other testing departments and compiles a report which is presented to the Assets and Liabilities Committee, Bank Management Board and Bank Supervisory Board.

As at 30 June 2017, the Bank conducted consolidated stress tests based on the scenarios prepared by the Chief Economist and using the in-house tools, the new tool for the credit risk included. Stress tests covered:

  • scenario tests: a mild recession scenario and a long-term recession scenario;
  • sensitivity tests (interest rate increase by 400 bps and 200 bps; real property price decline by 30%; PLN depreciation by 30% and 50%; GDP growth rate fall to -5%; unemployment rise to 20% and wage decline by 10%);
  •  concentration tests;
  •  financial leverage ratio tests.

The stress tests performed enable the Group to learn the behaviour of capital requirements, economic capital and own funds should the set macroeconomic parameters materialise.

Dividend policy

On 15 September 2016, the Supervisory Board approved the dividend policy proposed by the Management Board which was revised on 3 March 2017.

The main assumptions of the dividend policy are the following:

  • a long-term stable process of dividend payout in adherence to the rules of prudent management and any and all regulatory requirements which the Bank shall comply with, and
  • the option to pay dividend from the capital surplus over the minimum capital adequacy ratios and over the minimum Tier 1 capital ratio of 13.75% set for the Bank by the Polish Financial Supervision Authority for dividend payout purposes.

When determining the recommended dividend amount to be paid out, the Management Board will review in particular:

  • the current financial standing of the Bank and the Bank Group, including limitations in the case of sustaining financial loss or low profitability (low ROA/ROE),
  • assumptions of the Bank’s and Bank Group’s management strategy, including risk management strategy,
  • PFSA’s stance on the banks’ dividend policy,
  • the limitations under Article 56 of the Act on macroprudential supervision over the financial system and crisis management in the financial system of 5 August 2015.

On 24 November 2017, the Polish Financial Supervision Authority adopted a stance on the banks dividend policy in 2018 (dividend for 2017). The PFSA recommends, in particular, that the dividend of up to 50% from the profit earned in 2017 be paid out solely by banks meeting all the below criteria:

  • the banks which do not pursue the recovery programme;
  • their SREP final score is not worse than 2.5;
  • their financial leverage is above 5%;
  • banks whose Tier 1 capital ratio is not lower that the required minimum plus 1.5 p.p.: 6% + 75%*add-on + combined buffer requirement + 1.5%;
  • banks whose Total Capital ratio is not lower that the required minimum plus 1.5 p.p.: 8% + add-on + combined buffer requirement + 1.5%;

Furthermore, the Polish Financial Supervision Authority indicated the option of payout of up to:

  • 75% of the profit earned in 2017 by the banks meeting all the above criteria and the capital conservation buffer requirement at the target level (i.e. 2.5% of the total risk exposure),
  • 100% of the profit earned in 2017 by the banks meeting all the above criteria (including the capital conservation bufferat the target level) and accounting for the bank’s sensitivity to the stress scenario (ST) in their capital criteria.

Full stance of the PFSA on the dividend in 2018 (for 2017) is available on the PFSA’s website .

In line with the guidelines, the PFSA requirements applicable to ING Bank Śląski S.A. as regards the 2017 dividend payout of up to 50% of net profit are the following:

  • Tier 1 ratio > 12.875%
  • Total Capital ratio > 14.875%

The Bank Management Board intends to recommend to the General Meeting the dividend totalling PLN 416.3 million or 29.7% of the consolidated profit of the ING Bank Śląski S.A. Group or 30.9% of the separate profit of ING Bank Śląski S.A. The proposed dividend per share is PLN 3.20. The proposed record date is 25 April 2018 and the proposed dividend payout date is 10 May 2018.

ING Bank Śląski S.A. did no pay dividend on the 2016 profit. On 9 March 2017, the Management Board received a letter from the Polish Financial Supervision Authority concerning an individual instructions to increase own funds through retaining all of the profit earned from 1 January 2016 to 31 December 2016. The Management Board recommended that the General Meeting increase the funds and on 21 April 2017 the General Meeting passed a resolution on earmarking the entire 2016 net profit for the Bank’s equity injection.

On 24 November 2017, the Polish Financial Supervision Authority adopted a stance on the banks dividend policy in 2018 (dividend for 2017). The PFSA recommends, in particular, that the dividend of up to 50% from the profit earned in 2017 be paid out solely by banks meeting all the below criteria:

  • the banks which do not pursue the recovery programme;
  • their SREP final score is not worse than 2.5;
  • their financial leverage is above 5%;
  • banks whose Tier 1 capital ratio is not lower that the required minimum plus 1.5 p.p.: 6% + 75%*add-on + combined buffer requirement + 1.5%;
  • banks whose Total Capital ratio is not lower that the required minimum plus 1.5 p.p.: 8% + add-on + combined buffer requirement + 1.5%;

Furthermore, the Polish Financial Supervision Authority indicated the option of payout of up to:

  • 75% of the profit earned in 2017 by the banks meeting all the above criteria and the capital conservation buffer requirement at the target level (i.e. 2.5% of the total risk exposure),
  • 100% of the profit earned in 2017 by the banks meeting all the above criteria (including the capital conservation bufferat the target level) and accounting for the bank’s sensitivity to the stress scenario (ST) in their capital criteria.

Full stance of the PFSA on the dividend in 2018 (for 2017) is available on the PFSA’s website .

In line with the guidelines, the PFSA requirements applicable to ING Bank Śląski S.A. as regards the 2017 dividend payout of up to 50% of net profit are the following:

  • Tier 1 ratio > 12.875%
  • Total Capital ratio > 14.875%

The Bank Management Board intends to recommend to the General Meeting the dividend totalling PLN 416.3 million or 29.7% of the consolidated profit of the ING Bank Śląski S.A. Group or 30.9% of the separate profit of ING Bank Śląski S.A. The proposed dividend per share is PLN 3.20. The proposed record date is 25 April 2018 and the proposed dividend payout date is 10 May 2018.

ING Bank Śląski S.A. did no pay dividend on the 2016 profit. On 9 March 2017, the Management Board received a letter from the Polish Financial Supervision Authority concerning an individual instructions to increase own funds through retaining all of the profit earned from 1 January 2016 to 31 December 2016. The Management Board recommended that the General Meeting increase the funds and on 21 April 2017 the General Meeting passed a resolution on earmarking the entire 2016 net profit for the Bank’s equity injection.

Recovery and resolution plans

On 4 October 2017, the ING Bank Śląski S.A. Group received a positive administrative decision from the PFSA for the developed Recovery Plan as one of the first banks in Poland. The Bank Guarantee Fund was involved in the process of decision issue by the PFSA as the advising party. The Recovery Plan is compliant with the provisions of the Polish law transposing the requirements of the BRR Directive, i.e. with the Bank Guarantee Fund Act of 10 June 2016 and the implementing provisions thereof.

While the Bank is working on the Recovery Plan, the BGF is required – as part of their tasks described in the Act – to prepare, update and assess the feasibility of Resolution Plans for domestic entities. Based on the information obtained from the PFSA and the Bank, in 2017 the BGF ran the first preparation and update stage of the Resolution Plan. For ING Bank Śląski S.A., the BGF drafted the restructuring strategy based on the bail-in mechanism to cover the losses sustained and to recapitalize the Bank, and also to reinstitute the market trust to the Bank as regards its ability to satisfy its obligations. The BGF set the MREL for the Bank too. The Bank will be required to satisfy it as of 1 January 2023. The MREL can change in the future, notably due to the pending EU and local legislation works.

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