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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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Integrated Annual Report
of ING Bank Śląski S.A. 2019

Risk and capital management system

Throughout the recent years, we have proven that fast organic growth of our bank is not done at the expense of the quality of our assets. The speed and consistency of credit decisions can be a competitive edge. It was achieved by the entire organisation, thanks to the experience and motivation of our employees. With the ever-growing use of modern technology, the IT security and client data security area is more important than ever.

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    Key impacts, risks, and opportunities

Risk management system

The risk management system is an integrated set of rules, mechanisms, and tools (including, among others, policies and procedures) concerning processes related to risks. The role of the risk management system is to permanently identify, measure or estimate and monitor the risk to which the Group is exposed and to mitigate potential losses with adequate control mechanisms, a limit system and an adequate level of provisions (allowances) as well as capitals and liquidity buffers.

Within the risk management system, the Group:

  • applies formalised rules that are used to determine the size of undertaken risks and rules governing risk management,
  • applies formalised procedures aimed at risk identification, measurement, or estimation that also includes a predicable risk level in the future,
  • applies formalised limits that mitigate the risk and the rules of procedure if the limits have been exceeded,
  • applies the adopted management reporting system that provides for risk level monitoring,
  • has an organisational structure in place that is adjusted to the size and profile of the risk that the Group incurs.

The structure of risk and control at the Bank is based on a model of three lines of defence. The model is to ensure a stable and effective framework for risk management by defining and implementing three levels of “risk management” with various roles, duties and responsibilities related to supervision.

Business Managers at the Bank. The managers of each business unit are primarily responsible for the activity, operations, compliance with standards and effective control of risks affecting the respective business unit. Business Managers are involved in the process of liquidity and funding risk management at all levels of the organisation.

Risk and finance risk Managers. The risk management functions and – when applicable – finance management functions are implemented by:

  • development of policies, standards and guidelines for each risk area,
  • coordination, supervision and control of actions taken by the first line of defence with respect to their tasks, management, control and reporting of risks generated by the first line of defence,
  • escalation/vetoing of the activities of the unit that could generate risks unacceptable to the Bank.

Internal Audit Department. The Internal Audit Department is responsible for assuring an independent assessment and opinion on:

  • designing and effectiveness of internal audits of risks resulting from the Bank's operations,
  • designing and effectiveness of risk management carried out by the first and second lines of defence.

 

A special role in the risk management process is performed by the Bank's Management Board and Supervisory Board. The Bank operates a number of committees that are active in the management of specific risk types.

Principles of risk management

ING Bank Śląski S.A. manages credit, market and operational risks in compliance with Polish law, regulations of the Polish Financial Supervision Authority and in compliance with the standards set by the ING Group to the extent that does not breach the regulations referred to above and best practice documents.

Irrespective of the need to assure regulatory and legal compliance, the Group treats credit, market and operational risk management as a fundamental and integral part of overall management of the Group.

Internal Capital Adequacy Assessment Process

In the Group of ING Bank Śląski S.A., the identification process of core risk types, basic elements concerning risk quantification and management rules of capital adequacy are regulated in the Capital Management Policy at ING Bank Śląski S.A.

Relying on the document, the Group identifies the following risk types:

  • permanently material risks – due to the nature of the Group’s business they are and will remain material in the future. The nature of the Group’s business is understood as its activity in the sphere of deposit and lending services and the following related thereto: management of liquidity, interest rates and FX rates as well as management of risk relating to incompliance or unreliability of internal processes, people and technical systems or external events.
  • material risks – which may generate potential losses with a frequency of occurrence of values qualifying them as material in compliance with the following table:

Risk classification as material
Frequency At least every year immaterial material material material
At least once every 5 years immaterial immaterial material material
Less than once in five years immaterial immaterial immaterial material
Potential loss (PLN) up to 0.2%
of equity
0.2% to 1%
of equity
1% to 5%
of equity
in excess of 5%
of equity

Each month the Group prepares standalone and consolidated reports containing accomplished and planned capital requirements related to all material risk types. The related information is provided the Asset and Liabilities Committee (ALCO) and the Bank’sManagement Board. On a quarterly basis, the Supervisory Board is informed of the Bank’s and Group’s capital adequacy, including the adequacy of internal capital.

Once a year, a review of the internal capital adequacy assessment process (ICAAP) is performed and a review report is submitted to the Management Board and Supervisory Board of ING Bank Śląski S.A. Additionally, the internal audit unit performs an independent audit of ICAAP.

Risk categories

In its ICAAP process, in Q1 2019 the Group held a workshop on risk materiality assessment. As a result, the Group changed the units monitoring those risks that until the end of 2018 had been monitored by the Capital Management Department (DZK) and classified the risk of financial results as an immaterial risk.

Risk appetite

Risk appetite determines the maximum risk volume which the Group is ready to accept thus supporting stability and further development. Within risk and equity capital management the Group sets parameters of risk appetite (RAS – Risk Appetite Statement) in the following basic areas:

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

RAS covering the Group’s capital adequacy was set in 2019 for the following capital ratios (The reference levels set in RAS rely on nominal levels of each capital buffer. The applied approach means that RAS for capital adequacy is somewhat higher than resulting from regulatory minimum levels of capital ratios relying on effective and time variable levels of certain capital buffers):

  • core capital ratio Tier 1 (CET1) at the minimum level of 10.5%,
  • Tier 1 (T1) at the minimum level of 12%, and
  • total capital ratio (TCR) at the minimum level of 14%.

RAS concerning capital adequacy results from the duty to maintain minimum levels of capital ratios resulting from the following external regulations:

  • Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 (4.5% for CET1, 6% for T1 and 8% for TCR),
  • Act of 5 August 2015 on macro-prudential supervision over the financial system and crisis management in the financial system sanctioning additional equity buffers, including:
  • capital conservation buffer which was 2.5% in 2019,
  • the buffer of another systemic institution of 0.5% imposed by the decision of PFSA of 19 December 2017 and reiterated in PFSA's letters of 2 August 2018 and 19 August 2019,
  • the countercyclical buffer applies to the exposures to which such a buffer has been imposed by the competent authorities. The countercyclical buffer is variable over time depending on the structure of the relevant exposures and the levels of the countercyclical buffer rates imposed on the relevant exposures (as at December 2019 the countercyclical buffer was 0.002% effectively)
  • Regulation of the Minister for Economic Development and Finance on systemic risk buffer of 1 September 2017 introducing a systemic risk buffer of 3% of the total risk exposure amount applicable to all exposures in the territory of the Republic of Poland (since the Group has a small portfolio of foreign exposures, the effective level of systemic risk buffer is variable over time (as at 31 December 2019 it was 2.953%).

Within RAS concerning capital adequacy, capital limits for each risk type are also set.

Economic capital, equity and capital requirement

Now the Group of ING Bank Śląski S.A. estimates capital for the following risk types:

  • repayment default risk and counterparty risk and residual,
  • risk of other non-credit assets,
  • concentration risk,
  • risk of residual value,.
  • FX risk,
  • general and specific interest rate risk in the trading book,
  • interest rate risk in the banking book: residual convexity risk,
  • interest rate risk in the banking book: total mismatch,
  • risk of customers’ conduct,
  • macroeconomic risk,
  • risk of the FX mortgage portfolio,
  • liquidity and funding risk,
  • model risk,
  • operational risk.

Definitions of the above risks were presented in the Consolidated Financial Statement of ING Bank Śląski S.A. Group for the year 2019.

In 2019, the level of equity was above the level of internal capital.

The Group’s equity is composed of:

  • core capital Tier 1 which at the end of 2019 was PLN 12,462.4 million at the Group level and PLN 12,473.7 million at the separate level,
  • Tier 2 capital which at the end of 2019 was PLN 2,129.3 million both at the Group and separate level.

As at 31 December 2019, the Group did not identify additional Tier 1 capital (AT1).

In 2019, for reporting purposes, the calculation of capital requirement relating to credit risk was made by the Group with an advanced method of internal ratings and the standard method. The Group obtained consent of the Polish Financial Supervision Authority and of the Dutch National Bank to apply the advanced internal rating method (AIRB) for the following exposure classes: corporates and credit institutions for the Bank and ING Lease Sp. z o.o. In the area of operational risk, the Group applies the BIA (Basic Indicator Approach) method. In the area of market risk, the Group applies standard methods. Additionally, the Group determines capital requirements relating to concentration risk, settlement risk and adjustment risk or credit valuation (CVA). In all the cases, the requirements are determined in compliance with the CRR Regulation.

The total capital requirement is dominated with the requirement relating to credit risk. As at the end of 2019 it accounted for as much as 88% of the total requirement.

 

Capital adequacy

On 31 December 2019, the TCR ratio for the ING Bank Śląski Group was 16.87% versus 15.58% at the end of 2018 and the Tier 1 ratio was 14.41% versus 14.74% as at the end of December 2018. The changes to the capital ratios are due to the following factors:

  • incorporation in equity of a part of net profit generated in 2018 after the General Meeting has approved a resolution on 2018 profit distribution net of the amount classified by the Bank to equity during 2018 (PLN 328 million) and a part of the Bank's profit for the first 9 months of 2019 (PLN 849 million),
  • incorporation of EUR 250 million of subordinated loans to Tier 2 capital after receipt of PFSA's approval,
  • taking into account the impact of IFRS 9 being a result of the application of the transition period,
  • growth of business volumes and operational activity,
  • a review of the calculation methods of risk-weighted assets and a review of recognition of collateral.

 

ING Bank Śląski S.A. Group capital ratios

In its calculations of capital ratios, the Group was applying interim regulations mitigating the implementation effects of IFRS 9 on equity. If the implementation effect of IFRS 9 were fully recognised as at the end of 2019:

  • at the consolidated level, the total capital requirement would have been 16.64% and the Tier I ratio – 14.18%,
  • at the separate level, the total capital requirement would have been 18.05% and the Tier I ratio – 15.38%.

Stress tests

In compliance with the Stress test policy at ING Bank Śląski S.A., the Group holds stress tests for economic capital and capital requirements. The results of the stress tests are submitted to ALCO, the Bank’s Management Board and the Bank's Supervisory Board.

As at 30 June 2019, the Bank held stress tests on a consolidated basis relying on assumptions developed by the Chief Economist. The stress tests covered:

  • scenario tests: a scenario of moderate recession, a scenario of long-term recession and a scenario of a rapid recession;
  • sensitivity tests (growth of interest rates by 400 bps and 200 bps; drop of property prices by 30%; PLN exchange rate weakening by 30% and 50%; reduced GDP growth to -5%; growth of unemployment to 20%; drop of salaries by 10%; drop of demand to -10%).
  • concentration tests,
  • tests of financial leverage ratio.

As a result of the completed stress tests, the Group receives information on changes to capital requirements, economic capital and equity in case of occurrence of the assumed macroeconomic parameters

Dividend policy

The Bank's dividend policy provides for the following:

  • stable dividend payouts over a long time horizon subject to the principle of prudent management and compliance with all regulatory requirements applicable to the Bank,
  • possibility of dividend payouts from capital surplus over the minimum capital adequacy ratios and above the minimum levels of capital ratios determined by the Polish Financial Supervision Authority (“PFSA”) for dividend payouts.

Determining the proposed amount of dividend, the Management Board takes the following into account in particular:

  • the current economic and financial condition of the Bank and the Bank's Group, including limitations when financial losses are generated or in case of low profitability (low return on assets / equity),
  • assumptions underlying the management strategy of the Bank and the Bank's Group, including risk management strategy,
  • PFSA's position on banks’ dividend policies,
  • restrictions resulting from Art. 56 of the Act on Macro-prudential Supervision over the Financial System and Crisis Management in the Financial System of 5 August 2015.

PFSA’s guidelines with respect to dividend for 2019

On 3 December 2019, the Polish Financial Supervision Authority approved its position on dividend policies of banks in 2020 (dividend for 2019). PFSA recommends that dividend of up to 50% of the profit earned in 2019 can only be distributed by those banks that fulfil all of the following criteria:

  • that do not pursue any remedy plan;
  • have a final BION rating not less than 2.5;
  • with financial leverage level (LR) of no more than 5%;
  • that hold their Tier 1 (CET1) core capital ratio not lower than the required minimum: 4.5% + 56%*add-on + combined buffer requirement in force since 2020;
  • that hold their Tier 1 (T1) capital ratio not lower than the required minimum: 6% + 75%*add-on + combined buffer requirement in force since 2020;
  • that hold their total capital ratio (TCR) not lower than the required minimum: 8% + add-on + combined buffer requirement in force since 2020.

Additionally, PFSA provided for a possibility of payout:

  • up to 75% – if banks meet all the criteria for dividend up to 50% subject to the additional buffer of 1.5 pp in capital requirements;
  • up to 100% – if banks meet all the criteria for dividend up to 75% subject to the bank’s sensitivity to unfavourable macroeconomic scenarios (ST) in capital requirements. The bank’s sensitivity to unfavourable macroeconomic scenarios measured with supervisory stress tests defined as: the difference between TCR in the reference scenario and TCR in a shock scenario at the end of 2021, providing for supervisory adjustments.

Full stance of the PFSA on the dividend in 2020 (for 2019) is available on the PFSA’s website.

The sensitivity to unfavourable macroeconomic scenarios was set for ING Bank Śląski S.A. in PFSA's letter of 24 December 2019 at 0.00%.

In compliance with the guidelines, PFSA's requirements vis-a-vis ING Bank Śląski S.A. for the purposes of dividend payout for 2019 up to 50% of net profit are as follows (subject to nominal values of capital buffers):

  • CET1 >= 10.5% (and 12% with dividend in excess of 50%),
  • T1 >= 12% (and 13.5% with dividend in excess of 50%),
  • TCR >= 14% (and 15.5% with dividend in excess of 50%).

Dividends declared

The Bank Management Board recommends to the General Meeting the dividend for 2019 totalling PLN 494.4 million or 29.8% of the consolidated profit of the ING Bank Śląski S.A. Group or 29.8% of the standalone profit of ING Bank Śląski S.A. The proposed dividend per share is PLN 3.80 gross. The proposed record date is 23 April 2020 and the proposed dividend payout date is 11 May 2020. The dividend proposal takes account of the current financial standing of the Group and Bank when capitalised means ING Bank Śląski S.A. and its development plans.

History of paid dividends

In 2019, ING Bank Śląski paid a dividend from 2018 net profit in the total amount of PLN 455.4 million, or PLN 3.50 gross per share. It accounted for 29.8% of the consolidated profit of the ING Bank Śląski Group and 29.8% of the net profit of shown in the separate financial statement of ING Bank Śląski. The dividend right acquisition day was 18 April 2019 and the date of dividend payment was 6 May 2019.

The history of dividends paid in the last five years is shown in the table below. Full history is available on a website .

Abridged history of dividend payment by ING Bank Śląski S.A.
2018 2017 2016 2015 2014
Dividend amount in a given year (PLN million) 455.4 416.3 559.4 520.4
Dividend amount per share (PLN) 3.50 3.20 4.30 4.00
Dividend payment rate (to consolidated profit) 29.8% 29.7% 49.6% 50.0%
Dividend payment rate (to the share price on the dividend rights acquisition day) 1.8% 1.7% 3.5% 2.8%

Remedy plan and enforced restructuring

On 28 May 2019, the Group of ING Bank Śląski S.A. received a positive administrative decision of the Polish Financial Supervision Authority (PFSA) with respect to the update of the Recovery Plan. The Bank Guarantee Fund was also involved in the process of issuing this decision by the PFSA as an opinion maker. The Recovery Plan complies with the Polish law transposing the requirements of the BRR Directive, i.e. the Act on the Bank Guarantee Fund of 10 June 2016 and the secondary legislation under the Act.

In parallel to the Bank's efforts on the Recovery Plan, the Bank Guarantee Fund, pursuant to its responsibilities referred to in the Act, is obliged to prepare, update and assess the feasibility of Forced Restructuring Plans for domestic entities. The Bank Guarantee Fund in its letter of 29 January 2020 sustained for ING Bank Śląski S.A. the restructuring strategy in the form of debt write-offs and conversions (Eng. (“bail-in tool”) to cover the incurred losses and to recapitalise the Bank and to restore market confidence in the Bank in respect to its potential to pay its debt. The Bank Guarantee Fund set an MREL requirement for the Bank and it was obliged to comply with it effective from 31 December 2022.

The Bank Guarantee Fund set the MREL requirement for the Bank at the level of 21.28% of risk-weighted assets (11.679% of total equity and liabilities). The MREL requirement, according to the current Bank Guarantee Fund methodology for bail-in strategies for risk-weighted assets, can be estimated using the following formula:

(CRRTCR + BFX + OSII) + [1 – (CRRTCR + BFX + OSII)] * (CRRTCR + BFX + OSII + BZ + BRS + BA)

  • CRRTCR – The minimum required by CRR with respect to the total capital ratio,
  • BFX – Pillar 2 or add-on for exposures under FX mortgage loans,
  • OSII – Buffer of another systemically-important institution,
  • BZ – Capital conservation buffer,
  • BRS – Systemic risk buffer,
  • BA – Countercyclical buffer.

The restructuring strategy and the MREL requirement may be changed, in particular as a result of work in supervisory bodies, including in connection with common supervisory decisions as well as the implementation of the Banking Packet (CRR2, BRRD2 and CRD V).

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