Banking (Bank Pekao, Alior Bank)

Market situation

As at the end of December 2018, there were 32 domestic commercial banks, 549 cooperative banks and 31 branches of credit institutions operating in Poland.

The standing of the banking sector in 2018 continued to be stable underpinned by the persisting vibrance of the economy and the functioning of banks in a low interest rate environment. In 2018, the banking sector generated a net profit of PLN 14.7 billion, i.e. PLN 1.0 billion (7.5%) more than the 2017 figure.

The sector’s net result was shaped predominantly by the improved operating result (to PLN 19.1 billion, i.e. up 3.5% in comparison with the corresponding period in 2017), caused by significantly higher net interest income with a concurrent dip in the result on fees and commissions.

Gross receivables from the non-financial sector (excluding debt instruments) increased 6.0% to PLN 1,015 billion y/y as at the end of December 2018. Growth in this area was driven mainly by receivables from enterprises (+6.8% y/y) and receivables from households (+5.7% y/y).

Banks’ operating expenses (net of depreciation and provisions) climbed 1.7% in the analyzed period. This change was caused by growing employee expenses (up 2.5%) and higher general and administrative expenses (up 0.8%).

At the end of December 2018, assets of the banking sector reached PLN 1.9 trillion and increased by PLN 119.4 billion, or 6.7% compared to the end of 2017.

The consumer loan portfolio (gross) increased by 7.9 billion while the portfolio of housing loans for households rose at the same time by PLN 27.7 billion. With respect to receivables from non-financial companies, the (gross) value of operating loan portfolios rose by PLN 13.1 while investment loan portfolios fell by 0.8 billion. The value of gross mortgage loans for corporate clients increased by 9.4 billion in 2018.

The deposits of non financial clients accumulated in banks increased by 88.2 billion in 2018.

The banking sector’s own funds for capital ratios, calculated in accordance with the regulations laid down in the CRR Regulation¹, totaled PLN 204.6 billion at the end of December 2018, up 3.5% versus the end of December 2017.

Total Capital Ratio of commercial and cooperative banks stood at 19.1% at yearend 2018, versus 19.0% in 2017 and Tier I ratio amounted to 17.2%.

Operations of the Pekao Group

The Pekao Group is led by Bank Pekao S.A., a universal commercial bank offering a full range of banking services provided to individual and institutional clients operating chiefly in Poland. The Pekao Group consists of financial institutions operating on the following markets: banking, asset management, pension funds, brokerage services, transaction advisory, leasing and factoring.

Pekao’s strategic objectives announced in the new strategy for 2018-2020 “Strength of the Polish Bison” include becoming the leader of profitability in the Polish banking sector through embarking on the path of intelligent growth in a business model based on high efficiency and quality of processes. Business development is based on a strong capital and liquidity position while maintaining the highest risk management standards and further improving cost effectiveness.

At the end of the third quarter of 2018, Bank Pekao was the second largest bank in Poland (in terms of the value of its assets).

In September 2018, Bank Pekao opened its first foreign representative office in the United Kingdom. The outlet in London plays a representative role. The Bank’s representative office should support corporate and private banking relationships, including Polish companies planning international expansion or private equity funds interested in the Polish market.

New products and services

According to Bank Pekao’s strategy, its growth among retail clients is driven by the significant acceleration of growth in the number of accounts, among others thanks to its new personal account offer, a new offer for young people and the cutting edge mobile banking function featuring BLIK.

In January 2018 the bank launched its new Mega Beneficial Account offer to replace the previous line of Euroaccounts. The Mega Beneficial Account is the bank’s main account through which it offers a full array of banking products and services. Moreover, in January 2018 the bank launched a new Savings Account in its offer for retail clients offering an attractive interest rate for their funds and no fees for withdrawals from this account provided that they use the Peopay mobile application.

Since April 2018, the bank has been participating in the Large Family Card program, which is a nationwide system of discounts for families with three or more children. Since the beginning of June, the cardholders have been able to use the services and products of Bank Pekao on very favorable terms, for example they receive a 5% refund (maximum PLN 600 for 2 years) for household bills. In addition, the bank has prepared a special price offer for an Express Loan, housing loan, Flexible credit card, while selected Partners of the Discount Gallery Program offer special discounts on shopping for large families. Bank Pekao serves more than 1.4 million families.

Bank Pekao is a leading bank in servicing foreigners with more than 25% market share in this respect. The largest group of foreigners using banking services in Poland are the citizens of Ukraine, of which almost every fourth is a Bank Pekao customer. The percentage is even higher among Ukrainian students: every third student has an account with Bank Pekao. The Bank expanded its offering for Ukrainian citizens with a helpline, forms of bank regulations in the Ukrainian language and a Currency Exchange service with preferential exchange rates. Starting in July 2018 it will provide free money transfers to Ukraine and PeoPay mobile banking in Ukrainian.

In 2018, the bank introduced a new Savings Account for retail customers and a Premium Savings Account dedicated to affluent customers with a World Premium Account. The new accounts replaced the Dobry Zysk account.

The bank developed its cooperation with PZU in insurance in 2018. Training was delivered to 6.7 thousand branch employees who obtained a license from KNF to sell PZU insurance. It introduced a group insurance product called “PZU-TRAVEL PACKAGE-BUSINESS” for the users of business payment cards issued by Bank Pekao and a general insurance agreement was executed with PZU concerning the risk of mortgage loan amortization. The bank also made available an option to buy voluntary PZU CPI insurance offered in conjunction with a loan application during the “one click” process in the Pekao24 system. Since June 2018, Bank clients have been able to avail themselves of the new insurance for buildings and residential units prepared by PZU. In addition to the standard insurance for real estate that can form collateral for the debts of the Bank’s borrowers, clients can choose from additional bundles spanning insurance for their household personal property, assistance and third person liability. Bank Pekao’s electronic channels conducted an active sales campaign of PZU’s tourist insurance offered through the moje. pzu.pl portal.

In the PeoPay mobile banking area, in 2018 the bank launched a 24/7 money exchange counter and the ability to manage cards; as a result, clients may now use the application to activate or block a payment card. A user of the PeoPay application may set it to display the account balance on the home screen without the need to log in. The PeoPay app also offers the option of verifying the customer during a conversation with a bank consultant. In June 2018, Bank Pekao implemented BLIK codes in the PeoPay application enabling cash withdrawals from ATMs, payments in payment terminals and on the Internet. Additionally, in June 2018 Bank Pekao was one of the first banks in Poland to deploy Apple Pay and it is the only bank in Poland that enables clients to link Apple Pay to their personal account through Peopay mobile banking without even having to have a card. The number of retail clients actively using mobile banking has been increasing by 31% y/y.

The Bank dynamically increased its share in the micro-business segment, which was driven by the availability, attractive offer and effective and fast processes. In 2018, Pekao changed the account offer for micro-businesses, introducing a single Konto Przekorzystne Biznes instead of seven accounts previously. The Bank also launched a very attractive currency offer for businesses that included free supporting accounts in 20 foreign currencies; also all foreign currency transfers received and 5 outgoing European SEPA transfers per month are free.

In 2018 the activities in Private Banking area focused on acquiring new customers and strengthening relations with the existing clients by offering products tailored to their needs and to the current market situation. In 2018 400 new clients were acquired. The clients brought investment products for almost PLN 900 million. At yearend 2018, assets under the Investment Advisory service amounted to PLN 3.1 billion. Private Banking clients actively used the internet and mobile banking services., the number of operations performer through remote channels increased by over 90%.

The Bank is steadfastly pursuing its growth strategy in the Small and Medium Enterprise segment. At the outset of 2018 an offer containing new flexible service bundles was rolled out: Standard and Premium. The SME Premium offer targets companies with annual sales above PLN 5 million that need comprehensive service and for whom a tailor-made approach and the ability to negotiate prices are crucial. In H1 2018 new products were made available to clients: multi-purpose credit line (overdraft, installment working capital loan, guarantees and letters of credit under a single credit decision and agreement), renewable revolving loan to finance current business and e-financing to support the financing of short-term commercial accounts receivable. In the latter half of the year the bank phased in the SME Universal Agreement forming the basis of the comprehensive offer in transactional banking, making it possible to forge multi-dimensional relations with clients. The SME Universal Agreement was crafted by using modern trends in corporate banking giving clients a wide array of products and services. In turn, as a result of the agreement signed in July of 2018 between Bank Pekao and the European Investment Fund (EFI) regarding a line of portfolio guarantees for loans, loans with an EFI COSME guarantee were launched in the offer as of September 2018. EFI COSME guarantees secure 50% of the principal and interest on investment or working capital loans made to companies; they are extended free of charge and make it easier for companies to obtain access to funding.

On 1 July 2018 a split payment mechanism was made available to business clients in Pekao’s electronic banking systems, thereby facilitating the execution of wire transfers using funds on the VAT account.

Under its offering for corporate clients Bank Pekao signed an agreement in 2018 with Bank Gospodarstwa Krajowego pertaining to participation in the Export Letters of Credit Program enabling the bank to confirm and discount export letters of credit from countries with a heightened level of risk, whereby it supports Polish companies in their expansion onto international markets. 

In 2018 the bank enriched its offering to include bank guarantees issued in the form of a PDF file bearing a qualified electronic signature (e-guarantees) and it launched the Open Financing Platform (OPF) – a new tool for trade finance. This platform provides for fully comprehensive electronic handling of the financing process and redemption of accounts receivable.

In export support Bank Pekao collaborates with the Export Loan Insurance Corporation (KUKE) that offers instruments to mitigate the risk involved in international transactions. In 2018 Pekao signed a master agreement with KUKE regarding their joint offer for exporters and has executed the first transactions on that basis. Under the KUKE agreement insurance guarantees are extended for the payment of receivables in respect of letters of credit opened by international banks - confirmed, post-financed or discounted by Pekao. The development of cooperation with KUKE has also encompassed other export financing products. The Bank has executed transactions to issue contractual guarantees and pre-finance an export contract using collateral in the form of a KUKE insurance guarantee.

Pekao TFI

The Pekao Mutual Fund Company (Pekao TFI) is another member of the Pekao Group. Pekao TFI (formerly Pioneer Pekao TFI) is the oldest mutual fund management company in Poland providing clients modern financial products, offering opportunities to invest in the largest global capital markets. For many years it has been devising savings programs, including programs affording an opportunity to put aside more money for retirement under the third voluntary retirement pillar. Pekao TFI also offers a managed account service. At the end of December 2018 the company had assets under management totaling PLN 19.2 billion, signifying an upswing of PLN 1.8 billion, i.e. 10.2% in comparison to the end of December 2017 and was ranked fourth (in terms of assets under management) on the market of investment companies in PolandCHAP. 3.5 MUTUAL FUNDS

Pekao OFE, DFE Pekao

PZU PTE’s acquisition of the management of Pekao OFE and DFE Pekao is one of the outcomes of the PZU Group acquiring Bank Pekao in 2017. The winding up of Pekao OFE commenced on 1 August 2018 and ended on 12 October 2018, and on that day Pekao OFE’s assets were transferred to OFE PZU. In turn, the winding up of DFE Pekao kicked off on 19 May 2018 and ended on 28 September 2018. Pekao Financial Services is rendering Transfer Agent Services for the funds managed by PTE PZU.

Operations of the Alior Bank Group

The Alior Bank Group is headed by Alior Bank. Alior is a universal deposit and credit bank, providing services to natural persons, legal persons and other domestic and foreign entities. The bank’s core business comprises maintaining bank accounts, granting cash loans, issuing bank securities and purchase and sale of foreign currencies. The bank also conducts brokerage activity, provides financial advisory and intermediation services, arranges corporate bond issues and provides other financial services.

Alior Bank is one of the most modern and innovative financial institutions in Poland. It is a place for people who have ideas and business courage to set new banking standards. The bank’s offering includes products and services both for individual and business clients, including small and medium enterprises and institutional clients. The bank’s offer combines the principles of traditional banking with innovative solutions. As a result, Alior Bank systematically strengthens its market position and for years has been consistently setting new directions of development of the Polish banking. By implementing the “Digital Disruptor” strategy, Alior Bank has the ambition of becoming the digital bank of first choice for individual clients and for small and medium enterprises in Poland and wants to become one of the most innovative banks in Europe.

At the end of the third quarter of 2018, Alior Bank was the seventh largest bank in Poland (in terms of the value of its assets).

New products and services

In 2018 the key new products and services in the Alior Bank Group’s offering included:

• “Pożyczka na piątkę” cash loan/consolidation loan with a very attractive 5% interest rate independent of the loan amount – addressed to clients who have no cash loan/ consolidation loan with Alior Bank;
• Online loan offer, in which the Bank refunds interest on every twelfth installment repaid;
• “Pożyczka dwuosobowa” cash loan/consolidation loan, which allows one to obtain an attractive price of a product (reduction of all costs by 33%) if the loan offer is used by two or more borrowers;
• deployment of Apple Pay in June enabling iPhone owners to make contactless payments for products and services using their handset. On top of the payment solutions already available, i.e. Android Pay, HCE and BLIK, this heralds another innovative payment solution forming a component of the Digital Disruptor Strategy;
• preparing a new investment certificate offer for selected Private Banking clients entailing a limited capital guarantee and a conditional early call option known by the name of “autocall”. In 2018 thirteen issues of this type were carried out for a total nominal value of PLN 218 million;
• continuing the agency training program to offer individual insurance policies;
• implementing property insurance in cooperation with PZU to be available to mortgage loan borrowers in Alior Bank; 
• implementing life insurance for cash loan borrowers in cooperation with PZU Życie;
• rolling out Konto Mocno Oszczędnościowe (Mega Savings Account) that offers attractive interest for new deposits and moreover, free-of-charge wire transfers by Internet to one’s own checking and saving account in Alior Bank;
• cooperating with BANCOVO to launch the first, fully digital financial intermediation platform; Operational launch of BANCOVO, a fully-digital financial intermediation platform was held on 6 March 2018. As a result, for the first time in Poland, clients obtained a true online access to actual offers of numerous banks and loan providers
• PAPERLESS - deploying a solution making it possible to abandon the traditional form of signing contracts.

Alior TFI

Alior TFI (formerly Money Makers) operates in the Alior Bank Group. It was established in 2010 and its operations originally focused on asset management services. Alior Bank’s cooperation with its subsidiary Alior TFI pertains to three areas: asset management (portfolio management for retail clients/private banking), unit-linked funds, and Alior SFIO sub-fund management. From 5 January 2017, Alior TFI has been listed on the alternative market of the Warsaw Stock Exchange (NewConnect). 

Factors, including threats and risks which will affect the banks’ operations in 2019

The situation of the banking sector in 2019 is likely to be primarily affected by the following factors:

• the scale of demand for banking services and the ability of banks’ clients to timely pay their liabilities largely depends on the clients’ financial situation. Apart from the country’s macroeconomic standing, the economic situation of a number of client groups also depends on the national economic policy being pursued. Both a lower growth rate of the Polish economy and changes in the legal framework for the operation of enterprises may have an adverse impact on the financial standing of selected clients of banks;
• changes in the external environment and international events, including tensions related to geopolitical factors (e.g. Brexit, trade wars), affecting the domestic economy;
• development of banking services offered by non-regulated entities;
• interest rate policy of the Monetary Policy Council;
• high requirements regarding equity and solutions based on the latest accounting standards (IFRS9) and the ability to use capital to gradually achieve compliance with the MREL requirements;
• translation of solutions related to the most recent accounting standards (IFRS 9) into the volatility of risk costs – in particular in the context of the expected economic slowdown (a higher sensitivity of costs to business cycle fluctuations);
• continuing high level of contributions to the Bank Guarantee Fund.

¹ Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012