The financial and organizational situation of the PKO Bank Polski SA Group and of the financial sector was affected by new legal and regulatory solutions which came into force in 2017, including:
Prudential and capital requirements
The Regulation of the European Parliament and of the Council No 575/2013 on prudential requirements for credit institutions and investment companies, EBA technical standards and recommendations of the Polish Financial Supervision Authority, in particular to increase the short-term liquidity LCR for 2017 to 80% from 70% in 2016.
An impact on the banks’ capital base, supervisory prudential norms, business activity of banks.
Recommendation C of the Polish Financial Supervision Authority (Official Journal of the PFSA of 2016, item 15), from 1 January 2017 changing the principles for managing the risk of loan concentration in universal and mortgage banks.
An impact on managing credit, market, operational and liquidity risks in banks.
Internal control system, risk management
The Decree of the Minister for the Development and Finance on risk management system and internal control system, salary policy and policy for estimating internal capital (Journal of Laws of 2017, item 637).
An impact on the organization of the risk management system and internal control system.
Requirements concerning granting housing loans
Recommendation S of the Polish Financial Supervision Authority concerning loan exposures secured by mortgage (Official Journal of the PFSA of 2013, item 23), from 1 January 2017 increasing the requirement of the borrower’s own contribution from 15% to 20%.
An impact on the level of lending activity, interest income, commission income and income from bank fees, and capital requirements.
De Minimis Programme
An amendment to the Decree of the Minister of Finance (Journal of Laws of 2016, item 1471) concerning granting de minimis aid by Bank Gospodarstwa Krajowego in the form of loan repayment guarantees, prolonging the operation of the De minimis programme to 2017.
An impact on the level of lending activity to small and medium enterprises.
The Act amending the Act on renewable sources of energy and some other Acts (Journal of Laws of 2016, item 925) and the Act on investments relating to windfarms (Journal of Laws of 2016, item 961), having a negative impact on the financial condition of windfarms, also through tax effects.
An impact on the quality of the loan portfolio and the level of impairment provisions.
Financing of agricultural activities
The Decree of the Minister of Justice of 5 July 2017 specifying the objects belonging to a farmer running a farm which are not subject to execution (Journal of Laws of 2017, item 1385). The Decree came into force on 2 August 2017.
An impact on the level of lending activity and lease activity for farmers.
Payments through a bank account
The Act on freedom of business activity (Journal of Laws of 2015, item 584, as amended) from 1 January 2017 reducing the limit for transaction values between entrepreneurs conducted via a bank account from EUR 15 thousand to PLN 15 thousand.
An impact on the level of deposits of corporate customers.
Tax on investment funds
The amendment to the Corporate Income Tax Act (Journal of Laws of 2016, item 1926) pursuant to which as of 1 January 2017 some closed-ended funds were covered by CIT.
An impact on the level of investment fund assets and the results of fund management companies.
Limiting the operations of open pension funds (OFE)
The Act on amending some Acts on the principles for paying out pensions from funds accumulated in open pension funds (Journal of Laws of 2013, item 1717) from 1 January 2017 reducing the minimum limit of exposure of open pension funds in the shares of Polish companies from 35% to 15%.
An impact on the level of assets, business models and results of open pension funds.
BGF – classification of costs
The Act of 10 June 2016 on the Bank Guarantee Fund, the deposit guarantee system and mandatory restructuring (Journal of Laws of 2016, item 996) amending, among other things, the principles of classifying BGF costs for tax purposes.
An impact on results.
Changes in taxes
The Act of 5 September 2016 on amending the Personal Income Tax Act and the Corporate Income Tax, introducing an additional condition (actual owner) that determines the right to tax relief on interest income and licence-related receivables obtained by non-residents on the territory of the Republic of Poland.
An impact on results.
Regulatory and legal environment in Ukraine
The operations and results of the PKO Bank Polski SA Group in 2017 were influenced by new legal solutions introduced in Ukraine (where, among others, the Bank’s subsidiary KREDOBANK operates), including:
Changes in basic interest rates
The Resolutions of the Board of Directors of the Central Bank of Ukraine (NBU) no. 232/2017 and 318/2017 reducing the discount rate from 14 April 2017 by 1 p.p. to 14% and from 26 May 2017 by 0.5 p.p. to 12.5% and Resolutions no. 688/2017 and 793/2017 increasing the discount rate from 27 October 2017 by 1 p.p. to 13.5% and from 15 December 2017 by 1 p.p. to 14.5%.
An impact on business activity and their interest income.
The Decision of the NBU no. 407/2016 reducing from 3 January 2017 the maximum amount of cash settlements performed between individuals and corporate entities from UAH 150 thousand to UAH 50 thousand.
An impact on the level of customer deposits and banks’ income.
Foreign currency administration
The Decision of the NBU no. 7/2016 from 9 February 2017 raising the limit of foreign currency purchases on the interbank market.
An impact on business activities of banks, management of foreign currency position and level of risk.
Resolution no. 313/2015 of the Board of Directors of the NBU raising the minimum capital adequacy requirement to 7% for the year 2017.
An impact on the capital base, supervisory prudential norms and business activity of banks.
Decision of the NBU no. 75/2017 introducing changes regarding determination of credit risk.
An impact on the level of credit risk.
Cooperation with brokers
Decision of the NBU no. 50/2017 regulating the principles for cooperation of banks with loan brokers.
An impact on business activities of banks and level of risk.
Regulatory solutions that will affect the financial position of banks and their capital groups in Poland in the perspective of the next quarters
The following new regulatory solutions may affect the financial results of the banking sector in the perspective of the nearest quarters:
- from 1 January 2018 the introduction of the systemic risk buffer at 3% of the aggregate risk exposure on the individual and consolidated basis;
- from 1 January 2018 increasing the safety buffer to 1.875% from 1.25% in 2017;
- the coming into force of IFRS9, which introduces, among other things, changes in the calculation and recording of impairment allowances and classification of financial instruments;
- from 30 April 2018 a reduction in the mandatory reserve from 3.5% to 0% for deposits above 2 years and starting from 1 January 2018 a reduction in the interest rate on the mandatory reserve to 0.5% compared with 1.35% before;
- the Act of 15 December 2017 on amending the VAT Act and some other Acts introducing the split payment mechanism to the VAT system from 1 July 2018;
- the MIFID2 Directive introducing new requirements related to the provision of investment services, among others, by banks and investment fund companies;
- the IDD Directive implemented into Polish law by the Act on insurance distribution dated 15 December 2017 introducing, among other things, new obligations for insurance companies with regard to their customers;
- the PSD2 Directive relating to payment services, introducing, among other things, a new category of suppliers providing two types of services: the payment initiation service (PIS) and the account information service (AIS);
- the EU Regulation GDPR on personal data protection;
- continuing uncertainty as to the final shape of the statutory solutions concerning housing loans in foreign currencies;
- the Act of 27 October 2017 amending the Personal Income Tax Act, the Corporate Income Tax Act and the Act on flat-rate income tax on some revenues generated by individuals, introducing regulations resulting in increasing the CIT burdens and relating to: categorization of sources of income (from capital gains and from other sources of income), general restriction on the costs of debt financing in place of the so-called thin capitalization provisions, restrictions on classifying expenses on intangible services as tax-deductible costs and changes adapting the regulations in connection with IFRS 9 coming into force;
- the Act of 24 November 2017 on amending some Acts in order to counteract using the financial sector for tax extortions, introducing new obligations for banks and SKOK within the scope of providing information to the IT system of the clearance chamber (STIR) and blocking of accounts;
- the draft Act on amending some Acts in order to introduce simplifications for entrepreneurs in tax and business law, introducing, among other things, an alternative method of taxing issues of bonds and debentures.