Equity and return on equity

Equity of the PKO Bank Polski SA Group went up by 11.3% in annual terms, and constituted 12.2% of the total equity and liabilities as at the end of 2017.

Equity and capital adequacy ratio of the PKO Bank Polski SA Group (in PLN million)

ROE GK PKO Banku Polskiego SA

* risk-free rate calculated as the annual average yield of 10-year Treasury bonds.

The reinforcement of the capital base (an increase in average equity of 8.9% y/y) arising from the necessity to comply with the recommendations of the PFSA and the regulatory requirements, with the profit dynamics on the level of 8.0% y/y translated into a slight increase in the return on equity ratio (ROE) to 9.0 p.p.

The total value of buffers and additional discretionary capital requirements which the Group was obliged to meet as at 31 December 2017 was 2.61% of the total exposure to risk calculated in accordance with the CRR Regulation. The same values as at 31 December 2016 amounted to 2.79%.

In 2017 and in 2016, the Group maintained a safe capital base in excess of the supervisory and regulatory limits.

Own funds for capital adequacy purposes

In 2017, the Group’s capital adequacy level remained at a safe level, well above the supervisory limits.

An increase in Tier 1 capital before regulatory adjustments and reductions between 31 December 2017 and 31 December 2016 resulted from:

• a decision adopted on 22 June 2017 by the Ordinary General Shareholders’ Meeting on the appropriation of the Bank’s net profit for 2016 by transferring it to supplementary and reserve capital, without distributing any amounts as dividend. The resulting increase in own funds amounted to PLN  1 299 million, and the remaining part of the net profit for 2016 (PLN 1 589 million) had already been included in own funds as at 31 December 2016 since the Bank had received the required permission from the PFSA to include the net profit earned for the three quarters of 2016, less the anticipated charges, in Tier 1 core capital;
• a permission from the PFSA received by the Bank on 21 September 2017 to include the net profit of PKO Bank Polski SA for the first half of 2017, less the anticipated charges (of PLN  1,118 million) in Tier 1 core capital;
• a permission from the PFSA received by the Bank on 15 December 2017 to include the net profit of PKO Bank Polski SA for the third quarter of 2017, less the anticipated charges (of PLN  704 million) in Tier 1 core capital.

Changes in Tier 2 capital between 31 December 2017 and 31 December 2016 resulted from the following:

• having obtained the necessary permissions from the PFSA, the Bank exercised a call option for subordinated bonds of PLN  1 600 million and made an early repayment of a subordinated loan of CHF 224 million (the equivalent of PLN  884 million). As at 31 December 2016, both these instruments were classified as Tier 2 capital. Since the receipt of the said permission, they have no longer been included in the Bank’s own funds;
• the Bank obtained permission from the PFSA to include a new issue of the Bank’s subordinated bonds amounting to PLN  1,700 million in own funds.  

Wymogi w zakresie funduszy własnych (Filar I)

The Group calculates own funds requirements for the following types of risk:

The leverage ratio calculated in accordance with the transitional definition amounted to 10.53% as at 31 December 2017 and 9,62% as at 31 December 2016.

Internal capital (Pillar II)

In 2017, the Group calculated internal capital in accordance with external regulations:

• the CRR Regulation
• the Polish Banking Law;
• the Regulation of the Minister of Finance and Development of 6 March 2017 on the risk management and internal control systems, remuneration policy and the detailed procedure for estimating the internal capital in banks;
• the Act on Macro-prudential supervision;

and the internal regulations of the Bank and the Group.

Internal capital is the amount of capital estimated by the Group that is necessary to cover all of the identified significant risks characteristic of the Group’s activities and the effect of changes in the business environment, taking account of the anticipated risk level.

The estimation of internal capital is aimed at determining the minimum level of own funds which ensures the safety of operations, taking into account changes in the profile and scale of the operations as well as adverse stress conditions.

The internal capital for covering the individual risk types is determined using the methods specified in the internal regulations. In the event of performing internal capital estimates based on statistical models, the annual forecast horizon is adopted and a 99.9% confidence level. The total internal capital of the Group is the sum of the internal capital necessary to cover all significant types of risks to which the Bank and the Group are exposed, taking into account the entities included in prudential consolidation. The correlation coefficient for different types of risk and different Group entities used in the internal capital calculation is equal to 1.

In 2017 and 2016, the relation of the Group’s own funds to its internal capital remained on a level exceeding both the threshold set by the law and the Group’s internal limits.

Disclosures (Pillar III)

The Group annually announces information, in particular, about risk management and capital adequacy in accordance with: the CRR regulation and the implementing acts thereto, Recommendation H, the Polish Banking Law, the Act on Macro-Prudential Supervision, Recommendation M relating to operational risk management in banks and Recommendation P relating to liquidity risk, issued by the Polish Financial Supervision Authority.

Details of the scope of information disclosed, the method of its verification and publication are presented in PKO Bank Polski SA Capital Adequacy Information Policies and other information to be published, which are available on the Bank’s website (www.pkobp.pl).