Table of contents
1. Letter from the Supervisory Board Chairman
2. Letter from the President of the Management Board
5. Financial results, capital adequacy and financial instruments
6. Development lines and operations of ING Bank Hipoteczny S.A.
7. Internal business conditions
8. Organisational framework and authorities of ING Bank Hipoteczny S.A.
9. Corporate governance and information for investors
10. ING Bank Hipoteczny S.A. Management Board statement
Dear Sirs/Madams,
2020 was a special year due to the COVID-19 pandemic. The Bank is in a very good liquidity and capital position, well above the required regulatory levels.
The Management Board continue their efforts to acquire and then gradually increase the share of long-term funding in the balance sheet of the Bank. The primary method is still the issue of covered bonds. In 2020, these activities had to be adapted to the external situation and market potential.
The Bank continuously analyses the changing circumstances, including the covered bond market, changes in the regulatory and economic landscape, as well as the situation of our customers.
In the past reporting period, the Bank acquired a mortgages portfolio worth more than PLN 1 billion. As part of the diversification of funding sources, in 2020 the Bank also issued its own bonds in the amount of approximately PLN 1 billion.
On 9 December 2020, the Moody’s Investor Services rating agency informed the Bank that the rating of the Bank’s covered bonds was upgraded from 'Aa3' to 'Aa1'. This resulted from the change in the maximum long-term rating that can be assigned to debt securities issued by an entity operating from the territory of the Republic of Poland. Such a rating will also give us an even better perspective for the placement of covered bonds of ING Bank Hipoteczny in the market.
As in previous years, the Supervisory Board analysed the financial standing and development of the Bank. The Supervisory Board are assisted by the Audit and Risk Committee, formed by the Supervisory Board Members. In the period from 1 January 2020 to 31 December 2020, there were five onsite meetings of the Supervisory Board and six ones of the Audit and Risk Committee. The Bank Supervisory Board monitored the financial results of the Bank, the market and liquidity risks management, and capital adequacy. Morover, they selected the entity authorised to audit the financial statements for 2020-2021, and approved the bond issue programme.
Yours sincerely,
Brunon Bartkiewicz
Chairman of the Supervisory Board
Dear Sirs/Madams,
Below please find the annual report of ING Bank Hipoteczny S.A. (the Bank) for 2020. It was the second operational year for the Bank since it was established. This year, despite unfavourable macroeconomic conditions caused by COVID-19 pandemic, the Bank achieved good results.
The strategic objective of ING Bank Hipoteczny S.A. is to acquire and then increase the share of long-term funding in the Bank’s balance sheet by issuing covered bonds. In connection with the COVID-19 pandemic, the Bank kept analysing the situation on an ongoing basis and from time to time took actions adequate to the market behaviour and the environment. The Management Board took all measures to maintain operational continuity, including the current customer service, and analysed the risks associated with a potential increased delay in loan repayments as well as a potential decrease in property prices. Preventive measures were also taken to protect employees’ health by introducing, for instance, remote working. The suppliers’ capacity to provide their services is also monitored on an ongoing basis.
The Bank has a solid foundation and is in a very good liquidity and capital position, well above the levels required by the regulator.
In the reporting period the Bank acquired a mortgages portfolio worth more than PLN 1 billion, by which it laid the foundations for the planned future issues of covered bond. Due to unfavourable market conditions the said issues are planned for a later date. It was also a period when the Bank took steps to diversify its funding sources by issuing approximately PLN 1 billion of own bonds. Furthermore, the rating of covered bonds of ING Bank Hipoteczny was upgraded this year from 'Aa3' to ‘Aa1’, which resulted from the change in the maximum long-term rating that can be assigned to debt securities issued by an entity operating from the territory of the Republic of Poland. This is very good news for the Bank as ING Bank Hipoteczny S.A. will be able to better place covered bonds.
In 2021, the Management Board intend to continue the actions taken to support the Bank in achieving its goals. We want to be a trusted partner to our clients and investors in order to keep long-term relationships with them.
We want to thank our investors and clients for their trust and Bank employees for their input and commitment to building the position of the Bank.
Yours sincerely,
Mirosław Boda
President of the Management Board
ING Bank Hipoteczny S.A. (the Bank) was established on 26 February 2018, upon obtaining a permit issued by the Polish Financial Supervision Authority on 16 January 2018.
ING Bank Hipoteczny S.A. is a subsidiary of ING Bank Śląski S.A. which as at 31 December 2020 held 100% shares in the share capital of ING Bank Hipoteczny S.A. The latter is a member of the Group which in this document is referred to as the ING Bank Śląski S.A. Group (the Group).
As at 31 December 2020, the share capital of ING Bank Hipoteczny S.A. amounted to PLN 380,000,000.00 and was fully taken up by ING Bank Śląski S.A. ING Bank Hipoteczny S.A.’s shares were paid in cash.
ING Bank Hipoteczny S.A. runs business based on the strategic cooperation with ING Bank Śląski S.A., acquiring debt under mortgage-backed loan agreements. The strategic objective of the Bank is to provide the Group with long-term and stable funding by way of issue of covered bonds.
In connection with the COVID-19 pandemic, the Bank analyses market developments on an ongoing basis, identifying risks related to potential increased delays in loan repayments and a potential decrease in property prices. The Bank also analyses the market situation regarding covered bonds and changes in the regulatory and economic environment on an ongoing basis. Moreover, it is monitored all the time whether the suppliers are able to provide services.
Having identified the risk of COVID-19 pandemic, the Bank took all measures to maintain operational continuity, ongoing customer service included. Preventive measures were also taken to protect employees’ health by introducing, for instance, remote working. The Bank’s standing is good in terms of its liquidity and capital position. In fact, it significantly exceeds the required regulatory levels.
So far, the Bank has not recorded any material COVID-19 related deterioration in portfolio quality.
It is difficult to assess now how the situation will develop and what impact it will have on the operations of the Bank. That is why the Bank continues monitoring and analyses processes. Chapter 6.2. shows a description of actions taken by the Bank to help its customers.On 17 March and 8 April 2020, the Monetary Policy Council decided to lower the interest rates, including the reference rate from 1.5% to 0.5% and the mandatory reserve rate from 3.5% to 0.5%. Another interest rate cut took place on 28 May 2020 - the reference rate was lowered to 0.1%.
The decision of the Monetary Policy Council (MPC) to reduce interest rates had a negative impact on the Bank’s planned result in 2020. The compensating measures applied by the Bank Management Board helped the Bank’s performance and its ratios be at a good level.
Gross Domestic Product
Poland entered the pandemic period being in a relatively good economic situation. In 2019, GDP grew by 4.5% and investments recorded a growth rate higher than GDP for the second year in a row increasing their share in the growth structure. In 2018 it resulted from a strong acceleration in public investments, whereas in 2019 it was the private sector who was responsible for maintaining the high dynamics of total investments. High dynamics of consumption were maintained. The good labour market situation and the support of households by generous social programmes favoured the growth of consumer spending. The contracting of EU funds under the 2014-2020 financial perspective also accelerated, but the gap between the contracted funds and those actually injected into the economy was still high, approximately 45% of the funds allocated to Poland. The economic situation changed suddently in the middle of March, when lockdown was introduced to fight the first wave of the pandemic in Poland. In 2Q 2020, GDP fell by 8.4% y/y, household consumption and investments collapsed (down by 10.8% y/y and 10.7% respectively). Only public demand, both consumption and investment, had a positive contribution to GDP. Net exports also had a positive contribution to GDP growth, but this was due to a smaller decline in exports than in imports. When the restrictions were eased in 3Q 2020, a strong economic upturn was observed. This was mainly the result of a rebound in private consumption, which rose by 0.4% y/y and was higher than before the pandemic. The deferred demand effect occurred, reinforced by the record fiscal stimulus, which prevented a spike in unemployment and strengthened the propensity to spend. Investments remained almost at the same poor level as in 2Q 2020, which was a consequence of a double-digit decline in private outlays. Autumn 2020 started with another wave of pandemics and tightening of restrictions. However, the economy coped with them better than in spring. Restrictions more affected service sector. Industry was strong as it is strongly linked to German supply chains, which in turn were positively affected by the economic upturn in Asia. ING economists emphasise, that the economy is becoming resilient to the impact of the pandemic. In the autumn wave of the pandemic, the number of COVID-19 patients increased several times, but restrictions were less oppresive by a quarter - a half than in spring, and the fall in GDP in 4Q 2020 was only one tenth of that in 2Q 2020. According to the preliminary estimate of the Central Statistical Office, in 2020 Poland's GDP shrank by 2.8% y/y in real terms, investments fell by 8.4% y/y and household consumption by 3.0% y/y. Public consumption increased in real terms. Net exports made a positive contribution to GDP growth (1.2 p.p.)
Low interest rate environment
Despite an expansive budget spending policy, high GDP dynamics and growing inflationary pressure, the Monetary Policy Council (MPC) maintained interest rates in Poland at the same level for five years. We entered the pandemic period with CPI inflation of 4.7% y/y and a reference rate of 1.5%. The Council reacted quickly to the sudden economic downturn and the increased borrowing needs during the first lockdown. They significantly reduced interest rates, including the reference rate to 0.1%. MPC also started purchasing bonds from the secondary market which were issued and guaranteed by the State Treasury, and offered banks the possibility of taking a promissory note loan to refinance loans granted to non-financial sector companies. In December 2020, the NBP took a decision about carrying out a series of currency interventions. According to A. Glapiński, President of NBP, their purpose was to mitigate the risk of appreciation of the Polish zloty, which could be detrimental to the recovery of the economy after the pandemic.
ING economists are of the opinion that low rates will be maintained in Poland at least by the end of 2022. There is a limited risk of further rate cuts in 1Q 2021, should the next wave of the pandemic hurt the economy even more than in 4Q 2020. The bank’s analysts estimate the probability of this scenario at 40% at most, and the existing space at 10bp - some MPC members draw the attention to the fact that cutting rates to negative levels requires a change in the law. The NBP policy will focus on acquisition of bonds. The President of NBP Adam Glapinski said that if needed (for instance, if another government shields will be required), the NBP is ready to continue purchasing assets on a large scale. Currency interventions, both real and verbal, are possible from time to time.
International business landscape
Since the beginning of 2020, the COVID-19 pandemic has determined the global economic situation. While China has already managed to recover from the coronavirus shock in 2020, other economies will need more time for that. The US economy is likely to return to its pre-crisis levels as early as 2021, the Eurozone in 2022 and the UK economy only in 2023. The gradual opening of economies will depend on the vaccination process.
The initial pace of vaccination is uneven. It is important that the most difficult stage, namely the invention of vaccines, is already completed. The next stage, that is the pace of vaccination will improve over time, depending on the efficiency of health services and the demand of citizens. The execution of vaccination programme is slower than initially expected, and it may take longer to achieve herd immunity, nevertheless epidemic restrictions will be lifted as early as 2Q 2021 when risk groups are vaccinated because then the global recovery should begin. Pharmaceutical companies are of the opinion that mutations of the virus should not affect the effectiveness of vaccines.
The US economy recovered quickly from the collapse after the first wave of the pandemic and has long resisted the obviously worse second wave. The data for 4Q 2020 show that the economic downturn was less severe than expected. In December, the Federal Reserve System (Fed) neither changed rates nor the Quantitative easing (QE) scale, but reinforced expectations of maintaining low rates at least until 2024. Congress passed a scaled-down stimulus package worth USD 900 billion (4.5% of GDP). Another one (worth 9.5% of GDP) has already been announced by President J. Biden. Strong fiscal relaxation while maintaining the Fed’s soft approach puts pressure on weakening of the US dollar and Treasuries.
The eurozone was hit hard by the pandemic in 2Q 2020, but in 3Q 2020, the economy rebounded, especially industry. Although 4Q 2020 can still be felt to this day due to the surge in new COVID-19 cases and imposed restrictions, the decline in GDP was much less severe than in 2Q 2020 (-0.7% q/q and -11.7% q/q, respectively). The ECB came to the rescue of the weakened economy by significantly increasing its QE programme and prolonging and easing the conditions for targeted longer-term refinancing operations (TLTRO). Applying the softer policy by the ECB did not prevent the strengthening of euro, which results from capital outflows from the USA on the eve of the global rebound or the expected historically soft Fed policy during the economic recovery phase. The EUR/USD rate should be close to 1.30 by the end of the year. A weaker US dollar would be good for Polish zloty, but the NBP’s currency intervention has so far anchored the EUR/PLN rate above 4.50.
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2018 |
2019 |
2020 |
2021F |
2022F |
|
|
GDP growth (%) |
5.4 |
4.5 |
-2.8 |
4.5 |
5.0 |
|
|
General government debt as per the EU methodology (% of GDP) |
48.9 |
48.9 |
45.9 |
57.9 |
60.9 |
|
|
Average annual inflation (CPI) (%) |
1.7 |
2.3 |
3.4 |
3.1 |
3.4 |
|
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Unemployment rate (%) |
5.8 |
5.2 |
6.2 |
5.9 |
5.4 |
|
|
USD/PLN exchange rate (yearend) |
3.76 |
3.80 |
3.76 |
3.35 |
3.44 |
|
|
EUR/PLN exchange rate (yearend) |
4.30 |
4.26 |
4.61 |
4.36 |
4.30 |
|
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3M WIBOR (yearend) |
1.72 |
1.71 |
0.21 |
0.33 |
0.33 |
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One of the regular elements charactering the Polish social and economic situation is insufficient supply of apartments. In 2018, there were 380.7 apartments available per 1,000 citizens. To compare, in the EU member states this number – conditional on the data source – is approximately 480 apartments. In Germany, France or Spain – over 500 apartments. Besides the quantitative shortage, the unsatisfactory standard of a large part of the available apartments should be named. As defined by the Eurostat, over 37% of Poles live in overcrowded houses. Both the average apartment floor area and the floor area per one citizen are below the EU average.
Depending on the methodology, the shortage of apartments is estimated to range from 1.4 million and 4.4 million in Poland. The data of the Central Statistical Office show that in the first eleven months of 2020 approximately 196,441 apartments, or 6.0% more than a year ago, were commissioned for use. Additionally, there were nearly 206,733 apartments whose construction started (less by 6.6% than the same period last year) and 241,349 apartments to be built (less by 2.8% than the same period last year), namely appartments for which building permits were issued or building designs were registered.
In 2020, residential estate market prices were rising slightly, whereby the trend started in 2014 was upheld. However, there were first real estate transactions where slight fall in prices was observed, in particular concerning residential premises. In the absence of other attractive capital investing alternatives, a gradual pay rise, low unemployment and interest rates encouraged investment in apartments. However, further growth in the housing market depends on COVID-19 related developments.
Availability of adequate apartments is among further social and economic growth drivers. A limitless shortage of apartments in Poland is an opportunity for development of the mortgage banking market which is based on real estate funding with long-term covered bonds.
As at 30 November 2020, banks’ receivables under residential loans in Poland totalled PLN 472.1 billion or went up by 6.2% y/y (as per the data published by the National Bank of Poland). The balance of loans awarded in PLN rose by 10.1% y/y and closed at PLN 354.7 billion.
The Polish mortgage market is almost entirely dominated by variable interest rate loans. At present, banks launch more and more fixed interest rate loans which gain increasing interest from clients.
As at the end of December, the strategic partner to the Bank, ING Bank Śląski S.A. was ranked number two and number three in terms of new sale and volume of the held portfolio of PLN mortgage loans respectively.
A large demand for apartments, developing economy and low interest rates are conducive to further growth of the market of mortgage loans. However, further growth depends on COVID‑19 related developments.
As at the end of December 2020, there were four mortgage banks in Poland:
o PKO Bank Hipoteczny S.A.,
o mBank Hipoteczny S.A.,
o Pekao Bank Hipoteczny S.A.,
o ING Bank Hipoteczny S.A.
The Polish market of covered bonds is small when compared with developed EU economies where covered bonds are an important source of mortgage lending funding. Still, it grew dynamically over previous years. Polish issuers place covered bonds both in the Polish market and abroad. Public issues prevail; variable interest rate ones in Poland and fixed interest rate ones abroad.
As at the end of the fourth quarter of 2020, the covered bonds in trading in Poland totalled approximately PLN 26.3 billion, or were up by PLN 0.3 billion from December 2019. For the time being, PKO Bank Hipoteczny is the largest issuer of covered bonds in Poland. The ratio of mortgage loans funding with covered bonds still remains low.
Operations of mortgage banks make it possible to: strengthen funding stability within the group, diversify funding sources for the portfolio of retail mortgage loans, better match the maturities of assets and liabilities in the balance sheet (as a rule, Polish banks finance long-term mortgage loans with short-term deposits) as well as reduce the funding costs of the lending campaign for the portion of the lending portfolio funded with other long-term instruments.
Material legal changes that came into force in 2020 and which affected the Bank operations relate most notably to the situation of borrowers and result from the announcement of the SARS-CoV-2 related pandemic state in Poland.
In particular, the following laws should be mentioned:
1. Act of 4 July 2019 on amending the Act on support for borrowers in a difficult financial situation who took a housing loan and some other laws - the purpose of the Act is to change the mechanism for providing financial support to those individuals who, as a result of objective circumstances, have found themselves in a difficult financial situation and at the same time are obliged to repay housing loan instalments.
2. Act of 14 May 2020 on amending certain acts on protective measures in connection with the spread of the SARS-CoV-2 virus. Under the Act, the deadlines for complying with obligations arising from other legal changes have been prolonged, inter alia with regard to the dematerialisation of shares (until 30 September 2020), entry in the Central Register of Ultimate Beneficial Owners (until 13 July 2020).
3. Act of 19 June 2020 on subsidization of interest on bank loans granted to entities affected by COVID-19 and simplified arrangement approval proceedings due to COVID-19 - Shield 4.0, which provides for the possibility for an individual to suspend repayment of a consumer loan, a mortgage loan (so-called “credit holidays”).
4. Act of 27 November 2020 on amending the Act on special solutions for preventing, counteracting and combating COVID-19, other infectious diseases and crisis situations caused by them and certain other laws, under which, with the consent of the employer or the hiring party, employees and other hired persons who had to isolate themselves at home during the period of the announced state of epidemic emergency or a state of epidemics, could provide remote work as specified in the contract and receive remuneration for it.
5. Supervisory Stimulus Package for Security and Development issued by the Financial Supervision Authority concerning measures to maintain a balance between securing the right level of stability indicators for the financial system (especially the banking sector) on one hand and maintaining and supporting economic activity on the other hand. The Polish Financial Supervision Authority has proposed a number of changes in connection with the announced state of pandemic, also in favour of banks, such as: extending the deadline for the implementation of the EBA Guidelines on outsourcing arrangements (until 31 December 2020) or simplifying the supervisory review and evaluation process (SREP/BION) and reporting.
Other regulatory and legal amandments and work:
6. Act of 27 November 2020 on electronic delivery. The Act provides for the rules for the delivery of correspondence using a public service of electronic registered delivery and a public hybrid service.
o The public electronic registered delivery service will involve fully electronic posting, transmission and delivery of correspondence.
o Whereas the public hybrid service will offer converting electronic correspondence into paper form and delivering it as such, or sending correspondence in paper form, converting it into electronic form and delivering it as such.
7. On 9 October 2020, the Polish Financial Supervision Authority unanimously adopted Recommendation Z, addressed to banks, concerning the principles of corporate governance in banks.
Recommendation Z is a set of best practices as regards internal governance principles. Internal governance consists in particular of: the bank management system, organisation of the bank, modus operandi, powers, duties and responsibilities, as well as mutual relations among the supervisory board, the management board and key function holders at the bank.
Recommendation Z complements, specifies and elaborates on issues of internal governance at banks which have already been addressed by law and PFSA documents.
Recommendation Z has been developed taking into account, first and foremost, the guidelines of the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA). The Recommendation takes into account selected recommendations included in guidelines of other international organisations.
The PFSA set the deadline for banks to comply with Recommendation Z as 1 January 2022.
8. Recommendation S – concerning best practices in management of mortgage-backed credit exposures. The objective of the amended Recommendation S is to extend its current wording to read the principles of management of mortgage-backed credit exposures bearing fixed interest rate or periodically fixed interest rate so as to factor in the risk of those loans and indicate that banks should have such loans in their offer of residential estate mortgage-backed loans for retail clients. The amended Recommendation S indicates that the bank should make it possible for a retail client to change the loan interest rate formula from a variable interest rate to a fixed interest rate or periodically fixed interest rate - this also applies to credit facility agreements concluded before this Recommendation entered into force. Furthermore, the amended Recommendation S introduces provisions concerning loans with the option of releasing the obligation towards the bank on account of credit exposure secured with a mortgage on residential real estate in the case of transferring by the borrower to the bank the ownership title to the real estate funded with a loan, hereinafter referred to as loans with the "key for debt" option. Recommendation S should be implemented by the Banks by 30 June 2021 at the latest.
9. On 16 October 2020, the Polish Financial Supervision Authority (UKNF) in cooperation with the Ministry of Finance issued a communication on the work on a new model of operation of mortgage banking and covered bonds in Poland. The said work takes place at the same time as the work on the implementation of Directive (EU) 2019/2162 of the European Parliament and of the Council of 27 November 2019 on the issue of covered bonds and covered bond public supervision and amending Directives 2009/65/EC and 2014/59/EU. The cooperation in this area is to result in a proposal for regulatory action leading to increase in the attractiveness of the use of covered bonds by banks while maintaining the requirements of stability of the issuer and safety of the instrument for the investor.
Representatives of the National Bank of Poland and the Bank Guarantee Fund are also involved in consultations on this issue.
10. Work is in progress on the legislative bill amending the Banking Law and certain other laws, which was submitted to the Sejm on 28 December 2020 and is currently read for the first time in the Public Finance Committee. The bill concerns changes in the national legal regime due to the effective entry of the European Union regulations on capital requirements for financial institutions (CRD V/CRR II).
The year 2020 was the second year of operations for ING Bank Hipoteczny S.A. At the end of the reporting period, the Bank had a mortgages portfolio worth approximately 3.7 billion and being in major part the potential collateral for future covered bond issues. As part of its strategy, the Bank acquired a mortgages portfolio from ING Bank Śląski. In 2020, the newly acquired mortgages portfolio amounted to over PLN 1 billion. The acquired portfolios were mainly funded with the loan taken from the parent entity and issue of green covered bonds worth PLN 400 million. As part of diversification of funding sources, the Bank also issued own bonds at the end of 2020 in the amount of approximately PLN 1 billion. The above events were the primary drivers of the financial results of the Bank.
As of 31 December 2020, the forecasts of macroeconomic indicators were revised to recognise the COVID-19 impact. The macroeconomic assumptions used to determine the expected credit losses were based on the forecasts agreed upon in the ING Bank Śląski S.A. Group. In 2020, the increase in COVID-19 related expected credit loss provisions was approximately PLN 0.3 million.
In view of the dynamic development of the pandemic and great uncertainty about the future, the projections we made may not fully reflect impact of the macroeconomic situation on the expected credit losses level both in the short and long run.
The macroeconomic assumptions used to determine the ECL provisions are reviewed on a quarterly basis. Thus, the estimated impact of COVID-19 on macroeconomic parameters will be updated on an ongoing basis in subsequent quarters depending on, among others, the scale of the pandemic, its duration, the impact of government support on the economy and external conditions.
Below, the key financial facts and figures of the Bank for the period from 1 January 2020 to 31 December 2020 are presented.
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as at |
as at |
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ROA - return on assets (%) |
0.52% |
-0.01% |
|
ROE - return on equity (%) |
4.29% |
-0.07% |
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DR - total debt ratio (%) |
87.89% |
91.87% |
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TCR - total capital ratio (%) |
30.60% |
17.03% |
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LR - leverage ratio (%) |
11.76% |
8.10% |
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LCR - liquidity coverage ratio (%) |
8555% |
20581% |
ROA - return on assets – net result for the shareholders of ING Bank Hipoteczny S.A. to assets as at 31 December 2020.
ROE - return on equity – net result for the shareholders of ING Bank Hipoteczny S.A. to equity as at 31 December 2020.
DR – total debt ratio – liabilities of ING Bank Hipoteczny S.A. to assets as at 31 December 2020.
TCR – total capital ratio – own funds of ING Bank Hipoteczny S.A. to risk-weighted assets as at 31 December 2020.
LR – leverage ratio – Tier 1 capital to leverage ratio exposure as at 31 December 2020.
LCR - liquidity coverage ratio – liquid assets to net outflows as at 31 December 2020.
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note in the financial statements |
as at 31.12.2020 |
as at 31.12.2019 |
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Assets |
|
|
|
|||
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Amounts due from banks |
7.7 |
65,823.7 |
7,249.2 |
|||
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Debt securities measured at fair value through other comprehensive income
|
7.8 |
50,186.9 |
34,823.5 |
|||
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Debt securities measured at amortized cost
|
7.8 |
0.0 |
229,980.4 |
|||
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Loans and advances granted to customers |
7.9 |
3,690,920.7 |
3,060,898.9 |
|||
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Property, plant and equipment |
7.10 |
739.4 |
988.3 |
|||
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Intangible assets |
7.11 |
824.8 |
1,816.7 |
|||
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Deferred tax assets |
|
942.2 |
1,585.1 |
|||
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Other assets |
7.12 |
3,781.4 |
1,784.7 |
|||
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Total assets |
|
3,813,219.1 |
3,339,126.8 |
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Liabilities to banks |
7.13 |
1,969,597.2 |
2,488,153.6 |
|||
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Liabilities under issue of bonds |
7.14 |
975,131.6 |
0.0 |
|||
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Liabilities under issue of covered bonds |
7.15 |
399,480.6 |
400,359.9 |
|||
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Provisions |
7.16 |
775.8 |
585.7 |
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Current tax liabilities |
|
98.8 |
113.1 |
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Capital increase liabilities |
|
0.0 |
170,000.0 |
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Other liabilities |
7.17 |
6,351.7 |
8,362.4 |
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Total liabilities |
|
3,351,435.7 |
3,067,574.7 |
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Share capital |
7.19 |
380,000.0 |
210,000.0 |
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Supplementary capital - share premium
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|
62,002.2 |
62,191.1 |
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Accumulated other comprehensive income |
7.20 |
-46.4 |
-450.1 |
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Retained earnings |
7.21 |
19,827.6 |
-188.9 |
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Total equity |
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461,783.4 |
271,552.1 |
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Total equity and liabilities |
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3,813,219.1 |
3,339,126.8 |
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Carrying amount |
|
461,783.4 |
271,552.1 |
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Number of shares |
|
380,000.0 |
210,000.0 |
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Carrying amount per share (PLN) |
|
1,215.22 |
1,293.11 |
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The Statement of Financial Position should be read in conjunction with the notes to the financial statements being the integral part thereof. |
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For details of the report of Bank’s financial position, refer to notes 7.7 through 7.21 of the Financial Statements.
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note in the financial statements |
period |
period |
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Interest income |
7.1. |
108,806.1 |
54,184.8 |
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including, calculated using the effective interest method
|
7.1. |
108,806.1 |
54,184.8 |
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Interest costs |
7.1. |
-56,717.4 |
-29,125.6 |
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Net interest income |
7.1. |
52,088.7 |
25,059.2 |
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Fee and commission income |
7.2. |
523.9 |
211.3 |
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Commission expenses |
7.2. |
-447.7 |
-326.9 |
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Net commission income |
7.2. |
76.2 |
-115.6 |
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FX result |
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-52.5 |
-36.3 |
||||
|
Net income on other basic activities |
|
-31.4 |
-133.7 |
||||
|
Net income on basic activities |
|
52,081.0 |
24,773.6 |
||||
|
General and administrative expenses |
7.3. |
-24,629.5 |
-23,835.4 |
||||
|
Expected loss provision |
7.4. |
-2,755.9 |
-924.4 |
||||
|
Gross profit (loss) |
|
24,695.6 |
13.8 |
||||
|
Income tax |
7.5. |
-4,868.0 |
-202.8 |
||||
|
Net profit (loss) |
|
19,827.6 |
-188.9 |
||||
|
|
|
|
|
||||
|
Number of shares |
|
380,000.0 |
210,000.0 |
||||
|
Profit (+)/loss (-) per ordinary share - basic (PLN) |
|
52.18 |
-0.91 |
||||
|
Profit (+)/loss (-) per ordinary share - diluted (PLN) |
|
52.18 |
-0.91 |
||||
|
|
|
|
|
||||
|
Discontinued operation occurred in ING Bank Hipoteczny SA neither in 2020 nor in 2019.
|
|||||||
|
|
|
|
|
||||
For detailed notes to the Income Statement items, refer to the Financial Statements – notes 7.1 through 7.6.
In keeping with the CRR, the Bank computes own funds requirements for the following risks:
o for credit risk – using the standardised approach,
o for the CVA risk – using the standardised approach,
o for delivery and settlement risk – using the standardised approach,
o for operational risk – using the basic indicator approach (BIA),
o for market risk (FX risk) using the standardised approach.
As at the end of December 2020, the Bank reports zero values for the own funds requirements for the CVA risk, delivery and settlement risk, and market risk. Having regard to the above, as at the date of this report, the total requirement for own funds consisted of the credit risk and operational risk requirements.
|
Own funds requirements |
31.12.2020 |
|
Credit risk (PLN million) |
110.72 |
|
Operational risk (PLN million) |
4.59 |
|
Total requirement for own funds (PLN million) |
115.31 |
|
Common Equity Tier 1 ratio (CET1) |
30.60% |
|
Tier 1 ratio (T1) |
30.60% |
|
Total capital ratio (TCR) |
30.60% |
Pillar 1 has been discussed in detail under item 7.40 of the financial statements concerning the Total Capital Requirement.
The Bank maintains own funds at the level not lower that the higher of the below values:
a. capital requirement,
b. internal capital
Capital management
The process of capital management is carried out in the Bank based on the implemented Capital Management Policy at ING Bank Hipoteczny S.A. that was developed on the basis of applicable regulations.
Capital management at ING Bank Hipoteczny S.A. is to make possible and facilitate development of the Bank in accordance with the accepted strategy and business model, while keeping, on an ongoing basis, its own funds on the level adequate to the scale and profile of risk inherent in the Bank’s operations, taking into account supervisory requirements. Furthermore, it makes it possible to manage the capital actively, keeping in mind volume and dynamics of current and future changes.
The main objective of this process is to have sufficient and effective capitalisation of the Bank to effect its business strategy and development plans specified in the financial plans, while meeting at the same time all internal and external capital requirements. It stands for financial flexibility in the present and future landscape in order to adjust to the changing market and regulatory conditions. To this end, the capital management activities apply any available capital instruments and transactions both in the baseline scenario as well as in the adverse scenario.
External regulations regulate keeping a proper level of capital adequacy. The main capital constraints result from internal resistance to risk that is assessed, among others, in stress tests, in Supervisory Review and Evaluation Process (SREP), regulatory minimum levels of capital and leverage ratios and internal risk appetite.
This management includes:
o Pillar 1: minimum capital requirements provided for in the regulations,
o Pillar 2: internal capital, determined with the Bank’s own models, for the risks deemed to be material and permanently material.
Under capital management, the Bank:
a. identifies and assesses materiality of the risk types inherent to its operations;
b. takes actions in order to assess and monitor internal capital, capital requirement and own funds;
c. monitors potential threats to capital adequacy;
d. allocates internal capital;
e. sets internal limits in order to curtail the generated capital requirements and internal capital;
f. pursues dividend policy resulting from a long-term capital objective and preferred capital structure;
g. plans internal capital and capital requirement as well as own funds;
h. develops contingency capital plans which define the procedure for the risk of capital adequacy deterioration below the “inadmissible” levels;
i. analyses the impact of the macroeconomic factors on capital adequacy in line with the “Stress Testing Policy at ING Bank Hipoteczny S.A.”
As at 31 December 2020, the total capital ratio of the Bank was 30.60%.
In keeping with the binding laws, internal capital is defined as the amount estimated by the bank which is indispensable for covering all identified material risks occurring in the bank’s business and changes in the business environment, considering the envisaged risk level.
The Bank estimates internal capital. The internal capital estimation process is an integral element of the capital management and Bank governance system. It warrants proper identification, measurement, monitoring and aggregation of the risk taken. At the same time, it enables the Bank to maintain the requisite own funds and manage risk and capital in an effective but cautious manner.
The above process covers:
a. Identification and assessment of materiality of the risks impacting the Bank’s operations,
b. risk measurement and control,
c. internal capital estimation and aggregation with the use of the tools and methodologies approved by the Management Board or competent committees,
d. internal capital monitoring,
e. internal capital allocation, planning and reporting.
For the Bank, internal capital is estimated for material and permanently material risks in the following categories:
a. credit risk encompassing default risk and counterparty risk, concentration risk, residual risk an d risks of other non-credit assets;
b. market risk encompassing the interest rate risk in the banking ledger;
c. business risk encompassing macroeconomic risk;
d. funding and liquidity risk;
e. operational risk encompassing control risk, abuse risk, processing risk, improper staffing practice and workplace risk, information risk, internal and external fraud risk, business continuity risk, physical safety and resource risk, compliance risk and legal risk; the possibility of occurrence of conduct risk, reputational risk and concentration risk (for operational risk) are also within the scope of operational risk;
f. model risk.
The total internal capital is the total of internal capital indispensable for covering all material and permanently material risks of the Bank. The Bank applies a prudent approach to estimating the internal capital and does not use the diversification effect.
|
Internal capital structure |
31.12.2020 |
|
For credit risk |
53.0% |
|
For market risk |
38.9% |
|
For business risk |
0% |
|
For funding and liquidity risk |
0% |
|
For operational risk |
8.1% |
|
For model risk |
0% |
|
Total |
100.0% |
Taking into account the scale and specifics of the Bank’s operations, the Bank discloses selected information concerning capital adequacy in its financial statements or in the Management Board Report on Operations of the Bank. The information refers in particular to:
o risk management goals and strategy,
o own funds in accordance with Article 437 of CRR, subject to the transitional provisions set out in Article 492 of CRR,
o compliance with the own funds requirements pursuant to Article 438 of CRR,
o compliance with countercyclical capital buffer requirements in accordance with Article 440 of CRR,
o leverage ratio and the management of the risk of excessive leverage in accordance with Article 451 of CRR and the EBA/GL/2020/11 Guidelines,
o the Bank exposure to credit risk and dilution risk in accordance with Article 442 of CRR,
o credit risk mitigation techniques applied by the Bank in accordance with Article 453 of CRR,
o operational risk, in accordance with the requirements provided for in Recommendation M,
o liquidity in accordance with Article 451a of CRR, as well as the liquidity risk management system and liquidity positions in accordance with Recommendation P,
o exposures covered by the measures applied in response to the COVID-19 crisis, as required by the EBA/GL/2020/07 Guidelines,
o requirements referred to in Article 111a of the Banking Law and in Recommendation H,
o remuneration policy concerning persons whose professional activities are considered to have a material impact on the risk profile of the Bank, in accordance with the requirements provided for in Article 450 of the CRR.
Each time, the Bank assesses adequacy of the disclosed information in terms of providing the market participants with complex information about the risk profile of the Bank.
The Bank, being a part of the ING Bank Śląski S.A. Group, provides the information also to the parent company in order to include it in the consolidated data.
Specific information about the scope of disclosed information, method of its verification and publication is presented in the document called: “Policy of Disclosure of Qualitative and Quantitative Information About Capital Adequacy and Other Information to be Disclosed at ING Bank Hipoteczny S.A.”
Between 1 January and 31 December 2020, the Bank deposited funds in short-term deposit accounts at ING Bank Śląski S.A. For details, refer to note 7.7 of the Financial Statements of ING Bank Hipoteczny S.A. The Bank did not apply hedge accounting in the reporting period.
The Bank was making Treasury transactions on the wholesale financial market. For details, refer to note 7.8 of the Financial Statements of ING Bank Hipoteczny S.A. Credit debt acquisition from ING Bank Śląski S.A. is in principle funded from the issue of covered bonds. In the reporting period, credit debt acquisition from ING Bank Śląski S.A. was funded from the credit line, the issue of covered and own bonds. The Bank adhered to the norms defined in the Act on covered bonds and mortgage banks concerning the admissible amount of liabilities due to loans and credit facilities (including the liabilities due to acquired debt) and issue of bonds to own funds of the Bank. In 2020, the Bank did not issue covered bonds, however to increase the diversification of the existing funding sources, it established a programme for issuing its own bonds under which short-term bond series were issued.
For future issues of covered bonds, the potential IR risk and FX risk will be hedged with appropriate derivatives. The Bank plans to apply hedge accounting in the future.
The Bank Management Board is of the opinion that as at 31 December 2020 there were no conditions which could indicate presence of default risk for the liabilities assumed by the Bank.
The strategic objective of Bank Hipoteczny S.A. is to acquire and later gradually increase the share of long-term funding in the ING Bank Śląski S.A. Group’s balance sheet – through issue of covered bonds – as well as joining the group of major issuers of those instruments in the Polish market.
The objective will be delivered by:
o strengthening the funding stability within the ING Bank Śląski S.A. Group,
o diversification of funding sources for the current portfolio of retail mortgage loans,
o matching the maturities of assets and liabilities in the balance sheet of the ING Bank Śląski S.A. Group,
o freeing the liquidity of the ING Bank Śląski S.A. Group,
o reducing the funding costs of the lending campaign for the portion of the lending portfolio funded with other long-term instruments.
The main element of the business pursued by ING Bank Hipoteczny S.A. is acquisition of mortgage-backed residential loan portfolios with a view to issuing covered bonds. The Bank acquires debt only from ING Bank Śląski S.A. Debt is acquired under the Debt Transfer Framework Agreement to issue covered bonds, signed in 2019.
In 2020, the Bank made 2 mortgage-backed debt portfolio acquisition transactions with ING Bank Śląski S.A. The total capital as at the transfer date of the portfolios acquired was PLN 1,018.9 million. Due to the issue of covered bonds, a portion of the portfolio transferred to the Bank are receivables classified as green ones.
In the debt acquisition process, ING Bank Hipoteczny S.A. satisfies the criteria of the Act on covered bonds and mortgage banks, and also sets additional conditions to be met by the debt acquired. The main criteria were presented in the table below:
|
Criterion |
Value |
|
Amount of debt purchased/ banking and lending value of the real estate |
Max. 100% |
|
Credit collateral |
Established first ranking mortgage |
|
Loan currency |
PLN |
|
Loan purpose |
Residential goals |
|
Title to real estate |
Ownership or perpetual usufruct |
|
Repayment arrears or impairment conditions |
None |
LtV-based lending portfolio structure – 31.12.2020:
|
LTV (banking and lending value of the real estate) |
Structure % |
|
(0-50> |
24.6% |
|
(50-60> |
17.5% |
|
(60-70> |
20.9% |
|
(70-75> |
10.5% |
|
(75-80> |
8.8% |
|
(80-100> |
17.7% |
|
Total |
100.0% |
|
Mark-to-market LTV |
Structure % |
|
(0-50> |
36.2% |
|
(50-60> |
24.3% |
|
(60-70> |
26.2% |
|
(70-75> |
10.9% |
|
(75-80> |
2.4% |
|
(80-100> |
0.0% |
|
Total |
100.0% |
The average LtV for the capital-weighted banking and lending value of the real estate was 62.51%, while the average mark-to-market LTV was 53.64%.
As at 31.12.2020, the carrying value of the portfolio of debt under the mortgage-backed loan agreements was PLN 3,683 million. All the receivables under the acquired loan agreements bear variable interest rate (6M WIBOR).
In connection with the COVID-19 pandemic, the Bank has implemented measures to assist customers facing financial difficulties:
o Since 7 April 2020, our borrowers may suspend repayment of loan instalments (principal part of the instalment or the full loan instalment) for a period of up to 6 months. When the loan repayment is suspended (concerning the full principal-and-interest payments), the Bank accrues the interest due on the loan, which is repaid by the borrower right after the suspension period ends. At the same time, the Bank extends the loan repayment period (both in the case of suspension of the repayment of the principal instalment only as well as the full loan instalment). This is in line with the Polish Bank Association’s “Position of banks on the standardization of principles of offering aid measures to banking sector customers” (i.e. a non-statutory moratorium within the meaning of the EBA Guidelines). As at 31 December 2020, a total of 587 customers benefited from the suspension of instalment repayments under the above said rules. As at the end of 2020, the suspension period was not yet over for 16 customers or 0.09% of the value of the Bank entire mortgage debt claims portfolio;
o Since 24 June 2020, our borrowers may suspend the execution of the loan agreement (under the amended Act on special arrangements for preventing, counteracting and combating COVID - 19, other contagious diseases and crisis situations caused by them). Under this measure, at a request of the customer, the Bank suspends repayment of the full loan instalment for a period of 1 month to 3 months, without charging interest for the period, and extends the loan repayment period by the suspension period. In 2020, 24 borrowers benefited from the suspension of the loan agreement, with 14 of them still availing themselves of the suspension at the end of the year, which represented 0.08% of the value of the entire portfolio.
The Bank carried out a simulation of the impact of the suspension of repayment of loan instalments on the Bank’s ability to pay the amounts payable to the buyers of covered bonds. Keeping in mind high overcollateralization of the issue of covered bonds (as at 31.12.2020, debt claims worth PLN 3,008.2 million were entered in the cover register (=register of collaterals for covered bonds), the analysis showed that the Bank is on the safe side and can settle its liabilities to investors on an ongoing basis.
In 2020, due to adverse market conditions caused by the Covid-19 pandemic, the Bank did not issue covered bonds. As at 31 December 2020, the nominal value of the covered bonds in trading that were issued by the Bank did not change from the end of 2019 and totalled PLN 400 million.
The covered bonds of the Bank are quoted on the Stock Exchange in Luxemburg and placed in the parallel market of the Warsaw Stock Exchange. The covered bonds of the Bank may secure the lombard and technical loans and the repo operations of the National Bank of Poland.
On 9 December 2020, Moody's Investors Service decided to upgrade the rating of the PLN covered bonds issued by the Bank from Aa3 to Aa1, which confirms the high quality of the mortgage portfolio used as collateral for the above-mentioned debt securities (the highest rating attainable by an issuer from Poland).
Further issues of covered bonds will depend on the market conditions and the level of over-liquidity currently observed in the financial sector.
The Bank’s ratings (see the table below) have remained unchanged since 21 August 2019, that is since they were granted by Moody’s Investor Service to ING Bank Mortgage S.A.
|
|
||
|
LT Issuer Rating |
Baa1 |
|
|
ST Issuer Rating |
P-2 |
|
|
LT Counterparty Risk |
A2 |
|
|
ST Counterparty Risk |
P-1 |
|
|
Outlook |
Stable |
|
|
CR Assessment |
A2 (cr) / P-1 (cr) |
|
In its communication, the Agency emphasised there that the rating of the Bank reflected:
o the fact that the Bank was owned in 100% by ING Bank Śląski S.A. and that it had a stable growth outlook,
o Strategic adaptation and operational integration within the ING Bank Śląski S.A. Group,
o ING Bank Śląski S.A.’s commitment to support the capital and liability position of ING Bank Hipoteczny S.A. to satisfy the regulatory requirements.
At the same time, on 9 December 2020, Moody's Investors Service confirmed the high quality of the portfolio of mortgages used as collateral for the securities issued by the Bank, upgrading the rating of PLN-denominated covered bonds from “Aa3” to “Aa1”, that is the highest possible rating for an issuer from Poland.
In principle, the business formula of Bank Hipoteczny S.A. is based on leveraging on the synergy effect between Bank Hipoteczny and ING Bank Śląski S.A. as the strategic outsourcing partner to Bank Hipoteczny S.A., in particular by:
o outsourcing of activities admitted by law to ING Bank Śląski S.A. as far as justified from the viewpoint of the Bank’s business effectiveness, based on the existing solutions hammered out by the ING Bank Śląski S.A. Group,
o sharing of IT infrastructure and systems used by the ING Bank Śląski S.A. Group,
o shaping of the organisational framework of Bank Hipoteczny in the manner ensuring effective control of the services entrusted to ING Bank Śląski S.A. and performance by the Bank of activities required by law, like taking risk management-related decisions or performing risk management processes,
o mirroring current loan service processes of ING Bank Śląski S.A., considering the indispensable modifications, including those resulting from the legal order.
Therefore, the outsourcing agreement is the key vehicle governing the cooperation of the two entities. Its key elements are:
o ensuring that ING Bank Hipoteczny S.A. performs the activities required by law; they include but are not limited to: decisions or risk management processes, and for automated or partly automated processes – their set-up using the terms and conditions defined by the Bank,
o entrusting ING Bank Śląski S.A. with: (i) intermediation in some banking activities offered by the Bank, in particular as regards administration and post-sale service of mortgage-backed loan debt acquired by the Bank and (ii) factual activities connected with the bank business of the Bank,
o taking account of limitations stemming from Article 6a.3 of the Banking Law Act (Banking Law); i.e., ensuring that the following activities are not entrusted to ING Bank Śląski S.A.: (i) bank governance within the meaning of Article 368.1 of the Commercial Companies and Partnerships Code, and notably management of the banking business risk, including management of assets and liabilities, credit capacity assessment and credit risk analysis; and (ii) internal audit of the Bank,
o ensuring that any further commissioning of activities by ING Bank Śląski S.A. to third parties satisfies the requirements of Article 6a.7 of the Banking Law – and in individual cases – that direct agreements be made between such entities and the Bank,
o development and update – both by ING Bank Śląski S.A. and the Bank – of business plans ensuring continuous and undisrupted conduct of business covered by the outsourcing agreement,
o ensuring for the Bank the tools to effectively monitor and control performance of the agreement by ING Bank Śląski S.A.
For the client whose mortgage loan will be transferred as part of transfers of receivables to ING Bank Hipoteczny, both the loan service process and the credit and credit-related costs will remain the same.
The terms and scope of cooperation of ING Bank Hipoteczny with ING Bank Śląski S.A. have been detailed in the Cooperation Agreement.
I. Internal control system objectives
The internal audit system serves to ensure:
1) Operational efficiency and effectiveness of the Bank;
2) Reliable financial reporting;
3) Compliance with the risk management principles of the Bank;
4) Compliance of the Bank with the law, regulatory requirements, internal regulations and market standards.
As part of general objective accomplishment process, the internal control system further ensures:
1) examination of compliance of the Bank’s business and business activities performed by related persons with the regulations of the markets the Bank is active in, the regulations of the Central Securities Depository of Poland, clearing and settlement chambers referred to in Article 68a of the Act on Trading in Financial Instruments and stock exchange clearing chambers referred to in Article 2.4 of the Act on Commodity Exchanges which the Bank is the member of,
2) proper organisation and safe business pursuit,
3) functioning of appropriate administrative and booking procedures,
4) effectiveness of internal acts concerning circulation of confidential and privileged information and such information access protection,
5) reliability of non-financial reports,
6) effectiveness of internal acts concerning review of client complaints and requests and maintenance of complaint records,
7) effectiveness of internal acts concerning counteracting money laundering and terrorist financing,
8) investing by the Bank in compliance with the requirements and standards and in the manner adequate to the risk of such investments.
As part of their tasks connected with monitoring of and supervision over the internal control system, as laid down inter alia in the Bank Charter and the ING Bank Hipoteczny S.A. Supervisory Board Bylaw, following the recommendation of the Audit and Risk Committee, the Supervisory Board:
1) approve the Policy – ING Bank Hipoteczny S.A. Internal Control System;
2) approve the criteria for assessment of adequacy and effectiveness of the internal control system, as proposed by the Management Board;
3) supervise introduction and functioning of adequate and effective internal control system;
4) monitor effectiveness of the internal control system, based on the information provided by the Management Board, the Audit and Risk Committee, the Compliance Cell and the Internal Auditor;
5) annually assess the adequacy and effectiveness of the internal control system, including the adequacy and assessment of the control function performed by the first and second lines of defence, the Compliance Cell and the Internal Auditor, as well as the compliance of the Bank Management Board with the obligations referred to in part B of Recommendation H;
6) approve the categorisation principles for the irregularities detected by the internal control system, covering at least high and critical irregularities;
7) as part of ensuring that the internal control system complies with laws, internal regulations and market standards, the Supervisory Board:
o oversee the performance of the Management Board’s duties concerning compliance risk management,
o approves the ING Bank Hipoteczny S.A. Compliance Policy,
o assess, at least once a year, the effectiveness of the compliance risk management by the Bank.
As part of the Bank governance process, the Bank Management Board:
1) design, introduce and ensure functioning of adequate and effective internal control system;
2) take action to ensure internal control system continuity;
3) set the criteria for assessment of adequacy and effectiveness of the internal control system;
4) define the actions to be taken to eliminate irregularities detected by the internal control system, including remedies and disciplinary measures;
5) accept the categorisation principles for the irregularities detected by the internal control system, covering at least high and critical irregularities;
6) approve the criteria for selection of material processes and their list along with their correlation with general and specific goals;
7) ensure regular review of all Bank processes for materiality;
8) accept the Policy – ING Bank Hipoteczny S.A. Internal Control System, ensure its periodical review and update and present the review deliverables to the Audit and Risk Committee and the Supervisory Board;
9) ensure access of Compliance Cell employees, the Internal Auditor and also the Operational Risk Management Officer and other units coordinating performance of general objectives to indispensable source documents, including but not limited to those reading confidential information, in connection with performance of their business duties;
10) set the principles of control design, approval and implementation in all Bank processes and define the role of organisational units responsible for control design, approval and implementation;
11) are responsible for ensuring adequacy and effectiveness of controls in Bank processes;
12) as part of ensuring that the internal control system complies with laws, internal regulations and market standards, the Bank Management Board are responsible for developing the compliance policy, ensuring compliance and reporting to the Audit and Risk Committee and to the Supervisory Board on compliance risk management;
13) set the adequate scope of and criteria for independent monitoring of observance of controls, covering ongoing verification and testing;
14) ensure functioning of the control function matrix along with allocation of tasks connected with ensuring its functioning;
15) set the reporting rules, at least for the effectiveness of key controls and vertical testing deliverables.
At the same time, the Bank Management Board advise the Supervisory Board, at least once year, on the manner of performance of internal control system tasks, considering in particular:
a) the adequacy and effectiveness of the internal control system in ensuring accomplishment of all the internal control system goals;
b) the scale and nature of significant and critical irregularities as well as most important actions taken to eliminate the same, including remedies and disciplinary measures,
c) the need to ensure the independence of the Compliance Cell and the Internal Auditor,
d) the need to ensure adequate staffing as indispensable for effective task performance and the funds necessary for regular upgrade of qualifications, experience gathering and skills learning by the employees of the Compliance Cell and the Internal Auditor.
III. Three-lines-of-defence model within the Bank’s organisational framework
|
The first line of defence |
|
The second line of defence |
|
The third line of defence |
|
Business and organisational units of the Bank which support Business operations |
|
1) Units from the area of: • operational risk • compliance risk • legal risk • credit and market risk • finance • human resources management and 2) Model validation job |
|
Internal Auditor |
The second line of defence performs the tasks stemming from its function and supports the first line of defence in order to achieve the goals of the internal control system.
It is responsible for:
o approving the decisions made by the first line of defence as to implementation, modification or removal of controls,
o monitoring application of internal control system regulations by the first line of defence,
o monitoring horizontally the compliance with controls by the second line of defence,
o monitoring vertically the first line of defence as to compliance with controls.
The Internal Auditor (IA) forms the third line of defence. The IA provides management with an independent and unbiased assurance as to the adequacy and effectiveness of the risk management system and internal control system within the first and second lines of defence.
The roles, powers, scope and nature of work plus the accountability of the Internal Auditor and the terms of cooperation of Bank units with the IA are laid down in the Policy – Audit Charter of ING Bank Hipoteczny S.A. (Audit Charter).
Within the control function, the processes which are material to the Bank were isolated and key control function controls were assigned thereto.
V. Principles of assessment of adequacy and effectiveness of the internal control system
The Internal Auditor annually assesses the adequacy and effectiveness of the internal control system, in split into the first and second lines of defence, based on:
o deliverables/ opinions from the audits performed under the annual audit plan. To formulate the annual audit plan, the Internal Auditor uses the information about the internal control system from the control function matrix;
o deliverables/ opinion of the audit by the external auditor along with regulator’s recommendations which are open as at the internal control system assessment date;
o critical and high risks identified during the year, with focus placed on risks which apply as at the internal control system assessment date;
o timely implementation and progress in the implementation of risk mitigants.
o assessment of the Internal Auditor,
o information from the Management Board on the manner of performance of internal control system tasks,
o periodical reports of the Compliance Cell,
o information material to the adequacy and effectiveness of the internal control system, information from the parent entity;
o findings of the statutory auditor or external auditor,
o findings from supervisory activities performed by authorised institutions (like the Polish Financial Supervision Authority or the Office of Competition and Consumer Protection),
o assessments and opinions material to the adequacy and effectiveness of the internal control system, provided by third parties, if made.
The Supervisory Board assessed the 2020 internal control system of ING Bank Hipoteczny S.A., taking into account the above factors and issued an opinion that the internal control system of ING Bank Hipoteczny S.A. was effective and adequate for the Bank business model and scale of operations.
Risk management at ING Bank Hipoteczny S.A. serves to ensure effective risk control and limitation within the risk appetite accepted by the Bank in volatile legal and macroeconomic conditions and considering the pre-set business targets. The assumed risk level is an important factor of the planning process.
Risk management at ING Bank Hipoteczny S.A. is based in particular on the following rules:
o risk management process, including the lending process is defined and governed by strategies, policies and procedures adopted by the Management Board and Supervisory Board of ING Bank Hipoteczny S.A.,
o the Bank manages all identified bank risks and carries out the ICAAP (the Internal Capital Adequacy Assessment Process), where:
o risk management matches the scale of business and the materiality, scale and complexity of a given risk and where it is tailored to new risk factors and drivers on an ongoing basis,
o risk management methods, risk measurement models and systems and their assumptions match the scale and complexity of risk and are periodically verified and validated,
o the organisational structure of risk management guarantees independence of the risk area, including independence of real estate appraisal and credit decisions taken from business activity,
o the risk management process is integrated into the planning and controlling processes and it supports delivery of the Bank’s strategy, while staying compliant with the risk management strategy, especially as far as the risk appetite is concerned,
o the risk management process is consistent with the risk management principles of the ING Bank Śląski S.A. Group, also in respect of use of group risk models, tailored to the specific operations of ING Bank Hipoteczny S.A. and approved by the competent authorities of ING Bank Hipoteczny S.A.,
o stress tests are performed in the Bank based on previously approved scenarios. Stress test results are discussed at committee and Management Board meetings. Reporting of risk sources and factors as well as reporting of risk level measurement and its costs make it possible to take appropriate preventive and remedy measures.
The risk management process is supervised by the Bank Supervisory Board which regularly receive information about the risk profile at ING Bank Hipoteczny S.A. and key actions taken to manage risk.
The Bank Management Board are responsible for risk management, including but not limited to, overseeing and monitoring of actions undertaken by the Bank in this respect. The Bank Management Board take the most important decisions affecting risk level of the Bank and resolve on internal regulations concerning risk management.
Risk is managed through three independent lines of defence.
The objectives, principles and organisation of risk management, as well as the specific management of individual risk categories are described in the financial statements of ING Bank Hipoteczny S.A.
ING Bank Mortgage S.A. performs the credit collateralization tasks based on the following external and internal regulations:
o the Act on covered bonds and mortgage banks,
o the Act on land and mortgage registers and mortgage,
o the Banking Law Act,
o Instructions and recommendations of the Polish Financial Supervision Authority,
o including recommendations F, S and J in particular,
o Provisions of internal banking regulations, and notably the Banking and Lending Value of the Real Estate Valuation Bylaw.
The Bank has and applies the Banking and Lending Value of the Real Estate Valuation Bylaw, approved on 4 January 2019 by the Polish Financial Supervision Authority. The Bylaw provides for the guidelines listed in Recommendation F and concerning the basic criteria applied by the Polish Financial Supervision Authority to approve the banking and lending value of the real estate valuation bylaws made by mortgage banks.
The banking and lending value of the real estate is the value set using an expert method, in line with the Act on covered bonds and mortgage banks, which in the opinion of the Bank mirrors the risk of the real estate forming the collateral for the loans acquired by the Bank.
The banking and lending value of the real estate is set using an expert method in order to enable the Bank to take a decision whether or not to acquire the given debt. The banking and lending value of the real estate is set in a prudent manner, considering long-term parameters.
ING Bank Hipoteczny S.A. sets the banking and lending value of the real estate based on the real estate value. The banking and lending value of the real estate expertise is made with due diligence and prudence. It factors in only those real estate parameters which are of long-term nature and which can be obtained by any real estate owner, when the estate is rationally used. It factors in all risks which because of the experience held and analyses made can adversely impact on the banking and lending value of the real estate. The expertise which is developed at a certain date, evidences the assumptions and parameters used in the analysis, the process of the banking and lending value of the real estate determination and the resultant banking and lending value of the real estate proposal.
The expertise factors in the analyses and projections of the typical real estate parameters which considerably impact on the assessment of the credit risk of real estate acceptance as collateral. It also takes into account general factors, including, economic cycles, changes to the purchasing power of money, demography, unemployment rate or local zoning plans.
At the Bank, the banking and lending value of the real estate determination process is performed by a dedicated team from the Risk Management Area which is independent from the business functions of the Bank.
For the debt acquisition operation, the banking and lending value of the real estate determination process is constructed into four stages:
|
Verification of the legal status of the real estate |
ING Bank Śląski S.A. under the Outsourcing Agreement |
|
Carrying out an inspection, on-site property inspection and local market research included. |
Estate Appraiser who holds adequate experience and ability to estimate banking risk for residential loan collateralization |
|
Banking and lending value of the real estate expertise compilation |
Dedicated organisational cell of the Bank – Valuation and Credit Decisions Team |
|
Verification of banking and lending value of the real estate expertise and determination of the banking and lending value of the real estate |
Dedicated organisational cell of the Bank – Valuation and Credit Decisions Team |
The processes of the banking and lending value of the real estate expertise compilation and banking and lending value of the real estate determination as described above are performed by two persons independent from one another.
ING Bank Hipoteczny S.A. keeps and maintains the cover register (the Register). The Register is maintained in compliance with the requirements set out in the following documents:
o The Act on covered bonds and mortgage banks 29 August 1997 (Journal of Laws of 2003, No. 99 item 919, as amended)
o Resolution No. 633/2015 of the Polish Financial Supervision Authority of 1 December 2015 on determination of the template cover register,
o Recommendation K of the Polish Financial Supervision Authority of 9 February 2016 on the terms of maintenance of the cover register by mortgage banks.
The Bank enters into the register all the debt claims acquired under the mortgage-backed housing loan agreements as well as the rights and funds used to issue covered bonds and extra funds which form the surplus for covering interest on covered bonds in trading to be paid within the next 6 months. Covered bonds are secured with Bank debt secured with the first ranking mortgage.
Further, the Bank’s funds indicated in Article 18.3 of the Act on covered bonds and mortgage banks can be also used to issue covered bonds.
As at 31 December 2020, the mortgage-backed debt and other funds referred to in the Act on covered bonds and mortgage banks closed with PLN 3,008.2 million. In other words, the covered bonds were secured in 755.41%.
As at the date, the structure of the register was as follows:
T-bonds of PLN 15 million partially secure the payment of interest on covered bonds for 6 months (PLN 1,576 million). The total value of the mortgage-backed debt claims and substitute collateral (in the part not used to cover the payment of interest on covered bonds) was reflected in the overall level of collateralisation of covered bonds, which was 755.41%.
Since mortgage-backed debt and issued covered bonds matched in terms of currency and interest rate, there were no hedging transactions in the register as at 2020 yearned.
Register maintenance is overseen by the Cover Pool Monitor (=Trustee) on an ongoing basis.
For the key register data as at 31 December 2020, refer to the table below:
|
|
31.12.2020 |
|
Cover register |
|
|
Mortgage-backed debt (PLN million) |
3,008.2 |
|
Treasury Bonds (PLN million) |
15.0 |
|
Liquidity buffer (PLN thousand) |
1,576 |
|
Number of loans |
16,094 |
|
Average loan amount (PLN thousand) |
187 |
|
Average maturity (in months) |
242 |
|
Average LtV (loan value to the mark-to-market value of the real estate) |
53.64% |
|
Average LtV (loan value to the banking and lending value of the real estate) |
62.51% |
|
|
|
In keeping with the Act on covered bonds and mortgage banks (Act), for each mortgage bank a Cover Pool Monitor and at least one Deputy Cover Pool Monitor are appointed. The Cover Pool Monitor shall be responsible for verifying whether:
o the liabilities attributable to the covered bonds in trading are secured by the mortgage bank in compliance with the Act,
o the banking and lending value of the real estate taken by the Bank was set in compliance with the bylaw,
o the mortgage bank complies with the requirements of Article 18 of the Act,
o the coverage balance test and liquidity test confirm that the mortgage bank’s debt as well as the rights and funds entered into the cover register suffice to fully satisfy the holders of covered bonds.
o the manner of the cover register maintenance by the mortgage bank satisfies the terms and conditions of the Act,
o the mortgage bank ensures – under the Act – the collateral for the planned issue of covered bonds and control of whether adequate provisions were entered into the cover register.
Having considered the application of the Supervisory Board of ING Bank Hipoteczny S.A., on 4 January 2019 the Polish Financial Supervision Authority appointed Ms Grażyna Zielińska as the Cover Pool Monitor of ING Bank Hipoteczny S.A. and Mr Krzysztof Brejdak as the Deputy Cover Pool Monitor.
The Bank keeps and stores the cover register in which it enters its debt claims as well as the rights and funds used to issue covered bonds and surplus funds for covering the interest on covered bonds in trading to be paid within the next 6 months.
Register maintenance is overseen by the Cover Pool Monitor and Deputy Cover Pool Monitor on an ongoing basis.
Acting in accordance with the Act on covered bonds and mortgage banks, ING Bank Hipoteczny S.A monitors the applicable business limits.
As at 31 December 2020, the statutory limits and their utilisation were the following:
|
No. |
Statutory limit |
Statutory limit value |
Limit utilisation |
Legal grounds |
|
|
1. |
Maximum debt amount of the Bank in the portion over the banking and lending value of the real estate vis-à-vis total amount of the mortgage-backed debt held by the mortgage bank |
30% |
10.84% |
|
Article 13.1 of the Act on covered bonds and mortgage banks |
|
2. |
Share of debt for which the ratio of a single mortgage-backed loan to the banking and lending value of the real estate is over 100% at the acquisition date |
0% |
0% |
|
Article 13.2 of the Act on covered bonds and mortgage banks |
|
3. |
Maximum ratio of refinancing the acquired debt (in the portion of up to 80% of the banking and lending value of the real estate) with the funds obtained from the issue of covered bonds |
100% |
11.02% |
|
Article 14 of the Act on covered bonds and mortgage banks |
|
4. |
Maximum volume of acquired and taken-up shares or holdings in other entities vis-à-vis own funds of the mortgage bank |
10% |
0% |
|
Article 15.1.5 of the Act on covered bonds and mortgage banks |
|
5. |
Maximum multiple of the total of drawn loans and credit facilities, issued bonds vis-à-vis own funds of the mortgage bank (in first 5 years) |
10 |
6.67 |
|
Article 15.2.1 of the Act on covered bonds and mortgage banks |
|
6. |
Maximum multiple of the total amount of nominal amounts of covered bonds traded nu the mortgage bank to own funds of the mortgage bank |
40 |
0.91 |
|
Article 17 of the Act on covered bonds and mortgage banks |
|
7. |
Minimum overcollateralisation of the issue of covered bonds with mortgage-backed debt and other funds (bonds, cash, cash with the National Bank of Poland, hedging instruments) |
110% |
755.41% |
|
Article 18.1 of the Act on covered bonds and mortgage banks |
|
8. |
Minimum overcollateralisation of the issue of covered bonds with mortgage-backed debt |
85% |
752.05% |
|
Article 18.1 of the Act on covered bonds and mortgage banks |
|
9. |
Minimum ratio of income of the mortgage bank under debt and other funds (bonds, cash, cash with the National Bank of Poland, hedging instruments) vis-à-vis costs of interest on the traded covered bonds |
100% |
2009.37% |
|
Article 18.2 of the Act on covered bonds and mortgage banks |
|
10. |
Coverage with fuds (bonds, cash, cash with the National Bank of Poland) of the nominal amounts of interest on traded covered bonds to be paid out within the subsequent 6 months. |
100% |
100% |
|
Article 18.3a of the Act on covered bonds and mortgage banks |
|
11. |
Maximum ratio of debt backed with mortgages established during the construction investment project to the total amount of the mortgage-backed debt used to issue covered bonds. |
10% |
0% |
|
Article 23.1 of the Act on covered bonds and mortgage banks |
|
12. |
Maximum ratio of debt backed with mortgages on real estates earmarked for development as per the zoning plan to the total amount of the mortgage-backed debt used to issue covered bonds. |
1% |
0% |
|
Article 23.2 of the Act on covered bonds and mortgage banks |
Additionally to monitoring of the statutory limits, the Bank - in accordance with the Act on Covered Bonds and Mortgage Banks - makes a mortgage cover calculation on each business day. The coverage balance test is performed at least every 6 months and the liquidity test at least every 3 months.
Throughout the reporting period, ING Bank Hipoteczny did not exceed any of the limits indicated in the table and the outcome of the mortgage cover calculation and coverage balance and liquidity tests was positive.
ING Bank Hipoteczny S.A. governance is underpinned by the organisational framework presented on the diagram below and the segregation of duties among the Bank bodies discussed further on.
Organisational framework of ING Bank Hipoteczny S.A. in functional areas
The authority of individual Bank bodies has been laid down in the Banking Law, the Commercial Companies and Partnerships Code and other laws and provisions of the Bank Charter as well as in their individual bylaws.
The authority of the Bank General Meeting is the following:
o review and approval of the Management Bank Report on Bank Operations and the financial statements for the past financial year and acknowledgment of fulfilment of duties by the members of the Bank bodies,
o appointment and recall of Supervisory Board members,
o passing resolutions on the determination of principles of remuneration of the Supervisory Board members and other matters foreseen by the law, Charter or those submitted by the Supervisory Board, Management Board or eligible shareholders,
o passing resolutions on damage claims, for the damages caused upon Bank establishment or exercise of management or supervision,
o determination of the mode of shares redemption and of the fee for the shares redeemed as well as consent to the acquisition of Bank’s shares for redemption purposes,
o formation and liquidation of special purpose funds from net profit,
o passing resolutions on the issue of convertible bonds or other instruments providing for the right to acquire to take up Bank shares,
o passing resolutions on liquidation, disposal or lease of the Bank enterprise or its organised part and establishing limited right in property thereon.
The authority of the Bank Supervisory Board is the following in particular:
o assessment of the Management Board Report and financial statements for the past financial year as to their compliance with the ledgers, documents and the actual state of affairs,
o assessment of Management Board motions regarding profit distribution or loss coverage,
o submission to the General meeting of the annual written report on the said assessment results,
o revision of the Bank’s property and financial control,
o approval of the rules of prudent and stable Bank management and the Bank strategy developed by the Management Board as well as periodical review and verification of its delivery, and also approval of many-year development plans of the Bank and annual budgets of the Bank as developed by the Management Board,
o approval of accepted risk levels in the Bank’s business areas,
o approval of Management Board motions regarding formation or liquidation of Bank’s organisational units abroad,
o consent to acquisition or disposal by the Bank of shares and share rights or holdings of other legal persons, provided the amount of assets covered by one such operation exceeds the PLN equivalent of EUR 1,000,000 or the said operation concerns the assets accounting for at least 50% of the share capital of another legal person; the Supervisory Board’s consent is not required for the Bank’s exposure under debt conversion, liquidation of the collateral accepted by the Bank,
o appointment and recall of Management Board Members,
o conclusion with Management Board Members of agreements on performance of their duties and determination of remuneration thereunder, as well as consent to receipt by Management Board Members of other considerations from the Bank or related entities,
o approval of the Management Board Bylaw, Organisational Bylaw and internal control system of the Bank,
o selection of the entity authorised to audit the financial statements of the Bank, based on the recommendation of the Audit and Risk Committee of the Supervisory Board and provision of advice as to establishment of cooperation with that entity,
o consent to conclusion of transactions by the Bank with its shareholders or related entities or members of Bank authorities, provided the amount of the transaction exceeds EUR 1,000,000, save for typical and routine transactions made on an arm's length basis whose nature and terms arise from the daily business of the Bank or transactions foreseen in the annual budget of the Bank as approved by the Supervisory Board,
o consent to assuming a liability by the Bank or making an administrative decision whose amount in such one-off operation or on an aggregate basis for one entity or a few entities related to the entity exceeds 10% of own funds of the Bank; save for provisions of item 4) and 11), the consent is not required for the entities referred to in item 9),
o consent to acquisition, disposal or encumbering by the bank of property, plant and equipment item whose amount exceeds the PLN equivalent of EUR 1,000,000; save for provisions of item 10), the consent of the Board is not required when the property, plant and equipment item is acquired through transfer of such item by the Bank as the creditor due to the Bank’s debt recovery procedure,
o submission to the General meeting of reports and assessments laid down in the regulations, recommendations of the regulator and other laws of the Bank,
o suspension – for important reasons – of the Bank Management Board Members in their capacity and delegation – for the period of up to 3 months – of Supervisory Board Members to temporarily act in the capacity of the Management Board Members incapable of discharging their duties,
o approval of the Bank’s compliance risk policy,
o approval of the rules for the processes of internal capital estimation, capital management and capital planning,
o approval of the bylaw used to determine the banking and lending value of the real estate; the bylaw takes effect upon approval by the Polish Financial Supervision Authority,
o approval of cooperation agreements with ING Bank Śląski S.A.,
o submission of a request to the Polish Financial Supervision Authority for appointment of the Cover Pool Monitor and his/her deputy,
o approval of model risk management rules,
o approval of the code of ethics and conflict of interest management rules.
Supervisory Board resolutions may concern in particular:
o formulation of conclusions and recommendations under the supervision and control activities conducted,
o granting consents and permissions,
o rendering advice,
o reports and assessments submitted by the Board to the General meeting and in particular:
o report on results of assessment of the financial statements and Management Board reports on Bank operations in the financial year, and also the Management Board motion on the distribution of the Bank’s profit for the financial year,
o assessment of the Bank’s standing, considering the assessment of the risk management and internal control systems, the compliance and audit cell included,
o report on the operations of the Board and their committees in the financial year along with the work assessment in that period by the Board,
o report on the remuneration policy of the Bank,
o assessment of application by the Bank of the principles of corporate governance for supervised institutions.
The authority of the Supervisory Board Audit and Risk Committee is the following in particular:
o supporting the Supervisory Board in monitoring and supervising the financial reporting, the internal and external audit and the governance system of the Bank, and in particular as to adequacy and effectiveness of the internal control system and risk management system and the relation between the Bank and the firm auditing the financial statements of the Bank.
o supporting the Supervisory Board in monitoring and supervising the risk management process, including for the operational risk, credit and market risk, and also the internal capital estimation process, capital planning and management as well as the model risk and capital adequacy.
The authority of the Bank Management Board is the following in particular:
o representing the Bank before the authorities and third parties as well as administration and management of the property and interests of the Bank. The Management Board take action for all the matters not resting with other Bank bodies,
o issue of resolutions which under the universally effective laws and provisions of the Bank Charter require decisions by other statutory Bank bodies,
o formulation of Bank’s policies, including but not limited to the lending policy, risk management policy and remuneration policy,
o determination of acquisition principles for funds from other financial institutions and the principles of their utilisation as well as determination of principles for investing funds with other banks,
o formulation of principles for setting interest for the products offered by the Bank, including but not limited to the interest for loans and credit facilities or penalty interest,
o reviewing motions regarding recognition of extraordinary losses and establishment of provisions beyond the amounts otherwise set by the Management Board,
o passing investment plans and setting investing principles,
o resolving on the matters pertaining to the acquisition, encumbering, disposal of lease of real estates and other property rights – for operations going beyond the amounts otherwise set by the Management Board,
o resolving on acquisition and disposal by the Bank of shares and holdings of other legal persons – for operations going beyond the amounts otherwise set by the Management Board,
o determination of principles of granting and revoking powers of attorney to perform certain acts or take certain actions,
o the matters going beyond the ordinary course of business, including but not limited to the matters going beyond the powers of individual Management Board members or Committees established by the Management Board,
o other matters for which decisions rest with the Management Board under other resolutions adopted by the Management Board and other matters submitted by the President of the Management Board or another Management Board Member.
The Bank Management Board established the following standing committees: the list of standing committees forms Enclosure No. 4 with the Organisational Bylaw of ING Bank Hipoteczny S.A.:
o Assets and Liabilities Committee (ALCO),
o Credit Policy Committee (CPC),
o Non-financial Risk Committee,
o Green Covered Bonds Committee.
The Assets and Liabilities Committee supervise and take decisions on:
o market and liquidity risk management at ING Bank Hipoteczny,
o management of the Bank’s balance sheet (assets and liabilities), including the transfer pricing system methods and parameters,
o structure of ING Bank Hipoteczny S.A.’s ledgers,
o capital and capital adequacy management,
o valuation of financial instruments and calculation of valuation adjustments, considering the factors not accounted for in the valuation in the Bank’s systems.
Credit Policy Committee
Responsibilities
o Credit risk appetite as to specific risk appetite limits and concentration limits:
o Define limit types,
o Set and change limit levels,
Lending Policy:
o the Credit Policy Committee take decisions on the regulations concerning the implementation of the ING Bank Hipoteczny S.A. Credit Risk Management Policy,
o the Credit Policy Committee define and modify the principles of risk, identification, assessment and control, including:
o credit risk assessment principles,
o standard credit analysis,
o credit powers,
o rating process flow,
o principles of client and credit exposure monitoring,
o restructuring and debt recovery principles,
o collateral establishment and monitoring principles,
o impairment and provisioning principles,
o social and environmental risk assessment principles,
o counterparty risk assessment principles.
Credit risk models:
o the Credit Policy Committee approve regulations on development, maintenance and use of risk models, including:
o principles of the credit risk models management,
o methodology of building and monitoring of the models,
o definitions of the credit risk models,
o the scope of use of the credit risk models,
o results of credit risk model validation.
o The Credit Policy Committee approve the reports on results of credit risk model validation.
o The Credit Policy Committee monitor credit risk, ensure compliance with laws, supervisory regulations and ING Group’s standards as well as discuss and approve any other credit- and settlement risk-related matters.
The Credit Policy Committee ensure compliance with laws, supervisory regulations and ING Group’s standards.
The Non-Financial Risk Committee – following the requirements of the universally applicable laws, regulator’s requirements, internal regulations of the Bank and good practices of the ING Bank Śląski S.A. Group, the Committee have inter alia the following areas and matters in scope:
o Initiating and recommending the changes and new solutions for the non-financial risk area.
o Performing the tasks resulting from the use of outsourcing as described in the ING Bank Hipoteczny S.A. Outsourcing Policy and the ING Bank Hipoteczny S.A. Outsourcing Manual.
o Approving, advising on and recommending plans, projects and programmes as well as control standards for non-financial risk management.
o Approval of:
o operational risk management plan for the calendar year concerned,
o waivers and deviations for the non-financial risks area,
o annual control testing plans and results,
o annual Risk Identification and Assessment Plan and the results of this process when unacceptable risks are identified as well as the outcome of the Business Environment Assessment,
o action plans and report on the 2LoD monitoring as part of key control testing (IT area included),
o non-financial risk reports and recommendation to the Bank Management Board of decisions for material non-financial risk issues (including the unacceptable risks attributable to product-related changes),
o list of obligatory training courses in non-financial risk,
o periodical results of Bank’s organisational framework reviews for compliance with the operational risk management rules,
o methodology for operational risk capital estimation,
o results of measurement of economic and regulatory capitals for operational risk, including quarterly monitoring of the capital required for operational risk and capital change drivers,
o mitigating actions.
o Supervision of:
o non-financial risk identification, assessment, monitoring and mitigation processes (including approval of control standards),
o the process of distribution of regulatory information to competent Bank units,
o the quality assurance process for the non-financial risk management processes.
o Monitoring of:
o the processes of NFR identification, assessment, monitoring and mitigation, outsourcing area included,
o the quality assurance process for the non-financial risk management processes,
o the status of mitigation and enhancement activities related to non-financial risk programmes and projects in the Bank,
o risk factors arising from the Business Environment Assessment.
o Assessment of:
o reputational risk reports, customer complaints and conduct risk matters,
o non-financial risks for considerable changes to the Bank’s governance structure and essential elements of outsourcing processes.
The Green Covered Bonds Committee is responsible for all green aspects of covered bonds.
Responsibilities:
o Initiation and recommendation of changes and new solutions for green covered bonds.
o Approval of:
o amendments to the ING Bank Hipoteczny S.A. Green Covered Bond Framework,
o changes to technical conditions enabling qualification of a credit debt to the portfolio of green assets,
o allocation reporting and impact reporting,
o periodical reports delivered to the Climate Bonds Initiative.
o Supervision of:
o processes relating to operational implementation of changes arising from the ING Bank Hipoteczny S.A. Green Covered Bond Framework,
o processes relating to operational implementation of changes to technical conditions enabling qualification of a credit debt to the portfolio of green assets,
o the process of utilisation of funds acquired from the issue of green covered bonds, considering the potential alternative investment projects laid down in the ING Bank Hipoteczny S.A. Green Covered Bond Framework,
o the process of green assets portfolio building,
o collaboration with third parties involved in the green covered bonds-related processes,
o quality assurance for the green covered bonds-related processes,
o reporting process to ING Group.
In the period from 1 January 2020 to 31 December 2019, the Management Board of ING Bank Hipoteczny S.A. worked in the following composition:
|
|
Function |
Function Holding Time |
|
Mirosław Boda |
President of the Management Board |
26.02.2018 - at present
|
|
Jacek Frejlich |
Vice-President of the Management Board |
26.02.2018 - at present
|
|
Roman Telepko |
Vice-President of the Management Board |
26.02.2018 - at present |
Segregation of key authorities within the Bank Management Board:
|
Mirosław Boda |
President of the Management Board responsible for the Management Area |
|
Jacek Frejlich |
Vice-President of the Management Board responsible for the Finance, Operations and IT Areas |
|
Roman Telepko |
Chief Risk Officer |
Other management functions of Management Board Members:
|
|
Function |
Function Holding Time |
|
Mirosław Boda |
Deputy Chairman of the Supervisory Board – ING Usługi dla Biznesu S.A. |
Throughout the reporting period. |
|
Jacek Frejlich |
Did not hold any additional functions of the Management Board or Supervisory Board member. |
Throughout the reporting period. |
|
Roman Telepko |
Did not hold any additional functions of the Management Board or Supervisory Board member. |
Throughout the reporting period. |
The composition, responsibilities of and segregation of duties among the Management Board Members did not change.
Recruitment policy – selection and evaluation of Management Board Members
All the appointed members of the ING Bank Hipoteczny S.A. Management Board satisfy the requirements of Article 22aa of the Banking Law Act and underwent a suitability assessment before appointment as per EBA guidelines.
In 2020, suitability assessments of the Supervisory Board and the Management Board were performed. These were both collective assessments of ING Bank Hipoteczny SA bodies as well as individual assessments of their members.
The collective assessment of the Supervisory Board as well as the individual assessments of its members, including the assessment of Mr Lorenzo Tassan-Bassut as a candidate for the Supervisory Board, resulted from the change in the composition of the Supervisory Board caused by the Mr Patrick Roesink’s resignation from his position.
Both collective and individual assessments were interim.
The process of selection and assessment of candidates for ING Bank Hipoteczny S.A. Management Board follows the terms and conditions of the Policy of selection, nomination, re-nomination and succession planning of ING Bank Hipoteczny S.A. Management Board and Supervisory Board Members.
Upon the request of the ING Bank Hipoteczny S.A., the HR unit of ING Bank Śląski S.A. prepares a list of candidates for a given position, based on the succession database. The list of candidates should satisfy the requirements of the Diversity Policy of ING Bank Hipoteczny S.A. In the absence of internal candidates satisfying the requisite criteria, external recruitment process is initiated. The Supervisory Board select at least 2 persons from the list of candidates; they are invited to the assessment process made a third party. That stage closes with the third-party report.
The Supervisory Board commission the suitability assessment process as per the Suitability assessment policy for Supervisory Board and Management Board Members and the persons holding key functions at ING Bank Hipoteczny S.A. considering the terms of the Diversity Policy applicable to the ING Bank Hipoteczny S.A. Management Board and Supervisory Board Members.
The following terms of selection, nomination and succession planning apply to Management Board Members:
o Management Board Members are appointed and recalled in the secret ballot, considering the requirements of the Banking Law Act.
o The Bank Management Board consists of at least three members, inclusive of the President and Vice-Presidents. Upon the request of the President of the Management Board, the Supervisory Board may entrust the role of I Vice-President to one of the Vice-Presidents.
o The number of the Management Board Members is determined by the Supervisory Board. At least half of the Members of the Management Board are the citizens of the Republic of Poland.
o Management Board Members are appointed for the joint term office which commences at their appointment date and lasts for five full subsequent financial years.
o The President of the Management Board and the Vice-President supervising the management of the risk material to the Bank’s business are appointed by the Supervisory Board upon the approval of the Polish Financial Supervision Authority. The earlier appointed Management Board Member may be entrusted with the capacity of the Vice-President referred to hereinabove only upon approval of the Polish Financial Supervision Authority.
Diversity Policy
The ING Bank Hipoteczny S.A. has the Diversity Policy for ING Bank Hipoteczny S.A. Management Board and Supervisory Board Members.
The Policy seeks to achieve a broad scope of competence upon appointment of the Supervisory Board and Management Board members so as to acquire various opinions and experience and enable individual bodies to issue independent opinions and reasonable decisions as well as to ensure top quality of duties performance by the managing bodies.
The Bank perceives diversity as one of the attributes of the corporate culture. As regards business-related criteria, the strategy of diversity ensures selection of persons with diverse knowledge, skills and experience, suitable for positions held by them and duties entrusted to them, who complement each other at the level of all the Management Board and Supervisory Board Members.
The criteria are verified in the suitability assessment process described in the Suitability assessment policy for Supervisory Board and Management Board Members and the persons holding key functions at ING Bank Hipoteczny S.A. Further, the Diversity Policy covers and employs the differences which besides knowledge and professional experience are driven by sex and age to accomplish top results.
Principles of remuneration of Bank Management Board Members
On 7 December 2020, the Supervisory Board – by way of Resolution No. 47/11/2020 – approved amendments to the Remuneration Bylaw for Members of the ING Bank Hipoteczny S.A. Management Board. The Bylaw provides for the primary terms and conditions of remuneration for members of the ING Bank Hipoteczny S.A. Management Board. The Bylaw remains in concordance with the values and long-term interests of ING Bank Śląski S.A. Group, whereby it fosters effective risk management by the Group. The principles of remuneration of Bank Management Board Members are set using the market data. They factor in the knowledge and skills as well as the accountability of and the risk taken by a given function. Each Bank Management Board member made an employment contract with the Bank. The contract reads inter alia the terms and conditions of remuneration and the competition ban.
Remuneration of Management Board Members
In 2020, the total amount of emoluments due and paid out by the Bank to the Management Board Members reached PLN 1,929,200, while in 2019 it was PLN 1,579,200.
|
Management Board |
|||||
|
2020 |
|||||
|
Emoluments due to ING Bank Hipoteczny S.A. Management Board Members in 2020 |
|||||
|
|
|
remuneration |
awards* |
other benefits** |
Total |
|
TOTAL |
01.01.2020-31.12.2020 |
1,503,360.00 |
0.00 |
83,340.19 |
1,586,700.19 |
|
*Emoluments of the ING Bank Hipoteczny S.A. Management Board Members for 2020 under the Variable Remuneration Programme have not yet been awarded. In line with the remuneration system of the Bank, Bank Management Board Members may be eligible for a 2020 bonus. The bonus will be paid out in 2021-2026. For that purpose, provisions were formed for the 2020 bonus for Management Board Members. As at 31 December 2020, they totalled PLN 795,096. The Bank Supervisory Board will take the final decision on the bonus amount.
|
|||||
|
** other benefits include: Employee Pension Scheme, healthcare and a company car |
|||||
|
Management Board |
|||||
|
2020 |
|||||
|
Emoluments paid out to ING Bank Hipoteczny S.A. Management Board Members in 2020 |
|||||
|
|
|
remuneration |
awards* |
other benefits** |
Total |
|
TOTAL |
01.01.2020-31.12.2020 |
1,503,360.00 |
342,525.61 |
83,340.19 |
1,929,225.80 |
|
*Bonus under the 2019 Variable Remuneration Programme, non-deferred cash and financial instruments held for 2018. |
|||||
|
** other benefits include: Employee Pension Scheme, healthcare and a company car |
|||||
In the period from 1 January 2020 to 31 December 2020, the Supervisory Board of ING Bank Hipoteczny S.A. worked in the following composition:
|
|
Function on the Bank Supervisory Board
|
Appointment date |
Recall/ resignation date |
Independent member*
|
Audit and Risk Committee |
|
Brunon Bartkiewicz |
Chairman |
26.02. 2018 |
|
|
|
|
Joanna Erdman |
Member |
26.02. 2018 |
|
|
|
|
Marcin Giżycki |
Deputy Chairman |
26.02. 2018 |
|
|
|
|
Bożena Graczyk |
Member |
26.02. 2018 |
|
|
M |
|
Patrick Roesink |
Member |
26.02. 2018 |
31.03. 2020 |
|
M |
|
Lorenzo Tassan-Bassut |
Member |
08.04.2020 |
|
|
|
|
Krzysztof Gmur |
Member |
26.02. 2018 |
|
|
Ch |
|
Jacek Michalski |
Secretary |
11.09.2018 |
|
|
M |
Ch – Chairman, D – Deputy Chairman, M – Committee Member
*/ as defined in the Act on Statutory Auditors, Audit Firms and Public Oversight of 11 May 2017.
The composition of the Supervisory Board changed in 2020. As of 31 March 2020, Mr Patrick Roesink resigned as a member of the Supervisory Board of ING Bank Hipoteczny S.A. and as a member of the Audit and Risk Committee of the Supervisory Board of ING Bank Hipoteczny S.A. On 8 April 2020, the General Meeting appointed Mr Lorenzo Tassan-Bassut as member of the Supervisory Board of ING Bank Hipoteczny S.A.
At the Supervisory Board meeting on 18 June 2020, Ms Bożena Graczyk was unanimously elected by the Supervisory Board as a member of the Audit and Risk Committee of the Supervisory Board of ING Bank Hipoteczny S.A.
In the reporting period, the Supervisory Board had 5 onsite meetings and the Audit and Risk Committee had 6 such meetings. Due to pandemic, the meetings of the Bank bodies are held by means of distance communication.
As per Article 395.2.3 of the Commercial Companies and Partnerships Code, once a year, the general meeting acknowledge fulfilment of duties by each Supervisory Board member. Acknowledgement is the assessment of the Supervisory Board members, regardless of the review of the Supervisory Board report on operations made by the general meeting.
On 8 April 2020, there was held an Ordinary General Meeting of ING Bank Hipoteczny S.A. during which the general meeting:
o approved the annual financial statements of ING Bank Hipoteczny S.A. for the period from 1 January 2019 to 31 December 2019;
o approved the annual Management Board Report on Operations of ING Bank Hipoteczny S.A for the period from 1 January 2019 to 31 December 2019;
o approved the Supervisory Board Report on assessment results for the said financial statements, the Management Board Report on Operations and the Management Board’s motion regarding coverage of the loss sustained by ING Bank Hipoteczny S.A in the period from 1 January 2019 to 31 December 2019;
o adopted the reports and evaluations of the Supervisory Board for the period from 1 January 2019 to 31 December 2019 covering:
1) assessment of the Bank’s standing, considering the assessment of systems of internal control, risk management, compliance, and audit function;
2) report on the operations of the Supervisory Board and its Committee;
3) report on the evaluation of the remuneration policy of the Bank;
4) assessment of application by the Bank of the Principles of Corporate Governance for Supervised Institutions.
o approved the Management Board’s motion regarding coverage of the loss sustained by ING Bank Hipoteczny S.A in the period from 1 January 2019 to 31 December 2019;
o acknowledged fulfilment of duties by all Supervisory Board Members in the period from 1 January 2019 to 31 December 2019;
o acknowledged fulfilment of duties by all Management Board Members in the period from 1 January 2019 to 31 December 2019;
o appointed Mr Lorenzo Tassan-Bassut as a member of the Supervisory Board of ING Bank Hipoteczny S.A.
On 25 September 2020, an Extraordinary General Meeting of ING Bank Hipoteczny S.A. was held at which a resolution was passed to elect ING Bank Slaski S.A. as the entity keeping the ING Bank Hipoteczny S.A. Shareholders Register.
Remuneration of Supervisory Board Members
In 2020, total remuneration (defined as for the Management Board Members) due and paid out by the Bank to the Supervisory Board Members reached PLN 120,000.
|
Supervisory Board |
|||||
|
2020 |
|||||
|
Emoluments due and paid out to ING Bank Hipoteczny S.A. Supervisory Board members in 2020 |
|||||
|
|
|
remuneration |
Awards |
other benefits |
Total |
|
TOTAL |
|
120 000.00 |
0.00 |
0.00 |
120 000.00 |
|
Supervisory Board |
|||||
|
2019 |
|||||
|
Emoluments due and paid out to ING Bank Hipoteczny S.A. Supervisory Board members in 2019 |
|||||
|
|
|
remuneration |
Awards |
other benefits |
Total |
|
TOTAL |
|
120 000.00 |
0.00 |
0.00 |
120 000.00 |
|
|
|||||
Headcount
As at 31 December 2020, ING Bank Hipoteczny S.A. had 36 employees (36 FTEs). This signifies headcount decrease by 3 persons (3 FTEs) from 31 December 2019.
Remuneration policy
The primary internal regulation governing the remuneration policy is the Employee Remuneration Bylaw of ING Bank Hipoteczny S.A. The Bylaw is revised on an ongoing basis, in response to the changing conditions and regulations of the ING Bank Śląski S.A. Group.
Amendments to the Bylaw are introduced by a resolution of the Bank Management Board.
As per the bylaw, the total remuneration of Bank employees comprises of the fixed and variable remuneration.
Fixed remuneration covers:
a. base salary;
b. benefits awarded under the universally applicable laws and internal remunerations of the Bank, and in particular additional remuneration for overtime work, cash equivalent for holidays, reimbursement of private company car use by the employee;
c. additional benefits being an element of the overall Bank’s policy like healthcare, employee pension scheme, company cars, benefits awarded to employees under the Cafeteria programme;
d. fixed severance payments, that is:
o severance pay for the employees dismissed for other than employee-related reasons;
o cash payment due to employee becoming a pensioner or retiree;
o death gratuity.
Variable remuneration covers:
o annual bonus on the terms laid down in the ING Bank Hipoteczny S.A. Employee Evaluation Bylaw
o or the bonus set on the terms laid down in the ING Bank Hipoteczny S.A. Identified Staff Evaluation Bylaw.
The ratio of variable remuneration to fixed one cannot be over 100%.
Base salary
The primary assumption of the base salary system is to ensure consistent and fair remuneration at ING. This can be done through a regular analysis of many aspects, financial and economic ones included. We ensure that the remuneration offered is in line with the market through its revaluation made using detailed market information. By ensuring fair and competitive remuneration, the remuneration policy seeks to acquire and keep the employees contributing to the development of our company.
The Bank applies internal job pay grades. Pay grades are set using independent and objective job scoring methods and job descriptions. Jobs are valued on an ongoing basis, notably in the event of occurrence of important organisational changes at the Bank. The Bank verifies adequacy of base salaries through regular remuneration benchmarks, made by specialist third parties.
Variable remuneration
The main element of variable remuneration is the bonus. It is an extra remuneration which an employee can obtain by performing his or her STEP UP tasks stemming from the business strategy and ING values.
Tasks are set and evaluated in line with:
- the ING Bank Hipoteczny S.A. Employee Evaluation Bylaw, and
- the ING Bank Hipoteczny S.A. Identified Staff Evaluation Bylaw.
The primary goal of the Step Up evaluation is to ensure that employees have adequate competences. This is achieved by providing employees with motivating feedback, setting adequate goals for them, checking their performance in a reliable manner and building their engagement to deliver business goals and keep the competitive position of ING Bank Hipoteczny S.A.
For persons having a material impact on risk profile of ING Bank Hipoteczny S.A., the Bank regulates the process of awarding variable remuneration in the ING Bank Hipoteczny S.A. Identified Staff Evaluation Bylaw. In case of Management Board Members the bonus rules are provided for in the Remuneration Bylaw for Members of the ING Bank Hipoteczny S.A. Management Board.
In accordance with the ING Bank Hipoteczny S.A. Capital Management Policy, the Bank tests capital to ensure that the total remuneration pool of all employees does not limit its capacity to maintain adequate capital base. Should a limitation occur, a decision can be taken to freeze the variable remuneration pool.
For Identified Staff, variable remuneration covers:
o cash payment (not more than 50%),
o financial instruments (minimum 50%).
The above division applies to both the remuneration paid out directly after the end of the evaluation period and the deferred one.
The deferral period is five years from the variable remuneration determination by the Management Board/ Supervisory Board.
Besides the bonus award system, the Bank has an employee rewarding system, formed of a reward fund. The fund is used to reward individual employees on a discretionary basis for their outstanding performance or accomplishments translating into important deliverables for the Bank.
Fringe benefits
|
Additional healthcare |
Besides occupational health services (required by the Labour Code), the Bank provides for its employees different packages of healthcare services dedicated to specific job groups. Moreover, the employees can benefit from free examinations under the Cancer Prevention Programme. |
|
Group insurance |
Employees can access group life insurance via the bank and on preferential terms negotiated by the bank; they may choose between two insurance companies. |
|
Cafeteria system |
Under the system, all Bank employee may – via an online benefit platform – use freely the funds received from the In-house Welfare Benefits Fund. |
Principles of remuneration of Bank Management Board Members
On 7 December 2020, the Supervisory Board – by way of Resolution No. 47/11/2020 – approved amendments to the Remuneration Bylaw for Members of the ING Bank Hipoteczny S.A. Management Board. The Bylaw reads the primary terms and conditions of remuneration for members of the ING Bank Hipoteczny S.A. Management Board.
The Bylaw is revised on an ongoing basis, in response to the changing conditions and regulations of the ING Bank Śląski S.A. Group.
The Bylaw remains in concordance with the values and long-term interests of ING Bank Śląski S.A. Group, whereby it fosters effective risk management by the Group.
The principles of remuneration of Bank Management Board Members are set using the market data. They factor in the knowledge and skills as well as the accountability of and the risk taken by a given function.
The remuneration package of the Management Board Member covers:
a. fixed remuneration, composed of the base salary and the following additional benefits: Employee Pension Scheme, healthcare, company car, employment contract termination-related benefits, other benefits awarded by the Supervisory Board’s decision.
b. variable remuneration which covers the annual bonus in line with the ING Bank Hipoteczny S.A. Variable Remuneration Policy for Identified Staff including Management Board Members.
The elements of remuneration and other benefits for Bank Management Board Members in the reporting period were described in the financial statements of ING Bank Hipoteczny S.A. for the period from 1 January 2020 to 31 December 2020.
Variable elements of remuneration of Management Board Members and Identified Staff
As required by:
a. the Banking Law Act of 29 August 1997 (Journal of Laws of 2015, item 128 as amended),
b. the Regulation by the Minister for Development and Finance on managing risk and internal control system, remuneration policy and detailed procedure for internal capital estimation by banks in particular of 6 March 2017, hereinafter referred to as the Regulation of the Minister for Development and Finance,
c. EBA Guidelines on sound remuneration policies of 27 June 2016, as referred to in Articles 74.3 and 75.2 of the Directive 2013/36/EU and disclosure of information under Article 450 of Regulation (EU) 575/2013, hereinafter referred to as the Guidelines,
d. Commission Delegated Regulation (EU) No 604/2014 of 4 March 2014 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards with respect to qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities have a material impact on an institution's risk profile, hereinafter referred to as the RTS Regulation.
The Bank applies the following variable regulation determination-oriented regulations:
a. Variable Remuneration Policy for Identified Staff,
b. List of Identified Staff,
c. ING Bank Hipoteczny S.A. Identified Staff Evaluation Bylaw.
As at 31 December 2020, the Variable Remuneration Policy for Identified Staff applied to 7 Supervisory Board Members, 3 Management Board Members and 8 IDS jobs.
The List of Identified Staff – the list of Bank employees identified as persons having a material impact on the risk profile of ING Bank Hipoteczny S.A. based on the quantitative and qualitative criteria listed in Enclosure No. 1 with the Variable Remuneration Policy for Identified Staff, as per the effective provisions of the Regulation of the Minister for Development and Finance and RTS Regulation.
The List of Identified Staff is updated on an ongoing basis by the President of the Management Board of ING Bank Hipoteczny S.A.
Based on the above criteria, the following persons fall into the Identified Staff category:
o Supervisory Board and Management Board members,
o managers and persons reporting to Bank Management Board members,
o persons responsible before the managing authority for the activities of the internal audit risk management function, compliance function or internal audit function,
o heads of legal, finance (tax and budgeting included), human resources, remuneration policy, IT technology or business analysis functions,
o employees responsible for the committee managing the risk category laid down in Articles 79-87 of the Directive 2013/36/EU other than credit risk and market risk or being that committee member,
o employees whose jobs fall within the same pay brackets as those of the senior management staff and persons taking conduct risk (if they have impact on the risk profile).
The following criteria are taken into account to determine whether a given job/ person has a material impact on the Bank’s risk profile and whether s/he should be included in the List of Identified Staff:
a. A person in a given job holds the powers, whereby s/he can take decisions or make binding opinions of material impact on the Bank’s risk profile,
b. A person in a given job is responsible for control functions at the Bank, including the responsibility for or participation in development of risk management systems and creation or implementation of significant risk mitigation procedures at the Bank.
Another element of the analysis of impact on the Bank’s risk profile is specification of key Bank committees whose decisions impact the Bank’s risk profile and inclusion in the List of Identified Staff their members with voting rights holding the right of veto or the casting vote.
The Supervisory Board approve the Variable Remuneration Policy and oversee compliance therewith.
The variable remuneration is in proper relation to fixed remuneration. The ratio of fixed remuneration to variable remuneration is 1 to max. 1.
Variable remuneration is set based on the performance assessment. The variable remuneration consists of:
o cash payment (not more than 50%),
o financial instruments (minimum 50%).
The above division applies to both the remuneration paid out directly after the end of the evaluation period and the deferred one.
The Bank applies the variable remuneration deferral rule with the reservation that in line with the proportionality principle given in the Regulation of the Minister for Development and Finance a certain amount of variable remuneration is set which is not subject to deferral (up to PLN 40,000), assuming at the same time that this amount cannot exceed 1/3 of the total annual remuneration for an employee on the List of Identified Staff.
The variable remuneration awarded in financial instruments is subject to a retention period. The period is one year from the award date.
The financial instruments awarded as variable remuneration are an instrument within the meaning of the Act on Trading in Financial Instruments. Their underlying instrument is the amount of net assets of ING Bank Hipoteczny S.A.
Deferred variable remuneration can be decreased or not paid out based on:
o verification of performance assessment or
o ex post risk adjustment and capital test.
By verifying performance assessment, one may determine whether there occurred some conditions necessitating performance re- assessment, considering the results of given Identified Staff – and, accordingly, the conditions providing for variable remuneration decrease or freeze. This applies in particular to the situation where employee behaviour results n a considerable adjustment of annual financial statements of the Bank or reputation loss by the Bank.
Based on risk adjustment ex post, the Bank has the right to reduce or not pay out the variable remuneration under the following circumstances:
a. occurrence of events resulting in Bank’s non-compliance or the risk of Bank’s non-compliance with the norms and standards of Article 142.1 of the Banking Law Act and requiring the Bank to activate the Remedy Programme,
b. payout of variable remuneration on the basis of untrue data,
c. failure to satisfy by Identified Staff of applicable competition- and reputation-related standards,
d. occurrence of a conflict of interest due to payout of variable remuneration in financial instruments, because of non-compliance with the confidential data usage rules and other actions which may impact the amount of assets of ING Bank Hipoteczny S.A. in the short term.
An employee does not acquire the right to an annual bonus (including the unpaid deferred portion) in the event of employment contract termination:
a. under Article 52 of the Labour Code,
b. upon the employer’s initiative due to the termination reasons attributable to an employee.
Identified Staff are required not to apply their own hedging strategies or insurance for remuneration or responsibility, save for the mandatory insurance as required under special regulations, which would neutralise the measures taken in respect of them as part of Policy implementation. Identified Staff are required to submit to the employer – by 31 January of each function holding year – their statement on non-application of any hedging strategies or insurance.
The Bank does not award individual pension benefits understood as a portion of the variable remuneration package.
The Bank does not apply any variable remuneration award or payout solutions which would entail non-compliance with the Policy.
Once a year, by 31 January, ING Bank Hipoteczny S.A submits to the Polish Financial Supervision Authority the data on the number of Bank employees wherefor the total remuneration of each of them individually in the previous year went over EUR 1 million (one million) at the average rate of the National Bank of Poland from the last business day of the year for which data are submitted, along with the information on the job of the employee and the amount of the main remuneration elements, awarded bonuses and long-term rewards plus withheld pension contributions.
ING Bank Hipoteczny S.A renders into the public domain the information on the Policy as far as required by the Polish Financial Supervision Authority for the disclosure of qualitative and quantitative information about the capital adequacy and other information to be disclosed.
The primary condition of annual bonus payout to Management Board members is delivery by the Bank of at least 80% of the budget, incrementally during the year, in the year for which variable remuneration is computed.
In accordance with the ING Bank Hipoteczny S.A. Capital Management Policy, ING Bank Hipoteczny S.A tests capital to ensure that the total remuneration pool of all employees does not limit the Group’s capacity to maintain adequate capital base. Should a limitation occur, a decision can be taken to freeze the variable remuneration pool.
The amount of variable remuneration elements can be decreased and their payout can be frozen when the Bank sustains a balance sheet loss.
In the event of employment contract termination by the Bank, the Management Board member is eligible for a severance pay in the amount of a three-month base salary for the last three months preceding employment relationship termination.
Management Board members and Identified Staff are covered with non-competition agreements which provide for damages payment for refraining from employment at a competition after employment with the Bank.
In the settlement period, no employee of ING Bank Hipoteczny S.A. earned the remuneration of at least EUR 1 million.
Agreements between the Bank and managers
In accordance with Article 2.1.30a. of the Minister of Finance Regulation concerning current and interim information provided by issuers of securities and terms and conditions of considering information required under the law of a non-Member State as equivalent of 29 February 2018, Management Board members are Bank managers.
Each Bank Management Board member made an employment contract with the Bank. The contract reads inter alia the terms and conditions of remuneration and the competition ban (Supervisory Board Resolution of 11 May 2018 as amended).
https://www.knf.gov.pl/knf/pl/komponenty/img/knf_140904_Zasady_ladu_korporacyjnego_22072014_38575.pdf (in Polish) For English version, refer to https://www.knf.gov.pl/knf/en/komponenty/img/principles_of_corporate_governance_39736.pdf
The Bank implemented the Principles of corporate governance for supervised institutions published by the Polish Financial Supervision Authority (“Principles”) with the following decisions of Bank bodies:
o Management Board Resolution No. 29/10/19 of 11 March 2019 – regarding the content of the report on observance by ING Bank Hipoteczny S.A. of the Principles of corporate governance for supervised institutions, adopted by the Polish Financial Supervision Authority, including the principles concerning the competence and responsibilities of the Management Board, i.e. managing the Bank affairs and representing the Bank, in accordance with the universally effective laws and the Bank Charter,
o Supervisory Board Resolution No. 20/3/2019 of 22 March 2019 – regarding the content of the report on observance by ING Bank Hipoteczny S.A. of the Principles of corporate governance for supervised institutions, adopted by the Polish Financial Supervision Authority, including the principles concerning the competence and responsibilities of the Supervisory Board, i.e. supervising management of the Bank affairs in accordance with the universally effective laws and the Bank Charter,
o General Meeting Resolution No. 18 of 3 April 2019 – regarding adoption of the report on observance by ING Bank Hipoteczny S.A. of the Principles of corporate governance for supervised institutions, adopted by the Polish Financial Supervision Authority, including the principles concerning the competence of the General Meeting,
o Management Board Resolution No. 34/15/19 of 15 April 2019 – regarding implementation of the Principles of corporate governance for supervised institutions, adopted by the Polish Financial Supervision Authority.
o The Principles introduced under Article 8.4 and Article 9.6 do not apply since 100% of ING Bank Hipoteczny S.A.’s shares were taken up by one Shareholder – ING Bank Śląski S.A. The number of shareholders does not justify the application of the said principles.
o The Principles introduced under Article 28.3 and Article 28.4 are not applied by ING Bank Hipoteczny S.A. due to the proportionality principle. The Bank has only one shareholder who is represented in the supervisory body of the Bank. Further, the principles of the management information system used by the Bank duly secure the interests of the shareholder.
o The principles introduced under Article 32.1 through Article 34 and Articles 36.1 and 36.2 do not apply since the business model adopted by ING Bank Hipoteczny S.A. does not provide for client acquisition (including via advertising), but only for the purchase of existing mortgage-backed debt from ING Bank Śląski S.A.
o The principles introduced under Article 49.4 and Article 52.2 do not apply since ING Bank Hipoteczny S.A. has an internal audit and compliance cells.
o The principles listed in Chapter 9 of the “Principles” – Execution of Rights Resulting from Assets Acquired at Client's Risk – the principles are not applied by ING Bank Hipoteczny S.A., because the Bank cannot pursue the business discussed in that Chapter.
ING Bank Hipoteczny S.A. limited application of the following Principles:
o The principles introduced under Article 9.1 – the principles are used to a limited degree only, because the Bank has one shareholder whose representatives are members of the supervisory body of the Bank.
o The principles introduced under Article 29.1 through 29.2 – the principles are used to a limited degree only, as they apply to independent members of the supervision body only.
o The principles introduced under Articles 35, 37 and 38.1 through 38.2 – the principles are used to a limited degree only, in respect of post-sale service of mortgage-backed debt, because to the business model adopted by ING Bank Hipoteczny S.A.
In Q1 2020, the Supervisory Board will assess the application of the Principles by the Bank – as required under Article 27 of the Principles.
Statement of the Management Board on observance of principles of corporate governance
Taking into account the above-given explanations, the Bank Management Board hereby submit the following statement on observance of principles of corporate governance:
the Management Board represent that upon implementation of the Principles of 15 April 2019 by the Bank, the Bank performed a gap analysis to identify the areas requiring adaptive measures. Furthermore, the application of the Principles by the Bank is independently reviewed by the Compliance function. The review conducted in January 2021 (for 2020) found out that the actions identified last year have been implemented. In 2020, no cases of non-compliance with the Principles were identified.
ING Bank Hipoteczny S.A. Employee Business Ethics Standards
The Bank implemented the ING Bank Hipoteczny S.A. Employee Business Ethics Standards that provide an overview of key principles of conduct for Bank employees. They promote corporate culture which is based on knowledge and observance of the law, internal regulations and market standards. The rules stipulated therein apply to any and all employee activities related to performance of their professional duties. Some of the said rules may apply to the private activities of employees which may negatively affect Bank’s reputation or give rise to a conflict of interest.
Orange Code
The principles defined in the so-called Orange Code are the key element shaping the corporate culture of the Bank which is based on the values promoted by the ING Group. Orange Code is a set of norms applicable to all Bank employees. Their observance is factored in during the annual employee appraisal process. The Orange Code is composed of two parts:
ING Values being the promise made to our external stakeholders:
o We are honest,
o We are prudent,
o We are responsible.
ING Behaviours which define employees’ conduct. These are the commitments the employees make towards one another and standards enabling assessment of their actions:
o You take it on and make it happen,
o You help others to be successful,
o You are always a step ahead.
ING Bank Hipoteczny Disclosure Policy
Being a public trust institution, the Bank pursues the disclosure policy which is based on the principles of open and transparent communication to clients, investors, the media and all stakeholders. The Bank pursues the policy as required by the provisions of the law on information confidentiality and safety applicable to the Bank as a supervised institution. The Bank abides by the corporate governance principles. The Bank ensures for its clients, shareholders, investors, the media and all stakeholders proper access to Bank information in particular. The full text of the Disclosure Policy is available on the Bank website.
Risk control and management system in the financial reporting process
The process of preparing financial statements is among the key elements ensuring compliance with the norms and standards. The primary element enabling process performance is the Accounting Policy adopted by the Bank Management Board. The Policy provides for the main principles of recording business events at the Bank. Events recorded are reflected in the Bank ledgers which are later used to draw up the financial statements.
The Bank identified the following key risks in the financial statements development process:
o risk of financial loss, regulatory sanctions and/or reputational damage as a result of non-compliance with applicable regulations due to inadequate identification, assessment and interpretation of new/amended regulation on accounting and reporting policies and procedures;
o risk of financial loss, regulatory sanctions and/or reputational damage as a result of non-compliance with applicable regulations due to inadequate accounting and reporting policies and procedures;
o risk of financial loss, regulatory sanctions and/or reputational damage as a result of non-compliance with applicable regulations due to inadequate implementation of accounting and reporting policies and procedures;
o risk of financial loss, regulatory sanctions and/or reputational damage as a result of incorrect/incomplete/delayed financial and regulatory reporting due to lack of disciplined financial and regulatory reporting processes;
o risk of financial loss, regulatory sanctions and/or reputational damage as a result of incorrect/incomplete/delayed financial and regulatory reporting due to errors or other inappropriate actions;
o risk of financial loss, regulatory sanctions and/or reputational damage as a result of incorrect/incomplete/delayed financial and regulatory reporting due to lack of appropriate skills and knowledge;
o risk of financial loss, regulatory sanctions and/or reputational damage as a result of inaccurate/incomplete/delayed financial and regulatory reporting due to poor data quality;
o risk of financial loss, regulatory sanctions and/or reputational damage as a result of inaccurate/incomplete/delayed financial and regulatory reporting due to data discrepancies between the general ledger and data sources and (financial and regulatory) reporting;
o risk of financial loss, regulatory sanctions and/or reputational damage as a result of incorrect/incomplete/delayed financial and regulatory reporting due to inadequate/inconsistent review methodologies/procedures;
o risk of financial loss, regulatory sanctions and/or reputational damage as a result of incorrect/incomplete/delayed financial and regulatory reporting due to lack of management commitment to financial and regulatory reporting (unspecified management responsibility);
o IT risk – the risk financial/reputational loss due to breach of data integrity or confidentiality caused by an application error or unauthorised access;
o compliance risk – the risk of financial loss, regulatory sanctions and/or reputation loss due to: (1) non-compliance of internal fiscal laws and regulations, including the regulations on transfer prices, with the universally effective law; (2) non-observance of principles of the ING Group guidelines on tax issues and (3) material errors in the financial statements and/or tax returns, caused by: being unaware of changes to fiscal laws and regulations or incorrect interpretation of fiscal laws and regulations or failure to report transactions in dedicated financial systems of ING Bank Hipoteczny S.A. (incorrect application of transfer pricing regulations, for example).
Risk mitigating controls were set for all the risks identified.
The controls mitigating the processing risk include but are not limited to verification that the data generated by applications are correct and four-eye control of tax reports/returns sent by the Bank. Financial statements are accepted by the Bank Management Board, endorsed by the Audit and Risk Committee and assessed by the Bank Supervisory Board.
To limit the IT risk, the Bank implemented data access management controls. They are the mechanisms limiting unauthorised access or application role matrixes which are based on the principle of least privilege and absence of toxic combinations, and the tool to grant access and role in which the requirement of request acceptance by the superior was embedded, for example.
The compliance risk mitigating controls encompass inter alia: annual participation of the Accounting and Tax Team employees in training and external meetings concerning fiscal, accounting and reporting regulations as well as verification of the annual and semi-annual financial statements by an independent external auditor.
Manager of the Accounting and Tax Team – the Chief Accountant of the Bank – is responsible for ensuring application of controls. The external auditor verifies from time to time and independently assesses inter alia the adequacy and effectiveness of controls in the process of financial statements development as well as assesses risk management in that process (as part of the approved audit plans).
Shareholders directly or indirectly holding substantial stakes and the number of resultant shares and votes.
The share capital of ING Bank Hipoteczny S.A. amounts to PLN 380,000,000.00 and is divided into 380,000.00 ordinary registered shares of nominal value of PLN 1,000 each. The share capital has been fully covered with pecuniary contributions. Each ordinary share entitles its holder to dividend and one vote during the general meeting.
|
Structure of the share capital |
|||||||
|
|
|||||||
|
Series |
Type of share |
Number of shares |
Nominal value of one share (PLN) |
Series nominal value (PLN) |
Date on which a resolution was passed by AGM |
Issue date |
Date of registration in the National Court Register (KRS) |
|
A |
ordinary |
120,000 |
1,000.00 |
120,000,000 |
not applicable* |
26.02.2018 |
20.03.2018 |
|
B |
ordinary |
90,000 |
1,000.00 |
90,000,000 |
03.01.2019 |
03.01.2019 |
06.02.2019 |
|
C |
ordinary |
170,000 |
1,000.00 |
170,000,000 |
11.12.2019 |
11.12.2019 |
09.01.2020 |
|
* Issue of shares of series A stems from the Deed of Incorporation of 26 February 2018. |
|||||||
On 29 June 2020, the Supervisory Board of ING Bank Hipoteczny S.A. selected BDO Spółka z ograniczoną odpowiedzialnością Sp. Komandytowa as the auditing firm responsible for the audit and review of the financial statements of the Bank for the years 2020-2021.
BDO Spółka z ograniczoną odpowiedzialnością Sp. komandytowa with the registered office in Warsaw, at ul. Postępu 12, 02-676 Warszawa has been listed as the auditing firm by the Polish Chamber of Statutory Auditors under number 3355. In keeping with Article 26.1.8 of the Bank Charter, the Bank Supervisory Board selected the entity authorised to audit and review the financial statements in accordance with the effective laws and professional standards.
On 13 July 2020, ING Bank Hipoteczny S.A. and BDO entered into an agreement to audit the financial statements for the years ending on 31 December 2020 and 31 December 2021 respectively, and to review the financial statements for the period ending on 30 June 2020 and 30 June 2021 respectively.
Selection of entity authorised to audit the financial statements
The auditing firm to audit the 2020 financial statements was selected in accordance with the effective laws, including the laws on auditing firm selection and selection procedure.
The auditing firm (BDO Sp. z o.o. Spółka komandytowa) and the members of the auditing team satisfied the terms and conditions of developing an unbiased and independent report from the audit of the financial statements in accordance with the effective laws, professional standards and rules of conduct.
The Bank complies with the laws on the rotation of the auditing firm and the lead statutory auditor as well as the mandatory grace periods. The minimum two-year commissioning period will end for the current auditing firm with the review of the 2020 financial statements.
The Bank has the “Policy for selection of the auditing firm, assessment of its independence and provision of other permitted services to ING Bank Hipoteczny S.A.” The Policy covers the policy for the selection of the auditing firm and the policy for provision of additional non-audit services, including the services provisionally exempted from the ban on their provision by the auditing firm, to the Bank by the auditing firm or its related entity, or a member of its network.
Bank Charter Amendment Procedure
The current Charter of ING Bank Hipoteczny S.A. can be found on the Bank’s website.
With their resolution of 20 February 2020, the Supervisory Board adopted the consolidated text of the Charter of ING Bank Hipoteczny S.A. in connection with the increase in the share capital adopted by the Extraordinary General Meeting on 11 December 2019.
An amendment to the Bank Charter requires resolution of the General Meeting as well as registration in the entrepreneurs register of the National Court Register (KRS). Further, an amendment to the Charter has to be always approved by the Polish Financial Supervision Authority.
The Amendments to the Charter made in 2019 and entered to the National Court Register (KRS) in January 2020 include:
o Bank’s share capital increase to PLN 380,000,000 through issue of C-series shares – one hundred and seventy thousand shares;*
o change to the Bank’s representation being authorisation of the Bank Management Board to make autonomous declarations of will on behalf of the Bank
for the mortgage creditor change applications and the applications concerning entry of information on the mortgage-backed debt into the cover register, filed in the proceedings before the land and mortgage register courts.*
* amendments to the Charter adopted by the Extraordinary General Meeting on 11 December 2019, entered into the Register of Entrepreneurs with the National Court Register under the Court decision of 9 January 2020.
Factors to impact the financial statements in the period of at least one quarter
The following factors will affect the financial statements within at least one quarter:
o Transfers of credit debt from the strategic partner – ING Bank Śląski S.A.,
o Development of the local and foreign markets of covered bonds in terms of demand and returns expected by investors,
o Further development of the residential market in Poland,
o Further development of the mortgage lending market in Poland,
o Regulatory landscape development,
o Pace of COVID-19 recovery.
Changes to ING Bank Hipoteczny S.A. shareholding and shareholding rights on the part of managing and supervising persons
In the period between 1 January 2020 and 31 December 2020, there occurred no changes to ING Bank Hipoteczny S.A. shareholding and shareholding rights on the part of managing and supervising persons.
Significant agreements with the Central Bank or regulators
In the reporting period, the Bank did not enter into agreements with the Central Bank or regulators.
Granted financial commitments and guarantees
In the reporting period, the Bank did not grant any guarantees and had no financial liabilities under the loans awarded but not disbursed.
Financial liabilities granted to related entities
In the reporting period, the Bank did not grant any off-balance sheet liabilities to related entities.
Loans, credit facilities, guarantees or sureties not related to the Bank’s business.
In the reporting period, the Bank did not make use of any loans, credit facilities, guarantees or sureties not related to the Bank’s business.
Underwriting agreements and guarantees granted to subsidiaries
The Bank neither entered into underwriting agreements nor granted guarantees to its subsidiary.
Proceedings pending in court, before arbitration bodies or public administration bodies
As at 31 December 2020, there were no proceedings pending in court, before arbitration bodies or public administration bodies
Loan and credit facility agreements made and terminated in the financial year
On 31 January 2020, the Bank signed an annex to the Credit Facility Agreement concluded with ING Bank Śląski S.A. on 31 January 2019 increasing the maximum exposure amount to PLN 4.2 billion. Moreover, on 14 December 2020, the Bank signed an annex to the said Credit Facility Agreement by which the maximum exposure amount was decreased to PLN 3 billion. At the same time, the Bank concluded 2 new Credit Facility Agreements with ING Bank Śląski S.A. for the amounts of PLN 1 billion (securing general liquidity) and PLN 1 billion (securing bond issue), together with a Framework Agreement for the amount of PLN 1.2 billion (securing guaranteed bond issue). As at 31 December 2020, the Bank used the amount of PLN 1.969 bln under the limits awarded.
Conclusion by the issuer or its subsidiary of one or more transactions with related entities, if they are material and were concluded otherwise than on an arm's length basis
ING Bank Hipoteczny S.A did not enter into any material transactions with related entities other than on an arm's length basis.
Changes to the fundamental principles of Bank enterprise management
In the reporting period, there were not changes to the fundamental principles of Bank enterprise management.
Financial support agreements
ING Bank Hipoteczny S.A did not enter into any financial support agreements with other consolidated entities operating within the same holding or closely related entities.
Deposits and guarantees and sureties extended
ING Bank Hipoteczny S.A neither accepts deposits nor extends guarantees or sureties.
Collateral set on accounts or other assets of borrowers
In the reporting period, ING Bank Hipoteczny S.A did not set collateral on borrowers’ accounts.
Events after the reporting period
In connection with the pandemic caused by COVID-19 and the declared epidemic emergency, the Bank is monitoring developments related to the continuing effects of the virus proliferation on an ongoing basis. At present, the Bank is not able to fully foresee the impact of COVID-19 risks and (political, business or private) decisions related thereto on its financial situation. In the long run, a potential risk of failure to repay the loans is identified, however, the effect on financial results in consecutive reporting periods is hard to estimate. Therefore, the Bank revises the macroeconomic assumptions used in determining the ECL provisions on a quarterly basis.
In 2021, the composition of the Supervisory Board of ING Bank Hipoteczny S.A. changed. On 21 January 2021, Mr Lorenzo Tassan-Bassut tendered his resignation from the position of a member of the Bank Supervisory Board effective end of 31 January 2021.
The Management Board of ING Bank Hipoteczny S.A. represent that to their best knowledge:
o the financial statements of ING Bank Hipoteczny S.A. for the period from 1 January 2020 to 31 December 2020 and the comparable data were developed in accordance with applicable accounting principles, and give a true and fair view of the assets and the financial standing of ING Bank Hipoteczny S.A. and the financial result of the Bank,
o the Management Board Report on Operations of ING Bank Hipoteczny S.A. for the period from 1 January 2020 to 31 December 2020 included herein is the true presentation of the development, achievements and situation of ING Bank Hipoteczny S.A. (including the description of the key risks and threats).
The Management Board of ING Bank Hipoteczny S.A. represent that the auditing firm auditing the financial statements of ING Bank Hipoteczny S.A. for the period from 1 January 2020 to 31 December 2020 was selected in compliance with the law and that the entity and the statutory auditor performing the audit satisfied the terms and conditions to issue an unbiased and independent report from the audit of the financial statements, in adherence to the applicable laws and professional standards.
The Management Board Report on Operations of ING Bank Hipoteczny S.A. for the period from 1 January 2020 to 31 December 2020 has 73 numbered pages (Polish version).
Signatures of all Management Board members
|
04.03.2021 |
Mirosław Boda |
President of the Management Board |
.................//.................. (signature) |
|
04.03.2021 |
Jacek Frejlich |
Vice-President of the Management Board |
.................//.................. (signature) |
|
04.03.2021 |
Roman Telepko |
Vice-President of the Management Board |
.................//.................. (signature) |
