Table of Contents
1. Letter from the Supervisory Board Chairwoman
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,
In 2021, the impact of the COVID-19 pandemic was still observed. It affected not only the financial sector but also the entire economy. Rising inflation at the end of the reporting year also resulted in an upward trend in interest rates. Keeping in mind these developments, the Bank shows a very good liquidity and capital position, exceeding the required regulatory levels by far.
The Bank's objective is to continue its efforts to acquire and then gradually increase the share of long-term financing through the issuance of covered bonds. However, these activities must be adjusted to the external situation and market potential.
Changes in the market caused by external factors are analysed by the Bank Management Board on an ongoing basis. This refers also to the covered bond market as well as changes in the regulatory and economic environment and the situation of customers.
In the previous reporting period, the Bank acquired a mortgages portfolio of over PLN 0.7 billion. As part of its continuing efforts to diversify its funding sources, in 2021 the Bank carried out further issues of own bonds for the total amount of PLN 654 million. In the reporting year, in line with Recommendation S, and in order to mitigate variable interest rate risk, the Bank added a fixed interest rate product to its offer in the middle of the year, allowing its existing customers holding a variable interest rate loan to convert it into a fixed interest rate one.
The Supervisory Board, exercising permanent supervision over the Bank's activities, analysed both the financial standing as well as the activities carried out by the Management Board. The Audit and Risk Committee, composed of the members of the Supervisory Board, provided support in the aforementioned activities.
In the period from 1 January 2021 to 31 December 2021, there were 5 onsite meetings of the Supervisory Board and 5 onsite meetings of the Audit and Risk Committee. The Bank Supervisory Board, in performing its statutory duties and those arising from legal regulations, resolutions and recommendations of the financial supervisory authority, conducted, inter alia, ongoing monitoring of the Bank's financial results, market risk management area, liquidity and capital adequacy.
Sincerely,
Bożena Graczyk
Chairwoman of the Supervisory Board
Dear Sirs/Madams,
Below please find the annual report of ING Bank Hipoteczny S.A. (the Bank) for 2021. Despite the fact that the Bank operated another year in unfavourable external economic conditions and despite observed changes in macroeconomic indicators, good financial results were achieved. The Bank has a solid foundation and is in a very good liquidity and capital position, well above the levels required by the regulator.
The Bank kept pursuing its objective to acquire a loan portfolio and then, using it as a collateral, to increase the share of long-term funding in the Bank's balance sheet by issuing covered bonds. The above objective is reflected in the Bank's strategy and is spread over time. Its execution depends on the environment and the market.
Due to rising inflation and measures taken by the MPC to curb it, the end of the reporting year was characterised by an upward trend in interest rates, which in the perspective of current and future periods means an increase in the level of capital and interest instalments repaid by customers holding a loan. The Bank analysed on an ongoing basis the risk related to a potential longer delays in loan repayments. It also analysed the potential decline in property prices. At the same time, in accordance with Recommendation S, in the middle of the reporting year the Bank implemented and made available to its customers a fixed interest rate product in order to protect its customers against a potential increase in interest rates and at the same time an increase in the burden on their budget as a result of an increase in the capital and interest repayments.
Due to the Bank's business model, which is based on outsourcing legally permitted activities if it is justified from the point of view of the Bank's effective operation, the Management Board also monitored on an ongoing basis the suppliers' ability to provide services. In this respect, in line with the position and expectations of the Polish Financial Supervision Authority (PFSA), agreements with suppliers were adjusted to the guidelines of the European Banking Authority (EBA).
In the reporting period the Bank acquired a mortgages portfolio worth more than PLN 0.7 billion, while at the same time it laid the foundations for the planned future issues of covered bond, which due to the ongoing adverse external conditions are planned for a later period. It was also a period when the Bank continued its efforts to maintain diversified founding sources by issuing its own bonds of the total nominal value of PLN 654 million.
In 2022, 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 2021 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 2021, 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.
The Bank continuously monitors developments regarding the ongoing armed conflict in Ukraine and analyses its impact both on the macroeconomic environment and on the Bank itself. In 2021, the Bank’s operating, business and financial activities were still influenced by the COVID-19 epidemic. Throughout the whole 2021, the Bank monitored, among other things, the number and volume of loans in respect of which borrowers requested a suspension of loan instalment repayments (the Bank's offer) or a suspension of the execution of the loan agreement (the so-called "statutory credit moratoria"), as well as monitored the impact of the solutions offered to customers on issues related to securing the issue of covered bonds, the cost of risk and the Bank's result. 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 relating to 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 deterioration in portfolio quality.
The further development of the situation and its impact on the Bank's operations is difficult to assess at this point in time due to the observed dynamics of change in the external environment. Thus, taking a conservative approach, the Bank continues its monitoring and analysis processes on an ongoing basis.
Gross Domestic Product
The preliminary estimate of the Central Statistical Office (GUS) indicates that the 2021 economic growth will be at 5.7%, following the recession in 2020 at the level of 2.5%. The dynamic growth in private consumption (6.2%) and rebound in investment (8%) were accompanied by a decline in inventories (~2.6 p.p.) and a negative impact of net exports (-1.9 p.p.).
Based on data for the whole 2021 and previously published data for the first 3Q 2021, the economists of ING Bank Śląski S.A. estimated GDP and its structure in 4Q21. In the last quarter 2020, GDP growth was close to 7% y/y, with dynamic growth in private consumption (8% y/y) and double-digit growth in investments (nearly 12% y/y). As much as 4 p.p. of the GDP growth for 4Q2021 can be attributed to changes in inventories. Whereas, foreign trade lowered the annual GDP growth rate in the last quarter of last year by just over 3 p.p.
The performance of the economy in 4Q2021 indicates that it is heating up and the economic climate is highly favourable. This environment is conducive to sustained inflationary pressures.
Stronger global uncertainty and rapid rise in interest rates in Poland
Despite progressive Covid-19 vaccination programmes, economic uncertainty remained elevated throughout 2021. Problems with access to Covid-19 vaccines in the first half of 2021 were replaced by a similarly, if not more, bitter lack of demand. This was due to the reluctance of a substantial number of citizens to get vaccinated and poor promotion of preventive campaign by some governments. Countries or regions implemented sanitary restrictions in a hardly coordinated manner. The Zero-Covid policy of the Chinese authorities resulted in shutdowns of ports and lockdowns of some regions, which, with the uneven rebound of demand in global markets and the substitution of less available services by goods, resulted in disruptions of global supply chains. International transport costs increased several times, which was quickly reflected in producer prices and gradually in consumer prices.
The reaction of Polish monetary authorities to the outbreak of the pandemic in 2020 was quick and decisive. However, they held back when the economy was recovering and inflationary pressures were rapidly building up, triggered by external shocks (rising prices of energy commodities, food, CO2 emission allowances in the EU). The Czech Republic and Hungary started tightening their monetary policy in the middle of 2021, whereas the MPC did it in October 2021. In the preceding months, secondary market purchases of bonds issued and guaranteed by the State Treasury were gradually phased out, and the programme was halted at the end of the year. In response to rocketing inflation and an increase in inflation forecasts, the cycle of NBP rate hikes also took place rapidly. From October 2021 to February 2022, the benchmark rose from 0.1% to 2.75% after five hikes, and the MPC clearly communicated further increases in the months to come.
ING Bank Śląski S.A. economists are of the opinion that rates will go up in Poland (they expect another 50bp hike in March) to the target level of the benchmark of 4.5% at the end of 2022. The economy has become immune to further waves of pandemics. The fifth wave of infections, although record-breaking in terms of a number of infections compared to previous waves, is not so strongly reflected in a number of hospitalisations and deaths. This allows us to avoid the introduction of restrictions on business activity. Recently, the NBP showed even stronger determination to fight inflation. The increase in basic interest rates to levels above those prevailing before the pandemic was accompanied by the restoration of the pre-pandemic obligatory reserve rate of 3.5% and the announcement of measures to be taken to strengthen the zloty, such as the partial exchange of budgetary FX funds into Polish zloty on the FX market rather than at the central bank. Currency interventions are not ruled out should changes in the currency rate of Polish zloty be excessive.
International business landscape
The global economy is recovering from the pandemic collapse at a varying pace. Since the beginning of 2020, the COVID-19 pandemic has determined the global economic situation. While China has already managed to return to its pre-pandemic real GDP level in 2020, the US economy reached that point in the middle of 2021. The euro area economies need much more time for that. Although France returned to its pre-pandemic GDP in Q3, the German economy disappointed with its performance in Q4 and probably also in Q1 this year and the pre-pandemic GDP level will not be reached until Q2 2022. This has to do with its strong export bias and disruptions in global supply chains, in particular the shortage of semiconductors in the automotive sector. Since the middle of 2021, accelerating inflation has become a key concern in the global economy. Inflation rates recorded in the US (around 7% y/y) are the highest in 40 years, whereas above 5% inflation in the euro area is the highest since the introduction of the single European currency over 20 years ago. While high inflation in the US is attributable to the strong economic situation and approaching full employment, high inflation in the euro area is the effect of high prices for energy commodities and energy carriers, in particular natural gas, and record high prices for CO2 emission allowances, with the worsened economic situation in most euro area economies.
These disparities are reflected in official announcements made by the Fed and the ECB regarding the normalisation of monetary policy. Already at the end of 2021, the Fed announced the tapering of the QE programme by March 2022 and starting a cycle of interest rate hikes most likely also in March. Economists of the ING Group expect up to 5 interest rate hikes this year. At the same time, the Fed Chair suggested that the monetary tightening programme, which involves reducing the Fed's balance sheet, would be faster than after the 2008 financial crisis. A rapid tightening of monetary policy parameters in the US and a rise in Treasuries yields would give support to the US dollar this year and would result in investment influx to the US.
Although the economic recovery in the euro area is moderate and a stronger rebound is still awaited in the German economy as a result of an easing of international trade tensions, high current inflation and elevated inflation forecasts for early 2022 have forced a hawkish turn in the ECB's rhetoric. At the same time, the ECB announced an accelerated phasing out of its asset purchase programmes and suggested interest rate hikes earlier than market instruments had priced in.
Announcements made by the ECB at the beginning of 2022 have prompted market participants to change their expectations for future interest rates in the euro area. It is not unlikely now that a cycle of interest rate hikes will start as early as at the end of 2022 and beginning of 2023, which results from fears of a sustained rise in inflation expectations due to external shocks. The European economy will be supported by the launch of additional financial investments from the Reconstruction Fund. The scenario of moderately fast interest rate hikes in the euro area limits the room for appreciation of US dollar that would arise with a quick Fed reaction function. Nevertheless, ING Bank Śląski economists expect that EUR/USD rate should fall to approx. 1.05 by the end of 2022.
A weaker euro may limit the room for appreciation of the Polish zloty and other currencies of the region, in particular the Hungarian forint. Poland and Hungary are among few EU countries whose national recovery plans have not been approved. The blockade of the national recovery plan because of the legal dispute over the rule of law constrains the appreciation of the Polish zloty and complicates the fight against record inflation. This is probably the reason why the EUR/PLN exchange rate has struggled to break through 4.50 and is falling relatively slowly despite the clear hawkish turn in the NBP's rhetoric and actions.
At the same time, it should be mentioned that the external environment as well as macroeconomic indicators may be under strong pressure from developments on the eastern border of Poland, which is also the eastern border of the European Union.
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In 2021, the residential property market became an alternative to other capital investments for a large group of buyers. Increasingly wealthy Poles were trying to protect their savings against inflation. Therefore, the percentage demand of people buying apartments to satisfy their own housing needs was probably the lowest in many years. In 2021 there was also an extreme imbalance, unprecedented since 2007, between rapidly growing demand and supply that was struggling to keep up. Poles were seeking to improve their current living conditions as a result of the popularisation of the remote or hybrid work model. On the other hand, poor supply was observed due to a slowdown in the work of local government units, destabilisation related to price increases of key construction materials and constraints due to a lack of access to investment land. In summary, due to the pandemic, demand became significantly higher in 2021, while the supply was lower than it would have been without pandemic.
In 2021, the offer of new premises available in the sales offices of the real estate development companies reached the historic minimum. The pandemic significantly prolonged the process of implementing new residential investment projects, which limited choice as demand was still enormous. Customers did not withdraw from purchase transactions despite price hikes.
Until October 2021, interest rates and thus deposit and lending rates were, despite rising inflation, at very low levels. During that period, demand was backed up by lending at a record high level in nominal amounts and a record high number of loans granted.
According to housing market experts, the rapid rise in interest rates that began in the final months of 2021 should cause a change in the economic trend. Most certainly, lending will slow down.
Primary market
According to the 4Q2021 report by Jones Lang LaSalle (JLL), the highest increase in the average prices of apartments for sale in 4Q2021 in the six analyzed markets (Warsaw, Krakow, Wrocław, the Tri-City, Poznań, and Łódź) was noted in Warsaw (by 15%). It was significantly lower in Łódź (5%) and the Tri-City (3%). In the remaining three cities, prices were lower than in 3Q2021: by 9% in Wrocław, 7% in Poznań and 6% in Krakow. Compared to the prices of apartments marketed in 4Q2020, significant hikes were observed in all cities. The highest, by 33%, was recorded in Warsaw, while the lowest, by 12%, in Wrocław. The pricing policy in relation to new supply was very dynamic in many real estate development companies. Prices were often raised several times during the quarter. It was a common behaviour to market pools of premises for sale (instead of the investment project in whole) and verify the reaction on the demand side. The rapid growth of prices was connected both with higher demand than supply and with the increase in costs of investment implementation.
The data published by NBP indicate that in 4Q2021 further y/y increases in residential prices were recorded in all of the analysed cities (Białystok, Bydgoszcz, Gdańsk, Gdynia, Katowice, Kielce, Krakow, Lublin, Łódź, Olsztyn, Opole, Poznań, Rzeszów, Szczecin, Warsaw, Wrocław, Zielona Góra), and price dynamics also increased. The average transactional unit price on the primary market in 2021 for these cities was PLN 7896.80 per square metre, the lowest, at the level of PLN 5871.20 per square metre was in Zielona Góra, while the highest, at the level of PLN 10,989.20 per square metre was in Warsaw. The highest y/y price increases (2021/2020) were observed in Gdynia and Szczecin, while the lowest y/y price differences were recorded in Opole.
According to JLL, a total of 69,000 premises were sold on the primary market in Warsaw, Krakow, Wrocław, Tri-City, Poznań and Łódź throughout 2021. More apartments in a single calendar year were sold only in 2017. Such good results were the result of exceptionally high sales in the first two quarters of the year. In the second half of the year, the number of transactions was significantly lower in most cities. In three markets: the Tri-City, Poznań and Łódź, the 2021 annual sales were record high ever.
The very good sales performance recorded in 1H2021 may be in some part the realisation of demand postponed during the first two waves of the pandemic in 2020. The sales in the second half of the year, although still high, were already close to 2016 levels.
In 2021, the highest in many years sale of the investment projects under construction was also observed. Such a situation allowed real estate development companies to observe the market and accept a lower sales pace, while maintaining current prices in the investment projects underway and introducing new ones at similar prices.
In 2021, there has been a steady increase in the cost of residential premises construction, which was reflected in increased pressure on property prices in the primary market.
Construction costs (the cost of land excluded) of selected buildings according to current SEKOCENBUD cost calculation rates in 3Q2021 increased between 6.6-12.7% y/y, depending on the building. To compare, in 2Q2021 the increase remained within the range of 3.2-4.4% y/y. According to data published by the Central Statistical Office, the price of 1 square meter of usable floor area of a residential building put into use in 3Q2021 increased by 6.26% from 4Q2020 (PLN 5,347 in 3Q2021 / PLN 5,012 in 4Q2020). The upward spiral is due to the continued strong increase in labour rates and prices of materials and equipment rental. Virtually all construction materials are becoming more expensive, and the increase is much faster than inflation. In addition, the increase in energy costs has affected costs in all phases of the construction process. More and more investment projects being started will have to meet new energy conservation standards. Though it is true that this will reduce future energy consumption costs and carbon footprint during the use phase of the building, but it will cost more in the construction phase.
Secondary market
Data on residential property prices on the secondary market, published by the National Bank of Poland, show that high price growth dynamics continued in most segments in 2021. In 3Q2021, an increase in offer and transactional prices was observed in the secondary market in all groups of cities. Transaction prices especially hiked in Łódź, Gdańsk and Warsaw. In 3Q2021, secondary market transaction prices in most provincial cities were similar to the previous quarter, and in six cities they hiked by 5-12% q/q. In 3Q2021, compared to 3Q2020, transaction prices in the secondary market increased in all provincial capitals (including in 9 capital cities by double-digit rates of 11-22%).
According to the latest NBP data, the average transaction unit price on the secondary market for the whole 2021 for the 17 cities under analysis (Białystok, Bydgoszcz, Gdańsk, Gdynia, Katowice, Kielce, Krakow, Lublin, Łódź, Olsztyn, Opole, Poznań, Rzeszów, Szczecin, Warsaw, Wrocław, Zielona Góra) amounted to PLN 7,108 per square metre. The lowest price of PLN 5,220 per square metre was recorded in Zielona Góra, while the highest price of PLN 11,054 per square metre was paid in Warsaw. The highest y/y price increase (2021/2020) took place in Kraków, while the smallest y/y price differences were observed in Poznań.
Supply and demand in the residential property market
In the years preceding the outbreak of the pandemic (2014-2019), we observed a systematic increase in the activity of the residential construction sector. The number of building permits issued, started apartment construction projects and apartments put into use increased year on year. Restrictions related to the temporary freeze of socio-economic activity in 2020 entailed the reduction in the activity of participants in the housing sector, but the significant decrease in this activity was limited only during the first 2-3 months after the outbreak of the pandemic.
In 2021, construction permits were issued or notifications were submitted for 340,600 apartments, 23.3% more than in 2020. Construction permits for the largest number of apartments were issued to real estate development companies (213,000 - an increase of 23.9% y/y) and individual investors (123,200 - an increase of 21.4%). In total, under these forms of construction, permits were obtained or notifications of construction with a construction design were submitted for 98.7% of the total number of apartments. In other forms of construction, 4,474 apartments were recorded, for which permits were granted or notifications of construction with a construction design were submitted (2,756 apartments in the previous year).
In 2021, the highest values for apartments put into use, started construction of apartments and apartments for which permits were granted or notifications with a construction design were submitted, were recorded in the Mazovia Province (44,600, 50,700 and 62,400 apartments, respectively). High values were also recorded in Wielkopolskie Province (27,300, 29,500 and 37,200) and Dolnośląskie Province (24,800, 25,200 and 28,900).
In 2021, construction of 277,400 apartments was started, i.e. 23.9% more than the year before. Real estate development companies started construction of 166,300 apartments (27.7% more) and individual investors 106,100 (17.5% more). In total, the share of these forms of construction was 98.2% of the total number of apartments. In other forms of construction, the construction of 5,072 apartments was started (3,325 last year). It is estimated that at the end of 2021, 871,300 apartments were underway, i.e. by 5.2% more than at the end of 2020.
In 3Q2021, a record y/y number of 234,700 apartments were put into use in Poland, that is 6.3% more than a year ago. It was a culmination of activities carried out by the real estate development companies in previous years. However, the number of residential construction contracts sold in the largest primary markets dropped from 2Q2021, and the annual contract sales returned to the 2018 levels. The decline in contract sales reflects a decrease in the market offer of the real estate development companies. The cost of housing construction, especially the cost of materials, hiked significantly. An increase in average transaction prices per square meter of apartments in both the primary and secondary markets was also observed, as well as a hike in rental transaction rates.
Volumes describing the activity of the residential construction sector are important insofar as these data (in particular the number of housing permits issued and housing constructions underway) are considered to be the most sensitive indicators of the housing real property market situation (ahead of price changes).
The index of estimated availability of apartments in seven big cities (Gdańsk, Gdynia, Krakow, Łódź, Poznań, Warsaw, Wrocław), based on the average monthly salary in the enterprise sector, decreased slightly in the said quarter, but was still higher by about 0.3 square meter than the minimum recorded in 3Q2007. The index of estimated maximum available housing loan also declined slightly for the average household, as did the index of estimated housing credit availability. Rising housing prices were the main factor behind the current declines in the availability indices.
According to the NBP data, the sales results generated by residential real estate developers in 3Q2021 were lower than in the record-breaking previous two quarters, but they were still historically high. The decline in contracting in 3Q2021 is confirmed by the sales results of many largest residential real estate developers listed on the Catalyst market, who sold 5,186 apartments in the period from July to September 2021, a 16% decline from 2Q2021 (6190 apartments). The weakening of demand in the housing market in 3Q2021 was largely the result of a reduction in supply (real estate developers offered and started to build fewer apartments) and tightening of the housing lending criteria by the banks. Lower availability of housing offers and increasing cost factors on the supply side (rising prices of construction materials, labour and land properties) resulted in further hikes in housing prices in all local markets.
In the whole 2021, the difference between the apartments sold and marketed was 11,000. Such a large imbalance has not been recorded since 2013.
At the end of December 2021, real estate developers had 37,400 apartments on their offer. Throughout the year, the offer shrunk by over 22% and was at the level last recorded in 2010. The largest decrease in the offer took place in 1Q2021, while in the following two quarters the fluctuations in the offer level were relatively small.
Purchases of residential real estate are financed from household savings and mortgage loans. According to NBP data, the estimated share of cash purchases of apartments in the primary market in the seven most liquid local markets in 3Q2021 was 50%. Such a low share of own funds in 3Q2021, compared to the previous three quarters, is connected with the high disbursement of housing loans in relation to the number of apartments sold. Over the past three years (2019-2021), the estimated share of apartments bought in the primary market in the seven largest markets with the buyers’ own funds ranged from 32% to 73%. It should be noted that the decline in the estimated share of primary market purchases with buyers’ own funds in the seven most liquid markets, recorded in 2Q2020, is due to the very low housing sales during this period, which is attributed to pandemic movement restrictions.
As expected, housing price growth should decelerate in the next quarters of 2022. Our estimation is that housing prices will increase by around 5% during the year. However, the upward spike in prices will be hampered by such factors as further increases in interest rates, reflected in credit price hikes. In addition, further tightening of banks' lending policies and deterioration of housing affordability with prices rising faster than the population's income will be likely. Due to the large portfolio of apartments under construction with completion dates in 2022 and beyond, we may also observe a deceleration of the upward price trend. In turn, the prerequisites for further price hikes will be negative real interest rates still motivating people to invest their savings in the real estate market, still low supply of apartments and such structural factors increasing construction costs as high land prices, high material costs, as well as wage pressure.
As at 30 November 2021, banks’ receivables under residential loans in Poland totalled PLN 503.5 billion or went up by 6.6% y/y (as per the data published by the National Bank of Poland). The balance of loans awarded in PLN rose by 12.7% y/y and closed at PLN 399.7 billion.
The Polish mortgage market is almost entirely dominated by variable interest rate loans. Currently, in connection with further increases in interest rates, fixed interest rate loans are becoming more and more popular among customers.
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.
The housing needs of Poles are still unsatisfied to a great extent, but further growth of the mortgage market is dependent on external developments including, inter alia, inflation and interest rates.
As at the end of December 2021, there were five mortgage banks in Poland:
o PKO Bank Hipoteczny S.A.,
o mBank Hipoteczny S.A.,
o Pekao Bank Hipoteczny S.A.,
o Millennium 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. 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. During the pandemic, the development of the covered bond market in Poland slowed down due to the uncertain economic situation. In the coming years, new regulations related to ESG factors are also a great opportunity for market development.
At the end of the fourth quarter of 2021, the total value of covered bonds in trading in Poland was approximately PLN 21.1 billion, or were down by PLN 5.2 billion compared to December 2020. 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.
Significant legal changes that came into force in 2021 affecting the Bank's operations relate in particular to amendments to the Banking Law and the Regulation of the Minister of Finance, Funds and Regional Policy of 8 June 2021 on the risk management system and internal control system and remuneration policy in banks, as well as those relating to the implementation of new instruments and banks' obligations under the resolution process.
In particular, the following regulations should be mentioned:
1. Act of 25 February 2021 on amending the Banking Law and certain other acts (Journal of Laws 2001 no. 2021 item 680).
The purpose of the Act is, in particular, to make the necessary changes to the national legal regime due to the effective entry of the European Union regulations on capital requirements for financial institutions, the so-called CRD V/CRR II. Changes resulting from the CRD V Directive include: Remuneration policy; Introduction of an obligation for the PFSA to assess the fulfilment of requirements by members of a bank's management board and supervisory board; Authorisation for the PFSA to dismiss a member of a bank's management board or supervisory board if such a person fails to fulfil the requirements necessary to perform the function; Clarification of PFSA's supervisory measures; Increase in the amount of penalties (up to PLN 21,312,000) that may be imposed by the PFSA. At the same time, the possibility of imposing such penalties has been extended to members of the bank's supervisory board; Application by banks of internal systems for assessing interest rate risk or a standard methodology or, in the case of small and non-complex institutions, a simplified standard methodology; Clarification of the scope of SREP, as well as introduction of the possibility of issuing recommendations by PFSA as regards the maintenance of the expected level of own funds in excess of regulatory requirements, as a result of SREP assessment in which internal capital was examined; Changes concerning the disclosures, upon request of PFSA, about loans, cash loans, bank guarantees and sureties granted to persons with links to the Bank or persons holding managerial positions.
Changes related to the CRR II Regulation include the introduction of appropriate references in the Banking Law and the obligation to address the risk of excessive leverage.
The Act also introduces the estension of the scope of financial market supervision by the Polish Financial Supervision Authority to include supervision within the scope provided for in Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector.
2. Regulation of the Minister of Finance, Funds and Regional Policy of 8 June 2021 on the risk management system and internal control system and remuneration policy at banks (Journal of Laws of 2021, item 1045).
The regulation entered into force on 11 June 2021. The new regulations replace the regulation of the Minister for Economic Development and Finance of 6 March 2017 in the scope related to the risk management system, internal control system and remuneration policy. The regulation sets out the manner in which the risk management system and the internal control system operate at banks, including the procedure for anonymous reporting to a designated member of the management or supervisory board of violations of the law and the procedures and ethical standards in force at the bank, as well as the detailed scope of the remuneration policy applied to a limited extent and the manner of its determination. Changes in the risk management system include clarification of the provisions on the risk management system; introduction of a strategic limit at the bank level for each material risk. The adopted types of limits and their amount are approved by the Bank Management Board or appropriate committees appointed by them, and in the case of strategic limits, the Supervisory Board is advised about the decision of the Management Board.
The changes in remuneration policy concerned, inter alia, the indication that the remuneration policy for all bank employees should be gender neutral; the period of deferral of variable components of remuneration and the rules on the application of remuneration policy to a limited extent. In the provisions on the internal control system, the changes concern, among others, the list of types of controls, which has been extended to include legal safeguards and insurance - mandatory or necessary for the safe and uninterrupted conduct of the bank's business.
Most of the provisions of the regulation entered into force on the day after the date of promulgation.
3. The Act amending the Act on the Bank Guarantee Fund, deposit guarantee scheme and compulsory resolution and certain other acts of 8 July 2021 (Journal of Laws of 2021, item 1598).
The Act became effective on 15 September 2021 and its goal is to implement the provisions of the Bank Recovery and Resolution Directive II (BRRD II). The amendments include, in particular, the introduction of new terms “resolution entity” and “resolution group”, which are determined in case of the preferred resolution strategy, by which they determine how the resolution process is to be carried out. The Act introduces the Minimum Required Eligible Liabilities (MREL), including the so-called internal MREL maintained by a daughter company and acquired (in principle) by the parent company (resolution entity), and clarifies the powers of the BGF in relation to the redemption or conversion of equity instruments and liabilities). . The amendment empowers the BGF to impose restrictions on entities as regards the distribution of generated profits if the combined buffer requirement is not met due to the lack of instruments needed to meet the MREL requirement. Although these rules are of conditional nature, as the Act maintains the principle of the BGF's exemption of these mortgage banks which meet the conditions set out in the Act from the requirement to maintain a minimum level of own funds and eligible liabilities, the amendment elaborated on the additional circumstances of this exemption. Such mortgage banks cannot be a part of a consolidated resolution group, and as a result thereof, as subsidiaries, cannot increase the MREL requirement by the parent entity (commercial banks on the Polish market). The amendment results from the need to achieve consistency with Article 45a(2) of BRRD2 .
In addition, the Act introduced the so-called pre-resolution moratorium, i.e. granting the BGF the power to temporarily suspend the fulfilment of certain obligations towards certain creditors of the entity at a stage before the initiation of the resolution process, but after the bank has been declared failing or likely to fail. The Act introduces an obligation for the BGF to apply a bail-in clause to the issuance of a financial instrument or the assumption of obligations for which the applicable law is the law of a third country and which are not exempt from write-down and conversion (bail-in).
Other regulatory and legal amendments and work:
1. By 31 December 2021 at the latest the Banks were obliged to align their existing outsourcing agreements with the “Guidelines on Outsourcing” issued by the European Banking Authority (EBA) on 25 February 2019. The alignment concerned the obligation to complete the documentation of all existing outsourcing agreements (entered into by the Banks prior to the effective date of the Guidelines), other than outsourcing agreements entered into with cloud service providers, in accordance with the EBA requirements. As of that date, the Bank undertook and completed the alignment activities in the above respect.
2. The Banks have been obliged to implement Recommendation S concerning best practices related to mortgage-secured credit exposures by 30 June 2021 at the latest. 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.
3. 1 January 2022 has been set by the PFSA as a deadline for banks to comply with Recommendation Z which provides a set of best practices on 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 the 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.
4. On 15 April 2021, the Polish Financial Supervision Authority (PFSA) issued Recommendation R. The revised Recommendation R constitutes a set of best practices regarding the classification of credit exposures, assessment and recognition of expected credit losses, in accordance with accounting and credit risk management policies adopted and binding at banks. The need for the Recommendation resulted from the entry into force of IFRS 9 - Financial Instruments, which entailed changes in the bank management area. Recommendation R comes into effect on 1 January 2022.
5. The European Commission has set a replacement for CHF LIBOR
At the end of 2021, the CHF LIBOR benchmark disappears from trading in the global financial market. On 22 October 2021, the Commission Implementing Regulation on the designation of statutory replacements for the CHF LIBOR benchmarks was published in the Official Journal of the European Union. It will be replaced in the European Union by the SARON benchmark. The European Commission designated the replacement to ensure the enforceability of credit agreements using this benchmark. As of 1 January 2022, all credit agreements that use the CHF LIBOR benchmarks will use the SARON benchmarks instead. The introduction of SARON to the ongoing loan agreements will require no amendment thereof (no annex is required). Borrowers will keep repayinf their liabilities using SARON, while the other rules shall remain intact.
6. On 15 May 2021, the Law of 30 March 2021 on amending the Act on Counteracting Money Laundering and Terrorism Financing and certain other laws entered into force (Journal of Laws of 2021, item 815)
The amendments concern, among other things: the list of obliged institutions, as well as the definitions of ultimate beneficial owner, group, politically exposed persons. In addition, the provisions on financial safety measures in relation to trusts, as well as the exchange of virtual currencies have been supplemented. The provisions on the identification and verification of the identity of the customer and the ultimate beneficial owner have been amended. When establishing a business relationship or carrying out an occasional transaction with a customer who is subject to the obligation to register information on ultimate beneficial owners, obliged institutions will have to obtain either a confirmation of registration or an extract from the Central Register of Ultimate Beneficial Owners or from the register kept in the competent Member State. The catalogue of circumstances indicating a higher risk of money laundering and terrorist financing has been expanded, and a reference to a delegated act of the European Commission has been introduced regarding the list of high-risk countries to which enhanced safety measures shall be applied.
For the banking sector, it is important to amend the regulations related to the obligation of confidentiality by obliged institutions, allowing in principle the exchange of such information between group entities (credit and financial institutions).
The catalogue of institutions obliged to make and update entries in the Central Register of Ultimate Beneficial Owners (CRUBO) was also extended. In addition, an obligation has been imposed on ultimate beneficial owners to provide the entities obliged to report to CRUBO with information and documents necessary for reporting the information about the ultimate beneficial owner, and to update the information within the deadline and under the pain of a fine up to PLN 50,000.
7. Act of 14 October 2021 on amending the Accounting Act and certain other acts (Journal of Laws 2021, item 2106)
On 8 December 2021, the Act of 14 October 2021 amending the Accounting Act and certain other acts came into force, aligning the existing reporting and auditing regulations to the current legal and economic situation and to new technological possibilities. The Accounting Act introduced the obligation for issuers to prepare their financial statements and management reports in a single electronic format, i.e. XHTML. For other entities applying the International Financial Reporting Standards, a solution was adopted leading to greater unification of formats and increased usefulness of financial statements as well as management reports (possibility of automatic searching of the document and comparing, analysing and interpreting the data). Signing of financial statements has also been eased.
8. The EBA has also published new Guidelines on customer due diligence and the factors that should be taken into account by credit and financial institutions when assessing money laundering and terrorist financing risks associated with individual business relations and occasional transactions (“Guidelines on ML/TF Risk Factors”'), which replace the 2017 document.
The guidelines sets out the factors that firms should take into account when assessing the money laundering or terrorist financing risks associated with a business relationship or an occasional transaction. In addition, they provide guidance on how financial institutions can adjust their customer due diligence measures to mitigate the money laundering and terrorist financing risks identified by them, so that they are more appropriate and proportionate. The guidelines will be effective three months after publication in all EU official languages.
The current year was also rich in project and legislative initiatives that may significantly affect the scope of the Bank's operations. These initiatives cover fundamental legal and organisational areas of the Bank's operations and refer to the following acts:
1. On 9 March 2022, the Sejm enacted the Law on Amendments to the Act on Covered Bonds and Mortgage Banks and Certain Other Laws (Form No. 2019).
The law aims to implement the provisions 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 (“Directive 2019/2162”), which, together with Regulation (EU) 2019/2160 of the European Parliament and of the Council of 27 November 2019 amending Regulation (EU) 575/2013 as regards exposures in the form of covered bonds (“Regulation 2019/2160”), forms a part of the covered bonds regulatory package.
As part of the implementation into the domestic legal system of the changes arising from the above-mentioned EU legal acts, the most important changes include, inter alia, a new definition of a covered bond, referring to the dual recourse mechanism, which grants investors a claim against both the covered bonds issuers and the cover assets, and the definition of the principle and conditions for the use by domestic banks of the label “European Covered Bond” and “European Covered Bond (Premium)”.
The amendment also seeks to expand the categories of pledged assets of public covered bond, while specifying additional requirements in this regard, to introduce amendments to drop the limit on the total amount of a mortgage bank's debt claims on loans granted and purchased by mortgage banks, while retaining the statutory requirement that the value of a single loan cannot exceed the mortgage lending value of the property, and to repeal the current requirement for an entry in the land and mortgage register on an entry in the cover register.
The law was sent to the Senate for further legislative work.
2. On 9 February 2022, the Sejm adopted the Law on amending the Act - Commercial Companies and Partnerships Code and Certain Other Acts (Form No. 1515).
The law provides for the introduction into Polish legislation of the law of groups of companies, also known as holding law or conglomerate law. The amendments also concern supervisory boards of corporations. The bill provides for, inter alia, empowering them to select independently (i.e. without the participation of the management board) and hire an external advisor, or implementing the Business Judgement Rule. The holding law will govern the private and legal relationships between a parent company and its subsidiaries. This will be done, taking into account the interests of creditors, board members and minority shareholders, especially of the subsidiary. Liability of the parent company for the consequences of issuing a binding instruction subsequently executed by a subsidiary participating in a group of companies is provided for. The parent company’s liability for damages towards the creditors of the subsidiary is regulated. The law also includes direct liability of the parent company towards the shareholders of the subsidiary. It also provides for strengthening of supervision performed by owners and supervisory boards in corporations. The right to elect an advisor to the supervisory board without the participation of the management board was introduced and the supervisory board was empowered to conclude an agreement with such an advisor.
The law was sent to the Senate for further legislative work.
The year 2021 was the third year of operations for ING Bank Hipoteczny S.A. At the end of the reporting period, the Bank had a mortgages portfolio worth approximately 3.9 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 S.A. In 2021, the newly acquired mortgages portfolio amounted to more than PLN 0,7 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. In 2021, as part of the diversification of funding sources, the Bank also issued own bonds with a total nominal value of PLN 654 million. The above events were the primary drivers of the financial results of the Bank.
Below, the key financial facts and figures of the Bank for the period from 1 January 2021 to 31 December 2021 are presented.
|
|
|
|
|
|
as at |
as at |
|
ROA - return on assets (%) |
0.50% |
0.52% |
|
ROE - return on equity (%) |
4.41% |
4.29% |
|
DR - total debt ratio (%) |
87.95% |
87.89% |
|
TCR - total capital ratio (%) |
30.43% |
32.22% |
|
LR - leverage ratio (%) |
11.67% |
12.30% |
|
LCR - liquidity coverage ratio (%) |
131% |
8555% |
ROA - return on assets - the ratio of net profit from 4 consecutive quarters to average assets from 5 consecutive quarters.
ROE - return on equity - the ratio of net profit for 4 consecutive quarters to the average shareholders' equity for 5 consecutive quarters.
DR – total debt ratio – liabilities of ING Bank Hipoteczny S.A. to assets as at 31 December 2021.
TCR – total capital ratio – own funds of ING Bank Hipoteczny S.A. to risk-weighted assets as at 31 December 2021.
LR – leverage ratio – Tier 1 capital to leverage ratio exposure as at 31 December 2021.
LCR - liquidity coverage ratio – liquid assets to net outflows as at 31 December 2021.
|
|
|
|
||||
|
|
|
|
in PLN thousand |
|||
|
|
note |
as at |
as at |
|||
|
31.12.2021 |
31.12.2020 |
|||||
|
Amounts due from banks |
7.7 |
46,828.4 |
65,823.7 |
|||
|
Debt securities measured at fair value through other comprehensive income |
7.8 |
49,640.8 |
50,186.9 |
|||
|
Debt securities measured at amortized cost |
7.8 |
14,995.6 |
0.0 |
|||
|
Loans and other receivables from clients |
7.9 |
3,882,999.5 |
3,690,920.7 |
|||
|
Property, plant and equipment |
7.10 |
1,207.1 |
739.4 |
|||
|
Intangible assets |
7.11 |
0.1 |
824.8 |
|||
|
Deferred tax assets |
|
1,115.5 |
942.2 |
|||
|
Other assets |
7.12 |
2,413.7 |
3,781.4 |
|||
|
Total assets |
|
3,999,200.7 |
3,813,219.1 |
|||
|
|
|
|
|
|||
|
Liabilities to banks |
7.13 |
2,453,682.8 |
1,969,597.2 |
|||
|
Liabilities under issue of bonds |
7.14 |
654,660.0 |
975,131.6 |
|||
|
Liabilities under issue of covered bonds |
7.15 |
399,876.9 |
399,480.6 |
|||
|
Provisions |
7.16 |
823.6 |
775.8 |
|||
|
Current tax liabilities |
|
444.6 |
98.8 |
|||
|
Other liabilities |
7.17 |
7,725.8 |
6,351.7 |
|||
|
Total liabilities |
|
3,517,213.8 |
3,351,435.7 |
|||
|
Share capital |
7.19 |
380,000.0 |
380,000.0 |
|||
|
Supplementary capital - share premium |
|
62,002.2 |
62,002.2 |
|||
|
Accumulated other comprehensive income |
7.20 |
-554.1 |
-46.4 |
|||
|
Retained earnings |
7.21 |
40,538.8 |
19,827.6 |
|||
|
Total equity |
|
481,986.9 |
461,783.4 |
|||
|
Total equity and liabilities |
|
3,999,200.7 |
3,813,219.1 |
|||
|
|
|
|
|
|||
|
Carrying amount |
|
481,986.9 |
461,783.4 |
|||
|
Number of shares |
|
380,000 |
380,000 |
|||
|
Carrying amount per share (in PLN) |
|
1,268.39 |
1,215.22 |
|||
|
|
|
|
|
|||
The Statement of Financial Position should be read in conjunction with the notes to the financial statements being the integral part thereof.
For details of the statement of Bank’s financial position, refer to notes 7.7 through 7.21 of the Financial Statements.
|
|
|
|
|
|||||
|
|
|
|
in PLN thousand |
|||||
|
|
note |
period |
period |
|||||
|
|
|
from 01.01.2021 |
from 01.01.2020 |
|||||
|
|
|
to 31.12.2021 |
to 31.12.2020 |
|||||
|
Interest income, including: |
7.1. |
83,394.1 |
108,806.1 |
|||||
|
calculated using the effective interest method |
7.1. |
83,394.1 |
108,806.1 |
|||||
|
Interest costs |
7.1. |
-28,779.9 |
-56,717.4 |
|||||
|
Net interest income |
7.1. |
54,614.2 |
52,088.7 |
|||||
|
Fee and commission income |
7.2. |
447.3 |
523.9 |
|||||
|
Commission expenses |
7.2. |
-1,149.3 |
-447.7 |
|||||
|
Net commission income |
7.2. |
-702.0 |
76.2 |
|||||
|
FX result |
|
-31.8 |
-52.5 |
|||||
|
Net income on other basic activities |
|
-151.9 |
-31.4 |
|||||
|
Net income on basic activities |
|
53,728.5 |
52,081.0 |
|||||
|
General and administrative expenses, including: |
7.3. |
-27,839.1 |
-24,629.5 |
|||||
|
operating expenses |
7.3. |
-22,700.5 |
-23,645.0 |
|||||
|
regulatory costs |
7.3. |
-5,138.6 |
-984.5 |
|||||
|
Expected loss provision |
7.4. |
854.3 |
-2,755.9 |
|||||
|
Tax on certain financial institutions |
7.4. |
-63.2 |
0.0 |
|||||
|
Gross profit (loss) |
|
26,680.5 |
24,695.6 |
|||||
|
Income tax |
7.5. |
-5,969.3 |
-4,868.0 |
|||||
|
Net profit (loss) |
|
20,711.2 |
19,827.6 |
|||||
|
|
|
|
|
|||||
|
Number of shares |
|
380,000 |
380,000 |
|||||
|
Profit(+)/loss(-) per ordinary share - basic (in PLN) |
|
54.50 |
52.18 |
|||||
|
Profit(+)/loss(-) per ordinary share - diluted (in PLN) |
|
54.50 |
52.18 |
|||||
|
|
|
|
|
|||||
There were discontinued operations at ING Bank Hipoteczny S.A. neither in the period that ended 31 December 2021 nor in the same period last year.
The Income Statement should be read in conjunction with the notes to the financial statements being the integral part thereof.
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 31 December 2021, 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 |
31.12.2021 |
|
Credit risk (PLN million) |
117.35 |
|
Operational risk (PLN million) |
3.90 |
|
Total requirement for own funds (PLN million) |
121.25 |
|
Common Equity Tier 1 ratio (CET1) |
30.43% |
|
Tier 1 ratio (T1) |
30.43% |
|
Total capital ratio (TCR) |
30.43% |
Pillar 1 has been discussed in detail under item 7.32 of the Financial Statements of ING Bank Hipoteczny S.A. 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,
o Pillar III: disclosures on risk profile and capitalisation level in the financial statements.
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 2021, the total capital ratio of the Bank was 30.43%.
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 and risks of other non-credit obligation assets - for default and counterparty risk and residual risk the economic capital requirement is determined using the modified AIRB approach (INCAP), the requirement for settlement/delivery risk is calculated in accordance with the CRR. Residual risk is related to the application of credit risk mitigation techniques, quantified in the form of a risk measure - LGD from the downturn. Internal capital for concentration risk is estimated as the difference between the total exposure to a given group of customers and the maximum exposure (internal limit set by the bank) less loss allowances;
b. market risk encompassing the banking book interest rate risk - the risk of losses on positions in the banking book due to changes in interest rates. The capital requirement is calculated using the VaR-based method;
c. business risk including macroeconomic risk - the methodology for determining the capital requirement is based on internal stress testing for a mild recession scenario and the desired level of capital adequacy measures;
d. funding and liquidity risk - the risk of being unable to meet, at a reasonable price, cash commitments arising from on- and off-balance sheet items.
The Bank maintains liquidity so that cash commitments can always be met with available funds, proceeds from maturing transactions, available funding sources at market prices and/or from the liquidation of marketable assets. Economic capital represents the cost of raising additional funding to restore LCR measure levels when they are breached;
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; - capital requirement determined using the Basic Indicator Method;
f. model risk - the Bank creates capital requirements either directly under model risk or by imposing capital charges directly on model outputs or as an additional internal capital charge for risks in the area where the model is used.
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 |
31.12.2021 |
|
For credit risk |
56.2% |
|
For market risk |
37.4% |
|
For business risk |
0% |
|
For funding and liquidity risk |
0% |
|
For operational risk |
6.4% |
|
For model risk |
0% |
|
Total |
100.0% |
A review of the internal capital adequacy assessment process (ICAAP) is carried out once a year and a report on the review is submitted to the Bank Management Board and Supervisory Board. In addition, the Internal Audit Position periodically conducts an independent audit of the ICAAP process.
Taking into account the scale and specifics of the Bank’s operations, the Bank discloses selected information on capital adequacy in the financial statements. 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,
o the Bank exposure to credit risk and dilution risk in accordance with Article 442 of CRR and Recommendation R[1],
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 and recommendation 30.1 of Recommendation Z.
Information on the conflict of interest management policy adopted by the Bank, including information on how to manage material conflicts and conflicts that could arise due to the fact that the Bank is a group member or concludes transactions with other entities in the group are described in the “Conflict of Interest Policy”. This information is made public by posting it on the website.
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. If the assessment shows that the qualitative and quantitative disclosures do not provide market participants with a comprehensive view of the risk profile, the Bank shall make public other necessary information. Any change in the scope or deviation from the disclosure shall be each time subject to the approval of the Chief Accountant.
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 2021, the Bank placed its temporary surplus funds on 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. During the reporting period, the Bank also entered into securities transactions. For details, refer to note 7.8 of the Financial Statements of ING Bank Hipoteczny S.A. The Bank did not apply hedge accounting in 2021.
As a target, credit debt acquisition from ING Bank Śląski S.A. will be funded from the issue of covered bonds. In the reporting period, the acquisition of credit debt from ING Bank Śląski S.A. was financed primarily with funds from: (i) credit lines, (ii) the issue of covered bonds and (iii) own bonds issued. 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 issued bonds to own funds of the Bank. In 2021, the Bank did not issue covered bonds, however to further diversify its existing funding sources, it made further issues of short-term bond series under the established own bond programme.
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 2021 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.
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 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 2021, the Bank made 1 mortgage-backed debt portfolio acquisition transaction with ING Bank Śląski S.A. The total capital as at the transfer date of the portfolio acquired was PLN 710.2 million. Due to the issue of green covered bonds, all the debt claims transferred to the Bank under this portfolio were classified as green.
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 – 31.12.2021:
|
LTV (banking and lending value of the real estate) |
Structure % |
|
(0-50> |
26.6% |
|
(50-60> |
17.6% |
|
(60-70> |
20.5% |
|
(70-75> |
9.7% |
|
(75-80> |
8.6% |
|
(80-100> |
17.0% |
|
Total |
100.0% |
|
Mark-to-market LTV |
Structure % |
|
(0-50> |
38.8% |
|
(50-60> |
25.0% |
|
(60-70> |
23.8% |
|
(70-75> |
12.0% |
|
(75-80> |
0.4% |
|
(80-100> |
0.0% |
|
Total |
100.0% |
The average LtV for the capital-weighted banking and lending value of the real estate was 61.52%, while the average mark-to-market LtV was 52.52%.
As at 31 December 2021, the carrying value of the portfolio of debt under the mortgage-backed loan agreements was PLN 3,883 million. Debt claims under the acquired loan agreements are mostly based on the variable interest rate WIBOR 6M. From 30 June 2021, in accordance with the requirements of Recommendation S of the PFSA, the Bank made it possible for the borrowers to change the interest rate formula from a variable rate to a fixed rate one for a period of time. As at 31 December 2021, 3 agreements with a total principal amount of PLN 0.56 million were subject to interest rate conversion.
In the wake of the COVID-19 pandemic, the Bank continued the measures implemented in 2020 to assist customers in financial distress.
Customers kept availing themselves of the suspension of the loan agreement execution which was implemented starting from 24 June 2020 (under the amended Law 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 2021, 13 borrowers benefited from the suspension of the loan agreement, with only 3 of them still availing themselves of the suspension at the end of the year, which represented 0.02% of the value of the entire portfolio.
The Bank monitors on an ongoing basis the number and volume of loans with suspended loan repayments and their impact on ensuring compliant collateral for the issue of covered bonds. In view of the high overcollateralisation of the covered bond issue (as at 31 December 2021, debt claims worth PLN 2,987.4 million were entered in the cover register), the position of the Bank is secure, allowing it to meet its obligations towards investors on an ongoing basis.
In 2021, due to the adverse market environment, including, but not limited to, the very high excess liquidity recorded in the banking sector, as a result of the government aid programmes launched in response to the negative effects caused by the outbreak of the pandemic, the Bank did not carry out the issue of covered bonds. As at 31 December 2021, the nominal value of the covered bonds in trading that were issued by the Bank did not change from the end of 2020 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.
The rating for the PLN mortgage bonds issued by the Bank remains at the highest possible level for a Polish issuer, namely 'Aa1' (according to the Moody's rating agency), which confirms the high quality of the mortgage portfolio serving as collateral for the above-mentioned debt securities.
Further issues of covered bonds will depend on the market conditions and the level of over-liquidity currently observed in the financial sector.
In line with the decision of Moody's Investor Service (the Agency) of 13 July 2021, the Bank's long-term ratings were increased by 1 notch. The increase in the Bank's selected ratings and assessments reflects a change in the Agency's methodology for assessing risks for highly integrated entities. As a result of its assessment, the Agency considered that the likelihood that the parent entity, that is ING Bank Śląski S.A., may change, in a stressful situation, its priorities in terms of meeting its obligations in a manner unfavourable for the Bank is negligible.
The updated rating of ING Bank Hipoteczny S.A. and its covered bonds is as follows:
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 The Bank's significant strategic importance and its operational integration within the ING Bank Śląski S.A. Group structures,
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.
The headcount in the bank was matched with the scale of business pursued. The Bank enables all employees to upgrade their qualifications on an ongoing basis.
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 Audit Position;
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 Audit Position, 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 approve 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 that the Compliance Officer, the Internal Audit function and the Operational Risk function, as well as the other units coordinating the achievement of the general objectives, have access to the necessary source documents, those containing confidential information included, in connection with the performance of their 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 Audit Position,
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 Audit Position.
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 provide operational and technological support to the Business area |
|
1) Units from the area of: • operational risk • compliance risk • legal risk • credit and market risk • finance • human resources management and 2) Model validation position |
|
Internal Audit position |
The tasks of the first line of defence are performed by senior management and by the organisational units overseen by it which deliver business objectives and which provide direct support thereto.
The first line of defence consists of Bank organisational units not specified in the second and third lines of defence.
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 issuing standards of conduct, as well as advising on the Bank internal regulations (including legal and regulatory monitoring and analysis of compliance with external legal acts) and providing internal control methods and tools,
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 second line of defence units have the power to escalate problems to a higher level of management (to the Bank Management Board and Supervisory Board), presenting their opinions on business decisions bearing unacceptable risks.
The units reporting to the Vice President responsible for the Risk Area and the Compliance Unit, in the areas monitored by them and in a manner that does not violate the independence of certain units in the Bank (e.g. Internal Audit Position) provided for by legal regulations, are authorised to recommend recovery actions concerning controls and risk control mechanisms to all units.
The roles, powers, scope and nature of work plus the accountability of IA and the terms of cooperation of Bank organisational units with the IA position are laid down in the Policy – Internal 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 Audit 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 the results/opinions of the audit conducted by the external auditor together with the 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 Audit,
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.
In 1H 2021, 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.
The assessment of the effectiveness and efficiency of ING Bank Hipoteczny S.A.'s internal control system for 2021 is being validated and the analyses performed indicate that the internal control system was effective and adequate in 2021.
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 2020, item 415),
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 2021, the mortgage-backed debt and other funds referred to in the Act on covered bonds and mortgage banks closed with PLN 3,000.6 million. In other words, the covered bonds were secured in 750.16%.
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 1,735 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 750.16%.
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 2021 yearned.
Register maintenance is overseen by the Cover Pool Monitor on an ongoing basis.
For the key register data as at 31 December 2021, refer to the table below:
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 2021, the statutory limits and their utilisation were the following:
|
No. |
Statutory limit |
Statutory limit value |
Limit utilisation |
Legal grounds |
|
|
1. |
Maximum amount of the Bank’s debt claims in excess of 60% of 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% |
10.36% |
|
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% |
10.46% |
|
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 |
6.74 |
|
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 by the mortgage bank to own funds of the mortgage bank |
40 |
0.87 |
|
Article 17.1 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% |
750.16% |
|
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% |
746.84% |
|
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% |
2,354.04% |
|
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 for each business day. The coverage balance test is performed at least every 6 months and the liquidity test at least every 3 months.
Keeping in mind the prudential approach to management, the Bank carries out coverage and liquidity balance tests for each business day.
Throughout the reporting period, ING Bank Hipoteczny S.A. 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 Article 26 section 1 items 4) and 11) of the Bank Charter; the consent is not required for the entities referred to in Article 26 section 1 item 9) of the Bank Charter,
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 Article 26 section 1 item 10) of the Bank Charter, 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 consent to acquisition, disposal or encumbrance by the Bank of real estate or an interest in real estate or the right of perpetual usufruct whose value exceeds the Polish zloty equivalent of EUR 1,000,000,
o submission to the Ordinary 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 approving strategies, policies and other documents if it is provided for in the Bank Charter or specific regulations,
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,
o assessment of the adequacy and effectiveness of internal governance principles adopted by the Bank,
o other matters within the Supervisory Board's powers.
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 the operational risk, credit risk, market risk and compliance 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 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 S.A.,
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.
The Committee monitor the model risk level. They approve the validation reports and the results of monitoring of the market risk, liquidity and funding risk and valuation models.
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 credit analysis standards,
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 principles of credit risk model validation,
o reports showing the credit risk model validation and monitoring results.
o The Credit Policy Committee approve the reports on credit risk model validation and monitoring results,
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 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, inter alia:
o operational risk management goals/plan for the calendar year concerned,
o waivers and deviations for the non-financial risks area,
o annual key control testing plans and results,
o annual Risk Identification and Assessment Plan and the results of this process when unacceptable risks are identified, crisis management plan as well as the outcome of the Business Environment Assessment,
o action plans and report on the second line of defence monitoring as part of key control testing (IT area included), and results of independent tests,
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 Monitoring of:
o the processes of NFR identification, assessment, monitoring and mitigation, including also outsourcing area,
o the quality assurance process for the non-financial risk management processes,
o the status of mitigation and enhancement activities related to programmes and projects in the Bank (non-financial risk projects included),
o risk factors arising from the Business Environment Assessment,
o reputational risk reports, customer complaints and conduct risk as well as compliance 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 2021 to 31 December 2021, 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, Treasury, 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 May 2021, the suitability assessments of the members of the Bank’s bodies were performed. In connection with the appointment of Ms Bożena Graczyk as Chairwoman of the Supervisory Board, a reassessment of the suitability of the Supervisory Board Member was carried out. With regard to the Bank Management Board, both individual assessments of members as well as a collegial assessment of the entire body were carried out.
In 2021, a new ING Bank Hipoteczny S.A. Management Board Members Appointing, Onboarding and Recalling Policy was adopted for application. The process of selecting and assessing candidates for Members of the ING Bank Hipoteczny S.A. Management Board is based on the principles set out in the aforementioned regulation.
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 by 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 17 December 2021, the Supervisory Board – by way of Resolution No. 55/16/2021 – 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 2021, the total amount of emoluments due and paid out by the Bank to the Management Board Members reached PLN 2,007,100, while in 2020 it was PLN 1,929,200.
|
Management Board |
|||||
|
2021 |
|||||
|
Emoluments due to ING Bank Hipoteczny S.A. Management Board Members in 2021 |
|||||
|
|
|
remuneration |
awards* |
other benefits** |
Total |
|
TOTAL |
01.01.2021-31.12.2021 |
1,513,680.00 |
0.00 |
93,654.00 |
1,607,334.00 |
|
*Emoluments of the ING Bank Hipoteczny S.A. Management Board Members for 2021 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 2021 bonus. The bonus will be paid out in 2022-2027. For that purpose, provisions were formed for the 2021 bonus for Management Board Members. As at 31 December 2021, they totalled PLN 999,028.80. 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 |
|||||
|
2021 |
|||||
|
Emoluments paid out to ING Bank Hipoteczny S.A. Management Board Members in 2021 |
|||||
|
|
|
remuneration |
awards* |
other benefits** |
Total |
|
TOTAL |
01.01.2021-31.12.2021 |
1,513,680.00 |
399,744.64 |
93,654.00 |
2,007,078.64 |
|
*Bonus under the Variable Remuneration Programme for 2020 non-deferred cash, for 2018 the first tranche of deferred cash and financial instruments held for 2019. |
|||||
|
**other benefits include: Employee Pension Scheme, healthcare and a company car |
|||||
In the period from 1 January 2021 to 31 December 2021, the Supervisory Board of ING Bank Hipoteczny S.A. worked in the following composition:
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 2021. On 21 January 2021, Lorenzo Tassan-Bassut tendered his resignation from the position of a member of the Supervisory Board of ING Bank Hipoteczny S.A. effective as of 31 January 2021.
At the Supervisory Board meeting of 14 June 2021, Mr Brunon Bartkiewicz tendered his resignation from the position of Chairman of the Supervisory Board of ING Bank Hipoteczny S.A., effective as of the end of the day, while remaining a Member of the Supervisory Board. Mrs Bożena Graczyk was unanimously elected by the Supervisory Board as the Chairman of the Supervisory Board of ING Bank Hipoteczny S.A., and the Resolution entered into force as of 15 June 2021.
In the reporting period, the Supervisory Board had 5 onsite meetings and the Audit and Risk Committee had 5 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 24 March 2021, the Ordinary General Meeting of ING Bank Hipoteczny S.A. was held, at which:
the annual financial statements of ING nk S.A. for the period from 1 January 2020 to 31 December 2020 were approved;
o the Management Board Report on Operations of ING Bank Hipoteczny S.A. for the period from 1 January 2020 to 31 December 2020, including the Statement of the Management Board on observance of the Principles of corporate governance, was approved.
o 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 allocation of the profit generated by ING Bank Hipoteczny S.A in the period from 1 January 2020 to 31 December 2020 were approved;
o the reports and evaluations of the Supervisory Board for the period from 1 January 2020 to 31 December 2020 were adopted, including:
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 the Management Board’s motion regarding allocation of the net profit generated by ING Bank Hipoteczny S.A in the period from 1 January 2020 to 31 December 2020 was approved;
o fulfilment of duties by all Supervisory Board Members in the period from 1 January 2020 to 31 December 2020 was acknowledged;
fulfilment of duties by all Management Board Members in the period from 1 January 2020 to 31 December 2020 was acknowledged;
Remuneration of Supervisory Board Members
In 2021, 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 |
|||||
|
2021 |
|||||
|
Emoluments due and paid out to ING Bank Hipoteczny S.A. Supervisory Board members |
|||||
|
|
|
remuneration |
Awards |
other benefits |
Total |
|
TOTAL |
|
120 000.00 |
0.00 |
0.00 |
120 000.00 |
|
Supervisory Board |
|||||
|
2020 |
|||||
|
Emoluments due and paid out to ING Bank Hipoteczny S.A. Supervisory Board members |
|||||
|
|
|
remuneration |
Awards |
other benefits |
Total |
|
TOTAL |
|
120 000.00 |
0.00 |
0.00 |
120,000.00 |
|
|
|||||
Headcount
As at 31 December 2021, ING Bank Hipoteczny S.A. had 38 employees (38 FTEs). This signifies headcount increase by 2 persons (2 FTEs) from 31 December 2020.
Remuneration policy
The ING Bank Hipoteczny S.A. Remuneration Policy takes into account the ING Bank Śląski S.A. Group Remuneration Policy and defines the key assumptions for the remuneration policy used to attract and retain employees by ensuring a market competitive remuneration and defines the component parts of the remuneration.
The Policy has new provisions on:
o gender-neutrality of the policy - which means that it does not create conditions that unjustifiably favour either gender in terms of recruitment, career development, promotion, or the allocation and payment of remuneration,
o the relation of the remuneration of the members of the Management Board to the remuneration of the employees - the average annual gross total remuneration of individual Management Board Members shall not exceed 40 times the average annual gross total remuneration of other employees. The ratio shall be reviewed annually as part of the review of the remuneration policy,
o monitoring of the gender pay ratio - as part of its annual remuneration review, the Bank monitors the gender pay ratio and takes appropriate action to address any gender imbalance in this respect.
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 the costs of the employee’s private car use for business purposes;
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 variable remuneration is in proper relation to fixed remuneration. The level of fixed remuneration in relation to variable remuneration should constitute a sufficiently large proportion to encourage the long-term and stable development of the Bank. The ratio of fixed to variable remuneration is set at 1 to a maximum of 1.
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. |
|
Employee Pension Scheme |
is an organised form of saving additional funds for a future pension; it is created by the Employer who pays contributions for his Employees to a selected financial institution that manages the funds accumulated in the scheme. |
|
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 17 December 2021, the Supervisory Board – by way of Resolution No. 55/16/2021 – 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 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 By-law is in line with the Bank's strategy, values and risk appetite and therefore also supports the Bank's long-term interests.
The By-law promotes and supports an effective risk management process to maintain and protect the Bank's secure capital base.
The provisions of the By-law do not encourage taking excessive risk beyond the risk appetite accepted by the Bank Supervisory Board.
The By-law is based on performance management, which is a key business process that links individual objectives with long-term business strategy and ensures stable growth.
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 2021 to 31 December 2021.
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 2021 item 2439),
b. Regulation of the Minister of Finance, Funds and Regional Policy of 8 June 2021 on the risk management system and internal control system and remuneration policy in banks, hereinafter referred to as the Regulation of Finance, Funds and Regional Policy,
c. The guidelines of the European Banking Authority of 2 July 2021 on sound remuneration policies,
d. Commission Delegated Regulation (EU) 2021/923 of 25 March 2021 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards setting out the criteria to define managerial responsibility, control functions, material business units and a significant impact on a material business unit’s risk profile, and setting out criteria for identifying staff members or categories of staff whose professional activities have an impact on the institution’s risk profile that is comparably as material as that of staff members or categories of staff referred to in Article 92(3) of that Directive.
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 2021, the Variable Remuneration Policy for Identified Staff applied to 6 Supervisory Board Members, 3 Management Board Members and 8 jobs included in the List of Identified Staff.
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 criteria, the following persons fall into the Identified Staff category:
o Supervisory Board and Management Board members,
o senior management staff,
o staff members accountable to the management body for the control function activities,
o employees who have managerial responsibilities with respect to:
a. legal issues;
b. security of accounting rules and procedures;
c. finance, including taxation and budgeting; carrying out economic analysis;
d. prevention of money laundering and terrorist financing;
e. human resources remuneration policy;
f. information technology;
g. information security;
h. the management of arrangements for the outsourcing of critical or important functions as referred to in Article 30(1) of Commission Delegated Regulation (EU) 2017/565.
o the staff members who have managerial responsibilities for any of the risk categories set out in Articles 79 to 87 of Directive 2013/36/EU or is a voting member of the management committee of any of the risk categories set out in those Articles,
o the remuneration of the employee is at least EUR 500,000 and at least the average remuneration granted to members of the management body and senior management of the institution,
o the staff member who is within the 0.3 % of the number of staff, rounded up to the next integer, who have been awarded the highest total remuneration in the preceding financial year.
Moreover, 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 (PLN 40,000).
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 Recovery Plan,
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 variable 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 of 29 February 2018 on current and interim information published by issuers of securities and the conditions for recognizing as equivalent information required by the law of a non-member state, 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 (“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, due to the business model adopted by ING Bank Hipoteczny S.A.
In 1Q 2021, the Supervisory Board assessed 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 February 2022 (for 2021) found out that the actions identified last year have been implemented. In 2021, 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. In 2021, in connection with the implementation of Recommendation Z of the Polish Financial Supervision Authority in the Bank, the Regulations were updated by including the principles of risk culture, as well as the annual assessment of employees' compliance with the business ethics standards.
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 S.A. 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 Internal 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 and is divided into 380,000 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. |
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On 29 June 2020, the Supervisory Board of ING Bank Hipoteczny S.A. selected BDO spółka z ograniczoną odpowiedzialnością sp. k. 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. k. with the registered office in Warsaw, at ul. Postępu 12, 02-676 Warszawa has been listed as the auditing firm by the National Council 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 spółka z ograniczoną odpowiedzialnością sp. k. 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.
Remuneration of the auditing firm (gross)
|
|
|
in PLN thousand |
|
|
period |
period |
|
|
from 01.01.2021 |
from 01.01.2020 |
|
|
to 31.12.2021 |
to 31.12.2020 |
|
Audit of annual financial statements |
129.2 |
129.2 |
|
Review of interim financial statements |
36.9 |
36.9 |
|
Comfort Letter |
24.6 |
0.0 |
|
Other |
0.0 |
0.0 |
|
TOTAL |
190.7 |
166.1 |
Selection of entity authorised to audit the financial statements
The auditing firm to audit the 2021 financial statements was selected in accordance with the effective laws, including the laws on auditing firm selection and selection procedure.
The auditing firm (BDO spółka z ograniczoną odpowiedzialnością sp. k.) and members of the auditing team met the prerequisites to issue an impartial and independent audit report from the audit of the annual financial statements in line with the applicable regulations, professional and business ethics standards.
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 2021 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.
In 2021, there were no amendments to the Bank Charter.
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 2021 and 31 December 2021, 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 2021, 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 29 December 2021, the Bank signed annexes to Credit Facility Agreements 1 and 3 moving PLN 0.4 billion of the exposure limit and reducing the maximum exposure amount as follows:
for Credit Facility Agreement 1 down to PLN 2.6 billion (from PLN 3 billion) in the Reduction Period (30.12.2021 - 31.03.2022), while increasing the maximum exposure amount for Credit Facility Agreement 3 to PLN 1.4 billion (from PLN 1 billion) in the Increase Period (30.12.2021 - 31.03.2022).
Also on 29 December 2021, the Bank signed another annex to the Master Agreement (Guarantee). The amendment concerned the modification of the Final Date, the Availability Period and the addition of the Increase Period.
The Bank utilised allocated limits of PLN 2,454 billion.
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.
Significant events after the reporting period
In view of the adverse external situation for the client resulting from post-pandemic macroeconomic factors (such as high inflation and rising interest rates), as well as the difficult to predict scenario of future developments at Poland's eastern border, recognising the risks in question the Bank follows and analyses the developments on an ongoing basis in order to be able to take appropriate actions in advance.
On 25 January 2022, own bond series INGBH004 of the total nominal value of PLN 150,000,000 issued by the Bank on 25 March 2021 was redeemed. On 9 March 2022 own bond series INGBH006 of the total nominal value of PLN 425,000,000 issued by the Bank on 9 December 2021 was redeemed.
On 11 February 2022, the Bank received a letter from the Polish Financial Supervision Authority (“PFSA”) on the recommendation to mitigate the Bank’s inherent risk by maintaining the Bank's own funds to cover the additional capital charge (“P2G”) at 0.98 p.p. in order to absorb potential losses resulting from stress events. According to PFSA’s methodology for determining the capital charge recommended under Pillar II (P2G), the maximum level of P2G capital charge may amount to 4.5 p.p. Details in this respect are described in chapter Risk and Capital Management in item 7.30. Qualitative information - Capital management. The Bank has a high and safe level of capital adequacy, significantly exceeding regulatory requirements including also P2G capital charge.
On 25 February 2022, the Bank received a letter from the Polish Financial Supervision Authority (PFSA), in which the PFSA indicated that the Bank meets the requirements to pay dividend of up to 100% of the net profit for 2021. At the same time, the PFSA recommended mitigating the inherent risk of the Bank by not taking, without prior consultation with the supervisory authority, other actions, in particular those outside the scope of current business and operational activities, which could lead to lowering the Bank’s own funds, including possible dividend payout from undivided profit from previous years and buy-back of own shares.
Armed conflict in Ukraine
On 24 February 2022, Russia launched a large-scale war against Ukraine. The international community reacted by imposing sanctions against Russia and Belarus.
The Bank continuously monitors the development of events related to the ongoing armed conflict in Ukraine and analyses its impact both on the macroeconomic environment and on the Bank itself. The direct impact of this situation may be reflected in future credit, market and operational risks.
The Bank has a small exposure of mortgage loans granted to individual customers who are citizens of Ukraine, Russia and Belarus. Additionally, absolute majority of these loans were granted to individuals being residents of Poland. The loan portfolio towards the citizens of Ukraine, Russia and Belarus is limited and its share in the loan portfolio does not exceed 1%. It shall be emphasised that this portfolio relates only to mortgage-backed loans, for which the real estate constituting collateral is located in Poland. As at the date of signing this report, the Bank has not identified any significant delays in repayment of mortgage loans by the above mentioned customers. In the opinion of the Bank Management Board, no material impact of the armed conflict in Ukraine on the Bank's liquidity and capital position is identified. As the Bank’s business model is based on the outsourcing of some of its activities, the Bank has also reviewed its suppliers and business continuity plans.
In summary, the events in question that occurred after the balance sheet date, i.e. 31 December 2021, are events that indicate a state of affairs occurring after the end of the reporting period and therefore do not require adjustments to the amounts presented in the financial statements. At the date of approval of the financial statements, it is not possible to estimate the financial impact of the above events on subsequent reporting periods.
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 2021 to 31 December 2021 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 2021 to 31 December 2021 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 2021 to 31 December 2021 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 2021 to 31 December 2021 has 80 numbered pages (Polish version).
Signatures of all Management Board members
|
16.03.2022 |
Mirosław Boda |
President of the Management Board |
.................//.................. (signature) |
|
16.03.2022 |
Jacek Frejlich |
Vice-President of the Management Board |
.................//.................. (signature) |
|
16.03.2022 |
Roman Telepko |
Vice-President of the Management Board |
.................//.................. (signature) |
[1]Starting from 1 January 2022.
