Table of Contents

 

 

1. Letter from the Supervisory Board Chairwoman

2. Letter from the President of the Management Board

3. Introduction

4. Business landscape

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

1.    Letter from the Supervisory Board Chairwoman

 

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

 

 

 

2.    Letter from the President of the Management 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

 

3.    Introduction

 

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.                             

4.    Business landscape

 

4.1 Macroeconomic environment

 

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.

 

4.2 Residential estate market

 

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.

 

4.3 Mortgage lending market

 

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.

 

4.4 Covered bonds market

 

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.

 

4.5 Regulatory and legal landscape

 

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.

 

5.    Financial results, capital adequacy and financial instruments

 

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.

 

5.1 Core financial ratios

 

 

 

 

 

as at

31.12.2021

as at

31.12.2020

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.

 

5.2 Statement of financial position

 

 

 

 

 

 

 

 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.                                         

 

5.3 Income Statement

 

 

 

 

 

 

 

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.

 

5.4 Own funds requirements – Pillar 1

 

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%.

 

5.5 Internal capital – Pillar 2

 

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.

 

5.6 Disclosures – Pillar 3

 

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.”

 

5.7 Financial instruments

 

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.

 

6.    Development lines and operations of ING Bank Hipoteczny S.A.

 

6.1 Development lines

 

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.

 

6.2 Acquisition of mortgage-backed debt and lending portfolio structure

 

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.

 

6.3 Covered bonds

 

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.

 

6.4 Rating of the Bank and covered bonds

 

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.

 

7.    Internal business conditions

 

7.1 Employee competences

 

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.

 

7.2 Cooperation with ING Bank Śląski S.A.

 

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.

 

7.3 Internal control system

 

Internal control system is among the Bank governance elements. Its fundaments, principles and objectives stem in particular from the Banking Law and the Regulation by the Minister for Development and Finance on managing risk and internal control system and remuneration policy in banks.

 

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.

 

 

II. Roles of Bank bodies

1.  Supervisory Board

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.

2. Audit and Risk Committee

The Audit and Risk Committee consult and advise the Supervisory Board on the internal control system-related tasks. The Committee is composed of two independent Members, including a Certified Auditor with knowledge and skills in accounting and auditing the financial statements.

3. Bank Management Board

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 internal control system covers the entire universe of the Bank and structured into three lines of defence.

 

 

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

 

1. The first line of defence

It is an element of the control function. The first line of defence is in charge of developing, implementing and performing controls designed to ensure that general and specific goals of internal control system are achieved. This LoD also performs independent monitoring of compliance with controls by ongoing verification and/or horizontal testing.

The first line of defence is responsible for acting in compliance with the principles resulting from the approved policies, regulations, manuals and procedures. The scope of responsibilities of the first line of defence includes, among others, analysis, control and management of the risks in the processes, including in relation to outsourced activities.

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.

2. The second line 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.

Under control activities, the units from the second line of defence perform their own independent assessment of the effectiveness of operations of the first line of defence; they do it using tests, reviews and other forms of control.

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.

3. The third line of defence

The Internal Audit position (IA) forms the third line of defence. It provides management with an independent and unbiased assurance as to the adequacy and effectiveness of the risk management system and internal control system within the first and second lines of defence.

The roles, powers, scope and nature of work plus the accountability of 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).

IV. Control function

Control function is an element of the internal control system which comprises all controls implemented in bank processes, independent monitoring of their observance and control function reporting. It covers positions, groups of people or organisational units responsible for performance of function tasks.

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.

 

The final assessment of the internal control system is made by the Supervisory Board, considering the recommendation of the Audit and Risk Committee which factors in particular:

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.

 

7.4 Risk management

 

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.

 

7.5 Valuation of mortgage loan collateral

 

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.

 

7.6 Cover register

 

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:

7.7 Cover Pool Monitor

 

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.

 

7.8 Statutory limits

 

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.

8.    Organisational framework and authorities of ING Bank Hipoteczny S.A.

 

8.1.Organizational framework

 

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

 

8.2 Authority of bodies and committees of ING Bank Hipoteczny S.A.

 

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.