Operations of other PKO Bank Polski SA Group companies

* The financial results in the description come from the financial statements of particular companies prepared in accordance with IAS/IFRS, and in respect of insurance companies, in accordance with PAS.

*nominal value

In 2018 PKO Bank Hipoteczny SA earned net profit of PLN 85.8 million (vs. PLN 51.4 million in 2017).

PKO Bank Hipoteczny SA is the leader on the Polish mortgage bank market in terms of total assets and the balance of mortgage loans. The Company is also the most active issuer of mortgage bonds in Poland.

PKO Bank Hipoteczny SA specializes in granting mortgage loans to individual Customers and acquires receivables following from such loans from PKO Bank Polski SA. PKO Bank Hipoteczny SA acquires loans for its portfolio based on strategic cooperation with PKO Bank Polski SA.

In 2018, under the Receivables Sale Framework Agreement signed with PKO Bank Polski SA in 2015, PKO Bank Hipoteczny SA acquired further portfolios of home loans secured with mortgages, of PLN 2.5 billion in total. The total gross value of the PKO Bank Hipoteczny SA loan portfolio as at 31 December 2018 amounted to PLN 21.1 billion, including PLN 12.3 billion of mortgage home loans purchased under the agreement executed with PKO Bank Polski.

The Company’s principal object is to issue mortgage bonds, which are to serve as the primary source of long-term financing for the loans secured with mortgages of the PKO Bank Polski SA Group. Housing loans in PLN are the sole basis for issuing mortgage bonds. They meet the conservative criteria for granting them, both in terms of the borrower s’ creditworthiness, and the valuation of the properties which constitute collateral.

In 2018 the Company conducted:

• one foreign issue of mortgage bonds denominated in EUR, addressed to institutional investors, with a total nominal value of EUR 500 million;
• five domestic issues of mortgage bonds denominated in PLN, addressed to institutional investors, with a total nominal value of PLN 1 590 million;

The total value of the mortgage bonds issued by PKO Bank Hipoteczny SA, which remain traded (at nominal value) as at the end of 2018 amounted to PLN 12.8 billion.

In February 2018 PKO Bank Hipoteczny SA, as the first issuer of mortgage bonds in Poland, joined The Covered Bond Label. The Covered Bond Label is a quality certificate the aim of which is to create awareness of necessary security and high quality of mortgage bond assets among their issuers. The standardized principles for assessing the quality of those assets allow investors from all over the world to compare mortgage bonds of issuers from different countries.

In 2018 the Company earned net profit of PLN 257.0 million (vs. PLN 64.6 million in 2017).

The increase in the net profit is a result of higher revenues and lower distribution costs as a result of lower fees for the sale of units in funds managed by the company by PKO Bank Polski SA and other distributors, introduced at the beginning of 2018 (MiFID II).

The value of the funds’ net assets under PKO TFI SA’s management amounted to PLN 35.6 billion as the 2018, which represents a 21.2% increase in assets compared with the end of 2017.

The increase in Net Asset Value is mainly the effect of positive cash flows to the funds managed by PKO TFI SA.

PKO TFI SA ranks second in terms of net asset value and has a 13.9% share in the market of investment funds*; and it ranks first with a 22.2% share in terms of assets of individuals in funds under management*.

As at 31 December 2018, PKO TFI SA managed 60 investment funds and sub-funds, including 11 funds and sub-funds acquired as part of the business combination with GAMMA TFI SA.

In 2018, PKO TFI SA established PKO VC – a closed-end investment fund of non-public assets with two separate sub-funds (Financial Sub-fund and Strategic Sub-fund).

*Source: Online analyses

In 2018 the company earned net profit of PLN 14.0 million (vs. PLN 8.5 million in 2017).

Results of operations of the Open Pension Fund (OFE)*:

As at the end of 2018, the net asset value of PKO BP Bankowy OFE managed by PKO BP BANKOWY PTE SA amounted to PLN 7.0 billion, which is a decrease of 12.7% compared with the end of 2017.

As at the end of 2018 PKO BP Bankowy OFE had over 912 thousand members.

PKO BP Bankowy OFE ranks 9th on the pension fund market in terms of net asset value and in terms of the number of members.

In 2018 the Polish Financial Supervision Authority (PFSA) announced OFE rates of return as at the end of March and September, for 36 months. In accordance with the PFSA announcement, for the period from 31 March 2015 to 30 March 2018, PKO BP Bankowy OFE generated a rate of return of 12.500% and compared with the weighted average rate of return for all funds of 11.424% it ranked 3rd in the pension fund ranking. In the second schedule, which accounts for the period from 30 September 2015 to 28 September 2018, the fund generated a rate of return of 18.857% and compared with the weighted average rate of return for all funds of 18.826% it ranked 4th in the open pension fund ranking.

* Source: www.knf.gov.pl

The PKO Leasing SA Group (i.e. PKO Leasing SA and its subsidiaries) earned net profit of PLN 114.2 million in w 2018. The PKO Leasing SA Group earned net profit of PLN 77.2 in 2017.

Lease activities:

In 2018, the leasing companies of the PKO Leasing SA Group financed fixed assets totalling PLN 9.25 billion, i.e. 13.7% more than in the corresponding period of 2017. Noteworthy are the high increases in financing in the segment of plant and machinery of 29% y/y.

As at the end of 2018, the carrying amounts of amounts due from Customers in respect of fixed asset leases (matured and not matured) and the carrying amount of fixed assets under operating leases in the PKO Leasing SA Group amounted to PLN 17 billion in total. As at the end of 2017, the carrying amount was PLN 15 billion.

In terms of the value of fixed assets leased to Customers in 2018, the PKO Leasing SA Group ranked first on the market of lease services with a 11.2% market share*.

*Source: Związek Polskiego Leasingu

Factoring activities:

PKO Faktoring SA provides domestic and export factoring services with and without recourse, reverse factoring and a factoring programme service for suppliers.

In 2018, the factoring turnover amounted to PLN 18 billion (in 2017 the Company’s turnover was PLN 11.6 billion); as at the end of December 2018 the company had 535 Customers.

As at 31 December 2018, PKO Faktoring SA ranked eighth (by turnover) among the factoring companies associated in the Polish Factors’ Association, with a market share of 7.4%.

PKO Życie Towarzystwo Ubezpieczeń SA Group (i.e. PKO Życie Towarzystwo Ubezpieczeń SA and its subsidiary Ubezpieczeniowe Usługi Finansowe Sp. z o.o.). generated a net profit of PLN 24.4 million in 2018 (in 2017, the Group’s net profit was PLN 26.2 million)

PKO Życie Towarzystwo Ubezpieczeń SA’s business is insurance activities in the scope of Section I: life insurance.

PKO Życie Towarzystwo Ubezpieczeń SA provides a wide range of insurance products. The Company focuses on insuring the life and health of its Customers, it offers standalone products and products linked to the banking products offered by PKO Bank Polski SA.

In 2018, the company introduced to its offer: OnkoPlan – cancer insurance, Group Life Insurance for PKO Employees, Life Insurance and Group Life Insurance for the PKO BP Group Employees and Life Insurance accompanying mortgage loans with a monthly premium.

Gross written premiums from insurance contracts written by the company were PLN 501.1 million in 2018 compared with PLN 471 million in 2017.

As at the end of 2018, the company insured more than 847 thousand people (as at the end of 2017: 722 thousand people).

In 2018 the Company earned net profit of PLN 35.2 million (vs. PLN 9.0 million in 2017).

The company’s business is insurance activities in the scope of Section II: other personal and property (non-life) insurance.

PKO Towarzystwo Ubezpieczeń SA focuses on insuring the risk of loss of income, personal accidents and sickness, and on insuring properties for borrowers and mortgage borrowers. The company provides a wide range of insurance products intended for the Bank’s Customers and other entities in the Bank’s Group.

In 2018, the company launched the Car Assistance insurance for PKO Bank Polski SA Customers, travel insurance “Tak podróżuję” and modified the terms and conditions of Insurance of repayment of mortgage loans in the event of losing the source of income, incapability resulting from an accident and hospital treatment.

Gross written premiums from insurance contracts written by the company were PLN 586.9 million in 2018 compared with PLN 450.7 million in 2017.

As at the end of 2018, the company insured 804 thousand people (581 thousand people as at the end of 2017).

(data according to IFRS, applied by the PKO Bank Polski SA Group)

In 2018, the KREDOBANK SA Group (i.e. KREDOBANK SA and its subsidiary Finansowa Kompania “Idea Kapitał” Sp. z o.o.) generated a net profit of UAH 469 million (PLN 62 million). In 2017, KREDOBANK SA Group’s net profit amounted to UAH 401 million (PLN 56 million).

These results are the effect of KREDOBANK SA’s growth in all business segments accompanied by effective liquidity, margin and risk management.

The credit portfolio of the KREDOBANK SA Group (gross) increased by UAH 1 477 million, i.e. 16.7%, in 2018, and as at 31 December 2018, it amounted to UAH 10 329 million (the gross credit portfolio expressed in PLN amounted to PLN 1 402 million as at the end of 2018). The increase in the credit portfolio in UAH is mainly the result of an increased number of new loans.

Term deposits of Customers of the KREDOBANK SA Group increased by UAH 489 million, i.e. 9.5%, in 2018, and amounted to UAH 5 622 million as at 31 December 2018 (term deposits expressed in PLN amounted to PLN 763 million as at the end of 2018). Deposits in UAH are the effect of the high creditworthiness and ranking of KREDOBANK SA on the Ukrainian banking market.

As at 31 December 2018 the network of KREDOBANK SA outlets covered the Head Office in Lviv and 93 branches in 22 of 24 provinces of Ukraine. In 2018, three new branches were opened, the location of two branches was changed and 12 branches were closed down.

In 2018 PKO BP Finat sp. z o.o. earned net profit of PLN 43.3 million (vs. PLN 43.9 million in 2017).

PKO BP Finat sp. z o.o. provides comprehensive services to companies in the financial sector – including transfer agent, fund and company accounting, servicing group insurance dedicated to the products offered by PKO Bank Polski SA. On the basis of the authorization of the PFSA, the company provides services as a national payment institution. It also provides intermediation services in respect of non-financial products to Customers of PKO Bank Polski SA. It also specializes in competency outsourcing of IT specialists, project teams and IT processes.

As at the end of 2018 the company provided transfer agent services to seven entities and maintained books of account of 82 funds and five other entities.