Equity
The equity of the PKO Bank Polski S.A. Group increased by PLN 9.5 billion, i.e. by 26.7% y/y. The increase is mainly due to a higher result in the current period, an increase in unappropriated profit and an increase in accumulated other comprehensive income, reflecting changes in the fair value of the securities portfolio and derivatives in hedge accounting.
The level of equity at the end of 2023 reflects the payment of an interim dividend for the financial year 2023 in the amount of PLN 1.6 billion. By decision of the Bank’s Management Board adopted on 19 December 2023 (with the approval of the Supervisory Board and the Polish Financial Supervision Authority „PFSA”), funds from the reserve capital earmarked for this purpose in accordance with the resolution of the Annual General Meeting of PKO Bank Polski S.A (AGM) of 21 June 2023 on the distribution of PKO Bank Polski S.A’s profit earned in 2022 were allocated to the dividend.
Total equity and total capital adequacy ratio of the PKO Bank Polski S.A. Group (in PLN million)
| 31.12.2023 | 31.12.2022 | Change (PLN million) | Change (%) | |
|---|---|---|---|---|
| Total equity, including: | 45,227 | 35,707 | 9,520 | 26.7% |
| Share capital | 1,250 | 1,250 | 0 | 0.0% |
| Supplementary capital | 22,860 | 23,085 | -225 | -1.0% |
| General banking risk fund | 1,070 | 1,070 | 0 | 0.0% |
| Other reserves | 7,138 | 7,091 | 47 | 0.7% |
| Accumulated other comprehensive income | -3,392 | -9,007 | 5,615 | -62.3% |
| Retained earnings | 10,810 | 8,920 | 1,890 | 21.2% |
| Net profit or loss for the period | 5,502 | 3,312 | 2,190 | 66.1% |
| Non-controlling interests | -11 | -14 | 3 | -21.4% |
| Own funds | 43,807 | 43,759 | 48 | 0.1% |
| Total capital ratio1 | 18.65% | 19.07% | -0.42 p.p. |
Capital adequacy measures
Capital adequacy measures as at the end of 2023
The capital adequacy of the PKO Bank Polski S.A. Group in 2023 remained significantly above the supervisory limits.
As at the end of 2023, the total capital ratio of the PKO Bank Polski S.A. Group amounted to 18.65% and compared with the end of 2022 it decreased by 0.42 p.p., and the core capital Tier 1 ratio amounted to 17.77% and decreased by 0.17 p.p.
The drop in the capital ratios was determined by an increase in capital requirements by PLN 0.4 billion (resulting mainly from an increase in credit risk requirements by PLN 0.8 billion with a decrease in operational risk requirements by PLN 0.2 billion and market risk requirements by PLN 0.2 billion, with a stable level of own funds.
The level of own funds was most significantly affected by the payment of an interim dividend from reserve capital, which reduced equity by PLN 1.6 billion, the increase in the fair value of financial assets measured at fair value through other comprehensive income by PLN 1.1 billion (in the absence of the possibility to apply the provisions mitigating the impact of the COVID-19 pandemic (Article 468 of the CRR) in 2023), recognition as Common Equity Tier 1 capital, with the approval of the PFSA, of part of the net profit earned for the period from 1 January 2023 to 30 June 2023 in the amount of PLN 1.7 billion and T2 amortisation, which reduced own funds by PLN 0.5 billion.
The increase in the own funds requirement for credit risk by PLN 0.8 billion was driven by an increase in the loan portfolio with the simultaneous application of a preferential risk weight for the portfolio of corporate loans covered by a credit protection guarantee (with the PFSA’s consent), which reduced the requirements by approximately PLN 0.5 billion at the end of 2023. Decrease in operational risk requirements by PLN 0.2 billion, mainly due to the implementation of individual scaling of the cost of legal risk of mortgage loans in CHF in the AMA approach in accordance with the PFSA’s decision obtained on 22 February 2023, and PLN 0.2 billion lower market risk requirements mainly as a result of not exceeding the foreign exchange position threshold at the end of 2023 compared to the end of 2022.
In 2023, the total capital ratio of PKO Bank Polski S.A. increased by 0.35 b.p. to 20.84%, and the core capital T1 ratio by 0.61 b.p. to 19.80%. The increase in capital ratios is mainly due to an increase in own funds by PLN 1.1 billion and an increase in capital requirements by PLN 0.1 billion
PKO Bank Polski S.A.’s own funds were higher mainly as a result of an increase in the fair value of financial assets measured at fair value through other comprehensive income by PLN 0.9 billion, with a decrease in the reduction due to exposures excluded from the exposure concentration limit, and deferred tax on the core equity Tier 1 position of PLN 1 1.1 billion. In addition, the increase in own funds resulted from the consent of the PFSA to include in the core equity Tier 1 a part of the Bank’s net profit earned for the period from 1 January 2023 to 30 June 2023 of PLN 1.6 million.
The increase in the own funds requirement for credit risk amounted to PLN 0.6 billion and was driven mainly by an increase in the loan portfolio and the application of a preferential risk weight for the portfolio of corporate loans covered by a credit protection guarantee (with the PFSA’s consent), which reduced the requirements by approximately PLN 0.5 billion at the end of 2023. Decrease in own funds requirements for operational risk by PLN 0.2 billion, mainly due to the implementation of individual scaling of the cost of legal risk of mortgage loans in CHF in the AMA approach in accordance with the PFSA’s decision obtained on 22 February 2023, and PLN 0.2 billion lower market risk requirements as a result of not exceeding the foreign exchange position threshold at the end of 2023 compared to the end of 2022.
Determination of target MREL levels
The Bank Guarantee Fund has set the minimum requirement for own funds and eligible liabilities (MREL) for PKO Bank Polski S.A.
The BGF determined the target MREL TREA requirement for the Bank on a consolidated data at the level of 15.36% of TREA (total risk exposure amount), which should be met by own funds and eligible liabilities meeting the subordination requirement at the level of 13.78% of TREA.
The MREL TEM (total exposure measure) requirement for the Bank on a consolidated basis has been set at 5.91% of TEM and should be met by own funds and eligible liabilities meeting the subordination requirement of 5.60% of TEM.
In accordance with Article 97(4) of the Act on the Bank Guarantee Fund, BGF exempted PKO Bank Hipoteczny S.A. from the requirement to maintain a minimum level of its own and eligible liabilities. Following this decision, TREA and TEM levels are adjusted to exclude PKO Bank Hipoteczny S.A. from consolidation.
In addition, the BFG indicated that KREDOBANK S.A. is not part of the group subject to resolution and should also be excluded from consolidation for the purposes of determining MREL.
The required levels are presented in the table below.
Required MREL levels (in %)
| 31.12.2023 | |
|---|---|
| MREL (TREA) | 15.36 |
| MREL (TREA) subordinated | 13.78 |
| MREL (TEM) | 5.91 |
| MREL (TEM) subordinated | 5.60 |
As at 31 December 2023, the MREL ratio in relation to the total „TREA” risk exposure amounted to 16.38% (in accordance with the Act on macro-prudential supervision, Common Equity Tier 1 instruments held by an entity for the purposes of the combined buffer requirement cannot be used to meet this requirement; without this restriction, the ratio was 21.18%). With regard to the total exposure measure „TEM”, the MREL ratio was 9.25%.