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Report on Risk Management
and Capital Adequacy
of Bank Gospodarstwa Krajowego
as at 31 December 2016 (Pillar III)
Page 2 of 47
Table of contents
1. Introduction .............................................................................................................................................................. 3
2. General Information ................................................................................................................................................. 3
2.1. General information about the Bank .............................................................................................................. 3
2.2. Presentation of reporting data ....................................................................................................................... 3
2.3. Risk statement ................................................................................................................................................ 4
3. Risk management principles at the Bank .................................................................................................................. 5
3.1. General risk management principles .............................................................................................................. 5
3.2. Risk management organisational structure .................................................................................................... 7
3.3. Rules for the election of the Bank’s Management Board members ............................................................ 10
3.4. Number of functions in the bodies of other entities, held by members of the Management Board and the
Supervisory Board of the Bank ..................................................................................................................... 11
3.5. Credit, exposure concentration, and counterparty credit risk ..................................................................... 11
3.5.1. Credit and exposure concentration risk .......................................................................................... 11
3.5.2. Counterparty Credit Risk .................................................................................................................. 13
3.5.3. Credit risk mitigation techniques ..................................................................................................... 15
3.5.4. Reduction of a customer’s credit rating .......................................................................................... 16
3.5.5. Tabulated data of credit risk and counterparty credit risk .............................................................. 16
3.6. Liquidity risk .................................................................................................................................................. 23
3.7. Market risk .................................................................................................................................................... 25
3.7.1 Characteristics of interest rate risk in the banking book ................................................................. 26
3.7.2 Financial result sensitivity to changes in interest rates ................................................................... 27
3.7.3 Valuation sensitivity to changes in interest rates ............................................................................ 28
3.8. Operational risk ............................................................................................................................................ 28
3.9. Model Risk .................................................................................................................................................... 30
3.10. Compliance Risk ............................................................................................................................................ 30
3.11. Other risks ..................................................................................................................................................... 30
3.12. Risk reporting ................................................................................................................................................ 30
3.13. Equity exposures not taken into account in the trading book ..................................................................... 32
4. Own funds ............................................................................................................................................................... 33
5. Capital adequacy ..................................................................................................................................................... 35
5.1. Capital requirements .................................................................................................................................... 37
5.1.1. Capital requirements – credit risk and counterparty credit risk ..................................................... 37
5.2. Internal capital .............................................................................................................................................. 39
5.3. Capital buffers............................................................................................................................................... 40
6. Financial leverage ................................................................................................................................................... 40
7. Encumbered and unencumbered assets ................................................................................................................ 42
8. Information on the variable remuneration policy towards persons holding managerial positions ....................... 43
Glossary .......................................................................................................................................................................... 46
Statement of the Management Board of Bank Gospodarstwa Krajowego .................................................................... 47
Page 3 of 47
1. Introduction
This document constitutes the implementation, by Bank Gospodarstwa Krajowego, of the provisions specified in
Part Eight of the CRR in relation to disclosing information about risk management and capital adequacy.
This report has been drafted in accordance with “Principles of Information Policy of Bank Gospodarstwa Krajowego
in the scope of publication of qualitative and quantitative information on capital adequacy”1, approved by the
Management Board and the Supervisory Board of the Bank.
Information not covered by the certified auditor’s review of the financial statements and the report on the activities
of the Bank are verified by relevant organisational units of the Bank’s head office.
Before publication, this reports shall be subject to approval by the Bank’s Management Board.
2. General Information
2.1. General information about the Bank
As a highly reliable state financial institution, Bank Gospodarstwa Krajowego specialises in services for the public
sector. The Bank ensures economically efficient and operationally effective support of the economic policy of the
Council of Ministers, government’s social and economic programmes, as well as local governance and regional
development programmes.
The volume of support from the State Treasury is determined by the provisions of the Act on BGK that obligate the
Minister responsible for public finance to provide BGK with means to maintain own funds at a level guaranteeing the
fulfilment of the Bank’s tasks and liquidity.
Moreover, Fitch Ratings has confirmed the high reliability of Bank Gospodarstwa Krajowego by assigning it a credit
rating of “A-”, a level equal to Poland’s rating – the rating was confirmed in a Fitch Ratings’ communication of 21
February 2017.
2.2. Presentation of reporting data
Pursuant to the Act on BGK, the tasks of the Bank – in addition to the activities defined in the Banking Law Act –
includes, inter alia, the administration of funds created, entrusted, or provided to BGK on the basis of separate acts,
constituting so-called “commissioned activities”.
As part of commissioned activities carried out by the Bank through separated funds, one should distinguish:
funds associated with granting credits, loans, or off-balance sheet commitments at the Bank’s risk – “fund
exposed to credit risk”,
funds associated with managing cash flows for specific budgetary targets – “flow funds”.
The financial statements of the Bank include own activities of the Bank and commissioned activities carried out as
part of funds exposed to credit risk. Balance sheets, summaries of off-balance sheet items, and profit and loss
accounts of individual funds associated with commissioned activities (both funds exposed to credit risk as well as
flow funds), are presented in an appendix to the financial statements.
In order to limit the regulatory risk measures and to draw up obligatory reporting resulting from CRR provisions, the
Bank takes into account both Bank’s own activities and commissioned activities carried out as part of funds exposed
to credit risk as well as flow funds. In view of the above, the data presented in this document include both the own
activities and the commissioned activities of the Bank.
1 document available on the Bank’s website: www.bgk.pl
Page 4 of 47
As at 31 December 2016, Bank Gospodarstwa Krajowego was neither subject to consolidation for accounting
purposes nor to prudential consolidation pursuant to CRR provisions.
2.3. Risk statement
In Table no. 1, key risk-related ratios and figures are presented, and in Charts No. 1 and 2, the structure of the
Bank’s balance sheet. Together, they reflect the risk profile of the Bank.
Table No. 1. Key ratios and figures2
Regulatory limit As at 31.12.2016 As at
31.12.2015
Bank’s balance sheet figures
Total assets presented in the financial statements in PLN million 67,258.2 43,419.1
Total assets with flow funds included in PLN million 121,063.2 90,057.1
Net result in PLN million 349.2 362.7
Capital adequacy
Own funds in PLN million 12,257.5 9,445.8
Capital requirements in PLN million 3,205.2 2,343.1
Internal capital in PLN million 3,811.8 3,008.3
CET1 ratio 4.5% 30.11% 31.35%
Capital adequacy ratio (total capital ratio) 8% 30.59% 32.25%
Internal capital ratio 100% 31.10% 31.85%
Risk of excessive leverage
Leverage ratio 9.13% 9.26%
Credit risk and counterparty credit risk
Exposure taken into account in the standardised approach of determining the capital requirement for credit risk and counterparty credit risk in PLN million
146,954.3 113,909.6
Capital requirement for credit risk and counterparty credit risk in PLN million
2,898.8 2,148.8
Specific risk provisions in PLN million 723.2 620.9
Liquidity Risk
M1 in PLN million 0 15,503.8 6,095.0
M4 1.00 1.24 1.18
LCR 70% in 2016, 60% in 2015
252% 212%
Market risk
VaR(1D) for Bank’s currency position in PLN million 1.6 1.8
BPV for trading book in PLN million 0.01 0.01
Capital requirement for market risk in PLN million 123.1 50.2
Interest rate risk in the banking book
Change in interest result given a change in interest rates by -2 p.p. in the scope of banking book in PLN million
-110.3 -202.5
Change in interest result given a change in interest rates by +2 p.p. in the scope of banking book in PLN million
99.5 67.9
Operational Risk
Net loss on operational risk events in PLN million 0.3 5.1
Capital requirement for operational risk in PLN million 122.2 117.8
2 Risk ratios data and comparable data are presented jointly for the Bank’s own activities and commissioned activities
Page 5 of 47
Chart No. 1. Bank’s balance sheet structure in the financial statements
Chart No. 2. Bank’s balance sheet structure with flow funds included
3. Risk management principles at the Bank
3.1. General risk management principles
The internal objective of risk management at the Bank is to maintain high quality of assets within an acceptable risk
level.
The main risk management guidelines at BGK are defined in the Bank’s Strategy and policies for managing particular
types of risks. The risk appetite is determined by the acceptable level of Tier 1 ratio, capital adequacy ratio, and
internal capital ratio, as well as the acceptable level of individual risk types. In the allocation process, the required
capital is distributed among individual risk types, with limit levels defined for individual risks at BGK.
Diagram no. 1 presents a general scheme of areas covered by limits.
3 Other assets of the Bank with flow funds include also receivables of the National Road Fund
37.6 3.0
1.1
5.8
26.6
5.8
3.9
12.1
31.0
2.9
4.6
0 20 40 60 80 100 120 140
Liabilities
Assets
in PLN billion
37.6 30.5
1.1
28.8
26.6
5.8
3.9
12.1
35.0
6.3
54.4
0 20 40 60 80 100 120 140
Liabilities
Assets
in PLN billion
A1 – Interbank deposits L1 – Clients’ deposits
A2 – Net loans L2 – Loans incurred
A3 – Reverse repo and buy-sell-back transactions L3 – Liabilities under securities issuance
A4 – Debt securities L4 – Repo and sell-buy-back transactions
A5 – Other assets3
L5 – Total capital (excluding current year’s result and retained
profit/accumulated loss)
L6 – Other liabilities
A1 A2 A3 A4 A5
L6 L5 L4 L3 L2 L1
A5 A4 A3 A2 A1
L6 L5 L4 L3 L2 L1
Page 6 of 47
Diagram No. 1. Areas covered by limits
The Bank’s risk management is based on:
BGK Capital Management Policy and BGK Internal Capital Adequacy Assessment Process Principles approved
by the Supervisory Board,
risk management policies, principles, and procedures related to risk identification, measurement/assessment,
monitoring, reporting, and control, developed in written form and approved by the Supervisory Board or the
Management Board of the Bank,
corporate governance principles and variable remuneration policy towards persons holding managerial
positions at BGK, approved by the Supervisory Board or the Management Board of the Bank.
Internal regulations are subject to regular reviewing to adjust them to changes in the Bank’s risk profile, the Bank’s
economic environment, and prudent banking practices.
The risk management system is designed to ensure a uniform and efficient process of identification,
measurement/assessment, monitoring, reporting, and controlling of risks, and to take safety measures.
The risk identification process includes determination of risk types, their sources (risk factors), significance and
relationships between individual types of risk.
The risk measurement/assessment process includes methods of risk quantification, determination of the acceptable
risk level, identification of relationships, patterns, and trends, as well as estimation of the costs of the risk borne,
and stress tests.
The risk monitoring and control process includes supervision of the level of risk taken, reviews of relevance and
accuracy of the methods of risk assessment applied, and evaluation of efficiency of the tools used.
The risk reporting process includes information on the risk profile, identification of possible threats, and information
on the measures adopted.
The safety measures include regulations (policies, principles, instructions, procedures, by-laws, and contingency
plans), internal limits, planning ratios levels and deviations from the plan, recommendations for organisational units
of the Bank’s head office and branches, as well as insurance and risk transfer.
The Bank supervises the risk associated with the activities of its subsidiaries, including, in particular, in the area of
liquidity, capital, operational, and compliance risk.
RISK APPETITE
Capital adequacy
Credit and concentration
risk
Liquidity risk
Interest rate risk
Foreign exchange risk
Operational risk
Page 7 of 47
The organisation of risk management at the Bank is shown in Diagram No. 2.
Diagram No. 2. Organisation of selected types of risk at the Bank
3.2. Risk management organisational structure
The composition, scope of activity, and competences of the Bank’s bodies and the corporate object of the Bank are
defined in the Act on BGK, the Bank’s Articles of Association, and the rules of procedure of the said bodies.
Below, the Bank’s bodies, Committees of the Supervisory Board, committees appointed by the Bank’s Management
Board are presented, as well as leading organisational units of the Bank’s head office that participate in the risk
management process at the Bank.
Supervisory Board of the Bank
The Supervisory Board supervises the compliance of the Bank’s policy on risk-taking with the long-term
development plan – strategy and financial plan of the Bank.
Risk Committee
The Risk Committee supports operations of the Bank’s Supervisory Board, overseeing the management system for
all risks identified in the Bank’s operations, in particular by providing opinions as to the Bank’s overall ongoing and
future risk appetite. The Risk Committee includes persons appointed from among the members of the Bank’s
Supervisory Board. In 2016, 6 meetings of the Risk Committee were held.
Risk management supervision
Risk appetite Tactical
management Strategic
management Risk monitoring
Credit risk Management
Board
CC
CC CRD
CRMD DLD
Supervisory Board Supervisory Board
Management
Board
Market risk Management
Board
ALCO
TD
FMSD FRD Supervisory Board
Supervisory Board
Management
Board
Liquidity risk Management
Board
ALCO
TD FRD Supervisory Board Supervisory Board
Management
Board
Operational risk Management
Board
ORC
Each organisational unit
FRD Supervisory Board Supervisory Board
Management
Board
Compliance Risk Management
Board
ORC
Each organisational unit
Compliance unit Supervisory Board Supervisory Board
Management
Board
Capital adequacy Management
Board
ALCO
Each business unit FRD Supervisory Board Supervisory Board
Management
Board
Page 8 of 47
Audit Committee
The Audit Committee supports the Bank’s Supervisory Board, in particular through oversight of the internal audit
area and monitoring the financial and management reporting process, as well as financial audit activities carried out
at the Bank. The Audit Committee includes persons appointed from among the members of the Bank’s Supervisory
Board.
Management Board of the Bank
The Management Board of the Bank is responsible for organising and administering the risk management process
and ensuring the efficiency of the risk management system. One of the Management Board members, who has
obtained consent of the Polish Financial Supervision Authority to be appointed as a Management Board member,
supervises the banking risk area that covers organisational units managing credit, financial, operational, and other
risks.
Asset and Liability Committee
The Committee offers opinions and participates in the decision-making process. The primary objective of the
Committee is to define the current, mid-, and long-term management policy for the Bank’s assets and liabilities. The
aim of the policy is to optimise results and allocate the Bank’s capital efficiently. It takes into account the relevant
level of exposure to risk and the nature of public tasks commissioned to the Bank. These include tasks fulfilled by the
Bank as part of the management of funds created, entrusted, or transferred to the Bank under separate regulations
or other legal acts.
Operational Risk Committee
The main objective of the Committee is to ensure efficient management of the operational and compliance risks.
The Committee offers opinions and participates in the decision-making process. It is responsible for reducing the
operational and compliance risks, in particular through: initiation and coordination of activities aimed to identify,
measure, and monitor the operational and compliance risks; providing opinions on the level of limits reducing the
operational risk; and assessment of the risk mitigation techniques applied for such risks. The Committee coordinates
the activities aimed to identify, measure, and monitor the reputation risk and the related reporting.
Credit Committee
The primary tasks of the Committee include: appraisal of loan applications and applications for restructuring or
enforcement. It also provides recommendations to the Bank’s Management Board on matters reserved for the
competence of the Board, performing reviews of the credit portfolio, annual reviews of industry sectors and
deciding on their classification to relevant investment risk categories.
Change Committee
The Committee offers opinions and participates in the decision-making process. The basic tasks of the Committee
include managing the portfolio of undertakings within the authorisation limits granted to the Committee and
accepting, in connection with the objectives provided for in the Bank’s Strategy, basic rules for banking products and
services, processes, applications, and IT infrastructure.
Page 9 of 47
Financial Risk Department
The Financial Risk Department is responsible for creation and development of an efficient management system for
the financial risk (liquidity, market, financial leverage risk, and capital adequacy) and non-financial risks (operational
and model risk), creating and improving system solutions limiting the risk of country of operation and the risk of
cooperation with domestic and foreign banks and insurance companies, supervising transactions on financial
markets, measuring capital requirements for market risk, CVA risk, and operational risk, estimating the internal
capital and coordinating the ICAAP process.
Credit Risk Department
The Credit Risk Department is responsible for the individual credit risk management and the classification of:
clients or groups of entities associated with a client which is not a financial institution and is not included in
the portfolio managed by the Distressed Loans Department,
credit transactions
and verifying the value of collaterals accepted by the Bank for individual credit transactions, exclusive of collaterals
provided to financial institutions as part of the exposure limits for banks set by the Bank.
Credit Risk Management Department
The Credit Risk Management Department is in charge of designing the directions and principles of the Bank’s credit
policy, credit risk management for the credit exposure portfolio of the Bank, developing principles of credit risk
assessment and methods of credit risk mitigation, preparation of data concerning assets bearing credit risk,
calculation of the capital requirement for credit risk and counterparty credit risk, coordination of the process of
creating and releasing specific risk provisions, developing analyses of the Bank’s credit exposure portfolio, as well as
optimisation of credit processes.
Distressed Loans Department
The Distressed Loans Department is responsible for recovery of receivables requiring a restructuring or debt
collection procedure as well as for correct classification of credit receivables.
Internal Audit Department
The Internal Audit Department reports directly to the President of the Management Board and is responsible for the
independent assessment of the internal control system and risk management processes at the Bank and its
subsidiaries, including the relevance and effectiveness of the existing control mechanisms. It is also responsible for
consulting in the form of recommendations on improvements in the control mechanisms, or implementation of new
solutions increasing the efficiency of the internal control system.
Compliance Unit
The Compliance Unit is responsible for development and coordination of the compliance and reputation risk
management process, compliance tests in key compliance risk areas, and qualified support in matters of compliance
risk. The Compliance Unit’s operations are supervised and managed by the Compliance Officer reporting directly to
the President of the Management Board.
Below, the general outline of the Bank’s organisational structure is presented with distribution of tasks carried out in
the Bank, which ensures independence of the functions of risk measurement, monitoring, and control of the
operating activities from which the risk taken by the Bank ensues.
Page 10 of 47
Diagram No. 3. General outline of the Bank’s organisational structure as at 31 December 2016
3.3. Rules for the election of the Bank’s Management Board members
The composition and term of office of the Management Board as well as the rules for appointing, reasons for
mandate expiry, and rules for suspending of Management Board members are specified in Articles 10 and 11 of the
Act on BGK.
The Management Board is comprised of 6 members, including President, First Vice-President, and Vice-President.
The Prime Minister appoints and dismisses:
President of the Management Board – upon request of the minister responsible for the economy,
First Vice-President of the Management Board – upon request of the minister responsible for financial
institutions,
Vice-President of the Management Board – upon request of the minister responsible for transport,
one Management Board member each – upon request of, respectively, minister competent for regional
development, minister competent for the economy, and minister competent for public finance.
Appointment of the President and one member of the Management Board is subject to consent of the Polish
Financial Supervision Authority. The provisions of Articles 22a.2 and 22b of the Banking Law Act shall be applied
accordingly.
For serious reasons, the Supervisory Board may suspend individual or all members of the Management Board for a
period not longer than 3 months.
For a period not longer than 3 months, the Supervisory Board may delegate Supervisory Board members to perform
duties of Management Board members:
who have been dismissed, tendered resignation, or are unable to perform their duties for other reasons,
Supervisory Board
Member of the
Management Board
Areas: sales, banking
product management,
investment project
financing
Member of the
Management Board
Areas: banking
operations, IT, EU funds,
security
President of the
Management Board
General management
area
Compliance Officer
Internal Audit Department
ChC
Vice-President of the
Management Board
Areas: commissioned
activities, social housing,
logistics and
administration
First Vice-President
of the Management
Board
ALCO
Areas: finance, capital
investments, financial markets
Member of the
Management Board
CC, ORC
Risk management
Independent Model
Validation Specialist
Remuneration Committee
Risk Committee
Audit Committee
Page 11 of 47
if, in the Supervisory Board’s opinion, it is a necessary solution for the purposes of prudent and sustainable
management of the Bank.
The mandate of Management Board member shall expire with the expiry of the term of office, death, or dismissing
from the Management Board. If the mandate of a Management Board members expires during the term of office of
the Management Board, another member shall be appointed to serve until the end of the Management Board’s
term of office.
3.4. Number of functions in the bodies of other entities, held by members of the Management Board and the Supervisory Board of the Bank
Table No. 2 presents information about the number of functions held by members of the Bank’s Management Board
and Supervisory Board in the bodies of other entities.
Table No. 2. Number of functions held in bodies of other entities as at 31.12.2016
BGK Supervisory Board
members BGK Management Board members
Number of functions held in supervisory boards of other entities 0 4
Number of functions held in management boards of other entities 4* 0
In total 4 4
* including one function of President in a foundation
3.5. Credit, exposure concentration, and counterparty credit risk
3.5.1. Credit and exposure concentration risk
Credit risk constitutes one of the most important risk types to which the Bank is exposed in its operations and it is
defined as a threat of a borrower’s failure to pay the liability under an agreement, i.e. failure to repay receivables
under credit exposure along with the Bank’s fee within time limits defined in the agreement.
Main credit risk management purposes are as follows:
identification of credit risk areas and risk mitigation to a level accepted by the Bank,
regular review of actions adopted in this risk area,
shaping balance-sheet and off-balance-sheet items of the Bank to minimise the risk of unfavourable
deviation of the financial result from the Bank’s financial plan.
The credit risk management process is carried out at the level of customer risk with individual credit exposure and
credit portfolio risk taken into account, on the basis of:
planned, targeted actions defined in the credit policy,
internal regulations,
available support systems and tools,
recommendations for branches and other units of the Bank.
The Bank formalised its credit risk management approach in the Credit and Concentration Risk Management Policy
of BGK and the procedure Credit Risk Management Principles of BGK. The Principles define the manner of credit risk
assessment and measurement as at the moment of entering into transactions bearing the risk and during the
transactions’ life. The Principles also describe controls for the level of this risk in relation to individual transactions
and the whole credit portfolio, including controls for the level of exposure concentration risk.
The exposure concentration risk is an important credit risk factor. The Bank has introduced relevant internal
principles and procedures applied to exposure concentration with particular emphasis on large exposures to
individual customers and customer groups of the Bank. Portfolio concentration is monitored for individual
Page 12 of 47
borrowers, entities associated by capital or management, industries, etc. Exposure concentration principles concern
various activities of the Bank (not only lending activity, but also investment activity or money market transactions).
In terms of concentration risk, the Bank follows external regulations. Furthermore, pursuant to a resolution by the
Bank’s Management Board, additional exposure limits are in place at the Bank – apart from the statutory
concentration limits – that apply at the credit decision stage.
The Bank applies methodologies of creditworthiness assessment for individual entities taking into account the
nature of their operation and uses defined principles of acceptance and evaluation of legal collaterals.
The Bank monitors timeliness of repayment of liabilities under exposures bearing credit risk and performs regular
reviews of economic and financial standing of the borrowers. It classifies individual exposures and creates relevant
specific risk provisions. It also maintains an adequate level of capital ensuring solvency in case of default on part of
the debtors.
The Bank controls the credit risk exposure level:
in aggregate and for its own activities, as well as activities connected with the administration of funds
established, entrusted, or transferred on the basis of separate acts,
for exposure concentration to one entity and/or entities associated by capital or management, or in
organisational terms, including exposure concentration with account taken of the activities carried out by
the Bank’s subsidiaries,
for large exposures,
in relation to individual economic sectors,
separately under mortgage-backed exposures,
in relation to selected segments and products,
under currency or currency-indexed transactions,
under off-balance sheet liabilities granted by the Bank (guarantees, sureties, and letters of credit).
In May 2009, the Bank withdrew the offer of loan products for individuals. The only loans granted to individuals by
the Bank as part of the implementation of the government programme are loans with interest subsidies for removal
of the consequences of flood disasters, landslides, and hurricanes (pursuant to the Act of 8 July 1999 on the interest
subsidies for bank loans granted for removal of flood disaster consequences (Polish Journal of Laws No. 62, item
690, as amended), among others.
The Management Board of the Bank defines the credit policy taking into account the Bank’s risk appetite and
Strategy as well as the existing level of credit risk borne by the Bank, the structure of credit portfolio, the structure
of legal collaterals, repayments of the transactions bearing credit risk, and external macroeconomic factors. Among
other elements, the credit policy indicates the acceptable level of risk for the credit portfolio, credit purposes and
recommendations, credit profile for individual customer and product segments, risk management process, and the
related prudent practices.
Pursuant to applicable regulations, the Bank performs - at least once a year - stress tests of credit exposure
sensitivity to changes in the exchange rates, interest rate and the value of the existing mortgage collaterals.
The main instrument used to reduce the credit risk is legal collateralisation of the Bank’s receivables. The Bank
applies an internal procedure for the establishment and evaluation of legal collateralisation for receivables as at the
conclusion of the transactions bearing credit risk and for monitoring the collaterals during the transaction’s life.
The basis for calculation of the value of real (in-kind) collaterals is the measurement value verified by the Bank using
the indicators adjusting the value of the collaterals. In the case of unfunded credit protection, the economic and
financial standing of the collateral issuer is examined. Moreover, the fulfilment of formal and legal conditions for
Page 13 of 47
collateral acceptance is verified each time, as well as whether it is funded and liquid, and also its correlation to the
economic and financial standing of the debtor.
In the life period of a transaction bearing credit risk, the legal collateral is periodically monitored. The condition and
value of the collateral are examined along with the possibility of satisfying the Bank’s receivables from the collateral,
and the proportion of the current collateral value to the actual amount of receivables. The frequency of collateral
monitoring depends on the form of collateral, the amount of credit exposure, and risk assessment of the credit
transaction.
For credit risk, BGK uses a system of limits as one of its credit risk management tools. The limits are applied both on
the operational as well as strategic level, in accordance with relevant competences. Depending on the risk profile of
the exposure, the Bank applies the following limits:
industry limits that reflect the risk stemming from the type of activity of the customer,
objective limits, resulting from the risk borne by the purpose of the loan,
subjective limits, defined depending on the customer type,
and product limits.
The internal limit types and amounts are approved by the Bank’s Management Board. In internal procedures, the
Bank defines the principles for setting and updating internal limit amounts as well as the frequency of monitoring
their observance and reporting the monitoring results.
The portfolio credit risk monitoring process consists in a cyclical review of the values of limited parameters and
analysis of the limit usage.
Current monitoring and reporting are of key importance for the credit risk management process. The risk profile
information, as well as information on the possible threats and actions undertaken, is regularly prepared and
communicated.
The distribution of credit decision powers at the Bank is an additional credit risk reducing factor.
3.5.2. Counterparty Credit Risk
The following procedures are applicable at the Bank:
assessment of the financial standing of the counterparty bank,
definition and monitoring of exposure limits granted for the counterparty bank and the country,
monitoring, classification, and reporting of the current exposure to the counterparty bank and the country.
The exposure limits are set to limit the risk and should be understood as:
in relation to counterparty banks:
○ settlement risk connected with a possible default on BGK receivable by the counterparty bank on
the settlement date, where the total amount of a contract (agreement) is at risk, whereas the risk
covers all cash flows taking place between BGK and the counterparty bank,
○ pre-settlement risk, connected with a possible counterparty bank’s partial or full default on a
payment obligation within a given lifetime, as a result of which the Bank can incur losses.
in relation to countries:
○ political risk – risk connected with a possible negative impact of political decisions, conditions, or
events in a given country on the financial sector, as a result of which investors will incur losses or
lose profits,
○ economic risk – risk that the receivables will not be recovered as a result of a deteriorated economic
situation in a given country.
Page 14 of 47
This risk is reduced with the use of relevant limits:
in the case of banks, these are:
○ settlement limit for interbank market transactions,
○ pre-settlement limit for interbank market transactions,
○ trade finance transaction limit,
○ banking group limit,
in the case of countries:
○ country exposure limit,
○ treasury securities issuer limit.
The current exposure affecting the limits for banks and other counterparties takes account of the positive valuation
and volatility of market parameters.
Chart No. 3 shows the credit quality distribution of banks on the basis of a rating of BGK’s existing exposures.
Chart No. 3. Credit quality of counterparty banks on the basis of the Bank’s exposures as at 31.12.20164
In order to arrive at the exposure value under derivative transactions when calculating the capital requirement for
credit risk and counterparty credit risk, the Bank uses the mark-to-market method referred to in Article 274 of the
CRR.
The value of exposures under derivative transactions is determined as the sum of:
the current replacement cost equal to the current market value, where the latter is positive,
the potential future credit exposure equal to nominal amounts (or delta equivalent in case of options),
multiplied by the percentages specified in the CRR depending on the nature of the derivative transaction.
As at 31 December 2016, the Bank did not use offsetting of transactions to estimate the capital requirement for
credit risk and counterparty credit risk.
Table no. 3 shows data of the positive fair value of derivatives.
Table No. 3. Positive fair value of derivatives as at 31.12.2016 (in PLN million)
positive gross fair value total collateral provided net value
In total 429.3 438.1 -8.8
In order to mitigate counterparty bank credit risk, the Bank concludes master agreements and collateral
agreements, which make it possible to offset mutual receivables in justified events (“event of default” and
“termination event”) and provide for the exchange of margins to cover the exposures arising from derivatives. The
agreements concluded are based on the commonly used ISDA, CSA or PBA standards. In addition, in almost all cases
where there is such a possibility, the Bank settles transactions using a central counterparty (CCP).
4 account based on external ratings by Moody’s, Standard&Poor’s, and Fitch Ratings, mapped onto a uniform AAA-B scale
AA and higher 4.7%
A 78.4%
BBB 13.2%
BB and lower 1.4%
no rating 2.2%
Page 15 of 47
The amount of variation margin exchanged with counterparties under the signed agreements that hedge the risks
associated with derivative transactions does not depend on a deterioration of credit quality. On the other hand,
a deterioration of credit quality could result in the need to establish an initial margin.
3.5.3. Credit risk mitigation techniques
The Bank uses the following instruments and methods to limit or reduce the credit risk:
risk diversification,
risk hedging,
risk distribution,
risk compensation.
The Bank uses the Financial Collateral Comprehensive Method in order to determine the capital requirement for
credit risk.
The value of a collateral is periodically monitored during the lifetime of a transaction bearing credit risk. Should an
unfavourable change occur in the value of the collateral, the Bank implements adequate procedures.
The Bank accepts the following main types of collaterals:
real property mortgage,
bank guarantee and State Treasury guarantee,
KUKE S.A. guarantee or insurance,
surety of a local government unit,
registered pledge on movables,
promissory notes.
Specific types of collaterals are established depending on the total Bank’s exposure to the customer, economic and
financial standing of the customer, customer and product type, and other factors.
The main guarantors in the Bank’s lending activity include local government units offering loan sureties, as well as
State Treasury, or KUKE S.A.
Each time before a collateral is established in the form of a local government unit’s surety, the economic and
financial standing of the entity is examined in accordance with the rating and creditworthiness methodology for
local government units applicable at the Bank. As a rule, only those local government units may be guarantors which
are deemed creditworthy and have been positively assessed by the Regional Audit Chamber in terms of budget
implementation and accuracy of the total debt.
Export credit transactions with counterparty banks as part of the Financial Exports Support Government Programme
are fully protected under insurance agreements concluded by the Bank with Korporacja Ubezpieczeń Kredytów
Eksportowych S.A. (KUKE S.A.). The credit protection of KUKE S.A. is carried out in line with the general conditions of
export credit insurance guaranteed by the State Treasury.
Table no. 4 shows credit protection forms for individual exposure classes.
Page 16 of 47
Table No. 4. Exposures covered with credit protection under the standardised approach for capital requirements as at 31 December 2016 (in PLN million)
5
Exposure classes Exposure amount*
Credit protection
in % Guarantees and sureties
Financial collaterals
In total
Central governments and central banks 95,576.3 0.0 0.0 0.0 0.0%
Regional governments and local authorities 5,989.7 0.0 0.0 0.0 0.0%
Public sector entities 610.3 144.0 1.2 145.2 23.8%
Institutions, including banks 7,663.6 567.8 1,700.3 2,268.2 29.6%
Corporates 23,743.3 3,107.1 2,016.9 5,124.1 21.6%
Retail 834.2 0.0 0.6 0.6 0.1%
Secured by mortgages on immovable property 5,688.2 274.1 25.9 300.0 5.3%
In default 2,302.5 77.5 4.5 82.0 3.6%
Associated with particularly high risk 2,329.5 143.5 0.0 143.5 6.2%
Equity exposures 1,344.6 0.0 0.0 0.0 0.0%
Other items 872.2 0.0 0.0 0.0 0.0%
In total 146,954.3 4,314.0 3,749.5 8,063.5 5.5%
* value of balance-sheet exposures and balance-sheet equivalent of off-balance sheet liabilities, and derivative transactions, without taking into account the effects of credit risk mitigation
A predominant credit protection that ensures maximum risk reduction applies to transactions with other corporates,
secured with sureties or guarantees whose main issuers are local government units and the State Treasury.
Primarily, local government units offer sureties for exposures of affiliated Social Housing Associations, hospitals, and
municipal companies. Healthcare entities constitute a significant share of local government’s sureties as well. The
risk for transactions with banks can be reduced owning to treasury securities.
3.5.4. Reduction of a customer’s credit rating
If the credit rating of a customer is reduced, or the value of their collateral decreases, the Bank may demand from
the debtor, during the lifetime of the transaction bearing credit risk, to provide an additional collateral or to replace
the existing collateral, depending on the individual risk rating. Such actions are provided for in debtor agreement
templates.
3.5.5. Tabulated data of credit risk and counterparty credit risk
Definitions
Definition of past due receivables
In its lending activities, the Bank defines past due receivables and acts in line with the regulation of the Minister of
Finance on provisioning principles.
Definition of impaired receivables
In its lending activities, the Bank defines impaired receivables and acts in line with the approach defined in the
regulation of the Minister of Finance on provisioning principles. Impaired receivables are exposures classified under
“substandard”, “doubtful”, and “loss” categories. Exposures are classified under individual categories on the basis of
the assessment of the economic and financial standing of the customer and timeliness of repayment of their
liabilities.
5since the figures in the tables are rounded, differences in totals and percentages may occur
Page 17 of 47
Definition of value and provision adjustments
The Bank applies the special provisioning principles for the banking book, defined in the regulation of the Minister of
Finance on provisioning principles. There is also an internal instruction applicable at the Bank to regulate credit
exposure classification principles and specific risk provisions that defines the rules and procedures for decisions
taken in this field. The decisions under consideration are taken on a quarterly basis, by way of a detailed credit
portfolio review taking account of repayment timeliness and economic and financial standing of the entities, and
also the condition of legal collaterals taken into account in reduction of the basis for special provisioning. In the case
of negative phenomena, the Bank reclassifies the receivables and special provisioning also in periods between the
quarterly portfolio reviews.
In the case of counterparty banks, the Bank assigns categories to the exposures (pursuant to the regulation of the
Minister of Finance on provisioning principles) on the basis of the economic and financial standing of the banks or a
repayment timeliness analysis. The Bank sets economic and financial standing categories for banks on the basis of
two criteria: rating and the amount of the banks’ own funds.
Moreover, a general risk provision is created at the Bank based on the parameters of the Probability of Default (PD),
the loss on the exposure affected by the default (Loss Given Default, LGD), and the probability that the counterparty
will use the off-balance sheet portion of the exposure within the time horizon of the provision creation (Credit
Conversion Factor, CCF).
The write-down amount is determined in accordance with the following formula: (Balance-sheet exposure + Off-
balance-sheet exposure*CCF)*PD*LGD.
Due to the non-cancellable nature of the exposures in the Bank’s portfolio, a CCF of 100% is used.
The PD parameter is determined on the basis of the rating system used at the Bank, and in the case of portfolios not
covered by rating – on the basis of the history of changes in the level of the exposures in default.
The LGD parameter is determined on the basis of a historical analysis of recovery levels, and for the portfolios with
no sufficient history of recovery levels available – on the basis of an expert judgement.
Irrespectively of the write-down amount determined in accordance with the above formula, additional write-downs
associated with the identified elevated risk of certain portfolios of e.g. coal companies or housing enterprises with
very remote maturity dates are created.
General information
The total amount of exposure under credit risk (after accounting adjustments), excluding the results of credit risk
mitigation effects, totalled PLN 146,954.3 million as at 31 December 2016.
The amount of exposures presented in tables in section 3.5.5 has been determined as the sum of balance-sheet
exposures and a balance-sheet equivalent of off-balance sheet commitments and derivative transactions, without
taking into account the effects of credit risk mitigation.
The average amount of exposure by classes is shown in Table no. 5 (exposure classes with zero values have been excluded).
Page 18 of 47
Table No. 5. Average exposure amount in 2016 by classes (in PLN million)6
Amount of exposure Average exposure
amount
Central governments and central banks 95,576.3 2,572.4
Regional governments and local authorities 5,989.7 6.2
Public sector entities 610.3 8.0
Institutions, including banks 7,663.6 133.2
Corporates 23,743.3 106.8
Retail 834.2 0.1*
Secured by mortgages on immovable property 5,688.2 11.5
In default 2,302.5 2.3
Associated with particularly high risk 2,329.5 97.9
Equity exposures 1,344.6 79.6
Other items 872.2 92.7
In total 146,954.3
* does not include aggregated items concerning off-balance-sheet exposures arisen as a result of sureties or guarantees granted by BGK as part of the implementation of government programmes, those resulting from sureties or guarantees for the loan portfolio referred to in Article 128b.2 (1) of the Banking Law Act and meeting, in the loan-granting bank, the conditions of classification to the retail exposure class, specified in Article 123(a) and (b) of the CRR
The Bank’s financial administration of government institutions’ ventures results in very high exposures both in the
class of “central governments and central banks” and the class of “institutions, including banks”.
Table No. 6 shows geographic distribution of credit exposures by countries, while Table no. 7 – geographic
distribution of domestic exposures by regions.
Table No. 6. Geographic distribution of BGK’s exposures by countries as at 31.12.2016 (in PLN million)
Country
Cen
tral
gove
rnm
ents
an
d
cen
tral
ban
ks
Reg
ion
al
gove
rnm
ents
an
d
loca
l au
tho
riti
es
Inst
itu
tio
ns,
incl
ud
ing
ban
ks
Co
rpo
rate
s
Secu
red
by
mo
rtga
ges
on
imm
ova
ble
pro
per
ty
Ass
oci
ated
wit
h
par
ticu
larl
y h
igh
ris
k
Oth
er c
lass
es
In t
ota
l
Austria 0.0 0.0 204.4 0.0 0.0 0.0 0.0 204.4
Belgium 0.0 0.0 235.8 0.0 0.0 0.1 0.0 235.9
Belarus 0.0 0.0 496.2 121.7 0.0 143.9 0.0 761.8
Russian Federation 0.0 0.0 75.8 259.3 0.0 0.0 0.0 335.1
France 45.7 0.0 2,347.0 0.0 0.0 0.0 0.0 2,392.7
Luxembourg 0.0 0.0 22.1 0.0 0.0 263.5 8.3 294.0
Germany 0.0 0.0 636.9 60.3 0.0 0.0 0.0 697.3
Poland 95,530.6 5,989.7 3,085.1 23,116.6 5,688.2 1,920.2 5,888.8 141,219.3
United Kingdom 0.0 0.0 475.6 24.2 0.0 0.0 0.0 499.8
Other 0.0 0.0 84.5 161.3 0.0 1.7 66.6 314.0
In total 95,576.3 5,989.7 7,663.6 23,743.3 5,688.2 2,329.5 5,963.7 146,954.3
Exposures to foreign entities result first of all from transactions with foreign banks as well as implementation of the
Financial Exports Support programme.
6 average value calculated on the basis of quarterly data of exposures to individual customers of the Bank under a given class
Page 19 of 47
Table No. 7. Geographic distribution of BGK’s exposures by regions as at 31.12.2016 (in PLN million)
Province
Cen
tral
gove
rnm
ents
an
d
cen
tral
ban
ks
Reg
ion
al
gove
rnm
ents
an
d
loca
l au
tho
riti
es
Inst
itu
tio
ns,
incl
ud
ing
ban
ks
Co
rpo
rate
s
Secu
red
by
mo
rtga
ges
on
imm
ova
ble
pro
per
ty
In d
efau
lt
Oth
er c
lass
es
In t
ota
l
Dolnośląskie 0.0 1,133.3 211.8 819.7 497.1 152.1 242.3 3,056.2
Kujawsko-Pomorskie 0.0 310.5 14.6 40.6 301.3 151.0 31.9 849.8
Lubelskie 0.0 262.0 0.0 208.7 100.7 220.2 18.3 809.9
Lubuskie 0.0 222.1 0.0 8.5 124.5 38.0 12.4 405.5
Łódzkie 0.0 324.8 0.0 143.9 123.5 83.6 48.7 724.4
Małopolskie 0.0 585.4 36.0 1,143.9 419.5 60.5 94.2 2,339.5
Mazowieckie 95,529.2 504.1 2,393.0 14,471.9 1,467.3 560.7 4,867.5 119,793.6
Opolskie 0.0 228.7 0.0 28.8 29.2 7.0 14.8 308.5
Podkarpackie 0.0 266.5 0.0 429.9 48.3 32.3 8.9 785.8
Podlaskie 0.0 206.2 0.0 52.0 257.0 12.3 29.0 556.5
Pomorskie 1.4 396.5 53.0 714.2 398.8 142.4 35.2 1,741.3
Śląskie 0.0 386.1 376.9 2,863.4 540.2 650.4 15.1 4,832.0
Świętokrzyskie 0.0 170.6 0.0 33.1 65.6 3.5 10.1 282.9
Warmińsko-Mazurskie 0.0 353.5 0.0 54.4 175.2 21.2 41.2 645.5
Wielkopolskie 0.0 401.4 0.0 1,993.6 737.9 48.5 57.2 3,238.5
Zachodniopomorskie 0.0 238.3 0.0 110.1 402.2 52.3 46.4 849.2
In total 95,530.6 5,989.7 3,085.1 23,116.6 5,688.2 2,235.9 5,573.2 141,219.3
Approximately 85% of the exposures are for Mazowieckie. This is because of the concentration of central
government bodies in this province, the exposures to which constitute the greatest part of the Bank’s portfolio.
Table no. 8 shows the structure of BGK’s impaired exposures by regions.
Table No. 8. Structure of impaired exposures and specific risk provisions of BGK’s exposures by regions as at 31.12.2016 (in PLN million)
Province
Exposures in default
Specific risk provisions
Impaired exposures, not
past due Structure in %
Impaired exposures, past
due Structure in %
Dolnośląskie 151.9 6.9% 0.2 1.1% 19.5
Kujawsko-Pomorskie 151.0 6.8% 0.0 0.1% 27.2
Lubelskie 220.2 9.9% 0.0 0.0% 9.6
Lubuskie 38.0 1.7% 0.0 0.0% 7.0
Łódzkie 82.3 3.7% 1.3 6.2% 42.1
Małopolskie 54.2 2.4% 6.3 29.8% 65.8
Mazowieckie 555.3 25.1% 5.3 25.3% 131.2
Opolskie 7.0 0.3% 0.0 0.0% 2.7
Podkarpackie 32.3 1.5% 0.0 0.0% 41.6
Podlaskie 12.3 0.6% 0.0 0.0% 10.8
Pomorskie 138.7 6.3% 3.7 17.5% 53.9
Śląskie 649.9 29.3% 0.5 2.3% 243.3
Świętokrzyskie 3.5 0.2% 0.0 0.0% 5.2
Warmińsko-Mazurskie 21.2 1.0% 0.0 0.0% 8.9
Wielkopolskie 48.1 2.2% 0.4 1.8% 36.8
Zachodniopomorskie 48.9 2.2% 3.3 15.9% 14.8
Foreign exposures 0.0 0.0% 66.6 76.0% 2.8
In total 2,214.8 100.0% 87.6 100.0% 723.2
Page 20 of 47
Most impaired exposures occur in the provinces of Śląskie, Mazowieckie, and Lubelskie. Impaired exposures in
Śląskie are first and foremost a result of financing entities from the coal extraction industry. In the case of
Mazowieckie, to a large extent this results from a substantial share of historic developer exposures of 2006–2009,
and then from exposures of the former National Housing Fund (NHF). In the case of Lubelskie, the main reason for
the substantial level of impaired credits are exposures of the former NHF and transactions with corporates.
Table no. 9 shows the structure of BGK’s exposures by sectors (exposure classes with zero values have been
excluded).
Table No. 9. Structure of BGK’s exposures by sectors as at 31.12.2016 (in PLN million)
Sector Exposure classes*
In total E1 E2 E3 E4 E5 E6 E7 E8 E9 E10 E11
Public administration and defence, compulsory social security
76,454.8 5,978.9 6.1 0.0 0.0 0.0 0.0 153.9 0.0 245.6 0.0 82,839.4
Construction 0.9 0.0 0.0 0.0 454.3 2.1 3,911.4 621.8 0.0 20.4 0.0 5,010.9
Financial activities 19,069.1 0.0 33.6 3,085.1 3,969.6 0.3 125.9 0.3 1,884.0 1,039.5 8.8 29,213.2
Professional, scientific, technical, and educational activities
3.8 0.0 44.4 0.0 167.1 1.2 73.9 1.6 0.3 0.0 0.0 295.2
Mining and extraction 0.0 0.0 0.0 0.0 951.2 0.5 3.1 609.2 0.0 0.0 0.0 1,563.9
Wholesale trade 0.0 0.0 0.0 0.0 297.5 8.1 21.0 5.8 0.0 0.0 0.0 332.3
Hotels and restaurants 1.0 0.0 0.0 0.0 32.5 2.8 18.3 6.7 0.0 0.0 0.0 61.3
Real estate market, management
0.0 0.0 0.1 0.0 739.9 1.7 562.3 13.2 0.0 16.0 0.0 1,333.2
Health care and social assistance
0.0 0.0 500.3 0.0 25.9 3.7 68.8 50.6 0.0 0.0 0.0 649.3
Other services, sports, entertainment, and recreation
1.0 5.1 16.8 0.0 16.5 0.3 5.9 73.4 0.0 0.0 0.0 119.0
Industrial processing 0.0 0.0 0.0 0.0 3,632.2 7.1 435.6 66.8 0.0 7.5 0.0 4,149.2
Transport, storage and communication
0.0 0.0 5.6 0.0 5,743.0 2.0 116.5 474.1 0.0 0.0 0.0 6,341.2
Electricity, gas and water supply
0.0 5.7 3.4 0.0 7,086.9 5.5 337.1 136.4 0.0 7.2 0.0 7,582.2
Other (e.g. individuals, no Polish Classification of Activity (PKD) number)
45.7 0.0 0.0 4,578.4 626.7 798.9 8.6 88.8 445.2 8.3 863.4 7,464.0
In total 95,576.3 5,989.7 610.3 7,663.6 23,743.3 834.2 5,688.2 2,302.5 2,329.5 1,344.6 872.2 146,954.3
* E1 – central governments and central banks E2 – regional governments and local authorities E3 – public sector entities E4 – institutions, including banks E5 – corporates E6 – retail exposures
E7 – secured by mortgages on immovable property E8 – in default E9 – associated with particularly high risk E10 – equity exposures E11 – other items
The portfolio structure is dominated by public administration and finance as a result of well-developed cooperation
of BGK with central and local government units, which triggers the need to cooperate with financial entities to
ensure funding and liquidity. A relatively large group of exposures is also constituted by the construction industry,
mainly because of loans granted as part of the former NHF. The Bank also engages in funding ventures which are
strategic from the point of view of the State Treasury, including in the sectors of energy, fuel and chemistry, and
transport. Such ventures are implemented in the form of large investment projects.
Table no. 10 show structure of exposures to small and medium-sized enterprises (SMEs) by industry.
Page 21 of 47
Table No. 10. Structure of BGK’s exposures to SMEs by sectors as at 31.12.2016 (in PLN million)
Industry
Exposures to SME
In total Structure
in % Corporates Retail
Secured by mortgages on
immovable property
Public administration and defence, compulsory social security
0.0 0.0 0.0 0.0 0.0%
Construction 0.0 1.8 1.0 2.8 0.6%
Financial activities 0.0 0.3 0.0 0.3 0.1%
Professional, scientific, technical, and educational activities
0.0 1.2 0.0 1.2 0.2%
Mining and extraction 0.0 0.5 0.0 0.5 0.1%
Wholesale trade 0.0 8.0 1.5 9.5 1.9%
Hotels and restaurants 0.0 2.8 0.0 2.8 0.6%
Real estate market, management 0.1 1.7 0.0 1.8 0.3%
Health care and social assistance 3.2 3.5 2.6 9.3 1.8%
Other services, sports, entertainment, and recreation
0.0 0.3 0.0 0.3 0.1%
Industrial processing 2.8 7.1 3.4 13.3 2.6%
Transport, storage and communication 5.2 2.0 0.0 7.2 1.4%
Electricity, gas and water supply 0.0 5.5 2.2 7.7 1.5%
Other (individuals, no Polish Classification of Activity (PKD) number)
0.0 448.3 0.0 448.3 88.8%
In total 11.3 482.9 10.7 504.9 100.0%
Exposures to SMEs are classified under three classes: corporates, retail exposures, and exposures secured by
mortgages on immovable property.
Table no. 11 shows the quality of BGK’s exposures by industry .
Table No. 11. Quality of BGK’s exposures by sectors as at 31.12.2016 (in PLN million)
Industry
Exposures in default Specific risk provisions
Impaired exposures, not
past due Structure in %
Impaired exposures, past
due Structure in %
Public administration and defence, compulsory social security
153.9 7.0% 0.0 0.0% 36.1
Construction 610.5 27.6% 11.4 13.0% 199.7
Financial activities 0.3 0.0% 0.0 0.0% 0.4
Professional, scientific, technical, and educational activities
1.6 0.1% 0.0 0.0% 2.5
Mining and extraction 606.7 27.4% 2.5 2.8% 269.0
Wholesale trade 4.7 0.2% 1.1 1.3% 28.4
Hotels and restaurants 6.6 0.3% 0.1 0.1% 18.8
Real estate market, management 11.8 0.5% 1.4 1.6% 5.2
Health care and social assistance 50.6 2.3% 0.0 0.0% 53.1
Other services, sports, entertainment, and recreation
73.4 3.3% 0.0 0.0% 1.2
Industrial processing 64.6 2.9% 2.2 2.5% 20.2
Transport, storage and communication 474.1 21.4% 0.0 0.0% 23.8
Electricity, gas and water supply 136.4 6.2% 0.0 0.0% 40.8
Other (individuals, no Polish Classification of Activity (PKD) number)
19.8 0.9% 68.9 78.7% 23.9
In total 2,214.8 100.0% 87.6 100.0% 723.2
Construction industry has the worst quality structure in the BGK’s portfolio, which results from the set-up of the
industry, comprising mostly credits for developers (in a substantial part at risk), and also credits of the former NHF
Page 22 of 47
with a large share of impaired exposures – reclassified as a result of financial assessment of the customers. Another
sector having a weak quality structure is mining and extraction industry, due to a significant share of exposures to
entities extracting coal, classified to higher risk groups because of their financial condition.
Table no. 12 shows the general risk provision by activity type.
Table No. 12. General risk provision by activity type as at 31.12.2016 (in PLN million)
Activity type General risk
provision
Charges under general risk
provisions in 2016.
Commercial activities, of which: 233.3 95.1
large entities 171.8 126.6
small and medium-sized entities, individuals, other entities 61.5 -31.4
Local government units 10.5 -0.6
Surety activities, commissioned 13.1 -19.6
Residential construction programme 9.7 -94.0
In total 266.6 -19.1
Table 13 shows BGK’s exposure by residual maturity (exposure classes with zero values have been excluded).
Table No. 13. Structure of BGK’s exposures by residual maturity as at 31.12.2016 (in PLN million)
Residual maturity
Exposures
In total up to 1 month
more than
1 month up to 3 months
more than
3 months
to 6
months
more than
6 months
up to 1 year
more than
1 year up to 3
years
more than
3 years up to 5 years
more than
5 years past due
Central governments and central banks
20,379.6 1,497.2 148.8 755.7 5,987.1 795.1 66,012.8 0.0 95,576.3
Regional governments and local authorities
0.8 3.6 12.3 161.7 915.6 1,137.1 3,758.5 0.0 5,989.7
Public sector entities 3.7 3.0 0.2 11.5 62.8 164.6 364.5 0.0 610.3
Institutions, including banks 4,211.3 19.1 1,314.5 129.6 310.6 518.3 1,160.2 0.0 7,663.6
Corporates 2,752.8 1,157.1 393.2 727.2 5,216.8 2,479.6 11,014.6 1.8 23,743.3
Retail exposures 1.8 1.1 0.9 442.5 13.7 16.0 358.0 0.2 834.2
Secured by mortgages on immovable property
0.0 11.7 250.0 295.9 336.6 192.2 4,600.0 1.9 5,688.2
In default 16.8 37.7 2.7 20.6 155.7 392.5 1,593.4 83.1 2,302.5
Associated with particularly high risk
0.0 2.0 29.1 34.5 31.6 46.6 2,185.6 0.0 2,329.5
Equity exposures 0.0 0.0 0.0 0.0 0.0 47.8 1,296.8 0.0 1,344.6
Other items 8.8 0.0 0.0 0.0 0.0 0.0 863.4 0.0 872.2
In total 27,375.6 2,732.5 2,151.7 2,579.3 13,030.6 5,789.7 93,207.8 87.0 146,954.3
Structure in % 18.6% 1.9% 1.5% 1.8% 8.9% 3.9% 63.4% 0.1% 100.0%
The largest group of exposures are central governments and central banks exposures maturing within more than 5
years and resulting from the service of flow funds by the Bank. Also exposures to corporates have a large share in
the portfolio. These are mainly exposures maturing within more than 5 years, which results from the Bank financing
large investment projects with long-term implementation and repayment periods. In addition, a significant group in
terms of size are loans whose residual maturity exceeds 5 years and which were granted to Social Housing
Associations and housing cooperatives as part of the former NHF, as well as loans to local government units.
Page 23 of 47
Provisions
Tables 14 and 15 present the balance of provisions and adjustments in 2016.
Table No. 14. Reconciliation of adjustments and specific risk provisions of BGK for 2016 (in PLN million)
Item As at 01.01.2016 Write-offs
created Write-offs released
Charged to write-offs
Other adjustments
As at 12.31.2016
Specific risk provision 620.9 531.0 -402.2 -26.5 0.0 723.2
regular 0.0 0.0 0.0 0.0 0.0 0.0
watched 8.3 52.4 -10.4 0.0 3.1 53.4
substandard 31.2 71.9 -16.0 0.0 -0.4 86.7
doubtful 204.4 382.5 -327.1 0.0 -4.2 255.6
loss 377.0 24.2 -48.7 -26.5 1.5 327.5
In 2016, the Bank recovered receivables amounting to PLN 87.3 million.
Table No. 15. Reconciliation of adjustments and provisions of BGK for 2016 (in PLN million)
Item Deferred tax
liability provision
Provisions for litigation
Provisions for pensions and
other employee benefits
Provisions for off-balance
sheet (financial and guarantee)
liabilities
General risk provisions
In total
Opening balance 56.3 13.9 15.0 144.8 285.6 515.6
1. Provisions established 0.0 0.8 3.7 121.5 157.8 283.8
2. Provisions released 0.0 -0.2 0.0 -50.6 -176.9 -227.7
3. Other value changes, of which:
13 -0.3 -1.7 -7.9 0.0 3.1
- deferred tax provision increase
25.6 0.0 0.0 0.0 0.0 25.6
- deferred tax provision decrease
-12.6 0.0 0.0 0.0 0.0 -12.6
Closing balance 69.3 14.2 17.0 207.8 266.6 574.8
The Bank records each provision established and released on the basis of the purposes underlying their
establishment or release – without compensation of the related costs and incomes, by individual events.
3.6. Liquidity risk
Definition
The liquidity risk is a threat of losing the ability to pay liabilities in a timely fashion as a result of unfavourable
changes in assets and liabilities, off-balance-sheet transactions, maturity mismatch of current cash flows, and
possible losses resulting from the foregoing.
The liquidity risk is also dealt with in the context of:
market (product) liquidity risk understood as a threat of losing the ability to convert certain products on the
market into cash within the required time frame, resulting in the need to incur financial losses on these
products,
funding risk understood as a threat of shortage of stable funding sources in mid- and long-term, resulting in
real or potential risk of default by the Bank in regard to financial obligations such as payments and
collaterals at their maturity in mid- and long-term, either in whole or involving unacceptable funding costs to
be incurred,
liquidity concentration risk understood as a threat of default in current liabilities due to dependence (lack of
diversification) or overexposure to one entity or associate entities,
Page 24 of 47
liquidity risk in individual currencies in which the Bank carries out its activities, understood as inability to
fulfil the Bank’s liabilities in a given currency due to limitations in convertibility of currencies.
The Bank applies liquidity risk management procedures which define how the risk is monitored and managed.
Liquidity risk management aims to:
ensure and maintain the Bank’s ability to meet its current and future liabilities, taking account of liquidity
costs and return on equity,
prevent contingencies,
define solutions which will enable the Bank to survive a potential crisis (contingency plan).
Measurement
The Bank’s liquidity risk measurement system comprises the following methods:
liquidity ratios (both regulatory and internal), contractual and adjusted liquidity gap analysis, fund stability
analyses, daily monitoring of the deposit base,
stress tests.
The liquidity measures used allow to monitor liquidity in various time horizons. The Bank monitors intraday liquidity
measures developed on the basis of “Monitoring tools for intraday liquidity management” by the Basel Committee7.
Regulatory liquidity measures are calculated in accordance with definitions specified in Resolution No. 386/2008 of
the PFSA and Delegated Regulation 2015/618. As part of internal ratios, the Bank monitors, in particular, ratios
expressing the difference between liquid assets and funds unstable in various time horizons (30 days, 3 months, and
12 months), measures determining the level of long-term funding, concentration and stability of funding source
ratios.
Regulatory liquidity measures are shown in Table No. 16.
Table No. 16. Regulatory liquidity measures limit 31.12.2016
M1 – short-term liquidity gap (in PLN million) 0.00 15,503.8
M2 – short-term liquidity ratio 1.00 1.55
M3 – coverage ratio of non-liquid assets with own funds 1.00 5.03
M4 – coverage ratio of non-liquid and limited-liquidity assets with own funds and stable external funds
1.00 1.24
LCR – liquidity coverage ratio 70% 252%
M1 – the difference between the sum of the primary and supplementary liquidity reserve amount and the amount of external non-stable funds,
M2 – the quotient of the sum of the primary and supplementary liquidity reserve amount to the amount of external non-stable funds,
M3 – the quotient of the Bank’s own funds decreased by the total amount of capital requirements for market risk, delivery settlement risk, and counterparty risk to the non-liquid assets,
M4 – the quotient of the sum of the Bank’s own funds decreased by the total amount of capital requirements for market risk, delivery settlement risk, and counterparty risk and stable external funds to the sum of non-liquid assets and limited-liquidity assets,
LCR – the quotient of the liquidity buffer to net outflows.
As part of liquidity risk measurement, the Bank calculates contractual and adjusted liquidity gap. The liquidity gap
consists in a summary of assets and liabilities by time intervals between the date of the information and the date of
repayment of the bank receivable (assets) and the date of fulfilment of the liabilities by the Bank. The contractual
liquidity gap is calculated in accordance with contractual maturities/due dates, while as part of the adjusted liquidity
gap the following are adjusted to their market values, in particular: deposit values (on the basis of estimated core
7 http://www.bis.org/publ/bcbs248.pdf
8 in resolution no. 386/2008 of 17 December 2008 on the establishment of liquidity standards binding for banks (Official Journal of the PFSA
No. 8, item 40, as amended) measures M1 to M4 were defined
in Commission Delegated Regulation (EU) 2015/61 of 10 October 2014 to supplement Regulation (EU) No 575/2013 of the European Parliament and the Council with regard to liquidity coverage requirement for Credit Institutions (OJ L 11, 17.1.2015, p. 1), the LCR was defined
Page 25 of 47
deposits), liquid securities (presented in the amounts that can be realised in specific time periods), and financial and
guarantee off-balance sheet liabilities granted (in the scope of estimated amounts and realisation dates).
The selected liquidity measures are monitored also in the case of individual significant currencies for which the
amount of liabilities in a given currency exceeds 5% of total liabilities. The market (product) liquidity is reflected in
liquidity measures by taking into account liquid assets with an appropriate haircut.
To assess the impact of adverse conditions on the liquidity level, the Bank regularly carries out stress tests. As part
of stress tests, the Bank develops scenario analyses, sensitivity analyses, and reverse stress tests which take into
account both internal as well as systemic factors. Stress tests are carried out for scenarios covering, among others,
withdrawal of deposits, reduction of securities liquidity, and realisation of off-balance sheet liabilities. Results of
stress tests are used in the liquidity risk management process, including in particular as part of liquidity contingency
plans and in the strategic planning process.
Risk reduction methods
A system of limits is an important liquidity risk management tool at BGK. Both limits and threshold values for
liquidity ratios are applied. The risk monitoring process consists in a cyclical review of the values of limited
parameters and analysis of the limit usage. In 2016, regulatory liquidity measures and the internal limits of liquidity
ratios were not breached.
In order to reduce risk and secure liquidity, the Bank applies the following measures:
transactions on the money market, including deposit transactions, reverse repo, repo, purchase/sale of NBP
money market bills, Treasury bills, bonds, and other instruments,
maintaining a portfolio of liquid securities,
daily monitoring of the money balance and financing possibilities from the NBP,
facilities securing liquidity of the Bank,
own bond issuances and deposit level management to optimise the structure of the sources of funding,
having a mechanism for determining and applying transfer pricing (a FTP system) in place, with regulation of
the liquidity margin included,
modelling, forecasting, and planning liquidity conducted within the framework of forecasting and planning
processes,
plans in case of emergency situations of reduced or endangered liquidity.
In order to hedge the liquidity risk, the Bank maintains a relevant surplus of liquid assets characterised, among other
things, by high credit quality, high tradability, and high liquidity on the repo transaction market. As part of the
excess liquidity, Treasury bonds and NBP money market bills are taken into account, among other things.
The main source of funding for the Bank are deposits, including in particular deposits from the public sector. The
Bank also obtains funding through issuances of own bonds and incurs loans from international financial institutions.
Stable funding sources of the Bank’s own activities (core deposits with maturity dates above one year) are
diversified – the percentage of each category of liabilities as at 31 December 2016 is as follows: deposits represent
71%, bonds issued 16%, and loans 13% of the liabilities.
3.7. Market risk
Definition
Market risk is understood as a threat of possible deterioration in the value of the Bank’s financial instruments
portfolio or Bank’s financial result as a consequence of unfavourable changes in market parameters (exchange rates,
interest rates, prices of debt instruments and capital instruments).
Page 26 of 47
The Bank applies market risk management procedures which define how specific risk types are monitored and
managed.
Market risk management aims to:
for interest rate risk (including debt securities price risk) – reducing the risk of losing part of the interest
income or incurring excessive interest costs as a result of a change in market interest rates and the risk of an
unfavourable change in the market value of the financial instruments portfolio held by the Bank,
for foreign exchange risk – reducing the risk of losses as a result of changes in market exchange rates,
for equity price risk – reducing the risk of losses as a result of changes in equity prices.
Measurement
The Bank’s market risk measurement system comprises the following methods:
measures of position volumes – relating to the foreign exchange risk and the interest rate risk (including
price risk),
sensitivity measures for the purposes of detailed analyses (BPV, duration, interest result sensitivity to
change in interest rates) – relating to the interest rate risk and the price risk,
value at risk (VaR) – measure used in relation to all types of market risk,
stress tests.
The total foreign exchange position of the Bank, VaR of the foreign exchange risk, and BPV for the trading book are
presented in Table No. 17.
Table No. 17. The total foreign exchange position of the Bank, VaR of the foreign exchange risk, and BPV for the trading book as at 31.12.2016 (in PLN million)
Total FX position of the Bank 107.8
VaR(1D) for the FX position of the Bank 1.6
BPV for trading book 0.01
Risk reduction methods
An important element of market risk management is the system of limits applicable at the Bank. The following limits
are used:
for interest rate risk – limit of sensitivity measures (BPV for banking and trading book, interest income risk
for the banking book), and loss limits,
for foreign exchange risk – limits of the Bank’s total position volume, limits of trading book positions, and
loss limits.
The system of limits is associated with the risk monitoring process consisting in, among other things, cyclical
review of risk measure levels and analysis of the limit usage. In addition, the Bank has a contingency plan in
place to be followed in the case of an increased market risk level.
3.7.1 Characteristics of interest rate risk in the banking book
Interest rate risk management aims to reduce the risk of losing part of the interest income or incurring excessive
interest costs as a result of a change in market interest rates and the risk of an unfavourable change in the market
value of the financial instruments held by the Bank.
The interest rate risk is determined to a large extent by the long-term loan portfolio, including in particular loans
granted from the funds of the former NHF) financed with funds leveraged from international institutions as part of
long-term financing with the nearest repricing date of up to 3 months. Moreover, the interest rate risk in own
activities is significantly influenced by deposits placed with the Bank and the debt securities portfolio. Deposits with
Page 27 of 47
undetermined maturity (current accounts) are accounted for in interest rate risk analyses by customer group with
the nearest repricing date of up to 1 month.
In the Bank’s opinion, the risk of early repayment of loans and termination of deposits is low and therefore it is not
accounted for in the interest rate risk measures. The customer option risk is managed in particular by the price
policy and the Schedule of Fees and Commissions applied at the Bank. It is a general rule to limit the customer
options with the use of zero or reduced interest rates when compared to the original arrangements in the case of
early withdrawal of a deposit, and a compensation commission at early loan repayment.
The interest rate risk at the Bank is managed in two fields:
income risk understood as the risk of losing part of interest income or incurring excessive interest costs as a
result of an unfavourable change in market interest rates,
price risk understood as the risk of a decrease in market value of the financial instruments portfolio held by
the Bank due to an unfavourable change in interest rates.
The income risk is managed by matching repricing dates of assets and liabilities. The price risk is managed by
relevant changes in the structure of the financial instruments portfolio, whose valuation depends on the level of
market interest rates.
3.7.2 Financial result sensitivity to changes in interest rates
The Bank examines the interest rate risk by analysing:
income risk,
price risk divided into banking book and trading book,
stress tests,
capital needs for the banking book.
The income risk is analysed on the basis of:
analysis of gaps in interest fixing periods,
simulation of interest result sensitivity – as a method forecasting the impact of changes in interest rates on
the interest result of the Bank (including various scenarios of changes in interest rates).
The Bank uses the following measures to assess its exposure to the income risk:
interest rate gap ratio,
aggregate interest rate gap ratio,
anticipated amount by which the Bank’s interest result can be decreased or increased at a given point in the
future given an assumed change in market interest rates.
The Bank’s income risk is analysed monthly based on balance-sheet and off-balance-sheet data as at the end of the
last day of each month.
Table No. 18 presents the interest rate gap for the banking book.
Table No. 18. Interest rate gap in the banking book as at 31.12.2016 (in PLN million)
Interest fixing periods
up to 1 month 1–3 months 3–6 months 6–12 months 1–3 years 3–5 years more than 5
years
Gap in interest fixing brackets
-1,089.5 3,373.0 5,767.0 706.6 4,505.7 443.6 189.4
Aggregate gap -1,089.5 2,283.5 8,050.4 8,757.1 13,262.7 13,706.4 13,895.7
The change in the interest result given a ±2 p.p. change in interest rates is shown in Table No. 19.
Page 28 of 47
Table No. 19. Change in the interest result given a ±2 p.p. change in interest rates as at 31.12.2016 (in PLN million)
Book: change in rates by - 2 p.p. change in rates by +2 p.p.
Banking -110.3 99.5
PLN -166.5 155.6
EUR 45.3 -45.3
USD 10.8 -10.8
other currencies 0.1 -0.1
Trading 1.0 -1.0
Total banking and trading books -109.3 98.5
The stress testing methodology for the interest rate risk consists in determining the change in the Bank’s interest
result assuming that the market interest rate curve shifts by 2 percentage points. The interest risk estimated in this
way determines the level of additional capital needs under the interest rate risk for the banking book.
3.7.3 Valuation sensitivity to changes in interest rates
For banking book instruments that are sensitive to the price risk, the risk is additionally measured on a daily basis
with the use of BPV and VaR methods. As at 31 December 2016, the BPV for the banking book totalled PLN 0.9
million, while VaR in the forecast period of 1 working day amounted to PLN 4.1 million.
As at 31 December 2016, the estimated reduction of the economic capital given the assumed increase in interest
rate by 2 percentage points totalled PLN 249.5 million, which constituted 2.0% of the Bank’s own funds.
3.8. Operational risk
Qualitative information
The operational risk is understood as the risk of losses the Bank can incur as a result of misalignment or unreliability
of internal processes, people, or technical systems, or as a result of external events. This definition includes the legal
risk, but excludes the reputation risk and the strategic risk. Operational risk management is aimed to maintain an
acceptable level of operational risk that do not pose a threat to the business operations.
The operational risk includes all important areas of the Bank’s activities and all new, existing, and modified products,
processes, and systems. It also takes account of internal factors (such as organisational structure, the nature of
operation, IT systems used, customer characteristics, customer complaints, quality of staff, organisational changes
and staff turnover) as well as external factors (the Bank’s operational environment).
The operational risk management process covers all branches/organisational units of the Bank’s head office and
subsidiaries.
The operational risk is identified on the basis of:
internal sources, including:
o operational events,
o self-assessment of the own risk,
o assessment of processes within business lines,
o assessment of high-risk products,
external sources, including:
o database of external events in the field of operational risk,
o external studies.
The Bank assesses the actual threats under operational risk on the basis of:
Page 29 of 47
dynamics of key risk indicators,
analysis of operational events.
In the field of operational risk, organisational units of the Bank’s head office undertake, within the scope of their
responsibility, relevant actions aimed to select and propose a method of protecting against and limiting the
operational risk relevant for a given area.
Within the scope of their responsibilities, the organisational units of the Bank secure operational areas at risk with
the following security measures:
contingency plans – to counteract and minimise negative impacts of unexpected events, including internal
and external attacks which can negatively affect the organisation and its operation,
mitigation of cybercrime threats, preventive activities related to the Bank’s operations in electronic banking
and in customer relations,
insurance protection – insurance of assets against accidents and failures of electronic equipment, hardware
and computer network losses resulting from forgery or fraud, and civil liability,
outsourcing selected IT, transport and or debt recovery services to external specialised companies,
other security measures (legal, organisational, technical) such as procedures for recruitment, employee
assessment and IT system access-granting, relevant contractual clauses, competence systems, training and
inspections.
Should an elevated exposure level to the operational risk be detected at the Bank, a relevant organisational unit of
the Bank presents an action plan to improve the existing state of affairs (taking account of individual operational risk
categories), agrees it upon with the units that will implement it, and submits it to the Operational Risk Committee
for endorsement, and then to the Bank’s Management Board for approval. The Management Board of the Bank
decides whether to implement, amend, or reject the plan.
Quantitative information
Table No. 20 shows information on operational loss events reported to the internal database in 2016.
Table No. 20. Operational loss events reported to the internal database in 2016 (in thousands of PLN)
Event type Gross loss Loss incurred (net amount)
Internal fraud 0 0
External fraud 154 3
HR practices and work safety 180 180
Damage to assets 34 34
Business disruptions 0 0
Transactions, deliveries, and management of operational processes 3,120 127
In total 3,489 345
In 2016, in the scope of significant events, as part of the Transactions category, an event consisting in drawdown
under a loan tranche intended for the next year was recorded. As a result of activities undertaken by the Bank, the
customer repaid funds in the full amount. The case was analysed by the committee which issued recommendations
for further actions in this regard. As part of the External fraud category, a falsified membership payment demand
(change of a bank account number) was received at the Bank. The event was pan-European in nature and involved
police intervention in one of the European Union states. The payment of PLN 114 thousand, made by BGK, was
returned, the Bank did not incur a financial loss.
In 2016, the total loss incurred (net loss) amounted to PLN 0.3 million.
The net loss constituted 0.1% of the net profit recorded by the Bank in 2016.
Page 30 of 47
3.9. Model Risk
Model risk means the potential loss the Bank may incur as a consequence of decisions that could be principally
based on the output of internal models used by the Bank, due to errors in the development, implementation or use
of such models.
In 2016, the Bank ensured its compliance with the requirements stemming from Recommendation W. The Bank’s
model risk is covered by the management process on the basis of principles specifying: identification, assessment,
operation of controls, monitoring, and reporting of the level of risk at all stages of life cycle of the models.
In particular, the following were introduced:
an aggregate acceptable model risk level – model risk appetite determined at the level of the Supervisory
Board,
risk assessment methodology for a given model,
aggregate model risk assessment methodology,
increased operational/documentation requirements (keeping model logs and extending the information in
the scope of the model register),
increasing the frequency of management information in the scope of model risk.
In addition, a position of Independent Model Validation Specialist was created at the bank.
3.10. Compliance Risk
The compliance risk includes the risk of legal or regulatory sanctions, financial losses, and loss of reputation the Bank
can incur as a result of lack of compliance with legal regulations, regulatory guidelines, or generally accepted
business practices and ethical standards, as well as internal policies and procedures applicable to the Bank’s
operations.
The compliance risk is connected with the operation of each organisational unit of the head office/branches of the
Bank, and the employees of the organisational units of the head office/branches are obliged to undertake steps to
eliminate or minimise the compliance risk. The compliance risk management process also includes the Bank’s
subsidiaries.
The unit responsible for coordination of the compliance risk management process is the compliance unit which
develops and implements compliance risk management principles and methods for investigation procedures and
compliance tests.
3.11. Other risks
Apart from the risks referred to in items 3.5 to 3.9, the ICAAP process has revealed the following risks are significant:
CVA risk, business risk, risk of changes in macroeconomic conditions, and reputation risk.
The Bank manages the risks which have been identified as significant by developing management procedures and
estimating the internal capital in relation to these risks.
3.12. Risk reporting
Risk reporting takes place in strict accordance with internal regulations, in line with the competence distribution at
the Bank.
Current reports (intraday, daily, weekly, monthly, and ad hoc reports), depending on the nature of the risk and the
scope of information are addressed to the Bank’s Management Board, competent committees, and persons
involved in the management process for a given risk type.
Interim reports (quarterly, semi-annual, and annual reports), depending on the nature of the risk and the scope of
information are addressed to the Bank’s Management Board, Risk Committee, and Supervisory Board.
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Table No. 21 shows information on the types and scopes of reports drawn up in relation to risk management.
Table No. 21. Types and scope of reports
Risk type Report types
Scope of reports
Credit and concentration risk
current internal exposure limits used in accordance with regulations on setting and monitoring internal limits of BKG’s maximum credit exposure; usage of external exposure concentration limits; information about the nature of exposures and the structure of risk of the entire loan portfolio
interim extended information on the type of exposures, risk structure for the entire credit portfolio and usage of external and internal exposure limits; information about exposure concentration risk stress tests; report on lending activities based on own and entrusted funds in the loan portfolio, with account taken of mortgage-secured exposure
Bank-counterparty and country credit risk
current usage of settlement and credit limits (limits for banks and exposure limits for countries), unsettled transactions on the interbank market; banks for which BGK has suspended settlement of transactions, banks which were placed on a watch-list due to an increased settlement risk on a given day
interim usage of limits for countries and exposure limits for foreign and domestic banks
Liquidity risk current usage of regulatory and internal liquidity limits, dynamics of intraday liquidity measures and liquidity gaps, balance of the Bank’s deposits, stability analysis for third-party funds and stress test results
interim usage of regulatory and internal liquidity limits, dynamics of liquidity gaps, stability analysis for third-party funds and stress tests results, simulations of liquidity measures, long-term liquidity analyses, information about the assessment of the size and profile of the Bank’s liquidity risk related to the operations of its subsidiaries
Interest rate risk current information on the usage of internal interest rate risk limits, BPV, Duration, Modified Duration, VaR, results due to changes in interest rates for debt securities portfolios, interest rate gaps in individual interest fixing periods, sensitivity of interest income, results of stress tests
interim sensitivity of interest result, usage of internal interest rate risk limits, measures: VaR, BPV, and results of stress tests
Equity price risk current information on equity, exclusive of structured positions in equities (i.e. positions that are deducted from the Bank’s own funds or are classified as the Bank’s fixed assets, or do not have an impact on the capital requirement level under credit risk), including VaR
interim information on equity, exclusive of structured positions in equities, including VaR
Foreign exchange risk
current information about the usage of internal foreign exchange risk limits, open currency positions, VaR, results due to changes in exchange rates, results of stress tests and the Bank’s exposure level to the foreign exchange risk
interim usage of internal interest rate risk limits, VaR, results of stress tests
Capital adequacy and risk of excessive leverage
current dynamics of capital adequacy and leverage ratios, capital requirement and internal capital, total exposure measure and own funds, usage of capital limits and results of stress tests
interim dynamics of capital adequacy and leverage ratios, capital requirement and internal capital, total exposure measure and own funds, usage of capital limits and results of stress tests, comparison of the BGK’s capital adequacy ratio with ratios of other banks, information about the assessment of size and profile of the Bank’s capital risk related to the operations of its subsidiaries
Operational risk current information about significant operational events from the Operational Risk Registry along with a description of actions taken
interim information on individual methods of operational risk measurement, i.e. analysis of the event database in the Operational Risk Registry, analysis of losses in the external database, key operational risk indicators;
information resulting from the self-assessment of processes as part of active business lines at the Bank; analysis of the level of operational risk provisions; information on the measurement of operational risk in subsidiaries
Page 32 of 47
Model Risk interim information about the model registry, changes in the number of models applied, their significance, their scope of application and reasons for these changes, key findings stemming from the results of model monitoring, validation, and internal audits, as well as about the efficiency of preventive or corrective actions taken, level of risk of specific significant models in individual and aggregate terms along with a list of planned actions related to the scope of model management and model risk, as well as the assessment of efficiency of the models
Compliance Risk interim information about the fulfilment of specific tasks of the compliance unit in a given period, taking account of the compliance risk assessment and information about all incidents identified in a given period, complaints, and stress tests for the Bank and its subsidiaries
3.13. Equity exposures not taken into account in the trading book
Table No. 22 shows equity exposures outside the trading book.
Table No. 22. Equity exposures not taken into account in the trading book as at 31.12.2016 in PLN million
Book value Fair/market
value
By investment type
companies listed on the stock exchange, of which: 777.0 777.0
WIG20 companies 740.3 740.3
other 36.7 36.7
unlisted companies 185.6 185.6
surety funds 59.8 59.8
other 125.9 125.9
investment certificates 1,310.6 1,310.6
In total 2,273.3 2,273.3
By investment purpose
capital gain 0.0 0.0
strategic goals 117.4 117.4
companies 117.4 117.4
investment certificates 0.0 0.0
other 2,155.9 2,155.9
companies 845.3 845.3
investment certificates 1,310.6 1,310.6
In total 2,273.3 2,273.3
The equity exposures are measured:
For the companies listed on the stock exchange – based on the fair value determined on the basis of the
closing price of the last day of the reporting month (monthly),
For other companies – at purchase (contribution) cost, decreased by potential revaluation or impairment
allowances (quarterly).
In 2016, the Bank sold the entire stake of 1,132,363 shares held by it in PEKAES S.A. as a result of the tender offer for
sale of the shares of this company, for PLN 15.10 per share The realised gain on sales of the shares amounted to PLN
8.2 (net of tax).
In addition, in 2016 the transaction consisting in conversion of one share in VISA Europe Ltd into 369 preference C
series shares of Visa Inc. was finalised. As part of the transaction settlement, BGK received also a payment
amounting to EUR 1.0 million, and it will be entitled in the future to payments as part of the earn-out mechanism.
The total value of unrealised gains or losses accounted for under Common Equity Tier 1 capital as at 31 December
2016 totalled PLN -86.2 million.
In 2016, the Bank did not have any equity exposures in the trading book.
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4. Own funds
BGK’s own funds, determined in accordance with CRR provisions, include:
Tier 1 capital:
○ CET 1 (Common Equity Tier 1) capital:
– statutory fund9 constituting, pursuant to Article 3.3c of the Act on BGK, an capital
instrument within the meaning of Articles 26(1)(a) and 28 of the CRR.
The statutory fund is created from cash and other assets contributed by the State Treasury
(including Treasury securities provided by the minister competent for public finance) as well
as annual write-offs on the Bank’s net profit, in accordance with the principles specified in
BGK’s Articles of Association.
– accumulated other comprehensive income
Unrealised gains and losses related to assets and liabilities measured at the fair value are
subject to the transition period; in 2016, the Bank included 100% of unrealised losses in Tier
1 capital and removed 40% of unrealised gains from Common Equity Tier 1 capital.
– other reserves, including supplementary capital and reserve fund
The supplementary capital and the reserve fund are created from the write-offs on the
annual net profit, in line with the principles defined in BGK’s Articles of Association.
– funds for general banking risk
The funds for general banking risk is created from the write-offs on the annual net profit, in
line with the principles defined in BGK’s Articles of Association.
– deductions under intangible assets
The amount deducted from Common Equity Tier 1 capital is decreased by the related
deferred income tax provision.
– additional valuation adjustments (AVA)
AVA are determined using simplified approach pursuant to Commission Delegated
Regulation (EU) 2016/101 of 26 October 2015 supplementing Regulation (EU) No 575/2013
of the European Parliament and of the Council with regard to regulatory technical standards
for prudent valuation under Article 105(14) (OJ L 21, 28.1.2016, p. 54).
○ Additional Tier 1 capital – as at 31 December 2016, the Bank did not held any positions in Additional Tier 1 capital
Tier 2 capital:
○ general credit risk adjustments, ahead of tax effects, of up to 1.25 % of risk-weighted exposure amounts calculated in accordance with Part Three, Title II, Chapter 2 of the CRR.
Table No. 23 shows own funds in the transition period and additional information about risk-weighted assets, capital
ratios and capital buffers, items not deducted from the own funds, and provisions included in Tier 2 capital. In order
to present own funds items, the format and numbering of items specified in Annex VI to Commission Implementing
Regulation 1423/2013, excluding zero items or items not specific to the Bank.
9 In view of the specific nature of the Bank’s own funds, main properties of capital instruments in Common Equity Tier 1 capital are not
presented in the format specified in Annex II to Commission Implementing Regulation 1423/2013
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Table No. 23. Own funds in the transition period and additional information as at 31.12.2016 (in PLN million)
(A) Amount on disclosure
date
(B) Reference to CRR Article
(C) Residual amount
specified in the CRR
Common Equity Tier 1 capital (CET 1): instruments and reserves
1 Capital instruments and the related share premium accounts 11,339.1 26(1), 27, 28, and 29, EBA
list 26(3)
Statutory fund pursuant to Article 3, para. 3c of the Act on BGK 11,339.1
3 Accumulated other comprehensive income (and other reserves, to include unrealised gains and losses under the applicable accounting standards)
638.0 26(1)
3a Funds for general banking risk 155.5 26(1)(f)
6 Common Equity Tier 1 (CET1) capital before regulatory adjustments 12,132.6
Common Equity Tier 1 capital: regulatory adjustments
7 Additional valuation adjustments (negative amount) -33.2 34, 105
8 Intangible assets (net of related tax liability) (negative amount) -32.3 26(1)(b), 37, and 472(4)
26a Regulatory adjustments relating to unrealised gains and losses pursuant to Articles 467 and 468
-3.1 -4.6
including: ...filter for unrealised gains (investment real estate) -3.1 468 -4.6
28 Total regulatory adjustments to Common Equity Tier 1 (CET1) -4.6
29 Common Equity Tier 1 capital 12,064.1 -4.6
36 Additional Tier 1 (AT1) capital before regulatory adjustments 0.0
43 Total regulatory adjustments to Additional Tier 1 (AT1) capital 0.0
44 Additional Tier 1 capital 0.0
45 Tier 1 capital (T1 = CET1 + AT1) 12,064.1 -4.6
Tier 2 (T2) capital: instruments and provisions
50 Credit risk adjustments 193.5 62(c) and (d)
51 Tier 2 (T2) capital before regulatory adjustments 193.5
57 Total regulatory adjustments to Tier 2 (T2) capital 0.0
58 Tier 2 capital 193.5
59 Total capital (TC = T1 + T2) 12,257.5
60 Total risk-weighted assets 40,064.6
Capital ratios and buffers10
61 Common Equity Tier 1 (as a percentage of risk exposure amount) 30.11% 92(2)(a), 465
62 Tier 1 (as a percentage of risk exposure amount) 30.11% 92(2)(b), 465
63 Total capital (as a percentage of risk exposure amount) 30.59% 92(2)(c)
64
Institution specific buffer requirement (CET1 requirement in accordance with Article 92(1)(a), plus capital conservation and countercyclical buffer requirements, plus systemic risk buffer, plus the systemically important institution buffer (G-SII or O-SII buffer), expressed as a percentage of the risk exposure amount)
4.5% CRDIV, 128, 129, 130
10
BGK is not subject to the obligation of complying with capital buffers referred to in CRDIV and in the Act of 5 August 2015 of the Macro-prudential Supervision over the Financial System and Crisis Management in the Financial System (Polish Journal of Laws 2015, item 1513)
Page 35 of 47
65 of which: capital conservation buffer requirement none11
66 of which: countercyclical buffer requirement none
67 of which: systemic risk buffer requirement none
67a of which: Global Systemically Important Institution (G-SII) or Other Systemically Important Institutions (O-SII) buffer
none CRDIV, 131
Amounts below deduction thresholds (before risk weighing)
72 Direct and indirect holdings of the capital of financial sector entities where the institution does not have a significant investment in those entities (amount below 10% threshold and net of eligible short positions)
940.7 36(1)(h), 45, 46, 472(10),
56(c), 59, 60, 475(4), 66(c), 69, 70, 477(4)
73 Direct and indirect holdings by the institution in CET1 instruments of financial sector entities where the institution has a significant investment in those entities (amount below 10% threshold and net of eligible short positions)
158.4 36(1)(i), 45, 48, 470,
472(11)
75 Deferred tax assets arising from temporary differences (amount below 10% threshold, net of related tax liability where the condition in Article 38(3) are met)
245.6 36(1)(c), 38, 48, 470,
472(5)
Ceilings used to take account of provisions in Tier 2
76 Credit risk adjustments included in T2 in respect of exposures subject to standardised approach (prior to the application of the cap)
193.5 62
77 Cap on inclusion of credit risk adjustments in T2 under standardised approach 452.9 62
Pursuant to the provisions of Implementing Regulation 1423/2013, Table No. 24 shows reconciliation of balance
sheet items used to calculate Bank’s own funds as at 31 December 2016.
Table No. 24. Reconciliation of items of regulatory own funds and items in the financial statements as at 31.12.2016 (in PLN million)
Items in the financial
statements Items of regulatory own
funds
ASSETS
Intangible assets 33.2 -32.3
CAPITALS
Share capital 11,339.1 11,339.1
Supplementary capital 643.5 643.5
Revaluation reserve (other cumulated comprehensive income) -82.3 -85.4
Other capital reserves 232.3 232.3
General banking risk fund 155.5 155.5
Other 76.8 76.8
ADDITIONAL ITEMS
Additional valuation adjustments -33.2
General credit risk adjustments in line with the standardised approach 193.5
REGULATORY OWN FUNDS 12,257.5
5. Capital adequacy
Capital adequacy management includes:
setting and monitoring capital adequacy ratios,
setting and monitoring the use of capital limits for individual activity areas, based on the internal capital,
stress tests,
risk level reporting pursuant to Table No. 21,
11
BGK is not subject to the obligation of complying with capital buffers referred to in CRDIV which were enshrined in Polish law under the Act of 5 August 2015 of the Macro-prudential Supervision over the Financial System and Crisis Management in the Financial System (Polish Journal of Laws 2015, item 1513)
Page 36 of 47
capital planning,
developing a capital contingency plan.
The Bank’s capital adequacy is monitored with the use of capital adequacy ratios:
capital ratios determined in accordance with CRR provisions:
o Common Equity Tier 1 capital ratio (CET1),
o Tier 1 capital ratio,
o capital adequacy ratio (total capital ratio),
internal capital ratio referred to in Article 128.1 (2) of the Banking Law Act, understood as the ratio of
internal capital to own funds.
In 2016, the Bank met the regulatory limits specified in the CRR and Banking Law Act. Dynamics of capital adequacy
ratios and their components are presented in Table No. 25 and Charts No. 4 and 5.
Table No. 25. Capital adequacy ratios and their components
Regulatory limit 31.12.2016 31.12.2015
CET1 capital ratio min. 4.5% 30.11% 31.35%
Tier 1 capital ratio min. 6% 30.11% 31.35%
Capital adequacy ratio min. 8% 30.59% 32.25%
Internal capital ratio max. 100% 31.10% 31.85%
Capital requirements 3,205.2 2,343.1
Internal capital 3,811.8 3,008.3
Own funds, of which: 12,257.5 9,445.8
Tier 1 capital, of which: 12,064.1 9,182.5
CET1 capital 12,064.1 9,182.5
Additional Tier 1 capital 0.0 0.0
Tier 2 capital 193.5 263.4
The changes in the values of capital adequacy ratios and the internal capital ratio resulted mainly from:
increase in the amount of own funds as a result of the BGK’s statutory fund increase in December 2016 by
the State Treasury through the transfer of Treasury securities amounting to PLN 2.89 billion,
increase of the capital requirement and internal capital due to credit risk in connection with the
development of the Bank’s activities in the corporate finance area and the purchase of investment
certificates of Closed-Ended Investment Funds.
Chart No. 4. Capital adequacy ratios Chart No. 5. Components of capital adequacy ratios
0
3
6
9
12
15
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16
in PLN billion
Total capital requirement Internal capital Own funds
0%
10%
20%
30%
40%
50%
0%
10%
20%
30%
40%
50%
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16
Capital adequacy ratio Internal capital ratio
Page 37 of 47
5.1. Capital requirements
In order to determine the capital requirements for individual risk types (Pillar I), the Bank uses methods described in
Table No. 26. The amounts of capital requirements for individual risk types are shown in Table No. 26, and
graphically – in Chart No. 6.
Table No. 26. Methods applied to define capital requirements and the structure of BGK’s capital requirements (in PLN million)
Capital requirement for: Method 31.12.2016 31.12.2015
credit risk
standardised approach (Articles 111 to 141 of the CRR)
financial collateral comprehensive method (Articles 223 to 224 of the CRR)
2,850.9 2,123.5
counterparty credit risk, including: mark-to-market method (Article 274 of the CRR) 47.9 25.2
arising from exposure to a qualifying central counterparty (CCP)
alternative approach (Article 310 of the CRR) 0.6 0.002
foreign exchange risk basic approach (Article 351 of the CRR) 0.0 0.0
commodities risk simplified approach (Article 360 of the CRR) 0.0 0.0
position risk in the trading book, including: 123.1 50.2
specific and general risk of equity instruments
pursuant to Articles 342 to 343 of the CRR 0.0 0.0
specific risk of debt instruments pursuant to Article 336 of the CRR 0.0 0.0
general risk of debt instruments maturity ladder approach (Article 339 of the CRR) 123.1 50.2
CVA risk standardised method (Article 384 of the CRR) 61.1 26.4
settlement risk pursuant to Articles 378 to 380 of the CRR 0.0 0.0
large exposure in the trading book pursuant to Article 397 of the CRR 0.0 0.0
operational risk basic indicator approach (Articles 315 to 316 of the CRR) 122.2 117.8
In total 3,205.2 2,343.1
Chart No. 6. Structure of BGK’s capital requirements as at 31.12.2016
5.1.1. Capital requirements – credit risk and counterparty credit risk
In order to assign risk weights to exposures, the Bank combines credit ratings with credit quality steps, in
accordance with the CRR. The bank uses credit ratings assigned by the following external ratings agencies:
Fitch Ratings,
Moody’s Investors Service,
Standard and Poor’s Ratings Services.
The bank applies credit ratings assigned by external ratings agencies to the following exposure classes:
Central governments and banks,
90.4%
3.8%
3.8%
1.9%
credit risk and counterparty credit risk
operational risk
position risk in the trading book
CVA risk
Page 38 of 47
Institutions – banks,
Corporates,
Regional governments and local authorities.
Table No. 27 shows the value of exposures before and after the application of credit risk mitigation techniques for
individual credit quality steps as part of the standardised approach of determining the capital requirement for credit
risk.
Table No. 27. Value of exposures before and after the application of credit risk mitigation techniques for individual credit quality steps as at 31.12.2016 (in PLN million)
Credit quality step Exposure amount Exposure after credit risk
reduction Capital requirement
1 273.7 260.2 3.4
2 99,323.8 101,852.9 111.2
3 4,191.0 4,138.8 313.0
4 72.5 13.7 1.1
5 507.3 2.9 0.2
6 407.5 264.0 31.7
none 42,178.6 36,672.4 2,438.2
In total 146,954.3 143,204.8 2,898.8
As at 31 December 2016, no items decreasing own funds with a credit quality step assigned occurred.
Table No. 28 shows the value of exposures before and after the application of credit risk mitigation techniques for
individual risk weights as part of the standardised approach of determining the capital requirement for credit risk.
Table No. 28. Exposures covered with credit protection under the standardised calculation method for capital requirements as at 31 December 2016 (in PLN million)
Risk weight Exposure amount Exposure after credit risk
reduction Capital requirement
0% 95,901.7 99,539.2 0.0
20% 10,817.5 10,195.3 163.1
35% 6.3 6.3 0.2
50% 3,253.7 2,694.7 107.8
75% 834.2 833.6 43.1
100% 32,030.9 25,986.7 2,078.5
150% 3,708.0 3,547.0 425.6
250% 402.0 402.0 80.4
In total 146,954.3 143,204.8 2,898.8
Table No. 29 presents the capital requirement for credit risk and counterparty credit risk by exposure classes
(classes with zero values have been excluded).
Table No. 29. Capital requirements for credit risk and counterparty credit risk as at 31.12.2016 by exposure classes (in PLN million)
Exposure classes capital requirement
Central governments and central banks 8.2
Regional governments and local authorities 105.2
Public sector entities 18.9
Institutions, including banks 140.0
Corporates 1,489.9
Retail exposures 43.1
Secured by mortgages on immovable property 430.5
In default 232.1
Associated with particularly high risk 262.3
Equity exposures 155.8
Other items 12.8
In total 2,898.8
Page 39 of 47
The structure of capital requirements, both in terms of risk weights as well as exposure classes types reflects two
main segments of the Bank’s activity: loans and issuance of corporate bonds – the exposure class: corporates
(dominant risk weight of 100%), and loans for Social Housing Associations and housing cooperatives, granted from
the funds of the former NHF – the exposure class: secured by mortgages on immovable property (dominant risk
weight of 100%)
5.2. Internal capital
Internal capital (Pillar II) is an amount estimated by the Bank which is necessary to cover all identified significant risk
types occurring in the Bank’s operation as well as changes in the economic environment, which takes account of the
expected risk level.
The internal capital is estimated to cover risks identified as significant. For insignificant risks, the Bank does not
establish internal capital to cover them. The significance of risk is examined in annual ICAAP reviews.
The total amount of internal capital is determined as the sum of internal capital for individual types of risk. In order
to estimate the internal capital for individual types of risk, the Bank applies methods used to determine capital
requirements, specified in the CRR or internal methods developed by the Bank.
Table No. 30 presents methods used to determine internal capital for individual types of risk.
As at 31 December 2016, internal capital totalled PLN 3,811.8 million and the internal capital ratio – 31.10%. The
percentage structure of internal capital is presented in Chart No. 7.
Chart No. 7. Internal capital structure as at 31.12.2016
76.0%
9.3%
4.4%
3.0%
1.6%
5.7%
Credit risk and counterparty credit risk
Exposure concentration risk
Equity price risk in the banking book
Interest rate risk in the banking book
CVA risk
Other
Table No. 30. Methods applied to define internal capital
Risk Method
credit risk and counterparty credit risk capital requirement, standardised approach
CVA risk capital requirement, standardised method
exposure concentration risk internal approach based on the possible increase of the capital requirement for credit risk associated with exposure concentration
interest rate risk in the trading book internal approach based on VaR
interest rate risk in the banking book internal approach based on the change of the stressed interest income
equity price risk in the banking book internal approach based on VaR
liquidity risk internal approach based on the amount of additional financing cost
risk of changes in macroeconomic conditions internal approach based GDP changes
operational risk internal approach based on risk self-assessment surveys
compliance risk internal approach based on risk self-assessment surveys
reputation risk percentage capital charge
business risk percentage capital charge
model risk percentage capital charge
Page 40 of 47
5.3. Capital buffers
BGK is not subject to the obligation of complying with capital buffers referred to in CRDIV which were enshrined in
Polish law under the Act of 5 August 2015 of the Macro-prudential Supervision over the Financial System and Crisis
Management in the Financial System (Polish Journal of Laws 2015, item 1513)
6. Financial leverage
The regulatory leverage ratio is determined as at the end of each month pursuant to Commission Delegated
Regulation (EU) 2015/62 as Tier 1 capital divided by the total exposure measure.
In order to present information about the financial leverage, in Table No. 31, format and numbering of items were
applied as specified in Annex I to Commission Implementing Regulation (EU) 2016/200 of 15 February 2016 laying
down implementing technical standards with regard to disclosure of the leverage ratio for institutions, according to
Regulation (EU) No 575/2013 of the European Parliament and of the Council (OJ L 39, 16.2.2016, p. 5), with the
exclusion of zero items or items not specific to the Bank.
Table No. 31. Financial leverage disclosures
Reference date 31.12.2016
Entity name BGK
Level of application individual
Table LRSum: Summary reconciliation of accounting assets and leverage ratio exposures
Applicable amount
1 Total assets as per published financial statements 67,258.2
4 Adjustments for derivative financial instruments 2,120.1
5 Adjustment for securities financing transactions (securities financing transactions – SFTs) 26.6
6 Adjustment for off-balance sheet items (ie conversion to credit equivalent amounts of off-balance sheet exposures)
8,840.1
7 Other adjustments 53,941.7
Items deducted from Tier 1 capital -68.6
Items associated with flow fund exposures (see item 2.2 of the present document) 53,805.0
Other 205.2
8 Leverage ratio total exposure measure 132,186.7
Table LRCom: Leverage ratio common disclosure
CRR leverage ratio
exposures
On-balance sheet exposures (excluding derivatives and SFTs)
1 On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including collateral) 116,892.5
2 (Asset amounts deducted in determining Tier 1 capital) -68.6
3 Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets) (sum of lines 1 and 2) 116,824.0
Derivative exposures
4 Replacement cost associated with all derivatives transactions (ie net of eligible cash variation margin) 429.5
5 Add-on amounts for potential future exposure – PFE associated with all derivatives transactions (mark- to-market method)
2,119.9
11 Total derivatives exposures (sum of lines 4 to 10) 2,549.4
SFT exposures
12 Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions 3,946.6
14 Counterparty credit risk exposure for SFT assets 26.6
16 Total securities financing transaction exposures (sum of lines 12 to 15a) 3,973.2
Other off-balance sheet exposures
17 Off-balance sheet exposures at gross notional amount 15,643.5
18 (Adjustments for conversion to credit equivalent amounts) -6,803.4
19 Other off-balance sheet exposures (sum of lines 17 and 18) 8,840.1
Page 41 of 47
Capital and total exposure measure
20 Tier 1 capital 12,064.1
21 Leverage ratio total exposure measure (sum of lines 3, 11, 16, 19, EU-19a and EU-19b) 132,186.7
Leverage ratio
22 Leverage ratio 9.13%
Choice on transitional arrangements and amount of derecognised fiduciary items
EU-23 Choice on transitional arrangements for the definition of the capital measure transitional
EU-24 Amount of derecognised fiduciary items in accordance with Article 429(11) of Regulation (EU) No 575/2013 0.0
Table LRSpl: Split-up of on balance sheet exposures (excluding derivatives, SFTs and exempted exposures)
CRR leverage ratio
exposures
EU-1 Total on-balance sheet exposures (excluding derivatives, SFTs, and exempted exposures), of which: 116,892.5
EU-2 Trading book exposures 49.5
EU-3 Banking book exposures, of which: 116,843.0
EU-5 Exposures treated as sovereigns 78,727.9
EU-6 Exposures to regional governments, multilateral development banks (MDB), international organisations and public sector entities (PSE) not treated as sovereigns
6,403.3
EU-7 Institutions 4,858.8
EU-8 Secured by mortgages of immovable properties 5,436.9
EU-9 Retail exposures 55.7
EU-10 Corporate 15,846.5
EU-11 Exposures in default 2,102.8
EU-12 Other exposures (eg equity, securitisations, and other non-credit obligation assets) 3,411.0
CRR Leverage Ratio – Disclosure Template Table LRQua
1
Description of the processes used to manage the risk of excessive leverage
The risk of excessive leverage has been considered insignificant. Notwithstanding the foregoing, the Bank manages this risk.
Risk of excessive leverage management includes:
setting and monitoring leverage ratios, including the regulatory leverage ratio,
setting and monitoring the use of internal limit for the regulatory leverage ratio – the internal limit has been set at 4%,
performing stress tests assuming scenarios resulting in changes in the amount of Tier 1 capital or the total exposure measure,
risk level reporting pursuant to Table No. 21,
planning the regulatory leverage ratio,
developing an contingency plan including a procedure of conduct in case of decrease of the leverage ratio, the scope, frequency, and recipients of reports on the situation, the scope of responsibility, and the activities aimed to increase Tier 1 capital or lower the total exposure measure.
Risk of excessive leverage management is integrated with the process of Bank’s capital adequacy management. The process of risk of excessive leverage management is defined in the BGK Capital Management Policy and BGK Capital Adequacy Management Rules.
2
Description of the factors that had an impact on the leverage Ratio during the period to which the disclosed leverage Ratio refers
Changes in the leverage ratio level resulted from:
increase in Tier 1 capital (leverage ratio numerator) as a result of the BGK’s a
statutory fund increase in December 2016 by the State Treasury through the transfer of Treasury securities amounting to PLN 2.89 billion,
changes in the total exposure measure amount (leverage ratio denominator), mainly as a result of changes in the balance of assets resulting from allocation of available funds presented in Chart No. 9 (factors associated with economic and financial environments).
In Table No. 32 and in Charts No. 8 and 9, the amount of the leverage ratio and its components are presented.
Page 42 of 47
Table No. 32. Leverage ratio and its components (in PLN million)
31.12.2016 31.12.2015
Leverage ratio 9.13% 9.26%
Tier 1 capital 12,064.1 9,182.5
Total exposure measure, of which: 132,186.7 99,115.7
On-balance sheet exposures (excluding derivatives and SFTs) 116,824.0 88,682.9
Derivative exposures 2,549.4 1,046.2
SFT exposures 3,973.2 1,181.8
Other off-balance sheet exposures 8,840.1 8,204.8
* money in the National Bank of Poland (NBP), money market bills, Treasury securities, receivables under reverse repo transactions, interbank deposits, funds on nostro accounts
7. Encumbered and unencumbered assets
A given asset is treated as an encumbered asset where it has been pledged or is subject to any arrangements aimed
at protecting, collateralise, or supporting the quality of a balance sheet or off-balance sheet credit transaction, and
the asset may not be freely withdrawn from the transaction (e.g. to pledge for the purpose of financing).
Tables No. 33, 34, and 35 present information about encumbered and unencumbered assets, collaterals received and related liabilities, drawn up in accordance with EBA Guidelines of 27 June 2014 on disclosure of encumbered and unencumbered assets.
Table No. 33. Assets as at 31.12.2016 (in PLN million)
Carrying amount of encumbered assets
Fair value of encumbered assets
Carrying amount of unencumbered assets
Fair value of unencumbered assets
Total assets 6,833.7 x 114,229.5 x
Equity instruments 0.0 0.0 2,079.6 2,079.6
Debt securities 5,724.9 5,724.9 34,645.3 34,645.3
Other assets 1,108.8 x 77,504.6 x
Table No. 34. Collateral received as at 31.12.2016 (in PLN million)
Fair value of encumbered
collateral received or own debt securities issued
Fair value of collateral received or own debt
securities issued available for encumbrance
Collateral received 0.0 3,946.9
Equity instruments 0.0 0.0
Debt securities 0.0 3,946.9
Other collateral received 0.0 0.0
Own debt securities issued other than covered bonds or ABS 0.0 0.0
Chart No. 8. Leverage ratio Chart No. 9. Total exposure measure
0%
3%
6%
9%
12%
15%
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16
Leverage ratio
0
30
60
90
120
150
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16
in PLN billion Total exposure measure
Assets resulting from allocation of available funds*
Page 43 of 47
Table No. 35. Associated liabilities as at 31.12.2016 (in PLN million)
Matching liabilities, contingent
liabilities or securities lent
Assets, collateral received and own debt securities issued
other than covered bonds and ABSs encumbered
Carrying amount of selected financial liabilities 5,794.2 5,788.6
The main sources of encumbrances are:
financing of transactions under reverse repurchase agreements,
loans from the European Investment Bank, the Minister of Finance, and the Council of Europe Development
Bank,
derivative transactions (passive valuation).
The amount of liabilities being the source of asset encumbrance (PLN 6,602.3 million) constitutes 96.6% of the value
of encumbered assets (PLN 6,833.7 million).
Among other unencumbered assets, the Bank considers the items presented in Table No. 36 as unavailable for encumbrance purposes in the normal course of business.
Table No. 36. Other unencumbered assets considered unavailable for encumbrance purposes in the normal course of business as at 31.12.2016 (in PLN million)
Credits and loans* 76,368.7 98.53%
Valuation of derivatives presented in the balance sheet 429.3 0.55%
Deferred tax assets 314.1 0.41%
Shares in subsidiaries and affiliated companies 152.2 0.20%
Tangible fixed assets 128.0 0.17%
Intangible assets 33.2 0.04%
Cash 6.2 0.01%
Other 72.9 0.09%
In total 77,504.6 100.00%
* in addition to credits and loans, the item includes, among other things, receivables of the National Road Fund, nostro accounts, and interbank deposits
8. Information on the variable remuneration policy towards persons holding managerial
positions
General principles of determining, awarding, and payment of variable remuneration to person holding managerial
positions at the Bank are defined in the Variable Remuneration Policy towards Persons Holding Managerial Positions
at Bank Gospodarstwa Krajowego, developed pursuant to Resolution No. 258/2011 of the Polish Financial
Supervision Authority of 4 October 2011 on detailed principles of functioning of the risk management system and
internal control system and detailed conditions of internal capital assessment by banks and of reviewing the process
of internal capital assessment and maintenance, and the principles of determining the policy on variable
components of remuneration of persons holding managerial positions at a bank (Official Journal of the PFSA, No. 11,
item 42), approved by the Supervisory Board of the Bank.
The process of development and implementation of the Variable Remuneration Policy towards Persons Holding
Managerial Positions at Bank Gospodarstwa Krajowego involves the Remuneration Committee appointed from
among the members of the Supervisory Board of the Bank, and comprising, as at 31.12.2016:
Paweł Borys – Chairman of the Committee,
Adam Węgrzyn – Member of the Committee,
Jerzy Szmit – Member of the Committee.
Page 44 of 47
The tasks of the Committee include:
monitoring of and providing opinions on the variable remuneration policy and its implementation, including
the amounts and types of remuneration components for persons holding managerial positions at the Bank,
preparation of recommendations for the Management Board on remuneration of persons holding
managerial positions at the Bank,
issuing opinions and monitoring variable remuneration of persons holding managerial positions at the Bank
that are connected with risk management and compliance with the law and internal regulations,
issuing opinions on the Bank’s internal audit unit reports on the review of implementation and execution of
the principles of the variable remuneration policy towards persons in managerial positions.
Pursuant to the Rules of Procedure of the Remuneration Committee, the Committee meets at least once a year. In
2016, three meetings of the Committee were held.
Persons holding managerial positions within the meaning of the Variable Remuneration Policy are:
members of the Management Board,
managing directors,
Compliance Officer,
members of the Operational Risk Committee, Asset and Liability Committee, Credit Committee,
department directors of the following areas:
○ management of risk significant in the Bank’s activities,
○ financial markets,
○ capital investments,
○ sales and management of banking products,
○ investment financing,
○ accounting and financial reporting,
○ support of ICT system management,
○ management of Bank’s security.
director of the internal audit unit,
directors of organisational units responsible for staff matters, legal matters, and public procurement,
employees of the department responsible for entering into transactions related to Treasury products and
carrying out trading and sales business on the interbank market,
heads of departments authorised to decide on credit risk,
Independent Model Validation Specialist.
The list of positions covered by the Policy is determined on the basis of the influence of respective persons on the
Bank’s risk profile, with account taken of the criteria specified in Commission Delegated Regulation (EU) No
604/2014 of 4 March 2014 supplementing Directive 2013/36/EU of the European Parliament and of the Council with
regard to regulatory technical standards with respect to qualitative and appropriate quantitative criteria to identify
categories of staff whose professional activities have a material impact on an institution’s risk profile (OJ L 167,
6.6.2014, p. 30). The list of positions is subject to review and verification once a year, before the start of the next
calendar year (in which it is to apply) or in the case of organisational changes resulting in the need of verification of
the list. The list and its updates are presented in an opinion to the Remuneration Committee.
The annual variable remuneration of an employee holding a managerial position at the Bank cannot exceed 100% of
their total annual remuneration.
Page 45 of 47
Variable remuneration is awarded and paid depending on the financial situation of the Bank and when it is justified
by the Bank’s results, performance of a given unit and performance of the person holding managerial position at the
Bank. The basis for determining the type and amount of variable remuneration and for granting it is the assessment
of the quality and results of work (card of targets), influence on the financial result of the Bank, and in particular the
results of decisions taken and their influence on the risk in a 3-year assessment period. Variable remuneration for
the members of the Management Board of the Bank is paid on the basis of a resolution of the Bank’s Supervisory
Board after the financial statements of the Bank have been approved and the report on the activities of the Bank for
the preceding financial year has been accepted.
The Bank applies the rule of deferred disbursement of variable remuneration components in relation to persons
whose variable remuneration in a given year exceeds the threshold amount of PLN 100 thousand gross, defined by
the Bank’s Supervisory Board. Above that threshold, 40% of the variable remuneration is deferred and paid in yearly
instalments within three years as of completion of the assessment period for which the remuneration is payable.
Due to its legal form, BGK (a state bank), nature of the activities conducted, and the individual risk profile, the Bank
– in line with the proportionality principle – neutralises some requirements by way of, among other things, not
paying the variable remuneration portion in shares and instruments other than shares.
Heads of the internal audit unit, the compliance unit, and the organisational units in charge of risk management and
HR matters are offered variable remuneration for the fulfilment of goals resulting from the functions they perform,
and their remuneration does not depend on economic results of the Bank’s operation in the areas controlled by
them.
Tables No. 37 and 38 show the remuneration paid in 2016 to persons holding managerial positions within the
meaning of the Variable Remuneration Policy towards Person Holding Managerial Positions at BGK.
Table No. 37. Remuneration in main activity areas12
(in thousands of PLN)
business line fixed remuneration variable remuneration13
sales 4,535 1,250
risk management 2,191 639
other activities 3,845 948
Table No. 38. Remunerations in positions12
(in thousands of PLN)
members of the Management Board (12
persons)
persons reporting directly to a Management Board member; chief accountant (18 persons)
other persons holding managerial positions at BGK
(32 persons)
fixed remuneration 1,850 4,643 5,929
variable remuneration13
: 697 1,219 1,618
paid in cash 697 1,219 1,618
paid in financial instruments 0 0 0
variable remuneration granted with deferred payment
224 35 0
variable remuneration paid with deferred payment
0 0 0
payments related to hiring 0 0 0
severance payments granted 1,233 77 0
severance payments paid: 668 0 0
the highest severance 231 0 0
number of persons with severance payments
4 0 0
In 2016, remuneration of none of the persons employee at BGK exceeded the amount of EUR 1 million.
12
taking into account changes during the year 13
including a simulation of the annual bonus for 2016 (as at the day of drawing up the Table, the annual bonus for 2016 was not paid)
Page 46 of 47
Glossary
BGK, Bank – Bank Gospodarstwa Krajowego
BPV – Basis Point Value
CRDIV – Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of
credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive
2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338)
CRR – Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential
requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176,
27.6.2013, p. 1)
CSA – Credit Support Annex
CVA – Credit Valuation Adjustment
DLD – Distressed Loans Department
FRD – Financial Risk Department
FMSD – Financial Markets and Sales Department
CRD – Credit Risk Department
TD – Treasury Department
CRMD – Credit Risk Management Department
EBA – European Banking Authority
ICAAP – Internal Capital Adequacy Assessment Process
ISDA – International Swap and Derivatives Association
ALCO – Asset and Liability Committee
NHF – National Housing Fund – the NHF was liquidated as at 31 May 2009, and its net assets were transferred to the
Bank’s statutory fund – in line with the Act of 2 April 2009 amending the Act on Sureties and Guarantees Granted by the
State Treasury and Certain Legal Persons, the Act on Bank Gospodarstwa Krajowego and Certain Other Acts (Polish
Journal of Laws, No. 65, item 545)
CC – Credit Committee
PFSA – Polish Financial Supervision Authority
ORC – Operational Risk Committee
KUKE S.A. – Korporacja Ubezpieczeń Kredytów Eksportowych S.A. (Export Credit Insurance Corporation)
ChC – Change Committee
Commission Delegated Regulation 2015/62 (EU) – Commission Delegated Regulation (EU) 2015/62 of 10 October 2014
amending Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to the leverage ratio
(OJ L 11, 17.1.2015, p. 37)
Regulation of the Minister of Finance on the principles of provisioning – Regulation of the Minister of Finance of 16
December 2008 on the principles of provisioning for risks underlying banks’ activity (Polish Journal of Laws, No. 235, item
1589, as amended)
Commission Implementing Regulation (EU) 1423/2013 – Commission Implementing Regulation (EU) No 1423/2013 of 20
December 2013 laying down implementing technical standards with regard to disclosure of own funds requirements for
institutions according to Regulation (EU) No 575/2013 of the European Parliament and of the Council (OJ L 355,
31.12.2013, p. 60)
BGK’s Articles of Association – BGK’s Articles of Association constituting and annex to the regulation of the Minister of
Development of 16 September 2016 on the Adoption of the Articles of Association of Bank Gospodarstwa Krajowego
(Polish Journal of Laws, item 1527)
Act on BGK – the Act of 14 March 2003 on Bank Gospodarstwa Krajowego (Polish Journal of Laws 2014, item 510, as
amended)
Banking Law Act – the Act of 29 August 1997 – Banking Law (Polish Journal of Laws 2015, item 128, as amended)
VaR – Value at Risk
PBA – Polish Bank Association
Page 47 of 47
Statement of the Management Board of Bank Gospodarstwa Krajowego
The Management Board of Bank Gospodarstwa Krajowego:
hereby declares that findings related to risk management at the Bank described in this document
correspond to facts and that the risk management systems used are adequate for the profile and strategy of
Bank Gospodarstwa Krajowego,
hereby approves the risk statements provided in item 2.3.
Signatures of Members of the Management Board of Bank Gospodarstwa Krajowego
29.03.2017 Beata Daszyńska-Muzyczka President of the Management
Board ………………………………….
signature
29.03.2017 Paweł Nierada First Vice-President of the
Management Board ………………………………….
signature
29.03.2017 Włodzimierz Kocon Vice-President of the
Management Board ………………………………….
signature
29.03.2017 Przemysław Cieszyński Members of the Management
Board ………………………………….
signature
29.03.2017 Wojciech Hann Members of the Management
Board ………………………………….
signature
29.03.2017 Radosław Kwiecień Members of the Management
Board ………………………………….
signature
