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Report on Risk Management
and Capital Adequacy
of Bank Gospodarstwa Krajowego
as at 31 December 2015 (Pillar III)
Page 2 of 45
Table of contents
1. Introduction .............................................................................................................................................................. 3
2. Overview ................................................................................................................................................................... 3
2.1. General information about the Bank .............................................................................................................. 3
2.2. Presentation of reported data ........................................................................................................................ 3
2.3. Statement on risk............................................................................................................................................ 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 selecting members of the Management Board ............................................................................. 10
3.4. Number of functions in the governing bodies of other entities exercised by members of the Management
Board and Supervisory Board ....................................................................................................................... 11
3.5. Credit risk, exposure concentration risk 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 reduction techniques ...................................................................................................... 14
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 Character of interest rate risk in the banking book ......................................................................... 26
3.7.2 Financial result sensitivity to changes in interest rates ................................................................... 27
3.8. Operational Risk............................................................................................................................................ 28
3.9. Compliance Risk ............................................................................................................................................ 29
3.10. Other risks ..................................................................................................................................................... 30
3.11. Risk reporting ................................................................................................................................................ 30
3.12. Equity exposures – not taken into account in the trading book .................................................................. 31
4. Own funds ............................................................................................................................................................... 32
5. Capital adequacy ..................................................................................................................................................... 34
5.1. Capital requirements .................................................................................................................................... 35
5.1.1. Capital requirements – credit risk and counterparty credit risk ..................................................... 36
5.2. Internal capital .............................................................................................................................................. 38
5.3. Capital buffers............................................................................................................................................... 38
6. Leverage .................................................................................................................................................................. 39
7. Encumbered and unencumbered assets ................................................................................................................ 40
8. Information on policy on variable components of remuneration of persons holding managerial positions......... 41
Glossary .......................................................................................................................................................................... 45
Page 3 of 45
1. Introduction
This document is the implementation by Bank Gospodarstwa Krajowego of the provisions set forth in Part Eight of
the CRR with respect to disclosures concerning risk management and capital adequacy.
This report has been drafted in accordance with “The 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 of the Bank’s management
report is verified by relevant organisational units at the Bank’s Head Office.
This report is subject to approval by the Management Board before publication.
2. Overview
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 for the economic policy of the
Council of Ministers, the 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 oblige the
Minister responsible for public finance to provide BGK with own funds at a level guaranteeing the fulfilment of the
Bank's tasks and maintenance of the Bank’s liquidity.
Moreover, the Fitch credit rating agency confirmed the high credit quality of Bank Gospodarstwa Krajowego by
assigning it a credit rating of “A-”, i.e. a level equal to Poland’s rating; this rating was confirmed in a statement by
Fitch of 1 March 2016.
2.2. Presentation of reported data
Pursuant to the Act on BGK, the Bank's duties – in addition to performing the tasks stipulated in the Banking Act –
include the management of funds established at, or entrusted or transferred to, BGK under separate laws,
conducted as part of the so-called state-assigned operations.
State-assigned operations are performed by the Bank through separate funds, which include:
funds related to the granting of loans and advances and assuming off-balance sheet commitments at the
Bank’s risk – so-called “funds exposed to credit risk”,
funds related to the management of cash flows used to finance specific budget tasks – so-called “flow funds”.
The Bank's financial statements cover the Bank's own operations and state-assigned operations performed through
the funds exposed to credit risk. The balance sheets, off-balance sheet items and income statements for individual
funds involved in state-assigned operations (including both funds exposed to credit risk and flow funds) are
presented in an appendix to financial statements.
In order to limit regulatory risk measures and to draw up obligatory reports arising from the provisions of the CRR,
the Bank combines its own operations and state-assigned operations performed both through the funds exposed to
credit risk and flow funds. Consequently, the data presented in this document include both the Bank’s own
operations and state-assigned operations.
1 the document is available on the Bank’s website: www.bgk.pl
Page 4 of 45
As at 31 December 2015, Bank Gospodarstwa Krajowego was not subject to consolidation for accounting purposes
or prudential consolidation under the CRR.
2.3. Statement on risk
Table 1 presents information on key risk ratios and figures, and Charts 1 and 2 present the structure of the Bank’s
balance sheet and, combined, reflect the Bank’s risk profile.
Table 1. Key risk ratios and figures2
Regulatory limit As at 31.12.2015 As at
31.12.2014
Figures concerning the Bank’s balance sheet
Total assets shown in financial statements in PLN million 43 419,1 51 231,4
Total assets including flow funds in PLN million 90 057,1 96 858,1
Net result in PLN million 362,7 434,6
Capital adequacy
Own funds in PLN million 9 445,8 8 611,1
Capital requirements in PLN million 2 343,1 1 805,8
CET1 ratio 4,5% 31,35% 37,00%
Capital adequacy ratio (total capital ratio) 8% 32,25% 38,15%
Risk of excessive leverage
Leverage ratio 9,26% 7,99%
Credit risk and counterparty credit risk
Amount of exposure taken into account under the standardised approach to calculating capital requirement for credit risk and counterparty credit risk in PLN million
113 909,6 114 376,4
Capital requirement for credit risk and counterparty credit risk in PLN million
2 148,8 1 652,1
Specific risk provisions in PLN million 620,9 621,4
Liquidity Risk
M1 in PLN million 0 6 095,0 8 356,5
M4 1,00 1,18 1,24
LCR 60% 212% 294%
Market Risk
VaR(1D) for the Bank’s currency position in PLN million 1,8 0,5
BPV for the trading book in PLN million 0,01 0,04
Capital requirement for market risk in PLN million 50,2 22,6
Interest rate risk in the banking book
Change in interest result given a -2 p.p. change in interest rates in the banking book in PLN million
-202,5 -287,5
Change in interest result given a +2 p.p. change in interest rates in the banking book in PLN million
67,9 64,7
Operational Risk
Net loss on operational risk events in PLN million 5,1 2,9
Capital requirement for operational risk in PLN million 117,8 117,8
2 Data on risk ratios and comparable data are presented jointly for the Bank’s own operations and for state-assigned operations in accordance
with CRR provisions
Page 5 of 45
Chart 1. Structure of the Bank’s balance sheet in financial statements
Chart 2. Structure of the Bank’s balance sheet including flow funds
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. Risk appetite is determined by the acceptable levels of the Tier 1 ratio, capital adequacy ratio and
internal capital ratio, as well as the acceptable levels of particular risks. In the allocation process, the required
capital is distributed among particular risk types, determining limit levels defined for particular risks at BGK.
Diagram 1 presents the overall outline of the areas covered by limits.
3 Other assets for the Bank (including flow funds) include National Road Fund receivables
19 874
4 882
2 778
374
5 802
21 796
2 884
1 174
9 243
13 347
2 838
1 846
0 10 000 20 000 30 000 40 000 50 000
Liabilities
Assets
PLN million
19 874
4 882
28 425
374
25 406
21 796
2 884
1 174
9 244
15 213
4 225
46 618
0 20 000 40 000 60 000 80 000 100 000
Liabilities
Assets
PLN million
A1 – Cash and receivables from the National Bank of Poland (NBP) L1 – Client deposits
A2 – Interbank deposits L2 – Contracted loans
A3 – Net loans L3 – Liabilities under securities issue
A4 – Reverse repo and buy-sell-back transactions L4 – Liabilities due to repo and sell-buy-back transactions
A5 – Debt securities L5 – Total funds (excluding the current result and previous years)
A6 – Other assets3 L6 – Other liabilities
A1 A6 A2 A3 A4 A5
L6 L5 L4 L3 L2 L1
A6 A5 A4 A3 A2 A1
L6 L5 L4 L3 L2 L1
Page 6 of 45
Diagram 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 identification, measurement/assessment,
monitoring, reporting and risk control, developed in written form and approved by the Supervisory Board or
the Management Board,
corporate governance principles, principles of selection, remuneration and monitoring of employees
performing functions material for the Bank and Policies of variable components of remuneration of persons
holding managerial positions approved by the Supervisory Board or Management Board.
Internal regulations are subject to regular review 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
performing stress tests.
The risk monitoring and control process includes supervision of the level of risk taken, reviews of relevance and
accuracy of the applied methods of risk assessment 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 investigating deviations from the plan, recommendations for
organisational units of the Bank's and branches, as well as insurance and risk transfer.
RISK APPETITE
Capital adequacy
Credit risk
Liquidity risk
Interest rate risk
Currency risk
Operational risk
Page 7 of 45
The Bank supervises the risks associated with the operations of its subsidiaries, in particular in the areas of liquidity,
capital, operational and compliance risk.
In the opinion of the Management Board, the risk management system presented in this report is adequate in
relation to the Bank’s profile and Strategy.
Diagram 2 shows the Bank’s risk management organisation.
Diagram 2. Organisation of management of selected risks 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 BGK Act, the Bank’s statutes and these bodies’ by-laws.
Presented below are the Bank's bodies and leading organisational units of the Bank's headquarters that participate
in the risk management process.
Supervisory Board
The Supervisory Board supervises the compliance of the Bank's policy on risk-taking with the Strategy and financial
plan of the Bank.
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 internal unit FRD Supervisory Board Supervisory Board
Management
Board
Compliance Risk Management
Board
ORC
Each internal 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 45
Risk Committee4
The Risk Committee supports the work of the Supervisory Board by exercising oversight of the system for managing
all risks identified in the Bank’s operations, including without limitation by giving opinions on the Bank’s overall
current and future risk appetite. The Risk Committee consists of persons appointed from among the members of the
Supervisory Board.
Audit Committee
The Audit Committee supports the Bank's Supervisory Board, in particular through oversight of the internal audit
area and by monitoring the financial and management reporting process. The Audit Committee consists of persons
appointed from among the members of the Supervisory Board.
Management Board
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 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 decisions. The primary objective of the Committee is to define the short-, 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 the Bank's own 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 decisions. The Committee 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 reduction 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: deciding on loan applications and applications for restructuring or debt
collecting. It also provides recommendations to the Bank's Management Board on matters reserved for the
competence of the Board, performs quarterly reviews of the credit portfolio and decides on the classification and
level of specific risk provisions, performs annual reviews of industry sectors and decides on their classification to
relevant investment risk categories.
Change Committee
The Committee offers opinions and decisions. The basic tasks of the Committee include management of the
portfolio of projects within the scope of competence assigned to the Committee and approving, in connection with
the Bank Strategy goals, of the basic principles on banking products, services, processes, applications and IT
infrastructure.
4 In December 2015, in order to comply with amendments to Banking Act provisions, the Risk Committee was appointed by resolution of the
Supervisory Board. The tasks performed to date by the Audit Committee with respect to the risk management system were transferred to the Risk Committee. In 2015, no meetings of the Risk Committee were held.
Page 9 of 45
Financial Risk Department
The Financial Risk Department is responsible for the establishment and development of the efficient management
system for the financial risks (liquidity, market, counterparty bank and the country and capital adequacy) and non-
financial risks (operational and model), supervising financial markets transactions, calculating capital requirements
for market and operational risks, 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 correct classification of:
a client or a group of entities associated with the client which is not a financial institution and is not included
in the portfolio managed by the Distressed Loans Department,
a credit transaction
and the correctness of collaterals established for individual credit transactions, exclusive of collaterals provided to
financial institutions as part of the Bank-assigned exposure limits for banks.
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 portfolio of the Bank, developing principles of credit risk assessment
and methods of its mitigation, preparation of data concerning credit risk-bearing assets, as well as calculation of the
capital requirement for credit risk and counterparty credit risk, coordination of the budgeting process for specific
provisions and monitoring of the processes of provisioning and reversals of provisions as well as optimisation of
credit processes.
Distressed Loans Department
The Distressed Loans Department is in charge of restructuring activities and debt recovery, collection of receivables under credit agreements and collection of other receivables that require restructuring or recovery.
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 the development and coordination of the compliance and reputation risk
management process, carrying out compliance tests in key compliance risk areas as well as technical assistance in
issues related to compliance risk. The Compliance Unit’s activities are supervised and managed by Compliance
Officer, reporting directly to the President of the Management Board.
The Bank’s organisational structure is outlined below, showing the division of the tasks carried out by the Bank,
which ensures the independence of the risk measurement, monitoring and controlling functions from operating
activities that result in risk-taking by the Bank.
Page 10 of 45
Diagram 3. General outline of the Bank's organisational structure as at 31 December 2015
3.3. Rules for selecting members of the Management Board
The composition and term of office of the Management Board and the rules for the appointment, expiration of term
of office and suspension of members of the Management Board are set forth in Articles 10 and 11 of the Act on BGK.
The Management Board consists of not less than three and not more than seven members including the President,
Vice President – First Deputy President and Vice-Presidents. The number of Management Board Vice-Presidents and
members is set by the Supervisory Board.
President of the Management Board is appointed by the Supervisory Board upon the request of the minister
responsible for financial institutions and dismissed by the minister responsible for financial institutions upon the
request of the Supervisory Board.
Vice-President – First Deputy President is appointed by the Supervisory Board upon the request of the minister
responsible for transport, and Vice-Presidents and other members of the Management Board are appointed by the
Supervisory Board upon the request of the President of the Management Board. Vice-President – First Deputy
President, Vice-Presidents and other members of the Management Board are dismissed by the Supervisory Board.
The President of the Management Board and one member of the Management Board are appointed with consent
from the Polish Financial Supervision Authority. Provisions of Article 22a, para. 2 and Article 22b of the Banking Act
apply mutatis mutandis.
The Supervisory Board may, for important reasons, suspend individual or all members of the Management Board for
a period not longer than three months.
The Supervisory Board may, for a period not longer than three months, empower members of the Supervisory Board
to perform the duties of the members of the Management Board:
who were dismissed, resigned or cannot perform their duties for other reasons,
Supervisory Board
Vice-President of the Management
Board
Areas: sales and
management of banking
products, financing of investment
projects, state-assigned
operations
Vice-President of the Management
Board
Areas: banking transactions, IT,
logistics and administration
President of the Management
Board
General management
area
Internal Audit Department
Compliance Officer
ChC
Vice-President - First Deputy
President
State-assigned operations area
Vice-President of the Management
Board
ALCO
Areas: finances, financial
markets, capital investments
Vice-President of the Management
Board
CC, ORC
Risk management
Remuneration Committee
Risk Committee
Audit Committee
Page 11 of 45
if it deems such action necessary to ensure the sound and prudent management of the Bank.
The term of office of a Management Board member expires at the end of his or her term, upon his or her death,
resignation or dismissal from the Management Board. If the term of office of a Management Board member expires
during the term of office of the Management Board, the Supervisory Board appoints a new member until the end of
the term of office of the Management Board.
3.4. Number of functions in the governing bodies of other entities exercised by members of the Management Board and Supervisory Board
Table 2 presents information on the number of functions in the governing bodies of other entities exercised by
members of the Management Board and Supervisory Board.
Table 2. Number of functions in the governing bodies of other entities as at 31 December 2015
BGK Supervisory Board
Members BGK Management Board Members
Number of functions in supervisory boards of other entities 0 8
Number of functions in management boards of other entities 0 1*
Total 0 9
* acting as a board member of an association
3.5. Credit risk, exposure concentration risk and counterparty credit risk
3.5.1. Credit and exposure concentration risk
Credit risk constitutes one of the most important risk types which the Bank is exposed to in its operations and which
is defined as a threat of a borrower's default on the payment of liability under an agreement, i.e. failure to repay
receivables under credit exposure along with the Bank's remuneration within time limits defined in the agreement.
The main purposes of credit risk management are as follows:
identification of credit risk areas and its mitigation to a level acceptable 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 negative 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 BGK Credit Risk Management Policy and in the BGK
Credit Risk Management Principles procedure. The Principles define the manner of credit risk assessment and
measurement as at the conclusion of the transactions bearing the risk and during the transaction’s 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 concentration risk.
Concentration risk is an important credit risk factor. The Bank has introduced relevant internal principles and
procedures applied to concentration with particular emphasis on large exposures to singular customers and
customer groups of the Bank. Concentration is monitored for individual borrowers, entities associated by capital or
Page 12 of 45
management, industries etc. Concentration principles concern various activities of the Bank (not only lending
activity, but also investment activity or money market transactions).
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 credit risk-bearing exposures and performs regular
reviews of economic and financial standing of the borrowers. It classifies exposures and creates relevant specific
provisions. It also maintains an adequate level of capital ensuring solvency in case of default on the 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 concentration to one entity and/or associated by capital or management entities,
for large exposures,
in relation to particular 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 consequences of floods, landslides and hurricanes (including pursuant to the Act of 8 July 1999 on the interest
subsidies for bank loans granted for removal of consequences of floods (Journal of Laws, No. 62, item 690, as
amended)).
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 credit risk-bearing transactions 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 profiles for particular customer segments and products, 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 rates 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 collaterals for receivables as at the
conclusion of the credit risk-bearing transactions and for monitoring the collateral during the transaction's life.
The basis for the value of real (in-kind) collaterals calculation is the value verified by the Bank using ratios for
adjusting the value of collaterals. In the case of unfunded credit protection, the economic and financial standing of
the protection provider is examined. Moreover, the fulfilment of formal and legal conditions for collateral
acceptance is verified each time, as well as whether it is funded and liquid and also its correlation with the economic
and financial standing of the debtor.
In the life period of a credit risk-bearing transaction, the legal collateral is periodically monitored. The condition and
value of the collateral is 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
Page 13 of 45
monitoring depends on the form of collateral, the amount of credit exposure and risk assessment of the
collateralised credit transaction.
Within the 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 levels, 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,
product limits.
The internal limit types and amounts are approved by the Bank's Management Board or a relevant committee
appointed by the 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.
The current monitoring and reporting are of key importance to 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 competences at the Bank is an additional credit risk reducing factor.
3.5.2. Counterparty Credit Risk
The following methodologies are applicable at the Bank to define the principles for:
assessment of the financial standing of the counterparty bank,
setting 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 risks which 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, when the total amount of a contract (agreement) is at risk, whereby 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.
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,
Page 14 of 45
○ banking group limit,
in the case of countries:
○ country exposure limit,
○ treasury security issuer limit.
The current exposure affecting the limits for banks and other counterparties includes the positive valuation and
volatility of market parameters.
Chart 3 shows the credit quality distribution of counterparty banks on the basis of the rating of existing BGK
exposures.
Chart 3. Credit quality of counterparty banks5
In order to determine exposure value under derivative transactions as part of the calculation of capital requirement
for credit risk and counterparty credit risk, the Bank uses the mark-to-market method referred to in Article 274 CRR.
Exposure value under derivative transactions is calculated as the sum of:
the current replacement cost equal to the current market value where it is positive,
potential future credit exposure equal to notional amounts (or delta equivalent in the case of options)
multiplied by the percentages set forth in the CRR depending on the type of derivative transaction.
As at 31 December 2015, the Bank did not use netting of transactions to estimate the capital requirement for credit
risk and counterparty credit risk.
Table 3 shows data of the positive fair value of derivatives.
Table 3. Positive gross fair value of derivatives as at 31 December 2015 (PLN million)
total positive gross fair value collateral
established net value
Total 234,5 192,1 42,3
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.
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.
5this account is based on external ratings by Moody’s, Standard&Poor’s and Fitch Ratings, mapped onto a uniform AAA-B scale
AA and higher 0.9%
A 81.6%
BBB 7.2%
BB and lower 5.0%
no rating 5.3%
Page 15 of 45
3.5.3. Credit risk reduction 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 capital requirement for credit
risk.
The value of a collateral is periodically monitored during the lifetime of a credit risk-bearing transaction. Should an
unfavourable change occur in 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,
registered pledge on movables,
promissory notes.
Specific types of collaterals are established depending on the Bank's total exposure to the customer, the economic
and financial standing of the customer, the customer and product type and other factors.
The main guarantors in the Bank's lending activity include local governments offering loan sureties as well as the
State Treasury and KUKE S.A.
Each time before a collateral is established in the form of a local government’s surety, the economic and financial
standing of the entity is examined in accordance with the rating and creditworthiness methodology for local
governments applicable at the Bank. As a rule, only those local governments 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 Government Programme for Exports Support are
fully protected under insurance agreements concluded by the Bank with 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 4 shows credit protection forms for individual exposure classes.
Page 16 of 45
Table 4. Exposures subject to credit protection under the standardised approach for calculating capital requirement as at 31 December 2015 (PLN million)
6
Exposure classes Exposure amount*
Credit protection
in % Guarantees and sureties
Financial collaterals
Total
Central governments and central banks 73 501,9 0,0 0,0 0,0 0,0%
Regional governments and local authorities 6 510,5 0,0 0,0 0,0 0,0%
Public sector entities 592,4 183,4 0,6 184,0 31,1%
Institutions (including banks) 4 433,8 66,8 854,3 921,0 20,8%
Corporates 17 791,5 4 087,3 329,0 4 416,3 24,8%
Retail 1 011,0 0,9 0,2 1,1 0,1%
Secured by mortgages on immovable property 4 692,9 276,6 45,3 321,9 6,9%
In default 1 679,2 75,4 4,1 79,5 4,7%
Associated with particularly high risk 1 818,1 647,1 0,1 647,1 35,6%
Equity exposures 1 090,2 0,0 0,0 0,0 0,0%
Other items 788,2 0,0 0,0 0,0 0,0%
Total 113 909,6 5 337,5 1 233,4 6 571,0 5,8%
* the value of balance sheet exposures and the balance sheet equivalent of off-balance sheet commitments and derivative transactions without accounting for the effects of credit risk mitigation
Dominant credit protection, which results in the maximum reduction of risk, concerns transactions with corporates
secured by sureties or guarantees whose main issuers are local governments and the State Treasury. Primarily, local
governments offer sureties for exposures of affiliated Social Housing Associations, hospitals and municipal
companies. Healthcare entities constitute a significant share of local governments’ sureties as well. Reduction in risk
for transactions with banks is possible owing 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 credit risk-bearing transaction, 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 proceeds in line with the approach defined in the
regulation of the Minister of Finance on provisioning principles.
Definition of impaired receivables
In its lending activities, the Bank defines impaired receivables and proceeds 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 “lost” categories. Exposures are classified under particular categories on the basis of
the assessment of the economic and financial standing of the customer and timeliness of repayment.
6since the figures in the tables are rounded, differences in totals and percentages may occur in the document
Page 17 of 45
Definition of value and provision adjustments
The Bank applies the special provisioning principles for 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, economic and financial standing of the entities and the
condition of legal collaterals taken into account in reduction of the basis of 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 ascribes 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 and
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, the Bank establishes general risk provisions on the basis of the parameters related to default probability
(PD), loss on the exposure for which a default occurred (LGD) and the probability of a counterparty using the off-
balance sheet portion of the exposure during the time horizon for which the provision is established (CCF).
Write-down amount is calculated according to the following formula: (balance sheet exposure + off-balance sheet
exposure * CCF) * PD * LGD.
Owing to the irrevocable character of exposures in the Bank’s portfolio, a CCF of 100% is assumed.
The PD parameter is determined on the basis of the Bank’s rating system, and in the case of portfolios that are not
covered by ratings, on the basis of historical evolution of the level of exposures in default.
The LGD parameter is determined on the basis of a historical analysis of recoveries, and for portfolios for which
there is no sufficient recovery history – according to expert judgment.
Regardless of the write-down value determined according to the formula described above, additional write-downs
are made in connection with the identified elevated risk for some portfolios, e.g. coal companies or housing
construction industry with very distant maturities.
General information
The total amount of exposure to credit risk (after accounting adjustments), excluding the results of credit risk
mitigation, totalled PLN 113 909,6 million as at 31 December 2015.
The amount of exposure presented in Tables in Section 3.5.5 has been determined as the sum of the values of
balance sheet exposures and of the balance sheet equivalent of off-balance sheet commitments and derivative
transactions without taking credit risk mitigation effects into account.
The average amount of exposure by class is shown in Table 5 (exposure classes with zero values have been omitted).
Page 18 of 45
Table 5. Average exposure amount in 2015 by class (PLN million)7
Exposure amount Average exposure amount
Central governments and central banks 73 501,9 2 303,7
Regional governments and local authorities 6 510,5 5,8
Public sector entities 592,4 4,6
Institutions (including banks) 4 433,8 278,0
Corporates 17 791,5 72,2
Retail 1 011,0 0,8
Secured by mortgages on immovable property 4 692,9 7,4
In default 1 679,2 0,6
Associated with particularly high risk 1 818,1 50,2
Equity exposures 1 090,2 53,5
Other items 788,2 105,7
Total 113 909,6
The Bank’s financial administration of government institutions’ ventures results in particularly high exposures both
in the “Central governments and central banks” class and in the “Institutions including banks” class.
Table 6 shows the geographical distribution of credit exposures by country, while Table 7 shows their distribution by
province.
Table 6. Geographical distribution of BGK exposures by country as at 31 December 2015 (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
(in
clu
din
g b
anks
)
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
Tota
l
Belarus 0,0 0,0 18,6 0,0 0,0 637,6 0,0 656,2
People’s Republic of China 0,0 0,0 102,5 0,0 0,0 0,0 0,0 102,5
Russian Federation 0,0 0,0 67,5 221,8 0,0 0,0 0,0 289,3
France 686,6 0,0 1 024,4 0,0 0,0 0,0 0,0 1 711,0
Canada 0,0 0,0 0,7 437,1 0,0 0,0 0,0 437,8
Luxembourg 0,0 0,0 29,5 0,0 0,0 251,7 8,0 289,3
Germany 0,0 0,0 158,9 46,5 0,0 0,0 0,0 205,4
Poland 72 815,3 6 510,5 2 679,6 16 910,2 4 692,9 904,2 5 153,0 109 665,6
United States 0,0 0,0 80,1 0,0 0,0 0,0 0,0 80,1
United Kingdom 0,0 0,0 214,6 0,0 0,0 0,0 0,0 214,6
Other 0,0 0,0 57,4 175,9 0,0 24,5 0,0 257,8
Total 73 501,9 6 510,5 4 433,8 17 791,5 4 692,9 1 818,1 5 161,0 113 909,6
Exposures to foreign entities result first of all from transactions with foreign banks as well as implementation of the
Government Programme for Exports Support.
7the average calculated on the basis of quarterly data of exposures to individual customers of the Bank under a given class
Page 19 of 45
Table 7. Distribution of BGK exposures by province as at 31 December 2015 (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
(in
clu
din
g b
anks
)
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
Tota
l
Dolnośląskie 0,0 1 179,7 272,8 402,1 603,0 92,9 114,0 2 664,5
Kujawsko-Pomorskie 0,0 496,0 12,8 18,9 297,2 47,6 52,2 924,6
Lubelskie 0,0 291,1 1,8 281,6 103,2 227,1 16,5 921,4
Lubuskie 0,0 236,7 0,0 1,5 124,8 40,4 2,4 405,7
Łódzkie 0,0 362,9 0,0 141,9 126,4 49,5 58,2 738,9
Małopolskie 0,0 513,3 40,0 663,5 338,7 70,1 92,8 1 718,3
Mazowieckie 72 815,3 501,4 2 352,2 9 692,4 816,8 162,4 3 729,0 90 069,5
Opolskie 0,0 220,3 0,0 26,4 30,8 7,7 10,4 295,7
Podkarpackie 0,0 317,4 0,0 0,3 52,2 35,7 10,5 416,1
Podlaskie 0,0 248,6 0,0 32,9 143,8 19,6 55,4 500,3
Pomorskie 0,0 458,7 0,0 805,6 388,0 117,3 60,4 1 830,0
Śląskie 0,0 293,3 0,0 2 490,6 528,3 639,2 12,3 3 963,6
Świętokrzyskie 0,0 208,4 0,0 27,5 54,6 20,7 3,6 314,8
Warmińsko-Mazurskie 0,0 421,4 0,0 47,7 133,7 19,6 37,7 660,2
Wielkopolskie 0,0 476,9 0,0 2 162,6 584,2 59,8 86,2 3 369,7
Zachodniopomorskie 0,0 284,4 0,0 114,9 367,1 69,6 36,3 872,3
Total 72 815,3 6 510,5 2 679,6 16 910,2 4 692,9 1 679,2 4 377,9 109 665,6
Approximately 82% of exposures concern the Mazowieckie province 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 8 shows the structure of BGK impaired exposures by regions.
Table 8. Distribution of impaired exposures and specific risk provisions by province as at 31 December 2015 (PLN million)
Province
Exposures in default
Specific risk provisions
Impaired exposures, not
past due structure (%)
Impaired exposures, past
due structure (%)
Dolnośląskie 91,9 5,6% 0,9 3,1% 16,3
Kujawsko-Pomorskie 47,5 2,9% 0,0 0,1% 4,9
Lubelskie 227,1 13,8% 0,0 0,0% 10,7
Lubuskie 40,4 2,4% 0,0 0,0% 7,6
Łódzkie 49,5 3,0% 0,0 0,0% 35,2
Małopolskie 59,7 3,6% 10,4 35,7% 79,6
Mazowieckie 155,6 9,4% 6,8 23,5% 78,7
Opolskie 7,7 0,5% 0,0 0,1% 2,1
Podkarpackie 35,6 2,2% 0,1 0,3% 42,9
Podlaskie 18,1 1,1% 1,6 5,4% 9,7
Pomorskie 111,2 6,7% 6,1 20,9% 53,4
Śląskie 638,8 38,7% 0,4 1,4% 201,7
Świętokrzyskie 20,7 1,3% 0,0 0,0% 10,9
Warmińsko-Mazurskie 19,6 1,2% 0,0 0,0% 9,2
Wielkopolskie 59,8 3,6% 0,0 0,0% 38,9
Zachodniopomorskie 66,8 4,1% 2,7 9,4% 18,9
Total 1 650,1 100,0% 29,2 100,0% 620,9
Page 20 of 45
Most impaired exposures are present in the Śląskie, Lubelskie and Mazowieckie provinces. Impaired exposures in
Śląskie mostly result from financing of coal mining entities. In the case of Lubelskie, the main reason for the
substantial level of impaired loans are the exposures of the former National Housing Fund (NHF) and transactions
with enterprises. 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 NHF.
Table 9 shows the structure of BGK exposures by industry (exposure classes with zero values have been omitted).
Table 9. Structure of BGK exposures by industry as at 31 December 2015 (PLN million)
Industry Exposure classes*
Total E1 E2 E3 E4 E5 E6 E7 E8 E9 E10 E11
Public administration, national defence, compulsory social security
67 252 6 505 0 0 0 0 0 81 0 106 0 73 944
Construction 0 0 0 0 689 3 2 961 658 0 35 0 4 345
Finance 5 556 0 37 2 680 1 413 0 100 0 903 756 0 11 445
Scientific, professional, technical, and educational activities
0 0 115 0 217 2 77 2 0 0 0 414
Mining and extraction 0 0 0 0 678 0 5 588 0 0 0 1 272
Wholesale trade 0 0 0 0 314 13 19 8 0 0 0 354
Hotels and restaurants 0 0 0 0 2 4 9 19 0 0 0 33
Real estate market, management
0 0 0 0 201 3 958 27 0 0 0 1 190
Health care and social assistance
0 0 421 0 19 5 59 46 0 0 0 550
Other services, sports, entertainment, and recreation
7 6 16 0 14 0 6 15 0 0 0 65
Industrial processing 0 0 0 0 2 152 12 198 32 0 11 0 2 405
Transport, storage and communication
0 0 0 0 4 636 4 84 185 0 15 0 4 923
Electricity, gas and water supply
0 0 4 0 6 556 4 209 10 0 5 0 6 786
Other (individuals, no Polish Classification of Activity (PKD) number)
687 0 0 1 754 901 962 8 7 914 162 788 6 183
Total 73 502 6 510 592 4 434 17 792 1 011 4 693 1 679 1 818 1 090 788 113 910
* E1 – central governments and central banks E2 – regional governments and local authorities E3 – public sector entities E4 – institutions (including banks) E5 – corporates E6 – retail
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 governments, 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 is also involved in financing strategic projects from
the point of view of the Treasury, including in the energy, fuel, chemical and transportation sectors. Projects of this
type are implemented as large investment projects.
Table 10 presents the structure of exposures to small and medium-sized enterprises (SMEs) by industry.
Page 21 of 45
Table 10. Structure of BGK exposures to SMEs by industry as at 31 December 2015 (PLN million)
Industries
Exposures to SMEs
Total Structure
(%) Corporates Retail
Secured by mortgages on
immovable property
Public administration, national defence, compulsory social security
0,0 0,0 0,0 0,0 0,0%
Construction 0,8 2,8 2,6 6,3 1,0%
Finance 0,0 0,3 0,0 0,3 0,0%
Scientific, professional, technical, and educational activities
0,0 1,6 0,0 1,6 0,2%
Mining and extraction 0,0 0,5 0,0 0,5 0,1%
Wholesale trade 0,0 12,3 0,1 12,4 1,9%
Hotels and restaurants 0,0 4,0 0,0 4,0 0,6%
Real estate market, management 0,5 3,0 4,0 7,5 1,1%
Health care and social assistance 0,1 4,5 1,1 5,7 0,9%
Other services, sports, entertainment, and recreation
0,0 0,3 0,0 0,3 0,0%
Industrial processing 1,8 11,6 4,1 17,5 2,7%
Transport, storage and communication 2,6 3,8 0,0 6,4 1,0%
Electricity, gas and water supply 1,1 3,6 0,0 4,7 0,7%
Other (individuals, no Polish Classification of Activity (PKD) number)
0,0 588,2 0,0 588,2 89,7%
Total 6,9 636,5 12,0 655,4 100,0%
Exposures to SMEs are classified into three classes: corporates, retail and exposures secured by mortgages on
immovable property.
Table 11 shows the quality of BGK exposures by industry.
Table 11. Quality of BGK exposures by industry as at 31 December 2015 (PLN million)
Industry
Exposures in default Specific risk provisions
Impaired exposures, not
past due structure (%)
Impaired exposures, past
due structure (%)
Public administration, national defence, compulsory social security
81,0 4,9% 0,0 0,0% 28,0
Construction 641,3 38,9% 16,3 56,0% 229,0
Finance 0,4 0,0% 0,0 0,0% 0,4
Scientific, professional, technical, and educational activities
2,5 0,2% 0,0 0,0% 2,4
Mining and extraction 588,4 35,7% 0,0 0,0% 215,1
Wholesale trade 6,5 0,4% 1,8 6,0% 37,6
Hotels and restaurants 18,4 1,1% 0,4 1,5% 20,1
Real estate market, management 27,0 1,6% 0,3 1,0% 6,2
Health care and social assistance 45,9 2,8% 0,0 0,0% 6,5
Other services, sports, entertainment, and recreation
15,4 0,9% 0,0 0,0% 0,9
Industrial processing 23,2 1,4% 8,8 30,1% 33,8
Transport, storage and communication 184,6 11,2% 0,0 0,1% 9,5
Electricity, gas and water supply 9,8 0,6% 0,0 0,0% 10,4
Other (individuals, no Polish Classification of Activity (PKD) number)
5,8 0,4% 1,6 5,3% 20,9
Total 1 650,1 100,0% 29,2 100,0% 620,9
The construction industry has the worst quality structure in the BGK portfolio, which results from the make-up of
the industry, comprising mostly loans granted to developers (in a substantial part at risk), as well as loans granted to
Page 22 of 45
the former NHF with a large share of at-risk exposures – reclassified as a result of a financial assessment of the
customers. Mining and extraction is another industry with a poor quality structure due to the significant share of
exposures on coal-mining entities that are classified in worse risk groups due to their financial standing.
Table 12 presents general risk provisions by type of activity.
Table 12. General risk provisions by type of activity as at 31 December 2015 (PLN million)
Type of activity General risk provisions
Charges due to general risk
provisions in 2015
Commercial activities, of which: 138,1 3,2
large entities 45,2 -23,2
small and medium entities, natural persons, others 92,9 26,5
Local government units 11,1 -5,9
State-assigned surety activities 32,7 2,6
Housing construction programme 103,7 -6,9
Total 285,6 -7,0
Table 13 presents BGK exposure structure by residual maturity (exposure classes with zero values have been
omitted).
Table 13. Structure of BGK exposures by residual maturity as at 31 December 2015 (PLN million)
Residual maturity
Exposures
Total up to 1 month
more than
1 month and
up to 3 months
more than
3 months
and up to 6 months
more than
6 months
and up to 1
year
more than
1 year and up
to 3 years
more than
3 years and up
to 5 years
more than
5 years past due
Central governments and central banks
6 320,9 320,3 36,5 2 096,9 3 295,1 1 082,4 60 349,8 0,0 73 501,9
Regional governments and local authorities
4,9 5,9 13,1 177,9 511,7 1 133,5 4 663,5 0,0 6 510,5
Public sector entities 1,3 2,1 20,7 48,7 82,0 71,9 347,5 18,2 592,4
Institutions (including banks) 1 921,9 388,7 1 323,5 0,0 127,2 176,2 496,2 0,0 4 433,8
Corporates 139,4 412,0 452,6 902,0 2 277,9 7 134,9 6 441,7 31,2 17 791,5
Retail 1,7 1,0 0,8 580,3 21,0 17,7 387,9 0,7 1 011,0
Secured by mortgages on immovable property
15,0 26,3 21,9 42,4 226,8 69,7 4 287,2 3,5 4 692,9
In default 19,4 12,7 10,8 22,1 283,1 395,6 921,7 13,9 1 679,2
Associated with particularly high risk
1,7 5,1 35,9 37,4 353,3 256,9 1 127,6 0,0 1 818,1
Equity exposures 0,0 0,0 0,0 0,0 0,0 19,6 1 070,6 0,0 1 090,2
Other items 6,9 0,0 0,0 0,0 0,0 0,0 781,3 0,0 788,2
Total 8 433,1 1 174,1 1 915,7 3 907,6 7 178,2 10 358,3 80 875,1 67,6 113 909,6
Structure (%) 7,4% 1,0% 1,7% 3,4% 6,3% 9,1% 71,0% 0,1% 100,0%
The largest group of exposures are those in the Central governments and central banks class with a maturity of more
than 5 years, resulting from the management of flow funds by the Bank. Corporate exposures whose original
maturity exceeds 3 years constitute another significant group in the portfolio, which results from the Bank’s
financing of large investment projects with long implementation and payment dates. Another significant group are
loans whose residual maturity exceeds five years and which were granted to Social Housing Associations and
housing cooperatives as part of the former NHF as well as loans to local governments.
Page 23 of 45
Provisions
Tables 14 and 15 present the balance of provisions and adjustments in 2015.
Table 14. Reconciliation of BGK changes, adjustments and specific risk provisions for 2015 (PLN million)
Item As at 01.01.2015 Write-offs
created Write-offs released
Charged to write-offs
Other adjustments
As at 31.12.2015
Specific risk provisions 621,4 346,3 -339,6 -7,3 0,1 620,9
regular 0,0 0,0 0,0 0,0 0,0 0,0
monitored 14,6 27,3 -43,7 0,0 10,1 8,3
substandard 87,2 60,9 -62,1 0,0 -54,8 31,2
doubtful 103,3 167,0 -129,4 0,0 63,4 204,4
lost 416,3 91,1 -104,4 -7,3 -18,6 377,0
In 2015, the Bank recovered receivables amounting to PLN 171,3 million.
Table 15. Reconciliation of BGK changes, adjustments and provisions for 2015 (PLN million)
Item Deferred
income tax provision
Provisions for litigation
Provisions for pensions and
other employee benefits
Provisions for off-balance sheet (financial and
guarantee) liabilities
General risk provisions
Total
Opening balance 108,5 22,4 14,9 176,8 292,6 615,2
1. Provisions established 0,0 1,5 0,9 167,2 46,6 216,2
2. Provisions released 0,0 -9,9 0,0 -188,4 -53,6 -251,9
3. Other value changes, of which:
-52,2 -0,1 -0,8 -10,8 0,0 -63,9
- increase in provision for deferred income tax
11,0 0,0 0,0 0,0 0,0 11,0
- decrease in provision for deferred income tax
-63,2 0,0 0,0 0,0 0,0 -63,2
Closing balance 56,3 13,9 15,0 144,8 285,6 515,6
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
Liquidity risk is a threat of losing the ability to pay liabilities in a timely fashion as a result of unfavourable changes in
the structure of assets and liabilities, off-balance-sheet transactions or the maturity mismatch of current cash flows,
resulting in the need to incur unacceptable losses.
Liquidity risk is also considered in the following contexts:
market (product) liquidity risk construed as the threat of losing the possibility of converting 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 the threat of insufficient stable sources of funding in the medium and long term,
resulting in real or potential risk that the Bank may not meet its financial obligations such as payments and
margins at their maturity in the medium and long term either in full, or resulting in the need to incur
unacceptable funding costs,
liquidity concentration risk understood as the risk of losing capacity to fulfil current liabilities owing to the
dependence on (the absence of diversification), or excessive exposure to, a single entity or related entities,
liquidity risk in individual currencies in which the Bank conducts its operations, understood as the inability to
meet the Bank’s obligations in the foreign currency in question because of restrictions on the convertibility
Page 24 of 45
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 liquidity crises,
define solutions which will enable the Bank to survive a potential crisis (emergency plan).
Measurement
The Bank’s liquidity risk measurement system comprises the following methods:
liquidity ratios (both regulatory and internal ones), the analysis of contractual and adjusted liquidity gap,
fund stability analyses, daily monitoring of the deposit base,
risk measures under extreme conditions (stress tests).
The liquidity measures applied enable the monitoring of liquidity over various time horizons. The Bank monitors the
intraday liquidity measures developed on the basis of the Basel Committee document “Monitoring tools for intraday
liquidity management”.8 Regulatory liquidity ratios are calculated in accordance with the definitions set forth in
Resolution No. 386/2008 of the PFSA and in Delegated Regulation No. 2015/61.9 With respect to internal indicators,
the Bank monitors in particular indicators showing the difference between liquid assets and unstable funds in
various time horizons (30 days, 3 months and 12 months), the measures specifying the long-term funding level,
concentration indicators and the stability of funding sources.
Regulatory liquidity ratios are shown in Table 16.
Table 16. Regulatory liquidity ratios limit 31.12.2015
M1 – short-term liquidity gap (PLN million) 0,00 6 095,0
M2 – short-term liquidity ratio 1,00 1,38
M3 – coverage ratio of non-liquid assets with own funds 1,00 5,96
M4 – coverage ratio of non-liquid assets and limited liquidity assets with own funds and stable external funds
1,00 1,18
LCR – liquidity coverage ratio 60% 212%
M1 – the difference between the sum total of primary and supplementary liquidity reserve amounts and the amount of unstable external funds,
M2 – the ratio of the sum total of primary and supplementary liquidity reserve amounts to the amount of unstable external funds,
M3 – the ratio of the Bank’s own funds less the total value of capital requirements for market risk, the requirement for delivery settlement and counterparty risk to non-liquid assets,
M4 – the ratio of the Bank’s total own funds less the total value of capital requirements for market risk, the requirement for delivery settlement and counterparty risk plus stable external funds to total non-liquid assets and limited liquidity assets,
LCR – the ratio of the liquidity buffer to net outflows.
As part of liquidity risk measurement, the Bank draws up the contractual and adjusted liquidity gaps. The liquidity
gap is based on the comparison of assets and liabilities in individual time intervals between the reporting date and
the date of repayment of the Bank’s receivables (assets) or the date of the Bank’s performance of its obligations
(liabilities). The contractual liquidity gap is drawn up on the basis of contractual maturity/due dates while the
adjusted gap involves, without limitation, the adjustment of deposit values (based on estimated core deposits),
liquid securities (recognised in the amounts that can be realised by individual dates) and off-balance sheet
8 http://www.bis.org/publ/bcbs248.pdf
9 PFSA Resolution No. 386/2008 of 17 December 2008 on the establishment of liquidity standards binding on banks (Official Journal of the
PFSA No. 8 item 40 as amended) defines the M1–M4 measures
the LCR ratio is defined in the 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)
Page 25 of 45
commitments granted with a financial and guarantee character (with respect to the estimated amounts and
realisation dates).
Selected liquidity measures are also monitored for individual significant currencies, i.e. those for which the value of
liabilities in the particular currency exceeds 5% of total liability value. Market (product) liquidity is reflected in
liquidity measures by taking into account liquid assets with the appropriate haircut applied.
In order to assess the impact of adverse conditions on the liquidity level, the Bank conducts regular stress tests. As
part of stress tests, the Bank conducts scenario analyses, sensitivity analyses and reverse stress tests that take into
account both internal and systemic factors. Stress tests are conducted for scenarios that involve, inter alia, the
withdrawal of deposits, a drop in the liquidity of securities and the realisation of off-balance sheet commitments.
Stress test results are used in the liquidity risk management process, in particular within the framework of
contingency liquidity plans and in the strategic planning process.
Risk reduction methods
A system of limits is an important liquidity risk management tool at BGK. Limits and threshold values for liquidity
ratios are applied. The risk monitoring process consists of a cyclical review of the values of limited parameters and
analysis of the limit usage. In 2015, no regulatory or internal liquidity ratio limits were breached.
In order to reduce risk and secure liquidity, the Bank applies the following actions:
entering into transactions on the money market, including deposit transactions, reverse repo, repo,
purchase/sale of NBP (National Bank of Poland) money market bills, Treasury bills and bonds,
maintaining a portfolio of liquid securities,
daily monitoring of the money balance and financing possibilities from 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 in place for determining and applying transfer pricing (the FTP system), including
adjusting the liquidity margin,
modelling, forecasting and planning liquidity conducted within the framework of forecasting and planning
processes,
contingency plans in case of emergency situations of reduced or endangered liquidity.
In order to hedge against liquidity risk, the Bank maintains an appropriate level of surplus liquid assets, which, inter
alia, exhibit high credit quality, are readily transferable and highly liquid in the repo transaction market. The liquidity
surplus includes, inter alia, Treasury bonds and NBP bills.
The main source of funding for the Bank are deposits, including in particular those from the public sector. The Bank
also obtains funding by issuing own bonds and taking out loans from international financial institutions. Stable
sources of funding the Bank’s own operations (core deposits with a horizon of more than one year) are diversified –
the percentages of individual liability categories as at 31 December 2015 were as follows: deposits 58%, bonds
issued 29%, and received loans 14%.
3.7. Market Risk
Definition
Market risk is understood as a threat of possible drop in the value of the Bank's financial instruments portfolio or
results as a consequence of unfavourable changes in market parameters (exchange rates, interest rates and prices
of debt and equity instruments).
The Bank applies market risk management procedures which define how each individual risk type is monitored and
managed.
Page 26 of 45
Market risk management objectives are as follows:
for interest rate risk (including debt securities price risk) – reducing the risk of losing part of 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,
for currency risk – reducing the risk of incurring losses as a result of changes in market exchange rates,
for the equity securities price risk – reducing the risk of incurring losses as a result of changes in equity
prices.
Measurement
The Bank’s market risk measurement system comprises the following methods:
position size measure – for foreign exchange risk and interest rate risk (including price risk),
sensitivity measures for the purposes of detailed analyses (BPV, Duration, earnings sensitivity analysis) –
relating to the interest rate risk and the price risk,
Value at Risk (VaR) – a measure used to assess all types of market risk,
risk measures under extreme conditions (stress tests).
Table 17 shows the Bank’s overall currency position, the VaR for currency risk and BPV for the trading book.
Table 17. Overall currency position, VaR for currency risk and BPV for the trading book as at 31 December 2015 (PLN million)
The Bank’s overall currency position 90,3
VaR(1D) for the Bank’s currency position 1,8
BPV for the trading book 0,01
Risk reduction methods
The Bank’s system of limits is an important market risk management tool. BGK applies the following limits:
for the interest rate risk – limits of sensitivity measures (BPV for the banking and trading book, interest
income risks for the banking book) and loss limits,
for the currency risk – the Bank’s overall position volume limits, trading book position limits and loss limits.
The limit system involves a risk monitoring process that consists, inter alia, of a cyclical review of risk measure levels
and an examination of limit utilisation. Additionally, the Bank prepared the procedures to be followed in the event
of an increased market risk level.
3.7.1 Character of interest rate risk in the banking book
The objective of interest rate risk management is to reduce the risk of losing part of 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.
To a large extent, the interest rate risk level is determined by the long-term loan portfolio (in particular 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 determined to a large
extend by deposits at the Bank and the debt securities portfolio. Deposits with undetermined maturity are
accounted for in interest rate risk analyses by customer group with the nearest repricing date of up to 1 month.
The Bank considers the risk of early loan repayments or early deposit terminations to be low. Customer option risk is
managed in particular by the Bank’s price policy and the table of fees and commissions. 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.
Page 27 of 45
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 market 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 interest rate risk by way of analysing:
income risk,
price risk divided into banking book and trading book,
stress tests,
capital needs related to the banking book.
The income risk is analysed on the basis of:
repricing gap,
earnings sensitivity analysis – a method forecasting the impact of changes in market interest rates on the
Bank’s interest result (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 18 shows the repricing gap in the banking book.
Table 18. Repricing gap in the banking book as at 31 December 2015 (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
-2 530,1 3 355,9 5 013,9 2 013,6 2 030,5 153,9 336,0
Aggregate gap -2 530,1 825,8 5 839,7 7 853,3 9 883,8 10 037,7 10 373,7
The change in the interest result given a ±2 p.p. change in interest rates is shown in Table 19.
Table 19. Change in the interest result given a ±2 p.p. change in interest rates as at 31 December 2015 (PLN million)
Book: change in rates by -2 p.p. change in rates by +2 p.p.
Banking -202,5 67,9
PLN -200,1 130,5
EUR -12,8 -49,4
USD 11,8 -14,3
other currencies -1,4 1,2
Trading 0,7 -0,7
Total banking and trading book -201,8 67,2
Page 28 of 45
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 income risk estimated in this
way determines the level of additional capital needs under the interest rate risk for the banking book.
For banking book instruments that are sensitive to price risk, the risk is additionally measured on a daily basis with
the use of BPV and VaR measures. As at 31 December 2015, BPV for the banking book amounted to PLN 0,8 million
and VaR for a forecast period of one business day amounted to PLN 2,3 billion.
3.8. Operational Risk
Qualitative information
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people or
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
does not pose a threat to the business operation.
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 involves all of the Bank’s branches/Head Office organisational units and
subsidiaries.
Operational risk is identified on the basis of:
internal sources, including:
o operational events,
o risk self-assessment,
o assessment of processes within business lines,
o assessment of high-risk products,
external sources, including:
o external loss data in the field of operational risk,
o external studies.
The Bank assesses the actual threats under operational risk on the basis of:
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 Bank’s organisational units secure operational areas at risk with the
following security measures:
emergency plans – to counteract and minimise negative impacts of unexpected events, including internal
and external attacks which can negatively affect the organisation and its operation,
the mitigation of risks related to cybercrime, prevention activities related to the Bank’s electronic banking
operations and customer relationships,
insurance protection – insurance of assets against accidents and failures of electronic equipment, computer
hardware and networks, losses resulting from forgery or fraud, and civil liability,
Page 29 of 45
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 recorded at the Bank, a relevant organisational unit
presents an action plan to improve the existing state of affairs (taking account of individual risk operational
categories), agrees it 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 20 shows information on operational loss events reported to the internal database in 2015.
Table 20. Operational loss events reported to the internal database in 2015 (in thousands of PLN)
Event type Gross loss* Loss realised (net)
Internal fraud 628 628
External fraud 303 121
HR practices and safety at work 73 69
Damage to assets 10 4
Business disruptions 12 12
Transactions, delivery and operational processes management 4 229 4 229
Total 5 255 5 063
* gross loss excluding reversed losses (recovered directly between reporting periods)
In 2015, significant events in the transactions category included one incident involving the double input of payment
orders by an employee. A significant part of the funds were recovered as a result of returns from counterparties.
A court case is currently ongoing to recover PLN 4,2 million. The Bank has introduced a number of mitigation
measures, including appropriate modifications to the Bank’s IT systems, clarifying operational processes in this area
and conducting training for employees.
As concerns internal fraud, in 2015 a single event was reported concerning a demand for payment under
a guarantee with no documents or records in the Bank’s accounting systems. A provision for operational risk
amounting to PLN 0,6 million was established. The event is included in the group of related events for which court
cases were ongoing that ended favourably for the Bank.
As concerns external fraud, the loss recorded resulted mainly from an unlawful change of the bank account by
a client, as a result of which the funds received did not go towards the repayment of the working capital loan within
the framework of the revolving credit line with the Bank. As a result of the measures taken by the Bank,
a settlement with the client was signed who regularly repays the debt in installments (as at the end of 2015, net loss
amounted to PLN 0,1 million).
In 2015, total (net) loss realised amounted to PLN 5,1 million and operational events from the “Transactions,
delivery and operational processes management” category accounted for 83,5% of it.
The net loss amounted to 1,4% of the net profit recorded by the Bank in 2015.
3.9. Compliance Risk
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.
Page 30 of 45
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 compliance risk. The compliance risk management process also covers 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.
3.10. Other risks
Apart from the risks referred to in Sections 3.5 to 3.9, the ICAAP process revealed the following risks as significant:
the risk related to CVA, business risk, risk of changes in macroeconomic conditions, model risk 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.
3.11. Risk reporting
Risk reporting takes place in strict accordance with internal regulations, in line with the competence division rules
adopted at the Bank.
Depending on the nature of risk and the scope of information, current (intraday, daily, weekly, monthly, ad hoc)
reports are directed to the Management Board, the relevant committees and to those involved in the management
of the type of risk in question.
Depending on the nature of risk and the scope of information, periodic (quarterly, semiannual and annual) reports
are directed to the Management Board, the Risk Committee and the Supervisory Board.
The reports are sent to their recipients in electronic or paper form depending on the type of report.
Table 21 presents information on the types and scopes of the risk management reports drawn up.
Table 21. Types and scope of reports
Risk type Report types
Scope of reports
Credit Risk on-going utilisation of internal exposure limits in accordance with regulations on the establishment and monitoring of internal BGK maximum credit exposure limits; utilisation of external exposure concentration limits; information about the nature of exposures and the risk structure of the entire loan portfolio
periodic extended information on the type of exposures, risk structure for the entire credit portfolio and utilisation of external and internal exposure limits; information on stress tests related to exposure concentration risk; report on lending activities using own and entrusted funds in the loan portfolio, taking into account exposures secured by mortgages
Counterparty bank and country credit risk
on-going 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 have been placed on a watch-list due to increased settlement risk on a given day
periodic usage of limits for countries and exposure limits for foreign and domestic banks
Liquidity risk on-going utilisation of regulatory and internal liquidity limits, changes in intraday liquidity measures and liquidity gaps, balance of the Bank’s deposits, stability analysis for external funds and stress tests results
periodic utilisation of regulatory and internal liquidity limits, changes in liquidity gaps, stability analysis for external funds and stress tests results, simulations of liquidity measures, analyses of long-term liquidity, information on the assessment of the magnitude and profile of the Bank’s liquidity risk associated with the activities of its subsidiaries
Page 31 of 45
Interest rate risk
on-going 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
periodic sensitivity of interest result, usage of internal interest rate risk limits, measures: VaR, BPV and results of stress tests
Equity securities price risk
on-going information on equity securities, 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
periodic information on equity securities, exclusive of structured positions in equities, including VaR
Currency risk on-going information about the usage of internal currency 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 currency risk
periodic usage of internal currency risk limits, VaR, results of stress tests
Capital adequacy and risk of excessive leverage
on-going changes in capital adequacy and leverage ratios, capital requirement, internal capital, total exposure measure and own fund, utilisation of capital limits and stress test results
periodic changes of capital adequacy and leverage ratios, capital requirement, internal capital, total exposure measure and own funds, utilisation of capital limits, stress test results, comparing the BGK capital adequacy ratio with ratios at other banks, information on the assessment of the magnitude and profile of the Bank’s capital risk related to the activities of its subsidiaries
Operational risk on-going information on significant operational events from the Operational Risk Registry together with a description of the measures taken
periodic
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 at subsidiaries
Compliance risk periodic 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 regarding the Bank and its subsidiaries
3.12. Equity exposures – not taken into account in the trading book
Table 22 shows equity exposures outside the trading book.
Table 22. Equity exposures not taken into account in the trading book as at 31 December 2015 in PLN million
Book value Fair/market value
Breakdown by type of investment
companies listed on the Warsaw Stock Exchange, of which: 787,8 787,8
WIG20 companies 721,7 721,7
other 66,1 66,1
unlisted companies 180,8 180,8
surety funds 61,9 61,9
other 119,0 119,0
Total 968,6 968,6
Breakdown by purpose of investment
capital gain 0,0 0,0
strategic goals 152,3 152,3
other 816,3 816,3
Total 968,6 968,6
Page 32 of 45
The valuation of equity exposures is performed:
for companies listed on the WSE – at fair value determined on the basis of the closing price on the last day
of the reporting month (monthly),
for other companies – at cost (contribution) and decreased by potential write-downs or impairment
allowances (quarterly).
In 2015, the Bank did not sell any shares.
The total amount of unrealised gains or losses recognized in CET1 capital as at 31 December 2015 amounted to PLN
-58,0 million.
In 2015, the Bank did not have any equity exposures in the trading book.
4. Own funds
BGK own funds determined in accordance with CRR provisions include:
Tier 1 capital:
○ CET1 (Common Equity Tier 1) capital:
– a statutory fund10 that constitutes, pursuant to Article 3, para. 3c of the Act on BGK,
a capital instrument within the meaning of Article 26(1)(a) and Article 28 CRR
The statutory fund includes cash and other assets contributed by the Treasury (including the
Treasury securities provided by the minister responsible for public finance) and annual
allocations from the Bank’s net profit in accordance with the principles set forth in BGK
Articles of Association.
– other accumulated comprehensive income
Unrealised gains and losses associated with assets and liabilities measured at fair value are
subject to the transitional period; in 2015, the Bank recognised 100% of unrealised losses in
Tier 1 capital and removed 60% of unrealised gains from CET1 capital.
– other reserves including the supplementary capital and reserve fund
The supplementary capital and reserve fund are created from allocations from annual net
profit in accordance with the principles set forth in BGK Articles of Association.
– funds for general banking risk
The funds for general banking risk is created from allocations from annual net profit in
accordance with the principles set forth in BGK Articles of Association.
– deductions related to intangible assets
The amount deducted from CET1 capital is reduced by the related deferred income tax
provisions.
– Additional valuation adjustments (AVA)
AVA are determined using the 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 2015, the Bank had no Additional Tier 1 capital positions
Tier 2 capital:
10
Owing to the nature of the Bank’s own funds, the main characteristics of the capital instruments included in Common Equity Tier 1 capital have not been shown in the format stipulated in Annex II to Commission Implementing Regulation (EU) No 1423/2013
Page 33 of 45
○ general credit risk adjustments, before tax effects, amounting to a maximum of 1,25% of risk-weighted exposure amounts calculated in accordance with Part Three, Title II, Chapter 2 CRR.
Table 23 presents own funds in the transitional period and additional information concerning risk-weighted assets,
capital ratios and capital buffers, items not deducted from own funds and the inclusion of provisions in Tier 2
capital. The presentation of own fund items uses the format and numbering of items set forth in Annex VI to
Commission Implementing Regulation No 1423/2013, omitting items with zero values or items not applicable to the
Bank.
Table 23. Own funds in the transitional period and additional information as at 31 December 2015 (PLN million)
(A) Amount at disclosure
date
(B) Reference to CRR Article
(B) Residual amount
stipulated in CRR
Common Equity Tier 1 capital: instruments and reserves
1 Capital instruments and the related share premium accounts 8 409,5 26(1), 27, 28, 29,
EBA list 26(3)
Statutory fund pursuant to Article 3, para. 3c of the Act on BGK 8 409,5
3 Accumulated other comprehensive income (and other reserves, to include unrealised gains and losses under the applicable accounting standards)
677,8 26(1)
3a Funds for general banking risk 155,5 26(1)(f)
6 Common Equity Tier 1 (CET1) capital before regulatory adjustments 9 242,8
Common Equity Tier 1 capital: regulatory adjustments
7 Additional valuation adjustments (negative amount) -14,6 34, 105
8 Intangible assets (net of related tax liability) (negative amount) -24,4 36(1)(b), 37, 472(4)
26a Regulatory adjustments relating to unrealised gains and losses pursuant to Articles 467 and 468
-21,3 -14,2
of which: ...filter for unrealised gain (debt instruments) -16,8 468 -11,2
of which: ...filter for unrealised gain (investment property) -4,6 468 -3,1
28 Total regulatory adjustments to Common Equity Tier 1 (CET1) -60,3 -14,2
29 Common Equity Tier 1 capital 9 182,5 -14,2
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) 9 182,5
Tier 2 (T2) capital: instruments and provisions
50 Credit risk adjustments 263,4 62(c) and (d)
51 Tier 2 (T2) capital before regulatory adjustments 263,4
57 Total regulatory adjustments to Tier 2 (T2) capital 0,0
58 Tier 2 capital 263,4
59 Total capital (TC = T1 + T2) 9 445,8
60 Total risk-weighted assets 29 289,2
Capital ratios and buffers11
61 Common Equity Tier 1 (as a percentage of risk exposure amount) 31,35% 92(2)(a), 465
62 Tier 1 (as a percentage of risk exposure amount) 31,35% 92(2)(b), 465
63 Total capital (as a percentage of risk exposure amount) 32,25% 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% CRD 128, 129, 130
65 of which: capital conservation buffer requirement 0%
11
BGK is not subject to the obligation to comply with the capital buffers referred to in CRD IV and in the Act of 5 August 2015 on macro-prudential oversight of the financial system and crisis management in the financial system (Journal of Laws of 2015 item 1513)
Page 34 of 45
66 of which: countercyclical buffer requirement 0%
67 of which: systemic risk buffer requirement 0%
67a of which: Global Systemically Important Institution (G-SII) or Other Systemically Important Institutions (O-SII) buffer
0% CRD 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)
782,6
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)
148,5 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)
106,2 36(1)(c), 38, 48, 470,
472(5)
Applicable caps on the inclusion 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)
263,4 62
77 Cap on inclusion of credit risk adjustments in T2 under standardised approach 335,7 62
Pursuant to the requirements of Implementing Regulation No 1423/2013, Table 24 presents the reconciliation of
balance sheet items used to calculate the Bank’s own funds as at 31 December 2015.
Table 24. Reconciliation of regulatory own fund items to items in financial statements as at 31 December 2015 (PLN million)
Financial statement
items Regulatory own fund
items
ASSETS
Intangible assets 25,2 -24,4
CAPITAL
Share capital 8 409,5 8 409,5
Supplementary capital 614,4 614,4
Revaluation reserve (other accumulated comprehensive income) -13,5 -34,8
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 -14,6
General credit risk adjustments using the standardised approach 263,4
REGULATORY OWN FUNDS 9 445,8
5. Capital adequacy
Capital adequacy management involves:
setting and monitoring capital adequacy ratios,
determining and monitoring the utilisation of capital limits for various activity areas on the basis of the
amount of internal capital,
conducting stress tests,
reporting the risk level according to Table 21,
capital planning,
drawing up a capital contingency plan.
The Bank’s capital adequacy is monitored using the following capital adequacy ratios:
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capital ratios determined in accordance with CRR provisions:
o Common Equity Tier 1 capital ratio (CET1 ratio),
o Tier 1 capital ratio,
o capital adequacy ratio (total capital ratio),
the internal capital ratio referred to in Article 128, para. 1, point 2 of the Banking Act, understood as the
ratio of internal capital to own funds.
In 2015, the Bank met the regulatory limits set forth in the CRR and in the Banking Act. Changes in capital adequacy
ratios and in their components are shown in Table 25 and in Charts 4 and 5.
Table 25. Capital adequacy ratios
Ratio Regulatory limit 31.12.2015 31.12.2014
CET1 capital ratio at least 4,5% 31,35% 37,00%
Tier 1 capital ratio at least 6% 31,35% 37,00%
capital adequacy ratio at least 8% 32,25% 38,15%
internal capital ratio max. 100% 31,85% 25,09%
Changes in the values of capital ratios and of the internal capital ratio resulted mainly from:
an increase in the amount of own funds as a result of the increase in the BGK statutory fund by the Treasury
through the transfer of a block of PKO BP S.A shares,
an increase in capital requirement and internal capital in connection with the growth of the Bank’s activities
in the area of corporate financing and the acquisition of Closed-End Investment Fund investment
certificates.
Chart 4. Capital adequacy ratios Chart 5. Components of capital adequacy ratios
5.1. Capital requirements
In order to define capital requirements for individual risk types (Pillar I), the Bank applies methods described in
Table 26. The amounts of capital requirements for individual risk types are shown in Table 26 and graphically – in
Chart 6.
0%
10%
20%
30%
40%
50%
0%
10%
20%
30%
40%
50%
Dec-14 Mar-15 Jun-15 Sep-15 Dec-15
Capital adequacy ratio Internal capital ratio
0
2
4
6
8
10
Dec-14 Mar-15 Jun-15 Sep-15 Dec-15
PLN billion Total capital requirement Internal capital Own funds
Page 36 of 45
Table 26. Methods applied to determining requirements and BGK capital requirement structure (PLN million)
Capital requirement for: Method 31.12.2015
credit risk standardised approach (Articles 111–141 CRR) Financial Collateral Comprehensive Method (Articles 223–224 CRR)
2 123,5
counterparty credit risk, including: mark-to-market method (Article 274 CRR) 25,2
arising from exposure to a qualifying central counterparty (CCP)
alternative approach (Article 310 CRR) 0,002
foreign exchange risk basic approach (Article 351 CRR) 0,0
commodity price risk simplified approach (Article 360 CRR) 0,0
position risk in the trading book, including: 50,2
specific and general risk of equity instruments according to Articles 342–343 CRR 0,0
specific risk of debt instruments according to Article 336 CRR 0,0
general risk of debt instruments maturity ladder approach (Article 339 CRR) 50,2
CVA risk standardised method (Article 384 CRR) 26,4
settlement risk according to Articles 378–380 CRR 0,0
large exposures in the trading book according to Article 397 CRR 0,0
operational risk basic indicator approach (Articles 315–316 CRR) 117,8
Total 2 343,1
Chart 6. Structure of BGK capital requirements as at 31 December 2015
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 CRR. The bank uses credit ratings assigned by the following external rating 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,
Institutions – banks,
Corporates,
Regional governments and local authorities.
Table 27 presents the value of exposures before and after the application of credit risk mitigation techniques for
individual credit quality steps with the use of standardised approach to the calculation of capital requirement for
credit risk.
91.7%
5.0%
2.1%
1.1%
credit risk and counterparty credit risk
operational risk
position risk
CVA risk
Page 37 of 45
Table 27. Value of exposures before and after the application of credit risk mitigation techniques for individual credit quality steps as at 31 December 2015 (PLN million)
Credit quality step Exposure amount Exposure amount after credit risk
mitigation Capital requirement
1 700,4 700,4 0,2
2 74 806,9 79 344,2 85,8
3 4 001,3 4 001,3 292,5
4 0,5 0,5 0,0
5 0,0 0,0 0,0
6 963,5 266,7 32,0
n/a 33 437,0 28 363,2 1 738,2
Total 113 909,6 112 676,2 2 148,8
As at 31 December 2015, there were no deductions from own funds with a credit quality step assigned.
Table 28 shows the value of exposures before and after application of credit risk reduction techniques for individual
risk weights with the use of Standardised Approach of capital requirement calculation for credit risk.
Table 28. Exposures subject to credit protection under the standardised approach for calculating capital requirement as at 31 December 2015 (PLN million)
Risk weight Exposure amount Exposure amount after credit risk
mitigation Capital requirement
0% 73 449,9 78 014,6 0,0
20% 9 532,4 9 612,7 153,8
35% 7,4 7,4 0,2
50% 2 656,8 2 286,5 91,5
75% 1 011,0 1 009,9 51,5
100% 24 285,3 19 440,7 1 554,9
150% 2 712,2 2 049,7 246,0
250% 254,6 254,6 50,9
Total 113 909,6 112 676,2 2 148,8
Table 29 presents capital requirement for credit risk and counterparty credit risk by exposure class (exposure classes
with zero values have been omitted).
Table 29. Capital requirement for credit risk and counterparty credit risk as at 31 December 2015 by exposure class (PLN million)
Exposure classes capital requirement
Central governments and central banks 13,7
Regional governments and local authorities 114,3
Public sector entities 16,6
Institutions (including banks) 100,7
Corporates 1 070,5
Retail 51,5
Secured by mortgages on immovable property 349,1
In default 163,1
Associated with particularly high risk 140,5
Equity exposures 117,8
Other items 11,0
Total 2 148,8
The structure of capital requirements in terms of risk weights as well as exposure classes types reflects two main
segments of the Bank's activity: loans and issues of corporate bonds – exposure class “corporates” (dominant risk
weight 100%), and loans for Social Housing Associations and housing cooperatives granted from the funds of the
former NHF – exposure class “secured by mortgages on immovable property” (dominant risk weight 100%).
Page 38 of 45
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, and which takes account of
the expected risk level.
Internal capital is estimated to cover risks identified as significant. For insignificant risks, the Bank does not establish
internal capital to cover them. Risk materiality is assessed as part of 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 assess internal capital for individual risks, the Bank applies the methods used for determining capital
requirements set forth in the CRR or internal methods developed by the Bank.
Table 30 presents the methods used to determine internal capital for individual risks.
As at 31 December 2015, internal capital totalled PLN 3 008 million and the internal capital ratio was 31,85%. The
percentage structure of internal capital is presented in Chart 7.
Chart 7. Internal capital structure as at 31 December 2015
71.4%
8.9%
6.7%
6.2%
1.8%
4.9%
Credit risk and counterparty credit risk
Exposure concentration risk
Interest rate risk in the banking book
Price risk of equity securities in the banking book
Operational risk
Other
Table 30. Methods used for determining internal capital
Risk Method
credit risk and counterparty credit risk capital requirement, standardised approach
CVA risk capital requirement, standardised approach
exposure concentration risk internal approach based on the potential increase in 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 in net interest income under stress
price risk of equity securities in the banking book internal approach based on VaR
liquidity risk internal approach based on additional funding cost amount
risk of change in macroeconomic conditions internal approach based on 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 39 of 45
5.3. Capital buffers
BGK is not subject to the obligation to comply with the capital buffers referred to in CRD IV that were introduced
into the Polish legal system by the Act of 5 August 2015 on macro-prudential oversight of the financial system and
crisis management in the financial system (Journal of Laws of 2015 item 1513).
6. Leverage
Risk of excessive leverage management involves:
setting and monitoring leverage ratios, including the regulatory leverage ratio determined in accordance
with Commission Delegated Regulation (EU) 2015/62,
determining and monitoring the utilisation of the internal regulatory leverage ratio limit,
conducting stress tests,
reporting the risk level according to Table 21,
planning the regulatory leverage ratio level,
drawing up a contingency plan.
The regulatory leverage ratio is determined at the end of each month in accordance with Commission Delegated
Regulation (EU) 2015/62 as Tier 1 capital divided by the total exposure measure. In leverage ratio calculations, the
Bank uses the Tier 1 capital figure that takes into account transitional period adjustments. The Bank does not
exclude fiduciary items from the calculation of the total exposure measure.
Table 31 presents the leverage ratio and the breakdown of the total exposure measure.
Table 31. Leverage ratio and the breakdown of the total exposure measure as at 31 December 2015 (PLN million)
Total exposure measure, of which: 99 115,7
Bank’s assets excluding derivatives 89 916,9
Derivatives, of which: 1 046,2
Positive market value 234,5
Potential future credit exposure 811,7
Charge due to a securities financing transaction 8,2
Low-risk off-balance sheet items after applying a conversion factor of 10% 0,0
Medium/low-risk off-balance sheet items after applying a conversion factor of 20% 96,0
Medium-risk off-balance sheet items after applying a conversion factor of 50% 6 272,5
Other off-balance sheet items after applying a conversion factor of 100% 1 836,3
Tier 1 capital deductions -60,3
Tier 1 capital after applying transitional period adjustments 9 182,5
Leverage ratio 9,26%
Table 32 presents the reconciliation of the total exposure measure to the information published in the financial statements.
Table 32. Reconciliation of the total exposure measure to the information published in the financial statements as at 31 December 2015 (PLN million)
Total assets in the financial statements 43 419,1
Adjustment due to derivative transactions 810,3
Adjustment due to securities financing transactions 8,2
Adjustment due to off-balance sheet items other than derivatives transactions 8 204,8
Other adjustments, including: 46 673,4
Tier 1 capital deductions -60,3
Items related to flow fund exposures 46 640,2
Other 93,5
Total exposure measure 99 115,7
Page 40 of 45
Charts 8 and 9 show the leverage ratio and the total exposure measure in 2015.
Chart 8. Leverage ratio Chart 9. Total exposure measure
* receivables from the National Bank of Poland, money market bills, Treasury securities, receivables under reverse repo transactions, interbank deposits, funds in nostro accounts
Changes in the leverage ratio resulted from changes in total assets, mainly due to changes in assets arising from the
investment of the available funds presented in Chart 9.
7. Encumbered and unencumbered assets
An asset is considered encumbered if it has been pledged or if it is subject to any form of arrangement to secure,
collateralise or credit enhance any transaction from which it cannot be freely withdrawn (e.g. to be pledged for
funding purposes).
Tables 33, 34 and 35 provide information on encumbered assets and unencumbered assets, the collateral received
and associated liabilities drawn up in accordance with EBA Guidelines of 27 June 2014 on disclosure of encumbered
and unencumbered assets.
Table 33. Assets as at 31 December 2015 (PLN million)
Carrying amount of encumbered assets
Fair value of encumbered assets
Carrying amount of unencumbered assets
Fair value of unencumbered assets
Total assets 4 052,3 x 86 004,8 x
Equity instruments 0,0 0,0 1 281,6 1 281,6
Debt securities 2 882,2 2 882,2 16 474,2 16 474,2
Other assets 1 170,1 x 68 249,0 x
Table 34. Collateral received as at 31 December 2015 (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
Total collateral received 0,0 1 173,7
Equity instruments 0,0 0,0
Debt securities 0,0 1 173,7
Other collateral received 0,0 0,0
Own debt securities issued other than own covered bonds or ABSs 0,0 0,0
0%
2%
4%
6%
8%
10%
Dec-14 Mar-15 Jun-15 Sep-15 Dec-15
Leverage ratio
0
30
60
90
120
150
Dec-14 Mar-15 Jun-15 Sep-15 Dec-15
PLN billion Total exposure measure
Assets resulting from investing available funds*
Page 41 of 45
Table 35. Associated liabilities as at 31 December 2015 (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 2 897,5 2 904,3
Main sources of encumbrance are:
financing transactions under reverse repurchase agreements,
loans from the European Investment Bank, Ministry of Finance and Council of Europe Development Bank,
derivative transactions (passive valuation).
The amount of liabilities that are sources of asset encumbrance (PLN 3 863,3 million) is 95,3% of the amount of
encumbered assets (PLN 4 052,3 million).
Among other unencumbered assets, the Bank considers the items listed in Table 36 unavailable for encumbrance in
the ordinary course of business.
Table 36. Other unencumbered assets considered unavailable for encumbrance in the ordinary course of business as at 31 December 2015 (PLN million)
Loans* 52 830,7 98,61%
Valuation of derivative instruments recognised in the balance sheet 233,8 0,44%
Deferred tax assets 161,8 0,30%
Shares in subsidiaries and associates 142,4 0,27%
Tangible fixed assets 110,8 0,21%
Intangible assets 25,2 0,05%
Cash 6,5 0,01%
Other 64,4 0,11%
Total 53 575,6 100,00%
* in addition to loans, the item includes, inter alia, National Road Fund receivables, nostro accounts and interbank deposits
8. Information on policy on variable components of remuneration of persons holding
managerial positions
General principles for the determination, award and payment of variable remuneration components in managerial
positions at the Bank are set forth in the Policy on Variable Remuneration Components of Persons Holding
Managerial Positions at BGK, developed on the basis of Resolution No. 258/2011 of the Polish Financial Supervision
Authority of 4 October 2011 laying down detailed rules for the functioning of the risk management system and
internal control system and specific conditions of assessing internal capital by banks and reviewing the process of
assessing and maintaining internal capital and rules for determining variable remuneration components of persons
holding managerial positions at a bank (Official Journal of the PFSA No. 11 item 42) and approved by the Supervisory
Board.
The process of development and implementation of the Policy on Variable Remuneration Components of Persons
Holding Managerial Positions at Bank Gospodarstwa Krajowego is handled by the Remuneration Committee
appointed from among the members of the Supervisory Board, which includes:
from 1 January 2015 until 5 November 2015:
○ Dorota Podedworna-Tarnowska – Committee Chair,
○ Tomasz Szałwiński – Committee Member,
○ Ryszard Pazura – Committee Member,
from 6 November 2015 until 31 December 2015:
Page 42 of 45
○ Ryszard Pazura – Committee Chair,
○ Joanna Bęza-Bojanowska – Committee Member,
○ Grażyna Grzyb – Committee Member.
The Committee’s tasks include:
monitoring and providing opinions on the policy on variable components of remuneration 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 components of 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 components of remuneration of persons holding managerial positions.
According to the Rules of the Remuneration Committee, Committee meetings are held at least once a year. In 2015,
one meeting of the Committee was held.
Within the meaning of the Policy on Variable Components of Remuneration, managerial positions include:
members of the Management Board,
Managing Director responsible for the Bank's finance, whose duties are connected with the maintenance of
the Bank's accounting books
Managing Directors in charge of the following divisions:
○ financial markets,
○ risk management,
○ bank products management and sales,
Compliance Officer,
department heads responsible for:
○ credit and financial risks,
○ capital investments and structured finance,
heads of the following departments:
○ Internal Audit,
○ Legal,
○ HR.
The list of positions covered by the Policy is determined on the basis of the criterion of individual persons’ impact on
the Bank’s risk profile:
member of the management body in its management function – Management Board members,
performing control functions – responsibility to the Management Board for the operation of the
independent human resources management function, risk management function, compliance function,
internal audit function,
responsibility for the preparation of transactions at a material business unit – managing directors/directors
of units to which a capital limit of at least 2% of the total capital limit has been granted, excluding activities
related to the implementation of government programmes,
acting as the chief accountant – the person responsible for the Bank’s books of account or designated by the
Page 43 of 45
Management Board to act as the chief accountant,
involvement in the process of assessing significant transactions – at least one of the conditions must be met:
○ responsibility for proposing limits on transactions in the interbank market,
○ responsibility for assessing credit risk for large-value transactions,
○ direct responsibility for the execution of transactions in the interbank market, in particular with
respect to investing surplus liquidity,
○ responsibility for legal matters.
The list of positions is subject to review and possible verification annually before the start of each subsequent
calendar year during which it is to be in effect or where organisational changes have occurred that result in the need
to verify the list.
Variable components of remuneration include in particular: quarterly bonuses, annual awards and recognition
awards paid to the above mentioned persons on the basis of the Bank’s regulations applicable to them due to
employment relationship with the Bank in a given position, including regulations for bonuses and regulations for
awards.
The annual variable remuneration of an employee holding a managerial position at the Bank cannot exceed 100% of
the fixed component of the total remuneration.
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 organisational unit of the Bank's head office and performance of the person
holding a managerial position at the Bank.
The type and amount of variable remuneration is awarded based on the degree to which the employee fulfilled their
tasks as well as work quality and performance (Goal Card). Variable remuneration also depends on whether the
Bank has achieved a positive net financial result cumulatively since the beginning of the year.
The Bank applies the principle of deferring the payment of variable remuneration in respect of persons whose
remuneration in a given year exceeds the threshold set by the Supervisory Board at PLN 120 000, which is set with
reference to the maximum amount of base remuneration paid to members of the Management Board (the “Cap
Act” applies to the Bank). In 2015, no person covered by the policy was awarded a variable remuneration above the
threshold that results in the deferment of 40% of variable remuneration and its payment in annual installments
within three years of the end of the performance assessment period for which this remuneration is awarded.
Owing to the legal status of BGK as a state-owned bank, the nature of its business and its individual risk profile – in
line with the principle of proportionality – the Bank neutralises certain requirements, e.g. refrains from paying
variable remuneration components in shares and instruments other than shares.
Heads of the internal audit unit, compliance unit and 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 areas controlled by them.
Tables 37 and 38 show the remuneration paid in 2015 to persons holding managerial positions within the meaning
of the Policy on Variable Components of Remuneration of Persons Holding Managerial Positions in BGK.
Table 37. Remuneration in main activity areas12
(in thousands of PLN)
business line fixed remuneration variable remuneration
sales of bank products 1,171 349
risk management 951 280
other activity 1,016 315
12
taking into account changes during the year
Page 44 of 45
Table 38. Remunerations in positions12
(in thousands of PLN)
Management Board
members (7 persons)
persons reporting directly to a Management Board member
and chief accountant (11 people)
other persons holding managerial positions at BGK
(4 persons)
fixed remuneration 1,453 2,713 425
variable remuneration13
: 311 815 129
paid in cash 311 815 129
paid in financial instruments 0 0 0
variable remuneration with deferred payments, awarded
0 0 0
variable remuneration with deferred payments, paid out
0 0 0
payments related to start of employment 0 0 0
payments related to severance: 187 530 0
highest severance 187 270 0
number of persons receiving severance
1 2 0
In 2015, no person employed at BGK was awarded a remuneration exceeding EUR 1 million.
13
including a simulation of the annual award for 2015 (as at the table preparation date, the 2015 annual award has not been paid out)
Page 45 of 45
Glossary
Act on BGK – Act on Bank Gospodarstwa Krajowego of 14 March 2003 (Journal of Laws of 2014 item 510 as amended)
ALCO – Asset and Liability Committee
Banking Act – Banking Act of 29 August 1997 (Journal of Laws of 2015 item 128 as amended)
BGK, Bank – Bank Gospodarstwa Krajowego
BGK Articles of Association – the Bank's Articles of Association attached as an annex to the Regulation of the Minister of
State Treasury of 11 May 2010 on Articles of Association for Bank Gospodarstwa Krajowego (Journal of Laws No. 81 item
535 as amended)
BPV – Basis Point Value
CC – Credit Committee
ChC – Change Committee
Commission Delegated Regulation (EU) 2015/62 – 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)
Commission Implementing Regulation (EU) No 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)
CRD – Credit Risk Department
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)
CRMD – Credit Risk Management Department
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
EBA – European Banking Authority
FMSD – Financial Markets And Sales Department
FRD – Financial Risk Department
ICAAP – Internal Capital Adequacy Assessment Process
ISDA – International Swap and Derivatives Association
KUKE S.A. – Korporacja Ubezpieczeń Kredytów Eksportowych S.A.
NHF – National Housing Fund; NHF was liquidated as of 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 (Journal of Laws,
No. 65, item 545)
ORC – Operational Risk Committee
PBA – Polish Bank Association
PFSA – Polish Financial Supervision Authority
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 (Journal of Laws No. 235 item 1589
as amended)
TD – Treasury Department
VaR – Value at Risk
WSE – Warsaw Stock Exchange