Report No. 43/2017

Legal basis:

Article 17.1 MAR Regulation

Contents of the Report:

The Management Board of Powszechna Kasa Oszczędności Bank Polski S.A. (“Bank”) hereby reports that on 24 November 2017, the Polish Financial Supervision Authority (“PFSA”) adopted the recommendation on dividend policy for financial institutions, including banks.

The PFSA’s recommendations on dividend payment in 2018 for 2017 for commercial banks are as follows:

PFSA recommends that the dividend would be paid by the banks that fulfill jointly the following criteria:

• do not run the recovery plan;
• gain positive assessment during supervisory review and evaluation process (SREP) – final SREP assessment not lower that 2.5;
• having leverage ratio (LR) higher than 5%;
• having Tier 1 (T1) ratio at the level higher than the required minimum plus 1.5%: 6% + 75%*add-on + requirement of combined buffer + 1.5%;
• having total capital ratio (TCR) higher than required minimum plus 1.5%: 8% + add-on + requirement of combined buffer + 1.5%.

PFSA recommends that the banks that fulfill jointly the above criteria could pay a dividend up to 50% of the 2017 net profit.

PFSA recommended that the dividend up to 75% of net profit could be paid by the banks that fulfill all the above mentioned criteria and the requirement of conservation buffer at the target level, ie 2.5% of total risk exposure and up to 100% of net profit could be paid by the banks that fulfill all the above mentioned criteria taking into account under the capital criteria, the bank's sensitivity to the adverse macroeconomic scenario.

The Bank informs that fulfills all the above described criteria allowing for the dividend payment for 2017 up to 75%  of the net profit.

Additionally PFSA indicated that the banks with material portfolios of the foreign currency denominated mortgage loans (having foreign currency mortgages for households with more than 5% share in total receivables from non-financial sector) adjust the dividend payout ratio based on the additional criteria:

• Criterion 1 (K1) – based on the share of the foreign currency mortgages for households in total receivables from non-financial sector
• Criterion 2 (K2) – based on the share of the foreign currency mortgage granted in 2007 and 2008 (loans which contribute to bank’s losses in case when potential legal solutions are implemented) in total portfolio of foreign currency mortgages for households.

PFSA recommended following adjustments, related to the size of the bank portfolio:

Criterion 1

- banks with the share higher than 10% - dividend payout ratio adjustment by 20 p.p.

- banks with the share higher than 20% - dividend payout ratio adjustment by 30 p.p.

- banks with the share higher than 30% - dividend payout ratio adjustment by 50 p.p.

Criterion 2

- banks with the share higher than 20% - dividend payout ratio adjustment by 30 p.p.

- banks with the share higher than 50% - dividend payout ratio adjustment by 50 p.p.

Moreover PFSA decided that the banks with unappropriated profits from previous years, would be required to notify PFSA each time that they would plan to use those profits for dividends, and PFSA would issue an individual assessment. Such a consent could be claimed by the banks that fulfill the dividend payment criteria.

The required for the Bank capital ratios level for dividend payment up to 75% of net profit, as recommended by PFSA are as follows:

Tier 1 ratio = 14.25%

Total capital ratio TCR = 16.41%

As of 30 September 2016 the reported capital ratios for the Bank and Group were as follows:

Bank

• Tier 1 ratio = 18.75%
• Total capital ratio TCR = 19.71%

Group

• Tier 1 ratio = 16.77%
• Total capital ratio TCR = 17.68%

Criterion 1 of the PFSA dividend policy

The share of the foreign currency mortgages for households in total receivables from non-financial sector – 16.90%

Criterion 2 of the PFSA dividend policy

the share of the foreign currency mortgage granted in 2007 and 2008 (loans which contribute to bank’s losses in case when potential legal solutions are implemented) in total portfolio of foreign currency mortgages for households – 44.87 %

After the adjustments of the dividend payout ratio by Criteria 1 and 2, according to the data as at 30.09.2017, the Bank fulfills the requirements to pay dividend up to 25% of the net profit for 2017.

According to the published information the PFSA is also planning to introduce at the beginning of 2018 the guidelines, which the PFSA will guide in shaping the dividend policy in subsequent periods.