Report No. 58/2016

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 6 December 2016, the Polish Financial Supervision Authority (“PFSA”) published the recommendation on dividend policy for financial institutions, including banks.

The PFSA’s recommendations on dividend payment for 2016 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%;
• for banks identified as OSII (other systematically important institution) having Tier 1 ratio at the level higher than the regulatory minimum plus safety buffer, i.e. Tier 1 ratio higher than 13.25% + 0.75%*add-on + OSII buffer;
• having total capital ratio higher than: 13.25% + add-on + OSII buffer.

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

KNF recommended that the dividend up to 100% of net profit could be paid by the banks that fulfill the regulatory criteria regarding the minimum level of the total capital ratio (TCR) including the safety buffer. For banks identified as OSII – having the total capital ratio (TCR) higher than 16.25% + add-on + OSII buffer.

PKO Bank Polski informs that fulfills all the above described criteria allowing for the dividend payment for 2016 up to 50% of the net profit. The Bank additionally underlines that informed with the Report No. 57/2016 (as of 1 December 2016) about the lack of fulfilment of the dividend conditions from the profit earned in 2015 and the unappropriated profit of previous years

Additionally KNF required that the banks with material portfolios of the foreign currency denominated mortgage loans (having foreing 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 20%
• banks with the share higher than 20% - dividend payout ratio adjustment 30%
• banks with the share higher than 30% - dividend payout ratio adjustment 50%

Criterion 2

• banks with the share higher than 20% - dividend payout ratio adjustment 30%
• banks with the share higher than 50% - dividend payout ratio adjustment 50%

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 PKO Bank Polski capital ratios level, as recommended by PFSA are as follows:

Tier 1 ratio = 14.62%

Total capital ratio TCR = 14.83%

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

Bank

• Tier 1 ratio = 15.63%
• Total capital ratio TCR = 17.03%

Group

• Tier 1 ratio = 14.65%
• Total capital ratio TCR = 16.00%

Criterion 1 of the PFSA dividend policy

The share of the foreign currency mortgages for households in total receivables from non-financial sector – 19.10%

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 – 44.65 %

The Bank informs, that on an ongoing basis will monitor the capital ratios against the levels allowing for dividend payment.