The Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna Group (PKO Bank Polski S.A. Group or the Bank’s Group) is one of the largest groups of financial institutions in Poland and one of the largest financial groups in Central and Eastern Europe. The Parent of the Bank’s Group is Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna (PKO Bank Polski S.A. or the Bank). PKO Bank Polski S.A. is the largest commercial bank in Poland and the leading bank on its home market in terms of the scale of operations, equity, loans, deposits, number of Customers and size of the distribution network. The Bank’s Group stands out on the Polish market due to its high financial results, which ensure its stable and safe development.

PKO Bank Polski S.A. is a universal bank that services individuals, legal entities and other Polish and foreign entities.

Apart from strictly banking operations, the PKO Bank Polski S.A. Group also provides financial services in respect of leases, factoring, investment funds, pension funds and insurance, car fleet management services, transfer agent services, provides technological solutions, outsources IT professionals and supports other entities’ operations, manages properties. The Bank’s Group conducts banking operations and provides financial services outside Poland through its branches in the Federal Republic of Germany (German Branch) and the Czech Republic (Czech Branch) as well as through its subsidiaries in Ukraine. In 2020, PKO Bank Polski S.A. opened a branch in the Slovak Republic (Slovak Branch).

11 million

of the Bank’s Customers

5.2 million

of active IKO applications

The PKO Bank Polski S.A. Group develops not only in its traditional area of operations, i.e. retail banking. It is also the leader in servicing corporate Customers and companies and enterprises (in particular in respect of financing them), and on the market of financial services for communes (gminy), counties (powiaty), voivodeships and to the budget sector. It is also the major managing underwriter of issues of municipal bonds.

The PKO Bank Polski S.A. Group has the largest share in the Polish banking sector (18.3%), in loans (17.6%) and the market for investment funds for individuals (19.2%). PKO Bank Polski S.A. is the leader in terms of current accounts and payment cards.

The PKO Bank Polski S.A. Group offers modern and comprehensive services through digital service channels and it is being transformed into a technological institution with a banking licence. Customers use iPKO and IKO as means of modern banking outside the traditional financial area. PKO Bank Polski S.A. was committed to the development of a modern approach to e-administration services based on state-of-the-art technologies. In 2018, PKO Bank Polski S.A. started on its path towards cloud computing with the help of a newly established company – Operator Chmury Krajowej sp. z o.o. Within the next three years the Bank’s IT systems are to operate in a computing cloud based on hybrid architecture. The first cloud solutions implemented using global cloud service providers and Operator Chmury Krajowej sp. z o.o. already support the Bank’s employees and Customers.

As at the end of 2020 the branch network of PKO Bank Polski S.A. was the largest such network in Poland and covered 1 004 outlets (i.e. Branches, offices and centres) and 492 agencies. The Customers of PKO Bank Polski S.A. have at their disposal a highly developed network of ATMs (which as at the end of 2020 comprised three thousand ATMs).

The PKO Bank Polski S.A. Group is one of the largest and best assessed employers in Poland. As at the end of 2020, the PKO Bank Polski S.A. Group employed 25.9 thousand FTEs.

The PKO Bank Polski S.A. Group between 2016 and 2020

	2020	2019	2018	2017	2016
Statement of financial position (in PLN million)
Total assets	376,966	347,897	324,255	296,912	285,573
Total equity	39,911	41,578	39,101	36,256	32,569
Financing granted to Customers	235,781	244,083	230,438	214,361	208,987
Customer deposits	282,356	256,170	238,723	217,306	200,404
Net profit/loss	-2,557	4,031	3,741	3,104	2,874
Financial ratios
Net ROA	-0.7%	1.2%	1.2%	1.1%	1.1%
Net ROE	-6.0%	10.0%	10.0%	9.0%	9.1%
Net ROTE	-6.5%	10.9%	11.0%	10.0%	10.2%
C/I1)	41.0%	41.3%	44.2%	46.0%	47.4%
Interest margin	3.0%	3.4%	3.4%	3.3%	3.2%
Share of impaired exposures	4.4%	4.3%	4.9%	5.5%	5.9%
Cost of credit risk	0.78%	0.46%	0.59%	0.71%	0.75%
Total capital ratio	18.18%	19.88%	18.88%	17.37%	15.81%
Number of Customers of PKO Bank Polski S.A. (in thousands), including:	11,006	10,933	10,653	10,330	10,080
Individuals (in thousands)	10,463	10,427	10,179	9,877	9,648
Companies and enterprises (in thousands)	526	491	459	438	418
Corporate Customers (in thousands)	16	16	15	15	15
Operational data
Number of branches of PKO Bank Polski S.A.	1,004	1,115	1,155	1,194	1,238
Number of employees (in FTEs)	25,859	27,708	27,856	28,443	29,163
Number of current accounts with the Bank (in thousands)	8,257	8,012	7,697	7,362	7,034
Information on shares
Stock exchange capitalization (in PLN million)	35,900	43,075	49,338	55,388	35,175
Number of shares (in million)	1,250	1,250	1,250	1,250	1,250
Share price (in PLN)	28.72	34.46	39.47	44.31	28.14
Dividend per share (in PLN) (paid in the current year from profit for the preceding years)	0.00	1.33	0.55	0.00	0.00
1) Data for the years 2016-2018 does not take into account presentation changes made in 2020 which could have had an impact on the amount of the result on business activities and operating expenses.

The definitions of particular items of the statement of financial position and the income statement are described in Section 14: Glossary.

1.2 The PKO Bank Polski S.A. Group – History

The PKO Bank Polski S.A. Group has been offering services to its retail and institutional Customers for more than 100 years.

The main events in the history of the Bank and the Bank’s Group.

1919–1938	1.	Pocztowa Kasa Oszczędności was established on 7 February 1919 by virtue of a decree signed by the Head of the country, Józef Piłsudski, Prime Minister Ignacy Paderewski and Hubert Linde – PKO’s founder and first president.
	2.	Pocztowa Kasa Oszczędności was vested with legal personality as a state institution, operating under the supervision of and with the guarantee of the State.
	3.	The first local branch of Pocztowa Kasa Oszczędności was opened in Poznań.
	4.	Pocztowa Kasa Oszczędności began running School Savings Unions (Szkolne Kasy Oszczędności).
	5.	On the initiative of Pocztowa Kasa Oszczędności, the Ministry of the Treasury decided to set up Bank Polska Kasa Opieki (today Pekao S.A.) as a joint-stock company to facilitate the transfer of foreign currencies to Poland by Poles living abroad.
	6.	Pocztowa Kasa Oszczędności strongly contributed to the development of non-cash transactions – every other larger industrial plant and every large enterprise had a cheque account with Pocztowa Kasa Oszczędności, and the cheque turnover in Poland was one and a half times higher than the cash turnover.
1939–1945		The Second World War was a period in which Pocztowa Kasa Oszczędności’s activity came to a standstill and it suffered huge losses.
1946–1990	1.	Pocztowa Kasa Oszczędności was transformed into Powszechna Kasa Oszczędności.
	2.	The Banking Law Act introduced a privilege for saving deposits held in Powszechna Kasa Oszczędności; they were covered by a State guarantee.
	3.	Powszechna Kasa Oszczędności introduced a modern product: a current account.
	4.	In the years 1975–1987, Powszechna Kasa Oszczędności was merged into the structures of the National Bank of Poland (NBP), yet it retained its identity.
1991–2001	1.	The first Internet information portal of the Bank and the first e-PKO Internet branch were launched.
	2.	PKO Towarzystwo Funduszy Inwestycyjnych S.A. (PKO TFI S.A.) began its operations.
	3.	PKO BP BANKOWY PTE S.A. was formed.
	4.	Bankowy Fundusz Leasingowy S.A. (currently PKO Leasing S.A.) was formed which provides operating and finance leases of non-current assets and property.
	5.	PKO BP, as one of the founders, formed Centrum Elektronicznych Usług Płatniczych eService S.A. (currently CEUP eService sp. z o.o.).
	6.	In 2000, the Bank was transformed into a joint-stock company fully-owned by the State Treasury under the name Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna (PKO Bank Polski S.A.).
2002–2009	1.	The Bank acquired Inteligo Financial Services S.A., a company that provides services covering the maintenance and development of banking systems, also including electronic access to bank accounts (Inteligo account).
	2.	The Bank acquired 66.65% shares in KREDOBANK S.A. The company is registered and operates in Ukraine. At present, the Bank holds 100% of shares in the company’s share capital.
	3.	In 2004, PKO Bank Polski S.A. was floated on the WSE. At the end of the first day of quotations, shares reached a price of PLN 24.50 against the issue price fixed at PLN 20.50.
	4.	PKO BP Faktoring S.A. (currently PKO Faktoring S.A.) began operating.
2010–2015	1.	2013–2015 strategy: “PKO Bank Polski. Every day the best” strengthened the position of the Bank’s Group as a leader in key market segments.
	2.	In 2013, PKO Bank Polski S.A. set a new standard of mobile payments – IKO. The innovative solution on the market of mobile payments was used to create the BLIK payment system in 2015. BLIK became the Polish market standard.
	3.	PKO Bank Polski S.A. signed an agreement for a twenty-year strategic alliance in the electronic payment market with EVO Payments International Acquisition GmbH, and at the same time sold a significant portion of shares in CEUP eService sp. z o.o.
	4.	PKO Bank Hipoteczny S.A. was formed. Its operations include issuing long-term mortgage covered bonds and granting long-term mortgage loans to retail Customers.
	5.	PKO Bank Polski S.A. acquired shares in the Nordea Group companies, including shares in Nordea Bank Polska S.A., and a portfolio of amounts due from corporate Customers. In October 2014, the merger of the banks was carried out.
	6.	PKO Towarzystwo Ubezpieczeń S.A. was formed. The Company provides property insurance services to the retail Customers of PKO Bank Polski S.A.
	7.	PKO Bank Polski S.A. started its expansion into foreign markets and established its first foreign branch abroad (in Frankfurt-am-Main in the Federal Republic of Germany).
2016–2020	1.	PKO Bank Polski S.A. realized two years in advance the financial goals set for 2020 and announced an updated strategy for the years 2020–2022 “PKO Bank of the Future. We support the development of Poland and the Poles”.
	2.	PKO Leasing S.A. – the Bank’s subsidiary – acquired Raiffeisen-Leasing Polska S.A. and Prime Car Management S.A. (with their subsidiaries). This allowed PKO Leasing S.A. to strengthen its position on the lease market, as well as to extend its offer of car fleet management services and rental of cars.
	3.	The Bank’s Group acquired KBC TFI S.A. and the merger with PKO TFI S.A. helped additionally accelerate the rapid development of PKO TFI S.A., and strengthened its leading position in the retail funds segment.
	4.	The Bank’s portfolio of investment projects expanded by Operator Chmury Krajowej sp. z o.o. (cloud computing services), which was joined by another shareholder – Polski Fundusz Rozwoju S.A.
	5.	PKO Bank Polski S.A. established an investment fund managed by PKO TFI S.A. under the business name PKO VC, which pursues an appropriate policy for a venture capital funds and invests in financial technological innovations.
	6.	PKO Bank Polski S.A. continued its development abroad and formed the second foreign branch – the corporate branch in Prague (the Czech Republic) and in Bratislava (the Slovak Republic). The Slovak branch started operating in 2021.

1.3 Main events and financial results achieved in 2020

The PKO Bank Polski S.A. Group’s functioning during the pandemic

In March 2020, the World Health Organization announced the outbreak of the COVID-19 pandemic. A state of epidemic threat was introduced in Poland, and then a state of epidemic. The effect of the pandemic was the freezing of the economy. State institutions implemented amendments to laws in order to restrict the spread of the virus and state aid packages for enterprises and individuals. The Monetary Policy Council (MPC) lowered interest rates and the mandatory reserve, capital requirements for banks were also reduced. The Polish Financial Supervision Authority (PFSA) recommended that banks not pay out dividend. After the slowdown of the pandemic in vacation time and the resumption of business activities, in the fourth quarter of 2020 the number of infected people increased and restrictions were once again introduced in many industries.

The PKO Bank Polski S.A. Group engaged in battling the pandemic from the very start. Many actions were taken to ensure the uninterrupted functioning and safety of the Customers and employees. The Group also supported local and countrywide actions. The digital transformation strategy pursued by PKO Bank Polski S.A. facilitated operations in the conditions of the coronavirus pandemic.

The Bank’s Group:

• supported hospitals and the medical personnel throughout Poland – in total, it transferred over PLN 23 million for fighting the pandemic. This comprised, among other things, donations to hospitals, purchasing tests for the presence of the virus and on virus protection measures, as well as provision of vehicles for medical facilities, sanitary and military services; employees participated in development and implentation countrywide vaccination reservation system;

• actively engaged in saving enterprises and the jobs they create; offered moratoria on loan and lease repayments; and introduced fast and simplified decision-making paths;

• supported Customers by making available to them state aid programmes under the so-called Anti-crisis Shields using instruments of Polski Fundusz Rozwoju S.A. (Polish Development Fund) (PFR) and guarantee programmes and State co-financing through Bank Gospodarstwa Krajowego (BGK);

– PKO Bank Polski S.A. engaged in work on the distribution system for the subsidies from PFR for micro-, small- and medium-sized enterprises via electronic banking; the Bank also organized issues of PFR bonds which enabled financing the programme. PKO Bank Polski S.A. is the sole bank which services liquidity and preferential loans under the PFR Financial Shield for large enterprises;

– PKO Bank Polski S.A. had the largest share in the distribution of subsidies from the PFR Financial Shield1.0 for micro-, small- and medium-sized enterprises. Subsidies totalling PLN 10.5 billion were transferred via the Bank. The subsidies were received by approx. 67 thousand enterprises which employ over 0.5 million staff;

• Introduced organizational solutions and tools which enable performing work remotely, facilitate communication with Customers and ensure their smooth service;

• Accelerated digitization and developed remote channels which allows the Customers easier access to the services offered.

During the lockdown, the bank maintained full accessibility of service for customers via the Contact Center and the largest network of own ATMs, which allowed for ensuring comfort in banking.

The Bank’s Group conducted operations related to the improvement of cost-effectiveness and protection of the quality of the credit portfolio. The liquidity ratios of PKO Bank Polski S.A., both on a separate and consolidated basis, remained at safe levels, with a strong capital base.

PKO Bank Polski S.A. as the European leader of digital banking

PKO Bank Polski S.A. won the Finnoscore 2020 ranking and became the European leader of digital banking. It was rated highly in the following categories: online banking, social media, mobile application, omnichannel communication and innovation strategy. The leading position in the ranking is due among other things to the Bank’s strategy which is based on digital transformation.

300 criteria in 12 selected segments were examined. 200 banks from 26 European and North American countries were analysed.

PKO Bank Polski S.A. accedes to the European Payments Initiative

PKO Bank Polski S.A., as the only bank from Poland, acceded to the European Payments Initiative (EPI). EPI is an alliance of leading European banks aimed at building the European payments system with its own cards for consumers and companies, a digital wallet, immediate payments and transfers over the phone. EPI will support European public institutions by creating a European payments solution.

Development of services and tools, including those supporting operations during the pandemic

The Group developed remote services offered:

• The number of active IKO applications provided to Customers by the Bank reached a record high of 5.2 million on the Polish banking market.

• The Bank jointly with PKO Leasing S.A. and Prime Car Management S.A. launched the Automarket.pl platform which ensures the safe purchase of new and second-hand cars with a documented mileage.

• A personal account may be opened in the IKO mobile application using a selfie, and a company account with simultaneous registration of the business with the Central Registration and Information on Business (CEIDG). The application also allows checking the balance of an account with another bank and the use of services of a voice assistant.

• The Bank prepared a sales model for elderly Customers and for persons who had never used electronic channels for banking services. The model included educating the Customer in using the intuitive application, and adapted sales processes in branches so as to enable Customers to sign contracts with the assistance of an advisor for cash loans, a current account overdraft or a credit card directly in IKO, without the need to print the documents.

• KREDOBANK S.A., basing on PKO Bank Polski S.A.’s experience, as the first bank on the Ukrainian market, implemented a video advisor solution. The “Online Video Consultant” service is based on the infrastructure of Operator Chmury Krajowej sp. z o.o.

• The Bank introduced the option to remotely activate the travel voucher, and to open an investment account totally online using the e-Podpis (e-signature) service mSzafir (iPKO).

• The Bank launched its first cloud applications. Within the project for building its Future Service Points, it virtualized working stations in retail branches. The Project is being performed in cooperation with Operator Chmury Krajowej sp. z o.o.

New term of office of the Bank’s Management and Supervisory Boards

In May 2020 the Bank’s Supervisory Board appointed the former members of the Management Board for another joint term of office, which included appointing Mr Zbigniew Jagiełło to the position of President of the Management Board.

In August 2020 the Bank’s Ordinary General Shareholders’ Meeting appointed ten members of the Bank’s Supervisory Board for a new joint term of office, which included appointing seven of its former members. The former Secretary of the Supervisory Board – Mr Zbigniew Hajłasz – was appointed Chairman of the Supervisory Board.

Record year for the Bank’s Brokerage Office

The year 2020 was a record year for the Brokerage Office of PKO Bank Polski (the Bank’s Brokerage Office). Turnover on the secondary market of shares reached PLN 72.6 billion, which accounted for 11.2% of the market turnover, and placed the Brokerage Office in the leading position in the ranking of brokerage offices.

PKO TFI S.A. The leader on the Employee Capital Plans on the market

As at the end of 2020, PKO Towarzystwo Funduszy Inwestycyjnych S.A., after completing the three stages of creating the Employee Capital Plans (PPK), remained the leader in terms of managed assets. As at the end of 2020, the total number of contracts for asset management was 18,970, including 1,384 contracts with enterprises employing 250 and more staff. On the PPK accounts managed by the Company there were assets worth PLN 962 million, which comprised 41.1% of all assets serviced by investment fund management companies and 34.1% of all PPK market assets.

Financial results

Recognition of the costs of legal risk of mortgage loans in convertible currencies, the COVID-19 pandemic and reductions in interest rates by the MPC had a significant effect on the results achieved by the PKO Bank Polski S.A. Group in 2020.

Table 1. Basic financial data of the Bank’s Capital Group (PLN million)

	2020	2019	Change (y/y)
Net profit/loss	-2,557	4,031	-163.4%
Net interest income	10,346	10,290	+0.5%
Net fee and commission income	3,904	3,731	+4.6%
Result on business activities	14,604	14,579	+0.2%
Operating expenses	-5,983	-6,021	-0.6%
Tax on certain financial institutions	-1,055	-1,022	+3.2%
Net allowances and impairment	-9,277	-1,748	+430.9%
Total assets	376,966	347,897	+8.4%
Total equity	39,911	41,578	-4.0%
Net ROE	-6.0%	10.0%	-16.0 p.p.
Net ROTE	-6.5%	10.9%	-17.4 p.p.
Net ROA	-0.7%	1.2%	-1.9 p.p.
C/I (cost to income ratio)	41.0%	41.3%	-0.3 p.p.
Interest margin	3.03%	3.41%	-0.38 p.p.
Share of impaired exposures	4.4%	4.3%	+0.1 p.p.
Cost of credit risk	0.78%	0.46%	+0.32 p.p.
Total capital ratio	18.18%	19.88%	-1.70 p.p.
Common equity Tier 1 (CET1)	16.99%	18.61%	-1.62 p.p.

In 2020 the PKO Bank Polski S.A. Group incurred net loss of PLN -2 557 million, which is a drop in its results of PLN 6 588 million y/y. The negative change in the net result was caused by a combination of the following factors:

1) material deterioration in net write-downs and impairment of PLN 7 530 million as a result of:

• an increase in the legal risk of mortgage loans in convertible currencies of PLN 6 101 million, which was reflected in the decision of the Extraordinary General Shareholders’ Meeting held on 23 April 2021 relating to concluding settlement agreements with Customers;

• deterioration in net write-downs for expected credit losses of PLN 1 147 million, mainly resulting from COVID-19-related write-downs;

• deterioration of net impairment of non-financial assets of PLN 282 million.

2) improvement in the result on business activities which amounted to PLN 14 604 million (0.2% y/y), mainly due to:

• an increase in net fee and commission income of 4.6% y/y caused by an increase in net income on margins on foreign exchange transactions and by an increase in net loans, insurance and operating lease income;

• Increase in volumes (deposits, debt securities) and increase in revenues from hedge accounting, what partly compensated negative impact of fall in interest rates on net interest income.

3) a drop in operating expenses of 0.6% y/y, mainly costs of employee benefits;

In 2020 the scale of the Bank's Group's operations increased significantly:

• total assets reached the level of almost PLN 377 billion (+PLN 29 billion y/y);

• amounts due to Customers increased to PLN 282 billion (+PLN 26 billion y/y).

1.4 The PKO Bank Polski S.A. Group development paths

Who we are – our mission

PKO Bank Polski S.A.’s Strategy for the years 2020–2022

Pursuit of the Strategy

The paths for the development of PKO Bank Polski S.A. are set out in the Strategy for the years 2020–2022 “PKO Bank of the Future. We support the development of Poland and the Poles” (Strategy), approved by the Supervisory Board on 17 November 2019.

Who we are – our mission

“We support the development of Poland and the Poles”.

For 100 years we have been delivering financial solutions to our Customers; therefore, we understand the needs of Poles and Polish firms.

We are consistently changing, investing in development, and we responsibly implement modern technologies to enable easy finance management at any place or time. We are proud of our history and of our Polish roots.

We wish to continue exerting a positive influence on Poland – its people, firms, culture and the environment. As one of the largest banks in Central and Eastern Europe we responsibly care for the interests of the shareholders, Customers, employees, and local communities

PKO Bank Polski S.A.’s Strategy for the years 2020– 2022

The Strategy focuses on four pillars which PKO Bank Polski S.A. intends to develop and reinforce.

1. Accessible, mobile and personal. A digital banking model which uses advanced analytics to ensure personalized experience in Customers’ everyday life.

2. Open and innovative. Using open banking possibilities, strategic partnerships and cloud solutions to propose innovative solutions to Customers.

3. Digital and effective. Digitized processes with minimal manual service requirements, paperless. A fast and safe cloud-based Bank.

4. Shaping the competence of the future. A motivated and committed team with competences adapted to the new business challenges, working smoothly, using state-of-the-art technologies.

The Strategy takes into account non-financial factors (ESG) relating to the environment, society and corporate governance.

PKO Bank of the Future:

• is aware of the challenges resulting from climate change;

• gradually eliminates actions that are harmful to the environment;

• supports environmental education;

• is driven by the principle of social responsibility;

• takes into account the impact of its activities on society, Customers, suppliers, employees and shareholders;

• improves its corporate governance;

• ensures transparency of the principles of the Bank’s management.

The Bank’s (consolidated) financial goals defined for 2022 are as follows:

• net profit over PLN 5 billion;

• target ROE at the level of 12%;

• C/I ratio at the level of approx. 41%;

• cost of risk in the 0.60% – 0.75% bracket;

• capability to pay out dividend.

Pursuit of the Strategy

The financial goals set out in the Strategy for 2022 remain under strong pressure from the pandemic and changes in the economic and regulatory environment, among other things, a drop in interest rates, limited demand for loans, increase in the legal risk of foreign currency mortgage loans. Despite functioning in a more difficult economic environment, in 2020 PKO Bank Polski S.A. maintained strict cost discipline and operating effectiveness, and had a strong equity position.

The Bank’s efficiency in reacting to the challenges related to the COVID-19 pandemic reflects the speed and scope of implementations made in 2020 in three areas of priority.

1. Accelerating digital sales.

• Remote Advisor – implementing remote support in the sales of banking products thanks to the reverse virtualization processes and assisted sales.

• A “selfie” account – implementing a fully remote checking account process in the IKO mobile application using remote verification using a “selfie”.

• New stage of iPKO – a single transaction service irrespective of the hardware used by the Customer (responsive – adapted to different monitor sizes).

• A new cash loan process in IKO – implementing a standard cash lending process in IKO, available to all of the Bank’s Customers and implementing a new remote cash loan sales process to Customers without a relationship with the Bank.

• A new PKO Zero Account for mobile (Konto za Zero dla mobilnych) – an offer of an account aimed at acquiring Customers aged 25-45 who use the Bank’s services remotely.

• A new company account for start-ups and small and medium enterprises – the possibility of opening an account online (iPKO, IKO), for those who are planning to start business operations, opening and simultaneous registration of the company in CEIDG with one application.

• Investment account with iPKO – possibility of opening an account remotely thanks to a qualified electronic signature.

• Aggregation of accounts within the open banking system (implemented with respect to seven banks: BNP Paribas, Millennium, Pekao, mBank, Santander, Alior and T-Mobile Usługi Bankowe).

• Making available Autenti services/implementing “mSzafir” – to enable the remote signing of documents.

• Cards with a multicurrency function for entrepreneurs – possibility to make foreign currency payments directly from a foreign currency account.

• Developing the iPKO business function, including “Superwniosek zdalny” – possibility of submitting remote applications for over 25 different orders (among other things, cash management, ordering cards, opening auxiliary accounts, access to the Internet currency exchange desk).

• Lending solutions related to the coronavirus pandemic – credit holidays for Customers and an option to apply remotely for aid packages (under the State Financial Shield).

2. Increase in revenues.

• Launching the New Insurance Speed project (Nowa Prędkość Ubezpieczeń) – expanding the insurance offer and sales model.

• Enabling the conclusion of life insurance contracts with respect to loans and mortgage loans online using the Autenti platform.

• Sales of motor insurance policies in iPKO and IKO – an offer of motor insurance in the Internet service and mobile application of the Bank.

• PKO Inwestomat for Private Banking Customers – enables integrating Customer services in branches and through the remote channel.

• New functions of e-Kantor (e-currency exchange desk) – purchasing currencies in the Internet currency exchange desk using the BLIK code and the possibility of exchanging currencies in Bank accounts to PLN directly from accounts with other banks (using PSD2).

• Marketplace for the automotive platform Automarket – implementing the first Internet platform for purchasing cars in Poland.

3. Operating effectiveness.

• Using Artificial Intelligence (AI) in banking processes and tools:

– development of the voice assistant in IKO;

– improving the efficiency servicing and sales processes – among other things – implementing the information both on the helpline, which helps Customers during the coronavirus pandemic, and tools facilitating sales of cash loans;

– supporting the soft debt collection process;

• Implementing touchscreens in consecutive branches; making available new functions and educating Customers to use digital channels.

• The Road2Cloud Project:

– Strategic partnership of Operator Chmury Krajowej sp. z o.o. with Microsoft – expanding the Bank’s offer by cloud solutions, among other things with respect to the network infrastructure services, databases, analytics, AI and the Internet of Things (IoT);

– Transferring the first seven banking applications to the cloud,

– Virtualization and assurance of a flexible work environment in the branches,

– Automation of test environments for initiatives in which the Bank engages;

– Implementing the Microsoft Teams application that enables remote communication for thousands of employees.

In the coming years, PKO Bank Polski S.A. will follow its path of digital transformation. It will focus in particular on the following areas and activities:

• Customer-centric approach – a segmented approach to the service offer and model, personalized experiences of the Customer and building long-term relationships, further transforming the network into an advisory centre and digital education for the Customers.

• Digitization – ensuring that Customers have an omnichannel access to banking products and services, increasing sales through remote channels, developing functions and innovations in IKO mobile banking, enhancing CRM and advisor tools, intensifying the use of advanced data analytics, the Road2Cloud Project and constructing a modern platform for electronic channels, including its high accessibility, scalability and security.

• Autonomous Bank – accelerating the automation and robotization of processes, increasing the number of processes performed fully digitally, “slim” outlets and an effective service model, simple and convenient offer and communication with the Customers, increasing the use of AI in sales and service processes, and in the organization’s internal processes.

The Bank will also continue searching for sources of recovering revenues. In particular, it will implement new innovative services and products while continuing to ensure cost discipline and operating effectiveness (C/I), a stable and safe capital base (TCR, CET1) and an optimal level of the cost of risk. The pandemic and changes in the market environment will result in a review of the financial goals defined for 2022.

1.5 The PKO Bank Polski S.A. Group Market Position

In 2020, the Bank’s Group:

• maintained a high share in the loan market both in terms of volume and sales of selected products;

• maintained its position on the savings market, both for individuals and institutional entities;

• maintained its position as leader on the market of investment funds for individuals.

Table 2. Market shares

	31.12.2020	31.12.2019	31.12.2018	31.12.2017	31.12.2016	Change 2020/2019
Loans for:	17.6%	17.9%	17.6%	17.7%	17.8%	-0.3 p.p.
private individuals, of which:	22.4%	22.8%	22.9%	23.0%	22.8%	-0.4 p.p.
housing	24.9%	25.8%	26.1%	26.1%	25.7%	-0.9 p.p.
PLN	26.3%	27.6%	28.3%	28.6%	28.6%	-1.3 p.p.
foreign currency	20.8%	21.0%	21.0%	21.2%	21.4%	-0.2 p.p.
consumer and other, of which:	16.5%	16.3%	15.8%	15.9%	15.8%	0.2 p.p.
in current account	32.7%	32.4%	32.1%	32.0%	32.6%	0.3 p.p.
institutional entities	12.6%	13.1%	12.7%	12.8%	12.9%	-0.5 p.p.
Non-Treasury debt securities (indebtedness)	30.2%	30.7%	32.4%	29.3%	29.2%	-0.5 p.p.
Mortgage loans (sales)	19.7%	25.7%	28.9%	29.6%	31.9%	-6 p.p.
Total savings1)	18.3%	18.3%	18.4%	17.3%	16.1%	0 p.p.
savings of individuals2)	24.3%	22.6%	22.0%	21.1%	20.7%	1.7 p.p.
Deposits:	17.3%	17.9%	18.1%	17.9%	17.3%	-0.6 p.p.
private individuals	21.9%	20.8%	20.2%	20.4%	20.7%	1.1 p.p.
institutional entities	11.5%	13.8%	15.2%	14.5%	12.4%	-2.3 p.p.
TFI assets - funds of individuals	19.2%	19.6%	21.6%	17.1%	14.2%	-0.4 p.p.
Brokerage activities - transactions on secondary market3)	11.2%	7.5%	7.7%	14.7%	9.4%	3.7 p.p.
Source: NBP, WSE, ZBP, Analizy Online 1) Total savings comprise total deposits, TFI assets and retail savings bonds. 2) Savings of individuals comprise deposits of individuals, funds of individuals and Treasury savings bonds. 3) In 2017, taking into account the effect of intermediation in the sales of Pekao S.A. shares. After eliminating this effect, the share of brokerage activities in turnover on the secondary market would amount to 11.2%.

2. External Business Conditions

Macroeconomic environment

Situation on the financial market

Position of the Polish banking sector

Position of the Polish non-banking sector

Ukrainian market

Regulatory and legal environment

Factors with an impact on the financial results of the Bank’s Group in 2021

2.1 Macroeconomic environment

Macroeconomic factors which shaped the national economy in 2020:

Recession caused by the outbreak of the pandemic and the fast rebound

In 2020 economic processes were determined by the pandemic and the scope of pandemic restrictions. The crisis the pandemic caused led to a decrease in GDP of -2.7% during the year for the first time since the transformation. The highest drop in GDP took place in Q2 (8.4% y/y, accompanied by a two-digit drop in consumption and investments), in Q3 a rapid increase in activity took place (GDP: -1.5% y/y and +7.9% q/q) achieved thanks to the discontinuation of restrictions. The lack of material restrictions allowed the “unfreezing” of consumer demand (individual consumption increased by 0.4% y/y) and reinstated the functioning of international added value chains which translated into the regrowth of exports. The pandemic did not stop the expansion of Polish exporters. Exports grew throughout the second half of 2020, and Poland’s share in the European trade grew systematically. The clear increase in coronavirus infections in Q4 and the reintroduction of anti-epidemic restrictions once again led to limiting business activities, but to a lesser degree than in spring. GDP dropped by 0.7% q/q sa and 2.8% y/y. At the end of the year a clear rift was visible between the very good condition of the industrial sector and the distinctly worse condition of services. The crisis caused by the pandemic which encompassed nearly the whole economy in spring, covered selected branches at the end of the year, mainly the travel, accommodation, catering and culture sectors.

Labour market protected by shields

The labour market’s reaction to the recession caused by the pandemic was measurably limited by the Anti-Crisis Shield introduced by the government in cooperation with the National Bank of Poland (NBP) and the Financial Shield provided by PFR. The shields offered the possibility of asking employees to be on standby, shortening working hours (with additional payment towards salary), and conditioned the scale of non-reimbursable aid on maintaining stable employment. In effect, despite the significant drop in business activity the unemployment rate increased only slightly and it stabilized at 6.2% (5.2% as at the end of 2019), after a higher than the seasonal benchmark increase in the number of unemployed in spring (of 120 thousand in Q2). Average employment in the enterprise sector dropped to a minimum in June when it was 3.3% lower y/y. Employment data accounted for, among other things, the option used by employers to temporarily reduce the number of working hours. In effect the scale of decrease in the number of persons employed (and in consequence the increase in unemployment) was much lower. In further months the drop in employment was smaller, in December the number of FTEs was 1.0% lower than in the corresponding period of the previous year. The strategy of maintaining the employment level despite the drop in demand adopted by companies had a negative impact on the rate of growth of remuneration – the average salary in the industry sector grew by 5.4% y/y in Q4 – approx. 1.5 p.p. slower than before the outbreak of the pandemic.

Slow drop in inflation

Despite the unprecedented scale of economic slowdown, throughout the year CPI inflation exceeded the NBP target inflation rate and only dropped to 2.4% y/y in December compared with 3.4% y/y at the end of 2019 and 4.7% in the peak period in February 2020. Base inflation, after eliminating food and energy prices, increased almost throughout the year and amounted to 4.3% y/y in November. In December it fell to 3.7% y/y compared with 3.1% y/y at the end of 2019. The increase in base inflation reflected the increase in administered prices and higher prices of services connected, among other things, with transferring costs of anti-epidemic actions to consumers. The form of inflation processes (persistently high base inflation despite the disinflationary environment, low fuel prices and dropping food prices) is what makes Poland different from the Euro Area, where they were also fighting deflation.

Public finances in a good shape before the outbreak of the pandemic

Polish public finance entered the crisis in good condition compared to other EU countries, and Poland responded with one of the largest direct fiscal packages in Europe, the implementation of which forced amendments to the Budget Act (in place of a balanced budget, a deficit of PLN 109.3 billion was planned). The anti-crisis actions and the cyclic decrease in income increased the fiscal deficit (ESA) in 2020 to 6.9% of GDP from 0.7% in 2019. In this context, the State budget results (for the year) and local government budget results came as a positive surprise. Estimated data shows that the budget deficit was PLN 85 billion, and the excess amount in local government budgets was PLN 5.6 billion and was PLN 7.3 billion higher than in 2019 (to the cost of capital expenditure made by local governments which dropped by 5% y/y). In 2020 public debt (ESA) was 57.5% of GDP.

Anti-crisis actions of the Central Bank

During the pandemic, in coordination with fiscal actions, the Monetary Policy Council (MPC) significantly reduced interest rates. The NBP also implemented additional tools supporting the economy. The reference rate was reduced three times, by 140 bp. in total, to a new historical minimum of 0.1%. Among the remaining tools, the introduction of the option to repurchase Treasury bonds and securities guaranteed by the State Treasury on the secondary market had the largest impact on the economy. Under the QE programme, by the end of 2020, the NBP repurchased bonds (issued by the State Treasury, PFR and BGK) with a value of PLN 107 billion (including PLN 3.2 billion in Q4). As of June, in the communiques following the meetings of the MPC, the opinion prevailed that the lack of strong reaction of the foreign exchange rate to the crisis caused by the pandemic and quantitative easement restricts economic revival. The currency interventions conducted in the second half of December (for the first time since 2010) which led to the weakening of the PLN confirm the fact that the NBP prefers a weaker zloty. According to NBP estimations the anti-crisis actions conducted by the NBP limited the scale of the drop in GDP in 2020, and in 2021 the scale of their positive impact on the economy will grow to 1.1 p.p.

2.2 Situation on the financial market

Interest rate market

In 2020 returns on Polish Treasury bonds dropped significantly – 2-year by 99 b.p. to 0.05%, and 10-year by 88 b.p. to 1.24%. The factors that led to the decrease in returns were the anti-crisis actions of the Central Bank described above. The global increase in liquidity of the financial systems as a result of quantitative easement by key central banks throughout the world also had an impact on the drops in returns on bonds. The construction of the so-called bank tax contributed to the high demand for Treasury bonds on the part of domestic banks.

Currency Market

In 2020 the zloty weakened against the euro. The deterioration in the exchange rate of the Polish currency was the result of the global economic crisis which caused the flow of capital from emerging markets to safe havens. The reductions in the NBP interest rates did not contribute to the value of the PLN either. After accounting for inflation which exceeded 3% the rates remained deeply negative in real terms. This discouraged foreign investors from maintaining short-term financial assets denominated in the Polish currency in their portfolios, thus reducing demand for them. At the end of the year the zloty showed a tendency to appreciate due to the global improvement of investor sentiments accompanying the better perspectives of the global and Polish economy. In effect, in December the NBP decided to intervene to weaken the zloty for the first time since 2010.

Stock Market

The main index on the Warsaw Stock Exchange – WIG – ended the year with a 1% drop. The deep drop from the first quarter was fully compensated in the further part of the year. After a period of panic selling which led to a 36% drop in the index on 12 March compared with the beginning of the year, investors saw that the condition of the economy and of the companies traded on the Warsaw Stock Exchange (WSE) should gradually improve thanks to the decisive anti-crisis actions of the government and the Central Banks. Stock exchanges were supported in particular by the monetary policy. Extremely low interest rates, negative if inflation was to be accounted for, discouraged investors from keeping funds in bank accounts and bonds, causing savings to move to riskier assets, including stocks. The results of particular industries were not affected to the same degree by the pandemic. The financial sector was affected rather more, which is reflected in the prices of the banks’ shares.

2.3 Position of the Polish banking sector

Net profit and returns

(Calculations of PKO Bank Polski S.A, based on the last available PFSA data.)

The information does not take into account the loss of PKO Bank Polski S.A. which arose as a result of the decision of the Extraordinary General Shareholders’ Meeting held on 23 April 2021 to conclude settlement agreements with Customers.

In 2020 the impact of the pandemic on the banking sector was reflected by the significant drop in net profit (-48% y/y) and the return on equity (ROE decreased to 3.2% from 6.7% in 2019).

Net interest income dropped y/y – mainly in consequence of the MPC’s reductions in interest rates. Tightening of credit policies by banks and deteriorating consumer sentiments also had a negative impact on net interest income, causing a drop in demand for loans. The drop in the result of the banking sector was further deepened by the provisions for the legal risk of foreign currency housing loans and growing costs of risk. Despite the fact that the quality of the loan portfolio has not deteriorated suddenly since the beginning of the year (an increase in the share of stage 3 loans in the total loan portfolio of 0.2 p.p.), banks increased write-downs taking into consideration the less favourable macroeconomic forecasts and smaller possibilities of accurately forecasting losses. Against the background of deteriorating results in the banking sector the net commission income was a positive feature. It increased thanks to the larger number of transactions performed by customers (mainly in the area of brokerage activities and Forex transactions) and in connection with the changes in the fee and commission tariffs (mainly in the corporate segment).

The capital position of banks was good. The total capital ratio was 21%. The revoking of the obligation to use the systemic risk buffer (3%) had a positive impact on capital adequacy.

The change in net commission income and the result on other business activities – estimation of PKO Bank Polski S.A. The PFSA does not adjust retroactively the manner of presenting results by banks. In 2020 two banks in the banking sector reclassified some of their income statement items. To ensure comparability, data for 2019 was adjusted.

In December 2020 one of the commercial banks was subjected to compulsory resolution, which should have a positive effect on the stability of the banking sector.

Loan and deposit market

(Based on NBP data and the Analizy Online service site)

At the end of 2020 the annual pace of growth in total loans (net of changes in exchange rates) was negative at -0.8% (compared with an increase of 4.8% as at the end of 2019). With respect to deposits, the annual rate of growth accelerated to 13.9% compared with 8.2% at the end of 2019, remaining among other things under the influence of the strong increase in retail and corporate current deposits. The Anti-Crisis Shields contributed to the increase in corporate deposits.

The rate of growth of housing loans in PLN dropped to 10.1% y/y (12.2% y/y as at the end of December 2019). Consumer loans dropped by 2.2% y/y (compared to the increase of 8.2% y/y as at the end of 2019 – with no changes to the foreign exchange rates).

The rate of growth of corporate loans was negative (-6.1% y/y – with no change in exchange rates – compared with 2.6% y/y as at the end of 2019) due to the enterprise using its own funds and the overall deterioration in economic conditions and the investment environment in Poland.

The rate of growth of deposits of individuals dropped to 8.1% y/y (compared with 9.3% y/y as at the end of 2019), accompanied by a continuous growth in current deposits (28.6% y/y compared with 15.4% y/y as at the end of December 2019) and by a sharper drop in term deposits (-28.6% y/y compared with -0.2% y/y as at the end of 2019). As at the end of 2020 the investment fund assets of individuals increased by 3.6% y/y, and the balance of cash in circulation was 36.9% higher y/y (10.3% y/y as at the end of 2019). The strong increase in cash in circulation was caused among other things by the conservative stance of society on the access to their funds during the pandemic and low interest on deposits in consequence of generally low interest rates (in 2020 the reference rate was reduced thrice, to the level of 0.1%). A high rate of growth has also been maintained in corporate deposits (19.3% y/y compared with 9.7% as at the end of December 2019).

The liquidity position of the banking sector remained very good – the loan to deposit ratio dropped to 83% as at the end of 2020: (-11 p.p. y/y).

2.4 Position of the Polish non-banking sector

Investment Funds Market

In 2020, assets managed by the Investment Funds Management Companies increased to PLN 280.8 billion (+4.3% y/y), including assets of individuals which increased to PLN 167.9 billion (+3.6% y/y). As at the end of 2020 the amount on deposit with PPK Defined Maturity Date Funds was PLN 2.3 billion.

The total balance of payments and redemptions was just above zero as at the end of 2020 and amounted to PLN 0.4 billion. Individuals paid in PLN 0.3 billion, net.

The balance of payments and redemptions in 2020 was strongly influenced by the crunch on the labour market which occurred in March, when investors withdrew over PLN 20.5 billion, net, and by increased demand for investment products in subsequent months. The level of average annual rates of return had a positive impact on investor interest. In the popular and safe debt funds segment they were at a level many times exceeding the interest on new term deposits in the banking sector, which decreased after the decisions of the MPC to reduce interest rates in the period from March to May 2020.

Open Pension Funds Market

In 2020 assets of Open Pension Funds (OFE) decreased by 4.0% (PLN -6.2 billion) to PLN 148.6 billion. At the same time the number of OFE participants dropped (by -240 thousand, to 15.4 million).

The OFE market was affected by the deteriorating conditions on the labour market and on the Warsaw Stock Exchange (in 2020 the WIG index dropped by 1.4%) as a result of the crisis caused by the COVID-19 pandemic. Shares continued to dominate OFE assets (approx. 86%).

Lease Market

(based on Polish Leasing Association data)

In 2020 the lease industry financed assets of PLN 70.1 billion, compared with PLN 78.0 billion in 2019, which is a drop of 10.1% y/y. The decreases related to most of the key segments and to a material extent were the result of the state of epidemic in Poland.

The heavy vehicle lease segment (i.e. covering trucks over 3.5 tonnes, tractors, semitrailers/trailers, buses, ships, airplanes, trains and other) noted the largest drop. The value of assets financed in this segment amounted to PLN 13.9 billion (-25.7% y/y), which was approx. 20% of total financing granted by lease companies.

In the period analysed entrepreneurs most often leased light vehicles (passenger cars and trucks up to 3.5 tonnes). The value of assets financed in this segment amounted to PLN 33.3 billion (-5.7% y/y), which was approx. 47% of total financing granted by lease companies.

In the plant and machinery segment the value of leased assets was PLN 20.4 billion (-5.0% y/y).

Only the property segment noted an increase of +4.1% y/y, but its share in the market structure was marginal (1.2%).

Insurance Market

(Calculations of PKO Bank Polski S.A, based on the last available PFSA data.)

In 2020 insurers earned net profit of PLN 6.1 billion (-15.7% y/y), and their technical profit was 1.5% lower y/y (down to PLN 6.1 billion). The decrease in the amount of revaluation of term deposits (an extraordinary event related to the revaluation of interest in subordinated entities) had a negative impact on the results of insurers, while the decrease in the costs of claims and benefits paid (-2% y/y to PLN 37.9 billion) accompanied by a drop in gross written premium of 1% y/y (to PLN 63.4 billion y/y) had a positive impact.

In the life insurance segment, gross written premium dropped by -2.4% y/y (to PLN 20.7 billion). Premiums in the group of insurance linked, among other things, to Insurance Capital Funds – UFK dropped to a level which was not balanced by increases in premiums in the group of sickness and accident insurance, as well as in the group of life insurance. The drop in claims paid in the life insurance segment was 5.8% y/y (PLN 17.3 billion), which was due to the pandemic conditions in Poland (among other things, a smaller number of claims reported as a result of a smaller number of planned hospitalizations and surgeries). Costs of insurance activities in the life insurance segment were stable y/y (PLN 5.0 billion).

The segment of other personal and property insurance noted a small y/y increase in gross written premium of +0.3% (to PLN 42.7 billion), with a small increase in the cost of claims paid of 1.3% y/y (to PLN 20.7 billion). Costs of insurance activities in the other personal and property insurance segment increased by +4.1% (to PLN 10.4 billion).

Factoring Market

In 2020 the high demand for factoring services prevailed. sales of companies associated in the Polish Factors Association increased by 3.0%, to PLN 290.1 billion, and the number of business entities using factoring companies was 18.4 thousand (+2.6% y/y).

The largest demand on the part of enterprises was for factoring without recourse, whose share in sales of factoring firms was approx. 49%. The share of the second largest market segment, i.e. recourse factoring, was 30%. Manufacturing and distribution companies, mainly from the food, chemical and metal industries, continued to be the entities that used factoring services the most often.

2.5 Ukrainian market

Economic conditions

In 2020 business processes in Ukraine (similarly to the rest of the world) were determined by the coronavirus pandemic and the subsequent waves of increased numbers of infections. As a result, Ukrainian GDP dropped by 3.8% in 2020 (compared to +3.6% in 2019).

The drop was already noted in the first quarter (-1.3% y/y), which on the one hand reflected the quarantine imposed in March and on the other a weakening of the business activity trend visible even before the pandemic struck (the rate of growth of GDP started falling already in mid-2019). The lowest point of the market cycle was noted in the second quarter (-11.1% y/y), and the tempering of the pandemic (and thus easement of restrictions) in the summer resulted in mitigating the scale of GDP decreases to -3.6% y/y in the third quarter and -0.6% y/y in the fourth quarter of 2020.

The outbreak of the pandemic brought about two-digit drops in industrial production in April and May, however, in November and December the first year-on-year increases were noted since September 2019. After a deep fall in retail sales in April (-11.6% y/y), which coincided with a sharp slowdown in nominal wages and salaries growth to 1.6% y/y, retail sales once again noted two-digit increases in September, similarly as wages and salaries, which also started growing quickly.

In 2020 imports dropped as a result of the drop in demand for raw materials and semi-finished products, and the depreciation of the hryvnia, whose rate of exchange dropped from 23.81 UAH/USD as at the end of 2019 to 28.34 UAH/USD as at the end of 2020. CPI dropped to 2.7% y/y from 7.9% on average in 2019. At the same time, inflationary pressure increased at the end of the year due to increases in regulated prices (water, gas, electricity).

To stimulate the economy, the National Bank of Ukraine (NBU) reduced interest rates four times (by 550 b.p. in total, to 8.0%) in the first half of 2020. The anti-crisis fiscal actions increased budgetary expenses, therefore, the deficit of the public sector increased to 5.2% of GDP compared with 2.1% in 2019. In connection with the weakening of the hryvnia, this led to an increase in the ratio of the public debt to GDP to 60.8% as at the end of 2020 from 50.2% as at the end of 2019.

Ukrainian Banking Sector

In accordance with the data from the NBU the number of banks which engaged in operations in Ukraine dropped to 74 in December 2020 (compared with 75 in December 2019).

The value of total assets in the Ukrainian banking system in 2020 increased to UAH 1.82 trillion from UAH 1.49 trillion (as at the end of 2019). Equity increased to UAH 210.6 billion from UAH 200.9 billion and as at the end of 2020 they comprised 11.6% of the balance sheet total compared with 13.4% as at the end of December 2019. The Ukrainian Banking Sector is well capitalized (the sector’s capital adequacy ratio is 22.0% compared with the minimum required of 10%), although differences may be noted between public banks (less capitalized) and private ones. The improvement in capital adequacy is the result of limiting the loans portfolio and purchasing Treasury bonds.

The volume of loans dropped (by UAH 45.5 billion to UAH 978.7 billion), with a drop in the value of foreign currency loans of UAH 31.4 billion. Two-thirds of this drop was caused by foreign customers (a drop of UAH 21.2 billion), and one-third by domestic borrowers (a drop of UAH 10.3 billion).

The value of deposits went up by UAH 279.0 billion (up to UAH 1 370.6 billion). The depreciation of the hryvnia translated into an increase in the value of foreign currency deposits (of UAH 82.0 billion). Household deposits increased by UAH 154.2 billion, and corporate deposits by UAH 115.8 billion. The loan to deposit ratio dropped to 71.4% as at the end of 2020, from 93.8% as at the end of 2019 and was the lowest since at least 2005 (scope of available data).

ROA and ROE ratios deteriorated (2.54% in 2020 compared to 4.26% in 2019 and 19.97% in 2020 compared to 33.45% in 2019 respectively).

2.6 Regulatory and Legal Environment

The following new legal and regulatory solutions, which became binding in 2020, had an impact on the financial and organizational position of the PKO Bank Polski S.A. Group and on the financial sector, including in particular:

Solution	Impact
Impact of COVID-19 on the regulatory environment, Anti-Crisis Shields and other supporting actions
Resolution of the Minister of Health: - dated 13 March 2020 on announcing the state of epidemic threat in the Republic of Poland (Journal of Laws of 2020, item 433); and - dated 20 March 2020 on announcing the state of epidemic in the Republic of Poland (Journal of Laws of 2020, item 491, as amended). Package of Acts on the so-called Anti-Crisis Shield, including: - the Act of 31 March 2020, of 17 September 2020 and of 9 December 2020 on amending the act on specific solutions related to the prevention and counteracting of COVID-19, other contagious diseases and the crisis situations caused by them, and certain other acts (Journal of Laws of 2020, items 568, 1639, and 2255); - the Act of 16 April 2020 on specific supporting instruments in view of the proliferation of the SARS-CoV-2 virus (Journal of Laws of 2020, item 695); - the Act of 14 May 2020 on amendments to certain Acts in respect of protective measures in view of the proliferation of the SARS-CoV-2 virus (Journal of Laws of 2020, item 875); - the Act of 19 June 2020 on additional payments with respect to interest on bank loans granted to entrepreneurs affected by the effects of COVID-19 and on simplified procedures for approving debt composition proceedings in connection with COVID-19 (Journal of Laws of 2020, item 1086); Regulation of the Minister of Finance, Funds and Regional Policy dated 10 November 2020 amending the regulation on granting aid using financial instruments under the operational programmes for the years 2014-2020 to support the Polish economy in connection with the COVID-19 pandemic (Journal of Laws of 2020, item 2002);	Limiting the operations of specific institutions or workplaces, including of the Bank’s Customers and counterparties as well as the companies of the Bank’s Group. A drop in net interest income (“credit holidays”) An increase in the volume of corporate deposits A drop in corporate credit risk A decrease or change in tax charges and principles of discharging tax duties
The PFSA communique dated 20 March 2020 on BGK entrusting other banks with assessing the ability to repay liabilities and analyse the risk of paying liabilities with respect to loans guaranteed by BGK (performance of one of the elements of the Anti-Crisis Shield).	Increased security against credit risk
Potential implementation of a package of quick fixes adopted by the European Commission on 28 April 2020 (and by the European Parliament on 18 June 2020) of the CRR (CRR quick fix). They are aimed at facilitating lending by banks to households and corporate entities in the European Union and thus at significantly reducing the negative impact of the coronavirus pandemic on its economy.	Increased the capital adequacy ratio
Risk
#PIN – a Supervisory Impulses Package for safety and Development in the area of the capital market announced by the Office of the PFSA and the Position of the Office of the PFSA under the Supervisory Impulses Package on the financing of corporate Customers by banks during the coronavirus pandemic.	Easing regulatory obligations, postponing reporting deadlines, ensuring the continuation of insurance cover granted to Customers based on the insurance contracts concluded
Communique of the Management Board of the NBP dated 16 March 2020 with reference to the coronavirus epidemic in Poland, informing among other things of implementing operations to supply banks with liquidity, purchasing Treasury bonds on the secondary market, introducing bill of exchange credit for banks.	Increase in the Bank’s liquidity
Regulation of the Minister of Development and Finance dated 18 March 2020 repealing the regulation on the systemic risk buffer (Journal of Laws of 2020, item 473);	Drop in the minimum capital adequacy ratio
PFSA decisions recommending that the Bank retain own funds to cover the additional capital requirement to hedge the risk following from foreign currency mortgage loans at an individual level, in the amount of 0.27 p.p. above the total capital ratio (0.40 p.p. to date) and at the Bank Group’s level in the amount of 0.24 p.p. above the total capital ratio (0.36 p.p. to date).	Lowering the minimum supervisory requirements with regard to capital ratios
Interest rates
The MPC decisions dated 17 March 2020, 8 April 2020 and 28 May 2020 as a result of which the NBP reference rate was reduced by a total of 1.4 p.p., i.e. to 0.10%. The Council also decided to reduce the rate of the mandatory reserve from 3.5% to 0.5%, and to reduce interest on funds kept for mandatory reserve purposes from 0.5% to the level of the NBP reference rate.	Decrease in net interest income
Contributions to the Bank Guarantee Fund
Resolutions of the BGF Board of February 2020 (15/2020 and 17/2020), which implemented a change in the charges payable by the banking sector to the system of protection of bank deposits and compulsory resolution.	Increase in operating expenses, drop in profit, lower profitability
BGF Communique dated 26 March 2020 on MREL actions taken in response to the events relating to the COVID-19 pandemic (i.e. the planned updating of the amount of MREL required from banks, determining the first binding interim MREL target as at 1 January 2022 and applying an extended (as a result of the implementation of BRRD2) target deadline for meeting the MREL requirement (extending it by one year, to 1 January 2024).	Change in regulatory requirements relating to MREL

2.7 Factors with an impact on the financial results of the Bank’s Group in 2021

The following external factors may have a material impact on the operations of the Bank’s Group in 2021:

In the global economy:

• risk of a further wave of infections with the coronavirus (in effect of the proliferation of a more infectious mutation of the virus), the economic effects of which, however, should be less severe than in spring (the effect of adaptations in the economy and the gradually growing effect of the vaccinations);

• the process of the global economy recovering from the deep recession caused by the pandemic including the countries which were the main export markets for Polish entrepreneurs;

• further resurgence of the global trade exchange related to the economic reconstruction in China and high global investment activity (among other things, ecological investments, consequences of fiscal aid programmes);

• continuation of the anti-COVID-19 vaccination programme which began in Europe, the USA and the Middle East, which gives hope that in the second half of the year economic activity, uninterrupted by further lockdowns, will return;

• the positive effects of the easement of monetary policy in 2020 by the key central banks, mainly using non-standard tools, such as asset purchase programmes and credit action support programmes for the non-financial sector, at the end of the year gradual normalization of the monetary policy is possible;

• the positive effects of the fiscal rescue actions announced by particular governments and by the European Commission, targeted at maintaining employment, protecting companies’ liquidity and stimulating demand, gradual extinguishing of national actions;

• the risk of a wave of insolvencies of some countries;

• political and economic conditions in Ukraine.

In the Polish economy:

• fast revival of economic activity after the sudden drop caused by the pandemic observed in 2020, supported by the nature of the fiscal impulse and a decrease in savings caused by the pandemic;

• effects of the hibernation of the labour market in 2020 and potential deterioration of the situation after the PFR Financial Shield structures expire;

• the process of adapting the economy to the post-pandemic reality – employment and operations restructuring in industries most afflicted by the chronic negative effects of the pandemic. Thanks to the resurgence of demand at a macro level the process should have the character of “creative destruction”, but temporarily may cause turbulences on local labour markets;

• probable stabilization of NBP interest rates at a record low, possible further activity of the NBP on the currency market to reduce the appreciation of the PLN;

• after a drop at the beginning of 2021 an increase in inflation is probable, on average it will probably exceed 3% in 2021;

• rebuilding of trade and foreign exchange after the crisis drop, probably at a much lower scale of trade in the international travel and tourist industry (at least in the first half of the year) accompanied by a clear increase in exports of goods;

• maintained high uncertainty (among other things, with respect to the further development of the pandemic and its impact on the economy) leading to risk aversion and increased volatility (on the market and in economic trends);

• probable gradual resurgence of investment activity related, among other things, to inflows of funds from the EU reconstruction programme and ecological investments;

• maintained weak demand for loans accompanied by a higher volume of deposits (effect of anti-crisis actions).

New regulatory solutions:

• further solutions under the Government Anti-Crisis Shields (including: PFR Financial Shield 2.0);

• draft act on amending the Act on the Bank Guarantee Fund, deposit guarantee scheme and compulsory resolution, and certain other acts, transposing BRRD2 to the Polish legal system;

• drafting amendments to the Regulation of the Minister of Finance on the criteria and method of performing the supervisory review and evaluation process in banks. The purpose of the draft is to make the necessary amendments to the Polish legal system in connection with the EU legal regulations relating to capital requirements for financial institutions (the so-called CRD V/CRR II package) entering into force;

• potential statutory solutions relating to the transfer of funds accumulated in Open Pension Funds (OFE) to individual pension accounts or to the Social Insurance Institution (ZUS);

• potential regulatory solutions which apply to foreign currency housing loans for households. They relate both to those resulting from the judgment of EUCoJ of 3 October 2019, and from potential further court judgments determining the line of interpretation in the case of Polish courts finding abusive provisions in loan agreements.

New tax solutions

As at 1 January 2021 regulations amending the income tax acts became binding which, among other things, introduced the duty to prepare and show on their websites information on the pursued tax strategy for taxpayers with annual revenue exceeding EUR 50 million and for Tax Groups. This duty has to be performed by the end of the twelfth month following the end of the fiscal year (pursuant to the communique of the Ministry of Finance the first such information has to be prepared for 2020).

3. Organization of the PKO Bank Polski S.A. Group

Entities covered by the financial statements

Key changes to the structure of the Bank’s Group in 2020

Related-party transactions

3.1 Entities covered by the financial statements

[GRI 102-45] Pursuant to the International Financial Reporting Standards (IFRS) as at 31 December 2020 the Bank’s Group comprised PKO Bank Polski S.A. as the parent and 38 direct or indirect subsidiaries (at all levels). All the subsidiaries were disclosed in the consolidated financial data pursuant to IFRS 10, “Consolidated financial statements”.

List of direct subsidiaries:

The list presents the share of PKO Bank Polski S.A. in the company’s share capital, and in the case of funds – share of the fund’s investment certificates held. All subsidiaries listed in the Consolidated financial statements of the PKO Bank Polski S.A. Group for the year ended 31 December 2020 (hereinafter: financial statements of the Bank’s Group for 2020) are accounted for using the acquisition accounting method.

A full list of the Bank’s subsidiaries, associates and joint ventures is presented in the 2020 financial statements of the Bank’s group (Note 1).

3.2 Key changes to the structure of the Bank’s Group in 2020

In 2020 there were no significant changes in the structure of the Group.

The following companies merged: PKO Leasing Nieruchomości sp. z o.o. as the acquiree and PKO Leasing S.A. as the acquirer and ZenCard sp. z o.o. as the acquiree and PKO BP Finat sp. z o.o. as the acquirer.

The liquidation of Molina spółka z ograniczoną odpowiedzialnością 3 S.K.A. was finalized and liquidation proceedings were started of Molina spółka z ograniczoną odpowiedzialnością 5 S.K.A. and Molina spółka z ograniczoną odpowiedzialnością 6 S.K.A.

At the beginning of July 2020, in connection with the closing of the securitization of lease receivables of PKO Leasing S.A. conducted in cooperation with the special purpose vehicle ROOF Poland Leasing 2014 DAC, action was taken to liquidate the SPV.

Work was conducted on the reverse merger of “CENTRUM HAFFNERA” sp. z o.o. as the acquiree and its subsidiary “Sopot Zdrój” sp. z o.o. as the acquirer. The reverse merger was conducted on 14 January 2021 – the change was registered with the National Court Register (KRS) with jurisdiction over the acquirer. After the merger NEPTUN – fizan holds 62 944 shares in “Sopot Zdrój” sp. z o.o., which represent 72.98% of the Company’s share capital and are attached to 72.98% votes at the General Shareholders’ Meeting.

3.3 Transactions with subordinated entities

A summary of receivables, liabilities, revenues and costs of the transactions between PKO Bank Polski S.A. and its subordinated entities, including these companies’ indebtedness vis-à-vis the Bank as at 31 December 2020 is presented in the Financial Statements of PKO Bank Polski S.A. for the year ended 31 December 2020 (Note 48).

4. Financial position of the PKO Bank Polski S.A. Group

Key financial indicators

Consolidated income statement

The consolidated statement of financial position

Any differences in sums, shares or growth rates arise from the rounding of amounts to full PLN millions and rounding of percentage shares in structures to two digital spaces.

4.1 Key financial indicators

The results of the PKO Bank Polski S.A. Group led to obtaining the key financial effectiveness ratios at the levels presented in the table:

Table 3. Financial indicators of the PKO Bank Polski S.A. Group.

	31.12.2020	31.12.2019	Change
Net ROE (net profit/(loss)/average equity)	-6.0%	10.0%	-16.0 p.p.
Net ROTE (net profit/(loss)/average equity less intangible assets)	-6.5%	10.9%	-17.4 p.p.
Net ROA (net profit/(loss)/average assets)	-0.7%	1.2%	-1.9 p.p.
C/I (cost to income ratio)	41.0%	41.3%	-0.3 p.p.
Interest margin (net interest income/average interest-bearing assets)	3.03%	3.41%	-0.38 p.p.
Share of impaired exposures	4.4%	4.3%	+0.1 p.p.
Cost of credit risk1)	0.78%	0.46%	+0.32 p.p.
Total capital ratio (equity/total capital requirement*12.5)	18.18%	19.88%	-1.7 p.p.
Common equity Tier 1 (CET1)	16.99%	18.61%	-1.62 p.p.
1) After excluding the impact of COVID-19 the cost of credit risk as at 31 December 2020 would be -0.39%. (-0.08 p.p. y/y).

4.2 Consolidated income statement

Net interest income

Net fee and commission income

Other net income

Operating expenses

Net write-downs and impairment

The consolidated net result of the PKO Bank Polski S.A. Group in 2020 amounted to PLN -2 557 million and was PLN 6 588 million lower than in 2019.

The result on business activities of the PKO Bank Polski Group for 2020 amounted to PLN 14 604 million and was PLN 26 million (i.e. 0.2%) higher y/y, mainly as a result of an increase in net interest income and in fee and commission income, and a decrease in net other income and expenses.

Table 4. Income statement of the PKO Bank Polski S.A. Group (in PLN million)

	2020	2019	Change (in PLN million)	Change (in %)
Net interest income	10,346	10,290	56	0.5%
Net fee and commission income	3,904	3,731	173	4.6%
Net other income	354	558	-203	-36.5%
Dividend income	15	14	1	9.5%
Result on financial transactions	236	356	-120	-33.7%
Net foreign exchange gains/(losses)	182	104	78	75.0%
Net other operating income and expenses	-79	84	-163	x
Result on business activities	14,604	14,579	26	0.2%
Operating expenses	-5,983	-6,021	38	-0.6%
Tax on certain financial institutions	-1,055	-1,022	-33	3.2%
Net operating result	7,566	7,536	31	0.4%
Net write-downs and impairment	-9,277	-1,748	-7,530	5,3x
Share in profits and losses of associates and joint ventures	16	31	-15	-49.4%
Profit before tax	-1,695	5,819	-7,514	x
Income tax expense	-865	-1,787	922	-51.6%
Net profit (including non-controlling shareholders)	-2,561	4,032	-6,593	x
Profit (loss) attributable to non-controlling shareholders	-4	1	-5	-503.6%
Net profit	-2,557	4,031	-6,588	x

Net interest income

Net interest income for 2020 amounted to PLN 10 346 million, i.e. PLN 56 million more than in the previous year. The increase in the y/y net interest income was caused by an increase in interest income on hedge accounting and an increase in income from securities in effect of an increase in their volume, as well as a decrease in interest expense on Customer deposits. At the same time income from borrowings granted to Customers dropped as a result of the changes which resulted from the decision of the MPC on reductions of interest rates in the first half of 2020.

Interest income amounted to PLN 11 801 million and was 6.6% lower than in 2019. This was mainly the effect of:

• a decrease in income from financing granted to Customers of PLN 1 574 million y/y – resulting mainly from the drop in average market interest rates on financing granted to Customers of 0.8 p.p., partly compensated by an increase in the average volume of financing of PLN 10 billion, accompanied by a change in its structure (an increase in the share of PLN housing loans accompanied by a decrease in the share of business and foreign currency housing loans);

• higher income on securities (PLN +345 million y/y), mainly as a result of an increase in their average volume of PLN 36 billion, which related mainly to Treasury bonds.

• higher income from hedge accounting (PLN +449 million y/y), as a result of an increase in the volume of IRS PLN transactions and an increase in spreads between interest income received and paid on transactions and accounting for the designated CIRS transactions;

In order to maintain comparability of data, the interest income was adjusted: income on non-Treasury bonds which is recognized in the financial statements in income from debt securities was transferred to income on financing granted to Customers. In 2020 interest income went down by PLN 233 million in connection with the judgment of the Court of Justice of the European Union in respect of the consumer’s right to reduce the cost of the loan in the event of repayment of the loan before the deadline specified in the loan agreement.

Interest expense amounted to PLN 1 455 million and was PLN 892 million lower compared with 2019. The lower interest expense was mainly the effect of a drop in the costs of the deposit base of PLN 775 million y/y, which in particular was the effect of lower PLN interest rates after the decisions of the MPC.

The interest margin decreased by 0.38 p.p. y/y and amounted to 3.03%. The decrease in the margin was mainly the result of lower returns on assets following from a change in the structure of interest-bearing assets (the share of securities with the lowest interest rates increased mainly at the expense of the share of amounts due from Customers bearing the highest interest rates). Additionally, the decrease in returns was impacted by the decrease in market rates in Poland which to a larger degree translated into a drop in interest on assets than on liabilities. In 2020 the average interest rate on PKO Bank S.A.’s loans was 4.0%, and the average interest rate on total deposits was 0.3%, compared with 4.7% and 0.7% respectively in 2019.

Net fee and commission income/(expense)

In 2020 net fee and commission income amounted to PLN 3 904 million, i.e. PLN 173 million more than in the previous year. The level of the net commission income was determined – among other things – by:

• higher net income on margins in Forex transactions (+PLN 106 million y/y) in effect of an increase in the number of transactions and active management of the level of the spreads in the tables;

• higher net income on loans, and insurance and operating leases (PLN +73 million y/y), mainly in effect of an increase in commission on business loans and leases, and a drop in costs of granting the loans;

• higher net income on payment and credit cards (PLN +15 million y/y) due to the higher number of cards and higher volumes of non-cash transactions;

• higher net income from maintaining bank accounts and other net income (PLN +13 million y/y), among other things as a result of an increase in commissions for maintaining bank accounts and domestic bank transfers in the corporate segment;

• lower net income from investment funds, pension funds and brokerage activities (PLN -34 million y/y), caused mainly by outflows of fund assets in the second quarter of the year, a change in their structure and a decrease in the commission for managing funds.

Net other income

Other net income earned in 2020 amounted to PLN 354 million and was PLN 203 million lower than in 2019, among other things, as an effect of:

• lower net income on financial operations

(PLN -120 million y/y) – mainly as a result of lower net income on the remeasurement of the Bank’s investment securities and on embedded derivatives;

• other net operating income PLN 163 million y/y lower – among other things as a result of:

– recognizing the gain on the bargain purchase of Prime Car Management S.A. of PLN 102 million in 2019;

- partially releasing, in 2019, the provision for proceedings before the President of the Office for Competition and Consumer Protection concerning practices which violate the collective interests of consumers (PLN 58 million), which was set up in 2018 in the amount of PLN 62.5 million (the information on setting up the provision was published in current report no. 24/2018 dated 27 June 2018).

• higher net foreign exchange gains/(losses) (PLN +78 million y/y) – mainly as a result of an improvement in the results from the ineffective portions of CIRS hedging transactions in hedge accounting (lower volatility – high negative result in 2019) and results on Treasury operations and other differences.

Operating expenses

In 2020 operating expenses amounted to PLN 5 984 million and were 0.6% y/y lower. Their level was mainly determined by:

• a PLN 242 million, i.e. 7.5% decrease in employee benefit costs, mainly as a result of a drop in the number of the Bank Group’s employees of 1 849 FTE in 2020, including 1 700 FTEs in the Bank itself;

• a decrease in tangible costs of PLN 94 million, i.e. of 7.0%, mainly in connection with a decrease in the following expenses:

- promotion and advertising (of PLN 87 million), mainly in the Bank in effect of changes in dates or cancelling sponsor and image projects (as a result of the epidemic situation in Poland) and in consideration of the high costs related to the Bank’s centenary celebrations in 2019;

- other tangible costs (of PLN 24 million), mainly in the “CENTRUM HAFFNERA” sp. z o.o. Group caused by limiting the operations of the hotel as a result of the restrictions following from the COVID-19 pandemic;

- accompanied by higher IT expenses (of PLN 28 million), mainly in the Bank (of PLN 21 million) in connection with an increase in outsourcing expenses;

• an increase of PLN 159 million, i.e. of 31.3% in contributions to the Bank Guarantee Fund (BGF) – BGF costs amounted to PLN 668 million, of which PLN 350 million constituted the contribution to the mandatory deposit guarantee fund. In 2019 costs in respect of the BGF were PLN 509 million, of which the contribution to the mandatory deposit guarantee fund was PLN 161 million;

• an increase of PLN 88 million in the costs of withheld tax on the issue of foreign bonds; this increase was related to adjustments in gross-ups of interest for the years 2017-2019 in 2019 and accounting for the 3% tax on interest paid for the period 2014-2019 following amendments to the tax regulations;

• an increase of PLN 57 million, i.e. 6.2% in amortization and depreciation as a result of the amortization of intangible assets related to the computerization of the Bank, and depreciation of buildings and structures.

The effectiveness of operations of the PKO Bank Polski S.A. Group measured with the C/l ratio on an annual basis was 41.0% and it improved by 0.3 p.p. y/y in consequence of better results on business activities (+0.2% y/y), accompanied by lower operating expenses (-0.6% y/y).

Net write-downs and impairment

In 2020, net write-downs and impairment jointly with the costs of the legal risk of mortgage loans in convertible currencies amounted to

PLN -9 277 million and were PLN 7 530 million lower than in 2019.

In 2020 the Bank recognized the costs of legal risk of mortgage loans in convertible foreign currencies of PLN -6 552 million (an increase of PLN 6 101 million compared with 2019).

The legal risk is connected with the portfolio of mortgage loans in convertible currencies granted to households in the years 1999-2012 and is related to potential Customer claims.

A detailed description of the costs of legal risk is included in the Bank Group’s financial statements for 2020, in the part referring to the cost of legal risk of mortgage loans in convertible currencies (Note 23).

In 2020 net write-downs for credit risk and non-financial assets were PLN -2 725 million and deteriorated by PLN 1 429 million compared with 2019, mainly as a result of write-downs recorded in connection with COVID-19 and impairment of: the shares in Bank Pocztowy S.A., goodwill (which arose as a result of acquiring Nordea Bank Polska S.A. and PKO Leasing Pro S.A.) and real estate.

The share of impaired loans amounted to 4.4% as at the end of 2020 (a 0.1 p.p. increase compared with 2019).

The cost of credit risk was 0.748% at the end of 2020, which is a 0.31 p.p. deterioration compared with the prior year.

4.3 Consolidated statement of financial position

Main items of the Statement of financial position

Financing granted to Customers

Sources of financing operations

Amounts due to Customers

External financing

Main items of the Statement of financial position

As at the end of 2020 the PKO Bank’s Group total assets amounted to nearly PLN 377 billion and increased by approx. PLN 29 billion as of the beginning of the year. Thus, the PKO Bank’s Group reinforced its leading position on the Polish banking market.

On the assets side, the Bank’s Group noted an increase, mainly in the securities portfolio, and on the side of sources of finance the increase was determined mainly by the increase in the deposit base.

Financing granted to Customers

As at the end of 2020, financing granted to Customers of the Bank’s Group was PLN 235.8 billion which represents a decrease of PLN 8.3 billion y/y.

The volume of retail and private banking loans dropped by PLN 2.9 billion, mainly as a result of the adjustment to the gross carrying amount of mortgage loans introduced pursuant to IFRS 9 for the expected potential impact of settlement agreements with Customers, accompanied by an increase in consumer loans.

In 2020, a drop in corporate loans was also noted (PLN -4.3 billion) and in loans to firms and enterprises (PLN -1.1 billion), which resulted both from a lower volume of working capital loans and current account overdrafts used and from increasing the allowances for business loans.

Retail and private banking loans were the main items in the structure of financing by type, with a share of 59.1% as at the end of 2020.

Sources of financing operations

The PKO Bank Polski S.A. Group finances its operations with domestic and foreign sources which are derived from deposits (also from the interbank market), equity and borrowings from the wholesale market. Borrowings from the wholesale market comprise liabilities with respect to the issue of securities, subordinated liabilities and loans and advances from monetary and non-monetary institutions. The main source of financing of the Bank’ Group’s operations are Customer deposits, comprising ¾ of all sources of finance.

Due to its optimum structure of financing, the PKO Bank Polski S.A. Group has full capacity to perform its investment plans, including capital investments. In order to carry out capital investments, the Bank’s Group utilizes mainly resources derived from its equity and issue of securities.

Amounts due to Customers

Customer deposits constitute the basic source of financing the Bank’s Group’s assets. As at the end of 2020 amounts due to Customers amounted to PLN 282.4 billion, which is an increase of PLN 26.2 billion since the beginning of the year. The main factor that contributed to the increase in the deposit base was an increase in retail and private banking deposits (PLN +22.8 billion) and deposits of business entities (PLN +12.2 billion), accompanied by a decrease in deposits of corporate entities (PLN -8.8 billion).

In the structure of Customer deposits by type, the main items are the retail and private banking deposits (70.3% as at the end of 2020).

The share of current deposits in the break-down of total deposits increased and amounted to 81.6% (+11.8 p.p. compared with the end of 2019).

External financing

As at the end of 2020: the level of non-current sources of financing was PLN 37 billion. The following factors had an impact on the unchanged level of financing:

• premature redemption of EMTN Bank bonds with a nominal value of EUR 250 million and of the PKO Finance AB issues with a nominal value of USD 195.41 million;

• sale of bonds with a nominal value of PLN 0.64 billion issued under the lease receivables securitization in 2019 by PKO Leasing S.A. outside the Bank’s Group;

• issue and redemption of bonds with a total nominal value of PLN 1.0 billion and PLN 0.3 billion respectively by PKO Leasing S.A.;

• issue and redemption of bonds with a total nominal value of PLN 4.2 billion and PLN 3.8 billion respectively by PKO Bank Hipoteczny S.A.;

• repayment of instalments on loans received from international financial institutions in accordance with the payment schedule;

• higher exchange rates of the EUR (PLN +0.36) and CHF (PLN +0.34), accompanied by a drop in the exchange rate of the USD (PLN -0.04).

5. Financial standing of the PKO Bank Polski S.A.

Key financial indicators

Income statement

Entertainment costs and expenses on legal and marketing, PR and social communication services, and management advisory services

Statement of financial position

Any differences in sums, shares or growth rates arise from the rounding of amounts to full PLN millions and rounding of percentage shares in structures to two digital spaces.

5.1 Key financial indicators

The results achieved by PKO Bank Polski in 2020 enabled the key financial efficiency indicators to achieve the levels shown in the table below.

Table 5. Financial ratios of PKO Bank Polski S.A.

	31.12.2020	31.12.2019	Change
Net ROE (net profit/(loss)/average equity)	-7.1%	9.8%	-16.9 p.p.
Net ROTE (net profit/(loss)/average equity less intangible assets)	-7.6%	10.4%	-18.0 p.p.
Net ROA (net profit/(loss)/average assets)	-0.9%	1.3%	-2.2 p.p.
C/I (cost to income ratio)	40.2%	40.8%	-0.6 p.p.
Interest margin (net interest income/average interest-bearing assets)	2.95%	3.39%	-0.44 p.p.
Share of impaired exposures	4.5%	4.4%	+0.1 p.p.
Cost of credit risk1)	0.77%	0.46%	+0.31 p.p.
Total capital ratio (own funds/total capital requirement*12.5)	19.78%	22.21%	-2.43 p.p.
Common equity Tier 1 (CET 1)	18.45%	20.76%	-2.31 p.p.
1) After eliminating the impact of COVID-19 on the cost of the credit risk as at 31 December 2020 would amount to 0.38% (-0.08 p.p. y/y).

5.2 Income statement

Net interest income

Net fee and commission income

Other net income

Operating expenses

Net write-downs and impairment

In 2020 the PKO Bank Polski S.A. Group incurred net loss of PLN -2 944 million (i.e. a drop in its results of PLN 6 779 million). This was mainly the effect of a decrease in net write-downs and impairment at a higher result on business activities and lower operating expenses.

In 2020 the result on business activities was PLN 12 875 million and it was PLN 54 million, i.e. 0.4% higher than in 2019. This was mainly the effect of an increase in net fee and commission income of PLN 273 million y/y, and a decrease in net interest income of PLN 105 million y/y and net other income of PLN 114 million y/y.

Table 6. Income statement of PKO Bank Polski S.A. (in PLN millions)

	2020	2019	Change (PLN million)	Change ( %)
Net interest income	9,184	9,290	-106	-1.1%
Net fee and commission income	3,101	2,828	273	9.6%
Net other income	590	704	-114	-16.2%
Dividend income	332	561	-229	-40.8%
Result on financial transactions	213	365	-151	-41.5%
Net foreign exchange gains/(losses)	133	106	27	25.0%
Net other operating income and expenses	-88	-328	240	-73.1%
Result on business activities	12,875	12,822	54	0.4%
Operating expenses	-5,180	-5,237	57	-1.1%
Tax on certain financial institutions	-957	-931	-26	2.8%
Net operating result	6,738	6,654	84	1.3%
Net write-downs and impairment	-9,004	-1,536	-7,468	5,9x
Profit/loss before tax	-2,266	5,118	-7,384	x
Income tax	-678	-1,283	605	-47.2%
Net profit/loss	-2,944	3,835	-6,779	x

Net interest income

Net interest income for 2020 amounted to PLN 9 184 million, i.e. PLN 106 million less than in the previous year. The lower y/y result was mainly determined by a decrease in income from financing granted to Customers, which was caused by the decision of the MPC to reduce interest rates, taken in the first half of 2020. This drop was partly compensated by a drop in interest expense on Customer deposits, an increase in income on securities as a result of an increase in their volumes and an increase in income from hedge accounting.

Interest income in 2020 amounted to PLN 10 332 million and was 9.0% lower than in 2019, mainly in effect of:

• a decrease in income from financing granted to Customers of PLN 1 456 million y/y – related mainly to the drop in the average interest rate on financing granted to Customers of 0.8 p.p., partly compensated by an increase in the average volume of loan receivables of PLN 10 billion, accompanied by a change in their structure (an increase in the share of PLN housing loans accompanied by a decrease in the share of foreign currency housing loans);

• higher income on securities (PLN +372 million y/y), mainly as a result of an increase in the average volume of PLN 36 billion, which resulted mainly from purchases of Treasury bonds;

• higher income from hedge accounting (PLN +252 million y/y) in effect of an increase in the volume of the IRS PLN transactions, an increase in the spreads between the interest received and paid on the transactions and recognizing the valuation of designated CIRS transactions.

And in order to maintain comparability of data, the interest income was adjusted: income on non-Treasury bonds which is recognized in the financial statements in income from debt securities was transferred to income on financing granted to Customers.

In 2020 interest income went down by PLN 232 million in connection with the judgment of the Court of Justice of the European Union in respect of the consumer’s right to reduce the cost of the loan in the event of repayment of the loan before the deadline specified in the loan agreement.

Interest expense amounted to PLN 1 148 million and was PLN 797 million lower than in 2019. The lower interest expense was mainly the effect of a drop in the costs of the deposit base of PLN 751 million y/y, which resulted from lower PLN interest rates after the decisions of the MPC.

The interest margin decreased by 0. 44 p.p. y/y and amounted to 2.95% as at the end of 2020. The decrease in the margin results from lower returns on assets in effect of changes in the structure of interest-bearing assets (the share of securities with the lowest interest rates increased mainly at the expense of the share of amounts due to Customers bearing the highest interest rates). Additionally, interest margin decreased as a result of a drop in net interest income due to the decrease in market rates in Poland which to a larger degree translated into a drop in interest on assets than on liabilities. In 2020 the average interest rate on PKO Bank Polski S.A. loans was 3.8%, and the average interest rate on total deposits was 0.3%. In 2019 it was 4.6% and 0.6% respectively.

Net fee and commission income/(expense)

In 2020 net fee and commission income amounted to PLN 3 101 million and was PLN 273 million higher than in the previous year. The level of the net fee and commission income was determined – among other things – by:

• higher net income on margins in Forex transactions (PLN +106 million y/y) in effect of an increase in the number of transactions and active management of the level of the spreads in the tables;

• higher net income from investment funds and brokerage activities (PLN +101 million y/y), caused mainly by an increase in net income from trading on the stock exchange resulting from playing the role of an issuing agent in respect of the sales of Bonds;

• higher net income on loans and insurance (PLN +29 million y/y), mainly in effect of an increase in commission on business loans and leases, and a drop in the costs of granting the loans;

• higher net income on payment and credit cards (PLN +15 million y/y) due to the higher number of cards and higher volumes of non-cash transactions;

• higher net income from maintaining bank accounts and other net income (PLN +22 million y/y), among other things as a result of an increase in commissions for maintaining bank accounts and domestic bank transfers in the corporate segment.

Other net income

In 2020 other net income amounted to PLN 590 million and was PLN 114 million lower than that earned in 2019, among other things due to:

• lower dividend income (PLN -229 million);

• lower net income on financial operations (PLN -151 million y/y) – mainly as a result of a lower net income on the remeasurement of the Bank’s investment securities and net income on embedded derivatives;

• higher net foreign exchange income (PLN +27 million y/y) – mainly due to a better result on Treasury activities and limiting the volatility of other differences;

• higher net other operating income and expenses (PLN +240 million y/y), among other things as a result of:

- recognizing income of PLN 24 million in 2020 from reducing the commitment to inject capital in a subsidiary, compared with respective costs of PLN 274 million which were recognized in 2019;

- recognizing the cost of refunds to Customers for prepayments of consumer and mortgage loans at an amount which is PLN 22 million lower y/y;

- setting up a provision for potential proceedings before the President of the Office for Competition and Consumer Protection of PLN 41 million.

Operating expenses

In 2020 operating expenses amounted to PLN 5 180 million and were 1.1% y/y lower. Their level was mainly determined by:

• a PLN 261 million, i.e. 9.4% decrease in employee benefit costs, in effect of a drop in the number of employees of 1 700 FTEs in 2020, mainly in the retail segment outlets (of 1 261 FTEs).

• a decrease in tangible costs of PLN 66 million, i.e. of 5.8%, mainly in connection with lower expenses on the costs of promotion and advertising as a result of the high costs incurred in 2019 related to the celebration of the Bank’s centenary.

• an increase of PLN 159 million, i.e. 32.6% in contributions to the Bank Guarantee Fund (BGF);

• an increase of PLN 88 million in the costs of withheld tax on the issue of foreign bonds related to adjustments in gross-ups of interest for the years 2017-2019 in 2019 and accounting for the 3% tax on interest paid for the period 2014-2019 following amendments to the tax regulations.

• an increase of PLN 33 million, i.e. 4.0% in amortization and depreciation, mainly in amortization of intangible assets related to the computerization of the Bank, and depreciation of buildings and structures.

The effectiveness of operations of the PKO Bank Polski S.A. measured with the C/l ratio on an annual basis was 40.2% and improved by 0.6 p.p. y/y in consequence of lower operating expenses (+1.1% y/y) and a higher result on business activities (+0.4% y/y).

Net write-downs and impairment

In 2020, net write-downs and impairment with costs of the legal risk of mortgage loans in convertible currencies amounted to PLN -9 004 million and was PLN 7 468 million less than in 2019.

In 2020 the Bank recognized the costs of legal risk of mortgage loans in convertible currencies of

PLN -6 552 million (an increase of PLN 6 101 million compared with 2019).

The legal risk is connected with the portfolio of mortgage loans in convertible currencies granted to households in the years 1999-2012 and is related to potential Customer claims.

The net write-downs for credit risk and non-financial assets were PLN -2 451 million and were PLN 1 367 million higher than in 2019, mainly as a result of write-downs recorded in connection with COVID-19 and impairment of: the shares in Bank Pocztowy S.A., goodwill (which arose as a result of acquiring Nordea Bank Polska S.A) and real estate.

The share of impaired loans amounted to 4.5% as at the end of 2020 (a 0.1 p.p. increase compared with 2019).

The cost of credit risk was 0.77% as at the end of 2020, which is a 0.31 p.p. deterioration compared with the prior year.

5.3 Statement of financial position

Main items of the Statement of financial position

Financing granted to Customers

Amounts due to Customers

External financing

Main items of the Statement of financial position

Total assets, and total equity and liabilities of PKO Bank Polski S.A. amounted to PLN 345 billion as at the end of 2020 and increased by PLN 28 billion since the beginning of the financial year. Therefore, PKO Bank Polski S.A. reinforced its position as the largest financial institution in the Polish banking sector.

On the assets side, the Bank noted an increase, mainly in the securities portfolio, and on the side of sources of finance the increase was determined mainly by the increase in the deposit base.

Financing granted to Customers

As at the end of 2020 financing granted to the Bank’s Customers amounted to PLN 207.0 billion, which is a decrease of PLN 7.8 billion y/y.

The volume of retail and private banking loans decreased by PLN 1.8 billion and related to real estate loans, with a lower level of corporate loans (PLN -4.7 billion) and loans to firms and enterprises (PLN -1.1 billion).

Retail and private banking loans, and corporate loans were the main items in the structure of financing by type, with shares of 54.9% and 37.0% of the portfolio as at the end of 2020 respectively.

Amounts due to Customers

Amounts due to Customers constitute the basic source of financing of the Bank’s assets. As at the end of 2020 amounts due to Customers amounted to PLN 278.9 billion, which is an increase of PLN 26.0 billion since the beginning of the year. The main factor that contributed to the increase in the deposit base was an increase in retail and private banking deposits (PLN +23.0 billion) and deposits of business entities (PLN +12.1 billion), accompanied by a decrease in deposits of corporate entities (PLN -9.1 billion).

In the structure of Customer deposits by type, the main items are the retail and private banking deposits (70.3% as at the end of 2020).

The share of current deposits in the break-down of total deposits increased to 82.2% (+11.8 p.p. compared with the end of 2019).

External financing

PKO Bank Polski S.A. has been an active participant of the debt securities market for many years, which enables it to diversify the sources of financing its operations and to adapt them to the regulatory requirements regarding long-term financial stability.

In 2020 borrowings decreased by PLN 0.9 billion, as a result of:

• premature redemption of EMTN Bank bonds with a nominal value of EUR 250 million;

• repayment of loan instalments received from international financial institutions in accordance with the payment schedule;

• higher exchange rates of the EUR (PLN +0.36) and CHF (PLN +0.34), accompanied by a drop in the exchange rate of the USD (PLN -0.04).

Detailed information on the issues conducted by PKO Bank Polski S.A. and loans received is provided in Note 39 to the Financial Statements of PKO Bank Polski S.A. for the year ended 31 December 2020.

6. Report on expenses on entertainment, and on legal, marketing, Public Relations and social communication, and management advisory services

The report was prepared on the basis of the provision of § 11.1.10a of the Articles of Association of PKO Bank Polski S.A. and pursuant to Article 17.6 of the Act on the Principles of Management of State Treasury Property.

In 2020 the Bank incurred entertainment costs, expenditure on legal services, marketing services, public relations and social communication services, and advisory services related to management totalling PLN 132 million, which represented 1.05% of the Bank’s Result on Business Activities (RBA).

Table 7. PKO Bank Polski S.A. entertainment costs, expenditure on legal services, marketing services, public relations and social communication services, and advisory services related to management.

Type of expense constituting part of the Bank’s administrative expenses	2020 (in PLN million)	Share in RBA (%)
Marketing services - image campaigns supporting the creation of a positive image of the Bank (mainly the Ekstraklasa campaign and the image campaign #zostanwdomu) as well as advertising campaigns supporting the sales of the Bank’s product offer	82	0.65%
Legal services - providing constant legal services on behalf of the Bank based on civil law agreements concluded with law firms and expenses on ad hoc legal aid	31	0.24%
Public relations and social communication services - internal and external communication actions, relating mainly to press publications	10	0.08%
Costs of management advisory services - advisory services related to business and finance advice	8	0.07%
Entertainment costs - expenses aimed at maintaining positive relations with customers, partners and counterparties	1	0.01%
Total	132	1.05%

7. Equity and capital adequacy measures

Equity and return on equity

Capital adequacy measures

Dividend

7.1 Equity

Equity of the PKO Bank Polski S.A. Group went down by 4.0% y/y.

Table 8. Total equity and total capital adequacy ratio of the PKO Bank Polski S.A. Group (in PLN million)

	31.12.2020	31.12.2019	Change (in PLN million)	Change (in %)
Total equity, including:	39,911	41,578	-1,667	-4.0%
Share capital	1,250	1,250	0	0.0%
Supplementary capital	29,519	29,429	90	0.3%
General banking risk fund	1,070	1,070	0	0.0%
Other reserves	3,138	3,237	-99	-3.1%
Accumulated other comprehensive income	1,363	469	894	2,9x
Retained earnings	6,142	2,101	4,041	2,9x
Net profit for the period	-2,557	4,031	-6,588	x
Non-controlling interests	-14	-9	-5	51.2%
Own funds	41,516	42,330	-814	-1.9%
Total capital ratio	18.18%	19.88%		-1,70 p.p.

As at 31 December 2019, own funds and the total capital ratio account for the adjustment related to retrospective accounting for the 2019 profit. The impact of this adjustment on own funds in relation to the amounts published for 2019 was PLN 2.9 billion.

7.2 Capital adequacy measures

The capital adequacy of the PKO Bank Polski S.A. Group in 2020 remained significantly above the supervisory limits.

As at the end of 2020 the total capital ratio of the PKO Bank Polski SA Group amounted to 18.18% and compared with the end of 2019 it dropped by 1.70 p.p., and the core capital T1 ratio amounted to 16.99% and dropped by 1.62 p.p.

The drop in the capital ratios was determined by a decrease in own funds of approx. PLN 0.8 billion with the capital requirements being PLN 1.3 billion higher.

In 2020, there was an increase in the own funds requirement for operational risk by PLN 0.8 billion, mainly due to the growing costs of legal risk related to the portfolio of mortgage loans in convertible currencies. Due to the quarterly shift of data included in the AMA method, the cost level from 3rd quarter of 2020 is included in the requirement at the end of 2020. Starting from 2021, provisions reducing the gross carrying amount of loans (i.e. credit risk related losses) will be included in the AMA method by the Group at a constant value from the 3rd quarter of 2020.

The increase in the requirement for market risk is mainly due to the requirement for currency risk in the amount of PLN 1.2 billion, resulting from creation of write-offs for legal risk related to foreign currency loans. The currency position is limited in the first half of 2021.

Own funds dropped mainly as a result of accounting for the Bank Group’s net loss for 2020 of PLN 2.6 billion. The loss was partially compensated for by an increase in the fair value of financial assets measured at fair value through other comprehensive income and a positive impact of the IFRS 9 adjustment on own funds.

As at the end of 2020 the application of the regulations mitigating the impact of the COVID-19 pandemic also had an impact on the level of capital ratios (elimination of the impact of the write-downs set up since 1 January 2020 on the Tier 1 capital and reducing the amount of intangible assets relating to software which reduced own funds), the effect of which was among other things an increase in own funds of approx. PLN +1.6 billion and an impact on the total capital ratio of approx. 89 b.p. and on the core capital Tier 1 ratio of approx. 89 bp.

As at 31 December 2020 compared with 31 December 2019 the total capital ratio of PKO Bank Polski S.A. dropped by 2.43 p.p. to 19.78%, and the core capital T1 ratio went down by 2.31 p.p. to 18.45%. The drop in capital ratios results mainly from the drop in own funds as a result of accumulating the Bank’s net loss incurred in 2020 accompanied by higher capital requirements with respect to market risk (refres to the requirement for currency risk in the amount of PLN 1.2 billion at the end of 2020) and higher capital requeirements due to operational risk (PLN 0.8 billion at the end of 2020) as a result of of costs incurred with respect to legal risk.

Due to the quarterly shift of data included in the AMA method, the cost level from 3rd quarter of 2020 is included in the requirement at the end of 2020. Starting from 2021, provisions reducing the gross carrying amount of loans (i.e. credit risk related losses) will be included in the AMA method by the Group at a constant value from the 3rd quarter of 2020.

7.3 Dividend

On 26 August 2020 the Bank’s Ordinary General Shareholders’ Meeting passed a resolution on retaining the whole net profit earned by the Bank in previous years:

• with respect to the profit for 2019 – to earmark PLN 2 155 113 to reserves and to leave PLN 3 832 348 976 in retained earnings.

• to leave profit from prior years of PLN 1 667 651 024 in retained earnings.

The resolution complied with the recommendation of the Polish Financial Supervision Authority submitted to the Bank on 26 March 2020.

Dividend policy

In 2020, the dividend policy of the Bank and the Bank’s Group was specified in the “Principles for management of capital adequacy and equity in PKO Bank Polski S.A. and in the PKO Bank Polski S.A. Group”.

In March 2021 the Bank’s Supervisory Board adopted a new “Dividend policy of PKO Bank Polski S.A. and of the PKO Bank Polski S.A. Group”.

The dividend policy assumes that the Bank's intention is to distribute dividend in a stable manner in the long term, pursuant to the principle of prudent management of the Bank and the Bank’s Group pursuant to the law and in accordance with the PFSA’s position on the assumptions for dividend policies of commercial banks. The aim of the dividend policy is to optimally shape the capital structure of the Bank and the Bank’s Group, in consideration of the return on equity and the cost of capital, as well as respective requirements related to development, while ensuring an appropriate level of capital adequacy ratios.

The Bank may (accounting for the position of the PFSA) distribute dividend if it has excess funds over the minimum capital adequacy ratios specified in Article 92.1 of the 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 (CRR) taking into consideration the Regulation of the Minister of Finance dated 18 March 2020 revoking the regulation on the systemic risk buffer, Article 55.4 of the Act on macro-prudential supervision over the financial system and on crisis management in the financial system, and Article 138.1.2a of the Banking Law.

According to the dividend policy adopted on 18 March 2021, repurchase of treasury shares for the purpose of their redemption is an additional tool for the redistribution of capital; the shares may be repurchased when their book price is higher than the current market price, after the PFSA gives its consent for their repurchase.

PFSA recommendations as to distribution of dividend in 2021

On 16 December 2020 the PFSA took a stand on the dividend policy of commercial banks in 2021.

Taking into consideration:

• material uncertainty as to the further development of events related to the COVID-19 pandemic;

• the temporary nature of the solutions used by the banks to improve their capital position during the pandemic;

• the maintained prudent supervisory position of the European Union with respect to dividend restrictions and other forms of reducing capital resources;

• a change in the guidelines of the European Banking Oversight Authority extending moratoria

The PFSA considered it necessary to suspend payment of dividend by commercial banks in the first half of 2021 and not to take other actions, in particular those outside the everyday business and operational activities which could lead to a reduction in the capital base without prior consultations with the supervision authority. This relates to potential dividend distribution from retained earnings and redemption of treasury shares. The Authority expects that any potential realization of such actions will each time be preceded by prior consultation with the supervision authority and will depend on its positive result.

The PFSA’s position on commercial banks’ dividend policy in the second half of 2021 will be presented separately after an analysis of the financial position of the banking sector in the first half of the year is performed.

On 14 January 2021 PKO Bank Polski S.A. received an individual recommendation from the PFSA, in which the PFSA recommended that the Bank:

• suspend payment of dividend in the first half of 2021 (including also from retained earnings);

• will not undertake in the first half of 2021, without prior consultation with the supervision authority, any other actions outside the scope of everyday business and operational activity, which could lead to reducing the capital base, including redemption of treasury shares.

The Bank’s Management Board and Supervisory Board passed resolutions that within their competences they will oversee the realization of the above recommendation of the PFSA.

Pursuant to Article 395 § 2.2 of the Commercial Companies Code the decision on the distribution of profit remains within the competences of the Bank’s Ordinary General Shareholders’ Meeting.

8. Activities of the PKO Bank Polski S.A. Group

Activities related to the COVID-19 pandemic

Operating segments of the Bank’s Group

IT projects and other services

Distribution network and access channels

Operational area

Sources of financing operations

International cooperation

Operations of selected PKO Bank Polski S.A. Group companies.

Prizes and awards for the PKO Bank Polski S.A. Group.

8.1 Activities related to the COVID-19 pandemic

Since the beginning of the COVID-19 pandemic the Bank’s Group has supported Poles and participates in actions to prevent the virus from spreading. The main objective is to ensure safety to the Bank’s Customers and employees and to support local communities, hospitals and medical personnel.

Actions on behalf of the communities

With respect to supporting communities, the Bank’s Group:

• transferred monetary donations exceeding PLN 6 million in total to hospitals, including COVID-19-dedicated hospitals and laboratories, helping in the purchase of medical and protective equipment;

• transferred in-kind donations to hospitals, medical facilities, social assistance centres and orphanages throughout Poland, including, among other things, 360 thousand protective masks, almost 10 thousand articles of protective clothing, 142 vehicles for hospital purposes, the Main Sanitary Inspectorate (GIS) and the Territorial Defence Forces;

• based on an agreement concluded between the PKO Bank Polski Foundation and Warsaw Genomics, it purchased and commissioned the conduct of diagnostic tests for the presence of SARS-CoV-2, in addition the Foundation made available its account number to the employers’ coalition and financed another pool of diagnostic tests from the funds collected from firms and individuals;

• started cooperation with government institutions, including:

– co-created the application system for the Anti-Crisis Shield;

– the Bank’s employees supported helplines and development of the GIS systems and the Ministry of Development in respect of the Anti-Crisis Shield;

– Operator Chmury Krajowej sp. z o.o (jointly controlled by PKO Bank Polski S.A.) prepared a solution which enables patients to use video consultations with medical personnel without leaving home;

• supported humanitarian aid convoys organized by the Ministry of Foreign Affairs to Kazakhstan, Uzbekistan and Ukraine (PKO Bank Polski Foundation);

• equipped its branches in personal protective equipment to protect employees and Customers in the branches;

• started educating Customers to encourage them to use remote channels;

• conducted the action “Donate plasma – help battle COVID-19” to encourage employees of PKO Bank Polski S.A. to donate their blood plasma.

Institutional commitment to counteracting COVID-19 was supplemented by the actions of volunteers – employees of the Bank’s Group.

The total value of the aid provided by PKO Bank Polski S.A. and its Polish subsidiaries exceeded PLN 23 million (net of the costs of purchasing protection materials for employees and Customers).

In addition KREDOBANK S.A. supported Ukrainian citizens. The Bank Group Company transferred donations to Lviv Oblast hospitals for the purchase of medical and personal protection equipment.

PKO Bank Polski S.A. was awarded in the 4th edition of the Polish Radio Business Awards in the category “Polish Philanthropist” and in the Rzeczpospolita journal ranking “Firms most important for Poland” for fighting the COVID-19, saving Polish economy and health services.

Actions on behalf of Customers

The Bank’s Group supports Customers during the COVID-19 pandemic.

In 2020 the Bank’s Group offered special solutions which helped to maintain the Customers’ financial liquidity (e.g. by temporary reductions in financial charges and facilitations in extending or concluding agreements). The scope of aid changed and was adapted to the pandemic conditions, and restrictions in business activities, and it accounted for the guidelines of the regulators. The actions of PKO Bank Polski S.A. and its subsidiaries with their registered offices in Poland comply with the guidelines of the European Banking Authority (EBA).

• The Bank, PKO Bank Hipoteczny S.A., PKO Leasing S.A. and Prime Car Management S.A. enabled the borrowers and lessees, at their request, to suspend or extend instalment payments (principal, or principal and interest or interest – depending on the form of financing) for a maximum period of six months. They offered, respectively:

– to retail Customers with housing loans, mortgage loans and advances – suspending the payment of instalments and to retail Customers with cash borrowings or lease contracts – suspending the payment of instalments with the option to extend the lending period;

– to firms, enterprises and corporate Customers (including local government and central government entities) – suspending payment of instalments with the option of extending the lending period (this, among other things, related to working capital loans, current account overdrafts, investment and investor loans, lease contracts).

• The Bank’s Group facilitated applying for suspension of payments and implemented a more comfortable, remote process of concluding annexes.

• The Bank introduced simplified procedures in the process financing firms, enterprises and corporations for extending selected renewable products and internal Customer limits and restructuring agreements. The Customers could extend the products for a period no longer than six months or renew them for a contractual borrowing period. The simplified principles covered, among other things, automated or simplified decision-making processes. The extensions and renewals were made on the Bank’s initiative or at the Customer’s request.

• KREDOBANK S.A. used programmes of credit reliefs providing. At the Customer’s request, KREDOBANK S.A. could suspend all or part of the instalments or principal instalments for a maximum period of three months. KREDOBANK S.A. also implemented fast track decision-making procedures for renewals of credit lines.

• The Bank enabled temporary suspension of credit card repayments for retail Customers. Firms and enterprises could temporarily suspend repayment of “Biznes” cards. The Bank’s Group companies enabled early return of vehicles on preferential conditions under the lease and subscription contracts (companies from the Prime Car Management S.A. Group) and introduced facilitations with respect to factoring payments (PKO Faktoring S.A.).

Applications relating to loan repayments with the Bank and PKO Bank Hipoteczny S.A. could be filed until 30 September 2020.

The Bank took into consideration the effects of the second wave of the pandemic and the related restrictions and at the end of 2020 it started to prepare to resume the provision of aid tools. In particular this related to supporting the groups of borrowers most affected by COVID-19.

In 2020 Customers of the Bank’s Group could avail themselves of statutory moratoria, and in particular:

• the Customers of the Bank and of PKO Bank Hipoteczny S.A. who lost their jobs or key source of income after 13 March 2020 could, as of 24 June 2020, , suspend the performance of agreements with respect to mortgage loans and consumer loans for a maximum period of three months. During the suspension period the banks did not accrue interest or collect any other fees related to the performance of the agreements apart from insurance premiums;

• the Bank’s Customers who had preferential student loans in the repayment period could – as of 30 July 2020 and without additional fees – suspend the repayment of the loan with interest. Repayment could be suspended for a maximum period of six months while at the same time extending the repayment period. Interest payable in the suspension period was fully covered by funds from the Student Loan Fund.

In 2020 over 206 thousand Customers of the Bank’s Group in total availed themselves of the voluntary and statutory moratoria with respect to loans and advances pursuant to the European Banking Authority (EBA) guide, and the total carrying amount, gross, of loans and advances covered by the moratoria amounted to PLN 32.7 billion. As at the end of 2020 the gross carrying amount of active moratoria was PLN 3.0 billion.

Detailed data on the amounts of moratoria granted is in the financial statements of the Bank’s Group for 2020 – in Note 62.

Customers of the Bank’s Group could also avail themselves of the aid tools introduced under the anti-crisis shields offered by BGK and PFR:

• the Bank’s Customers (micro- and small- and medium-sized enterprises) could use the guarantees securing repayment of loans or advances under the de minimis portfolio guarantee line with the BGK. As of March 2020 the guarantee was offered in higher amounts and on more favourable terms. In addition, in December 2020 the Bank concluded an annexe to the agreement with BGK. The annexe allows Customers to use such security also for foreign currency loans. The total amount of the de minimis guarantees granted in 2020 amounted to PLN 4.2 billion.

• The Bank’s Customers could use the BGK Liquidity Guarantee Fund created to help medium and large companies damaged by the effects of the pandemic. The Bank initiated more favourable changes to the guarantee conditions. An option was introduced to cover foreign currency loans with the guarantees was introduced and the minimum amount of individual guarantees was cancelled. The Bank concluded a cooperation arrangement for granting loan repayment guarantees made available under syndicate financing. In December 2020 it signed an annexe to the agreement extending the possibility of using guarantee instruments to 30 June 2021. The total amount of guarantees granted to the Bank’s Customers in 2020 was PLN 2.1 billion (of the PLN 18 billion available).

• Until the end of July 2020 the Bank’s Customers could apply for a financial subsidy from the PFR Financial Shield 1.0 earmarked for micro-, small- and medium-sized enterprises using the Bank’s transaction services. Via the Bank, approx. 67 thousand enterprises employing 0.5 million people received funds totalling PLN 10.5 billion. The Bank had the largest participation share in distributing this form of aid.

• From June 2020 entrepreneurs could file applications for preferential interest on liquidity and preferential loans earmarked for large enterprises from the PFR Financial Shield 1.0 directly with the PFR. The total amount of both financial instruments is PLN 17.5 billion. The Bank is the only bank which services these loans. The Bank’s role is, among other things, maintaining accounts for the payment of funds granted under the programme, registering and monitoring the loans and security and operational handling of the loans and security. The applications may be filed until 30 April 2021.

• Businesses could file applications for the Bank’s co-financing interest on working capital loans with the Bank. The support is earmarked for businesses which pursuant to the economic conditions caused by the COVID-19 pandemic lost financial liquidity or are threatened with such loss. One business may avail itself of co-financing of interest payments only on one working capital loan – a new or already extended one. BGK covers a portion of interest on the loan for a period not exceeding 12 months. Businesses could apply for support until the end of 2020 or until the pool of funds of PLN 565 million for all banks cooperating with BGK is exhausted. In February 2021 the Bank signed an annexe to the agreement with BGK extending the co-financing programme to 30 June 2021.

• PKO Faktoring S.A., as one of first the factors in Poland, concluded a portfolio guarantee line with BGK. Pursuant to the agreement as of September 2020 the Company has been offering its Customers the option to secure up to 80% of the amount of the factoring limit granted under quasi-factoring or reverse factoring contracts. The maximum guarantee that PKO Faktoring S.A. may grant based on the guarantee line is PLN 200 million. By 31 December 2020 the total amount of guarantees granted to the Company’s Customers was PLN 135 million. The option of concluding an agreement with a BGK guarantee will be offered until 30 June 2021.

• Small- and medium-sized enterprises, PKO Leasing S.A.’s and the Bank’s Customers may avail themselves of liquidity reverse leases with a Cosme-Covid guarantee granted by the European Investment Fund, as of October 2020. The offer is addressed to owners of passenger cars or delivery trucks of up to 3.5 tonnes (with a value up to PLN 150 thousand) who have had an active lease contract or company account with the Bank for at least six months. Under the lease, Customers may recover funds expended on the purchase of the vehicle while retaining the ability to use it further. The Lessor finances the value of the asset for up to 80% of its assessed value. The offer is valid until 30 June 2021 or until the total amount of the guarantee is exhausted (PLN 500 million).

• In November 2020 PKO Leasing S.A. signed an arrangement to cooperate with ARP Leasing sp. z o.o., a company of the Agencja Rozwoju Przemysłu S.A. The arrangement relates to the principles of refinancing lease contracts for businesses from the transport and bus sector afflicted by COVID-19 by ARP Leasing sp. z o.o. Small- and medium-sized enterprises may avail themselves of a maximum 12-month holiday in repayment of their lease contract liabilities. The arrangement is for an indefinite period and the first applications were examined in November 2020.

• The Bank’s Customers could file applications for subsidies from the PFR Financial Shield 2.0 in the internet services iPKO and iPKO biznes until the end of the first quarter of 2021. The PFR Financial Shield 2.0 was earmarked for micro- small- and medium-sized enterprises from 54 industries which had to limit business activity due to the COVID-19 epidemic.

PKO Bank Polski S.A. has purchased bonds financing anti-crisis shields of PFR and aid tools of BGK. Bank’s representatives participated in the process of creation of multiple systemic solutions for suporting borrowers.

Actions on behalf of the employees

In 2020 the Bank conducted the following actions to ensure that the employees were safe:

• equipping the employees with necessary means of personal protection, such as disinfecting gels and liquids, masks, gloves and protective visors, and introducing safety procedures in branches which include Customer traffic and disinfection od Customer service points.

• protecting the advisors’ workspaces with special plastic protections, ensuring that the branches are cleaned using disinfectants and if necessary, ozoned;

• implementing various work systems (remote, office, rotational) and adapting them to the epidemic conditions, and specifically protecting employees whose health is especially threatened;

• providing the employees with company cars to travel between the work place and home, enabling parking the cars in parking places or in places assigned to the Bank, and launching refunds of costs incurred for parking private cars close to the workplace during increased restrictions;

• adapting the healthcare model for employees and enabling constant access to telemedicine and psychological support, and to be vaccinated against flu;

• launching a special information campaign on the pandemic for employees;

• making available on an internal portal materials facilitating remote work, sets of good practices and instructions relating to work organization;

• making available to approx.13 thousand employees licences to the communication tool Microsoft Teams;

• implementing digitization of employee documentation;

• launching and developing an offer of remote development actions;

• performing systematic pulse checks, gathering current information from employees on: their physical and mental state, remote work and areas which require support;

• making available the solution #CzasNaFeedback which supports teams in building commitment and open relations in transferring feedback.

In 2020 the Bank’s expenses on employees related to functioning during the pandemic and mitigating its effects amounted to PLN 75.7 million.

Other Bank Group’s entities took similar actions adapted to the nature of their operations and employment structure. The actions included mainly completing tasks in various work systems and keeping to the rule of keeping a safe distance, ensuring an appropriate healthcare model and making available equipment and various communication tools.

In 2020, total expenses on behalf of employees in relation to functioning during the pandemic in the Bank’s subsidiaries amounted to PLN 7.1 million.

8.2 Operating segments of the Bank’s Group

Retail segment

Corporate and investment segment

The PKO Bank Polski S.A. Group conducts business activities in segments adapted in terms of products and services to specific groups of Customers. The manner in which the business segments are divided is consistent with the sales management model and a comprehensive product mix. Currently, the Bank’s Group conducts its business activities in the retail segment as well as in the corporate and investment segments.

The management reporting data of the Bank is presented in this subsection; any differences in the sums, shares and dynamics arise from rounding.

8.2.1 Retail segment

The offer of the PKO Bank Polski S.A. Group for individuals covers a wide range of credit, deposit and insurance products, as well as electronic banking services.

In 2020 in the retail segment the PKO Bank Polski S.A. Group built strong and long-term relations with Customers and supported them during the pandemic, among other things by making available a maximum number of processes remotely. It focused on developing tools and access channels to enable Customers to easily manage their finances from any place and at any time.

Individuals can take advantage of consumer loans in the form of cash advances, mortgage loans, revolving loans, credit cards and housing loans. Investment and investor loans, revolving loans, leases and factoring are available to companies and enterprises.

The deposit and investment offer comprises, among other things, regular saving products, term deposits, investment products of PKO TFI S.A., and Treasury savings bonds.

The Bank Group’s offer provides insurance services, both those related and not linked directly to bank products, to all Customers in the retail segment. Insurance linked to Bank products is offered to Customers in connection with, among other things, consumer loans and mortgage loans, checking accounts and bank cards. The offer of insurance independent of Bank products includes, among other things, life insurance, insurance of real estate, travel, motor and the OnkoPlan oncological insurance policy, and insurance of leased assets.

Customers of the segment

As at the end of 2020 the Retail segment serviced nearly 11 million Customers, including:

• almost 10.5 million individuals, including 16.3 thousand of Private Banking Customers;

• over 0.5 million companies and enterprises.

Since the beginning of 2020 the number of Customers serviced by the segment increased by 72 thousand.

Business volumes

As at the end of 2020:

• the aggregate financing of retail segment Customers amounted to nearly PLN 177 billion and went down by over PLN 3.1 billion (i.e. 1.7%) in 2020. The decrease in the foreign currency mortgage banking portfolio (of PLN -6.0 billion) was the main contributing factor.

• retail savings amounted to nearly PLN 312 billion and went up by PLN 48.7 billion (i.e. 18.5%) in 2020. An increase in retail and private banking deposits (of 13.2%), Treasury savings bonds (of 50.5%) and deposits of firms and enterprises (of 40.1%) were the main contributing factors.

The Bank’s Group reinforced its position as market leader in terms of the number of checking accounts maintained (ROR). This number amounted to almost 8.3 million and went up by 245 thousand during the year. It covers all active accounts, which constitutes growth potential for further cooperation with Customers.

In 2020, the Bank’s Group sold nearly 284 million Treasury savings bonds (i.e. 64% more than in 2019), and the debt in respect of the Treasury savings bonds issued to the domestic market amounted (at nominal value) to PLN 40 billion and was more than PLN 13.4 billion higher than at the end of the prior year.

The Bank’s Group offers its retail and private banking Customers 57 funds and subfunds for individuals in which assets amounting to PLN 32.2 billion have been accumulated (according to the Analizy Online service).

Activities in 2020

In 2020, the PKO Bank Polski S.A. Group:

• with regard to housing loans:

– granted loans to individuals for a total of PLN 11.7 billion, which allowed it to maintain top position on the market with a share of 19.7% throughout 2020;

– extended the offer to support borrowers with CHF mortgage loans until 31 December 2020 to limit the negative effects following from the changes in the exchange rate of CHF;

– enabled concluding annexes to agreements for changing interest rates from fluctuating to fixed over a period of five years for the MIX mortgage loans and mortgage advances;

– offered a “green mortgage” option according to which, based on an energy performance certificate for the property constituting collateral for the loan Customers may be charged a lower margin;

• with regard to consumer loans:

– introduced new cash loan insurance packages for high amounts of loans (over PLN 100 thousand net of the amount applied for);

– increased the maximum available amount of the loan for basic segment Customers to PLN 200 thousand;

– introduced the option of individualizing the price of cash loans;

– introduced a new offer “Ekopożyczka” – loans for the purchase of photovoltaic (solar) panels and other ecological equipment and vehicles, available without the need to have an account with the Bank;

– introduced a new offer of external consolidation with a flexible price in the Bank’s branches;

– improved the process of remote sales with the participation of advisors;

• with regard to loans for firms and enterprises:

– introduced a new special offer for financing photovoltaic equipment addressed to those Customers of the Bank’s Group who are entrepreneurs;

– in cooperation with Operator Chmury Krajowej sp. z o.o. made available, as a pilot service, to Customers who are firms and enterprises, the Cloud Disk service. The service allows saving files to an Internet disk (with a capacity of 100 GB), which allows the user unlimited access to those filed from a computer, smartphone or tablet, with ensured full privacy and security, and intuitive handling;

– introduced new services, which include the automation and digitization of applications for granting the de minimis BGK guarantees through remote channels, a multiple signature mechanism consisting of certifying documents using an SMS code, the payment gate of eService which allows Customers to pay with their cards, the BLIK code, make pay-by-link transfers and an e-wallet;

• with regard to the transactions and savings offer:

– it introduced Nowe PKO Konto za Zero (Zero-cost Account) to the offer addressed to those Customers who use their accounts intensively, pay by phone or card and wish to use new technologies. The account provides the following free-of-charge services: maintaining the account, withdrawals from all ATMs in Poland using the BLIK code and abroad using the card, and free-of-charge multi-currency debit card at five non-cash transactions a month;

– as of November 2020 it made available a new offer of company accounts with multicurrency debit cards. The cards are issued for accounts in 22 currencies. The new offer promotes active Customers who chose PKO Bank Polski S.A. to be their key financial partner, and it fully replaces the former business account offer;

– adapted the product offer to the current market conditions following, among other things, from the MPC’s decision to reduce interest rates, and among other things, it optimized the deposit product offer for firms and enterprises – it withdrew standard term deposits, negotiated deposits and automatic deposits from the offer;

• with regard to the investment offer:

– made available to the Personal Banking Customers an investment advice service provided by advisors;

• with regard to the insurance offer:

– for participants of the Employee Capital Plans and Employee Pension Plans maintained by PKO TFI S.A. it introduced a system of discounts in OnkoPlan and Bezpieczny Plan insurance (10%) and a system of discounts for purchases of Moje Podróże24 and Mój Dom24 insurance through the iPKO Internet service (20% and 30% respectively);

– made available an offer for insuring children PKO Ubezpieczenie Dziecka.

8.2.2 Corporate and investment segment

Customers of the segment

As at the end of 2020 the Corporate Segment and the Investment Segment serviced over 16.5 thousand Customers, including:

• 8.6 thousand corporate Customers;

• 1.3 thousand strategic Customers;

• almost 5.2 thousand local and central government institutions plus budgetary and related entities;

• nearly 1.1 thousand foreign Customers;

• over 0.3 thousand financial Customers.

Since the beginning of 2020 the number of Customers serviced in this segment increased by over 0.6 thousand. The Bank maintains its position as market leader for servicing the largest local government units: it handles the budgets of 9 voivodeships and 9 voivodeship capital cities. The Bank has been systematically reinforcing its leading position in the financing of the Polish economy, both on its own and as a major member of banking syndicates, with a share commensurate with its market position.

Under the Bank’s subsidiaries’ offer Customers from the corporate segment may use lease and factoring products and services. Any fixed asset may be financed in the form of a lease, depending on the Customers’ needs. Apart from standard products, the offer also includes services of renting car fleet and cooperation with suppliers.

Business volumes

The Bank supports the Polish economy and participates in the financing of strategic investment projects and local government investments. Such financing takes the form of syndicated and bilateral loans or securities issues.

As at the end of 2020 total financing of Customers from the corporate segment, including loans, bonds issued and lease receivables amounted to PLN 71 billion and decreased since the beginning of the year by PLN 2.6 billion (i.e. 3.5%).

The Bank maintains securities accounts for Customers and facilitates Polish and foreign market transactions, and acts as a depositary for pension and investment funds.

The PKO Bank Polski S.A. Group offers wide access to funds to its Customers for the financing of complex investment projects, and the services of advisors focused on selecting optimum forms of financing and repayment terms.

The level of savings of Customers from the corporate segment as at 31 December 2020 amounted to PLN 46 billion and decreased by more than PLN 4.3 billion from the beginning of the year, mainly due to a drop in the largest Customers’ sector current and term deposits. This drop was partly offset by investing more than PLN 4.5 billion in bonds issued by the Bank Group’s companies.

Activities in 2020

In 2020, the PKO Bank Polski S.A. Group:

• with regard to Customer service and transaction banking:

– implemented regulatory and functional changes, which enable opening and closing subsidy accounts for PFR financing of the “Large Enterprises” and “Micro-, Small- and Medium-sized Enterprises” programmes;

– implemented regulatory changes to enable the signing of documents provided under the Cash Management products for corporate segment Customers using a qualified electronic signature;

– adapted the product offer to the current market conditions following, among other things, from the MPC’s decision to reduce interest rates, and optimized the deposit product offer which included withdrawing the term deposits product;

– introduced new Cash Deposit Machines (Wpłatomaty) in Customer locations, which accept cash in PLN and EUR, which are accounted for on-line;

– automated the SEPA Card Clearing service and implemented collective bookkeeping for the SEPA Direct Debit service for the purpose of the German branch;

• with respect to financing and banking services for public entities, it concluded:

– agreements for the comprehensive servicing of budgets of Kraków, Katowice and Rzeszów;

– 143 communal bond issue agreements with the total value of PLN 1.55 billion;

• with regard to financing the corporate segment Customers in the form of banking syndicates and organization of bond issues, it concluded:

– 21 loan agreements in the form of a banking syndicate for a total of PLN 24.5 billion EUR 3.8 billion and USD 0.7 billion, in which the Bank’s share amounted in total to PLN 4.7 billion, EUR 0.4 billion and USD 0.1 billion;

– two agreements relating to the organization of corporate bond issues without guaranteeing the closing of the issues in the total amount of PLN 2.0 billion;

• with regard to brokerage activities (conducted by Biuro Maklerskie Banku):

– as a joint offeror and joint bookbuilder it conducted the IPO of Allegro.eu S.A. with a value of PLN 10.6 billion;

– as an intermediary, it completed the subscription for the sale of shares of Energa S.A., announced by PKN ORLEN S.A., totalling nearly PLN 3.2 billion;

– as the global coordinator and joint bookbuilder, it completed a transaction on the primary market according to the ABB procedure relating to CCC S.A. shares with a value of approx. PLN 506.9 million and a transaction according to the ABB procedure relating to X-Trade Brokers Dom Maklerski S.A. shares with a value of approx. PLN 111 million;

– on behalf of Ghelamco Invest sp. z o.o., as part of its operations on the debt securities market, it completed in total issues of bonds with a value of PLN 350 million;

– it maintained nearly 135 thousand securities and cash accounts and over 252.8 thousand registration accounts – in terms of the number of securities accounts (according to the data of the National Depository for Securities) the Bank’s Brokerage Office ranked third among 36 participants in the market;

– it provided services concerning units in 432 funds and sub-funds managed by 11 fund management companies.

The Bank's Capital Group supported clients by making funds available from government aid programs offered under anti-crisis shields, including PFR and BGK. Detailed information in chapter 8.1.

8.3 IT projects and other services

New functions and remote services

New technologies

New functions and remote services

IKO Voice Assistant – “Talk2IKO”

1720379 The voice assistant appeared in the IKO mobile application in May 2020. Since mid-August, it has been available to all users of smartphones, both with the Android and iOS system.

It can, for example, be used to order an ordinary money transfer to a defined recipient or a bank account number, transfer money to a phone number, check an account balance, search the account history, top up the phone, and pay with a BLIK code.

The Assistant uses advanced analytics and artificial intelligence algorithms to understand the Customer’s words and respond to them. The system understands natural language and does not require any special method of communication.

By the end of 2020, the system talked to Customers 330,000 times. The Customers transferred PLN 1.9 million via the voice assistant.

Coronabot

In the second quarter of 2020, PKO Bank Polski S.A. implemented a voicebot in its call centre. The bot helps find answers to the most frequently asked questions relating to the effects of coronavirus on the Bank’s operations, concerning e.g. requests for suspending loan repayments, checking the opening times of branches, preparing the Bank for the epidemic threat, using ATMs, ordering cards and changing the limits, creating a trusted profile, changes of personal data, times of executing money transfers, regaining access to systems.

Video adviser

PKO Bank Polski S.A. implemented the video adviser function for Customers in cooperation with Operator Chmury Krajowej sp. z o.o. and Google. The cloud technology used in the project allows Customers to maintain a continuous relationship with their bank advisor irrespective of the external circumstances.

Autenti electronic signature

In cooperation with Autenti sp. z o.o., PKO Bank Polski S.A. introduced electronic signatures in the contacts between the Bank and the Customer. Autenti sp. z o.o., as a trusted third party, enables the verification of electronic signatures and electronic stamps. Additionally, Autenti enables satisfying the legal requirement of preserving the document so that it can be saved, reproduced in an unchanged form and read (a durable medium). Every signed document receives an Autenti certificate, which confirms the authenticity of the origin and integrity of the document.

Automarket

PKO Bank Polski S.A., in cooperation with PKO Leasing S.A. and Prime Car Management S.A., launched the Automarket.pl platform which offers safe purchases of new and used cars with documented mileage. All cars undergo thorough technical checks. The Customer can choose from a range of different forms of financing, and the vehicle can even be delivered to the Customer’s door.

At the end of 2020 there were approx. 1,600 offers on the platform. From its launch to 31 December 2020, Automarket was visited more than 3 million times by 1.4 million users who made more than 15 000 inquiries about the vehicles presented on the platform.

Invoice Financing

In cooperation with PKO Faktoring S.A., the Bank launched the online factoring service, which is available on the iPKO transactional platform (the service can be activated and an invoice can be submitted for financing remotely without the need to visit a branch of the Bank). “Invoice Financing” is a product for small- and medium-sized enterprises that allows the Customer to sign an agreement and obtain financing for up to 100% of the value of an invoice online – PKO Faktoring S.A. makes the payment to the issuer of the invoice before its due date and charges a commission for such service. The money is credited to the business account of the issuer of the invoice on the same day. By the end of 2020, 824 entities used this form of financing and the value of the financed invoices was PLN 5 million.

e-Kantor

The Bank’s customers may sell foreign currencies in the PKO Bank Polski S.A. currency exchange office though iPKO and transfer the PLN amounts immediately to their accounts with other banks. This service is free of charge and in order to use it a Customer must add a personal account with another bank to the IKO mobile application 1734097 .

Online currency exchange is a simple and intuitive tool, which makes it possible to exchange currencies online safely and fast. The currency exchange service handles 10 foreign currencies – EUR, GBP, USD, CHF, DKK, NOK, SEK, CZK, HRK, HUF.

The currency exchange service is one of the elements of the “three-in-one” currency package. The package also includes a foreign currency account and a multi-currency card. Online currency exchange is available 24/7 in the IKO mobile application and on the iPKO platform.

Its functions include online tracking of foreign currency rates, sending text messages/alerts and push notifications when a given currency rate reaches a specified level, ordering automatic currency exchange when the rate has reached the required level and setting up standard orders to exchange currency on a specified day. Customers who have accounts with other banks may also buy foreign currencies from PKO Bank Polski S.A. paying with a BLIK code. No extra fees are charged for currency exchange transactions.

7.5 million transactions have been concluded since the opening of the currency exchange service, i.e. since January 2018.

Inwestomat

In November 2019, PKO Bank Polski S.A. was the first entity to launch an innovative service of investment advice based on full automation of the purchase process in remote channels. Inwestomat is characterized by intuitive navigation and simple communication with the Customer. It helps understand difficult concepts and risks related to investing. Inwestomat presents possible market development scenarios and the recommended product, and in a simple way shows how to select appropriate funds which may help the Customers attain their goal. The proposal takes into account the risk acceptance level, the expected rate of return and investment duration. Customers can use Inwestomat to invest funds starting from just PLN 100.

Two new functions were introduced in 2020: an online investment advisor and the opportunity to benefit from the PKO TFI S.A. retirement package.

Personal banking Customers may use the service through iPKO and through their advisor at a branch. As a result, Customers using Inwestomat have already invested more than PLN 1 billion in the funds managed by PKO TFI S.A. PKO Bank Polski S.A. is the first bank to offer investment advice as part of the integrated customer service at branches and through a remote channel to such a wide range of users.

The Bank also offered e-services implemented in 2019: e-Księgowość (e-accounting), e-Prawnik (e-lawyer), e-Windykacja (e-cash collection), and e-Tożsamość (e-identity).

New technologies

In 2018 PKO Bank Polski S.A. initiated the establishment of Operator Chmury Krajowej sp. z o.o., a company which is being developed by the Bank jointly with the other shareholder, Polski Fundusz Rozwoju S.A. The strategic partnerships between the company, Google and Microsoft enable the Bank’s comprehensive transition from the traditional IT model to the provision of cloud services. PKO Bank Polski S.A. plans to ultimately operate in a hybrid cloud.

In 2020, the Bank implemented a range of services based on cloud computing.

Implementation of a durable medium 2.0

PKO Bank Polski S.A. implemented durable medium 2.0. Due to the development of the technological infrastructure used in the previous version of durable medium, it will be possible to use the medium to deliver not only public documents (such as price lists, service rules and regulations) but also private documents assigned to specific persons. Credit card statements are already delivered on durable media. At the next stage, it will be used to deliver cash loan documentation.

Durable medium 2.0 was developed by PKO Bank Polski S.A. in cooperation with Krajowa Izba Rozliczeniowa S.A., Operator Chmury Krajowej sp. z o.o. and technological companies. The solution is based on a combination of blockchain technology and the WORM matrix. It meets the highest data security standards.

a bank service desk of the future – a bank services desk based on VDA model

PKO Bank Polski S.A. launched a modern virtual application and terminal (VDA) solution, which is based on cloud technology provided by Operator Chmury Krajowej sp. z o.o. The VDA solution comprises:

• a cloud drive for storage of all data which is now stored on the employees’ desktop computers – by the end of 2020 the data of nearly 9 000 users was migrated to the central repository;

• unlimited mail – vault service, i.e. automatic archiving of emails to the cloud, which is now available to all employees of the Bank;

• a virtual workstation/terminal in place of a computer – in the PKO Bank Polski S.A. network of branches desktop computers have been replaced with terminals with access to cloud services; in total, 8 888 desktop and 3 246 mobile terminals have been installed as part of this implementation.

Microsoft Teams

Due to the transition to the remote model of work, PKO Bank Polski S.A. launched Microsoft Teams – a cloud-based Internet solution comprising a set of tools and services for team work. Microsoft Teams is available on Azure, a cloud computing service, as part of Microsoft 365. As at the end of 2020, Microsoft Teams, integrated with tools that support remote work, was used by more than 13 thousand employees of the Bank.

Recording of advisors’ conversations

PKO Bank Polski S.A. launched cloud recording of the advisors’ conversations. The service is addressed to retail sector advisors and it makes it possible to store recordings of conversations with the Bank’s Customers made on any device, e.g. a notebook or a mobile phone. It is used to provide remote services to the Customers when it is impossible to meet in a branch.

8.4 Distribution network and access channels

IKO mobile banking

iPKO Internet banking

PKO Bank Polski S.A.’s Contact Centre

Network of branches and agencies

Private Banking Centre

Corporate Banking Centre

IKO mobile banking

PKO Bank Polski S.A. offers advanced technological solutions to its Customers, providing them with complete, simple, functional and at the same time safe access to banking services using telephones. Digital banking at PKO Bank Polski S.A. is strongly supported by the IKO mobile application, which was voted by users the best mobile application in the world for two years in a row. The IKO application also won in the category “Internauts’ Special Award” in the last edition of the Mobile Trends Awards. It was voted for over 17 000 times.

The number of active IKO applications has exceeded 5 million. In 2020 alone, the users logged in to the application 1 150 million times, and the total number of logins since IKO’s launch in March 2013 until the end of 2020 exceeded 2.9 billion. IKO is the most popular banking application in Poland, with the biggest number of reviews in mobile stores (620 thousand) and a very high average score of 4.8 out of 5.

The youngest Customers of PKO Bank Polski S.A., under 13 years of age, can use the PKO Junior mobile application to access their accounts.

In 2020 the IKO application was expanded, among other things, by:

• opening an account on the basis of remote verification – a Customer may open a PKO Konto za Zero, PKO Konto dla Młodych or PKO bez Granic account online from home, and his/her identity is verified based on the photograph on his/her ID and a selfie;

• open banking, which allows adding the Customer’s bank account with another bank to the application, so that IKO shows the balances of both accounts. At present the accounts with the following banks can be added: Inteligo, Santander Bank, Alior Bank, Bank Pekao, mBank, BNP Paribas, Bank Millennium, ING Bank Śląski;

• combining the registration of a business with CEIDG (the Central Registration and Information on Business) with opening a business account with the Bank;

• an offer of insurance for Customers’ children up to the age of 20 who permanently reside in Poland; the insurance cover is provided by PKO Towarzystwo Ubezpieczeń S.A.;

• payment for motorways – Customers who have entered the details of their cars can pay for driving on a motorway from their account with the Bank;

• the possibility to buy gift cards for popular platforms: Allegro, Google Play, PlayStation, Xbox, Spotify, Netflix, CDA Premium, Nintendo, Microsoft.

The application allows automatic authentication of the Customers calling the PKO Bank Polski S.A. call centre, as well as recovery and change of the password to the iPKO Internet platform and the telephone service.

iPKO Internet banking

The Bank’s Customers can use iPKO and iPKO biznes services as part of the electronic banking services. These services provide Customers with access to information on their accounts and products, and enable them to effect transactions through the Internet.

iPKO

The Bank constantly promotes iPKO Internet banking among retail Customers and small- and medium-sized enterprises. It includes remote self-management of accounts, banking products and other services. The Customers have fast, safe and easy access to their funds (also those entrusted to some other companies of the Bank’s Group). Fees for using iPKO banking services are lower than the commissions and fees charged for the operations in the traditional channels of contact with the Bank.

In 2020, PKO Bank Polski S.A. introduced the following new features to iPKO to make it easier for Customers to use banking services:

• the possibility to add documents to an application filed through a remote channel for a cash loan, renewable credit limit or a credit card;

• remote signing (by the Customer) of offers processed by an advisor at a branch as part of credit pre-limits under the Fabryka Ofert (Offer Factory) project; the agreement is automatically sent to the Customer for signature through iPKO;

• new operations for business Customers – loan activation or early repayment, appointment and cancellation of the appointment of a proxy for a business account, closing an auxiliary account, waiver of a credit limit, or filing an application to simultaneously register a firm and open a business account;

• activation of tourist vouchers;

• the “Moje aktywa” (My assets) function, which gives the Customers access to a transparent list of all their financial assets (e.g. deposits, bonds, funds) in one place;

• the possibility to use iPKO by Customers who do not have accounts with the Bank, but who have Employee Capital Plans (PPK) or Employee Pension Plans (PPE) with PKO TFI S.A. or a cash loan with the Bank;

• the function of checking PPK and PPE register balances and the transaction history on such registers, provided that the registers are maintained by PKO TFI S.A.;

• informing about the estimated total amount of transfer in the currency of the account from which the transfer is sent before the payment transaction is authorized. The information also includes all transaction fees and fees for currency translation.

The appearance of the iPKO home page and the log-in screens of the e-Tożsamość (e-Identity) platform and the ZUS (Social Insurance Institution) Electronic Service Platform was changed.

iPKO biznes system

The iPKO biznes electronic banking system is addressed to all institutional Customers who wish to have online and mobile access to the standard products and specialist banking services.

In 2020 PKO Bank Polski S.A. made new functionalities available to the iPKO biznes users, such as:

• a virtual account module and the possibility to make orders for transactions from virtual accounts;

• digitization of orders for e.g. cards or secure envelopes, activation of modules and sending e-Documents through iPKO biznes;

• a card module, which allows ongoing control of transaction history, available funds and limits on a business card; the application also allows setting up/changing PIN and card activation or blocking.

The Bank also expanded the existing functions – bank statements, reports, white lists of counterparties, and simplified ordering transfers abroad.

The Bank’s Customers could also file applications (and appeal against negative decisions) for PFR Financial Shield subsidies for micro-, small- and medium-sized enterprises through iPKO and iPKO biznes.

PKO Bank Polski S.A.’s Contact Center

The Contact Center of PKO Bank Polski S.A. plays an important role in serving retail segment Customers. Its purpose is to sell the Bank’s products during incoming and outgoing calls and to provide efficient and effective Customer service via a phone or the Internet.

PKO Bank Polski S.A.’s hotline employs several hundred consultants who remain at the Customers’ service 24 hours a day. The consultants not only handle telephone calls but also answer Customers’ questions and requests electronically – e-mails and website requests. Customers may also send messages in the iPKO or Inteligo transaction service.

As part of the robotization of the Customer service process, since 2019 Contact Center consultants have been using the support of a robot, which presents responses to the verification questions during a call. This reduces the duration of conversations between the consultant and the Customer by up to 20 seconds.

Due to increase activitity of Clients using remote channels the number of incoming calls to the Contact Center increased by 17.8%, and e-mails by 72.8%.

Network of branches and agencies

PKO Bank Polski S.A., with an eye to providing convenient access to its products and services, provides its Customers with a wide network of retail branches and agencies, private banking offices, corporate branches, as well as branches located abroad. The optimization of the branch network is carried out on a continuous basis, and decisions on whether to open a branch on a particular micro-market are made by reference to economic criteria, taking into account the growth potential of that micro-market (retail branches) and optimization of the coverage of business areas (corporate branches).

As at the end of 2020, the network of PKO Bank Polski S.A.’s branches comprised:

• 943 retail branches organized into 10 regional divisions, 8 private banking offices and 11 corporate banking offices;

• 23 regional corporate centres organized into 7 regional corporate branches, as well as the branches located in the Federal Republic of Germany and the Czech Republic.

In relation to the end of the year 2019, the total number of retail units decreased by 101, including 100 retail branches, and the number of corporate units decreased by 10 regional corporate centres.

The costs of liquidating branches in 2020 amounted to PLN 5.5 million. This amount mainly includes the costs of restoring the premises to their original condition and the costs of compensations resulting from the agreements signed with the property owners. The compensation costs do not increase the value of the lease agreements; they only change the dates of charging the costs to the Bank’s financial result due to the earlier payment of rents.

The decrease in the number of branches is a result of the digital transformation, which is one of the key elements of the consistently implemented development strategy of PKO Bank Polski S.A. The digital transformation supports Customers switching to remote service channels and at the same time implements the assumptions of the government project “Od papierowej do cyfrowej Polski” (From a Paper to a Digital Poland).

Table 9. Operating data of the retail and corporate segment*

	2020	2019	2018	2017	2016
Number of branches in the retail segment	972	1 073	1 113	1 153	1 198
regional retail branches	10	11	11	11	11
retail branches	943	1 043	1 083	1 132	1 179
private banking branches	8	8	8	8	8
corporate banking branches	11	11	11	2	0
Number of branches in the corporate and investment segment:	32	42	42	41	40
regional corporate branches	7	7	7	7	7
regional corporate centres	23	33	33	32	32
foreign branches	2	2	2	2	1
Number of ATMs	3 022	3 080	3 133	3 190	3 206
Number of agencies	492	538	577	745	837

* In 2020, the Bank established a Corporate Branch in the Slovak Republic, which started operating in March 2021 – the branch is not included in the above table.

The branch and ATM network is complemented by the agency network. As at the end of 2020, PKO Bank Polski S.A. collaborated with 492 agencies.

The Bank is constantly improving Customer service conditions in the branches as part of the so-called Nowy Format Oddziałów (New Format of Branches; NFO) model. The model assumes creating a modern bank facility which is friendly to Customers and the Bank employees. The new standard is supported by new technologies – the WIFI zone, self-service cash desks, possibility of topping up mobile phones, LCD monitors, tablets, authorization of selected Customer orders using text messages. All these technologies strongly support educating the Customers and changing their habits.

Private Banking Centre

PKO Bank Polski S.A. is constantly developing Private Banking and enables Customers to access a wide range of financial products and instruments.

The Private Banking Offices serve Customers in the largest Polish cities: Warsaw, Gdańsk, Kraków, Katowice, Poznań, Wrocław, Łódź, Szczecin, Bydgoszcz (the branch is a part of the Private Banking Office in Szczecin), Białystok and Lublin (the branches are a part of the Private Banking Office in Warsaw). As at the end of 2020, the Private Banking Centre managed a portfolio of assets with a value of nearly PLN 45 billion. During 2020, the number of the Customers served by the Private Banking Centre increased by more than 6% to 16 300 at the end of the year.

Corporate Banking Centre

The Corporate Banking Centre of PKO Bank Polski S.A. is an optimum environment created for the development of businesses with revenues ranging from PLN 5 million to PLN 30 million and similar product and service needs. In 2020, the number of Customers served by the Corporate Banking Centre increased by nearly 13% to 13 400 at the end of the year.

A separate Corporate Banking Centre makes it possible to build the image of PKO Bank Polski S.A. as a reliable business partner for Polish businesses, thanks to:

• its service team;

• creating a specialized group of nearly 150 mobile advisors cooperating directly with credit analysts;

• improving the advisors’ credit competence, better matching of the product offer and price range to the Customer’s needs, and reducing the waiting time for a credit decision due to improvements in the lending process;

• limiting paper documentation in relations with the Bank, remotely communicating with Customers, as well as automating the processes using iPKO biznes.

8.5 Operations

During the pandemic prevailing in 2020, PKO Bank Polski S.A. demonstrated high operational efficiency and cost efficiency in the area of settlements, Customer service and cash turnover.

Having in mind the health and safety of its employees and Customers, in March 2020 the Bank introduced the possibility of remote work for all operational teams. Moreover, in order to improve work efficiency and optimize costs, 81% y/y more robotic processes using RPA (Robotic Process Automation) technology were implemented. In effect, the number of tasks executed by robots increased sixfold. In 2020, the Customers were offered new types of orders through the transaction service iPKO which could previously be made in the branches and through the Contact Center.

The cash management model adopted by the Bank is very effective. During the pandemic, the Bank ensured that large amounts of cash were available to Customers in ATMs and branches. It also supported the whole banking sector by supplying the necessary currencies. Despite a significant increase in the amount of cash in circulation (34.8% y/y), the average level of cash in hand at the Bank decreased by 13.4%.

In connection with the epidemic, the Bank supported the actions taken by the government for the Bank’s Customers and the general public. To support the PFR Financial Shield for micro-, small- and medium-sized enterprises, the Bank’s backoffice staff prepared processes, provided telephone support for the Bank’s Customers applying for subsidies and verified the documentation needed to obtain the subsidies.

As part of the Bank’s social responsibility, its employees supported the service of government, NFZ (the National Health Fund) and the Chief Sanitary Inspectorate call centres and actively supported those institutions in swift preparation of the processes for servicing the patients in matters relating to COVID-19.

8.6 International cooperation

The Bank’s Group acquires funds from foreign financial markets, among other things by obtaining loans from international financial institutions (including the Development Bank of the Council of Europe and the European Investment Bank) and participates in guarantee programmes (including of the European Investment Fund). Detailed information about loans received under the international cooperation is given in Note 41 to the financial statements of the Bank’s Group for 2020.

PKO Leasing S.A. cooperates with international development banks, so it can present a preferential offer for small- and medium-sized enterprises. The funds obtained in the previous years for this purpose came from the Development Bank of the Council of Europe and the European Investment Bank. Moreover, PKO Leasing S.A. participates in portfolio guarantee programmes of the European Investment Fund. These programmes, COSME and InnovFin, were expanded by a special COVID edition in 2020, which allows financing of the working capital of enterprises. This external protection of the PKO Leasing S.A.’s portfolio makes it possible for the Company to grant leases and loans to enterprises with lower creditworthiness, without the risk of deterioration in the quality of its portfolio.

The insurance companies from the Bank’s Group – PKO Życie Towarzystwo Ubezpieczeń S.A. and PKO Towarzystwo Ubezpieczeń S.A. – cooperate with reinsurers on the international market.

8.7 Operations of selected subsidiaries

In addition to strictly banking activities, the PKO Bank Polski S.A. Group provides services related to leases, factoring, investment funds, pension funds and insurance, as well as car fleet management services, transfer agent services, technological solutions, IT outsourcing, debt collection, business support services, and real estate management.

The activities and financial results of the Bank’s Group were affected by the COVID-19 pandemic. The direct effects of the pandemic included mainly lower sales and an outflow of the Customers’ assets or a decrease in their value. In the case of banking and leasing entities, the effect was an increase in write-downs due to the expected deterioration in the Customers’ financial position.

The majority of the companies (including all significant providers of financial services) maintained the continuity of their operations and financial liquidity throughout 2020.

Characteristics of the selected PKO Bank Polski S.A. Group companies

The results of operations presented in the description are derived from the financial statements of the individual companies prepared according to the International Financial Reporting Standards (in the case of the KREDOBANK S.A. Group, in accordance with the policies applicable in the PKO Bank Polski S.A. Group), and in respect of insurance companies, according to Polish Accounting Standards.

PKO Bank Hipoteczny S.A.

PKO Bank Hipoteczny S.A. is the leader of the Polish market of mortgage banks in terms of total assets and the portfolio of mortgage loans. The company is also the biggest issuer of mortgage covered bonds in Poland.

PKO Bank Hipoteczny S.A. specializes in granting mortgage housing loans to retail Customers and purchases receivables in respect of such loans from PKO Bank Polski S.A. The Company issues mortgage covered bonds, which constitute one of the main sources of long-term financing of loans secured with real estate in the PKO Bank Polski S.A. Group.

In 2020 PKO Bank Hipoteczny S.A. earned a net profit of PLN 81.5 million (vs. PLN 89.2 million in 2019). The total gross value of the PKO Bank Hipoteczny S.A.’s loan portfolio as at the end of 2020 was PLN 25 billion, including PLN 12.7 billion of mortgage housing loans purchased from PKO Bank Polski S.A.

As at the end of 2020, the total nominal value of mortgage covered bonds issued by PKO Bank Hipoteczny S.A. and outstanding as at the end of 2020 was PLN 17.2 billion. This included green mortgage covered bonds worth PLN 500 million. In 2020, the Company redeemed the issues of mortgage covered bonds with a nominal value of PLN 30 million and did not issue any mortgage covered bonds.

Domestic issues of mortgage covered bonds are listed on the parallel market of the Warsaw Stock Exchange and on BondSpot, and issues of foreign mortgage covered bonds are listed on the Luxembourg Stock Exchange and the Warsaw Stock Exchange (the WSE parallel market).

PKO Towarzystwo Funduszy Inwestycyjnych S.A.

The core business of the Company is creating and managing investment funds. The Company also offers specialized investment programs and manages Employee Pension Programmes (PPE) and Employee Capital Plans (PPK).

The net asset value of the funds managed by the Company at the end of 2020 was PLN 33.8 billion, which represents a decrease of 0.25% in relation to the balance as at the end of 2019.

PKO TFI S.A. is ranked second in terms of the net asset value, with an over 12% share in the market of investment funds, and first in terms of assets of individuals under management with a market share of 19.2%*.

As at 31 December 2020, PKO TFI S.A. managed 72 investment funds and sub-funds.

In 2020, the Company introduced the following sub-funds to its offer: Subfundusz Obligacji Samorządowych, Subfundusz Zabezpieczenia Emerytalnego 2070 and Subfundusz PKO Gamma Plus.

PKO TFI S.A. continued its efforts to find companies that are interested in Employee Capital Plans (PPK). At the end of 2020, it was the leader of the Polish market in terms of the value of assets under management with more than 34% of the total PPK assets.

* Source: Analizy Online, March 2021

PKO BP BANKOWY PTE S.A.

The Company manages PKO BP Bankowy Otwarty Fundusz Emerytalny and PKO Dobrowolny Fundusz Emerytalny, which offer the Individual Retirement Account (Indywidualne Konto Emerytalne – IKE) and Individual Retirement Security Account (Indywidualne Konto Zabezpieczenia Emerytalnego – IKZE).

In 2020 the Company incurred a net loss of PLN 32.6 million (in 2019 it earned a net profit of PLN 8.6 million). The loss was due to recognizing an allowance for the irrecoverable acquisition costs and the right to manage the acquired OFE fund.

Results of operations of the Open Pension Fund (OFE)*:

As at the end of 2020, the net asset value of PKO BP Bankowy OFE managed by PKO BP BANKOWY PTE S.A. amounted to PLN 6.5 billion, representing a 5.5% decrease in relation to the balance as at the end of 2019.

PKO Bankowy OFE had 889.8 thousand participants as at the end of December 2020 (901.4 thousand as at the end of 2019).

PKO BP Bankowy OFE is ranked 9th on the pension fund market in terms of the net value of assets and 9th in terms of the number of participants*.

* Source: www.knf.gov.pl

PKO Leasing S.A. Group

The PKO Leasing S.A. Group (i.e. PKO Leasing S.A. and its subsidiaries) offers financial services in respect of lease and factoring and provides insurance agent, fleet management and vehicle rental services.

The PKO Leasing S.A. Group earned a net profit of PLN 155.2 million in 2020. The net profit for the year 2019 was PLN 282 million, including the settlement of the acquisition of Prime Car Management S.A. (PCM) of PLN 101.9 million.

PKO Leasing S.A. and its subsidiaries offer leases and loans. Customers may use these services to finance their fixed assets, such as cars, delivery vehicles and trucks, machines, equipment, technological lines, medical equipment, computer hardware and software.

As at 31 December 2020, the carrying value of amounts due from Customers in respect of leases and loans (both matured and not yet matured) and the carrying value of fixed assets under operating leases in the PKO Leasing S.A. Group totalled PLN 19.6 billion.

The PKO Leasing S.A. Group is the leader of the Polish lease market in terms of the sales volume with a market share of 12.4% according to 2020 data. The Company’s strategic objective is to consolidate its leading position on the lease and long-term rental market by increasing its market share.

PKO Faktoring S.A. provides domestic and export factoring services with and without recourse, reverse factoring and a factoring programme service for suppliers.

In 2020, the value of factoring turnover was PLN 18.6 billion (in 2019: PLN 20.7 billion). As at 31 December 2020, the Company ranked 8th (in terms of turnover) among the factoring companies associated in the Polish Factors’ Association, with a market share of 6.4%.

PKO Życie Towarzystwo Ubezpieczeń S.A. Group

The PKO Życie Towarzystwo Ubezpieczeń S.A. Group earned a net profit of PLN 45.1 million in 2020 (in 2019, the Group’s net profit was PLN 30.5 million).

PKO Życie Towarzystwo Ubezpieczeń S.A.’s business activities comprise life insurance (Section I insurance). The Company offers both standalone products and products supplementing the banking products offered by PKO Bank Polski S.A.

In 2020, the Company introduced life insurance for the Bank’s borrowers to its offer: “Ochrona dla Ciebie” and “Ochrona dla Ciebie+” and modified the life insurance with monthly premium for the Customers of the Bank and of PKO Bank Hipoteczny S.A. having agreements for mortgage loans or advances.

Gross written premiums under the insurance contracts concluded by the Company in 2020 amounted to PLN 318.9 million. As at the end of 2020, the Company insured 994 thousand people (1 012 thousand people as at the end of 2019).

PKO Towarzystwo Ubezpieczeń S.A.

In 2020 the Company earned a net profit of PLN 56.04 million (vs. PLN 57.0 million in 2019).

PKO Towarzystwo Ubezpieczeń S.A.’s business comprises other non-life insurance (Section II insurance). The Company focuses on providing insurance against loss of income, accident and sickness, as well as property insurance for borrowers and mortgage borrowers. The Company has offered automotive insurance since 2019.

In 2020, the Company implemented insurance for the PKO Bank Polski S.A.’s borrowers against the loss of a source of income, serious illness or hospital treatment due to an accident “Ochrona dla Ciebie”. The other new product is PKO Ubezpieczenie dziecka – accident insurance for children up to the age of 20, which provides specialist medical assistance in the event of injury (e.g. medical tests, consultations, procedures, rehabilitation, private lessons).

Gross written premiums under the insurance contracts concluded by the Company in 2020 amounted to PLN 517.9 million. As at the end of 2020, the Company insured 1 060 thousand people (1 003 thousand people as at the end of 2019).

KREDOBANK S.A. Group

The KREDOBANK S.A. Group consists of KREDOBANK S.A. and its subsidiary, Finansowa Kompania “Idea Kapitał” sp. z o.o.

KREDOBANK S.A. is a universal bank, focused on providing services to retail customers and small- and medium-sized enterprises operating mainly in the western part of Ukraine and in Kiev. At the same time, KREDOBANK S.A. strives to attract corporate customers with high creditworthiness.

In 2020, the KREDOBANK S.A. Group earned a net profit of UAH 523 million (PLN 75 million). In 2019, the KREDOBANK S.A. Group’s net profit amounted to UAH 606.5 million (PLN 91 million).

The loan portfolio of the KREDOBANK S.A. Group (gross) in 2020 increased by UAH 1 780 million (14.4%) to UAH 14 165 million (PLN 1 878 million). The increase in the value of the loan portfolio in UAH is mainly due to the sales of new loans.

In 2020, the value of the term deposits of the KREDOBANK S.A. Group Customers increased by UAH 24 million (0.4%) to UAH 6 503 million (PLN 862 million).

As at 31 December 2020, the network of KREDOBANK S.A. branches comprised the Head Office in Lviv and 82 branches in 22 out of 24 provinces of Ukraine. In 2020, four new branches were opened, the locations of three branches were changed and eight branches were closed down.

PKO BP Finat sp. z o.o.

PKO Finat sp. z o.o. provides comprehensive services to financial sector companies, e.g. in respect of providing technical solutions, transfer agent, fund and company accounting services and outsourcing skilled IT specialists, project teams and IT processes.

The Company also offers marketing tools based on innovative technologies and maintains the Employee Capital Plans (PPK) Records System.

In 2020 PKO BP Finat sp. z o.o. earned a net profit of PLN 35.3 million (vs PLN 38.0 million in 2019).

8.8 Prizes and awards granted to the PKO Bank Polski S.A. Group

In 2020 the PKO Bank Polski S.A. Group received many prizes and awards. The most important are listed below:

Dynamic development and excellent financial results
Bank of the Year 2020	PKO Bank Polski S.A. was awarded the title of “Bank of the Year in Poland” for the sixth time. This prestigious award in the financial sector confirms that the digital transformation strategy pursued by the Bank is the right direction of development. The “Bank of the Year” competition is organized by The Banker monthly, which is owned by the Financial Times. The magazine analyses the financial results of banks, their development strategies and projects performed in specific years in the context of the position of the financial sector in a given country.
Banking Stars	In the 6th edition of the Banking Stars ranking, PKO Bank Polski S.A. was awarded in four categories, i.e.: “Stability Star”, “Growth Star”, “Effectiveness Star” and in the main category – overall operations. The Bank’s position in this ranking was due to its results for 2019. Customers’ opinions and the innovations implemented were also considered. The Banking Stars ranking is organized by Dziennik Gazeta Prawna with the factual support of PwC.
Modern technology leader
The Heart Corporate Innovation Awards 2019	PKO Bank Polski S.A. won an award in the New Digital Venture category of the 3rd edition of The Heart Corporate Innovation Awards for the establishment of the technological company Operator Chmury Krajowej sp. z o.o. The Company implements the multi cloud concept, supports the transformation of the IT infrastructure and the migration of data and tools to the cloud environment. The competition jury also appreciated the Bank’s Let’s Fintech team and the acquisition of a start-up Masterlease by PKO Leasing S.A. The Heart Corporate Innovation Awards is a competition for enterprises which cooperate with the start-up ecosystem, develop innovative solutions and create new market trends.
Mobile Trends Award	PKO Bank Polski S.A.’s mobile application IKO won two awards in the 9th edition of the Mobile Trends Awards. In the “mobile banking” category, it was appreciated for innovation and user-friendly solutions. Moreover, it won the biggest number of votes and the special prize in the Internet vote. The competition is organized by ClickMaster Polska. The winners are selected by the competition jury, which consists of experts in the mobile sector, and by internauts who participate in the voting.
Best products and services, CSR
Best Private Banking	PKO Bank Polski S.A.’s Private Banking received the highest score (5 stars) in the annual Forbes ranking. This score reflects the fact that the Customers appreciate the comfortable service model and the products and services offered by the Bank and the Bank’s Group companies. The ranking confirms the fact that the Bank maintains its leading position in another business area on the financial services market.
Golden Banker 2020	In the Golden Banker 2020 ranking, PKO Bank Polski S.A. was awarded in six categories. The Bank was ranked third in the multi-channel service quality survey for its high level of service at the branches and ergonomic solutions of both the IKO mobile application and the iPKO transactional service (the best among all analysed banks). The Bank ranked second in all three categories of this poll based on the votes of Internet users. They appreciated: the “Młodym dużo się wydaje” commercial, the 5th PKO Charity Run and the Bank’s activity in the social media. At the same time, PKO Bank Polski S.A. took three third places based on the comparison of price-based and other parameters of product offers performed by industry experts; two in the categories: personal account (PKO Konto dla Młodych, PKO Konto bez Granic and PKO Konto za Zero) and in the mortgage loan category: “Własny Kąt hipoteczny”.
Best Direct Service Quality	PKO Bank Polski S.A. won in the first stage of the survey of Customer service at branches, conducted as part of the Institution of the Year 2021 project. As many as ten of the Bank’s branches (i.e. the largest number among banks participating in the survey) reached the next level of the competition for the Best Bank Branch in Poland title. In terms of the service provided to a new Customer interested in opening a personal account, PKO Bank Polski S.A. was the best among the 14 banks that were surveyed. Its success was not only a result of the quality of the advisors’ work, but also of the organization of service at the branches and their adequate preparation for the SARS-CoV-2 pandemic.
The Newsweek and Forbes rankings	PKO Bank Polski S.A. took second place in the Traditional Banking category of the Newsweek’s Friendly Bank ranking. It was also second in the Forbes’ ranking of the best corporate banks. It was appreciated for the quality of services offered, the high customer service standards, the knowledge, involvement and competence of its advisors and their pro-active approach to sales. The Newsweek and Forbes rankings are based on a survey conducted by Kantar using the “mystery shopper” method.
CSR White Leaf	In the 9th run of the CSR Leaves of the Polityka weekly, PKO Bank Polski S.A. was awarded the White Leaf. It was rewarded for doing business responsibly, supporting sustainable development and social engagement. The high opinion of the Bank was a result of an analysis of its corporate governance policies, behaviour towards employees, approach to environmental protection, caring about the Customer, business integrity and its pro-active approach to social matters. The Polityka CSR Leaves ranking is prepared in collaboration with the consulting firm Deloitte and the Responsible Business Forum.
brand
Trustworthy Brand	Entrepreneurs participating in the My Company Polska survey awarded the Trustworthy Brand title to PKO Bank Polski S.A. in the “loans and advances for businesses” category. The survey is aimed at identifying the brands, products and services addressed to and trusted by business. It was conducted with the participation of nearly 20 000 respondents. The presidents and managers of enterprises pointed out specific brands on the basis of their own preferences, knowledge and experience.
Top Marka 2020	In the 13th edition of the Top Marka (Top Brand) ranking organized by the Press magazine and Press-Service Monitoring Mediów, PKO Bank Polski S.A. took first place in the “banks” category and maintained its position as the strongest brand in the sector in terms of its image in the media. It was third in the general ranking comprising 500 brands. The ranking was prepared based on an analysis of more than 500 thousand publications on PKO Bank Polski S.A. performed from 1 July 2019 to 30 June 2020. Nearly 60% of them were published in the social media, and more than 37% on Internet portals.
PKO Bank Polski S.A. – leader among employers
PKO Bank Polski S.A. among the TOP Employers 2020	PKO Bank Polski S.A. received a certificate and the prestigious title of Top Employer Polska 2020. This certificate confirms that the conditions of work offered by the Bank and the solutions supporting continuous development and building of employee commitment are among the best on the market. The certificate is granted on the basis of an independent survey of human resources management conducted by the Top Employers Institute among Polish employers. Top Employers Institute evaluates and certifies employers with regard to their strategy, personnel policy, and the monitoring of its effects and actions relating to employee development.
Universum Attractive Employer	PKO Bank Polski S.A. was listed among the Top 10 most attractive employers according to students of business and law, in the ranking prepared by Universum Poland. Due to the scale of its business, development of new technologies and the highest profits in the sector, PKO Bank Polski S.A. is the only commercial bank among the Top 10 employers in the business and law categories. In Poland, the Universum Most Attractive Employers ranking was based on the opinions of more than 16 000 students from 71 universities and 112 faculties. The respondents were asked about their career preferences and expectations from employers.
The best specialists on the market
BrandMe CEO	Zbigniew Jagiełło, President of the Management Board of PKO Bank Polski S.A., won the 3rd edition of the BrandMe CEO ranking organized under the title “Leader in the time of (forced) transformation”. The jury appreciated the style, strategy and effects of management, observing the values and the courage in taking risks and making unobvious choices. The BrandMe CEO poll is organized by Forbes magazine. Its aim is to identify top class managers who carry out their mission with passion.
Market Visionary 2020	Zbigniew Jagiełło, President of the Management Board of PKO Bank Polski S.A., received the Market Visionary 2020 award in the 15th edition of the IT@Bank ranking. The jury appreciated his involvement in the Bank’s transformation from a financial institution to a technological institution with a banking licence. The IT@Bank ranking is an initiative of Miesięcznik Finansowy BANK. Its aim is to award the persons, technological solutions and firms associated with the financial sector that make it more innovative.
Złoty Herold	Adam Marciniak, Vice-President of the Management Board of PKO Bank Polski S.A., received the Złoty Herold award. In this way the Programme Board of the 26th ICT Forum (XXVI Forum Teleinformatyki) appreciated the many years of his activity and involvement in the implementation and development of information and communication technologies supporting the digital state. An award was also granted to PKO Bank Polski S.A. for its involvement in building a modern state based on the universal use of ICT. The Bank creates advanced IT solutions and makes them widely available not only to the financial sector, but also to public administration.
Awards received by the brokerage office and the companies of the Bank’s Group
Bulls and Bears and Golden Wallet	In the 26th edition of the Parkiet Gazeta Giełdy i Inwestorów, PKO TFI S.A. won two statuettes: a Bull and Bear in the Employee Capital Plans (PPK) category and a Golden Wallet for the PKO Akcji Rynku Złota fund. The success of PKO TFI S.A. in the PPK category was a result of the number of Customers who joined the PPK programme and the value of assets accumulated in the programme. The “PKO Akcji Rynku Złota” fund offered by PKO TFI S.A. won the award for its high rate of return (55.2%) in 2019.
Broker of the Year	The Bank’s Brokerage Office received the Broker of the Year 2019 prize, the most important one awarded by the WSE. It was awarded for the highest turnover on session and block trades in shares on the Main Market and on NewConnect, Treasury bonds and other bonds traded on the regulated market, the WSE alternative market and BondSpot, as well as for supporting liquidity on the largest number of categories of WSE-listed assets. The Bank’s Brokerage Office also won prizes for the biggest share in trading in bonds on the Catalyst market and the biggest number of real-time stock market data subscribers. The Bank’s Brokerage Office was elected Broker of the Year for the third time in a row.

9. Risk management

Principles of Risk Management

Discussion of the Bank’s lending policy

Comprehensive stress-tests

Capital adequacy

9.1 Principles of Risk Management

Risk management is one of the key internal processes, both in PKO Bank Polski SA, and in other entities of the PKO Bank Polski SA Group. Risk management is aimed at ensuring the profitability of business activities while ensuring control over the risk level and maintaining it within the system of limits and risk tolerance limits adopted by the Bank and the Group in the changing macroeconomic and legal environment.

The primary objective is to ensure adequate management of all types of risk related to its business. As part of the risk management system, the PKO Bank Polski S.A. Group identifies, measures and assesses, controls, forecasts, monitors and reports risk, and performs management actions.

The risk management system covers:

• organizational structure, allocation of duties and responsibilities;

• internal regulation system;

• tools, including information databases.

Risk management at the Bank’s Group is based, in particular, on the following principles:

• the Bank’s Group manages all identified types of risk;

• the risk management process is appropriate from the perspective of the scale of operations and materiality, scale and complexity of a given risk, and adjusted on an on-going basis to take account of the new risks and their sources;

• risk management methods (especially models and their assumptions) and risk management measurement or assessment systems are tailored to the scale and complexity of individual risks, the current and planned operations of the Bank’s Group and its operating environment, and are periodically verified and validated;

• the area of risk management remains organizationally independent from business activities;

• risk management is integrated into the planning and controlling systems;

• the level of risk is monitored and controlled on an on-going basis;

• the risk management process supports the implementation of the Bank’s strategy in compliance with the Risk Management Strategy, in particular with respect to the level of risk tolerance.

The Bank regularly, at least annually, assesses the materiality of the identified risks. Some of them have a material impact on the profitability and capital necessary to cover the exposure. Internal capital is assessed for risks that are regarded as material. All risks classified as material for PKO Bank Polski S.A. are also material for the Bank’s Group.

In 2020, the catalogue of risk types regarded as material was not extended.

Below is a list of all risks regarded as material in PKO Bank Polski S.A.

• credit risk – the risk of incurring losses due to the Customer’s default in payments to the Bank’s Group or as a risk of a decrease in the economic value of amounts due to the Bank’s Group when the Customer’s ability to repay amounts due to the Bank deteriorates.

• currency risk – the risk of incurring losses in connection with exchange rate fluctuations. The risk is generated by maintaining open positions in various foreign currencies.

• interest rate risk – the risk of incurring losses on the Bank’s Group’s statement of financial position and off-balance sheet items sensitive to interest rate changes, in connection with changes in interest rates on the market.

• liquidity risk – the risk of the inability to regularly settle liabilities due to a lack of liquid assets; liquidity risk comprises financing risk.

• operational risk – the risk of losses being incurred due to the failure or unreliability of the internal processes, people and systems or due to external events. This risk includes legal risk, i.e. the risk of losses being incurred due to a lack of knowledge and understanding, failure to comply with legal norms and accounting standards, inability to enforce contractual provisions, unfavourable interpretations or rulings issued by courts or public administration bodies. Operational risk excludes reputation risk and business risk.

• risk of foreign currency mortgage loans for households – the risk of incurring losses due to the Customer’s default in payments to the Bank related to a foreign currency mortgage loan.

• business (strategic) risk – the risk of failing to achieve the assumed financial targets, including incurring losses, which results from adverse changes in the business environment, making bad decisions, incorrectly implementing the decisions made, or not taking appropriate actions in response to changes in the business environment.

• macroeconomic risk – the risk of deterioration in the Bank’s Group financial situation as a result of an adverse change in macroeconomic conditions.

• model risk – the risk of incurring losses resulting from incorrect business decisions made based on the models in place.

A detailed description of the principles of managing material risks, including risk mitigation techniques, hedges used and the hedging accounting policy is provided in the financial statements of the Bank’s Group for the year 2020 (in the section on the risk management principles and objectives, and in Note 29 on hedging accounting) and in the Capital Adequacy Report, as well as other disclosures of the PKO Bank Polska S.A. Group as at 31 December 2020.

specific activities in the area of risk management within the Bank’s Group undertaken in 2020

PKO Bank Polski S.A. monitors the situation of its Customers on an ongoing basis and adjusts its credit policy to mitigate the effects of COVID-19 for the Customers and to secure good quality of the Bank’s loan portfolio.

In 2020, the Bank:

• developed the tools and techniques for credit risk management, among other things:

– implemented a new tool for assessing the quality of the branches’ work, based on the loan portfolio quality, audit results and verification of the quality of processes;

– implemented a Stability Rating, which evaluates the individual Customers on the basis of daily behavioural data;

– digitalized lending processes;

– calibrated the credit risk models, also in connection with COVID-19 pandemic;

– in connection with a new credit risk factor (COVID-19), increased the frequency of monitoring and adjusted the lending policy on an ongoing basis;

• introduced special solutions in credit processes in connection with COVID-19, in particular concerning simplifications in risk assessment processes (automatic or semi-automatic extensions/suspensions of loan repayments); in the third quarter of 2020, these solutions were gradually phased out;

• maintained a safe level of liquidity, allowing for a quick and effective response to potential threats;

• with respect to interest rate risk, the Bank entered into IRS hedging transactions and shaped the structure of assets and liabilities accordingly;

• in the area of operational risk management, it put emphasis on counteracting risks resulting from the pandemic, in particular:

– appointed a Crisis Management Board, which coordinated all activities of the Bank’s Group on an ongoing basis during the COVID-19 pandemic to ensure the safety of Customers and employees and the continuity of business processes;

– identified risks related to COVID-19 on an ongoing basis, and these risks were periodically monitored and reported to the Operational Risk Committee

– took actions to mitigate the identified risks, in particular with regard to the mode and conditions of work, ensuring adequate resilience of the IT infrastructure and its security; implemented: new methods of monitoring cybersecurity directed towards threats arising from remote work, reviewing the existing safeguards in order to adapt to the new working conditions, penetration tests related to remote work, periodic scanning of vulnerabilities of stations connected via VPN and analysing the effect of the vulnerabilities on maintaining the acceptable level of security;

• periodically conducted educational campaigns for Customers and employees in the area of cybersecurity, which is particularly important in connection with the growing use of remote channels in Customer service processes.

9.2 Discussion of the Bank’s lending policy

The credit policy of the Bank and the Bank’s Group consists of a set of principles and guidelines contained in credit regulations and procedures, which together form the credit risk management process.

The Bank’s credit risk management takes into account external factors, including compliance with external regulations and recommendations of the supervision and inspection authority, as well as internal factors, including in particular the level of strategic limits and credit risk parameters.

The priority of the risk management activities is the balanced relation of risk and the assumed profitability level, within the specified risk appetite limits. Comprehensive risk measurement is ensured by using a wide range of qualitative and quantitative methods, which are supported by appropriate IT systems and analytical tools.

The credit risk management model is adjusted to the current business activity and market conditions in the individual customer segments.

Credit risk assessment of exposures is separated from the sales function thanks to an appropriate organizational structure, independence in developing and validating tools supporting an assessment of credit risk and independence of decisions approving departures from the recommendations of these tools.

The financing terms offered to the Customer depend on the assessment of credit risk level of the Customer. As part of the credit risk assessment of corporate Customers, ESG risks are assessed to identify projects that do not meet the growing environmental, social and corporate governance requirements.

The Bank’s subsidiaries with a material level of credit risk manage credit risk individually. Their credit risk assessment and measurement methods are adapted to those applied at PKO Bank Polski S.A. They take into account the specific nature of the entity’s activities.

In 2020, the Bank continued its credit policy attempting to mitigate the negative effects of adverse market and economic conditions. The objective was to maintain the expected level of profitability and value of the loan portfolio. At the same time, the Bank has implemented ESG risk assessment into its corporate lending process to support the financing of environmentally sustainable and socially responsible projects.

9.3 Comprehensive stress-testing

Comprehensive Stress Testing (CST) is used to determine the sensitivity of the Bank’s capital adequacy measures and the Group’s results to a negative scenario of changes in the environment and functioning of the Bank’s Group. They are conducted jointly for credit risk and concentration risk, market risk, liquidity risk, operational risk, business risk, excessive leverage risk and capital inadequacy risk.

Calculations are made using the Bank’s internal models, taking into account the macroeconomic assumptions adopted.

Comprehensive stress tests include periodic tests and supervisory tests. Periodic tests are carried out once a year and are used to evaluate the risk of macroeconomic changes, and for the purposes of preparing recovery plans. Supervisory tests are carried out at the request of external supervision authorities, in accordance with their assumptions.

Reverse stress tests (RST) complement the results of the comprehensive stress tests and are aimed at assessing the Bank’s resilience to macroeconomic changes. Reverse stress tests have the form of sensitivity analyses and consist in defining potential adverse scenarios, and then identifying events which contribute to their materialization.

In 2020, the Bank carried out periodical tests, supervisory tests and reverse stress tests.

As part of the periodical tests, the Bank analysed:

• a baseline scenario resulting from the Bank’s forecasts, financial plans and Strategy; and

• stress scenario constructed on the basis of guidelines from the PFSA.

As part of the supervisory tests performed, the Bank analysed two scenarios:

• reference scenario, which was based on the central macroeconomic projection path developed by the NBP from the “Inflation Report July 2020”;

• a shock scenario assuming a significant deterioration in the economic outlook in Poland and globally as a result of a strong increase in COVID-19 infections.

Both types of stress tests conducted in 2020 demonstrated the strong capital resilience of PKO Bank Polski S.A. and the Bank’s Group to potential adverse changes in the macroeconomic environment.

9.4 Capital adequacy

Capital adequacy means that:

• the level of risk assumed by the Bank’s Group when developing its business activity may be covered with the possessed capital;

• the level and structure of its capital are adequate to the supervisory requirements, the defined risk tolerance level and the adopted time horizon.

The process of managing capital adequacy comprises, in particular:

• compliance with the regulations of the supervisory and control authorities;

• compliance with the risk tolerance level determined within the Bank and the Bank’s Group;

• the capital planning process, including the policy concerning the sources of acquisition of capital.

The objective of capital adequacy management is to maintain own funds at all times at a level that is adequate for the scale and risk profile of the business of the Bank’s Group.

In 2020, the PKO Bank Polski S.A. Group maintained a safe capital base exceeding the supervisory and regulatory limits.

A detailed description of capital adequacy management is provided in the financial statements of the Bank’s Group for the year 2020, in the part related to capital adequacy (Note 70) and in the Capital Adequacy Report, and other disclosures of the PKO Bank Polski S.A. Group as at 31 December 2020.

10. Benefits for managers and supervisors

Principles for remunerating Members of the Bank’s Management Board

Variable remuneration components for Members of the Management Board and key managers who have a material impact on the Bank’s risk profile

Information on non-financial remuneration components due to individual Members of the Management Board and key managers

Principles for remunerating members of the Bank’s Supervisory Board

Agreements concluded between the Bank and management members

Liabilities due to pensions for former supervisors and managers

10.1 Principles for remunerating Members of the Bank’s Management Board

The system for remunerating Members of the Bank’s Management Board is regulated by:

a) Remuneration Policy for members of the Supervisory Board and the Management Board of the Bank, approved by the resolution No. 35/2020 of the General Shareholders’ Meeting of the Bank dated 26 August 2020;

b) Remuneration Policy for employees of the Bank and the PKO BP S.A. Group, approved by resolution No. 41/2020 of the Bank’s Supervisory Board dated 21 May 2020;

c) Principles of employment and remuneration of Members of the Bank’s Management Board, adopted by the Bank’s Supervisory Board in 2017 and amended by the resolutions of the Bank’s Supervisory Board dated 12 August 2019 (No. 71/2019) and 25 June 2020 (No. 65/2020); the principles implement the provisions of the Act of 9 June 2016 on the terms of setting the remuneration of managers of certain companies (Journal of Laws of 2016, item 1202, as amended).

In accordance with these Principles, Members of the Bank’s Management Board are entitled to:

• fixed remuneration in the amount specified in the resolution of the Supervisory Board, separately for the President of the Management Board, Member of the Management Board in charge of the risk management area who substitutes the President of the Management Board and the remaining Management Board Members;

• variable remuneration – additional remuneration awarded and paid after the performance appraisal period, in particular: bonuses, awards for special professional achievements, severance pay (excluding fixed remuneration and benefits awarded based on the applicable legal regulations).

The fixed remuneration is determined as a specific amount in the service agreement and may not be higher than:

• in the case of the President of the Management Board: 15-times,

• in the case of the Member of the Management Board in charge of the risk management area who substitutes for the President of the Management Board: 14.5-times,

• in the case of the remaining Members of the Management Board: 14-times,

the base salary referred to in the Act of 9 June 2016 on the terms of setting the remuneration of managers of certain companies.

Employee benefits for Members of the Management Board of PKO Bank Polski S.A. received and due from PKO Bank Polski S.A.

Table 10. Employee benefits for Members of the Management Board of the Bank paid by PKO Bank Polski S.A. (in PLN ’000)

	Fixed remuneration paid in 2020	Variable remuneration for 2015-2019 paid in 2020		Other benefits*	Total remuneration paid and benefits provided in 2020
	Fixed remuneration paid in 2020	Benefits paid in cash	Share-based payments settled in cash	Other benefits*	Total remuneration paid and benefits provided in 2020
Zbigniew Jagiełło	793	388	632	63	1 876
Rafał Antczak	740	172	187	39	1 138
Rafał Kozłowski	740	159	204	39	1 142
Maks Kraczkowski	740	263	317	46	1 366
Mieczysław Król	740	266	329	47	1 382
Adam Marciniak	740	171	216	39	1 166
Piotr Mazur	766	316	496	55	1 633
Jakub Papierski	740	303	477	53	1 573
Jan Emeryk Rościszewski	740	255	313	46	1 354
Management Board of the Bank	6 739	2 293	3 171	427	12 630

Members of the Management Board who ceased to perform their functions in previous years	-	281	729	28	1 038

Total	6 739	2 574	3 900	455	13 668

* Payments to the Employee Pension Programme (PPE).

	Fixed remuneration paid in 2019	Variable remuneration for 2014-2018 paid in 2019*		Other benefits**	Total remuneration paid and benefits provided in 2019
	Fixed remuneration paid in 2019	Benefits paid in cash	Share-based payments settled in cash	Other benefits**	Total remuneration paid and benefits provided in 2019
Zbigniew Jagiełło	793	914	753	22	2 482
Rafał Antczak	705	287	101	2	1 095
Rafał Kozłowski	705	206	-	2	913
Maks Kraczkowski	705	617	370	-	1 692
Mieczysław Król	705	618	369	5	1 697
Adam Marciniak	705	269	53	2	1 029
Piotr Mazur	749	754	584	14	2 101
Jakub Papierski	705	730	586	16	2 037
Jan Emeryk Rościszewski	705	598	350	5	1 658
Management Board of the Bank	6 477	4 993	3 166	68	14 704
Members of the Management Board who ceased to perform their functions in previous years	-	1 161	1 333	46	2 540
Total	6 477	6 154	4 499	114	17 244

* The remuneration of the Members of the Bank’s Management Board in 2019, in accordance with the resolution of the Supervisory Board, takes into account the payment of non-deferred variable remuneration (cash and instrument-based) for 2017, which, according to the standard variable remuneration schedule resulting from the rules for remuneration of Members of the Bank’s Management Board (cash part), should be paid in 2018.

** Payments to PPE (made from December 2019).

The values shown in the table above do not include refunds of overpaid Social Security contributions, which were disclosed in the column “other received in 2019” in the report for 2019 as part of cash benefits.

Table 11. Employee benefits for Members of the Bank’s Management Board due from PKO Bank Polski S.A. approved for payment (in PLN’000)

	Variable remuneration for 2016-2019 approved for payment as of 31.12.2020	Variable remuneration for 2015-2018 approved for payment as of 31.12.2019*

Zbigniew Jagiełło	-	632
Rafał Antczak	-	187
Rafał Kozłowski	-	204
Maks Kraczkowski	-	317
Mieczysław Król	-	329
Adam Marciniak	-	216
Piotr Mazur	-	496
Jakub Papierski	-	477
Jan Emeryk Rościszewski	-	313
Management Board of the Bank	-	3 171
Members of the Management Board who ceased to perform their functions in previous years	-	729
Total	-	3 900

* The difference in the amount of variable remuneration compared to the amount published in the Directors’ Report of the PKO Bank Polski S.A. Group for 2019 is due to a change in rounding.

Table 12. Remuneration of the Members of the Bank’s Management Board received from related entities (in PLN ’000)

	2020	2019
Rafał Kozłowski*	188	453
Jan Emeryk Rościszewski	29	85
Total	217	538

* The values presented include, among others, the variable remuneration for 2016-2017 and 2015-2017, respectively, paid for performing the function of the President of the Management Board of PKO Bank Hipoteczny S.A.

10.2 Variable remuneration components for Members of the Bank’s Management Board and key managers who have a significant impact on the Bank’s risk profile

The Bank updates the rules for determining the variable components of remuneration on an ongoing basis. This is performed in accordance with the requirements of CRD IV and the Commission Delegated Regulation (EU) No 604/2014 of 4 March 2014 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards with respect to qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile.

Variable remuneration components are awarded primarily based on bonus targets set within the framework of the Management by Objectives (MbO) programme.

The purpose of the targets set is to guarantee that the risk related to the activities of the Bank is taken into account. Risk is reflected both by determining the appropriate risk-sensitive criteria for assessing the effectiveness of work, and reducing or withdrawing the variable remuneration component in the case of deteriorated financial results, loss or deterioration in other ratios.

Variable remuneration components for the particular assessment period (calendar year) are awarded after settling bonus targets, in accordance with the table below:

Table 13. Forms of variable remuneration

Amount of variable remuneration (gross)	Non-deferred variable remuneration	Deferred variable remuneration
Amount of variable remuneration (gross)	50% cash / 50% phantom shares	50% cash / 50% phantom shares
Up to PLN 700 000 (inclusive)	60% of the basic variable remuneration	40% of the basic variable remuneration
Up to PLN 700 000 (inclusive)	- in the first year following the assessment period	– in equal instalments over the next years after the first year following the assessment period
Over PLN 700 000	PLN 420 000 plus 40% of the amount exceeding PLN 700 000	PLN 280 000 plus 60% of the amount exceeding PLN 700 000

The deferral period for which the phantom shares are awarded equals 5 calendar years.

Each of the components of accrued variable remuneration may be reduced as a result of:

• breach of the obligations arising from the contract;

• lack of compliance with the legal regulations or Customer service standards;

• improper performance of professional duties;

• attitude towards other employees breaching social coexistence rules.

The bonus amount:

• for the Management Board Member (MBM) can be adjusted (decreased or increased) by a certain ratio, depending on the results achieved by the Bank, specified in the Bank’s Annual Note (a set of key management indicators specified for a given calendar year);

• for an MRT (Material Risk Taker), who is not a Member of the Management Board, it can be adjusted (increased) by a certain ratio, depending on the results achieved by the Bank, specified in the Bank’s Annual Note.

The Bank’s Supervisory Board or the Management Board respectively may apply a malus solution reducing the amount of the variable remuneration component due, deferred in subsequent settlement periods. This is possible when:

• a significant deterioration in the Bank’s results;

• a significant adverse change in equity;

• MRT breaching the law or making serious errors;

• adjustment of the achievement and degree of achievement of the results or targets of MRT;

• deterioration in the performance of the areas supervised or managed by the aforementioned persons;

• granting the variable remuneration component based on incorrect or misleading information or MRT fraud.

The remuneration policy for members of the Bank's Supervisory Board and Management Board does not provide for an obligation to pay back awarded and already paid out variable remuneration. The policy empowers the Supervisory Board to adopt additional provisions, inter alia, regarding the Bank demanding the return of the variable remuneration (clawback). In the years 2019-2020, no such demand occurred.

Material Risk Takers (except Members of the Bank’s Management Board) may benefit from health care services financed by the Bank and the social benefits fund. Material Risk Takers (including Members of the Bank’s Management Board) can avail themselves of PPEs.

In the case of severance pay related to dismissal (other than resulting from generally applicable laws), the amount reflects the performance assessment for the last three years of employment. The Bank’s internal regulations stipulate the maximum amount of severance pay.

A Member of the Management Board shall be entitled to severance pay subject to fulfilling the function of Member of the Bank’s Management Board for at least twelve months before termination of the aforementioned contract. An MRT can receive the severance pay subject to being employed as an MRT for at least twelve months before termination of the employment contract.

Members of the Management Board and certain MRTs are additionally subject to non-competition agreements. These agreements provide for payment of compensation equivalent of up to 100% of the basic salary arising from the contract for refraining from employment in a competitive firm after termination of employment with the Bank, for no more than six months.

In the first half of 2020, the Bank amended the Rules for Employment and Remuneration of Members of the Bank’s Management Board, the Remuneration Policy for Employees of the Bank and the PKO BP S.A. Group and the Rules for Remunerating the Bank’s Employees whose activities have a material impact on the Bank’s risk profile - Material Risk Takers in the Bank. The Bank did so in connection with the announcements of the European Banking Authority (EBA) of 31 March 2020 and the Polish Financial Supervision Authority (PFSA) of 17 April 2020 regarding the expected actions of banks and insurance companies in response to a pandemic outbreak, including those relating to the payment of variable remuneration components.

In particular, the Remuneration Policy for Employees of the Bank and the PKO BP S.A. Group was amended. In the event of extraordinary and unforeseen circumstances requiring a conservative approach to variable remuneration, the Bank may temporarily:

a) change the proportion of deferred and non-deferred variable remuneration in favour of increasing the deferred variable remuneration;

b) extend the deferral periods for payment of variable remuneration and extend the dates from which:

• the base value of the variable remuneration is converted into the value of financial instruments;

• the value of financial instruments will be the basis for the conversion of a financial instrument into cash to be paid;

c) change the proportion between variable remuneration in the form of cash and in the form of a financial instrument to increase the portion of variable remuneration in the form of a financial instrument.

In May 2020, the Bank’s Management Board adopted a resolution regarding the payment in 2020 of variable remuneration components awarded to Material Risk Takers in the Bank. In June 2020, the Bank’s Supervisory Board adopted a resolution on approval of the amount of variable remuneration components to be paid to the Members of the Bank’s Management Board in 2020. The resolutions of the Management Board and the Supervisory Board (in connection with the announcement of the COVID-19 epidemic in the country and the above-mentioned EBA and PFSA announcements) decided to change the proportion and payment dates of variable remuneration.

Table 14. Changes in the proportion and dates of payment of variable remuneration

Description	Amount arising from internal regulations			Amount arising from extraordinary resolutions adopted in 2020, i.e.:
Proportion between non-deferred and deferred variable remuneration for 2019	Non-deferred 60%*			Non-deferred 40%*
	Deferred 40%*			Deferred 60%*
Proportion between variable remuneration for 2019 in cash / in the form of financial instruments	Cash 50%			Cash 40%
	Financial instrument 50%			Financial instrument 60%
Date of payment of the amount arising from converting the phantom shares to cash amount for non-deferred remuneration for 2019 in the form of a financial instrument	MBM	2 January 2021		MBM	1 July 2021
	MRT	15 November 2020		MRT	31 May 2021
Date of payment of deferred variable remuneration with reference to outstanding instalments for the years 2016-2019	MBM	cash	1 July	MBM	cash	1 July (unchanged)
		Financial instrument	2 January		Financial instrument	1 July
	MRT	cash	30 April	MRT	cash in hand	31 May
		Financial instrument	15 November		Financial instrument	31 May of the next year

* In accordance with internal regulations, up to the amount of PLN 700 000 the proportion is 60% to 40%, and above this amount 40% to 60%.

10.3 Information on non-financial remuneration components due to individual Members of the Bank’s Management Board and key managers

Since 1 July 2017, the principles for employment and remuneration of Members of the Bank’s Management Board have been adapted to the provisions of the Act of 9 June 2016 on the terms of setting the remuneration of managers of certain companies (Journal of Laws of 2016, item 1202, as amended). Following the change, Members of the Management Board are not entitled to non-financial remuneration components.

10.4 Principles for remunerating Members of the Bank’s Supervisory Board

Monthly remuneration for the members of the Bank’s Supervisory Board is determined by the Remuneration Policy for Members of the Bank’s Supervisory Board and Management Board. Monthly remuneration of members of the Supervisory Board is determined as a product of the base salary referred to in Art. 1 (3) (11) of the Act of 9 June 2016 on the terms of setting the remuneration of managers of certain companies and the following multiplier:

• for the Chairman of the Supervisory Board – 2.75;

• for the Deputy Chairman of the Supervisory Board – 2.5;

• for the Secretary of the Supervisory Board – 2.25;

• for the remaining members of the Supervisory Board – 2.

The remuneration shall be increased by 10% if a member of the Supervisory Board sits on at least one standing committee of the Supervisory Board.

In addition to their remuneration, members of the Supervisory Board shall be entitled to reimbursement for the costs incurred in connection with their function. This comprises in particular travel costs from the place of residence to the location of the Supervisory Board’s meeting and back, costs of accommodation and food.

Remuneration received by members of the Supervisory Board from PKO Bank Polski S.A.

Table 15. Remuneration received by members of the Supervisory Board from PKO Bank Polski S.A. (in PLN ‘000)

	Fixed remuneration paid in 2020	Fixed remuneration paid in 2019*
Mariusz Andrzejewski	115	116
Mirosław Barszcz	86	116
Adam Budnikowski	86	116
Grzegorz Chłopek	30	-
Grażyna Ciurzyńska**	139	145
Dariusz Górski	19	65
Zbigniew Hajłasz	137	131
Marcin Izdebski	38	-
Wojciech Jasiński	115	116
Andrzej Kisielewicz	115	116
Rafał Kos	30	-
Elżbieta Mączyńska - Ziemacka	86	116
Krzysztof Michalski	115	23
Janusz Ostaszewski	-	50
Piotr Sadownik	147	160
Total	1 258	1 270

* In relation to the data published in the Directors’ Report of the PKO Bank Polski S.A. Group for 2019, the presentation of the Supervisory Board’s remuneration has changed. The report for 2019 presented remuneration received for the reporting year, while the current report presents remuneration received in the reporting year.

** Other benefits not included in fixed remuneration: use of a company car for private purposes, including PLN 17 thousand in 2020 and PLN 19 thousand in 2019.

10.5 Agreements concluded between the Bank and management members

In 2020, every Member of the Bank’s Management Board has concluded a management agreement with the Bank. The agreements lay down, among other things, the remuneration terms and competition ban.

10.6 Liabilities due to pensions for former supervisors and managers

In 2020, there were no liabilities arising from pensions and benefits of a similar nature for former members of management, supervisory or administrative bodies and no liabilities incurred in connection with those pensions (in accordance with the provisions of § 70 clause 7 point 18 of the Regulation of the Minister of Finance of 29 March 2018 on current and periodic information submitted by issuers of securities and the conditions for recognizing as equivalent the information required by the law of a non-member country (Journal of Laws of 2018, item 757, as amended).

11. Corporate governance

Information for investors

Statement of compliance with the corporate governance principles

Shares of PKO Bank Polski S.A. and its related entities held by the Bank’s authorities

Diversity policy

11.1 Information for investors

Share capital and ownership structure of PKO Bank Polski S.A.

Quotations of shares of PKO Bank Polski S.A. on the WSE

Restrictions imposed on shares of PKO Bank Polski S.A.

Ratings

Investor relations

11.1.1 Share capital and ownership structure of PKO Bank Polski S.A.

As at 31 December 2020, the share capital of PKO Bank Polski S.A. amounted to PLN 1 250 000 000 and comprised 1 250 000 000 shares with a par value of PLN 1 each. The structure of the Bank’s share capital is presented in Table 16 below. The shares are fully paid. The share capital of the Bank remained unchanged compared with its status as at the end of 2019. The issued shares of the Bank are not preference shares.

Table 16. Structure of the share capital of PKO Bank Polski S.A.

Series	Type of shares	Number of shares	Nominal value of 1 share	Series value at nominal value (PLN)
A Series	ordinary registered shares	312 500 000	PLN 1	312 500 000
A Series	ordinary bearer shares	197 500 000	PLN 1	197 500 000
B Series	ordinary bearer shares	105 000 000	PLN 1	105 000 000
C Series	ordinary bearer shares	385 000 000	PLN 1	385 000 000
D Series	ordinary bearer shares	250 000 000	PLN 1	250 000 000
		1 250 000 000		1 250 000 000

According to PKO Bank Polski’s best knowledge, as at 31 December 2020, three shareholders: the State Treasury, Nationale-Nederlanden Open Pension Fund, and Aviva Open Pension Fund held, directly or indirectly, significant blocks of shares (at least 5%).

Table 17. Shareholding structure of PKO Bank Polski S.A.

	As at 31.12.2020			As at 31.12.2019		Change in the share in number of votes at GM
	Number of shares	Share in number of votes at GM and in share capital	Number of shares		Share in number of votes at GM and in share capital	Change in the share in number of votes at GM
State Treasury	367 918 980	29.43%	367 918 980		29.43%	-
Nationale-Nederlanden Open Pension Fund1)	107 198 023	8.58%	94 500 000		7.56%	1.02 p.p.
Aviva Open Pension Fund1	93 610 319	7.49%	88 010 319		7.04%	0.45 p.p.
Other shareholders2)	681 272 678	54.50%	699 570 701		55.97%	-1.47 p.p.
Total	1 250 000 000	100.00%	1 250 000 000		100.00%

1) Calculation of shareholdings as at the end of the year published by Universal Pension Fund Management Companies (Powszechne Towarzystwa Emerytalne) in annual information about the structure of fund assets and quotation from the securities exchange official list (Ceduła Giełdowa).

2) Including Bank Gospodarstwa Krajowego which, as at 31.12.2020 and as at 31.12.2019, held 24 487 297 shares, constituting a 1.96% share of the votes at the General Shareholders’ Meeting.

The Bank is not aware of any agreements concluded in 2020, based on which any changes could occur in the future in the proportions of the shares held by the current shareholders or bond holders.

11.1.2 Quotations of shares of PKO Bank Polski S.A. on the Warsaw Stock Exchange

In 2020, the price of shares of PKO Bank Polski S.A. decreased by 17%, and as at the end of 2020, it was PLN 28.72, while WIG20 and WIG Banki indices dropped by 8% and 30% respectively.

The main decline in the quotations took place in March 2020. The reason for the repricing of the Bank’s shares was the reduced earnings outlook as a result of the pandemic. As a result, investors expected an increased cost of risk and a decline in interest margins. The increase in costs of legal risk of foreign currency mortgage loans and the recommendation of the PFSA on suspending dividend payments to shareholders were additional factors contributing to the decline in quotations.

The emergence of positive information on COVID-19 vaccines improved the Bank’s valuation towards the end of the year by accelerating expectations for a strong economic rebound in Poland and worldwide. The PFSA’s proposal in December 2020 to resolve the issue of foreign currency mortgage loans through voluntary settlements with customers also had a positive impact on the price of shares.

As at the end of 2020, PKO Bank Polski S.A. was the second largest company listed on the Warsaw Stock Exchange. At the end of the last session in 2020, investors valued it at over PLN 36 billion.

Price of shares and capitalization of PKO Bank Polski S.A. compared to competitive banks

11.1.3 Restrictions imposed on shares of PKO Bank Polski S.A.

All the shares of PKO Bank Polski S.A. carry the same rights and obligations. No shares are preference shares, in particular with respect to voting rights (1 share gives 1 vote) or dividend. The Articles of Association of PKO Bank Polski S.A. limit the voting rights of shareholders holding more than 10% of the total number of votes at the General Shareholders’ Meeting and prohibit these shareholders from exercising more than 10% of the total number of votes at the General Shareholders’ Meeting. The above restriction does not apply to:

– those shareholders who on the date of passing the resolution of the General Shareholders’ Meeting introducing the limitation of the voting rights had rights from the shares representing more than 10% of the total number of votes in PKO Bank Polski S.A. (i.e. the State Treasury and BGK);

– shareholders who have rights from A-series registered shares (the State Treasury);

– shareholders acting jointly with the shareholders referred to in the second bullet point, based on agreements concluded concerning the joint execution of voting rights on shares.

The limitations to the voting rights of the shareholders expire from the moment when the share of the State Treasury in the Bank’s share capital drops below 5%.

In accordance with:

• § 6 (2) of the PKO Bank Polski S.A.’s Articles of Association, the conversion of A-series registered shares into bearer shares and the transfer of these shares requires the approval of the Council of Ministers in the form of a resolution. Conversion into bearer shares or transfer of A-series registered shares, after obtaining such approval, results in the expiry of restrictions in respect of shares subject to conversion into bearer shares or transfer, to the extent to which this approval was given,

• Article 13 (1) (26) of the Act of 16 December 2016 on the principles for public property management (apart from the statutory exceptions), the shares of PKO Bank Polski S.A. held by the State Treasury or rights from these shares cannot be sold,

• Article 77 of 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, amending Regulation (EU) No 648/2012, any reduction, redemption or repurchase of Common Equity Tier 1 instruments issued by the Bank is only possible with the prior permission of the PFSA.

11.1.4 Ratings

Ratings of PKO Bank Polski S.A.

The creditworthiness of PKO Bank Polski is assessed by Moody’s Investors Service rating agency which awards a paid rating to the Bank.

Table 18. Ratings of PKO Bank Polski S.A. as at 31 December 2020 (paid rating)

Moody’s Investors Service
Long-term deposit rating	A2 with stable outlook
Short-term deposit rating	P-1
Senior unsecured debt rating	A3 with stable outlook
MTN Programme rating	(P)A3
Other short-term liabilities of the Programme	(P)P-2
Counterparty risk assessment - long-term	A2
Counterparty risk assessment - short-term	P-1
Opinion on counterparty risk (CR) - long-term	A2(cr)
Opinion on counterparty risk (CR) - short-term	P-1(cr)

Table 19. ESG ratings of PKO Bank Polski S.A. as at 31 December 2020

FTSE Russell	3.1
MSCI	BBB
Sustainalytics	25.7 (Medium)

Ratings of PKO Bank Hipoteczny S.A.

Table 20. Ratings of PKO Bank Hipoteczny S.A. as at 31 December 2020 (paid rating)

Moody’s Investors Service
Long-term issuer rating	Baa1 with stable outlook
Short-term issuer rating	P-2
Counterparty risk assessment - long-term	A3
Counterparty risk assessment - short-term	P-2
Opinion on counterparty risk (CR) - long-term	A3(cr)
Opinion on counterparty risk (CR) - short-term	P-2(cr)
Rating for PLN mortgage bonds issued	Aa1
Rating for EUR mortgage bonds issued	Aa1

The ratings for PLN- and EUR-denominated mortgage bonds were upgraded in December 2020.

Ratings of the PKO Leasing S.A. Group

As at 31 December 2020, bonds issued by Polish Lease Prime 1 DAC, a special purpose vehicle established within the PKO Leasing S.A. Group for the purposes of the asset securitization programme, had the following ratings:

Table 21. Ratings of bonds of Polish Lease Prime 1 DAC as at 31 December 2020 (paid rating)

Rating obligacji klasy A
Agencja Scope	AAA
Agencja ARC	AA-
Rating obligacji klasy B
Agencja Scope	BB-
Agencja ARC	BB+

The ratings were awarded in September 2019 and confirmed in September 2020.

Ratings of KREDOBANK S.A.

As at 31 December 2020, KREDOBANK S.A. had the following ratings granted by Ukrainian rating agencies:

Table 22. Ratings of KREDOBANK S.A. as at 31 December 2020 (paid ratings)

“Expert-Rating” Rating Agency
Credit rating on national scale	uaAAA with stable outlook
Rating on national scale for A- and B-series bonds issued	uaAAA with stable outlook
“Standard-Rating” Rating Agency
Credit rating on national scale - long-term	uaAAA with stable outlook
Credit rating on national scale - short-term	uaK1 with stable outlook
Deposit rating on national scale	ua1 with stable outlook
Rating on national scale for A- and B-series bonds issued	uaAAA with stable outlook

The ratings were granted in 2016-2017 and confirmed in November 2020.

The long-term credit rating of KREDOBANK S.A. on a country-wide scale reflects the investment level, and thus meets Ukrainian statutory requirements regarding investing funds from insurance reserves by insurers and investing pension fund assets.

11.1.5 Investor relations

Key objectives of investor relations

In 2020, the Bank’s investor relation activities focused on:

• strengthening the positive image of PKO Bank Polski S.A. as a reliable and transparent company among existing and potential investors, financial market analysts and rating agencies;

• providing information on the Bank’s financial results and activities, including changes in the market environment, in order to allow a reliable assessment of the Bank’s current situation and perspectives, as well as the correct valuation of its shares;

• providing information on non-financial areas of the Bank’s operations, especially ESG reporting and planned new initiatives that complement conventional financial analysis when making investment decisions;

• fulfilling the information duties by the Bank as an issuer of securities, as required by law;

• arranging the General Shareholders’ Meetings and providing information to the Bank’s shareholders;

• ensuring the Bank’s cooperation with responsible governmental bodies, organizations and capital market institutions in connection with the Bank’s presence on the public securities market.

Activities in 2020

Due to the COVID-19 pandemic, as of mid-March 2020, all investor and analyst communications were conducted remotely via teleconference and video conference. In 2020, a total of 340 investor meetings took place, i.e. 20% less than in 2019.

In 2020:

• eight meetings were held at the Bank’s registered office and 96 video conferences and teleconferences,

• after the end of each quarter, the financial results of the Bank and the Bank’s Group were presented by the Bank’s Management Board in meetings and video conferences with investors and capital market and debt securities market analysts. They were held at the Bank’s registered office, and via teleconferences and video conferences, in each case with the participation of over 60 analysts and investor representatives in total.

Additionally, Members of the Bank’s Management Board answered the investors’ questions during investor conferences held through remote communication channels for investors from all over the world. In 2020, in total, 228 meetings were held during 26 investor conferences with investors.

The Investor Relations Office maintained on-going contacts with analysts as well as institutional and individual investors, and answered numerous telephone or email inquiries pertaining to business operations and the financial performance of PKO Bank Polski S.A.

All information of significant importance to the Bank’s investors and shareholders was immediately published on the Investor Relations website (https://www.pkobp.pl/investor-relations/). In 2020, the Bank once again launched its online annual report in the form of an internet service site in two language versions: Polish and English (http://www.raportroczny2019.pkobp.pl/, http://www.raportroczny2019.pkobp.pl/en/), which facilitates obtaining key financial and business information about the PKO Bank Polski S.A. Group.

11.2 Statement of compliance with the corporate governance principles

Corporate governance principles and scope of application

Controls in the process of preparing financial statements

Articles of Association of PKO Bank Polski S.A.

General Meeting of PKO Bank Polski S.A.

Supervisory Board of PKO Bank Polski S.A. during the reporting period

Management Board of PKO Bank Polski S.A. during the reporting period

11.2.1 Corporate governance principles and scope of application

Corporate governance principles included in the document titled “Best Practice for WSE Listed Companies 2016”

The Bank has adopted for application the principles and recommendations contained in the collection titled “Best Practice for WSE Listed Companies 2016” (hereinafter: Best Practice), with the reservation that recommendation IV.R.2., which concerns enabling shareholders to participate in the General Shareholders’ Meeting by means of electronic communication, will not be applied. The Bank applies recommendation IV.R.2 only in part concerning the real-time broadcast of General Shareholders’ Meetings.

The text of the Best Practice is publicly available on the official website of the Warsaw Stock Exchange, at https://www.gpw.pl/dobre-praktyki.

The information on the Bank’s application of recommendations and principles included in the Best Practice is available on the Bank’s website (https://www.pkobp.pl/investor-relations/corporate-governance/best-practice-for-gpw-listed-companies-2016/). This information is prepared on the form provided by the Warsaw Stock Exchange and shows the detailed status of compliance or non-compliance with each of the recommendations and principles of the Best Practice. On this website, the Bank also discloses reports on possible, incidental non-application of any rule contained in the Best Practice.

Compliance with the rules contained in the “Best Practice for WSE Listed Companies 2016”

In 2020, the Bank incidentally violated rule II.Z.11 of the Best Practice, which indicates that the Supervisory Board must consider and give its opinion on matters to be the subject of resolutions of the General Shareholders’ Meeting.

In connection with this fact, pursuant to § 29 section 3 of the WSE Rules, the Bank published a report regarding an incidental breach of the above-mentioned rule. The Bank indicated that the breach consisted in the Bank Supervisory Board’s failure to express an opinion on the draft resolutions of the Bank’s General Shareholders’ Meeting in connection with the drafts sent by the Bank’s shareholder two days before the meeting. It became impossible to express an opinion on the drafts sent, due to the very short time for the Supervisory Board to make a formal decision.

Compliance with the recommendations contained in the “Best Practice for WSE Listed Companies 2016”

Information policy and communication with investors

The Bank’s overriding aim regarding information activities is to guarantee high standards of communication with the participants of the capital market, which are a sign of respect for the principles of universal and equal access to information. To achieve this aim, the Bank pursues its information policy in a manner that ensures proper, reliable and complete access to information about the Bank for all investors, with no preferences as regards any of them. The above rules have been formally adopted by the Bank in the “Principles of the information policy of PKO Bank Polski S.A. regarding contacts with investors and customers”, which can be found on the Bank’s website.

While implementing this policy the Bank takes special care to enable investors and analysts to ask questions and obtain explanations on issues of interest to them. To this end, cyclical individual meetings of investors with Bank representatives are organized, as well as conferences connected with the presentation of the Bank (among investors and capital market analysts) and conferences and teleconferences every time immediately after the publication of interim reports of PKO Bank Polski S.A. (in 2020 due to the pandemic mainly in electronic form using available applications).

On an ongoing basis, answers are provided to investors’ questions in writing, by e-mail (including a dedicated mailbox) or by telephone.

In order to inform the market about the situation of PKO Bank Polski S.A. as soon as possible, the financial results are published as soon as possible after the end of the reporting period. The successive shortening of publication deadlines in this respect was disrupted in 2020 by the need to determine the impact of the pandemic on the results of the Bank and the Bank’s Group.

The Bank also has recommended internal regulations with regard to providing explanations and rectifications relating to untrue, imprecise or harmful information in the media.

Within the framework of its widely understood information policy, the Bank describes its major policies in respect of its sponsorship and charitable activities in the annual Directors’ Report on the operations of the Bank’s Group. In this Directors’ Report the said information can be found in chapter 13.4.1.

As a confirmation of the quality of the Bank’s information activities, in 2020, in the largest survey of investor relations of WIG30 companies in Poland, prepared by Parkiet and the Chamber of Brokerage Houses (Izba Domów Maklerskich), the Bank was ranked third among companies which, according to institutional investors and analysts, communicate best with the market.

Management Board and Supervisory Board

Members of the Management Board and Supervisory Board of PKO Bank Polski S.A. are appointed in a manner allowing for the selection of persons having high qualifications and experience.

The above is reflected in the suitability assessment policies for members of both these authorities adopted by the Bank in 2020.

These policies are implemented at the Bank taking into account the principle of diversity of members of both the Management Board and the Supervisory Board.

The diversity principle is designed to ensure that Members of the Management Board or the Supervisory Board are appropriately selected to obtain a broad range of competences, knowledge and skills that are adequate for the position and guarantee that the members of the Management Board or the Supervisory Board, individually and as a body, issue independent opinions and decisions on the whole range of the Bank’s activities. The principle of diversity of selection is based on objective substantive criteria in terms of education and professional experience. Should the need arise, the Bank provides the Supervisory Board with professional, independent advisory services.

Both members of the Management Board and Supervisory Board devote the necessary amount of time to perform their duties. Attendance at meetings of the Supervisory Board is high, and absences are justified in resolutions of the Supervisory Board.

Serving on the Bank’s Management Board is the main area of activity for the members of this body, while membership on the bodies of other entities mainly involves supervisory functions in the companies of the Bank’s Group.

The Bank’s Supervisory Board, as part of succession management, makes decisions regarding the selection of new Members of the Bank’s Management Board keeping in mind the objective to ensure continuity in decision making with regard to the area of the Bank’s operations supervised by a given Member of the Bank’s Management Board and the entire Management Board of the Bank. Following this principle, due to the fact that the term of office of the Board of Executives expires in mid 2020, the Supervisory Board selected the members of this body well in advance.

The Bank’s statutory obligation to maintain the composition of the Supervisory Board is the need to convene the General Shareholders’ Meeting in order to supplement the composition of the Supervisory Board in the event that the number of members of this body decreases below 5.

Internal systems and functions

The Bank has separated in its structure units responsible for the performance of tasks in particular systems and functions, especially units dealing with internal control, risk management and compliance. The main assumptions of the internal control system and risk management rules at the Bank are presented in chapter 11.2.2 and 9.1 of the Report.

General Shareholders’ Meeting and shareholder relations

The Bank aims to hold annual general meetings as soon as possible after the publication of the annual report. Over the past five years, this period has shortened by approximately one month. The exception is the date of the 2020 Annual General Meeting of the Bank, which due to the pandemic fell at the end of August 2020.

Each General Meeting is broadcast in real time.

Conflict of interests and related party transactions

The internal regulations of PKO Bank Polski S.A. guarantee compliance with the recommendations and principles included in the “Best Practice for WSE Listed Companies 2016”. The Bank has internal regulations regarding the management of conflicts of interest. According to those regulations, both a member of the Supervisory Board and a Member of the Management Board should refrain from any professional or non-professional activity that could lead to a conflict of interests or otherwise have an adverse effect on his reputation as a member of the supervisory or management body. There are also rules regarding the obligation to disclose conflicts, abstaining from making decisions and excluding members of these bodies from participating in the consideration of issues with which a conflict of interest is connected.

Remuneration

The Bank has a remuneration policy for members of the Supervisory Board and the Management Board currently adopted by the General Shareholders’ Meeting in 2020.

According to this policy, the total remuneration of a Member of the Bank’s Management Board consists of a fixed part and a variable part. The variable remuneration depends on the level of achievement of management objectives such as: achieving the net financial result of the Bank and the Bank’s Group, achieving the indicated economic and financial indicators, implementing the strategy of the Bank and the Bank’s Group and maintaining the market position of the Bank.

PKO Bank Polski S.A. also adopts rules on the remuneration of employees whose activities have a significant impact on the Bank’s risk profile. The remuneration of key managers is directly linked to the Bank’s financial situation and the growth of its value.

The level of remuneration of members of the Bank’s authorities and key managers is adequate to the scope of tasks entrusted to particular persons. The work in committees of the Bank’s Supervisory Board is taken into account in the remuneration of the members of these committees.

The Nomination and Remuneration Committee, established within the Bank’s Supervisory Board, operates in line with the conditions described in Annex I to the European Commission Recommendation 2005/162/EC on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board.

Corporate governance principles for supervised institutions issued by the Polish Financial Supervision Authority

The Bank accepted for use the “Principles of Corporate Governance for Supervised Institutions” (adopted by the Polish Financial Supervision Authority on 22 July 2014) with respect to the competences and obligations of the Management Board, i.e. managing the Bank’s affairs and its representation, in compliance with the provisions of the law and the Bank’s Articles of Association. Nevertheless, the Bank assumed that paragraph 8, clause 4 of the “Principles of Corporate Governance for Supervised Institutions” (hereinafter: the Principles), insofar as it relates to allowing the shareholders the possibility of participating in the meetings of the decision-making authority. Chapter 9 of the Principles, concerning the managing of assets at the Customer’s risk, will not be applied due to the fact that the Bank does not conduct such activities.

The Bank’s Supervisory Board adopted for use the “Corporate Governance Principles for supervised institutions” concerning the responsibilities and obligations of the Supervisory Board, i.e. supervising the conduct of the Bank’s affairs in compliance with the generally binding laws and the Bank’s Articles of Association.

In its resolution of 2015, the General Shareholders’ Meeting of the Bank declared that, acting in line with its competences, it will follow the “Corporate Governance Principles for supervised institutions” issued by the Polish Financial Supervision Authority, although it ruled out the application of the principles set out in:

• § 8 clause 4 of the Principles, within the scope pertaining to ensuring the possibility of the electronic participation of shareholders in meetings of the decision-making body;

• § 10 clause 2 of the Principles, with respect to the introduction of personal rights or other special rights for shareholders;

• § 12 clause 1 of the Principles pertaining to the responsibility of shareholders for immediate recapitalization of the supervised institution;

• § 28 clause 4 of the Principles with respect to assessing by the decision-making body whether the determined remuneration policy promotes the development and security of the supervised institution.

Waiving the application of the principle set out in § 8 clause 4 was in line with the prior decision of the General Shareholders’ Meeting of PKO Bank Polski S.A. of 30 June 2011. The decision was reflected in not adopting the resolution on amendments to the Articles of Association of the Bank, the aim of which was to enable participation in the General Shareholders’ Meeting through electronic means of communication. The decision not to apply this principle was taken because of the legal and organizational-technical risks, which could jeopardize the proper conduct of the General Shareholders’ Meeting. The application of other Principles specified in the resolution of the General Shareholders’ Meeting was waived based on these proposals by an eligible shareholder of the Bank – the State Treasury.

In accordance with the justification presented by the State Treasury together with the proposed draft resolution of the General Shareholders’ Meeting, waiving the application of the principle specified in §10 clause 2 and §12 clause 1 of the Principles was justified by the uncompleted process of the Bank’s privatization by the State Treasury.

Waiving the application of the principle set out in § 28 clause 4 was justified, in accordance with the motion of the State Treasury, by the excessive scope of the remuneration policy in question, subject to the assessment of the decision-making authority. In the opinion of the above-mentioned shareholder, the policy for remunerating employees who perform key functions but who are not members of the supervisory and management authorities, should be assessed by the employer or the principal, i.e. the Bank represented by the Management Board, the activities of which are supervised by the Supervisory Board.

Nevertheless, in 2021 a Report entitled “Evaluation of the Remuneration Policy’s Functioning in PKO Bank Polski S.A. in 2020” will be submitted to the General Meeting.

The text of the Principles is published on the Polish Financial Supervision Authority’s website at the address: https://www.knf.gov.pl/knf/pl/komponenty/img/knf_140904_Zasady_ladu_korporacyjnego_22072014_38575.pdf.

11.2.2 Controls in the process of preparing financial statements

Internal control system

PKO Bank Polski S.A. has an internal control system functioning as part of the Bank’s management system. Designing, implementing and ensuring the functioning of the adequate and effective internal control system is the responsibility of the Bank’s Management Board. The Supervisory Board supervises the implementation and the functioning of the internal control system, and evaluates its adequacy and effectiveness, including the adequacy and effectiveness of the control functions, compliance unit, and the internal audit unit. The assessment of the internal control system is made on the basis of specific criteria and taking into account:

• information provided by the Bank’s Management Board, Audit Committee of the Bank’s Supervisory Board, compliance function and internal audit function;

• findings made by the statutory auditor and resulting from the supervisory activities of authorized institutions;

• other information and documents relevant to the adequacy and effectiveness of the internal control system.

In this respect, the Supervisory Board is supported by the Supervisory Board Audit Committee that is responsible, in particular, for monitoring the effectiveness of the internal control system.

The objectives of the internal control system are to ensure:

• efficiency and effectiveness of the Bank’s operations;

• reliability of the financial reporting;

• compliance with risk management principles in the Bank;

• compliance of the Bank’s activities with the generally binding legal regulations, internal regulations of the Bank, supervisory recommendations and market standards adopted in the Bank.

The internal control system is arranged at the Bank on three independent levels:

• the first level consists of organizational structures of the Bank that carry out operational activities (in particular: sales of products and Customer service), as well as other organizational structures of the Bank that perform risk-generating operational tasks and operate under separate internal regulations of the Bank;

• the second level is composed of activities of the compliance unit, as well as identification, measurement, control, monitoring and reporting of risks, and threats and irregularities – tasks are performed by specialized organizational structures operating under applicable policies, methodologies and procedures. The purpose of these structures is to ensure that the activities implemented at the first level are properly designed and effectively reduce the risk, support risk measurement and analysis and business effectiveness;

• the third level is internal audit, which carries out independent audits of elements of the Bank’s management system, including the risk management system and the internal control system. The internal audit operates separately from the first and second level.

The internal control system in the Bank comprises:

• the control function;

• the compliance unit;

• the independent internal audit unit.

The control function ensures compliance with controls relating, in particular, to risk management at the Bank; this function covers all of the Bank’s units, and the organizational positions in these units responsible for the performance of tasks allocated to this function.

The control function consists of:

• controls;

• independent monitoring of controls;

• reporting.

PKO Bank Polski S.A. identifies material processes which have a significant impact on the performance of the internal control system objectives and the Bank’s business goals, and ensures periodical reviews of the processes with regard to their materiality.

Controls are embedded in the processes, systems and IT applications in place at PKO Bank Polski S.A. These controls are tailored to the objectives of the internal control system and the specific nature of the Bank’s operations. These controls are subject to independent monitoring including a periodical evaluation of their adequacy and effectiveness.

The compliance unit is an organizationally independent unit. It plays a key role in ensuring compliance and management of non-compliance risk. This risk is understood as risk legal sanctions, financial losses, or loss of reputation, if the Bank, the Bank’s staff or entities acting on behalf of the Bank fail to comply with the universally applicable provisions of the law, internal regulations, or market standards adopted by the Bank. The objective of the compliance unit is developing solutions aimed at ensuring compliance, and non-compliance risk management, as well as identifying, assessing, controlling, monitoring and reporting this risk at the Bank.

The internal audit carries out independent and objective assurance and advisory activities in order to:

• assess the adequacy and effectiveness of the risk management system and the internal control system at the first and the second level of the internal control system, taking into account adequacy and efficiency of risk controls and controls selected for the audit (assurance activities);

• create value and identify potential improvements of processes at the Bank (advisory activities).

The assessment of individual areas of the Bank’s operations is carried out in a systematic and organized manner. Suggestions and recommendations issued under the audit are aimed at eliminating identified gaps and increasing the quality and effectiveness of the functioning of the Bank and entities belonging to the Bank’s Group.

Information on irregularities, assessment results and other material issues identified by individual elements of the internal control system are presented in periodic reports for the Management Board, the Supervisory Board Audit Committee or the Supervisory Board of the Bank.

On its website (www.pkobp.pl), the Bank gave a description of its internal control system which takes into account, in particular, a description of goals: objectives of the internal control system; the role of the Management Board, Supervisory Board and the Audit Committee of the Supervisory Board, three independent levels on which the internal control system is organized and the individual elements of the internal control system.

Other entities of the Bank’s Group have internal control systems adapted to the specific nature of the entities’ operations. These entities develop and implement internal regulations defining, in particular, control tasks performed within the framework of the internal control system, and the allocation of responsibility for these tasks. The manner of functioning of internal control systems depends on the business entity’s size and scope of its operations. The audit units in the Bank’s Group operate on a long-term cooperative model to ensure common standards in internal audits.

The majority of the entities have separated organizational units or positions that report directly to the Management Board or the Supervisory Board of the particular entity. If this is justified by the operating profile of the company and its organizational structure (small entities with a limited scope of business) the internal control functions are performed by the management staff, without structurally separating this function or internal control unit.

Controls in the process of preparing financial statements

In order to ensure the reliability and correctness of the process of preparing the financial statements, the Bank designed and implemented a number of controls. They are embedded in the functions of reporting systems and internal regulations concerning this process. These controls involve among others things the use of continuous verification and reconciliation of reporting data to the accounting records, sub-ledger accounts and other documents providing the basis for financial statements, and with binding accounting and reporting standards.

The process of preparing financial statements is subjected to regular multi-level verification, in particular with regard to the correctness of the account reconciliation, substantive analysis and reliability of the information. The annual financial statements are reviewed by the Audit Committee of the Supervisory Board and adopted by the Supervisory Board, and are then approved for publication by the Management Board of PKO Bank Polski S.A.

The tasks of the Audit Committee of the Supervisory Board include, among other things, monitoring the financial reporting process including the review of separate and consolidated interim and annual financial statements, with particular emphasis on:

• information on substantial changes in the accounting and reporting policy and in the method of making significant management estimates and judgments for the purposes of financial reporting, as well as compliance of the financial reporting process with the applicable law;

• significant adjustments resulting from the audit and the auditor’s report on the audit of the financial statements, discussion of any issues, qualifications and doubts resulting from the audit of financial statements and analysis of the independent auditor’s recommendations addressed to the Management Board, and responses of the Management Board in this regard.

The description of cooperation between the Audit Committee of the Supervisory Board and the external auditor and its assessment is included in the report on activities of the Audit Committee drawn up on an annual basis and attached to the report on activities of the Supervisory Board.

Audit firm

On 13 December 2018, pursuant to § 15 clause 1 point 2 of the Bank’s Articles of Association, the Bank’s Supervisory Board selected PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp. k. (hereinafter PWC) as the audit firm to audit and review the financial statements of the Bank and of the Bank’s Group for the years 2020-2021. PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnoscią Audyt sp. k. with its registered office in Warsaw, ul. Polna 11 is entered in the list of audit companies maintained by the National Board of Registered Auditors under the number 144. On 24 January 2019, the Bank concluded an agreement with PWC for the audit and review of the financial statements of the Bank and of the Bank’ Group for the years 2020-2021.

The audit and review of the financial statements of the Bank and the Group for 2019 was carried out by the audit firm KPMG Audyt Spółka z ograniczoną odpowiedzialnością spółka komandytowa.

Information on the audit firm’s fees payable for the financial year and the previous financial year, separately for the audit of the financial statements and for other assurance services, including the review of the financial statements is provided in Note 74 of the Financial Statements of the Bank’s Group for the year 2020.

The policy for the appointment of an audit firm and the policy for the provision of other services by the audit firm

In accordance with the policy for the appointment of an audit firm to audit the financial statements of the Bank and the consolidated financial statements of the Bank’s Group, the Bank’s Supervisory Board conducts proceedings relating to commissioning the audit of the financial statements of the Bank and the Bank’s Group under an unlimited tender procedure. All decisions of the Bank’s Supervisory Board as to the selection of the audit firm require a prior recommendation by the Audit Committee. As a result of the selection procedure organized by the Bank, the Audit Committee submits its recommendation with regard to the selection of the audit firm to the Supervisory Board. Unless the recommendation refers to the renewal of the audit engagement, it should contain no less than two choices of an audit firm with justifications, and a justified indication of the preferred firm. The Bank’s Supervisory Board selects the audit firm based on the Audit Committee’s recommendation. Clear and unbiased selection criteria are applied in the assessment of the proposals submitted by the audit firms.

The Audit Committee’s recommendation on the selection of an audit firm to audit the 2020-2021 financial statements met the applicable conditions and was prepared following a selection procedure organized by the Bank that met the applicable criteria.

The policy for performing permissible services other than the audit to the Bank and the Bank’s Group by the audit firm, its related entities and a member of the audit firm’s network assumes that the provision of permissible services other than the audit by the audit company performing the audit, its related entities and a member of the audit company’s network to the Bank require the consent of the Audit Committee of the Bank’s Supervisory Board. The Audit Committee of the Bank’s Supervisory Board consents to the provision of permissible services other than the audit to the Bank’s Group company based on a request of the company. A necessary element of such a request is the consent of the audit committee or the Supervisory Board of the requesting Bank’s Group company.

In 2020, the audit firm PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp. k. provided permissible non-audit services to the Bank, in particular reviews of financial statements. The Audit Committee of Bank’s Supervisory Board assessed the independence of the audit firm and gave its consent for the performance of those services.

11.2.3 Articles of Association of PKO Bank Polski S.A.

Principles for amending the Articles of Association of PKO Bank Polski S.A.

In accordance with the provisions of the Commercial Companies Code, an amendment to the Articles of Association of PKO Bank Polski S.A. requires a resolution of the General Shareholders’ Meeting and entry in the register. Additionally, pursuant to Article 34, clause 2 of the Banking Law Act, an amendment to the Articles of Association requires the permission of the Polish Financial Supervision Authority.

Pursuant to the provisions of the Commercial Companies Code, resolutions on amendments to the Bank’s Articles of Association require a qualified majority of three-fourths of the votes. Resolutions regarding an amendment to the Bank’s Articles of Association increasing benefits for shareholders or limiting the rights granted personally to particular shareholders, pursuant to Article 354 of the Commercial Companies Code require the consent of all the shareholders concerned.

In accordance with § 10 clause 14 of the Articles of Association of PKO Bank Polski S.A., resolutions of the General Shareholders’ Meeting on amending the Articles of Association, relating to share preference (excluding preference within the scope of voting rights, pursuant to Article 351 § 2 of the Commercial Companies Code), a reduction in the share capital by redeeming some of its shares without a simultaneous increase in the share capital or changing the scope of the Bank’s activities resulting in the Bank ceasing its banking activities require a 90% majority of the votes cast.

Amendments to the Bank’s Articles of Association

In 2020, the District Court for the capital city of Warsaw in Warsaw, 13th Commercial Division of the National Court Register registered amendments to the Bank’s Articles of Association resulting from the resolution No. 3/2019 of the Extraordinary General Shareholders’ Meeting of PKO Bank Polski S.A. of 17 September 2019, excluding the amendment introduced in § 1 point 2 of this resolution, and resulting from resolutions No. 30/2020 and No. 31/2020 of the General Shareholders’ Meeting of PKO Bank Polski S.A. dated 26 August 2020. The amendment to the Bank’s Articles of Association introduced in § 1 point 2 of the resolution No. 3/2019 of the Extraordinary General Shareholders’ Meeting of PKO Bank Polski S.A., which concerns extending the scope of the Bank’s activities to include providing services related to handling Employee Capital Plans, was registered by the Court on 11 February 2021.

The amendments introduced by resolution No. 3/2019 result from the Act of 21 February 2019 on amending the Act on the Principles of State Property Management, which came into force on 29 March 2019 (they concern, among others, the obligations of the Bank’s Management Board to prepare and the Bank’s Supervisory Board to approve additional reports introduced by the Act, changes to the list and parameters of transactions that require the approval of the Bank’s Supervisory Board, and changes to the catalogue of resolutions the adoption of which requires a qualified majority) and are of a formal nature and serve the purpose of aligning the text with the terminology used in generally applicable laws.

The amendments introduced by Resolutions No. 30/2020 and 31/2020 concern the approval by the Bank’s Supervisory Board of the rules of operation of the internal control system, updating the catalogue of resolutions of the Bank’s Supervisory Board which cannot be passed by circulation or using means of direct remote communication, subordinating the compliance unit directly to the President of the Bank’s Management Board, clarifying the rules of creating supplementary capital and changing the rules of creating and allocating the reserve capital, including extension of the possibility to designate the reserve capital for purchasing the Bank’s own shares.

The Polish Financial Supervision Authority has issued decisions permitting the above mentioned amendments to the Bank’s Articles of Association.

Detailed information on the scope of registered amendments to the Bank’s Articles of Association was presented in the Bank’s current reports: No. 33/2020 dated 12 November 2020, No. 37/2020 dated 21 December 2020 and No. 5/2021 dated 15 February 2021.

11.2.4 General Shareholders’ Meeting of PKO Bank Polski S.A.

The General Shareholders’ Meeting of PKO Bank Polski S.A. is held as the annual or extraordinary meeting, in accordance with the provisions of the Commercial Companies Code and the Articles of Association of the Bank, in keeping with the principles set out in the Rules of the General Shareholders’ Meeting.

Competences of the General Shareholders’ Meeting

In addition to matters stipulated in generally binding legal regulations, the principal competences of the General Shareholders’ Meeting include passing resolutions on:

• appointing and dismissing members of the Supervisory Board;

• approving the Rules of the Supervisory Board;

• purchasing shares for the purpose of their redemption and determining consideration for the shares redeemed;

• establishing and releasing special funds created from net profit;

• disposal of real estate, share in real estate or perpetual usufruct right by the Bank if the value of the real estate or the right being subject to such an act exceeds 25% of the share capital; such consent is not required if real estate, share in real estate or perpetual usufruct right has been purchased within the framework of enforcement, bankruptcy or restructuring proceedings, or based on another agreement with the Bank’s debtor;

• issuing convertible bonds, bonds with a pre-emptive right or subscription warrants;

• laying down the principles for remuneration of Members of the Management Board and the Supervisory Board;

• approving the financial statements of the Bank and the Bank’s Group;

• approving the Directors’ Report (on the Bank’s operations and the operations of the Bank’s Group) and the report on activities of the Supervisory Board;

• approving the proper discharge of duties by Members of the Management Board and the Supervisory Board;

• profit distribution or offset of loss;

• determining the dividend day and the date of dividend payment;

• disposal and lease of an enterprise or its business unit, or establishing a limited property right thereon;

• amendments to the Bank’s Articles of Association;

• increase or decrease in the Bank’s share capital.

Principles of operation

Persons entitled based on registered shares, as well as pledgees and users entitled to voting rights, entered into the share register on the date of registration, as well as holders of bearer shares provided that they were the Bank’s shareholders on the date of registration and, within the statutory deadline specified in the announcement convening the General Shareholders’ Meeting, they requested that the entity maintaining their securities account issue a registered certificate confirming their right to participate in the General Shareholders’ Meeting, shall be entitled to participate in the General Shareholders’ Meeting. On 1 March 2021, amendments to the rules of participation in the General Shareholders’ Meeting came into force, according to which the holders of shares, pledgees and users with voting rights have the right to participate in the General Shareholders’ Meeting if the limited property right established in their favour is registered in the securities account on the date of registering participation in the General Shareholders’ Meeting.

A shareholder being a natural person may participate in the General Shareholders’ Meeting and exercise his/her voting right in person or by proxy. A shareholder, who is not a natural person, may participate in the General Shareholders’ Meeting and exercise its voting right via a person authorized to make a statement of intent on its behalf or by proxy.

A power of attorney should be issued in writing, otherwise null and void, and enclosed with the minutes of the General Shareholders’ Meeting, or issued in electronic form. The right to represent a shareholder, who is not a natural person, shall arise from the original or copy of the excerpt from the relevant register presented possibly with a power of attorney or a chain of powers of attorney. These documents shall be presented upon drawing up the attendance list or sent in electronic form no later than on the day preceding the date of the General Shareholders’ Meeting, to the email address indicated on the announcement convening the General Shareholders’ Meeting.

A person(s) granting the power of attorney on behalf of a shareholder, who is not a natural person, should be listed in an up-to-date excerpt from the relevant register of a given shareholder.

A Member of the Management Board, a member of the Bank’s Supervisory Board, a liquidator and an employee of PKO Bank Polski S.A. or a member of the governing bodies or an employee of a company or co-operative dependent on the Bank may act as the shareholders’ proxies at the General Shareholders’ Meeting of PKO Bank Polski S.A.

The Bank shall publish on its website draft resolutions submitted in compliance with the provisions of the Commercial Companies Code by an authorized shareholder or shareholders before the date of the General Shareholders’ Meeting, immediately after their receipt.

A shareholder or shareholders representing at least one-twentieth of the share capital of the Bank may request that certain matters be included on the agenda of the General Shareholders’ Meeting not later than 21 days before the set date of the meeting. The request may be sent in electronic form.

Before the date of the General Shareholders’ Meeting, a shareholder or shareholders of PKO Bank Polski S.A. representing at least one-twentieth of the share capital may submit to the Bank, in writing or using electronic means of communication, draft resolutions on matters included on the agenda of the General Shareholders’ Meeting or matters that are to be included on the agenda. Additionally, during the General Shareholders’ Meeting, shareholders shall have the right to present draft resolutions or propose amendments or additions to draft resolutions on matters included on the agenda of the General Shareholders’ Meeting.

Removing a matter from the agenda or desisting from further discussion on a matter included on the agenda at the request of shareholders shall require a resolution of the General Shareholders’ Meeting. The resolution must be adopted by a three-quarter majority of the votes, after obtaining the prior consent of all shareholders, who requested that the matter be included on the agenda, present at the General Shareholders’ Meeting.

Resolutions of the General Shareholders’ Meeting shall be passed by an absolute majority of votes unless generally binding legal provisions or provisions of the Articles of Association of PKO Bank Polski S.A. decide otherwise.

The General Shareholders’ Meeting shall adopt resolutions in an open ballot, with the reservation that a secret ballot shall be ordered in respect of:

• elections of members of the Bank’s authorities;

• motions to dismiss members of the authorities or liquidators of PKO Bank Polski S.A.;

• motions to bring members of the authorities or liquidators of PKO Bank Polski S.A. to justice;

• personnel matters;

• at the request of at least one shareholder present or represented at the General Shareholders’ Meeting;

• in other instances, specified in generally binding legal regulations.

A shareholder cannot, either personally or by proxy, or while acting as a proxy of another person, vote on resolutions concerning this shareholder’s liability to PKO Bank Polski S.A. on whatever account, including the acknowledgement of the fulfilment of this shareholder’s duties, exemption from any of the shareholder’s duties towards PKO Bank Polski S.A., or any dispute between this shareholder and PKO Bank Polski S.A.

Shareholders shall have the right to ask questions, through the Chairman of the General Shareholders’ Meeting, to members of the Management Board and Supervisory Board of PKO Bank Polski S.A. and the key statutory auditor of PKO Bank Polski S.A. If it is necessary for assessing a matter placed on the agenda of the General Shareholders’ Meeting, the Management Board (subject to statutory exceptions) shall be obliged to present information about the Bank upon the request of the shareholder.

In the discussion on each point of the agenda, each shareholder shall have the right to one speech and one reply. Shareholders may, during the course of discussion on each point of the agenda, apply to close the list of speakers or to close the discussion on a given point of the agenda.

The course of the General Shareholders’ Meeting may be recorded on electronic data carriers with the use of devices recording sound or sound and picture. Such media shall be archived at the Bank’s registered office according to the rules specified in the announcement on convening the General Shareholders’ Meeting. The recordings of the General Shareholders’ Meeting is made public by the Bank on its website.

In 2020, shareholders used this right and asked a number of questions regarding ESG issues. The video recording of the General Shareholders’ Meeting with the shareholders’ questions and replies by the Management Board is available on the Bank’s website: https://www.pkobp.pl/investor-relations/video-reports/.

The Bank has provided the shareholder with written answers to the questions on environmental issues. Their content is posted on the Bank’s website: https://www.pkobp.pl/investor-relations/current-reports/report-no-31-2020-answers-to-shareholder-s-questions-raised-at-the-annual-general-meeting-on-26-august-2020/.

11.2.5 Supervisory Board of PKO Bank Polski S.A. during the reporting period

The Supervisory Board of PKO Bank Polski S.A. (the Bank’s Supervisory Board or the Supervisory Board) consists of 5 to 13 members each appointed for a joint three-year term of office. Members of the Supervisory Board are appointed and dismissed by the General Shareholders’ Meeting.

The State Treasury, as the Eligible Shareholder, pursuant to § 11 clause 1 of the Bank’s Articles of Association, set the number of members of the Supervisory Board at 11.

As at 31 December 2020, the Supervisory Board consisted of 10 persons.

Changes in the composition of the Supervisory Board in 2020

On 26 August 2020, the General Shareholders’ Meeting of the Bank (AGM) adopted the Policy regarding the assessment of the suitability of candidates and members of the Supervisory Board of Powszechna Kasa Oszczędności Bank Polski S.A. Pursuant to Article 385 § 1 of the Commercial Companies Code, the AGM adopted resolutions appointing the following to the Supervisory Board for a joint term of office: Mariusz Andrzejewski, Grzegorz Chłopek, Grażyna Ciurzyńska, Zbigniew Hajłasz, Marcin Izdebski, Wojciech Jasiński, Andrzej Kisielewicz, Rafał Kos, Krzysztof Michalski and Piotr Sadownik, while confirming the adequacy of the appointed body.

The adequacy policy referred to above implements the requirements set forth in: the Banking Law Act (Article 22aa), the Guidelines of the European Banking Authority and the European Securities and Markets Authority on the assessment of the suitability of members of the management body and key function holders, and the Methodology for assessing the suitability of members of the bodies of supervised entities, issued by the PFSA.

In accordance with the “Best Practice for WSE Listed Companies 2016”:

• each of the appointed members of the Supervisory Board has made and delivered to the other members of the Supervisory Board and the Management Board a statement on meeting or not meeting the independence criteria (rule II.Z.5),

• On 3 November 2020, the Supervisory Board made an assessment whether there were any relationships or circumstances which may affect the compliance of a given member of the Supervisory Board with the independence criteria, taking into consideration but not being bound by the content of the statements submitted by individual members (rule II.Z.6).

In accordance with the aforementioned assessment, Mariusz Andrzejewski, Grzegorz Chłopek, Grażyna Ciurzyńska, Zbigniew Hajłasz, Andrzej Kisielewicz, Rafał Kos, Krzysztof Michalski and Piotr Sadownik meet the independence criteria indicated in the Good Practice. The Supervisory Board was not aware of any circumstances that could have a negative impact on these persons’ compliance with the independence criteria. Marcin Izdebski and Wojciech Jasiński do not meet the independence criteria. This assessment was consistent with the content of the statements made by the members of the Supervisory Board.

Until 26 August 2020, the Bank’s Supervisory Board was composed of: Piotr Sadownik (Chairman), Grażyna Ciurzyńska (Deputy Chairman), Zbigniew Hajłasz (Secretary), Mariusz Andrzejewski, Mirosław Barszcz, Adam Budnikowski, Wojciech Jasiński, Andrzej Kisielewicz, Elżbieta Mączyńska-Ziemacka and Krzysztof Michalski.

Dariusz Górski was a member of the Supervisory Board until 29 January 2020.

Composition of the Supervisory Board of PKO Bank Polski S.A. as at 31 December 2020

Zbigniew Hajłasz – Chairman of the Supervisory Board
Member of the Supervisory Board since 30 June 2016. On 26 August 2020, he was appointed to the Supervisory Board for the current term of office, and on the same day, the State Treasury appointed him Chair of the Supervisory Board.	Expert with hands-on experience and consultant specializing in management and development. Has over 20 years’ experience in managing commercial companies and as an analyst and expert in planning, management and development of financial institutions, industrial restructuring, privatization and international projects. Academic degrees: MPhil in Economics (London University, 2002) and M.Sc. Eng. in Mathematics (Wrocław University of Technology, 1982). In 1993-1996 and since 2005 – academic lecturer (Wrocław University of Technology, University of Wrocław, Academy of Fine Arts in Wrocław), winner in the Business Gazelles ranking in 2015 and 2016. Since May 2018 – President of the Management Board of KGHM TFI S.A. His functions included: director of the Economic Development Department at the Provincial Office in Wrocław (1991-1993), director of the Regional Privatization Office of Bank BWP S.A. (1994-1996), Vice President of the Management Board of Wrocławska Agencja Rozwoju Regionalnego S.A. – Managing Director, President of the Management Board of PRW S.A. in Wrocław, President of the Management Board of TBS sp. z o.o. in Głogów, Director of OPDRO Project Coordination Office and President of the Management Board of Zakład Gospodarki Komunalnej sp. z o.o. in Św. Katarzyna. He was a member of supervisory boards of state-owned companies and companies with the participation of local government authorities, such as: Dolnośląskie Konsorcjum Handlowo-Finansowe S.A. in Wroclaw, Polskie Radio Wrocław S.A. in Wrocław, TBS sp. z o.o. in Głogów (the best social building society in Poland in the BGK ranking), Siechnicka Inwestycyjna Spółka Komunalna sp. z o.o., and Polskie Radio S.A. Author of expert opinions for the Sejm (the Polish Parliament) and Government of the Republic of Poland and for financial institutions.
Year of birth: 1956
Marcin Izdebski – Deputy Chair of the Supervisory Board
On 26 August 2020, he was appointed to the Supervisory Board for the current term of office, and on the same day, the State Treasury appointed him Deputy Chair of the Supervisory Board.	A graduate of the Warsaw University of Technology and the Warsaw School of Economics. He gained professional practice in the private sector, non-governmental organizations and government administration, with which he has been continuously associated since 2016. During this period he was responsible for the supervision of companies with State Treasury shareholding and for conducting capital transactions involving acquisitions, mergers, spin-offs of assets or companies. He has experience in supervisory bodies of companies. In 2020, he served as the Director of the Supervision Department I in the Ministry of State Assets. Currently (from 15 March 2021) - director of the Fuel and Energy Companies Department in the above-mentioned Ministry. Since August 2018, he has served as Chairman of the Supervisory Board of Polska Grupa Lotnicza S.A.
Year of birth: 1990
Grażyna Ciurzyńska – Secretary of the Supervisory Board
Member of the Supervisory Board since 30 June 2016. On 26 August 2020, she was appointed to the Supervisory Board for the current term of office. On 24 September 2020 appointed as Secretary of the Supervisory Board.	She has been working within the banking sector for 25 years. She held higher management positions in the corporate business area supervising, among other things, cooperation with strategic customers and the development of enterprise financing programmes. Subsequently, with regard to retail, she was responsible for retail business strategy, sales and pricing policy, bancassurance development, sales network management, designing and implementing products. She was also an advisor to the President of the Management Board of the Bank. For several years, she was related to the payments market, and was responsible for card activities area, cooperation with international payment organizations and suppliers of technology and bank services. She was a member of the Council of the Polska Bezgotówkowa Foundation, member of the executive committee of the Council of Banking Card Issuers and previously the executive committee of the Council of Cash Management. For many years associated with scientific and didactic work at the Warsaw School of Economics in the field of international economics, foreign direct investment and European integration. She also worked in government administration, responsible for strategic and legislative actions in the area of private investments, for cooperation with investors and financial institutions from Poland and abroad. She managed the instrument of special economic zones and large investment projects. Recently, acting President of the Management Board of the Polish Investment and Trade Agency S.A., where she was responsible in particular for the promotion of the Polish economy, supporting enterprises in their foreign expansion and investment processes, and the inflow of foreign investments. From June 2021, she will join the Management Board of the Polska Bezgotówkowa Foundation, and a month later she will become the President of the Management Board. Deputy Chair of the Supervisory Board of Polski Holding Nieruchomości S.A. Graduated from the Faculty of Foreign Trade at the Warsaw School of Economics and Post-graduate Studies in European Banking Law at the Institute of Law Studies of the Polish Academy of Sciences.
Year of birth: 1968
Mariusz Andrzejewski – Member of the Supervisory Board
Member of the Supervisory Board since 22 June 2017. On 26 August 2020, he was appointed to the Supervisory Board for the current term of office.	He works as a university professor at the Cracow University of Economics, where he also serves as the head of the Department of Financial Accounting. He served as Dean of the Faculty of Finance and Law from 2016 to 2019 and as Dean of the College of Economics, Finance and Law from 2019 to 2020. Holds a full doctoral degree in economics. In the years 2013-2019 he worked as associate professor at the School of Banking and Management in Kraków. In the years 2003-2013 worked in the Bielsko-Biała School of Finances and Law, where he was also head of the Finance Department. He graduated from three faculties, studied accounting at the Faculty of Management at the Kraków University of Economics (CUE), automatics and robotics, specializing in artificial intelligence, and computer science at the Faculty of Electrical Engineering, Automatics and Electronics at the AGH University of Science and Technology in Kraków. During his studies, he was a three-time recipient of a scholarship of the Ministry of National Education. In 2001, during the execution of a grant by the State Committee for Scientific Research, he wrote and defended his doctoral thesis, which was published in book form by Wydawnictwo Naukowe PWN under the title “Accounting and Disclosure of Information by Listed Companies”. He obtained business experience while sitting on supervisory boards of companies, including: Zakłady Chemiczne Alwernia S.A., Kombinat Koksochemiczny Zabrze S.A., Północ Nieruchomości S.A. (listed on NewConnect), PolRest S.A. (listed on the WSE), Media Nieruchomości S.A., Przedsiębiorstwo Inżynierii Miejskiej sp. z o.o. in Czechowice–Dziedzice, AWSA Holland II BV. He was also President of the Management Board of Altair sp. z o.o., member of the Management Board in charge of finance of TBS Złocień sp. z o.o. and advisor to the Management Board at the Institute of Business Law and Foreign Investments (Instytut Prawa Spółek i Inwestycji Zagranicznych – IPSiZ sp. z o.o.). He was an Arbitrator at the Arbitration Court at the Polish Financial Supervision Authority. Currently he is the Chairman of the Supervisory Board of PKP Polskie Linie Kolejowe S.A., Chairman of the Supervisory Board of INSTAL Kraków S.A. and Deputy Chairman of the Supervisory Board of Tauron Sprzedaż sp. z o. o. He holds a professional title of registered auditor. In 2005-2006 he was Undersecretary of State in the Ministry of Finance. He is a member of the European Accounting Association (EAA) and the International Association for Accounting Education & Research (IAAER). He is also a member of the Polish Economic Society (PTE) and the Main Board of the Accountants Association in Poland. Author or co-author of over 150 academic publications and several dozen expert opinions on economics.
Year of birth: 1971
Grzegorz Chłopek- Member of the Supervisory Board
On 26 August 2020, he was appointed to the Supervisory Board for the current term of office.	He is a graduate of the Faculty of Electronics and Information Technology at the Warsaw University of Technology. Holder of the CFA title and securities broker licence. He started his professional career in 1994, from the very beginning tying it to the capital market. Until 1998 he worked at the Brokerage Office of Bank Gdański, Commercial Union Towarzystwo Ubezpieczeń na Życie (Polska) and American Bank in Poland. From December 1998, for over 21 years, he worked for Nationale-Nederlanden Powszechne Towarzystwo Emerytalne S.A. managing assets of the biggest open pension fund in Poland. In 2004 he was appointed to the management board of the company and from 2012 he was the President of the Management Board. In the area of asset management, he was responsible for the management of interest rate market instruments and then for the entire investment portfolio, which exceeded PLN 72 billion in 2013. He was also responsible for the corporate governance area of the equity portfolio, which exceeded 5% of the market capitalization of all Polish companies listed on the Warsaw Stock Exchange. Since June 2020, he has been employed at iWealth Management sp. z o.o. as Managing Director, where he is responsible for developing cooperation with wealthy clients and institutions, as well as supporting the free investment advisory services provided to the company’s clients. He has extensive experience in managing large financial institutions, implementing new products in the financial sector, corporate governance of listed companies, analysis of financial statements and capital market instruments. He is an experienced expert in the pension, investment and insurance sectors.
Year of birth: 1971
Wojciech Jasiński – Member of the Supervisory Board
Member of the Supervisory Board since 25 February 2016. On 26 August 2020, he was appointed to the Supervisory Board for the current term of office.	Graduated from the University of Warsaw’s Faculty of Law and Administration (1972). From 1972 to 1986, he worked in Płock, among other things, at the National Bank of Poland, the Branch in Płock, at the Town Hall, also as legal counsel in the Tax Chamber. In 1990-1991, he established the local government structures in the Płockie Voivodeship, as a Representative of the Government Plenipotentiary for Local Government Reform. From 1992 to 1997, he worked at the Supreme Audit Office, successively as Director of: NIK Delegation in Warsaw, Finance and Budget Team, State Budget Department. In 1997-2000, he was a Member and then President of the Management Board of Srebrna, a company with its registered office in Warsaw. He was a member of the Supervisory Board of Bank Ochrony Środowiska in 1998-2000. From September 2000 to July 2001 he was Undersecretary of State at the Ministry of Justice. In 2006-2007, he was Minister of the State Treasury. Since 2001, he has been a member of the Polish Parliament (during the 4th, 5th, 6th, 7th and 8th terms of office) where he was Chairman of the Standing Subcommittee for the Banking System and Monetary Policy, Chairman of the Economy Committee, and Chairman of the Public Finance Committee. He was also a member of the State Treasury Committee in the Sejm. President of the Management Board of PKN ORLEN S.A. from 16 December 2015 to 5 February 2018. From June 2018 to July 2019 – plenipotentiary of the Management Board of Energa S.A. for the development of investments and energy markets. Since 5 March 2020, Chairman of the Supervisory Board of PKN ORLEN S.A.
Year of birth: 1948
Andrzej Kisielewicz – Member of the Supervisory Board
Member of the Supervisory Board since 25 February 2016. On 26 August 2020, he was appointed to the Supervisory Board for the current term of office.	Professor of Mathematical Sciences. He works at the Wrocław University of Technology, at the Faculty of Mathematics. He obtained his full doctoral degree from the University of Wrocław, and was awarded a Ph.D. in mathematics from the Polish Academy of Sciences. Graduated from the University of Wrocław. He gained his professional experience in various academic centres, including: Vanderbilt University (Nashville, USA), Polish Academy of Sciences, Technische University (Darmstadt, Germany), the University of Manitoba (Winnipeg, Canada), Blaise Pascal University (Clermont-Ferrand, France). He has experience as a member of supervisory boards. Currently, he is Chairman of the Supervisory Board of KGHM Polska Miedź S.A. He is the author of more than 75 academic publications in foreign journals on mathematics, logistics and computer science as well as books (e.g. Sztuczna inteligencja i logika [Artificial Intelligence and Logic], Wprowadzenie do informatyki [An Introduction to Computer Science], etc.). He is also the author of many opinions, reviews and expert opinions, including for the National Science Centre and the European Commission. His research interests include the application of mathematics, logic and computer science in practice, artificial intelligence, business intelligence, informatization and argumentation theory.
Year of birth: 1953
Rafał Kos – Member of the Supervisory Board
On 26 August 2020, he was appointed to the Supervisory Board for the current term of office.	Attorney at Law, partner in the law office Kubas Kos Gałkowski. Doctor of Laws (Jagiellonian University), studied International Business Law at UC Davies (California), completed postgraduate studies in American Business Law at CUA Columbus School of Law (Washington, DC). Vice President of the Court of Arbitration at the Lewiatan Confederation in Warsaw. Appointed as a Permanent Arbitrator and Conciliator of the Court of Arbitration at the General Counsel to the Republic of Poland (since 2020). Member of the Commission for Arbitration of the Supreme Bar Council (since 2015) and The Board of Visitors CUA Law (since 2017). Expert of the Parliamentary Committee on Justice and Human Rights on the draft law on the enforcement of claims in group proceedings (2009), member of the Team for amendments to the Bankruptcy and Reorganization Law of the Minister of Justice (2012), Team for systemic solutions in the field of amicable methods of resolving economic disputes, facilitating the performance of economic activity, of the Minister for the Economy (2013) and the Team for Economic Law of the Minister for the Development (2015). Currently a member of the Commission for Corporate Governance Reform and expert teams of the Minister of State Assets: on increasing the effectiveness of supervisory boards and on corporate law (2020). Member of the Polish delegation to the 73rd session of the Working Group II UNCITRAL - Dispute Resolution/Arbitration and Conciliation (2021). Recommended as an expert in litigation and arbitration by, among others, Who’s Who Legal, Chambers and Partners, Rzeczpospolita daily.
Year of birth: 1971
Krzysztof Michalski – Member of the Supervisory Board
Member of the Supervisory Board since 17 September 2019. On 26 August 2020, he was appointed to the Supervisory Board for the current term of office.	Graduate of Law and Administration and Political Science faculties at Maria Curie-Skłodowska University in Lublin and Faculty of Economic Sciences at Warsaw University. He was also awarded an MBA diploma – Innovation and Data Analysis – at the Institute of Computer Science of the Polish Academy of Sciences and Woodbury School of Business at Utah Valley University. He started his professional career in a foreign trade company with a global range of operations, and was responsible, among other things, for market research, creating new products, marketing and sales development on foreign markets. From 2017 leader of the investor cooperation team in the Ministry for Development. He was responsible for various operations in the area of private investment, cooperation with Polish and foreign investors and financial institutions and supporting the execution of large investment projects. At present he directs the work of the expert team at the Chancellery of the Prime Minister. He is responsible for analyses and advice on tax, business and financial issues. He is also involved in matters concerning international relations.
Year of birth: 1985
Piotr Sadownik – Member of the Bank’s Supervisory Board
Member of the Supervisory Board since 25 February 2016. On 26 August 2020, he was appointed to the Supervisory Board for the current term of office.	Graduated from the University of Warsaw’s Faculty of Law and the University of Paris II Pantheon-Assas. Admitted to the Warsaw Bar in 1996. In 1993, he started his professional career in the Warsaw office of the law firm Gide Loyrette Nouel. Currently, he is a partner in the Warsaw office of Gide Loyrette Nouel where he heads the Litigation and Arbitration, Infrastructural Projects and Public Law, and Intellectual Property departments. He represents the law firm’s customers in court litigation and advises both Polish companies and international investors on infrastructure and public procurement projects. He also specializes in intellectual property law. He is recommended by Legal 500 EMEA and Chambers Europe in court litigation. Legal 500 also recommends him for energy and natural resources as well as intellectual property. Award winner of the “Client Choice 2015” competition organized by Globe Business Publishing in the litigation category. Vice-President of the Amicable Court at the General Counsel to the Republic of Poland (Prokuratoria Generalna RP).
Year of birth: 1968

Principles of the functioning of the Supervisory Board

The Supervisory Board functions based on generally applicable legal regulations, the Bank’s Articles of Association and the Rules passed by the Supervisory Board and approved by the General Shareholders’ Meeting. Meetings of the Supervisory Board are held at least once a quarter.

The Supervisory Board adopts resolutions by an absolute majority of votes, in the presence of at least half of the Members of the Supervisory Board, including the Chair or Deputy Chair of the Supervisory Board, except for resolutions specified in the Articles of Association of the Bank concerning those matters that are to be accepted by, apart from the quorum indicated, a qualified majority of 2/3 of the total votes. Those members of the Supervisory Board to whom the given voted matter relates are excluded from the vote.

The work of the Supervisory Board is managed by the Chair, and in his absence – by the Deputy Chair. The Chair represents the Supervisory Board before all other authorities of PKO Bank Polski S.A., supervisory authorities and other persons.

Meetings of the Supervisory Board may be convened with the possibility of participating in the meeting via remote communication channels, including adopting resolutions, in accordance with the “Rules for participation in a meeting of the Supervisory Board of Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna by means of direct remote communication” adopted by the Supervisory Board (the Rules of e-meetings).

With the exception of matters specified in the Bank’s Articles of Association, the Supervisory Board may also adopt resolutions outside the meeting in writing (by circulation) or using means of direct remote communication, in particular e-mail.

In 2020, the Bank’s Supervisory Board held 8 meetings and 2 teleconferences by means of direct remote communications and adopted 154 resolutions in total.

Competences of the Supervisory Board

In addition to authorizations and duties stipulated by generally applicable legal regulations and the provisions of the Articles of Association of PKO Bank Polski S.A., the competences of the Supervisory Board include passing resolutions pertaining, in particular to:

• approving: the Bank’s strategy and annual financial plan passed by the Management Board;

• approving the overall risk tolerance level determined by the Management Board;

• appointing an audit firm to conduct the audit and review of the Bank’s financial statements and the consolidated financial statements of the Bank’s Group.

• passing the Rules:

– of the Supervisory Board;

– for granting loans, advances, bank guarantees and warranties to a Member of the Management Board, the Supervisory Board and a person holding a managerial position in the Bank, and to entities related by capital or organization with these persons;

• appointing and dismissing the President of the Management Board, Vice-Presidents and other Members of the Management Board, as well as suspending Members of the Management Board and delegating Members of the Supervisory Board to temporarily carry out the duties of Members of the Management Board who have been dismissed, resigned or are unable to perform their duties for other reasons;

• approving strategies, policies and rules adopted by the Management Board, such as: Risk management strategy, Bank management strategy, Dividend policy, Remuneration policy, Policy for internal capital assessment and capital management, and review of strategies and procedures for internal capital assessment and capital management, Compliance policy of the Bank, Internal control rules, Regulations of the Management Board, Regulations for the management of special funds created from net profit, Organizational rules of the Bank, Compliance and internal audit department regulations;

• giving its prior consent for actions fulfilling statutory criteria, including, among other things, disposal of non-current assets (intangible assets, property, plant and equipment, long-term investments), taking up, purchase or sale of shares in another company, subscription or purchase of bonds convertible into shares, PKO Bank Polski S. A. concluding a material agreement with a shareholder holding at least 5% of the total number of votes in the Bank or with an affiliated entity, the Bank concluding an agreement for legal services, marketing services, public relations and social communication services and management services, donation agreements and debt release agreements;

• applying to the Polish Financial Supervision Authority for consent to the appointment of the President of the Management Board and a Management Board Member supervising the management of risk material to the Bank’s activities, and to entrusting the function of Management Board Member supervising the management of risk material to the Bank’s activities to a current Management Board Member who has not supervised the management of this risk;

• evaluation of the functioning of the Bank’s remuneration policy and submission of a report in this regard to the General Shareholders’ Meeting;

• opinion on the application of “Principles of corporate governance for supervised institutions” by the Bank;

• granting approval for opening or closing a branch abroad.

Committees of the Supervisory Board

In accordance with the Bank’s Articles of Association, the Supervisory Board appoints from among its members committees which it is required to appoint under the binding legislation. The Supervisory Board may also appoint other committees from among its members.

The Supervisory Board has appointed the following committees:

Audit Committee of the Supervisory Board

Tasks

• monitoring the financial reporting process including the review of interim and annual financial statements (separate and consolidated);

• monitoring the effectiveness of the internal control system, including with respect to financial reporting;

• monitoring the effectiveness of the risk management system, including with respect to financial reporting, in particular by analysing information received from the Risk Committee;

• monitoring the audit activities, in particular performance of the audit by the audit firm, taking into account all conclusions and findings of the Polish Audit Oversight Commission, as referred to in the Act on registered auditors, resulting from inspections carried out in the audit firm;

• controlling and monitoring the independence of the statutory auditor and the audit firm carrying out the audit of the financial statements, in particular when the audit firm provides services other than audit to the Bank’s Group;

• informing the Supervisory Board of the audit results and explaining how the audit contributed to the fairness of the Bank’s financial reporting and what the role of the Committee was in the audit process;

• assessing the independence of the registered auditor and consenting to the provision of permissible services other than the audit to the Bank and the Bank’s Group by the audit company, its related entities and a member of the audit company’s network, in accordance with the policy;

• developing a policy for selecting the audit firm to conduct an audit and providing the Supervisory Board with recommendations as to adopting the policy;

• developing a policy for the provision of services other than the audit by the audit company performing the audit, its related entities and a member of the audit company’s network, and providing the Supervisory Board with recommendations as to the adopting the policy;

• developing a procedure for appointing the audit company to conduct an audit and providing the Supervisory Board with recommendations with regard to adopting the policy;

• submitting to the Supervisory Board recommendations with regard to the appointment of the audit company to conduct the audit;

• submitting to the Supervisory Board recommendations aimed at ensuring fairness of the Bank’s financial reporting process;

• submitting to the Supervisory Board recommendations with regard to the statement concerning the audit firm conducting the audit of the annual financial statements of the Bank and consolidated financial statements of the Bank’s Group;

• developing the rules for the process of disclosing and exchanging data and information between the Polish Financial Supervision Authority, the audit firm, key auditor and the Bank, and recommending their adoption to the Supervisory Board.

Composition of the Committee

in 2020

	In this term of office of the Supervisory Board	In the previous term of office of the Supervisory Board
Chair:	Grażyna Ciurzyńska	Zbigniew Hajłasz
Deputy Chair:	Grzegorz Chłopek	Grażyna Ciurzyńska
Members:	Mariusz Andrzejewski	Mariusz Andrzejewski
	Marcin Izdebski	Andrzej Kisielewicz
	Rafał Kos	Krzysztof Michalski
		Piotr Sadownik
		and Dariusz Górski until 29 January 2020

Independence criteria and competences

As part of the assessment of the suitability of candidates for membership of the Supervisory Board made in connection with their election for a new term of office (in accordance with the Policy on the assessment of the suitability of candidates and members of the Supervisory Board of Powszechna Kasa Oszczędności Bank Polski S.A.), an assessment of candidates in terms of meeting the requirements necessary to serve on the Audit Committee of the Supervisory Board (Audit Committee) was conducted.

According to the assessment, the appointed members of the Audit Committee jointly meet the conditions of independence and qualifications in accordance with the requirements of the Act on Statutory Auditors, Audit Firms and Public Supervision of 11 May 2017. Of which:

• Chair of the Audit Committee Grażyna Ciurzyńska and Mariusz Andrzejewski, Grzegorz Chłopek and Rafał Kos, i.e. the majority of the Audit Committee members are independent;

• members having the most adequate knowledge and experience in the scope of the Audit Committee’s activity, including competences in accounting and auditing of financial statements are:

– Mariusz Andrzejewski – competences confirmed by a Ph.D. in economics and qualifications of a statutory auditor; member of Polish and international accounting and bookkeeping associations; additionally, skills resulting from professional experience related to performing management and supervisory functions and working as a statutory auditor;

– Grzegorz Chłopek – competences confirmed by the knowledge gained within the educational programme connected with the title of Chartered Financial Analyst and the title of stockbroker; additionally, skills resulting from professional experience connected with managing a Universal Pension Fund Management Company;

• all members of the Audit Committee collectively have knowledge and skills in the area of banking resulting from, among other things, their education, professional experience and functions performed (as more fully described in the biographical notes in this chapter).

The General Shareholders’ Meeting performs the assessment of the suitability of the members of the Supervisory Board – including the assessment of their independence, in accordance with the aforementioned Policy at the time of selecting the candidates for the Supervisory Board members and periodically once a year.

Number of meetings

In 2020, there were 8 meetings of the Audit Committee of the Supervisory Board and 1 teleconference.

Nominations and Remuneration Committee

Tasks

• Expressing opinions on monitoring the Remuneration Policy adopted by the Bank and supporting the Bank’s authorities in developing and implementing this policy.

In particular, the Committee is responsible for the performance of the following tasks:

• expressing opinions on the general rules for remunerating persons whose professional activities have a material impact on the Bank’s risk profile to be approved by the Supervisory Board;

• conducting an annual review of the Remuneration Policy and presenting the results of the review to the Supervisory Board;

• presenting to the Supervisory Board proposals of principles for remunerating Members of the Management Board;

• evaluating goals pursued and achieved by the Members of the Management Board;

• assessing tools and systems adopted to guarantee that the remuneration system in the Bank’s Group properly account for all types of risk, liquidity and equity levels and that the Remuneration Policy be compliant with the proper and effective risk management principles and support such management, and was consistent with the business strategy, goals, culture and corporate values, and the long-term interests of the Bank’s Group;

• supervising fixed remuneration of the leader of the Bank’s compliance unit;

• providing opinions and monitoring variable remuneration components of leaders of the legal, compliance, internal audit, risk management and human resources units;

• presenting opinions to the Supervisory Board on the settlement of MbO targets for Members of the Management Board approved by the Supervisory Board;

• Preparing a draft report on the evaluation of the functioning of the Remuneration Policy in the Bank, which is presented by the Supervisory Board to the General Shareholders’ Meeting.

Additionally, the Committee’s tasks include:

• expressing opinions on the diversity policy in the composition of the Management Board;

• recommending candidates to the Management Board to the Supervisory Board;

• recommending the scope of duties for the candidate to the Management Board specified by the Supervisory Board; and the requirements concerning the knowledge and competences and the expected involvement in terms of the amount of time necessary to perform the function;

• recommending the target level to be defined by the Supervisory Board for the representation of underrepresented gender in the Management Board;

• periodically (at least once a year) assessing the structure, size, composition and effectiveness of the Management Board’s operation, and recommending respective changes to the Supervisory Board;

• periodically (at least once a year) assessing the knowledge, competences and experience of the Management Board as a whole, and of the individual Members of the Board, and informing the Management Board of the results of the assessment;

• periodically assessing the Management Board’s policy in respect of the selection and appointment of persons to managerial positions at the Bank and submitting respective recommendations to the Management Board.

Composition of the Committee

in 2020

	In this term of office of the Supervisory Board	In the previous term of office of the Supervisory Board
Chair:	Zbigniew Hajłasz	Piotr Sadownik
Deputy Chair:	Marcin Izdebski	Grażyna Ciurzyńska
Members:	Grażyna Ciurzyńska	Wojciech Jasiński
	Wojciech Jasiński	Elżbieta Mączyńska-Ziemacka
	Andrzej Kisielewicz

Number of meetings

In 2020, there were 7 meetings of the Nominations and Remuneration Committee of the Supervisory Board and 1 teleconference.

Risk Committee

Tasks

• evaluating the overall current and future readiness of the Bank to take risks, taking into account the risk profile of the Bank’s Group;

• expressing opinions on the Bank’s operational risk management strategy adopted by the Management Board, and information on the implementation of this strategy submitted by the Management Board, as well as other periodic reports on risk management and capital adequacy;

• expressing opinions on other resolutions of the Management Board in respect of risk management and capital adequacy which are subject to approval by the Supervisory Board;

• supporting the Supervisory Board in overseeing the implementation of the Bank’s operational risk management strategy;

• reviewing whether the price of assets and liabilities offered to Customers fully envision the Bank’s business model and its strategy in terms of risk, and indicating to the Management Board directions for correcting actions;

• assessing the risks related to the products and services offered;

• expressing opinions on solutions for reducing business risk with the use of the Bank’s property insurance and civil liability insurance for members of authorities and proxies of the Bank;

• ongoing monitoring of the risk management system and providing the Supervisory Board with information on the results of this monitoring;

• expressing opinions on the Bank’s information on the risk management strategy and risk management system, addressed to the public;

• conducting an annual review of the Remuneration Policy of the Bank and the Bank’s Group;

• ongoing monitoring of the implementation of the risk management strategy and providing recommendations to the Supervisory Board;

• advising on the selection of external advisors, experts and consultants in the event that the Supervisory Board wishes to use their services;

• evaluating recommendations of external and internal auditors, and follow-up connected with appropriate implementation of the respective measures;

• performance of other tasks specified by the Supervisory Board with regard to risk management in the Bank.

Composition of the Committee

in 2020

	In this term of office of the Supervisory Board	In the previous term of office of the Supervisory Board
Chair:	Andrzej Kisielewicz	Andrzej Kisielewicz
Deputy Chair:	Mariusz Andrzejewski	Grażyna Ciurzyńska
Members:	Grzegorz Chłopek	Mariusz Andrzejewski
	Wojciech Jasiński	Adam Budnikowski
	Krzysztof Michalski	Elżbieta Mączyńska-Ziemacka

Number of meetings

In 2020, there were 5 meetings of the Risk Committee of the Supervisory Board and 1 teleconference.

Strategy Committee

Tasks

• expressing opinions on the Bank’s strategy adopted by the Management Board, the approval of which is the competence of the Supervisory Board;

• supporting the Supervisory Board in overseeing the implementation of the strategy, in particular by analysing periodic information on the implementation thereof, presented by the Management Board;

• expressing opinions on strategic activities of the Bank, which require the prior consent of the Supervisory Board, in particular on their consistency with the binding strategy of the Bank;

• performance of other tasks specified by the Supervisory Board with regard to the implementation of strategic goals and key projects of the Bank.

Composition of the Committee

in 2020

	In this term of office of the Supervisory Board	In the previous term of office of the Supervisory Board
Chair:	Piotr Sadownik	Grażyna Ciurzyńska
Deputy Chair:	Zbigniew Hajłasz	Zbigniew Hajłasz
Members:	Mariusz Andrzejewski	Mirosław Barszcz
	Grażyna Ciurzyńska	Adam Budnikowski
	Andrzej Kisielewicz	Elżbieta Mączyńska-Ziemacka
	Krzysztof Michalski	Krzysztof Michalski
		Piotr Sadownik
		and Dariusz Górski until 29 January 2020

Number of meetings

In 2020, there were 2 meetings of the Strategy Committee of the Supervisory Board and 1 teleconference.

11.2.6 Management Board of PKO Bank Polski S.A. during the reporting period

The Management Board of PKO Bank Polski S.A. (the Bank’s Management Board or the Management Board) consists of 3 to 9 Members. The Board Members are appointed for a joint three-year term of office. Appointing the President of the Management Board and the Board Member responsible for managing material risk in the Bank’s operations, requires the consent of the PFSA.

As at 31 December 2020, the Management Board consisted of 9 persons.

Changes in the composition of the Management Board in 2020

On 27 May 2020, the Bank’ Supervisory Board adopted resolutions appointing the existing members of the Management Board for another joint term of office of the Management Board starting on 3 July 2020, including Zbigniew Jagiełło as President of the Bank’s Management Board and other persons to the positions of Vice Presidents of the Bank’s Management Board.

The nominations of the Management Board Members appointed for the next term of office were assessed for suitability arising from the Policy regarding the suitability of Members of the Management Board and persons holding the most important positions in the Bank, as well as assessing their suitability in companies of the Bank’s Group. As a result of the above assessment, it was confirmed that:

• each of the candidates for Member of the Management Board met the individual suitability requirements;

• the candidates jointly met the collective suitability requirements.

Composition of the Management of PKO Bank Polski S.A. as at 31 December 2020

Zbigniew Jagiełło – President of the Management Board

Member of the Management Board since 1 October 2009

He has been working in banking and finance for over twenty-five years. Before that, for almost 9 years he was President of the Management Board of Pioneer Pekao TFI S.A. Within the global structure of Pioneer Investments he supervised distribution in the CEE region. In the second half of the 1990s, as Vice President of the Management Board, he participated in the process of establishing PKO/Credit Suisse TFI S.A.

During more than a decade of working at PKO Bank Polski S.A., he was responsible, among other things, for:

• successfully steering PKO Bank Polski S.A. through a critical period of turmoil on the international financial markets, while strengthening the Bank’s position as leader in terms of assets, equity and earnings in Poland and the CEE region;

• developing and implementing the strategy for the years 2010-2012, 2013-2015, 2016-2019 and 2020-2022, which resulted in a significant increase in assets and strong business efficiency gains as well as in increased interest in the company among domestic and international investors;

• adapting the Bank to the requirements of an increasingly competitive financial market, creating and making available advanced IT solutions on a large scale, changing the Bank into a technology company with a banking licence – PKO Bank of the Future;

• involving the Bank in the battle against COVID-19, ensuring security to the Bank’s Customers and employees, and supporting hospitals and medical staff.

He is actively involved in the development and promotion of high standards of operations of the financial market in Poland. He is a member of the Board of the Polish Bank Association and of the prestigious Institute International D’Etudes Bancaires, which brings together the international banking community. His previous functions included, among other things, that of Chairman of the Chamber of Fund and Asset Management.

He graduated from the Wrocław University of Technology’s Faculty of Computer Science and Management. At present, he is a member of the Court of Governors of the Wrocław University of Technology. He also completed Postgraduate Management Studies at the Gdańsk Foundation for Management Development and the University of Gdansk, with an Executive MBA certified by the Rotterdam School of Management, Erasmus University.

He was awarded the Officer’s Cross of the Order of Polonia Restituta by the President of the Republic of Poland, and the Social Solidarity Medal for promoting the idea of corporate social responsibility. He was Chairman of the Programme Council of the PKO Bank Polski’s Foundation that was established on his initiative, in 2010.

Recipient of several awards and titles. He was selected CEO of the Year by the stock exchange journal Parkiet in 2011. He was awarded the Wektor 2011 and 2018 prize granted by the Polish Employers’ Committee, and the Golden Banker prize in the Personality of the Year 2011 category. He was a four-time recipient of the Manager of the Year 2011, 2014, 2016 and 2019 awards in a competition organized by Gazeta Bankowa. In 2012, 2014 and 2015, Bloomberg Businessweek Polska singled him out as one of the Top 20 Managers in the Polish Economy. He was honoured by BANK – financial monthly – with the title of “Innovator of the Banking Sector 2012.” He also received the special award of “Man of the Year 2013” from Brief monthly and “Visionary 2013” from Dziennik Gazeta Prawna. In 2014, he received an honourable mention from Gazeta Finansowa as one of “25 Most Valuable Managers in the World of Finance.” In 2015, he received a medal from the Polish Chamber of Commerce (KIG) for supporting the development of economic self-government and entrepreneurship, and he was awarded an eDucat statuette by the Foundation for the Development of Non-cash Payments for his vision of the development of non-cash payments and the effective building of a coalition for the mobile payment standard. The industry service Mediarun.com recognized him as the most pro-marketing president, and the chancellery of Responsible Business Awards awarded him the title of Outstanding CEO Philanthropist. In 2017, he was awarded the Lesław A. Paga Prize for his contribution to the development of the Polish economy and promotion of high standards of operations of the financial market in Poland. In 2019, he was granted the titles of Personality of the Year in the Golden Laurel competition organized by Super Biznes and Finance Visionary in the “Banking and Insurance Leaders” competition; he was also granted the Bulls and Bears award by the stock exchange journal Parkiet and he was elected the most valuable CEO among the managers of listed companies in the ranking published by Rzeczpospolita daily. In 2020, he was awarded in the poll of Gazeta Finansowa Financier of the Year 2019, honoured with the Economic Award of the Warsaw School of Economics and by the Financial Monthly BANK (IT@Bank ranking) with the award of Market Visionary 2020. He was also the winner of the BrandMe CEO plebiscite organized by Forbes monthly under the slogan “Leader in times of (forced) transformation” for the style and strategy of management and their effects, respected values and courage in taking risks and making unobvious choices.

Member of the Supervisory Board of PKO Leasing S.A. (from April 2021).

Year of birth: 1964

Functions performed in Committees

as at 31 December 2020

IT Security Committee (Chair);

Risk Committee (Chair);

Strategy Committee (Chair);

Transformation Committee (Chair);

Assets and Liabilities Management Committee (Chair).

Rafał Antczak – Vice-President of the Management Board of the Bank in charge of the Enterprise Banking, Analyses and Administration Area

Member of the Management Board since 2 July 2017

He graduated from the Faculty of Economic Sciences at the University of Warsaw – economic cybernetics and computer science (1994) – and a Comprehensive Course in Market Economics at the Joint Vienna Institute (1997).

Economist and manager with more than 25 years of experience in international and domestic projects for companies in the financial and real economy sectors, governments and research institutions. From October 2008 to January 2017, he was a Member of the Management Board of Deloitte Consulting S.A., responsible, among other things, for research, micro and macroeconomic projections, strategic and business consulting. From 2006 to 2008, he was Managing Director and Chief Economist of the PZU Group and Member of the Supervisory Boards of PZU Asset Management, PZU-Ukraina, PZU-Ukraina Ubezpieczenia na Życie and UFG. from 2006 to 2008, lecturer at the Faculty of Management and the MBA Programme of the University of Warsaw. In the years 1994-2006, economist with the Centre for Social and Economic Research CASE Science Foundation. Author of many publications on economics and market research.

Member of the supervisory boards of: Centralny Port Komunikacyjny sp. z o.o. (from December 2018), PKO Faktoring S.A. (from 2018), PKO Życie Towarzystwo Ubezpieczeń S.A. (from April 2021) and PKO Towarzystwo Ubezpieczeń S.A. (from April 2021).

Year of birth: 1970

Functions performed in Committees

as at 31 December 2020

The Bank’s Credit Committee (Member);

Strategy Committee (Member).

Rafał Kozłowski – Vice-President of the Management Board of the Bank in charge of the Finance and Accounting Area

Member of the Management Board since 1 January 2018

Associated with PKO Bank Polski S.A. since 2012, where he was responsible, among other things, for launching a mortgage bank. Since the establishment of PKO Bank Hipoteczny S.A., as President of its Management Board he was responsible for the development of the institution and quickly guided it to the top of the list of the largest mortgage banks in Poland. Under his management the bank quickly became the largest issuer of mortgage-covered bonds on the Polish market, and conducted the largest issues of Polish mortgage-covered bonds abroad. Since 2018, he has served as Vice President of the Bank’s Management Board responsible for the Finance and Accounting Area.

He comes from Łomża. He graduated from the Warsaw School of Economics (faculty: Quantitative Methods and Information Systems) and the University of Warsaw and the University of Illinois, where in 2008 he completed his Executive MBA studies. He has been in the banking business since 1995. He worked in managerial positions in Powszechny Bank Kredytowy S.A., Bank BPHPBK S.A., Bank Pekao S.A. and PKO Bank Polski S.A. He was also Finance Director and Member of the Management Board in the Corporation of European Pharmaceutical Distributors N.V. in Amsterdam, where he managed an international holding of 160 companies in Poland, Lithuania and the United Kingdom.

In the course of his professional career he engaged in the construction of banking strategies and budgets and their monitoring, preparing financial analyses and stock exchange reports, and preparing public offerings and acquisitions of foreign entities. He is a top class specialist in controlling, accounting and reporting, finance risk and mortgage banking.

He is a member of the Supervisory Board of Bank Pocztowy S.A. and Operator Chmury Krajowej sp. z o.o.

Year of birth: 1974

Functions performed in Committees

as at 31 December 2020

Data Quality Committee (Deputy Chair);

Risk Committee (Member);

Operational Risk Committee (Member);

Strategy Committee (Member);

Transformation Committee (Member);

Assets and Liabilities Management Committee (Member).

Maks Kraczkowski – Vice-President of the Management Board of the Bank in charge of the International and Transaction Banking and Cooperation with Local Government Authorities and Government Agencies Areas

Member of the Management Board since 4 July 2016

He graduated from the University of Warsaw’s Faculty of Law and Administration. He obtained an Executive MBA diploma in the Management University (Wyższa Szkoła Menadżerska) in Warsaw and completed the Advanced Management Program 194 at the Harvard Business School.

He was Member of the Sejm of the 5th, 6th, 7th and 8th term. As an MP he mainly engaged in economic and financial market topics. He was Chair and Deputy Chair of the Economic Committee of the Sejm (2005-2006, 2007-2015) and member of the Parliamentary Legislation Committee (2005-2011, 2015-2016). In the years 2015-2016 he was Deputy Chair of the Parliamentary Committee for Economy and Development.

He has many years of experience in establishing laws and knowledge of Polish and international business matters.

Currently he is Chairman of the Supervisory Board of KREDOBANK S.A. Due to the changes in organizational structures, since 2 September 2019 he has also been responsible for supervising the operations of KREDOBANK S.A.

Year of birth: 1979

Functions performed in Committees

as at 31 December 2020

The Bank’s Credit Committee (Member);

Strategy Committee (Member).

Mieczysław Król – Vice-President of the Management Board of the Bank in charge of the Operations Area

Member of the Management Board since 6 June 2016

A graduate of the Faculty of Finance and Statistics of the Warsaw School of Economics and the International School of Management. He completed his post-graduate studies at the Warsaw School of Economics (Collegium of Management and Finance).

He has been working in banking and finance for over thirty years. He has worked, among other things, at the National Bank of Poland. Associated with PKO Bank Polski S.A. for many years; from 2006 to 2010 he was Director of the Audit Department and, at the same time, Chairman of the Audit Committee of KREDOBANK S.A. Then, from 2011 to 2015, he was Director of the Audit Department at Bank Ochrony Środowiska S.A. in Warsaw. In 2006-2007, he combined his work at PKO Bank Polski S.A. with his function on the Supervisory Board of Centrum Finansowo-Bankowe in Warsaw. In 2007, he was Chairman of the Supervisory Board of Zakłady Chemiczne Organika Sarzyna in Nowa Sarzyna and of Zakłady Konserwacji Zabytków. He has lectured at the Academy of Business Activity in Warsaw. He has authored many articles about banking and economics.

In 1998-2002, he was a councillor for the District [powiat] of Warsaw. He was Deputy Chairman of the Budget Committee and a member of the Audit Committee. In 2002-2014, he was a councillor at the City Council of the Capital City of Warsaw, where he was, among other things, Chairman and then Deputy Chairman of the Budget and Finance Commission and a member of the Health Commission. As part of his social activities, he managed the Social Board at the Father Jerzy Popiełuszko Hospital in Warsaw – Bielany.

He is a member of the Supervisory Boards of PKO Życie Towarzystwo Ubezpieczeń S.A. PKO Towarzystwo Ubezpieczeń S.A.

Year of birth: 1958

Functions performed in Committees

as at 31 December 2020

Operational Risk Committee (Member);

Strategy Committee (Member).

Adam Marciniak – Vice-President of the Management Board of the Bank in charge of the IT Area

Member of the Management Board since 1 October 2017

He graduated from the Military Technical Academy in Warsaw, Warsaw University of Technology and the Warsaw Management University.

He has worked for the PKO Bank Polski S.A. Group since 2011. In 2011-2017 Director of the Application Development and Maintenance Division of PKO Bank Polski S.A.; from 2011 to 2014, Vice-President of Inteligo Financial Services S.A.; until 2017, member of the Supervisory Board of PKO Bank Hipoteczny S.A., and currently he is Chairman of the Supervisory Boards of: PKO BP Finat sp. z o.o. and Operator Chmury Krajowej sp. z o.o.

He also gained experience in the financial sector as the Operating Director of the Electronic Channels Development and Management Office in Bank Pekao S.A. and the Director of the IT Department in Centralny Dom Maklerski Pekao S.A. He is Chair of the Executive Committee of the Electronic Banking Council of the Polish Bank Association. At the turn of 2015/2016 he co-created the Bankowe Centrum Cyberbezpieczenstwa (Banking Cyber Security Centre). He has won numerous industry awards and honours, including the title of Ambassador for the Electronic Economy at the 10th Congress of Electronic Economy, and the CIO Diamond awarded by the jury of the 2015 CIO of the Year competition of IDG Poland S.A.. He won the special title of “Banking Market Innovator 2015” of Miesięcznik Finansowy BANK and the Nicholas Copernicus Medal awarded by the Polish Bank Association in 2016. He also won the title of “Banking Sector Digitization Leader 2018” awarded by the Members of the Banking Technology Forum 2018. In 2020, he received the Golden Herold Award – the Program Council of the 26th ICT Forum appreciated his long-standing activity and commitment in the area of implementation and development of ICT technologies supporting the construction of e-state.

Year of birth: 1979

Functions performed in Committees

as at 31 December 2020

IT Architecture Committee (Chair);

Data Quality Committee (Chair);

IT Security Committee (Deputy Chair);

Operational Risk Committee (Deputy Chair);

Risk Committee (Member);

Strategy Committee (Member);

Transformation Committee (Member).

Piotr Mazur – Vice-President of the Management Board of the Bank in charge of the Risk Management Area

Member of the Management Board since 8 January 2013

He is Vice President of the Management Board of PKO Bank Polski S.A. in charge of the Risk Management Area, upon the approval of the Polish Financial Supervision Authority granted on 8 January 2013.

He graduated from the Faculty of Organization and Management at the Academy of Economics in Wrocław.

He has over 20 years of experience in banking – mainly in the areas of risk, restructuring and loans, and in international financial groups operating in Europe, the USA and South America. He is a member of supervisory boards, creditors’ committees, a member and chairman of key risk management committees. He participated in the development of the strategy of Bank Zachodni WBK S.A., was directly responsible for risk management, the optimization of debt collection and restructuring processes, and cooperated with regulators in Poland and abroad.

He started his professional career in 1991 in Bank BPH S.A., in the loans area. In 1992, he joined Bank Zachodni S.A. and, following the merger with Wielkopolski Bank Kredytowy S.A., he joined BZ WBK S.A. In 1992-2000, he worked in the Capital Investments Department and, in 2000-2005, he held the position of Director of the Credit Quality Control Department. In the years 2005-2008 he was Director of the Business Intelligence and Risk Management Area, and in the years 2008-2010 – Deputy Chief Risk Officer. From January 2011 he was Chief Credit Officer and from March 2012 also Deputy Chief Risk Officer. Moreover, he was Chairman of the Credit Committee at BZ WBK S.A., Deputy Chairman of the Credit Risk Forum, and Deputy Chairman of the Risk Model Forum.

Year of birth: 1966

Functions performed in Committees

as at 31 December 2020

The Bank’s Credit Committee (Chair);

Operational Risk Committee (Chair);

Risk Committee (Deputy Chair);

IT Security Committee (Member);

Data Quality Committee (Member);

Strategy Committee (Member);

Assets and Liabilities Management Committee (Member).

Jakub Papierski – Vice-President of the Management Board of the Bank in charge of the Corporate and Investment Banking Area

Member of the Management Board since 22 March 2010

He graduated from the Warsaw School of Economics. He has as a Chartered Financial Analyst (CFA) licence.

His professional experience in the 1990s includes working for investment banks and consulting firms Creditanstalt Investment Bank and Deutsche Morgan Grenfell/Deutsche Bank Research, where he covered the banking sector in Central and Eastern Europe.

From November 2001 to September 2003, he worked for Bank Pekao S.A. as Executive Director of the Financial Division, directly supervising the financial and fiscal policy of the bank, management information systems, as well as the treasury and management of investment portfolios; moreover, he was a member of the Assets and Liabilities Management Committee in the Bank. In October 2003, he was appointed President of the Management Board of Centralny Dom Maklerski Pekao S.A. In September 2006, he also took up the position of Deputy Chairman of the Supervisory Board of Pioneer Pekao TFI S.A. From May 2009, he was acting President of the Management Board of Allianz Bank Polska S.A. and in October 2009 he became President of the Management Board.

From 2005 to 2009, he was Chairman of the Programme Council of the Capital Market Leader Academy established at the Lesław Paga Foundation and is now a member of the Programme Council. Member of the Council of the Industrial History Museum in Opatówek. He is a member of the supervisory boards of PKO Leasing S.A., PKO BP BANKOWY PTE S.A., PKO TFI S.A. and KREDOBANK S.A.

Year of birth: 1972

Functions performed in Committees

as at 31 December 2020

The Bank’s Credit Committee (Member);

Risk Committee (Member);

Strategy Committee (Member).

Assets and Liabilities Management Committee (Member).

Jan Emeryk Rościszewski – Vice-President of the Management Board of the Bank in charge of the Retail Market Area

Member of the Management Board since 18 July 2016

A graduate of the Faculty of Humanities of the Catholic University of Lublin and the Institut d’Etudes Politiques de Paris. He also holds an Executive MBA diploma and an insurance broker licence. He completed various training courses in finance, insurance and management in France, Great Britain and Poland.

In 1990-1991 he worked in France for AXA Banque and AXA International, and in 1991-1993 for Groupe Azur. From 1993 to 1996, he was a Member of the Management Board of TU Azur Ostoja S.A. and TUnŻ Azur Życie S.A. Since 1996 he has worked for BNP Paribas. In 1998-2016, he managed – as President of the Management Board – TUnŻ Cardif Polska S.A. Simultaneously, in 2001-2016 he held the position of Director General of Cardif Assurance Risques Divers in Poland. He also performed the function of Deputy Chair of the Audit Committee of the Polish Chamber of Insurance. He was the Chairman of the Supervisory Board (SB) of Pocztylion-Arka PTE S.A. (1998-2016), Deputy Chairman of the SB of Pocztowa Agencja Usług Finansowych S.A. (2000-2014), member of the Audit Committee of the Polish Insurance Association (2012-2016), member of the SB of BBI Development NFI S.A. (2011-2018), member of the SB of: PKO Leasing S.A. (2016-2018), PKO Faktoring S.A. (2017-2018) and PKO Bank Hipoteczny S.A. (2017-2019) and Deputy Chairman of the SB of Bank Pocztowy S.A. (2017- July 2020). Until April 2021, he was a Chair of the SB in: PKO TFI S.A., PKO Towarzystwo Ubezpieczeń S.A. and PKO Życie Towarzystwo Ubezpieczeń S.A.

Currently, he is a member of the Supervisory Board of PKO Bank Hipoteczny S.A. and Grupa Żywiec S.A.

From 1981 to 1983, he was active in the charity organization of the Primate’s Committee for Help to People Deprived of Liberty. He is a Knight of Honour and Devotion of the Sovereign Military Order of Malta, and has held the position of hospitaller of the Polish Association of the Sovereign Military Order of Malta. He is a member of the Polish Historical Society and the Warsaw Mountaineering Club. He was awarded the Officer’s Cross of the Order of Polonia Restituta and Bene Merito of the Ministry of International Affairs for strengthening Poland’s position on the international arena. He is author and co-author of historical books and articles on finance and management.

Year of birth: 1965

Functions performed in Committees

as at 31 December 2020

The Bank’s Credit Committee (Member);

Risk Committee (Member);

Strategy Committee (Member).

Principles of operation of the Management Board

The Management Board makes decisions in the form of resolutions during a meeting or outside a meeting by circulation (in writing). The Management Board may make decisions using means of direct remote communication, in particular, by e-mail.

In 2020, the Bank’s Management Board held 58 meetings and passed 609 resolutions.

Declarations on behalf of the Bank are made by:

• the President of the Management Board acting independently;

• two Members of the Management Board acting jointly or one Member of the Management Board acting jointly with a proxy;

• two proxies acting jointly;

• attorneys acting independently or jointly, within the framework of the power of attorney granted.

As at 31 December 2020, there were 5 proxies in the Bank. No proxy was cancelled or granted in 2020.

Competences of the Management Board

In accordance with § 20 clause 1 of the Articles of Association of PKO Bank Polski S.A., the competences of the Management Board include all matters related to managing the affairs of PKO Bank Polski S.A., including purchase and disposal of real estate, share in real estate or perpetual usufruct, that do not fall within the competences of the General Shareholders’ Meeting or the Supervisory Board, in accordance with the provisions of the generally applicable law or provisions of the Articles of Association of PKO Bank Polski S.A.

Making decisions on incurring liabilities or disposal of assets, the total value of which in respect of one entity exceeds 5% of equity, remains within the competences of the Management Board, unless it is reserved for the General Shareholders’ Meeting or the Supervisory Board.

Decisions on the acquisition of the Bank’s shares for the purposes of their redemption and determining the value of remuneration for shares redeemed, and on increasing or reducing the Bank’s share capital are not within the competences of the Management Board – they are made by the General Shareholders’ Meeting.

Resolutions of the Management Board are required with respect to all matters exceeding the scope of the Bank’s ordinary business. Resolutions of the Management Board are passed by an absolute majority of votes. In the event of an equal number of votes, the President of the Management Board has the casting vote. The Management Board’s working procedures and matters that require a Management Board resolution are specified in the Rules of the Management Board. Members of the Management Board participate in managing the activities of the Bank in line with the principles set out in the Rules of the Management Board and the Organizational Rules of the Bank. Members of the Management Board supervise the areas of activities allocated to them, and take decisions on matters of ordinary management within the areas supervised by them.

Committees of the Management Board

As at the end of 2020, the following standing committees functioned in the Bank with the participation of Members of the Management Board:

Assets and Liabilities Management Committee of PKO Bank Polski S.A.
Purpose	Managing assets and liabilities by influencing the structure of the balance sheet of PKO Bank Polski S.A. and its off-balance sheet items in a manner conducive to achieving the optimum financial result.
Tasks	Supporting the Management Board in the following activities of the Bank and its Group: • shaping the structure of the Bank’s balance sheet; • capital adequacy management; • managing profitability, taking into account the specific nature of the individual areas of activity and the respective risks; • managing financial risk, including market and liquidity risks, business risk, and credit risk (settlement and pre-settlement risk) of the transaction on the wholesale market.
Risk Committee
Purpose	Setting strategic directions and tasks with respect to banking risk taking into account the Bank’s strategy, macroeconomic situation and regulatory environment, analysing periodic reports related to banking risks and developing appropriate guidance based thereon, as well as preparing the banking risk management strategy and its periodic reviews.
Tasks	• Monitoring the integrity, adequacy and effectiveness of the banking risk management system, capital adequacy and allocation of internal capital to individual business lines and implementing the risk management policy pursued as part of the Strategy of the Bank; • Analysing and evaluating the utilization of strategic risk limits set in the Banking Risk Management Strategy; • Expressing opinions on periodic risk reports submitted for approval to the Supervisory Board and taking into account information from these reports when issuing opinions.
Credit Committee of the Bank
Purpose	Management of credit risk occurring when making lending decisions or decisions concerning liabilities managed by responsible units of the Bank, as well as management of the risk of incurring losses as a result of wrong business decisions on the basis of the credit risk models.
Tasks	• Making decisions on the segregation of duties to make credit or sales decisions and claims management decisions. • Making lending decisions concerning the biggest matters of the Bank’s Customers, as well as issuing recommendations for the Bank’s Management Board in lending matters; • Making decisions in matters concerning restructured receivables; • Setting industry limits concerning appetite for portfolio credit risk and exposure concentration risk; • Making decisions concerning the implementation of credit risk models and anti-fraud models in lending processes, in particular with respect to scoring or rating; • Making decisions on the implementation of a model for determining allowances for expected credit losses on financial assets; • Accepting reports on the monitoring or review of models and loan portfolio quality, in which credit risk models are used; • Accepting monthly and quarterly credit risk reports.
Operational Risks Committee
Purpose	Effective management of operational risk, improving the safety of the Bank’s operating activities.
Tasks	• Determining the directions of operational risk management development; • Supervising the functioning of operational risk management, including the tasks concerning continuity of the Bank’s operations; • Coordinating operational risk management; • Determining measures to be taken in the event of an emergency which exposes the Bank to reputational risk and results in operating losses.
Transformation Committee
Purpose	Ensure effective transformation of the Bank in line with the development direction, including ensuring consistency of business objectives and maximization of the business value of changes in the Bank (e.g. within formations and projects).
Tasks	• Operational management of the Bank’s Strategy implementation, including creating autonomous project teams; • Making decisions on the implementation of and changes to strategic programmes and projects, as well as decisions pertaining to material costs and other operating costs; • Overseeing projects and development initiatives, particularly work progress, project budgets, financial and non-financial benefits. • Initiating activities enhancing the Bank’s effectiveness; • Managing the annual financial limit for the implementation of projects; • Solving disputes within the area of competences of the Committee, on lower decision-making levels.
Strategy Committee
Purpose	Oversight of the strategic planning process and management of the Bank’s strategy.
Tasks	• Managing the activities related to strategy development and implementation; • Approving the strategy development schedule and the strategy implementation schedule; • Making key decisions necessary to the implementation of the strategy, including the implementation of strategic initiatives; • Solving potential disputes arising when working on individual strategic initiatives.
IT Architecture Committee
Purpose	Development of the IT architecture ensuring the implementation of the Bank’s Strategy.
Tasks	• Development of key assumptions of the IT architecture of the Bank (principles); • Periodic evaluation of the IT architecture in the Bank; • Developing target architecture model; • Initiating activities aimed at implementing the target architecture model.
IT Security Committee
Purpose	Increasing the effectiveness of supervision and control over the IT system safety in PKO Bank Polski S.A. (SIB).
Tasks	Issuing recommendations on the SIB safety, in particular related to: • coordination and monitoring of work related to the SIB safety; • setting the directions of the activities of the Bank with respect to SIB safety; • specifying actions, which should be taken in the event of emergency situations which put the Bank’s image at risk and cause operating or financial losses in the area of SIB safety; • monitoring the risk related to SIB safety.
Data Quality Committee
Purpose	Setting strategic directions of the activities relating to data quality management and data architecture in the Bank in the context of the Data Management System (DMS), oversight of DMS functioning and assessment of its effectiveness and the activities undertaken by the individual organizational units of the Bank.
Tasks	Taking decisions on data management in the Bank, including in particular decisions pertaining to: • DMS development directions; • recommendations to organizational units of the Bank regarding data management activities; • detailed data management solutions; • assessing the effectiveness of the operations of the DMS, determining priority measures as part of the DMS, and drawing up periodical action plans; • allocation of the ownership of data groups; • solving disputes pertaining to the DMS at the request of the Committee members; • approving – especially in cases justified by the need to ensure the continuity of the Bank’s operations – deviations from data quality criteria and rules as well as data quality solutions standards.

In addition to the aforementioned functions, Members of the Bank’s Management Board were also members of non-standing committees, including steering committees established within the framework of projects. PKO Bank Polski S.A. also has an Investment Committee and a Sponsorship Committee. Members of the Management Board are not members of these committees.

11.3 Shares of PKO Bank Polski S.A. and its related entities held by the Bank’s authorities

The table below presents the shares in the Bank held by Members of the Management Board as at 31 December 2020. The nominal value of each share is PLN 1.

Table 23. Shares held in PKO Bank Polski S.A.

Name and surname	Number of shares as at 31.12.2020	Purchase	Disposal	Number of shares as at 31.12.2019
Management Board of the Bank
Zbigniew Jagiełło, President of the Management Board	14 000	3 000	0	11 000
Rafał Antczak, Vice-President of the Management Board	2 000	2 000	0	0
Rafał Kozłowski, Vice-President of the Management Board	2 200	2 200	0	0
Maks Kraczkowski, Vice-President of the Management Board	0	0	0	0
Mieczysław Król, Vice-President of the Management Board	6 000	1 000	0	5 000
Adam Marciniak, Vice-President of the Management Board	2 000	2 000	0	0
Piotr Mazur, Vice-President of the Management Board	8 000	3 500	0	4 500
Jakub Papierski, Vice-President of the Management Board	5 000	2 000	0	3 000
Jan Emeryk Rościszewski, Vice-President of the Management Board	0	0	0	0

The Supervisory Board members did not hold any shares of PKO Bank Polski S.A. as at 31 December 2020 and as at 31 December 2019.

Due to potential or actual access to confidential information, Members of the Management Board and Supervisory Board and persons closely related to them are required to notify the Bank and the PFSA of any transactions concluded on their own account involving the Bank’s shares, the Bank’s debt instruments or derivative instruments and other related financial instruments of the Bank.

Members of the Management Board and Supervisory Board are also prohibited from concluding transactions on their own account or for the account of a third party, directly or indirectly, concerning the Bank’s shares, the Bank’s debt instruments or derivatives and other related financial instruments during the 30 days prior to the date of publication of its interim report by the Bank (closed period).

As at 31 December 2020 and 31 December 2019, the Members of the Management Board and Supervisory Board did not hold shares in companies related to PKO Bank Polski S.A., i.e. its subsidiaries, joint ventures and associates.

11.4 Diversity policy

Principles of equal treatment, anti-discrimination and respect for human rights.

Diversity initiatives

Diversity in the composition of the Management and Supervisory Boards

Promoting diversity is present in many aspects of the Bank’s and the Group’s activities. It assumes, among other things, respect for others, equal treatment and using the potential of employees. Diversity means that people are important irrespective of any differences between them, such as their gender, age, health, sexual orientation, religion, marital status or country of origin. As we build teams, we understand that diversity is an asset to both innovation and smooth operations.

We aim to ensure, promote and disseminate diversity in the Bank and the entire Bank’s Group. We take care that diversity as a value, but also as a practice, is present in our organizational culture, initiatives and actions taken, as well as in the Bank’s relevant policies, regulations and processes.

11.4.1 Principles of equal treatment, anti-discrimination and respect for human rights

Objectives and commitments

The obligation of equal treatment in employment is a fundamental principle at the level of policies, regulations and processes developed in the Bank. Therefore, in the Bank’s internal acts adopted at the level of the Management Board there are crucial commitments pertaining to:

• counteracting discrimination in employment and non-discrimination of employees, in particular due to gender, age, disability, race, religion, nationality, political views, trade union membership, ethnic origin, denomination or sexual orientation or due to employment for a fixed or indefinite period or on a full-time or part-time basis.

• basing the principles applied in the Bank on objective criteria, ensuring transparent rules for employees, e.g. in recruitment processes, employee development, access to training and access to employee benefits;

• guaranteeing equal treatment of employees performing the same kind of work or work of equal value,

• applying objective and fair criteria of performance appraisal.

The above commitments are based i.a. on Conventions of the International Labour Organization (Conventions No. 100 and 111).

Methods of implementing the objectives and commitments

The Bank introduced internal regulations, including the Bank’s Code of Ethics, in which it indicates and promotes the desirable values. In particular, the Bank:

• identified the important values, as well as the behavioural attitudes promoted in relations with employees, with Customers, in business activities and in relations with the Bank’s environment;

• clearly and precisely defined powers and ways of proceeding in the area of counteracting discrimination and bullying at work, including ways of reporting violations;

• created mechanisms for reporting, including anonymous reporting and explaining any irregularities noticed by employees in the workplace

• monitored and regularly reports (also to the relevant Member of the Bank’s Management Board) instances of violating the adopted values and principles.

Additionally, the Bank:

• supports employees in integration in the company and facilitates the creation of interest groups;

• ensures freedom of speech by organizing publicly available forums, provided that ethical principles and culture of speech are properly respected, and by organizing chats with key managers of the Bank;

• takes educational initiatives to promote the Bank’s values (also among companies of the Bank’s Group and cooperating entities), as well as to counteract discrimination and bullying, among other things, by organizing training sessions, workshops and information campaigns, and by establishing the institution of Ethics Ambassadors;

• periodically initiates training courses for managers on effective communication and feedback, including the diversity aspect.

In order to guarantee equal treatment of employees performing the same kind of work or work of equal value, the Bank applies:

• objective principles of jobs evaluation based on an international methodology, with the participation of independent consulting companies and related guarantees of remuneration levels included in the Company Collective Labour Agreement;

• monitoring remuneration in specific professional groups, including a breakdown by gender, the results of which are reported to the Bank’s management;

• cyclical remuneration reviews aimed at diagnosing and counteracting differences in remuneration resulting from other than objective criteria.

Policy on bullying and discrimination

The Bank is strongly opposing any forms of discrimination and intolerance that contrast with the organization’s values, and promotes attitudes based on mutual trust among the employees. Any conduct that can suggest the presence of bullying is unacceptable.

The Bank’s policy regarding bullying and discrimination is regulated in the internal rules:

• the Bank’s Work Rules;

• the Principles for counteracting bullying and discrimination and the procedure for handling complaints concerning violation of employee rights.

The Bank’s Code of Ethics also contains significant provisions concerning the attitudes and values promoted among the employees.

The Bank has internal regulations in place for counteracting bullying and discrimination. These principles guarantee counteracting undesirable phenomena in the employee relations and specify how to react to situations of interpersonal conflicts. Based on these principles, the Bank’s employee may without worrying about the consequences report a complaint about any breach of employee rights defined in the legal acts or internal regulations. Moreover, an employee is entitled to additional support in the process of clarifying the complaint. He/she can indicate a representative of a trade union organization or an employee representative appointed by the internal regulations of the Bank – who will participate in meetings with the employee or submit opinions on the validity of the claim. Ongoing support to the employees is offered by the HR Contact Centre. Thanks to that the employees may obtain up to date information about the way to report complaints and anonymous notifications of breaches of employee rights.

Complaints concerning widely defined breaches of employee rights are reviewed individually, therefore, optimal review deadlines are set for them separately, which enables formulating appropriate conclusions and recommendations or taking appropriate additional action or HR-related decisions. In the course of verifying the complaints various methods are applied (for example, anonymous surveys, detailed interviews with employees, verification of fluctuation ratios and other HR data). Each time, when deciding what measures should be taken, the Bank takes into account care for ensuring the highest possible impartiality of the review. Therefore, many times representatives of different entities participate in the process of clarifying the matter, in line with the Bank’s organizational structure.

Other entities belonging to the Bank’s Group also have the necessary solutions in their internal regulations guaranteeing compliance with the law regarding the prevention of bullying and discrimination. These solutions operate in separate regulations or as appropriate provisions in the work rules, ethics codes and other regulations applicable to a given entity.

Training on the subject of diversity

Appropriate diversity management increases team work efficiency, improves the atmosphere at work, helps retain valuable and experienced employees, improves innovation and creativity. For these reasons, such training is organized at the Bank. Managers acquire knowledge and skills in the management of diverse teams, which makes it possible to eliminate undesirable behaviour and situations and support valuable and positive behaviour.

In 2020, due to the epidemic, diversity training was conducted in the first quarter of the year. From April 2020 webinars were mostly dedicated to the topics of remote work organization, team communication, or emotion and stress management. For managers, training sessions were prepared on managing a dispersed team, working with people in change, or effective communication of the boss in remote working mode.

11.4.2 Diversity initiatives

The diversity policy is also composed of various initiatives undertaken at the Bank, including strategic projects aimed at creating a friendly work environment and cooperation with external entities to support diversity in the workforce.

Strategic projects

Friendly work environment The strategy of creating a friendly environment includes such aspects as a functional workplace, implementation of a remote work model, or the digitization and simplification of processes. Creating a standardized, modern workplace, equipped with tools, equipment and properly arranged space, facilitate both individual and team work. Remote work allows for a flexible approach to completion of tasks. All these facilities allow both managers and employees to select a set of tools or use such a range of information that will meet their needs related to professional goals – individual and team ones.

#CzasNaFeedback (#TimeForFeedback) A new process has been implemented in the Bank, where cyclical summaries are performed of work results, competences, achievements, feedback or development goals of employees. They are aimed at supporting the employee in individual professional development. Expected attitudes and behaviours towards employees are included in a competence model based on the Bank’s values. This model is universal, applies to all employees and promotes, among other things, communication and cooperation, which have an impact on building harmonious, diverse teams. As part of the solution introduced, employees also get feedback from their co-workers, thanks to which they can easily and quickly communicate mutual needs and expectations and opinions. This enables building a friendly work environment and understanding of the diversity aspect of employees.

Working in Agile methodology In the Bank, within the Digital Transformation structures, teams with very diverse skills and competences have been created. Participants focus on each other, on interactions and cooperation; they efficiently react to changes, flexibly approach changes in the project. These assumptions allow employees to openly express their opinions, efficiently deliver work results and ensure task team integration.

Collaboration with external entities

Collaboration with external entities that supports diversity in the workforce includes:

• internship and training programmes being an opportunity for pupils, students and graduates of secondary schools and universities with various profiles;

• professional development programmes for people with disabilities in cooperation with external institutions, including the provision of workstations adapted to the needs of such people (principles for the implementation of occupational health and safety tasks, as well as technology and technical solution standards require taking the steps necessary to adjust workstations to the needs of persons with disabilities);

• cooperation with universities and high schools, under which workshops are organized at selected universities in Poland and at the Bank, during which students have an opportunity to learn about selected areas of the Bank’s operations.

Due to the pandemic and related restrictions (including the organization of remote work), cooperation programmes with external entities have been temporarily limited in 2020.

Other initiatives supporting diversity at the Bank

The Bank organizes integration programs and supports employee initiatives to strengthen the integration of employees from different areas of operation and representing different social groups. These include sports initiatives and activities and charitable activities of employees as volunteers. These initiatives help create a friendly organizational culture and build relationships based on the diversity of employees’ interests.

Due to the pandemic and related restrictions (including the organization of remote work), the above programs were temporarily reduced in 2020.

11.4.3 Diversity in the composition of the Management and Supervisory Boards of the Bank

Diversity policy implemented

The diversity policy for the Members of the Bank’s Management and Supervisory Boards is an important part of the Bank’s suitability assessment policies, i.e.:

• The policy on the suitability of Members of the Management Board and persons performing the most important functions in the Bank and the suitability assessment in the companies belonging to the Bank’s Group;

• The policy on assessing the suitability of candidates for members of the Bank’s Supervisory Board and Supervisory Board members.

The provisions introduced at the Bank set the directions for selecting, appointing and planning succession, including staff resources and assessing the appropriateness of the Management Board Members and persons holding the key functions at the Bank. These persons are assessed in terms of their competences, knowledge and skills, experience adequate to the position and reputation understood as sufficiently unblemished opinion, honesty and ethical behaviour. Based on the regulations implemented, the Supervisory Board makes decisions on the selection and assessment of the Management Board Members and the Management Board Members make decisions on the selection and assessment of the MRT (Material Risk Takers). The Bank’s Supervisory Board monitors the effectiveness of the policy applied and, if appropriate, makes changes taking into account the recommendations of the Committee for the Supervisory Board Nominations and Remuneration.

Diversity policy assumptions

• The policies for assessing the suitability of candidates and Members of the Bank’s Management Board and candidates and members of the Bank’s Supervisory Board include the Bank’s/General Shareholders’ Meeting’s commitment to take into account the principles of diversity in selecting candidates for members of the aforementioned authorities.

• The principle of diversity in selecting the Bank’s Supervisory Board members is based on objective substantive criteria in terms of education and professional experience.

• The policies contain the commitment to monitor the effectiveness of application, including in terms of diversity objectives.

• The suitability assessment policy contains an obligation for the Bank's subsidiaries to introduce regulations regarding the principles of suitability - it is assumed that the regulations will be implemented in 2021.

Structure of the composition of the management and supervisory bodies and key managers

Table 24. Diversity by gender, age and experience – statistics as at 31 December 2020 [GRI 405-1]