Influence of macroeconomic situation on the Group’s results

Influence of macroeconomic situation on the Group’s results

The macroeconomic situation, including the continued economic revival in the conditions of high uncertainty related to the fiscal crisis in the euro zone, had a significant effect on the activities and financial standing of the Group in 2011. In 2011, the increased volatility of financial markets continued; it was mainly related to the deterioration in the economic growth perspectives in the largest global economies and the escalation of the debt crisis in euro zone countries. The highest scale of volatility occurred in the third quarter of 2011, as a result of the deterioration in global economy growth perspectives, the increased risk of Greece's insolvency and the downgraded credit rating of the USA. In response to the further deterioration in conditions on the financial markets, the euro zone countries continued working on mechanisms that would stabilise public finance and on another financial support programme for Greece. In recent months, the European Central Bank has also announced a number of actions aimed at relaxing the monetary policy and stabilising the situation in the banking sector, including a 3-year LTRO (Long-Term Refinancing Operation) loan, which significantly reduced the systemic risk for the European banking system.

The economic growth in Poland accelerated to 4.3% in 2011 (from 3.9% in 2010), making Poland one of the leaders in economic growth in Europe. The economic growth dynamics were stimulated by stable private consumption in conditions of a stabilised situation on the labour market and the continuation of public investments in infrastructure. On the other hand, the continued uncertainty which was mainly related to the situation in Poland's external environment determined prudent investment activities of enterprises. The increase in the risk premium in the third quarter of 2011 was a cause for the weakening of the Euro and Polish złoty exchange rates.

PKO Bank Polski SA has positively passed the pan-European stress tests carried out in the middle of 2011 by the European Banking Authority (EBA) in cooperation with national supervision authorities. The tests which constituted a theoretical test of resistance in the event of a potential macroeconomic downturn, showed that the Bank considerably exceeded the minimum ratios adopted for the tests. The Bank has also successfully passed the stress tests carried out by the Polish Financial Supervision Authority and an examination carried out by the EBA concerning the effect of introducing the minimum level of equity in relation to risk-weighted assets (Common Equity Tier 1 ratio) at a level of 9%. It is worth noting that the Group does not have exposures in debt securities issued by governments of the euro zone peripheral countries and the Hungarian government. The results for 2012, including the level of dividend paid, may be significantly affected by the expectation formulated by the PFSA in December 2011 concerning maintaining the capital adequacy ratio on a level above 12%.

Taking into account the impact of the macroeconomic situation on the condition of the customers of PKO Bank Polski, the Group strictly follows a conservative approach to risk by recognising impairment losses whose scale and structure reflects the impact of the current macroeconomic situation on the Group’s financial statements.

In 2011, the Group earned the best financial results in its history. At the same time, the Group is the leader of the banking sector in terms of total assets, equity, loans granted and deposits accepted.

In 2011, the Group developed its business activities based on a safe and effective structure of financing. The dynamic development of the loan activity was financed with the increase in amounts due to customers (including funds from the issue of Eurobonds) and the increase in amounts due in respect of own issue of debt securities to the domestic market.

High financial results have been achieved with considerable growth dynamics of net interest income compared with the previous year, accompanied by an increase in administrative expenses. At the same time, the aggregate dynamics of the Bank’s income items considerably exceeded the growth dynamics of administrative expenses, which translated into the increased effectiveness of the Bank's operations.

The financial results achieved by the Group are an important component of the ‘Leader’ Strategy of PKO Bank Polski SA adopted by the Management Board of the Bank and approved by its Supervisory Board in February 2010. The strategy set out two main strategic objectives for 2010-2012: PKO Bank Polski SA being a clear leader of the Polish banking sector and being a stable, profitable and effective bank. The strategy, focused on fulfilling the needs of the Bank’s customers, as well as the expectations of its owners and employees, provides for the continuation of sustainable growth, synergies and leveraging the potential of the entire Group. PKO Bank Polski is the central entity of an efficient Group, offering comprehensive services to its customers. The actions undertaken as part of the Bank's Strategy include a number of initiatives aimed at fully utilising the potential of all the subsidiaries in order to optimise the business benefits.

Due to the exposure in Ukrainian companies, in particular KREDOBANK SA, the Group is exposed to the effects or risks characteristic to the Ukrainian market. In 2011, economic growth in the Ukraine accelerated to 5.2% y/y. The favourable economic situation and the drop in dynamics of prices resulted in maintaining a strong real increase in salaries. At the same time, the actions undertaken by the central bank ensured the stability of the exchange rate, in spite of the disturbances on the international financial markets. In the context of a good economic condition, the situation of the banking sector improved gradually, which was expressed in a growth in the profitability ratios and a drop in the ratio of impaired loans to the total loan portfolio.

PKO Bank Polski SA continues to implement measures aimed at ensuring the safe functioning of its companies in Ukraine in the environment of the current macroeconomic situation in the Ukraine. These measures include strengthening oversight activities, monitoring funds transferred to the Companies by the Bank and the development of the regulatory requirements determined by the National Bank of Ukraine in KREDOBANK SA.