Other information

Off-balance sheet liabilities grantedAt the end of 2014, guarantees and other financial off-balance sheet liabilities granted with respect to related parties of the PKO Bank Polski SA amounted to PLN 1 269.5 million and decreased by PLN 429.6 million as compared to the end of 2013.

The largest off-balance sheet liabilities granted are related to the following entities:

• PKO Leasing SA – PLN 949.8 million,
• PKO Bankowy Leasing Sp. z o.o. – PLN 176.4 million.

All above mentioned transactions with related parties were concluded on arm’s length. The details of related party transactions are presented in the financial statements of PKO Bank Polski SA for the year 2014.

At the end of 2014, guarantees and other financial off-balance sheet liabilities granted with respect to related parties of the PKO Bank Polski SA Group amounted to PLN 5.9 million and decreased by PLN 1.4 million as compared to the end of 2013. The largest off-balance sheet liability relates to Centrum Elektronicznych Usług Płatniczych eService Sp. z o.o. (PLN 5.0 million).

Reacquisition of own sharesDuring the period covered by this Report, PKO Bank Polski SA did not re-acquire its shares on its own account.

Significant contracts and important agreements with the central bank or supervisory authoritiesIn 2014, PKO Bank Polski SA disclosed in its current reports all the agreements with clients for which the total value of services arising from long-term agreements with the given client met the criteria defined in the Decree of the Minister of Finance of 19 February 2009 on current and periodical information submitted by issuers of securities and the conditions of considering as equivalent the information required by law of a non-member country (Journal of Laws No. 33, item 259).

In 2014, the Bank did not conclude any significant agreements with the central bank or supervisory authorities.

As at the date of the financial statements, PKO Bank Polski SA is not aware of any agreements as a result of which changes may occur in the future in the proportions of shares held by the current shareholders.

Closing of purchase transaction by PKO Bank Polski SA of companies: Nordea Bank Polska SA, Nordea Polska Towarzystwo Ubezpieczeń na Życie SA, Nordea Finance Polska SA and a loan portfolio in respect of corporate clients (so-called Swedish portfolio assets) took place in 2014. Information on significant agreements concluded as part of execution of above mentioned transaction is presented in point 3 of Report.

In addition, on 1 April 2014, Nordea Bank Polska SA concluded several agreements aimed at changing the method of financing of Nordea Bank Polska SA, including:

1)  an agreement with Nordea Bank AB (publ), Nordea Bank Finland plc and PKO Bank Polski SA, aimed at, inter alia, the termination of the following agreements and arrangements for the financing of Nordea Bank Polska SA:

• loan agreement dated 3 September 2007 with Nordea Bank AB (publ),
• loan agreement dated 30 May 2008 with Nordea Bank Finland plc,
• loan agreement dated 15 July 2009 with Nordea Bank Finland plc,
• agreement pledged as collateral in the form of transfer of ownership rights to funds, dated 6 August 2012 with Nordea Bank AB (publ),
• deposits opened on the interbank market between Nordea Bank Polska SA and Nordea Bank AB (publ) and Nordea Bank Finland plc.

According to the above mentioned agreement, termination of agreements and arrangements occurred on a day of liabilities repayment of Nordea Bank Polska SA in respect of these agreements, from funds obtained from PKO Bank Polski SA in the form of a push-down credit facility.

Due to the fact of the concurrent conclusion of the loan agreement by Nordea Bank Polska SA and PKO Bank Polski SA, termination of the above mentioned agreements did not affect the financial situation of the Company. Termination of the agreements and arrangements concerning financing of Nordea Bank Polska SA by entities from the Nordea Group did not concern subordinated financing.

2)  an agreement with Nordea Bank AB (publ) concerning termination of the guarantee agreement dated 18 December 2012, which occurred on 4 April 2014 – i.e. at the date of settlement of the purchase transaction of the Nordea Bank Polska SA’s shares from its majority shareholder by PKO Bank Polski SA. The amount of the guaranteed portfolio, based on the agreement of 18 December 2012 amounted to CHF 1.6 billion. Guarantee transferred the risk of the mortgage loan portfolio from Nordea Bank Polska SA to Nordea Bank AB (publ).

Termination of the guarantee agreement caused the cessation of the Nordea Bank Polska SA’s obligation to pay to Nordea Bank AB (publ) a fee for the use of the guarantee. Termination of the described agreement did not affect the Company’s financial situation, because maintaining capital ratios at a level required by the Polish Financial Supervision Authority was ensured by funds obtained from the increase of the Nordea Bank Polska SA’s share capital.

On 12 September 2014, KREDOBANK SA concluded with the National Bank of Ukraine the ‘Arrangement concerning the profitability improvement of KREDOBANK SA’. The main points of the arrangement is to reduce the share of negatively classified assets and the increase in authorised capital of KREDOBANK SA by the end of 2015.

Published forecasts related to financial results for 2014PKO Bank Polski SA did not publish forecasts related to financial results for 2014.

Guarantees and loan commitments granted As at 31 December 2014, the total value of guarantees and loan commitments granted amounted to PLN 52 872.6 million with loan commitments making up 72.5% of this amount. Total rate of growth of guarantees and loan commitments granted amounted to 18.6% y/y, mainly due to the increase in financial liabilities granted to non-financial entities.

Off-balance sheet liabilities granted (in PLN million)

Loans and advances taken, guarantees and warranties agreements
In 2014, PKO Bank Polski SA did not take out any loans or advances or receive any guarantees or warranties that were not related to operating activity of PKO Bank Polski SA.

In 2014, KREDOBANK SA did not take out any loans or advances or receive any guarantees or warranties that were not related to its operating activity.

Underwriting agreements and guarantees granted to subsidiaries As at 31 December 2014 issues of PKO Leasing SA (the Bank’s subsidiary) bonds were regulated by the Underwriting Agreement for the Organisation, Conducting and Servicing of the Bond Issuance Programme as at 10 November 2011, in accordance with which the maximum value of the programme was PLN 600 million.

As at 31 December 2014 PKO Leasing SA issued bonds for a total of PLN 590 million, including bonds with a value of PLN 404 million sold on the secondary market and bonds with a value of PLN 186 million held in the portfolio of PKO Bank Polski SA.

In 2014 PKO Bank Polski SA:

• granted a guarantee of up to EUR 7.7 thousand to PKO Leasing SA in respect of office space renting; the guarantee is valid until 31 December 2016,
• granted a guarantee of up to PLN 900 thousand to PKO Leasing SA in favour of Tax Office in respect of securing the Company’s liabilities; the guarantee is valid until 31 December 2016,
• prolonged until 31 December 2015 the period of validity of the guarantee granted to Qualia spółka z ograniczoną odpowiedzialnością – Neptun Park Sp. k. in respect of an agreement on the construction of the access road up to PLN 1 035 thousand,
• as part of the merger with Nordea Bank Polska SA, took over the guarantee, granted by this Bank to PKO Życie Towarzystwo Ubezpieczeń SA, to the amount of EUR 213.1 thousand in respect of office space renting; the guarantee is valid until 30 April 2015.

Enforceable titles issuedIn 2014, PKO Bank Polski SA issued 13 753 banking enforceable titles for a total amount of PLN 3 239 508 023.7 and EUR 14 310 124.31.

In the case of KREDOBANK SA, the Ukrainian law does not allow to issue enforceable titles as defined in the Polish Banking Law. In accordance with the Ukrainian law, bank liabilities are pursued in a court of law based on the provisions of the Code of Civil Procedure and Code of Economic Procedure.

Debt write-offsIn 2014, decrease of impairment allowances due to derecognition of loans and advances to customers in the PKO Bank Polski SA Group amounted to PLN 1 153.7 million.

Proceedings pending before the court, arbitration tribunal or public administrative authorityAs of 31 December 2014, the total value of court proceedings against the PKO Bank Polski SA Group entities (including the Bank) amounted to
PLN 427 555 thousand, of which PLN 6 549 thousand concerned court proceedings in Ukraine (as at 31 December 2013 the total value of above mentioned court proceedings amounted to PLN 342 658 thousand), while the total value of court proceedings initiated by the PKO Bank Polski SA Group entities (including the Bank) as at 31 december 2014 amounted to PLN 767 505 thousand, of which PLN 110 825 thousand concerned court proceedings in Ukraine, related mainly to recovery of loans granted by KREDOBANK SA (as at 31 December 2013 the total value of the above mentioned court proceedings amounted to PLN 525 949 thousand)¹.

Neither the Bank nor the other Group entities have conducted any proceedings pending before court, arbitration tribunal or public administration authority concerning liabilities or receivables, the value of which amounts to at least 10% of the own funds of PKO Bank Polski SA.

Proxies, Management Board meetings and execution of the resolutions of the General Shareholders’ Meeting In 2014 no proxy was appointed nor dismissed. As at 31 December 2014 there were 7 proxies of the Bank.

In 2014, the Bank’s Management Board held 49 meetings and adopted 867 resolutions.

Major actions and decisions of the Management Board, which affected the Bank’s financial position and operations, are presented in different parts of this Directors’ Report.

Factors which will affect future financial performance of the PKO Bank Polski SA GroupIn the near future, the results of the PKO Bank Polski SA Group will be affected by economic processes which will take place in Poland and in the global economy as well as by reactions of the financial markets. The interest rate policy applied by the Monetary Policy Council and by other largest central banks will also have a great impact on the future performance. Detailed predictions concerning trends in the economy are included in this report in point 2.9.

The results of the PKO Bank Polski SA Group will be impacted also by the political and economic situation in Ukraine where operate the Group entities: KREDOBANK SA and factoring and debt collection company. The parent company of the Group, PKO Bank Polski SA is continuing activities to ensure the safe operation of its entities in Ukraine in terms of the current political and macroeconomic situation, covering the strengthening of supervisory activities, including i.e. monitoring the funds transferred to those Entities by the Bank and development in the regulatory requirements of the National Bank of Ukraine. PKO Bank Polski SA is continuously analysing macroeconomic risks for KREDOBANK SA activities.

Seasonality or cyclical nature of activities in the reporting periodPKO Bank Polski SA is a universal bank, which provides services on the territory of the whole country, and thus its activities are exposed to similar fluctuations to those affecting the entire Polish economy. The activities of other companies of the PKO Bank Polski SA Group also do not show any particular seasonality or cyclical characteristics.

Results of changes in the entity’s structure, including the effects of merger, takeover or disposal of the Group entities, long-term investments, division, restructuring and discontinuation of activitiesThe results of changes in the entity’s structure, including the results of merger, takeover or disposal of the Group entities have been described in point 4 of this Directors’ Report.

Information on warranties on loan and advance granted by the issuer or by the issuer’s subsidiary or an guarantee granted – cumulatively to a single entity or its subsidiary, if the total value of outstanding warranties and guaranties constitutes at least 10% of the issuer’s equityIn 2014, PKO Bank Polski SA disclosed in its current reports all the agreements with clients for which the total value of services arising from long-term agreements with the given client met the criteria defined in the Decree of the Minister of Finance of 19 February 2009 on current and periodical information submitted by issuers of securities and the conditions of considering as equivalent the information required by law of a non-member country (Journal of Laws No. 33, item 259).

In 2014 the PKO Bank Polski SA’s subsidiares did not grant any warranties on loan or advance or a guarantee to a single entity or its subsidiary that would constitute at least 10% of the Bank’s own funds.

Information on transaction or a number of transactions concluded by the issuer or its subsidiary with related parties, if they are significant and were concluded not on arm’s lengthIn 2014, PKO Bank Polski SA provided on an arm’s length basis the following services to related (subordinated) entities on maintaining bank accounts, accepting deposits, granting loans and advances, issuing debt securities, granting guarantees and concluding foreign exchange transactions and offering participation units in funds, lease products, factoring products and insurance products offered by the PKO Bank Polski SA Group companies. At the same time, it rented space in the Centrum Finansowe Puławska building in Warsaw to selected Group entities.

A list of major transactions concluded by PKO Bank Polski SA with subordinated entities, including their indebtedness in relation to the Bank as at 31 December 2014 was presented in the Standalone Financial Statements of PKO Bank Polski SA for the year ended 31 December 2014.

In 2014 the subsidiaries of PKO Bank Polski SA did not conclude any material transaction with related parties not on arm’s length.
In 2014, PKO Bank Polski SA did not conclude any material transaction with related parties not on arm’s length. At the same time, in 2014, PKO Bank Polski SA has made a capital contribution to KREDOBANK SA by a financial donation in the amount of USD 6 020 thousand (i.e. PLN 18 656 thousand according to the average NBP exchange rate as of the date of funds transfer). Above mentioned donation in the statement of financial position of PKO Bank Polski SA, increases the purchase price of shares of this Company.

Post balance sheet significant events

1. As a result of the cessation of defence of minimum EUR/CHF rate by Swiss central bank, in January 2015 a significant appreciation of the Swiss franc against foreign currencies, including Polish zloty took place. The Group constantly analyses the impact of these events on financial results, of which on the risk of deterioration in the quality of the portfolio of housing loans denominated in CHF. This risk is partially neutralised by a decline in reference interest rates for CHF LIBOR (three-month LIBOR in February 2015 shaped up at the level of approximately -0.9%). The Group took a number of actions aiming at supporting customers and simultaneously reducing an increase in the credit risk related to an increase in CHF exchange rate – i.a. decreasing in transaction CHF/PLN exchange rates used to calculate CHF amount for payment (so-called currency spread) and application of the negative LIBOR rate for all customers. In the assessment of the Group these actions allow to maintain the borrowing capacity to current service of debt arising from housing loans in CHF at the level not lower than in December 2014.
   The PKO Bank Polski SA Group regularly monitors the volatility of CHF exchange rate, the value of housing loans portfolio denominated in CHF and the impact of changes in foreign exchange rate on the level of capital adequacy measures. The Group expects to maintain capital adequacy measures at a safe level in 2015, taking into account the volatility of CHF exchange rate.
2. In February 2015, as a result of releasing of hryvnia exchange rate by the National Bank of Ukraine, a significant depreciation of Ukrainian hryvnia against foreign currencies, including Polish zloty took place. From the beginning of March 2015, after the decision on significant increase in reference interest rates in Ukraine, decreasing of scale of hryvnia depreciation is observed. The Group regularly analyses the impact of these events on financial results, including the risk of deterioration of the Group assets’ quality in Ukraine.
3. On 30 January 2015, the Extraordinary General Shareholders’ Meeting of PKO Bankowy Leasing Sp. z o.o. adopted a resolution on increasing the Company’s share capital of PLN 20 000 thousand. All shares in the increased capital were covered by the current sole shareholder - PKO Leasing SA.
4. On 10 February 2015, PKO Bank Polski SA established PKO Towarzystwo Ubezpieczeń SA with a share capital of PLN 20 000 thousand. The main business of the Company shall be the provision of non-life insurance.
5. On 6 March 2015 the Polish Financial Supervision Authority issued a decision, in which granted its permit to starting operations by PKO Bank Hipoteczny S.A.
6. On 10 March 2015 the Polish Financial Supervision Authority granted its permit to the establishment an insurance company operating within branch II (non-life insurance) by PKO Bank Polski SA.

¹ The above mentioned value does not include the value of legal claims of KREDOBANK SA concerning taxes described in the consolidated financial statements of the PKO Bank Polski SA Group in the note on income tax.

Declaration of the Management Board

The Management Board of PKO Bank Polski SA certifies that, to the best of its knowledge:

• the annual financial statements and comparative data have been prepared in accordance with binding accounting and reporting standards and present a true, fair and transparent view of financial condition and results of the PKO Bank Polski SA Group,
• the annual Directors’ Report of the PKO Bank Polski SA Group presents a true view of the development and achievements as well as condition of the PKO Bank Polski SA Group, including a description of the basic risks and threats.

The Management Board of PKO Bank Polski SA certifies that the entity authorised to audit the financial statements and which is performing the audit of annual consolidated financial statements, has been elected in compliance with applicable laws. The entity as well as the certified auditors performing the audit fulfilled all criteria for providing unbiased and independent audit opinion in compliance with applicable laws and professional norms.

The PKO Bank Polski SA Group Directors’ Report for the year 2014 consists of 83 subsequently numbered pages.