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Regulatory environment

In 2014, there were significant changes in the regulatory environment of the banking sector and financial non-banking sector in Poland and the banking sector in Ukraine, where the subsidiaries of PKO Bank Polski SA operate. The financial and organisational situation of the PKO Bank Polski SA Group in 2014 was affected i.a. by the following:

  • Resolution of the Monetary Policy Council No. 11/2013 as of July 2013 (Official Journal of the NBP of 2013 item 15) introducing the historically low level of basic interest rates, being in force to 8 October 2014 (including: a decrease of the reference rate to 2.5% and the lombard loan rate to 4.0%) and Resolution of the Monetary Policy Council No. 6/2014 (Official Journal of the NBP of 2014 item 211) introducing further unbalanced reduction of the basic interest rates from 9 October 2014 (including: a decrease of the reference rate by 0.5 pp. to 2% and the lombard loan rate by 1 pp. to 3%), which was conductive on the level of banks’ interest income,
  •  Resolutions of the Monetary Policy Council No. 15/2013 and 7/2014 (Official Journal of the NBP of 2013 item 20 and of 2014 item 12) changing the calculation principles of mandatory reserve rates (impact on the level of banks’ interest income)
  •  Amendment to the Act on the Bank Guarantee Fund (Journal of Laws of 2013 item 1012) introducing additional charges for banks in the form of a prudential fee towards the stabilisation fund (impact on banks’ operating costs),
  • Resolution of the PFSA No. 148/2013 on Recommendation S concerning mortgage-secured loan exposures (Official Journal of the PFSA of 2013 item 23), introducing from 1 January 2014 and from 1 July 2014 restrictions in scope of credit risk management and additional requirements for borrowers (impact on the level of lending activity and risk management),
  • the Act on State aid for the purchase of the first apartment by young people (Journal of Laws item 1304) launching in 2014 the new programme of subsidies for mortgage loans ‘Mieszkanie dla Młodych’ (impact on banks’ lending activities),
  • CRD IV Package, including Regulation (EU) No. 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms (so-called CRR) effective from 1 January 2014, inclusive of transition periods (Official Journal of the European Union L176/1); introducing, i.a. increased capital requirements, including more stringent policies for calculating basic and supplementary funds, a Core Tier 1 ratio limit, a leverage ratio, and new capital and liquidity requirements,
  • Resolution of the PFSA No. 7/2013 on Recommendation D concerning management of IT areas and the security of the IT environment (Official Journal of the PFSA of 2013 item 5), obliging banks and insurance companies to adjust to new regulation until the end of 2014 (impact on banks’ operating costs),
  • Resolution of the PFSA No. 183/2014 on Recommendation U concerning best practices in the area of bancassurance (Official Journal of the PFSA of 2014 item 12), obliging banks and insurance companies to adjust to new regulation until 31 March 2015 (impact i.a. on change of business model, introduction of new risk management strategy, operating costs related to adopting central IT systems of banks and insurance companies),
  • the 2010 amendment to the Act as of 27 August 2009 on Public Finance (Journal of Laws No. 157 item 1240 with subsequent amendments), introducing new policies for local authorities in respect of incurring liabilities as from 1 January 2014 (impact on demand for bank loans),
  • the Act introducing changes in the policies for disbursement of pensions from funds accumulated in open pension funds (Journal of Laws of 2013 item 1717), including concerning the transfer 51.5% of the assets of pension funds (OPFs) to the Social Insurance Institution (ZUS) on 1 February 2014, introducing a membership in open pension funds (OPFs) on a voluntary basis, a change in the investment policies for OPFs, lowered the ratio of pension contributions transferred to OPFs from 3.1% to 2.92% by ZUS, lowered the maximum ratio used for calculating the fees collected by open pension management companies from 3.5% to 1.75%. Additionally, the Act: introduced an obligation to transfer the assets, the funds of insured persons collected in OPFs to ZUS for ten years before reaching the retirement age from 12 November 2014 (an impact on the value of open funds’ assets portfolio, an impact on results of open pension management companies’ operations),
  • the 2010 amendment to the Act on Goods and Services Tax (Journal of Laws of 2011 No. 177 item 1054 with subsequent amendments), enabling deducting in the period from 1 January to 31 March 2014, 100% of VAT on purchased and leased cars to 3.5 tones used for running a business (an impact on the amount of leased assets),
  • Regulation (EU) No. 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (European Market Infrastructure Regulation – EMIR) introducing from 12 February 2014 an obligation to report derivative transactions to trade repositories (Official Journal of the European Union OJ L201/1).

The new legal solutions implemented in Ukraine also had an impact on the situation of the PKO Bank Polski SA Group, of which:

  •  the Act No. 453 of 14 November 2013 concerning amendments to the tax law introducing a 20% VAT rate as from 1 January 2014,
  • the Act No. 1588 introducing tax on interest income in the amount of 15% since 2 August 2014 (the growth to 20% since 1 January 2015),
  • Resolutions Nos.: 49/2014, 104/2014, 137/2014, 172/2014, 245/2014, 271/2014, 328/2014, 420/2014, 423/2014, 515/2014, 540/2014, 591/2014, 722/2014, 734/2014 and 758/2014 of the NBU’s Management Board introducing changes in policies conducting foreign currency transactions on the interbank market, setting up a mandatory reserve for funds of non-residents and foreign currency settlements of banks with customers and central bank;
  • Resolution No. 180/2014 of the NBU’s Management Board determining the principles on setting the UAH exchange rate,
  • Resolutions No.: 86/2014 and 91/2014 of the NBU’s Management Board concerning changes in carrying out of transactions on the monetary market, liquidity management, minimum amount of mandatory reserves;
  • Resolution No. 182/2014 of the NBU’s Management Board concerning adjustment of open currency position limits to international standards; 
  • Resolutions Nos.: 212/2014 and 334/2014 of NBU’s Management Board determining the interest on refinancing loan at the level of 2-fold and 1.5-fold of the discount rate respectively, 
  • Resolution No. 287/2014 of the NBU’s Management Board lowering reserves volume maintained by banks and Decision No. 480/2014 of the NBU’s Management Board changing the principles of keeping the mandatory reserves,
  • Resolution No. 303/2014 of the NBU’s Management Board concerning refinancing banks, determining the interest on stabilisation loan at the level of 1.5-fold of the discount rate (from 27 May 2014),
  • Resolutions Nos. 417/2014 and 719/2014 of the NBU’s Management Board increasing the discount rate by 3 pp. to 12.5% from 17 July 2014 and by further 1.5 pp. to 14% from 13 November 2014,
  • Resolutions of the NBU’s Management Board concerning functioning of banks in the Crimea and the Donetsk and Luhansk Oblasts, of which No. 727/2014 concerning i.a. suspension of mortgage loans repayment in the Autonomous Republic of the Crimea.  

The regulatory solutions which will affect the financial position of banks and their groups in Poland over the following quarters include, i.a.:

  •  the expansion of the ‘de Minimis Guarantee Facility’ programme supporting small and medium enterprises and its extension onto 2015;
  • resolutions of the Bank Guarantee Fund (BGF) Council of November 2014 resulting in an increase in burden on banks associated with the bank deposit guarantee system (an increase in administrative expenses) and changes in the principles for deferring it;
  • the Act on payment services introducing, as from 29 January 2015, another reduction in the interchange fee, which will result in a drop in banks’ non-interest income and the banks seeking new sources of income;
  • restrictions in respect of granting mortgage loans (i.a. an increase in own financial contribution to 10%) arising from Recommendation S, which came into force in January 2015;
  • amendments to the Banking Law (the consultation stage) transposing the Capital Requirements Directive IV (CRD IV) into the Polish law;
  • continued adaptation of the activities of banks to the requirements of the Capital Requirements Regulation (CRR);
  • pro-consumer regulations, including the Act on consumer rights (which came into force on 25 December 2014) and amendments to the Bankruptcy and Recovery Law (which came into force on 31 December 2014) creating conditions for consumer bankruptcy (contributing to an increase in banking risk and an increase in administrative expenses – adjustment costs);
  • the agreement of 10 October 2014 concluded by and between the government of the Republic of Poland and the government of the United States (NA) for cooperation in meeting international tax obligations and implementing the FATCA legislation, imposing additional reporting obligations on banks and other financial market entities (an effect on the expenses of banks).

The implementation by banks of recommendation prepared by PFSA and concerned the restructuring of loans in CHF (after CHF releasing on 15 January 2015 by central bank in Switzerland) will substantially affect the profitability of banking sector in 2015.