Banking (Bank Pekao, Alior Bank)

Market situation

As at the end of November 2019, there were 30 domestic commercial banks, 538 cooperative banks and 32 branches of credit institutions operating in Poland.

The standing of the banking sector in 2019 continued to be stable, underpinned by the persisting vibrancy of the economy and the functioning of banks in a low interest rate environment. In 2019, the banking sector generated a net profit of PLN 14.6 billion, i.e. PLN 1.5 billion (11.8%) more than in 2018.

The sector’s net result was shaped predominantly by the improved operating result (PLN 2.1 billion, i.e. up 11.8% in comparison to 2018), caused by significantly higher net interest income with a concurrent improvement in the result on fees and commissions.

Gross receivables from the non-financial sector (without debt instruments) increased 4.8% to PLN 1,062 billion y/y as at the end of December 2019. Growth in this area was driven mainly by receivables from households (+5.5% y/y) and receivables from enterprises (+3.3% y/y).

Banks’ operating expenses (other than depreciation and provisions) climbed 4.1% in the period under analysis. This change was caused by growing employee expenses (up 4.7%) and higher general and administrative expenses (up 3.6%).

As at the end of November 2019, assets of the banking sector reached PLN 2.0 trillion and increased by PLN 106,8 billion, or 5,6% compared to the end of 2018.The consumer loan portfolio (gross) increased by PLN 8,1 billion compared to the end of 2018, while the portfolio of housing loans for households rose at the same time by PLN 27,4 billion. With respect to receivables from non-financial undertakings, the (gross) value of operating and investment loan portfolios rose by PLN 3,5 billion and PLN 10,3 billion, respectively. During the year, the gross value of property loans granted to non-financial undertakings increased by PLN 0.3 billion.

As at the end of December 2019, the value of deposits from the non-financial sector increased by PLN 111,2 billion.

The banking sector’s own funds for capital ratios, calculated in accordance with the regulations laid down in the CRR Regulation¹, totaled PLN 211 billion at the end of December 2019, up 3.6% from the end of December 2018.

As at the end of December 2019, the total capital multiple of the commercial and cooperative banking sectors was 19.7% compared to 19.0% at the end of December 2018, while the Tier I capital ratio at the end of this period was 17.1%.

Operations of the Pekao Group

The Pekao Group is led by Bank Pekao, a universal commercial bank offering a full range of banking services provided to individual and institutional clients operating chiefly in Poland. The Pekao Group consists of financial institutions operating on the following markets: banking, asset management, pension funds, brokerage services, transaction advisory, leasing and factoring. 

Pekao’s strategic objectives announced in the new strategy for 2018-2020 “Strength of the Polish Bison” include becoming the leader of profitability through building lasting business relationships and improving operating efficiency. Pekao’s strategic priorities in 2020 will remain: smart growth, building long-term relationships with clients based on an integrated service model, digital and operational transformation designed to strengthen Pekao’s position as one of the most recognizable banks in Poland owing to its professional approach to business and value creation for the client.

In 2020, the strategy “Strength of the Polish Bison” developed for 2018-2020 will end. Accordingly, the bank will begin work on the development of a new strategy that will cover the time horizon of the next several years. 

At the end of Q3 2019, Bank Pekao was the second largest bank in Poland (in terms of the value of its assets).

New products and services

According to Bank Pekao’s strategy, its growth among retail clients is driven by the significant acceleration of growth in the number of accounts, among others thanks to its new personal account offering, a new proposal for young people and the cutting edge mobile banking solution.

Due to its scale and growth potential, Retail Banking is considered a priority area for the bank’s development. The strategic activities carried out in 2019 were chiefly aimed at: a significant and sustainable increase in the number of clients acquired, growth in the portfolio of consumer loans and mortgage loans, improvement in profitability through intelligent price management, strengthening of relations with client through active cross-selling based on an extensive proposal of investment and insurance products, development of the business client segment (microenterprises). These objectives were pursued by a variety of activities, including by tapping into the client acquisition potential in digital channels using the latest biometrics solutions, automation of the lending process for cash loans and development of cooperation with the PZU Group in the field of insurance and investment products. At the same time, the implemented solutions ensure the highest quality of loans granted. For clients taking out a cash loan, the bank extended the product offering to include new PZU insurance bundles available to clients purchasing loans both through remote channels and in branches. 

In 2019, Bank Pekao consistently promoted acquisition strengthening activities, acquiring clients with the help of its new and simplified offering of current accounts (Mega Beneficial Account) and payment cards (including the particularly promoted Revolutionary Card) as well as based on effective marketing techniques and streamlined sales processes in all distribution channels. These activities translated into record-breaking sales results in terms of the establishment of new accounts, which throughout the year reached the level assumed in the strategy of 455,000. In 2019, Bank Pekao rolled out the option of opening an account online using a computer or smartphone. Identity is verified by using biometric measurements of a face and a personal ID. In the second half of 2019, the share of sales initiated in remote channels was approx. 20%.

Pekao keeps strengthening its leading position among banks focused on acquiring young clients. The largest increase in the number of clients occurred in the group of young people aged 13-17. In 2019, the number of newly acquired clients aged 13-17 was 58% higher compared to 2018, and the increase in the number of acquired clients under the age of 26 was 12% y/y.

Bank Pekao holds a leading position in terms of accounts for foreigners. The most sizeable group are citizens of Ukraine for whom the bank has prepared a broad range of products and services, including a helpline in Ukrainian, a full set of necessary documentation in Ukrainian the PeoPay mobile application, the Konto Przekorzystne (Mega Beneficial Account), a multi-currency card with an option of free international ATM withdrawals, including in Ukraine.

In 2019, Bank Pekao continued to develop its cooperation with PZU in the area of bancassurance, expanding its offer in the branches with two insurance products securing the repayment of loans. In cooperation with PZU, Pekao was involved in various activities aimed at supporting the sales network in improving knowledge about the products and sales skills. Almost 3,000 employees took part in the product training and over 750 new employees took the license examination. In Q4 2019, the volume of loans with CPI insurance increased 37% compared to Q1 2019. In Q4 2019, the value of the insurance premiums associated with sales of cash loans in remote channels increased 14% compared to Q1 2019. In the segment of property insurance covering buildings and residential premises, written premium in Q4 2019 was 40% higher than in Q1 2019.

Bank Pekao’s electronic channels conducted active sales campaigns of PZU’s tourist insurance offered through the mojePZU portal.

The microenterprise segment is one of the most significant and promising segments for the bank. Within the framework of business development activities carried out in this area, a number of initiatives were pursued in 2019 to improve the attractiveness of the proposal (including a new offering of card payment terminals, a selfie account and the proposal “PLN 600 for a good start with Pekao”) and to boost sales efficiency through optimization of service processes. Bank Pekao was the first bank in Poland to roll out a simple and convenient account opening process for microenterprises that requires no visit to a branch. Self-employed individuals may open a business account through remote online channels. The account holder’s identity is verified online by permitting the user to take his or her own ‘selfie’ and a photograph of his or her ID card. The service is available on a 24/7 basis. Business clients have the possibility of contacting the bank via a chat, video and voice connection with the bank’s hotline via the internet.

The Bank is steadfastly pursuing its growth strategy in the Small and Medium Enterprise segment. In 2019, activities aimed at intensifying sales and strengthening relationships with existing clients were continued. Such activities included, in particular: development of a service model based on mobile relationship managers, remote channels and product specialists, strengthening of employee competences by acquiring high-quality specialists, various initiatives focused on intensifying acquisition efforts.

Other focus areas included activities aimed at improving client satisfaction through continued streamlining and optimization of key processes, products and services. Owing to these activities, the number of acquired clients increased significantly (up 18% compared to 2018). For instance, clients from the SME sector may choose from a broad range of products involving FX Spot transactions and transactions designed to hedge their exchange rate risk, which until recently were available only to clients in the corporate segment.

As part of the Cashless Poland Program, Bank Pekao offers POS terminals to clients on attractive terms. The total number of payment terminals provided to clients in 2019 was 71% higher compared to 2018.

In 2019, two types of loans related to environmentally oriented activities were introduced to the bank’s offering. The PrzEKOrzystny (Mega Beneficial) loan is intended for funding RES generation in the form of the borrower’s use of photovoltaic panels for own needs. The loan is secured with a gratuitous BGK Biznesmax guarantee, which lets the clients obtain a preferential interest rate and, during the first three years of loan repayment, also a 5% refund of interest.

Moreover, Pekao has signed an agreement with the European Investment Bank to provide funding for the execution of projects aimed at improving energy efficiency, including modernization of thermal insulations, replacement of machinery and use of renewable energy sources, owing to which business operators in Kujawsko-Pomorskie Voivodship can obtain a low-interest loan. The Energy Saving Loan is only available from Bank Pekao. The bank is able to offer the low interest rate thanks to funding from the EU’s Regional Operational Program.

As part of its offering for corporate clients, Bank Pekao, as a leading corporate bank in Poland, took a number of initiatives in 2019 focused on strengthening relations with its clients, improving its product offering and increasing profitability by enlarging the share of income obtained from sources other than loans. Dedicated activities supported by product and sector specialists were focused on boosting the volume of strategic cross-selling products such as leases and factoring as well as transactional banking products. These initiatives contributed to the increase in the share of income obtained from sources other than loans in the segment’s total income by 36 basis points compared to 2018.

Pekao TFI

The Pekao Mutual Fund Company (Pekao TFI) is another member of the Pekao Group. Pekao TFI (formerly Pioneer Pekao TFI) is the longest operating mutual fund management company in Poland providing clients modern financial products, offering opportunities to invest in the largest global capital markets. For many years it has been devising savings programs, including programs affording an opportunity to put aside more money for retirement under the third voluntary retirement pillar. Pekao TFI also offers a managed account service and Employee Capital Schemes (ECSs). At the end of December 2019, the company had assets under management totaling PLN 21.6 billion, signifying an upswing of PLN 2.2 billion, i.e. 11.2% y/y. SECTION MUTUAL FUNDS

Operations of the Alior Bank Group

The Alior Bank Group is headed by Alior Bank. Alior Bank is a universal deposit and credit bank, providing services to natural persons, legal persons and other domestic and foreign entities. The bank’s core business comprises maintaining bank accounts, granting cash loans, issuing bank securities and purchase and sale of foreign currencies. The bank also conducts brokerage activity, provides financial advisory and intermediation services, arranges corporate bond issues and provides other financial services.

Alior Bank provides services predominantly to clients from Poland. The percentage of international clients in the overall number of the Bank’s clients is negligible. As part of retail banking activities, in 2016 Alior Bank opened a foreign branch in Romania.

Alior Bank is one of the most modern and innovative financial institutions in Poland. It is a place for people who have ideas and business courage to set new banking standards. The bank’s offering includes products and services both for individual and business clients, including small and medium enterprises and institutional clients. The bank’s offer combines the principles of traditional banking with innovative solutions. As a result, Alior Bank systematically strengthens its market position and for years has been consistently setting new directions of development of the Polish banking. By implementing the “Digital Disruptor” strategy, Alior Bank has the ambition of becoming the digital bank of first choice for individual clients and for small and medium enterprises in Poland and wants to become one of the most innovative banks in Europe.

At the end of Q3 2019, Alior Bank was the 8th largest bank in Poland (in terms of the value of its assets). 

New products and services

One of its key strategic initiatives in 2019 was the opening of the new cash loan distribution channel – the Cash platform. It was created in cooperation with PZU and is based on the technology used on the Bancovo.pl website. It will be made available to employees of selected large enterprises. The platform involves the use of a full online process carried out by the client himself or herself, with the provided income information subsequently verified and confirmed directly by the client’s employer. An important element of this process involves repayments in the form of installments deducted from the employee’s paycheck directly by the employer. Employees of the PZU Group were the first to be offered access the platform. In the future, more companies are expected to be added to the platform. In September 2019, Bancovo enlarged its loan brokerage offering with an installment funding product by establishing cooperation with EURO RTV AGD, Poland’s largest retailer in the home appliances market. With this solution, Bancovo provides a loan engine that aggregates proposals of selected financial institutions and then, carrying out a paperless process, provides funding for the purchase of merchandise offered by the store.

Moreover, in Q4 2019, taking advantage of the opportunities introduced by the Payment Services Directive 2 (PSD2), Alior Bank introduced the possibility for clients of other banks to apply for Alior Bank loan products without the need to provide a certificate of earnings. This option is offered based on the Account Information Service (AIS). The solution is available from selected points of sales and from the contact center. By the end of Q1 2020, the availability of the tool is scheduled to be gradually expanded to cover the whole sales network and various processes, including the online processes.

In the area of bancassurance, Alior Bank introduced voluntary protection insurance in 2019 as a supplement of its banking product offering for business clients. To this end, cooperation was established with PZU focused on offering real property insurance (against fire and other elements) for clients using a non-revolving loan secured by real property. The insurance is offered in the so-called individual model in which Alior Bank appears as an insurance intermediary.

In 2019, Alior Bank continued to focus on process automation in the area of Trade Finance where it introduced a number of new products and services, including:

• automatic opening process of iKonto Biznes and “4x4 Account” in the new Electronic Banking system;
• possibility of registering a Trusted Profile in the electronic banking system and signing public administration applications with the Trusted Profile;
• in the electronic banking channel, the provision of a module for managing cash, domestic, foreign and economic bundles available under the 4x4 Account;
• introduction of an offering for micro, small and medium-sized enterprises based on the automated lending process Feniks KB and one decision made within no more than 20 minutes for the following five forms of funding: current account overdraft, business loan, credit card, factoring and leasing;
• expansion of the offering with virtual multi-currency cards and the Smart Data reporting service, enabling the option of linking up to 23 currency accounts and thus eliminating the need for incurring currency conversion costs. The bank also made available to its business clients Garmin Pay and Fitbit Pay transactions, thereby offering a broad range of the most popular types of payments using smartphones and smartwatches.

Alior TFI

Alior TFI (formerly Money Makers) operates in the Alior Bank Group. It was established in 2010 and its operations originally focused on asset management services. Alior Bank’s cooperation with its subsidiary Alior TFI pertains to three areas: asset management (portfolio management for retail clients/private banking), unit-linked funds, and Alior SFIO sub-fund management. Since 5 January 2017, Alior TFI has been listed on the alternative market of the Warsaw Stock Exchange (NewConnect).

Factors, including threats and risks which will affect the banks’ operations in 2020

The situation of the banking sector in 2020 will primarily be affected by the following factors:

• the scale of demand for banking services and the ability of banks’ clients to timely pay their liabilities largely depends on the clients’ financial situation. Apart from the country’s macroeconomic standing, the economic situation of a number of client groups also depends on the national economic policy being pursued. Both a lower growth rate of the Polish economy and changes in the legal framework for the operation of enterprises may have an adverse impact on the financial standing of selected clients of banks;
• changes in the external environment and international events, including tensions related to geopolitical factors, affecting the domestic economy;
• development of banking services offered by non-regulated entities;
• interest rate policy of the Monetary Policy Council;
• continuing high level of contributions to the Bank Guarantee Fund. 

Other than the factors related to the institutional environment mentioned above, one of the most important issues of today is that of foreign currency mortgage loans. In the absence of a final systemic solution of this issue, the largest impact on the banking system will be exerted by court rulings handed down in lawsuits concerning specific loan agreements. In this context, the ruling announced by the Court of Justice of the European Union (CJEU) on 3 October 2019 is of great significance as it may prompt more borrowers to bring their claims to court. This may have a strong adverse impact on the financial performance of the affected banks, in particular those with a large portfolio of such loans. According to most forecasts, the total costs for the sector may reach tens of billions of Polish zloty but are difficult to estimate and will be spread over time. Much will depend, among other factors, on the actual number of lawsuits filed (how many borrowers end up bringing legal action against the banks), interpretations adopted by national courts in individual cases (in reference to the CJEU opinion), reactions of national regulatory institutions and steps taken by the banks themselves. Also, a scenario cannot be ruled out in which the CHF loan problem will be eventually solved by the adoption of appropriate legislative measures.

 ¹ Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit