60. Specific activities in the area of risk management undertaken by the Group in 2020

The outbreak of the COVID-19 pandemic has a significant impact on the economic situation of many enterprises and individuals, leading to a lack of financial liquidity and difficulties with the timely settlement of their financial liabilities. The Group immediately took several measures aimed at supporting the Bank’s customers in their struggle against the economic implications of the COVID-19 pandemic, and therefore to minimize the deterioration in the quality of the loan portfolio.

In 2020, the Group offered special solutions which supported its customers in maintaining financial liquidity, e.g. by periodically reducing their financial burden and facilitating the extension and conclusion of agreements. The scope of assistance varied and was adapted to the pandemic situation, restrictions in conducting business activities and took into account regulatory guidelines. The activities of PKO Bank Polski S.A. and its subsidiaries based in Poland are consistent 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. allowed borrowers and lessees to suspend or extend, on request, payments of instalments (either principal, principal-interest or interest – depending on the form of financing) for a maximum period of 6 months.
• As part of financing firms, enterprises and corporate entities, the Bank introduced simplified rules for extending selected revolving products, internal customer limits and restructuring agreements.
• KREDOBANK S.A. applied loan relief programmes in the form of suspending total instalments or principal instalments, on the customer’s request, for a maximum of up to 3 months. Moreover, KREDOBANK S.A. implemented quick decision paths for renewal of loan facilities;
• The Group introduced the possibility of temporarily suspending the repayment of credit card liabilities of retail customers and Business-type credit cards of firms and enterprises (the Bank). Companies in the Prime Car Management S.A. Group allowed for earlier returns of vehicles on preferential terms, under lease and subscription agreements. PKO Faktoring S.A. offered simplified rules in respect of factoring payments.

At the end of 2020, in connection with the second wave of pandemic and related restrictions, the Bank started preparations to resume assistance tools, in particular in relation to the support of borrowers who are most affected by COVID-19.

In 2020, the Group’s customers could apply statutory moratoria, including in particular:

• customers of the Bank and PKO Bank Hipoteczny S.A. who lost their jobs or another main source of income after 13 March 2020, could suspend the performance of their mortgage loan and consumer loan agreements for a maximum of 3 months. During the period in which an agreement is suspended, banks did not assess any interest or other fees related with the performance of the agreement, except insurance contributions;
• the Bank’s customers who had preferential student loans which was in the repayment period, could suspend the repayment of the loan with interest for a maximum period of 6 months. It was not related to any additional fees, and the period of the loan repayment was not extended. Interest due in the period of suspended repayment were entirely covered from the Student Credit Fund.

The Group’s customers could also use aid tools introduced as part of anti-crisis shields, offered by Bank Gospodarstwa Krajowego (BGK) and Polski Fundusz Rozwoju S.A. (PFR):

• The Bank’s customers (micro, small- and medium-sized enterprises) could use a guarantee to secure repayment of loans or an advance under the portfolio de minimis guarantee line from BGK. From March 2020, the guarantee line was offered in a higher amount and on more favorable terms. Moreover, in December 2020, the Bank concluded an annex to the agreement with BGK which will allow its customers, in the first half of 2021, to also use this security for currency loans. The total value of the guarantee in 2020 amounted to PLN 4.2 billion.
• The Bank’s customers could use BGK’s Liquidity Guarantees Fund created to help medium-sized and large enterprises affected by the pandemic. The Bank initiated the development of more favorable terms for guarantees (a possibility to cover currency loans with the guarantee was introduced and the minimum amount of a single guarantee was cancelled). The Bank entered into an arrangement on the terms of cooperation in respect of providing loan repayment guarantees made available under syndicated financing. In December 2020, it signed an annex to the agreement, to extend the possibility of using the guarantee instruments by 30 June 2021. The total value of guarantees granted to the Bank’s customers in 2020 amounted to PLN 2.1 billion (out of PLN 18 billion available for granting).
• By the end of July 2020, the customers could apply in the Bank’s transaction services for financial grants under the PFR 1.0. Financial Shield dedicated to micro-, small- and medium-sized enterprises. Funds totaling PLN 10.5 billion were received by 67 thousand enterprises who employed 0.5 million people. The Bank had the largest share in the distribution of this form of aid.
• From June 2020, entrepreneurs could file directly with PFR applications for liquidity loans with preferential interest rates and preferential loans under the PFR Financial Shield dedicated to large firms. The total value of both financial instruments amounted to PLN 17.5 billion. The Bank is the only bank which handles such loans as part of the shield. The Bank’s role is, among other things, to maintain accounts designated for the payment of funds allocated under the programme, registering and monitoring the loans and collateral, as well as the operational handling thereof.
• Entrepreneurs could file applications with the Bank for subsidies to the interest charged on working capital loans. The support is designated for enterprises which lost their financial liquidity or are under the threat of losing liquidity due to the economic situation resulting from the COVID-19 pandemic. A single entrepreneur can use the subsidy only for a single working capital loan – a new or an existing one. BGK covers part of interest assessed on the loan for a maximum of 12 months. Entrepreneurs could apply for the support by the end of 2020 or until the exhaustion of the pool of PLN 565 million for all banks cooperating with BGK. In February 2021, the Bank signed an annex to the agreement with BGK to extend the subsidy programme until 30 June 2021;
• PKO Faktoring S.A., as one of the first factors in Poland, concluded a portfolio guarantee line agreement with BGK. According to the agreement, from 2020 the Company is offering its customers the possibility to secure up to 80% of the factoring limit granted under non-recourse or reverse factoring arrangements. The maximum amount of the guarantee which can be granted by PKO Faktoring S.A. under the guarantee line amounts to PLN 200 million. By 31 December 2020, the total value of guarantees granted to the Company’s customers amounted to PLN 135 million. The possibility of concluding agreements with BGK guarantee is offered until 30 June 2021;
• From October 2020, the existing PKO Leasing S.A. and the Bank’s customers (small- and medium-sized enterprises) can use liquidity sell-and-lease-back arrangements with COSME-Covid guarantee granted by the European Investment Fund. The offer is addressed to owners of cars or delivery vans up to 3.5 tonnes (worth up to PLN 150 thousand) who have had an active lease agreement or a company account with the Bank for a minimum of 6 months. Through the lease transactions customers can recover funds spent on the purchase of the vehicle, and at the same time use it. The lease provider finances up to 80% of the value of the vehicle according to the valuation. The offer is valid until 30 June 2021 or until the total amount of the guarantee (PLN 500 million) is exhausted;
• In November 2020, PKO Leasing S.A. Signed an understanding on cooperation with ARP Leasing sp. z o.o. owned by Agencja Rozwoju Przemysłu S.A. The understanding concerns the rules for ARP Leasing sp. z o.o. refinancing lease agreements for enterprises in the transport and coach sectors affected by the COVID-19 pandemic’s consequences. Small and medium-sized enterprises can use up 12 month of a grace period in repayment of their liabilities under lease agreements. The understanding has been concluded for an unspecified period, and the first applications were processed in November 2020;
• The Bank’s customers can submit applications for subsidies from the PFR 2.0 Financial Shield via iPKO and iPKO biznes on-line services. The PFR 2.0 Financial Shield is addressed to micro-, small- and medium-sized enterprises from 45 sectors which had to limit their business activities in connection with the COVID-19 pandemic situation. The financial support will amount to up to PLN 13 billion.

The Bank’s Group monitors identified threats in respect of operational risk, which result from the state of COVID-19 pandemic and take measures to ensure the safety of the Bank’s customers and employees, as well as the continuity and functioning of its business processes.

In December 2020, the Chairman of the Polish Financial Supervision Authority presented a proposal aimed at a systemic solution to the problem of housing loans in Swiss francs, which would involve an amicable conversion of loans in Swiss francs into loans in PLN (details in the note „Legal claims”).

The Capital Group has launched a pilot process of concluding settlements with clients who are managed by the Restructuring and Debt Collection Center and a pilot for clients who do not have arrears in repayment but are in a court dispute with the Capital Group. At the same time, work is underway at the Capital Group to prepare the mass-scale settlement process.

On January 1, 2021, the Capital Group implemented the EBA guidelines (EBA / GL / 2016/07) on the application of the definition of default specified in art. 178 of Regulation (EU) No 575/2013.

The most important changes include:

• introduction of consistent identification of default at the level of the debtor in the Group: for this purpose, the Group has implemented daily exchange of analytical data between PKO Bank Polski S.A., PKO Bank Hipoteczny S.A., PKO Leasing S.A., PKO Faktoring S.A. and Prime Car Management S.A.;
• change in the rules for calculating the overdue credit obligation: default by the debtor due to overdue payment takes place after exceeding the materiality threshold of the amounts overdue in respect of principal, interest or fees in the Capital Group for a period of 90 days (so far, the overdue date was based on the date of the oldest unpaid principal and interest installment separately for each Group company);
• determining the absolute materiality threshold for all exposures at PLN 400 and introducing a relative materiality threshold of 1%, expressed as the ratio of overdue credit obligations to the total amount of all balance sheet exposures in the Group;
• introducing default contagion of private exposures belonging to the owners of economic entities corresponding with their entire assets, which entities have an identified default.

The impact of the implementation of the EBA guidelines on the costs of credit risk at the consolidated level of the Group is approximately PLN 76 million (the amount will be included in the results for 2021) and results in a reduction in capital ratios by no more than 10 bps.