Consolidated statement of profit and loss

The most important event affecting the level of net profit in 2020 and comparability of results with 2019 was the coronavirus pandemic, which started in Poland in March 2020 and radically changed the economic situation of the country and the conditions of activities of the Group and its Clients. The factors that had the greatest impact on the Group’s financial results were the following:

• reduction of the NBP interest rates implemented by the Monetary Policy Council by decisions of 17 March, 8 April and 28 May 2020 (for the reference rate decrease from 1.5% to 0.1%). These changes resulted in a decrease in market rates and a consequent decrease in the Group’s interest income, mitigated to some extent by the adjustment measures taken in the area of pricing policy. Net interest income in 2020 was PLN 108,689 thousand (by 3.4%) lower compared to 2019. In addition, changes in the yield curve had a negative impact on the result on the loan portfolio measured at fair value through profit or loss, i.e. the result on the Group’s investment activities;
• disruption of business activities caused by sanitary restrictions introduced in Poland at the end of the first quarter and at the beginning of the fourth quarter of 2020, which negatively affected the economic situation and consequently led to the significant increase of the cost of risk almost due to additional impairment losses resulting from changes in macroeconomic scenarios following COVID-19. The result of impairment losses on financial assets and provisions for contingent liabilities in 2020 was negative and amounted to PLN 601,499 thousand, compared to PLN 441,890 thousand in 2019 (increase by PLN 159,609 thousand, i.e. by 36.1%).The impact of COVID-19 on the cost of risk in 2020 is estimated to amount to PLN 236,498 thousand and is primarily due to the change in macroeconomic scenarios following COVID-19 (forward looking PD and LGD determined based on smoothed macro forecasts) and the Bank’s assessment of the expected future impact of current economic conditions on risk parameters for selected Customer types

• a significant reduction in activity and changes in the existing habits and behaviour of the Group’s Customers, which adversely affected the scale of the business and consequently the level of the Group’s fee and commission income and trading profit

The factor that mitigated to some extent the negative impact of the coronavirus pandemic on the comparison of the Group’s financial results for 2020 to 2019 is the fact that in November 2019 the operational merger between the Bank and the core business of Raiffeisen Bank Polska S.A. („RBPL”, „Core RBPL”) was completed. As a result, the results of 2020 were not affected by the negative impact of integration costs.

As elements that partially neutralised the negative impact of the coronavirus pandemic on the results of 2020 should also be included:

• results on the sale of debt instruments measured at fair value through other comprehensive income realised in Q1 and Q2 2020 as part of the Asset and Liability Management Division (ALM Treasury) activity. These transactions made it possible to increase the result on investment activity in 2020 by the total amount of PLN 77,406 thousand (compared to the amount of PLN 3,809 thousand in 2019),
• improvement in the valuation of infrastructure companies (BIK, KIR, Mastercard and VISA Int.) in 2020 by PLN 91,791 thousand, presented as part of the result on trading activities. The total result on equity instruments measured at fair value through profit or loss amounted to PLN 102,340 thousand in 2020 (compared to PLN 18,120 thousand in 2019).

In addition, the comparability of results reported in 2020 and 2019 is influenced by the following factors:

• recognition (charging the results of 2020) of a provision for the legal risk relating to proceedings on CHF mortgage loans in the amount of PLN 168,156 thousand, an increase of PLN 136,043 thousand compared to 2019,
• the Group incurred higher costs for the Bank Guarantee Fund („BFG”) in 2020 as a result of an increase in the calculation base and changes in the level of contributions made by the BFG Board compared to 2019. In 2020, the total costs of the BFG incurred by the Group amounted to PLN 213,185 thousand and were by PLN 47,085 thousand (i.e. by 28.3%) higher than 2019 costs,
• recognition (charging the results of 2020) of a restructuring provision to cover the costs related to group lay-offs announced in the fourth quarter of 2020, in the amount of PLN 41.4 million,
• recognition (charging the results of 2019) of provisions for proportional reimbursement of commissions in case of early repayment of the loan by the Customer, in the total amount of PLN 69.6 million,
• recognition in the result from other operating income/costs in 2020 of the sale of the real estate at Kasprzaka Street in Warsaw, in the gross amount of PLN 43,564 thousand,
• execution on 28 June 2019 of the transaction of sale of an organised part of the Bank’s enterprise conducting the factoring activity to BGŻ BNP Paribas Faktoring Sp. z o.o. (now BNP Paribas Faktoring Sp. z o.o.) and the recognition of PLN 42,435 thousand in the Group’s 2019 gross profit.

In 2020, net interest income, which is the main source of the Group’s income, amounted to PLN 3,060,070 thousand and was lower by PLN 108,689 thousand, i.e. by 3.4% y/y. In 2020, as compared to 2019, interest income was lower by PLN 585,287 thousand, i.e. by 14.0% while interest expenses decreased by PLN 476,598 thousand, i.e. by 46.8%.

An important external factor affecting the decrease in the level of interest income, expenses and interest result was the policy of the National Bank of Poland (NBP) in terms of shaping basic interest rates. In 2020, in order to counteract the negative economic effects of the coronavirus pandemic, the Monetary Policy Council, in its decisions of 17 March, 8 April and 28 May 2020, reduced the NBP interest rates (for the reference rate from 1.5% to 0.1%).

The changes did not have a material impact on the result of the first quarter of 2020 (the first of them came into force as of 18 March) but – due to their scale – they influenced the interest result in the following quarters of 2020. The decrease in market interest rates translated directly into lower profitability of credit products, which was particularly visible in Q2 and Q3 2020. As a result of the Group’s pricing policy changes, this trend was reversed in the last quarter of 2020.

An additional factor affecting the reduction of interest income in 2020 as compared to 2019 was also the recognition in the profit and loss account of settling the fair value adjustment for the Phase I loan portfolio acquired within the RBPL Core Business. In 2020, the positive impact of this settlement was PLN 40,299 thousand (of which in the first quarter of 2020: PLN 13,431 thousand, in the second quarter of 2020: PLN 11,666 thousand, in the third quarter of 2020: PLN 9,439 thousand and in the fourth quarter of 2020: PLN 5,764 thousand), while in 2019, it was PLN 96,885 thousand (decrease in revenue by PLN 56,586 thousand y/y).

Interest income in 2020 was also negatively impacted by commission refunds on early repayments of Customer loans made after 11 September 2019 (CJEU judgment) in the amount of PLN 39.6 million compared to PLN 18.6 million in 2019 (in Q4 2020: PLN 10.6 million, in Q3: PLN 4.9 million, in Q2: PLN 12.2 million, in Q1: PLN 11.8 million, in Q4 2019: PLN 15.1 million, in Q3 2019: PLN 3.5 million).

As a result of the factors described above, the average credit margins realised in 2020 were lower than in 2019.

The level of interest income was positively affected by the optimisation of financing costs carried out primarily in Q2 and Q3 2020. The adjustment of deposit prices to the changed market environment allowed the decline in interest income on credit products to be partially neutralised.

Among the factors that had a positive impact on the level of interest income in 2020, one should also mention the increase in the scale of operations and, consequently, the increase in the average value of the loan portfolio and the securities portfolio (interest income from debt instruments measured at amortised cost and at fair value increased in the analysed period by a total of PLN 69,419 thousand, i.e. by 10.5%).

As at the end of 2020 the Group applied fair value hedge accounting. The change in fair value measurement of hedging transactions is recognized in the result on hedge accounting. Interest on IRS transactions and hedged items is recognized in the interest result.

Net interest income on hedging relationships (the sum of interest income and interest expense on derivatives under fair value hedge accounting) amounted in 2020 to PLN 77,121 thousand compared to PLN 34,797 thousand in 2019 (an increase of PLN 42,324 thousand, or 121.6%).

The Group’s net fee and commission income in 2020 amounted to PLN 916,095 thousand and was by PLN 96,158 thousand (i.e. 11.7%) higher than that achieved in 2019.

Fee and commission income amounted to PLN 1,132,051 thousand and was higher by PLN 71,886 thousand (i.e. by 6.8%) compared to 2019, while commission expenses amounted to PLN 215,956 thousand and were lower by PLN 24,272 thousand (i.e. by 10.1%) y/y.

The largest increases in fee and commission income concerned the following categories:

• account services by PLN 57,955 thousand, i.e. by 37.5% (i.a. due to the introduction of fees on high balances in corporate accounts and as a result of higher commissions on Internet banking and cash management),
• lending and leasing activities by PLN 43,985 thousand, i.e. by 16.4% (due to the settlement in Q3 and Q4 2020 of commissions on large CIB transactions and higher commissions on unused commitments from corporates than in 2019),
• intermediation in the sale of insurance products by PLN 40,428 thousand, i.e. by 67.1% (i.a. due to higher income from life insurance on mortgage loans and higher profit sharing from Cardif),
• other commissions by PLN 8,941 thousand i.e. by 59.1%.

The decrease in revenue for the execution of transfers and e-banking services (by PLN 26,452 thousand, i.e. 26.0%) was related, among other things, to new European regulations on the level of commission on international transfers (SEPA, December 2019).

The decrease in revenues from payment and credit cards (by PLN 15,365 thousand, i.e. by 7.2%) was related, among other things, to the change in the presentation of revenues from exchange rate differences on card transactions (from November 2019, exchange rate differences on card transactions with currency conversion are presented in net trading income). At the same time, there was an increase in commissions resulting from the expansion of cashless transactions (use of cards in online transactions and a decrease in commission costs related to ATM transactions). Overall, net commissions from payment and credit cards increased by 2.1% in 2020 compared to 2019.

The decrease in fee and commission expenses was mainly due to a lower cost of:

• payment and credit cards services by PLN 17,706 thousand i.e. 15.3% (i.a. due to a decrease in costs paid to external operators in connection with ATM transactions),
• asset management and brokerage operations by PLN 15,398 thousand i.e. 75.0% (including due to lower costs of custody services).

Dividend income in 2020 amounted to PLN 9,669 thousand and resulted from the 2019 profits of companies, in which the Bank held minority shares, i.e: Biuro Informacji Kredytowej S.A. (PLN 5,048 thousand), PONAR S.A. (PLN 1,563 thousand), Krajowa Izba Rozliczeniowa S.A. (PLN 1,382 thousand), CCCiG Group (PLN 1,302 thousand), ASPROAD SA (PLN 160 thousand), Dafo Plastic S.A. (PLN 115 thousand) and Mastercard (PLN 100 thousand).

Dividend income in 2019 amounted in total to PLN 6,007 thousand and resulted from the 2018 profits of companies, in which the Bank held minority shares, i.e: Biuro Informacji Kredytowej S.A. (PLN 4,221.0 thousand), Krajowa Izba Rozliczeniowa S.A. (PLN 1,179.4 thousand), VISA (PLN 377.2 thousand) and CCIG Group Sp. z o.o. (PLN 229.8 thousand).

The result on trading activity in 2020 amounted to PLN 748,390 thousand and was higher by PLN 65,975 thousand, i.e. by 9.7% y/y. The level and volatility of this result are mainly determined by the valuation of equity instruments and the FX result.

The factor positively affecting the level of the trading result in 2020 was the positive change in the valuation of shares in companies held by the Bank, measured at fair value through profit or loss, in the total amount of PLN 102,340 thousand (compared to PLN 18,120 thousand in 2019).

The above amount consisted primarily of the change in the valuation of shares in: BIK S.A. (PLN 36,061 thousand), Visa Intl. (PLN 34,053 thousand), Mastercard (PLN 12,687 thousand), KIR S.A. (PLN 8,990 thousand).

The increase in valuation allowed to neutralise the decrease in the result on derivatives and the result on FX operations, which amounted in 2020 to PLN 638,797 thousand and was lower by PLN 22,401 thousand, i.e. by 3.4%, compared to the result generated in 2019. This decrease was influenced, among other things, by the reduction in business activity as a result of the freeze on the economy under the sanitary restrictions introduced in connection with the COVID-19 pandemic.

Result on investment activity in 2020 amounted to PLN 29,081 thousand and was higher by PLN 60,917 thousand than the loss in the amount of PLN 31,836 thousand incurred in 2019.

The item determining the level of the result in 2020 was the results from the sale of debt instruments in the amount of PLN 77,406 thousand, realised mainly in Q1 and Q2 (PLN 26,620 thousand and PLN 47,813 thousand, respectively). The results from the sale of debt instruments in 2019 amounted to PLN 3,809 thousand.

These transactions made it possible to neutralise the negative impact of the valuation of the portfolio of loans and advances to Customers measured at fair value through profit or loss, which amounted in 2020 PLN -48,330 thousand (compared to a negative impact of PLN -35,654 thousand in 2019).

The factor negatively affecting the valuation of the portfolio in H1 2020 was, i.a. the fall in the yield curve as a result of the significant cuts in NBP interest rates made by the Monetary Policy Council in 2020. This impact is estimated to approximately PLN 25.9 million in March, and approximately PLN 12.1 million in May 2020.

Other operating income in 2020 amounted to PLN 323,586 thousand and was higher by PLN 140,881 thousand or 77.1% compared to 2019.

The comparison of revenues realised in the analysed periods was mainly influenced by the settlement and accounting treatment of the sale of the property of the Bank’s Head Office at Kasprzaka Street in Warsaw in 2020. The total result on this operation amounted to PLN 43,564 thousand (gross) and was presented within other operating income (in the item Income from sale or liquidation of property, plant and equipment and intangible assets, in the amount of PLN 110,848 thousand) and within other operating expenses (in the items: Loss on sale or liquidation of property, plant and equipment and intangible assets, in the amount of PLN 64,371 thousand and Other expenses, in the amount of PLN 2,914 thousand).

In addition, under Income from sale or liquidation of property, plant and equipment and intangible assets, income in the amount of PLN 33,884 thousand was recognised from the company Bankowy Fundusz Nieruchomościowy Actus Sp. z o.o., mainly related to the transaction of sale of an investment property.

In 2019, as part of other operating income (under: Other operating income), the amount of PLN 42,435 thousand was recognised due to the sale of the organised part of the Bank’s enterprise conducting factoring activities to BGŻ BNP Paribas Faktoring Sp. z o.o., completed on 28 June 2019.

In addition, the level of other operating income in 2020 was positively influenced by:

• Increase of income from release of provisions for litigation and other liabilities by PLN 39,292 thousand i.e. by 318.5%,
• Increase of income from leasing activities by PLN 21,478 thousand i.e. by 234.6%,
• Increase of income due to release of impairment allowances for other receivables by PLN 10,908 thousand, i.e. by 31.5%
• Increase of income from recovery of debt recovery costs by PLN 6,694 thousand, i.e. by 36.2%.

The amount of other operating revenue in 2020 was negatively affected by a decrease in revenue from the sale of goods and services by PLN 25,217 thousand, i.e. by 76.4%.

Other operating expenses in 2020 amounted to PLN 371,120 thousand and were higher by PLN 97,749 thousand (or 35.8%) compared to 2019, mainly as a result of:

• An increase in other operating expenses by PLN 30,385 thousand, i.e. by 73.5%, mainly due to the inclusion in this item of the costs of PLN 44,261 thousand incurred by Bankowy Fundusz Nieruchomościowy Actus Sp. z o.o., mainly related to the settlement of the sale of the investment real estate, as well as an adjustment of the accrued VAT in the amount of PLN 4,396 thousand and a part of the settlement of the sale of the property of the Bank’s head office on Kasprzaka Street in Warsaw in the amount of PLN 2,914 thousand,
• Increase of loss on sale or liquidation of property, plant and equipment and intangible assets by PLN 28,397 thousand, i.e. by 44.9%, among others due to recognition in this item of the amount of PLN 64,371 thousand being a part of the settlement of sale of property of the Bank’s Head Office in Warsaw, Kasprzaka Street, made in the 1st quarter of 2020
• An increase in the cost of provisions for litigation and other liabilities by PLN 22,630 thousand, i.e. by 28.6%, due to, i.a., the creation of a provision in the third quarter of 2020 in the amount of PLN 26,626 thousand for the penalty imposed on the Bank by the President of the Office of Competition and Consumer Protection (UOKiK) regarding the recognition of illegal provisions for foreign exchange spreads in loan agreements and a provision of PLN 9,827 thousand for an old option case of an exBGŻ Customer
• Increase of costs due to created impairment allowances for other receivables by PLN 12,859 thousand.

The result of impairment losses on financial assets and provisions for contingent liabilities in 2020 was negative and amounted to PLN 601,499 thousand. Its negative impact on the Group’s results was higher by PLN 159,609 thousand, or 36.1%, compared to 2019.

Considering the main operating segments*:

• the Retail and Business Banking segment recorded an increase in negative result by PLN 191,095 thousand
• SME Banking segment – decrease (improvement) by PLN 59,130 thousand
• Corporate Banking segment (including CIB) – increase in negative result by PLN 28,199 thousand.

The increase in the impairment losses is primarily related to the deterioration of the macroeconomic situation and negative forecasts for the economic situation in Poland and worldwide, due to the coronavirus pandemic.

The estimated impact of COVID-19 on the cost of risk in 2020 was PLN 236,498 thousand. This is mainly due to the change in macroeconomic scenarios following COVID-19 (forward looking PD and LGD determined based on smoothed macro forecasts) and the Bank’s assessment of the expected future impact of the current economic situation on risk parameters for selected Customer types.

Additionally, PLN 62 million of provisions were set up for exposures with granted moratorium (including PLN 18 million for mortgage loans), which protect the Bank against problems with servicing loans after the expiry of moratoria.

In 2020, the Group concluded agreements on the sale of the retail, SME and corporate loans portfolio. The gross carrying amount of the portfolio sold was PLN 855,998 thousand, the amount of impairment losses created was PLN 772,442 thousand. The contractual sale price of the portfolios was set at PLN 125,924 thousand. The net impact on the Group’s result from the sale of the portfolios amounted to PLN 42,368 thousand and is presented in the lines for the creation and release of impairment allowances for loans and advances.

In 2019, the Group concluded agreements on the sale of the retail, SME and corporate loans portfolio. The gross carrying amount of the portfolio sold was PLN 447,953 thousand, the amount of impairment losses created was PLN 358,972 thousand. The contractual sale price of the portfolios was set at PLN 114,396 thousand. The net impact on the Group’s result from the sale of the portfolios amounted to PLN 25,414 thousand and is presented in the lines for the creation and release of impairment allowances for loans and advances.

The cost of credit risk, expressed as the ratio of net result on impairment allowances to the average balance of gross loans and advances to Customers measured at amortised cost (calculated on a quarter-end basis), was 0.78% in 2020 and increased by 19 bps compared to 2019 (0.59%). Excluding the negative impact of the coronavirus pandemic, the cost of credit risk in 2020 is estimated to be 0.47%. The cost of credit risk excluding debt sales would be 0.83% in 2020 and 0.62% in 2019.

*Information based on the segmentation note included in the Consolidated Annual Report of the BNP Paribas Bank Polska S.A. Group for the 12-month period ended 31 December 2020.

General administrative expenses (including depreciation) of the BNP Paribas Bank Polska Group for 2020 amounted to PLN 2,505,563 thousand and were lower by PLN 416,521 thousand or 14.3% compared to 2019.

The comparability of the data in the analysed periods was affected, among others, by integration costs related to the Bank’s acquisition of the Core Business of Raiffeisen Bank Polska S.A. in 2018.

Integration costs for 2020 reduced the Bank’s costs by a total of PLN 15.3 million (of which PLN 5.0 million was recognised as a reduction of other operating expenses). Integration costs incurred in 2019 amounted to PLN 414.5 million (of which: PLN 389.9 million was included in general administrative expenses and depreciation and PLN 24.6 million in other operating expenses). Excluding integration costs in the periods under review, general administrative expenses, depreciation and amortisation incurred by the Group in 2020 would be lower by 0.6% y/y, i.e. by PLN 16.3 million.

The largest y/y decrease in costs by type (by PLN 185.7 million or 13.6%) occurred in the employee costs line item, which is mainly due to the reduction in the Group’s headcount (by 1,200 FTEs compared to 2019), lower bonus allowances in H2 2020, lower overtime and training costs. In addition, an amount of PLN 18.6 million of restructuring provision related to the 2019-2020 redundancy process was released in 2020, resulting from the settlement of integration costs and bonuses related to the integration process. In Q4 2020, an employment restructuring provision of PLN 41.4 million was created in connection with the announcement of the redundancy process in 2021-2023 (referred to in the Employment Restructuring section of this Report). The Bank’s costs related to the launch of Employee Capital Programmes at the end of 2019 were also higher. They amounted to PLN 12.7 million in 2020, compared to PLN 1.8 million in 2019 (excluding subsidiaries). Excluding integration costs in both periods analysed, employee costs would have decreased by PLN 76.7 million, or 6.0% y/y.

A y/y reduction in the level of costs was also recorded in the following categories:

• IT and telecommunications costs by PLN 85.6 million – mainly due to the integration of IT infrastructure and systems following the operational merger completed in November 2019;
• marketing costs by PLN 60.6 million – affected, on the one hand, by the rebranding and reimaging campaign carried out in 2019, related to the change of the Bank’s name (at a cost of PLN 25.2 million), and, on the other hand, by restrictions on marketing activities (including the organisation of events and meetings) in 2020 due to the COVID-19 pandemic;
• other material costs by PLN 29.9 million – the decrease of costs mainly related to outsourcing of services (by PLN 37.3 million), which was mainly connected with the operational merger. Decrease of costs occurred also in the following items: consulting services (by PLN 10.8 million), costs of car fleet (by PLN 7.8 million), costs of meetings (by PLN 5.1 million), office materials (by PLN 4.3 million). The increase concerned the costs of settlements with related parties (by PLN 12.9 million), expenses related to COVID-19 pandemic (protective measures) – PLN 8.6 million (without the costs of additional cleaning and IT service costs, which amounted to PLN 4.5 million), creation of a provision in the amount of PLN 4.0 million for costs related to „remote work”. In the subsidiaries other costs increased by PLN 11.6 million;
• costs of short-term leasing and operation by PLN 22.2 million – following the process of optimisation of the branch network and renegotiation of rents;
• business travel by PLN 13.4 million – in connection with the COVID-19 pandemic, travel was reduced, influenced among others by hotel closures, remote work and organisation of meetings via electronic communication tools.

The Group’s costs in 2020 were also influenced by higher costs of contribution to the BFG resulting from:

• increase in contributions – in 2020 there was an increase in the total amount of contributions to the BFG for the banking sector determined by the Council of the Bank Guarantee Fund (PLN 1,600 million of contributions to the Bank Restructuring Fund for 2020 against PLN 2,000 million for 2019 and PLN 1,575 million of contributions to the Bank Guarantee Fund for 2020 against PLN 791 million in the previous year) and
• increasing the guaranteed funds base, after the merger with the Core Business of Raiffeisen Bank Polska

Total contributions recorded in the Bank’s costs in 2020 amounted to PLN 213.2 million and were PLN 47.1 million higher than in the corresponding period of previous year:

• annual contribution to the mandatory bank restructuring fund in 2020 amounted to PLN 126.0 million (in 2019 it was PLN 116.1 million),
• the contribution to bank guarantee fund amounted to PLN 87.2 million in 2020 (in 2019 amounted to PLN 50.0 million).

Furthermore, the level of administrative costs was influenced by higher costs in the following categories:

• costs of ATMs and ATM services (increase by PLN 18.4 million), which is related to a change in the presentation (in 2019, these costs were recorded as other operating expenses),
• costs of the Borrowers' Support Fund – creating a provision in the second half of this year in the amount of PLN 6.7 million (provision created in the first half of 2020 has been released in accordance with the information received from BGK)

Depreciation and amortisation expenses of the BNP Paribas Bank Polska S.A. Capital Group amounted to PLN 368.0 million in 2020, a decrease of PLN 86.2 million compared to 2019. This decrease was mainly due to the realisation of synergies on assets as a result of the Bank’s merger with the Core Business of Raiffeisen Bank Polska S.A., partially offset by an increase in depreciation from investments made in 2018-2019. In 2019, the cost of accruing accelerated depreciation of systems in connection with bank merger processes amounted to PLN 105.1 million. Depreciation costs in Group subsidiaries remained at a comparable y/y level.

The Bank’s capital expenditures in 2020 amounted to PLN 388.4 million, compared to PLN 482.2 million in 2019. Projects related to the development of systems, infrastructure and IT equipment had a dominant share in the structure of expenditures. The amount of capital expenditures is adjusted to the current needs and capabilities of the Bank and the Group. All projects are analyzed from the point of view of rationality and impact on the financial and business situation of the Bank and the Group.