Consolidated statement of profit and loss

In 2021, the BNP Paribas Bank Polska Group generated a net profit of PLN 176,298 thousand, which is PLN 556,797 thousand (i.e. by 76.0%) lower than that achieved in 2020. It is estimated that, excluding provisions for the risk of litigation related to CHF housing loans, the Group’s net profit in 2021 would amount to PLN 1,221,602 thousand and would be PLN 320,351 thousand (i.e. by 35.5%) higher than that generated in 2020. (PLN 901,251 thousand on a comparable basis). 

The Group’s result on banking activity in the analysed period amounted to PLN 4,809,257 thousand and was higher y/y by PLN 104,563 thousand, i.e. by 2.2%. 

The most important event affecting the level of net profit in 2021 and comparability of results with 2020 was the coronavirus pandemic, which radically changed the conditions of activities of the Group and its clients in 2020 and changes in macroeconomic situation, economic and monetary policy that took place in the second half of 2021. 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, 

• the beginning of the monetary policy tightening cycle by the Monetary Policy Council at the end of 2021. The MPC (by decisions of 6 October, 3 November and 8 December) made three interest rate hikes of a total of 165 bps (to 1.75% for the reference rate). In early 2022, the MPC (by decisions of 8 February and 4 January 2022) raised interest rates again, by a total of 100 bps (to 2.75% for the reference rate). Expectations and increases made in 2021 drove up market interest rates and contributed to the Group’s interest income in the fourth quarter of 2021. Net interest income for the whole 2021 was by PLN 80,872 thousand (or 2.6%) higher compared to 2020, 
• higher, compared to 2020, result on hedge accounting (mainly fair value hedge and cash flow hedge), related, among other things, to the larger scale of hedging transactions. The change in fair value measurement of hedging transactions is recognised in the result on hedge accounting, which was higher in 2021 by PLN 61,446 thousand year on year. Interest income from IRS transactions (including on cash flow value hedge derivatives) is recognised in net interest income. The interest result from derivatives was in 2021 higher by PLN 71,061 thousand (by 92.1%) y/y, 
• business disruption caused by sanitary restrictions in Poland in the second and fourth quarters of 2020 and in the first quarter of 2021, which had an impact on reduced activity and changes in the existing habits and behaviors of the Group’s customers. This situation primarily affected the reduction in corporate demand for credit in 2020 and, to a lesser extent, changes in the demand of all customers for certain banking services. The decline in the average value of the corporate loan portfolio that became apparent in the second and third quarters of 2020 continued through the first part of 2021. Signs of recovery became evident in the second quarter of 2021, and the consolidation of the upward trend occurred in the second half of 2021, ending with a double-digit y/y growth rate in the value of the gross loan portfolio, 
• a visible increase in retail customer demand for banking products and services in 2021. Increased customer activity, combined with transformation effects and changes in the Group’s internal and external processes, enabled the Group to achieve sales results at levels significantly exceeding both 2020 and 2019 (especially for mortgage and cash loans, personal accounts and investment and insurance products). The strong sales performance contributed primarily to an improvement in net fee and commission income, which for the full year 2021 was PLN 132,891 thousand (or 14.5%) higher than that achieved in 2020. 

The factor that affected the level of the Group’s net profit in 2021 and disturbed its comparability with the net profit of 2020 was a charge of the Group’ s results with the amount of PLN 1,045,304 thousand due to provisions for the risk related to court cases concerning CHF mortgage loans (by PLN 877,148 thousand i.e. by 521.6% higher y/y).  

As a result, the BNP Paribas Bank Polska Group generated a net profit of PLN 176,298 thousand in 2021, which is PLN 556,797 thousand (i.e. by 76.0%) lower than that generated in 2020. 

Elements that, in addition to core revenue growth, positively impacted 2021 results compared to 2020 include: 

• a significant reduction in costs of credit risk. The result of impairment losses on financial assets and provisions for contingent liabilities in 2021 was by PLN 335,314 thousand (i.e. by 55.7%) lower compared to 2020, with the estimated impact of COVID-19 on the cost of risk being lower by PLN 270,222 thousand in comparable periods, and the positive impact of debt sales made in 2021 being higher by PLN 42,552 thousand (amounting to PLN 84,920 thousand compared to PLN 42,368 thousand in 2020); 
• incurrence by the Group in 2021 of lower by PLN 69,833 thousand (i.e. by 32.8%) costs of the Bank Guarantee Fund („BFG”) as a result of a decrease in the level of contributions made by the BFG Board as compared to 2020; 
• the positive effects of the actions taken to optimize the level of operating costs and the realization of cost synergies made possible by the completion in 2020 of the integration process with the acquired in 2018 Core Business of Raiffeisen Bank Polska S.A., neutralizing the increasing cost pressure in the second half of 2021, largely due to external factors. In total, general administrative expenses and depreciation, net of BFG costs, incurred in 2021 were PLN 107,799 thousand (i.e. by 4.7%) higher than those incurred in 2020. 

Additionally, the comparability of results realized in 2021 and 2020 was impacted by the following factors: 

• the realisation in 2020 of positive results on the sale of debt instruments measured at fair value through other comprehensive income with no comparable income in 2021, primarily as a result of a change in yields on securities as a consequence of an increase in interest rates. These transactions increased the result on investing activities in 2020 by a total of PLN 77,406 thousand (compared to PLN -2,276 thousand in 2021), 
• an increase in the valuation in 2020 of shares in infrastructure companies (BIK, KIR, Mastercard and VISA Int.), presented within the result on trading activities. They improved the result on trading activities by PLN 91,791 thousand (compared to PLN 10,544 thousand in 2021). The total result on equity instruments at fair value through profit or loss was PLN 79,886 thousand higher in 2020 than that realized in 2021, 
• recognition in the result from other operating income / costs in 2020 of the sale of real estate at Kasprzaka Street in Warsaw in the gross amount of PLN 43,564 thousand. 

Net interest income, which is the main source of the Group’ income, amounted in 2021 to PLN 3,140,942 thousand and was higher y/y by PLN 80,872 thousand i.e. by 2.6%. In 2021, compared to 2020, interest income was lower by PLN 152,526 thousand i.e. by 4.3% while interest expenses decreased by PLN 233,398 thousand i.e. by 45.5%. 

A significant external factor influencing the decrease in the level of interest income and interest expense in 2021 as compared to 2020 was the policy of the National Bank of Poland regarding the formation of basic interest rates. In order to counteract the negative economic effects of the coronavirus pandemic, the Monetary Policy Council by 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 caused a decrease in market interest rates, which directly translated into lower profitability of credit products and negatively affected the interest results, especially those realized in the third and fourth quarter of 2020 and in the first three quarters of 2021.  

As a result of changes in the macroeconomic situation, the Monetary Policy Council started a monetary policy tightening cycle in the fourth quarter of 2021. The MPC (by decisions of 6 October, 3 November and 8 December) raised the interest rates by a total of 165 bps (to the level of 1.75% for the reference rate). The higher interest rates had a positive effect on the profitability of credit products in the fourth quarter of last year, but due to the timing of their introduction, these changes were not able to fully neutralize the year-on-year decrease in interest income. 

The total interest income on loans and advances to customers measured at amortised cost and at fair value through profit or loss in 2021 amounted to PLN 2,421,373 thousand and was lower by PLN 236,734 thousand (i.e. by 8.9%) than the revenue realised in 2020.  

The positive effect of interest rate changes will be visible also in the first quarter of 2022 (taking into account subsequent increases made in January and February 2022), and probably in subsequent quarters of 2022, given the statements of the Governor of the NBP indicating a continuation of the monetary policy tightening cycle. An estimate of the sensitivity of the Group’s interest result to interest rate changes is presented in section 9.2. related to interest rate risk. 

The negative effect of a decrease in rates was to some extent neutralized by an increase in the value of the loan portfolio. In the case of interest income on the retail loan portfolio, this was already evident from Q1 2021, and in the case of interest income on the corporate and SME loan portfolio from Q3 2021. 

The level of interest income was positively influenced by the optimization of financing costs completed in Q2 and Q3 2020. Adjustment of the price of deposits to the changed market environment allowed to partially (decrease of the cost of deposits was twice lower than the decrease of the profitability of loans) neutralize the decrease of interest income from credit products. In Q1, Q2 and Q3 2021, the cost of deposits remained close to zero (mainly due to the high share of current deposits in the total funds acquired from customers, exceeding 90%). The increase in the cost of funding began in the fourth quarter of 2021 due to an increase in market interest rates. 

Among the factors that positively affected the level of interest income in 2021, one should also mention the increase in the scale of operations and, consequently, the increase in the average value of the securities portfolio (interest income on debt instruments measured at amortised cost and at fair value increased in the analysed period by a total of PLN 54,422 thousand, i.e. by 7.4%). 

The increase in interest income in 2021 compared to 2020 was affected by the fact that the Group applies fair value hedge accounting and (to a much lesser extent) cash flow 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 net interest income. Net interest income on hedging relationships (the sum of interest income and interest expense on derivatives under fair value and cash flow hedge accounting) amounted to 148,182 thousand compared to 77,121 thousand in 2020 (an increase by PLN 71,061 thousand, i.e. by 92.1%). 

The Group’s net fee and commission income in 2021 amounted to PLN 1,048,986 thousand and was by PLN 132,891 thousand (i.e. by 14.5%) higher than in 2020. This increase was possible primarily due to the adjustment measures taken by the Group in the area of pricing policy, higher transaction activity of customers and good sales of housing loans and investment products realized in 2021. This change is reflected in the level of quarterly fee and commission income realized from Q3 2020.  

Fee and commission income amounted to PLN 1,284,545 thousand and was higher by PLN 152,494 thousand (i.e. by 13.5%) compared to 2020, while commission expenses amounted to PLN 235,559 thousand and were higher by PLN 19,603 thousand (i.e. by 9.1%) y/y. 

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

• payment and credit cards services by PLN 45,278 thousand i.e. by 22.5% (inter alia, due to changes in pricing policy, higher interchange fee income, higher number of card and ATM transactions and higher income from Mastercard, VISA) 
• asset management and brokerage operations by PLN 42,346 thousand i.e. by 38.0% (among others, higher revenues from sale and management as a result of higher sales of investment funds, certificates of deposit and brokerage services) 
• account services by PLN 42,110 thousand, i.e. by 19.8% (inter alia, due to the introduction of fees for high balances on corporate accounts and higher revenues from the use of internet banking and cash management) 
• intermediation in the sale of insurance products by PLN 19,441 thousand, i.e. by 19.3% (inter alia, due to higher income from life insurance and insurance of real estate for housing loans, insurance related to cash loans, leasing and Agro loans) 
• execution of credit transfers and electronic banking services by PLN 8,120 thousand i.e. by 10.8% (as a result of higher income from commissions on domestic and international transfers resulting, among others, from a significant increase in the volume of payments made by entrepreneurs). 

The increase in fee and commission expenses was primarily due to higher costs of: 

• other fees and commissions by PLN 6,729 thousand i.e. 17.1% (among other things, due to higher provisioning for the costs of unpaid and written off fees and higher commission costs related to mobile payments) 
• cash services by PLN 4,606 thousand i.e. by 34.6%, 
• credit and payment card services by PLN 4,465 thousand i.e. 4.6% (due to higher costs of commissions paid to organisations and entities processing card transactions), 
• due to intermediation in the sale of the Bank’s products and customer acquisition, by PLN 3,242 thousand i.e. by 12.0% (inter alia, due to higher costs of Internet sales). 

Other operating income in 2021 amounted to PLN 229,695 thousand and was lower by PLN 93,891 thousand, i.e. by 29.0% than in 2020.  

The comparison of income realised in the analysed periods was primarily affected by the settlement and accounting treatment of the sale of the real estate of the Bank’s Head Office at Kasprzaka Street in Warsaw in the first half of 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 /he items: Costs of sale or liquidation of property, plant and equipment and intangible assets, in the amount of PLN 64,371 thousand and Other costs, in the amount of PLN 2,914 thousand). 

Income from sale or liquidation of property, pland and equipment and intangible assets in 2021 includes, among others, income from the sale of the Bank’s branches (costs related to these transactions are included in Costs of sale or liquidation of property, plant and equipment and intangible assets in Other operating expenses). 

Additionally, in the item Revenue from sale or liquidation of tangible and intangible assets in 2020, revenue 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. 

The level of other operating income in 2021 was positively affected by an increase in income from leasing activities by PLN 12,772 thousand or 41.7% and increase in income recognised under Other operating income, by PLN 10,070 thousand, i.e. by 32.4%.  

Other operating expenses in 2021 amounted to PLN 297,645 thousand and were lower by PLN 73,475 thousand (i.e. by 19.8%) compared to 2020. 

The comparison of costs realised in the analysed periods was primarily affected by the settlement and accounting treatment of the sale of the real estate of the Bank’s Head Office at Kasprzaka Street in Warsaw in the first half of 2020. The costs related to this transaction were presented within other operating expenses (in items: Costs of sale or liquidation of property, plant and equipment and intangible assets, in the amount of PLN 64,371 thousand and Other costs, in the amount of PLN 2,914 thousand). 

The level of costs of sale or liquidation of property, plant and equipment and intangible assets in 2021 is mainly due to the recognition under this item of costs related to the sale of the Bank’s branches (revenues related to these transactions are recognised under Income from sale or liquidation of property, plant and equipment and intangible assets in Other operating income). 

The decrease in other operating expenses in 2021 was also related to a decrease by PLN 38,862 thousand of costs related to provisions for litigation and other liabilities (down by 28.2%), due to, among others, the creation of a provision of PLN 26,626 thousand in 2020 for a fine imposed on the Bank after the Chairman of the Office of Competition and Consumer Protection (UOKiK) declared the provisions on foreign exchange spreads in loan agreements as illegal. 

The factor adversely affecting the level of other operating expenses in 2021 was the increase in the costs recognised under other operating expenses of PLN 10 043 thousand, i.e. by 14.0%, related, i.a. to the manner of accounting for costs arising from changes in the branch network and the location of the head office (impairment of leased buildings and contractual penalties, with a parallel reduction of costs in other items resulting from the release of previously created provisions) and operating losses recognised under this item related to settlements with customers. This item in 2020 also includes costs in the amount of PLN 44,261 thousand incurred by the company Bankowy Fundusz Nieruchomościowy Actus Sp. z o.o., mainly related to the settlement of the sale of the investment property. 

The result of impairment losses on financial assets and provisions for contingent liabilities in 2021 was negative and amounted to PLN 266,185 thousand. Its negative impact on the Group’s results was lower by PLN 335,314 thousand, or 55.7%, compared to 2020. 

Considering the main operating segments1:  

• the Retail and Business Banking segment recorded a decrease (improvement) in negative result by PLN 364,277 thousand 
• SME Banking segment – increase (worsening) of negative result by PLN -24,380 thousand 
• Corporate Banking segment (including CIB) – increase (worsening) of negative result by PLN -6,667 thousand. 
• Other banking activity segment recorded a decrease (improvement) of negative result by PLN 2,082 thousand 

¹ data based on note 54. 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 2021. 

The comparability of the result on impairment of financial assets and provisions for contingent liabilities in the periods analysed was significantly affected by the coronavirus pandemic and the assessment made at a specific point in time of its potential impact on the financial condition of the Group’s customers and the economy as a whole. 

In 2020, the impact of the pandemic on the cost of risk was negative and amounted to PLN -236,498 thousand. It was 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. 

In 2021, as a result of improved macroeconomic forecasts, including in particular the growth rate of Poland’s gross domestic product, the Group released PLN 155,854 thousand of provisions for unrealized credit losses related to changes in macroeconomic scenarios. At the same time, being aware that in case of some customers the recognition of negative effects of COVID-19 on credit quality will be delayed (among others due to the fact that companies use public support under the crisis shields, which supports their financial and liquidity position), the Group accounted for the risk of deterioration of their financial position in the future by adding provisions in the amount of PLN 122,130 thousand. The net release of provisions related to COVID-19 in 2021 amounted to PLN 33,724 thousand. At the same time, bearing in mind the emerging new threats related to, inter alia, high inflation and an increase in energy prices, the Group created additional provisions in the amount of PLN 44,800 thousand. The level of these provisions was determined based on simulation analyzes carried out for portfolios particularly sensitive to these risk factors. 

The decrease in the level of net allowances in 2021 compared to 2020 was further impacted by: 

• resilience and generally solid behavior of the loan portfolio, in particular in terms of timeliness of repayments, 
• the result of H1 2020 was charged with negative impact of introduction of multi-scenario approach in individual pricing and negative impact of risk parameters (PLN 41,803 million in total),  
• implementation of rules and IT solutions in line with the EBA’s guidelines on the application of the definition of default as defined in Article 178 of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26.06.2013 on prudential requirements for credit institutions and investment firms. Following the introduction of the amended rules, as a result of the change in classification and adequate recalculation of risk parameters, the Group reversed write-offs in the amount of PLN 20,983 thousand, 
• higher positive impact of sale of part of NPL portfolio in 2021 compared to 2020. In 2021, the Group entered into agreements for the sale of a portfolio of loans from the retail, SME and corporate portfolios. The gross carrying amount of the portfolio sold was PLN 711,954 thousand , the amount of impairment losses created was PLN 638,727 thousand. The contractual price for the sale of these portfolios was set at PLN 158,147 thousand. The net impact on the Group’s result due to the sale of the portfolios amounted to PLN 84,920 thousand and is presented in the line Result on impairment allowances on financial assets and provisions for contingent liabilities. 

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 Bank’s result from the sale of the portfolios amounted to PLN 42,368 thousand. 

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 0.32% in 2021 and decreased by 46 bps compared to 2020 (0.78%). Excluding the negative impact of the coronavirus pandemic, the cost of credit risk in 2021 is estimated to be 0.36% and 0.47% in 2020, and excluding both the negative impact of the coronavirus pandemic and debt sales the cost of credit risk would be 0.47% in 2021 and 0.53% in 2020. 

The Group’s general administrative expenses (including depreciation and amortisation) for 2021 amounted to PLN 2,543,529 thousand and were higher by PLN 37,966 thousand or 1.5% compared to 2020. 

Integration costs for 2020 reduce the Bank’s costs by a total of PLN 15.3 million (of which PLN 5.0 million was recognized as a reduction of other operating costs). In 2021, the Bank did not incur any integration costs. 

The biggest decrease in costs by type in 2021 was recorded in the fees payable to the Banking Guarantee Fund (BFG). In 2021, the total amount of contributions to the BFG for the banking sector determined by the BFG Board was: PLN 1,230 million of contributions to the banks’ forced restructuring fund versus PLN 1,600 million in 2020 and, similarly, PLN 1,000 million of contributions to the banks’ guarantee fund versus PLN 1,575 million in 2021. The total BFG levies for 2021 are 30% lower compared to the previous year and are driven by the COVID-19 pandemic support measures.  

The largest decrease in costs by PLN 21,411 thousand in this group relates to the costs of the restructuring provision and results from: 

• the release in 2020 of the restructuring provision in the amount of PLN 18,600 thousand related to the process of group layoffs in 2019-2020, which resulted from the settlement of integration costs and bonuses related to the integration process, 
• creation in the fourth quarter of 2020 of a provision for employment restructuring in the amount of PLN 41,400 thousand in connection with the announcement of the process of group lay-offs in the years 2021-2023. 

The decrease in the Group’s employee costs in 2021 was also influenced by higher capitalization of R&D salaries, lower salary costs – due to the reduction of employment by 352 FTEs – and lower overtime costs. On the other hand, there was an increase in the costs of allowances for bonuses in the Bank (by PLN 27,945 thousand), shown in the item of salary costs, which resulted from the implementation of sales plans in the business segments. An increase in costs was also recorded in the training area. 

A y/y increase in costs was also recorded in the following categories: 

• Other material costs increased by PLN 60,875 thousand, of which:
  • by PLN 69,144 thousand – an increase of legal costs related to court proceedings concerning CHF loans (PLN 82,016 thousand – in 2021, PLN 12,872 thousand – in 2020), 
  • by PLN 7,732 thousand – a decrease in the fee for the Borrower Support Fund. The decrease of costs results from the release of provisions created in the second half of 2020 and the first half of 2021. Provisions created in H1 2020 with the consent of the Borrower Support Fund Board were released in December 2020. 
• Marketing expenses increased by PLN 17,565 thousand, which was influenced, on the one hand, by the reduction of marketing activities in 2020 due to the COVID-19 pandemic, and, on the other hand, by the Bank’s increased advertising activity in the media in the current year (offline and online campaigns) and the „Szlachetna paczka” campaign. There was also an increase in costs (by PLN 3,885 thousand) in the Bank’s sponsorship activities (2 tennis tournaments and 2 film festivals) compared to the analysed period of 2020,  

• IT costs (up by PLN 17,601 thousand), which was mainly due to the release in April 2020 of a provision in the amount of PLN 20,947 thousand created for the Bank’s IT services as part of the project related to the integration of IT infrastructure and systems following the operational merger completed in November 2019. The release of the provision reduced IT costs in 2020. In 2021, the cost of software and hardware maintenance contracts decreased due to the consolidation of contracts. On the other hand, costs for license fees, costs for IT security services and maintenance, and costs for customer intermediary companies increased. 

The Group’s depreciation expense in 2021 amounted to PLN 399,553 thousand and was higher than in 2020 by PLN 31,595 thousand (i.e. by 8.6%). This increase was mainly due to further transformation and digitalization of the Bank and capital expenditures incurred for this purpose.  

The Bank’s capital expenditures in 2021 amounted to PLN 322,917 thousand and were lower compared to the same period last year by PLN 65,490 thousand or 16.9%

In 2020 (H1) the finalization of the implementation of projects related to the integration of IT infrastructure and systems after the operational merger in November 2019 took place and expenses related to the construction of the new headquarters of Bank „Petrus” were incurred. 

In the structure of expenditures of the current period, projects related to digitalization and automation of processes, development of IT systems, infrastructure and equipment had a dominant share. The amount of investment outlays is adjusted to the current needs and possibilities of the Bank. All projects are analyzed from the perspective of their rationality and impact on the Bank’s financial and business standing.