Integrated Report 2021

Risk management

The risk management system is an integrated set of principles, mechanisms and tools (including but not limited to policies and procedures) relating to risk processes. Risk management is part of the overall management system of the Bank.

The risk management system

  • 102-11
  • 102-15
  • 102-30
  • E-P3

In addition to regulatory requirements, the Bank takes into account the specific nature, scale and complexity of its business activities and the associated risks. The main objectives of the risk management system are:

  • ensuring early identification and appropriate management of all risks associated with Bank’s activities,
  • support the implementation of the business strategy by effectively controlling the level of risk and maintaining it within the accepted risk appetite,
  • a reflection of the Bank’s risk attitude and risk culture,
  • the measurement or estimation and monitoring of risks, including the prevention of potential losses through appropriate control mechanisms,
  • reducing risks by defining a system of limits and the rules to be followed if those limits are exceeded,
  • defining an organisational structure appropriate to the size and profile of the risks incurred.

The Bank’s risk management system is organised on the basis of a scheme of three independent lines of defence, used to define roles and responsibilities in order to achieve effective supervision and organisation of risk management in the Bank:

includes the business units responsible for risk management in the Bank’s operations, including compliance with control mechanisms.

consists of the organisational units of the Risk Area, Security and Business Continuity Management Division and Compliance Monitoring Division, which are responsible for managing individual risks, including measuring, monitoring, controlling and reporting risks, independently of the first line.

is the activity of the Internal Audit Division, which performs independent assessments of the risk management activities conducted by both the first and second lines of defence.

The Bank’s Management Board plays the leading role in the Bank’s risk management system, determining the risk management strategy, risk appetite and adopting risk management policies, as well as setting limits for significant risks and risk control procedures. The risk management principles have their source in the document Risk Management Strategy at BNP Paribas Bank Polska S.A. defined by the Bank’s Management Board and approved by the Supervisory Board.

The organisation of the risk management system at the Bank includes primarily the role of the Supervisory Board, the Bank Management Board, dedicated committees (Audit Committee and Risk Committee at the Supervisory Board level, Assets and Liabilities Management Committee (ALCO), Risk Management Committee, Retail Banking Risk Committee, Personal Finance Risk Committee, Credit Committee, Problem Loans Committee, Products, Services, Transactions and Activities Acceptance Committee and Internal Control Coordination Committee), Risk Area, Compliance Monitoring Division and Security and Business Continuity Management Division.

The purpose of the internal capital adequacy assessment process is to monitor and control the level of the Bank’s internal capital. The implementation of the ICAAP process is dictated by the intention to maintain a stable financial position of the Bank, guaranteeing the Bank’s operation despite incurring unexpected losses. The Bank is required to ensure that the risk management process is consistent with the Bank’s risk profile, and that it mitigates excessive risks in its operations. Details of the process are defined in the Internal Capital Assessment Policy in BNP Paribas Bank Polska S.A.

The Bank has developed a comprehensive risk identification and assessment framework in response to the requirements of the supervisory review and evaluation process. The principles are designed to identify and assess all risks to which the Bank is or may be exposed, taking into account regulatory requirements, best practice and the use of the Bank’s well established risk management processes. The Bank takes into account the specific nature, scale and complexity of its business activities and the associated risks, ensuring that all material risks in the Bank’s operations are measured and mitigated. The Bank aims to identify and assess risks arising from the internal and external environment that could have a significant impact on the Bank’s financial stability.

Identification of potentially material risks involves the identification of threats and potential risks that may occur in the future with a reasonable degree of probability.

The objective of the risk management process is to:

  • protect the Bank against the materialisation of risk,
  • ensure an adequate assessment of the capital needs necessary for the identified risks.

The risk identification process is performed annually at the Bank.

The assessment of the materiality level of the risks identified in the risk identification process includes:

  • defining the concept of materiality of risks,
  • defining the determinants of risk materiality,
  • conducting an assessment of the materiality of risks,
  • drawing up the report on the assessment performed.

The risk materiality assessment process is performed annually at the Bank.

The Bank identifies the following types of risks:

  • permanently relevant – inherent in the business profile (does not require periodic materiality assessment),
  • relevant:
    • risks for which the Bank has incurred costs in the past related to their realisation,
    • the exposure to risk, the severity of losses and the lack of adequate risk mitigation processes and procedures expose the Bank to unexpected financial losses (risks for which the materiality assessment is at least medium),
  • not relevant – risks for which the materiality assessment is low.

Following the risk identification and materiality assessment process performed in 2021, the structure of the identified risks is as follows:

In 2021 none of the identified risks were assessed as not relevant.

Internal capital reporting is dedicated to presenting the results of monitoring of the internal capital level and the main factors determining its level. The Bank reports capital monthly on both a standalone and consolidated basis. Reports are presented at the Risk Management Committee meeting on a monthly basis and on a quarterly basis for the Bank’s Management Board and Supervisory Board.

A review of the capital adequacy process is conducted once a year and the review report is submitted to the Bank’s Management Board and Supervisory Board. In addition, Internal Audit regularly performs an independent review of the ICAAP process.

The Bank uses two approaches to measure risk: quantitative and qualitative. The use of a particular approach is linked to the characteristics of the risk.

Risk measurement methods:

  • quantitative methods – are used in cases where the Bank has information on risk realisation and is able to measure a quantitative characteristic,
  • qualitative methods – used when the Bank has no information collected on the historical realisation of risk or the effect of volatility of a risk measure is determined by many risk factors, among which the Bank is not able to distinguish the effect related to the source of the assessed risk. The Bank considers the risk as difficult to measure and performs the assessment using the qualitative method, presenting the qualitative characteristics of the risk realization.

The structure of internal capital in the BNP Paribas Bank Polska S.A. Group as at 31 December 2021 is as follows:

For the material risks identified, the Bank defines the risk appetite. By determining the level of risk appetite, the Bank determines its risk profile and the attitude adopted towards risk. The risk appetite determines the maximum level of risk that the Bank is prepared to accept in pursuit of the business strategy and financial plan.

The risk appetite, within the limits set by the risk tolerance, determines how the Bank uses its risk-taking capacity by determining, for each risk type, the degree of risk exposure that a particular area can take. The Bank determines the level of risk appetite in the form of risk measures that reflect the Bank’s current and future risk appetite. All methods and procedures are periodically reviewed for adequacy and reliability. The level of risk appetite is determined by the Bank’s Management Board and requires the approval of the Supervisory Board.

In addition, the Bank monitors individual risks using a formal system of limits, which is established in such a way that:

  • the Bank complied with supervisory standards,
  • the desired risk profile defined in the Bank’s business strategy and risk management strategy is maintained,
  • limits did not exceed the risk level acceptable to the BNP Paribas Group.

If limits are exceeded, corrective action is taken to reduce the value of the risk in accordance with the procedures in place at the Bank. The information system used in risk management ensures collection of data on operations and transactions and their impact on the Bank’s risk profile. The Bank has risk control and risk management policies governing the handling of crisis events.

Pursuant to the Methodology of the stress testing programme at BNP Paribas Bank Polska S.A. The Bank conducts, among others, the following types of bottom-up tests:

  • stress tests based on the recommendations of the Financial Supervision Authority,
  • business model stress tests,
  • internal capital stress tests,
  • recovery plan stress tests.

Stress tests are an important tool in the risk management process. They allow the risk measurement to be extended to include sensitivity to abnormal changes in market parameters, which are significantly different from those observed in periods of normal functioning of the financial markets. The objective of the stress testing programme is to assess the potential risks to which the Bank is exposed under hypothetical market conditions. The macroeconomic assumptions are developed by the Bank’s Chief Economist. The stress testing programme fulfils the requirements of Guideline EBA/GL/2018/04 of 19 July 2018 on stress testing.

The stress testing programme covers:

  • sensitivity analysis
  • scenario analysis,
  • reverse stress testing.

The Bank conducts tests with reference to the level of risk appetite expressed in terms of risk appetite measures and capital targets specified in the Capital Management Policy at BNP Paribas Bank Polska S.A. Through stress testing, the Bank assesses the reliability of its financial plan and capital plan under stress conditions to ensure that the Bank meets the capital requirements applicable to it. The Bank’s Management Board approves the stress testing programme and supervises its implementation and results.

076 076

Risk identification processes

  • TCFD

The identification of risks is performed at least once a year. Risks are characterised and assessed quantitatively, based on three parameters:

  • Risk type,
  • Risk factors that directly contribute to the risks, and
  • Type of impact (financial impact or qualitative assessment),

using a unified risk identification tool for all risk types. Our taxonomy of risks includes all types of risks that may affect the Bank’s operations. The purpose of developing a risk taxonomy is to address all typical risks that the Bank is or may be exposed to, given its business model, activities and environment. The identification process involves recognising, defining and describing the types of risk that may threaten the Bank’s objectives. The Bank identifies risk events that correspond to scenarios of particular risk types. The internal risk taxonomy covers all potential risks and is not limited to significant types. The taxonomy is not static and may evolve along with methodological developments and the emergence of new threats or regulatory requirements.

The Bank has also developed a taxonomy of risk factors to detail the causes/factors underlying the materialisation of risk events. Risk factors are understood as the direct causes of risk. After reviewing the risk identification process, in 2021, the Bank introduced changes to the taxonomy of risk factors. ESG-related factors became a separate category. The taxonomy divides risk factors into the following categories, according to the area of their origin:

  • Financial markets,
  • Macroeconomic environment,
  • Concentration,
  • Business environment,
  • Environmental, social and governance factors,
  • Internal processes.

Principal types of risk

Credit risk is the risk that the Bank will incur a loss for failure to meet its obligations at the contractual date as a result of the customer’s deterioration or loss of creditworthiness.

The Bank’s credit risk management system is defined in the Credit Policy of BNP Paribas Bank Polska S.A. adopted by the Management Board. Detailed financing rules and criteria for the product offering of a given business line, types of loans available, financing purposes, conditions and limits, are defined in credit policies for particular business lines. The Bank’s intention, according to its credit policy criteria, is to cooperate with customers with good reputation and sound economic and financial situation.

Credit policies also set out detailed rules for identifying, measuring and accepting risk, securing loan repayment and monitoring customers during the life of the loan agreement.

The credit risk management process is adjusted to the business line structure adopted by the Bank. An organisationally separate Risk Area, headed by a Member of the Management Board (Chief Risk Officer), plays the key role in the credit risk management system. Credit risk management activities are supported by the Risk Management Committee and Retail Banking/Personal Finance Risk Committees.

The Bank assesses the risk of borrowers using rating and scoring classification systems and risk classification according to IFRS standards.

Credit decisions are made according to a decision-making model approved by the Bank’s Management Board and adjusted to the standards binding in the BNP Paribas Group. The decision-making model takes into consideration the structure of business lines, determines the number of decision-making levels, scope of their authority and rules, criteria and conditions of making credit decisions. The amount caps of the decision-making authority depend on the criteria of: customer segment, customer risk profile and credit period. At all competency levels, credit decisions are made in a two-person mode („four eyes” principle) by a representative of the business line and a representative of the organisational unit responsible for assessing the Customer and transaction risk independent of the business line. With respect to customers for whom credit risk is assessed using simplified risk assessment principles or risk assessment models, including scoring models approved by the Risk Management Committee or the Retail Banking/Personal Finance Risk Committees, as appropriate, credit decisions may be made on a one-person basis by business line representatives.

The Bank follows the below principles in its credit risk management:

  • each credit transaction requires a comprehensive assessment of credit risk, which is reflected in the internal rating or scoring,
  • thorough and diligent financial analysis is the basis for considering the client’s financial data and information on the value of collateral; the Bank’s conservative analyses always take into account the necessary margin of safety,
  • the basis for the Client’s financing is, as a rule, his/her ability to generate cash flow sufficient to repay his/her liabilities to the Bank,
  • the prepared credit risk assessment is subject to additional verification by credit risk assessment services independent from business services,
  • the pricing terms of the credit transaction must cover the risk of that transaction,
  • credit risk is diversified by geographical areas, economic sectors, products and customers,
  • credit decisions may only be taken by authorised persons,
  • the client and his/her transactions are monitored in a way that is transparent to the client and strengthens the relationship with the client.

Credit risk management in the Bank’s subsidiaries

The principles of the Bank’s supervision over the credit risk generated by the activity of subsidiaries is specified in the Credit Policy of BNP Paribas Bank Polska S.A.

The Bank recommends, reviews and accepts policies, principles and methodologies applied by its subsidiaries in terms of credit risk management.

In the Bank and its subsidiaries, parallel credit risk management methods are applied, including:

  • a rating system for Corporate Banking customers and Small and Medium Enterprises Banking;
  • risk classification system according to IFRS standards;
  • assessment of the creditworthiness of the Bank’s joint clients and companies;
  • a model for making credit decisions;
  • the Bank’s internal limits system for concentration risk, including limits on the subsidiaries’ portfolios of receivables.

Impact of the COVID-19 pandemic on credit risk

Due to the COVID-19 pandemic in 2021 the Bank has taken a number of actions regarding, i.a.

  • the possibility for customers to request temporary deferrals of principal and interest payments on loans under non-statutory and statutory moratoria,
  • review of the credit portfolio with special attention paid to sensitive industries, particularly strongly affected by the consequences of the pandemic.

The Bank actively participated in the work of the banking sector, regulators and arrangers of government aid directed at entrepreneurs, launched a number of solutions allowing customers to electronically apply to the Bank and benefit from aid programmes related to the consequences of the pandemic, and carried out ongoing monitoring of the number of customers and credit exposures affected by the consequences of the pandemic, including ongoing decisions regarding individual customers as to the type and structure of customer financing adequate to their current situation and available aid programmes.

The Bank also cooperated with Bank Gospodarstwa Krajowego with regard to liquidity guarantees offered to the Bank’s Customers and loan interest subsidy programmes.

As a partner of the Polish Development Fund programme, the Bank provided customers with the technical possibility to apply for financing from these programmes via electronic banking.

In the period from mid-January 2021 until the end of March 2021 the Bank focused on making the fullest possible use of available assistance programmes for Customers (non-statutory/private and statutory moratoria), including granting temporary deferment of instalment payments on loans, processing customer requests in this regard on an ongoing basis. After 31 March 2021 customer requests for deferment of instalments could be submitted and processed only in the scope of statutory moratoria.

The Bank has monitored the behaviour of exposures covered by moratorium support. Exposures subject to statutory credit holidays are transferred to Phase 3. For exposures subject to non-statutory credit holidays the Bank applies stricter criteria for classification into Phase 2. For this pool of exposures, overdue more than 3 days within a horizon of 3 months after the end of the moratorium is an indication of a significant increase in credit risk (Phase 2), which results in the calculation of write-downs over the life horizon of the exposure.

As at 31 December 2021, the total gross value of loans and advances covered by the Group’s ongoing and expired moratoria amounted to PLN 5,709,313 thousand, of which statutory moratoria amounted to PLN 255,747 thousand. The balance of expired moratoria at the end of 2021 was PLN 5,696,483 thousand and the balance of active moratoria was PLN 12,830 thousand.

Restructuring and debt collection

In 2021, a total of PLN 1,001.3 million of receivables were obtained, of which:

  • PLN 555.0 million – as a result of portfolio restructuring (corporate entities PLN 356.0 million, SMEs PLN 196.6 million, micro enterprises PLN 1.6 million, individual customers PLN 0.8 million),
  • PLN 288.5 million – as a result of debt collection activities (corporate entities PLN 32.7 million, SME PLN 28.1 million, micro enterprises PLN 97.0 million, individual customers PLN 106.1 million, mortgage loans PLN 24.6 million),
  • PLN 157.8 million – as a result of sale of impaired portfolio.

Quality of the Bank’s loan portfolio

Structure of loans by stages

The share of receivables classified to Stage 3 in 2021 was significantly better than in previous years. The share of loans at amortised cost classified to Stage 3 in the Group decreased from 5.4% at the end of 2020 to 3.6% at the end of 2021.

The quality of the loan portfolio achieved at the end of 2021, as measured by the share of loans classified as Stage 3, was significantly better than the quality of the loan portfolio in the banking sector as a whole. The share of Stage 3 receivables in the sector at the end of 2021 was 5.7%.

At the end of 2021, the write-down coverage for the portfolio classified as Stage 3 was 57.4% which is significantly above the coverage at the end of 2020. The increase in the coverage level for Stage 3 in the second half of 2021 is the result of the creation of allowances for exposures in default status due to changes in expected recovery levels and the aging effect of the Stage 3 portfolio.

Detailed information on the quality of the portfolio is presented in chapter 6.3 in the credit portfolio section.

The Bank also actively monitors the structure of the credit portfolio, including in particular the industry structure. Details are described in the Concentration risk section.

Concentration risk is an inherent risk taken by the Bank within the framework of its statutory activity and is subject to a specific management process and rules.

The Management Board assesses the adopted concentration risk management policy in terms of the way it is applied, in particular as regards its effectiveness and adequacy of rules implementation in the context of current and planned activities and taking into account the risk management strategy. In the event of significant changes in the Bank’s operating environment or risk management strategy, the review of the adequacy of the concentration risk management process is carried out immediately after the occurrence of such circumstances. Proper assessment of the concentration risk incurred by the Bank significantly depends on correct and complete identification of key risk factors that affect the concentration risk level. In justified cases, the Bank identifies the concentration risk in the process of planning a new business, including the introduction and development of new products, services and presence on the markets, and significant changes to the existing products, services and changes on the markets.

Diversification of the credit portfolio is one of the most important tools for credit risk management. Excessive credit concentration is undesirable for the Bank, as it increases risk. Potential losses related to a significant threat – thus, the degree of concentration should be monitored, controlled and reported to the Bank’s management. The basic tools of concentration risk mitigation are mechanisms of identification and measurement of concentration risk and limits of exposures in particular segments of the Bank’s portfolio and in subsidiaries. These tools enable diversification of the credit portfolio and reduction of negative effects related to unfavourable changes in particular areas of the economy.

One of the potential sources of credit risk is a high concentration of the Bank’s credit exposures in particular entities or groups of entities related by capital and organisation. In order to limit it, Regulation (EU) No. 575/2013 defines the maximum exposure limit for the Bank. Pursuant to Article 395 of Regulation (EU) No. 575/2013: An institution shall not incur an exposure, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, to a client or group of connected clients the value of which exceeds 25% of its Tier 1 capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value shall not exceed 25% of the institution’s Tier 1 capital or EUR 150 million, whichever the higher, provided that the sum of exposure values, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, to all connected clients that are not institutions does not exceed 25% of the institution’s Tier 1 capital.

The Bank monitors concentration limits in accordance with Article 387 of the EU Regulation No. 575/2013. As at the end of 2021, the limits specified in Article 395 of the EU Regulation No. 575/2013 were not exceeded. The Bank’s exposure to financing customers / groups of customers with capital or organisational links does not exceed the exposure concentration limit. The Bank’s largest exposure was 20.1%.

The concentration risk tolerance is defined in the Bank through a system of internal limits, which take into account both the directions and dynamics of business development assumed by the Bank, the acceptable level of credit and liquidity risk, as well as external macroeconomic and sectoral conditions and prospects. Internal limits for credit concentration risk are set for, i.a.:

  • selected economic sectors / industries,
  • exposures denominated in foreign currency,
  • customer segment (the Bank’s internal segmentation),
  • loans secured by a given type of collateral,
  • geographical regions,
  • the average probability of default,
  • exposures with a specific rating (the Bank’s internal rating scale),
  • exposures with a specific debt-to-income ratio,
  • exposures with a specific loan-to-value ratio.

Actions reducing the Bank’s exposure to concentration risk may include systemic actions and case-by-case actions related to a single / specific decision or transaction. Systemic actions limiting the concentration risk include:

  • limiting the scope of lending to specific types of customers by modifying the credit policy,
  • reducing the concentration risk limits,
  • diversification of asset types at the level of the Bank’s statement of financial position,
  • changing the business strategy in such a way that it prevents excessive concentration,
  • diversification in the types of collateral received.

Case-by-case actions (related to a single / specific decision or transaction) limiting the concentration risk include:

  • limiting new transactions with a given customer or group of connected customers,
  • sale of selected assets / loan portfolios,
  • securitisation of assets,
  • establishment of new collateral (e.g. credit derivatives, guarantees, subparticipation, insurance contracts) for existing or new credit exposures

The Bank’s industry concentration analysis covers all the Bank’s credit exposures to institutional customers. The Bank defines industries based on the Polish Classification of Activities (PKD 2007 code). The structure of the Bank’s exposure to industries analysed at the end of 2021, similarly as at the end of 2020, is characterised by concentration towards such industries as: Agriculture, Forestry, Hunting and Fishing and Manufacturing (in accordance with the section defined in the PKD). At the end of 2021, the share of Manufacturing increased by 3 p.p. to 24% compared to the end of 2020, while the share of the Agriculture, Forestry, Hunting and Fishing industry decreased by 4 p.p. compared to the end of 2020 and amounted to 22% of industry exposure.

At the end of 2021, the industries with the highest share of non-performing loans in industry exposure were Culture, entertainment and recreation activities (21.3%), Accommodation and food service activities (20.2%). For more detailed information on industry exposure, see Note 56.2 of CONSOLIDATED FINANCIAL STATEMENTS OF BNP PARIBAS BANK POLSKA S.A. CAPITAL GROUP for the year ended 31 December 2021.

Counterparty risk is the credit risk concerning the counterparty, with whom the transactions are concluded, and in case of which the amount of liability may change in time depending on market parameters. Thus, counterparty risk is related to transactions involving instruments the value of which may change in time depending on such factors as interest rates or foreign exchange rates. The varying exposure may affect the customer’s solvency and is of crucial importance to the customer’s ability to settle liabilities when the transaction matures. The exposure is determined by the Bank on the basis of the current contract valuation as well as the potential future changes in the exposure, depending on the transaction type, Customer type and settlement dates.

As at the end of December 2021, the counterparty risk was calculated for the following types of transactions: foreign exchange transactions, interest rate swap transactions, FX options, interest rate options and commodity derivatives.

Counterparty credit risk for transactions which generate counterparty risk is assessed using the same methodology as the one applied to loans. This means that in the credit process these transactions are subject to limits, the value of which results directly from the assessment of customer creditworthiness performed in the same way as in the process of credit product offering. However, the assessment also takes into account the specific nature of transactions, in particular their varying value in time or direct dependence on market parameters.

The principles applicable to foreign exchange transactions, derivative transactions as well as credit limit granting, use and monitoring for transactions subject to counterparty risk limits have been regulated in dedicated procedures. According to the policy adopted by the Bank, all transactions are entered into considering individual limits and knowledge of the customer. The Bank has defined groups of products offered to customers depending on their knowledge and experience. The Bank has transparent principles for collaterallising the counterparty risk exposures.

The market risk management process at BNP Paribas is divided into interest rate risk management in the trading book and currency risk management. The process is centralized, which means that all transactions that expose the Bank to the aforementioned risks are transferred to the Financial Markets Division, which is responsible for operational risk management within the limits granted. The unit responsible for measuring and monitoring the level of market risk is the Market and Counterparty Risk Division, which is organisationally separated up to the level of the Bank’s Management Board from the units performing activities that expose the Bank to risk. The key participants in the market risk management process are the Risk Management Committee, the Management Board and the Supervisory Board, which, within the scope of the authority and responsibility defined in the written regulations, decide on and allocate the amounts of market risk limits, the level of risk appetite, and monitor the level of their utilisation and the compliance of the business with the adopted strategy.

In measuring market risk, the Bank uses, among other things, the Value at Risk (VaR) method. VaR is the change in the market value of an asset or a portfolio of assets under certain assumptions about market parameters, over a fixed period of time and with a given probability. It is assumed that VaR for the purpose of currency risk monitoring is determined with a 99% confidence level over a one-day time horizon. The VaR methodology is subject to at least an annual review of the quality of implemented models, inter alia by performing a test comparing forecasted values and values determined on the basis of actual changes in risk factors, on the assumption that the open position remains unchanged (back-testing).

In addition to VaR, the Bank used a number of other measures in its market risk management process, such as open position limits for a given risk factor, loss limits, analysis of stress test results, or gamma and vega limits for option instruments.

Interest rate risk in the trading book is the risk of adverse changes in the Bank’s financial result or equity, driven by any of the following factors:

  • differences in the repricing dates of the Bank’s assets and the liabilities used for purposes of their financing (mismatch risk);
  • difference in reference rates used for purposes of determining the interest rate for items with the same repricing dates (basis risk);
  • changes in market interest rates which affect the fair value of the Bank’s open positions (interest rate volatility risk).

The interest rate risk in the trading book is classified as relevant, while the economic capital allocated to this risk represents less than 1% of the Bank’s total economic capital.

The global crisis triggered by COVID-19 and the ensuing turmoil in the financial instruments market forced a significant reduction in open interest rate positions. However, this did not adversely affect the execution of the planned budget.

Exposures to interest rate risk were the main source of risk in the trading book. The Bank assesses the level of this risk as moderate. In addition to instruments of a linear risk nature, the Bank maintained a small open position in interest rate options to ensure that customer transactions could be serviced at more favourable pricing conditions.

The table below presents the level of interest rate risk in the trading book in terms of value at risk with a 99% confidence level over a one-day time horizon, allowing the Bank’s result to be estimated in terms of its sensitivity to changes in market interest rates, including in particular potential losses.

XLS
FX VaR   (PLN’000) 2021 2020
Medium 1,266 1,085
Maximum 3,065 2,012
Minimum 556 174

 

Currency risk is the risk of adverse changes in the Bank’s financial result, driven by changes in market foreign exchange rates.

The Bank engages in activities resulting in the creation of foreign currency positions sensitive to exchange rate fluctuations. At the same time, it strives to limit its exposure to foreign currency risk related to offering its customers products in foreign currencies. The Bank undertakes limited activity on the foreign exchange market in order to generate financial results from short-term arbitrage positions. In addition to instruments of a linear risk nature, the Bank maintained a small open position in foreign exchange options to ensure that customer transactions could be serviced at more favourable pricing conditions.

Currency risk has been classified as relevant, while the economic capital allocated to this type of risk represents less than 1% of the Bank’s total economic capital.

The table below presents the level of currency risk in terms of value at risk with a 99% confidence level over a one-day time horizon, allowing the Bank to estimate the sensitivity of the Bank’s result to changes in market interest rates, including in particular potential losses.

XLS
FX VaR (PLN’000) 2021 2020
Medium 354 276
Maximum 1,725 3,916
Minimum 71 71

The Bank’s core business activities – lending and taking deposits from customers – result in open interest rate risk positions that are transferred from business lines to portfolios managed by the Asset and Liability Management Division by means of a transfer pricing system.

The structural elements (the stable, interest rate insensitive, part of the current accounts and capital) are hedged with longer maturity transactions. On the remaining portfolio, the Bank’s intention is to lock in interest rate risk.

When determining the interest rate risk profile, the Bank takes into account not only contractual parameters, but also the actual characteristics of the products resulting from customer behaviour and built-in options, applying models e.g. for current accounts, savings accounts, fixed rate loans, credit cards.

Modelling the behaviour of products divided into business lines allows to select their stable and unstable part, reacting in different ways to changes in interest rates.

The following basic types of interest rate risk analyses (for the overall portfolio and divided by currencies) are defined in the policy on interest rate risk adopted by the Bank:

  • a mismatch between the repricing dates of assets and liabilities („gapping”), for the banking book;
  • sensitivity of interest income to defined – expected and crisis (stressed) – scenarios for shifting interest rate curves, assuming various interest rate curve scenario (EaR);
  • the amount of interest income under defined scenarios for the change of interest rate curves (NII);
  • sensitivity due to different reference rates (basic risk);
  • average investment length of capital and non-interest bearing current accounts (structural elements);
  • sensitivity of fair value to a parallel shift of interest rate curves by 1 basis point, and to a shift of interest rate curves by 1 basis point at a selected nodal point of the curve;
  • sensitivity of fair value measured as the nominal value of the annual transaction (item) with identical sensitivity – One Year Equivalent (OYE);
  • change in fair value of capital with defined scenarios for changing interest rate curves.

The aforementioned analyses are the essential component of the system used for mitigating the interest rate risk in the banking book. The analyses are performed for the relevant portfolios on a daily, monthly or quarterly basis, depending on the type of analysis and the portfolio. Additionally, the Bank conducts sensitivity analyses for its banking book, where the changes in interest rates are more considerable than those typically observed (stress tests).

The table below presents the interest rate gap for the banking portfolio as at 31 December 2021. The gap presents the net amounts of revalued items by product in each time interval.  Utilisation of set limits is below the maximum values.

Interest rate gap (in PLN million)

XLS
Interest rate gap to 1 month 1-3 months 3-12 months 1-5 years over 5 years total
Cash and balances at the Central Bank 4,631,410                       –                       –                       –                       – 4,631,410
Amounts due from banks 2,175,621 69,000 10,000                       –                       – 2,254,621
Loans to customers 29,346,300 35,600,673 9,778,615 5,751,559 1,129,680 81,606,828
Securities 1,550,400             77,990 1,607,950 10,891,497 18,397,040 32,524,878
Other assets 1,244,065 52,216 234,971 1,253,181 626,590 3,411,024
Total assets 38,947,796 35,799,880 11,631,537 17,896,237 20,153,310 124,428,760
Amounts due to banks (3,064,819) (3,382,743) (415,356)                       –                       – (6,862,918)
Amounts due to customers (31,573,451) (7,305,519) (20,312,153) (29,683,473) (11,975,070) (100,849,666)
Other borrowed funds (415,356) (178,675) (30,790)                       – (137,103) (761,924)
Capital (259,987) (268,257) (1,207,156) (6,438,163) (3,219,081) (11,392,644)
Other liabilities      (4,391,074)                       –                       –                       –                       – (4,391,074)
Total liabilities (39,704,687) (11,135,193) (21,965,455) (36,121,636) (15,331,254) (124,258,225)
Off-balance sheet net liabilities (6,146,153) (6,107,753) (7,079,780) 15,151,152 4,050,232 (132,303)
Interest rate gap (6,903,044) 18,556,934 (17,413,698) (3,074,248) 8,872,288 38,231

 

The average length of capital investment and non-interest bearing current accounts as at 31 December 2021 was exceeding 4.9 years.

The sensitivity of interest income when interest rate curves shift as at 31 December 2021 largely depends on changes in the balance sheet structure and the impact of subsequent increases on product interest rates.

The Bank analyses the sensitivity of interest results for the variants:

  1. conservative variant – there is a large movement, especially in corporate clients, of non-interest-bearing deposits into interest-bearing deposits and a large part of the change in interest rates is reflected in the interest rate on these deposits,
  2. the most probable variant – there is a moderate transfer of non-interest-bearing deposits to interest-bearing deposits and interest rate increases are at a relatively low level,
  3. optimistic variant – the flow from non-interest-bearing to interest-bearing deposits is practically non-existent, and interest rates on interest-bearing deposits and savings accounts are close to their value at the end of 2021.

Sensitivity of interest income as at 31.12.2021 with immediate change of interest rates in all currencies by 100 basis points in the most probable variant (in PLN million)

XLS
Change in interest rate +100 pb -100 pb
PLN 191 (184)
All currencies – total 203 (195)

 

The impact of interest rate increases to date (from October 2021 to February 2022 by a total of 265 bps) on the Bank’s 2022 interest income was estimated at PLN 520-580 million.

The supervisory test of the Bank’s equity economic sensitivity (change in the fair value of the Bank’s assets and liabilities, excluding own funds, under the assumed changes in interest rate curves) is presented in the table below in terms of amounts and percentages:

Supervisory test of the Bank’s equity economic sensitivity

XLS
Scenario PLN million % of own funds
+200 pb (428.5) (2.76%)
-200 pb 45.0 0.29%

 

The economic sensitivity of capital is at a low level at the end of 2021.

At 31 December 2021, the Group applies hedge accounting:

  • macro fair value hedge – The hedged risk is interest rate risk, and in particular changes in the fair value of fixed-rate assets and liabilities caused by changes in a specified reference rate. The hedged items are current accounts with fixed interest rates in PLN, EUR and USD. The hedging instruments are plain vanilla interest rate swaps (IRS) in PLN, EUR and USD under which the Bank receives a fixed interest rate and pays a variable rate based on WIBOR 6M, WIBOR 3M, EURIBOR 6M, EURIBOR 3M, EURIBOR 1M, USD LIBOR 6M, USD LIBOR 3M.
  • micro fair value hedge – The hedged risk is interest rate risk, and in particular changes in the fair value of fixed-rate assets and liabilities caused by changes in a specified reference rate. The hedged items are: fixed coupon bonds PS0422. The hedging instruments are plain vanilla interest rate swaps (IRS) in PLN, under which the Bank pays a fixed interest rate and receives a variable rate based on WIBOR 6M.
  • cash-flow hedge – The hedged risk is interest rate risk and, in particular, changes in the cash flows of the hedged item caused by changes in a specified reference rate. The hedged items are: WZ1131 floating coupon bonds. The hedging instruments are plain vanilla interest rate swaps (IRS) in PLN, under which the Bank receives a fixed interest rate and pays a variable rate based on WIBOR 6M.

Liquidity risk is defined as the risk of the Bank losing the ability to meet its financial obligations, where liquidity is defined as the ability to:

  • finance assets and meet the Bank’s obligations on a timely basis in the course of its daily operations or in other conditions, without the necessity to incur loss, whereas, as maintenance of liquidity is the Bank’s top priority, optimization of liquidity costs is considered in the last place;
  • obtain alternative funds and supplementary funds to those held at present if they are withdrawn early and/or not renewed, so as to meet the current or potential demand for funds from the current depositors, ensure sufficient resources for purposes of lending and discharging other potential obligations related to processing derivative transactions or collateral put up by the Bank;
  • generate a positive balance of cash flows over a specified time horizon, regardless of macroeconomic developments, achievement of business plans and changes in the regulatory environment.

The Bank operates in a free-market environment and is a financial markets participant, specifically in the retail, corporate and interbank markets, which offers a wide range of opportunities to control the liquidity level, but, at the same time, makes the Bank sensitive to crises in each of these environments. There is an automated risk monitoring system in the Bank which enables the Bank to obtain information on the current level of future liquidity risk on a daily basis and online information on the level of the intraday liquidity risk.

The following types of liquidity are distinguished by the Bank:

  • immediate liquidity (intraday) – during the present day,
  • future liquidity – beyond the present day, additionally divided into:
    • current liquidity – within 7 days;
    • short-term liquidity – more than 7 days to 1 month;
    • medium- and long-term liquidity – over 1 month.

Liquidity risk is defined as the risk of the Bank losing its ability to:

  • meet its payment obligations on a timely basis;
  • secure alternative funds and supplementary funds to those currently held;
  • generate a positive balance of cash flows within a defined time horizon.

The Bank’s policy on liquidity risk management focuses on:

  • sustainable, organic growth of the balance sheet (an increase in the value of assets has to be linked with a corresponding rise in the level of financing with the use of stable equity and liabilities) as well as off-balance sheet transactions and liabilities;
  • limitation of the Bank’s dependence on changes in external conditions and ensuring that in a local crisis, global crisis or a crisis directly affecting the Bank, the Bank will be able to quickly meet its obligations without reducing the range of its services or initiating changes in its core business profile. If a crisis situation lasts longer, the Bank’s policy focuses on maintenance of liquidity with possible changes in growth directions and introduction of expensive business profile change processes;
  • active limitation of the probability of adverse events which may affect the Bank’s liquidity. In particular, this concerns events which may affect reputation risk. In such case, the Bank will undertake actions aimed at restoring confidence of both customers and financial institutions as soon as possible;
  • ensuring high quality of liquidity management standards. Actions aimed at improving the quality of liquidity management at the Bank are its top priority.

Customers’ deposits supplemented by medium- and long-term lines of credit and equity are the major sources of funding used by the Bank. Medium- and long-term lines of credit, including subordinated loans and the funds obtained in the process of loan portfolio securitization, are provided mainly by the BNP Paribas Group, but also by the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB) and the Council of Europe Development Bank (CEB) and other financial institutions. The policy adopted by the Bank allows the use of other funding sources, such as: issuing own debt securities or entering into structured transactions.

At the end of December 2021, the Bank financed a portfolio of mortgage loans in CHF with funds in EUR and USD by concluding medium- and long-term foreign exchange transactions.

Loan financing structure

The Bank limits the risk of financing, which is associated with the risk of having insufficient stable sources of financing in the medium- and long-term and with the necessity to incur an unacceptable level of losses.

The Bank’s loans are financed mainly with the use of customers’ current and term deposits and it is the Bank’s intention to maintain a stable relationship between these items and the funds deposited in the accounts of non-banking institutions, which is presented in the table below:

Structure of the Bank’s loan portfolio financing

XLS
in PLN million 31.12.2021
Net loans and advances 81,344
Total sources of funding 104,445
Customer deposits, including: 101,824
     – retail customers 44,771
     – corporate 53,305
     – non-banking financial institutions 2,161
     – public sector institutions 1,587
Liabilites due to banks 2,621
Debt securities issued 0

As at the end of December 2021, compared to December 2020, the amount of wholesale funding received from the BNP Paribas Group remained at the same level. The Bank finances its foreign currency loans with deposits accepted from customers using, if necessary, foreign exchange transactions. In case of a necessity, the Bank may use funds from medium and long-term loans from the BNP Paribas Group, which provides stable financing to cover currency shortages in EUR, USD or CHF.

As at 31 December 2021, the structure of open long-term lines of credit was as follows:

Structure of loans from the BNP Paribas Group

PLN million 31.12.2021
CHF 150
EUR 200
PLN 2,740

Structure of loans from the EBRD, EIB and CEB

XLS
PLN million 31.12.2021
PLN 101.5

The Net Liquidity Coverage Ratio (LCR) for the Bank was 142.8% at the end of December 2021, a decrease of 38.2 p.p. compared to the end of 2020 (181%). The decrease in the LCR measure is mainly due to an increase in loans larger than the increase in customer liabilities.

The Net Stable Funding Ratio (NSFR) for the Bank reached 133.3% at the standalone level and 131.2% at the consolidated level at the end of December 2021 representing a decrease of 9.5 p.p. at the standalone level and 9.9 p.p. on consolidated level compared to the end of 2020. The decrease is due on the one hand to an increase in the level of liabilities during the year and a decrease in liabilities from Customers at the end of 2021. On the other hand, the product structure of funds from customers changes following the interest rate increases from September 2021, more liabilities are accumulated in the form of time deposits, instead of deposits in current and savings accounts. Fluctuations in the ratio in 2021 were not significant: at the individual level from 133.3% to 145.69%, and at the consolidated level from 133.5% to 143.3% during 2021.

In addition, in the process of securitisation of the loan portfolio, the Bank received financing, the value of which amounted to PLN 1,040.5 million at the end of 2021.

The Bank defines operational risk in accordance with the requirements of the Polish Financial Supervision Authority included in Recommendation M as the possibility of incurring a loss or an unjustified cost through the fault of inappropriate or unreliable internal processes, people, technical systems or as a result of external factors. It incorporates legal risk, but does not include strategic risk. Operational risk is inherent in any type of banking operations. The Bank identifies operational risk as permanently significant.

Operational risk management system

The Bank maintains and develops an operational risk management system that comprehensively integrates the management of individual types of operational risk in all areas of the Bank’s operations. The objective of the operational risk management system is to ensure the safety of the Bank’s operations by implementing effective mechanisms for identification, assessment and quantification, monitoring, control, reporting and taking actions aimed at reducing operational risk. Such measures take into account the structures, processes, resources and scopes of responsibilities for the aforementioned processes at various organisational levels within the Bank

The operational risk management strategy is described in the “Operational Risk Management Strategy of BNP Paribas Bank Polska S.A.”, approved by the Management Board of the Bank and endorsed by the Supervisory Board. “The Operational Risk Policy BNP Paribas Bank Polska S.A.”, adopted by the Management Board of the Bank, includes the organisational framework and standards for operational risk management. These documents address all areas of the Bank’s operations as well as define the Bank’s objectives and methods achieving them with regard to the quality of operational risk management and compliance with legal requirements set out in the recommendations and resolutions issued by local banking supervision authorities.

The Bank’s operational risk management objectives include, in particular, compliance with high operational risk management standards that guarantee security of customer deposits, the Bank’s equity, stability of its financial result as well as maintenance of the operational risk level within the range of the operational risk appetite and tolerance defined by the Bank. The main measure used to measure risk within the adopted appetite for operational risk is the ratio of operational losses recorded by the Bank over the adopted time period. While developing the operational risk management system, the Bank complies with the applicable legal requirements, in particular the recommendations and resolutions of the national financial supervision authorities and the standards adopted by the BNP Paribas Group.

In accordance with the “The Operational Risk Policy BNP Paribas Bank Polska S.A.”, the Bank’s operational risk management processes include:

  • the identification and assessment of operational risk through the collection of information on operational events, the assessment of risks in processes and products and the determination of key risk indicators,
  • setting the operational risk appetite and limits at the level of the entire Bank and individual business areas analysis of operational risk and its monitoring and ongoing control,
  • preventing an increased level of operational risk, including risk transfer.

Compliance with the operational risk policy is verified by the Bank’s Management Board periodically and, if necessary, the required adjustments are made in order to improve the system. To that purpose, the Management Board of the Bank is regularly provided with information concerning the scale and types of operational risk to which the Bank is exposed, its effects and management methods. In particular, both the Bank’s Management Board and the Supervisory Board are regularly informed about the development of the operational risk appetite measures specified in the Operational Risk Management Strategy.

Internal environment

The Bank precisely defines the roles and responsibilities in the operational risk management process, considering its organisational structure. The operational risk management process is implemented through three lines of defence. The first line of defence consists of risk management in the operational activities of the Bank. The second line of defence includes, in particular, risk management by employees of specially appointed organisational units, independent of the risk management of the first line of defence, and the activities of the compliance function. The third line of defence involves the activities of the internal audit department.

Within the second line of defence, comprehensive supervision of the organisation of operational risk management standards and methods is exercised by the Operational Risk Department operating within the Risk Area. The definition and implementation of the Bank’s strategy with regard to insurance, as a method of risk mitigation, is the responsibility of the Real Estate and Administration Department. Business continuity management, on the other hand, is the responsibility of the Security and Business Continuity Management Division.

As part of the legal risk management process, the Legal Division monitors, identifies and performs analyses of changes to laws of general application and their effect on the Bank’s operations, in addition to court and administrative proceedings which affect the Bank. The Compliance Department is responsible for day-to-day compliance risk analysis as well as development of appropriate risk control techniques and their improvement.

In view of the increase in external and internal threats bearing the characteristics of fraud or crime against the assets of the Bank and its customers, the Bank has expanded and improved its processes for prevention, detection and investigation of such cases. The Fraud Prevention Department, as the second line of defence, supervises the activities performed in this area. The Bank’s Management Board and the Risk Committee of the Supervisory Board are informed about the effectiveness of solutions implemented by the Bank in this area.

Risk identification and assessment

The Bank places a strong focus on identification and assessment of the factors that trigger its present exposure to operational risk in relation to banking products. It is the Bank’s objective to reduce the operational risk level through improvement of its internal processes as well as mitigating the risk inherent in the process of launching new products and services and outsourcing operations to third parties.

In accordance with the “The Operational Risk Policy BNP Paribas Bank Polska S.A.”, operational risk analysis is aimed at acquiring an understanding of the interdependence between the risk generating factors and operational event types, and it is performed primarily with the objective to define the operational risk profile.

The operational risk profile is the assessment of materiality of the risk, which is understood as the scale and structure of the operational risk exposure, defining the degree of exposure to the operational risk (operational losses), within the structural dimensions selected by the Bank (key process areas) and the scale dimensions. Periodic assessment and review of the Bank’s operational risk profile is based on an analysis of the Bank’s current risk parameters, changes and risks occurring in the Bank’s environment, implementation of the business strategy, as well as the adequacy of the organisational structure and the effectiveness of the risk management and internal control system.

Internal control system

The purpose of internal control is effective risk control, including risk prevention or early detection. The role of the internal control system is to achieve general and specific objectives of the internal control system, which should be considered at the design stage of control mechanisms. The principles of the internal control system are described in the „Policy on internal control at BNP Paribas Bank Polska S.A.”, approved by the Bank’s Management Board. This document describes the main principles, organisational framework and standards for the functioning of the control environment in the Bank, complying with the PFSA’s requirements provided in Recommendation H. Detailed internal regulations concerning specific areas of the Bank’s activity are adapted to the specifics of the Bank’s operations. The appropriate organisational units of the Bank, in accordance with the scope of the tasks assigned to them, are responsible for developing detailed regulations relating to the area of internal control

The internal control system in the Bank is based on the 3 lines of defence model.

The Bank ensures the exercise of internal control through independent monitoring of compliance with controls, including ongoing verification and testing. The Bank strengthened the control environment in 2021 by, among other things, developing a tool to record and manage testing of the internal control environment.

Control and monitoring

The Bank periodically monitors the efficiency of the operational risk management system and its appropriateness for its current risk profile. The organisation of the operational risk management system is reviewed as part of periodic control exercised by the Internal Audit Division, which is not directly involved in the operational risk management process but provides professional and independent opinions supporting achievement of the Bank’s objectives. The Supervisory Board oversees the control of the operational risk management system and assesses its adequacy and effectiveness.

Operational risk capital requirements

In accordance with the applicable regulations, the Bank determines regulatory capital to cover the operational risk. The Bank uses the standardised approach (STA) for calculation of the capital requirement. Subsidiaries of the Bank, on a consolidated basis, determine the capital requirements according to the basic indicator approach (BIA).

Operational risk management in the Bank’s subsidiaries

In accordance with supervisory regulations, the Bank supervises the operational risk related to the operations of its subsidiaries. Operational risk management in subsidiaries is carried out within dedicated units / persons appointed for this purpose. The manner and methods of operational risk management in subsidiaries are organised adequately to the scope of operations of the entity and its business profile, in accordance with the principles in force at the Bank.

ESG risk management

  • 102-11
  • 102-15
  • 102-30
  • 103-1
  • 103-2
  • 103-3
  • TCFD
  • TCFD

The types of risk identified as potentially important are analysed in terms of their materiality – the result is a list of key risks. To assess the importance of risks, the Bank:

  • Defines the concept of risk materiality,
  • Defines the factors determining risk materiality,
  • Assesses risk materiality,
  • Prepares a report on the assessment of risk materiality.

The materiality assessment process is the same for all risks.

In 2020, the Bank recognised ESG risks as significant. Therefore, it became necessary to include the impact of environmental protection, social policy and corporate governance factors in the traditional risk management model. Based on the aforementioned factors, ESG risk was included in the Risk Management Strategy and Risk Appetite. To reduce and control the risk, the Bank developed principles for measuring ESG risk in the process of assessment of the Bank’s internal capital (ICAAP). The capital plan of BNP Paribas Bank Polska S.A. for 2022-2025 was supplemented with limits for ESG risk determined based on the risk measurement performed.

In 2021, in response to the EBA/GL/2020/06 Guidelines of May 29, 2020 on the granting and monitoring of loans, the Bank developed ESG assessment questionnaires for the credit process. The purpose of the assessment is to identify any ESG-related risks affecting the financial situation of Customers, as well as the impact of Customers’ business activities on ESG factors (principle of double materiality). ESG risk management rules at BNP Paribas Bank Polska S.A. were also developed.

The Bank’s ESG risk analyses consider ESG factors that may have a positive or negative impact on financial results, Customer solvency or company value, as well as the impact of our Customer’s business activity on ESG factors.

  • Greenhouse gas emissions,
  • Energy consumption and efficiency,
  • Water, air and soil pollution,
  • Effective management of water consumption (risk of freshwater shortage),
  • Soil degradation,
  • Deforestation,
  • Consumption of natural resources,
  • Waste management,
  • Biodiversity and ecosystem protection,
  • Risk of no energy transformation,
  • Development of low-carbon technologies and other environmental Technologies (transition risk),
  • Regulatory restrictions, including additional taxes and fees, e.g. carbon tax (transition risk),
  • Physical risks associated with climate change (extreme weather events and gradually worsening climate conditions), including the effects of natural disasters that may cause, i.a., a decline of asset value,
  • Changes in consumer moods and preferences related to growing awareness of environmental risk,
  • Risk of financial liability for the negative impact of conducted activity (damages, penalties),
  • Integration of various social groups,
  • Supporting social cohesion,
  • Respect for diversity,
  • Whistleblower protection,
  • Investing in human capital and communities,
  • Counteracting discrimination on any grounds,
  • Combating inequalities and promoting equal opportunities,
  • A safe and healthy work environment,
  • Health and safety of Customers, local communities and the environment,
  • Protection of Customers’ privacy,
  • Training and development,
  • Failure to respect human rights (forced labor, child labor, modern slavery),
  • Non-observance of workers’ rights: right to association, right to protest, right to collective bargaining, ethical standards for employment,
  • The risk of failure to prevent terrorism and cybercrime threats,
  • Infectious diseases (affecting humans or animals),
  • Risk of financial liability for the negative impact of conducted activity (damages, penalties),
  • Unethical and unfair business practices,
  • Non-compliance with corporate governance standards (code of ethics, mechanisms for reporting complaints and irregularities, information transparency),
  • Gender diversity in corporate bodies,
  • Internal audit,
  • Independence of the board,
  • Management salaries,
  • Abuses and corrupt practices,
  • Shareholders’ rights,
  • Stakeholder involvement,
  • Defective ESG risk control systems,
  • Supply chain requirements,
  • Compliance with the regulations of the non-financial sector,
  • Risk of financial liability for the negative impact of conducted activity (damages, penalties).

A detailed description of the Bank’s approach to managing climate-related opportunities and risks can be found in the Environmental perspective chapter.

In addition, the Bank exercises caution regarding the financing of sectors considered sensitive in terms of ESG risk and limits its share in industries widely recognised as harmful and inconsistent with sustainability principles.

In each sector considered particularly harmful, we implement CSR Policies and Principles. To become a Customer of the Bank or obtain financing, an entity must meet several requirements listed by the Policy for a given sector. The Bank makes strategic decisions to cease servicing Customers representing sectors that are particularly harmful in terms of sustainability.

CSR sector policies are described in the Business Perspective chapter.

Regulatory risk resulting from changes in the legal environment related to ESG strategy is also an essential aspect for the Bank. We monitor the activity of supervisory authorities and legislative proposals in the financial sector to ensure adequate risk management and control. The Bank recognises changes in the ESG area and assumes that they will significantly impact its operations.

The Bank analyses the possible impact of climate change trends by identifying opportunities and threats to its business and development prospects. To this end, it has distinguished climate-related risks and opportunities in the short, medium and long term.

A detailed description of the Bank’s approach to managing climate-related opportunities and risks can be found in the Environmental perspective chapter.

The Bank has implemented effective systems of operational control, risk management, compliance supervision, as well as audit and internal control. The simultaneous functioning of all the above-mentioned elements enables the Bank to exercise constant and effective supervision in the area of corruption prevention.

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