54. Operating segments

The Group divided its activities and applied the identification of income and expenses as well as assets and liabilities to the following reporting operating segments: Retail and Business Banking, Banking of Small and Medium Enterprises (SME), Corporate Banking, Corporate and Institutional Banking (CIB) and Other Operations, including ALM division and the Corporate Centre. Additionally, performance related to Agro customers, i.e. individual farmers and agro-food sector enterprises, as well as the Personal Finance Segment has been presented. Although the aforesaid segment performance overlaps with that of the basic operating segments, it is additionally monitored separately for purposes of the Bank’s management reporting. The abovementioned segmentation reflects the principles of customer classification to each segment in line with the business model adopted by the Group, which are based on such criteria as the entity, finances and type of business activity.   

The Group’s management performance is monitored by considering all items of the statement of profit or loss of the particular segment, to the level of gross profit, i.e. for each segment revenue, expenses and net impairment losses are reported. Management revenue takes into account cash flows between customers segments and the asset liability management unit, measured by reference to internal transfer prices of funds based on market prices and liquidity margins for each maturity and currency. Management expenses of the segments include direct operating expenses and expenses allocated using the allocation model adopted by the Group. Additionally, the management performance of the segments may take into account amounts due to each business line for services between such lines. 

The Group’s operations are conducted in Poland only. As no considerable differences in the risks, which might be affected by the geographical location of the Bank’s branches, can be identified, no geographical disclosures have been presented. 

The Group applies consistent, detailed principles to all identified segments. As regards the revenue, in addition to standard items, components of the net interest income of the segments have been identified, to include external and internal revenue and expenses. As regards operating expenses, the Group’s indirect expenses are allocated to each segment in the Expense allocation (internal) item. Considering the profile of the Bank’s business, no material seasonal or cyclical phenomena are identified. The Group provides financial services, the demand for which is stable, and the effect of seasonality is immaterial. 

The Retail and Business Banking Segment offers comprehensive services to retail customers, including private banking customers  as well as business clients (microenterprises), including: 

• entrepreneurs whose annual net income for the preceding financial year is below PLN 4 million, conducting full financial reporting,  
• entrepreneurs conducting simplified financial reporting, 
• cooperatives and housing communities as well as property managers,  
• non-profit organizations, 
• individual farmers irrespective of production size, if the credit exposure is less than PLN 3 million, individual farmers irrespective of production size, if the credit exposure is between PLN 3 million and less than PLN 4 million and the collateral on agricultural land covers at least 50% of the credit exposure. 

The scope of financial services offered by the Retail and Business Banking Segment includes maintenance of current and deposit accounts, acceptance of term deposits, granting mortgage loans, cash loans, mortgage advances, overdrafts, loans to microenterprises, issuing debit and credit cards, cross-border cash transfers, foreign exchange transactions, sale of insurance products as well as other services of lesser importance to the Group’s income. Additionally, the performance of the Retail and Business Banking Segment includes: balances and performance of direct banking Optima, performance of brokerage services and distribution and storage of investment fund units. 

The Retail and Business Banking customers are served by the Bank’s Branches and alternative channels, i.e. online banking, mobile banking and telephone banking, direct banking channel Optima and Premium banking channel as well as Wealth Management (respectively investing assets above PLN 100 thousand and in the amount of minimum PLN 1 million). Selected products are also sold by financial intermediaries active at the country and local level. 

Personal Finance is responsible for development of product offering and management of financial services provided to consumers, with the major products: cash loans, car loans, instalment loans and credit cards. The aforesaid products are distributed through the Retail and Business Banking branch network as well as external distribution channels. 

SME Banking provides services to: 

• Agro clients preparing full financial reporting in relation to net sales revenue for the previous financial year in the range between PLN 4 million and PLN 60 million and credit exposure below 18 million, agricultural producers with a credit exposure to the Group not exceeding PLN 40 million and Agro customers belonging to the group of affiliated entities, with a net sales revenue between PLN 4 million and PLN 80 million, and a credit exposure not exceeding PLN 40 million, as well as – irrespective of the level of the Group’s revenues and the level of involvement of the Group – groups of agricultural producers and organizational units of the state-owned National Forest Holding, 
• non-Agro clients – a sub-segment to which entities preparing full financial reporting are qualified, with net sales revenues for the previous financial year from PLN 4 million to PLN 60 million and with the credit exposure below PLN 18 million, as well as public finance units with a budget of up to PLN 100 million and a credit exposure not exceeding 18 million, 
• farmers (i.e. business entities conducting agricultural activity) preparing full financial reporting, with net revenues for the previous financial year and with credit exposure below PLN 40 million, as well as individual farmers, if their credit exposure is in the range from PLN 4 million to PLN 40 million and between PLN 3 million and PLN 4 million, if the collateral on arable lands covers less than 50% of the credit exposure. 

Corporate Banking offers a wide variety of financial services to large and medium-sized enterprises as well as local government entities and entities operating in multinational capital groups. 

Clients of Corporate Banking are divided into 5 groups: 

• international clients (entity belonging to international groups through capital or personal links),  
• Polish entities (or groups of Polish related entities) with net sales revenues exceeding or equal to PLN 60 million or with credit exposure exceeding PLN 18 million (in case of Farmers with credit exposure exceeding PLN 40 million), 
• the largest Polish corporations, i.e. Polish entities (or groups of Polish related entities) with annual sales revenues exceeding EUR 150 million, large Polish corporations with annual revenues below EUR 150 million or characterised by one of the following features: stock exchange status, cross-selling potential, business growth exceeding 50% in the last 3 years, 
• institutional investors, e.g.: insurance institutions, investment funds, national payment institutions, 
• public sector entities. 

Distribution network for Corporate Banking is based on Regional Corporate Banking Centres located in Warsaw, Łódź, Gdańsk, Poznań, Wrocław, Katowice, Kraków and Lublin. As part of the Regional Corporate Banking Centers, there are Corporate Banking Centers located in the largest business centres in Poland, ensuring a wide geographical and sector coverage. After-sales service for the clients of the Corporate Banking segment is also carried out by the Telephone Business Service Center and in the online banking system. 

The basic products and services provided to Corporate Customers include cash management and global trade finance services – comprehensive services related to import and export LCs, bank guarantees and documentary collection, supply chain and exports financing, acceptance of deposits (from overnight to term deposits), corporate finance services which involve provision of overdraft facilities, revolving and investment loans as well as agro-business loans), financial market products, to include foreign exchange and derivative transactions for the account of customers, lease and factoring products as well as specialised services such as financing real estate, structured finance services to mid-caps and investment banking and services related to public sector entities: organisation of municipal bond issues, forfaiting, dedicated cash management solutions. 

The Corporate and Institutional Banking (CIB) Segment supports sales of products of the Group, dedicated to the largest Polish enterprises including services provided to key clients.  

Other Banking Operations are performed mainly through the ALM Treasury, the main objective of which is ensuring an appropriate and stable level of funding to guarantee the security of the Bank’s operations and compliance with the standards defined in the applicable laws. 

The ALM Treasury assumes responsibility for liquidity management at the Group, setting internal and external reference prices, management of the interest rate risk inherent in the Bank’s statement of financial position as well as the operational and structural currency risk. The ALM Treasury focuses on both prudential (compliance with external and internal regulations) and optimisation aspects (financing cost management and generating profit on management of the Group’s items from the statement of financial position).  

The Other Operations segment includes also direct costs of the support functions, which have been allocated to segments in the Expense allocation (internal) item, as well as results that may not be assigned to any of the aforementioned segments (to include equity investment, gains/losses on own accounts and customer accounts not allocated to a specific segment).