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Risk management is one of the key internal processes, both in PKO Bank Polski SA, and in other entities of the PKO Bank Polski SA Group.
Annual Report

Risk management

Risk management is aimed at ensuring the profitability of business activities while ensuring control over the risk level and maintaining it within the system of limits and risk tolerance limits adopted by the Bank and the Group in the changing macroeconomic and legal environment.

The primary objective is to ensure adequate management of all types of risk related to its business. As part of the risk management system, the PKO Bank Polski S.A. Group identifies, measures and assesses, controls, forecasts, monitors and reports risk, and performs management actions.

The risk management system covers:

  • organizational structure, allocation of duties and responsibilities;
  • internal regulation system;
  • tools, including information databases.
PKO_management board PKO_management board

Risk management at the Bank’s Group is based, in particular, on the following principles:

  • the Bank’s Group manages all identified types of risk;
  • the risk management process is appropriate from the perspective of the scale of operations and materiality, scale and complexity of a given risk, and adjusted on an on-going basis to take account of the new risks and their sources;
  • risk management methods (especially models and their assumptions) and risk management measurement or assessment systems are tailored to the scale and complexity of individual risks, the current and planned operations of the Bank’s Group and its operating environment, and are periodically verified and validated;
  • the area of risk management remains organizationally independent from business activities;
  • risk management is integrated into the planning and controlling systems;
  • the level of risk is monitored and controlled on an on-going basis;
  • the risk management process supports the implementation of the Bank’s strategy in compliance with the Risk Management Strategy, in particular with respect to the level of risk tolerance.

The Bank regularly, at least annually, assesses the materiality of the identified risks. Some of them have a material impact on the profitability and capital necessary to cover the exposure. Internal capital is assessed for risks that are regarded as material. All risks classified as material for PKO Bank Polski S.A. are also material for the Bank’s Group.

In 2021, the catalogue of risk types regarded as material was not extended.

  • credit risk – the risk of incurring losses due to the Customer’s default in payments to the Bank’s Group or as a risk of a decrease in the economic value of amounts due to the Bank’s Group when the Customer’s ability to repay amounts due to the Bank deteriorates.
  • currency risk – the risk of incurring losses in connection with exchange rate fluctuations. The risk is generated by maintaining open positions in various foreign currencies.
  • interest rate risk – the risk of incurring losses on the Bank’s Group’s statement of financial position and off-balance sheet items sensitive to interest rate changes, in connection with changes in interest rates on the market.
  • liquidity risk – the risk of the inability to regularly settle liabilities due to a lack of liquid assets; liquidity risk comprises financing risk.
  • Operational risk – the risk of losses being incurred due to the failure or unreliability of the internal processes, people and systems or due to external events. This risk includes legal risk and cyber security risk;
    • Legal risk – the risk of losses being incurred due to a lack of knowledge and understanding, failure to comply with legal norms and accounting standards, inability to enforce contractual provisions, unfavourable interpretations or rulings issued by courts or public administration bodies,
    • cyber security risk – the degree of exposure to potential negative cyber security risk factors related to telecommunication technologies which may lead to a financial loss for the organization by violating the availability, integrity, confidentiality or accountability of the information processed in the Bank’s IT system resources (SIB).
  • risk of foreign currency mortgage loans for households – the risk of incurring losses due to the Customer’s default in payments to the Bank related to a foreign currency mortgage loan.
  • business (strategic) risk – the risk of failing to achieve the assumed financial targets, including incurring losses, which results from adverse changes in the business environment, making bad decisions, incorrectly implementing the decisions made, or not taking appropriate actions in response to changes in the business environment.
  • macroeconomic risk – the risk of deterioration in the Bank’s Group financial situation as a result of an adverse change in macroeconomic conditions.
  • model risk – the risk of incurring losses resulting from incorrect business decisions made based on the models in place.
  • With respect to credit risk PKO Bank Polski S.A.:
    • monitored its Customers’ positions and adapted its lending policy in consideration of securing a good quality loan portfolio and minimizing COVID-19 effects on Customers;
    • launched – in accordance with the suggestion of the PFSA Chairman – an amicable settlement programme with reference to housing loans for consumers granted or denominated in CHF, which consists of proposing that the CHF loan be converted to PLN, as if the loan had been a PLN loan from the outset.
  • In the first three quarters of 2021 the low interest rate environment was a challenge for the banking sector with respect to interest rate risk. In the fourth quarter, the Monetary Policy Council increased interest rates thrice, by a total of 165 b.p. This led to an increase in the reference rate from 0.10% to 1.75%, causing a drop in the value of debt instruments and IRS instruments which hedge interest income fluctuations. Throughout 2021 the Bank continued the process of hedging interest rate risk both by concluding IRS hedging transactions, and by appropriately shaping the structure of its assets and liabilities.
  • The Bank’s Group has prepared to stop publishing some of LIBOR reference rates by their administrators as of 1 January 2022; this refers to rates which are used to determine the interest rates on loans or amounts due for payment with respect to other financial instruments. Respective detailed information is provided in the chapter below.
  • With respect to operational risk management, PKO Bank Polski S.A. focused on countering the threats resulting from the pandemic to ensure that the Customers and employees are safe and to ensure uninterrupted functioning of business processes, in particular:
    • conducted constant monitoring of reports on employee infections, contacts of employees with infected persons, prevention quarantines and quarantines ordered by the sanitary authority SANEPID; meetings of the Crisis Staff and task and regional teams met regularly to coordinate the operations of the Bank’s Group with respect to the COVID-19 pandemic on an on-going basis;
    • on an on-going basis identified threats related to COVID-19 which were regularly monitored and reported to the Operational Risk Committee;
    • took actions to limit identified threats, including in particular those relating to work procedures and conditions, ensuring appropriate efficiency of the IT infrastructure and its safety;
    • regularly conducted educational actions on cybersecurity for Customers and employees, which were and are especially important due to the increasing use of remote channels in Customer service processes.

A detailed description of material risks management principles, including risk mitigation techniques, protection measures taken and hedge accounting policies is provided in the Bank Group’s financial statements for 2021 (in the part describing the purposes and principles of risk management and in Note 32 relating to hedge accounting), and in the Capital Adequacy Report and other information reportable by the PKO Bank Polski S.A. Group as at 31 December 2021.

he Bank pursues the ESG (environmental, social and corporate governance) risk integration plan with the risk management system in place at the Bank and pursuant to its stipulations determines ESG risk management processes embedding them comprehensively in the existing risk management framework.

ESG risk was defined by the Bank as the risk of negative financial consequences for the Bank of the current or future impact of ESG risk factors on Customers and counterparties or the Bank’s statement of financial position items.

The purpose of managing the ESG risk is to support sustainable growth and build the Bank’s long-term value pursuant to the Bank’s Strategy, through integrated management of impacts of the ESG factors.

The Bank manages the ESG risk as part of other risks management, and due to the specific nature of the ESG risk it is not defined as a separate risk, but as a cross-sectional risk with an impact on the Bank’s particular risks, in particular on credit risk.

In its Risk Management Strategy the Bank determined the quantitative strategic tolerance limit with respect to the ESG risk, as the share of loans to Customers from high-emission industries in the Bank’s total assets.

Reform of benchmark interest rates

Interbank interest rates (IBORs) such as WIBOR, EURIBOR and LIBOR are universally used as reference rates to determine interest for a wide range of contracts and financial instruments.

In the European Union, a new standard was set for developing, making available and using reference rates. Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014 (hereinafter: the BMR) constitutes the legal basis in this respect, which, among other things:

  • specifies the rules to be used to develop and use transparent, reliable and fair reference rates;
  • indicates expanded controls over determining benchmark indices;
  • expects that benchmark rates as a rule will be determined based on real transactions conducted on a given market.

In October 2020 ISDA, i.e. the international organization which sets standards for trading in derivative financial instruments published the so-called ISDA Protocol, describing the procedure for replacing in existing and new derivative transactions indices from the LIBOR family with new risk-free indices. The Bank adhered to the Protocol in November 2020.

On 10 February 2021 the European Union published an amendment to the BMR, giving the European Commission or an EU Member State competences to designate a replacement for the benchmark index which will cease to be developed – if such an event could threaten the stability of the EU market or the market of an EU Member State. The replacement will, by virtue of the law, replace all references to the index which ceases to be published, in all contracts and financial instruments in which there are no emergency clauses or the provisions of which do not stipulate solutions in the event of permanently ceasing to publish an index.

On 5 March 2021 the Financial Conduct Authority (FCA) announced that after 31 December 2021 it will discontinue publishing selected LIBOR rates due to the inability to adapt them to the requirements of the BMR. To further use them in contracts and financial instruments concluded until the end of 2021, 1, 3 and 6M LIBOR USD will be published until 30 June 2023, and 1, 3 and 6M LIBOR GBP and JPY – for 1, 3 and 6 months in synthetic form – until the end of 2022.

With respect to EURIBOR, the process of adapting the rate to the requirements of the BMR was completed in June 2019 by expanding the scope of transactions used to determine the amount of the ratio and to introduce a cascade method which enables determining a temporary ratio when there are no transactions.

The reform of the WIBOR rate and adaptation to the BMR were completed in 2020 and consisted of changing the methodology for calculating the rate in a manner corresponding to that adopted for calculating EURIBOR. On 16 December 2020 the Polish Financial Supervision Authority decided to grant a permit to GPW Benchmark S.A. for administering key reference ratios: WIBID and WIBOR.

For the LIBOR family ratios, the FCA decision, referred to above, remains in force whereby the rates cease to be published and at the same time the said bridging solutions for USD, GBP and JPY are to be used to service the existing portfolio. With respect to LIBOR CHF the European Commission availed itself of the rights referred to above and on 22 October 2021 it issued an Implementing regulation determining the SARON 1-, 3-, 6- and 12-month composite rates, adjusted by a specified spread, as a replacement for the respective CHF LIBOR rates. The regulation applies as of 1 January 2022.

The evolution of the legal environment and market migration to the benchmark rates in accordance with the BMR may have an impact on the Bank Group’s and PKO Bank Polski S.A.’s operations due to the contracts concluded with Customers and counterparties, a change in the value of financial instruments and the need to adapt processes and IT systems.

The Bank Group’s exposure to key benchmark rates used with respect to assets, liabilities and derivative financial instruments as at the end of 2021, at carrying amounts, is as follows:

Financial assets Currency translated to PLN (in PLN million)
31.12.2021 LIBOR CHF LIBOR USD Other Total
Loans and advances to Customers
(measured at amortized cost)
12,665 530 149 13,344
Total assets 12,665 530 149 13,344
Financial and off-balance sheet liabilities Currency translated to PLN (in PLN million)
31.12.2021 LIBOR CHF LIBOR USD Other Total
Amounts due to Customers (measured at amortized cost) 1 25 7 33
Allowance for financial commitments and guarantees granted 3 4 7
Total liabilities 4 29 7 40
Financial and guarantee commitments granted 129 3 156 65 3 350
NOMINAL VALUE of derivative instruments Currency translated to PLN (in PLN million)
31.12.2021 LIBOR CHF LIBOR USD Other Total
Derivative hedging instruments 8,458 833 9,291
Purchase (variable purchase leg) 3,640 833 4,473
Sale (variable sell leg) 4,818 4,818
Other derivative financial instruments 10,562 1,726 12,288
Purchase (variable purchase leg) 5,270 973 6,243
Sale (variable sell leg) 5,292 753 6,045

As of the third quarter of 2020 the Bank has conducted an inter-disciplinary project supervised by Members of the Management Board, adapting the Bank and the Bank’s Group to the requirements of BMR and, among other things, to the interpretations and guidelines of the Polish Financial Supervision Authority, in particular in the following scopes:

  • developing and implementing an emergency plan in the Bank, in contracts and in the Bank’s internal rules;
  • adapting the offer of products and services;
  • adapting transaction, accounting, analytical, risk and reporting systems;
  • adapting the process of hedge accounting;
  • annexing contracts and accessing to the market determined standards;
  • cooperating with the banking sector to develop a uniform interpretation of the provisions of the BMR and the standards for its implementation.

As a result of the project work, as of 1 January 2022 the Bank and the Bank’s Group will continue to service loan portfolios and new loan contracts, continuing to use WIBOR and EURIBOR as previously. With respect to loan contracts which use LIBOR and which were concluded before 1 January 2022, they will be serviced using the replacement rate for CHF indicated by the European Commission and “bridge” ratios available until 30 June 2023 for USD and until 31 December 2022 for GBP. Individual contracts using LIBOR EUR were annexed to EURIBOR. With respect to new loans granted to corporate Customers in foreign currencies based on variable exchange rates, new benchmark rates will be used, the so-called risk-free rates, e.g. SARON for CHF, SOFR for USD, SONIA for GBP, and depending on the nature of the product, interest will be accrued on a daily basis or using the interest rate compounding mechanism in advance, i.e. based on historical rates, or in arrears, i.e. at the end of the period of accruing interest. With respect to financial market transactions, the Bank, as already mentioned, acceded the ISDA Protocol and will service and settle transactions in accordance with this standard, i.e. using risk-free compound interest rates.

Characteristics of the Bank's credit policy

The credit policy of the Bank and the Bank’s Group consists of a set of principles and guidelines contained in credit regulations and procedures, which together form the credit risk management process.

The Bank’s credit risk management takes into account external factors, including compliance with external regulations and recommendations of the supervision and inspection authority, as well as internal factors, including in particular the level of strategic limits and credit risk parameters.

The priority of the risk management activities is the balanced relation of risk and the assumed profitability level, within the specified risk appetite limits. Comprehensive risk measurement is ensured by using a wide range of qualitative and quantitative methods, which are supported by appropriate IT systems and analytical tools.

The credit risk management model is adjusted to the current business activity and market conditions in the individual customer segments.

Credit risk assessment of exposures is separated from the sales function thanks to an appropriate organizational structure, independence in developing and validating tools supporting an assessment of credit risk and independence of decisions approving departures from the recommendations of these tools.

The financing terms offered to the Customer depend on the assessment of credit risk level of the Customer

In 2021 PKO Bank Polski S.A. adapted its credit risk management rules and processes to account for the requirements of the Polish Financial Supervision Authority, including the new definition of default, and new guidelines relating to granting and monitoring loans, including in particular with respect to leveraged loans, and for the requirements of the amended Recommendation S of the PFSA relating to the management of mortgage-secured loan exposures.

According to the rating of corporate Customers, companies and enterprises, the Bank each time assesses and classifies the impact of environmental, social and corporate governance factors (ESG) on the Customer’s creditworthiness and identifies leveraged credit transactions. The Bank’s subsidiaries with a material level of credit risk manage credit risk individually. Their credit risk assessment and measurement methods are adapted to those applied at PKO Bank Polski S.A. They take into account the specific nature of the entity’s activities.


The Bank’s Group has adopted policies for the most important social and employee-related issues, the natural environment, respect for human rights and prevention of corruption and has regulations in the following areas (a full description is available Investor Relations website).

  • Code of Ethics
  • Information policy and communication with investors
  • Dividend policy
  • Security policy (incl. cybersecurity)
  • Policy on the assessment of suitability of the Supervisory Board members
  • Diversity policy in respect of the Management and Supervisory Board
  • Sponsorship and charity policy
  • Policy for appointing an audit company
  • Policy for counteracting money laundering and financing of terrorism
  • Principles for ensuring compliance and managing non-compliance risk
  • Employment regulations of the bank and recruitment principles
  • Remuneration policy
  • Principles for employee development
  • Principles for counteracting bullying and discrimination

In 2021, the Bank’s Procurement Policy was updated and the Bank’s Tax Strategy was adopted.

The procurement processes are described in the following internal regulations: the Principles for purchasing goods and services, the Procedures for purchasing goods and services, the Bank’s Procurement Policy. The Policy was updated in 2021 and implemented by decision of the Procurement Department Director. The changes concern, among other things, taking ESG factors into account in the procurement process. The Policy encompasses the entire procurement process: from the moment when a need is planned, through the procurement proceedings with the assessment of its quality. A material assumption behind the policy is the implementation of initiatives offering ethical satisfaction, minimizing the risks of a negative impact on the environment, climate and sustainable development and ensuring the security of the supply chain. The average annual strategic objectives of the procurement organization have been set, which include obtaining information from suppliers regarding ESG issues (surveys for key suppliers) and formulating principles in the form of a Supplier Code of Ethics. The Code should define social and ethical standards, among other things, occupational safety guarantees, prohibition of child labour, environmental protection, data privacy and security, prevention of corruption, managing conflicts of interests, etc. The final measurement of the objectives is scheduled for 2024. The Policy introduces the possibility of establishing product requirements relating to ESG issues.

In 2021, the Bank’s Management Board adopted and the Supervisory Board approved the Tax Strategy of the Bank as an entity operating in a responsible and transparent manner. The Tax Department Director is obliged to review the Strategy at least once a year and, if necessary, to present recommendations for updating or revising it.

The tax strategy contains the following tax objectives of the Bank with a brief description of how to achieve them:

  • fulfilling tax obligations in accordance with the binding regulations;
  • acting in compliance with the intentions of the legislator;
  • applying the arm’s length principle in related party transactions;
  • active involvement in legislative initiatives;
  • mitigating the tax risk;
  • maintaining high standards in relations with authorities;
  • using modern technologies in fulfilling tax obligations.

In accordance with the statutory obligation, the Tax Group of Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna (hereinafter: the TG), which consists of: the Bank, PKO Bank Hipoteczny S.A. and PKO Leasing S.A., has prepared Information on the pursued tax strategy for 2020. The Bank’s Tax Strategy and the Information on the pursued tax strategy prepared by the TG is available on the Bank’s website.

Having regard to the documents referred to, in the Bank’s activities attention is paid to, among other things:

  • implementing and applying internal regulations which ensure the correct fulfilment of tax obligations and correct documentation of transactions

The Bank’s Management Board has adopted resolutions on: the principles for fulfilling tax obligations, reporting tax schemes (MDR) and meeting transfer pricing obligations. Based on the above resolutions, decisions were issued on: the tax settlements of the Bank as a taxpayer and tax remitter (including those relating to the Bank’s foreign branches), fulfilling information duties, reporting tax schemes (MDR), fulfilling transfer pricing obligations, fulfilling the obligations arising from the FATCA and CRS. The internal regulations are reviewed and updated regularly to ensure their compliance with the generally applicable laws.

  • oversight and control over the fulfilment of tax obligations, including the internal control system

Managing the fulfilment of the Bank’s tax obligations:

  1. A Vice-President of the Management Board exercises oversight over the Finance and Accounting Area, including the Tax Department;
  2. The Tax Department, together with other relevant Bank units, is responsible for fulfilling tax obligations and ensuring that the tasks relevant to the Bank’s tax obligations are properly performed by other units of the Bank;
  3. The high quality of the tasks performed is ensured by the expertise of the Bank’s employees, including its tax advisors;
  4. The Bank also hires external tax advisors;
  5. The process of fulfilling tax obligations is covered by the Bank’s internal control system.
  • mitigating the tax risk using the Bank’s risk management system

The Bank’s tax risk management mechanisms and principles:

  1. The Bank regularly analyses and minimizes its tax risk using instruments permitted by the generally applicable laws and regulations. Among other things, the Bank seeks to obtain individual tax rulings and advance opinions.
  2. The Bank has a low tax risk appetite. The Bank limits the activities in which it is not possible to eliminate the tax risk using tools permitted by law.
  3. Fulfilment of the Bank’s tax obligations is a separate process which is subject to assessments from the perspective of operational and compliance risk, among other things.
  • avoiding structures used for aggressive tax planning or tax evasion (including tax havens) and avoiding solutions that are contrary to the intention of the legislator or the spirit of the law (the principle of tax honesty)

The Bank does not engage in tax planning based on regulations which allow the artificial or ostensible lowering of the effective tax burden. Before deciding to engage in a specific activity, the Bank performs a risk analysis with regard to the general anti-avoidance rule (GAAR) and the specific anti-avoidance rules (SAAR).

  • promoting tax awareness among employees

The Bank’s employees are informed of the applicable tax law, its planned amendments and interpretations. The Bank prepares specialist training and guidelines for its employees, as well as analyses of the tax implications of new products, the Bank’s business processes, investment projects, and contracts.

Non-financial risks

In accordance with the Risk Management Strategy at the Bank and in the Bank’s Group, the Bank oversees the risk management systems at the other entities of the Bank’s Group and supports the development of these systems, as well as takes into account the risk profile of the operations of the individual entities in the monitoring and reporting of risk at the Bank’s Group level.

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Risk management system

The risk management system is adapted to the nature, scale and complexity of the operations of the Bank’s Group, as well as the regulatory, social and natural environment. The Bank’s Management Board is responsible for the functioning of an effective risk management system. The Management Board regularly monitors whether the methods of identifying, measuring or estimating risk, controlling, monitoring and reporting risk are adjusted to the size and profile of the risk at the Bank and in the Bank’s Group as well as the external environment. The Management Board guarantees the operation of the risk management system, monitors and evaluates its functioning and informs the Supervisory Board thereof.

By managing risk appropriately, the Bank ensures the stability of its financial result and strengthening of the Bank’s market position.

The Bank’s Group has identified the risks which are to be managed and found some of these risks to be material. The Bank assesses the materiality of the risks at least once a year. The following risks are considered material in the Bank: credit risk, the risk of mortgage loans in foreign currencies for households, foreign exchange risk, interest rate risk, liquidity risk (including financing risk), operational risk, business (strategic) risk, the risk of macroeconomic changes and model risk. Due to the cross-cutting dimension of socio-environmental risks, which are not separate risks but which form part of the classic risk categories, the Bank’s Group did not set them apart as a separate category. Other entities of the Bank’s Group may consider other types of risk to be material. The Bank then verifies the materiality of such risks at the Bank’s Group level.

In 2021, the Bank analysed the ESG risk management process and developed an operational plan for integrating ESG risks with the Bank’s risk management system. Firstly, the key elements related to ESG risk were taken into account in the Risk Management Strategy, including the impact of ESG risk in credit risk appetite. Further work will be focused on collecting the necessary data, developing risk management processes and preparations for ESG disclosures.

In 2021, the ESG risk was taken into account in the risk management strategy at the Bank and in the Bank’s Group. The ESG risk is understood as the risk of negative financial implications which are the result of the impact of ESG factors on Customers and counterparties or balance sheet items. The purpose of ESG risk management is to support sustainable development and building the long-term value of the Bank through integrated management of the impact of ESG factors. The ESG risk management takes into account the perspective of double materiality: the impact of ESG factors on the activities, financial result and development of the Bank as well as the impact of the Bank’s activities on society and the environment. The Bank manages the ESG risk as part of managing other types of risk. The ESG risk is not a separate type of risk but a cross-cutting one which affects the individual risk types. The ESG risk management is supported by all committees functioning at the Bank within the scope of their activities and competences related to the ESG risk.

As the first step in preparing the Statement, the Bank reviewed the social and environmental risks in the Bank’s Group, which were identified in 2021. Among the key risks, the following risks were identified:

  • risk of a negative impact on the social environment;
  • employment risk;
  • OHS risk;
  • risk of a negative impact on the natural environment;
  • climate risk;
  • risk of violation of human rights;
  • corruption risk;
  • risk of unethical business conduct;
  • supply chain risk;
  • product compliance risk;
  • risk of a breach of security of Customers and their funds;
  • risk of incorrect communication;
  • risk for sustainable development.

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