Results of the Asset Quality Review (AQR) and Stress-Tests Once Again Confirm Robust Financial Strength of PKO Bank Polski

As a result of the review, the CET1 capital ratio is as follows:
• after the AQR adjustment, 13.26 percent; 

• after the AQR adjustment and the stress-test baseline scenario, 14.34 percent, i.e., 6.34 percentage points above the level required in the test; 

• after the AQR adjustment and stress-test adverse scenario, 13.28 percent, i.e., 7,78 percentage points above the level required in the test.

“PKO Bank Polski has successfully passed all recent capital adequacy reviews. In our opinion, the results of the tests published today confirm that the Bank pursues the right policy of a strong capital position and high annual profitability as the basis of stable and safe business expansion. High capital adequacy ratios and a significant reduction of the cost of risk are among the Bank’s strategic goals which we pursue with success,” said Zbigniew Jagiełło, CEO of PKO Bank Polski.

These positive results were achieved in spite of the conservative financial forecast assumptions imposed by the European Banking Authority. Under each of the scenarios, the Bank retains a significant capital buffer.

“The results of the review confirm that the right balance sheet management and the advanced internal limit system have prepared the Bank very well even for the most adverse stress-test scenarios. The Bank’s investments in continuous improvement of credit processes and motivating a broad group of employees to ensure their quality have gradually produced results. This is demonstrated by new loans where the quality is high and the process is more client-friendly,” said Piotr Mazur, Vice-President of PKO Bank Polski responsible for Risk Management.

The European Banking Authority (“EBA”) and the European Central Bank (“ECB”) have carried out a comprehensive review of banks this year to provide the supervisory authorities and the market participants with consistent data on resilience of the EU banks under unfavourable market conditions within the framework of a uniform methodology developed by EBA.

The Polish Financial Supervision Authority (“KNF”) carried out a similar analysis of selected banks operating in Poland. The goal of the review was to ensure full reliability for all tested institutions. The exercise covered 15 banks which represent 70 percent of the assets of the Polish banking sector.

The assessment test of the banks was comprised of two parts:
• The first part involved the asset quality review (AQR). A bank passed this assessment if its Common Equity Tier 1 capital ratio (CET1) reached 8 percent.
• The second part involved stress-testing the banks, in other words, testing the extent to which a bank’s own funds would change over three consecutive years if the scenarios (the baseline and the adverse) specified in the stress-tests were to materialise. - in the baseline scenario, a bank should be able to retain at least an 8 percent CET1 capital ratio; - in the adverse scenario, a bank should be able to retain at least a 5.5 percent CET1 capital ratio.  The adverse scenario assumed: deepening of crisis in the euro zone; a 25 percent depreciation of the local currency (Polish zloty); an increase in yields of debt instruments with the corresponding increase in the cost of funding for the banks; a sharp increase in short-term interest rates by 80 basis points compared to the baseline scenario, which, however, could, to a limited extent, translate into an increase in asset interest rates.

The asset quality review and the stress-test are one of many exercises which have demonstrated high resilience of PKO Bank Polski and should not be considered a reflection of the actual standing of the Bank. Both the baseline scenario and the adverse scenario adopted for purposes of the tests should not be used as a forecast of the Bank’s financial position or compared in any way to any other information the Bank publishes, and the results of the above-mentioned tests should not be deemed to be factors that are directly reflected in the Bank’s financial results. In the Bank’s opinion, considering the structure of its balance sheet, the constraints in the growth of asset interest rates as adopted by the EBA would not occur in reality should the assumed stress test scenarios materialise.  

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PKO Bank Polski is a leader of the Polish banking sector. In H1 2014, PKO Bank Polski Group posted a consolidated net profit of PLN 1,658.1 million. PKO Bank Polski ranked #1 with six stars in the overall classification in the Forbes magazine Best Corporate Bank ranking. The Bank ranked #3 in the Banking Quality 2013 ranking of TNS Polska and Puls Biznesu. The Bank’s Contact Center, for the sixth time in a row, was a winner in a regular survey of banks’ hotlines carried out by ARC Rynek i Opinia. The Bank won for another consecutive year in the ranking of the top 50 banks in Poland published by the financial monthly Bank. PKO Bank Polski won this year’s edition of the ranking in the category of Property Financing Banks and ranked third among Consumer Finance Banks. PKO Bank Polski was awarded for the implementation of the IKO application in the Electronic Banking and E-Finance category of the 12th edition of the Financial Institutions IT Leader 2013  competition of Gazeta Bankowa. PKO Bank Polski was also awarded for its Innovation Centre in the category Back Office Systems. Around a dozen financial institutions, mainly representing the banking and insurance industry, competed for the IT Leader award. The jury of the Competition of the 8th E-Economy Congress awarded PKO Junior in the Project of the Year category. PKO Bank Polski also enjoys the strongest image among Polish banks. According to a prestigious magazine The Banker which values PKO Bank Polski’s brand name at USD 1.25 billion, the Bank remains the most valuable brand in Polish banking sector. According to the ranking of the Most Valuable Polish Brands 2013 by Rzeczpospolita daily, PKO Bank Polski remained the most valuable brand in the financial industry category, valued at PLN 3.7 billion. In 2012, the Jury of the Banking Leaders Competition, organised as a part of the Polish Economic Congress, awarded PKO Bank Polski as the Best Bank and the Most Innovative Bank for the new offer of School Saving Associations. In rankings based on students’ opinions, the Bank was ranked as one of the best employers in Poland. The Bank’s high position is also confirmed by surveys carried out by the international company Universum Global and AIESEC among students of Poland’s best universities. PKO Bank Polski is also a winner of the Golden Banker 2013 award in the Best Mortgage Loan and the Financial Innovation categories for its IKO application.