5. Business segments

Following the adoption of ‘management approach’ of IFRS 8, operating segments are reported in accordance with the internal reporting provided to the Bank’s Management Board (the chief operating decision-maker), which is responsible for allocating resources to the reportable segments and assesses their performance.

The classification by business segments is based on client groups and product groups defined by homogenous transaction characteristics. The classification is consistent with sales management and the philosophy of delivering complex products to the Bank’s clients, including both standard banking products and more sophisticated investment products. The method of presentation of financial results coupled with the business management model ensures a constant focus on creating added value in relations with clients of the Bank and Group companies and should be seen as a primary division, which serves the purpose of both managing and perceiving business within the Group.

Under the rebranding process, on 25 November 2013, BRE Bank and MultiBank changed their names. Entities of the former BRE Bank Group merged under the name mBank S.A. The rebranding process covered all outlets of the former BRE Group. Existing units were equipped with a new logo. The process was completed in 2014. In accordance with the strategy, in 2018 all retail and corporate branches of the Bank will be connected, offering all customers a full range of mBank.

In 2014, the name of the sub-segment "Corporates and Institutions" has been changed to "Corporate and Investment Banking" and the name of the sub-segment "Trading and Investment" has been changed to "Financial Markets". Moreover, from the beginning of 2014 a change of the assignment of mLeasing and Dom Maklerski mBanku to segments took place. Results of mLeasing (previously assigned to Corporate and Investment Banking segment) have been split between Corporate and Investment Banking segment and Retail Banking segment (according to split of customers into corporate and retail). Results of Dom Maklerski mBanku (previously assigned to Financial Markets segment) have been split between Corporate and Investment Banking segment and Retail Banking segment according to split of customers into corporate and retail.

According to above-mentioned changes, the comparative data concerning business segments of the Group were restated to reflect changes in presentation made to the current financial year.

The Group conducts its business through different business segments, which offer specific products and services targeted at specific client groups and market segments. The Group currently conducts its operations through the following business segments:

  • The Retail Banking segment, which divides its customers into mBank customers and Private Banking customers and which offers a full range of the Bank’s banking products and services as well as specialized products offered by a number of subsidiaries belonging to the Retail Banking segment. The key products in this segment include current and savings accounts (including accounts in foreign currencies), term deposits, lending products (retail mortgage loans and non-mortgage loans such as cash loans, car loans, overdrafts, credit cards and other loan products), debit cards, insurance products, investment products, brokerage and leasing services offered to both individual customers and to micro-businesses. The results of the Retail Banking segment include the results of foreign branches of mBank in the Czech Republic and Slovakia. The Retail Banking segment also includes the results of mBank Hipoteczny S.A., mWealth Management S.A., Aspiro S.A., BRE Ubezpieczenia TUiR S.A., BRE Ubezpieczenia Sp. z o.o., BRE Agent Ubezpieczeniowy Sp. z o.o., AWL I Sp. z o.o. as well as results of retail segments of mLeasing Sp. z o.o. and Dom Maklerski mBanku S.A.
  • The Corporates and Financial Markets segment, which is divided into two sub-segments:
  • Corporate and Investment Banking sub-segment (business line), which targets small, medium and large-sized companies and public sector entities. The key products offered to these customers include transactional banking products and services including current account products, multi-functional internet banking, tailor-made cash management and trade finance services, term deposits, foreign exchange transactions, a comprehensive offer of short-term financing and investment loans, cross-border credit, project finance, structured and mezzanine finance services, investment banking products including foreign exchange options, forward contracts, interest rate derivatives and commodity swaps and options, structured deposit products with embedded options (interest on structured deposit products are directly linked to the performance of certain underlying financial instruments such as foreign exchange options, interest rate options and stock options), debt origination for corporate clients, treasury bills and bonds, non-government debt, medium-term bonds, buy sell back and sell buy back transactions and repo transactions, as well as leasing, factoring and brokerage services. The Corporate and Investment Banking sub-segment includes the results of the following subsidiaries: mFaktoring S.A., MLV 45 Sp. z o.o. spółka komandytowa, Transfinance a.s., Garbary Sp. z o.o., results of corporate segments of mLeasing Sp. z o.o. and Dom Maklerski mBanku S.A.
  • Financial Markets sub-segment (business line) consists primarily of treasury, financial markets, and financial institutions operations, manages the liquidity, interest rate and foreign exchange risks of the Bank, its trading and investment portfolios, and conducts market making in PLN denominated cash and derivative instruments. The Bank also maintains an extensive correspondent banking network and also develops relationships with other banks providing products such as current accounts, overdrafts, stand alone and syndicated loans and loans insured by KUKE to support the Polish export market. This sub-segment also includes the results of mFinance France S.A.
  • Operations which are not included in the Retail Banking segment and the Corporates and Financial Markets segment are reported under "Other". This segment includes the results of mLocum S.A., mCentrum Operacji Sp. z o.o. and BDH Development Sp. z o.o.

The principles of segment classification of the Group’s activities are described below.

Transactions between the business segments are conducted on regular commercial terms.

Allocation of funds to the Group companies and assigning them to particular business segments results in funding cost transfers. Interest charged for these funds is based on the Group’s weighted average cost of capital and presented in operating income.

Internal fund transfers between the Bank’s units are calculated at transfer rates based on market rates. Transfer rates are determined on the same basis for all operating units of the Bank and their differentiation results only from currency and maturity structure of assets and liabilities. Internal settlements concerning internal valuation of funds transfers are reflected in the results of each segment.

Assets and liabilities of a business segment comprise operating assets and liabilities, which account for most of the statement of financial position, whereas they do not include such items as taxes or loans.

The separation of the assets and liabilities of a segment, as well as of its income and costs, is done on the basis of internal information prepared at the Bank for the purpose of management accounting. Assets and liabilities for which the units of the given segment are responsible as well as income and costs related to such assets and liabilities are attributed to individual business segments. The financial result of a business segment takes into account all the income and cost items attributable to it.

The business operations of particular companies of the Group are fully attributed to the appropriate business segments (including consolidation adjustments).

The primary basis used by the Group in the segment reporting is business line division. In addition, the Group’s activity is presented by geographical areas reporting broken down into Poland and foreign countries because of the place of origin of income and expenses. Foreign countries segment includes activity of mBank’s foreign branches in Czech Republic and Slovakia as well as activity of foreign subsidiaries Transfinance a.s. and mFinance France S.A. The activity of the company mFinance France S.A., after the elimination of income and expenses and assets and liabilities related to the issue of bonds under the EMTN programme, is presented in the “Foreign countries” segment. The cost of the EMTN programme as well as the related assets and liabilities are presented in the segment “Poland”.

Business segment reporting on the activities of mBank S.A. Group for the period from 1 January to 31 December 2014
(PLN'000)

 
  Corporates & Financial Markets Retail Banking (including Private Banking) Other Total figure for the Group Statement of financial position reconciliation/ income statement reconciliation
Corporate and Investment Banking Financial Markets
Net interest income 683 834 128 737 1 685 755 (7 668) 2 490 658 2 490 658
- sales to external clients 591 306 619 754 1 280 713 (1 115) 2 490 658  
- sales to other segments 92 528 (491 017) 405 042 (6 553) -  
Net fee and commission income 381 906 (6 961) 512 986 13 759 901 690 901 690
Dividend income 17 223 191 78 2 500 19 992 19 992
Trading income 184 109 57 447 127 411 189 369 156 369 156
Gains less losses from investment securities, investments in subsidiaries and associates 10 074 45 299 (700) (2 747) 51 926 51 926
Other operating income 95 880 1 234 116 725 133 083 346 922 346 922
Net impairment losses on loans and advances (188 176) (1 065) (326 693) 31 (515 903) (515 903)
Overhead costs (573 967) (86 488) (881 000) (39 088) (1 580 543) (1 580 543)
Amortization and depreciation (71 624) (8 772) (106 407) (3 219) (190 022) (190 022)
Other operating expenses (39 352) (96) (64 446) (137 282) (241 176) (241 176)
Gross profit of the segment 499 907 129 526 1 063 709 (40 442) 1 652 700 1 652 700
Income tax         (363 390) (363 390)
Net profit attributable to Owners of mBank S.A.         1 286 668 1 286 668
Net profit attributable to non-controlling interests         2 642 2 642
Assets of the segment 27 883 921 42 158 138 47 579 311 364 452 117 985 822 117 985 822
Liabilities of the segment 25 757 739 36 864 794 43 585 612 704 697 106 912 842 106 912 842
Other items of the segment            
Expenditures incurred on fixed assets and intangible assets 165 487 9 711 120 867 1 586 297 651  
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Business segment reporting on the activities of mBank S.A. Group for the period from 1 January to 31 December 2013
(PLN'000)

 
  Corporates & Financial Markets Retail Banking (including Private Banking) Other Total figure for the Group Statement of financial position reconciliation/ income statement reconciliation
Corporate and Investment Banking Financial Markets
Net interest income 721 598 8 667 1 506 007 (10 461) 2 225 811 2 225 811
- sales to external clients 652 399 627 894 950 291 (4 773) 2 225 811  
- sales to other segments 69 199 (619 227) 555 716 (5 688) -  
Net fee and commission income 335 073 (4 337) 490 841 13 161 834 738 834 738
Dividend income 24 454 - 186 2 216 26 856 26 856
Trading income 199 539 20 603 122 903 (67) 342 978 342 978
Gains less losses from investment securities, investments in subsidiaries and associates 11 680 53 394 13 504 - 78 578 78 578
Other operating income 89 262 713 143 116 141 730 374 821 374 821
Net impairment losses on loans and advances (179 964) (45) (297 721) (48) (477 778) (477 778)
Overhead costs (541 478) (78 974) (841 039) (28 662) (1 490 153) (1 490 153)
Amortization and depreciation (71 270) (6 659) (106 769) (3 192) (187 890) (187 890)
Other operating expenses (39 311) (33) (72 853) (98 061) (210 258) (210 258)
Gross profit of the segment 549 583 (6 671) 958 175 16 616 1 517 703 1 517 703
Income tax         (308 725) (308 725)
Net profit attributable to Owners of mBank S.A.         1 206 375 1 206 375
Net profit attributable to non-controlling interests         2 603 2 603
Assets of the segment 25 242 780 35 051 093 43 054 028 934 860 104 282 761 104 282 761
Liabilities of the segment 20 804 275 33 183 994 39 296 017 742 037 94 026 323 94 026 323
Other items of the segment            
Expenditures incurred on fixed assets and intangible assets 103 014 6 841 118 674 181 228 710  
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The mBank S.A. Group geographical areas reporting

 
Geographical areas reporting on the acivities of mBank Group for the period from 1 January to 31 December 2014 2013
  Poland Foreign Countries Total Poland Foreign Countries Total
Net interest income          2 369 399             121 259        2 490 658          2 124 260             101 551        2 225 811
Net fee and commission income             875 745              25 945           901 690             811 613              23 125           834 738
Dividend income              19 992                     -               19 992              26 856                     -               26 856
Trading income             363 388                5 768           369 156             337 150                5 828           342 978
Gains less losses from investment securities, investments in subsidiaries and associates              51 926                     -               51 926              78 578                     -               78 578
Other operating income             345 279                1 643           346 922             370 182                4 639           374 821
Net impairment losses on loans and advances           (480 714)             (35 189)         (515 903)           (467 468)             (10 310)         (477 778)
Overhead costs        (1 473 145)           (107 398)      (1 580 543)        (1 395 426)             (94 727)      (1 490 153)
Amortization and depreciation           (185 911)               (4 111)         (190 022)           (183 337)               (4 553)         (187 890)
Other operating expenses           (238 129)               (3 047)         (241 176)           (202 490)               (7 768)         (210 258)
Gross profit of the segment          1 647 830                4 870        1 652 700          1 499 918              17 785        1 517 703
Income tax               (363 390)               (308 725)
Net profit attributable to Owners of mBank S.A.              1 286 668              1 206 375
Net profit attributable to non-controlling interests                    2 642                    2 603
Assets of the segment, including:   114 548 848          3 436 974       117 985 822   101 649 833          2 632 928       104 282 761
 - tangible assets       1 171 783              11 220             1 183 003       1 147 730              17 167             1 164 897
 - deferred income tax assets          266 382                6 034                272 416          367 611                3 210                370 821
Liabilities of the segment   101 151 600          5 761 242       106 912 842     88 968 671          5 057 652         94 026 323
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