3.6. Concentration of assets, liabilities and off-balance sheet items

Geographic concentration risk

In order to actively manage the risk of concentration by country, the Group:

  • complies with the formal procedures aimed at identifying, measurement and monitoring this risk,
  • complies with the formal limits mitigating the risk by country and the procedures to be followed when the limits are exceeded,
  • uses a management reporting system, which enables monitoring the risk level by country and supports the decision-making process related to management,
  • maintains contacts with a selected group of the largest banks with good ratings, which are active in handling foreign transactions. On some markets, where the risk is difficult to estimate, the Group avails itself of the services of its foreign correspondent banks, e.g. Commerzbank, and insurance in the Export Credit Insurance Corporation (‘KUKE’), which covers the economic and political risk.

Sector concentration risk

Monitoring exposures in sectors is carried out in individual subsidiaries of the Group, in accordance with internal regulations. At the end of each quarter, subsidiaries shall draw up a report on the involvement in various sectors. This report is then passed to the organizational unit in the mBank.

mBank, as a parent company of the Group, analyses the sector concentration risk in order to build mBank’s corporate portfolio in a safe and effective way. The analysis covers the standing of each customer of the Group vs. the rest of the sector. For this purpose, the Group uses a statistical database, in which each financial parameter of each of the Bank's customers is mapped onto a decile grid of the parameter for the whole industry. This enables the Bank to monitor its industry-related risk to its portfolio when the standing of the whole industry undergoes rapid changes under the influence of external factors.

Sector limits are set for sectors defined by the Bank in accordance with the internal Bank’s regulations, in quarterly reporting periods. Monitoring and analysis covers all the sectors in which the Bank’s exposure exceeds 5% of the total amount of exposures at the end of a given reporting period, and sectors additionally indicated by the Chief Risk Officer. Unless the Corporate and Investment Banking Risk Committee (KRK) decides otherwise, an exposure limit is set for the mBank in any sector on a level not higher than:

  • 12% of the gross loan portfolio in the prior reporting period for low risk sectors;
  • 10% of the gross loan portfolio in the prior reporting period for medium risk sectors;
  • 5% of the gross loan portfolio in the prior reporting period for high risk sectors.

In the case of exceeding any sector limit or an expectation that such a limit may be exceeded in the next reporting period, activities preventing the exceeding of limits are implemented and any decision in this regard shall be taken by the KRK.

The table below presents the structure of concentration of mBank S.A. Group’s exposures in particular sectors.

The structure of concentration of carrying amounts of exposure of mBank S.A. Group

No. Sectors Principal exposure (in PLN million) % Principal exposure (in PLN million) %
31.12.2014 31.12.2013
1. Household customers 41 560 477 53.71 38 307 915 54.27
2. Real estate management 4 901 307 6.33 4 671 081 6.62
3. Wholesale trade 2 977 441 3.85 2 380 927 3.37
4. Construction 2 884 365 3.73 2 443 150 3.46
5. Retail trade 2 430 956 3.14 1 738 372 2.46
6. Transport and logistics 1 819 827 2.35 2 077 249 2.94
7. Food sector 1 705 944 2.20 1 726 721 2.45
8. Fuels and chemicals 1 628 617 2.10 1 601 544 2.27
9. Public administration 1 574 513 2.03 1 781 251 2.52
10. Power, power and heating distribution 1 422 625 1.84 1 520 261 2.15
11. Forestry 1 286 566 1.66 1 057 731 1.50
12. Metals 1 266 991 1.64 1 139 522 1.61
13. Information and communication 1 197 133 1.55 965 072 1.37
14. Scientific and technical activities 586 923 0.76 329 015 0.47
15. Hotels and restaurants 455 059 0.59 433 275 0.61
16. Services 453 169 0.59 112 793 0.16
17. Motorization 452 873 0.59 379 357 0.54
18. Arts, entertainment 439 693 0.57 438 596 0.62
19. Financial activities 427 299 0.55 427 727 0.61
20. Electronics and household equipment 408 000 0.53 463 705 0.66
21. Industry 307 850 0.40 235 055 0.33
22. Municipal services 299 883 0.39 220 436 0.31
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In 2014, the total exposure of the Group in the above sectors (excluding household customers) amounts to 37.39% of the credit portfolio (2013: 37.03%). The risk of investing in these sectors (in a 3-point scale, i.e., low, medium, high) as at the end of 2014 was estimated by the Group’s sector analysts. Due to changes in the structure of concentration of exposures in particular sector performed in the Bank, information presented in the consolidated financial statements for the year 2013 is not fully comparable with the data presented below and therefore has not been included.

No. Sectors 31.12.2014
1. Real estate management medium
2. Wholesale trade medium
3. Construction high
4. Retail trade medium
5. Transport and logistics medium
6. Food sector medium
7. Fuels and chemicals medium
8. Public administration low
9. Power, power and heating distribution medium
10. Forestry medium
11. Metals high
12. Information and communication medium
13. Scientific and technical activities medium
14. Hotels and restaurants medium
15. Services medium
16. Motorization medium
17. Arts, entertainment high
18. Financial activities medium
19. Electronics and household equipment medium
20. Industry medium
21. Municipal services low
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Large exposures concentration risk

The purpose of management of the large exposures concentration risk is an ongoing monitoring of the level of legal limits set by the external supervisors. In order to ensure safety against the risk of exceeding the regulatory limits in mBank:

  • internal limits are set, which are lower than those specified in the Banking Law and in the Regulation (EU) No. 575/2013 of the European Parliament and of the Council,
  • daily monitoring of large exposures is carried out and the participants of the lending and investment processes are immediately informed in the case of internal limits exceeding.

These activities have a direct impact on the Bank’s decisions concerning new exposures and the increase of existing exposures to customers/groups of affiliated customers.

mBank pays particular attention to the correct identification of the scale of risk of significant high-risk credit exposures defined in the Bank’s internal regulations. In the case of exceeding specified amount of exposure/limit to a customer/group of affiliated customers identified as bulk risk, the financing requires additional decision of the Bank’s Management Board irrespective of the PD-rating and the decision-making level.

The Credit Committee of mBank Group, first started in November 2014, is responsible for the supervision over risk concentration and large exposures at the Group level.