Key external determinants
The increase of tensions between Russia and Ukraine in 2014 resulted in a number of challenges for Polish companies, including mBank’s customers, especially in the eastern Poland. Russia is the fifth largest export market (with a 5% share in the total export) for Polish companies. Food, being a significant proportion of these exports, was covered by Russian ban on import. Despite strong domestic demand, those restrictions resulted in the decline in the profitability of food production in Polish companies. Negative effects of Russian restrictions have been partially minimised by sending exports to Russia through countries not covered by restrictions (Belarus, Kazakhstan).
In addition, the EU sanctions on exports of dual use parts and equipment to Russia had a negative impact on orders associated with these exports and placed in Poland by German companies. A reduction in orders was observed mainly in western Poland while the region of Mazowsze did not experience the negative impact of sanctions. Germany estimated that the decline in exports of parts and equipment was about 10%.
Polish export to Russia was also negatively affected by falling oil prices resulting in a nearly 50% devaluation of the Russian ruble against the US dollar, which has severely reduced the purchasing power of Russian households. The Polish export to Ukraine was negatively influenced by nearly 50% devaluation of the Ukrainian hryvnia against the US dollar and the loss of opportunity to cooperate with the Ukraine’s eastern regions involved in the conflict with Russia (the share of those regions in the Ukraine’s GDP was more than 16%).
mBank has exposures to Russian energy importers of strategic importance for Poland. These exposures are related to the risk of limiting by Russia the sale of energy to Poland. However, the abovementioned risk is assessed as low.
mBank does not have a direct, unsecured exposures to Russian or Ukrainian companies.
The abovementioned risks did not result in a significant decline in the financial standing of mBank’s customers due to a stable macroeconomic environment in Poland based on a growing domestic demand
The Asset Quality Review and stress test concerning mBank S.A. Group
On 26 October 2014 the Polish Financial Supervision Authority announced the results of the Asset Quality Review and stress test concerning mBank S.A. Group. Under the stress test, mBank Group’s Common Equity Tier 1 ratio according to the methodology applied by the European Central Bank amounted to 11.08% compared to a minimum EU requirement of 5.5% in an adverse stress scenario and 12.41% compared to a minimum of 8.0% under the baseline scenario.
The Asset Quality Review, conducted in 2014 by the European regulators, involved an in-depth and comprehensive analysis of important segments of banking balance sheets. The review aimed at ensuring that the values of assets under investigation are represented in the banks’ financial statements and have adequate levels of provisioning coverage. Moreover, the stress tests examined the resilience of banks’ capital buffers to a crisis scenario over a period of three years (2014-2016).
Results of the Asset Quality Review and stress tests did not have a material impact on the mBank S.A. Group result in 2014.
Basel III regulatory standards
The new rules on prudential requirements for banks set out in the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD IV) on access to the activity of banks and the prudential supervision, implementing provisions of Basel III, are effective in the European Union as of January 1, 2014. The amendments introduced under Basel III include:
The regulatory amendments are mainly designed to protect the capital of banks against adverse effects of financial crises.
The new provisions of CRD IV must be implemented in a national legislation, while CRR takes effect as of January 1, 2014 without harmonisation with national laws.
New regulatory standards
In 2014, the Bank continued adaptation works in order to meet the requirements set out in the CRR with respect to capital ratios and own funds. Bank was gradually implementing the provisions of the European Commission’s delegated act supplementing or detailing the CRR.
In October 2014, the European Parliament approved the delegated act, in force since 2015, introducing modifications in calculating leverage ratio. At present, the Bank continues harmonization in the calculation of the leverage ratio and in terms of prudential reporting with regard to leverage ratio.
In 2014, the Bank continued harmonisation with the requirements of CRR to the extent of the liquidity measures LCR/NSFR. Implementation efforts, which took into account additional EBA guidelines published in March 2014, were finished with the LCR/NSFR calculation methodology approved in June 2014 by the Financial Markets Risk Committee. LCR is calculated according to rules defined in CRR since 31 March 2014. Furthermore, since Q2 2014, banks are required to report information necessary to calculate LCR to NBP. The first report as at the end of March, April and May 2014 under the new calculation methodology was completed by the Bank in June 2014.