8.2. Financial Markets

Summary of Financial Markets segment results

The Financial Markets segment generated a profit before tax of PLN 129.5 million in 2014, compared to a loss posted in 2013.

Financial Markets: decomposition of profit before tax

   

PLN M

2013

2014

Change in PLN m

Change in %

Net interest income

8.7

128.7

120.0

1379.3%

Net fee and commission income

-4.3

-7.0

-2.7

62.8%

Dividend income

0.0

0.2

0.2

-

Net trading income

20.6

57.4

36.8

178.6%

Gains less losses from investment securities, investments in subsidiaries and associates

53.4

45.3

-8.1

-15.2%

Net other operating income

0.5

1.3

0.8

160.0%

Total income

78.9

225.9

147.0

186.3%

Net impairment losses on loans and advances

0,0

-1.1

-1.1

-

Overhead costs and amortization & depreciation

-85.6

-95.3

-9.7

11.3%

Profit before tax of Financial Markets

-6.7

129.5

136.2

-

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The profit before tax of Financial Markets in 2014 was driven by the following factors:

  • Increase of income by PLN 147.0 million, i.e., 186.3% year on year to PLN 225.9 million. Net interest income increased by PLN 120.0 million and net trading income increased by PLN 36.8 million.
  • Increase of operating costs (including depreciation and amortisation) to PLN 95.3 million (an increase of PLN 9.7 million, i.e., 11.3%).

Financial Markets segment activity in 2014

Since January 2014 he Financial Markets area covers:

  • Direct sale of financial market products to Corporate Banking clients
    and non-banking financial institutions (such as insurance companies, pension and investment funds and asset management companies) as well as selected Private Banking clients;
  • Management of mBank's liquidity as well as its assets and liabilities (including deposit and credit portfolio interest risk management). Liquidity management involves money market transactions, currency swaps, interest rate derivative transactions, T-bill, T-bond and NBP bill purchase transactions, repo transactions etc.;
  • Management of mBank's interest rate and currency risk, trading in FX instruments on the interbank market (spot transactions and derivatives), trading in interest rate instruments (T-bills and T-bonds, interest rate derivatives), commodity derivatives, shares, equity and stock index derivatives, trading in non-Treasury securities;
  • Offering the service of a depositary and a trustee in particular to non-banking financial institutions;
  • Supervision over brokerage house operations with regard to its cooperation with financial institutions.

Activities connected with arranging issues of debt securities for Corporate Banking clients and banks, as well as trading in and sales of these securities were transferred to the Corporate and Investment Banking Line (previously Corporates and Institutions). For more information please see section 8.1. Corporate and Investment Banking.

 8-man

The highest mark from NBP

8-arrows

Accurate forecasts

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Because it is worth to cooperate

 

2014 in the Financial Markets area was marked by extending product portfolio, intensive work on bond issue placements and cross-selling development in line with mBank Group’s Strategy.

A strong focus was placed on the development of unique competences in the area of resource risk hedging and enhancing product portfolio with new categories of resources and transaction types. In collaboration with the Corporate and Investment Banking Line the number of clients using the Bank’s offer has doubled.

It is also worth to mention the re-introduction of greenhouse gas emission allowances with a cash settlement option to the transaction portfolio with first transactions already being concluded, including those with clients from the largest corporates segment (K1).

Active cooperation between the Financial Markets and Retail Banking Business Lines resulted in the launch of a foreign exchange platform addressed to SMEs. The year was also marked by further development of the foreign exchange platform for corporate clients which won Global Finance magazine’s Best Online Treasury Services award.

In 2014 mBank was ranked first in the Dealer Activity Index of the National Bank of Poland for the third time. The result achieved by the Bank enables it to conclude an agreement with the NBP on performing the function of a Money Market Dealer in 2015.

Profitability of concluded hedging transactions rose by approximately 30% against 2013, exceeding the amount of PLN 13.5 million (in nominal terms concluded transactions amounted to PLN 1.3 billion).

In nominal terms the largest hedging transactions against interest rate risk concluded in 2014 include:

  • Sukcesja Fabryka Biznesu - EUR 25.3 million,
    • Netia - PLN 162 million,
    • EXPO XXI - EUR 16.5 million,
    • Devco - EUR 16 million.

The shares of mBank in particular financial instruments markets are presented in the charts below.

Financial Institutions

Relations with financial institutions are managed by Financial Markets business line. The activities include, among others, funding from other banks and placements with other banks.

At December 31, 2014, the Bank had 19 active loans (including subordinated loans) amounting to the equivalent of PLN 21,175 million, of which PLN 15,076 million were drawn. In 2014, three loans denominated in CHF, two loans in USD and one loan in EUR, amounting to PLN 4,061 million in total, were repaid at maturity. Additionally, the Bank took out two new loans in EUR amounting to PLN 852 million in total. The Bank’s total exposure under loans from other banks was by PLN 1,627 million lower than at the end of 2013. At 2013 exchange rates the decrease would amount to PLN 327 million.

At the end of December 2014, mBank’s exposure under loans granted to other banks reached the equivalent of PLN 1.52 billion. The Bank’s portfolio included 30 short-term and medium-term active loans granted to other financial institutions from Poland and from abroad.

Main highlights of the activities of the Financial Institutions Department in 2014 include:

  • Obtaining further, considerable funding from the European Investment Bank (EIB). In 2014 the Bank was granted two loans in the amount of EUR 100 million each. Taking into account the current portfolio, mBank ranks first as EIB’s largest borrower in the Polish banking sector.
  • 2014 was also marked by further acquisition of loro accounts. The Bank managed to maintain its position as one of the leading Polish banks in handling settlements in PLN.

Moreover, in 2014 the Financial Institutions Department continued to actively support trade transactions concluded by Polish exporters by offering short-term financing to financial institutions, mainly from Belarus. At the same time, the Bank was still serving banks from the Commonwealth of Independent States and offering them medium-term loans secured with KUKE insurance policies. 

mBank’s Custody Services

mBank’s custody clients are mainly local and foreign financial institutions, banks which offer custodian and investment services, pension funds and investment funds, insurance companies, asset management institutions, and non-financial institutions.

mBank provides services including settlement of transactions in securities registered in local and foreign markets, safe-keeping of clients’ assets, maintenance of securities accounts and registers of securities in non-public trading, and processing corporate actions. As a depositary bank mBank maintains registers of pension funds’ and investment funds’ assets and monitors valuations of those assets.

As a consequence of the pension system reform at the beginning of 2014 and the resulting transfer of a part of pension funds’ assets to the Social Insurance Institution (ZUS), the value of assets kept by the Bank decreased by 17.3% in February against December 2013. This drop was, however, offset by the acquisition of new clients and rising value of the portfolio.

Finally, 2014 saw a record-high activity of clients with the number of settled transactions increasing by 16.6% against 2013.