Financial standing of Capital Group
1. Gross profit and net profit
In 2014, the ING Bank Śląski S.A. Capital Group generated the gross financial result totalling PLN 1,347.4 million versus PLN 1,192.9 million last year. Thus, for the first time in the Group’s history, the net profit attributable to shareholders of the dominant entity exceeded PLN 1 billion and totalled PLN 1,040.7 million as compared with PLN 961.5 million of the net profit for 2013 (up by 8.2%).
The main factors to affect the financial results of the ING Bank Śląski S.A. Capital Group in 2014 included35:
- The income on operating activities grew by 6.5% from the past year. As at the 2014 yearend, the Group’s income totalled PLN 3,544.8 million. Higher net interest income contributed to income growth most (up by PLN 287.6 million, or 14.1%). The net income on fees and commissions also positively contributed (up by PLN 41.0 million, or 4.0%). The remaining income items showed negative dynamics, mainly the net income on investment (down by PLN 93.2 million, or 85.7%).
- Slight increase in operating expenses: PLN 1,929.7 million in 2014 versus PLN 1,868.4 million a year earlier (up by 3.3%).
- Stable level of risk costs. The balance of impairment provisions totalled PLN 267.7 million, up by only 0.2% as compared with the previous year.
In 2014, the result before risk costs for the ING Bank Śląski S.A. Capital Group totalled PLN 1,615.1 million, up by 10.6% from 2013.
Basic consolidated income statement figures in analytical terms
|2014||2013||Change 2014 / 2013|
|PLN million||PLN million||PLN million||%|
|Net interest income||2,330.2||2,042.6||287.6||14.1|
|Net commission income||1,062.9||1,021.9||41.0||4.0|
|Result before risk costs||1,615.1||1,460.1||155.0||10.6|
|Impairment losses and provisions||267.7||267.2||0.5||0.2|
|Gross financial result||1,347.4||1,192.9||154.5||13.0|
|Net result attributable to non-controlling shareholders||0.1||0.0||0.1||-|
|Net financial result||1,040.7||961.5||79.2||8.2|
* Income together with the share in profits of companies recognised on an equity basis.
Total income of the ING Bank Śląski S.A. Capital Group attributable to shareholders of the dominant entity (covering apart from the net profit also other income or cost items recognised in equity) amounted to PLN 2,398.4 million as compared to PLN 487.7 million in 2013.
35 The characteristics discussed in this document apply to the income statement in analytical terms. The operating income category includes the net income on core operations plus the share in net profits of entities recognised on an equity basis.
2. Net interest income
In 2014, net interest income of the ING Bank Śląski S.A. Capital Group totalled PLN 2,330.2 million versus PLN 2,042.6 million (up by 14.1%).
Higher interest income is mainly due to the volumes growth. Furthermore, the net interest income recorded in 2013 was under pressure of a number of market interest rate cuts, which in the context of a temporary mismatch of the deposit pricing policy led to relatively higher interest costs versus interest income. In 2014, the reference rate of the National Bank of Poland was lowered only once – by 0.5 p.p. – on 08 October 2014.
Average base interest rate
|Including: mortgage loans|
The share of loans and other receivables to customers net (Eurobonds excluded) in assets went up from 56.0% as at the 2013 yearend to 57.2% in December 2014. The interest margin in 2014 was at the level similar to 2013 – 2.67% versus 2.68%, respectively.
3. Non-interest income
Income on fees and commissions represented the major part of non-interest income of the ING Bank Śląski S.A. Capital Group. In 2014, it totalled PLN 1,062.9 million as compared with PLN 1,021.9 million in 2013 (up by 4.0%).
The Group recorded an increase in commissions under:
- insurance products (by PLN 43.9 million),
- transactional margin on currency conversion transactions (by PLN 21.9 million, or 8.4%),
- lending activity (by PLN 15.9 million, or 8.2%),
- distribution of participation units in mutual funds, brokerage and custody operations (by 4.1%) and
- factoring and leasing services (by 17.1%).
The following were lower compared with the previous year:
- fees and commissions for bank cards (down by PLN 38.6 million, or 20.4%) – the drop was mainly due to the entry into force as of 01 July 2014 of the laws reducing interchange fees by approx. 0.7 p.p. (from 1.2%-1.3% to 0.5%-0.6%),
- fees and commissions for clients’ account maintenance (down by PLN 8.3 million, or 3.3%) – it reflects an ongoing growth of the share of Direct current accounts in total accounts. As at the 2014 yearend, Direct accounts accounted for 73% of all accounts while as at the end of 2013 this share was 68%.
In 2014, other income of the ING Bank Śląski S.A. Capital Group amounted to PLN 151.7 million and was significantly lower than in 2013 (PLN 264.0 million) – down by 42.5%. Such other income dynamics is due to the so-called base effect. In 2013, other income included the net income on the sale of the portfolio of available-for-sale debt instruments, which, considering the effect of termination of a hedging item as regards part of sold securities, had a positive impact on the Bank gross result of PLN 100 million, and on the net result of PLN 80.5 million. The second important factor that caused a drop of other income was lower income on stake in associates – down by PLN 25.8 million or 67.7%. Due to the conclusion on 06 May 2014 of the letter of intent regarding the sale of 20% of ING PTE shares, those shares were reclassified to the held-for-sale assets portfolio. Thus, since H2 2014 this portfolio has no longer been carried through assets and ING PTE results have no longer been consolidated.
4. Operating expenses
In 2014, operating expenses of the ING Bank Śląski S.A. Capital Group slightly grew and totalled PLN 1,929.7 million versus PLN 1,868.4 million a year earlier.
Their major part were the personnel expenses which in 2014 totalled PLN 947.5 million compared with PLN 926.6 million in 2013 (up by 2.2%). Further, intensified marketing activities effected higher marketing and promotion costs, up by 12.7% (they settled at PLN 109.7 million).
Total operating expenses and overheads (except for marketing and promotion costs) did not materially change. As at the end of 2014, they totalled PLN 697.4 million versus PLN 679.9 million a year earlier (up by 2.5%).
5. Impairment losses and provisions
In 2014, the value of impairment losses for financial assets and provisions for off-balance sheet liabilities accounted for in the result was at the same level as in the previous year (PLN 267.7 million compared with PLN 267.2 million).
Provisions for receivables having impairment trigger in the corporate clients segment accounted for the majority of impairment losses; they totalled PLN 189.0 million compared with PLN 138.8 million in 2013 (up by 36.2%).
In the retail segment, the loan loss provisions established in 2014 were lower than in 2013 –PLN 78.7 million versus PLN 128.4 million, respectively (drop by 38.7%).
6. Share of individual business segments in the financial result
The Bank’s business model is divided into two major segments:
- Retail banking segment, which encompasses private individuals (mass clients sub-segment and affluent clients sub-segment) and entrepreneurs (small businesses).
- Corporate banking segment, which comprises institutional clients and FM products’ operations.
In 2014, the retail banking segment generated PLN 599.3 million worth of gross profit versus PLN 365.5 million in the previous year (up by 64.0%). Thus, the share of the retail segment in the total Group result gross went up to 44.5% versus 30.6% in 2013.
The retail banking segment result was made up by:
- Higher income. It totalled PLN 1,839.3 million, up by 12.3% from a year earlier. The segment earned higher interest income (up by 26.2%) and slightly lower net income on fees and commissions (down by 0.4%). Increase in the net interest income is due to the volume increase and a slightly more stable in 2014 (than in 2013) market interest rates environment. In the net commission income, positive and negative factors impacting its level balanced out. The negative factors include a drop in commissions on card transactions following further reduction as of 01 July 2014 of the interchange fee, while the positive factors cover a growth of commission income on sales of insurance products.
- Slightly higher operating expenses. The segment’s total expenses amounted to PLN 1,161.3 million (up by 1.4% from 2013). They were mainly driven by higher marketing and promotion costs due to support for sale of cash loans and savings accounts, first and foremost.
- Lower risk costs. In 2014, the net balance of loan loss provisions equalled PLN 78.7 million versus PLN 128.4 million last year. Lower loan loss provisions reflected a very good quality of the retail loans portfolio.
In 2014, the corporate banking segment earned gross profit of PLN 748.1 million compared with PLN 827.4 million in 2013 (down by 9.6%). The segment’s result represented 55.5% of the Group’s gross result (69.4% in 2013). The corporate banking segment result was made up by:
- The income totalled PLN 1,705.5 million, up by 0.9% from 2013. The net interest income as well as net income on fees and commissions went up by 1.6% and 7.3%, respectively. Other income dropped by 41.3%.
- The segment’s expenses totalled PLN 768.4 million, up by 6.2% from 2013.
- Risk costs. In 2014, the net balance of impaired receivables losses was PLN 189.0 million versus PLN 138.8 million a year earlier – up by 36.2%.
In 2013, the operating efficiency of the ING Bank Śląski S.A. Capital Group was higher than a year earlier, regardless of challenging market environment, which is proved by core effectiveness ratios. In 2013, the Group recorded an increase in Return on Assets (ROA) by 0.1 p.p. The cost to income ratio (C/I) also improved, i.e. it dropped from 56.9% in 2012 to 55.5% at the end of 2013. The solvency ratio (calculated under AIRB), on the other hand, settled at 17.28% versus 14.55% a year earlier (calculated under mixed method, in line with the then stance of PFSA). Return on Equity (ROE) remained alike (11.6% versus 11.7% a year earlier).
Core Effectiveness Ratios (%)
|Interest margin ratio||2.67||2.68|
|Total capital ratio||14.2||17.3|
Cost to Income ratio (C/I) – Operating expenses/ total income together with net profit of associated entities recognised on an equity basis.
Return on Assets (ROA) – net profit/ average assets for 5 consecutive quarters.
Return on Equity (ROE) – net profit/ average equity for 5 consecutive quarters.
Interest margin ratio – net interest income/ average interest assets for 5 consecutive quarters.
Loans/ Deposits ratio – net loans and other receivables to customers, Eurobonds excluded, in relation to liabilities to customers, leasing-matched funding included. The value of Eurobonds was PLN 3,923.9 million in 2014 and PLN 3,685.8 million in 2013. The value of leasing-matched funding was PLN 2,467.1 million in 2014 and PLN 2,580.8 million in 2013.
Total capital ratio – in 2014 calculated in accordance with Basel III regulations, in 2013 in accordance with Basel II regulations.
8. Consolidated statement of financial position
Increased scale of the Group operations in 2014 is mainly visible in its higher total assets and liabilities. As at 31 December 2014, the balance sheet total of the ING Bank Śląski S.A. Capital Group amounted to PLN 99,860.7 million, up by PLN 13,110.1 million, or 15.1% when compared with the balance sheet total as at the end of 2013.
The size of the Group’s balance sheet total as well as the structure of assets and liabilities are determined by the operations of ING Bank Śląski S.A. As at the end of December 2014, the balance sheet total of ING Bank Śląski S.A. was PLN 96,742.4 million (96.8% of the Group’s balance sheet total) versus PLN 83,670.5 million in 2013 (up by 15.6%).
2014 saw a continuation of the growing trend in terms of the share of customer receivables in the assets of the ING Bank Śląski S.A. Capital Group. Throughout the year, total net receivables to customers (Eurobonds excluded) grew by PLN 8,578.8 million, or 17.7% and as at 31 December 2014 totalled PLN 57,130.9 million (57.2% of the total assets of the Bank Capital Group). In 2013, total credit receivables from clients accounted for 56.0% of all assets.
The “Loans and other receivables to customers” category in the financial statements also includes receivables under Polish government bonds in EUR, i.e. Eurobonds. As at the end of December 2014, they amounted to PLN 3,923.9 million versus PLN 3,685.8 million a year earlier.
T-bonds (Eurobonds included) and other derivatives represented a major item in the balance sheet of the Bank Capital Group. As at the end of December 2014, this portfolio totalled PLN 34,006.1 million (or 34.1% of assets) compared with PLN 27,654.1 million (or 31.9% of assets) in December 2013. Debt securities predominated in those assets, including investment assets (available-for-sale assets) the value whereof was PLN 22,829.3 million, or or 67.1% of the entire financial instruments portfolio.
Group’s receivables from other banks totalled PLN 1,838.3 million (or 1.8% of assets) compared with PLN 1,399.8 million (or 1.6% of assets) in December 2013.
Currency structure of customer receivables
|PLN million||%||PLN million||%|
The funds deposited with the Bank by customers constituted the dominant source of funding for the operations of the ING Bank Śląski S.A. Capital Group. In December 2014, liabilities to customers totalled PLN 75,658.9 million compared with PLN 67,547.9 million as at the 2013 yearend.36 As at the end of 2014, liabilities to customers represented 75.8% of total liabilities, down by 2.1 p.p. from the 2013 yearend.
Also total Group liabilities to other banks grew. As at the end of 2014, they were PLN 6,123.4 million compared with PLN 4,609.8 million as at the 2013 yearend. The share of funds acquired from other banks in total liabilities went up to 6.1% as at the 2014 yearend compared with 5.3% as at the 2013 yearend.
As at the end of 2014, the equity attributable to Bank shareholders was PLN 10,454.0 million versus PLN 8,626.3 million in December 2013 (up by PLN 1,827.7 million, or 21.2%). Equity share in funding the Bank Capital Group operations rose to 10.5% compared with 9.9% as at the 2013 yearend. It was mainly due to the increase in valuation of the available-for-sale (AFS) financial assets’ portfolio by PLN 287.5 million and in revaluation reserve for cash flow hedges (MCFH) by PLN 1,072.8 million.
36 Excluding liabilities to customers under repo transactions.