Financial results

Download note 47.1 in XLS

47.1 Credit risk

Credit risk is the risk assumed by the Group under credit transactions and resulting in its inability to recover the amounts disbursed, loss of income or a financial loss. It is the outcome of credit product development and launch as well as the lending process on the one hand and measures employed with a view to reducing the probability of losses, on the other. The Group’s credit risk includes both counterparty and settlement risk.

When developing its current credit risk management policy, the Group aims to maintain the risk appetite level, i.e. NPL ratio and the cost of risk, determined in the strategy. Other factors taken into account include maintaining an appropriate level of equity, compliance with the credit limits set by the Group, analyzing both strengths and weaknesses of the Group’s lending process and anticipating the opportunities and threats for its further growth. The Group’s acceptable credit risk policy also takes into account cyclicality of economic processes and changes in the credit portfolio itself.

The Group has adopted the following principles for the credit risk management process:

• analyzing credit risk of individual exposures, the entire portfolio and the capital requirement related to credit risk;
• applying internal and external limits arising from risk appetite in various areas of the credit portfolio and from the Banking Law and implemented recommendations of Polish Financial Supervision Authority, respectively;
• functions related to direct analysis of applications, risk assessment and credit related decision making are separated from those focused on customer attraction (sales of banking products);
• credit capacity and creditworthiness are the main criteria underlying all credit transactions with customers;
• credit decisions are made in the Group in accordance with procedures and competencies determined in internal regulations on credit risk assessment and credit decision making;
• each credit transaction is monitored from its conclusion to full settlement in terms of utilization, timely repayment, legal security, equity and organizational relationships of the obligor and, in the case of institutional customers, also in terms of their current economic and financial position;
• the financial and economic standing of each insurance company supplying credit collateral, as well as delivery of insurance policies and assignment of rights related thereto by customers are monitored on a regular basis;
• developments in the real estate market as well as the legal and economic assumptions and framework for valuation of property provided as collateral for credit exposures are monitored on a periodic basis.

Credit risk management in the Group is based on written policies and procedures defining methods of identification, measurement, monitoring, limiting and reporting of credit risk. The regulations determine the scope of competencies assigned to each unit of the Group in the credit risk management process.

In order to determine the credit risk level, the Group uses the following measures:

• probability of default (PD);
• recovery rate (RR);
• loss given default (LGD);
• loss identification period (LIP);
• share and structure of non-performing loans (NPL);
• coverage of non-performing loans with impairment losses (NPL coverage);
• scoring model efficiency measures (among others GINI, PSI ratio);
• cost of risk.

The Group carries out regular review of implementation of the adopted credit risk management policy. The review and modification includes mostly:

• internal regulations regarding customer’s credit risk assessment and monitoring, as well as verification of the value of legal security, which are adjusted to changing market conditions, business specifics of each customer type (group), loan purpose and determination of the minimum requirements regarding the obligatory forms of legal security;
• internal system of limiting credit activities and determining decision-making powers regarding loans;
• a system of identifying, assessing and reporting credit risk to Credit Committees, Management and Supervisory Board of the Bank;
• maximum adequacy levels of ratios used to assess credit risk and acceptable forms of own contribution for retail housing loans;
• scoring models and IT tools used in the credit risk management process.

The Group’s reporting system includes among others:

• reporting on credit risk level, to include vintage analyses, information regarding the use of limits, quality and efficiency of credit processes;
• reports on stress tests, limit review and back-test analyses for impairment losses;
• analyses of real property market and verification of the current value of security for credit exposures;
• review of implemented credit risk policy.

The Group prepares the following cyclical reports on its credit risk exposure:

• monthly report for the Management Board and Credit Committee of the Bank;
• quarterly report for the Supervisory and Management Board.

Maximum credit risk exposure (by classes of financial instruments)

Additionally, the Group is exposed to credit risk arising from concluded transactions recognized as extended off-balance sheet liabilities. The maximum exposure to credit risk related to the said transactions is expressed by their off-balance sheet value presented in Note 41.

In order to prevent overly concentration of exposures, the Group applies internal and external limits arising from risk appetite in various areas of the credit portfolio and Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012 (“CRR”) and from the Banking Law and implemented recommendations of the Polish Financial Supervision Authority. The detailed list of lending limits adopted and monitored by the Group has been determined by internal regulations on lending limits. The Group applies internal exposure concentration limits and reference levels for an individual:

• industry type;
• collateral type;
• product type;
• customer type.

Individual limits are monitored on a monthly basis and appropriate credit risk management reports are drawn up regularly.  The Group reviews and, wherever necessary, changes and specifies appropriate limit parameters reflecting the current and target credit portfolio structure in accordance with the risk appetite assumed.

The Group operates only in Poland. The following tables present balance sheet and off-balance sheet exposure regarding loans and advances granted to customers in each province.

As compared to the consolidated financial statements for the year ended 31 December 2014, in these consolidated financial statements the Group has made presentation changes through a more detailed presentation of loans and advances to individuals and separation of item “Cash and instalment loans” and “Mortgages”.

 Geographical structure of the credit portfolio (net carrying amounts)

 

 

Geographical structure of the credit portfolio (net off-balance sheet amounts)

The net value of off-balance sheet exposure regarding loans and advances includes the amount of provisions for off-balance sheet exposures, presented in Note 34.

	Loans and advances granted to customers, including:
Balance as at	individuals					institutional customers	local authorities	Total		Share in off-balance sheet net exposure
31 December 2015	overdraft facilities	cash loans and instalment loans	mortgage loans	real estate loans	credit card debt
	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	%
Mazowieckie	3 206	4 424	0	3 736	1 092	95 051	0	107 509	49,7%
Śląskie	2 516	3 308	0	365	1 357	8 572	0	16 118	7,4%
Łódzkie	1 364	1 606	0	652	514	9 607	0	13 743	6,3%
Dolnośląskie	1 003	3 660	0	2 233	705	5 215	0	12 816	5,9%
Kujawsko-pomorskie	3 953	926	0	1 749	806	4 150	0	11 584	5,3%
Wielkopolskie	4 332	1 756	0	600	1 441	1 257	0	9 386	4,3%
Pomorskie	1 230	615	0	456	770	5 796	0	8 867	4,1%
Warmińsko-mazurskie	844	849	0	428	464	3 753	0	6 338	2,9%
Małopolskie	1 546	1 075	28	930	1 112	1 189	0	5 880	2,7%
Lubuskie	1 126	601	0	130	415	3 545	0	5 817	2,7%
Zachodniopomorskie	2 011	1 576	0	392	648	1 076	0	5 703	2,6%
Lubelskie	2 713	338	0	606	618	608	0	4 883	2,3%
Podkarpackie	1 077	660	0	254	895	310	0	3 196	1,5%
Podlaskie	1 274	398	0	194	237	38	0	2 141	1,0%
Świętokrzyskie	729	356	0	93	288	27	0	1 493	0,7%
Opolskie	357	545	0	49	299	13	0	1 263	0,6%
Not assigned	2	0	0	2	1	2	0	7	0,0%
Total	29 283	22 693	28	12 869	11 662	140 209	0	216 744	100,0%

 

	Loans and advances granted to customers, including:
Balance as at	individuals					institutional customers	local authorities	Total		Share in off-balance sheet net exposure
31 December 2014	overdraft facilities	cash loans and instalment loans	mortgage loans	real estate loans	credit card debt
	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	%
Mazowieckie	3 353	2 970	0	5 454	1 415	51 659	0	64 851	37,0%
Śląskie	2 730	2 476	0	1 083	1 958	13 256	0	21 503	12,3%
Łódzkie	1 389	1 458	0	1 157	714	15 750	0	20 468	11,7%
Wielkopolskie	4 328	1 339	0	2 614	1 659	1 401	0	11 341	6,5%
Dolnośląskie	1 010	2 076	0	3 370	869	2 053	0	9 378	5,4%
Kujawsko-pomorskie	4 075	1 089	0	1 211	989	350	0	7 714	4,4%
Pomorskie	1 300	1 064	0	1 647	879	1 781	0	6 671	3,8%
Lubelskie	1 717	1 129	0	1 059	722	1 771	0	6 398	3,7%
Małopolskie	1 623	1 383	28	1 045	1 098	225	0	5 402	3,1%
Zachodniopomorskie	1 842	978	0	657	818	239	0	4 534	2,6%
Warmińsko-mazurskie	886	499	0	1 708	460	540	0	4 093	2,3%
Lubuskie	1 030	813	0	330	482	1 187	0	3 842	2,2%
Podkarpackie	916	487	0	866	623	54	0	2 946	1,7%
Podlaskie	1 210	263	0	204	285	85	0	2 047	1,2%
Świętokrzyskie	748	223	0	397	316	67	0	1 751	1,0%
Opolskie	348	545	0	99	326	14	0	1 332	0,8%
Not assigned	13	564	0	0	23	0	0	600	0,3%
Total	28 518	19 356	28	22 901	13 636	90 432	0	174 871	100,0%

 

Industry structure of the credit portfolio

The following table presents the Group’s exposure concentration by industry. The Group’s portfolio is dominated by loans granted to individuals.

	Balance as at				Balance as at
	31 December 2015				31 December 2014
	Net carrying amount	Net off-balance sheet amount	Total net credit exposure	Interest (%)	Net carrying amount	Net off-balance sheet amount	Total net credit exposure	Interest (%)
	PLN’000	PLN’000	PLN’000	%	PLN’000	PLN’000	PLN’000	%
Individuals	4 534 691	76 535	4 611 226	83,4%	4 296 942	84 439	4 381 381	82,1%
Property market services	338 923	42 771	381 694	6,9%	330 901	24 023	354 924	6,7%
Public administration, national defense, mandatory social insurance	252 825	0	252 825	4,6%	303 297	0	303 297	5,7%
Other activity	94 165	96 498	190 663	3,4%	110 272	53 171	163 443	3,1%
Accommodation	21 941	99	22 040	0,4%	29 779	10 913	40 692	0,8%
Manufacture of paper and paper products	19 998	597	20 595	0,4%	20 851	1 694	22 545	0,4%
Other manufacturing	16 372	0	16 372	0,3%	0	0	0	0,0%
Education	13 309	26	13 335	0,2%	14 794	14	14 808	0,3%
Retail sale, excluding motor vehiclesi	11 542	134	11 676	0,2%	14 484	245	14 729	0,3%
Wholesale, excluding motor vehicles	9 116	84	9 200	0,2%	16 315	372	16 687	0,3%
Financial services, excluding insurance and pension funds	0	0	0	0,0%	14 142	0	14 142	0,3%
Total	5 312 882	216 744	5 529 626	100,0%	5 151 777	174 871	5 326 648	100,0%

 

Group’s gross exposure to ten key customers  

Balance as at
31 December 2015
Debtor	Industry according to Polish Classification of Activity	Total exposure	Balance sheet exposure (principal)	Off-balance sheet exposure	Share in the gross credit portfolio
		PLN’000	PLN’000	PLN’000
Klient 1	Postal and courier services	85 000	0	85 000	1,5%
Klient 2	Property market services	27 839	19 671	8 168	0,5%
Klient 3	Manufacture of paper and paper products	19 344	18 834	510	0,3%
Klient 4	Public administration, national defense, mandatory social insurance	18 501	18 501	0	0,3%
Klient 5	Other manufacturing	16 528	16 528	0	0,3%
Klient 6	Accommodation	15 840	15 762	78	0,3%
Klient 7	Property market services	15 523	15 395	128	0,3%
Klient 8	Public administration, national defense, mandatory social insurance	14 207	14 207	0	0,3%
Klient 9	Public administration, national defense, mandatory social insurance	14 101	14 101	0	0,3%
Klient 10	Building construction	11 459	2 958	8 501	0,2%
		238 342	135 957	102 385	4,3%

 

Balance as at
31 December 2014
Obligor’s name	Industry according to Polish Classification of Activity	Total exposure	Balance sheet exposure (principal)	Off-balance sheet exposure	Share in the gross credit portfolio
		PLN’000	PLN’000	PLN’000
Klient 1	Postal and courier services	49 077	0	49 077	0,9%
Klient 2	Property market services	29 653	16 730	12 923	0,6%
Klient 3	Public administration, national defense, mandatory social insurance	23 625	23 625	0	0,4%
Klient 4	Manufacture of paper and paper products	20 746	19 135	1 611	0,4%
Klient 5	Accommodation	17 500	6 668	10 832	0,3%
Klient 6	Accommodation	16 851	16 692	159	0,3%
Klient 7	Public administration, national defense, mandatory social insurance	14 203	14 203	0	0,3%
Klient 8	Public administration, national defense, mandatory social insurance	14 200	14 200	0	0,3%
Klient 9	Public administration, national defense, mandatory social insurance	12 582	12 582	0	0,2%
Klient 10	Public administration, national defense, mandatory social insurance	11 100	11 100	0	0,2%
		209 537	134 935	74 602	3,9%

 

Quality structure

The Group has identified the following quality structure of financial assets:

• current, no indications of impairment;
• overdue, no indications of impairment;
• indications of impairment identified, but no impairment detected;
• indications of impairment identified, impairment and the related loss recognized.

The following tables present the summary of the above quality classes of each financial assets type as at 31 December 2015 and 31 December 2014.

1. Quality structure of receivables from other banks

	Balance as at				Balance as at
	31 December 2015				31 December 2014
	Gross carrying amount	Allowance	Net carrying amount	Share in net on-balance sheet exposure	Gross carrying amount	Allowance	Net carrying amount	Share in net on-balance sheet exposure
	PLN’000	PLN’000	PLN’000	%	PLN’000	PLN’000	PLN’000	%
Current receivables from other banks, no impairment indication	45 346	0	45 346	100,0%	158 269	0	158 269	100,0%
Overdue receivables from other banks, no impairment indication	0	0	0	0,0%	0	0	0	0,0%
Receivables from other banks with indications of impairment identified, but no impairment detected	0	0	0	0,0%	0	0	0	0,0%
Receivables from other banks with indications of impairment identified, impairment and the related allowance recognized	0	0	0	0,0%	0	0	0	0,0%
Total	45 346	0	45 346	100,0%	158 269	0	158 269	100,0%

 

2. Quality structure of investment financial assets

	Balance as at				Balance as at
	31 December 2015				31 December 2014
	Gross carrying amount	Allowance	Net carrying amount	Share in net on-balance sheet exposure	Gross carrying amount	Allowance	Net carrying amount	Share in net on-balance sheet exposure
	PLN’000	PLN’000	PLN’000	%	PLN’000	PLN’000	PLN’000	%
Current investment assets, no indications of impairment	1 248 037	0	1 248 037	100,0%	1 519 266	0	1 519 266	100,0%
Overdue investment assets, no indications of impairment	0	0	0	0,0%	0	0	0	0,0%
Investment assets, indications of impairment identified, but no impairment detected	0	0	0	0,0%	0	0	0	0,0%
Investment assets, indications of impairment identified, impairment and the related allowance recognized	0	0	0	0,0%	0	0	0	0,0%
Total	1 248 037	0	1 248 037	100,0%	1 519 266	0	1 519 266	100,0%

 

3. Quality structure of loans and advances granted to customers

Balance as at	Gross carrying amount	Allowance	Net carrying amount	Share in net on-balance sheet exposure	Gross off-balance sheet amount	Allowance	Net off-balance sheet amount	Share in net off-balance sheet exposure
31 December 2015
	PLN’000	PLN’000	PLN’000	%	PLN’000	PLN’000	PLN’000	%
Current loans and advances, no impairment indication	4 929 904	10 812	4 919 092	92,6%	215 815	276	215 539	99,4%
Overdue loans and advances, no impairment indication	194 318	14 790	179 528	3,4%	549	18	531	0,2%
Loans and advances with indications of impairment, but no impairment detected	28 429	439	27 990	0,5%	247	2	245	0,1%
Loans and advances with indications of impairment, impairment and the related allowance recognized	389 838	203 566	186 272	3,5%	539	110	429	0,2%
Total	5 542 489	229 607	5 312 882	100,0%	217 150	406	216 744	100,0%

 

Balance as at	Gross carrying amount	Allowance	Net carrying amount	Share in net on-balance sheet exposure	Gross off-balance sheet amount	Allowance	Net off-balance sheet amount	Share in net off-balance sheet exposure
31 December 2014
	PLN’000	PLN’000	PLN’000	%	PLN’000	PLN’000	PLN’000	%
Current loans and advances, no impairment indication	4 689 905	10 334	4 679 571	90,8%	172 907	389	172 518	98,7%
Overdue loans and advances, no impairment indication	256 774	12 534	244 240	4,7%	1 154	60	1 094	0,6%
Loans and advances with indications of impairment, but no impairment detected	53 615	867	52 748	1,0%	496	4	492	0,3%
Loans and advances with indications of impairment, impairment and the related allowance recognized	325 391	150 173	175 218	3,4%	945	178	767	0,4%
Total	5 325 685	173 908	5 151 777	100,0%	175 502	631	174 871	100,0%

 

Loans and advances granted to customers: current, no impairment indication

Loans and advances granted to customers, not overdue and without impairment indication, bear an acceptable level of credit risk. The Group does not apply internal ratings to determine capital requirements for credit risk, hence a more detailed quality structure of the current portfolio (using internal ratings) is not presented.

	Balance as at	Balance as at
	31 December 2015	31 December 2014
	PLN’000	PLN’000
individuals	4 219 741	3 929 739
- overdraft facilities	24 495	28 280
- cash loans and instalment loans	1 721 316	1 404 603
- mortgage loans	177 782	190 941
- real estate loans	2 284 290	2 293 433
- credit card debt	11 858	12 482
institutional customers	457 321	458 448
local authorities	252 842	301 718
Total	4 929 904	4 689 905
Allowance	10 812	10 334
Total net amount	4 919 092	4 679 571
Off-balance sheet gross amount	215 815	172 907
Off-balance sheet allowance	276	389
Off-balance sheet net amount	215 539	172 518

 

Loans and advances granted to customers: overdue, no impairment indication

The following tables present the ageing analysis of overdue loans and advances granted to customers with no indications of impairment.

Balance as at
31 December 2015	1 – 30 days	31 – 60 days	61 – 90 days	Total
	PLN’000	PLN’000	PLN’000	PLN’000
individuals	142 860	33 487	14 501	190 848
- overdraft facilities	1 307	267	79	1 653
- cash loans and instalment loans	87 136	25 203	12 071	124 410
- mortgage loans	12 595	1 671	313	14 579
- real estate loans	41 180	6 180	1 906	49 266
- credit card debt	642	166	132	940
institutional customers	3 052	188	230	3 470
local authorities	0	0	0	0
Total gross amount	145 912	33 675	14 731	194 318
Allowance	5 712	4 822	4 256	14 790
Total net amount	140 200	28 853	10 475	179 528
Off-balance sheet gross amount	467	67	15	549
Off-balance sheet allowance	11	5	2	18
Off-balance sheet net amount	456	62	13	531

 

Balance as at
31 December 2014	1 – 30 days	31 – 60 days	61 – 90 days	Total
	PLN’000	PLN’000	PLN’000	PLN’000
individuals	200 482	31 470	14 607	246 559
- overdraft facilities	1 702	237	160	2 099
- cash loans and instalment loans	117 709	23 213	11 667	152 589
- mortgage loans	13 697	2 008	607	16 312
- real estate loans	66 429	5 761	1 986	74 176
- credit card debt	945	251	187	1 383
institutional customers	6 526	1 410	735	8 671
local authorities	1 544	0	0	1 544
Total gross amount	208 552	32 880	15 342	256 774
Allowance	5 315	3 588	3 631	12 534
Total net amount	203 237	29 292	11 711	244 240
Off-balance sheet gross amount	774	230	150	1 154
Off-balance sheet allowance	16	21	23	60
Off-balance sheet net amount	758	209	127	1 094

 

Loans and advances granted to costumers with indications of impairment, but no impairment detected

The following tables present loans and advances granted to customers, with indication of impairment, but with no impairment detected, including the financial effect of collateral on the impairment loss.

Balance as at	Indications of impairment identified, but no impairment detected, including:
31 December 2015	Gross carrying amount	Gross off-balance sheet amount	Allowance recognized excluding the financial effect of security		Financial effect of security included in the allowance		Allowance recognized including the financial effect of security
			On-balance sheet	Off-balance sheet	On-balance sheet	Off-balance sheet	On-balance sheet	Off-balance sheet
	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000
individuals	0	0	0	0	0	0	0	0
- overdraft facilities	0	0	0	0	0	0	0	0
- cash loans and instalment loans	0	0	0	0	0	0	0	0
- mortgage loans	0	0	0	0	0	0	0	0
- real estate loans	0	0	0	0	0	0	0	0
- credit card debt	0	0	0	0	0	0	0	0
institutional customers	28 429	247	8 583	108	8 144	106	439	2
local authorities	0	0	0	0	0	0	0	0
Total	28 429	247	8 583	108	8 144	106	439	2

 

Balance as at	Indications of impairment identified, but no impairment detected, including:
31 December 2014	Gross carrying amount	Gross off-balance sheet amount	Allowance recognized excluding the financial effect of security		Financial effect of security included in the allowance		Allowance recognized including the financial effect of security
			On-balance sheet	Off-balance sheet	On-balance sheet	Off-balance sheet	On-balance sheet	Off-balance sheet
	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000
individuals	0	0	0	0	0	0	0	0
- overdraft facilities	0	0	0	0	0	0	0	0
- cash loans and instalment loans	0	0	0	0	0	0	0	0
- mortgage loans	0	0	0	0	0	0	0	0
- real estate loans	0	0	0	0	0	0	0	0
- credit card debt	0	0	0	0	0	0	0	0
institutional customers	53 615	496	19 806	348	18 939	344	867	4
local authorities	0	0	0	0	0	0	0	0
Total	53 615	496	19 806	348	18 939	344	867	4

Loans and advances granted to customers with indications of impairment identified, impairment and the related loss recognized

The following tables present loans and advances granted to customers, with indication of impairment, impairment detected and impairment loss recognized, including the financial effect of collateral on the impairment loss.

 

	Indications of impairment identified, impairment and the related allowance recognized, including:
Balance as at	Gross carrying amount	Gross off-balance sheet amount	Allowance recognized excluding the financial effect of security		Financial effect of security included in the allowance		Allowance recognized including the financial effect of security
31 December 2015			On-balance sheet	Off-balance sheet	On-balance sheet	Off-balance sheet	On-balance sheet	Off-balance sheet
	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000
individuals	300 766	431	156 589	95	2 790	0	153 799	95
- overdraft facilities	6 330	13	3 520	3	0	0	3 520	3
- cash loans and instalment loans	185 551	3	100 451	1	0	0	100 451	1
- mortgage loans	36 237	0	16 049	0	2 790	0	13 259	0
- real estate loans	68 478	48	34 125	20	0	0	34 125	20
- credit card debt	4 170	367	2 444	71	0	0	2 444	71
institutional customers	89 072	108	69 277	15	19 510	0	49 767	15
local authorities	0	0	0	0	0	0	0	0
Total	389 838	539	225 866	110	22 300	0	203 566	110

 

	Indications of impairment identified, impairment and the related allowance recognized, including:
Balance as at	Gross carrying amount	Gross off-balance sheet amount	Allowance recognized excluding the financial effect of security		Financial effect of security included in the allowance		Allowance recognized including the financial effect of security
31 December 2014			On-balance sheet	Off-balance sheet	On-balance sheet	Off-balance sheet	On-balance sheet	Off-balance sheet
	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000
individuals	247 265	825	110 177	163	2 913	0	107 264	163
- overdraft facilities	5 457	10	3 044	3	0	0	3 044	3
- cash loans and instalment loans	122 817	0	59 954	0	0	0	59 954	0
- mortgage loans	38 539	0	13 293	0	2 913	0	10 380	0
- real estate loans	76 414	69	31 768	21	0	0	31 768	21
- credit card debt	4 038	746	2 118	139	0	0	2 118	139
institutional customers	78 026	120	62 661	15	19 797	0	42 864	15
local authorities	100	0	45	0	0	0	45	0
Total	325 391	945	172 883	178	22 710	0	150 173	178

 

The financial effect of recovery based on collateral for receivables analyzed on a case-by-case basis amounted to PLN 30.4 million as at 31 December 2015 and PLN 42.0 million as at 31 December 2014. This amount would increase the required impairment losses if cash flows related to the collateral were not included in the calculation.

In such a case, the total value of impairment losses for the credit portfolio of the Group would amount to PLN 260.5 million as at 31 December 2015 and PLN 216.5 million as at 31 December 2014.

The Group uses the following collateral and other items improving the lending terms:

• mortgage recorded in the land and mortgage register as a senior lien or junior lien (if the total value of all liens does not exceed 50% of the market value of the property). liens representing 100% of the transaction value are recorded to collateralize principal increased by at least 60% of the transaction value to secure payment of interest, fees and charges as well as the Bank’s costs related to the obligor’s delinquencies;
• assignment of rights under property insurance policies covering fire and other accidents;
• statement of submission to enforcement proceedings by the obligor (and/or guarantor) up to 150% of the gross loan amount, with the date by which the Group may apply for a writ of execution;
• statement of submission to enforcement proceedings by the property owner up to the amount of the mortgage lien(s) created on the owned property (properties), with the date by which the Group may apply for a writ of execution based thereon;
• blank promissory note with a promissory note agreement for the Group;
• for construction of a house/premises – assignment of receivables under the construction contract concluded with the property developer/housing cooperative;
• transfer of the obligor’s cash to the Group’s account pursuant to Article 102 of the Banking Law (deposits);
• registered pledge blocking the rights attached to securities issued by the State Treasury and the National Bank of Poland (treasury bills and bonds);
• assignment of rights arising from participation units in an investment fund management company accepted by the Group;
• assignment of rights under an insurance policy taken out from an insurance undertaking accepted by the Group;
• financial pledge, registered pledge, assignment, deposit or blocking of other investment products approved on a case-by-case basis when making the loan decision.

As at 31 December 2015 the fair value of mortgage collateral for the related exposures amounted to PLN 4,479.2 million compared to PLN 4,651.7 million as at 31 December 2014.

Forbearance of loans

Forbearance of selected credit exposures means a forced modification of the initial repayment terms as determined in a loan agreement following a motion of the bank or obligor, resulting from inability to repay the loan on the initial terms due to an event that has deteriorated the financial standing of the obligor and resulted in repayment arrears or adversely affected the repayment projections. The purpose of the forbearance procedures is to:

• adjust the terms of repayment of liabilities arising from a credit transaction to the current solvency level of a debtor;
• allow the debt restructuring by a debtor without the Group's commencing collection procedures that make the entire debt immediately payable and further reduce debtor’s solvency;
• improve the collection standing of the Group through acceptance of additional security;
• allow debtor’s restructuring of the debt following the commencement of collection procedures by the Group;
• minimize losses incurred by the Group.

The Group applies the following forms of debt forbearance:

• amending the repayment schedule within the initial repayment period (i.e. temporary reduction in the installment amount to the level proposed by a debtor or determined by its solvency);
• extending the financing period;
• change in the installment repayment date;
• extended repayment dates;
• change in interest terms;
• assuming or accessing the debt by a third party;
• changing the repayment algorithm from decreasing to equal installments;
• determining the repayment schedule for overdrafts and revolving loans or decreasing outstanding balances;
• changing the repayment scheme: principal first, interest later;
• temporary suspension of interest repayment;
• capitalizing interest/principal;
• establishing additional collateral;
• sale of receivables;
• conversion;
• assuming collateral and offsetting it with the debt;
• concluding a new loan agreement/forbearance arrangement;
• other measures aimed at minimizing Group’s losses.

Forbearance may require concluding a new facility agreement. This concerns situations, where the previous agreement was terminated and certain indications have occurred that the borrower has regained the full creditworthiness. After the disbursement the facility is marked as forborne exposure. Restructured transactions are recorded and monitored on an ongoing basis. Correct implementation of terms of a restructuring annex / new agreement / forbearance arrangement is monitored in particular for compliance with the debt repayment with deadlines and amounts determined therein. Should a threat to the implementation of a restructuring annex / new agreement / forbearance arrangement occur, the organizational unit monitoring the restructuring terms initiates measures aimed at renegotiation of these terms or commencement of collection proceedings. The record is built and updated on an ongoing basis based on relevant entries in IT systems of the Bank. Results of monitoring transactions subject to restructuring are presented on a quarterly basis at the Bank’s Credit Committee. At the end of each quarter, review of restructured transactions marking is performed under control procedures.

According to Recommendation R, restructuring is an impairment indication for credit exposure, and each restructured exposure is measured for impairment. Restructured exposures can be reclassified to non-impaired exposures after a 12-month grace period when the repayments cannot be overdue by more than 30 days at each month end.

The following tables present forborne exposures as at 31 December 2015 and 31 December 2014.

	Balance as at	Balance as at
		31 December 2015	31 December 2014
	PLN’000	PLN’000
Gross loans and advances granted to customers, including:	5 542 489	5 325 685
Gross loans and advances granted to customers (forborne exposures):	56 888	57 772
individuals:	9 588	8 094
- cash loans and instalment loans	2 498	695
- mortgage loans	1 645	1 721
- real estate loans	5 445	5 678
Institutional customers:	47 300	49 678
- overdraft facilities	4 930	4 262
- operating loans	10 216	12 342
- investment loans	27 355	28 140
- other loans	4 799	4 934
Local authorities	0	0
Impairment allowances on loans and advances granted to customers (forborne exposures):	(16 229)	(17 529)
Net loans and advances granted to forbearance customers	40 659	40 243

 

Gross loans and advances granted to customers (forborne exposures) by changes in repayment terms*	Balance as at	Balance as at
		31 December 2015	31 December 2014
	PLN’000	PLN’000
- change in repayment schedule	37 750	38 918
- extending the loan term	30 258	32 246
- grace period	23 189	22 409
- determining the repayment schedule for a limit	1 133	650
- change in interest calculation principles	22 915	25 827
- takeover of debt	27	0
- change of security	727	422
- accession to debt	910	249
- new restructuring agreement	51	0

 _{* Repayment terms of exposure may be changed several times.}

Forborne exposures by indication of impairment as at 31 December 2015 and 31 December 2014:

	Loans and advances ranted to customers (gross)		Impairment allowance		Loans and advances granted to customers (net)
Balance as at
31 December 2015	impaired	not impaired	impaired	not impaired	impaired	not impaired	Total
	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000
individuals:	4 804	4 784	1 837	6	2 967	4 778	7 745
- consumer loans	2 262	236	943	1	1 319	235	1 554
- mortgage loans	649	996	137	1	512	995	1 507
- real estate loans	1 893	3 552	757	4	1 136	3 548	4 684
institutional customers:	25 441	21 859	14 046	340	11 395	21 519	32 914
- overdraft facilities	4 476	454	2 049	7	2 427	447	2 874
- operating loans	6 190	4 026	2 231	62	3 959	3 964	7 923
- investment loans	10 661	16 694	8 054	260	2 607	16 434	19 041
- other loans	4 114	685	1 712	11	2 402	674	3 076
Local authorities	0	0	0	0	0	0	0
Total	30 245	26 643	15 883	346	14 362	26 297	40 659

 

	Loans and advances ranted to customers (gross)		Impairment allowance		Loans and advances granted to customers (net)
Balance as at
31 December 2014	impaired	not impaired	impaired	not impaired	impaired	not impaired	Total
	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000
individuals:	7 984	110	2 205	0	5 779	110	5 889
- cash loans and instalment loans	695	0	219	0	476	0	476
- mortgage loans	1 721	0	222	0	1 499	0	1 499
- real estate loans	5 568	110	1 764	0	3 804	110	3 914
institutional customer:	25 298	24 380	14 926	398	10 372	23 982	34 354
- overdraft facilities	3 891	371	1 747	6	2 144	365	2 509
- operating loans	5 996	6 346	3 450	103	2 546	6 243	8 789
- investment loans	10 477	17 663	7 718	289	2 759	17 374	20 133
- other loans	4 934	0	2 011	0	2 923	0	2 923
local authorities	0	0	0	0	0	0	0
Total	33 282	24 490	17 131	398	16 151	24 092	40 243

 

Quality structure of forborne exposures as at 31 December 2015 and 31 December 2014:

	Balance as at				Balance as at
	31 December 2015				31 December 2014
	Gross carrying amount	Allowance	Net carrying amount	Share in exposure	Gross carrying amount	Allowance	Net carrying amount	Share in exposure
	PLN’000	PLN’000	PLN’000	%	PLN’000	PLN’000	PLN’000	%
Current loans and advances, no impairment indication	19 771	247	19 524	48,0%	110	0	110	0,3%
Overdue loans and advances, no impairment indication	775	4	771	1,9%	0	0	0	0,0%
Loans and advances with indications of impairment, but no impairment detected	6 097	95	6 002	14,8%	24 380	398	23 982	59,6%
Loans and advances with indications of impairment, impairment and the related loss recognized	30 245	15 883	14 362	35,3%	33 282	17 131	16 151	40,1%
Total	56 888	16 229	40 659	100,0%	57 772	17 529	40 243	100,0%

 

The following tables present changes in carrying amounts of forborne exposures for each reporting period:

- investment loans

	Net value	Gross value of exposures recognized in the period	Gross value of exposures eliminated in the period	Repayment of receivables in the period	Change in impairment allowances in the period	Net value
	1 January 2015					31 December 2015
	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000
individuals:	5 889	2 262	0	(832)	426	7 745
- cash loans and instalment loans	476	1 797	0	(39)	(680)	1 554
- mortgage loans	1 499	0	0	(95)	103	1 507
- real estate loans	3 914	465	0	(698)	1 003	4 684
institutional customers:	34 354	1 235	0	(4 508)	1 833	32 914
- overdraft facilities	2 509	889	0	(841)	317	2 874
- operating loans	8 789	346	0	(2 529)	1 317	7 923
20 133	0	0	(976)	(116)	19 041
- other loans	2 923	0	0	(162)	315	3 076
local authorities	0	0	0	0	0	0
Total	40 243	3 497	0	(5 340)	2 259	40 659

 

	Net value	Gross value of exposures recognized in the period	Gross value of exposures eliminated in the period	Repayment of receivables in the period	Change in impairment allowances in the period	Net value
	1 January 2014					31 December 2014
	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000	PLN’000
individuals:	233	7 889	0	(49)	(2 184)	5 889
- cash loans and instalment loans	0	739	0	0	(263)	476
- mortgage loans	120	1 582	0	(46)	(157)	1 499
- real estate loans	113	5 568	0	(3)	(1 764)	3 914
institutional customers:	24 563	16 699	0	(3 116)	(3 792)	34 354
- overdraft facilities	2 382	1 013	0	(493)	(393)	2 509
- operating loans	990	11 268	0	(220)	(3 249)	8 789
- investment loans	19 117	1 507	0	(436)	(55)	20 133
- other loans	2 074	2 911	0	(1 967)	(95)	2 923
local authorities	0	0	0	0	0	0
Total	24 796	24 588	0	(3 165)	(5 976)	40 243

 

Interest income on forborne exposures in 2015 and 2014:

	Period	Period
	from 1 January 2015	from 1 January 2014
	to 31 December 2015	to 31 December 2014
	PLN’000	PLN’000
individuals:	252	227
- cash loans and instalment loans	95	49
- mortgage loans	38	54
- real estate loans	119	124
institutional customers:	830	1 228
- overdraft facilities	82	45
- operating loans	23	226
- investment loans	598	791
- other loans	127	166
local authorities	0	0
Total	1 082	1 455