business report 2019lm6ord_qbwsv6n-yrpmkovav3j6ybp2uqx6… · corporate customers, dnb bank polska...

Business Report 2019 DNB Bank Polska S.A.

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Contents

I. GENERAL INFORMATION 3

II. BUSINESS REPORT 4

II.I. GENERAL INFORMATION 4

II.II. THE BANK’S FINANCIAL RESULTS 5

II.III. RISK MANAGEMENT WITHIN THE BANK 7

II.IV. THE BANK’S OPERATIONS IN 2019 9

II.V. THE BANK’S PLANNED DEVELOPMENT IN 2020 10

III. INDUSTRY EXPERTISE 1 1

IV. CSR IN DNB 13

V. FINANCIAL HIGHLIGHTS 14

VI. OPINION OF THE AUDITORS 18

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ABOUT THE BANK AND THE DNB GROUPDNB in the world

DNB I. About the Bank and the DNB Group

DNB Bank Polska S.A. has been operating in Poland since 2002. The Bank is a wholly-owned subsidiary of Norway’s biggest bank and financial group – DNB Bank ASA. The Group serves more than a half of the inhabitants of the country and is the leader in corporate banking, insurance and asset management. DNB operates in 16 countries on 4 continents and has offices in the major financial centres of the world (including London, New York and Singapore) and its shares are listed on the stock exchanges in Oslo. DNB is also one of the world’s largest banks financing international shipping companies and the energy sector.

DNB enjoys high long-term credit ratings (AA- by Standard & Poor’s and Aa2 by Moody’s).

Focused on the provision of services for selected sectors, DNB Group lays emphasis on the development of its industry expertise through international teams of experts who analyse the situation in the strategic sectors globally on an ongoing basis. This has a bearing on the local markets – the Group is able to offer not only tailor-made financial solutions for specific industries, but also expert advice in all the markets in which it is present.

DNB Bank Polska S.A. is a specialized corporate Bank, servicing large corporates and public sector entities. The Bank is focused on financing and serving companies from selected industries, such as energy, including renewable energy sources, TMT, retail, packaging, food industry, manufacturing and automotive industries, services and pharmaceuticals.

Apart from providing top quality banking services for corporate customers, DNB Bank Polska also offers project finance and commercial lending, in particular short- and medium-term financing as well as long-term structured financing. The Bank is also an arranger of and participant in syndicated lending. It provides a comprehensive range of trade finance solutions, as well as factoring services and hedging instruments against foreign exchange risk, interest rate risk and commodity risk. Being part of a Nordic financial Group, the bank offers a single platform for serving Nordic corporate customers in Central and Eastern Europe.

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II. Business report

II.I. General information1. On June 6th 2019, DNB Bank Polska S.A. (“the Company”, “the Bank”) held their Ordinary General Meeting of Shareholders, which, among others:

approved the Company’s Business Report, balance sheet and profit and loss statement for the year ended 31 December 2018, and gave the Company’s authorities a vote of acceptance in respect of the performance of their duties for the 2018;

decided to allocate the Bank’s net profit for the 2018 amounted to PLN 68.225 thousand as follows:• the amount of PLN 7.000 thousand – for the

supplementary capital,• the amount of PLN 61.225 thousand - for the reserve

capital.

decided to cover losses from previous year amounted PLN 10.339 thousand from the supplementary capital;

decided to cover losses from previous year amounted PLN 10.339 thousand from the supplementary capital;

2. The Bank’s Supervisory Council comprised the following Members on January 1st 2019:

Mr. Vidar Andersen,Mr. Tony Samuelsen,Ms. Eldbjørg Sture,Ms. Trine Loe,Mr. Arild Fredriksen,Mr. Leif René Hansen,Mr. Jan Nosowski.

The Bank’s Supervisory Council comprised the following Members on December 31st 2019:

Mr. Vidar Andersen,Mr. Tony Samuelsen,Ms. Trine Loe,Mr. Jo Teslo,Mr. Leif René Hansen,Mr. Jan Nosowski.

On September 24th 2019, the General Meeting of Shareholders recalled Ms. Eldbjørg Sture and Mr. Arild Fredriksen from the function of a Member of Supervisory Council. The same day the General Meeting of Shareholders appointed Mr. Jo Teslo as the Member of Supervisory Council.

On February 21st 2020, the General Meeting of Shareholders recalled Ms. Trine Loe from the function of a Member of Supervisory Council and appointed Mr. Anders Grevstada as the Member of Supervisory Council.

3. The Bank’s Management Board comprised the following Members on January 1st 2019:

Mr. Artur Tomaszewski – the President of the Management Board,Mr. Krzysztof Miłachowski – the Management Board Member,Mr. Marcin Prusak - the Management Board Member,Mr. Wojciech Dyk - the Management Board Member.

On December 31st 2019, the Bank’s Management Board remained unchanged.

4. On June 11th 2019, the note about the submission of the Bank’s financial statement for the period from 1 January to 31 December 2018 along with the auditor’s opinion, the resolution of the General Meeting of Shareholders about approving the financial statement and the Bank’s business report were entered in the Registry of Entrepreneurs of the National Court Register.

DNB II. Business report

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mln PLNmln PLN

II.II. The Bank’s financial resultsThe Bank closed the reporting period ended on 31 December 2019 with:

balance sheet total of PLN 11,067,655 thousand,

profit before tax of PLN 82,072 thousand,

profit for the year of PLN 61,446 thousand,

Return On Assets ratio ROA (calculated as dividing the net profit and the total assets) amounted to 0.56% (for 2018: 0.68%).

Just as in previous years, the Bank’s activity is focused on corporate banking, executing the strategy to develop the profitable corporate banking.

The table below presents the distribution of the Bank’s income earned in 2019 as well as its dynamic and development in comparison to 2018 results. The net interest income constituted the most significant item in the Bank’s income (approximately 73% of total income). Subsequently other significant categories in the income structure included net trading income (12%) and fee and commission income (7%).

The total operating income decreased by 4% in 2019 compared to 2018 mainly due to net trading income result (in 2018 the negative result in this line was recorded which was presented in other operating income). The net fee and commission income decreased by 25% year to year and net interest income decreased by 8%.

DNB

INCOME STATEMENT - SELECTED FINANCIAL DATA

YEAR ENDED 31.12.2019

(PLN ‚000)

PARTICIPATION

(%)


(PLN ‚000)

CHANGE 2019/2018

(%)

Net interest income 153 263 73% 167 370 -8%

Net fee and commission income 13 685 7% 18 252 -25%

Net trading income 25 019 12% - -

Net gains/ (losses) on derecognition of financial assets 3 685 2% 2 393 54%

Net gains/ (losses) on assets at fair value 2 390 1% 1 998 20%

Other operating income 10 592 5% 10 337 2%

Total operating income 208 634 100% 200 350 4%

II. Business report

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INCOME STATEMENT - SELECTED FINANCIAL DATA


(PLN ‚000)

PARTICIPATION

(%)


(PLN ‚000)

CHANGE 2019/2018

(%)

Staff costs 50 401 35% 59 878 -16%

Depreciation 9 874 7% 10 259 -4%

Material costs 1 150 1% 1 963 -41%

Taxes and fees 2 007 1% 1 357 48%

Contribution and payment to the Bank Guarantee Fund 21 933 15% 16 335 34%

Contribution to the Company Social Benefits Fund 270 0% 300 -10%

IT costs 21 016 14% 21 441 -2%

Telecommunication costs 4 415 3% 4 710 -6%

Marketing costs 2 339 2% 2 145 9%

Costs of services 11 159 8% 9 878 13%

Premises costs 3 086 2% 6 401 -52%

Costs of short term leasing agreements and of low value assets 56 0% - -

Other administrative costs 2 160 1% 2 764 -22%

Net trading income - - 79 -

Other operating expenses 5 666 4% 3 264 74%

Tax on assets of certain financial institutions 9 689 7% 2 327 316%

Total operating expenses 145 221 100% 143 101 1%

In 2019 the total operating expenses increased by 1% compared to 2018. The table below presents the distri-bution of the Bank’s operating expenses in 2019 and the variance of individual expense lines compared to 2018.

The costs related to the employee benefits were the most significant item (constituting 35% of all costs incurred by the Bank). During 2019 the employee related costs decreased compared to 2018 (by 16%). Other significant categories in the costs structure include contribution and payments made to the Guarantee Bank Fund (15%), IT expenses

(14%), external services (8%) and depreciation expense and banking tax (7% each). The most significant increase of expenses compared to the previous year was noted in the following categories: contribution and payment to the Bank Guarantee Fund (PLN 5,598 thousand) and banking tax (PLN 7,362 thousand). The increase of banking tax expense was mainly due to the fact that based on art. 11 par. 2 point 1 of Act on Tax on Financial Institutions from January 15th Bank was exempt from banking tax for the part of 2018.

At the end of the reporting period there were 208 employ-ees employed in the Bank (31.12.2018: 247).

Corporate income tax recognized in profit and loss amoun-ted to (20,626) thousand PLN as of 31.12.2019 (31.12.2018: (17,826)).

Bank has no subsidiaries outside the territory of the Republic of Poland.

In 2019 Bank did not entered into any agreements referred to in article 141t par.1 of Banking Law.

Bank has no customer service office.

Bank has not received any financial contribution from public funding.

Bank does not conduct research and development activities.


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II.III. Risk management within the Bank With respect to the type of conducted activity, the following kinds of risks, that require or may require internal capital coverage in the future, have been identified within the Bank:

The Bank maintains on an ongoing basis, the level of internal capital which is sufficient to cover different types of risk, resulting in particular from changes in external environment taking into account expected level of risk.

The Bank applies the rule of the adequacy of internal capital assessment methodology to the scale of its activity.

The amount of the internal capital is calculated as the sum of internal capital necessary to cover all types of risks taken into account in the capital adequacy calculation of material risks.

The table below (Pillar II) presents internal capital allocation as on 31 December 2019 and 31 December 2018:

Capital value 31.12.2019

(PLN ‘000)

Capital value 31.12.2018

(PLN ‘000)

Credit risk 675 213 668 629

Operational risk 33 052 34 877

Position risk 139 54

Interest rate risk 509 509

Liquidity risk 3 502 3 502

Risk of concentration of financing sources 3 135 3 135

Business cycle risk 1 097 1 097

Foreign-exchange risk 133 133

Concentration risk 40 985 40 985

All types of risk in total 752 765 752 921

Equity capitals 1 579 702 1 518 113

Disposable capital 821 937 765 192

credit and counterparty risk,

operational risk,

credit valuation adjustment (CVA) risk,

interest rate risk in the banking and trading book,

liquidity risk,

business cycle risk,

foreign-exchange risk,

concentration risk,

position risk,

settlement and delivery risk,

commodities price risk,

foreign currency lending risk,

strategic risk.


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The internal capital value related to settlement and delivery risk, commodities price risk and strategic risk amounted to zero. Due to the introduction on 2 December 2017 the 150% risk weight for mortgage loans denominated in foreign currency, the Pillar II requirement related to risk on loans denominated in foreign currency amounts to zero. The penalty charges introduced by KNF is only valid in Pilar I.

At least once a year the process of internal capital assessment is subject to review, verification and evaluation by an independent internal audit unit, whose employees have adequate qualifications, experience and skills to examine all types of risks included in the process of internal capital assessment.


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II.IV. The Bank’s operations in 2019In 2019, the Bank consistently executed the business model consisted in concentrating on one area of activity, ie corporate banking.

The Bank focused on the development of its competence as a specialized corporate bank, where there were offices dedicated to support customers from selected sectors such as: manufacturing and food industry, trade and services, communication, technology, pharmaceutical industry and public sector. The strategy has its confirmation in financial results achieved both in 2019 and in previous years.

The bank consistently maintained high cost discipline, among others adjusting employment to the business model.

The low level of credit risk reflected in the positive impact of impairment losses was an important element that in 2019 significantly affected net profit for the year.


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In accordance with the adopted and executed strategy, the corporate banking is the strategic area for the Bank. All activities

will be focused on this area in order to ensure the Bank’s development in 2020 and in future years.

In 2020 the Bank will continue the plan to decrease non-strategic business areas by retail banking portfolio optimization and

discontinuing the activities of subsidiaries.

II.V. The Bank’s planned development in 2020

Development in Corporate Banking

In 2020, the Bank will focus on the following activities:

On the best customers with low and medium risk profile:

active acquisition of customers from the strategic

industry sectors,

strengthening of long term relationships with

existing customers,

continued development of business competences,

promotion of the Bank as the business partner in

strategic segments;

Further integration with DNB Group

extension of relationships with the Group customers,

further knowledge acquisition and exchange of

experience with industry experts,

personnel exchange program being continued,

use of existing solutions available within DNB Group

(in product, processes and organizational areas);

Business strategy realization by responsible and sustainable approach by undertaking actions aimed at:

Diversity,

knowledge,

environment.

Further development of product offer allowing the increase in fee and commission income, sustenance of stable deposit base and more effective utilization of own capital, among others by:

infrastructural investments in trade finance and cash management, bond issue and distribution, and payment card services,

sale of green bonds and credits;


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ENERGY

DNB is a Bank with a Norwegian roots, hence the energy and fuel industries are its “natural habitat”. Its track record to date makes DNB a major player in the financing of the energy industry – including renewable energy sources. The Bank provides financing for projects and operations as well as trade finance and risk hedging solutions. What marks it out is its know-how, experience and capacity – DNB has experts specialising in the energy industry and cooperates with the offices of the DNB Group.

COMMUNICATION AND TECHNOLOGY

Experience in serving and financing the largest corporations of the Communication and technology sector means deep understanding of the industry and the customers’ business. That is why DNB is a natural partner for companies developing in the area of new and modern technologies. Its many-year presence on the Polish and international markets has given the Bank ample experience in financing even the most complex transactions – today it prides itself on participating in some of the largest deals in the sector completed in the past few years in Poland – mainly in the M&A area.

AUTOMOTIVE INDUSTRY

DNB specializes in serving aftermarket producers and distributors as well as car and utility vehicle makers. The bank offers automotive companies instruments for financing operating activity, trade finance instruments, FX or interest rate hedging solutions as well as flexible transaction banking. The bank has a significant position in serving automotive companies – it has strong relationships with a dozen or so major players in this industry.

PUBLIC SECTOR

For over 20 years (originally as BISE Bank), DNB has done business with public sector entities – communes, districts and other local government units helping them manage their finances. The Bank also specializes in serving and financing public hospitals. DNB is now one of the leaders in financing local governments – it has done over 1,500 projects. DNB also holds sway among the issuers of municipal bonds with more than 260 projects to its credit. DNB was the first Bank in Poland to arrange an issue of income bonds in financing municipalities (public housing) and intra-communal unions (water and sewage infrastructure). Furthermore, it was among the first commercial banks in Poland to engage in financing the health care system, including the issuance of bonds for hospitals transformed into commercial companies, not requiring a letter of comfort from the founding body. All this makes DNB the best partner for public sector entities.

PACKAGING

DNB provides service for companies producing packaging, operating in Poland and with international presence, manufacturing paper packaging and wood products. This market in Poland is steadily growing and for this reason DNB treats the packaging industry as one of the strategic ones and offers the businesses operating there solutions facilitating their day-to-day operations, investments and development. The range includes the financing of operations, capital investments or acquisitions and cash management. The DNB Group is one of few groups which have a global strategy for financing packaging sector companies. Offices with expertise and experience in this regard are located, among others, in Oslo, Stockholm, Helsinki, London and New York. In Poland, DNB leverages on the Group’s expertise, offering companies a wide range of business opportunities.

III. Industry expertise

DNB III. Industry expertise

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SERVICES

The Bank provides service for the leaders of the transport, logistics, security, cleaning, maintenance of commercial buildings and hotels markets. It has solutions designed for recycling companies and those dealing with the processing, removal and treatment of waste and communal waste as well as corporations distributing and selling food and catering services to commercial establishments. DNB also offers solutions supporting cross-border business relations between companies and consolidation processes, such as financing operations, investment and acquisitions, trade finance instruments, specialised transaction products, FX or interest rate risk hedging instruments. The Bank’s industry experts are based both in the Oslo head office as well as in the Group’s branches in the Nordic and Eastern European countries.

RETAIL

DNB’s vast experience in serving the trade sector, its knowledge of the realities and models used in retailing and wholesaling, as well as the global reach and exchange of international experience allow it to offer optimum trade finance solutions. DNB cooperates with the leaders of the retail and wholesale trade, supports companies and corporations carrying a wide assortment: food, medicines, dietary supplements, fabrics, beauty products, automotive parts, household appliances, consumer electronics, DIY and IT equipment. It offers credit and transaction products, trade finance instruments, FX and interest rate risk hedging instruments. The Bank also supports the customers in their international operations, including expansion into new markets.

FOODS

DNB serves production companies of a significant market position, specialising, among others, in the “seafood” subsegment. It offers them the financing of operations, project finance, M&A financing and liquidity management. The customers include producers from the dairy, meat processing, bakery, fruit and vegetable processing, cereals as well as sugar confections and beverage sectors. Owing to its Norwegian pedigree and a long-standing tradition in doing business with the seafood industry, DNB is an ideal partner for companies operating internationally – the DNB Group has offices where the customers from this sector have theirs, including Bergen, London, New York, Santiago de Chile and Singapore. This way, the Group is able to provide solutions securing the settlement of accounts in international trade, follow the customers wherever the sales or sourcing markets offer opportunities to sell or buy goods or whichever market the customer wants to enter.

PHARMACEUTICALS

DNB draws on the experience of the Group, which is the biggest Nordic Bank serving the pharmaceutical sector as well as being in the top 10 of banks financing this industry in the USA. DNB serves producers of medicines, including original and generic medicines, producers of medical equipment as well as distributors of pharmaceuticals. The Bank offers long-term relationships, including financing, daily banking service, instruments supporting growth, including Mergers and Acquisitions. Among the factors differentiating the Bank are experience and access to global markets. The list of the customers of the DNB Group includes global pharmaceutical and biotechnology companies as well as producers of equipment, operating in Europe and in the USA. Customers are served by experienced local bankers supported by industry experts based in New York, Oslo and Stockholm.

DNB III. Industry expertise

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DNB IV. CSR IN DNB

IV. CSR IN DNB DNB Bank Polska as a specialist corporate Bank implements the marketing project „Directions” aimed at sharing the knowledge with clients and the financial environment. Similarly, in the area of Corporate Social Responsibility, the Bank focuses on the activities pursued under the slogan „Direction Knowledge” („Kierunek na Wiedzę”), and also - as a Bank with Scandinavian roots – under „Direction Environment” („Kierunek na Środowisko”).

Direction Knowledge as a CSR area is consistent with the positioning of the Bank in its external environment. DNB Bank Polska is the originator and organizer of a number of industry meetings and events, during which issues relevant to particular industries, trend analyses, development opportunities or project financing models are discussed and presented (including the Directions annual conferences and the Leader Meetings of individual industries being the Bank’s business focus). Together with Deloitte and PwC, the Bank also develops the opinion-making economic reports devoted to the most important areas of the Polish economy and its individual sectors.

As part of the Direction Knowledge initiative, the Bank conducts educational activities for high school students, aimed at spreading knowledge in the area of finance and banking. The Bank also finances educational projects implemented as part of employee volunteer program and engages in activities aimed at environmental education of the stakeholders.

As an institution with Scandinavian roots, DNB Bank Polska also attaches great importance to environmental issues. The Bank has implemented the „Environmental Management System” measuring the Bank’s impact on the environment and obtained the ISO14001 certificate. In Poland the Bank has a considerable experience in financing renewable energy sources. On the other hand, DNB Bank Polska follows the rules binding in the entire DNB Group and does not finance projects based on the use of coal or nuclear energy.

The Bank carries out its responsible business primarily in its core business. An inseparable element of the credit process is the assessment of corporate clients’ activities in such aspects as: environment, impact on climate change, compliance with labour and human rights, anti-corruption activity, transparency and corporate governance.

The Bank also finances the environmental protection projects implemented as part of employee volunteer program.

SCANDINAVIAN HERITAGE

DNB Bank Polska is owned by the DNB Group - the largest Norwegian financial group - member of many initiatives aimed at sustainable development and corporate social responsibility. Education and promotion of knowledge is an important direction of the CSR activities of DNB Group.

Scandinavian culture in a special way protects the natural environment. DNB Group applies a policy of responsible investment, reducing investments in companies whose activities are harmful to the environment. In order to eliminate companies with high climate risk from the portfolio of DNB investment funds, DNB measures carbon footprint of the enterprises in which it invests. As a measure it accepts the amount of greenhouse gases emitted by the company in relation to its total turnover.

Being the global leader in the maritime industry, since 2016 DNB has amended the loan agreements with its corporate clients with special provisions regarding responsible recycling of ships as a part of the Responsible Ship Recycling Standard initiative.

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Statement of financial position

Year ended 31.12.2019

(PLN ‘000)


(PLN ‘000)

Assets

Cash and balances with the Central Bank 795 881 331 434

Loans and advances to banks 52 859 209 151

Derivative financial instruments 23 362 16 448

Equity instruments at fair value through profit or loss 5 139 10 238

Loans and advances to customers 7 179 002 7 154 331

Debt instruments at amortised cost 2 890 896 2 248 149

Investments in subsidiaries 37 634 65 575

Intangible assets 36 230 29 597

Property, plant and equipment 9 039 4 927

Investment properties 17 18

Deferred tax assets 13 575 12 331

Other assets 24 021 24 034

TOTAL ASSETS 11 067 655 10 106 233

Liabilities

Amounts due to banks 3 684 619 3 612 680

Derivative financial instruments 39 928 37 912

Amounts due to customers 5 570 850 4 755 493

Current tax liabilities 6 306 4 990

Provisions 18 485 22 097

Lease liabilities 3 885 -

Other liabilities 66 136 57 061

TOTAL LIABILITIES 9 390 209 8 490 233

EQUITY

Attributable to Bank’s shareholders:

Share capital 1 257 200 1 257 200

Other capital 358 800 300 915

Retained earnings 61 446 57 885

TOTAL EQUITY 1 677 446 1 616 000

TOTAL LIABILITIES AND EQUITY 11 067 655 10 106 233

V. Financial highlights

V. Financial highlights DNB

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DNB

Income statement


(PLN ‘000)


(PLN ‘000)

Interest income 230 846 233 207

- financial assets at amortised cost 230 846 232 846

- financial assets at fair value through profit or loss 0 361

Interest expenses (77 583) (65 837)

Net interest income 153 263 167 370

Fee and commission income 15 209 19 779

Fee and commission expenses (1 524) (1 527)

Net fee and commission income 13 685 18 252

Dividend income 468 462

Net trading income 25 019 (79)

Gains (losses) from investment securities 3 685 2 393

Net gains/(losses) on derecognition of financial assets at amortised cost 2 390 1 998

Net gains/(losses) on financial assets at fair value through profit or loss 834 0

Impairment losses on financial assets 17 357 28 340

General and administrative expenses (129 866) (137 431)

Other operating income 10 592 10 337

Other operating expenses (5 666) (3 264)

Tax on assets of certain financial institutions (9 689) (2 327)

Profit before tax 82 072 86 051

Income tax (20 626) (17 826)

Profit for the year 61 446 68 225

Weighted average number of ordinary shares 1 257 200 000 1 257 200 000

Earnings per share (PLN) 0,05 0,05


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DNB V. Financial highlights

Statement of changes in equity

Share capital

(PLN ‘000)

Retained profit (loss)

(PLN ‘000)

Other capital

(PLN ‘000)

Total

(PLN ‘000)

Balance as at 31 December 2017 1 257 200 77 725 230 621 1 565 546

Impact of the application of the new IFRS standards 0 (10 340) (7 431) (17 771)

Balance as at 1 January 2018 - Restated openning balance 1 257 200 67 385 223 190 1 547 775

Total comprehensive income, net of tax

0 68 225 0 68 225

Appropriation of the financial profit for the previous reporting periods

0 (77 725) 77 725 0


Share capital

(PLN ‘000)

Retained profit (loss)

(PLN ‘000)

Other capital

(PLN ‘000)

Total

(PLN ‘000)

Balance as at 1 January 2019 1 257 200 57 885 300 915 1 616 000

Total comprehensive income, net of tax 0 61 446 0 61 446

Appropriation of the financial profit for the previous reporting period 0 (57 885) 57 885 0


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Cash Flow Statement

Year ended on 31.12.2019

(PLN ‘000)

Year ended on 31.12.2018

(PLN ‘000)

Cash flows from operating activities

Gross income 82 072 86 051

Total adjustments: 1 143 649 241 528

Income tax paid (20 554) (28 811)

Depreciation 9 874 10 259

Profit (loss) from investment activities (6 928) (4 849)

Movement in loans and advances to banks 9 967 (15 758)

Movement in derivative financial instruments (4 898) 7 256

Movement in loans and advances to customers (52 420) 345 030

Movement in debt instruments at amortised cost (40 349) (46 740)

Movement in other assets (647) 28

Movement in amounts due to banks 421 049 113 186

Movement in amounts due to customers 822 366 (139 459)

Movement in provisions (3 612) 4 108

Movement in other liabilities 9 801 (2 722)

Net cash flows from operating activities 1 225 721 327 579

Cash flows from investment activities:

Inflows from investment activities 2 487 932 11 257 915

Disposal of intangible assets and property, plant and equipment 8 23

Disposal and redemption of debt instruments at amortised cost 2 422 545 11 195 284

Sale of receivables 28 365 62 608

Disposal of subsidiaries 28 774 0

Sale of equity instruments at fair value through profit and loss 8 240 0

Outflows from investment activities (3 035 146) (10 363 892)

Purchase of intangible assets and property, plant and equipment (13 025) (10 697)

Purchase of debt instruments at amortised cost (3 022 121) (10 353 195)

Net cash flows from investment activities (547 214) 894 023

Cash flows from financial activities:

Inflows from financial activities 0 0

Outflows from financial activities (360 385) (824 549)

Repayment of loans and advances from banks (343 984) (812 159)Repayment of loans and advances from financial institutions other from banks (6 891) (6 590)

Payments of lease liabilities (4 223) -

Other financial outflows (5 287) (5 800)

Net cash flows from financial activities (360 385) (824 549)

Total net cash flows, of which: 318 122 397 053

due to currency differences (1 570) 1 469

Cash and cash equivalents at the beginning of the financial year 515 272 118 219

Cash and cash equivalents at the end of the financial year, of which: 833 394 515 272

with limited ability to use (obligatory reserve deposit) 766 709 304 918

DNB

Additional information on interest and dividends

Interest paid 72 436 67 570

Interest received 233 884 237 665

Dividends received 468 462


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VI. Opinion of the Auditors

DNB VI. Opinion of the Auditors

1

INDEPENDENT AUDITOR’S REPORT ON THE AUDIT

To the General Meeting and Supervisory Board of DNB Bank Polska S.A.

Audit report on the annual financial statements

Opinion

We have audited the annual financial statements of DNB Bank Polska S.A. (the ‘Bank‘)located in Warsaw at Postępu Street 15C, containing: the income statement and thestatement of comprehensive income for the period from 1 January 2019 to 31 December2019, the statement of financial position as at 31 December 2019, the statement ofchanges in equity and the cash flow statement for the period from 1 January 2019 to31 December 2019 and accounting rules (policy) and additional explanatory notes (the‘financial statements’).

In our opinion, the financial statements:

- give a true and fair view of the financial position of the Bank as at 31 December 2019and its financial performance and its cash flows for the period from 1 January 2019to 31 December 2019 in accordance with required applicable rules of InternationalAccounting Standards, International Financial Reporting Standards approved by theEuropean Union and the adopted accounting policies,

- are in respect of the form and content in accordance with legal regulations governingthe Bank and the Bank’s Statute,

- have been prepared based on properly maintained accounting records,in accordance with chapter 2 of the Accounting Act dated 29 September 1994(the ‘Accounting Act’).

The opinion is consistent with the additional report to the Audit Committee issued on23 April 2020.

Basis for opinion

We conducted our audit in accordance with the International Standards on Auditingin the version adopted as the National Auditing Standards by the National Councilof Statutory Auditors (“NAS”) and pursuant to the Act of 11 May 2017 on StatutoryAuditors, Audit Firms and Public Oversight (the ‘Act on Statutory Auditors’)and the Regulation (EU) No. 537/2014 of the European Parliament and of the Councilof 16 April 2014 on specific requirements regarding statutory audit of public-interestentities and repealing Commission Decision 2005/909/EC (the ‘Regulation 537/2014’).Our responsibilities under those standards are further described in the ‘Auditor’sresponsibilities for the audit of the financial statements’ section of our report.

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DNB

2

We are independent of the Bank in accordance with the Code of ethics for professionalaccountants, published by the International Federation of Accountants (the ‘Codeof ethics’), adopted by the National Council of Statutory Auditors and other ethicalresponsibilities in accordance with required applicable rules of the audit of financialstatements in Poland. We have fulfilled our other ethical responsibilities in accordancewith these requirements and the Code of ethics. While conducting the audit, the key certifiedauditor and the audit firm remained independent of the Bank in accordancewith the independence requirements set out in the Act on Statutory Auditorsand the Regulation 537/2014.

We believe that the audit evidence we have obtained is sufficient and appropriate to providea basis for our audit opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of mostsignificance in our audit of the financial statements of the current period. They includethe most significant assessed risks of material misstatement, including the assessed risksof material misstatement due to fraud. These matters were addressed in the contextof our audit of the financial statements as a whole, and in forming our opinion thereon,and we have summarized our reaction to these risks and in cases where we deemedit necessary, we presented the most important observations related to these types of risks.We do not provide a separate opinion on these matters.

Key audit matter How the matter was addressed in our audit

Impairment losses on loans and advances to customers

As at 31 December 2019, loans andreceivables to Bank’s customersamounted to 7.179 million PLN andwere significant part of assets. Theamount of 7.179 million PLN consistedof loans and receivables to customers’valued at amortized cost in gross valueof7.281 million PLN and provisions forexpected credit losses of 102 millionPLN (including collective loan lossprovisions in the amount of 54 millionPLN and individual loan loss provisionsin the amount of 48 million PLN).

Determining the amount and themoment of recognizing loan lossprovisions requires the use ofsignificant judgment and complex

As part of our audit procedures we havedocumented our understanding of the Bank’spolicies and procedures regarding estimation ofexpected credit loses, as well as the credit riskmanagement policies functioning in the Bank andalso analyzed design of control mechanismsimplemented by the Bank in the area ofmeasurement and identification of expectedcredit loses for loans and receivables tocustomers and their operational effectivenessduring the reporting period.

We have conducted tests of controls related toloan granting, monitoring the borrower’s financialsituation, identification of evidence ofimpairment and calculation of provisions forexpected credit loses for loans and receivables tocustomers.



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management’s estimates regarding inparticular:

• identification and assessmentof objective evidence ofimpairment,

• assessment of significantincrease in credit risk;

• determination of expectedfuture cash flows,

• valuation of collaterals, whichis the basis for futurerecoveries,

• calculation of probability ofdefault and loss given defaultparameters.

Due to the significance of loans andreceivables to customers in relation tototal assets, as well as the significantrole of the judgment and estimates ofthe Bank’s management related to theassessment of expected credit losesdescribed above, we consider thevaluation of loan loss provisions ofloans and receivables to customersvalued at amortized cost as key auditmatter.

Information on the methodology for thevaluation of loans and receivables tocustomers, as well as the related areasof judgment and estimates aredescribed in notes 2.4 and 2.12 to thefinancial statements.

Information on the COVID-19 epidemicand possible impact on borrowers'financial standing and future expectedcredit losses has been described inNote 40 to the financial statements.

Moreover, we have analyzed the methodology forcalculating collective loan loss provisions todetermine whether they are consistent with IFRS9 (including review of indicatorsof significant increase in credit risk). We haveassessed the Bank’s models, assumptions andcompleteness of the input data used by the Bankin order to recognize provisions for expectedcredit loses, including the assumptionsof probability of default and loss given default.

In addition, we have analyzed changesin methodologies and models, as well as we haveperformed analytical procedures within the leveland structure of risk parameters and provisionsfor expected credit losses in the year 2019.

We have reviewed test of credit risk parameterscarried out by the Bank (‘backtests’).

On a selected sample we have analyzed loanexposures that are assessed by the Bankon individual level. We have selected our samplebased on professional judgment. For the selectedexposures, we have assessed the reasonablenessof the risk scenarios’ weights adopted, therecovery amount estimated by the Management,including the recoverable amount of thecollateral, basing on available financial andmarket data. For the identification the potentialpremises of impairment, we have analyzed theborrowers’ financial situation and the compliancewith the covenants resulting from loanagreements for the selected engagements.

During our audit we have been supported by theinternal specialists in the fields of credit riskmanagement and IT.

We also discussed the possible impact of theCOVID-19 epidemic on the borrower's financialstanding after the balance sheet date, as well asthe expected credit losses and potentialimpairment of assets.

In addition, we have assessed the disclosuresrelating to expected credit loses for loans andreceivables to customers included in the financialstatements to determine whether they arecompliant with International Financial ReportingStandards.



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Responsibilities of the Bank’s Management and members of the Supervisory Board forthe financial statements.

The Bank’s Management is responsible for the preparation, based on properly maintainedaccounting records, the financial statements that give a true and fair viewof the financial position and the financial performance in accordance with requiredapplicable rules of International Accounting Standards, International Financial ReportingStandards approved by the European Union, the adopted accounting policies, otherapplicable laws, as well as the Bank’s Statute, and is also responsible for such internalcontrol as determined is necessary to enable the preparation of the financial statementsthat are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, The Bank’s Management is responsiblefor assessing the Bank’s ability to continue as a going concern, disclosing, as applicable,matters related to going concern and using the going concern basis of accounting unlessThe Bank’s Management either intends to liquidate the Bank or to cease operations, or hasno realistic alternative but to do so.

The Bank’s Management and the members of the Bank’s Supervisory Board are required toensure that the financial statements meet the requirements of the Accounting Act. Themembers of the Bank’s Supervisory Board are responsible for overseeing the Bank’sfinancial reporting process.

Auditor’s responsibility for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statementsas a whole are free from material misstatement due to fraud or error, and to issuean independent auditor's report that includes our opinion. Reasonable assurance is a highlevel of assurance, but it is not guarantee that an audit conducted in accordance with NASwill always detect material misstatement when it exists. Misstatements may arise as a resultof fraud or error and are considered material if it can reasonably be expectedthat individually or in the aggregate, they could influence the economic decisionsof the users taken on the basis of these financial statements.

In accordance with International Auditing Standard 320, section 5, the conceptof materiality is applied by the auditor both in planning and performing the audit,and in evaluating the effect of identified misstatements on the audit and of uncorrectedmisstatements, if any, on the financial statements and in forming the opinion in the auditor’sreport. Hence all auditor’s assertions and statements contained in the auditor’s report aremade with the contemplation of the qualitative and quantitative materiality levelsestablished in accordance with auditing standards and auditor’s professional judgment.

The scope of the audit does not include assurance on the future profitability of the Bank noreffectiveness of conducting business matters now and in the future by the Bank’sManagement.



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Throughout the audit in accordance with NAS, we exercise professional judgmentand maintain professional skepticism and we also:

- identify and assess the risks of material misstatement of the financial statements,whether due to fraud or error, design and perform audit procedures responsiveto those risks, and obtain audit evidence that is sufficient and appropriate to providea basis for our opinion. The risk of not detecting a material misstatement resultingfrom fraud is higher than for one resulting from error, as fraud may involve collusion,forgery, intentional omissions, misrepresentations or override of internal control,

- obtain an understanding of internal control relevant to the audit in order to designaudit procedures that are appropriate in the circumstances, but not for the purposeof expressing an opinion on the effectiveness of the Bank’s internal control,

- evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by the Bank’s Management,

- conclude on the appropriateness of the Bank’s Management’s use of the going concernbasis of accounting and, based on the audit evidence obtained, whethera material uncertainty exists related to events or conditions that may cast significantdoubt on the Bank’s ability to continue as a going concern. If we conclude thata material uncertainty exists, we are required to draw attention in our independentauditor’s report to the related disclosures in the financial statements or, if suchdisclosures are inadequate, to modify our opinion. Our conclusions are basedon the audit evidence obtained up to the date of our independent auditor’s report,however, future events or conditions may cause the Bank to cease to continueas a going concern,

- evaluate the overall presentation, structure and content of the financial statements,including the disclosures, and whether the financial statements representthe underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Audit Committee regarding, among other matters, the plannedscope and timing of the audit and significant audit findings, including any significantdeficiencies in internal control that we identify during our audit.

We provide the Audit Committee with a statement that we have complied with relevantethical requirements regarding independence, and communicate to them all relationshipsand other matters that may reasonably be thought to bear on our independence, and whereapplicable, related safeguards.

From the matters communicated to the Audit Committee, we determine those matters thatwere of most significance in the audit of the financial statements of the current period andare therefore the key audit matters. We describe these matters in our auditor’s report unlesslaw or regulation precludes public disclosure about the matter or when, in extremely rarecircumstances, we determine that a matter should not be communicated in our report



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because the adverse consequences of doing so would reasonably be expected to outweighthe public interest benefits of such communication.

Other information, including the Directors’ Report

The other information comprises: the Directors’ Report for the period from 1 January 2019to 31 December 2019 (“Directors’ Report”).

Responsibilities of the Bank’s Management and members of the Supervisory Board.

The Bank’s Management is responsible for the preparation the Other Informationin accordance with the law.

The Bank’s Management and members of the Bank’s Supervisory Board are required toensure that the Directors’ Report meets the requirements of the Accounting Act.

Auditor’s responsibility

Our opinion on the financial statements does not include the Other Information.In connection with our audit of the financial statements, our responsibility is to readthe Other Information and, in doing so, consider whether it is materially inconsistentwith the financial statements or our knowledge obtained during the audit or otherwiseappears to be materially misstated. If, based on the work we have performed, we concludethat there is a material misstatement in the Other Information, we are required to reportthat fact in our independent auditor’s report. Our responsibility in accordance with the Acton Statutory Auditors is also to issue an opinion on whether the Directors’ Report wasprepared in accordance with relevant laws and that it is consistent with the informationcontained in the financial statements.

Opinion on the Directors’ Report

Based on the work performed during our audit, in our opinion, the Directors’ Report:

- has been prepared in accordance with the article 49 of the Accounting Actand article 111a paragraph 1-2 of Banking Law Act dated 29 August 1997 (‘BankingLaw’),

- is consistent with the information contained in the financial statements.

Moreover, based on our knowledge of the Bank and its environment obtained during ouraudit, we have not identified material misstatements in the Directors’ Report.

Report on other legal and regulatory requirements

Banks are obliged to comply with the prudential requirements specified in the Banking Law,resolutions of the National Bank of Poland, resolutions of the Polish Financial SupervisionAuthority (‘PFSA’), recommendations of the PFSA and Regulation of the European



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Parliament and the Council (EU) No. 575/2013 of 26 June 2013 on prudential requirementsfor credit institutions and investment firms, amending Regulation (EU) No 648/2012 andissued on the basis of a Commission Regulation (EU), as well as the Act of 5 August 2015on macro-prudential supervision over the financial system and on crisis management in thefinancial system (‘the Act on macro-prudential supervision’) concerning:

- credit risk concentration,- concentration of capital shares,- qualification of loans and guarantees granted into risk groups,- liquidity,- obligatory reserve requirements,- capital adequacy.

The Bank’s Management Board is responsible for compliance with prudential regulations,including in particular, the appropriate determination of capital ratios. Our responsibilitywas, based on the conducted audit, to provide information in the auditor’s report whetherthe Bank complies with the above described prudential regulations,. It was not a purpose ofthe audit of the financial statements to express an opinion on the Bank's compliance withthe applicable prudential regulations..

As part of the audit of the financial statements we have performed the procedures withregard to capital adequacy ratios and we have not identified any discrepancies in theircalculation which would have an material impact on financial statements as a whole.Therefore, we inform that the Bank’s Management Board has correctly calculated the capitalrequirements in compliance with the rules described above.

Representation on the provision of non-audit services

To the best of our knowledge and belief, we represent that service other than auditsof the financial statements, which we have provided to the Bank is compliant with the lawsand regulations applicable in Poland, and that we have not provided non-audit services,which are prohibited based on article 5 item 1 of Regulation 537/2014 and article 136 ofthe Act on Statutory Auditors. The non-audit service, which we have provided to the Bankand its subsidiaries in the audited period, has been disclosed in the financial statement.



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Appointment of the audit firm

We were appointed for the audit of the Bank's financial statements initially basedon the resolution of Supervisory Board from 27 June 2017 and reappointed based on theresolution from 28 November 2019. The financial statements of the Bank have been auditedby us uninterruptedly starting from the financial year ended on 31 December 2017, i.e. forthe past 3 consecutive years.

Warsaw, 23 April 2020

Key Certified Auditor

Arkadiusz Krasowskicertified auditor

no in the register: 10018

on behalf of:Ernst & Young Audyt Polska spółka z

ograniczoną odpowiedzialnością sp. k.Rondo ONZ 1, 00-124 Warsawno on the audit firms list: 130



DNB Bank Polska Spółka Akcyjna seated at Postępu 15C, 02-676 Warsaw, Poland, registered in the District Courtfor the City of Warsaw, 13th Commercial Division of the National Court Register, entry no: KRS 0000022156,NIP (tax ID): 525-22-12-939, REGON (statistical ID): 017296065, share capital PLN 1 257 200 000 (paid up in full).

www.dnb.pl

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