Management Board Report on Operations of ING Bank Śląski S.A. Group in 2018 (covering Management Board Report on Operations of ING Bank Śląski S.A.) Management Board Report on Operations of ING Bank Śląski S.A. Group in 2018 Management Board Report on Operations of ING Bank Śląski S.A. Group in 2018 Management How we create Our financial Customer Bank and client Non-financial Corporate Other GRI Content Introduction About us Enviroment Way of working About the report Glossary Board value results experience safety data governance information Index statements Financial education of customers and access to know-how 91 Table of contents 93 Green investment and care for the environment Management Board Report on Operations of ING Bank Śląski S.A. Bank of green investments 93 Group in 2018 Bank which is eco-aware 95 Letter from the Chairman 5 Bank and client safety 99 President’s review 6 Risk and capital management system 99 8 About us Credit risk 106 Who we are 8 Market risk 114 What makes us stand out 15 Funding and liquidity risk 116 Ethics, values and compliance 21 Model risk 118 Business risk 118 How we create value 23 Market now and in the future 23 Way of working 120 Value creation model 35 Who are our employees 120 ING Bank Śląski S.A. strategy 43 Innovation culture and competent employees 123 Our financial results 50 Strong employer 126 Social responsibility and financial education 129 Consolidated results of ING Bank Śląski S.A. Group 50 Separate results of ING Bank Śląski S.A. 64 136 Non-financial statement Customer experience 75 Business model 136 Dialogue 78 Key non-financial performance indicators 138 Solutions 79 Applied policies related to non-financial issues and due diligence procedures 138 Facilities for companies and entrepreneurs 84 Description of non-financial risk 147 Market growth by access to financing 86 Branches 89 Communication addressed to companies 91 Management Board Report on Operations of ING Bank Śląski S.A. Group in 2018 3 Management How we create Our financial Customer Bank and client Non-financial Corporate Other GRI Content Introduction About us Enviroment Way of working About the report Glossary Board value results experience safety data governance information Index statements ING Bank Śląski S.A. Management Board report on observance of principles of GRI Content Index 184 155 corporate governance Profile indicators 184 Principles and scope of corporate governance 155 Detailed indicators 185 Risk control and management system in the financial reporting process 157 Management Board statements 186 Shares and shareholding structure of ING Bank Śląski S.A. 158 Charter and rules of amending the Charter 159 Truthfulness and fairness of statements 186 The General Meeting 160 Selection of entity authorised to audit financial statements 186 Supervisory Board 161 Management Board 164 Remuneration of the members of the Management Board and the Supervisory Board 167 Diversity Policy 170 Other information 172 Investor information 172 Position of the Management Board on the potential realisation of the previously published 174 forecasts Seasonal or cyclical nature of the business in the reporting period 174 Agreements conducted 174 Types of credit risk collateral 175 Instigated court proceedings 175 Business development perspectives 175 Entity authorised to audit financial statements 176 About the report 177 How was the report compiled 177 Who was involved in the report compilation 178 Glossary 180 Management Board Report on Operations of ING Bank Śląski S.A. Group in 2018 4 Management How we create Our financial Customer Bank and client Non-financial Corporate Other GRI Content Introduction About us Enviroment Way of working About the report Glossary Board value results experience safety data governance information Index statements Letter from the Chairman and consistently for over 10 years now, the Group increased its lending and deposit portfolios considerably, while Dear Stakeholders, maintaining good quality assets and sustaining solid capital and liquidity positions. As at 2018 yearend, the Group served 4.86 million clients, or 6% clients more than as at 2017 yearend. In the retail 2018 was a year of a marked economic revival in the Poland. After the successful year 2017, the GDP growth segment, the number of clients rose by 6% to 4.80 million; in the corporate segment, by 11% to 62 thousand. As at accelerated from 4.8% to 5.1%, despite an ongoing downturn in Eurozone economies. The internal demand, in 2018 yearend, net loans and other receivables from customers amounted to over PLN 103 billion, up by 13% from particular household expenses, and investments co-financed from EU funds remained the driving force of the Polish 2017 yearend. The value of funds deposited by customers grew at a similar pace and totalled nearly PLN 118 billion economy growth. Solid economic growth and moderate inflation prompted the Monetary Policy Council to maintain as at the yearend. In consequence, the Group’s balance sheet total was PLN 142 billion, up by 12% from 2017. the unchanged level of interest rates in 2018, invariably from March 2015. Those factors were reflected in the The Group closed the year with a solid capital and liquidity base. The total capital ratio settled at a comfortable level monetary aggregates. A strong private consumption led to accelerated growth rate of PLN retail housing loans and of 15.6%. As the loans grew faster than deposits (loans excluding Eurobonds), the LTD ratio arrived at 87.6% as at the a continued relatively high growth in other retail loans. A marked rebound in private investment projects made yearend, or went up by 3.9 p.p. from the year earlier. corporate lending gather speed. 2018 also proved a record year for the ING Bank Śląski S.A. Group in terms of profitability. Net profit went up by 8.8% Despite the environment of low interest rates, the growth rate of deposits significantly accelerated, especially in the y/y to PLN 1,526 million and ROE arrived at 12.5% (12.6% the year earlier). area of households. This was related to the downturn in the capital market and problems in the investment fund The Bank Supervisory Board actively assisted the Management Board through close analysis of its actions, and also market. participated in the making of key decisions. The Supervisory Board monitored market risk, liquidity and capital In 2018, regulatory changes also took place. At the beginning of 2018, a new financial reporting standard was adequacy management areas with particular care. The Supervisory Board was also involved in the setting of the introduced – IFRS 9: Financial instruments which replaced IAS 39.In 2018, also the Directive No. 2014/65/EU of the Group’s priority development directions. The Supervisory Board members were in the composition of the Audit European Parliament and of the Council on markets in financial instruments (MIFID II) went into force. In addition, Committee, Risk Committee as well as Remuneration and Nomination Committee. business entities, including banks, also worked very intensively on the implementation of Regulation (EU) No. I do hope that the strategy of the ING Bank Śląski S.A. Group and prudent actions of the Management Board supported 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons and on by the Supervisory Board will enable the Group to develop further. implementation of the VAT split payment mechanism. Since January 2018, the NBP reduced reserve requirement Yours faithfully, rate, and since March 2018 the reduced reserve requirement rate on funds acquired for at least two years have been Antoni F. Reczek in force. The public discussion about CHF-denominated housing loans continued for the fourth year. Still unresolved, although the works of the Sejm committee have accelerated again in early 2019. Chairman of the Supervisory Board The financial sector continues to be affected by changes to ownership. The sector consolidation continued in 2018 and it will most likely also take place in 2019. Despite volatile economic and regulatory conditions, the ING Bank Śląski S.A. Group consistently delivered on its business strategy, aimed at increasing the scale of operations through welcoming clients and offering convenient and state-of-the art solutions and products, designed to meet expectations of clients in all segments. In 2018, invariably Management Board Report on Operations of ING Bank Śląski S.A. Group in 2018 5 Management How we create Our financial Customer Bank and client Non-financial Corporate Other GRI Content Introduction About us Enviroment Way of working About the report Glossary Board value results experience safety data governance information Index statements President’s review GRI [102-14] My Assistant is our answer to the needs of clients who use browsers and chat applications on a daily basis. It helps them to find information about functions of the My ING system quickly and easily. Ladies and Gentlemen, Sustainability is a key element of the long-term value building strategy of our bank. We know that the future world We would like to present to you the annual report of the ING Bank Śląski S.A. Group for 2018. We do believe that our in which next generations will live depends on the decisions we take today. Being a financial institution we influence financial results and commercial performance prove that the Bank and the whole Group are heading in the right numerous business processes and choices made by individuals. We feel responsible for that. We want to take our direction. Invariably, we put great focus on customer needs, high quality of service, innovative products and services decisions respecting the environment and our stakeholders. Thus, in 2018 we formed and followed a new and sustainability, and we consistently develop in these areas.