Report on the activities of Bank Pekao S.A. for the year 2019 Warsaw, February 20 20 This document is a free translation of the Polish original. Terminology current in Anglo -Saxon countries has been used where practicable for the purposes of this translation in order to aid understanding. The binding Polish original should be referred to in matters of interpretation. Report on the activities of Bank Pekao S.A. for the year 2019 1 Highlights of Bank Pekao S.A. ...................................................................................................................... 3 2 Summary of Performance .............................................................................................................................. 4 3 External Activity Conditions .......................................................................................................................... 6 4 Important Events and Achievements .........................................................................................................14 4.1 Changes in the Group’s structure ...........................................................................................................14 4.2 Changes in the Statutory Bodies of the Bank .........................................................................................15 4.3 Organizational changes ..........................................................................................................................22 4.4 Awards and distinctions ..........................................................................................................................23 5 Information for the Investors .......................................................................................................................26 5.1 The Bank’s share capital and share ownership structure.......................................................................26 5.2 Performance of market valuation of Bank Pekao S.A.’s stock ...............................................................28 5.3 Dividend payment history........................................................................................................................29 5.4 Investor Relations ...................................................................................................................................30 5.5 Financial credibility ratings ......................................................................................................................31 5.5.1 Bank Pekao S.A. financial credibility ratings ............................................................................31 6 Activity of Bank Pekao S.A. .........................................................................................................................33 6.1 Important factors influencing the Bank’s activities and results ...............................................................33 6.2 Major sources of risk and threats ............................................................................................................36 6.3 Capital adequacy ....................................................................................................................................39 6.4 Bank Pekao S.A. on the Polish banking market .....................................................................................42 6.4.1 Individual clients and Private Banking ......................................................................................44 6.4.2 Small and micro enterprises (SME) ..........................................................................................51 6.4.3 Corporate customers ................................................................................................................53 6.5 Investing in human capital ......................................................................................................................58 6.6 Sponsorship and charity policy ...............................................................................................................63 7 Statement of Financial Position and Financial Results ............................................................................65 7.1 The unconsolidated income statement – presentation form ..................................................................65 7.2 Structure of the unconsolidated statement of financial position – short form.........................................71 7.2.1 Assets .......................................................................................................................................72 7.2.2 Liabilities ...................................................................................................................................74 7.2.3 Off–balance sheet items ...........................................................................................................77 7.3 Unconsolidated income statement – long form ......................................................................................79 7.3.1 Unconsolidated income statement – long form ........................................................................79 7.3.2 Unconsolidated statement of comprehensive income ..............................................................81 7.3.3 Unconsolidated income statement – presentation form ...........................................................82 7.3.4 Reconciliation of income statement – presentation form and long form ..................................83 8 Other Information ..........................................................................................................................................85 9 Prospects for Development .........................................................................................................................91 9.1 Factors which will affect the results of the Group ...................................................................................91 9.2 Strategic directions and business priorities ............................................................................................92 10 Representations of the Bank’s Management Board .................................................................................97 11 Statement of Bank Polska Kasa Opieki Spółka Akcyjna on application of Corporate Governance Standards in 2019 .................................................................................................................................................98 12 Statement of Bank Pekao S.A. on Non-financial Data for 2019 .............................................................116 Bank Pekao S.A. 2 Report on the activities of Bank Pekao S.A. for the year 2019 1 Highlights of Bank Pekao S.A. The Group has adopted International Financial Reporting Standard 9 “Financial Instruments” (IFRS 9) with a date of transition of 1 January 2018. The Group decided to take advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes. 2019 2018 2017 2016 2015 2014 INCOME STATEMENT– SELECTED ITEMS (in PLN million) Operating income 7,938 7,397 7,085 7,036 6,792 7,035 Operating costs (3,204) (3,119) (3,025) (2,991) (2,993) (3,087) Gross operating profit 4,734 4,278 4,061 4,045 3,799 3,948 Profit before income tax 3,016 3,021 2,728 2,863 2,792 3,270 Net profit 2,248 2,311 2,088 2,278 2,290 2,662 PROFITABILITY RATIOS Return on average equity (ROE) - nominally 10.2% 10.7% 9.6% 10.1% 10.1% 11.6% Return on assets (ROA) 1.2% 1.3% 1.2% 1.4% 1.4% 1.8% Net interest margin 2.9% 2.8% 2.8% 2.8% 2.7% 3.1% Non-interest income / operating income 33.1% 34.2% 36.7% 39.4% 40.5% 38.4% Cost / income 40.4% 42.2% 42.7% 42.5% 44.1% 43.9% Costs of risk 0.43% 0.36% 0.40% 0.46% 0.50% 0.57% STATEMENT OF FINANCIAL POSITION – SELECTED ITEMS (in PLN million) Total assets 194,650 184,347 182,077 170,989 165,761 164,323 Customers’ financing (*) 142,146 133,085 128,873 119,034 113,753 105,600 Amounts due to customers (**) 157,750 149,784 146,110 136,630 124,788 121,125 Debt securities issued and subordinated liabilities 4,369 3,745 2,727 301 1,669 2,820 Equity 22,527 21,822 22,259 22,283 22,794 23,387 STATEMENT OF FINANCIAL POSITION STRUCTURE RATIOS Customers’ financing (*) / total assets 73.0% 72.2% 70.8% 69.6% 68.6% 64.3% Securities / total assets 18.6% 15.5% 21.1% 20.8% 13.3% 15.3% Deposits (***) / total assets 83.3% 83.3% 81.7% 80.1% 76.3% 75.4% Customers’ financing (*) / deposits (***) 87.7% 86.7% 86.6% 86.9% 90.0% 85.2% Equity / total assets 11.6% 11.8% 12.2% 13.0% 13.8% 14.2% Total capital ratio 18.7% 18.7% 18.4% 18.2% 18.2% 17.1% EMPLOYEES AND NETWORK Total number of employees 13,779 14,569 15,316 15,882 16,387 16,914 Number of outlets 805 818 843 952 1,022 1,121 Number of ATMs 1,648 1,708 1,745 1,761 1,759 1,825 (*) Including non-treasury debt securities and excluding reverse repo transactions. (**) Excluding repo transactions and lease liabilities. (***) Deposits include amounts due to customers, debt securities issued and subordinated liabilities. Income statement data included in the table above and other notes to the Report on the activities were presented according to income statement in a presentation form, which differs from the long form of the income statement presented in the Unconsolidated Financial Statements of Bank Pekao S.A. for the period ended on 31 December, 2018. Reconciliation of income statement in the presentation form and the long form is in the point 7.3.4 of the Report on the activities