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REPORT OF THE MANAGEMENT BOARD ON THE ACTIVITIES OF

 THE BANK GOSPODARSTWA KRAJOWEGO GROUP

IN 2020

(comprising the report of the Management Board on the activities of Bank Gospodarstwa Krajowego)

The above report of the Management Board on the Activities of  the Bank Gospodarstwa Krajowego Group in 2020 (comprising the report of the Management Board on the activities of Bank Gospodarstwa Krajowego) is a translation from the original Polish version. In case of any discrepancies between the Polish and English version, the Polish version shall prevail.

15 April 2021



Report of the Management Board on the Activities of the Bank Gospodarstwa Krajowego Group in 2020

(incorporating the Directors’ Report on the Operations of Bank Gospodarstwa Krajowego)



Report of the Management Board on the Activities of the Bank Gospodarstwa Krajowego Group in 2020

(incorporating the Directors’ Report on the Operations of Bank Gospodarstwa Krajowego)

1.          Summary of 2020. 2

1.1    Description of the BGK Group. 2

1.2    Major events in the BGK Group. 2

1.3    Important events for the BGK Group in 2020. 2

1.4    Historical overview of the BGK Group. 2

1.5    Key financial data of the BGK Group for 2020. 2

1.6    Key financial data of BGK for 2020. 2

2.          The economy in 2020. 2

2.1    Domestic economy. 2

2.2    Economy abroad. 2

3.          Changes in the regulatory environment. 2

4.          Operations of Bank Gospodarstwa Krajowego and the BGK Group. 2

4.1    Division of operations within Bank Gospodarstwa Krajowego Group. 2

4.2    Lending activity of BGK. 2

4.3    Lending policy of BGK. 2

4.4    Deposit activities of BGK. 2

4.5    Electronic banking. 2

4.6    BGK’s activity on the money market and the debt securities market. 2

4.7    Share portfolio. 2

4.8    Projects 2

4.9    Sureties and guarantees provided by BGK under government programmes 2

4.10  Cooperation with international public institutions 2

4.11  Activities of BGK’s foreign representative offices 2

4.12  Public finance consolidation management. 2

4.13  European programmes 2

4.14  Social rental housing (SRH) programmes 2

4.15  Cash flow funds 2

4.15.1        COVID-19 Response Fund. 2

4.15.2        National Road Fund. 2

4.15.3        Railway Fund. 2

4.15.4        Inland Waterways Fund. 2

4.15.5        Subsidy Fund. 2

4.15.6        Thermal Modernisation and Refurbishment Fund. 2

4.15.7        Student Loan Fund. 2

4.15.8        Borrower Support Fund. 2

4.15.9        Polish Science Fund. 2

4.15.10      Tourist Refund Fund. 2

4.15.11      Interest Subsidy Fund. 2

4.15.12      National Guarantee Fund. 2

4.15.13      Liquidity Guarantee Fund. 2

4.16  Other programmes and delegated tasks 2

4.17  Operations of the BGK Group entities 2

4.18  Transactions with associates of BGK. 2

5.          Strategy and development directions of BGK and the BGK Group. 2

5.1    Strategy of BGK and the BGK Group. 2

5.2    Development directions of the BGK Group. 2

5.3    BGK’s anti-crisis measures in connection with the COVID-19 pandemic. 2

5.3.1 Aid package for micro, small and medium-sized enterprises 2

5.3.2 Aid package for large companies 2

5.3.3 COVID-19 aid package offered by KUKE S.A. 2

5.3.4 Other COVID-19 aid mechanisms 2

6.          Financial overview of the BGK Group and BGK. 2

6.1    Financial performance of the BGK Group. 2

6.2    Balance sheet of the BGK Group. 2

6.3    Financial performance of Bank Gospodarstwa Krajowego. 2



Report of the Management Board on the Activities of the Bank Gospodarstwa Krajowego Group in 2020

(incorporating the Directors’ Report on the Operations of Bank Gospodarstwa Krajowego)

Report of the Management Board on the Activities of the Bank Gospodarstwa Krajowego Group in 2020

(incorporating the Directors’ Report on the Operations of Bank Gospodarstwa Krajowego)

1.    Summary of 2020

1.1         Description of the BGK Group

Bank Gospodarstwa Krajowego (BGK) is a state development bank whose mission is to support the social and economic development of Poland and the public sector in the fulfilment of its tasks. BGK and the BGK Group entities initiate and participate in cooperation between business, public sector entities and financial institutions.

As at 31 December 2020, the Group consisted of the following subsidiaries consolidated with the full method. The Group also includes equity-accounted associates.

Structure of the BGK Group as regards entities consolidated with the full method

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§  Bank Gospodarstwa Krajowego – The only state-owned bank, which is also a state development bank – the parent entity of the BGK Group,

§  Fundusz Sektora Mieszkań na Wynajem FIZ AN (Dwelling for Rent Sector Closed-End Private Equity Investment Fund) – For more information see Section 4.17,

§  Fundusz Sektora Mieszkań dla Rozwoju FIZ AN (Dwelling for Development Sector Closed-End Private Equity Investment Fund) – For more information see Section 4.17,

§  Fundusz Ekspansji Zagranicznej FIZ AN (Foreign Expansion Closed-End Private Equity Investment Fund) – For more information see Section 4.17.



Report of the Management Board on the Activities of the Bank Gospodarstwa Krajowego Group in 2020

(incorporating the Directors’ Report on the Operations of Bank Gospodarstwa Krajowego)

Entities consolidated by BGK using the equity method

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§  The Three Seas Initiative Investment Fund (Three Seas Initiative Investment Fund S.A. SICAV-RAIF) – For more information see Section 4.17.

§  Infrastructural funds whose management has been entrusted by BGK to PFR TFI S.A., i.e.:

§   Fundusz Inwestycji Polskich Przedsiębiorstw FIZ AN (Polish Enterprise Investments Closed-End Private Equity Investment Fund),

§   Fundusz Inwestycji Infrastrukturalnych – Kapitałowy FIZ AN (Equity Infrastructure Investment Closed-End Private Equity Investment Fund),

§   Fundusz Inwestycji Samorządowych FIZ AN (Local Government Investments Closed-End Private Equity Investment Fund),

§  Surety funds established in cooperation with local government units,

§  Krajowa Grupa Poręczeniowa Sp. z o.o. (National Guarantee Group),

§  Korporacja Ubezpieczeń Kredytów Eksportowych S.A. (Export Credit Insurance Corporation)

For a detailed description and list of subsidiaries and associates see the consolidated financial statements.

Bank Gospodarstwa Krajowego and the BGK Group entities focus their activities in several main areas:

§   carrying out activities to support the economic growth of Poland by financing infrastructure projects and local government projects and by co-financing the foreign expansion of Polish companies and export projects. BGK offers surety and guarantee schemes in order to stimulate entrepreneurship and the development of micro, small and medium-sized enterprises. The Bank and group entities also operate programmes intended to improve the situation on the housing market;

§   initiating and implementing countercyclical actions, in particular during the COVID-19 pandemic, aimed at supporting economic growth and enterprise development;

§  mobilising capital in the economy by participating in consortia and structuring transactions in the domestic and foreign markets. The Bank finances capital needs through cooperation with development institutions and the mobilisation of private capital through the development of guarantee and surety programmes;



Report of the Management Board on the Activities of the Bank Gospodarstwa Krajowego Group in 2020

(incorporating the Directors’ Report on the Operations of Bank Gospodarstwa Krajowego)

§  supplementing the banking system by filling the market gap in key areas of the economy through programmes activating stagnant sectors and countercyclical initiatives. The Bank finances projects of significant importance to the market economy and associated with high risk and supports economic growth in areas where the market is inefficient. The Bank cooperates with other financial institutions on a partnership basis, complementing their offerings;

§  consolidating public finances, management of European programmes and distribution of EU funds on a regional and national scale.

The Bank expands its product offer in the area of debt financing as well as surety and guarantee financing by investing in funds supporting the growth of Polish enterprises and infrastructure development.

The BGK Group’s activities have a multidimensional development context. The implementation of activities in one area, such as financing reindustrialisation, has a positive impact on other areas, i.e. on labour market development, reduction of the unemployment rate or increase in state budget revenue. The BGK Group’s infrastructure projects improve the quality and accessibility of services to the public and have a positive impact on the environment and the economy.

The BGK Group carries out its activities in a responsible and sustainable manner, while maintaining a reasonable risk appetite. Planned projects are analysed in terms of risk and their impact on the Poland’s sustainable economic growth. In 2020, the liquidity of BGK was at a safe level and its level of capital adequacy was monitored using capital adequacy ratios determined in line with the Banking Law and the CRR (Capital Requirements Regulation).

Financing of housing

An important element of the Bank’s and BGK Group’s operations are activities related to co-creation and implementation of programmes supporting the development of the housing industry, including provision of debt financing to entities in the social rental housing sector, non-refundable financing in the rental housing construction sector, in particular to municipal entities, as well as supporting thermal modernisation and refurbishment of residential buildings. In addition, BGK provides capital to Fundusz Sektora Mieszkań na Wynajem FIZ AN and Fundusz Sektora Mieszkań dla Rozwoju FIZ AN.

Support for exports and foreign expansion

The Bank and the BGK Group actively support activities focused on exports. The Bank is a shareholder of Korporacja Ubezpieczeń Kredytów Eksportowych S.A. (KUKE S.A.). Apart from its capital involvement, BGK is KUKE S.A.’s key partner in the implementation of the government export support programme, as part of which BGK grants export credits insured by KUKE S.A. In addition, BGK finances export projects that are partially implemented at ‘own risk’, with supplementary security provided by KUKE S.A.

Another BGK Group member, which provided funding to actively support the foreign expansion of Polish businesses is Fundusz Ekspansji Zagranicznej FIZ AN managed by PFR TFI S.A. The Fund helps Polish entities co-finance their investment projects abroad by offering loans or acquiring minority shareholdings with a buyout option. The Fund may invest both in EU and non-EU member states, also in developing and high-risk countries, in almost all sectors, not only in manufacturing, but also in distribution and service companies.

As at the end of 2020, Fundusz Ekspansji Zagranicznej FIZ AN was a party to 10 active investment agreements with Polish partners on equity or debt financing. BGK is the only participant of this investment fund.

In addition, the Bank carries out management activities related to export credits under the DOKE Programme (system of subsidies from the state budget to interest on export credits). The DOKE Programme is a system designed to stabilise interest on export credits advanced to buyers by Polish or foreign banks or international financial organisations. The rules of the Programme are based on the OECD Arrangement on Officially Supported Export Credits.



Report of the Management Board on the Activities of the Bank Gospodarstwa Krajowego Group in 2020

(incorporating the Directors’ Report on the Operations of Bank Gospodarstwa Krajowego)

1.2         Major events in the BGK Group

COVID-19 – Package of aid measures

In 2020, the BGK Group prepared a range of solutions for businesses related to the COVID-19 pandemic in cooperation with the legislator, the European Commission, the banking sector regulators as well as commercial and cooperative banks with a view to implementing the broadest possible package of aid measures as quickly as possible.

The role of BGK as a bank supporting the socio-economic development of Poland and the public sector in the performance of its tasks has gained particular importance in 2020. BGK has successfully filled the market gap and undertaken countercyclical initiatives that activate stagnant sectors. During the global pandemic, BGK has successfully supported the Polish economy and Polish enterprises by implementing measures as part of the Anti-Crisis Shield or supplementing the government’s actions in this area. With the safety of its clients and employees in mind, the Group implemented electronic flow of documents.

In 2020, as part of the Anti-Crisis Shield and auxiliary activities, the Bank provided support worth more than PLN 54 billion of financing value to more than 60 thousand entrepreneurs. As part of the COVID-19 Response Fund, bonds totalling PLN 100.8 billion were issued.

Aid package for micro, small and medium-sized enterprises (for more information see Section 5.3 of this report):

Guarantee systems

Support with the use of EU funds

 

 

 

 

n

De minimis guarantee

n

COSME guarantee

n

Loan for technological

n

Liquidity loan for

n

Biznesmax subsidised

n

Guarantee for repayment of

innovations

SMEs under OP SG

guarantee

factoring limit

n

Broadband loan

n

EU loans under ROP

n

Liquidity guarantee

n

Creative Europe guarantee

n

Loans for development of social economy entities

 

n

Guarantee for the agricultural sector

 

 

 

 

 

Subsidy system

Support with the use of domestic funds

 

 

 

 

n

Subsidies to interest on working capital facilities from the

n

Loan for development of tourism

 Interest Subsidy Fund

 

n

Liquidity loans for social economy entities

 

 

 

 

n

Loans under the “First Business – Start-Up Support” programme

Aid package for large companies (for more information see Section 5.3 of this report):

Liquidity guarantee

Guarantee for repayment of factoring limit

 

 

 

 

n

Guarantee of repayment of loans for securing

n

Guarantee for repayment of factoring limit for securing

 financial liquidity

financial liquidity

Subsidies to interest on working capital facilities from the Interest Subsidy Fund

 

 

n

Programme of subsidies to interest on loans provided by commercial banks

As part of the aid package, together with the legislator the Bank also established new cash flow funds (for more information see Section 4.15 of this report):

New cash flow funds

 

 

n

COVID-19 Response Fund

n

Liquidity Guarantee Fund

n

Interest Subsidy Fund

n

Tourist Refund Fund



Report of the Management Board on the Activities of the Bank Gospodarstwa Krajowego Group in 2020

(incorporating the Directors’ Report on the Operations of Bank Gospodarstwa Krajowego)

As part of the aid programme, KUKE S.A. launched State Treasury-guaranteed insurance of short-term export receivables – KUKE GAP Ex and GAP Ex+, and extended to 100% the insurance coverage for investment export projects (for more information see Section 5.3 of this report).

Three Seas Initiative Investment Fund

In 2019, on the initiative of BGK, the Three Seas Initiative Investment Fund was established (operating under the name Three Seas Initiative Investment Fund S.A. SICAV-RAIF) as an international investment fund supporting infrastructure projects which are significant growth drivers for countries located in Central and Eastern Europe between the Baltic Sea, the Black Sea and the Adriatic. The main objective of this financial vehicle is to fill in the infrastructure gap between western and eastern parts of the European Union by financing transport, energy and digital connections on the north-south axis in countries located in the Three Seas Region.

As at the end of 2020, the entity’s shareholders were entities representing Poland, Romania, Hungary, Estonia, Latvia, Slovenia and Bulgaria, while in January 2021 institutions from Croatia and Lithuania joined as new shareholders.

It is assumed that the target size of the Fund will be in the range of EUR 3–5 billion. The Fund is open also to international financial institutions and private investors.

The Fund reached full operational capacity in February 2020. Its management was entrusted to independent entities: (i) Fuchs Asset Management – a licensed fund manager, and (ii) Amber Infrastructure – an entity responsible for the investment process and portfolio management. The Fund operates under Luxembourg law. As at the end of 2020, its portfolio consisted of two investment projects.

European Commission’s pillar assessment

On 2 December 2020, the European Commission’s Directorate‑General for Economic and Financial Affairs officially confirmed that BGK successfully passed the accreditation procedure. The Bank has been successfully audited in all nine pillars assessed. As a result, BGK may be treated by the EC as a potential partner in implementation of projects that facilitate access to EU funds and a budgetary guarantee under direct management (i.e. access to InvestEU guarantee programme, EFSD+ guarantees under the NDICI programme or the CEF Blending Facility). For more information see Section 4.10 “Cooperation with international public institutions.”

Rise of the BGK statutory fund

To be able to actively support entrepreneurs hit by the effects of the COVID-19 pandemic, BGK received a capital injection of PLN 5 billion in Treasury bonds. The increase of BGK’s own funds improved its financial strength and helped achieve the expected financial leverage, which enables it to counteract and mitigate the consequences of the COVID-19 pandemic. As a result, the growth of own funds contributed to an increase in the value of funding granted under BGK’s banking activities and significantly improved the capacity to generate, in the long term, credit exposure and increase concentration ratio for individual exposures and groups of affiliated clients. Funds from the rise of statutory fund are used to increase the supply of loans, including to boost the financing of investment projects. The Bank’s financing offer is addressed to all clients and is based on market prices, and its availability is not limited to specific industries, selected sectors or geographical regions. BGK’s offer is addressed to all entities in the market which need to gain access to financing from BGK or syndicated financing from BGK and commercial banks.

To enhance the strength of own funds, BGK allocated the entire net profit for 2019 to increase its equity.



Report of the Management Board on the Activities of the Bank Gospodarstwa Krajowego Group in 2020

(incorporating the Directors’ Report on the Operations of Bank Gospodarstwa Krajowego)

Rise of the KUKE S.A. statutory fund

In view of the situation related to the impact of COVID-19 on the economy, including commercial insurers, on 10 April 2020 the General Meeting of KUKE S.A. resolved to rise statutory fund of the company. On 22 April 2020, the Bank acquired 252,360 new shares in KUKE S.A. with a par value of PLN 100 per share, for PLN 50 million, in a private placement.

Foreign representative offices of Bank Gospodarstwa Krajowego

The primary purpose of the operation of BGK’s offices abroad is to promote the Bank and Poland, monitor the process of international legislation, actively participate in preparation and amendment of legal acts, and support exports and the foreign expansion of Polish businesses. The offices are intended to support foreign expansion and attract foreign investors through BGK’s communication and promotional activities abroad. Their role is to build and foster relations with financial centres and institutions with the strongest impact on regulations affecting global economy and the international banking system.

In 2018, BGK opened its first representative office in Brussels, which was followed by representative offices in Frankfurt am Main and London opened in 2019, and in Amsterdam in 2020. The Bank intends to set up further representative offices in the USA and Singapore.

Changes regarding the support of the housing industry

In 2020, further legislative changes were prepared to boost demand for rented dwellings and facilitate access to them. Many of those changes will be implemented in 2021. In the SRH programme, the autumn edition of the call for applications was extended to three months, i.e. from 1 July to 30 September, replacing the call for applications covering only September. An important step for the development of social rental housing were works on the so-called housing package, which involves a comprehensive range of legislative amendments supporting the housing industry. The works resulted in the adoption of the Act Amending Certain Acts Supporting the Housing Industry of 10 December 2020 and the Act on Settlement of the Price of Premises or Buildings in the Price of Property Sold from the Municipal Property Base of 16 December 2020, so-called “premises for land”. The pandemic of the coronavirus SARS-CoV-2 compelled the banking sector and other sectors of the economy to change the way of working from stationary to remote. Great emphasis was placed on adjusting the terms of operation of social and municipal housing support programmes to the current disease situation, i.e. digitisation of construction and lending processes. In addition, in March 2020 an emergency “Procedure of processing of applications for a change of the loan instalment schedule at Bank Gospodarstwa Krajowego” was introduced as a help facility for clients of the banking sector. The changes in the law and procedures were designed to enable the submission of documents in electronic form and holding meetings and conferences using tools for remote work. The Government Housing Development Fund was established using the resources of the COVID-19 Response Fund and the National Property Resource was enabled to create new Social Housing Initiatives or to join the existing Social Housing Initiatives/Social Housing Associations by contributing land or capital to those entities.



Report of the Management Board on the Activities of the Bank Gospodarstwa Krajowego Group in 2020

(incorporating the Directors’ Report on the Operations of Bank Gospodarstwa Krajowego)

1.3         Important events for the BGK Group in 2020

 

 

Key events in 2020

January

n

Official opening of a representative office in London as the third foreign representative office of BGK. The main tasks of the office include supporting the expansion of Polish businesses into the local market and promoting Poland and BGK.

n

Conference of the Three Seas Initiative Investment Fund in Warsaw.

n

Signing of a declaration on simplification of the Polish language.

n

Receipt of Top Employer 2020 certificate.

 

 

 

February

n

Execution of an agreement with the European Investment Fund to increase funding as part of the COSME programme. The financial envelope available for guarantees to SMEs within the scheme has already increased tenfold since its establishment: from the original PLN 800 million to PLN 8.4 billion.



n

Mini-conference in Riga, during which the Three Seas Initiative Investment Fund signed an agreement with Amber Infrastructure, and a subscription agreement for EUR 500 million with BGK.

n

“Partnership cooperation as a guarantee of success” – BGK’s conference for the banking sector on the system of BGK’s guarantees and sureties.

 Presentation of results of a survey on de minimis guarantees

n

Provision of the first financing of export to Mali.

 

 

 

March

n

“Shield 0” – launch of the BGK’s aid package for enterprises in connection with the outbreak of the coronavirus.

n

Introduction of concessions related to the loan for technological innovations due to the pandemic.

n

Preparation of concessions for Social Economy Entities in connection with the outbreak of the coronavirus.

 

 

 

April

n

Launch of preferential liquidity loans to help fight the coronavirus.

n

Change of terms of the Biznesmax guarantee with an interest subsidy.

n

Offering a programme of liquidity guarantees for medium-sized and large enterprises.

n

Transfer by the BGK Foundation of PLN 1.5 million to support ten hospitals in the fight against COVID-19.

n

Introduction of facilitations for loan repayment in the “First Business – Start-Up Support” programme.

n

Increase of the amount of the thermomodernisation bonus and offering the repair bonus for reinforcement of large-panel buildings also to municipalities. In the next 10 years, the fund will spend approximately PLN 2.9 billion for that purpose.

n

Establishment of the COVID-19 Response Fund at BGK.

 

 

 

May

n

Extension of support to Social Economy Entities – liquidity loan of up to PLN 100 thousand as a tool for combating the coronavirus.

n

Loan for technological innovations – introduction of new facilities due to the pandemic.

n

Joint press conference of Prime Minister Mateusz Morawiecki and Beata Daszyńska-Muzyczka on the aid package.

n

Increase of funds for liquidity loans under the Smart Growth programme (OP SG).

n

Tomasz Robaczyński joins the Management Board of Bank Gospodarstwa Krajowego.

 

 

 

June

n

Support of Polish exports to Belarus: BGK and Pekao S.A. finance a Polish company’s EUR 49 million export contract for the design and construction of a retail complex in Minsk.

n

Provision, together with other financial institutions, of a loan for the construction of a polypropylene plant in Police. This is a crucial project for the Polish chemical industry and one of the largest projects in the chemical industry in this part of Europe.

n

Seventh call for applications for a technological grant, the first one on new terms. The changes make access to support easier for a larger number of companies, which had not previously met e.g. the condition of innovativeness at national level.

n

Lech Kaczyński Prometheus Award – Economy – granted to Beata Daszyńska-Muzyczka. The award was granted for diplomatic activities aimed at integrating and promoting the development of countries between the Baltic Sea, the Black Sea and the Adriatic.

n

Opening of BGK’s representative office in Amsterdam, whose role is to represent the Bank in contacts with institutions and businesses from the Netherlands.

 

 

 



Report of the Management Board on the Activities of the Bank Gospodarstwa Krajowego Group in 2020

(incorporating the Directors’ Report on the Operations of Bank Gospodarstwa Krajowego)

 

 

 

July

n

New opportunities in export to Russia – BGK confirms documentary letters of credit opened in the ruble for the benefit of Polish exporters.

n

Commencement of modernisation of BGK’s registered office at Aleje Jerozolimskie 7. Reassignment of employees to a temporary office at a new office building VARSO 2 at ul. Chmielna 73.

n

PLN 0.5 billion from EU funds transferred by the Minister of Funds and Regional Policy for liquidity loans under the Smart Growth programme. This was the second time when the amount designated for such loans was increased. New call for applications for loans from enterprises.

n

BGK guarantees from the Liquidity Guarantee Fund already backed as much as PLN 5 billion worth of loans to large and medium-sized companies.

n

The Interest Subsidy Fund is launched. Entrepreneurs, irrespective of the company size, will be able to use a subsidy to interest on working capital facilities. Applications are accepted by lending banks which cooperate with BGK.

 

 

 

August

n

Changes in the Agricultural Guarantee Fund: extension of support for farmers and agri-food processors. The changes enable obtaining a guarantee for working capital facilities and interest subsidies, which facilitates maintaining financial liquidity.

n

Signing of an annex to the agreement with the Ministry of Funds and Regional Policy to increase the fund of liquidity loans for companies financed from EU funds under the Smart Growth programme by PLN 1.1 billion, to a total of PLN 2.15 billion.

n

BGK becomes a strategic partner of the Vision for Development Forum in Gdynia – Beata Daszyńska-Muzyczka, CEO, opens the debate “The Three Seas Region as an economic area. Building closer connections.”

n

BGK with a new CSR report, which describes strategic, economic and social projects undertaken by the Bank in 2019.



 

 

 

September

n

Launch of guarantees for factoring limits. The programme is unique in the European Union.

n

BGK becomes a partner of the European Economic Congress.

n

Opening of a hospital in Żywiec built in the PPP model, co-financed by BGK.

n

BGK participates in the Economic Forum in Karpacz – Beata Daszyńska-Muzyczka, CEO, gives a presentation opening the panel: “Three Seas Initiative Investment Fund”

n

Launch of the pilot project of loans for medium-sized towns using the funds of the European Investment Bank for the financing of investment programmes.

 

 

 

October

n

Improvement of the offer of guarantees under the COSME programme – further aid to businesses for combating the consequences of the pandemic.

n

De minimis guarantees from the aid package secured more than PLN 20 billion worth of loans to micro, small and medium-sized enterprises.



n

Fitch Ratings affirms its long-term credit rating (IDR) for BGK at A- with a stable outlook.

n

The Three Seas Summit in Tallinn with the participation of the Chairwoman of the Supervisory Board of the Three Seas Initiative Investment Fund; BGK’s declaration to increase its contribution to the Fund by EUR 250 million, to a total of EUR 750 million.

 

 

 

November

n

Participation in Impact Finance.

n

BGK as the main partner of HackYeah! 2020 – the largest hackathon in Europe. Beata Daszyńska-Muzyczka, CEO, opens the event.

 

 

 

December

n

On 7 December, a temporary hospital in Siedlce was opened. It was created thanks to the cooperation of BGK and the John Paul II Mazowieckie Province Hospital to treat COVID-19 patients.

n

BGK supports exporters in as many as 72 foreign markets on six continents.

 

 

 



Report of the Management Board on the Activities of the Bank Gospodarstwa Krajowego Group in 2020

(incorporating the Directors’ Report on the Operations of Bank Gospodarstwa Krajowego)

1.4         Historical overview of the BGK Group

Establishment of BGK

Bank Gospodarstwa Krajowego is the only state-owned development bank in Poland. It was established by an order of the President of the Republic of Poland in 1924. During the interwar period, it focused on supporting public and municipal institutions as well as armament manufacturers, in addition to managing industrial plants the control of which was assumed by the state. The Bank also administered government special purpose funds and provided significant financial support to the modernisation and development of the Polish economy of that period, including the Central Industrial District and the city and sea port of Gdynia. After WWII, the operations of BGK were suspended in 1948.

Resumed operation in 1989

The Bank was reactivated in 1989 as an institution specialising in the provision of services to the public sector. The operations of BGK are governed by the Act on Bank Gospodarstwa Krajowego of 14 March 2003, as amended, and the Regulation of the Minister of Development on the adoption of the Articles of Association of Bank Gospodarstwa Krajowego, dated 16 September 2016. Currently, BGK is the major institution supporting the State in the administration of socio-economic government programmes designed to promote entrepreneurship as well as infrastructure and residential investment at the national, regional and local level.

Establishment of the National Housing Fund (NHF)

One of the first funds implementing government programmes within BGK was the National Housing Fund (Krajowy Fundusz Mieszkaniowy – KFM), whose key objective was to provide loans for the construction of social rental housing and auxiliary technical infrastructure. The legal basis of the NHF’s operations was the Act on Certain Forms of Support for Residential Construction of 26 October 1995. On 31 May 2009, the National Housing Fund was liquidated and the portfolio of loans advanced by the National Housing Fund is now managed by BGK as part of its assets.

Establishment of the Subsidy Fund (SF)

The Subsidy Fund was established at BGK pursuant to the Act on Interest Subsidies for Fixed-Rate Housing Loans of 5 December 2002. The Subsidy Fund commenced its operations in 2003 by subsidising interest on fixed-rate housing loans. In the following years, subsequent residential construction support programmes were launched by the Fund.

Establishment of the National Road Fund (NRF)

The National Road Fund was established with a view to finance the construction and alteration of national roads, including motorways and expressways, cover any payments to toll motorway operators and expenditure related to the construction and operation of toll collection systems on national roads. The Fund was established at Bank Gospodarstwa Krajowego under the Act on Toll Motorways and the National Road Fund of 27 October 1994. The NRF has been operated within BGK since 2004.

Taking over the management of the government programme “Support of Entrepreneurship with Sureties and Guarantees of Bank Gospodarstwa Krajowego”

Access of micro, small and medium-sized enterprises to financing for development needs, including investments, is facilitated thanks to BGK’s surety and guarantee scheme. Activities under the government programme have been carried out since 2009 in accordance with provisions laid down in the Act on Sureties and Guarantees Granted by the State Treasury and Certain Legal Persons of 8 May 1997. The Bank carries them out directly in the form of surety and guarantee activities by performing tasks related to the development of the system of regional and local surety funds, as well as through the National Guarantee Fund (NGF) established by BGK.



Report of the Management Board on the Activities of the Bank Gospodarstwa Krajowego Group in 2020

(incorporating the Directors’ Report on the Operations of Bank Gospodarstwa Krajowego)

Establishment of investment funds managed by TFI BGK S.A. (currently PFR TFI S.A.)

In pursuing the mission of supporting the economic growth of Poland, the Bank also actively carries out operations related to equity investments. These operations are carried out by closed-end investment funds and entities established by them. Investment funds were created by Towarzystwo Funduszy Inwestycyjnych (Investment Fund Management Company) established by BGK in November 2013. In September 2017, TFI BGK S.A. was sold to Polski Fundusz Rozwoju S.A., but it retained the right to appoint three members of the Supervisory Board.

PFR Nieruchomości S.A. manages the assets of Fundusz Sektora Mieszkań na Wynajem FIZ AN and Fundusz Sektora Mieszkań dla Rozwoju FIZ AN, whose sole investor is BGK.

1.5         Key financial data of the BGK Group for 2020

The BGK Group reported a net profit of PLN 366.6 million for 2020, down by PLN 23.6 million, or 6.1%, year on year. The drop resulted mainly from higher net impairment losses and provisions, which rose year on year by PLN 153.5 million, or 66.3%, driven by the effects of the COVID-19 pandemic.

Administrative expenses grew slower (up 3.9%) than income from banking activities (up 5.7%).

TABLE 1: Key financial parameters of the BGK Group’s operations

Item

2020

2019

2018

Change

2020/2019

Profitability

Income from banking activities1 (in PLN million)

1,456.1

1,377.4

1,190.9

5.7%

 

Administrative expenses (in PLN million)

-624.1

-600.8

-470.3

3.9%

 

Net impairment losses and provisions (in PLN million)

-384.9

-231.4

-127.2

66.3%

 

Share of profit or loss of associates (in PLN million)

-25.0

-268.6

43.0

-

 

Profit before tax (in PLN million)

447.0

459.2

601.6

-2.7%

 

Net profit (in PLN million)

366.6

390.2

514.1

-6.1%

 

Scale of activity

 

 

 

 

 

Loans, bonds (municipal and commercial), gross (in PLN million)

45,964.0

44,049.4

37,709.6

4.3%

 

Net equity investments ((in PLN million)

5,879.8

5,216.0

5,461.7

12.7%

 

Liabilities to customers (in PLN million)

116,138.1

59,701.4

47,637.3

94.5%

 

Total equity (in PLN million)

23,924.0

18,653.9

19,233.7

28.3%

 

Balance sheet total (in PLN million)

160,325.5

100,521.2

84,772.3

59.5%

 

Operating performance2

 

 

 

 

 

C/I3 ratio on core activities

42.9%

43.6%

39.5%

-0.7

pp

C/I4 ratio including other income and expenses

37.1%

38.5%

40.7%

-1.4

pp

ROE (net profit / average total equity)

1.7%

2.1%

2.7%

-0.4

pp

ROA (net profit / average assets)

0.2%

0.3%

0.5%

-0.1

pp

Net interest margin (net interest income / average assets)

0.6%

0.8%

0.9%

-0.2

pp

1 Net interest and commission income, net gain/loss on financial instruments at fair value through profit or loss and net exchange differences, net gain/loss on investments in financial assets

2 Carrying amounts for the period of 13 months (e.g. December 2019 – December 2020) were used as average balances used to calculate the measures. 

3 C/I = (administrative expenses) / (income from banking activities) 

4 C/I same as above, with the proviso that the denominator includes other income/expenses and net modification gain/loss 

The BGK Group closed the year 2020 with a balance sheet total of PLN 160,325.5 million. It went up by PLN 59,804.3 million, or 59.5%, year on year. The increase was mainly attributable to:

§  changes in assets and liabilities resulting from the management of BGK’s liquidity position,

§  loans, municipal and commercial bonds higher by PLN 1,914.6 million.

ROE fell by 0.4 pp, to 1.7%. ROA was 0.1 pp lower than in 2019 and stood at 0.2%. The C/I ratio, including other operating expenses and income, dropped by 1.4 pp year on year, to 37.1%.



Report of the Management Board on the Activities of the Bank Gospodarstwa Krajowego Group in 2020

(incorporating the Directors’ Report on the Operations of Bank Gospodarstwa Krajowego)

The C/I ratio on core activities fell from 43.6% in 2019 to 42.9% in 2020.

The strong capital position of the BGK Group at the end of 2020 improves the potential to achieve BGK’s mission in upcoming years and allows to speed up lending, improve net interest income and expand investment activity supporting the Poland’s economic growth.

1.6         Key financial data of BGK for 2020

In 2020, the Bank reported a net profit of PLN 315.7 million, down by PLN 195.5 million as compared to the preceding year. Net profit dropped chiefly as a result of an increase in net impairment losses and provisions by PLN 117.8 million (29.2%) compared to the end of 2019 due to adverse movements in risk parameters and deterioration of borrowers’ financial condition in connection with the COVID-19 pandemic.

Key profitability ratios and performance indicators for 2020 were as follows: ROE dropped by 1.3 pp to 1.4%, ROA receded by 0.2 pp. to 0.2%, and the C/I ratio on core activities grew by 1.5 pp to 35.6%, over 2019.

Solvency ratio remained at a high and stable level of 33.1%.

TABLE 2: Key financial parameters of BGK’s operations

Item

2020

2019

2018

Change

2020/2019

Profitability

Income from banking activities1 (in PLN million)

1,464.5

1,396.9

1,173.7

4.8%

 

Administrative expenses (in PLN million)

-522.1

-475.9

-402.1

9.7%

 

Net impairment losses and provisions (in PLN million)

-521.6

-403.8

-165.2

29.2%

 

Profit before tax (in PLN million)

369.9

578.6

519.5

-36.1%

 

Net profit (in PLN million)

315.7

511.2

445.3

-38.3%

 

Scale of activity

 

 

 

 

 

Loans, bonds (municipal and commercial), gross (in PLN million)

45,935.0

44,024.0

37,700.5

4.3%

 

Liabilities to customers (in PLN million)

116,257.7

59,821.3

47,769.3

94.3%

 

Net equity investments (in PLN million)

7,714.3

6,942.5

7,107.1

11.1%

 

Total equity (in PLN million)

23,874.0

18,675.2

19,127.3

27.8%

 

Balance sheet total (in PLN million)

160,301.2

100,604.2

84,746.4

59.3%

 

Operating performance2