mBank Group funding

Retail deposits are the main growth driver. The loans to deposits ratio for the Group as at December 31, 2020 reached 79.8% compared to 90.3% in the previous year. The share of the amounts due to other banks in the funding structure has been decreasing for many years. In the past, loans from our strategic shareholder constituted a funding source for foreign currency mortgage loans. The last loan from Commerzbank taken to finance the portfolio of foreign currency mortgage loans was repaid in 2018. We currently use medium-term and long-term instruments for the Group’s funding in foreign currencies, including issuance of unsecured bonds, bilateral loans, subordinated loans as well as FX swap and CIRS transactions.

Bond issuances under the EMTN Program and mortgage covered bonds issued by mBank Hipoteczny remain an important funding source. However, the share of these sources decreased in 2020 as a result of repayments and the lack of new issuances.

The Group will maintain a diversified financing structure taking into account the principles of profitability. The funding structure of mBank Group is aimed at ensuring stable sources of financing for lending activities and maintaining the liquidity ratios at the appropriate level. One of the goals is to comply with the MREL requirement, i.e. to achieve the level of eligible and convertible liabilities required by the Bank Guarantee Fund.

The Euro Medium Term Note Programme (EMTN) enables the issuance of debt securities in many tranches and currencies, with a different interest and maturity structure.

The following table presents a summary of outstanding tranches:

mBank Hipoteczny (mBH) is a mortgage bank with the longest track record of issuing covered bonds on the Polish capital market. As of December 31, 2020, the value of issued mortgage covered bonds amounted to PLN 7.6 billion. This accounts for 28.7% of the total market, the value of which reached approximately PLN 26.3 billion (based on the EUR/PLN exchange rate published by the NBP on December 31, 2020: 4.6148).

The funding and liquidity profile of mBank Group throughout 2020 did not assume the need to issue covered bonds by mBank Hipoteczny.

Covered bonds of mBank Hipoteczny are characterized by low investment risk. It results from the statutory obligation to apply complex security mechanisms while issuing and trading in such instruments.

In 2020 we have taken steps within the Group to prepare for the issuances of green debt instruments, including covered bonds. For this purpose, we adopted mBank Group Green Bond Framework. It defines the goals of mBank Group and the principles for supporting the environmental goals of the European Union and the UN Sustainable Development Goals. The mBank Group framework is compliant with the Green Bond Principles – GBP. This was confirmed by the Sustainalytics agency in the document Second Party Opinion.

Moreover, mBank Hipoteczny continues to issue unsecured bonds. In H1 2020, mBH issued bonds with a total nominal value of PLN 95 million. As of December 31, 2020, there were four issued series of bonds for a total amount of PLN 260 million. The offer of mBH includes zero-coupon and coupon bonds denominated in Polish zloty, with maturities from 1 year.

On December 9, 2020, the Moody’s Investors Service upgraded the rating of mortgage covered bonds issued by mBank Hipoteczny to Aa2 from Aa3. The rating upgrade results from an update of the agency’s methodology presented in the „Country Ceilings Methodology”. It specifies the maximum rating level of instruments issued in a given country. Moody’s Investors Service published the new methodology in December 2020. The changes in the methodology were focused mainly on a revision of the national rating level as a benchmark for issuance in local currency(by segmenting the assessment of the country ceiling into the level of undiversified risk) and factors enabling the best issuers in a given country to obtain better ratings. The benchmark for foreign currency issues is the local currency rating ceiling, including in the local currency cap factors related to capital movements (transfer and convertibility risk). The previous rating was the highest possible for financial instruments issued from Poland, based on the „Local and Foreign Currency Country Ceilings for Bonds and Other Obligations Methodology”.

Moody’s Investors Service maintains the current level of the long-term issuer rating assigned to mBank Hipoteczny at Baa2, the short-term issuer rating at Prime-2, the long-term and short-term counterparty risk assessment at A3 (cr) and Prime-2 (cr), respectively, and the long-term and short-term Counterparty Risk Rating at A3 and Prime-2, respectively. The outlook for long-term ratings is stable.