The amount of capital maintained by mBank Group and mBank meets the regulatory requirements and allows for the planned business expansion at the defined risk appetite level.
This is reflected in the Common Equity Tier 1 capital ratio (19.59% at the stand-alone level and 16.99% at the consolidated level at the end of 2020) and the Total Capital Ratio (22.95% at the stand-alone level and 19.86% at the consolidated level at the end of 2020), which are above the levels recommended by the Polish Financial Supervision Authority (PFSA). The capital requirements for the Group and the bank as well as factors which influenced them in 2020 are described in details in chapter Capital adequacy. Capital requirements for mBank Group decreased in November 2020, along with the decrease of individual additional Pillar 2 capital requirement for risk related to FX retail mortgage loans by PFSA (from 3.11% to 2.82% for the Total Capital Ratio and from 2.33% to 2.11% for the Tier 1 capital ratio).
Regulatory capital requirements for mBank Group as of December 31, 2020, are presented below:
based on Regulation (EU) No 575/2013 of the European Parliament and of the Council of June 26, 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012.
imposed as a result of risk assessment carried out by the PFSA within the supervisory review and evaluation process (“SREP”); its level is reviewed annually.
is equal for all banks in Poland as introduced by the Act on Macroprudential Supervision Over the Financial System and Crisis Management in the Financial System. Its implementation has been gradual. Since January 1, 2019 it has risen to 2.5% and was binding at this level in 2020.
imposed by an administrative decision of the PFSA, in which mBank has been identified as other systemically important institution; its level is reviewed annually.
determined at 3.0% in Poland entering into force from January 1, 2018; it replaced the previous PFSA add-on; for mBank it applies only to domestic exposures. Since March 2020, due to COVID-19 pandemic, this buffer amounts to 0% along with the decision issued by the Minister of Finance.
is calculated as the weighted average of the countercyclical buffer rates that apply in the countries where the relevant credit exposures of the Group are located.
Own funds at the consolidated level stood at PLN 17.5 billion at the end of 2020, out of which PLN 15.0 billion (85.5%) was Tier 1 capital. The main components of Tier 1 capital include: share capital, share premium, other reserve capital, undistributed profit from previous years, funds for general banking risk, recognized current profits and accumulated other comprehensive income. Tier 1 capital is strengthened mainly through retained earnings.
Tier 2 capital stood at PLN 2.5 billion at the end of 2020, which represents an increase of PLN 60.8 million year on year. The increase was due to the recognition of a surplus of credit risk adjustments over expected losses according to the AIRB method included in the Tier 2 capital in the amount of PLN 118.3 million and a higher value of the subordinated loan denominated in CHF due to the depreciation of PLN. The above increase was partially consumed by the decrease in the value of subordinated bonds by PLN 143 million year on year due to the amortisation of the capital value pursuant to Art. 64 CRR (the amount of subordinated debt with a specified maturity classified as own funds is subject to daily amortisation over the last 5 years to final maturity).
The table below presents the balances of mBank Group’s subordinated debt as at December 31, 2020.
| Type | Nominal value | Currency | Maturity date | Tier 2 Capital |
|---|---|---|---|---|
| Loan | 250 M | CHF | 21.03.2028 | Yes |
| Bond | 750 M | PLN | 17.01.2025 | Yes, but recognised in own funds in the amount of PLN 607 million due to the amortisation period |
| Bond | 550 M | PLN | 10.10.2028 | Yes |
| Bond | 200 M | PLN | 10.10.2030 | Yes |
The current structure of the bank’s capital base derives from prior decisions regarding retained earnings and additional capital increases. Between 2002 and 2011, mBank retained all of its earnings by decision of the Annual General Meeting, while the 2012 dividend made up 35% of mBank’s net profit followed by a 67% dividend payment in 2013. The profit for 2014, 2015 and 2016 was included in whole in the bank’s own funds. In April 2018 General Meeting of Shareholders decided on dividend payout of PLN 217.9 million, i.e. 20% of net profit generated in 2017. The undistributed profit from previous years in value of PLN 1.2 billion was transferred to the supplementary capital of the bank. In March 2019 the Annual General Meeting decided not to pay out the dividend from the 2018 net profit. The amount of PLN 248.2 million was allocated to the losses from previous years and the amount of PLN 1,069.3 million was left undivided. In March 2020, in accordance with the recommendation of the Polish Financial Supervision Authority to suspend payments of profit due to the pandemic, the General Meeting of Shareholders decided that the net profit of mBank S.A. obtained in 2019 in the amount of PLN 981.0 million should remain undivided.
More information on capital adequacy are presented in note 45 to the mBank S.A. Group IFRS Consolidated Financial Statements 2020. Detailed information concerning dividend policy are presented on the next page.