Activities of subsidiaries of mBank Group

The COVID-19 pandemic has had a negative impact on mFinanse’s business. 2020 was marked by falling sales and shrinking financial results. As a result, the subsidiary introduced cost adjustments to maintain business continuity and save jobs. A full return to sales processes will depend on the time needed for the consumer mood to turn positive again. Apart from the demand factor, 2020 sales were affected by the introduction of stricter lending criteria, which translated into drops in all product groups.

In 2020, the activities of an open platform of financial products distribution mFinanse were focused on the key business of loans sale intermediation. Mortgage loan sales decreased by 22.6% compared with the same period last year (PLN 2,365.8 million in 2020 vs. PLN 3,055.7 million year before). In the period under review, cash loan sales dropped by 51.5%, to PLN 306.5 million from PLN 632.2 million in 2019. The profit from selling car loans dedicated to car dealers decreased by 39.4% on the year before. It stood at PLN 273.8 million in 2020 compared with PLN 451.5 million last year. Profit earned by the car leasing area fell by 32.3% year on year, to PLN 91.1 million in 2020 from PLN 134.6 million in 2019.

In 2020 the subsidiary’s pre-tax profit amounted to PLN 30.7 million compared with PLN 33.3 million in 2019. The result of 2020 includes the profit generated in the foreign branches of the subsidiary. The sale transactions of the organised parts of insurance business completed in previous years had a positive impact on the subsidiary’s result recorded in 2020.

As regards business continuity, in response to the outbreak of the pandemic we took measures to protect the health and security of our employees, business partners, and clients. Head office employees were allowed to work remotely. The brick-and-mortar and partner branches operated in line with the security rules developed on the basis of the guidelines of the Ministry of Health. During the first and the second phase of the pandemic, mKiosks were closed in line with the regulation of the Minister of Finance. We reopened them in line with all the applicable security rules following the gradual lockdown easing, including the opening of shopping centres. Our branches were provided with sneeze guards, disinfectants, and personal protection equipment. Due to the pandemic, we suspended the project of mKiosks’ chain expansion.

Since the beginning of the pandemic we have been working on support measures to help the sales network go through this difficult period. We have introduced social packages adjusted to the pandemic and reacted to the market situation on an ongoing basis, including adjustments to the sales network remuneration model.

The total value of contracts executed in 2020 amounted to PLN 5,128.7 million, compared with PLN 5,294.4 million in 2019 (-3.1% year on year). The value of new movable assets purchased by mLeasing in 2020 reached PLN 4,961.6 million, down by 0.8% compared with 2019, when it stood at PLN 5,001.4 million. The value of contracts concerning real estate stood at PLN 167.1 million compared with PLN 283.0 million in 2019 (i.e. -43.0% year on year).

The consolidated pre-tax profit reported by mLeasing in 2020 stood at PLN 9.4 million, which represents a substantial decline compared with 2019, when it amounted to PLN 96.1 million. A decrease of the result year on year was mainly driven by higher credit risk provisions. They stem from the cautious approach of the subsidiary to the potential post-pandemic difficulties of the clients, who might not service their liabilities timely. The cost of risk in 2020 reached PLN 170.1 million, which is higher by 190% year on year, when it stood at PLN 58.7 million.

In connection with the COVID-19 pandemic, we changed the work system at the subsidiary. We implemented remote work, while in cases where physical presence of employees is required, we introduced rotating shift work. We offered our clients the possibility of reducing from three to six leasing instalments. Clients can apply for suspension of principal instalment repayment and extension of the repayment period by a period when the client pays only the interest. We do not charge any commission for applications to reduce instalments. Within a short time, we prepared an automatic process for handling clients’ applications to ensure that the decision-making procedure is quick. In H1 2020 applications for restructuring were filed with respect to 32.9% of the portfolio. In an effort to ensure high quality of the subsidiary’s loan portfolio, we tightened the conditions for granting new financing by taking into account clients’ resilience to the consequences of the pandemic.

In the second half of 2020, we expected another wave of restructuring applications. Therefore, in Autumn, we introduced new rules in the offer for schedule changes. We kept a simple application path for clients with smaller exposures and a deeper analysis of the client’s situation in other cases. We have also reintroduced fees for changes to contracts since the middle of the year. After several months of applying these rules, we see less interest in schedule changes than in the first, Spring wave of applications.

In October 2020, our new mAuto leasing portal was launched. The virtual car showroom is available 7 days a week, 24 hours a day. We handle the sales process itself 6 days a week, using a special Call Center. Through mAuto.pl, customers have access to a wide range of new and used vehicles. Financing options include rental, leasing, or cash purchase. mAuto.pl moves car sales online, applying traditional e-commerce virtues, such as delivery to home and possibility to return. It is another step in digital transformation of mLeasing, which allows to buy a car online at any time and place, without leaving home.

In 2020 we made available to our customers a new product for financing photovoltaic panels. We have implemented an offer addressed to entrepreneurs from the SME sector. Thanks to it, business owners can successfully reduce electricity bills by up to 70% and use renewable energy sources. Importantly, the company’s initial own contribution to the photovoltaic installation is low. Customers can include leasing installments in tax deductible costs. In the period under discussion, mLeasing completed 198 transactions for a total volume of PLN 20 million. Importantly, we achieved the adopted sales assumptions, despite the difficult economic conditions prevailing in 2020. Clients financing photovoltaic installations in mLeasing additionally benefit from the preferential financing cost under the EBI Climate Action program. The target customers received our product well.

In 2020, mBank Hipoteczny (mBH) issued no mortgage covered bonds. Details concerning the outstanding covered bonds issue are described in chapter mBank Group funding. The following chart presents covered bonds issues completed by in previous years.

In 2020, mBank Hipoteczny based its loan portfolio development on a pooling model in the retail area. We implement it in the formula of close cooperation with mBank, i.e. with the sales being carried out by mBank’s forces. In 2020, 7 pooling transactions were conducted in the retail portfolio, for a total amount of PLN 1,543.4 million. Nevertheless, compared to 2019, mBank Hipoteczny’s loan portfolio decreased. At the end of December 2020, the gross value of the portfolio amounted to PLN 11.5 billion, compared to PLN 11.9 billion at the end of 2019. This translates into a decrease of 2.9%. The transfer of commercial loan sales to mBank from 2019 had a direct impact on the lower value of the portfolio. The slower growth rate of the retail loan portfolio was also important.

The gross profit of the company, excluding pooling, amounted to PLN 20.1 million. It was lower by 67.2% than the result for 2019. There was an over twofold increase in loan loss provisions, which amounted to PLN 46.7 million. They have been caused by the impact of the COVID-19 pandemic. The provisions concern identified defaults in the individual approach and provisions for exposures subject to the portfolio approach.

Lower gross profit resulted also from both the lower value of the loan portfolio and the reduction in interest rates, which translated into a lower net interest income.

In Q1 2020, due to the threat related to the spread of the COVID-19 virus, we introduced new work rules at mBank Hipoteczny. We maintained and adapted them to the requirements of the epidemiological situation until the end of 2020. We kept shifts wherever it was necessary to work in the office on a continuous basis. However, we have introduced limits on the number of people working at the site from a given department/team, with justified exceptions. The crisis management team developed recommendations and kept employees informed of the applicable safety rules. To this end, the team observed the spread of the virus, analyzed the law and the decisions of mBank’s crisis management team.

In parallel, we have developed support measures for both corporate and retail clients. We have made it possible for retail clients to postpone the repayment of principal or principal and interest installments up to 6 months. Customers could conveniently request a deferment of loan instalments with use of an online instruction. We have analysed the support requests of corporate clients individually. From March 16 to December 31, 2020, in the retail portfolio alone, mBank Hipoteczny received requests to use assistance tools from clients representing approximately 10.0% of the portfolio. In terms of commercial loans, we received grace applications for approximately 41.8% of active contracts.

In 2020, despite the pandemic, the company was growing dynamically, breaking new business records. Turnover (the value of purchased invoices) increased by 6.9% compared to 2019. It reached historically high level of PLN 23.8 billion. It was over double pace compared to the dynamics of the entire market, which stood at 3%. As a consequence, we maintained the 5th position among factoring companies in Poland. According to the data of the Polish Factors Association, our market share in 2020 increased to 8.2% from 7.9% in 2019.

In 2020, mFaktoring acquired 143 new clients with limits totalling PLN 282.0 million. New business development was stifled by the restrictions related to the COVID-19 pandemic. The restrictions imposed in mBank Group, applicable as of March 16, 2020, contributed to a drop in acquisition, mainly due to the limitations on the offering of some products and restricted access to financing for selected entities. In July, we modified the credit policy, learning from the experience gathered during the first period of the pandemic. This allowed us to reach a larger group of customers and translated into a gradual rebuilding of the base of new transactions. By the end of 2020 they returned to the regular growth.

mFaktoring joined the BGK program in the area of ​​liquidity guarantees. This program was aimed at customers with a deteriorating financial situation due to the pandemic. It was an additional element supporting our acquisition, which we describe in more details in chapter Corporates and Financial Markets.

During the COVID-19 pandemic, the company performs all processes remotely. In response to the needs reported by some clients, we offer support measures. In particular, we extend payment periods and the recourse period. We have also undertaken a number of activities aimed at strengthening the monitoring of the receivables portfolio. Payment delays in the mFaktoring portfolio are longer than at the beginning of the pandemic. However, it does not translate into a significant risk increase. In the period under review, there were no signals of worse payment discipline of the largest recipients in the mFaktoring portfolio.

The decision to set up provisions for uncollectible receivables also affected the subsidiary’s pre-tax result for 2020. It needs to be stressed that the provisions are not connected with the COVID-19 pandemic. As a result, the pre-tax profit of mFaktoring recognised in the mBank S.A. Group IFRS Consolidated Financial Statements 2020 amounted to PLN 12.6 million v. PLN 25.3 million in 2019.