67. Information on securitization of lease portfolio and portfolio sale of receivables

The SPV, ROOF Poland Leasing 2014 DAC with its registered office in Ireland is a buyer of securitized receivables arising from lease agreements sold by Raiffeisen-Leasing Polska SA (currently: PKO Leasing SA) as part of the securitization programme which started in December 2014. The receivables acquired by the SPV were financed by an issue of securities. The objective and benefit of selling these receivables to the SPV was to obtain and diversify sources of long-term financing.

Polish Lease Prime 1 DAC with its registered office in Ireland is a SPV established to service leasing securitization carried out under PKO Leasing S.A.

There are no capital connections between ROOF Poland Leasing 2014 DAC and Polish Lease Prime 1 DAC. The SPVs were established in accordance with the regulations of Irish company law in the form of Designated Activity Company (DAC), i.e. a capital company with the right to perform only activities specified in the founding act. The founding acts of aforementioned SPVs indicate the conclusion of financial transactions, including securitization, in the scope of their operations.

PKO leasing acts as the originator of securitization of leasing receivables, and Roof Poland Leasing 2014 DAC and Polish Lease Prime 1 DAC act as a special purpose unit for securitization purposes.

The establishment of an entity independent from the entity initiating securitization is a market standard resulting from the expectations of all business partners, especially investors and banks providing financing. Such approach allows to separate the originator’s credit risk, in this case PKO Leasing SA, from the portfolio credit risk of receivables, which are collateral for bonds issued by special purpose vehicles. The contractual framework for the operation of special purpose vehicles has been created to protect the interests of all parties of the securitization transaction. As a rule, SPVs are managed in accordance with the provisions resulting from the contracts constituting the basis for securitization.

In accordance with IFRS 10, PKO Leasing SA exercises control over abovementioned companies, although it does not have a capital share in them.

In September 2019, PKO Leasing SA conducted securitization of lease receivables with the value of PLN 2 500 million. On 26 September 2019, the Company sold lease receivables to the special-purpose vehicle Polish Lease Prime 1 Designated Activity Company (Polish Lease Prime 1 DAC) with its registered office in Dublin (Ireland). The receivables purchased by the SPV were financed mainly with an issue of securities (bonds) conducted on 26 September 2019 with the redemption date falling on 28 December 2029 and with funds obtained as part of the PKO Leasing SA Group. Bonds with a nominal value of PLN 1 835 million were taken up by entities from outside the PKO Bank Polski SA Group. The objective of and benefit from selling these receivables to the SPV was to obtain and diversify sources of long-term financing.

The redemption of debt securities in 2019 according to their nominal value totalled PLN 491 million, including PLN 153 million redeemed on 2 January 2019, PLN 134 million redeemed on 2 April 2019, PLN 110 million redeemed on 2 July 2019 and PLN 94 million redeemed on 2 October 2019.

The redemption of debt securities in 2018 according to their nominal value amounted to PLN 70 million redeemed on 2 January 2018, PLN 204 million redeemed on 3 April 2018, PLN 178 million redeemed on 2 July 2018 and PLN 165 million redeemed on 2 October 2018.

As at 31 December 2019, securitized lease receivables amounted to PLN 2 723 million. As at 31 December 2018, securitized lease receivables amounted to PLN 688 million.

Carrying amounts of the financial assets and financial liabilities covered by securitization are presented in the table below:

Moreover, in 2019 the Group performed sales of impaired loan portfolios (balance sheet and off-balance sheet receivables) of more than 1.7 thousand individual receivables from retail and business customers amounting to approximately PLN 1 790 million (PLN 1 380 million in 2018). The total carrying amount of the provisions for potential claims on the sale of impaired loan portfolios as at 31 December 2019 amounted to PLN 2 million (as at 31 December 2018 it was PLN 2 million). As a result of the sale of the receivables all risks and rewards were transferred, as a result of which the Group stopped recognizing these assets.

The Group did not receive any securities as a result of these transactions.