Regulatory and legal environment
New legal and regulatory solutions, and judgments of the European Court of Justice affected the financial results and operations of the bank's Group and the entire financial sector. Legal solutions that came into effect in 2019 are listed below:
Annual Report
2019
2019
| SOLUTION | IMPACT |
|---|---|
| Loans in convertible currencies and early repayment of loans |
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| Judgment of the Court of Justice of the European Union (EUCoJ) of 3 October 2019 related to foreign currency housing loans of households and defining the line of interpretation in the case of national courts finding abusive clauses in loan agreements. | Impact on financial results – recognition of costs related to the legal risk of foreign currency mortgage loans |
| Judgment of EUCoJ of 11 September 2019 and the position of the Financial Ombudsman and the President of the Office for Competition and Consumer Protection (UOKiK) regarding the interpretation of Article 49 of the Act on consumer loans, in respect of a proportionate refund of costs relating to a loan in the event of prepayment. | Impact on financial results – reimbursement of part of comission to Customers |
| Charges on behalf of the BGF |
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| The resolutions of the BGF Board from February 2019 (9/2019 and 11/2019), which implemented a change in the charge payable by the banking sector to the system for the protection of deposits and mandatory restructuring by approx. +27% in total. | Increase in operating expense, profit, profitability |
| Prudential and capital requirements |
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| The Act on macro-prudential supervision of the financial system and crisis management (Journal of Laws of 2017, item 1934, as amended), which, among other things, as of January 2019 increased the conservation buffer from 1.875% to 2.5%. | Increase in the minimum capital adequacy ratio |
| Regulation of the Minister of Finance, Investments and Development of 3 October 2019 on the materiality level of outstanding loan liabilities (Journal of Laws of 2019, item 1960). | Impact on capital requirements and the level of write-downs |
| New accounting standard |
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| IFRS 16, which introduced new principles for identifying and recognizing leases in the lessees’ books of account as of 1 January 2019; in effect of which the division between operating and finance leases disappeared. | Increase in total assets, increase in debt ratios, decrease in capital ratios |
| Investment funds |
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| Regulation of the Minister of Finance dated 13 December 2018, which introduced the maximum amount of the investment fund management company’s fixed fee for managing an open-ended investment fund or a specialist open-ended investment fund (Journal of Laws of 2018, item 2380); The introduction of the fee limit was distributed over the years 2019-2021. In 2020, the maximum value of the fee may not exceed 3% of net assets (in 2019, the limit was 3.5%). | Limitation of revenue of investment fund management companies |
| Act on Employee Capital Funds of 4 October 2018 (Journal of Laws of 2018, item 2215), which, as of 1 July 2019, introduced an additional, voluntary system of long-term savings for pension purposes. | Increase in the scale of operations and impact on the level of revenue and costs of investment fund management companies |
| Leases | |
| The Act of 23 October 2018 amending the Personal Income Tax Act, the Corporate Income Tax Act, the Tax Code and certain other acts, which introduced tax changes to PIT and CIT taxation of leases and the use of passenger cars (Journal of Laws of 2018, item 2193). | Impact on business activities |
| Issue of mortgage covered bonds and bonds |
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| Act of 9 November 2018 on amendments to certain acts in connection with reinforcing supervision over the financial market and on protecting investors on that market (Journal of Laws of 2018, item 2243), which introduced, as of 1 July 2019, changes to the scope of the dematerialization of mortgage covered bonds and bonds, and to the registration of those securities. | Change in the structure of business volumes |
| PSD2 | |
| Act of 10 May 2018 amending the Act on payment services and certain other acts (Journal of Laws of 2018, item 1075), aimed at aligning the national regulations on providing payment services with the Directive of the European Parliament and of the Council (EU) 2015/2366 of 25 November 2015 on payment services in the internal market. | Change in the business model |
| Consumer bankruptcy |
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| Act of 30 August 2019 amending the Bankruptcy Law Act and certain other acts, which introduced new solutions that eliminated the existing weaknesses of the consumer bankruptcy solutions aimed at further simplification and acceleration of that process. | Impact on the course of the debt collection process and level of recovery |
| Sealing the tax systems |
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| Amendments to the Act on exchange of tax information with other countries (Journal of Laws of 2019, item 648, as amended), which obliges banks, brokerage houses, investment funds, insurance companies to accept tax residency declarations from Customers that had opened accounts with the entities in the period from 1 January 2016 to 30 April 2017. | Increase in operating expenses |
| Changes in taxes |
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Act of 23 October 2018 amending the Personal Income Tax Act, the Corporate Income Tax Act, the Tax Code and certain other acts (Journal of Laws of 23 November 2018), which introduced, as of 1 January 2019, among other things:
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Diverse impacts on financial results and increase in operating expenses |
| Act of 23 October 2018 amending the Personal Income Tax Act, the Corporate Income Tax Act and certain other acts (Journal of Laws 2018, item 2159), changed the principles for accounting for expenses on passenger cars as tax-deductible (came into force as of 1 January 2019). | Diverse impacts on financial results and increase in expenses |
| Act of 4 April 2019 amending the Act on exchange of tax information with other countries and certain other acts (Journal of Laws of 2019, item 694) waived, as of 30 April 2019, the obligation of banks to prepare and transfer to the Chief of the National Revenue Administration information about opened and closed bank accounts connected with conducting business activities (data only reported in the STIR system). | Reduction in the number of operating obligations |
| Act of 30 August 2019 amending the Personal Income Tax and the Act amending the Personal Income Tax Act and certain other acts (Journal of Laws of 2019, item 1835) modified, as of 1 October 2019, the taxation of, among other things, revenue from a service relationship, employment relationship by reducing the tax rate, increasing tax-deductible costs and changing the amount by which tax is reduced. | Increase in the number of operating tasks |
| Act of 4 July 2019 amending the Personal Income Tax Act, the Act on family benefits, and the Act on healthcare benefits financed from public funds (Journal of Laws of 2019, item 1394) exempted from taxation income received by taxpayers up to 26 years old, among other things, from employment relationships and contracts of mandate. | Increase in the number of operating tasks |
| Act of 9 August 2019 amending the Act on tax on goods and services (VAT) and certain other acts (Journal of Laws of 2019, item 1751) introduces as of 1 November 2019 an obligation to apply a split payment mechanism in payments made for specific types of goods and services (listed in Appendix No. 15 to the VAT Act) documented with an invoice with a total amount of at least PLN 15 thousand. Failure to comply with these obligations is related in particular to the risk of joint and several liability of the purchaser and the supplier for the tax specified in the invoice, the potential risk of fiscal penal liability, inability to include the expense in tax-deductible costs, and the possibility of an additional tax liability being charged. | Increase in the number of operational actions, adaptation of Customer applications |
| Act of 16 October 2019 on amending the Act on public offering and conditions for introducing financial instruments to the organized trading system and on public companies, and certain other acts (Journal of Laws of 2019, item 2217) as of 30 November 2019, excludes from taxation with CIT revenue earned in transactions of merging closed-end investment funds, provided that the privileged tax regulations do not apply when the main or sole purpose of the merger is to avoid or evade taxation. | Diverse impact on financial results and increase in expenses |
| Act of 16 October 2019 on determining disputes related to double taxation and concluding advance pricing arrangements (Journal of Laws of 2019, item 2200) defines the procedure for issuing advance pricing arrangements and implements solutions related to the mechanisms of solving disputes related to double taxation (the regulations apply as of 29 November 2019). | Increase in the number of operating activities when new solutions are used |
The legal solutions implemented in Ukraine (where the subsidiary KREDOBANK SA operates) also had an impact on the operations and results of the Group:
| SOLUTION | IMPACT |
|---|---|
| Change in base interest rates | |
| Decision of the Management Board of the Central Bank of Ukraine (NBU) No. 199/2019, in which the discount rate was maintained at 18% and decisions of the NBU: No. 311/2019, No. 393/2019, No. 493/2019, No. 645/2019, No. 797/2019, No. 925/2019, under which the discount rate was gradually reduced to 13.5% in December 2019. | Impact on banks’ net interest income and their returns |
| New accounting standard IFRS 16 |
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| NBU Decisions Nos 22/2019 and 51/2019 on the gradual transition to the new IFRS 16 and therefore the use of new lease identification and recognition principles, as a consequence of which, among other things, leases will no longer be classified as finance operating leases. | Increase in total assets, increase in debt ratios, decrease in capital ratios |
| Liquidity | |
| NBU Decision No. 158/2019 of 24 December 2019 “On introducing the net stable financing ratio (NSFR)”, in which a new prudential standard for Ukrainian banks was adopted. | Impact on liquidity management |
| Risk | |
| NBU Decision No. 130/2019 of 7 November 2019, based on which the deadline for banks to adapt their regulatory capital and share capital to UAH 300 million, by 1 January 2021.
NBU Decision No. 132/2019 of 7 November 2019, based on which the principles for assessing the credit risk of securities were introduced. NBU Decision No. 147/2019 of 5 December 2019, which simplifies the terms and conditions for granting loans by banks to individuals-entrepreneurs. In order to assess individuals who are entrepreneurs, banks will be allowed to use the portfolio approach. This principle will apply to all loans up to UAH 5 million. NBU Decision No. 156/2019 of 27 December 2019 and No. 157/2019 of 24 December 2019 in respect of the procedure for determining the minimum amount of operating risk and taking it into account in the calculation of capital ratios. |
Impact on the management of risk and capital |
| Currency management |
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| NBU Decision No. 148/2019 of 10 December 2019 related to determining the official UAH exchange rate to foreign currency and introducing changes in the foreign currency and bank metals classification matrix, according to which NBU will publish official the daily exchange rate of the hryvna against all foreign currencies. | Impact on business activities and results of banks |