Important factors influencing the Group's activities and results
In 2014, the Group's activity was to large extent determined by the macroeconomic situation in Poland and abroad as well as by the trends observed in the banking sector.
Polish economy continued initiated in 2013 recovery, thanks to consumption strengthening and investments pick-up. Despite good export growth, due to the escalation of conflict in Ukraine, Russian embargo on Polish food and economic slowdown in the Eurozone, mainly in Germany, the contribution of net exports to the GDP growth for the first time since the fourth quarter of 2010 was negative. The estimated GDP growth rate amounted to 3.3%, comparing to 1.7% in 2013, with a slightly weaker growth rate in the second half.
In response to the persistent deflation and a slowdown in economic activity in the second half of the year, the Monetary Policy Council decided in October 2014 to reduce the reference rate by 50 b.p. to the level of 2.0%, and the NBP Lombard rate by 100 b.p. to the level of 3.0%, which had a negative impact on net interest margin in the banking sector and consequently on the dynamic of the net interest income. At the same time, an increase in the treasury bond prices and pressure on the interest rates cut allowed the banks to realise gains on the bond sale and partially offset the negative impact of lower interest rates on the net interest income.
The economic recovery in the historically low interest rates environment fostered lending activity growth. Household lending growth rate accelerated to 5.5% year on year from 4.5 year on year in 2013. PLN denominated mortgage sales was supported by record low interest rates, stabilisation in residential property prices and the government program "Mieszkanie dla Młodych" and improvement in labour market. The demand for corporate loans grew rapidly due to the economic upturn and commence of investments. Small and medium-sized enterprises lending was supported by the government program "De minimis" (Portfel Linii Gwarancyjnej de minimis). The increase in corporate loans amounted to 8.8% year on year comparing to 1.5% year on year in the previous year.
Household deposits growth accelerated to 8.9% year on year from 5.6% in the previous year, due to the real wages increase and low risk appetite. An interest in alternative forms of funds allocation, including investment funds, due to the increase of stock market uncertainty driven by the pension funds reform (OFE) and geopolitical risk, was low. Customers who decided to allocate funds to the investment products, usually selected products with capital protection or funds with lower risk (money market funds, bond funds). Corporate deposits growth was close to the last year level (9.4% year on year) driven by good financial results of enterprises. Non-monetary financial institutions deposits decreased as a result of pension fund reform and transfers of funds from OFE to ZUS.
The positive effect of increased scale of operations was partially diminished by interest rates cut and regulatory changes. Bank Guarantee Fund introduced in the fourth quarter of 2013 prudential charge for stabilization fund. Since July 1, 2014, cards interchange fee rate was reduced to the level of 0.5%.
Low interest rates and growing regulatory pressure on the banking sector profitability resulted in the increase of fees and commissions charged to customers by some banks, in particular in the case of low clients' activity.
The Banks actively compete for customers, offering a wide range of products and high service quality adjusted to the changing customers' needs and expectations. The Banks continued to implement new technologies, including remote access channels, in particular mobile banking and mobile payments.
Thanks to the progressing economic recovery and improvement in the labour market, asset quality has improved significantly in most of the segments of economy.
The results of the assets quality review (AQR) and stress tests conducted by the Financial Supervision Commission in accordance with the ECB methodology, confirmed stability and credibility of the Polish banking sector, its capital strength and resistance to shock scenarios.