An important external factor affecting the decrease in the level of interest income, expenses and interest result was the policy of the National Bank of Poland (NBP) in terms of shaping basic interest rates. In 2020, in order to counteract the negative economic effects of the coronavirus pandemic, the Monetary Policy Council, in its decisions of 17 March, 8 April and 28 May 2020, reduced the NBP interest rates (for the reference rate from 1.5% to 0.1%).
The changes did not have a material impact on the result of the first quarter of 2020 (the first of them came into force as of 18 March) but – due to their scale – they influenced the interest result in the following quarters of 2020. The decrease in market interest rates translated directly into lower profitability of credit products, which was particularly visible in Q2 and Q3 2020. As a result of the Group’s pricing policy changes, this trend was reversed in the last quarter of 2020.
An additional factor affecting the reduction of interest income in 2020 as compared to 2019 was also the recognition in the profit and loss account of settling the fair value adjustment for the Phase I loan portfolio acquired within the RBPL Core Business. In 2020, the positive impact of this settlement was PLN 40,299 thousand (of which in the first quarter of 2020: PLN 13,431 thousand, in the second quarter of 2020: PLN 11,666 thousand, in the third quarter of 2020: PLN 9,439 thousand and in the fourth quarter of 2020: PLN 5,764 thousand), while in 2019, it was PLN 96,885 thousand (decrease in revenue by PLN 56,586 thousand y/y).
Interest income in 2020 was also negatively impacted by commission refunds on early repayments of Customer loans made after 11 September 2019 (CJEU judgment) in the amount of PLN 39.6 million compared to PLN 18.6 million in 2019 (in Q4 2020: PLN 10.6 million, in Q3: PLN 4.9 million, in Q2: PLN 12.2 million, in Q1: PLN 11.8 million, in Q4 2019: PLN 15.1 million, in Q3 2019: PLN 3.5 million).
As a result of the factors described above, the average credit margins realised in 2020 were lower than in 2019.
The level of interest income was positively affected by the optimisation of financing costs carried out primarily in Q2 and Q3 2020. The adjustment of deposit prices to the changed market environment allowed the decline in interest income on credit products to be partially neutralised.
Among the factors that had a positive impact on the level of interest income in 2020, one should also mention the increase in the scale of operations and, consequently, the increase in the average value of the loan portfolio and the securities portfolio (interest income from debt instruments measured at amortised cost and at fair value increased in the analysed period by a total of PLN 69,419 thousand, i.e. by 10.5%).
As at the end of 2020 the Group applied fair value hedge accounting. The change in fair value measurement of hedging transactions is recognized in the result on hedge accounting. Interest on IRS transactions and hedged items is recognized in the interest result.
Net interest income on hedging relationships (the sum of interest income and interest expense on derivatives under fair value hedge accounting) amounted in 2020 to PLN 77,121 thousand compared to PLN 34,797 thousand in 2019 (an increase of PLN 42,324 thousand, or 121.6%).