Summary of ESG Strategy implementation in 2022

Key strategic goals

Strategic goals of Bank Pekao	2021	2022	Target
Strategic goals of Bank Pekao	Implementation		Target
Financing of sustainable projects (PLN bn)	0.9	4.3	>8
Support for ESG bonds issue by our clients (PLN bn)	5.9	8.0	>22
Increase in the number of hours worked as part of volunteering	6,531	8,432	>5,500
Gender pay gap	37.90%	35.90%	<35% (-5%)

The „Customer” Pillar

Bearing in mind the priorities defined in the strategic pillar „Customer”, we carried out intensive work on the development of the functionality of digital service channels, with particular emphasis on mobile banking for retail customers. In 2022, we introduced a number of new solutions in electronic banking Pekao24, PeoPay and PeoPay Kids.

On the Pekao24 website and the PeoPay application implementations included:

payments for car parks in paid parking zones,
purchase of a public transport ticket,

shortcuts widget – personalized look of the website,
suggested payment options, execution of transfers with a future date, the possibility of renewing the transfer directly from the history of operations, presentation of the status of impaired payments,
notifications about receipts – the ability to enable PUSH notifications in PeoPay or SMS,
a new widget on the PeoPay desktop that shows investment products
access to the PeoPay application for clients of the Brokerage House who have the Pekao24Makler service and do not have an account at the Bank.
an updated application for the 300+ benefit adjusted to the new requirements,
applications for the 300+ benefit and Family Care Capital for Ukrainian citizens,
application for government loan holidays – suspension of mortgage repayments,

As part of Open Banking, we have expanded the service (the so-called AIS) of access to information on payment accounts maintained by other banks, such as: balance and transaction history. Access to accounts from other banks makes it easier to apply for a loan, overdraft or credit card, allows you to track account balances and order transfers from accounts in other banks.

The number of active mobile customers in relation to the current accounts number was 57% at the end of 2022 (+2,9 p.p. compared to December 2021), which brings the Bank closer to achieving the strategic aspiration of at least 60% in 2024. In addition, the sale of cash loans in remote channels (measured by the share in the number of products sold) increased and at the end of 2022 amounted to 78% compared to 61% in the previous year. Bank Pekao has also started to implement a new CRM system, which is the first such comprehensive CRM implementation in the public cloud in Polish banking sector. With the support of a real-time data processing platform, advanced analytics and cloud solutions, Omnibank CRM will provide customers with the most relevant offers and messages.

57%

The number of active mobile customers at the end of 2022

The „Growth” pillar

In 2022, we consistently carried out activities aimed at strengthening our position in the highest profitable segments, i.e. consumer finance, micro-enterprises, SMEs and MID enterprises.

The goal in the area of current accounts (CAs) acquisition of individual clients set out in the Strategy at the level of min. 400 thousand CAs annually was achieved. In 2022, 554 thousand CAs were opened (+111 thousands more than the year before).

554

ths

Current accounts in 2022

Implementing our strategic assumptions, we increased the acquisition of young customers ( below 26 years of age) by 38% y/y, which was possible thanks to new solutions in the offer (e.g. the first loan in Poland for medical studies with a repayment guarantee by BGK, Traveller’s Package for students studying abroad , an account with a gaming package), as well as the development of PeoPay Kids functionality. In 2022, despite challenges related to the economic environment, we recorded a positive dynamics of sales of cash loans by +56% as compared to 2021.

The growth dynamics in terms of credit sales for micro-enterprises reached +38% y/y. In line with the Strategy, the Bank leveraged business synergies with the PZU Group, developing its product offer (including a new insurance and savings product: Pewny Profit and an insurance package for the new credit card) and digitizing subsequent processes.

Thanks to effective business activities aimed at strengthening the existing and building new competitive advantages in the SME segment, we have consistently strengthened the Bank’s position on this market. We offer our clients a wide, comprehensive range of products and services. such as bank loans, leasing, factoring, arranging issues of debt securities and other specialized forms of financing.

We systematically expand our offer with new solutions. In 2022, among others:

As the only commercial bank in Poland, we have signed a portfolio guarantee agreement with the Pan-European Guarantee Fund (PFG), which enables loans to be granted on exceptionally favorable terms.
under the Open Funding Platforms (OPF) program, we made financing programs available to entities from other countries (such as Turkey, Bangladesh, China)
we signed an agreement with the Export Credit Insurance Corporation (KUKE), which enables KUKE to guarantee the repayment of up to 80% of the value of loans granted by the Bank to exporters for their investments in Poland.

There was a significant acceleration in acquisition in this group of clients – the assumed strategic aspiration at the level of min. 2,200 new clients annually the Bank achieved after 9 months of the year. At the end of 2022, the value of the loan portfolio in the SME segment was higher by +23% y/y, while in the MID segment it was higher by +14% y/y. From the strategic perspective, an important parameter is also the generated revenue per customer. In 2022, thanks to effective sales activities and the increasing number of products per customer, we recorded an increase of revenue per customer in both of the above segments.

The „Efficiency” pillar

One of the strategic directions defined in the „Efficiency” pillar is the acceleration of digitalization and migration of processes to remote channels, which includes not only retail banking customers, and the development of the PeoPay mobile application (as mentioned in the „Customer” pillar section), but also digital services for corporate customers. We have continued to develop the self-service zone for corporate clients in the PekaoBiznes24 electronic banking, providing clients with new processes, including submitting applications in the field of Treasury. We also introduced PeoBIZ – a new mobile application for companies with access to the PekaoBiznes24 electronic banking system. PeoBIZ works on both tablets and mobile phones and uses biometric technology. The development of remote distribution channels was accompanied by improvement in the effectiveness of the Bank’s branch network. In 2022, the Bank reduced its branch network by 53 units. At the end of the year, the branch network consisted of 515 own branches and 82 partner branches. We have raised the level of robotization and automation in the area of the bank’s operations. The number of operations performed by robots, which increased by over 59% y/y.

Our priorities also include improving the efficiency of credit processes. We implement processes related to the optimization and increasing the use of analytical tools in credit processes in every customer segment. In 2022, there was a decrease in a significant ratio in this respect, i.e. the time to credit decision. For example, in the case of mortgage loans, the improvement was 5 business days compared to 2021, while MID financing is provided for 60% of applications in 2 business days less.

The „Responsibility” pillar

We care about maintaining a safe risk profile in a changing market environment. Throughout 2022, the cost of risk amounted to 1.12 bps, while maintaining a high level of NPL coverage. At the same time, a significant capital surplus above the regulatory minimum was maintained, i.e. the Tier 1 ratio reached 17.4%.

17.4%

Total Capital Ratio (TCR)

In June 2021, the Bank adopted and announced the ESG strategy for 2021-2024, defining the goals connected to caring for the natural environment, supporting the development of the economy and society, and the bank’s sustainable development. The effects of its implementation were presented in the non-financial report for 2022. In particular, the Bank is even more involved in the energy and ecological transformation of Poland and environmental protection, including active participation in the development of renewable energy sources (RES) sector in Poland, offering and organizing the issue of sustainable development bonds (ESG).

Implementation of ESG Strategy

Environment

	2021	2022	2024
	Implementation		Target
Amount of new sustainable project financing (PLN bn)	0.9	4.3	>8
Support for ESG bonds issue by our clients (PLN bn)	5.9	8.0	>22
Share of green financing in the Bank’s portfolio (%)	4.1	4.6	>4
Share of high-carbon financing in the Bank’s portfolio (%)	1.2	1.4	<1

Commitment

	2021	2022	2024
	Implementation		Target
Increase in the number of hours worked as part of volunteering	6,531	8,432	>5,500
Digitisation ratio (%)	57	69	~100%

Corporate Governance

	2021	2022	2024
	Implementation		Target
Gender pay gap %	37.9	35.9	<35

ESG Bank ratings
	2021	2022
MSCI ESG Ratings	A	BBB
Bloomberg Gender-Equality Index	79/100	79.9/100
Vigeo Eiris	47/100	47/100
FTSE4 Good Russell	3.1	3.3
Sustainalytics	29.1 Medium risk	26.5 Medium risk

Strategy execution in 2022

Key strategic goals:

Strategy of Bank Pekao S.A. for 2021-2024 was developed in an environment of historically low interest rates. A series of interest rate increases that have taken place since then (increase in the reference rate from 0.1% at the beginning of 2021 to 6.75% in 2022) has had a significant impact on the growth trajectory of the Bank’s net interest income in 2022. in relation to strategic assumptions.

The Bank's financial results in 2022 were also affected by a number of one-off events, i.e.:

recognition of the cost related to the modification of PLN mortgage loan agreements granted to consumers due to the suspension of their loan repayments at the amount of PLN 1.958 million,
creation of the provisions for legal risk regarding foreign currency mortgage loans in CHF, in the amount of PLN 1.598 million,
recognition of fee paid for the Protection Scheme the members of which are banks operating in the form of a joint-stock company at the amount of PLN 482 million,
incurring the costs of additional contributions to the Borrowers Support Fund amounted to PLN 169 million,
creation of the provisions for reimbursement customers of increased margins on mortgage loans before establishing a mortgage in the amount of PLN 112 million.

In 2022, the number of active mobile banking users was steadily growing. At the end of the year it amounted to 2.8 million compared to 2.0 million at the beginning of the Strategy horizon. The ongoing digitization of services translated into an increase in the total digitization rate from ~50% at the beginning of the Strategy horizon to 69% in 2022.