Letter from the Supervisory Board Chairman

2022 was supposed to be a return to economic normality after economic activity collapsed in 2020 under the impact of the Covid-19 pandemic, followed by a spectacular rebound a year later. Ultimately, 2022 had little to do with normality. Russia’s invasion of Ukraine, stubbornly high inflation, driven largely by record energy prices, and the highest interest rates in years have made the conditions for economic growth in Poland less predictable and stable. They have influenced the lives of Poles and changed the climate for doing business and investing in many markets, including Poland. However, the scale of the slowdown of our economy was not drastic. Thanks to the strong economy in the first half of the year, Poland’s GDP increased by around 5% throughout 2022 and the registered unemployment rate remained at levels at the lowest level in 30 years, slightly above 5% at the end of the year.

The big negative of last year was the rapid rise in inflation. The average annual inflation rate in 2022 was 14.4%. In October 2022, it reached a record 17.9% for the same period last year and was the highest in 26 years. At the end of the year, it declined slightly in December and stood at 16.6% y/y. Record-breaking inflation was not just a problem for Poland. In the US, consumer inflation reached a 40-year high of 9.1% in June 2022, after which it began a gradual decline. In the euro zone, it exceeded 10% y/y in autumn. Even in Japan, it reached a 31-year high of 3.8%. In order to stifle high inflation, the Monetary Policy Council continued its cycle of interest rate rises in 2022. As a result, the benchmark interest rate rose to its highest level in 20 years and stood at 6.75% at the end of the year. The last hike in this monetary tightening cycle was in October 2022.

The situation on the currency market was also changing dynamically. The zloty has weakened against the world’s major currencies particularly since the outbreak of war in Ukraine, although it had already been losing heavily against the dollar or the Swiss franc for several years, and Russia’s armed aggression in Ukraine has only exacerbated this trend. The first days of March 2022 were the most worrying, when the threat of an escalation of the war and Europe’s sudden cut-off from raw materials from Russia, as well as a general outflow of capital to so-called safe havens, caused the dollar, Swiss franc and euro to surge.

The banking sector also faced numerous challenges. The unfavourable legal and regulatory environment has translated into deterioration in bank performance. Noteworthy regulatory burdens include the government’s Universal Credit Vacation programme (in Q3 2022 alone, its estimated negative impact on revenues is PLN 12.8 billion, with an average 66% client participation), the bank tax, contributions to the Bank Guarantee Fund, among others. In addition, last year banks contributed contributions to the new Commercial Bank Protection Scheme, which provided the PLN 3.47 billion of support needed to safely implement the forced restructuring of Getin Noble Bank. It is also important to remember the additional contributions to the Borrower Support Fund, which amounted to PLN 1.4 billion on a sector-wide basis. In this context, however, the capital adequacy ratios of most banks remained at safe levels, above supervisory standards.

Despite a number of unfavourable external factors, the ING Bank Śląski S.A. Group has consistently pursued its client-focused business strategy. It is worth emphasising that the group is aware of its impact on its surroundings and approaches it with full responsibility. Climate change and environmental issues, social issues and corporate governance (“ESG”) are integral to the Bank’s long-term strategy and identity. This approach is also reflected in the bank’s offering of sustainable financial solutions for both retail and corporate clients.

Last year, ING Bank Śląski Group’s consolidated net profit amounted to PLN 1,714.4 million, compared to PLN 2,308.3 million in 2021. The Group increased its loan and deposit portfolio while maintaining good asset quality and maintaining a strong capital and liquidity position. The corporate segment’s share of loans rose to 13.15 per cent and the retail loan market share to 9.02 per cent, meaning that the value of loans compared to 2021 increased by 7 per cent to PLN 156.4 billion.

In 2022, the Group acquired 35,000 retail segment clients and 30,000 corporate segment clients. In total, by the end of 2022, the Group served 4.4 million retail clients and reached 533,000 companies in corporate banking.

As at 2022 yearend, the total capital ratio stood at a safe level of 15.23%.

The Group consistently remains one of the most profitable banking groups in Poland.

Last year, the Supervisory Board was involved in all decisions of fundamental importance to the ING Bank Śląski Group. We monitored the Bank’s risk management, liquidity and capital adequacy areas with particular attention. We supervised the implementation of internal audit and Compliance tasks. In addition, among the areas monitored were the relationship with the external auditor, the HR and payroll area, the implementation of recommendations issued by supervisory authorities and issues in the area of Bank management. As in previous years, members of the Supervisory Board were part of the Audit Committee, the Risk Committee and the Remuneration and Nomination Committee.

On behalf of the Supervisory Board, I would like to thank all the Employees and Members of the Management Board for another challenging year, for their commitment and professionalism in building the Group’s scale of operations and value, and the Shareholders and Clients for the trust they have placed in us, which is the best motivation for us to continue our effective work. I am confident that the commitment of the Staff team and the Colleagues on the Management Board will enable us to achieve our ambitious goals in 2023.

With the utmost respect,

Aleksander Galos

Chairman of the Supervisory Board