Raport.

ALIOR BANK SA Raport okresowy półroczny za 2018 PSr

WYBRANE DANE FINANSOWE w tys. w tys. EUR półrocze / 2018 półrocze /2017 półrocze / 2018 półrocze /2017 Wynik z tytułu odsetek 1 499 801 1 385 668 353 768 326 239 Wynik z tytułu opłat i prowizji 214 209 223 227 50 527 52 556 Wynik handlowy i pozostały 279 844 184 527 66 009 43 445 Wynik z odpisów na straty oczekiwane, odpisów aktualizujących z tytułu utraty wartości i rezerw -509 245 -467 699 -120 119 -110 114 Koszty działania -886 253 -1 002 059 -209 047 -235 923 Zysk brutto 495 455 224 936 116 866 52 959 Zysk netto 359 973 161 959 84 909 38 131 Przepływy pieniężne netto 415 794 1 158 334 98 076 272 716 Należności od klientów 52 674 334 49 079 354 12 076 837 11 612 292 Zobowiązania wobec klientów 59 645 174 51 720 570 13 675 067 12 237 210 Kapitał własny 6 336 463 6 341 914 1 452 784 1 500 512 Aktywa razem 70 538 243 61 858 805 16 172 561 14 635 941 Wybrane wskaźniki Zysk na jedną akcję zwykłą 2,78 1,25 0,66 0,30 Współczynnik wypłacalności 15,43% 13,65% 15,43% 13,65% Tier 1 12,20% 11,54% 12,20% 11,54%

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    1
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018








    The Management Board's Report on
    operations of the Alior Bank S.A.
    Capital Group
    for the first half of 2018





    This version of our report is a translation from the original, which was prepared in Polish language. All possible care has b een taken to
    ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of infor mation, views or
    opinions, the original language version of our report takes precedence over this translation.






    2
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Table of content
    I. Summary of operations of Alior Bank S.A. in the first half of 2018 ................................ ................................ ....................... 3
    Distribution network and employment level ................................ ................................ ................................ .............................. 4
    Core financial data ................................ ................................ ................................ ................................ ................................ ........... 5
    Evaluation of the operations of the Alior Bank S.A. Capital Group ................................ ................................ ....................... 6
    Factors affecting Alior Bank's operations in the perspective of the coming months ................................ ........................ 6
    II. Information for Investors ................................ ................................ ................................ ................................ ....................... 7
    Listing of Alior Bank shares on the Warsaw Stock Exchange in the first half of 2018 ................................ ........................ 7
    Rating ................................ ................................ ................................ ................................ ................................ ................................ .. 8
    III. External conditions to the Bank's functioning ................................ ................................ ................................ ...................... 9
    Poland's economic growth ................................ ................................ ................................ ................................ ............................ 9
    IV. Core structural and financial data of Poland's banking sector in January -May 2018 ................................ ...................... 16
    Core structural details ................................ ................................ ................................ ................................ ................................ ....16
    Selected profit and loss account items ................................ ................................ ................................ ................................ ....... 16
    Loans and deposits ................................ ................................ ................................ ................................ ................................ ......... 17
    Equity and capital ratios ................................ ................................ ................................ ................................ ................................ . 17
    V. Financial results of the Alior Bank S.A. Capital Group ................................ ................................ ................................ ........ 18
    Profit and loss account ................................ ................................ ................................ ................................ ................................ ...18
    Net result on impairment allowances ................................ ................................ ................................ ................................ ........ 22
    Balance Sheet ................................ ................................ ................................ ................................ ................................ .................. 22
    Contingent liabilities ................................ ................................ ................................ ................................ ................................ ...... 29
    Financial projections ................................ ................................ ................................ ................................ ................................ ...... 30
    VI. Business activities of Alior Bank S.A. ................................ ................................ ................................ ................................ .. 31
    Retail segment ................................ ................................ ................................ ................................ ................................ ................. 31
    Business segment ................................ ................................ ................................ ................................ ................................ ........... 40
    VII. Operations of the companies in the Alior Bank S.A. Capital Group ................................ ................................ ................ 48
    VIII. Events that are material to the operations of the Alior Bank S.A. ................................ ................................ ................... 52
    IX. Issues of bonds by Alior Bank S.A. ................................ ................................ ................................ ................................ .... 54
    X. Risk report of Alior Bank S.A. ................................ ................................ ................................ ................................ .............. 55
    Market risk ................................ ................................ ................................ ................................ ................................ ....................... 56
    Interest rate risk ................................ ................................ ................................ ................................ ................................ .............. 56
    FX risk ................................ ................................ ................................ ................................ ................................ ................................ 59
    Liquidity Risk ................................ ................................ ................................ ................................ ................................ .................... 60
    Credit Risk ................................ ................................ ................................ ................................ ................................ ........................ 63
    Operational Risk ................................ ................................ ................................ ................................ ................................ ............. 68
    Model risk ................................ ................................ ................................ ................................ ................................ ........................ 69
    XI. Internal control system ................................ ................................ ................................ ................................ ................ 71
    Share capital structure ................................ ................................ ................................ ................................ ................................ .. 73
    Shareholders of Ali or Bank S.A. ................................ ................................ ................................ ................................ .................. 74
    XIV. Governing Bodies of Alior Bank S.A. ................................ ................................ ................................ .......................... 77
    General Meeting of the Bank ................................ ................................ ................................ ................................ ....................... 77
    Supervisory Board of the Bank ................................ ................................ ................................ ................................ .................... 77
    Bank's Management Board ................................ ................................ ................................ ................................ .......................... 79
    XV. Rules of social responsibility ................................ ................................ ................................ ................................ ....... 81
    XVI. Representations of the Management Board ................................ ................................ ................................ .............. 86
    Selection of the statutory auditor ................................ ................................ ................................ ................................ ............... 86
    Principles assumed for preparation of the financial statements ................................ ................................ .......................... 86
    Material contracts ................................ ................................ ................................ ................................ ................................ ........... 86
    Proceedings pending b efore a court ................................ ................................ ................................ ................................ ......... 87
    Signatures of all Management Board Members ................................ ................................ ................................ ..................... 88






    3
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    I. Summary of operations
    of Alior Bank S.A. in the
    first half of 2018


    The b usiness activitie s of Alior Bank in the first half of 2018 w ere primarily marked with a dynamic growth of
    total assets – by 14% year on year which was mainly due to the organic growth driven with sales focusing
    primarily on cash loans, instalment loans, housing loans and l oans for enterprises, carried out through its
    own distribution network. As a result, the total value of net customer loans at the end of H1 2018 grew versus
    the end of H1 2017 by almost PLN 3.6 billion or by 7.3% (and by PLN 1.4 billion or 2.7% versus the end of
    2017).
    At the end of June 2018, the number of serviced customers exceeded 4.1 m illion. About 3.9 million are retail
    customers and almost 180 thousand are business customers.

    Structure of asset portfolio by product type and custo mer segment (%)
    It is also worth noting that in H1 2018 the Bank improved its capital position due to very good financial
    results.
    On J uly 31, 2018 the Bank was recognised by PFSA as other sys temically important institution (O -SIIs) which
    confirms the Bank's major posi tion in Poland's financial ecosystem.






    4
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Distribution network and employment level
    Distribution network
    As at 30 June 2018, the Bank operated 874 outl ets (224 traditional branches, 8 Private Banking branches, and
    12 Regional Business Centres, and also 630 fr anchise branches).

    Alior Bank also uses distribution channels relying on a modern IT platform, covering: online banking, mobile
    banking, and call centres and the DRONN technology.
    Employment level
    As at 30 June 2018, the headcount at Alior Ban k was 8,027 FTEs. Compared to the end of June 2017, that was
    a drop of FTEs by 1,461.
    However, in comparison to the end of the first quarter of 2018, the number of employees in the Bank
    increased by 23. The increase in employment results from the decision of the Bank's Management Board to
    transfer persons employed on the basis of a contract of employment (previously not counted) to contracts of
    employment. The change concerned about 200 full -time positions and was carried out in the period of
    April -May 2018 . At the same time, the Bank pursues a strategy that assumes the conversion of own branches
    into partner branches, which results in a decrease in employment.
    Headcount in FTE
    Branches
    Agencies
    Q2’17 Q3’17 Q4’17 Q1’1 8 Q2’1 8
    Q2’17 Q3’17 Q4’17 Q1’1 8 Q2’1 8
    9 488 8 556 8 110 8 004
    8 027






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Core financial data
    Net profit of the Alior Bank Capital Group (att ributable to the shareholders of the parent entity) generated in
    H1 2018 amounted to PLN 360.0 M and it was higher than the net profit generated in the equivalent period
    last year by PLN 198.0 M or by 122.3 %.
    Selected financial data and indicators of the A lior Bank Capital Group are presented in the table below :
    in PLN M 30.06.2018 31.12.2017
    Restated data
    30.06.2017
    Restated data 31.12.2016
    Balance sheet total 70 538 69 516 61 858 61 160
    Net loans and advances to customers 52 674 51 267 49 079 46 247
    Du e to customers 59 645 57 657 51 720 51 369
    Equity attributable to the shareholders
    of the parent entity 6 336 6 691 6 341 6 160
    Net interest income 1 500 2 8 56 1 38 6 1 946
    Total income 1 994 3 673 1 793 2 681
    Operating expenses -886 -1 8 54 -1 002 -1 56 7
    Banking Tax -103 -201 -99 -131
    Net profit attributable to the
    shareholders of the parent entity 360 472 162 575
    NIM 4.6 4.6 4.9 4.1
    ROE 11.9 7.3 5.2 11.9
    ROA 1.0 0.7 0.5 1.1
    Costs / Income 44. 4 50. 5 55.9 58. 4
    Loans / Deposits 88. 3 88.9 94.9 90. 0
    Capital adequacy ratio 15.4 15.2 13.6 13.6
    The major factor that affected the financial results of the Alior Bank Capital Group generated in the first half
    of 2018 wa s further increase of credit base as a result of high level of sales supported with an a dvantageous
    economic situation.
    The Group's balance sheet total at the end of June 2018, on a year on year basis, was up 14.1% to PLN 70.6
    billion. Net loans and advances to customers were up in the same period by 7.3% to PLN 52.7 billion and
    liabilities d ue to customers grew by 15. 4% to PLN 59.6 billion. Due to the continuation of strengthening of
    the liquidity position of the Bank, a growth of deposits was faster than the growth of loans, the Loan/Deposit
    ratio at the end of June 2018 was at 88.3%, or alm ost 7pp down than at the end of June 2017.
    The growing balance sheet items were accompanied by a dynamic growth of total income, including the
    main component which was an increase of net interest. In H1 2018 the total revenues grew up to PLN 1 994
    M or by 11.2 % y/y. The main income item was net int erest which in H1 20 18 went up 8.2 % y/y, and
    accounted for 7 5% of the total income. Net fee and commission income, which in H1 2018 amounted to PLN
    214 M and was 4.0 % lower than in the equivalent period last year. Additionally, the Group's revenues






    6
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    generated in H1 2018 were largely affected by the results on instruments measured at fair value through P&L
    account and the result on revaluation of PLN 185 M (growth by 19 % versus the equivalent period of 2017 ).
    In H1 2 018, the Group's general and administrative expenses amounted to PLN 88 6 M and dropped by 11.6 %
    versus the equivalent period last year. As a result, the cost/income ratio in the first half of 2018 was 44. 4%.
    Despite a major growth of the scale of operatio ns, the Bank's capital position has further improved. The
    capital adequacy ratio grew from 15.2% at the end of 2017 to 15. 4% at the end of June 2018.
    Evaluation of the operations of the Alior Bank S.A. Capital Group
    In the first hal f of 2018, the Alior Ba nk Capital Group generated return on equity (ROE) of 11.9 % and the
    cost/income (C/I) ratio of 4 4.4% .
    The level of the financial profit generated by the Bank was affected by its operational activities which resulted
    in a further growth of sold loans (the gr owth of the gross loan volume in H1 2018 PLN 3 billion ).
    The Management Board of Alior Bank positively evaluates the implementation of strategy as well as the
    financial performance achieved in H1 2018. The Management Board believes it to be a solid foundat ion for
    consistent and safe development of the Bank in the following years.
    Factors affecting Alior Bank's operations in the perspective of the coming months
    The Bank identifies the following factors that may affect the Bank's financial results over the next few months:
    • Monetary Policy Council policy on interest rates ;
    • The scale of demand for banking services, as well as the Bank's customers’ ability to timely repay
    their financial obligations is largely subject to their financial condition. Eventually slowdown in the
    growth rate of Poland's economy and modifications to legal regulations affecting enterprises may
    have an adverse effect on the financial conditions of certain customers of the Bank ;
    • Continuation of underwriting of a large volume of cash loan s and mortgage (for individual
    customers) and working capital and investment loans (for business customers) while maintaining
    high net interest margins and risk costs ;
    • Very good situation in the labor market; low unemployment and strong wage growth have a
    positive impact on private consumption, however, they may hinder the recruitment of new
    employees and increase labor costs.






    7
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    II. Information for
    Investors

    Listing of Alior Bank shares on the Warsaw Stock Exchange in the first half of 2018
    Alior Bank had its début at SE on 14 December 2012. On 21 March 2014 – within only 15 months of its stock
    exchange début – the Bank joined the group of twenty largest and most liquid companies listed at WSE.
    The total amount of trading in the Bank's stock in H1 2018 was almost PLN 2.8 B. In H1 2018 over 220
    thousand transactions were concluded in the shares of Alior Bank versus slightly over 249 thousand
    transactions in H1 2017.
    In H1 2018 the price of the Bank's stock dropped by 16% and at the end of June 2018 it reach ed PLN 66.90.
    The dropped prices was due to an increased activity of investors at WSE in the supply part, which was
    particularly well visible in the banking sector with a very successful 2017. For comparison sake, the value of
    the WIG Banks index in the sa me period decreased by 15% and the WIG20 index grew by 13%. At the end of
    June 2018, the P/E and P/BV ratios for Alior Bank were 14.50 and 1.42 respectively.
    The stock prices and trading volumes in the Bank's shares at WSE in Warsaw in the first half of 2018 are
    presented in the chart below:

    Turnover Share price
    Share price [PLN]

    Daily tur
    nover [PLN ‘000]







    8
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Rating
    On 5 September 2013, Fitch Ratings Ltd. allotted Alior Bank S.A. a rating of BB with a stable outlook. On 5
    February 2018, Fitch Ratings Ltd. maintained the BB rating for Alior Bank changing the outlook from stable to
    positive.
    The full rating of the Bank allotted by Fitch Ratings Ltd. is as follows:
    • Long -Term Foreign Currency IDR: BB positive outlook;
    • Short -Term Foreign Currency IDR: B;
    • National Long -Term Rating: BBB+(Pol), positive outlook;
    • Nationa l Short -Term Rating: F2(Pol);
    • Viability Rating (VR): BB;
    • Support Rating: 5;
    • Support Rating Floor: 'No Floor'.
    The definitions of ratings of Fitch Ratings Ltd. are available at the Fitch site www.fitchratings.com, where
    ratings, criteria, a nd methodolog ies are published .






    9
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    III. External conditions to
    the Bank's functioning

    Poland's economic growth
    In the first half of 2018 the high growth dynamics of Poland’s economy continued. In Q1 2018 GDP growth
    accelerated to 5.2% y/y which came as a surprise after the successful end of the last year. Internal
    consumption was the core contributor which in the discussed period contributed + 3.6 pp to GDP growth;
    additionally, on the part of accumulation, it was the growth of inventories that supported the accelerated
    growth and its contribution to GDP was as much as + 1.9 pp. Consumption overall over that period grew by
    4.5% y/y versus 4.9% in Q4 2017. On the other hand, investments – despite a higher growth rate than in Q1
    2015 (the growth y/y was 8.1%), added only + 0.9 pp to the GDP growth. Also net exports had an adverse
    impact in the quarter whose contributed was negative at 1.2 pp. The above shows that a slow -down of
    economic growth in the coming quarters is increasingly likely – although this should not be rapid in view of
    the good results generated in Q1 this year. Market expectations estimated on the basis of research by
    Bloomberg show now GDP growth overall for 2018 at 4.4% y/y and in 2019 at 3.5% y/y 1 which results in
    projections for Q2 of 4.8% y/y.
    In the lo ng term the l ower EU financing perspective for 20 21-2027 poses a risk to Poland's economic growth
    – this may primarily hit investments; however, over the next years Poland will continue to be financed from
    the EU budget from the financial perspective for 2 014 -2020. On the other hand, the main risk factors include
    uncertainties as to the prospects of global economy and in Poland – developments in labour supply. The low
    unemployment level stimulates consumption; however, on the other hand, problems with findi ng employees
    will become a development barrier, particularly for smaller entities. On the other hand, private consumption
    should prove supportive.
    In H1, the average growth rates of retail sales were 8.0% y/y; the highest growth of sales was recorded in
    June with 10.3% y/y. Additionally, average monthly growth of industrial production in H1 was 6.5% y/y while
    the results for June were surprisingly positive at 6.8% y/y. Impressive growth dynamics was achieved by
    construction and assembly production which in January was 34.7% y/y and in February – 31.4% y/y. Both
    quarters of the first half were successful for construction and assembly production which in June grew by
    24.7% y/y. The high growth of construction and assembly production and of retail sales suppor t the
    information of a continued economic situation of Poland's economy.
    Despite the accelerated CPI index in June up to 2% y/y, the Monetary Policy Council (MPC) did not decide to
    raise interest rates and after the July meeting, NBP's reference rate will continue to be 1.5% p.a. With the July

    1Bloomberg projections as at 12.07.2018






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    meeting, NBP's most recent macroeconomic projections were published. According to NBP's estimates, with
    a likelihood of 50% GDP growth will fall within the range of 4.0 -5.2% in 2018, 2.8 -4.7% in 2019 and 2.4 -4.3%
    in 2020.
    In the opinion of the Council, the most recent data and results of the projections show an advantageous
    growth of activity in Poland's economy despite an anticipated slowed GDP growth in the next year. The MPC
    noted that the existing interest rate le vels supported Poland's economy on a path of stable economic growth
    and macroeconomic balance is maintained. In his comments, the Chairman A. Glapiński stressed that in his
    opinion no reasons were visible to change the interest rate level in the horizon of inflation projection being
    the end of 2020.
    GDP growth rate

    */consensus forecast for 10/07/2018
    Situation in the labour market
    In H1 2018 the labour market was in a good condition. Since the beginning of the year, the unemploy ment
    rate kept dropping to reach the record low level of 5.9% in June. However, the drop of unemployment was
    not accompanied by a dynamic growth of employment like a year earlier. In June employment grew by
    3.7%. The unemployment drop was accompanied by a growth of wages which throughout the period was
    about 7.1% to reach 7.5% in June. In real terms, the growth of wages was kept restricted to the inflation
    which was higher than a year earlier. If the drop of unemployment is a positive factor for real econom y as it
    results in increased disposable income by households and growing consumption, in the long run employers
    will be facing shortages of labour. The above is on the one hand balanced with a growing number of foreign
    staff but also with a growing work pr oductivity which reduces wage pressure. However, on the other hand
    the continued shortage of labour will reduce the development potential of the private sector and pose
    obstacles to investments which in the long run may slow economic growth.






    11
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    GDP growth a nd unemployment rate
    */consensus forecast for 10/07/2018
    Inflation
    At the beginning of 2018, CPI in Poland slowed down after an abrupt acceleration at the end of 2017 when it
    reached the level of 2.5% y/y in November. In Q1 CP I dropped to 1.5% versus 2% in the equivalent quarter
    of 2017 but in the following months the price growth rate was noticeable and reached 2% y/y in June. Thus,
    the growth of prices in Q2 2018 was 1.7% y/y.
    The slower price growth in Q1 was supported with decreasing prices of raw materials in world markets and
    the wage pressure did not contribute materially to inflation growth. The weakening PLN was operating in the
    other direction. In Q2, trend reversal in the raw materials market, in particular oil, and further weakening of
    PLN, again generated an increase of consumer prices. For the entire six -month period, CPI reached the
    average monthly value of 1.65% y/y. In its July projection, NBP reduced this year's consumer inflation growth
    to 1.8% y/y from 2.1% y /y forecast in March. CPI projected for the next year was not changed and stays at
    2.7% y/y in 2019 while for 2020 the projection was reduced from 3% y/y to 2.9% y/y.
    In H1 the fastest growth affected food prices (3.6% y/y) and service prices at restaurant s and hotel; however,
    at the end of the period, there was a noticeable acceleration of fuel price growth. On the other hand, the
    decreasing prices of clothing and shoeware ( -4.1% y/y) had a negative impact on the index. The dynamics of
    the base inflation i ndex in later months of H1 was systematical ly slowing down and reached 0.6 % y/y in June.
    That was due to a major drop in price growth of services and a relatively low base inflation in some of the
    largest economies. However, higher prices of energy raw mat erials that a year earlier in the world, including
    oil, have gradually been converted into a faster growth of energy prices.
    According to the most recent projection of July made by the Economic Institute of the National Bank of
    Poland (IE NBP), with a lik elihood of 50% inflation in 2018 will fall within the range of 1.5 -2.1% y/y, in 2019 –
    1.9 -3.5% and in 2020 – 1.7 -3.9%. That means a return to inflation over the projection horizon to the NBP's
    target (2.5%). The assumptions underlying the projection provi de that over the projection horizon, CPI will
    grow as a result of a delayed demand and cost effect in Poland's economy. With the assumed no change to






    12
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    NBP's interest rates, CPI will only be slightly over 2.5% in 2019 -2020. Operating costs of enterprises wil l be
    growing along with the intensified salary growth which in real terms will be in excess of growing work
    productivity. Higher inflation will also be fuelled with a growing demand pressure which is manifested in the
    positive demand gap to be present in 2 018 -2020. However, the inflation in Poland will be mitigated by
    moderate inflation abroad.
    In the environment of a moderate inflation pressure and the continued accommodation monetary policy in
    the Euro zone, the Monetary Policy Council has kept interest r ates unchanged since March 2015, including
    the reference rate of 1.50%. Additionally, in the recent months the Council has been consistent in its opinion
    that the existing interest rate levels supports Poland's economy on a path of stable economic growth a nd
    macroeconomic balance is maintained.
    Situation in financial markets
    In H1 2018 financial markets witnessed a change of trends prevailing practically throughout 2017. Considering
    that in the previous year most stocks and bonds appreciated, last February as a result of inter alia a dynamic
    growth of yields of US 10 -year T bonds, the stock markets experienced the largest correction since 2015.
    Combined with the consistent normalisation process of US monetary policies by raising the Fed fund rate
    and reduci ng Fed's total assets, a pressure resulted on asset pricing coming from emerging markets (both
    stocks, bonds and currencies). Another negative factor was the protectionist rhetoric applied by D. Trump's
    administration, aimed primarily at China. Such circum stances had a major impact on South America for
    which China and the USA are the largest trade partners. MSCI Latin America in H1 lost 12.1%, MSCI China –
    2.2%, and the collective index for emerging markets – MSCI EM -7.3%. Among the core stock indices that
    closed H1 2018 higher than 201 7 was S&P500 (+1.1%) and India's SENSEX (+4.7%). The correction in February
    only reinforced the multi -year upward trend in global technological companies. Nasdaq closed H1 by as
    much as 8.1% higher than in 2017 while the 5 -year rate of return on the US broad technological company
    index reached the level of 120.7%.
    Despite no direct exposure to the core disadvantageous external factors, Poland’s domestic stock market in
    H1 was among the weakest in the world (the broad domestic stock index WIG lost 12.6% in that period with
    only the Turkish XU100 with a drop of 15.7% was falling faster). The situation was due to a major aversion by
    domestic investors to risky investments and structural problems of Poland's capital market with the most
    important ones being: no presence of a large number of innovative technology, e -commerce, IT companies
    at WSE that recorded major gains in foreign markets, as well as due to high fees, non -attractive historic rates
    of return of investment funds opera ting in the Polish market versus similar foreign funds.














    13
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Selected stock indices (2012.01 = 100)


    The US Federal Reserve was one of the core central banks that indeed normalised its monetary policies.
    Controlling the Eur o, Swiss Franc and Japanese Yen, central banks maintained negative short -term interest
    rates and kept purchasing assets while it was only the ECB that openly declared the time to abandon the
    unconventional monetary policy.
    As a result, low yields prevaile d on most T bonds of developed countries – apart from the US debt, the other
    exception was Italian debt from May due to the results of parliamentary elections and the new government
    perceived by a part of the market as populist radical which resulted in a growth of premium on Italian bonds
    versus the German Bunds considered to be the safest instruments in the Euro zone.
    Yields of selected 10 -year T bonds in developed countries








    14
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Polish debt in H1 had exceptionally stable conditi ons – which was due to no change to NBP's core interest
    rate as well as to a more balanced economy than in the other countries of the CEE region (in particular in
    Hungary and Romania): high but single -digit salary growth, no major imbalances in foreign tra de, base
    inflation at low levels.
    Yields of 10 -year T bonds of selected CEE countries

    Source: Bloomberg
    FX rates
    The stricter monetary policies in the USA along with the deteriorating sentiment in financial markes with
    concern s of global market condition in H1 2018 did not contribute to any appreciation of the currencies of
    emerging economies. In Q2 aversion to risk was additionally strengthened with fears of an escalation of
    trade wars declared by the United States on the rest of the world, primarily China.
    The above adversely affected the zloty throughout the period which has been losing against USD and EUR
    since the beginning of the year which is evidence of the relationship of the domestic currency on sentiments
    in the EM re gion. Over the period, there was a major appreciation of the USD both in the major pair EUR -
    USD but also versus the currency basket which was due to changed market expectations and the fast route
    on monetary tightening by Fed.
    EUR -USD was losing additiona lly under the pressure of uncertainties in Europe, fuelled on the one hand with
    a slowing down economic growth of Euro zone countries as well as political risks. In the last half -year, the
    government changed in Italy and in Germany the conflict in the coal ition in A. Merkel's government lasted
    practically until the end of the period. As a result, in the first six months EUR -USD fell by 2.6%, down to 1.17.
    At the same time, PLN lost as much as 7.4% against USD and 4.6% against EUR, with the following year en d
    exchange rates: 3.74/USD and 4.37/EUR respectively. Even the good domestic economic situation and stable
    monetary policies by the MPC could not do much to support the rates.






    15
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    EUR/PLN and USD/PLN exchange rates vs. CPI and the reference interest rate










    April 16 July 16 Oct 16 Jan 17 April 17 July 17 Oct 17 Jan 18 April 18
    reference rate (%) CPI (%) -1 ,5 0
    -1 ,0 0
    -0 ,5 0
    0,0 0
    0,5 0
    1,0 0
    1,5 0
    2,0 0
    2,5 0
    3,0 0
    2,5 0
    3,0 0
    3,5 0
    4,0 0
    4,5 0
    5,0 0
    kwi 16 li p 16 pa ź 16 sty 17 kwi 17 li p 17 pa ź 17 sty 18 kwi 18
    US D/PLN (lo) EUR/PL N (lo)
    stopa referencyjna (%, po) in flacja - CPI (%, po)






    16
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    IV. Core structural and financial
    data of Poland's banking sector
    in January -May 2018

    Core structural details
    As at the end of May 2018, there were in Poland: 35 domestic commercial banks, 551 credit unions and 29
    branches of credit institution s in Poland. At the end of May 2018, the domestic bank network covered 6 555
    branches, 3 698 sub -branches, agencies and other customer service outlets as well as 3 013 representative
    offices (including franchise outlets). Thus, at the end of May 2018, the domestic banking network covered
    overall 13 266 outlets which was 634 less than at the end of June 2017.
    The headcount at the end of May 2018 was 164.7 thousand persons and was lower than the headcount at
    the end of June last year by 2.0 thousand people ( 1.2%).
    The long lasting stabilisation of interest rates and the relatively high regulatory burdens result in an increased
    importance of the scale of operations as a means to improve the effectiveness of entities in the banking
    sector. The above results in a consolidation process going on for several years with the recent examples of
    mergers and acquisitions.
    At the end of May 2018, the State Treasury controlled 8 banks. In 557 banks and branches of credit
    institutions, private capital prevailed. In 50 ban ks and branches of credit institutions, foreign capital prevailed.
    Selected profit and loss account items 2
    In the period b etween January and May 2018 the banking sector generated net profit of PLN 6.4 billion vs.
    PLN 5.2 billion in th e equivalent period l ast year (growth by 24.5%).
    The net profit of the sector was primarily achieved on an increased profit on banking operations (up to PLN
    8 billion, or 12.9 % more than in the equivalent period in 2017) which was a consequence of a major growth
    of net interes t income (by 9.1%) with a simultaneous decrease in fee and commission income (by 1.71%).
    In the period between January and May 2018, versus the equivalent period last year, there was a growth of
    interest expense (by 34.1 % y/y) with a simultaneous growth of interest income (by 16% y/y).

    2 Source : Monthly data of the banking sector (knf.gov.pl)






    17
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Operating expenses of banks (including depreciation/amortisation and provisions) went up in the reporting
    period by 5.1% y/y, to PLN 14.7 billion. The growth was due to an increased level of employee expens es (by
    5.9% up to PLN 7.2 billion) and a growth of overheads (by 4.3% up to PLN 7.5 billion).
    The balance of impairment allowances to financial assets in the period from January to May 2018 versus the
    equivalent period last year grew by 1.4 % and amounted to PLN 3.1 billion .
    Loans and deposits 3
    Total assets of the banking sector at the end of May 2018 amounted to PLN 1 664 billion and were by 5.9 %
    (or PLN 91.9 billion) higher than at the end of May 2017.
    Gross receivables from the non -financial sector at the end of May 201 8 versus the previous year grew by 7%
    and amounted to PLN 1 121 billion. The core growth areas included receivables from ent erprises (+9.1% y/y)
    and receivables from households (+5.9 % y/y).
    Deposits of the non -financial sector grew at the end of May 2018 y/y by 5.7 % up to PLN 1 0 75 billion. At the
    end of May 2018, deposits by enterprises and deposits by households accounted for 97. 6% of the total
    deposits of the non -financial sector. The growth rate of deposits by enterprises was lower than the growth
    rate of deposits by households (growth by 3. 7% and 6.2%, respectively). As a result, the value of deposits of
    households at the e nd of May 2018 grew up to PLN 782 billion and the value of deposits by enterprises at
    the end of May 2018 was PLN 2 67 billion.
    Equi ty and capital ratios 4
    Equity of the banking sector for capital ratios, calculated as per the provisions of the CRR Regulation, at the
    end of March 2018 amounted to PLN 200.3 billion and was up 12.5% against the figure at the end of March
    2017.
    The total capital ratio of the banking secto r at the end of March 2018 was 18.9 % (growth by 1.0 pp vs. the
    end of March 2017) while the Tier I capital ratio was 17.0 % (growth by 0.6 pp vs. the end of March 2017).




    3 Sour ce: Monthly data of the banking sector (knf.gov.pl)
    4 Source: Monthly data of the banking sector (knf.gov.pl)






    18
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    V. Financial results of
    the Alior Bank S.A.
    Capit al Group

    Profit and loss account
    The detailed profit and loss account items of the Alior Bank S.A. Capital Group are presented in the table
    below:
    in PLN '000 Period 1.01.2018 –
    30.06.2018
    Period 1.01.2017 –
    30.06.2017
    Restated data
    Change y/y
    (PLN '000 )
    Change y/y
    (%)
    Interest income 1 851 357 1 760 030 91 327 5,2%
    Similar income 87 253 n/d
    Interest expense -438 809 -374 362 -64 447 17,2%
    Net interest income 1 499 801 1 385 668 114 133 8,2%
    Dividend income 94 2 92 4600,0%
    Fee and commission inco me 396 132 392 363 3 769 1,0%
    Fee and commission expense -181 923 -169 136 -12 787 7,6%
    Net fee and commission income 214 209 223 227 -9 018 -4,0%
    Net income on financial instruments
    measured at fair value through profit and
    loss account and result on r evaluation
    185 157 155 646 29 511 19,0%
    Result on instruments measured at fair
    value through profit and loss and result
    on revaluation
    n/d 1 166 n/d n/d
    Result on other financial instruments 61 368 n/d n/d n/d
    The result on discontinuation of
    recognizin g assets and liabilities not
    measured at fair value through profit or
    loss, including:
    32 112 n/d n/d n/d
    Measured at amortized cost 29 256 n/d n/d n/d






    19
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Other operating revenues 79 406 60 374 19 032 31,5%
    Other operating expenses -46 181 -32 661 -13 520 41,4%
    Result on other operating revenues
    and expenses 33 225 27 713 5 512 19,9%
    Group's operating expenses -886 253 -1 002 059 115 806 -11,6%
    Net result on anticipated losses,
    impairment allowances and provisions -509 245 -467 699 -41 546 8.9%
    Banking Tax -102 901 -98 728 -4 173 4.2%
    Gross profit 495 455 224 936 270 519 120. 3%
    Income tax -135 482 -62 977 -72 505 115. 1%
    Net profit 359 973 161 959 198 014 122. 3%
    Net profit of the Alior Bank S.A. Capital Group (attributable to the shareholders of the p are nt entity) in H1
    2018 was PLN 360.0 M and was higher than the net profit generated in the equivalen t period last year by
    PLN 198 M or by over 122 %.
    Total income (PLN M) – consolidated data

    Net interest is the core income item of the Group accounti ng for 75 % of the tota l income. The annual
    growth by 8 .2% was due to a limited growth of loan volume to customers and the accompanying growth of
    customer deposits. As a result, the customer net loan portfolio went up by 7.3% year on year, while deposits
    from customers were up 15. 4%. The achieved interest income was also positively affected by an adequate
    pricing policy – with respect to both deposits and loans in the environment of low interest rate environment
    in the Bank.
    Group's profitability measured w ith net interest margin by each product at the end of June 2018 was as
    presented in the table below.


    1 793 1 994






    20
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Consolidated data 30.06 2018 (%)
    LOANS 6.14
    Retail segment, of which: 7.22
    Consumer loans 8.67
    Loans for residential properties 4.28
    Business segmen t, of which: 4.79
    Investment loans 4.02
    Working capital loans 5.42
    Car Loans 4.00
    DEPOSITS 1.31
    Retail segment 1.13
    Current deposits 0.74
    Term deposits 1.84
    Business segment 1.64
    Current deposits 0.10
    Term deposits 1.57
    Net fees and commissio ns dropped by 4.0 % down to PLN 214 .2 M. The result was due to PLN 396 .1 M of
    commis sion inc ome ( drop by 1.0 % year on year) and PLN 181.9 M of commission expenses (growth by 7.6%
    y/y). The following factors had an impact on the commission income in relation to the first quarter of 2018: (i)
    an increase in commission income from servicing payment cards and loans and advances, (ii) higher
    commission costs related to acquiring customers and mailing communication .
    The core elements of the net fees and commission s include commissions on loans, accounts, transfers, cash
    deposits, disbursements and borrowings, etc. In H1 2018 these amounted to P LN 201.5 M and accounted for
    51% of the total fee and commission income. The y/y drop was primarily due to a drop of income from
    servicing bank accounts.
    Net fee and commission income (PLN M)

    The result on financial assets measured at fair value through profit or loss and trading result, net gain
    (realized) on other financial instruments, the result on derecognition of fin ancial assets and liabilities not
    392 396






    21
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    measured at fair value through profit or loss and net other operating income amounted PLN 279.8 M.
    (increase by 51.6% ).
    The result on financial assets measured at fair value through profit or loss and trading result, net
    gain (realized) on other financial instruments, the result on derecognition of financial assets and
    liabilities not measured at fair value through profit or loss and net other operating income (PLN M)

    In in first half of 2018 the operating expenses amoun ted to PLN 886 M and were lower than the expenses
    incurred in the same eriod of the previous year by PLN 11 6 M, or by 11.6 %. The decrease in operating cos ts is
    related to the effect of synergies of the merger with the Core of BPH Bank carried out in the pr evious year.
    Personnel costs i n the analysed period amounted to PLN 473.9 M and were 14.6% lower than personnel
    costs incurred in the equivalent period of 2017.
    General and administrative expenses in H1 2018 amounted to PLN 322.8 M and were by 9.0 % higher than
    general and administrative expenses incurred in the first half of 2017.
    As a result, the cost/income ratio at the end of June 2018 was at 44. 4% versus 54.9 % at the end of June of
    2017.
    Operating expenses (PLN M)
    -1 002 -886






    22
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Net result on impairment allowances
    The amount of impairment allowances and provisions in H1 2018 was PLN -509.2 M versus PLN -467.7 M in
    H1 2017, meaning an increase of 8.9 %, primarily due to increased impairment allowances to receivables fr om
    customers in the non -financial secto r. The gro wth w as primarily due to growing balances of amounts due
    from customers as well as due to organic growth of the volumes.
    The net provisions calculated on the average balance of customers’ gross receivables (risk cost ratio)
    recorded a drop from 1. 8% to 1.7 % y/y.
    Net impairment allowances (in PLN ‘000) – consolidated data
    01/01/2018 – 30/06/2018 01/01/2017 – 30/06/2017
    Restated data
    Stage 3 -573 572 -432,918
    Allowances for receivables from customers -573 572 -432,918
    Retail customers -300 628 -269,16 4
    Business customers -272 944 -163,754
    Financial assets 3 494 n/a
    IBNR – receivables from customers without
    impairment n/d -17,162
    Retail customers n/d 28,128
    Business customers n/d -45,29 0
    Allowances on expected credit losses (ECL) 58 961 n/a
    Stage 2 46 244 n/a
    Retail customers 28 215 n/a
    Business customers 18 029 n/a
    Stage 1 12 717 n/a
    Retail customers 2 318 n/a
    Business customers 10 399 n/a
    POCI -2 627 n/a
    Provisions for off -balance sheet liabilities 6 732 -6,632
    Prop erty, plant and equipment and intangible
    assets -2 233 -10,987
    Net result on anticipated losses, impairment
    allowances and provisions -509 245 -467,699
    Balance Sheet
    As at 30 June 2018, the balance sheet total of the Alior Bank Capital Group amounted to PLN 70. 5 billion and
    was PLN 1. 0 billion (1.5%) higher vs. the end of 2017.
    The core items supporting the growth of balance sheet total was a growth of receivables from customers
    (the growth in H1 2018 by 2.7% or by PLN 1.4 billion), financed mainly with growing liabilities: customer
    deposits (a growth by PLN 2.0 billion up to PLN 59.6 billion).






    23
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    The tables below present relevant items of assets, liabilities and equity as at the end of June 2018 along with
    the data at the end of 201 7.
    Assets (in PLN '000)
    Consolidated data 30.06.2018 31.12.2017
    Restated data
    Change
    (PL N '000) Change (%)
    Cash and funds with Central Bank 1 480 368 965 391 514 977 53%
    Receivables from banks 742 611 901 629 -159 018 -18%
    Financial assets 12 880 942 13 642 769 -761 827 -6%
    measured at fair value through
    comprehensive income 8 124 256 n/d
    measured at fair value through
    profit and loss account 702 996 n/d
    measured at amortised cost 4 053 690 n/d
    available for sale n/d 12 072 324
    held to matur ity n/d 1 117 894
    held for trading n/d 452 551
    Hedging derivatives 72 432 87 785 -15 353 -17%
    Receivables from customers 52 674 334 51 266 640 1 407 694 3%
    Assets hedging liabilities 335 661 408 911 -73 250 -18%
    Property, plant & equipm ent 441 154 475 691 -34 537 -7%
    Intangible assets 550 925 548 587 2 338 0%
    Investments in subsidiary entities 0 0
    Assets held for sale 271 357 -86 -24%
    Income tax assets 860 018 591 782 268 236 45%
    Deferred 860 018 591 782 268 236 45%
    Other assets 499 527 626 4 40 -126 912 -20%
    Total assets 70 538 243 69 515 98 2 1 022 262 1%
    Liabilities and equity
    Consolidated data 30.06.2018 31.12.2017
    Restated data
    Change
    (PLN '000) Change (%)
    Liabilities to banks 698 325 891 645 -193 320 -22%
    Liabilities to customers 59 645 174 57 657 019 1 988 155 3%
    Financial liabilities 445 932 435 878 10 054 2%
    held for trading n/d 435 878 0%
    measured at fair value through
    profit or loss account 445 932 n/d
    Hedging derivatives 8 756 5 41 9 3 337 62%
    Provisions 184 994 90 457 94 537 105%
    Other liabilities 1 149 084 1 693 915 -544 831 -32%
    Income tax liability 150 527 135 690 14 837 11%
    Current 150 016 135 204 14 812 11%
    Deferred 511 486 25 5%
    Subordinated liabilities 1 918 988 1 914 97 6 4 013 0%
    Total liabilities 64 201 780 62 824 998 1 376 782 2%
    Shareholders’ equity 1 30 4 587 1 292 636 12 551 1%






    24
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Supplementary capital 5 385 004 4 820 048 564 956 12%
    Revaluation reserve 64 448 13 944 50 504 362%
    Other reserves 172 839 183 824 -11 585 -6%
    Exchange rate differences on
    revaluation of foreign entities -230 594 -824 -139%
    Retained profit -950 158 -92 579 -857 579 926%
    Current year's profit 359 973 471 194 -111 221 -24%
    Non -controlling interests 0 1 322 -1 322 -100%
    Shareholders’ equity 6 336 463 6 690 983 -354 520 -5%
    Total liabilities and equity 70 538 243 69 515 98 2 1 022 262 1%
    The largest asset item is made up of receivables from the Group's customers (PLN 52.7 billion). Their share in
    balance s heet total as at the end of June 2018 accounted for 74.7 %, i.e. up by 0. 9 pp. than at the end of
    December 2017. As at the end of June 2018, another large asset item were financial assets at PLN 12.9 billion,
    which accounted for 18.3% of total assets (at th e end of December 2017 – 19.6% of total assets).
    Assets of the Alior Bank S.A. Capital Group (PLN B)

    The y/y growth of loans and advances to customers in the first half of 2018 by 2.7 % was due to both an
    increased volume of loans granted in the retail segment (up 1.0%, or by PLN 0 .3 billion, to PLN 28. 5 billion),
    as well as an increase in the receivable portfolio of corporate customers. The loan volume to the business
    seg ment was up 4.8% (or by PLN 1.1 billion) to PLN 24.1 billion.













    25
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Loans and ad vances to customers (PLN B)
    The retail segment loan portfolio primarily included cash and operational loans and consumer finance with
    the volume almost PLN 17. 1 billion ( drop y/y by 0 .3%). They accounted for 60. 0% of all loans granted to retail
    customers and accounted for 32.5 % of the entire portfolio of customers’ receivables. The second largest
    item in the ret ail segment loan portfolio (38.0 %) covered housing loans and mortgage loans with the total
    volume as at the end of June 2018 of PLN 10. 8 billion ( overall growth y/y by 4 .3%).
    As at the end of June 2018, operational corporate loans of PLN 12.0 billion (growth by 0.5 % y/y) were the
    largest single item of the business segment loan portfolio, accounting for 49.6 % of its total value. Investment
    loans we re the second largest item of the business segment loan portfolio, accounting for 34.9 % of the
    portfolio. Their value as at the end of June 2018 was down by 2.4 % compared to PLN 8. 4 billion.
    Currency structure of the loans and advances to customers

    Some slight increase was seen at the end of June 2018, versus the end of June 2017, in PLN denominated
    loan receivables – to 88.5 % of the total loans and advances to customers (up 0. 2pp. versus end of 2017).
    Amounts due from customers in EUR as at the end of Ju ne 2018 accounted for 10.8% of total customer
    receivables and their share versus the end of 2017 rise by 0. 9 pp.
    51.3 52.7






    26
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Geographical structure of loans and a dvances to customers as at 30 June 2018 (net value)

    Almost 1/4 of the loans granted by the Bank were loans to customers from Mazowieckie Voivodeship. Over
    23% of loans are receivables from customers from Śląsk and Dolny Śląsk. Receivables from customers
    co ming from other provinces account for about 54% of the entire loan portfolio. The Group's business is
    mainly financed with funds of customers from the non -financial sector deposited with t he Bank. As at the
    end of H1 2018 their share in the balance sheet t otal accounted for 8 4.6% (an increase of 1 .6 pp. against end
    of 2017). As at 30 June 2018, net equity amounted to PLN 6. 3 billion and was slightly down by PLN 0. 4 billion
    than at t he end o f 2017. The drop was primarily due to the retention of the net profit generated in 2017 as
    well as in the first half of 2018.
    Equity and liabilities of the Alior Bank Capital Group (PLN B)


    69.5 70.5






    27
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    The liabilities due to customers largely included liabilities d ue to the retail segment which at the end of June
    2018 accounted for 65.8 % of the customers’ deposit portfolio. As compared to the end of 2017, the share
    was increased by 2.4 pp.
    Current deposits are the main item of the liabilities portfolio to cu stomers . They accounted for 57 % of the
    entire liabilities to customers as at the end of June 2018 (growth by 1.4 pp versus the end of 2017). Term
    deposits make second largest item of liabilities due to customers ( 37 % of all liabilities due to customers as at
    30 June 2 018). As compared to the end of 2017, their share in overall liabilities to customers dropped by 1.3
    pp.
    The remaining 6 .3% of the liabilities to customers as at the end of June 2018 were the funds acquired as a
    result of the Bank's o wn issues of d ebt securities and other liabilities.
    Types of liabilities to customers (PLN B)





    57.7 59.6
    57.7 59.6






    28
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Currency structure of the liabilities to customers

    As at the end of June 2018, the share of PLN deposits in the entire portfolio reduced by 0,6 pp up to 84. 7%
    y/y . The other 15.3 % of the liabilities to customers were deposits in foreign currencies. EUR and USD were
    the most popular foreign currencies in which customers deposited their savings at the end of June 2018.
    Geographical structure of liabilities due to cus tomers as at 30 June 2018

    The funds deposited with the Bank primarily come from customers from Mazowieckie (30%), Małopolskie
    (14%), and Śląskie Provinces (10%). Customers from the other provinces deposited funds with the Bank
    accounting for 45% of the entire deposit base.






    29
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Continge nt liabilities
    The Group grants contingent liabilities to individual customers under overdraft facilities in ROR accounts and
    credit cards. Those are granted for an unspecified period of time with simultaneous monitoring of the
    adequacy of funds inflows to the accounts.
    The Group grants contingent liabilities to business customers as follows:
    • overdraft facility limits for 12 months;
    • guarantees, mainly up to 6 years;
    • credit cards for an unspecified period of time (with simultaneous monitoring of the adequacy of
    funds inflows and portfolio or individual monitoring);
    • guarantee limits;
    • loans disbursed in tranches for up to 2 years.
    The guarantee values above reflect the maximum potential loss that would be disclosed on the balance
    sheet date if all customers de faulted.
    As at 30 June 2018, the number of active guarantees granted by Alior Bank was 2,340 for a total amount of
    PLN 1,364,604 thousand.
    The Bank ensures a correct time structure of its guarantees. Active guarantees with expiry dates of less than
    two ye ars (1,684) total PLN 773,303 thousand.
    As at 30 June 2018 the total value of off -balance sheet contingent liabilities granted to customers was PLN
    11,927, 110. The amount comprised PLN 10,562, 50 6 thousand off -balance sheet contingent liabilities relating
    to financing and PLN 1,364,604 thousand of off -balance sheet contingent liabilities relating to guarantees.
    Granted off -balance sheet liabilities (PLN ‘000)
    Off -balance contingent liabilities granted to customers as at 30.06.2018 as at 31.12.2017
    Granted off -balance contingent liabilities 11,927, 110 12,498,037
    Concerning financing 10,562, 506 11,253,862
    Guarantees 1,364,604 1,244,175
    Off -balance contingent liabilities granted to customers – by entity (PLN ‘000)
    by entity as at 30.06.2018
    entity 1 182,0 00
    entity 2 114,964
    entity 3 114,330
    entity 4 104,532
    entity 5 100,000
    entity 6 98,415
    entity 7 97,173
    entity 8 78,852
    entity 9 77,907
    entity 10 75,085
    Off -balance contingent liabilities granted to customers – by instrument (PLN ‘000)






    30
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    The Bank did not underwrite any bonds in 2018 (no off -balance sheet liabilities relating to bonds).
    Financial projections
    Alior Bank S.A. did not publish any projections of its financial results .

















    by instrume nt as at 30.06.2018
    Credit lines 10,310,085
    Import L/Cs 221,619
    Loan commitments 30,803
    Guarantees 1,364,604
    Total 11,927,111






    31
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    VI. Business activities
    of Alior Bank S.A.

    Activities of Alior Bank S.A.
    Alior Bank is a universal deposit and credit bank, providing services to natural and legal persons, and other
    entities that are domestic and foreign persons. The Bank's core business covers maintenance of bank
    accounts, granting loans, issue of bank securities, and purchase and sale of foreign currencies. The Bank is
    also involved in stock broki ng activity, financial advisory and intermediation services, arrangement of issues
    of corporate bonds and provides other financial services.
    Alior Bank provides its services primarily to customers from Poland. The number of customers in the overall
    number of the Bank's customers is negligible.
    The Bank operates in various divisions that offer specific products and services, addressing specific market
    segments. The Bank is currently involved in the following sectoral segments:
    Individual customer (retail se gment)
    Business customers (corporate segment)
    Treasury activities
    Detailed information on the Bank's business operating segments is presented in the condensed consolidated
    financial statements of the Alior Bank S.A. Capital Group for H1 2018 (note No. 3).
    Retail segment
    General information
    As at 30 June 2018, Alior Bank serviced 3.9 M individual customers. The growth of the number of customers
    in H1 2018 was due to the organic growth of Alior Bank.
    Since 2017 the Bank has been implementing a behavioura l segmentation of retail customers which provides
    for a more precise addressing of products and services to the appropriate buyers. Behavioural segmentation
    applies both to the development of product offers and to support to the sales network. Additional
    knowledge of customers and their approach to banking helps us in a better structuring of new offers and
    results in growing revenues on customers. The “Konto Jakże Osobiste” account is an example of a product
    that best reflects the alignment to customers’ ne eds – the account was launched in H2 2017 and provides for






    32
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    an individual selection of benefits. An analysis of customers’ behaviour will support the Bank in an optimum
    alignment of its offer and the channel to reach customers .
    Apart from the behavioural se gmentation, the Bank has identified the following segments among its retail
    customers:
    • mass customers (persons with assets with the Bank under PLN 100 thousand, with monthly inflows to
    their personal accounts under PLN 10 thousand);
    • affluent customers (per sons with monthly inflows to their personal accounts in excess of PLN 10
    thousand or holding assets in excess of PLN 100 thousand);
    • Private Banking customers (persons with assets exceeding PLN 1M or investment assets exceeding
    PLN 0.5M).
    The segmentation is reflected in the structure of the sales network by making sales units specialise in specific
    products as follows: universal branches, premium branches and mini -premium and private banking
    branches.
    Distribution channels
    As at the end of June 2018, the B ank operated 874 outlets (224 traditional branches, 8 Private Banking
    branches and 12 Regional Business Centres, and 630 franchise outlets). The Bank’s products are also offered
    in the network of 10 Mortgage Centres, 10 cash centres, about 5,000 of financi al intermediaries.
    Alior Bank also used distribution channels relying on a modern IT platforms, covering: online banking,
    mobile banking and call centres and DRONN technology. Over the Internet, including internet banking, the
    Bank offers possibilities to conclude agreements covering: savings and clearing accounts, FX accounts,
    savings accounts, deposits, debit cards, and stock broking accounts. The channels are also used to submit
    applications for credit products: cash loans, credit cards, revolving curren t account facilities and mortgage
    loans. In the Internet the Bank also offers HP loans in an on -line process and services of an FX exchange
    office.
    Traditional branches of Alior Bank are located all over Poland, in particular in cities with over 50 thousa nd
    inhabitants, and they offer a full range of the Bank's products and services. Franchise outlets on the other
    hand are located in smaller towns and in specific locations in Poland's largest cities, offering a broad range
    of services, as well as deposits and loans to retail and corporate customers.
    The Bank cooperates with its franchisees on the basis of outsourcing agenc ies agreements. Under such
    agency agreements, agents perform exclusive agency services on behalf of the Bank distributing its products.
    The services are provided in premises owned or rented by the agents approved by the Bank.
    As specified above, the Bank's products are also offered in the network of financial intermediaries such as
    Expander, Open Finance, Sales Group, Dom Kredytowy Notus, F ines, DFQS, GTF, and others. The offers of
    the Bank's products available with financial intermediaries vary depending on the agent, but basically such
    financial intermediaries offer primarily cash loans, consolidation loans, mortgage loans, and HP loans.
    Sales in all distribution channels are supported with operational and analytical systems of Customer
    Relationship Management, CRM






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Core products
    The core products for individual customers are as follows:
    • credit products: cash loans, HP loans, credit cards, current account overdraft facilities, mortgage
    loans;
    • deposit products: term deposits, savings deposits;
    • bank securities, brokerage products, and investment funds;
    • personal accounts;
    • transactional services: cash deposits and withdrawals, transfers;
    • currency exchange transactions.
    Due to the specific nature of its business in the retail segment, the Bank identified three additional areas of
    the retail segment with a dedicated offer for each group of the Bank's customers: consumer finance, Private
    Banki ng, and stock broking activity.
    Credit products
    Credit products are offered in all of the Bank's distribution channels.
    Cash loans
    Cash loans are the main unsecured credit products for individual customers. Such loan can be granted for
    any purpose or for payment of financial liabilities (consolidation loan). Cash loans are offered in all of the
    Bank's distribution channels. These loans feature high margins, and minimum requirements in terms of
    income evidence and collateral requirements plus a long credit period. Since 2016, the maximum repayment
    period for the products has been 12 years, being the most attractive in the market. Individual customers may
    contract loans up to PLN 200,000 without guarantors or other collateral. These products are offered in P LN
    to the existing and new customers of Alior Bank. The Bank offers cash loans in amount in excess of PLN
    200,000 subject to individual terms and conditions.
    In 2018 Alior Bank focused its attention on two areas involving cash loans. The first is to attrac t customers by
    pursuing marketing activities with communication addressed to new customers. To help attain this goal the
    Bank modified its offering and launched two TV campaigns. In Q1 of 2018 the Bank continued the “Tailor
    made loan” campaign, an interest ing alternative to products available on the market, where customers may
    withdraw from the loan within 30 days. In Q2 2018 The Bank carried out a new campaign of “Pożyczki dla
    Duetów” [Loan for Duos] offering promotional prices for customers (all costs red uced by 33%) when the loan
    agreement is concluded by more than one borrower.
    2018 was the year when Alior Bank developed its remote loan sales channels by introducing an entire on -line
    purchase of loan for both the existing, as well as for new customers ( via the Internet banking system). In June
    2018, a new special offer was launched for the process – Online Loans under which the Bank refunds interest
    to customers on every 12th repaid instalment. Apart from the offer, the Bank continued its dedicated offer of
    “0% commission internet loan” with preferential terms for customers who commenced their purchase
    process using a dedicated Internet form.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Another area of the Bank’s activities involved CRM initiatives to enhance relationships with customers by
    activat ing customers, upselling additional products and increasing credit exposures. This purpose was served
    by a special loan offers with simplified lending procedure. The Bank also intensified CRM efforts to enhance
    ties with HP customers, improve effectiveness of cross -selling, and to increase customers’ exposures in all
    profitable segments.
    Credit cards
    As part of its credit card offer for retail customers, in 2018 the Bank started promotion of new credit cards:
    Mastercard OK! and TU i TAM. Cashback is the co re benefit of the cards: for OK! it is domestic, functioning
    in selected outlets while for TU i TAM cards it applies to transactions in currencies other than PLN (including
    internet transactions and executed abroad). In order to make the offer of TU i TAM cards more attractive, as
    part of promotion individual customers may get an additional refund of expenses at fuel stations in Poland.
    Dedicated activities were applied to customers who already hold a credit card: customers by increasing the
    number of tran sactions may win a rebate for purchases at Allegro auctions and they are also increasingly
    more interested in repaying their transactions in comfortable instalments.
    The prestigious World Elite Card dedicated to the customers of the Private Banking segmen t is maintained
    without any changes. The card is accompanied with a package of services – concierge or assistance of a
    specialised infoline, insurance and Priority Pass – possibility to use business class lounges at airports.
    Revolving overdraft facilities
    Overdraft facilities mean the possibility of borrowing to the debit of an account. Within the approved limit,
    debts may be contracted multiple times – each credit to the account reduces or fully repays the debt. The
    Bank offers revolving overdraft facilit ies for amount from PLN 500 to PLN 200 thousand which does not
    require any additional collateral or guarantee. Alior Bank grants overdraft limits in two ways: in a combined
    credit process within which customers are granted two products on the basis of the same information and
    documents – cash loans and an overdraft facility limit or an overdraft facility limit as a single product.
    Additionally, in Q2 2018 the Bank provided access to limit approval via new electronic banking in a simplified
    online process. The process is made available to selected customers subject to optimum offering x -selling in
    CRM activities.
    Mortgage loans
    In H1 2018 the Bank continued its policy in the mortgage loan segment. Relying on its two core distribution
    channels – Mortgage Cen tres and Branches, the Bank offered mainly PLN housing loans which are the
    largest item in the mortgage loan portfolio. As a continuation, for customers who generate income in
    foreign currencies, the Bank maintained its offer of GBP, USD, EUR indexed housi ng loans.
    In 2018 the Bank will focus its efforts on enhancing its customer service standards. To this end, dedicated
    Mortgage Bankers underwent a number of specialist stationary training sessions. Stress was put on the
    comprehensive knowledge of mortgage products, pursuance of good practices in mortgage loan approval
    with reference to the requirements of the Act on mortgage loans and supervision over mortgage loan
    brokers and agents, and on improving service quality.






    35
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Deposit products
    Term deposits
    The Ba nk’s offer for retail customers indenting to deposit their PLN funds includes standard deposits with a
    fixed interest rate for various dates. The deposits may be renewed (customers may select if the renewal will
    relate to the principal and the accrued inte rest or solely the principal with the interest transferred to a
    designated account with Alior Bank) or that are not renewable and then at maturity the principal and interest
    are transferred to a designated account with Alior Bank. The offer also includes d eposits in EUR, USD, GBP,
    and CHF at fixed and variable interest rates. Furthermore, customers interested in depositing larger amounts
    may resort to the offer of negotiated deposits, then both the term and interest rates are negotiated
    individually.
    Saving s accounts
    Retail customers are offered PLN -denominated savings accounts with flexible access to deposited funds. The
    basic product is still a variable interest rate account based on WIBID 1M. The Bank’s customers may enjoy
    numerous promotional offers. In May the Bank launched the “Konto Mocno Oszczędnościowe” account to
    its offer. Apart from attractive interest rates for funds under PLN 100,000 for four months, it offers the
    possibility of free internet transfers to the customer's ROR account with Alior Ba nk. The higher interest rate
    on a savings account can also be available to customers who decide to set up the “Konto Jakże Osobiste”
    account and choose this feature as one of the benefits. Additionally, the Bank offers savings accounts for
    customers who ha ve filed effective applications for child rearing benefits (Family 500+). These customers
    receive a preferential fixed interest rate for 12 months.
    Savings and clearing accounts
    In the first half of 2018 the Bank focused on a further development of persona l accounts as part of the
    existing products by adding new functionalities and payment methods.
    Now the Bank offers the “Konto Elitarne” account [Elite Account] dedicated to the Private Banking segment,
    the “Konto Internetowe” account [Internet Account] an d the “Konto Jakże Osobiste” account added last
    September where the customer selects benefits. Any two benefits selected by the account owner are free,
    after that each benefit cost is PLN 3.5 per month.
    In April an additional benefit was added to the “Kon to Jakże Osobiste” account in the form of free SMS
    messages. Holders of the “Konto Jakże Osobiste” account may initially choose from 10 benefits – services
    and functionalities prepared on the basis of surveys and customer reviews. Those are: free ATM
    disbu rsements in Poland, ATMs abroad, a package of free immediate transfers (up to 5 monthly) and a
    higher interest rate in the savings account or an interest -free overdraft limit for 10 days. Security is provided
    by travel insurance for overseas trips and an a ssistance package covering car, medical, and home insurance.
    The benefits also cover the membership in the loyalty program Mastercard Priceless Specials and refund for
    contactless payments made by phones.






    36
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    On top of the saving accounts the Bank also offer FX accounts i n four core currencies: USD, EUR, CHF, and
    GBP. In July 2018 the Bank launch ed a new multi -currency function which enable s adding sub -accounts in
    USD, EUR, GBP to debit cards issued to the “Konto Jakże Osobiste” account or the “Konto Elitarne ” account.
    Transactional services
    Alior Bank offers a full range of transactional services (including cash deposits and withdrawals, cash deposits
    to accounts with the Bank and with other banks, instant transfer, and card transactions). In June the Bank wa s
    among the first banks in Poland to provide the Apple Pay service supporting contactless phone payments
    for goods and services for iPhone holders. Apart from existing payments: Android Pay, HCE and BLIK, this is
    another innovative payment solution which i s an element of the Digital Disruptor Strategy.
    Currency exchange transactions
    Currency exchange transactions may be made at the Bank's outlets, via Internet banking with the following
    currencies: PLN, EUR, USD, GBP, and CHF, as well as using dedicated tr ansaction platforms. The Bank offers
    its customers possibilities to conclude exchange transactions for the following currencies: PLN, EUR, USD,
    CHF, GBP, CAD, NOK, RUB, DKK, CZK, SEK, AUD, RON, HUF, TRY, BGN, ZAR, MXN, and JPY. The transactions
    may be conc luded in multiple channels and at varied prices. The most important are: automatic currency
    conversion related to foreign transfers and card transactions abroad, transactions concluded in electronic
    access channels (Autodealing, FX Exchange Office) and tra nsactions negotiated and concluded directly with
    the Treasury Department.
    Bancassurance Products
    Insurance products are offered as a supplementing offer to banking products as a voluntary option for
    customers.
    The core group of insurance products are bo rrowers’ payment protection insurance (PPI) aimed at providing
    customers with support should problems arise in loan repayment. In 2018 the most popular insurance was
    PPI insurance for cash loans and mortgage loans. In addition to the PPI insurance offer, t he Bank also
    actively promoted stand -alone insurance, i.e. unrelated to any banking product.
    PPI insurance may be purchased by customers when concluding a loan agreement. In contrast, the
    distribution of stand -alone products was focused primarily on remote channels (call centre and Internet), and
    selected ones were also available in the branch network.
    The most popular model of offering insurance is the so -called an individual model in which the Bank act s as
    an insurance intermediary. On the other hand, in the case of group insurance in which the Bank is a
    policyholder, the Bank earn s no fees, in accordance with applicable regulations.
    Structured products and investment insurance
    In the case of structured products for individual customers, in the first half of 2018 Alior Bank conducted 20
    issues under the First Bond Issue Programme for a total nominal amount of PLN 621 million. All the offered
    products held a 100% capital guarante e on the maturity day while five of them guaranteed disbursement of
    a free minimum coupon. The final interest rate depends on the various underlying indices. H1 2018 saw






    37
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    maturity of 10 products, the best one returned 12.32% to the investors. The securities are offered in public
    offerings to corporate customers, Private Banking customers and individual customers. Also, selected private
    banking customers received a new offer of investment certificates with a limited capital guarantee and
    conditional early red emption – “autocall”. The first half of 2018 saw 7 issues of this type being carried out for
    a total nominal value of PLN 126 M.
    In the first half of 2018 the Bank continued agency training in preparation to offer individual insurance
    policies in co -opera tion with PZU Życie S.A, Generali Życie S.A., TU na Życie Europa S.A., and Open Life TU
    Życie S.A. In an open model of co -operation with insurers, customers have an option of concluding an
    individual life insurance contract with an insurance capital fund.
    New products and services for the ratail segment
    In 2018 the new major products and services in the commercial offer of the Alior Group for the individual
    customer segment included:
    • launch of property insurance in cooperation with PZU SA, available to mor tgage loan borrowers of
    Alior Bank
    • launc h of the “Konto Mocno Oszczędnościowe” account which – apart from attractive interest rates
    for new funds – offers free Internet transfers to customers’ own ROR accounts with Alior Bank .
    Retail segment areas
    Consumer Finance
    In the retail segment the Bank also offers Consumer Finance products.
    Despite increasingly severe competition the Bank managed to effectively expand business in the segment. In
    the first half of 2018 strategic projects kept being implementing as they contribute to a dynamic business
    gro wth .
    In the first half of 2018 the Bank:
    • sold 524 thousand loans ;
    • acquired 232 thousand new customers for the Bank ; and
    • increased the number of new partners to 1,100 .
    Continuous technology development and dynamic alignment of sales processes to the Partne r's
    expectations contributed to a dynamic growth in sales of loans and HP loans via the Internet and in the
    stationary channel. Door -to-door sales remained at a stable, high level.
    In H1 2018 Consumer Finance pursued strategic projects related to the Bank 's alignment to GDPR and
    related to the implementation of the Digital Revel Strategy:
    • cooperation with BANCOVO in launching the first fully digital platform for financial intermediation
    • PAPERLESS – implementation of a solution to abandon the traditional loan form.






    38
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    The Bank also focused on maintaining its position as a leader in HP loans due to stable cooperation with the
    existing Partners, establishment of cooperation with the power sector e.g. with seasonal campaigns
    promoting sales of HP loans and sale s growth in the on -line channel.
    Private Banking
    The Private Banking programme is earmarked for most affluent individual customers, willing to deposit
    assets with the Bank in excess of PLN 1M, or investment assets in excess of PLN 500,000. The customers ar e
    serviced by eight specialist Private Banking branches: three branches in Warsaw, one in each of Katowice,
    Poznań, Kraków, Gdańsk, and Wrocław. In June 2018 Hotel Europejski became a part of the most recent
    history of Alior Bank which in that exceptional location opened its new Private Ba nking branch. Therefore,
    Alior Bank decided to create a comfortable and discreet place of meetings with customers who entrust their
    savings to the Bank.
    As at 30 June 2018, the Private Banking department and branches empl oyed 84 persons who – on the basis
    of a broad range of investment and credit products – have developed financial solutions suiting their
    customers’ needs. The number of Private Banking customers as at the end of June 2018 was somewhat over
    6 thousand.
    For the second time in the survey “Private Banking and Wealth Management Survey” held by “Euromoney”,
    Private Banking of Alior Bank was classified as the best Polish bank in terms of services for affluent customers
    who hold investment assets of USD 1 to 5 M. In the main category of private banking services, it was ranked
    4th in Poland. Non -financial assets of active Private Banking customers called PB Wealth Care are
    operationally handled by Alior Services Sp. z o.o. whose task is to establish contacts with co mmercial
    partners providing such services as legal and tax consulting and alternative investments.
    The “Konto Elitarne” account [Elite Account] is dedicated to Private Banking segment customers holding
    assets in excess of PLN 1M. The Bank charges no fees f or services and transactions for the account. Choosing
    the “Konto Elitarne” account the customer has access to a number of benefits, such as individual private
    banking account manager, confidentiality of account balances, or prestigious MasterCard World El ite debit
    card with no additional charge and with a comprehensive extra package.
    Stock broking activities
    The Bank is involved in stock broking activities through the Brokerage Office of Alior Bank as an
    organisationally separate arm in Alior Bank. Brokera ge services are offered via Alior Bank branches and in
    remote distribution channels: the Brokerage Office Contact Centre, the Internet banking system integrated
    with the Alior Bank system, and the Alior Trader transaction platform.
    As at 30 June 2018 the Brokerage Office of Alior Bank maintained 172.3 thousand brokerage and deposit
    and Alior Trader accounts and the value of customers’ assets in the accounts was PLN 9.28 billion. Investors
    using the services of the Brokerage Office of Alior Bank submitted o ver 562 thousand stock exchange orders
    in H1 2018 of which 68,000 were completed via Alior Giełda mobile application. Alior Giełda mobile
    application was launched by the Brokerage Office in September 2016, being one of the most innovative
    mobile applicatio n for individual investors in Poland. It keeps increasing its share in the volume of orders.






    39
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    The Brokerage Office also offers participation units of Polish and overseas investment funds. As at 30 June
    2018, Alior Bank co -operated with seventeen Polish and overseas investment fund companies (TFI) with
    respect to open -end investment funds (FIO) and six TFIs with respect to closed -end investment funds (FIZ).
    The total assets collected in investment funds via Alior Bank amounted to over PLN 3.12 billion as at the end
    of June 2018.
    Also, the Brokerage Office of Alior Bank in cooperation with Alior TFI offers asset management services.
    As at 30 June 2018 the Brokerage Office of Alior Bank S.A. acted as market maker for 39 issuers and for 52
    financial instruments .
    Co -operation with third parties to attract retail customers
    T-Mobile Usługi Bankowe
    In H1 2018 the T -Mobile Usługi Bankowe focused on a further development of its offer as part of the existing
    products by adding new functionalities and payment methods. In April 2018, a new process was launched in
    Internet and mobile banking of selling a revolving limit in the account which enables holders of T -Mobile
    Usługi Bankowe accounts opening of a product within seconds on the basis of on -lone credit decisions. The
    same process relating to cash loans launched in September 2017 was appreciated by customers for its
    simplicity and short time in obtaining a loan.
    In June T -Mobile Usługi Bankowe was one of the first ones in Poland to provide Apple Pay services to use
    iPhones to make contactless payments for goods and services. Apart from existing payments: Android Pay,
    HCE and BLIK, this is another innovative payment solution which is an element of the Digital Disruptor
    Strategy.
    Alior Bank’s branch in Romania
    The year 2018 the foreign branch of Alior Bank in Romania is the continu ation of its commercial activity
    commenced on 18 October 2017 (operations started on 18 July 2016). Cash loans and consolidation loans
    were the products implemented in H1 2018. The sale process of debit lines in personal accounts was
    enhanced. The plan for the next month’s covers expansion of sales of banking products in remote channels
    with a possibility to acquire ”lead” loan applications from internet partners, implementation of an on -line
    verification method of customers with a ‘penny’ transfer and sales of loans via a network of intermediaries/
    brokers.
    The offer of Alior Bank's Branch in Romania is available in cooperation with Telekom Romania over its sales
    network. The offer called Telekom Banking provides customers in Romania with access to core bank ing
    products of everyday use: ROR account, online FX exchange office, cash loans and consolidation loans. The
    products are available at www.telekombanking.ro and in the network of 34 sales outlets called “SiS" (as at 30
    June 2018), located in Romania's lar gest cities. Alior Bank's banking products are offered directly by Telekom
    Romania at about 240 outlets all over the country.
    As at 30 June 2018, the Branch in Romania employed 149 people (62 FTEs in the Head Office and 87 FTEs in
    SIS).






    40
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Business segment
    Ge neral information
    Alior Bank features a comprehensive and modern offer for business customers of Micro, SME segments, as
    well as the corporate segment. As at 30 June 2018, Alior Bank serviced over 180,000 business customers and
    the total loan exposure amou nted to PLN 24.1 billion.
    Accounts, settlements and deposits
    The offer of business accounts is suited to the expectations of each customer segment and relies on modern
    acquisition channels and product handling. In the first half of 2018 Alior Bank opened 11.1 thousand company
    accounts being 1.8 thousand more than in the second half of 2017. Apart from standard services in its large
    network of branches and partner outlets, the Bank offers the possibility to open company accounts over the
    Internet with a fas t confirmation process of customer's identity with a transfer from another bank or via
    courier service. Retail customers may also open company accounts by completing an application in the
    Internet Banking System (SBI). The core accounts for micro enterpris es that are opened via remote channels
    include the “iKonto Biznes” account and the “Rachunek 4x4” account launched last June. The most popular
    business account sold at the Bank's network is “Rachunek Partner” with a Mastercard Debit Commercial card
    which u nder the “Cashback for entrepreneurs” program guarantees a low fuel price at stations in Poland –
    only PLN 3.90 per litre. The maximum amount of refund for fuel purchases to the customer's business
    account is PLN 100 monthly. All the above accounts are add ressed to entrepreneurs using a simplified
    accounting system.
    The offer is supported with the “Rachunek Wspólnota” acccount [Community Account] dedicated to local
    housing communities, POS payment terminals and the “Rachunek Bezpieczny” account that also p rovides an
    option for life insurance and accident insurance.
    Alior Bank offers the following accounts to business customers keeping books of account: “Biznes
    Optymalny”, “Komfort” and “Biznes Profil”.
    New products and services for the business segment
    • “Rachunek 4x4” – price parameters are aligned with the customer's current needs and types of
    transactions executed. The customer always gets four free benefits: unconditional account maintenance,
    use of the first debit card, transfers to ZUS/US [tax office] and accounting services at zafirmowani.pl.
    Additionally, four packages may be selected: cash, domestic, foreign and savings package. Under the
    packages, entrepreneurs are provided with a range of benefits and reduced fees and commissions. Each
    package is p riced at PLN 10 monthly.
    • Use of a virtual advisor (DRONN) in account sales processes – in line with the Digital Disruptor Strategy,
    in January 2018 Alior Bank started selling accounts for business customers via the DRONN system. The
    system is based on art ificial intelligence technology relying on speech recognition, synthesis and natural
    language analysis. DRONN collects data from the CEIDG base, contacts owners of newly set up
    businesses and presents the offer accounts from Alior Bank,






    41
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    • launch of the Split Payment Mechanism – opening of VAT accounts for entrepreneurs, providing for
    transactions in the split payment mechanism and handling of outgoing transfers in line with the new
    principles;
    • regulatory and systemic changes in the context of the General Dat a Protection Regulation (GDPR);
    • providing entrepreneurs with a possibility to generate JPK_WB files directly from the electronic banking
    system;
    • development of the web portal www.zafirmowani.pl .
    The web portal for micro entrepreneurs www.zafirmowani.pl was expanded with new functionalities, for
    instance automatic import of data from the Central Registration and Information on Businesses and the base
    of the Central Statistical Office in the new user registration p rocess and when inputting new counterparties
    for account settlement. Additionally, during registration new users may apply for a company account and a
    payment terminal. The catalogue of services offered by the online accounting application was also
    expande d. Users of the online accounting application may also use online collection and microfactoring
    services. Since June, the online accounting may also be used by entrepreneurs paying flat income tax.
    Business customers have access to multiple transaction pr oducts and cash management services, supporting
    daily transactions in companies. Regular marketing campaigns, developed on the basis of individual sectoral
    preferences, ensure effective provision of information to customers on products suited to the nature of their
    business, new services, and promotions. Alior Bank also provides broad opportunities for investing cash
    surpluses. Standard terms deposits available in multiple channels is supplemented with a deposit account
    featuring an attractive interest rate and automatic overnight deposits for corporations.
    Settlement and transaction products
    Developing the functionalities of debit cards, Alior Bank was among few banks in Poland to offer the Appl e
    Pay service to its business customers. With it, Apple users m ay make fast and safe payments using their
    iPhones or Apple Watches. – they only need to add Alior Bank's company card to the “Wallet” application on
    their device.
    To meet our corporate customers’ expectations, Alior Bank offers advanced products and tool s supporting
    the management of companies’ liquidity.
    The package of transactional banking products and services covers management of cash flows, monitoring
    of incoming receivables and their ongoing identification via the internet banking system BusinessPr o and
    automation of accounting processes via BankConnect. The Bank's offer stands out with the service of
    Automatic Cash Disbursement. The service provides for execution of cash disbursement orders at the bank's
    counters only on the basis of an ID document shown by the beneficiary. The automatic liquidity
    management processes offered to customers covers inter alia internal and external funds transfers and
    consolidation of accounts with the bank.
    Loans for business customers
    The bank offers a broad range of modern credit products to finance daily and investment needs of its
    business customers.






    42
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    The Bank’s operations in the micro enterprise and SME segment relies on a comprehensive, fully
    standardised credit offer. The flagship product for micro enterprises i s a multi -product credit package,
    supporting credit decisions within 30 minutes and closing the transaction during a single contact between
    the customer and the Bank. The credit approval process is fully automated.
    SME customers have access to the standar d loan offer and the multi -product loan package.
    The offer of Alior Bank for upper segments covers standard products and specialist liquidity management
    services. Alior Bank treats each customer individually and develops offers dedicated for specific entit ies. The
    Regional Business Centres work closely with the experts on Trade Finance, Treasury Products, and
    Transactional Products to ensure the best matching of the offer to the actual needs of customers.
    Alior Bank has been actively developing its financin g offer for entities in the agricultural and foodstuff sector,
    adequately to match different legal forms and types of business operations. In 2018 the Bank launched a
    new competitive offer for farmers which provides for comprehensive financing for farms. S trategically, the
    Bank develops modern forms of financing in the food production and distribution chain, while at the same
    time seeking to reduce the administrative burden for customers. At the end of H1 2018, the Bank’s total
    exposure to Agro sectors was PLN 2.4 billion.
    New products and services
    • providing access to the credit process in a pilot study covering the offer of a credit package on Bankers’
    mobile devices (iPads) ;
    • optimisation of the credit process in the small enterprise segment by increasing the volume of loans
    processed in an accelerated branch processes ;
    • expansion of the Business Loan offer for investments offered within the Credit Package and relaxation of
    formal requirements related to document ing the amounts earmarked for investments ;
    • pro viding access at partners’ branches to collateral in the form of COSME guarantees in order to
    continue developing of a stable loan portfolio.

    European funds and aid schemes
    Alior Bank is an active participant in government schemes for support to small and medium -sized
    enterprises.
    With the guarantees granted by Bank Gospodarstwa Krajowego (BGK) under the de minimis government
    program, since 2013 Alior Bank has granted almost 38.6 thousand loans totalling almost PLN 13 billion. Alior
    Bank is ranked second in terms of volumes of sold de minimis guarantees. In the last six months, we
    intensified sales of COSME guarantees financed with the European Investment Fund – at the end of H1 2018
    we had over PLN 630 million worth of guarantees granted to almost 3200 cu stomers.
    Alior Bank is the only bank to have signed an agreement with BGK to finance access to fast Internet. With
    this contract, our customers in the telecommunications industry may obtain the so -called broadband loan,
    or investment or liquidity financing for the development of optical fibre networks. We offer loans with
    preferential interest rates from PLN 20 thousand to PLN 10 million with repayment period up to 15 years. So
    far we have granted 6 loans totalling PLN 20 million.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    An interesting offer on t he part of Alior Bank for SMEs now covers Loans with a Biznesmax guarantee,
    granted by BGK funded with the EU Smart Development program. The guarantee may cover as much as
    80% of the loan amount. Loans covered with the guarantee may be used to finance net investment outlays
    and VAT (including VAT on investments financed with EU grants). The guarantee may apply to investment
    loans with repayments up to 20 years and amounts up to EUR 2.5 million. Enterprises that correctly draw the
    guaranteed loan may be refu nded interest paid over 3 years from disbursement of the financing.
    The Bank also offers comprehensive support in obtaining subsidies and their effective and safe settlement.
    We offer to our customer’s examination of the availability of EU funds and a rev iew of specific conditions to
    receive a subsidy. As part of our “European Package” we offer loan commitments and bridge financing.
    Customers may also obtain a loan to finance their own investment contribution with subsidies and a loan for
    technological inn ovations.
    New products and services
    Thermal Upgrading Loans – a new offer developed to finance comprehensive energy modernisation (in
    other words – thermal upgrading) of multi -family residential buildings, addressed primarily to housing and
    communities co operatives and Social Construction Associations (TBS) from the Province of Łódź. The loan is
    co -financed with EU Regional Operational Programs for 2014 -2020. The funds were provided to Alior Bank
    by Bank Gospodarstwa Krajowego (BGK).
    Trade financing
    To it s business customers, Alior Bank offers a full range of products supporting trade financing needs. The
    offer keeps being modified to follow the market and changes to legal regulations.
    New products and services
    Alior Bank, as one of the first financial i nstitutions, provided customers an opportunity to decide if they wish
    to use the split payment mechanism. The bank launched the solution on 2 July 2018 which was the first
    working day of the effectiveness of the Act of 15 December 2017 amending the Act on VAT and certain other
    Acts. As a result, the bank provided companies that resort to reverse factoring and that select Split Payment
    as a payment method to creditors, with a possibility to be released from joint and several liabilities .
    Companies using reco urse or non -recourse factoring, the bank provided with an opportunity to finance VAT
    invoices and use the acquired funds to pay their VAT related liabilities. VAT may be financed irrespective of
    the net amount of payables, latest on the day specified in th e invoice as the payment date.
    Apart from the above change due to legal modifications, a solution was developed for companies exporting
    their goods to Eastern Europe, Asia and Africa. The solution is a loan for the buyers to be used to finance
    exports of Polish capital goods.
    Additionally, Alior Bank implemented changes to support easier access to recourse or non -recourse
    factoring. The changes cover inter alia shorter procedures and simplification of legal documents and
    applications filed by customers. Further simplifications, including primarily automated processing of such
    products and improved accessibility of the offer in the micro and small companies segment will be
    completed by mid -2019.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Digital banking
    Alior Bank's operations in digital banking ar e aimed at an effective increase of the Bank's revenues while
    reducing the handling costs. The efforts are focused on developing the brand of a leader in digital
    innovation and a strong market position.
    The works in the frist half of 2018 were focused on optimisation of existing and launch of new solutions in
    internet and mobile banking.
    The activities contributed to implementing the assumptions underlying the Digital Disruptor Strategy and
    growing revenues of the Bank from the internet and mobile channel s.
    Digital sales
    The organic growth of remote channels and activities enabled to achieve significant increases in sales in the
    digital channel both for individual customers (increase in the sales volume of cash loans by 24% y/y, current
    accounts by 43 % y /y) and businesses (increase in sales of KB current accounts + 116% y/y). In the pre -
    approved process of loan sales on the basis of prepared offers, 61% of sales are made over the mobile
    application.
    New online and mobile banking
    In the first half of 2018 the mobile application and internet banking underwent a number of optimisations
    concerning the image and handling of deposit and credit products; other new functionalities were added.
    Alior Bank's mobile application, available for smartphones with Android and iOS, was expanded inter alia as
    follows: with respect to payments – execution of transfer series, payments for invoices by scanning QR codes
    and message exchange with the Bank. Also changes were made to handling payment cards – possibility to
    change P IN and daily payment limits thus making the application more useful in everyday life.
    In order to meet the expectations of foreign customers, an additional (Russian) language version was
    launched in internet banking while in the mobile application, a poss ibility was offered to activate it without
    using the PESEL number.
    Business customers may download account statements in the form of Uniform Control Files, handle VAT Split
    Payments or move on to the “Zafirmowani.pl” platform in a fast way.
    At the end of H1 2018, internet and mobile banking were also aligned to the GDPR requirements.
    Treasury activities
    Alior Bank pursues its treasury operations, among others, in the following areas:
    • FX transactions, starting from spot transactions to option structures adequate to customers’ needs
    and knowledge on such instruments;
    • interest rate hedging transactions ensuring customers with stable funding costs;
    • hedging transactions of commodity prices;
    • liquidity management – by offering customers a broad range of prod ucts to invest excess funds
    subject to attractive terms and conditions;






    45
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    • educational activities in order to raise customers’ awareness on the offered products and the related
    risks;
    • hedging liquidity risk of Alior Bank within the approved limits and super visory metrics – by
    concluding transactions in the interbank market, including MM deposit transactions, FX swaps,
    sale/purchase transactions of T paper and REPO transactions;
    • managing the FX and interest rate risk of Alior Bank with transactions in the in terbank market,
    including, among others, with FX spot/forward transactions, CIRS and IRS swaps and interest rate
    swaps ;
    • managing the risk of commodity price changes with transactions in commodity markets ;
    • managing the risk of an FX option portfolio within the pre -approved limits by entering into hedging
    transactions and option transactions in the interbank market ;
    • trading activity in T bonds by buying and selling T bonds ;
    • hedge accounting – hedging interest rate risk resulting from banking activity by ente ring into
    exchange transactions (IRS, OIS) in PLN and foreign currencies.

    Any surplus funding of the Bank (when the deposits are higher than loans) is invested in PLN and FX
    Treasury bonds and bills and in debt securities issued by NBP with relatively sho rt maturities. The Bank
    invests its surplus funds as part of its liquidity management.
    The principle of non -committing the Bank's own funds into transactions in financial instruments will continue
    to be a strategic protection method against the systemic r isk faced by numerous banks when the market
    becomes illiquid. The Management Board intends to manage its market risk to ensure that the equity of Alior
    Bank remains at the current safe level.
    Transactional platforms
    Within its treasury activities, Alior B ank offers products in the form of transactional platforms with the
    generated income booked as business or retail income, respectively. Alior Bank uses transactional platforms
    subject to non -exclusive licence agreements for specified periods with the earli er one expiring in 2022.
    Alior Bank is the first bank in Central Europe to have implemented its own algotrading system Quasar which
    constitutes a basis for three FX platforms – Autodealing, eFX Trader, and FX Exchange Office.
    Autodealing is a service ava ilable to both business and individual customers, directly in Internet banking. The
    platform supports execution of spot and term FX transactions subject to attractive terms and conditions and
    opening of deposits for any number of days up to 1 year at high interest rates. The currencies available in
    Autodealing are as follows: PLN, EUR, USD, GBP, CHF, and additionally for Business Pro users: SEK, NOK, and
    CZK.
    eFX Trader is a platform accessible from the level of Internet banking, dedicated to most demandin g
    business customers. It supports the conclusion of spot transactions, term transactions and orders with price
    limits for 24h, 5 days a week, for almost 70 currency pairs. The platform offers three types of orders with
    price limits to execute transactions at the rates selected by customers automatically. The platform is
    characterised with high liquidity and customers may trace the developments in the FX market.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    The FX Exchange Office is the first internet FX exchange office in the Polish market. The platfo rm is destined
    for individual customers and for companies, available 24 hours a day, 7 days a week, after login at
    www.kantor.aliorbank.pl. The FX Exchange Office of Alior Bank provides for safe FX exchange at attractive
    rates and free domestic and foreign transfers of the funds purchased on the platform. The Exchange Office
    offers four types of automatic FX orders to enter into transactions at the most advantageous rates or
    periodically on a specified day each month. Additionally, customers may order free debit cards to accounts
    in EUR, USD, and GBP and also deposit and withdraw cash for free at branches of Alior Bank (PLN, EUR,
    USD, and GBP). FX Exchange Office cars are fully supported by Google Pay and Apple Pay and can be used
    by customers for contactles s payments with devices supporting such payment systems. The platform is also
    available as an application on mobile devices with Android and iOS.
    Capital investments
    Capital investments of Alior Bank are presented in the table below. All securities have b een acquired with the
    Bank's own funds:
    • Stocks:
     Securities available for trading, equity securities admitted to trading at WSE in Warsaw and
    NYSE;
     Securities available for trading, equity securities not admitted to trading.
    • Bonds: corporate bonds issued by domestic and foreign issuers, acquired due to performing the
    function of a market maker;
    • Investment certificates: certificates of closed -end private equity investment fund and units of open -
    end investment fund.

    as at 30.06.2018 as at 31.12.2017
    number market value /
    nominal in PLN number market value /
    nominal in PLN



    Stocks 614 144 48 782 357 584 789 293 577
    Listed 462 640 27 084 615 426 716 292 365
    Not listed 151 504 21 697 742 158 073 1 212
    Bonds 3 847 248 963 3 910 275 729
    Investment Certificates 832 77 897 773 88 795
    New products and activities accomplished in the Bank's Capital Group
    • Pan -European bank in a cross -border model – relying on the growing openness and integration of
    financial markets (PSD2, CRR i CRD IV, ALM IV), Alior Bank in cooperation with the German fintechs –
    Raisin and solarisBank and Mastercard has been working on a digital banking platform on the basis of
    Open API concepts. The service will be available to EU residents. The new platform is to respond to
    customers’ growing needs and their global lifestyle. Alior Bank will provide attractive FX rates, cards and
    multi -currency accounts, transfers in almost 100 currencies as well as deposits in various currencies.
    solarisBank will provide services within its banking infrastructure and Raisin – as an aggregator of deposit
    offers from all over the EU – will offer various options of savings. Additionally, customers will be able to






    47
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    use a benefit program offered by Mastercard partners. The service is to be offi cially launched in Q1 2019
    in Germany.
    • Alior Bank Start -up Accelerator – a program developed by Alior Bank addressed to start -ups all over the
    world to identify innovative projects in open banking, developing them in line with business needs and
    commercial isation (both within the bank's own systems and among its business partners). Selected start -
    ups will be covered with an ambitious acceleration program to last 15 weeks. Throughout the time, the
    participants in the Alior Bank Start -up Accelerator will be provided with sound support o experienced
    mentors from the Bank and program partners in the area of developing a model of cooperation and
    potential implementation of ideas in the Bank. Additionally, the bank will provide the users with access
    to API Sandbo x, being a special test environment to display services related inter alia to the PSD2
    directive. Program participants will also have access to financial support up to PLN 150,000 in the form
    of a convertible bond.
    • In June 2018 the Bank launched a special product offer addressed to citizens of Ukraine. As part of the
    promotion, the new holders of the internet account will be refunded fees for their first foreign transfer to
    Ukraine and will be provided with access to a dedicated service in Ukrainian and in Russian, an FX
    exchange office and internet banking.
    • Operating start of BANCOVO. – a fully digital platform for financial intermediation – took place on 6
    March 2018. As a result, for the first time in Poland customers got an online access to real offers of many
    banks and lending companies. The brand is owned by NewCommerce Services sp. z o.o.
    The innovative solutions applied in BANCOVO (big data + machine learning systems) support obtaining
    loans online in a simple and friendly manner. On the basis of th e best UX practices, the required data
    has been limited to a minimum. Within a minute, the customer gets real offers from banks and lending
    companies to choose from and with a transparent presentation the customer may choose the solution
    that suits him/her best. The contract is concluded over the Internet subject to top security standards.
    The Platform provides its Partner with appropriate quality customer profiles due to such tools as
    prescoring or an anti -fraud shield.
    Now the platform contains offers of 2 banks and 4 lending companies. Those are: Inbank, Alior Bank,
    Hapi Pożyczki, TakTo Finanse, SuperGrosz and SMS Kredyt. By the end of the year, the offer of cash
    loans and parabank loans will be extended to 6 banks and 8 lending companies. Afterwards, the offer
    will be extended with other products like: mortgage loans, loans for micro enterprises, insurance or
    investment products.
    BANCOVO. in the future plans to be a digital centre of personal finance. The solution is scalable, it has
    an open architecture so it can easily be implemented in other countries. In 2020 BANCOVO plans to be
    the leader in online intermediation and sell loans for about PLN 2 -3 billion.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018



    VII. Operations of the
    companies in the Alior
    Bank S.A. Capital Group

    Alior Bank S.A. Capital Group as at 30 June 2018
    Alior Bank
    parent company
    Alior Leasing Sp. z o.o.
    100% shares
    Serwis Ubezpieczeniowy
    Sp. z o.o.
    100% shares
    Alior Services Sp. z o.o.
    100% shares

    Alior TFI SA
    100% shares

    Absource Sp. z o.o.
    100% shares

    NewCommerce Services Sp. z o.o.
    100% shares

    Centrum Obrotu Wierzyte lnościami
    Sp. z o. o. in liquidation
    100% shares


    Meritum Services ICB SA
    100% shares


    At the end of the reporting period the following were member companies of the Alior Bank S.A. Capital
    Group : Alior Bank S.A., as the parent entity and subsidiary companies in which the Bank directly holds
    majority interests plus a 100% subsidiary of Alior Leasing Sp. z o.o.
    No change in the structure of the Alior Bank S.A. Capital Group occurred during the reporting period.
    Alior Bank S.A., as a result of a seri es of transactions in March 2018 the Bank increased its stake in Money
    Makers TFI S.A. to 91.48% and as a result on 30 April 2018 it announced a Forced Buyout of the other shares
    pursuant to Art. 82.1 of the Act on Offering. As a result of executing and se ttling transactions under the
    forced buyout , since 7 May 2018 the Bank has held 100% of shares in Money Makers TFI SA. In June 2018,






    49
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    modifications to the Company's Articles of Association were registered as made pursuant to resolution of the
    Company's Ordi nary General Meeting of 25 April 2018. The changed covered inter alia change of the name
    of Money Makers Towarzystwo Funduszy Inwestycyjnych Spółka Akcyjna to Alior Towarzystwo Funduszy
    Inwestycyjnych Spółka Akcyjna.
    Alior Leasing Sp. z o.o .
    Alior Bank S.A. holds 100% of shares and 100% of the overall number of votes at general meetin gs of Alior
    Leasing Sp. z o.o.
    Alior Leasing Sp. z o.o. was set up in April 2015 and has been actually operating since October 2015. Alior
    Bank started actions to transform the legal form of Alior Leasing into a joint stock company in 2018. By
    resolution o f 19 March 2018, the Extraordinary General Meeting chose to increase the Company's share
    capital from PLN 15,003.000.00 to PLN 15,004.000.00 (this increase was registered by the registry court on 28
    March 2018), As the sole shareholder the Bank acquired al l the newly issued shares.
    The mission of the company is to provide the best leasing solutions that respond to the expectations of
    today's companies looking for a comprehensive leasing offer, tailored to their individual needs. With the
    offer of Alior Leas ing, companies may use the most popular forms of funding fixed assets, primarily vehicles,
    that are required for their functioning and development. With such products as: operational, financial lease
    and lease loans, enterprises get an easy and fast access to means of transportation, machines and
    equipment. Alior Leasing has a large sales network and cooperates with a broad group of business partners,
    dealers and vendors as well as the sales network of Alior Bank. The Company primarily works with sole
    propr ietors and SME enterprises as well as large companies.
    In the first half of 2018 Alior Leasing concluded new contracts for PLN 1. 4 billion (+13 2% vs. the equivalent
    period last year). As a result, the loan portfolio financed by the Company grew to PLN 2.7 3 billion at the end
    of June 2018 vs. PLN 8 58 million at the end of June 2017 and PLN 1.6 5 billion at the end of December 2017.
    90% of sales by Alior Leasing relates to vehicle financing. At the end of H1 2018, the Company’s share in that
    segment grew up t o about 5%.
    Serwis Ubezpieczeniowy Sp. z o.o.
    Alior Leasing Sp. z o.o. holds 100% of shares and 100% of the overall number of votes at general meetings of
    Serwis Ubezpieczeniowy Sp. z o.o. The Company's share capital is PLN 5,000, no change occurred duri ng
    the reporting period.
    Serwis Ubezpieczeniowy Sp. z o.o. was incorporated in November 2016 and launched its operating activity in
    February 2017.
    Serwis Ubezpieczeniowy Sp. z o.o. operates in the insurance market. The Company's business covers the
    activi ty of insurance agents and brokers.









    50
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Alior Services Sp. z o.o .
    Alior Bank holds 100% of shares and 100% of the overall number of votes at General Meetings of Alior
    Services Sp. z o.o.
    Alior Services Sp. z o.o. (formerly Alior Raty Sp. z o.o.) was establ ished with the following purpose: (i) using
    sales opportunities of non -financial products and services; (ii) expanding and adding to the attractiveness of
    the offer for Private Banking customers to reinforce competitive advantages.
    The business of Alior S ervices Sp. z o.o. focuses on: (i) search for and attracting external partners to
    cooperate in offering non -banking services; (ii) establishing business contacts between customers and
    external partners, (iii) acting as an insurance agent. In 2018 the Compa ny launched pilot projects related to (i)
    cooperation with PZU on validation of a customer rating model in guarantee approval processes, (ii) sales of
    exclusive products, and (iii) DRONN – preliminary enforced collection of insurance premiums.
    Alior TFI S .A .
    Alior Bank holds 100 % of shares and 100 % of the overall number of votes at General Meetings of Alior TFI
    S.A. Alior TFI S.A. (formerly Money Makers TFI S.A.) was incorporated in 2010 and originally the company as
    a brokerage house provided services r elated to asset management, following its reorganisation in July 2015
    the company operates as a TFI. The cooperation of Alior Bank with its subsidiary Money Makers TFI S.A.
    covers three areas: asset management (management of portfolios of individual/privat e banking customers),
    insurance offers of investment funds and management of Alior SFIO sub -funds.
    As a result of the fact that on 7 May 2018 Alior Bank S.A. reached 100% in the share capital of Alior TFI S.A.,
    on 8 June .2018 the Bank proposed to convene an Extraordinary General Meeting with an agenda covering a
    resolution on reversing share dematerialisation and withdrawing the Company from being traded at
    NewConnect, operated by the Warsaw Stock Exchange. The Extraordinary General Meeting approved the
    resolution on 4 July 2018.
    Additionally, the Company's Management Board disclosed in its current report no 19/2018 of 14 June 2018
    that it had learned about the registration of modifications to the Company's Articles of Association, made
    pursuant to the re solution of the Ordinary General Meeting of 25 April 2018. The amendments covered inter
    alia change to the Company's name from Money Makers Towarzystwo Funduszy Inwestycyjnych Spółka
    Akcyjna to Alior Towarzystwo Funduszy Inwestycyjnych Spółka Akcyjna.
    Abso urce Sp. z o.o .
    On 31 March 2016 the following company was set up: Absource Sp. z o.o. Alior Bank holds 100% of shares
    and 100% of the overall number of votes at General Meetings of Absource Sp. z o.o.
    Absource Sp. z o.o. has the following objectives: (i) services related to IT and computer technologies; (ii) IT
    consulting activities; (iii) software -related activities. Business of Absource Sp. z o.o. focuses on sub -licensing
    of IT software and other IT services.








    51
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    NewCommerce Services Sp. z o.o .
    Alior Bank holds 100% of shares and 100% of the overall number of votes at General Meetings of
    NewCommerce Services Sp. z o.o.
    The company pursues one of the key initiatives of the Digital Disruptor Strategy, namely launch of a fully
    digital financial intermediatio n platform, first of its kind in Poland.
    With the platform operating as BANCOVO. customers, for the first time in Poland, will have access to actual
    loan offers – from banks and lending institutions. And in future also to mortgage loans and insurance offe rs.
    BANCOVO is said to be the most convenient and innovative platform. As it will utilise some state -of-the -art
    technological solutions and direct integration with financial institutions, the process of selecting an offer,
    concluding a loan agreement, as n ever before, is intuitive and quick for the customer. BANCOVO started
    operations on 6 March 2018. By 2020 the company is to be number 1 in online financial intermediation with
    volumes of PLN 2 -3 billion.
    By resolution of 26.06.2018, the Extraordinary Gene ral Meeting decided to increase the Company's share
    capital from PLN 400,000.00 to PLN 500,000.00. As the sole shareholder the Bank acquired the newly issued
    shares.
    Centrum Obrotu Wierzytelnościami Sp. z o.o .
    Alior Bank holds 100% of shares and 100% of th e overall number of votes at General Meetings of Centrum
    Obrotu Wierzytelnościami Sp. z o.o.
    The purpose of the Company was to expand its business on the property market and debt trading also
    outside the Alior Bank Capital Group. In 2017 further developmen t of this line of business was abandoned. In
    December 2017 the Extraordinary General Meeting chose to dissolve COW Sp. z o.o.
    Meritum Services ICB S.A .
    Alior Bank holds 100% of shares and 100% of the overall number of votes at General Meetings of Meritum
    Services ICB S.A.
    Meritum Services ICB S.A. is a company providing services in the area of IT and computer technologies and
    other IT -related services. In 2015 the Company's business was extended to include operations of insurance
    agents and brokers, activit ies related to risk assessment and estimation of incurred losses, other activities
    supporting insurance and pension funds.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    VIII. Events that are material
    to the operations of the
    Alior Bank S.A.

    Change of the share in the overall number of votes
    On 19 an d 24 April 2018, the Bank's Management Board received notifications from BlackRock, Inc. on a
    change to their share in the overall number of votes at the Bank's General Meetings, made in compliance
    with ESMA/2015/1597 standards. In accordance with the noti fications, BlackRock, Inc. indirectly held 7 392
    649 votes at the Bank's General Meeting in the form of 6 898 750 shares of the Bank entitling to 5.29% votes
    at General Meetings and other financial instruments entitling to 0.38% votes at the Bank's General Meetings.
    Transactions between entities of the Alior Bank S.A. Capital Group .
    On 26 April 2018, the Bank and its subsidiary company Alior Leasing Sp. z o.o. with its registe red office in
    Wrocław concluded annexes to overdraft facility agreements executed on 25 March 2016.
    As a result of the Annexes, the Bank’s total exposure to Alior Leasing was increased up to PLN 1,624,830
    thousand.

    Significant events after the balance sh eet date
    Statement of the Polish Financial Supervision Authority in the proceedings on the
    identification of Alior Bank S.A. as the other systemically important institution and the
    imposition of a buffer of the other systemically important institution
    On 3 1 July 2018 the Polish Financial Supervision Authority ("PFSA") acting pursuant to art. 39 of the Act on
    macroprudential supervision over the financial system and crisis management in the financial system, after
    consulting the Financial Stability Committee (acting as the competent authority in the field of
    macroprudential supervision), unanimously identified Alior Bank S.A. as another systemically important
    institution and imposed on the Bank a buffer (on an individual and consolidated ba sis) of another
    sys temically important institution equivalent to 0.25% of the total ris k exposure amount calculated in
    accordance with Art. 92 (3) of the EU CRR Regulation (No. 575/2013).







    53
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Completion of analyzes and negotiations regarding a possible merger with Bank Polska
    Kasa Opieki S.A.
    On 7 August 2018 the Management Board of the Bank informed that as of 29 May 2018, among analysed
    cooperation strategies between Alior Bank and Bank Pekao, Alior Bank found possibility of a merger (within
    which, the shareholders of Alior Ba nk would obtain shares in the combined bank) as giving an opportunity to
    bring potentially the largest additional value to its shareholders among all analized startegies of cooperation
    between Alior Bank and Bank Pekao . Moreover , on 29 July 2018, Alior Ban k decided to commence
    negotiation in respect of determining the optimal arrangement of potential merger of Alior Bank with Bank
    Pekao.
    At the same time, the Management Board of the Bank inform ed that the Banks did not reach the agreement
    on terms and cond itions of their merger which could allow, in the opinion of the Alior Bank's Management
    Board, to bring potentially the largest additional value for Alior Bank's shareholders.
    In connection with the foregoing, as of 7 August 2018, the Management Board of the Bank withdrawn from
    further negotiations with Pekao relating to merger of both Banks.
    The Bank continues its consistent ef forts to implement its current Digital Disruptor Strategy and further
    autonomous development within the PZU Group.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018



    IX. Issues o f bonds by
    Alior Bank S.A.

    In the first half of 2018 the Bank did not obtain financing through the issue of ordinary or subordinated
    bonds carried out as a public offer (in accordance with Art. 33.1 of the Act on Bonds of 15 January 2015) and
    non -public or private issues (in accordance with Art. 33.2 of the Act on Bonds of 15 January 2015).
    Public offer of the Bank’s bonds
    Pursuant to the Resolution of the Bank’s Supervisory Board of 23 August 2017 the Bank pursues a second
    opened public bond issue progr amme (Second Public Issue Programme) with a maximum value of PLN
    1,200,000,000, issued in series in line with Art. 33.1 of the Act on Bonds pursuant to a core prospectus, of
    which the Bank notified in its Current Report No. 47/2017 of 23 August 2017.
    On t he basis of the core prospectus for the Second Public Issue Programme, the Bank may issue up to
    12,000,000 unsecured, non -subordinated, or subordinated bearer bonds with a nominal value of PLN 100, or
    a multiple of this amount, with a maturity of up to 10 years from on the day of issue of relevant series of
    bonds, whereby the Bank's Management Board shall determine the terms of issue of individual series of
    subordinated bonds in such a way that:
    • the total nominal value of all subordinated bonds issued on t he basis of the Prospectus (as defined
    below) remained at or below PLN 600,000,000;
    • the unit nominal value of the subordinated bonds was PLN 400,000.
    The purpose of issue of bonds of individual series (within the meaning of Art. 32 of the Act on Bonds) wi ll be
    from time to time indicated in the Final Terms of Issue. Irrespective of the purpose of the issue, subordinated
    bonds will be qualified, upon obtaining consent of PFSA in accordance with Art. 127.1 of the Banking Act, as
    instruments in Tier 2 capital , referred to in Art. 63 of the CRR Regulation, and the proceeds from the issue
    shall be accounted for by the Bank under Tier 2 Capital of the Bank.
    The bonds will be issued and offered in series within a period of maximum 12 months from 13 October 2017,
    i.e. the date of approval of the core prospectus for the Second Public Issue Programme by the Polish
    Financial Supervision Authority .
    Non -public issue of the Bank’s bonds
    The Bank pursues a programme of own bond issue with a maximum value of PLN 2,000,000,0 00, established
    pursuant to the Resolution of the Bank's Supervisory Board of 10 August 2015 (Issue Programme), as
    reported by the Bank in Current Report No. 68/2015 of 10 August 2015. The type of bonds, the offer
    procedure, and the detailed terms of issue of individual series of bonds issued as part of the Issue
    Programme are determined by the Bank's Management Board by way resolutions.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    X. Risk report of Alior
    Bank S.A.

    Risk management is one of the most important internal processes at Alior Bank S.A., a s well as in the foreign
    branch and in subsidiaries of the Group of Alior Bank S.A. The supreme objective of the risk management
    policy is to ensure early detection and adequate management of all kinds of risk inherent to the pursued
    activity. Within its a ctivity, the Bank identifies the following types of risk:
    • credit risk (including concentration risk) ;
    • interest rate risk in the banking book ;
    • market risk (including: the interest rate risk, the exchange rate risk, and the commodity price risk) ;
    • liquidity risk ;
    • operational risk ;
    • compliance risk ;
    • model risk ;
    • business risk ;
    • reputational risk ;
    • capital risk.
    The risk management system at Alior Bank S.A. is based on three independent lines of defence. The first line
    of defence is implemented in the Bank's op erational units and with process owners who develop and
    implement compliance with control mechanisms in processes. The second line of defence is implemented in
    organisational units responsible for managing individual risks. It performs a management functio n within
    which risk management is implemented on dedicated positions or in organisational units, regardless of the
    first line, and the activity of the compliance unit. The third line provides senior management and the
    Supervisory Board with assurance that activities of the first and second line are compliant with their
    expectations. The third line of defence involves activity of the internal audit unit.
    Of the identified risks the Bank treats the following as crucial risks:
    • interest rate risk in the bankin g book ;
    • market risk (including: the interest rate risk, the exchange rate risk, and the commodity price risk) ;
    • liquidity risk ;
    • credit risk ;
    • operational risk.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Rules of market and liquidity risk management
    Key rules of market and liquidity risk management ar e determined by the Policy for Management of Assets,
    as well as Equity and Liabilities.
    The Bank follows a clear division of responsibilities for market and liquidity risk management which covers:
    • conclusion of treasury transactions ;
    • measuring, monitoring, and reporting the market and liquidity risk, including the manner of
    pursuing the policy for market and liquidity risk management ;
    • process for transaction closing ;
    • operational handling and support for business processes including handling the Bank’s nostr o
    accounts .
    Supervision over the aforementioned activities associated with conclusion of transactions and independent
    risk measurement and reporting has been separated in the Bank to the level of a Member of the
    Management Board, which guarantees their ful l independence.
    Apart from relevant organisational units also the Bank's Supervisory Board and Management Board, as well
    as ALCO play an active role in management of the market risk.
    The exposure to the market and liquidity risk is formally mitigated with a system of limits, periodically
    updated by resolutions of the Management Board or ALCO, covering all risk metrics with their levels
    monitored and reported by the Bank's organisational units that are independent of business.
    There are three types of limit s at the Bank that differ in terms of coverage and functioning: core limits
    (approved by the Supervisory Board), supplementary limits, additional limits.
    Market risk
    The Bank has identified the following types of the market and liquidity risk that are subj ect to management:
    • interest rate risk in the banking book;
    • market risk (including: the interest rate risk, the exchange rate risk, and the commodity price risk) .
    Interest rate risk
    The interest rate risk is defined as a risk of adverse impact of market in terest rates on the current
    performance or the current value of the Bank's equity. Due to its policy to mitigate the risks in the trading
    book, the Bank attaches special importance to specific interest rate risk aspects related to the banking book,
    such as :
    • mismatch risk of repricing periods ;
    • base risk ;
    • risk of the profitability curve ;
    • risk of customers’ options.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Additionally, with respect to the interest rate risk, the Bank pays special attention to modelling accounts with
    unspecified maturities and intere st rates set by the Bank (e.g. for current deposits), as well as the impact of
    non -interest items in the risk (e.g. equity, fixed assets).
    The purpose of interest rate risk management is to mitigate potential losses due to changes in market
    interest rates to an acceptable level by appropriately shaping the structure of the balance sheet and off -
    balance sheet items.
    Measurement and limitation of the interest rate risk is performed by monitoring the volatility of net interest
    income (NII) and changes in the e conomic value of the Bank's equity (EVE). In addition to the NII and EVE
    measures in measuring the interest rate risk, the Bank uses BPV, VaR, repricing gap, and stress tests.
    BPV identifies the estimated change to the measurement of a transaction/position as a result of a shift of the
    profitability curve at the relevant point by 1 bp. The BPV value is measured on a daily basis at each point of
    the curve with reference to each currency.
    BPV estimates as at 30 June 2018 and 31 December 2017 for the Bank are presented in tables below.
    BPV at the end of H1 2018 – split by tenor (PLN ‘000)
    Currency Up to 6 months 6 months to 1
    year 1-3 years 3- 5 years 5- 10 years Overall
    PLN -82.5 297.5 194.8 654.1 -49.1 1,014.8
    EUR -41.4 -21.8 44.4 87.8 0.4 69.3
    USD 8.6 17.8 2.4 -0.3 -1.2 27.3
    CHF -2.8 -1.3 -0.3 0.0 -0.3 -4.6
    GBP -1.2 1.5 0.1 0.0 0.0 0.4
    Other 0.5 0.0 0.0 0.0 0.0 0.5
    Total -118.8 293.8 241.4 741.6 -50.3 1,107.7
    BPV at the end of 2017 – split by tenor (PLN ‘000)
    Currency Up to 6 months 6 months to 1
    yea r 1-3 years 3- 5 years 5- 10 years Overall
    PLN 3.4 192.5 195.7 95.1 -90 396.7
    EUR -0.5 -8.1 61.3 90 --4.5 138.2
    USD 1 8.1 -2.2 -0.2 -1 5.6
    CHF -1 0.1 -1 0 0 -1.8
    GBP -4 2 0 0 0 -2
    Other -1 2.1 -1 -0.2 0 -0.3
    Total -1.8 196.7 253 184.7 -96 536.5
    BPV statistics – split by the banking and trade book (PLN ‘000)
    01.01.2018 -30.06.2018 01.01.2017 -31.12.2017
    Book Minimal Medium Maximum Minimal Medium Maximum
    Banking book -542.9 -266.2 45.6 -1,298.3 -575 138.8
    Trading book -52.7 8.4 80 -75.6 5.9 70
    ALCO 846.7 1018.3 1345.7 419.6 1440.6 2,225.1
    Total 431.3 760.5 1118.5 212 872 1,611






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    The table below presents 10 -day VaR for the Bank split by the banking and trading book at the end of first
    half of 2018 and at the end of 2017.
    VaR (in PLN ‘000) 30.06.2018 31.12.2017
    Banking book 19,982 8,435
    Trading book 2,801 928
    Total 22,466 9,063
    The table below presents BPV statistics split by the banking and trading book at the end of 2018 and 2017
    (99% of 10 -day VaR).
    01.01.2018 -30.06.2018 01.01.2017 -31.12.2017
    Book Minimal Medium Maximum Minimal Medium Maximum
    Banking book (with
    ALCO)
    7,597 13,370 19,982 6,346 18,123 31,068
    Trading book 1,382 2,733 4,580 870 2,208 4,009
    Total 8,085 15,054 22,466 6,046 19,398 32,043
    The Bank performs scenario analyses covering, among others, the impact of specified changes to interest
    rates on future interest income and the economic value of equity. Within those scenarios, int ernal limits are
    maintained the utilisation of which is measured on the daily basis. Movements in the limit for change of
    economic value of equity with a parallel shift of interest rate curves by +/ - 200bps and non -parallel shifts
    with scenarios of +/ - 100 /400bps (in 1M/10Y tenors, between them a linear interpolation of the shifts) at the
    end of H1 2018 and the end of 2017 are presented below (PLN ‘000).
    Scenario (1M/10Y) Change to the economic value of
    capital 30.06.2018
    Change to the economic value of
    capital 31.12.2017
    +400 /+100 72,103 188,906
    +100 / - 400 64,466 67,831
    +200 /200 55,150 102,857
    -200 / – 200 -53,543 -84,863
    - 100 / – 400 -55,352 -42,814
    - 400 / – 100 -72,535 -94,591
    Change of interest result in 1 year horizon with a change of in terest rates by 100bp (negative scenario) at the
    end of H1 2018 and at the end of 2017 is presented below .
    30.06.2018 31.12.2017
    NII 6.23% 6.96%
    The repricing gap presents a difference between the present value of assets and liabilities exposed to the
    interest rate risk, subject to repricing within the time interval, and the items are recognised on the transaction
    date.
    The repricing gap in PLN, EUR and USD as at the end of H1 2018 is presented below.
    PLN repricing gap in PLN ‘000
    30.06.2018 1M 3M 6M 1Y 2Y 5Y >5Y Total
    Periodical
    gap 14,753,735 7,560,796 3,536,448 -1,996,563 -3,186,118 -2,407,466 105.286 18,366,118






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Accumulated
    gap 14,753,735 22,314,531 25,850,979 23,854,415 20,668,297 18,260,831 18,366,118
    USD repricing gap in USD ‘000
    30.06.2018 1M 3M 6M 1Y 2Y 5Y >5Y Total
    Periodical
    gap -733.066 156.834 81.318 -134.121 -52.330 -13.735 -1.580 -696.679
    Accumulated
    gap -733.066 -576.232 -494.914 -629.035 -681.365 -695.100 -696.679
    EUR repricing gap in EUR ‘000
    30.06.2018 1M 3M 6M 1Y 2Y 5Y >5Y Total
    Periodical gap -233.294 202.024 393.532 18.196 -24.684 -58.347 -4.948 292.478
    Accumulated
    gap -233.294 -31.270 362.261 380.457 355.773 297.426 292.478
    FX risk
    The FX risk is defined as a risk of a loss resulting from changing FX rates. The core obje ctive of FX risk
    management is to identify those areas of the Bank's business that may be exposed to the risk and to take
    measures to mitigate potential related losses as much as possible.
    Alior Bank pursues regular monitoring and reporting of:
    • FX risk m etric levels ;
    • use of FX risk internal limits and threshold values;
    • stress test results.
    FX risk limits are determined so that this risk remained limited.
    The core FX risk management tools at Alior Bank are as follows:
    • internal procedures relating to FX ris k management;
    • internal FX risk models and metrics;
    • limits and warning thresholds to FX risk;
    • limitations to allowable FX transactions;
    • stress tests.
    The FX risk is measured and assessed by limiting the FX positions opened by the Bank.
    In order to measure the FX risk, the Bank uses VaR and stress tests.
    VaR identifies the potential loss on existing positions, related to changes of FX rates, while maintaining the
    assumed confidence level and the position maintenance period. In order to calculate VaR, the Ba nk applied
    a variance -covariance method with the confidence level of 99% The value is determined daily for each area
    responsible for risk assumption and management, individually and jointly.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    The maximum loss on the Bank's FX portfolio (managed within the t rading book), designated on the basis of
    the VaR in a 10 -day horizon with the assumed confidentiality level of 99%, is presented below (PLN ‘000).
    30.06.2018 31.12.2017
    VaR (PLN ) 998.5 157.5
    VaR statistics in the Bank’s FX portfolio in H1 2018 and 2017 (PLN ‘000)
    VaR 30.06.2018 31.12.2017
    Minimum 115 29.26
    Medium 666.7 309.69
    Maximum 1,604.1 1,648.53
    Bank's FX position at the end of H1 2018 and at the end of 2017
    Currencies Position in ‘000
    30 June 2018
    Position in ‘000
    31 December 2017
    Gross exp osure 39,471 59,697
    Group A gross 15,263 46,012
    EUR 8,860 15,158
    USD 5,891 29,589
    GBP 70 359
    CHF 443 905
    Other gross 24,208 15,631
    In order to measure its exposure to FX risk, the Bank carries out stress tests. Below are presented the results
    of the stress tests of changes to FX rates versus PLN by +/ - 20%. (PLN '000):
    30.06.2018 31.12.2017
    FX rates +20% 3,218 29,930
    FX rates -20% -12,872 15,522
    Liquidity Risk
    The liquidity risk means a risk of failure by the Bank to meet its payment obligations , subject to comfortable
    conditions and at adequate prices, resulting from the Bank's on - and off -balance sheet items. The policy of
    liquidity risk management at the Bank consists in maintaining its own liquidity positions so that payment
    obligations can b e met at any time with the available cash on hand, proceeds from transactions with specific
    maturities or with sales of marketable assets, while minimising the costs of liquidity maintenance.
    Assets and liabilities at Bank are managed by the specially appo inted ALCO. Liquidity risk strategy, including
    the acceptable risk level, the assumed balance sheet structure and the funding plan, is approved by the
    Bank's Management Board and further validated by the Bank's Supervisory Board. Interbank treasury
    transac tions are concluded by the Treasury Department, transactions are settled and booked in the
    Operations Division and the liquidity risk is monitored and measured in the Financial Risk Management






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Section. The competences related to liquidity risk management a re segregated in a transparent manner up
    to the Management Board level which ensures complete independence of operation.
    Among the applied liquidity management metrics, the Bank identifies indicators and related limits to the
    following liquidity types:
    • int raday liquidity
    • quick liquidity,
    • short -term liquidity,
    • medium term liquidity,
    • long -term liquidity,
    Within its liquidity risk management, the Bank also performs analyses of the maturity profile over a longer
    time, largely subject to the assumptions made wi th respect to future cash flows related to asset and liability
    items. These assumptions are approved by ALCO and the Bank's Management Board.
    Specification of maturity/payment dates of contractual flows of consolidated assets and liabilities as
    at 3 0 June 2018 (PLN M)
    30.06.2018 1D 1M 3M 6M 1Y 2Y 5Y 5Y+ Total
    ASSETS 2 265 2 306 2 208 2 827 5 245 9 270 21 387 41 655 87 163
    Cash and Nostro 1 930 0 0 0 0 0 0 0 1 930
    Receivables from
    banks 0 165 0 0 0 126 0 0 291
    Securities 0 952 8 115 298 1 399 5 841 5 233 13 846
    Receivables from
    customers 335 1 189 2 200 2 712 4 947 7 745 15 546 33 291 67 965
    Other assets 0 0 0 0 0 0 0 3 131 3 131
    Liabilities and
    equity -36 100 -8 025 -7 059 -4 760 -2 961 -2 064 -2 373 -7 918 -71 260
    Due to banks - 11 - 118 - 9 - 9 - 16 - 367 - 80 - 121 - 731
    Liabilities to
    customers -36 089 -5 969 -6 788 -4 447 -2 210 - 759 - 267 - 50 -56 579
    Own issues 0 - 130 - 262 - 304 - 735 - 938 -2 026 -1 255 -5 650
    Equity 0 0 0 0 0 0 0 -6 336 -6 336
    Other liabilities 0 -1 808 0 0 0 0 0 - 156 -1 964
    Balance sheet
    gap -33 835 -5 719 -4 851 -1 933 2 284 7 206 19 014 33 737 15 903
    Cumulated
    balance sheet
    gap
    -33 835 -39 554 -44 405 -46 338 -44 054 -36 848 -17 834 15 903
    Derivative
    instruments –
    inflows
    0 8 360 1 629 986 350 476 335 43 12 179
    Derivative
    instruments – 0 -8 292 -1 596 - 959 - 350 - 471 - 341 - 43 -12 052






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    outflows
    Derivative
    instruments –
    net
    0 68 33 27 0 5 - 6 0 127
    Guarantee and
    financing lines -11 235 - 1 - 39 - 70 - 140 - 87 - 4 - 350 -11 926
    Off -balance
    sheet gap -11 235 67 - 6 - 43 - 140 - 82 - 10 - 350 -11 799
    Total gap -45 070 -5 652 -4 857 -1 976 2 144 7 124 19 004 33 387 4 104
    Total cumulated
    gap -45 070 -50 722 -55 579 -57 555 -55 411 -48 287 -29 283 4 104
    The Bank keeps a high buffer of unencumbered high qualit y liquid assets, investing in top rated Treasury and
    corporate debt securities, characterised with fast sales possibilities, maintaining funds in its current account
    with NBP and with other banks (nostro accounts), maintaining funds in hand and investing f unds in the
    interbank market, within the approved limits. The adequacy of the maintained buffer of liquid assets is
    controlled by comparing it with the designated minimum value of the liquid assets buffer as may be required
    for survival under a stress test scenario over a time horizon from 7 days inclusive to 30 days. As at 30 June
    2018, the total buffer of unencumbered liquid assets amounted to PLN 12 716 M versus the minimum level of
    PLN 9 470 M, resulting from a shock scenario. To calculate the buffer of liquid assets, the Bank applies
    appropriate reductions to the components of the buffer in order to account for the risk of market (product)
    liquidity.
    Attracted deposits constitute a core source of funding for the Bank's business – as at the end of 2017, the
    amount of deposits accounted for about 85% of liabilities.
    Additionally, the Bank holds liquidity stress tests providing for an internal and external and mixed crisis; this
    includes the development of a fund attraction plan in emergency situations, as well as the identification and
    verification of the sales rules of liquid assets, providing for the costs of maintaining liquidity.
    In compliance with Resolution No. 386/2008 of the Polish Financial Supervision Commission of 17 December
    2008, the Bank det ermines and reports the following on a daily basis:
    • coverage ratio of illiquid assets with own funds;
    • coverage ratio of illiquid assets and assets of limited liquidity with own funds and stable external
    funds
    As at 30 June 2018, the values of the above rat ios were as follows: 5.08 and 1.16.
    As per the above Resolution, the Bank performs an in -depth long -term liquidity analysis and the stability and
    structure of funding sources, including the level of balances and concentration for term and current deposits.
    Furthermore, the Bank monitors the variability of on - and off -balance sheet items, in particular the projected
    outflows under the credit lines and guarantees granted to customers.
    Additionally, in line with Regulation (EU) No 575/2013 of the European Parl iament and of the Council of 26
    June 2013 on prudential requirements for credit institutions and investment firms (Capital Requirements






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Regulation – CRR), the Bank monitors and maintains an adequate level of the Liquidity Coverage Ratio (LCR).
    As at 30 Jun e 2018 LCR was at 127% versus the mandatory level of 100%.
    In H1 2018 Alior Bank S.A. had one branch in Bucharest which was involved in deposit and lending activity.
    The task of the Branch is lending activity on the basis of the funding acquired from Alior Bank S.A and with
    the funds acquired from the local market. The liquidity level of the Branch is monitored by dedicated
    organisational units within the Branch and the Bank's Head Quarter.
    Alior Bank holds Alior Leasing, a subsidiary company, which is mate rial in terms of liquidity risk management
    at the Group of Alior Bank S.A. The liquidity risk in the company is monitored, controlled, and reported. In
    agreement with Alior Bank, Alior Leasing introduced internal rules of liquidity risk management, includi ng
    identification of the appetite for liquidity risk and it prepares periodic reports. Reports on liquidity risk in the
    company prepared by Alior Leasing form an element of liquidity risk management in the company and they
    are used for consolidation of liq uidity risk at the Group level.
    In H1 2018 the Bank’s liquidity condition was at a safe level. The situation was closely monitored and
    maintained at an adequate level by adjusting the level of the deposit base and disbursing financing subject
    to growth of lending and other liquidity needs.
    Credit Risk
    Management of the credit risk and its maintenance at a safe level, defined in the risk appetite, is of
    fundamental importance for the Bank's stable operation and development. The credit risk is controlled wit h
    the use of the regulations in force at the Bank, in particular lending methodologies and risk measurement
    models, adjusted to customer segments, product and transaction types, establishing and monitoring of
    collateral to loans, as well as the processes o f monitoring and collection of receivables.
    The credit risk management system is comprehensive and integrated with the Bank's operational processes.
    The core stages of the credit risk management process include the following:
    • identification ;
    • measurement ;
    • monitoring ;
    • reporting and control.
    Such process supports effective supervision over the actual and potential risks and the effective application
    of risk management methods and instruments.
    Managing the risk, both on an individual and portfolio basis, the B ank takes actions aimed at:
    • minimising the level of the credit risk of a single loan with an assumed profitability level;
    • reducing the overall credit risk resulting from holding a specific loan portfolio by the Bank.
    In the mitigation process of the risk level of an individual exposure, when approving a credit product the
    Bank each time assesses:
    • the customer's creditworthiness and credit capacity, including e.g. a detailed analysis of the
    exposure repayment sources;






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    • the reliability of the approved collate ral, including the verification of its formal legal and economic
    condition, including e.g. LTV adequacy.
    In order to maintain the credit risk at the level defined in the risk appetite, the Bank takes the following
    measures:
    • sets and controls concentration limits;
    • monitors early warning signals within the EWS system;
    • regularly monitors the loan portfolio, controlling all material parameters of the credit risk (e.g. PD,
    LGD, LTV, DTI, COR, % NPL, Coverage);
    • regularly carries out stress tests.
    Risk assessment in the credit process
    The Bank grants loan products in line with the lending methodologies appropriate for the customer segment
    and product type. The assessment of the customer's creditworthiness preceding credit decisions is
    performed with a system suppor ting the credit process, scoring or rating tools; external information (e.g.
    CBD DZ, CBD BR, BIK, BIG bases) and internal bases of the Bank. Credit products are granted in line with the
    Bank's operational procedures, specifying the steps to take in the len ding process, the responsible units of
    the Bank, and the tools applied.
    Credit decisions are taken in line with the credit approval system prevailing at the Bank where authority
    levels are suited to the risk level related to each customer and transaction.
    In order to regularly assess the assumed credit risk and to mitigate potential losses on the existing loan
    exposures, during the lending term the Bank monitors the customer's condition by identifying early warning
    signals and periodic individual reviews of loan exposures. The monitoring process ends with
    recommendations concerning the strategy of further co -operation with the customer.
    Division of responsibilities
    The Bank pursues a policy of dividing the functions related to customer acquisition and sale o f credit
    products from the functions related to the assessment of the credit risk, approving credit decisions, or
    monitoring of credit exposures.
    Concentration risk management
    To ensure stability and safety of the Bank and appropriate asset quality, asset diversification, profitability and
    an adequate capital level, concentration is identified on an ongoing basis in various areas of operation. The
    Bank identifies excessive concentration of each item which is accompanied by the credit risk or the risk of
    liquidity issues/loss, as a phenomenon that may adversely affect the safety of the Bank's operations.
    The knowledge of potential hazards related to exposure concentration at the Bank supports correct asset
    and liability management and development of a safe s tructure of the loan portfolio. In order to prevent
    adverse events resulting from excessive concentration, the Bank mitigates the concentration risk by setting
    limits and applying concentration standards resulting from external regulations and internal con centration
    standards.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Impairment allowances and provisions
    The Bank reviews all on -balance sheet loan exposures (groups of on -balance sheet loan exposures) to
    identify objective impairment indications, relying on the most recent data then the items are rev alued. The
    Bank also reviews off -balance sheet exposures in terms of provision establishment. Impairment is
    automatically identified in the Bank's central system on the basis of systemic information (delays in
    repayment) or data input by users.
    Impairment indication
    The Bank evaluates impairment indications by classifying and diversifying events regarding :
    customers
    accounts
    exposures to banks
    bond exposures
    Impaired exposures are split into those that are measured individually or in groups. Individual measurement
    applies to exposures that may be impaired (calculated at the customer level) in excess of the materiality
    levels subject to the customer segment (see the table below).
    Materiality thresholds qualifying customers’ exposures to individual measure ment
    As at 30.06.2018
    Customer Segment Threshold value in PLN
    Retail customers No threshold
    Business customers 1,000,000
    Individual measurement is also applied to exposures that may be impaired with respect to which the Bank is
    not able to identify a group of assets with similar credit risk features or does not have an adequate sample
    to assess group parameters.
    Individual assessments are based on an analysis of potential scenarios (business customers). Each scenarios
    and each tree branch are assigned the likelihood of occurrence and anticipated recoveries. The assumptions
    applied for individual measurements are described in detail by persons performing analyses. The value of
    recoveries anticipated within individual measurements are compared to the act ual recoveries on a quarterly
    basis.
    Group measurements are based on periods when the affected exposures remain at default; they provide for
    a specific nature of each group in terms of the anticipated recoveries. The existing collateral is taken into
    accou nt at the exposure level.
    If no objective impairment indicators exist of loan exposures, they are classified to a group of assets with a
    similar credit risk and assessed as a group for occurrence of any material deterioration of credit quality since
    the in itial recognition. Assessment of deterioration of credit quality is made on the basis of a set of
    qualitative and quantitative indicators. Qualitative indicators include: DPD over 30 days, customer's
    classification to the Watch List category, the exposure is classified as forborne, other risks exist (including
    risks of the sector, region, etc.). Quantitative indicators include material deterioration of the current






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    cumulated default probability in the period until the expected maturity versus the cumulated d efault
    probability anticipated for the period when the exposure was generated (that is when it was first disbursed
    or materially modified). The Bank applies 2 models to estimate allowances for exposures that do not show
    impairment indicators: a model of an ticipated losses estimated for 12 months for exposures classified to
    Basket/Stage 1 (or LCR) and a model of anticipated losses estimated for the period until the maturity of
    exposures classified to Basket/Stage 2 (including POCI).
    Collateral
    The Bank es tablishes collateral in a manner adequate to the credit risk to which the Bank is exposed and
    which is flexible vis -a-vis customers’ potential. No collateral releases the Bank from its obligation to verify the
    customer's creditworthiness.
    Loan collateral i s to secure that the Bank will have the loan repaid along with interest and expenses due
    should the borrower fail to repay on the contractual dates and any restructuring activities fail to generate the
    anticipated effects.
    Collateral is verified in the cre dit process for its effectiveness to secure the Bank, its market value is measured
    as its realisable value in a potential enforcement process.
    Management of assets seized in exchange for debt
    In justified instances, the Bank will seize the assets serving a s collateral to satisfy the debt due to it. Such
    operations are performed on the basis of an approved disposal plan of the seized assets.
    Scoring/rating
    Credit scoring is a tool supporting credit decisions for individual customers and micro enterprises, wh ile
    credit rating is an instrument supporting credit decisions in the segment of SMEs and large enterprises.
    The Bank regularly monitors the correct functioning of the scoring and rating models. The objective of the
    review is to verify if the applied mode ls appropriately differentiate risks and the estimated risk parameters
    properly reflect the relevant risk aspects. Additionally, functional controls are applied to verify the correct
    application of models in the credit process.
    The currently applied scorin g models have been developed internally by the Bank. In order to reinforce the
    risk management process of the models applied in the Bank, there is a team acting as an independent
    validation unit.
    Monitoring of the credit risk of individual and business cu stomers
    Regular control of the quality of the loan portfolio is ensured by:
    • ongoing monitoring of timely debt servicing;
    • periodic reviews, in particular of the customers’ financial and economic condition and the value of
    the accepted collateral .
    All loan e xposures of individual and business customers are subject to monitoring and ongoing classification
    to the appropriate process paths. In order to improve the monitoring and control of the operational risk,






    67
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    adequate solutions have been implemented in the Ban k's credit systems. Systemic tools have been
    consolidated to ensure the effective use of the monitoring procedures, applicable to all accounts.
    Application of forbearance practices
    In the restructuring process of Individual Customers, the Bank applies the following tools:
    • extended lending periods; Extended lending periods result in the reduced monthly principal and
    interest instalments and it is possible up to 120 months (for unsecured products), irrespective of the
    original lending period. If within such r estructuring, the lending period is extended once to the
    maximum period, the tool may not be used again in the future. When the lending period is
    extended, certain restrictions are taken into account as specified in the product features, such as
    borrower's age ;
    • offering grace periods (for full or partial instalment); During the grace period in repayment of the
    principal and interest instalments, the borrower is not obliged to make any payments under the
    agreement. The loan repayment period may be extended b y the term of a grace period (this is not
    identical to the extension of the lending period). A grace period of a full instalment may be applied
    by up to 3 months and a grace period of the principal part of instalment – up to 6 months. The
    maximum grace per iod may be 6 months within 2 consecutive years (24 months) of the date of the
    restructuring annex;
    • consolidation of several obligations with Alior Bank, including modifications to limit in LOR
    accounts/unauthorised debit in ROR/KK, into an instalment loan; Consolidation results in converting
    a number of debts from various agreements into a single debt. The product activated as a result of
    consolidation is repaid in monthly instalments in line with the repayment schedule. The parameters
    of the product activa ted as a result are compliant with the features of cash loans/consolidation
    loans.
    In specific instances, other tools may be used.
    Monitoring of risk related forbearance practices
    Reporting of the quality of the restructured loan portfolio covers reporting at the levels of individual overdue
    baskets when a restructuring decision has been taken, or at an aggregated level. Calendar months are the
    core reporting periods. The following sub -processes may be identified within that split to which the
    presented val ues relate:
    • application process (the number of applications, the number of issued decisions, types of decisions);
    • the quality of the loan portfolio (split into specific overdue levels, forms of restructuring, applied
    waivers);
    • measurement of overdue in exc ess of 90 days in restructured accounts in each quarter, as at the
    end of each quarter after restructuring.
    The monthly presentation submitted to the Management Board contains results of the above monitoring of
    the restructured portfolio.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Assessment of imp airments for exposures subject to forbearance practices
    For exposures subject to forbearance , the Bank applies stricter criteria to identify impairment indicators.
    Apart from a standard catalogue of indicators, with respect to such exposures, additional cr iteria are applied,
    defined as occurrence at the time the forbearance decision is made.
    The Bank does not differentiate its approach to impairment identification on the type of forbearance granted
    to customers. All types of forbearance are subject to addit ional stricter criteria of impairment identification.
    Operational Risk
    The operational risk which means the likelihood of a loss resulting from failure to apply or unreliability of
    internal processes, people, systems, or external hazards, is identified as a material risk. The Bank has a
    formalised operational risk management system within which it prevents the occurrence of operational
    events and incidents and mitigates losses should the risk materialise. The operational risk management
    system at the Bank relies on the following three pillars:
    • corporate governance – comprising internal regulations, the internal control system, and defined
    roles and responsibilities of individual organisational units ;
    • operational risk management process – covering all of its stages with the use of adequate tools;
    • operational activities – activities taken by the Bank addressed at identifying the operational risk,
    implementing control procedures, and operational risk management, decisions taken to reduce the
    operational risk.
    For the purpose of calculation of the capital requirements for the operational risk, the Bank used the
    standardised approach in 2017. Additionally, for several years the Bank has been developing statistical
    methods to calculate the internal capital for the operational risk. On 22 December 2017 the Bank obtained
    relevant approval from the Polish Financial Supervision Authority for AMA method to calculate the capital
    requirement for the operational risk from 1 January 2018 (with the exclusion of historical eff ects of exBPH
    operations and the branch in Romania). PFSA decision is a result of months of project work aimed at
    streamlining the risk management processes at the Bank. If successful, this project will not only significantly
    reduce the capital requirement for the operational risk, but will also bring a number of process benefits and
    provide a tool for accurate estimation of the operational risk and inclusion of that risk in the costs of
    products and processes.
    The following bodies function within the stru cture of operational risk management: the Supervisory Board,
    the Risk Committee of the Supervisory Board, the Operational Risk Committee, the Operational Risk
    Management Department, and operational risk Co -ordinators.
    A detailed split of the roles and aut hority in operational risk management is determined in internal
    documentation of the Bank.
    The amount of gross operational losses, recorded in H1 2018 at Alior Bank S.A. fell within the approved
    appetite and limit for the operational risk at the Bank.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Mod el risk
    The objective of model risk management is to support the accomplishment of the approved business limits
    with an acceptable uncertainty level resulting from applying the models in the Bank's business. The Bank
    endeavours to use the models broadly in its processes, achieving automation of the decision process and
    minimising the role of the human factor. The model risk management process is handled in a way to ensure
    achievement of this objective.
    The model risk management process involves assessment of conformity of the model risk level with the
    adopted risk tolerance and measures are in place to limit this level. The process includes: model risk
    identification, measurement, control and reporting. The model risk management process is performed at the
    level of individual models and at the level of model portfolios.
    In the model risk management process, the Bank uses the following tools and techniques:
    • model cards, journals and registers containing updated information on models identified at the
    Bank;
    • model monitoring and validation to ensure the quality assessment of each model;
    • verification of the data quality used to develop and apply models consisting in reviewing the quality
    and assessment of data usability in IT systems in the context of model deve lopment and application;
    • aggregated assessment of model risk to assess the level of model risk versus the approved model
    risk appetite;
    • stress tests (TWS) supporting the assessment of the Bank's sensitivity and resilience to hypothetical
    and historic stres s events;
    • model and documentation development standards ensuring model risk mitigation when models are
    developed;
    • other, as may be required at any given time.
    Capital management (ICAAP)
    Alior Bank manages its capital in a manner ensuring safe and effective functioning of the Bank.
    In order to ensure safe functioning, within its risk appetite the Bank defines the adequate coverage levels
    with its equity (and Tier 1 capital) of potential unexpected losses due to material risks identified in the ICAAP
    process , as well as risks identified in the calculation process of the regulatory capital.
    Within the ICAAP process, the Bank identifies and assesses the materiality of all types of risk to which it is
    exposed in connection with its business.
    Material risks as at 30.06.2018
    Credit risk (including: insolvency risk, sectoral concentration risk, concentration risk to customers, currency
    concentration risk)
    Operational Risk
    Liquidity Risk
    Interest rate risk in the banking book
    Market risk
    Model risk
    Risk of re putation loss






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Business risk
    Capital risk
    Compliance risk
    For each risk identified as material, the Bank estimates the internal capital with the use of internal risk
    estimation models. Internal capital is estimated for the following risks:
    • credit risk o n the basis of CreditRisk+ methodology as the value of 99.95th quartile of the
    distribution of loss in the loan portfolio;
    • operational risk on the basis of AMA methodology;
    • liquidity risk on the basis of a liquidity gap model assuming a stress scenario;
    • ma rket risk and interest rate risk in the banking book on the basis of the VaR methodology;
    • reputational risk on the basis of the VaR model of frequency distribution and loss volume;
    • business risk on the basis of results of stress tests;
    • model risk on the ba sis of results of stress tests .
    The estimated total internal capital and the calculated regulatory capital is covered with equity (and Tier 1
    capital) subject to appropriate safety buffers.
    Capital ratios of the Bank's Capital Group
    30.06.2018 31.12.20 17 30.06.2017
    Capital adequacy ratio 15.43% 15.21% 13.65 %
    Tier 1 capital ratio 12.20% 12.10% 11.54 %
    Internal capital coverage ratio with available capital 2.35 2.26 2.00
    In view of the need to ensure a balanced growth of the Bank's scale of operations, the Bank develops its
    available capital base using various channels – profit re -investment, subordinated debt issue and new share
    issues at the stock exchange.
    The Bank develops its available capital while ensuring effective functioning or accomplishment of an
    assumed return on the equity entrusted by the shareholders.














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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    XI. Internal control system

    Alior Bank S.A. operates an internal control system which covers all controlled solutions and activities
    ensuring compliance with the statutory objectives of internal control systems, while supporting the Bank's
    management and contributing effective achievement of its tasks ensuring safety and stability of the Bank's
    operations. The internal control system is split into: a control function, a compliance uni t, and an
    independent internal audit unit.
    The internal control system is adapted to the risk management system, the organisational structure, as well
    as the volume and complexity of the Bank's operations. The system covers all of the Bank's units and its
    subsidiary entities.
    The Bank’s internal control mechanism is as follows:
    Internal controls


    First line of defence Second line of defence Third line of defence
    Business Units
    Management, functional
    inspections
    Self -control
    Systemic automatic controls
    Financial control
    Safety
    Risk assessment units
    Quality
    Model validation
    Compliance
    Internal Audit

    Top management
    Management Board

    Body responsible for corporate governance/Supervisory Board/Audit Committee

    Co mpliance
    Compliance is a general objective of the Bank's internal control system and is aimed at mitigating the risk of
    legal sanctions, financial losses, or reputation loss as a result of failure by the Bank, entities operating on its
    behalf (inducing su bsidiary entities), or its employees to comply with the law, the requirements of supervisory
    bodies, the internal regulations, and standards of conduct approved by the Bank, including ethical standards.
    The Compliance Department is a dedicated, independen t organisational unit of the Bank, reporting directly
    to a designated member of the Management Board. The Compliance Department ensures compliance of
    the Bank's operations with the law, the requirements of supervisory bodies, market standards and the
    inter nal regulations by managing the compliance risk and the control function.
    External audit

    Regulator







    72
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    XII. Control system in the
    preparation process of
    financial statements

    The financial statements are made in the Financial Division in line with the accounting policies approved by
    the Bank's Management Board and the organisation of accounting that set forth the principles of recording
    economic events of the Bank, reliably and clearly reflecting the Bank's economic and financial condition and
    the generated financial results. The det ailed description of the accounting principles are included in the
    Consolidated Financial Statements of the Alior Bank Capital Group for the year ended on 31 December 2017
    and in Alior Bank's Financial Statements for the year ended on 31 December 2017, in relevant notes in the
    part “Accounting Policies”.
    The Bank operates the internal control system, supporting decision processes and enhancing the
    effectiveness of the Bank’s operations, ensuring reliability of financial reporting and its compliance with the
    international standards, the law, the internal regulations, as well as best practices.
    The process of preparing financial data for financial reporting is automated and based on the consolidated
    General Ledger and the Data Warehouse. IT systems involved in this process are carefully controlled in terms
    of data integrity and security. This area is also subject to independent and objective assessment of the
    Internal Audit Department – both in terms of the adequacy of the internal control system, risk manageme nt,
    and corporate governance.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    XIII. Shareholding structure of
    Alior Bank S.A.
    Share capital structure
    As at the date of report publication, the share capital of the Bank amounts to PLN 1,305,187,160 and is
    divided into 130,518,716 ordinary shares with a par v alue of PLN 10.00 each.
    All of the company's shares are ordinary bearer shares. Rights and obligations attached to the shares are
    compliant with legal regulations. No special privileges or limitations for the Bank’s shares exist. Rights of
    Powszechny Zakład Ubezpieczeń S.A. as the Bank’s parent entity are based on the number of shares and the
    percentage of those shares in the share capital and votes at the General Meeting of Sh areholders. The
    Bank’s Articles of Association impose no limitations on exercising the right to vote attached to the Bank’s
    shares or on transfer of the share ownership rights.
    In the reporting period the Bank carried out three changes of the Bank’s share capital that followed
    settlement of the Original Incentive Programme:
    • increase of the Bank’s share capital by issue of 15,217 ordinary series D and E bearer shares with the
    total nominal value of PLN 152,170 (shares registered with National Depository of S ecurities on 15
    January 2018);
    • increase of the Bank’s share capital by issue of 1,179,875 ordinary series D, E, and F bearer shares
    with the total nominal value of PLN 11,798,750 (shares registered with National Depository of
    Securities on 29 March 2018);
    • increase of the Bank’s share capital by issue of 60,000 ordinary series D bearer shares with the total
    nominal value of PLN 600,000 (shares registered with National Depository of Securities on 28 June
    2018) .
    Share capital structure per series of issued shares
    Share series
    Data as at 30 June 2018 / 9 August 2018 Data as at 31 December 2017
    Number of
    shares
    Value of the series
    nominal price [PLN]
    Number of
    shares
    Value of the series
    nominal price [PLN]
    A 50,000,000 500,000,000 50,000,000 500,000,000
    B 1,250,000 12,500,000 1,250,000 12,500,000
    C 12,332,965 123,329,650 12,332,965 123,329,650
    D1 831,681 8,316,810 413,480 4,134,800
    E 521,275 5,212,750 2,785 27,850
    F 318,701 3,187,010 300 3,000
    G 6,358,296 63,582,960 6,358,296 63,582,960
    H 2,355,498 23,554,980 2,355,498 23,554,980
    I 56,550,249 565,502,490 56,550,249 565,502,490
    J 51 510 51 510
    Total 130,518,716 1,305,187,160 129,263,624 1,292,636,240
    (1) As of the publication date of this report, the registration process with KRS of the Bank's shar e capital increase concerning 60,000 series D shares was not completed unt il the publication date hereof






    74
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Shareholders of Alior Bank S.A.
    As the Bank is a public company under the Act on Public Offering and because the shares of th Bank are
    listed on a reg ulated (primary) market operated by WSE, the Bank presents below information on its
    shareholders that as a date of publication of the report directly hold shares representing at least 5% in the
    share capital and the total votes at the General Meeting of Sh areholders.
    On 2 June 2017 and agreement was concluded between Powszechny Zakład Ubezpieczeń SA, PZU Życie SA,
    PZU Specjalistyczny Fundusz Inwestycyjny Otwarty Universum, PZU Fundusz Inwestycyjny Zamknięty
    Aktywów Niepublicznych BIS 1, PZU Fundusz Inwestycyjny Zamknię ty Aktywów Niepublicznych BIS 2 on
    purchase and sale of the Bank’s shares by parties to the agreement and exercise of the voting rights at the
    General Meeting of Shareholders.
    Ownership structure of the Bank's share capital
    Shareholder 1 Share in share capi tal and overall number
    of votes at General Meetings
    09.08.2018 10.05.2018 8.03.2018 09.08.2018 10.05.2018 8.03.2018
    PZU SA 1 41,658,850 3 41, 658,850 2 41,658,850 2 31.92% 31.93% 32.22%
    Aviva OFE Aviva
    BZ WBK 9,467,000 3 11, 562,000 2 11,562,000 2 7.25% 8.86% 8.94%
    Nationale -
    Nederlanden OFE 7,630,000 3 6, 600,000 2 6,600,000 2 5.85% 5.06% 5.11%
    BlackRock, Inc. 7,392,649 4 7, 392,649 4 No data 5.66% 5.67% No data
    Other
    shareholders 64,370,217 63,245,217 69,457,991 49.32% 48.48% 53.73%
    Total 130,518,716 5 130,458, 716 129,278,841 100% 100% 100%
    (1) Along with the parties to the agreement of 2 June 2017 – PZU Życie SA, PZU Specjalistyczny Fundusz Inwestycyjny Otwarty Universum, PZU Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych BIS 1, PZU Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych BIS 2 (2) Base d on the number of shares registered at the Extrao rdinary General Meeting of 5 December 2017 (3) Based on the number of shares registered at the Annual General Meeting convened for 22 June 2018 (4) On the basis of the notification of 24 April 2018 (5) As of the publication date of this report, the r egistration process with KRS of the Bank's share capital increase concerning 60,000 series D shares was not completed until the publication date hereof.
    Changes to the ownership structure of major stakes in the period from the publication of
    the previous i nterim report
    From the publication date of the previous interim report until the publication hereof, the Bank's
    Management Board did not receive any notifications pursuant to Art. 69 of the Act of 29 July 2005 on
    Public Offering and Conditions Governing t he Introduction of Financial Instruments to Organised Trading
    and Public Companies (Journal of Laws of 2018, items 512, 685), or notifications made in compliance with
    ESMA/2015/1597 standards. Any change to the number of shares held by shareholders holding minimum 5%
    of the overall number of votes at the Bank's General Meetings is related to an update of the information on
    the list of persons authorised to participate in the Bank's Ordinary General Meeting convened for 22 June
    2018.







    75
    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Members of the Managem ent Board who were share holders of the Bank as at 30 June 2018 and as
    of the publication date hereof
    Shareholder Number of shares/
    Number of votes
    Nominal value of
    shares
    Percentage in the
    share capital
    Share in the total
    number of votes
    Katarzyna Sułkowska 28,612 286,120 0.02% 0.02%
    To the best knowledge of the Bank's Management Board, as at the publication date hereof, the Members of
    the Supervisory Board of Alior Bank S.A. did not hold any shares of the Bank. In the period from publi cation
    of the previous interim report, no transactions were executed on the Bank's shares with Members of the
    Bank's Management Board or Supervisory Board being parties thereto.
    Management option scheme
    Based on Resolution No. 28/2012 of the Extraordinary General Meeting of Shareholders of 19 October 2012
    on conditional share capital increase of the Bank and issue of subscription warrants and the rules for the
    incentive scheme adopted by the Resolution of the Bank’s Supervisory Board of 27 March 2013 the i ncentive
    scheme was launched for 2013 -2015. It applies to the members of the Management Board and key
    managers who have not been Management Board members.
    Allocation of the warrants was subject to complying with the requirements set forth in the Regulation s of the
    Program approved by the Bank’s Supervisory Board. Control over the scheme is exercised by the
    Management Board.
    The Management Option Scheme provided for issue of three tranches of subscription warrants (series A, B,
    and C) and corresponding three tranches of new shares (series D, E, and F) with a total nominal value of up
    to PLN 33,312,500, including:
    • up to 1,110,417 series A subscription warrants awarding their holder the right to subscribe for
    1,110,417 series D shares of the Bank within 5 years , starting on the first anniversary of the date of
    the first listing of the shares on WSE;
    • up to 1,110,416 series B subscription warrants awarding their holder the right to subscribe for
    1,110,416 series E shares of the Bank within 5 years, starting on th e second anniversary of the date of
    the first listing of the shares on WSE;
    • up to 1,110,417 series C subscription warrants awarding their holder the right to subscribe for
    1,110,417 series C shares of the Bank within 5 years, starting on the third anniver sary of the date of
    the first listing of the shares on WSE .
    Further to the issue of shares with pre -emptive rights, on 27 July 2016 the Supervisory Board adopted a
    technical adjustment of the Management Options Scheme to ensure economic neutrality of the s cheme for
    the eligible persons. The adjustment involves calculating the decrease of theoretical value of the
    Management Options Scheme and issuing phantom shares to the scheme participants, featuring parameters
    similar to warrants.
    In the period under rep ort, the participants in the Program exercised 1,239,875 warrants and acquired
    407,296 series D shares, 514,178 series E shares and 318,401 series F shares at the issue price compliant with
    the assumptions underlying the program.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Number of warrants as at 3 0 June 2018
    Warrant series
    Number of warrants as at 31
    December 2017
    Exercised in H1 2018
    Number of
    warrants as at 30 June 2018, of which:
    List of awarded, exercisable
    warrants
    Number of
    deferred warrants to be awarded in 2018 -2019
    A 551,366 407,296 144, 070 144,070 0
    B 1,045,919 514,178 531,741 523,392 8,349
    C 950,201 318,401 631,800 490,956 140,844
    TOTAL 2,547,486 1,239,875 1,307,611 1,158,418 149,193























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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    XIV. Governing Bodies
    of Alior Bank S.A.

    General Meeting of the Bank
    In the reportin g period, one General Meeting of the Bank was held on 22 June 2018 and continued after a
    break on 25 June 2018 The Bank's Annual General Meeting – apart from technical resolutions – approved
    other resolutions covering the closing of the financial year of 2 017 and approving: financial statements of the
    Bank and the Bank's Capital Group, Management report from operations of the Bank's Capital Group,
    covering Management report from the Bank’s business, profit distribution, granting vote of approval to all
    memb ers of the Bank's Management Board and Supervisory Board. Additionally, the Bank's General Meeting
    approved a resolution on 22 June 2018 appointing Mr Marcin Eckert to the Bank's Supervisory Board and at
    the continued part of the meeting on 25 June 2018 ap pointed Mr Wojcie ch Myślecki to the Bank's
    Supervisory Board .
    Supervisory Board of the Bank
    Composition of the Bank’s Supervisory Board
    as at 30.06.2018
    Composition of the Bank’s Supervisory Board
    as at 31.12.2017
    Tomasz Kulik Chairman of the
    Supervisory Board Tomasz Kul ik Chairman of the
    Supervisory Board
    Małgorzata Iwanicz -
    Drozdowska
    Deputy Chairwoman of the
    Supervisory Board
    Małgorzata Iwanicz -
    Drozdowska
    Deputy Chairwoman of the
    Supervisory Board
    Marcin Eckert Member of the Supervisory
    Board Dariusz Gątarek Member of the Supervisory
    Board
    Dariusz Gątarek Member of the Supervisory
    Board Mikołaj Handschke Member of the Supervisory
    Board
    Mikołaj Handschke Member of the Supervisory
    Board Artur Kucharski Member of the Supervisory
    Board
    Artur Kucharski Member of the Supe rvisory
    Board Sławomir Niemierka Member of the Supervisory
    Board
    Wojciech Myślecki Member of the Supervisory
    Board Maciej Rapkiewicz Member of the Supervisory
    Board
    Maciej Rapkiewicz Member of the Supervisory
    Board Paweł Szymański Member of the Superviso ry
    Board

    In the reporting period, there were changes to the composition of the Bank's Supervisory Board :






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    • On 21 June 2018, the following persons resigned from membership in the Bank’s Supervisory Board:
    Mr Paweł Szymański and Mr Sławomir Niemierka;
    • On 2 2 June 2018 Mr Marcin Eckert was appointed as a Member of the Supervisory Board by
    resolution of the Bank's Annual General Meeting ;
    • On 25 June 2018 Mr Wojciech Myślecki was appointed as a Member of the Supervisory Board by
    resolution of the Bank's Annual General Meeting, continuing after the break.
    Appointed Members of the Bank’s Supervisory Board shall not be involved in any activity competitive to the
    Bank and shall not participate in a competitive company as partners to a partnership or as members of
    bod ies of commercial companies or other competitive legal persons.
    The information on compliance by Members of the Bank's Supervisory Board with the requirements specified
    in Art. 22aa of the Banking Act is available at the Bank's web site : https://www.aliorbank.pl/dodatkowe -
    informacje/o -banku/rada -nadzorcza.html .
    Committees of the Supervisory Board
    Composition of the Audit Committee
    Members of the Committee as at 30.06. 2018 Members of the Committee as at 31.12.2017
    Małgorzata Iwanicz -
    Drozdowska
    Chairwoman of the
    Committee
    Małgorzata Iwanicz -
    Drozdowska
    Chairwoman of the
    Committee
    Artur Kucharski Member of the Committee Sławomir Niemierka Member of the Committee
    Marcin Eckert Member of the Committee Paweł Szymański Member of the Committee
    On 7 March 2018, the Audit Committee composed of: Ms Małgorzata Iwanicz -Drozdowska, Mr Sławomir
    Niemierka, and Mr Pan Paweł Szymański, was extended by Mr Artur Kucharski. In view of the resignation of
    Mr Sławomir Niemierka and Mr P aweł Szymański from their membership in the Bank's Supervisory Board, on
    22 June 2018 Mr Marcin Eckert was appointed to the Audit Committee. In addition, on 2 August 2018, the
    Supervisory Board of the Bank appointed Mr Wojciech Myślecki to the Audit Commit tee.
    Members of the Appointment and Remuneration Committee
    Members of the Committee as at 30.06 .2018 Members of the Committee as at 31.12.2017
    Tomasz Kulik Chairman of the
    Committee Tomasz Kulik Chairman of the
    Committee
    Mikołaj Handschke Member of the Committee Mikołaj Handschke Member of the Committee
    Maciej Rapkiewicz Member of the Committee Maciej Rapkiewicz Member of the Committee
    Marcin Eckert Member of the Committee Sławomir Niemierka Member of the Committee
    In view of the resignation of Mr S ławomir Niemierka from his membership in the Bank's Supervisory Board,
    on 22 June 2018 Mr Marcin Eckert was appointed to the Appointment and Remuneration Committee .






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Composition of the Risk Committee
    Members of the Committee as at 30.06.2018 Members of the Committee as at 31.12.2017
    Dariusz Gątarek Chairman of the Committee Dariusz Gątarek Chairman of the Committee
    Małgorzata Iwanicz -
    Drozdowska Member of the Committee Małgorzata Iwanicz -
    Drozdowska Member of the Committee
    Maciej Rapkiewicz Member of the C ommittee Maciej Rapkiewicz Member of the Committee
    In the reporting period, there were no changes to the composition of the Risk Committee.
    Bank's Management Board
    Composition of the Bank's Management Board
    as at 30.06.2018
    Composition of the Bank's Mana gement Board
    as at 31.12.2017
    Katarzyna
    Sułkowska
    President of the Management Board
    Reporting units:
    HR Division
    Departments: Management Board,
    Marketing and PR, Audit,
    Procurement, Compliance, Legal.

    Michał Jan
    Chyczewski
    Deputy President of the Management
    Board
    acting President of the Management
    Board
    Reporting units:
    HR Division, Corporate Development
    Division, Departments: Management
    Board, Investor Relations, Marketing
    and PR, Audit, Procurement
    Filip Gorczyca
    Deputy President of the
    Management Board
    Reporting units:
    Division of: Controlling,
    Departments: Data, Accounting,
    taxes, Investor Relations, Financial
    Reporting Section.
    Filip Gorczyca
    Deputy President of the Management
    Board
    Reporting units:
    Departments: Controlling, Data,
    Accounting, Tax, Financial Reporting
    Marcin Jaszczuk
    Deputy President of the
    Management Board
    Reporting units:
    Corporate Development Division
    Departments: T -Mobile Usługi
    Bankowe Branch, Foreign Markets
    Section
    Sylwester
    Grzebinoga
    Deputy President of the Management
    Board
    Reporting units:
    Depart ments: Safety, Electronic Safety,
    Regulatory Compliance, Legal
    Mateusz
    Poznański
    Deputy President of the
    Management Board
    Reporting units:
    Sales Division Kl,
    Departments: Private Banking,
    Consumer Finance, External
    Networks, Relations with Customers,
    KI Products, Brokerage Office, CRM
    KI.
    Urszula
    Krzyżanowska -
    Piękoś
    Deputy President of the Management
    Board
    Reporting units:
    Corporate Banking Development
    Division
    Departments: Sales, Private Banking,
    Treasury, Consumer Finance,
    Sales Support, External Netw orks,
    Relations with Customers, KI Products,
    Brokerage Office






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Agata
    Strzelecka
    Deputy President of the
    Management Board
    Reporting units:
    IT Division, Digital Banking and
    Remote Sales Division, Security
    Division,
    Departments: Electronic Security,
    Logist ics, Settlements, Operations.
    Katarzyna
    Sułkowska
    Deputy President of the Management
    Board
    Reporting units:
    Analysis and Recovery Division, KB
    Risk Division, Departments: Risk
    Strategy, KI Credit Policy,
    Departments: Operational Risk
    Management, Risk Strategy Models
    Maciej Surdyk
    Deputy Pres ident of the
    Management Board
    Reporting units:
    Departments: RCB Sales, KB
    Products, Sales – Micro Enterprise
    Segment, Sales – Treasury Products,
    Sales – SMEs, AGRO Business,
    Leasing, Treasury, EU Funds and
    Public Programs Section,
    CRM KB Section.
    Celina
    Waleśkiewicz
    Deputy President of the Management
    Board
    Reporting units:
    IT Division, Operations Division,
    Departments: Digital Banking, Digital
    Channel Development, T -Mobile
    Banking services, CRM, Phone sa les,
    Customer Retention Section.
    In the reporting p eriod, the following changes to the composition of the Bank's Management Board took
    place:
    • On 12 March 2018 Mr Michał Jan Chyczewski filed his resignation from the function of the Deputy
    President of the Management Board of Alior Bank S.A., directing the work of the Management
    Board ;
    • On 12 March 2018 the Supervisory Board appointed Ms Katarzyna Sułkowska to manage the works
    of the Management Board ;
    • On 13 March 2018 the Supervisory Board appointed Mr Marcin Jaszczuk to the position of the
    Deputy President of the Management Board of Alior Bank S.A. ;
    • On 13 April 2018 Ms Urszula Krzyżanowska -Piękoś and Ms Celina Waleśkiewicz filed their
    resignations from membership in the Management Board of Alior Bank S.A. ;
    • On 13 April 2018, the Bank’s Supervisory Board appoi nted Ms Agata Strzelecka, Mr Mateusz
    Poznański and Mr Maciej Surdyk to the Management Board to the positions of Deputy Presidents of
    the Bank's Management Board ;
    • On 27 April 2018, Mr Sylwester Grzebinoga, Deputy President of the Bank's Management Board
    filed his resignation from his function as a Member of the Management Board of Alior Bank S.A. ;
    • On 21 May 2018, the Bank's Supervisory Board took a resolution appointing Ms Katarzyna
    Sułkowska, the then Deputy President of the Management Board, to the positio n of the President of
    the Management Board of Alior Bank S.A.
    Appointed Members of the Bank’s Supervisory Board are not be involved in any activity competitive to the
    Bank and do not participate in a competitive company as partners to a partnership or as m embers of bodies
    of commercial companies or other competitive legal persons.
    The information on compliance by Members of the Bank's Management Board with the requirements
    specified in Art. 22aa of the Banking Act is available at the Bank's web site:
    https: //www.aliorbank.pl/dodatkowe -informacje/o -banku/zarzad.html .






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018



    XV. Rules of social
    responsibility


    Relations with customers
    In H1 2018 Alior Bank continued the enhancement of processes and implementation of new
    solutions aimed at providing Customers with a co mpetitive service level in Polish and global
    banking.
    All actions were taken on the basis of a number of surveys and analyses and a look at the process
    with the Customers’ eyes and listening to their voice with e.g. regular satisfaction level surveys with
    the NPS (Net Promoter Score) method. At that time we asked an opinion of almost 40 thousand
    customers who assessed our products and service channels.
    The objective was to provide customers with agile and friendly processes and unique products in
    line wit h their expectations.
    At Alior Bank, care is taken about the Customers’ experience at each stage of cooperation with the
    Bank and in all sales and service channels so that we can become the Bank of first choice and
    develop long -term relations.
    Additional ly, we focus on activities to support Customers in taking informed decisions on the basis
    of understanding the functioning of the products and the offered technological solutions.
    A view of banking with the Customers’ eyes makes the ongoing work on improve ment and
    continuous development a crucial issue in efforts to gain competitive advantages in the market.
    Relations with employees
    Alior Bank is a national universal bank and one of the most modern and innovative financial
    institutions in Poland. This is a place for people who have ideas and business courage to set new
    standard in banking.
    As at 30 June 2018, the headcount at Alior Bank was 8,028 FTEs.
    At the beginning of the year, we organised an internal campaign promoting the values of Alior
    Bank (team s pirit, agility, simplicity and ethics). We also worked on the results of an employee
    commitment survey – individual managers were provided with results for their organisational units;






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    a group of ambassadors was set up, responsible for initiatives building commitment in the entire
    Bank.
    We strengthened enforced internal communication – we launched a new periodic newsletter
    devoted to strategy and we launched attractive video formats (interviews with members of the
    Management Board and reports on important e vents at the Bank). We arranged open meetings
    with members of the Management Board in Warsaw, Kraków and Gdańsk. In mid -May a cyclical
    meeting was held of managerial staff devoted to progress in implementing the Digital Disruptor
    Strategy.
    Development and training
    New employees of the Bank undergo an onboarding process following dedicated training
    programs so that they are well prepared to their jobs. As part of onboarding processes for the sales
    network, we trained 305 persons.
    Employees of Alior Bank ar e given opportunities to improve their competences on the basis of an
    extensive training and development offer conducted by internal and external trainers. The direction
    of our development efforts is determined with the Digital Disruptor Strategy. The offe r covers
    product, sales training and training related to service quality and soft competences. As part of
    training in the sales network, we offer workshops to improve the employees’ business effectiveness.
    Until the end of June 2018, such training covered 895 employees. We also perform activities in the
    Training on the Job model, supporting employees in their daily work in regions. Work in the one on
    one formula is very effective and suited to the development requirements of the addressees. In H1
    2018 the p roject covered 1,756 employees of the sales network.
    Alior Bank offers practical opportunities to develop competences inside the organisation to its
    employees. In H1 2018 we carried out 16 tailored training courses for employees of the Head Office
    and bra nches and provided opportunities to 515 persons to use external training and conferences
    financed from the management pool allocated to departments. Additionally, over 1,320 employees
    used internal training held by internal trainers and within the program “Share your knowledge” in
    which all employees of the Bank may offer and develop training in technical skills related to their
    area of specialisation. The internal team of electronic training (e -learning) jointly with business
    departments developed 38 new e -training programs supporting business needs.
    Alior Bank has also defined a base of development activities for managers. All employees in
    managerial functions may use the “managerial tooling” which is a pool of training carried out by
    internal trainers as well as additional training programs carried out by external training companies.
    Examples of training from the tooling set covers incentivising and development of commitment,
    change management, diversity management, handling conflict situations, efficient communication.
    In parallel, dedicated groups (Regional Directors, Department Directors (B -1), Team Managers (B -2),
    Regional Directors) are offered central development programs in cooperation with reputable
    external partners covering elements of diagnostic s (on the basis of a 180 -degree assessment tool),
    workshops, tutoring sessions, gamification.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    All development activities for managers were designed on the basis of the Transformation Leader
    Model. Alior's Transformation Leader provides for effective accom plishment of business objectives
    by developing employees’ commitment and durable relationships with customers.
    Employee benefits
    The offer of employee benefits offered by Alior Bank in 2018 focused on three areas identified by
    our employees as important o nes: actions supporting employees’ families, sports promotion and
    women's professional development.
    Within the benefits financed with ZFŚS funds and the rules of allocating the funds as set forth in the
    Regulations approved last year, during the winter ho lidays children of our employees had day
    camps in three cities: Gdańsk, Kraków and Warsaw. In June 2018, family picnics were held in those
    cities to which employees of Alior Bank with their families were invited. They were an excellent
    opportunity to get t o know each other better and to integrate during joint entertainment,
    competitions and sports games.
    Parents of new born babies get layettes. In order to support sports initiatives, employees are
    provided with funding of sports sections for employees prac tising various sports. They also take
    care of staying fit with the subsidies to Multisport cards.
    Employees who take minimum 14 calendar days of holidays receive holiday financial support.
    Persons in difficult health and life situation, are provided with welfare benefits; those who wish to
    improve their housing conditions, are provided with loans for purchase, modernisation and
    overhauls of apartments.
    For H2 more benefits are planned for employees: cinema tickets, summer camps, Sports Olympics
    and gift parcels for children.
    Within the offer of benefits for employees, Alior Bank offers its employees the management of non -
    salary benefits with the offered group life insurance and medical care.
    On the day of their children’s first birthday, employees get a paid day off.
    Educational, cultural and social activities
    Since the beginning of its operations, Alior Bank has been focusing on promoting cultural initiatives.
    As a result of initiating the Digital Disruptor Strategy, the bank has been putting stress on those
    activities that are also characterised with innovation in the area of culture. Therefore, the bank
    supported the idea of the Kraków Art Foundation which has been documenting the preservation
    and restoration of the Senster sculpture. Academics and a rtists from the ASP [Academy of Fine
    Arts] and AGH [AGH University of Science and Technology] in Kraków committed to restore the
    cybernetic sculpture Senster made by Edward Ihnatowicz for Panasonic. This is one of the best
    known and innovative works of con temporary art, related to technologies. Digital documentation is
    being developed. The grant will support its development, archiving and preparation in a






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    documentary version, for film purposes, in order to popularise the knowledge of the work and its
    autho r.
    Alior Bank is also a strategic partner to the conference “Insider Trends CEE”, organised by Business
    Insider (Onet.pl Group). This is one of the major events in Central Europe initiating discussions on
    future trends in various areas of human activity. The conference – which each year has been
    attracting trendsetters from various areas of business, culture, media – sums up civilisation progress
    and has been trying to project the challenges faced by mankind.
    The Bank continues its activities supporting cultural initiatives that so far have been associated with
    Alior Bank’s Patronage and strengthened its image as an institution promoting high culture.
    Therefore, within the celebration of the Year of Zbigniew Herbert, the bank supported the
    organisers of the concert “Gintrowski – something will be left after us after all”, continuing its earlier
    activities propagating the poet's works.
    As an institution putting stress on social corporate responsibility, the bank for years has been
    supporting local comm unities, getting involved in a number of initiatives – one of them is the most
    frequently attended “Procession of the Three Kings”. The initiative of the “Procession of the Three
    Kings” Foundation of a Nativity play held on 6 January 2018 gathered about 1 .2 million people in
    over 600 places in Poland and abroad. Supporting the above initiatives, Alior Bank remembers the
    importance of historic identity as an element bonding local communities and that is why it was a
    partner to a special production “Wolves’ trail – Accursed Soldiers”, made on the occasion of the
    National Memory Day of Accursed Soldiers by “Gazeta Polska” with the web portal niezależna.pl.
    Awards and recognitions
    In the first half of 2018, Alior Bank S.A. won a number of awards and distinctio ns. The most
    important include:
    • The pioneer solutions in internet banking launched by Alior Bank were appreciated by
    “Miesięcznik Finansowy BANK” [Finance Monthly Magazine], which awarded to Alior Bank
    an Honorary Award in the category of “Innovative banks ”, in the ranking of “Poland's 50
    largest banks” 2018.
    • The title of the “Best bank in Poland” was awarded in 2018 to Alior Bank by “Global
    Finance”. Additionally, appreciation was shown for its approach to customers as well as the
    results – growth of asset s and profitability.
    Sponsoring activities
    Similarly to previous years, the Bank was the core sponsor of the third edition of the festival:
    “Capital of the Polish Language” in Szczebrzeszyn. The event which popularises Polish classical and
    contemporary lit erature as an important element of social and national identity, has become one of
    the most important literary festivals in Poland. Every year the festival is attended by over 10
    thousand people.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Additionally, Alior Bank sponsored a cycle of concerts “Rhyt hm of Kryniczanka – Smile with Kiepura”
    which are an element of the Jan Kiepura Festival and since 2016 it has been very popular among
    the public (open -air concerts are viewed every day by about 4 thousand viewers). The concerts
    were produced by the Cultur al Centre in Krynica Zdrój broadcast on TV, similarly like the musical
    show “For centuries you've been the Queen of Poland, Mary!”, also sponsored by the bank. The
    concert at Jasna Góra gathered over 60 000 participants. The broadcast on TVP1 and TV Polon ia
    was viewed by about 1 800 000 people.
    Additionally, we sponsored the special zone EKO -TECHNOARTMOBIL created in Kraków within two
    initiatives: “Kraków – a City of Start -ups”, carried out by the Education Development Activation
    Association, in co -operati on with the city authorities and university artists and representatives of
    local start -ups, and a cyclical start -up congress – START #KRK UP -OR KRAKÓW.AND NEW
    TECHNOLOGIES. The multimedia installation was developed by students of the Academy of Fine
    Arts a nd representatives of start -ups.
    This year, Alior Bank again became the sponsor of the Christmas illumination of the Nowy Świat
    Street in Warsaw. Thousands of lights and outstanding decorations in colours characteristic for Alior
    Bank: gold and burgundy glisten from the de Gaulle roundabo ut to the Świętokrzyska Street. At the
    junction of the Nowy Świat Street and the Jerozolimskie Avenue, surrounding with glittering
    Christmas trees, an Alior Bank island stands with a lighted bowler hat filled with gifts to the brim.
    The illumination of the Nowy Świat Street, the most representative street in Warsaw, is part of a
    Christmas installation over 20 km long which for years has been impressing the inhabitants of
    Warsaw and tourists.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018



    XVI. Representations
    of the Management
    Board


    Selection of the statu tory auditor
    The entity authorised to audit financial statements, performing an audit of the interim financial
    statements of the Alior Bank Capital Group, as well as the interim report of Alior Bank S.A. was
    selected in compliance with the applicable laws. The entity and statutory auditors auditing the
    financial statements reports shall meet the requirements to express an impartial and independent
    opinion on these interim financial statements of the Bank's Capital Group and the financial
    statements of the B ank, in line with applicable regulations of law and professional standards.
    Principles assumed for preparation of the financial statements
    The Bank’s Management Board represents that to the best of its knowledge, the semi -annual
    condensed consolidated and semi -annual condensed separate financial statements for H1 2018 and
    the comparable data were prepared in line with the applicable accounting standards and in a
    manner truly, reliably and clearly presenting the Alior Bank Group’s economic and financial
    con dition and its financial results. The Management Report in this document contains a true view of
    the development, achievements, and condition (with a description of the basic risk types) of the
    Alior Bank Capital Group in H1 2018.
    Material contracts
    The Ba nk’s Management Board declares that as at 30 June 2018 Alior Bank S.A. did not have:
    • obligations towards the central bank;
    • material contracts on loans, sureties, and guarantees not linked to its operations except for
    the Agreement of 8 November 2017 concl uded with PZU S.A. for periodic granting of
    insurance guarantees as unfunded credit protection.






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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    In the reporting period the Bank had liabilities arising from debt securities, including in particular
    subordinated bonds and bank securities and other financi al instruments.
    In H1 2018 the Bank did not conclude or terminate any significant loan agreements outside the
    normal scope of the Bank's business.
    The Bank’s Capital Group entities – outside the normal scope of their business – did not grant any
    significa nt sureties, loans or guarantees to a single entity or its subsidiary units.
    As at 30 June 2018, the number of active guarantees granted by Alior Bank was 2,340 for a total
    amount of PLN 1,364,604 thousand.
    The Bank ensures a correct time structure of it s guarantees. Active guarantees with expiry dates of
    less than two years (1,684) total PLN 773,303 thousand.
    During the reporting period, within the Alior Bank Capital Group there were no material
    transactions carried out withrelated entities otherwise th an at arm's length.
    The Bank is not aware of any contracts that could have an impact on the proportions of shares held
    by the shareholders and bondholders in the future.
    Proceedings pending before a court
    None of the single proceedings pending in the first half of 2018 before a court, arbitration authority
    or public administration authority, and all proceedings jointly do not pose any threat to the financial
    liquidity of the Bank. The litigations that in the opinion of the Management Board are important are
    specified below:
    • Case initiated by a customer – a limited liability company for payment of PLN
    102,737,728.00. A suit of 27 April 2017 against Alior Bank S.A. and Bank BPH S .A. In the
    Bank’s opinion, the suit h as no factual or legal grounds;
    • Case initiat ed by a customer – a limited liability company for payment of PLN
    17,843,164.00. Suit of 10 February 2015 originally made against Bank BPH S .A. In the Bank’s
    opinion, the suit has no factual or legal grounds;
    • Case sued by a customer – a natural person, rep resenting a group of 84 natural and legal
    persons to determine the Bank’s liability for damage. Suit of 5 March 2018 made against
    Alior Bank S.A. In the Bank’s opinion, the suit has no factual or legal grounds.









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    The Management Board’s Report on operations of the Alior Bank S.A. Capital Group for the first half of 2018


    Signatures of all Management Board Members

    Date First name and surname Signature
    08.08.2018
    Katarzyna Sułkowska
    President of the Management Board

    08.08.2018 Filip Gorczyca
    Deputy President of the Management Board

    08.08.2018 Marcin Jaszczuk
    Deputy President of the Management Board

    08.08.2018 Mateusz Poznański
    Deputy President of the Manageme nt Board

    08.08.2018 Agata Strzelecka
    Deputy President of the Management Board

    08.08.2018
    Maciej Surdyk
    Deputy President of the Management Board





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WSZYSTKIE KOMUNIKATY SPÓŁKI
Informacje o spółce
Nazwa:Alior Bank SA
ISIN:PLALIOR00045
NIP:1070010731
EKD: 65.12 działalność bankowa
Adres: ul. Łopuszańska 38D 02-232 Warszawa
Telefon:+48 22 5552222
www:www.aliorbank.pl
Kalendarium raportów
2021-04-28Raport za I kwartał
2021-08-04Raport półroczny
2021-10-27Raport za III kwartał
Komentarze o spółce ALIOR BANK
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