MANAGEMENT BOARD’S REPORT OF THE BANK … · 2016-04-07 · MANAGEMENT BOARS’S REPORT OF THE...

MANAGEMENT BOARD’S REPORT OF THE BANK OCHRONY ŚRODOWISKA S.A. CAPITAL GROUP FOR THE YEAR 2015

WARSAW, MARCH 2016

MANAGEMENT BOARS’S REPORT OF THE BOŚ S.A. CAPITAL GROUP FOR THE YEAR 2015

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TABLE OF CONTENTS

SUMMARY OF THE PERFORMANCE OF THE BOŚ S.A. CAPITAL GROUP IN 2015 ........................... 4

I. FACTORS AND EVENTS AFFECTING THE FINANCIAL POSITION OF THE GROUP .................. 7

1. MACROECONOMIC SITUATION ................................................................................................ 7

2. BOŚ S.A. SHARE QUOTATIONS ON THE WARSAW STOCK EXCHANGE ......................................... 9

3. SIGNIFICANT EVENTS IN 2015 ................................................................................................ 9

4. FACTORS THAT MAY AFFECT THE PERFORMACE OF THE BANKING SECTOR AND THE CAPITAL GROUP ................................................................................................................................. 13

II. FINANCIAL RESULTS AND ACTIVITIES OF THE GROUP ............................................................ 15

1. CONSOLIDATED INCOME STATEMENT .................................................................................... 15

2. BALANCE SHEET ................................................................................................................... 20 2.1. Group’s assets ............................................................................................................... 21

2.1.1. Changes in the structure of assets ................................................................................................ 21 2.1.2. Loans and advances granted to customers ................................................................................... 21 2.1.3. Loans granted in the reporting period .......................................................................................... 22 2.1.4. Loan Portfolio Quality .................................................................................................................... 23

2.2. Total Equity and Liabilities of the Group ........................................................................... 23 2.2.1. Changes in the structure of total equity and liabilities ................................................................. 23

2.3. Sources of funding for the Group’s operations .................................................................. 24 2.3.1. Liabilities to customers .................................................................................................................. 24 2.3.2. Own bonds .................................................................................................................................... 25 2.3.3. Information about loans taken and loan agreements signed ....................................................... 26 2.3.4. Information about loans and advances drawn, loan and surety or guarantee agreements not

relating to the Bank’s operating activities ................................................................................... 27 2.4. Contingent Assets and Liabilities of the Group .................................................................. 27 2.5. Loans, sureties and guarantees granted to subsidiaries ..................................................... 28

3. DEVELOPMENT STRATEGY OF THE GROUP .............................................................................. 28 3.1. Group’s development directions ....................................................................................... 28 3.2. Group’s development directions ....................................................................................... 29

4. ORGANIZATION OF THE CAPITAL GROUP ............................................................................... 29

5. PRIMARY SCOPE OF THE BUSINESS OF THE CAPITAL GROUP ................................................... 32 5.1. Banking activities ........................................................................................................... 32 5.2. The share of BOŚ S.A. Group in the sector ....................................................................... 32

6. MAIN PRODUCTS, SERVICES AND BUSINESS AREAS OF THE GROUP ......................................... 33 6.1. Banking products ........................................................................................................... 33 6.2. Number of serviced clients, accounts, payment cards and branches .................................... 33 6.3. Pro-ecological offer and cooperation with environmental protection funds ........................... 33 6.4. Corporate segment ......................................................................................................... 35 6.5. Public finance segment ................................................................................................... 36 6.6. Retail client segment ...................................................................................................... 37 6.7. Brokerage activity .......................................................................................................... 41 6.8. BOŚ Eko Profit S.A. – supplement to the Bank’s offer ........................................................ 42 6.9. JESSICA initiative ........................................................................................................... 42 6.10.Cooperation with foreign financial institutions ................................................................... 43

III. RISK MANAGEMENT OF THE GROUP .............................................................................................. 43

1. CREDIT RISK ......................................................................................................................... 43

2. FINANCIAL RISK ................................................................................................................... 46 2.1. Liquidity risk .................................................................................................................. 46 2.2. Interest rate risk ............................................................................................................ 49


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2.2.1. Interest rate risk in the banking book .......................................................................................... 49 2.2.2. Interest rate risk in the trading book ............................................................................................ 51

2.3. Currency risk .................................................................................................................. 52

3. OPERATIONAL AND COMPLIANCE RISK .................................................................................. 54 3.1. Operational risk ............................................................................................................. 54 3.2. Compliance risk .............................................................................................................. 55

IV. SUPPLEMENTARY INFORMATION ................................................................................................... 56

1. FINANCIAL RESOURCES MANAGEMENT .................................................................................. 56

2. CHANGES IN THE KEY MANAGEMENT PRINCIPLES .................................................................. 56

3. UNUSUAL FACTORS AND EVENTS .......................................................................................... 56

4. DIFFERENCE BETWEEN FORECASTS AND ACTUAL PERFORMANCE ............................................ 56

5. MAJOR INVESTMENT PROJECTS ............................................................................................ 56

6. DEPENDENCE ON PARTNERS ................................................................................................. 57

7. RELATED-PARTY TRANSACTIONS ........................................................................................... 57

8. SEASONALITY OR CYCLICALITY ............................................................................................. 57

9. INFORMATION ON THE BANK'S AGREEMENTS ........................................................................ 58 9.1. Significant agreements ................................................................................................... 58 9.2. Agreements with the Central Bank and regulatory bodies .................................................. 58 9.3. Agreements with the entity authorized to audit financial statements ................................... 58

10. COURT PROCEEDINGS ......................................................................................................... 59

11. ENFORCEMENT TITLES, SALES OF RECEIVABLES AND COLLATERAL VALUE ............................... 59

12. DIVIDENDS .......................................................................................................................... 59

13. UTILIZATION OF PROCEEDS FROM ISSUES OF SECURITIES ..................................................... 60

14. SHARES HELD BY MEMBERS OF MANAGEMENT AND SUPERVISORY BODIES ............................. 60

15. MANAGEMENT SHARE OPTION SCHEME ................................................................................. 61

16. VARIABLE COMPENSATION POLICY FOR EXECUTIVES OF BOŚ S.A. .......................................... 62

17. MANAGEMENT’S REMUNERATION .......................................................................................... 63

18. CONTRACTS RELATING TO COMPENSATORY PAYMENTS TO MEMBERS OF EXECUTIVE BODIES .. 63

19. EMPLOYEE TRAINING ............................................................................................................ 64

20. POST BALANCE SHEET EVENTS .............................................................................................. 65

V. CORPORATE GOVERNANCE STATEMENT ....................................................................................... 67

1. CORPORATE GOVERNANCE PRINCIPLES ................................................................................. 67

2. SHAREHOLDERS AND RIGHTS ATTACHED TO SHARES ............................................................ 71

3. BANK’S GOVERNING BODIES ................................................................................................. 76

VI. CORPORATE SOCIAL RESPOSIBILITY .......................................................................................... 82

1. BANK .................................................................................................................................... 84

2. BOŚ FOUNDATION – STRATEGIC SOCIAL ENGAGEMENT OF THE BANK ..................................... 88


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SUMMARY OF THE PERFORMANCE OF THE BOŚ S.A. CAPITAL GROUP IN 2015

The Bank has realized recently the business model which limited ability to generate sufficient revenue from the core business of the Bank. The structure of the Bank's balance sheet as at 31 December 2015 in relation to the average composition of total assets in the banking sector differs in the following areas:

• Higher level of wholesale financing than the average for banking sector, • Significantly lower share of low-cost current customer funds, • Low share high-margin consumer loans.

The factors mentioned above, in an environment of falling interest rates, significantly affected the low level of current income buffer, which could effectively cover with revenue the cost of one-off events or increased costs of risk. The events which materialized at the end of 2015 such as an additional burden on the Bank Guarantee Fund for the payment of guaranteed funds as a result of bankruptcy of Spółdzielczy Bank Rzemiosła i Rolnictwa in Wołomin and the burden of the Borrower’s Support Fund only increased the size of the Bank's net loss recorded in II, III and IV quarter of 2015. Implemented by the previous authorities of the Bank's business model also included actions in areas that in a consequence of unfavorable market situations were in the higher risk group. This applies in particular to involvement in the portfolio of foreign currency loans in the retail customer segment and focus in the corporate client segment on the implementation of major investment projects, particularly in the renewable energy sector, which can be justified with the mission of the Bank. At the same time the lack of sustainable development in the segment of retail and corporate customers, in particular in the SME segment led to a situation where the level of the current ability to generate capital through profit of the Bank has become a barrier for further growth of total assets. This situation led to a reduction of the Bank’s rating in May 2015 and in consequence of which to a significant increase of the cost of financing acquired in the market. Bank’s profit generated in 2010-2014 were significantly related to the Bank’s one-off income. In particular:

• the sale of debt securities, in the record 2014 (net income on investment securities amounted to

PLN 35 million); • the sale of tangible assets, including real estate in 2013 in the amount of PLN 12.4 million,

and the sale in 2015 in the amount of PLN 2.6 million; • dividends from subsidiaries in the amount of PLN 19 million in 2011 and 2012.

Transactions mentioned above generated positive financial results of the Bank in the short term.

Taking into consideration overall costs of business, nowadays the Bank definitely stands out from the average C/I ratio in the sector. The relatively low dynamics of decrease in costs in the years 2010 -2014, including decrease of the cost of property, from PLN 121 million and PLN 124 million in 2010 and 2011 to the level of PLN 103 - 104 million in the years 2013 to 2014, were achieved mainly due to the reduction of advertising expenses. Ineffective policy of property management was also an element which burdened the Bank’s cost position.


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As a result of policy led by the Bank’s authorities in recent years, C/I ratio was higher than the average level in the banking sector:

* C/I excluding income from investment securities, dividends and IRS. At the same time the return on equity of the Bank was at the following level of:

* ROE excluding income from investment securities, dividends and IRS. The net profit of the Group amounted to PLN -51.1 million compared to PLN 65.6 million in 2014. Because of the loss in 2015 according to the requirements of the art. 142 Banking Law, the Management Board began work on the preparation of a Recovery Program. Moreover in February 2016, the Management Board of the BOŚ S.A. decided to update strategic documents and begin work on preparation of Framework Strategy of the BOŚ S.A. for years 2016-2020, which should be accepted by the Supervisory Board of the Bank in April 2016. Key assumptions of the new Framework Strategy of the BOŚ S.A. for 2016-2020 will be published after the decision of the Supervisory Board of the Bank as a current report before the decision of the Shareholders regarding increase of the Bank’s capital. The priority objectives for BOŚ S.A. for 2016-2020 will be to increase Bank’s profitability to a level higher than the average profitability in the banking sector. In 2015, the BOŚ S.A. Group has generated a result on the banking operations of PLN 485.9 million in 2015 compared to PLN 533.0 million in 2014 which represents a decrease of 8.8%. The lower result is derived from lower net interest income due to the decreasing interest rates. Moreover there was lower


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net trading income, net income on investment securities and higher commission income, hedge accounting result and result on dividends. The Group’s general administrative expenses increased by PLN 53.9 million, i.e. 14.3% compared to 2014, mainly due to an increase in payments to the Banking Guarantee Fund of PLN 42.9 million, including the additional levy imposed on BOŚ S.A. in the fourth quarter of last year in the amount of PLN 28.2 million in connection with the bankruptcy of SK Bank Wołomin and related payments of guaranteed funds. Another element which contributed to the increase in general administrative expenses was the introduction of a levy on Borrowers’ Support Fund in the amount of PLN 9.0 million, created for the purpose of aid to individual borrowers who find themselves in difficult financial situation. The aforementioned growth in fees was not compensated by decrease of PLN 4.8 million, i.e. 2.7% of the cost of employee benefits the BOŚ S.A. Group in 2015 compared to the previous year, when the Bank's cost of employee benefits decreased by 7.3%. The decrease in the Group's costs are associated with lower employment, which decreased by 3.5%, and in the Bank's by 5.8%. In 2015 BOŚ S.A. developed its business on the green project market, increasing the share of loans supporting environmental protection in its portfolio in accordance with the Strategy. As at 31 December 2015, the balance of green loans was PLN 4.9 billion, which accounted for 33.9% of the Bank’s total loan balance as compared to 26.5% at the end of the preceding year. The pro-ecological loans were allocated primarily to investments in the field of protection of the atmosphere – mainly to the projects in the renewable energy, the sustainable construction and urban renewal areas. The amount of the new ecological loan agreements signed during the period from 1 January 2015 until 31 December 2015 amounted to PLN 2.4 billion, and was higher by 25.8% compared to 2014. The vast majority of new sales of environmental loans was addressed to corporate clients. In 2015, the value of loans provided to clients by the BOŚ S.A. Group increased, reaching the level of PLN 14.43 billion at the end of the year. As in the preceding year, the highest rise (by 41.3%) was observed in the corporate segment with a decline of 15.8% of loans granted to public finances. The share of corporate loans in total loans was the highest (51.4%). The Group’s liabilities to clients as at 31 December 2015 amounted to PLN 16.0 billion, which denotes a rise by PLN 1.7 billion (i.e. 12.2%) as compared to the end of 2014. The highest increase of PLN 1.4 billion (19.6%) was recognized in retail deposits. In the corporate segment there was an increase by 15,7%, i.e. PLN 0.7 billion. At the end of 2015, the share of corporate deposits in the total deposit balance was 15.7%. As at 31 December 2015, the Group’s balance sheet total was PLN 20.9 billion, which denotes a 6.4% rise as compared to the end of 2014. The highest share in assets (68.6%) were loans and advances to customers. As at 31 December 2015 and 31 December 2014 the Group’s met the supervisory requirements on capital adequacy. At the end of 2015, its solvency ratio measured 12.10% vs. 14.03% at the end of 2014. At the end of 2015, the Tier 1 ratio was at the level of 9.13% as compared to 10.46% a year before.


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I. FACTORS AND EVENTS AFFECTING THE FINANCIAL POSITION OF THE GROUP

1. MACROECONOMIC SITUATION In 2015, the GDP growth rate was 3.6% as compared to 3.3% in 2014. The national economy improvement was attributable to a real increase in the in private consumption and the growth contribution of net exports to the GDP. At the same time investment growth in the economy and the growth of the public consumption decreased in 2015. In 2015, private consumption was driven by higher real household income, mainly due to the low growth rate of prices. In 2015, the average real increase in wages was 4.2%, as compared to a 3.4% in 2014. Another factor supporting growth in household demand was the continued improvement in the labor market. In 2015, the registered unemployment rate declined to 9.8% at the end of 2015 compared to 11.4% in December 2014. In 2015, the number of the unemployed decreased by 262 thousand and was 1 563 thousand at the end of the year.

Year 2015 was characterized by very low overall price level. For the whole year, CPI was negative, significantly below inflation target, as defined by the National Bank of Poland (2.5%), as well as below bottom limit of the acceptable fluctuations range of the inflation target which was set at level of 1.5%. Average annual CPI amounted in 2015 to -0.9%, while at the end of 2014 0.0% y/y. Taking into account the whole year, decrease in prices was determined by the strong decrease in fuel prices (as a result of decrease in crude oil prices) and decrease in food prices. Low inflation rate was strengthen by a moderate demand and cost pressure in the economy. At the end of 2015, fall of inflation index began to stop, mainly due to the fact that food prices are going upward as crop failure of fruits and vegetables. As a result, as at December 2015, CPI amounted to -0.5% in comparison to -1.0% as at end of 2014.

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In 2015 the Monetary Policy Council decreased NBP interest rates only once, in March. After decrease of rates by 50 basis points in March, for the rest of the year the MPC did not change level of interest rates. Since March, NBP reference rate remained at the level of 1.5%, deposit rate at the level of 0.5% while lombard rate at the level of 2.5%. After the decline of WIBOR interbank loan rates, as MPC policy did not change and market expected that policy would be continued till end of 2015, WIBOR interbank loan rates did stabilize. During whole 2015, WIBOR 3M decreased by 34 basis points, reaching level of 1.72% at the end of December 2015.

After 2014, when the situation of global financial markets were relatively stable, in 2015 financial markets volatility significantly increased. That volatility resulted mainly from both positive and negative factors, that occurred one after another. To positive aspects belong announcement of the European Central Bank in January that it would start financial assets purchasing, as part of quantitative easing monetary policy since March 2015. To negative aspects belong: escalation of the Greece crisis (late second and third quarter), increased concerns regarding situation of emerging markets (in particular, Chinese economy) and market concerns that those economies would have strong negative impact on the developed economies (second half of third quarter) as well as intensifying concerns regarding possible negative effects of raising interest rates from ultra-low level (which were stable since 2007) by the U.S. Federal Reserve. End of 2015 gave periodic improvement of market expectations, as Federal Reserve declared to implemented a prudent monetary policy, followed by December decision to increase interest rates by 25 basis points. Financial market expected, that Federal Reserve would tighten its monetary policy in 2015, resulted in slight increase of treasury bonds yields in prime markets (USA and Germany) by 10 basis points and appreciation of USD against EUR (more than 10% p.a.). In the whole 2015, the most affected asset classes were emerging market, that were negatively influenced by an increase in the market uncertainty - synthetic stock index MSCI, developed for emerging markets declined in 2015 by 8.7%. In 2015 situation of the Polish financial market was heavily influenced by the global financial markets trends. In 2015, due to an increase of market risk premium for investing in assets from emerging markets, PLN exchange rate depreciated. Additionally, in the fourth quarter, financial market expectations regarding further changes in economic policy (including uncertainty of the final version of act regarding aid for indebted in foreign currencies) strengthened PLN depreciation. During 2015, PLN depreciated against USD (11.2%) and CHF (11.1%), with no change in exchange rate regarding EUR (PLN had firstly appreciated against EUR, after which depreciated in the end of 2015). Depreciation of PLN against USD was a result of global USD appreciation on the financial markets. Depreciation of PLN against CHF was determined by decision of SNB to abandon currency cap on the EUR on 15 January 2015. It caused immediate appreciation of CHF against EUR (periodically below 1 CHF/EUR against the level of 1.2 CHF/EUR before SNB decision).

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At the same time, in 2015 treasury bonds yield denominated in PLN did increase, following trend of higher treasury bonds yield of core markets (USA, Germany). 10-year treasury bonds yields increased by 40 basis points during 2015, reaching level of 2.95%. Increase of yield spread between domestic and core markets bond yields resulted from inter alia, withdrawal of low maturity of government bonds in second half of the year, which used to support bond market in 2014 and first half 2015.

2. BOŚ S.A. SHARE QUOTATIONS ON THE WARSAW STOCK EXCHANGE

In 2015, share price ranged from 17.09 to 36.64 PLN. Share price of BOŚ S.A. decreased from 34.00 PLN at the end of 2014 to 17.09 PLN at the end of 2015. Daily average shares turnover of the Bank’s shares in 2015 amounted to 3 467 units (compared to 3 564 units in 2014), while the highest amount of 28 492 units was recorded on 22 July 2015 and the lowest of 94 units on 19 October 2015.

3. SIGNIFICANT EVENTS IN 2015 Recognitions and awards in 2015 • BOŚ S.A. has joined to the prestigious group of companies listed as part of the RESPECT Index.

Companies that are listed on the main market of the stock exchange companies included in the Index, meet the highest requirements of corporate governance, information governance and investor relations with emphasis on ecological, social and employment aspects. The latest edition of the RESPECT Index includes 23 companies. These include banks, energy and construction companies.

• First place in the ranking of Gazeta Giełdy Parkiet which evaluate investor’s satisfaction with brokerages services. DM BOŚ stands out professionalism and integrity on the capital market,

• Second place in the ranking of the best brokerage account for individual customers, organized by financial portal Comperia.pl.

• First place for Savings Account ‘Więcej za mniej’ in the ranking of savings accounts by Totalmoney.pl. • First place for ‘EKOlokata Bez Kantów’ in the ranking of the best one month deposits in the amount of

PLN 5000 by TotalMoney.pl. • First place for ‘EKOkonta bez Kosztów’ in the ranking of personal account by Totalmoney.pl. • First place for the 12-month ‘EKOlokata z Bonusem’ in the ranking of Premium Deposits money.pl • First place for ‘EKOkonto Bez Kosztów’ in the ranking of savings accounts Bankier.pl. • First place for ‘EKOlokata z Bonusem’ in the ranking of 12M deposits Bankier.pl and the best deposits

for the year by Plus Biznesu.

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• First place for the cash loans in the ‘Christmas cash’ prepared by Rzeczpospolita.

Significant agreements The Bank’s Management Board disclosed that: • On 26 February 2015 (current report No. 4/2015) the Bank entered into an agreement with one of its

strategic clients to grant a non-renewable loan in the amount of PLN 140 million to be repaid by 19 February 2025. The loan is designated for financing an investment project in the dairy industry. With regard to the abovementioned investment project, the Bank also entered into an interest rate swap (IRS) agreement worth PLN 26.3 million until the 21 May 2022.

• On 5 March 2015 (current report No. 5/2015) a loan agreement was entered into with the European Investment Bank, which grants BOŚ S.A. funds in the amount of EUR 75 million over 12 years. The loan is designated for the financing of investment projects relating to the preservation of the environment, energy efficiency, maintenance of infrastructure, industrial sector, services and tourism, implemented by public finance sector entities, small and medium-sized businesses employing less than 250 people and medium-sized businesses employing less than 3 thousand people. The loan will be utilized in tranches. The agreement value amounted to PLN 310.6 million using the NBP exchange rate as of 5 March 2015.

• On 6 March 2015, (current report No. 6/2015) the Bank signed an annex to the agreement from 4 November 2013 on financing 3 wind farms with the European Bank for Reconstruction and Development, Polenergia S.A. (‘Sponsor’) and three of its subsidiaries (‘Borrowers’), that is: Grupa PEP – Farma wiatrowa 1 Sp. z o.o. (‘GPFW1’), Grupa PEP – Farma wiatrowa 4 Sp. z o.o. (‘GPFW4’) and Grupa PEP – Farma wiatrowa 6 Sp. z o.o. (‘GPFW6’). The Bank joined to the agreement on the 29 July 2014, by granting an investment loan to the GPFW4 Company in the amount of PLN 238 million for the financing of the construction of the wind farm in Skurpie with the power of 36.8 MW (which the Bank disclosed in its 47/2014 current report). Based on the annex, the value of the investment loan granted by the Bank was increased by PLN 26.3 million due to the extension of the windfarm in Skurpie to the capacity of 43.7 MW. The other terms of the agreement remained unchanged. Simultaneously, the Bank signed an annex to the VAT loan agreement signed on 6 March 2015 with the GPFW4 Company and the Sponsor. Based on the annex, the value of the loan will be increased by PLN 3.5 million to a total of PLN 28.5 million. The other terms of the agreement remained unchanged. The agreement and the annexes do not contain provisions for contractual penalties. The GPFW4 has to fulfill the condition precedent in order to initiate the financing in a higher loan value. The exposure of the Bank with the client and its subsidiaries, resulting from the agreements and the aforementioned annexes entered into by the Bank over the last 12 months, amounted to PLN 309.6 million.

• On 31 March 2015 (current report No. 9/2015) the Bank entered into a loan agreement with one of its strategic clients. Based on the agreement the Bank will grant the borrower an investment loan in the amount of PLN 262 million for the period ending 31 March 2031. The loan is designated for the financing of the construction of a wind farm, located in the Subcarpathian Voivodeship. As part of the loan agreement, the Bank also granted the borrower a working capital loan for VAT in the amount of PLN 11.5 million to be repaid by 30 September 2016. The exposure of the Bank, resulting from the credit agreement entered into on 31 March 2015, amounted to PLN 273.5 million.

• On 9 April 2015, (current report No. 10/2015), BOŚ S.A. entered into an agreement with Elektrownie Wiatrowe Wschód Sp. z o.o., under which the Bank will grant a non-renewable loan in the amount of PLN 240 million to be repaid by 31 March 2016. The loan is designated for financing the construction of a wind farm consisting of 16 units of Vestas V 112-3.2 MW turbines located in the Lublin Voivodeship of a total capacity of 51.2 MW.

• On 16 April 2015, (current report No. 12/2015), BOŚ S.A. entered into a framework agreement with one of its strategic clients. The agreement is intended to finance treasury transactions in relation to an investment loan, designated for the financing of the construction of a wind farm, granted by the Bank based on the credit agreement dated 31 March 2015, which the Bank disclosed in the 9/2015 current report. The total value of the agreements with the client over the period of the last 12 months, including the aforementioned agreement amounts to PLN 356.7 million.

• On 6 May 2015, (current report 13/2015) BOŚ S.A. entered into an investment loan agreement with Eolica Postolin Sp. z o.o. (‘Company’/’Borrower’). Under the agreement the Bank granted the Borrower a loan in the amount of max. PLN 120 million designated for the co-financing of the construction of a wind farm located in the Pomorski Voivodeship. The wind farm will be equipped with 17 Vestas model V-100 wind turbines, each with the capacity of 2 MW, with a total capacity of 34 MW. The repayment


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of the debt will occur on the earlier of the following dates: 30 June 2030 or on the day 186 months after the date of the agreement. Furthermore, the Bank signed a working capital non-renewable loan agreement with the Company in the amount of PLN 9.2 million for the period ending 31 January 2017. The loan intended for the financing of the VAT tax which is due, due to the construction of the wind farm. Both Parties also signed a framework agreement on 6 May 2015. The agreement relates to treasury transactions with the following limits: 1) FX Forward transaction limit in the amount of PLN 10.2 million, under which the transactions with

the purpose of protection against the exchange rate risks will be made, with the latest settlement date of 31 December 2016.

2) IRS transaction limit in the amount of PLN 26.4 million, under which an interest rate swap transaction will be concluded for the purposes of protection against the interest rate risk. The latest settlement date is set on 5 May 2025.

The total value of the agreements amounted to PLN 165.8 million.

• On 11 May 2015, (current report 15/2015) BOŚ S.A. entered into an investment loan agreement for PLN 365 million with Wind Field Korytnica Sp. z o.o. (Borrower) for the period ending 31 December 2034. The loan is designated for the co-financing of the construction of a group of 25 Vestas V126 wind turbines, each with the capacity of 3.3 MW- amounting to a total capacity of 82.5 MW. The wind farm is located in the Masovian Voivodeship. The agreement entered into force after the fulfillment of the condition precedent as informed by the Bank in current report 17/2015.

• On 28 May 2015 (current report 19/2015) the Bank entered into an supplementary agreement with Wind Field Korytnica Sp. z o.o. (Borrower). The agreement concerns concluding the IRS transaction, which is the extension of the framework agreement intended to finance treasury transactions in relation to an investment loan (both referred to as ‘the Framework Agreement’), designated for the financing of the construction of a wind farm, granted by the Bank based on the credit agreement dated 11 May 2015, disclosed in the Bank’s 15/2015 current report.

In the aforementioned framework agreement dated 28 May 2015 between the Borrower and the Bank IRS transaction limit in the amount of PLN 35 million has been defined which can be used only for the IRS transactions for the purpose of protection against the interest rate risk, arising from the investment loan in the Bank. The latest settlement date within the assigned transaction is set on 30 June 2020.

The total value of the agreements in which the Bank entered with the Company in the period of the last 12 months, including the aforementioned agreement, amounts to PLN 400 million. Detailed information of the agreement with the highest value was disclosed in the Bank’s 15/2015 current report.

• On 21 October 2015 (current report 46/2015) the Bank entered into an investment loan agreement for PLN 150 million with one of its strategic clients for the period ending 20 October 2019. The loan is designated for purchase of securities.

The Bank's exposure to the Client and related entities, resulting from the Bank’s agreements in the period of the last 12 months, including the aforementioned agreement, amounts to PLN 183.54 million.

Bond Issues In 2015 there were: • 5 issues of short-term bonds for a total amount of PLN 279 million, • 3 issues of long-term bonds which was started under Bond S, T, U series Issue Program amounting to

PLN 236 million, • 1 issue of W series subordinated bonds in amount of PLN 32.5 million.

Initiatives in the Back-office area In 2015, implementation activities were performed with respect to sixteen projects, which resulted mainly from the Bank’s necessity to adjust to legal/regulatory requirements of supervisory institutions and business initiatives. The main projects implemented:


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• mobile Banking project which provide to individual clients with electronic banking system BOŚBank24 Twoje e-konto (‘BOŚBank 24 Twój Bank’) in a mobile version,

• the project of VISA to MasterCard credit card migration and their support by CA Trevica, • Recommendation D, Data Quality Management, Recommendation J. Consequently, the adaptation of

the Bank to the requirements of Recommendation D and J Polish Financial Supervision Authority has been provided,

• FINREP ITS - project for mandatory financial reporting requirements of the ITS by the EBA (in terms of bearing assets) and validation of models, the aim of which was to implement a tool which would support validation process based on the results of the validation of scoring and rating models.

Additional capital requirement On 23 October 2015 (current report 47/2015) the Management Board received from the Polish Financial Supervision Authority a recommendation to maintain the Bank's own funds to cover additional capital requirements at the level of 0.88 percentage point in order to secure risk arising from foreign currency mortgage loans for individual, which should consist of Tier I in at least 75% (which equals to 0.66 percentage points). This means that minimal Bank’s capital ratios, taking into account the capital requirement recommended by PFSA are: Capital ratio T1 = 9 + 0.66 = 9.66 % Total Capital Ratio TCR = 12 + 0.88 = 12.88 %. The recommendation mentioned above should be respected by the Bank from the date of its receipt to cancellation date – i.e. until PFSA will recognize, based on the analysis and authority evaluation that risk associated with mortgage loans denominated in foreign currencies, being the cause of additional capital requirements for the Bank, significantly change. Bank’s capital ratios including additional capital requirement, related to dividend policy, recommended by PFSA for pay-off of profit for 2015 of up to 100% are: Capital ratio CET1 = 9 + 0.66 = 9.66 % Total capital ratio TCR = 12.5 + 0.88 = 13.38 %. Prosument Programme In April 2015, new product was added to the Bank`s offer - EKOkredyt Prosument, which was introduced based upon signed two agreements with Narodowy Fundusz Ochrony Środowiska i Gospodarki Wodnej (‘NFOŚiGW’) on 26 February 2015. Those agreements provide funds with the aim to grant loans and subsidies, within the Prosument priority program, supporting the purchase and installation of distributed renewable energy sources. Under these agreements, the Bank as the only one cooperating with Narodowy Fundusz, has obtained the possibility of granting in 2015 loans with total amount of subsidy PLN 110 million, of which PLN 66m in the form of loans and PLN 44 million in the form of grants. On July 2015 NFOŚiGW announced call for applications from banks interested in service of Prosument Programme. The second round of proposals as to provide banks with funds, that would be used as banking loans and grants for micro-installations for renewable energy, was ended on 30 September 2015. BOŚ S.A. was the only one bank, similarly as in the first round, that sent proposals to NFOŚiGW. The Bank requested total amount of PLN 40 million (the maximum amount according to procedure). For financing the projects, Narodowy Fundusz allocated PLN 160 million to be used by banks from 2015-2018, with the ability to sign agreements until end of 2016. Currently, Fundusz prepares the documentation to be signed. Bank expects that it will take place in the first quarter of 2016, after which EkoKredyt Prosument would be resumed. Revised priority Program Prosumer abolishes an obligation to combine both heat production installations with electricity production installations, reduces maximum unit cost eligible for solar collector and photovoltaic systems, as well as make adjustments to certain technical requirements for sources of biomass, heat pumps, photovoltaic systems, micro-cogeneration, keeping at the same time level of financial subsidy in the form of grants for investors at the current level (i.e. 40% of eligible costs of installations for the electricity production and 20% of eligible costs for installations to produce thermal energy) for contracts signed within the period of the end of 2016. Bank`s compensation did increase,


13

which currently amounts to 3% of the amount of loan paid within first year of lending and 1.5% annually based on current level of debt for each next year. Act on Renewable Energy Sources (‘RES’), other regulations concerning the market of RES and new environmental EU programs On 20 February 2015, the Polish parliament adopted a new act on renewable energy sources (‘RES’), which introduced, among others, the change from the support scheme based on the system of certificates of origin to the auction system. Regarding the micro-installations, the Act introduced guaranteed tariff levels for the resale of surplus energy by prosumers. The Act entered into force on 4 May 2015. Some of the provisions of the Act, i.e. relating to the new forms of support for RES producers had entered into force on 1 January 2016. However on 29 December 2015 a new act on change of renewable energy sources Act and the Energy Law Act have been adopted, which changed the date of entering into force regulations about new supporting forms on 1 July 2016. Ministry of Energy justify this change by necessity of deeply analysis of introduced supporting systems. According to information received from Ministry of Ecology is considered to waive from guaranteed prices for renewable energy micro-installations in a future, in exchange for partial compensation for investment in the installation; the introduction of flat-rate prices to unrelated companies exploiting small and micro-installations; the introduction of mechanisms which will ensure the development of agricultural biogas plants. The Bank constantly monitors the market of renewable energy sources and adjusts the internal regulations to the current situation. Implementation of the new support system for renewable energy sources in the form of auction system reduces the credit risk of individual transactions, as well as limits the potential of the market (by the Ministry of Ecology’s actions to limit the amount of energy issued at auctions). Currently, there is undergoing process of implementation of EU regulation into the national legal and institutional system. Promoted trends are aimed primarily to support the transition to a low carbon emission economy and adaptation to climate change and resource efficiency. Funds will be distributed among i.e.: Operational Program Infrastructure and Environment and the Regional Operational Programs. Start of investment activities will increase the demand for the Bank’s financing, complementing the available resources from the European Union. Rating On 19 May 2015 (current report No. 18/2015) Fitch Ratings Ltd downgraded Bank’s ratings: long-term rating (IDR) from ‘BBB’ to ‘BB’, bond rating in EUR from ‘BBB’ to ‘BB’ and domestic long-term rating from ‘A(pol)’ to ‘BBB(pol)’, maintaining a negative perspective. The Agency has also confirmed that individual rating (Viability Rating) will be kept at ‘bb’. After the balance sheet date on 29 February 2016 (current report No. 17/2016) the Agency downgraded long-term rating (IDR) from ‘BB’ to ‘B+’ with positive outlook. As a result of this change other Bank’s ratings was downgraded. The Agency listed in its report the significantly weakened of ability to absorb losses of new bank tax and poor quality of assets, as a main reasons of its decision. The current level of rating is the result of the Agency’s view on restricted probability of unusual support to the Bank from the Government, mainly in the light of the BRRD (The Bank Recovery and Resolution Directive). The Agency expressed its opinion that governmental institutions could perform pre-emptive actions, to avoid banks’ exceeding capital requirements in view of indirect Government’s capital contribution at the Bank and its role in funding of national pro-ecological initiatives.

4. FACTORS THAT MAY AFFECT THE PERFORMACE OF THE BANKING SECTOR AND THE CAPITAL GROUP

Factors which may affect the Group’s performance in the upcoming quarters include: • Effects of possible legal solution to the issue of mortgage loans denominated in foreign

currency There is a risk of introducing regulatory changes affecting the banking sector. Proposed


14

implementation of ongoing initiatives in the field of conversion of mortgage loans in foreign currencies, may negatively impact the BOŚ financial results.

• Introduction of additional charges

Potential further increase in the rate of contribution to the Bank Guarantee Fund, may adversely affect the profitability of the banking system, in the current and subsequent years.

• Banking tax According to the Act on tax for certain financial institutions, from 1 February 2016, banks were burdened with so-called banking tax, paid according to the size of assets (netted of by selected positions). Banking tax will not be applicable for BOŚ S.A. during the ongoing realization of the Recovery Program.

• Additional capital requirements

New, higher capital requirements recommended by the Polish Financial Supervision Authority will also have a significant impact on the operations of banks in 2016.

• Potential decrease of the interest rates Potential decrease of the interest rates in 2016, would cause a negative effect on interest margins of banks, including BOŚ S.A.

• Launch of EU environmental protection programs In Polish legal and institutional system, the process of implementation of measures under EU programs takes place. The promoted trends support the transition to a low carbon economy and adaptation to climate change and efficient resource management. Funds will be distributed among inter alia: Operational Program for Infrastructure and Environment and the Regional Operational Programs. Investment activities will increase the demand for bank financing, complementing the available resources of the European Union. This is a very important factor, which we believe will have a significant positive impact on further development of BOŚ S.A., as a bank specializing in the financing of investments in ecology and sustainable development.

• A draft of the act on wind power plant investments

At the beginning of 2016 draft of the new Act on investments in wind power plants was submitted to the Polish parliament. The main regulations included in this project are: defining a minimum distance of a wind turbine from residential buildings, national parks, nature reserves, landscape parks and forest promotional complexes as ten times the height of the turbine; inclusion of technical elements to the definition of the building (which would result in a significant increase in property tax); inclusion of wind power plants under the supervision of the Office of Technical Inspection (UDT) and the introduction of the requirement to obtain permission which is issued for a period of two years and requires constant renewal. Acceptance of the law in its proposed form can significantly reduce the development of new projects (limitation of location), and lead to significant difficulties for existing wind power plants (increase of financial burden of the property tax and fee for the UDT about 2-3 times compared to the current level). This could have a negative impact on the financial results BOŚ S.A.

• Non-performing loans coverage:

Bank due to the nature of its activities (involvement in environmental projects) engaging in transactions with a relatively high value tends to maximize the collateral of risk exposure. Impairment allowances reflect the level of obtain collaterals. The overall coverage ratio non-performing loans in the Bank is lower than average for the sector.

• Recovery Program, Framework Strategy and share capital increase The Management Board started works on the preparation of the Recovery Program. Moreover in February 2016, the Management Board of the BOŚ S.A. decided to update strategic documents and to begin work on preparation of Framework Strategy of the BOŚ S.A. for years 2016-2020, which should be accepted by the Supervisory Board of the Bank in April 2016. Key assumptions of the new Framework Strategy of the BOŚ S.A. for years 2016-2020 will be published after the decision of the Supervisory Board of the Bank as a current report before the decision of the Shareholders regarding increase of the Bank’s capital. Priority objectives for BOŚ S.A. for the years 2016-2020 will be


15

improvement of profitability of the Bank to a level higher than the average profitability in the banking sector. On 15 February 2016 General Shareholders’ Meeting of BOŚ S.A. took a resolution on the approval of Schedule of share capital increase in BOŚ S.A. The terms of actions taken under Schedule of share capital increase in the BOŚ S.A. were proposed by the Board assuming the recapitalization by private placement of shares. On 26 February 2016 the Supervisory Board of BOŚ S.A., fulfilling introduced by the General Shareholders Meeting of BOŚ S.A. Schedule of share capital increase, issued a positive opinion on the proposed by the Management Board terms of share capital increase through the issue of shares U series. The value of the Bank's planned issue of new shares is PLN 300 million to PLN 600 million. The intention of the Management Board of the Bank is to raise capital at a level no lower than PLN 400 million, which will enable to meet the capital requirements imposed by the PFSA on the Bank, and the further organic growth and the generation of funds for the implementation of the mission in terms of finance green investments and sustainable development. The capital increase will enable to meet the additional capital requirements imposed by the PFSA on the Bank from 1 January 2016.

II. FINANCIAL RESULTS AND ACTIVITIES OF THE GROUP

1. CONSOLIDATED INCOME STATEMENT

Item 2015 2014

Change % PLN ‘000

Continuing operations Interest and similar income 659 912 746 228 -11.6

Interest and similar expense -398 501 -456 786 -12.8 Net interest income 261 411 289 442 -9.7 Fee and commission income 143 248 133 267 7.5 Fee and commission expense -30 523 -30 255 0.9 Net fee and commission income 112 725 103 012 9.4 Dividend income 5 279 4 541 16.3 Net trading income 52 319 78 028 -32.9 Result on investment securities 17 781 34 930 -49.1 Net gain/loss on hedge accounting 707 -1 394 x Net foreign exchange gains/losses 35 700 24 475 45.9 Other operating revenue 21 221 14 228 49.1 Other operating expenses -18 775 -20 308 -7.5 Net impairment gains/losses -114 138 -68 202 67.4 General and administrative expenses -431 081 -377 210 14.3 Operating profit/loss -56 851 81 542 x Gross profit/loss -56 851 81 542 x Income tax charges 5 733 -15 975 x

NET PROFIT/LOSS -51 118 65 567 x

In 2015 the BOŚ S.A. Group generated a gross result of PLN -56.9 million. In the previous year the gross profit amounted to PLN 81.5 million. The tax charge amounted to PLN 5.7 million, in comparison to PLN -16.0 million in 2014. In 2015, the net result of the Group was PLN -51.1 million, in comparison to PLN 65.6 million in 2014. In 2015 the BOŚ S.A. Group’s result on banking operations was PLN 485.9 million as compared to PLN 533.0 million in 2014, which denotes a decrease by 8.8%. The aforesaid decrease was attributable to a decrease in the net interest income, net trading income, net investment income with increasing net fee and commission income, net foreign and exchange result, net result on hedge accounting and dividend income.


16

The net interest income decreased by 9.7% year-on-year, as a result of a more considerable decrease in interest income (by PLN 86.3 million) comparing to interest expense (by PLN 58.3 million). Interest and similar income decreased by 11.6%. The decrease in interest income concerned interest on loans (by 7.0%) on financial instruments (by 23.1%) and on hedging transactions (by 32.1%).

Interest and similar expense decreased by 12.8%. The main reason for aforesaid was decrease in expense related to client term deposits, deposits and bank accounts which amounted to PLN 32.1 million (11.1%) and resulted from interest rate decrease. Interest expense related to loans granted to the Bank dropped by PLN 5.3 million (46.8%) following a decrease in their volume. A reduction in interest expense related to funds to be disbursed as loans was PLN 5.6 million and resulted from lower costs incurred in relations servicing the funds for the JESSICA initiatives. Interest expense related to financial instruments – own issues of debt securities - dropped by PLN 15.3 million (10.2%), which was accompanied by a reduction in their volume by PLN 276.6 million, i.e. 10.7% as compared to 31 December 2014.

289.4

103.0

4.5

78.0

34.9

-1.4

24.5

261.4

112.7

5.3

52.3

17.8 0.7

35.7

Net interestincome

Net fee andcommission

income

Dividend income Net tradingincome

Net investmentincome

Net gain/loss onhedge accounting

Net foreignexchange

gains/losses

Profit/loss on banking operations of the BOŚ S.A. Group (PLN million)

2014 2015

1.5 2.3

196.8 263.3

243.8 167.3

109.4 77.7

0.00 0.00

190.7

146.6

4.1

2.8

2014 2015

Interest income (PLN million)

On hedging transactions

On financial instruments

On other customers loans

On public sectro loans

On retail loans

On corporate loans

On banks loans

746.2

659.9


17

The Group’s net fee and commission result increased by 9.4%, i.e. by PLN 9.7 million. The Group’s total fee and commission income increased by 7.5%, mainly due to increase in brokerage fees (by PLN 15.0 million), income on servicing loans by PLN 2.8 million and guarantees and letters of credit by PLN 0.8 million.

On the other hand, the fee and commission expense slightly increased by 0.9%. The most significant increase (by PLN 2.8 million) was recorded for brokerage fees, and it was accompanied by a decrease in credit card charges (by 17.5%) and current accounts fees by 39.5%.

288.5 256.5

11.4

6.0

7.4

1.8

149.5

134.2

2014 2015

Interest expense ( PLN million)

Interest expense related tofinancial instruments

Interest expense related to fundsto be disbursed as loans

Interest expense related to loans

Interest expense related to termdeposits, deposits and bankaccounts

28.0 30.8

6.8 7.6 0.0 0.5

41.9

57.0

55.9

47.4

0.6

0.0

2014 2015

Fee and commission income (PLN million)

Other fees and charges

Client accounts fees and otherdomestic and foreign tradetransactions

Fees on transactions in securities

Fees on portfolio management andother management fees

Fees on guarantees and LCs

Fees on loans

456.8

398.5

143.2

133.3


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Dividend from Kemipol Sp. z o.o. of PLN 4.9 million (vs. PLN 4.3 million in 2014) was the main item of dividend income. In 2015, the net trading income totaled PLN 52.3 million. In comparison to 2014 the result was lower by 32.9%, primarily as a result of lower income of Dom Maklerski BOŚ S.A. on CFDs and other derivative instruments. The result on investment securities was PLN 17.8 million, which denotes a decrease of 49.1% vs. 2014. The higher result in 2014 was the effect of favorable changes in Treasury bond prices and the Bank’s sale of bonds from available-for-sale portfolio. The net foreign exchange result increased by 45.9%, mainly due to higher net income from the valuation. In 2015, other operating revenue less other operating expenses were PLN 2.4 million comparing to PLN -6.1 million in 2014. The result was positively affected by higher income from sale of fixed assets and increase revenue from sales of goods and services by PLN 3.7 million at lower year-on-year costs of adjustments and interest from previous years as well as lower cost of debt collection. In 2015, the net impairment result amounted to PLN -114.1 million comparing to PLN -68.2 million in 2014. In 2015, the net impairment result related to retail segment were at level of PLN -54.1 million. The net impairment result in the corporate loans was PLN -55.7 million. The result of the impairment of loans granted to other banks was PLN -4.5 million. The Group’s general and administrative expenses increased by PLN 53.9 million, i.e. 14.3% year-on-year, with a 6.4% increase in the scale of operations measured by growth in assets as compared to 31 December 2014. The increase was mainly attributable to an increase of PLN 42.8 million in the costs of fees and contributions to the Bank Guarantee Fund, including additional charges imposed on BOŚ S.A in the 4th quarter of 2015 in the amount of PLN 28.2 million in connection with the bankruptcy SK Bank in Wołomin and related payment of guaranteed funds. The second element, which impacted on increase of general and administrative expenses was establishment by the legislator of fees for Borrowers’ Support Fund in the amount of PLN 9.0 million, created for the purpose of support of individual borrowers who are in a difficult financial situation.

15.7 18.5

6.9 5.7

0.6 0.5

4.6 2.8

0.6 0.7 0.6 1.7

1.2 0.7

2014 2015

Fee and commission expense (PLN million)

Other charges

Fees on loans and advances

Euronet service fees

Current account fees

Fees on cash transactions paid toother banks

Payment card charges

Brokerage fees

30.3 30.5


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The growth of expenses mentioned above has not been balanced by the decrease of the BOŚ S.A. Group employee benefits expense by PLN 4.8 million, i.e. 2.7% year-on-year. It should be emphasized that the employee benefit expense of the Bank decreased by 7.3%. This was mainly attributable to reduction in employment, which decreased by 3.5% in the Group, and by 5.8% in the Bank.

Efficiency and security of Group’s operations The ROE of the Group amounted to -3.4% as compared to 4.3% in 2014. The net interest margin decreased in comparison to 2014 due to a higher dynamics in decrease in interest rates on loans than the decrease of obtaining funds from deposits and issued bonds under the conditions of low interest rates.

1611 1 517

229 258

31.12.2014 31.12.2015

Number of employees of the BOŚ S.A. Group (in FTES)

Employees of BOŚ S.A. Employees of subsidiaries

181.0 176.2

147.1 202.4

49.1

52.5

2014 2015

General and administrative expenses (PLN million)

Amortization/depreciation

Administrative expenses

Employee benefits

431.1

377.2


20

The following table presents key profitability and efficiency ratios of the Group, along with their calculation methodology:

Item 2015 2014 Change [p.p.]

% Return on Equity (ROE)1 -3.4 4.3 -7.7

Return on Assets (ROA)2 -0.3 0.3 -0.6

Interest margin on total assets3 1.3 1.5 -0.2

Cost-to-income ratio (C/I)4 88.3 71.6 16.7

Adjusted cost-to-income ratio (C/I)5 80.7 71.6 9.1 1) net profit relative to the average balance of equity at the beginning and at the end of the period, 2) net profit relative to the average balance of total assets at the beginning and at the end of the period, 3) net interest income relative to the average balance of total assets at the beginning and at the end of the period 4) general and administrative expenses relative to net interest income, net fee and commission income, dividend income, net trading income, net investment income, net gain/loss on hedge accounting, net foreign exchange gains/losses and net income on other operations, 5) general and administrative expenses (adjusted by one-off events: additional charge imposed on BOŚ S.A in IV quarter 2015 amounted to PLN 28.2 million in connection with the bankruptcy of SK Bank in Wołomin and the contribution to the Borrowers Support Fund amounted to PLN 9.0 million) relative to net interest income, net fee and commission income, dividend income, net trading income, net investment income, net gain/loss on hedge accounting, net foreign exchange gains/losses and net income on other operations The cost-to-income ratio (C/I) was 88.3%, whereas adjusted for one-offs 80.7%. As one-off events an additional charge imposed on BOŚ S.A in the amount of PLN 28.2 million in connection with the bankruptcy of SK Bank in Wołomin and the contribution to the Borrowers Support Fund amounted to PLN 9.0 million were considered. After the elimination of growth in contributions to the Bank Guarantee Fund in comparison to the prior year, the ratio would amount to 77.6%.

Item 2015 2014 Change [p.p.] %

Total capital requirements (adequacy ratio) 12.10 14.03 -1.93

Tier 1 ratio 9.13 10.46 -1.33

According to the Article 92 Regulation of the European Parliament and of the Council (EU) No 575/2013 of 26 June 2013 (CRR), Bank is required to maintain a total capital ratio of at least 8%. Tier I capital ratio and core capital ratio Tier I should amount at least 6% and 4.5%,respectively. As at 31 December 2015 and 31 December 2014 Bank has met the supervisory requirements on capital adequacy.

In order to comply with conservation buffer in force since 1 January 2016, Extraordinary General Shareholders Meeting of Bank Ochrony Środowiska S.A. adopted the resolution on approval of the increase the share capital of Bank Ochrony Środowiska S.A. schedule on 15 February 2016. The Bank fulfilled the obligation under Article 60 of the Act of 5 August 2015 about macro-prudential oversight of the financial system and crisis management in the financial system (Journal of Laws, item 1513), and filed with the PFSA on 8 January 2016 Capital conservation plan.

2. BALANCE SHEET As at 31 December 2015, the total assets amounted to PLN 20 921.8 million and were higher by 6.4% in comparison to the end of the year 2014.


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2.1. Group’s assets 2.1.1. Changes in the structure of assets As at 31 December 2015, loans and advances to clients had the largest share in the total assets (68.6%). Their share in the total assets value increased during year by 5.1 p.p., whereas the share of investment securities decreased by 5.1 p.p. As at the end of 2015, their share in assets accounted for 23.9%.

Item 31.12.2015 31.12.2014

Change % PLN ‘000

Cash and deposits with the Central Bank 614 897 394 168 56.0

Receivables from other banks 158 720 346 963 -54.3

Securities held-for-trading 107 182 10 096 961.6

Derivative financial instruments 206 949 214 877 -3.7

Derivative hedge instruments 11 557 21 823 -47.0

Loans and advances to customers 14 343 558 12 489 421 14.8 Investment securities:: 5 000 538 5 698 555 -12.2 – available for sale 4 072 490 4 708 229 -13.5

– held to maturity 928 048 990 326 -6.3

Intangible assets 147 610 164 898 -10.5

Property, plant and equipment 89 411 132 023 -32.3

Income tax assets 49 683 29 882 66.3

- current 3 757 x

- deferred 45 926 29 882 53.7

Other assets 191 667 169 203 13.3

Total Assets 20 921 772 19 671 909 6.4

2.1.2. Loans and advances granted to customers At the end of 2015, the carrying amount of loans and advances granted to the Group’s clients was equal to PLN 14 343.6 million and was higher by 14.8% in comparison to the end of 2014.

Item 31.12.2015 31.12.2014

Change % PLN ‘000

Loans granted to retail clients 4 788 405 4 683 774 2.2

Loans grated to corporate clients 7 377 494 5 220 772 41.3

Loans granted to public finance 2 177 649 2 584 862 -15.8

Loans granted to other clients 0 2 x

Total Loans and advances 14 343 548 12 489 410 14.8 Other receivables 10 11 -9.1

NET LOANS AND ADVANCES GRANTED TO CUSTOMERS 14 343 558 12 489 421 14.8

In 2015, corporate loans increased by 41.3%, which was accompanied by 15.8% decrease in public finance. Corporate loans represented the major part of total loans (51.4%).


22

Net loans to clients – segment structure

At the end of 2015, retail loans totaled PLN 4 788.4 million, including mortgage loans with the carrying amount of PLN 3 821.0 million at the end of 2015 compared to PLN 3 3844.3 million at the end of 2014. Foreign currency loans represented the major part of mortgage loans (58.4% - without changes to 2014). The share of mortgage loans in CHF in the whole loan portfolio amounted to 9.3% at the end of 2015, in comparison to 10.4% at the end of 2014. The average base interest rate on loans granted by the Bank: • 4.29% in 2015 vs. 5.01% in 2014 – for PLN loans, • 2.27% in 2015 vs. 2.62% in 2014 – for foreign currency loans. 2.1.3. Loans granted in the reporting period In 2015 the Bank granted loans totaled 4 658.5 million (excluding overdraft facilities), which represents 21.4% increase in comparison to 2014 (measured by the principal at the loan extension date). The major part of loans were granted to corporate clients. Sales of loans in 2015 and 2014

Item 2015 2014 Change

PLN ‘000 % Corporate loans granted during the year 3 903 176 3 223 518 21.1

Retail loans granted during the year 654 996 445 796 46.9

Public sector loans granted during the year 100 303 168 715 -40.5

LOANS TO CUSTOMERS GRANTED DURING THE YEAR 4 658 475 3 838 029 21.4

33.4% 51.4%

15.2%

31.12.2015

Retail clientsCorporate clientsPublic sector clients

37.5% 41.8%

20.7%

31.12.2014


23

2.1.4. Loan Portfolio Quality

Item 31.12.2015 31.12.2014

PLN ‘000 % PLN ‘000 %

Loans and advances which are not impaired, including: 13 433 872 91.2 11 749 693 91.7 Loans and advances which are not past due 13 241 534 89.9 11 506 187 89.8

Loans and advances which are past due 192 338 1.3 243 506 1.9

Loans and advances having indications of impairment, but not showing the loss of value due to the expected cash flows 153 183 1.0 143 726 1.1

Loans and advances having indications of impairment and showing loss of value 1 138 701 7.7 916 000 7.2

Total loans and advances to customers and other banks (gross value) 14 725 756 100.0 12 809 419 100.0

Impairment allowances for loans and advances to customers and other banks -382 207 -2.6 -316 082 -2.5

Other net receivables 10 0.0 11 -

Total loans and advances to customers and other banks (net), of which: 14 343 559 97.4 12 493 348 97.5

- clients 14 343 558 97.4 12 489 421 97.5

- banks 1 0.0 3 927 0.0

At the end of 2015 impairment increased by 20.9%, (i.e. PLN 66.1 million) as compared to the end of 2014. The share of impairment allowances in total loans as at 31 December 2015 was 2.6% as compared to 2.5% as at the end of 2014. The share of gross impaired loans in the portfolio was 7.7% as compared to 7.2% at the end of 2014. This improvement is a consequence of faster growth of overall portfolio compared to the growth of the portfolio of impaired loans, while increasing of the amount of gross loans of PLN 1.9 billion, i.e. 15% in 2015. The level of coverage of impaired loans as at 31 December 2015 amounted to 29.2% in the portfolio of retail 42.7% and 21.6% for the portfolio of corporate customers. 2.2. Total Equity and Liabilities of the Group

2.2.1. Changes in the structure of total equity and liabilities In 2015 the structure of equity and liabilities changed. The share of liabilities to clients increased by 4.0 p.p. from 72.3% at the end of 2014 to 76.3% as at 31 December 2015. On the other hand, the share of liabilities due to issue of bank securities decreased by 2.1 p.p. The share of the Group’s equity in the balance sheet total at the end of 2015 was 7.0% and it decreased by 0.8 p.p. as compared to the end of 2014.


24

Item 31.12.2015 31.12.2014

Change % PLN ‘000

Liabilities to the Central Bank 5 38 -86.8 Liabilities to other banks 216 404 354 086 -38.9 Derivative financial instruments 152 291 194 090 -21.5 Derivative hedging instruments 37 621 41 504 -9.4 Liabilities to clients 15 968 163 14 228 040 12.2 Liabilities due to issue of bank securities 2 318 189 2 594 781 -10.7 Subordinated liabilities 599 961 566 435 5.9 Provisions 19 261 9 902 94.5 Deferred tax liabilities 397 7 652 -94.8 Other liabilities 140 924 127 613 10.4 Total equity 1 468 556 1 547 768 -5.1

TOTAL EQUITY AND LIABILITIES 20 921 772 19 671 909 6.4

Information about share capital, purchase of treasury shares by BOŚ S.A. in 2015 and capital from sale of shares above its nominal value has been presented in note 36 ‘Share capital’ of the Annual Consolidated Financial Statements for the period of 12 months ended on 31 December 2015. The BOŚ S.A. Group was fully capable of settling its liabilities upon maturity as well as funding new loans and other investment expenditures. 2.3. Sources of funding for the Group’s operations 2.3.1. Liabilities to customers

Item 31.12.2015 31.12.2014 Change (%)

Corporate customers 5 209 149 4 501 154 15.7 Retail customers 8 396 643 7 022 124 19.6 Public sector customers 838 005 793 135 5.7 Eco funds 1 067 319 827 -99.7 Other clients 66 685 35 407 88.3 Loans from international financial institutions 1 410 914 1 292 024 9.2 Funds to be disbursed as loans 45 700 264 369 -82.7

TOTAL LIABILITIES TO CLIENTS 15 968 163 14 228 040 12.2

As at 31 December 2015, the Group’s liabilities to clients totaled PLN 15 968.2 million, which denotes an increase by PLN 1 740.1 million (12.2%) in comparison to 31 December 2014. The value of retail deposits went up by 19.6 %, i.e. PLN 1 374.5 million. The value of corporate deposits increased by 15.7%, i.e. PLN 708.0 million, which was accompanied by an increase in liabilities to public sector clients of PLN 44.9 million (5.7%). The share of retail deposits in total liabilities to clients increased to 52.6% at the end of 2015, from the level of 49.4% as at the end of 2014. At the end of 2014, the share of corporate deposits in the total deposit balance was 32.6% compared to 31.6% at the end of 2014.


25

Liabilities to clients - segment structure

The average base interest rate on deposits acquired through the network of the Bank’s branches: • 2.01% in 2015 vs. 2.46% in 2014 – for PLN deposits • 0.25% in 2015 vs. 0.28% in 2014 – for foreign currency deposits

2.3.2. Own bonds Liabilities arising from the issue of bonds are an important source of funding. At the end of 2015, they amounted to PLN 2 318.2 million as compared to PLN 2 594.8 million at the end of 2014, which denotes a 10.7% decrease. As at 31 December 2015, subordinated liabilities totaled PLN 600.0 million (increased by 5.9% in comparison to prior year).

Long-term bond issues In 2015 the Bank has issued three long-term bond issues for the total amount of PLN 236 million and one subordinated bond issues for the total amount PLN 32.5 million: • on 20 February 2015 (current report No. 3/2015) long-term S series bonds were issued by BOŚ S.A. in

the amount of PLN 100 million, • on 22 June 2015 (current report No. 27/2015) T series bonds were issued by BOŚ S.A. in the amount

of PLN 80 million, • on 12 August 2015 (current report No. 43/2015) U series bonds were issued by BOŚ S.A. in the

amount of PLN 56 million, • on 30 December 2015 (current report No. 50/2015) W series subordinated bonds were issued by

BOŚ S.A. in the amount of PLN 32.5 million

Short-term bond issues In 2015, five issues of short-term bonds for the total amount of PLN 279 million took place: • on 19 January 2015 (current report No. 2/2015) KT.1.39 series bonds were issued by BOŚ S.A.

in the amount of PLN 109 million. The KT.1.39 bond issue was organized with the participation of Dom Maklerski BOŚ S.A.

• on 23 March 2015 (current report No. 8/2015) KT.1.40 series bonds issue were issued by BOŚ S.A. in the amount of PLN 20 million. The KT.1.40 bond issue was organized with the participation of Dom Maklerski BOŚ S.A.

32.6%

52.6%

5.2%

0.0%

0.4%

8.8%

0.3% 31.12.2015

31,6%

49,4%

5,6%

2,2% 0,2%

9,1%

1,9%

31.12.2014

Corporate customers

Retail customers

Public sector customers

Eco funds

Other clients

Loans from international financial institutions

Funds to be disbursed as loans


26

• on 19 May 2015 (current report No. 16/2015.) KT.1.41 and KT.1.42 series bonds issues were issued by BOŚ S.A., each in the amount of PLN 50 million. The KT.1.41 and KT.1.42 bond issues were organized with the participation of mBank S.A.

• on 1 June 2015 (current report no. 22/2015) KT.1.43 series bonds issue were issued by BOŚ S.A. in the amount of PLN 50 million. The KT.1.43 bond issue was organized with the participation of mBank.

Usage proceeds from issues Proceeds from the issue of short-term bonds were used for funding new loans in the Bank and optimizing the structure of the balance sheet, while those from the issue of subordinated bonds for improvement of prudential ratios with respect to Tier 2 qualifying instruments as well as expansion of operations in line with the Bank’s Growth Strategy.

2.3.3. Information about loans taken and loan agreements signed On 5 March 2015 the Bank entered into a loan agreement with the European Investment Bank for the amount of EUR 75 million for the period of 12 years. The loan is designated to finance investment projects implemented by public sector entities as well as small and medium-sized enterprises employing less than 3 000 employees in the areas related to environmental protection, energy efficiency, maintenance of infrastructure, industry, services and tourism. Information about the loan was included in the current report No. 5/2015. Information about loans taken in the preceding years:

Lender Loan amount Available amount Currency Agreement

date Maturity date

Council of Europe Development Bank, Paris 50 000 0.00 EUR 2-7-2003 18-12-2018

European Investment Bank, Luxembourg 50 000 0.00 EUR 18-7-2003 15-3-2016

Kreditanstalt für Wiederaufbau, Frankfurt 10 000 0.00 EUR 20-3-2007

I tranche: 15-09-2017 II tranche

15-09-2018

European Investment Bank, Luxemburg 50 000 0.00 EUR* 12-11-2007 15-6-2020

Council of Europe Development Bank, Paris 50 000 0.00 EUR* 17-3-2008

I tranche: 25-04-2023

II I II tranche: 25-10-2023

European Investment Bank, Luxemburg 75 000 0.00 EUR 3-12-2009 I,II, III tranche:

15-06-2021

Kreditanstalt fur Wiederaufbau, Frankfurt 15 000 0.00 EUR 16-12-2009 15-03-2017

Council of Europe Development Bank, Paris 50 000 0.00 EUR 8-03-2010

I tranche: 22-04-2025

II tranche: 9-07-2021 III tranche 15-12-2021

European Investment Bank, Luxemburg 75 000 0.00 EUR 8-02-2012

I tranche 15-06-2020 II tranche 15-03-2021 III tranche 15-12-2021

Council of Europe Development Bank, Paris 75 000 0.00 EUR 26-03-2012

I tranche 26-07-2021 II tranche 21-10-2022 III tranche 1-12-2023

European Investment Bank, Luxemburg 75 000 0.00 EUR 05-03-2015 I tranche 15-06-2023

II tranche 15-12-2023

TOTAL EUR 575 000

* Utilization in PLN or EUR


27

The loans taken by the Bank supplement the major sources of funding for its operations, including liabilities to customers, bond issues and equity. 2.3.4. Information about loans and advances drawn, loan and surety or

guarantee agreements not relating to the Bank’s operating activities In 2015, the Bank did not draw loans, surety or guarantee not related to the Bank's operations. 2.4. Contingent Assets and Liabilities of the Group As at 31 December 2015, the Group’s total contingent liabilities amounted to PLN 2 839.4 million, including financial liabilities of PLN 2 569.6 million.

Item 31.12.2015 31.12.2014 Change

PLN ‘000 %

Contingent liabilities: 2 839 384 2 823 463 0.6

Financial, including: 2 569 605 2 552 680 0.7

open lines of credit, including: 2 124 410 2 293 236 -7.4

- revocable 1 794 721 1 885 517 -4.8

- irrevocable 329 689 407 719 -19.1

Open import letters of credit 159 779 215 761 -25.9 Commitments to grant loans (committed loan facilities), of which: 285 416 43 683 553.4

- irrevocable 285 416 43 683 553.4

Guarantees, including: 256 744 245 948 4.4

loan repayment guarantees and sureties 34 617 44 392 -22.0

performance bonds 222 127 201 556 10.2

Issue underwriting 13 035 24 835 -47.5

Contingent assets: 991 558 282 330 251.2

Related to financing, of which: - 20 457 x

Other assets related to financing - 20 457 x

Guarantees 983 409 254 688 286.1

Other 8 149 7 185 13.4 Total contingent assets and contingent liabilities 3 830 942 3 105 793 23.3

In 2015, the Bank granted 318 guarantees and sureties totaling PLN 127.5 million to entities other than BOŚ S.A. Group Companies (as compared to 290 guarantees and sureties of PLN 161.6 million in 2014). In 2015, guarantees and sureties were granted for the following terms (in terms of volume): • 1 month – 3 years: 86.5%, • 3 – 5 years: 9.7%, • Over 5 years: 3.8%. Total balance of active guarantees and sureties amounted to PLN 256.7 million including: • PLN 256.6 million was related to active guarantees issued by the Bank to residents (i.e. 99.9% of all

active guarantees and sureties); • the majority (in quantitative terms) of guarantees granted in the first half of 2015 relates to

performance obligations and tender obligations. Ordering parties of guarantees (according to the structure of their liabilities as at 31 December 2015) were the following: • 98.8% - non-financial entities • 1.2% - government and local government institutions • 0.02% - financial institutions.


28

2.5. Loans, sureties and guarantees granted to subsidiaries Information concerning all contractual liabilities arising from debt securities issued or financial instruments, underwriting agreements as well as guarantees given to the Bank’s subsidiaries as at 31 December 2015: • BOŚ FINANCE AB – guarantees of PLN 1 385.0 million, • BOŚ INVEST MANAGEMENT Sp. z o.o. – guarantees of PLN 3.5 million, • DOM MAKLERSKI BOŚ S.A. – guarantees of PLN 9.6 million.

3. DEVELOPMENT STRATEGY OF THE GROUP 3.1. Group’s development directions The current business model in an environment of low interest rates had a negative impact on the level of the Bank's income in 2015. In addition, payments in respect of the Bank Guarantee Fund and the Borrowers Support Fund in combination with the negative events in the banking market, have caused a loss in 2015. In line with the requirements of the Banking Law, due to the loss incurred in 2015, the Bank launched work on the Recovery Program. Moreover measures were taken in order to update the Strategy of the Bank. Framework Strategy for the years 2016-2020 is to be approved by the end of April 2016. Bank plans to define a series of precise targets and indicators, which will result in the effective implementation of the Strategy and success in the upcoming years. New Strategy involves primarily: • improvement of the return on equity, • strengthening of business activities in the field of eco-mission of the Bank, • improvement of the efficiency • an increase in the Bank's activity in the area of innovations. Improving of profitability of the Bank will be provided by building a stable base of retail customers and diversification of the portfolio of corporate clients. Business growth implies a focus on high-margin products in the retail area, and offer development for Small and Medium Enterprises, in particular with regard to the increased efficiency of the credit process and automation of services with the use of electronic access channels. At the same time the Bank will improve the balance sheet structure by increasing the share of customer deposits in total liabilities, which also lead to a reduction in the cost of financing the Bank's assets and move away from funding in the wholesale market. The Bank intends to use the synergies from the well-established cooperation with the shareholders of A and reinforce synergies within the Group by exploiting the potential of the subsidiaries. The Bank will focus on the optimal use of the potential market for the financing of projects related to environmental protection. Current activities in this area will be based on continuous improvement in obtaining funding from the European Union and cooperation with environmental protection funds, and strengthening independent business activities in line with the eco-friendly mission of the Bank. As an expert Bank will participate and organize syndicated loans financing projects in the fields of, energy efficiency and renewable energy sources. Improvement in the efficiency of the Bank also includes restructuring costs of operations with the systematic implementation of process and organizational improvements. One of the conditions for the success in building of the Bank's Strategy is effective communication. Therefore, in this process, there have actively involved all managers of the Bank. Moreover all of the employees of the Bank were welcomed for cooperation. The Bank also intends to maintain an effective dialogue with the shareholders, as the increase in shareholder’s value is the precedent objective of the Strategy.


29

3.2. Group’s development directions BOŚ S.A. Group focuses on joining both the traditional banking services and offer of ecological products provided by entities from the Capital Group. The capital investment policy adopted by the Bank assumes the possibility of the Bank’s involvement in entities with a profile that allows widening range of services and products offered to customers of the Bank. The Bank focuses on capital investments in subsidiaries of the Bank and strengthening its position in the financial market, especially in the segment of environmental friendly investments. ‘Environmental protection’ theme is a permanent part of the strategy of the BOŚ S.A. Group. Current activity in this area is based on cooperation with environmental protection funds, as well as conducting an independent policy in this area, so that the Group can offer complex solutions in the field of environmentally friendly products. A characteristic feature of these solutions is focus on the full satisfaction of customer needs, whereas the financing offered by the Bank is only one element in building a complete offer of the Group BOŚ S.A. BOŚ S.A. Group forecasts rapid growth of prosumers market in the area of renewable energy sources on which it wants to play a vital role and strives to create the market by building environmental awareness of customers. 4. ORGANIZATION OF THE CAPITAL GROUP In 2015 there was transformation of BOŚ Nieruchomości Spółka z ograniczoną odpowiedzialnością S.K.A. into limited liability company and change of the company name into BOŚ Capital Sp. z o.o. We present structure of BOŚ S.A. Capital Group as at 31 December 2015 below. As at 31 December 2015 the value of the capital investment of the Bank in the Group amounted to PLN 87.8 million. Structure of the Capital Group As at 31 December 2015 the BOŚ S.A. Capital Group comprised of Bank Ochrony Środowiska S.A., the parent and its subsidiaries: Dom Maklerski BOŚ S.A., BOŚ Eko Profit S.A., BOS Finance AB, BOŚ Invest Management Sp. z o.o., BOŚ Nieruchomości Sp. z o.o., BOŚ Capital Sp. z o.o. (formerly: BOŚ Nieruchomości Sp. z o.o. Spółka Komandytowo Akcyjna) BOŚ Ekosystem Sp. z o.o., and an indirect subsidiary MS Wind Sp. z o.o. As at 31 December 2015. Bank's share in the capital as well as voting rights at general meetings of shareholders of those companies was 100%.

Dom Maklerski Banku Ochrony Środowiska S.A. BOŚ Finance AB BOŚ Eko Profit S.A.

100%

Bank Ochrony Środowiska S.A.

BOŚ Invest Management Sp. z o.o.

MS Wind Sp. z o.o.

100%

BOŚ Nieruchomości Sp. z o.o.

BOŚ Capital Sp. z o.o.

100%

100%

100%

100%

BOŚ Ekosystem Sp. z o.o.

100%

100%


30

Financial statements contain the data from BOŚ S.A., Dom Maklerski BOŚ S.A., BOŚ Eko Profit S.A., BOS Finance AB, BOŚ Invest Management Sp. z o.o., BOŚ Nieruchomości Sp. z o.o., BOŚ Capital Sp. z o.o. (formerly: BOŚ Nieruchomości Sp. z o.o. Spółka Komandytowo Akcyjna), BOŚ Ekosystem Sp. z o.o. and MS Wind Sp. z o.o., which are consolidated using the acquisition accounting method. Business profile of the subsidiaries of BOŚ S.A.:

• Dom Maklerski BOŚ S.A. – capital market operations; • BOŚ Eko Profit S.A. – capital investments in pro-ecological projects as well as financial and

advisory services complementing the Bank’s service offering; • BOS Finance AB – financial services – Eurobond issues; • BOŚ Invest Management Sp. z o.o. – financial services, including provision of funding to the BOŚ

S.A. Group Companies and fulfillment of their office and commercial space lease needs; • BOŚ Ekosystem Sp. z o.o. – provision of comprehensive RES solutions to households as well as

financial intermediation services in the field of green project funding; • BOŚ Nieruchomości Sp. z o.o. – property sale/purchase and management services as a general

partner of BOŚ Capital Sp. z o.o. (Formerly BOŚ Nieruchomości Sp. z o.o. Limited Joint-stock Partnership Company);

• BOŚ Capital Sp. z o.o. (Formerly BOŚ Nieruchomości Sp. z o.o. Limited Joint-stock Partnership Company)- property sale/purchase and management services;

• MS Wind Sp. z o.o. - wind farm project implementation. During the period from January to December 2015 Bank did not make capital investments outside the group of related parties. Description of transactions with related parties is included in Note 45 of the Notes to the Annual Consolidated Financial Statements for the year ended 31 December 2015. The Bank focuses on capital investments in subsidiaries of the Bank, thus strengthening its position in the financial market, especially in the segment of environmental investments. The Group maintains an investment policy on the disposal of shares of companies that were acquired as part of the contribution brought by Narodowy Fundusz Ochrony Środowiska i Gospodarki Wodnej in exchange for shares of Series "O" issued by BOŚ S.A. In 2015, there were no changes in the management policies of the Bank and its Group.

Additional information regarding entities (in accordance with requirements of art. 111a. The Banking Law)

Name of entity nature of the business headquarters of entity income* number of employees

profit or loss

before tax (in kPLN)

income tax (in kPLN)

received financial support

**

ROA****

FTE employees

Dom Maklerski Banku Ochrony Środowiska S.A. brokerage activities Warszawa, ul. Marszałkowska 78/80, 00-517 Warszawa

45 272 232.42 238 1 521*** 296 - 2.1%

BOŚ Eko Profit S.A. capital investments, financial and advisory services

Warszawa, ul. Żelazna 32, 00-832 Warszawa 4292 6 6 1 594 317 - 5.9%

BOŚ Finance AB financial services Stockholm, Sveavägen 9, 111 57 Stockholm,: Box 16285, 103 25 Stockholm, Sweden

294 - - 10 - - 0.0%

BOŚ Invest Management Sp. z o.o. financial services Warszawa, ul. Żelazna 32, 00-832 Warszawa 11 846 2 2 282 44 - 0.7%

BOŚ Nieruchomości Sp. z o.o. property sale/purchase and management services

Warszawa, ul. Żelazna 32, 00-832 Warszawa 137 1 1 -7 1 - -17.9%

BOŚ Capital Sp. z o.o. (former: BOŚ Nieruchomości Sp. z o.o. Spółka Komandytowo Akcyjna)

property sale/purchase and management services of owned and leased properties

Warszawa, ul. Żelazna 32, 00-832 Warszawa 867 1 1 -1 773 71 - -5.5%

BOŚ Ekosystem Sp. z o.o. activities auxiliary to financial services

Warszawa, ul. Żelazna 32, 00-832 Warszawa 5 520 13.6 15 4 355 836 - 80.8%

Indirect subsidiaries (a subsidiary of BOŚ Eko Profit S.A)

MS Wind Sp. z o.o. wind farm project implementation Warszawa, ul. Żelazna 32, 00-832 Warszawa 4 652 2 2 -617 - - -1.5%

* Income understood as net interest income + net commission income + net result on financial instruments + other operating income in thousands PLN. ** Financial support from public funds, in particular on the basis of the act dated 12 February 2009 on the State Treasury support to financial institutions (Journal of Law. 2014 No 158). *** The result before tax of DM BOŚ S.A. does not include consolidation adjustment in the amount of PLN 14 million on provision recognized in the Financial Statements of the Company in 2014. **** ROA (Return on assets) - the ratio of net profit to total assets

Information about the acquisition/ disposal of shares in companies Bank Ochrony Środowiska S.A. in 2015:

• transformed BOŚ Nieruchomości Sp. z o.o. S.K.A. from Limited Joint-stock Partnership Company into Limited Liability Company and changed name of the company into BOŚ Capital Sp. z o.o.,

• acquired from related party 1 share in BOŚ Invest Management Sp. z o.o., consequently direct share of the Bank in the share capital and voting rights at the general meeting of shareholders of the company on 31 December 2015 was 100%.

5. PRIMARY SCOPE OF THE BUSINESS OF THE CAPITAL GROUP

5.1. Banking activities The primary objective of the Bank is to effectively manage capital and shareholders’ funds deposited by customers, ensuring the profitability of operations and the safety of deposits. BOŚ S.A. wants to be perceived as a Bank for active clients, carrying about the customers and the environment. The corporate values of BOŚ S.A. are: Durability, Reliability, Environmental protection, Corporate and Social Responsibility, Client and Activity. Mission of BOŚ S.A.: Reliable bank – caring for you and our environment. In accordance with the Articles of Association, the Bank’s mission is to support projects ensuring development of the industry and environmental protection services, growth of the market of green products and services as well as creating and promoting eco-friendly attitudes and green initiatives aimed at preserving the natural environment. As a part of the ongoing work on the Framework Strategy of BOŚ S.A. for the years 2016-2020 the strategy will be re-defined (mission, vision, strategic goals), strategic partial plans, in which will be specified the methods, tools and schedules for achieving the objectives, there will be the strategic projects launched and a system for monitoring of execution and appropriate incentive system will be implemented. The Management Board is aware of the need for effective changes that will ensure the level of profitability until 2020 above the market average. 5.2. The share of BOŚ S.A. Group in the sector In 2015, BOŚ S.A. increased its share in the total assets of the sector by 0.03 b.p., in total liabilities by 0.04 b.p. and by 0.01 b.p. in total loans and advances. The share of BOŚ S.A. in the commercial banking sector as at 31 December 2015 (based on data published by the Polish Financial Supervision Authority relating to the banking sector with foreign branches) was equal to: • 1.30% in terms of loans and advances, compared to 1.27% as at the end of 2014, • 1.36% in terms of total liabilities, compared to 1.32% as at the end of 2014, • 1.30% in total assets, compared to 1.20% as at the end of 2014. BOŚ S.A. Group carries out brokerage operations through its subsidiary – Dom Maklerski BOŚ S.A. (DM BOŚ S.A.). The average share of DM BOŚ S.A. in trading session transactions of the Warsaw Stock Exchange in 2015 in the core areas of its operations was: • 3.9% on the equities market, compared to 2.6% in 2014, • 23.6% on the futures market, compared to 21.9% in 2014 Market share of DM BOŚ S.A. on NewConnect amounted to 16.1%, while in 2014 the market share was equal to 12.8%.


33

6. MAIN PRODUCTS, SERVICES AND BUSINESS AREAS OF THE GROUP

6.1. Banking products The Bank’s offer includes products (deposits, loans and settlement) offered to all groups of clients, as well as products addressed directly to selected groups of clients. The Bank operates within the following business areas or segments: Corporate, Public Finance and Retail. Within the Corporate and Public Finance segments, the Bank additionally distinguishes the following types of main client segments: corporate clients, public finance clients and ecological clients. The Retail segment of the Bank consists of individuals and micro-enterprises segment, housing communities and NGO segment. The terms and conditions of cooperation with particular groups of clients are tailored by the Bank to the changing market conditions and the needs of addressees of the Bank’s offer with a simultaneous focus on the target of continuous improvement of client service efficiency. 6.2. Number of serviced clients, accounts, payment cards and branches As at the end of 2015 operational activities were conducted in a total number of 17 Main Branches and 76 Operational Branches. Services to corporate customers were provided in 11 Corporate Centers. As at 31 December 2015 Dom Maklerski BOŚ S.A. had 13 branches. DM BOŚ S.A. provides also services via the Internet platform (www.bossa.pl).

Item

31.12.2015 30.06.2015 31.12.2014 Change %

PLN ‘000 31.12.2015

vs. 31.12.2014

31.12.2015 vs.

30.06.2015

BANK OCHRONY ŚRODOWISKA S.A. Number of clients 251.4 242.1 238.8 5.3 3.8

Number of retail clients 245.6 236.0 232.2 5.8 4.1

Number of corporate and public sector clients 5.8 6.1 6.6 -12.1 -4.9

Number of customers using electronic channels 124.0 120.4 119.3 3.9 3.0

Number of savings and current accounts* 254.7 235.4 225.9 12.7 8.2

Debit and credit cards total 100.8 98.5 105.1 -4.1 2.3

Number of outlets 93 95 95 -2.1 -2.1

DOM MAKLERSKI BOŚ S.A. Number of investment accounts 83.8 83.4 80.9 3.6 0.5

including number of Internet accounts 76.6 73.2 70.7 8.3 4.6

Number of outlets 13 13 13 0.0 0.0

* Including saving accounts 6.3. Pro-ecological offer and cooperation with environmental protection

funds The Bank’s pro-ecological offer comprises of own products as well as loans and advances offered in cooperation with donors. The offer is varied and adjusted to the needs of all types of entities. BOŚ S.A. products are addressed to all corporate, public finance and retail clients. These loans are used to fund pro-ecologic initiatives and to promote environment-friendly solutions. The Bank develops its business in the field of funding for renewable energy sources and energy efficiency projects.


34

Pro-ecological loans BOŚ S.A. has been developing its activity on the market of pro-ecological projects’ financing by expanding, in accordance with the Bank's strategy, its share in the portfolio of based on the loan granted for the purposes of environmental protection and support of sustainable growth. Segment structure of pro-ecological loans (value of the principal amounts)

Item 31.12.2015 31.12.2014 Change %

PLN ‘000

Pro-ecological loans granted to retail clients 155 510 160 197 -2.9

Pro-ecological loans granted to corporate clients 3 964 678 2 366 968 67.5

Pro-ecological loans granted to public finance 752 761 871 140 -13.6

PRO-ECOLOGICAL LOANS 4 872 949 3 398 305 43.4

As at 31 December 2015, the total exposure due to pro-ecological loans amounted to PLN 4.9 billion, accounting for 33.1% of the total loan exposure of the Bank (according to the principal value), whereas as at 31 December 2014 they accounted for 26.5% of the total loan exposure. Sales – segment structure of pro-ecological loans (based on the principal amounts)

Item 2015 2014 Change %

PLN ‘000 New loans granted to retail clients during the period 121 312 97 218 24.8

New loans granted to public finance clients during the period 57 770 108 042 -46.5

New loans granted to corporate clients during the period 2 262 736 1 735 907 30.3

NEW LOANS GRANTED TO CLIENTS DURING THE PERIOD 2 441 819 1 941 167 25.8

The total value of newly concluded pro-ecological loan agreements signed in the period from 1 January 2015 to 31 December 2015 was equal to PLN 2 441.8 million. A vast majority of pro-ecological loans was granted to corporate clients (92.7%). The value of granted loans was higher compared to 2014 (by 25.8%). Pro-ecological loans were intended primarily for investments in the field of protection of the atmosphere (2 116.7 million PLN which accounted for 86.7% of the contracts of pro-ecological loans), mainly for the implementation of projects in the field of renewable energy and sustainable construction and urban renewal. According to the Strategy, the Bank will strengthen its market position as a bank specializing in green project funding. Therefore, external events supporting implementation of the green mission, as a result of which BOŚ will be capable of fulfilling its clients’ financial needs related to eco-friendly initiatives, will be the key success factors. The aforesaid factors include favorable legal regulations applicable to ecology, including renewable energy sources. The Bank builds its competitive advantage based on a broad offering of pro-ecological products meeting the needs of investors as well as its experienced ecologists offering consultations as to the possible eco-friendly solutions and the related benefits, which serves as the basis for further development of environment-friendly activities in the area of financing of investments.


35

Liabilities due to ecological funds

Item 31.12.2015

31.12.2014 Change %

– current/settlement accounts 1 067 44 614 -97.6

– term deposits - 275 213 x

ECOLOGICAL FUNDS 1 067 319 827 -99.7

The balance of ecological funds’ deposits as at the end of 2015 was equal to PLN 1.1 million in comparison to PLN 319.8 million as at the end of 2014. 6.4. Corporate segment The sector of small- and medium-sized enterprises (SMEs) has remained one of the most important market segments for BOŚ S.A. The Bank, whilst structuring a comprehensive offer of settlement, deposit and credit products, ensured an appropriate base which can be used to build an individual product offer tailored to the individual client needs. Regarding its settlement product offer, the Bank offers standard current accounts which fulfill settlement functions and serve to accumulate cash and to conduct domestic and foreign settlement operations. Bank accounts may be held in such currencies as PLN, USD, EUR, GBP, CHF, SEK, HUF, RUB and CZK. With respect to clearing products in 2015:

• the possibility of setting up accounts on-line was implemented, helping customers to access to products offered by the Bank,

• operations of the accounts and electronic banking were simplifying through digitalizing customers disposals,

• modified Tariff of fees and commissions was introduced increasing its readability for customers and optimization of costs and income,

• process of opening bank accounts and related products was simplified by limiting documentation requirements and shortening the product delivery time

In December 2015 the Bank joined to a new model of settlement IRGIT as Payment Bank Member of the IRGIT, joining the institutions that support financial settlement of transactions concluded on the Polish Power Exchange (TGE) under the Settlement Model used by the Warsaw Commodity Clearing House (IRGiT). Accession by Bank Ochrony Środowiska to the Model Settlement IRGiT, provides a new quality in handling of cash settlements for futures trading for customers of the Bank and is an important step in the development of the Bank's settlement offer addressed to corporate clients. BOŚ is currently one of the 10 banks that provide services within the existing settlement system IRGiT. With respect to loans in 2015:

• EKOkredyt Prosument has been introduced into the Bank’s product offer. The product enables Housing Associations to benefit from the funds made available under the program of NFOŚiGW ‘Support of distributed, renewable energy sources Part 4b) Prosument - financing line for the purpose of purchase and assembly of micro-installations for renewable energy sources through banks”. The program aims to promote new RES technologies and prosumer attitude,

• factoring line and FX Forward limit have been included in the multi-purpose line, which has positively influenced the attractiveness of the offer for corporate clients,

• a modification has been introduced to the offer up to PLN 1 million, by removing the limits for particular products granted under the Financial Package and adding the possibility of financing the property investment. Due to the flexibility of the products granted under the Financial Package, as well as the introduction of a special price quotation, the product has become more attractive and available to customers,

• a modification has been introduced to the offer of pro-ecological loan with capital subsidy Eko Inwestycje (‘Eco Investments’), granted on the basis of cooperation with NFOŚiGW in relation to the Energy Efficiency Program, Part 3) Energy-saving investments in small- and medium-sized enterprises. The main modification is to allow reimbursement of costs by NFOŚiGW,


36

• a modification has been made to revolving loan in credit account by allowing VAT to be financed by the Bank,

• a modification has been made to the offer of purchase of receivables resulting from leaseback of real estates through the implementation of the possibility of deliver of funds prior to the commencement of the lease agreement, if required by terms of reference.

The sales of loans financing current business activities and investments (including pro-ecological) has been continued matching each transaction terms to the customer's needs. Loans granted to corporate clients As at the end of 2015, corporate loans totaled PLN 7 377.5 million comparing to PLN 5 220.8 million as at 31 December 2014, (i.e. decrease by 41.3%). Factoring BOŚ offer includes: • Factoring with recourse in domestic and foreign trade • Factoring with an insurance policy in domestic and foreign trade • Reverse factoring. Factoring facilities offered by Bank Ochrony Środowiska S.A. are managed in the online BOŚ Faktor system, which enables clients to fully control the amounts due and contact the Bank 24/7. The system is used for automatic management of factoring transactions. At the end of 2015, the factoring turnover in BOŚ was PLN 2.4 billion. BOŚ S.A. closed 2015 with a market share of ca. 2%. During 2015 the factoring portfolio of BOŚ S.A. included: 92 factoring agreements, 5 435 contractors and purchasing of 66 784 invoices. Liabilities to corporate clients

Item 31.12.2015

31.12.2014 Change (%)

current/transactional accounts 1 934 741 1 313 478 47.3 term deposits 3 274 408 3 187 676 2.7

CORPORATE CLIENTS 5 209 149 4 501 154 15.7

At the end of 2015, the balance of corporate deposits in the Group was PLN 5 209.1 million comparing to PLN 4 501.2 million at the end of the preceding year. The value of funds in current accounts increased by 47.3%, while term deposit increased by 2.7%. 6.5. Public finance segment In 2015 the Bank continued cooperation with local government entities in Poland. It provided some of them with comprehensive budget support allowing efficient cash management. The services have been provided pursuant to the Public Procurement Law, using banking products and services, as well other instruments offered by the Bank. Public finance segment clients are offered with all standard deposit and loan products included in the Bank’s offer. Products intended to finance pro-ecological projects (preference and commercial loans) hold a special place in the offer, as well as facilities offered by foreign banks to fund environmental protection and infrastructural investments and the European Offer being a bundle of products targeted at entrepreneurs, local governments and municipal companies. Comprehensive support of issue of municipal bonds is an important form of cooperation offered to these clients. It includes preparation of issuance, maintaining the record of bonds and servicing the related payments.


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Loans granted to public finance segment The value of loans granted to public finance sector amounted to PLN 2 177.6 million compared to PLN 2 584.9 million at 31 December 2014. Liabilities to public finance segment

Item 31.12.2015

31.12.2014 Change (%)

Current/settlement accounts 260 517 319 535 -18.5

Term deposits 577 488 473 600 21.9

PUBLIC FINANCE 838 005 793 135 5.7

In 2015 the Group observed an increase in public finance deposits by 5.7% compared to the end of 2014. The increase related to term deposits was accompanied by decrease in current account. 6.6. Retail client segment Bank’s offer The retail market of the Bank mainly includes the individuals and micro-enterprises segments (entities that do not maintain full accounting), the segment of housing cooperatives as well as the segment of non-governmental organizations and other non-profit organizations (NGOs). BOŚ S.A. has a comprehensive offer for its retail clients, being its largest client group. The offer includes all key products and services available on the Polish banking market, as well as a broad range of pro-ecological products to fund pro-ecological solutions (bank accounts, settlement products, debit cards, services and products in the field of investing surplus cash, electronic banking services and credit products). In 2015, the Bank continued operations aimed at making its offer more attractive, both by modifying current products and by implementing new, innovative solutions relating to financing of pro-ecological retail clients’ needs (EKOkredyt Prosument) as well as underlining the pro-ecological nature of the business of the Bank’s activities. In 2015 the Bank has continued the following activities with respect to retail client segment: • changes to the deposit offer resulting from the need to adjust to the dynamic external conditions and

to meet the Bank’s business and liquidity needs; • further growing the share of pro-ecological offer in the sales of loan and deposit products; • generating the financial results of the Retail Division; • constant improvement of sales competences in offering savings, investment and insurance products,

in particular security products added optionally to settlement and credit products or offered separately;

• sales campaigns of credit cards with the aim to expand the credit card portfolio and promotional campaign of accounts for individuals.


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Liabilities to retail clients Measures undertaken by the Bank with regard to deposit products for retail clients were focused on regular balance building and achieving liquidity targets and, at the same time, taking care for deposit portfolio cost optimization and adjusting to the changing macroeconomic conditions. In terms of balance building, key deposit products for retail clients in 2015 were: • current accounts including personal accounts with the basic free account: EKOkonto bez Kosztów • promotional deposits: Ekolokata Noworoczna, EKOlokata Stabilna, EKOlokata Premium, EKOlokata

Korzystna, EKOlokata Specjalna, EKOlokata Wysoko Procentująca, EKOlokata SUPERprocentująca, EKOlokata z Bonusem and EKOlokata Urodzinowa.

Item 31.12.2015

31.12.2014 Change (%)

Current/settlement accounts * 2 707 552 2 112 759 28.2

Term deposits 5 689 091 4 909 365 15.9

RETAIL CLIENTS 8 396 643 7 022 124 19.6

* current accounts including savings accounts

As at 31 December 2015, the balance of retail deposits was PLN 8 396.6 million and increased by 19.6% (PLN 1 374.5 million) as compared to 31 December 2014. In 2015, with regard to retail deposits offer, the Bank has consequently pursued the optimization of retail deposits margins, at the same time maintaining the real possibility to reach the level of balance of Retail client segment. In the first half of 2015 the Bank has maintained attractive short-term deposits within the offer: 3-month EKOlokata Noworoczna and 4-month EKOlokata Stabilna. Then EKOlokata Premium and EKOlokata Korzystna replaced the existing promotional deposits. The main aim of the changes was to maintain the balance of the maturing deposits. The introduction of new deposit products has resulted in the increase in renewability of retail deposits. In the second half of 2015 the Bank has been gradually extending the duration period of term deposits by introducing 6-month EKOlokata Specjalna and 12-month EKOlokata z Bonusem (promoting active current account holders) into the offer. In June EKOlokata Specjalna was replaced by 9-month EKOlokata Wysoko Procentująca. On the occasion of the 25th anniversary of the Bank, the Retail Market Division introduced in October 2015 a 25-month EKOlokata Urodzinowa z Bonusem for monthly transfers for current account throughout the duration of the deposit. Additionally, the Bank, recognizing the potential of the market, expanded its deposit offer in EURO introducing EKOlokata EUROzyskowna that rewards higher interest rates on new funds in EURO. The new deposit is the first step of activities aiming at attracting customers with savings or revenues in EUR At the end of the year deposit offer was enriched by 6-month EKOlokata SUPERprocentująca promoting both: the new funds as well as the holders of savings accounts. Simultaneously, due to a limited interest in the deposit offer promoted on www.bossabank.pl, the Bank has made a decision to withdraw „Promocja www.bossabank.pl” (Hits of the Week) and „EKOlokata Powitalna” from the offer. The deposit offer for institutional customer segments (micro-enterprises, housing cooperatives and non-governmental organizations) due to the diversity of investing periods (From O/N deposits to the 12 months deposit), the nature of the interest rate (fixed, variable), the method of placing (internet, branch), the nature of deposit (standard, negotiated) has not been modified except for the updates of the interest rate.


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In 2015 the Bank’s activity in the field of: • current and savings accounts has remained focused on the simplification of the offer. The number of

accounts in the Bank’s offer has been maintained: ‘Konto bez Kantów’, ‘EKOkonto bez Kosztów’ and ‘EKOkonto VIP’. The replacement of online ‘EKOkonto’ with ‘EKOkonto bez Kosztów’ was a continuation of the initiatives submitted for realization in 2015 and was intended to support the building of a portfolio of active clients, who use the products and systematically feed the account and who create opportunities of further product penetration, for example by offering loans in current account, cash loan or credit card. The terms of running the account ‘EKOkonto bez Kosztów’ have been limited to a minimum in order to facilitate the advisor in the presentation of the offer to the client, while additional rewards and promotions aim to encourage the client to select the offer of our Bank. Additionally, the new account’s offer has been enriched by marketing activities designed to support the sales of the product and revival of the Bank’s image after the years of absence in the high reach media. On 3 June 2015 an online campaign was launched, whereas a television campaign was started on 12 June 2015. Three 30-seconds advertising spots were projected more than 10 000 times in main 47 TV channels.

• savings accounts – it was concentrated on two products: ‘Konto więcej za Mniej’ with attractive interest rate for owners of ‘EKOkonto bez Kosztów’ promoted during the marketing campaign and ‘EKOprofit’ that promoted active using of current and savings accounts;

• current accounts – it was concentrated on acquisition of new clients from housing communities and micro-enterprises segment and establishing relationships with clients to maximize sales of settlement products.

In light of the existing trends on the financial market, in particular the decreasing attractiveness of bank deposits caused by interest rate reduction and regaining client interest in alternative saving and investment products, the Bank focused on development of its investment products offer. In March 2015 the bank launched ‘Lokata z funduszem inwestycyjnym Ipopema’ (‘Deposit with investment fund Ipopema’). This package is a combination of a standard bank deposit with an investment fund. Half of the funds was placed on a deposit and the interest rate during the first three months is equal to 4.25% per annum. The remaining half is allocated for the subscription for Ipopema investment funds’ units: Makro Alokacji, Agresywny or Małych i Średnich Spółek. In 2015 the Bank has continued the subscription for a 3-year unit-linked structured product ‘Nowa Czysta Energia Zysku’, prepared by BOŚ S.A. in cooperation with Towarzystwo Ubezpieczeń na Życie Europa S.A. The product is based on a basket of 6 ecological companies quoted on stock exchanges in New York, Paris and Copenhagen, such as Vestas Wind Systems, Tesla Motors or Veolia Environment. The most important features of this 3-year product are: protection of capital till the end of the insurance period amounting to more than 100% of the premium, insurance structure that allows for profits in case of increases in stock price of the ecological entities included in the basket of shares. The eighth subscription was launched in the last quarter of 2015 year. For investors with a medium or long-term investment horizon seeking to achieve an above-average return on capital, while maintaining a possibly minimal level of volatility the Bank has prepared an investment in closed-end investment funds: Inwestycje Rolne FIZ AN and SGB Lasy Polskie FIZ AN. The funds invest in ‘hard’ assets, i.e. agricultural land (agricultural fund) and forests (forest fund). A service of subscription for the units issued by this closed-end fund was introduced in April 2015 and a minimal value of subscription is the PLN equivalent of EUR 40 000. Insurance products The Bank offers a variety of insurance products sold in packages with other banking products: personal accounts, mortgage credits and loans. In 2015 the Bank finalized the process, allowing the Bank sales of insurance services as an insurance company agent. In March the Bank has ceased the offering of group insurance policies. Since 1 April 2015 the Bank offers insurance policies solely as an intermediary of the insurance company.


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Credit products – individual clients, micro-enterprises, housing communities and NGOs Key credit products for individual clients offered in 2015 included: • pro-ecological loans, • cash loan, • credit cards, • ecological mortgage credit, • ecological mortgage loan. Gradually increasing its involvement in funding of pro-ecological solutions, the Bank focused its activities in 2015 on further improvement of its offer through modification of the existing products and launching of new solutions. Since March 2015, the pro-ecological loan offer for individuals and housing communities was extended by introduction of a new product: a preferential loan for the purchase and assembly of renewable energy sources installations granted under NFOŚiGW Prosument Program. The loan was introduced under the NFOŚiGW program ‘Support of diffused, renewable energy sources - Prosument Program’. The aim of the program is to promote new RES technologies and prosumer attitudes through purchase and assembly of micro-installations for renewable energy sources, which are used for the electricity or heat and electricity production. Financing is provided for: photovoltaic installations, heat pumps, solar collectors and small wind farms. Under the Program for 2015 subsidies was up to 40% of eligible costs. In 2015 the Bank has continued sales of ecological mortgage products for retail clients and its standard offer of mortgage products. The aim of changes implemented in 2015, relating to the priority program of mortgage credit with subsidy from NFOŚiGW (energy-saving house) and the MDM mortgage credit was an increase availability of products for clients. In 2015, the Bank has continued the process of adjusting the product offer parameters for current activities of micro-enterprises and credit products for investment needs of housing communities. Simultaneously, taking into account the increase in the loan portfolio and the activation of cash loan sales, the Bank has implemented changes with respect to the competitive price promotions for cash loan. Also, the price promotions for loan in current and savings account were introduced for the purpose of activation the sales of this product and increase product penetration of Bank’s clients. At the end of 2015 the Bank introduced for its clients the ‘pre-approved’ offer for loan in current and savings account, on the basis of simplified rules of credit scoring methodology. Credit cards The credit card MasterCard Gold BOŚ S.A. sales campaign ended in May 2015, as a result of which the total credit limit relating to credit cards sold was equal to more than PLN 19.5 million. After the end of campaign the Bank has continued product-sales activities, through carrying out another promotions, i.e. ‘Karta na udane wakacje’ and ‘100 zł na dobry początek’. Until the end of 2015 the total credit limits sold in amounted to PLN 29.7 million. Planned activities The Bank’s initiatives in the retail area in 2016 will be aimed at maintenance its involvement in funding pro-ecological solutions, thanks to a comprehensive and innovative offering for individuals.


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With regard to micro-enterprise and housing community segment, the Bank will continue works aimed at promotion and optimization of newly introduced eco-products, allowing among others the repayment of loans from savings achieved thanks to the funding of optimal solutions. The main activities of Retail Market Segment will be focused on: • sales of high-margin products, mainly cash loan and investment products; • acquisition of stable base of term deposits; • acquisition and building balance of current and savings accounts and savings accounts; • building competitive advantages in the offer for the small and medium-sized enterprises. Additionally, the Bank is planning further promotional campaigns, which will increase the number of clients actively using its services. In subsequent years, the Bank will continue to promote basic bank accounts in the mass client segment. In contrary to the competitor banks, the Bank in the last period did not only increase its fees and commissions for the accounts, but also introduced to its offer free current and savings accounts. The bank also works on another attractive solutions to increase the number of active clients. To meet the expectations of clients, the Bank plans to acquire loyal clients, who: • will actively use the Bank's offer, which will be constantly adapted to the customer and the conditions

as well as market trends; • are looking for transparent and direct communication with the Bank and expect solutions adapted to

the their needs; • actively use new technologies (Internet and mobile banking), and communicate with the Bank and

transaction system via electronic devices; • want to realize their private and business needs. They finance their investment and development

ideas with substantive help and support from the Bank, which advises in obtaining funds from the EU programs;

• need the advice in innovative environmental technologies, which raise their funds through the Bank; • are looking for a stable and transparent investment for their savings. 6.7. Brokerage activity The Group conducts its brokerage activity through a subsidiary, Dom Maklerski BOŚ S.A. Major achievements of Dom Maklerski BOŚ S.A. in 2015: • Improvement of its position on WSE stock market – an increase of share of the Brokerage House to

the record level of 3.9% in 2015, which is an increase in the market by about 50%. • Maintenance the position of the leader in the futures market and the second place in the New Connect

market in respect of realized turnover volume. • Introduction of 6 issuers to trade on the regulated market, which is the largest amount among all of

the brokerage houses. • Further increase in the number of funds offered on the BossaFund platform – at the end of 2015 DM

BOŚ S.A. offered 264 funds from 20 asset management companies. • Correlations BossaFX – implementation of a new tool which provides information about relations

between markets on foreign exchange market. • BossaToken - implementation of mobile token on the Android, iOS and Windows Phone platforms and

the Java version in usual mobile phones. • BossaMobile+ - implementation of a new application on tablets designed to manage investments. • The ‘Bull and Bear’ award from ‘Parkiet’ – BossaFX was selected the forex platform of the year 2014

and nominated in the Best Brokerage House category. • WSE award for DM BOŚ S.A. for the highest market maker’s activity on the futures market in 2014. • FxCuffs 2015 Award in the Polish Forex Broker of the Year category, which is the first independent

award of Forex currency market in Poland.


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• ‘Order Finansowy’ of the monthly paper Home&Market for BossaZagranica in the category of investment products.

• Another year on the podium on the list of Individual Investors’ Association. DM BOŚ S.A. maintains the first place and the highest note in reliability of transactional service category.

• Gazeta Finansowa Award – Title of Best Financial Brand of the Year 2015 in category of the Best Brokerage House.

• Prize of Central Securities Depository of Poland – DM BOŚ awarded for the first, among the market participants, implementation of netting of financial instruments.

• ‘Złote obroty’ Award awarded by Warsaw Commodity Clearing House for the highest activity in relation to new instruments.

• Distinction ‘Platynowy Megawat’ awarded by Polish Power Exchange for the largest number of clients acquired on the electricity market in 2014.

• The highest rate in questionnaire filled by readers of Parkiet daily, voting for the best national brokerage house – DM BOŚ S.A. stands out in professionalism and reliability.

6.8. BOŚ Eko Profit S.A. – supplement to the Bank’s offer The key business objective of BOŚ Eko Profit S.A. is equity investment, especially in renewable energy sources as well as advisory and financial intermediation. At the end of 2015, the company held a financial involvement in a pellet manufacturer and a 6MW wind farm, looking at the same time for new projects and investment opportunities. Moreover, it significantly increased its scope of involvement in advisory services related to obtaining and structuring of investment funding in various economy sectors. The realized projects were profitable. The investment opportunities and opportunities relating to advisory and financial intermediation, regarding new renewable energy source projects are determined by prices of property rights and energy prices, and also depend on the final form of the new support system. The financial standing of BOŚ Eko Profit S.A. is stable. The company generated profit for the year 2015 and increased its equity. 6.9. JESSICA initiative In 2015 the Bank completed the implementation of JESSICA (Joint European Support for Sustainable Investment in City Areas) initiative, acting as the Urban Development Fund (UDF) for the Zachodniopomorskie Voivodeship (except for Szczecin Metropolitan Area), the Pomorskie Voivodeship (except for Gdansk, Gdynia, Sopot and Słupsk ) and the Śląskie Voivodeship, allocating all the funds entrusted to the program. In 2012-2015, the Bank signed 50 investment contracts totaling PLN 400.6 million supporting urban projects worth PLN 1.4 billion. To finance these investments BOŚ S.A. allocated PLN 375 million from its own funds. By the end of 2015 the implementation of 42 urban projects has been completed. Under the JESSICA initiative BOŚ financed many interesting and diverse urban projects, such as hotels, training and recreation centers, swimming pool and sport centers, commercial and service centers, entertainment centers, cinemas, art galleries and museums, office spaces, hospitals, health centers and markets. As part of the 50 signed agreements, the Bank has revitalized 150 hectares of degraded urban area, new investments are used by more than 845 thousand residents and visitors of the cities each year, approx. 650 new workplaces were created.


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6.10. Cooperation with foreign financial institutions The Bank has continued cooperation with international financial institutions, including the European Investment Bank (EIB) and the Council of Europe Development Bank (CEB), which are its most important lenders. On 5 March 2015 the Bank and the European Investment Bank signed the fifth credit line agreement for the amount of EUR 75 million for the duration of 12 years. For the first time, the new credit line will finance, apart from the investments conducted by the public finance entities and SME, the projects of medium-sized enterprises employing less than 3 thousand employees (‘MidCaps’). This financing line also ensures the continuity of implementation of the SME Finance Facility Energy Efficiency Window, which is supported by a grant from European Council, and which the Bank entered into on 1 June 2014. The program is aimed at SMEs and housing communities and is intended to finance the investments in the area of energy efficiency and renewable energy sources and it allows to obtain a financial incentive from the European Union up to 12% of the loan. By implementing 29 projects worth PLN 18 million BOŚ S.A. completed the program. Under agreements concluded with EBI (dated 5 March 2015 for EUR 75 million) and with CEB (dated 26 March 2012 for EUR 75 million) in 2015 the Bank has granted new loans of about PLN 56 million to be used for funding of investment projects related to infrastructure development and maintenance and environmental protection carried out by the public sector and SME.

III. RISK MANAGEMENT OF THE GROUP

1. CREDIT RISK As regards its lending operations, in 2015 BOŚ S.A. focused on achieving such loan volume and portfolio structure that would enable it to fulfill its planned business objectives within the acceptable risk level. The Bank considered the risk appetite in the process of its credit risk management policy implementation. The risk appetite was determined within the range defined by the prudent and stable risk management practice and adopted at a moderate level. The basic directions of the actions mentioned in the Recovery Program include reducing the level of risk concentration by industry diversification of the loan portfolio and reducing risk exposure by minimizing the amount of with no collaterals exposed to impairment. The products offered by the Bank were tailored to the needs of individual client segments and developed, in particular, to intensify: • in the area of corporate market – development of complementary product offer for SME clients

(standard products based on the assumption of obtaining competitive advantage through the quality and efficiency of service provided) and large enterprises (individual approach) with a focus on financing pro-environmental objectives and tasks,

• in the area of retail market – increase in sales of high-margin and commission products, The Bank provided financing for transactions that complied with the generally applicable laws. In accordance with its credit policy, the Bank refrained from transactions that: • could pose a risk to its reputation, • could result in receivable bearing the risk of one entity or a group of entities (equity or organizational

relationships) to exceed the level specified in the Banking Law of 25% of the own funds, • would be effected for the benefit of political parties or labor unions, • would violate the provisions of the Environmental Protection Law or be a potential source of damage

to the natural environment, • would be effected for clients without reliable, fixed and stable income.


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The decisions on provision of funding were conditional on: • the borrower’s credit capacity enabling repayment of debt applied for at dates agreed with the Bank, • provision of collateral in the form and amount accepted by the Bank, if required by internal

regulations, • satisfaction of other criteria for provision of funding, including, in particular, the history of

cooperation with the Bank as well as the credit history in the banking sector.

Comprehensive credit risk assessment was performed for each client and transaction. The Bank assessed the credit risk using rating and scoring models, depending on the type of client and transaction. The models were built, developed, monitored and supervised by the Risk Function, in compliance with internal and external requirements in this area. The credit risk assessment model in relation to individuals applying for funding for activities unrelated to the business covered: • a quantitative analysis – determination of the value and stability of loan repayment sources and • a qualitative analysis – evaluation of retail clients’ characteristics affecting considerably the client’s

willingness to repay the loan at dates as specified in the agreement, including scoring and assessment of the client’s behavior on the basis of information obtained from Biuro Informacji Kredytowej S.A. (Credit Information Bureau).

The assessment process was carried out in compliance with Recommendation T and Recommendation S of the Polish Financial Supervision Authority, in particular with respect to introduction of appropriate DtI and LtV levels as well as the possible use of the simplified creditworthiness assessment procedure.

The credit risk assessment model for individuals applying for funding for purposes related to business or statutory activities (public finance) focused on two areas: assessment of client and assessment of transaction (rating). The client rating was based on qualitative and quantitative information. The quantitative analysis concerned those areas of client’s operations which were of key importance to its financial performance and liquidity. The scope of the qualitative analysis included, in particular, development plans, experience and skills of management as well as the quality of the client’s relationships with other entities, including the Bank. In case of funding provided for clients operating in capital groups (equity or organizational relationships), the credit risk was assessed by taking into account the standing of related parties. Transactions were assessed, in particular, considering the purpose of funding, its term and the value of collateral. The funding structure established by the Bank ensured distribution of risk between the borrower and the Bank, mainly by ensuring that the borrower’s own share at appropriate level. For exposures material in terms of the risk level or transaction value, the results of risk assessment were reviewed by a credit risk expert (independent of sales services department), specializing in risk identification and selection of appropriate forms of its mitigation. The Bank monitored the credit risk over the entire term of credit transactions. If indications of the default were identified, the Bank employed dunning and restructuring measures supported by the appropriate IT tools. The Bank analyzed all loan exposures on a monthly basis in order to: • identify exposures with impairment triggers, • measure impairment, • recognize impairment allowances or provisions. In order to measure impairment of loan exposures and recognize impairment allowances or provisions, the Bank used individual, portfolio or IBNR approach.


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The authority to make credit decisions at the Bank depended on: • the transaction type and value • the total credit exposure of the Bank to a group of related parties (equity or organizational

relationships) • the level of risk generated by the client and the transaction.

Credit decisions were made by competent bodies or individuals within their authority limits.

The authority to make credit decisions granted to individuals was subject to a periodic review.

When making credit decisions regarding transactions with members of the Bank’s statutory bodies, its managers or related parties (equity or organizational relationships), the Bank complied with the requirements of the Banking Law. Credit decisions were made while maintaining the separation of sales and risk assessment functions. The Bank’s receivables were secured using asset collaterals and personal guarantees.

The Bank preferred secured lending. However, the maximum level of unsecured retail transactions was defined along with the criteria to be met so that a transaction may be unsecured, taking into account characteristics of products, client segment, the effect of such transactions on the Bank’s performance and the potential loss. The collateral level depended on the level of risk generated by a given transaction, in particular, the type and term of the transaction. The value of collateral was determined in line with the prudence principle. When deciding on the form of collateral, the Bank considered: • adequate protection of its interests; • costs related to the collateral establishment; • liquidity of collateral. The credit concentration management process involved the Bank’s identification, measurement and monitoring of the concentration risk at the level of: • individual clients and transactions; • the loan portfolio. At the level of individual clients and transactions, the concentration risk was managed through application of the regulatory concentration limits defined in the Banking Law as well as making the risk assessment and monitoring process conditional on the credit exposure value. At the loan portfolio level, the concentration risk was managed through application of limits approved by the Management Board of the Bank. In particular, the following limits were applied: • geographical – exposure to other countries, • related to product parameters – e.g. the maximum LTV level, • related to mortgage loans for the purchase of real property – in line with the PFSA

Recommendations, • related to share of foreign currency loans in the Bank’s loan portfolio, • related to the share of exposures, the value of which exceeds 10% of the Bank’s equity in the total

corporate clients’ exposure. The limit use was regularly monitored and reported to the Bank's statutory bodies in accordance with the Bank’s internal regulations. In line with the requirements set out by the Polish Financial Supervision Authority in Recommendation T and Recommendation S as well as the Resolution imposing requirements for identification, monitoring


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and control of concentration of exposures, including large exposures, the Bank performed stress tests in the field of credit risk for its retail and corporate loan portfolios, including in respect of the largest exposures. Information regarding the credit risk level in the Bank’s loan portfolio was presented to the Management Board on a monthly basis and to the Supervisory Board at least on a quarterly basis. In its lending process, the Bank complied with regulatory requirements, good banking practices and internal procedures.

2. FINANCIAL RISK In the Group, the financial risk is concentrated primarily in BOŚ S.A. and Dom Maklerski BOŚ S.A. (DM BOŚ S.A.) and includes: (1) liquidity risk; (2) interest rate risk (in the banking and trading book) and (3) currency risk (in the banking and trading book). The liquidity and interest rate risk occurs primarily in the Bank, while the currency risk in DM BOŚ S.A. (in the trading and non-trading books) as well as in the Bank (in the trading book, currency risk of the banking book is transferred to the trading book). DM BOŚ S.A. is also exposed to commodity and stock price risk. Risk is managed by the Group considering the risk appetite level determined by the Supervisory Board of the Bank and the Supervisory Board of DM BOŚ S.A. based on a set of internal limits being the basis for the early warning system focused on risk identification, measurement, monitoring, control and reporting. The banking book transactions constitute the core business of the Bank, i.e. they result from its commercial activity, such as securing sources of funding and efficient liquidity management. The financial risk level and profile are regularly monitored and reported to: the Supervisory Board of the Bank, the Supervisory Board of DM BOŚ S.A., the Management Board of the Bank, the Management Board of DM BOŚ S.A., the Assets and Liabilities Committee, Liquidity and Market Risk Committee. 2.1. Liquidity risk Liquidity risk is defined as the Group’s loss of its ability to pay liabilities at their due dates, to obtain funds to cover unpredicted withdrawal of deposits and the ability to generate positive cash flows. The monitoring and active management of liquidity risk process is concentrated in the Bank. The purpose of liquidity management is to secure the Bank’s liquidity and maintain a balanced structure of assets and liabilities to ensure a safe liquidity profile in various time periods, broken down by liquidity in PLN and in the major foreign currencies, and most importantly, for the total liquidity position. Liquidity risk management strategy is determined by Liquidity Strategy in BOŚ S.A. approved by the Supervisory Board. The Strategy defines the Bank's appetite for the risk, sets main directions and quantitative objectives for selected measures and constitutes an integral element of the Bank’s Strategy. At the Bank, liquidity is analyzed over the following time horizon: intraday liquidity – within a day, current liquidity – up to seven days; short-term liquidity – up to one month; medium-term liquidity – from one to twelve months; long-term liquidity – over twelve months. Systematically built, diverse deposit base with a large share of stable retail deposits (complemented by corporate and public sector deposits) as well as long-term bonds issued by the Bank and loans received from international financial institutions (which simultaneously constitute the source of financing liquidity in foreign values; the remaining currency gap is covered by FX swap transactions) remain the Bank’s primary source of financing. In 2015, the Bank continued an initiated in 2014 increase in the share of deposits from retail customers in the sources of funding, resulting from the implementation of the new supervisory measure LCR1.

1 LCR is a supervisory measure effective from 1.10.2015.


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Liquid assets (excess liquidity) are held by the Bank mostly in highly liquid NBP bills (representing 68% of the portfolio of liquid unencumbered securities), as well as Treasury bonds (26%) characterized by a low specific risk. The portfolio of these securities is supplemented by cash and funds deposited in the NBP (more than the declared level of reserve requirements). Liquid assets (excess liquidity) constitute a buffer to secure liquidity in potential crisis situations i.e., there is the possibility of their pledge, liquidation under repo transactions or sales at any time, without significant loss of value. The ability to sell liquid assets (liquidity risk of product) is regularly monitored. In these analyzes what is taken into account, are primarily: issues, market turnover and volatility of the price of purchase / sale. In accordance with the recommendations issued by the Polish Financial Supervision Authority and the National Bank of Poland, the Bank has a possibility of utilizing additional sources of financing in the form of stand-by credit and lombard credit in the NBP. The Bank is also operationally prepared to apply to the NBP for a refinancing loan. The Bank organizes the process of liquidity risk management in particular by means of segregation of competencies of the relevant bodies of the Bank and the relevant organizational units while performing tasks and making decisions within the liquidity risk management process. Organizational units are independent of each other. Major risk areas and risk management organizational units are supervised by different Board Members of the Bank. The Bank determines supervisory measures of liquidity in accordance with the following regulations: Resolution No. 386/2008 of the Polish Financial Supervision Authority of 17 December 2008 on setting liquidity standards which are binding for banks, the Regulation of the European Parliament and Council Regulation (EU) No 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms, changing the regulation (EU) No. 648/2012 and the Regulation delegated to Commission (EU) 2015/61 of 10 October 2014 complemented the regulation of the European Parliament and Council Regulation (EU) No 575/2013 with respect to net outflows coverage requirement for credit institution. Currently applicable short-term liquidity standards include coefficients: M1 (short-term liquidity gap – difference between the sum of basic value and complementing liquidity provision at the reporting date and the value of unstable foreign funds), M2 (short-term liquidity coefficient – quotient of the sum of basic value and complementing liquidity provision at the reporting date to the value of unstable foreign funds) and the binding from 1 October 2015 net outflows coverage requirement, LCR (relation of liquid assets to net outflows (i.e. difference between inflows and outflows) through the period of extreme conditions, it is 30 calendar days). Long-term standards include the following ratios: M3 (ratio of coverage of non-liquid assets with equity - the ratio of bank's own funds less the total value of capital requirements for market risk and delivery settlement as well as counterparty risk for illiquid assets) and M4 (the ratio of coverage of illiquid assets and assets of limited liquidity with own funds and stable external funds - the ratio of bank's own funds less the total value of capital requirements for market risk and delivery settlement as well as counterparty risk and stable foreign funds to the sum of non-liquid assets and assets of limited liquidity). The Bank is in the process of implementing new reporting standards in liquidity range (i.e. ALMM), which will come into force in 2016 and is preparing to implement another supervisory standard for long-term liquidity, i.e. stable funding ratio (NSFR), which will apply from 2018. In 2015 (as in 2014) supervisory liquidity measures, i.e. measures M1-M4 and the LCR were determined daily (i.e. every working day), and remained at a safe level, significantly above the regulatory levels. As at 31 December 2015 these standards were as follows:


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Measure Value as at 31.12.2015 Value as at 31.12.2014

CR 80% -*

M1 PLN 623 million PLN 856 million M2 1.24 1.25 M3 39.12 28.74 M4 1.24 1.28

*\ LCR is a supervisory measure effective from 1.10.2015.

The following measures and tools were introduced by the Bank to determine liquidity as well as the current and short-term liquidity risk: (i) liquid assets, which are a buffer for expected and unexpected outflows over the time horizon of 30 days; (ii) liquidity provision measuring the level of liquid assets less expected and unexpected outflows determined over the time horizon of 30 days; (iii) deposit base stability assessment; (iv) short-term liquidity gap (for PLN, EUR, CHF and USD) showing the gap in the foreign currency funding structure, which concerns mainly cash flows from derivative and interbank transactions and (v) stress tests (which allow, among others, to verify the Bank’s ability to maintain liquidity within a defined horizon under different scenarios). In order to measure its liquidity as well as the medium- and long-term liquidity risk, the Bank determines and monitors: (i) the contractual and real liquidity gap (which is supplemented with regular analyses of the deposit base stability and concentration as well as the value of early repayments of loans and the deposit termination level; (ii) ratios presenting coverage of non-current assets with non-current liabilities; (iii) coverage ratio for loans providing financing for long-term needs of clients with the most stable sources of funding and (iv) forecast liquidity provision, liquid assets and supervisory liquidity measures. According to Resolution No. 386/2008 the Polish Financial Supervision Authority, the Bank also performs a deepened analysis of long-term liquidity. The results of the analyzes are used to manage the Bank's liquidity. At the same time, process of preparing short- and long-term financial plans include an assessment of liquidity, to ensure adequate financing structure and compliance with supervisory liquidity measures. In the developed analysis of liquidity, the Bank also takes into account the possibility of unfavorable changes in foreign exchange rates, especially CHF and EUR, potentially causing an increase in liquidity needs. In accordance with the agreement annex with contractors (Credit Support Annex, CSA), the Bank, in case of adverse changes in the market (including exchange rates), is obliged to submit additional margin; in case of positive changes - the Bank receives additional protection from contractors. The Bank has no contracts which contain records about changing the height of the folding security due to the change in the rating held. This means that reducing level of creditworthiness assessment does not affect the amount and method of margin calculation. In order to assess the effectiveness of liquidity risk management, for most of the above mentioned measures, warning limits or values are determined within the set of internal liquidity risk limits with a hierarchical structure (i.e. determined by the Supervisory Board, Management Board and ALCO at the Bank). The applicable limits and warning values are regularly reviewed in order to allow for effective monitoring of liquidity. The limits and warning values set the framework for the tolerance of the Bank's liquidity and are consistent with the adopted by the Bank appetite for risk. An appropriate liquidity risk profile is achieved by considering the liquidity cost in the Bank’s transfer pricing system. In addition, the Bank has an action plan for maintaining liquidity in emergency situations, which has been approved by the Management Board and determines the potential sources of deterioration / loss of liquidity, rules of conduct and competence in emergency situations, in order to estimate the horizon of survival and the possibility and the cost of restoration of the stable liquidity. The plan covers, in addition to scenario analysis of liquidity in emergency situations (the assumptions of which are consistent with the stress tests), also measurable and non-measurable symptoms preceding emergency situations, which allow for regular monitoring of sources of emergency situations in terms of liquidity. The liquidity scenario analysis in emergency situations and stress tests include three types of scenarios: (1) internal crisis –


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results from the loss of trust in bank among market participants (i.e. a "run on the bank"), reduced availability of financing, materialization of risk concentration risk and downgrading of the bank; (2) external crisis - assumes materialization of currency risk, increase in interest rates, the crisis in the financial markets and possible second-round effects, and (3) a mixed crisis - combines elements of both the internal and external crisis. Performed stress tests help to identify some factors that can affect liquidity risk and develop measures to be taken in the event of emergencies. As part of the implementation of Recommendation P of the Polish Financial Supervision Authority, the Bank extended the analysis with the sensitivity analysis of the Bank's individual factors generating liquidity risk and reversed tests. The plan of action for maintaining liquidity in emergency situations is regularly reviewed and updated, so as to guarantee the operational preparation of the Bank to launch potential actions in liquidity emergency. The liquidity scenario analysis in emergency situations is compiled in semi-annual, and stress tests - on a monthly basis. The conclusions of the tests performed are included in the current liquidity and liquidity risk management, as well as in the structure of assets and liabilities. The tests performed in 2015 show a stable liquidity position of the Bank and prove that its liquid assets (excess liquidity) allow for the survival of the assumed scenarios in a specific time horizon. Measures and tools applied by the Bank are regularly reviewed and are systematically updated, which serves for better simulation of liquidity profile. In 2015, in connection with the amendment of Recommendation P of the Polish Financial Supervision Authority, the monitoring of liquidity risk in the Bank was primarily supplemented with liquidity intraday and definitions of liquid assets, scenario analysis of liquidity in emergency situations and stress testing as well as the system of internal transfer pricing were reviewed. The process of monitoring of liquidity and liquidity risk in the Bank is supported by a dedicated IT system (in particular within generating contract and real liquidity gap). The results of the liquidity risk analysis, together with results of the stress tests are reported monthly to Members of the Management Board and the ALCO and on a quarterly basis to the Supervisory Board. In 2015, similar to 2014, the liquidity position of the Bank was regularly monitored and remained on a safe level and credit action growth was closely correlated with the financing sources. Under the current liquidity strategy for 2015 -2020 the Bank increases share of deposits of non-financial clients in financing. According to the designed and implemented plan, Eurobonds due in May 2016 (in the amount of EUR 250 million) will be replaced by the funds obtained from this group of customers. 2.2. Interest rate risk The interest rate risk is defined as a potential negative effect of changes in interest rates on anticipated financial performance, economic value of equity and the present value of debt securities and IRS transactions held. The interest rate risk is related mainly to the Bank’s operations, both the banking book and the trading book. 2.2.1. Interest rate risk in the banking book The key objective of management of the interest rate risk in the banking book is to stabilize and optimize the net interest income of the Bank, while limiting the negative effects of changes in market interest rates on the economic value of equity. In order to meet that objectives, the Bank uses two tools: the investment portfolio in the banking book and derivative transactions entered into as part of hedge accounting. The investment portfolio in the banking book should i.a. allow to secure the net interest income, generated on the Bank’s equity as well as on the stable part of the core deposits on current accounts, which is insensitive to the interest rate changes. On the other hand, this portfolio increases volatility of the revaluation reserve. In order to maintain an acceptable interest rate risk level in the banking book, the Bank uses hedge accounting with respect to: (1) cash flows and (2) fair value. Hedge accounting related to cash flows is aimed at hedging volatility of cash flows for the portfolio of floating-rate mortgage loans denominated in EUR, granted until the beginning of hedging relationship. Changes in the measurement of IRS


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transactions are recognized in the revaluation provision (in part, in which the hedge was effective). The purpose of hedge accounting related to the fair value is to hedge the fair value of fixed-rate treasury bonds forming part of the held-for-sale portfolio; the hedging IRS transactions reduce equity fluctuations resulting from interest rate changes. The banking book interest rate risk monitoring process is supported by the implemented IT system, in particular with respect to: (i) repricing gap, presenting the value of assets, liabilities and the balance sheet items sensitive to interest rate changes in the period of maturity or repricing, (ii) net interest income simulation – dynamic analysis illustrating the projection of NII at set time intervals, based on the assumed development scenarios for the Bank, as well as assumptions regarding the development of the market factors, (iii) NPV simulation, presenting discounted values according to the present market parameters and all cash flows; based on the NPV analysis, the Bank determines BPV and EVE measures, (iv) price shock analysis as part of the basis risk analysis, which aim to assess the impact of changes in interest rate on the banking products, whose interest rate is based on different base rates, (v) yield curve risk analysis, which aims to assess the impact of the nonparallel shifts in the yield curve on the economic value of equity (vi) client option risk analysis, which aims to assess the impact of the options built into the interest-bearing banking products on the net result of the Bank and (vii) stress tests. The impact of interest rate changes on the net interest income (changes by ±100 b.p.) and on the economic value of equity (changes by ±200 b.p.) are presented in the following table.

(in PLN thousand) EVE NII - 200 b.p. + 200 b.p. - 200 b.p.

31.12.2015 54 210 -52 502 -26 922 17 677 31.12.2014 149 738 -119 662 -12 875 13 628 Change -95 528 67 160 -14 047 4 049

Both as at the end of 2014 and as at the end of 2015, the above measures were within the limits/warning limits (15% of equity for economic value of equity and 10% for net interest income in the financial plan for net interest income). Changes in sensitivity of the net interest income as well as economic value of equity in 2015 resulted from i.a. sales of a part of the fixed coupon bonds portfolio, setting up a fair value hedge, increase in the average residual maturity of term deposits as well as approaching maturity of eurobonds. Both as at the end of 2014 and as at the end of 2015 client option risk, base risk and yield curve risk remained at a safe level. Once a month, the Bank carries out stress tests to examine the interest rate risk level in the banking book and in the trading book in case of extreme changes in the risk factors. In the banking book the test focuses mainly on the effect of extremely adverse changes in: 1) interest rates on: (i) the net interest income (NII); (ii) the economic value of equity (EVE); (iii) the

banking book portfolio of securities subject to hedge accounting, debt securities, IRS and FX swaps: a) scenarios of parallel shifts in interest rate curves by ±100 b.p. : ±500 b.p., b) scenarios of flattening, bending and steepening of the interest rate curves, c) exchange rates on the net interest income and economic value of equity – scenarios of changes

in exchange rates by ±5% and by ±20%, 2) foreign interest and exchange rates on: the net interest income and the economic value of equity –

scenarios of joint changes of foreign exchange rates by ±10% and interest rates by ±100 b.p. The analyses show that in the context of extremely adverse market conditions and the Bank’s increased positions in instruments sensitive to the interest rate risk, the banking book activity is on a safe level. The results of banking book interest rate risk analyses together with the results of stress tests are presented, on a monthly basis, in reports prepared for the Management Board and the ALCO and on a quarterly basis to the Supervisory Board of the Bank.


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The internal capital of the Bank is measured considering the interest rate risk in the banking book. As at 31 December 2015, the interest rate risk in the banking book was material and internal capital of PLN 52.5. million (equal to the amount of economic value of equity) was recognized. As at 31 December 2014 the aforesaid risk was also material and internal capital of PLN 15.31 million was recognized. 2.2.2. Interest rate risk in the trading book The interest rate risk in the trading book is managed with the objective to achieve the financial performance specified in the financial plan with an acceptable exposure to the aforesaid risk and to minimize the adverse effects of such risk in relation to trading book instruments sensitive to changes in the interest rates. The interest rate risk in the trading book occurs mainly at the Bank. In accordance with the Bank’s strategy, the trading book transactions complement the banking book transactions. The risk related to the trading book is monitored in line with the following principles: 1) the trading activity is significant, but it is complementary to other operations of the Bank; 2) only liquid instruments enabling elimination of risk when the limits have been exceeded are purchased to the trading book; 3) the risk generated in the trading book is regularly monitored and its level controlled and reduced with the use of limits; (4) in the event of considerable financial market uncertainty, the Management Board of the Bank may decide to materially reduce the trading activity temporarily. In order to monitor the interest rate risk in its trading book, BOŚ S.A. uses: 1) the VaR model determined for the confidentiality level of 99% based on daily changes in the interest rates over 250 business days preceding the analysis date and 2) BPV (i.e. sensitivity of securities and derivatives which generate the interest rate risk to changes in interest rates by 1 b.p.); (3) limits and (4) stress tests. Interest rate VaR in the trading book and the impact of the stress tests on the trading portfolio by ±200 b.p., in annual periods, were the following (maximum, minimum and average values were presented as at the end of the reporting period):

(in PLN thousand

10-day VaR Stress tests ±200 b.p..

average max Min as at the reporting date as at the reporting date

31.12.2015 596 2 404 102 1 061 -6 325 31.12.2014 734 2 063 66 471 -3 578

In order to verify the interest rate VaR model, the Bank performs a monthly back-testing analysis by comparing the maximum losses determined with the use of the VaR model with the actual gains and losses and theoretical changes in performance arising from revaluation of items. The system of trading book interest rate risk limits includes: 1) a limit applicable to 10-day VaR, 2) BPV limits for interest rate risk generating instruments in the trading book, applicable both during

and at the end of the working day, separately for debt securities and IRS, 3) maximum limits for the daily, 2-day and rolling monthly loss on trading portfolio items. The use of individual limits is calculated and monitored as at each working day, and throughout the day for BPV and regularly reported to the management. Once a month, the Bank carries out stress tests to examine the interest rate risk level in the trading book in case of extreme changes in the risk factors. The aforesaid stress tests examine the effect of extremely adverse changes in market interest rates on the Bank’s performance as well as changes in interest rate volatility over 250 working days, including the correlation between changes in interest rates and VaR, both using the historical and parameter-based method.


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In order to analyze the impact of stress tests, the Bank applies the following scenarios: 1) historical:

a) the parallel shift of interest rates curves (including fat tails and spread), b) the bending of the interest rate curves, c) changes in the slope of the interest rate curves,

2) parametric: a) the parallel shift of interest rates curves, b) increase in the volatility of the interest rate curves, c) extremely adverse change in the correlation of the interest rates.

Stress test scenarios are also performed under the assumption of changes in liquidity of the market and inability to close the position. Results of this analysis indicate that in case of extremely adverse changes in market conditions and increase in Bank’s position in instruments sensitive to the interest rate risk, operations of the Bank in the trading book remain on a safe level. The Bank’s trading book interest rate risk level is monitored on an ongoing basis and reported daily to Members of the Management Board and the ALCO. The results of trading book interest rate risk analyses are presented, on a weekly basis, in reports prepared for the Liquidity and Market Risk Committee within ALCO, on a monthly basis to the Management Board and ALCO and on a quarterly basis to the Supervisory Board of the Bank. The analyses show that in the analyzed period, the interest rate risk in the trading book remained at a moderate level. 2.3. Currency risk Currency risk is defined as a potential adverse effect of changes in foreign exchange rates on the Group’s financial performance. The aforesaid risk is generated by the Bank (trading book) and DM BOŚ S.A. (trading and non-trading book). It is the Bank’s objective in currency risk management in the banking book to avoid open single positions. Foreign currency exposure arising from banking book transactions is regularly transferred to the Treasury Department on the same day or – at the latest - on the following working day. Main currency positions of the Bank include positions in PLN, USD, EUR and CHF. The currency risk in the non-trading portfolio of DM BOŚ S.A. results from the entity’s depositing cash in the accounts of foreign broker-dealers who trade in financial instruments on foreign stock exchanges at the request of the clients of DM BOŚ S.A. The currency risk in the non-trading book is also implied by items relating to the operations carried out by DM BOŚ S.A. through its Branch in the Czech Republic, which do not form part of the trading portfolio. In its non-trading portfolio, DM BOŚ S.A. has open foreign currency positions in USD, EUR and CZK and the portfolio currency risk is managed through a total foreign currency position limit for the trading and non-trading book. In the trading book, the currency risk is generated both at the Bank and at DM BOŚ S.A. The currency risk in the trading book was generated mainly by DM BOŚ S.A., and less considerably, by the Bank. Open foreign currency positions in the trading book of DM BOŚ S.A. result from client services which involve trading in derivative instruments and services provided on the regulated market. The Group has a consistent currency risk management system, separate for the Bank and for DM BOŚ S.A. Similarly to the interest rate risk in the trading book, the currency risk on open foreign currency positions in the trading book (both on- and off-balance sheet) is monitored by the Bank using: (1) the VaR model determined for the confidentiality level of 99% based on daily changes in foreign exchange rates over 250 business days preceding the analysis date; (2) internal limits and (3) stress tests.


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VaR for open currency positions in the Bank, DM BOŚ S.A. and in the whole Group in annual periods as well as the results of the stress tests for the Group was the following (maximum, minimum and average values were presented as at the end of the reporting period):

(in thousand PLN)

10-days VaR Stress tests for the Bank

increase/decrease of exchange rates by

30%

Bank DM Group

average max Min as at the reporting

date

as at the reporting

date

as at the reporting

date

as at the reporting date

31.12.2015 139 703 4 111 4 713 4 789 -21 843 31.12.2014 199 716 6 65 1 514 1 544 -9 470

In order to verify the VaR model, the Bank performs a monthly back-testing analysis by comparing the maximum losses determined with the use of the VaR model with the actual gains and losses and theoretical changes in performance arising from revaluation of items. The backtesting results are presented in the management reports on a monthly basis. The system of trading book currency rate risk limits includes: 1) a limit applicable to 10-day VaR 2) limits (as to the amount) for the total position and single positions for the major foreign currencies,

applicable both during and at the end of each working day, 3) limits for the daily and rolling monthly loss on foreign exchange transactions. The utilization of the above limits is controlled on each business day and the limits as to the amount of the total position and single positions for the major foreign currencies at the Bank – also throughout the day. As at 31 December 2015, the Bank complied with the limits. Once a month, the Bank carries out stress tests to examine the currency risk level in case of extreme changes in the risk factors. The test focuses mainly on the effect of extremely adverse changes in foreign exchange rates relative to PLN and the exchange rates of cross currency pairs (EUR/USD and EUR/CHF) on the net foreign exchange gains/losses as well as changes in foreign exchange rate volatility over 250 working days, including the correlation between changes in foreign exchange rates and VaR, both using the historical and parametric method. In order to analyze the impact of stress tests, the Bank applies the following scenarios: 1) historical:

a) historical increase/decrease in exchange rates in relations to PLN (including fat tails), b) increase/decrease in exchange rates of cross currency pairs EUR/CHF and EUR/USD.

2) parametric: a) increase/decrease in exchange rates in relations to PLN by 30%, b) increase in the volatility of the exchange rates, c) extremely adverse change in the correlation of the exchange rates.

Stress test scenarios are also performed under the assumption of changes in liquidity of the market and inability to close the position. The stress test results show that in the event of extremely adverse market changes and increased positions, the Bank’s operations relating to the currency risk remain at a safe level. The Bank’s trading book currency risk level is monitored on an ongoing basis and reported daily to Members of the Management Board and the ALCO. The results of currency risk analyses are presented, on a weekly basis, in reports prepared for the Liquidity and Market Risk Committee, on a monthly basis to the Management Board and the ALCO and on a quarterly basis to the Supervisory Board of the Bank. The analyses show that the currency risk level was moderate in the analyzed period.


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2.4. Financial instruments and commodities price risk The risk is mainly related to the operations of DM BOŚ S.A. and it results from the effect of changes in the prices of stock, commodities on the value of equity and the financial performance. Transactions on financial instruments, effected for the account of DM BOŚ S.A., are mainly related to its operations as a market maker and the majority of them are closed at day-end. A material exposure to financial instruments occurs only in relation to arbitrage short sale transactions, opened by DM BOŚ S.A. and its issuer’s market maker activities. Arbitrage transactions involve taking advantage of temporary differences in prices on two markets (mainly between WIG20 index futures contracts and the stock prices of companies included in that index). Arbitrage transactions on FX contracts are entered into through the WSE and Saxo Bank. Short sale transactions are executed using borrowed securities from the Belgian KBC Bank and securing this loan by opening an opposite position in derivative instruments listed on the WSE (share futures contract). The risk is limited through the use of overall exposure limits, both as regards transactions which have and have not been hedged. As at 31 December 2015, DM BOŚ S.A. had used 10% of the exposure limit for arbitrage transactions and 65% for transactions which are not hedged.

Commodity risk occurs mainly as a part of the activity undertaken on the OTC market, for transactions with clients of DM BOŚ S.A. and hedging transactions entered into with SaxoBank, X-Trade Brokers DM and BNP Paribas. Additionally, DM BOŚ S.A. has a hierarchical structure of market risk limits, including: 1) the overall market risk limit, which is the limit for VaR for the entire operations of DM BOŚ S.A. and a volume limit only for commodity instruments, 2) the structural market risk limit, consisting of rolling loss limits, total foreign currency position, VaR limits for business lines and product limit, 3) operational limit, including VaR limits for each segment as part of the business lines of DM BOŚ S.A. generating the market risk as well as geographical position limits. 3. OPERATIONAL AND COMPLIANCE RISK 3.1. Operational risk The ongoing and systemic management of operational risk was based on a model relying on qualitative and quantitative methods, focused mainly on prevention and reducing the Bank's exposure to the said risk, in particular through: 1) design of processes in a manner reducing the number of operational risk events; 2) monitoring the operational risk level based on the key risk indicator (KRI) methodology; 3) monitoring the operational risk level items, in particular, the use of operational risk tolerance and

appetite limits; 4) periodic reviews of operational risk based on self-assessment models; 5) collecting information in the operational risk event database used for monitoring operational risk as

well as measuring and estimating losses arising from such events; 6) periodic stress tests for potential operational risk event losses as well as capital requirements relating

to operational risk; 7) monitoring the risk of cooperation with third parties, in particular with respect to outsourcing; 8) ongoing efficient resolution of problems arising from operational risk events so that they do not have

a significant effect on the Bank’s operations; 9) regular operational risk reporting, in particular on the operational risk level and profile, the use of

operational risk limits and the amount of losses arising from operational risk events.


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As part of the measures intended to improve the organization of the operational risk management system in the Bank, a review and amendment of the Operational Risk Management Policy of BOŚ S.A. regarding i.a. verification of the effectiveness of operational risk management system, were carried out in 2015, taking into account the changes in the organizational structure as well as use of past experiences of the Bank in the functioning of the operational risk management system. Simultaneously, by the order of the President of the Management Board Process Procedures of operational risk management were introduced. This constituted a next stage of certification of the operational risk management process. In 2015 the Bank implemented internal capital assessment for operational risk based on an internal model which relies on a simplified method of advanced measurement (LDA) as well as regulated, through the order of the President of the Management Board, the rules for capital requirements calculation and preparation of operational risk data under the new reporting requirement ITS COREP. Training on operational risk for the management of the Bank held in February 2015, was organized in cooperation with an external entity E&Y. The training was attended by the Board Members of the Bank as well as department/office heads in the Bank’s head office. Over 2015 a number of initiatives were implemented as part of organization of the operational risk management system i.a. the Bank defined and approved the operational risk appetite and tolerance limits, periodically monitored the usage of the applicable operational risk limits, performed stress tests for the operational risk, developed an operational risk map for the year 2015, assessed materiality of the BOŚ S.A. Group subsidiaries in respect of the operational risk they generate and performed a comprehensive risk assessment of outsourcing services by BOŚ S.A. In addition, the Bank implemented further modifications to the operational risk event database in order to improve its functionality. In 2015 no operational risk events that would have a material effect on security of the Bank’s operations were identified. The operational risk events were investigated and measures aimed at reducing the potential losses were implemented by the Bank. 3.2. Compliance risk Compliance risk is defined as the effects of a failure to comply with the applicable laws, internal regulations as well as procedures adopted by the Bank. Compliance risk is managed to: • prevent legal sanctions, financial losses or a loss of reputation, which could result from non-

compliance with the law, internal regulations and procedures adopted by the Bank; • enhance the Bank’s image as an institution acting in conformity with the law, honest, reliable, friendly

to the environment and credible, in addition to being a responsible business. Compliance risk management at the Bank focuses primarily on the following areas: • prevention of the Bank’s non-compliance with the law; • protection of information; • implementation of ethical standards and their monitoring; • private transactions; • gift policy; • advertising and marketing activities; • products offering; • client complaints; • conflict of interest management. No events that could have a material effect on the compliance risk level occurred in 2015. The Bank focused its activities on prevention of the compliance risk by encouraging its staff to comply with the ethical standards and principles defined in the Code of Ethics of Bank Ochrony Środowiska S.A. and the procedures adopted by the Bank.


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IV. SUPPLEMENTARY INFORMATION 1. FINANCIAL RESOURCES MANAGEMENT Financial resources management is the key element of the Group’s operating activities. It includes shaping balances and structure of the balance sheet items i.e. assets, equity and liabilities, as well as off-balance sheet items in order to achieve a stable income whilst maintaining required level of business security. The policy of assets and liabilities management in the Group has been determined by the Bank’s Management Board and the Assets and Liabilities Committee. The ability of the BOŚ S.A. Capital Group to repay liabilities is measured by its liquidity and capital adequacy ratio. The Bank made decisions aimed at acquiring long-term funding and increasing stability of its deposit base that ensured the required balance sheet structure and facilitated realization of the Financial Plan. The current maturity structure of assets and liabilities allows the Group settlement of its liabilities and funding its growth. In the period under analysis, the Group’s growth was carried out, while maintaining safe level of the capital adequacy ratio. The manner of managing currency and interest rate risk has been also affected by the quality of balance sheet management and the settlement of the Group’s liabilities. The method of managing these risks and their monitoring indicate that the Group has ability to settle its liabilities.

2. CHANGES IN THE KEY MANAGEMENT PRINCIPLES There were no changes in the management of the Bank and its Capital Group in 2015. 3. UNUSUAL FACTORS AND EVENTS The Group's financial result for 2015 was impacted by extraordinary events: 1) additional charge for BGF in the amount of PLN 28.2 million due to the bankruptcy SK Bank in

Wołomin and related payment of guaranteed funds, 2) fees for Borrowers’ Support Found in the amount of PLN 9.0 million, created for the purpose of

support of individual borrowers who are in a difficult financial situation.

4. DIFFERENCE BETWEEN FORECASTS AND ACTUAL PERFORMANCE

BOŚ Group S.A. did not publish any forecasts of its financial results.

5. MAJOR INVESTMENT PROJECTS The capital expenditures in the BOŚ S.A. Group amounted to PLN 19.8 million in 2015.

In 2015, 16 projects were carried out in the Bank, including nine new projects and seven projects continued from the previous year. Results of ten projects were successfully accepted to use and implemented. With respect to the remaining six projects, their implementation will be continued in the next year. Additionally, analytical works related to the preparation for the realization of the further initiatives for the year 2016 have been commenced.


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Projects performed in 2015 resulted from business or efficiency initiatives and the necessity to comply with legal and/or regulatory requirements. The major legal and regulatory projects included those aimed at bringing the Bank’s operations into line with the requirements of: • Regulations of the European Parliament and the Council (EU)

- on OTC derivatives, central counterparties and trade repositories with regard to EMIR project, - resulting from the regulations of BASEL III (CRD IV/CRR) – adjustment of internal processes and

IT solutions to the regulatory requirements in the area of prudential requirements and implementation of an obligatory reporting tool in accordance with CRR and CRD IV,

- related to the ITS obligatory financial reporting in accordance with EBA requirements. • Resolutions and Recommendations of the Polish Financial Supervision Authority:

- Recommendation D relating to the bank information technology management and security of IT infrastructure (a non-investment project), including the data quality management,

- requirements of Recommendations T, S and J in the area of model validation and a provision of more reliable risk assessment models supporting the validation process based on the results of the carried out validation of the scoring and rating models,

- Resolution No. 258/2011 relating to the model validation. • KIR S.A. in the area of new settlement systems planned to be implemented within ELIXIR-OK

and EUROELIXIR-OK. Among the projects of the business nature and related to increasing operational efficiency and maintaining the continuity of the Bank's most important were: • Mobile banking, project with the aim to provide the individual clients of the Bank with a system of

electronic banking system BOŚBank24 Twoje e-Konto in a mobile version. The clients will have the access to the banking accounts and products on the mobile devices (tablets, smartphones), based on all main operating systems,

• Project finance, which aims to implement the methodology of assessment of investment projects that may be potentially financed with the investment credit from the Bank,

• VISA credit cards migration to MasterCard and their support service by CA Trevica, • Improvement of the standard version of EBS to a new version with adaptation to the functionality

used in the Bank, • implementation of new functionalities in Pivotal. The development costs incurred by the DM BOŚ in 2015 amounted to PLN 3.5 million were related to development of system and IT infrastructure aiming at maintain a high standard of servicing client both on the financial and commodity market.

6. DEPENDENCE ON PARTNERS In the analyzed period, the Group’s entities did not have any clients whose share in sales revenue would exceed 10%.

7. RELATED-PARTY TRANSACTIONS Related-party transactions have been described in Note 45 to the Annual Consolidated Financial Statements for the 12 months ended 31 December 2015.

8. SEASONALITY OR CYCLICALITY The operations of the BOŚ S.A. Capital Group are not affected by any material seasonal or cyclical factors.


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9. INFORMATION ON THE BANK'S AGREEMENTS

9.1. Significant agreements

In 2015, the Bank disclosed details of all significant agreements in current reports. Information regarding significant agreements concluded in 2015 has been presented in point I.3 ‘Material events in 2015’.

9.2. Agreements with the Central Bank and regulatory bodies Agreements with the Central Bank and regulatory bodies: • Detailed agreement of 18 November 2008 with the National Bank of Poland, setting out transaction

conclusion and clearing terms; • Master agreement of 4 November 2008 with the National Bank of Poland, setting out transaction

conclusion and clearing terms; • Agreement with the National Bank of Poland of 25 April 2007 on information reporting to the NBP

and using the Reporting System Website; • Agreement with the Office of the Polish Financial Supervision Authority of 25 March 2011 concerning

the use of the PFSA Website; • Agreement with the National Bank of Poland of 18 November 2011, setting out the terms of euro

account opening and maintenance in TARGET2-NBP, concluded between NBP and TARGET2-NBP participants;

• Agreement with the National Bank of Poland of 4 June 2013 on account maintenance in SORBNET2, • Agreement with the National Bank of Poland of 7 June 2013 on the Bank’s PLN term deposit account

maintenance in SORBNET2; • Agreement with the National Bank of Poland of 9 December 2014 setting out the terms of accepting

and transferring payments in the Polish currency and the related operation • Agreement with the NBP dated 7 April 2015 for managing the account, the treasury bills and money

bills deposit account of the NBP as well as conducting operations with securities in the SKARBNET 4 system;

• Agreement with the NBP dated 23 April 2015 about granting a technical credit facility and transfer of rights from securities;

• Agreement with the NBP dated 23 April 2015 about granting a Lombard loan and about the collateral for the loan;

• Agreement with the NBP dated 8 December 2015 about using e-mail to the submission to the National Bank of Poland data or statistical information using cryptographic protection package NBP-HEART by the banks.

9.3. Agreements with the entity authorized to audit financial statements

Agreements on the audit of financial statements The agreement dated 6 July 2015 concluded with Ernst & Young Audyt Polska Spółka z o.o. sp.k. The agreement relates to the review and audit of the financial statements of the Bank and the Capital Group for the years 2015-2017. Fees of the entity authorized to audit financial statements The fees of the entities authorized to audit financial statements, i.e. Ernst & Young Audyt Polska Spółka z o.o sp.k. and Deloitte Polska Sp. z o.o. Sp.k., paid or due for the financial year, have been presented in Note 49 to the Annual Consolidated Financial Statements of BOŚ S.A. for the year ended 31 December 2015.


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10. COURT PROCEEDINGS Currently, there are no pending court proceedings that exceed 10% of the Bank’s equity. As of 31 December 2015 the Bank was: • a plaintiff in 25 lawsuits for a total amount of PLN 39.1 million, • a defendant in 39 lawsuits for a total amount of PLN 39.0 million. As at 31 December 2015 there were no court proceedings the value of which constitutes at least 10% of Bank’s equity.

11. ENFORCEMENT TITLES, SALES OF RECEIVABLES AND COLLATERAL VALUE

Institutional clients In 2015 the Bank issued 108 units of bank enforcement title for a total value of PLN 53.6 million due to the principal amount. In 2015 the Bank sold 600 units of debt with the nominal value PLN 61.6 million (individual and package sale). The obtained price had a positive impact on gross and net results of the Bank. Individuals In 2015, the Bank issued 689 enforcement titles totaling PLN 46.9 million concerning individuals. In 2015 BOŚ signed an agreement for the sale of a debt due to the Bank from individuals and individual entrepreneurs. The contract of sale concerned the 1 565 debt receivables with total nominal value (understood as the sum of principal, interest and costs) of PLN 52.2 million (as of 31 August 2015). The obtained prices had positive impact on the gross and net financial result of the Bank. Collateral provided to the Bank At the end of December 2015, the total value of collateral provided to the Bank, except for blank promissory notes, was PLN 43 107.0 million, ca. 62.3% of which were mortgages of PLN 26 847.5 million. Liens of PLN 9 946.8 represented 23.1% of all collaterals. In terms of value, other material collateral included: loan insurance taken out from institutions in OECD member states and payments to the Bank’s account, which accounted for 1.6% and 1.5% of total collateral. Guarantees or sureties represented 7.0%, while pledge of movables accounted for 0.6% of all collaterals. Other collateral types, the share of which in the total value of collateral did not exceed 1%, included escrow accounts and BGK sureties.

12. DIVIDENDS In 2015, no dividends were paid or declared. On 10 June 2015, the General Shareholders Meeting of BOŚ S.A. allocated the net profit for 2014 in the amount of PLN 60 828 112.11 to supplementary capital. Simultaneously, the General Shareholders Meeting allocated the amount of PLN 2 434 796.97 from the supplementary capital to cover losses from previous years. The Management Board will apply to the General Shareholders Meeting of Bank Ochrony Środowiska S.A. to cover loss for 2015 from the supplementary capital.


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13. UTILIZATION OF PROCEEDS FROM ISSUES OF SECURITIES

BOŚ S.A. used the proceeds from the issues of bonds and capital increase resulting from the issue of P series shares registered on 15 June 2012 for new loans and optimization of its balance sheet structure.

14. SHARES HELD BY MEMBERS OF MANAGEMENT AND SUPERVISORY BODIES

From the declarations submitted by members of the Management Board and Supervisory Board as at 31 December 2015.: • Vice-President, First Deputy President of the Management Board - Stanisław Kolasiński held 8 377

shares in BOŚ S.A. with the par value of PLN 83 770 and the right to 3 600 B series subscription warrants concerning the shares in BOŚ S.A.

• Member of the Supervisory Board - Józef Kozioł held 116 shares in BOŚ S.A. with the par value of PLN 1 160.

The remaining Members of the Management Board and Supervisory Board of the Bank did not hold any shares in BOŚ S.A. Mr. Paweł Adam Pitera on 11 January 2016, i.e. the first day of being the Vice-President of the Management Board had the right to 2 600 B series subscription warrants entitling to subscribe for shares of BOŚ S.A. Status of share ownership based on the statements provided by the members of the Bank’s Management and Supervisory Board (including the indication of changes in ownership during the period since the date of the annual report):

Name Position As at 31.12.2014

As at 31.12.2015

Changes (the

number of

shares)

Rights to shares as at 31.12.2015

Supervisory Board

1. Józef Kozioł 1) Member of the Supervisory Board

116 116 0 0

Management Board

1. Stanisław Kolasiński

Vice-President – the First Deputy of the President

8 377 8 377 0 3 6003)

2. Piotr Lisiecki2) Vice-President 0 0 0 2 5003)

1) Mr. Józef Kozioł was dismissed from the Supervisory Board of the Bank during the EGM of the Bank on 15.02.2016 2) Mr. Piotr Lisiecki was dismissed from the position of Vice-President of the Management Board by the Supervisory Board on 15.02.2016 r. 3) Right to Warrants of B series entitling to subscription of shares of BOŚ S.A. Until the date of publication of this report there were no changes in the ownership of shares of BOŚ S.A. by members of the Management Board and the Supervisory Board of the Bank. Additionally: Mr. Marcin Likierski until 10 June 2015 i.e. until the date of the function of the President of the Supervisory Board held 3 000 shares of the Bank. Mr. Mariusz Klimczak who was the President of Management Board until 29 May 2015 owned 19 100 shares and 4 120 rights to subscription B series warrants of BOŚ S.A.


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Mr. Adam Grzebieluch who was the Vice-President of Management Board until 29 May 2015 owned 9 887 shares and 3 600 rights to subscription B series warrants of BOŚ S.A. Dismissed Management Board members retain the right to B series subscription warrants entitling to subscribe for shares of BOŚ S.A. (In accordance with the Rules of the Management Options Program for Executives of the BOŚ S.A. Group). Members of the Management Board and the Supervisory Board appointed on 15.02.2016 to the bodies of the Bank do not hold any shares or rights to shares in BOŚ S.A.

15. MANAGEMENT SHARE OPTION SCHEME Management Share Option Scheme In 2011, the BOŚ Capital Group launched a three-year incentive scheme for the key executives, i.e. the Management Share Option Scheme (the ‘Scheme’) for 2012, 2013 and 2014. The last tranche of the program - for 2014 was settled in 2015. In the reporting year the program has been discontinued. The Scheme assumes that the executives of the BOŚ S.A. Capital Group were vested with the right to warrants to acquire shares in Bank Ochrony Środowiska S.A. at the par value of PLN 35. The Scheme was addressed to 200 employees at maximum. Warrants were granted to eligible persons for 2012, 2013 and 2014, with the maximum number of warrants offered for a given year not exceeding 200 000. Warrants were offered to eligible persons separately under each warrant series. One warrant entitled to acquire one share of Bank Ochrony Środowiska S.A. The warrants have been offered when specific market conditions had been met - connected with stock price, terms of service and achievement of non-market performance goals (earnings per share and individual goals). As the stock price and earnings per share conditions were not satisfied in 2012, the Scheme was not realized in 2012. In 2013 modifications to the Scheme have been made in order to keep executives motivated to follow their individual goals and build the Bank’s long-term value and to mitigate negative impact on the Scheme of conditions out of the executives’ control. The Scheme was successful in 2013. In 2014, after confirming that specific Scheme conditions have been met, 200 000 series B warrants have been conditionally granted to 105 eligible persons from the BOŚ S.A. Capital Group, including 164 400 warrants for 90 Bank employees (15 720 warrants for the Management Board members, including four who are currently no longer in the Management Board). On the Offering Day i.e. on 28 November 2014, the Bank offered fixed number of warrants to those eligible persons. The shares execution period, in which the series B warrant holders can obtain series S shares ends on 31 December 2017. The Scheme was continued in 2014. During the year 192 320 series C potential warrants have been granted to 168 eligible persons from the BOŚ S.A. Capital Group, including 166 620 warrants for 151 Bank employees and 11 320 warrants for the Management Board members (including four members who are currently no longer in the Management Board) in 2 dates: on 31 March 2014 (fair value of 14.08 PLN) and 28 August 2014 (fair value of 4.28 PLN). In 2015 the Bank verified the fulfillment of conditions set in the Scheme regulations, in particular the conditions of earnings per share of the Bank and the fulfillment of individual objectives. Due to the failure in fulfilling the share price condition, the Scheme for 2014 was not executed, and thus warrants of C series were not granted.


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16. VARIABLE COMPENSATION POLICY FOR EXECUTIVES OF BOŚ S.A.

In order to ensure compliance with the Resolution No. 258/2011 of the Polish Financial Supervision Authority of 4 October 2011, setting out detailed terms of risk management and internal control systems as well as banks’ estimation of internal capital, including review of the estimation process and maintenance of internal capital, along with the terms of executive variable compensation policy development by banks, and in accordance with the decision of the European Parliament Directive and of the Council 2013/36/EU of 26 June 2013 On the conditions for admission to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directive 2006/48/EC and 2006/49/EC, the Variable Compensation Policy for Executives was implemented by the Bank and approved by the Supervisory Board of BOŚ S.A. The Remuneration Committee appointed by the Supervisory Board reviews the variable compensation policy, reviews and drafts the Management Board compensation principles, along with reviewing and monitoring the variable compensation of individuals holding identified executive positions. The variable remuneration policy, in force in an amended form since the beginning of the reporting period, provides: • payment of at least 50% of the agreed variable compensation in the form of shares in Bank Ochrony

Środowiska, the value of which is determined as the weighted average price of the Bank’s shares in the WSE session transactions between 1 December of the year preceding the bonus grant date and 31 December of the bonus grant date. The shares are: - shares in Bank Ochrony Środowiska S.A. listed on the Warsaw Stock Exchange; - phantom shares with value equal to the price of shares listed on the Warsaw Stock Exchange;

• deferred payment of 40% of the variable compensation in three equal annual payments, due in cash, with a provision that it may be reduced or not paid at all if the Bank’s performance differs considerably from the approved financial plan for the year or if the conditions set out in Article 142.1 of the Banking Law have been satisfied;

• 3-year performance assessment so that the compensation tied to performance takes into account the business cycle of the Bank along with the risk of its business activity. Performance is defined as the efficiency, financial and sales tasks as well as individual goals defined in the strategy or financial plan of the Bank for the year.

Maximum amount of the variable compensation of each of the identified executives does not excess 100% of fixed remuneration. The General Meeting of Bank Ochrony Środowiska S.A. can approve of the raising of the variable compensation to 200% of the fixed remuneration, what is in line with the procedure included in polish implementation of CRD IV at the scope of 94.1 g (ii) Article of this Directive. In 2015, performance for 2014 was assessed and variable compensation determined for that year, to those exerting a significant effect on the Bank’s risk profile. The total cost of variable compensation for executives of BOŚ S.A. based on 2014 performance was PLN 211.4 thousand. No variable compensation was granted and paid out to the Members of Board of Management (including 4 Members currently not in the Board) for 2014 performance. According to the principle of proportionality included in the Policy of variable compensation, granted variable compensation was not deferred and was paid out in cash. In 2015 second (out of three) tranche of deferred variable remuneration for the results of 2012 and first (out of three) tranche of deferred variable remuneration for the results of 2013 in the total amount of PLN 401.8 thousand - which constitute the long-term benefit, including PLN 370.6 thousand paid to Board of Directors (including 4 individuals not included in the current term of the Management Board of BOŚ S.A.), was paid out.


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17. MANAGEMENT’S REMUNERATION Information regarding compensation, awards or benefits, separately for executives and those in charge of supervision of the Issuer’s in 2015, has been disclosed in Note 45 to the Annual Consolidated Financial Statements of BOŚ S.A. for the 12 months ended 31 December 2015. 18. CONTRACTS RELATING TO COMPENSATORY PAYMENTS TO

MEMBERS OF EXECUTIVE BODIES All employment contracts with executives specified principles of awarding compensatory payments. The following principles were in place:

Until 29 May 2015: a) in the event of dismissal prior to the end of the term of office:

• in 4 cases payment of 3 to 4 times the regular monthly pay is awarded; compensatory payment is granted by the Supervisory Board,

• in 1 case payment of 4.5 to 6 times the regular monthly pay is awarded; compensatory payment is granted by the Supervisory Board,

b) in the event of contract termination as at the end of the term of the Board: • in 4 cases payment of 3 to 4 times the regular monthly pay is awarded; compensatory payment is

granted by the Supervisory Board, • in 1 case payment of 4 to 6 times the regular monthly pay is awarded; compensatory payment is

granted by the Supervisory Board. In addition, non-competition agreements which also specified the terms and conditions of compensatory payments for non-engaging in work for other banks or for their benefit without the approval of the Supervisory Board, were concluded. The underlying provisions awarded compensatory payments for each month after termination of employment in the amount of 50% of the fixed pay due for the last month of the employment relationship for a term 6 months in 5 cases. Since 30 May 2015 until 21 September 2015: a) in the event of expiry due to dismissal from the Management Board in 3 cases payment of 3 to 4 times

the regular monthly pay is to be awarded, compensatory payment is granted by the Supervisory Board,

b) in the event of contract termination as at the end of the term of office in 3 cases payment of 3 to 4 times the regular monthly pay is to be awarded, compensatory payment is granted by the Supervisory Board.

In addition, non-competition agreements which also specified the terms and conditions of compensatory payments for non-engaging in work for other banks or for their benefit without the approval of the Supervisory Board were concluded. The underlying provisions award compensatory payments for each month after termination of employment in the amount of 50% of fixed pay due for the last month of the employment relationship over the term of 6 months in 3 cases. Since 22 September 2015: a) in the event of dismissal prior to the end of the term of office:

• in 2 cases payment of 3 to 4 times the regular monthly pay is awarded; compensatory payment is granted by the Supervisory Board,

• in 1 case payment of 4.5 to 6 times the regular monthly pay is awarded; compensatory payment is granted by the Supervisory Board;

b) in the event of contract termination as at the end of the term of office: • in 2 cases payment of 3 to 4 times the regular monthly pay is awarded; compensatory payment is

granted by the Supervisory Board, • in 1 case payment of 4 to 6 times the regular monthly pay is awarded; compensatory payment is

granted by the Supervisory Board,


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In addition, non-competition agreements which also specified the terms and conditions of compensatory payments for non-engaging in work for other banks or for their benefit without the approval of the Supervisory Board were concluded. The underlying provisions award compensatory payments for each month after termination of employment in the amount of 50% of fixed pay due for the last month of the employment relationship over the term of 6 months in 3 cases.

19. EMPLOYEE TRAINING

The key employee professional skills improvement and development priorities were related to supporting the business, growth and pro-ecological objectives defined in the Bank’s Financial Plan and Strategy, in addition to bringing the Bank’s operations into line with regulatory requirements. 2 566 employees participated in 380 traditional training to improve their professional skills, including 2 412 participants in group and 154 in individual trainings. The external trainings were attended by 773 participants. The priorities of professional skills improvement: • as a part of the enhancement of specialized knowledge of professional, business, technology and

ecology aspects, the following training sessions were organized: - corporate market: corporate products, factoring development, innovative products, European

BOŚ offer, electronic banking, a new perspective program of the EU funds for 2014-2020, the training program of financial analysis - a block for the sales staff ‘Identification of credit potential’, blocks for business analysts ‘Credit Analysis of investment project - Project Finance’, ‘Selected issues of advanced financed analysis’ as well as functionality development of mobile banking and financial services, financing of the environmental projects: renewable energy and environmental efficiency, forecasting of wind farms productivity;

- retail market: mortgage products, electronic banking, changes in MDM Program (BGK platform), investment and insurance products, knowledge of computer banking systems, PLN account and foreign currency cashier courses, the ‘Ekowiedza’ development program;

- in the risk area: risk assessment, improvement of the credit risk assessment quality, best practice in rating and scoring models development, model validation, operational and financial risk – operational risk management, , key risk indicators for operational risk, PFSA recommendation, risk self-assessment, model risk management, monitoring of liquidity, restructuring and debt collection – changes in restructuring and bankruptcy law, professional telephone collection;

- in the banking security area: banking cyber safety; prevention of using electronic banking and debit cards to commit a crime to the detriment of bank, the Police and the banking sector cooperation in the security of banks and crime prevention related to the bank operation, perform the duties of the inspector in the range of data protection and bank secrecy, business continuity management

• as a part of the development of sales skills, the following training sessions were organized: - corporate market: prospecting activity, effective meeting arrangement Step I - workshops on

proactive sales and communication strategies in sales, Step II - advisory and coaching sessions, the psychology of sales communication;

- retail market: the sales technique, steps of sales calls, the telephone appointment making training, the selling conversation with micro-enterprises customer, effective testing of client needs and professional offer presenting, improving of the quality of customer service at Bank branches using sales supporting materials;

• as a part of the HR function development, the following training sessions were organized: - the adaptation training of retail market area (mentoring, e-learning, fixed trainings),

the adaptation training of corporate market area (IV Stages) and adaptation trainings for employees of headquarters of the bank;

- management trainee program; skills trainings – managerial tools to support employees in achieving the objectives; workshop ‘Building a powerful team’ as well as training which strengthen the managerial competence: carrying out the assessment interview with employee; giving an effective and motivating feedback;

- workshops for employees of headquarters of the Bank - searching for creative solutions, working under time pressure, efficient and professional leader.


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4.1 thousand employees benefited from e-learning trainings, including distance learning based on: • e-learning: 1.8 thousand participants. The topics involved issues concerning products and customer

service quality standards of the retail market, ecology and the electronic banking system, including mobile banking,

• Materials and knowledge test verification by e-learning test – 2.3 thousand participants. The topics involved knowledge about retail market products, customer service quality standards of retail market and the standards of sales in the corporate market, issues related to operational risk and ethics of banking.

20. POST BALANCE SHEET EVENTS

The Management Board announced that:

On 7 January 2016 the Bank’s Supervisory Board (Current Report No. 1/2016) supplemented the composition of the Management Board appointing:

− Paweł Adam Pitera as Vice-President of the Management Board, − Sławomir Wojciech Zawadzki –as Vice-President of the Management Board.

The above-mentioned Board members took their functions on 11 January 2016. On 7 January 2016 the Supervisory Board appointed the Risk Committee.

On 29 January 2016 (Current report No. 7/2016) the Bank received the decision from the Polish Financial Supervision Authority dated 25 January 2016, in which the PFSA agreed to include the funds in the amount of PLN 32.5 million received from the issue of subordinated series of bonds in the Bank's supplementary funds. The Bank announced the issue of W series bonds in the current report No. 50/2015 dated 30 December 2015.

In connection with additional charges incurred independently by the Bank (current report No 8/2016 dated 10 February 2016) in the fourth quarter of 2015, including the amount of PLN 28.2 million transferred to the Bank Guarantee Fund for the payment of guaranteed deposits held by depositors of Spółdzielczy Bank Rzemiosła i Rolnictwa in Wołomin as well as the amount of PLN 9.0 million transferred to the Borrowers’ Support Fund, the Bank will report a loss for 2015 amounting to approximately PLN 12.6 million. The amount of the loss will be finally specified after an audit of financial statements by an auditor. According to the Article 142 of the Banking Law Act, in the event of loss, Bank is obligated to notify the Polish Financial Supervision Authority on that fact and to submit its Recovery Program, and the Bank’s Management Board commenced preparations of the aforementioned program.

On 15 February 2016 (Current reports No. 9 - 12/2016) at the Extraordinary General Meeting of BOŚ S.A., convened at the request of the Main Shareholder – NFOŚiGW, changes in the Supervisory Board of the Bank were made. As a result of changes, the composition of the Supervisory Board is as follows:

1) Wojciech Piotr Wardacki – President of the Supervisory Board 2) Andrzej Grzegorz Matysiak – Vice-President of the Supervisory Board 3) Andrzej Kurnicki – Secretary of the Supervisory Board

Members: 4) Oskar Marek Kowalewski 5) Anna Stanisława Milewska 6) Paweł Wojciech Mzyk 7) Piotr Sadownik 8) Marian Szołucha 9) Emil Stanisław Ślązak

• Due to the change in the composition of the Supervisory Board on 15 February 2016 the composition

of the committees are as follow: The Internal Audit Committee: 1) Wojciech Wardacki – President of the Committee, 2) Oskar Kowalewski – Vice-President of the Committee,


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3) Andrzej Kurnicki – Member of the Committee, 4) Emil Ślązak – Member of the Committee, 5) Marian Szołucha – Member of the Committee.

The Remuneration Committee: 1) Piotr Sadownik – President of the Committee, 2) Anna Milewska – Vice-President of the Committee, 3) Marian Szołucha – Member of the Committee. The Risk Committee: 1) Andrzej Kurnicki - President of the Committee, 2) Emil Ślązak - Vice-President of the Committee, 3) Anna Milewska - Member of the Committee, 4) Wojciech Wardacki - Member of the Committee. The Ecology Committee: 1) Andrzej Matysiak - President of the Committee, 2) Paweł Mzyk - Vice-President of the Committee, 3) Anna Milewska - Member of the Committee.

• On 15 February 2016 (Current Report No. 13/2016), the Supervisory Board dismissed: − Dariusz Daniluk - President of the Management Board, − Piotr Lisiecki - Vice-President of the Management Board; at the same time, the Supervisory Board: − delegated duties of the President of the Management Board of BOŚ S.A. to Sławomir Zawadzki,

Vice-President of the Management Board of BOŚ S.A., − delegated Oskar Kowalewski - member of the Supervisory Board of BOŚ S.A., to temporarily

perform the duties of Vice-President of the Management Board for a period of three months. Therefore, the composition of the Management Board since 15 February 2016 has been as follows:

1) Sławomir Zawadzki – Vice-President acting as President of the Board, 2) Stanisław Kolasiński – Vice-President - First Deputy President of the Board, 3) Paweł Pitera – Vice-President 4) Oskar Kowalewski - Member of the Supervisory Board delegated to temporarily perform

the duties of Vice-President

• In order to comply with additional capital buffer applicable since 1 January 2016, the Extraordinary General Shareholders Meeting of Bank Ochrony Środowiska S.A. adopted the resolution on approval of the increase the share capital of Bank Ochrony Środowiska S.A. schedule on 15 February 2016. The Bank fulfilled the obligation under Article 60 of the Act of 5 August 2015 about macro-prudential oversight of the financial system and crisis management in the financial system (Journal of Laws, item. 1513), and filed with the PFSA on 8 January 2016 the capital conservation plan, assuming the fulfillment of the additional capital buffer by the Bank until the end of the first half of 2016.

• The Management Board of BOŚ S.A. (Current Report No. 15/2016) has decided to start work on updating the strategic documents and the preparation of the Framework Strategy of BOŚ S.A. for the years 2016 – 2020, the approval of which by the Supervisory Board should take place in April 2016. The main assumptions of the Framework Strategy of BOŚ S.A. will be, after the approval of the Supervisory Board, made public in a current report, preceding the adoption of the Shareholders’ decision to increase the Bank's capital. The Management Board of BOŚ S.A. invited Shareholders to engage in dialogue in order to take account of their expectations regarding the development trends and strategic goals of the Bank.

• On 26 February 2016 the Supervisory Board of BOŚ S.A. (Current Report No. 16/2016), implementing the schedule of the increase of share capital of BOŚ S.A. approved by the Extraordinary General Meeting of BOŚ S.A., expressed a positive opinion on the terms of share capital increase through the issue of U series shares presented by the Management Board . The value of planned new issue amounts to PLN 300 – 600 million. The intention of the Board of the Bank is to raise capital at a level of at least PLN 400 million, which will enable the Bank to grow organically, generate funds for


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the realization the mission in the area of green finance investments and sustainable development. It will also affect the fulfillment of the Bank's regulatory capital requirements.

• On 26 February 2016 the Supervisory Board of BOŚ S.A. (Current Report No. 16/2016) issued a positive opinion on the initiative of the Management Board to reduce base salary of Members of the Management Board by 25 percent.

• On 29 February 2016 (Current report 17/2016) Fitch Ratings Ltd. downgraded the Longterm Issuer Default Rating (IDR) from 'BB' to 'B +' with Stable Outlook. Due to this change other ratings of the Bank have been downgraded. The Agency in the report mentions as the main reason for this decision significantly weakened loss absorption capacity, in part as a result of the new bank tax and weak asset quality. The current level of the rating results from the view of the Agency regarding an only limited probability of extraordinary support for BOŚ from the Polish sovereign, mostly due to the Bank Recovery and Resolution Directive (BRRD). The Agency believes that the state would endeavor to act pre-emptively to avoid BOŚ breaching regulatory capital adequacy requirements due to the state’s indirect ownership of the Bank and the Bank’s role in financing environmental protection projects in Poland

• On its meeting on 17 March 2016 the Supervisory Board of BOŚ S.A. (Current report 19/2016): − appointed Stanisław Mateusz Kluza to the position of Vice-President of the Management

Board since 23 March 2016, simultaneously entrusting Stanislaw Kluza, Vice-President of the Management Board of BOŚ S.A. with duties of the President of the Management Board of BOŚ S.A.,

− decided to apply to the Polish Financial Supervision Authority with a request for approval of the appointment of Stanisław Mateusz Kluza as the President of the Management Board of BOŚ S.A.

On 17 March 2016 Anna Milewska resigned from the membership in the Supervisory Board of BOŚ S.A. The Supervisory Board of BOŚ S.A:

− appointed Anna Stanisława Milewska to the position of the Vice-President of the Management Board,

− adopted a resolution on the amendment to the delegation period of Oskar Kowalewski, a Member of Supervisory Board of BOŚ S.A., to temporarily perform the duties of Vice-President of the Management Board. This period will be terminated on 23 March 2016.

Given the above, the composition of the Management Board (as at 23 March 2016) is as follows: 1) Stanisław Kluza – Vice-President acting as President of the Board, 2) Stanisław Kolasiński – Vice-President - First Deputy President of the Board, 3) Anna Milewska – Vice-President of the Board, 4) Paweł Pitera – Vice-President of the Board, 5) Sławomir Zawadzki – Vice-President of the Board.

V. CORPORATE GOVERNANCE STATEMENT (This statement is in line with the requirements of Article 91.5.4 of the Regulation of the Minister of Finance, dated 19 February 2009, on current and periodic information published by issuers of securities and the rules of equal treatment of the information required by the laws of non-member states) 1. CORPORATE GOVERNANCE PRINCIPLES 1.1. Corporate governance principles applied by BOŚ S.A. and their public

availability In 2015, BOŚ S.A. followed the corporate governance principles laid down in the „Code of Best Practice for WSE Listed Companies”, attached to Resolution No. 12/1170/2007 of the Supervisory Board of the Warsaw Stock Exchange of 4 July 2007 (as amended), with the exception of the rule, according to


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which the Group should enable its Shareholders to participate in Shareholders Meeting via electronic means of communication, which means streaming of the Shareholder Meeting in real-time and two-sidedly, so that shareholders may communicate during the general meeting being in a different place than the place of the meeting. The scope of their application was defined in Resolution No. 36/2013 of the General Meeting of BOŚ S.A., dated 20 June 2013, regarding the scope of application of the corporate governance principles laid down in the “Code of Best Practice for the WSE Listed Companies” by BOŚ S.A.

The Code of Best Practice for WSE Listed Companies is available on the Bank’s website (www.bosbank.pl), Investor Relations section, where the prior year corporate governance statements of BOŚ S.A. are also published.

In 2015, BOŚ S.A. complied with: • the Code of Best Practices of the Financial Market, adopted by Resolution No. 99/08 of the Polish

Financial Supervision Authority of 18 March 2008; • Best Banking Practices, adopted by the Resolution of the General Meeting of Polish Banks, dated

18 April 2013. In accordance with Resolution No. 218/2014 of the Polish Financial Supervision Authority of 22 July 2014 regarding publication of the Principles of Corporate Governance for Supervised Institutions (the “Principles”), the Management Board of BOŚ S.A. and the Supervisory Board implemented the Principles as of 2015 with respect to the powers and duties of the Management Board and the Supervisory Board, except for the principle laid down in paragraph 8.4, whereby: A supervised institution, when justified by the number of shareholders, should strive for facilitating the participation of all shareholders in the General Meeting of the supervised institution, among others, through ensuring the possibility of electronic active participation in the General Meeting. The reasons have been stated in Section 1.2 of this statement. By Resolution No. 35 /2015 of The Ordinary General Meeting of BOŚ S.A. of 10 June 2015 regarding the „Principles of Corporate Governance for Supervised Institutions” published by the Polish Financial Supervision Authority – Shareholders of the Bank approved and are responsible for compliance with the Principles. The report on implementation of the resolutions adopted by the Management Board and the Supervisory Board regarding the Principles will be presented before to General Shareholders’ Meeting. The Bank has not received information from the Shareholders about non-compliance with Principles, except the Majority Shareholder’s (NFOŚiGW) statement submitted during the Ordinary General Meeting regarding the adoption of Resolution No. 35/2015 of the Ordinary General Meeting dated 10 June 2015 on the impossibility of granting the Bank support concerning financial liquidity and raising capital because of law restrictions (the Environmental Protection Law and the Public Finance Act). 1.2. Information on non-application of some corporate governance

principles laid down in the “Code of Best Practice for WSE Listed Companies”

In 2015, BOŚ S.A. did not apply the following corporate governance principles adopted under Resolution No. 12/1170/2007 of the Supervisory Board of the Warsaw Stock Exchange (as amended): • Section I.1.12 and Section IV.10 – given the shareholding structure and for logistics and technical

reasons, the Bank does not ensure real-time broadcasts of its general meetings where the shareholders could present their opinions and vote from a place other than the general meeting venue with the use of electronic communication. Neither the Bank’s Articles of Association nor the General Meeting Procedure provide for the shareholders’ participation in the general meeting with the use of electronic communication. In the future, if such form of shareholders’ participation in the general meeting is widely accepted by listed companied, the Management Board of BOŚ S.A. will consider application of this corporate governance principle.

• Section I.5 – the compensation policy of BOŚ S.A. applies to all the Bank’s employees performing work under employment contracts, except members of the Management Board. The compensation paid

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to members of the Supervisory Board and the Management Board is determined independently by the General Meeting and the Supervisory Board, respectively.

In 2015 the Bank followed the Variable Remuneration Policy for Executives of BOŚ S.A. (‘Policy’), in accordance with Resolution No. 258/2011 of the Polish Financial Supervision Authority, dated 4 October 2011. The revised Policy that included the Principles of Corporate Governance for Supervised Institutions, was approved by the Bank’s Supervisory Board in December 2014 and it applies to variable compensation due for 2015.

In 2015 the Remuneration Committee appointed by the Supervisory Board recommended that performance of the members of the Management Board in 2014 should be assessed and variable compensation granted in particular in line with the Policy, effective with amendments in 2015. No variable compensation was paid out for the results of 2014 to the Members of the Management Board (including 4 Members not in the Board in current term of office). Results of the employees exerting a significant effect on the Bank’s risk profile were assessed and variable compensation for 2014 was determined. Deferred variable compensation in the form of 2nd tranche for 2012 and 1st tranche for 2013 was granted and paid out to the Members of the Management Board (including 4 Member not in the Board in current term of office)

• Section I.9 – BOŚ S.A. does not have any regulations in place that would discriminate women in the management and supervisory bodies of the Company. The Bank’s compliance with the principle ensuring a balanced share of men and women in the management and supervisory bodies depends on the decision of the Supervisory Board as regards appointment of members of the Management Board and of the shareholders as regards appointment of members of the Supervisory Board.

1.3. Description of the internal control and risk management systems used

by BOŚ S.A. in the financial reporting process The Bank’s management system, adopted by resolutions of the Supervisory Board, consists of the risk management and the internal control system. The internal control system supports the Supervisory Board, the Audit Committee, the Management Board and the Bank’s employees in proper, effective and efficient fulfilment of their tasks. It includes closely related multi-functional management processes in all operating areas of BOŚ S.A. and constitutes an integral part of the Bank's overall management system. The internal control system is adjusted to the organizational structure of BOŚ S.A. and applies to both its organizational units and subsidiaries. The internal control system areas are: • controls; • compliance check (concerning the applicable laws and internal regulations); • internal audit. The Audit Committee – appointed by the resolution of the Supervisory Board – operates within the Bank’s structure. The Committee is described in the “Bank’s Governing Bodies” chapter. Further, the internal control system at the Bank is supported by: • the Security Department of the Bank, which is in particular responsible for investigations concerning

any suspected actions to the detriment of the Bank, employees and third parties as well as monitoring and controlling information and IT system security (dedicated forensic applications);

• the Accounting Department, responsible for financial audit, cooperation with external auditors, controlling, i.e. periodic verification of whether the accounting records are maintained correctly and events recognized in compliance with the applicable accounting principles;

• the Settlement Department, responsible for verifying correctness of cash transactions, cash trading and trade operations.


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Efficiency of the internal control system depends on effectiveness of each of the above areas. The controls in place at the Bank are to limit the probability of materialization of risk, identify and correct undesirable events and mitigate their effects. The internal audit unit regularly verifies the mechanisms used at the Bank and the related internal control procedures. The results of such verification are presented to the Management Board, the Audit Committee and the Supervisory Board in the annual information regarding efficiency of the internal control system. The key task of the Bank in compliance risk management is to ensure that the Bank’s operations are in conformity with the law and internal regulations. The Bank has a compliance risk management unit whose tasks include in particular: development of compliance risk management policies and procedures, coordination of compliance risk management, design and improvement of the methods used for compliance risk identification, measurement and assessment as well as the identification, measurement and assessment process. Solutions ensuring that the Compliance Department is independent are introduced in the Bank: • Head of the Compliance Department has the possibility to communicate with and report directly to the

Bank’s Management Board, the Audit Committee and the Supervisory Board, • appeal and dismissal of the Head of Compliance Department shall be approved by the Internal Audit

Committee • Head of the Compliance Department participates in the meetings of the Bank’s Management Board,

the Audit Committee and the Supervisory Board regarding the activities of the Compliance Department.

Internal audit, reporting directly to the President of the Management Board of the Bank, is an integral and independent element of the internal control system. The Audit Committee supervises the internal audit unit. The unit’s tasks include objective and independent audit and assessment of correctness, appropriateness and effectiveness of the internal control system and consulting the risk management system related to the operations of the Bank and its subsidiaries. When performing its tasks, the internal audit units complies with the law and internal regulations of the Bank, and relies on good practices described in the International Standards for the Professional Practice of Internal Auditing recommended by the Institute of Internal Auditors (IIA) as well as the IIA Code of Ethics. The Bank has mechanisms in place that guarantee independence of the internal audit unit, described in the Resolution of the Management Board and the Supervisory Board regarding the Internal Control System at BOŚ S.A. In accordance with Recommendation H of PFSA regarding the internal control system at banks, the internal audit unit audits the Bank based on its own Risk Map. The Risk Map used by BOŚ S.A. is a list of risks inherent in the Bank’s processes, including their measurement and evaluation of the internal control system. One of the most important purposes of developing and updating the Risk Map is to use it to build an annual and multi-year internal audit plans. Multi-year plans are to record all material issues and processes which require to be audited within the period of 3 to 5 years and regular performance of such audits as part of the annual plans. The Risk Map is also a tool to assess effectiveness of internal controls. Mechanisms of risk control in the financial reporting include: • proper organization of the financial reporting process through adoption of internal regulations that

define the tasks and responsibilities of organizational units participating in preparation and verification of the financial statements;

• examination of the financial statements by an independent external auditor; • reconciliation of accounting data, e.g. by comparing source documents with trial balances

and confirmation of: account balances by clients, the existence of assets, transactions/operations etc.; • inventory of assets; • ongoing monitoring of the Bank’s situation by the Supervisory Board and the Management Board

as well as the Bank's committees/teams based on performance reports generated for different areas of the Bank’s operations (or its organizational units), enabling evaluation of performance relative to the goals and tasks defined in financial plans, strategies, policies and other documents;


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• ongoing supervision of compliance of the accounting records and financial statements with the applicable laws and internal regulations by the Accounting Department;

• internal audits; • follow-up audits. 2. SHAREHOLDERS AND RIGHTS ATTACHED TO SHARES

2.1. Shareholders The total number of shares and votes at the General Meeting of BOŚ S.A. is 22 873 245. All shares are ordinary bearer shares with the par value of PLN 10 each. 2.2. Information on contracts relating to future changes in the shareholding

structure The Bank is not aware of any contracts relating to future changes in the shareholding structure. 2.3. Shareholders holding directly or indirectly (through subsidiaries) at

least 5% of the total number of votes at general meeting of the Bank According to the information available to the Bank as at 31 December 2015, the following entities held, directly or indirectly through their subsidiaries, at least 5% of the total number of votes at the general meeting: • Narodowy Fundusz Ochrony Środowiska i Gospodarki Wodnej holding 12 951 960 shares, which

represents 56.62% interest in the share capital and in the total number of votes at the general meeting,

• Nationale-Nederlanden Otwarty Fundusz Emerytalny and Nationale-Nederlanden Dobrowolny Fundusz Emerytalny holding 1 202 127 shares, which represents 5.26% interest in the share capital and in the total number of votes at the general meeting.

2.4. Holders of special control rights attached to securities All shares of the Bank are equal and each share gives its holder the same right to dividends and to one vote at the general meeting. 2.5. Limitations as to exercising the voting rights and transferring

the ownership of securities In accordance with the Bank’s Articles of Association, in the event of pledging or granting the right to use a registered share, the pledgee and the pledger are not entitled to exercise the respective voting rights. At present, there are no registered shares in the Bank’s share capital. 2.6. Appointment and dismissal of members of the Bank’s governing bodies In accordance with the Articles of Association of BOŚ S.A., the President, deputy presidents and members of the Management Board are appointed for the same term of office by the Supervisory Board. The President, deputy presidents and members of the Management Board are appointed and dismissed by the Supervisory Board. Resolutions of the Supervisory Board concerning appointment and dismissal of Management Board members are adopted with the majority of 2/3 of votes. The term of office is three years. The number of terms of office is not limited. The President of the Management Board has the right


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to put forward a motion for appointing and dismissing members of the Management Board.

Two members of the Management Board, including the President, are appointed at the consent of the Polish Financial Supervision Authority. The related request is filed by the Supervisory Board. The other member of the Board (apart from the President) appointed at the consent of PFSA, is the First Deputy President of the Management Board. Authorized by the Supervisory Board, its President enters into employment contracts and non-competition agreements with Management Board members. The terms and conditions are set out by the Supervisory Board. The terms of office of members of the Management Board expire as of the date of the General Meeting approving the report on the activities and the financial statements for the last full financial year during which the role of a member of the Management Board was performed. The term of office also expires in the event of death, resignation or dismissal. The Management Board is responsible for any and all issues which have not been reserved for other statutory bodies of the Bank. In particular, the Management Board: • represents the Bank before courts, public administration bodies and third parties; • adopts the Bank’s operational strategies, annual financial plans and annual internal audit plans; • adopts resolutions on the organizational structure of the Bank as well as branch and operations

branch establishment and closing; • adopts resolutions on acquisition and disposal of real property and any interest in real property; • drafts internal regulations to be issued by the General Meeting and the Supervisory Board; • takes decisions on taking on liabilities or disposing of assets, the total value of which in relation

to one entity exceeds 5% of the Bank’s equity, whereas the Supervisory Board is responsible for approval of the Management Board’s motions regarding the purchase of shares in entities the par value of which increased by the par value of the shares already held by the Bank in such entities exceeds 5% of the Bank’s share capital, except for publicly traded companies;

• approves the Bank’s information policy; • adopts risk management policies of the Bank; • adopts the principles of prudent and stable management of the Bank; • determines the overall risk level along with appropriate internal limits for the risk inherent in different

areas of the Bank’s operations; • defines internal procedures applicable to estimating internal capital, capital management

and planning; • supervises management of risks involved in the operations of subsidiaries; • manages special funds; • adopts the internal audit head appointment and dismissal procedure along with the compensation

policy; • adopts the variable compensation policy for the Bank’s executives; • adopts the Rules of the Management Board specifying the matters which require joint resolutions

as well as procedural and formal issues related to meetings, including the detailed resolution adoption procedure.

Additionally, the Management Board jointly examines and resolves on the following issues: • convening the General Meeting of the Bank; • affecting:

− the Bank’s financial performance, in particular in relation to development of financial plans and operational strategies, as well as determining the interest rate applicable to cash and loans at the Bank;

− the Bank’s relationships with its external environment, in particular with regard to: laying down the principles of appointing and dismissing plenipotentiaries and proxies, setting out the terms on which the Bank serves its clients and operates on the interbank and financial markets, to include: the rights and obligations of clients, model regulations and agreements concluded with clients;

− determination of the Bank’s powers and their scope, in particular in such matters as laying down the credit risk assessment principles and the credit decision making procedure at BOŚ S.A.;

• other issues specified in the Articles of Association or raised by Management Board members.


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Other joint powers of the Management Board include: • credit decisions in line with the relevant internal regulations; • analysis of periodic information regarding fulfilment of the Bank’s tasks, its economic, financial,

organizational and HR situation; • deciding on responsibilities among the Management Board members. The President of the Management Board fulfills the tasks specified in the Articles of Association and other internal regulations, including in the Rules of the Management Board and the Organizational Rules of the Bank. In particular, the President: • manages overall operations of the Bank; • issues internal decisions; • manages the work of the Management Board, convenes its meetings, approves the agenda and chairs

the meetings; • makes personnel decisions as specified in the Articles of Association and other internal regulations

of the Bank; • issues the Organizational Rules of the Bank as well as the organizational rules of branches

and operations branches, in addition to approving the organizational rules of the Head Office units; • manages the internal control process at the Bank; • approves the quarterly work plans for the Management Board; • coordinates the Bank’s activities regarding the eco-policy, representing BOŚ S.A. before MPs, public

administration bodies, including the minister of environment, Narodowy Fundusz Ochrony Środowiska i Gospodarki Wodnej as well as other (national) non-public sector special purpose funds.

In the event of expiry of the term of office of the President of the Management Board due to his/her death, resignation or dismissal, the First Deputy President whose appointment requires the consent of Polish Financial Supervision Authority acts as the President of the Management Board and manages the overall operations of the Bank. Members of the Management Board exercise supervision of the areas of the Bank’s operations assigned to them. Their supervisory role consists of: • inspiring the business operations of the supervised Head Office units, considering their tasks

and the development objectives defined for the Bank in its operational strategies and financial plans; • controlling the work of the supervised Head Office units, correctness of their tasks, their progress

and the final result as well as compliance with the law and internal regulations; • verifying appropriateness of the adopted internal regulations and organizational structures

for the current tasks of the supervised Head Office units; • assuming responsibility for correctness of the internal regulations applicable to the supervised areas,

issued in the form of resolutions or decisions of the President of the Management Board; • accepting and approving materials prepared by the supervised Head Office units to be submitted

to the Management Board for analysis or to the President of the Management Board for decision; • overseeing internal control tasks in the supervised areas of the Bank’s operations to ensure efficient

and safe growth of the Bank; • monitoring risks in the supervised areas; • issuing circulars which implement the resolutions and decisions of the President of the Management

Board; • issuing binding instructions as to the manner of handling specific matters by the supervised Head

Office units; • in accordance with decisions of the President of the Management Board regarding selection

and recruitment of the Bank’s employees – taking decisions on hiring new staff and the compensation level, changes to employment contracts and their termination in the supervised areas/branches in compliance with the internal regulations of the Bank.

When performing the above supervisory roles, Management Board members may submit proposals and motions in matters which require a joint decision of the Management Board, both as regards the overall operations of the Bank and different areas of its business. Pursuant to Section 23 of the Articles of Association, the following individuals are authorized to make representations regarding the financial rights and obligations of the Bank and to sign documents on behalf of the Bank: the President of the Management Board individually or two other members


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of the Management Board, proxies or plenipotentiaries, acting jointly within the scope of their authorization. The plenipotentiaries are appointed and dismissed by the President of the Management Board individually or two other members, proxies or plenipotentiaries, acting jointly within the scope of their authorization. 2.7. Changes in the Bank’s Articles of Association

The Articles of Association may be amended by the General Shareholders’ Meeting of the Bank. Resolutions regarding such amendments shall be adopted with the majority of 3/4 of votes cast.

2.8. General meeting, its powers, shareholders’ rights and their exercising The General Meeting Procedure of BOŚ S.A. describes: • how general meetings are chaired; • how resolutions are adopted; • how members of the Supervisory Board are adopted and dismissed; • how Supervisory Board members are appointed by way of separate group votes.

General Meetings are held at the registered office of BOŚ S.A. In accordance with the Articles of Association, the Management Board is obliged to convene a General Meeting within six months of the end the financial year.

Extraordinary meetings are convened by the Management Board when needed: 1) at the initiative of the Management Board; 2) at the request of the Supervisory Board; 3) at the request of shareholders representing at least 1/20 of the share capital. The extraordinary meeting may also be convened by: 1) the Supervisory Board, if it is considered necessary; 2) shareholders representing at least a half of the Bank’s share capital or at least a half of the total

number of votes. In such case, the President of the meeting is appointed by the shareholders. Shareholders representing at least 1/20 of the share capital may request convening an extraordinary meeting and inclusion of specified issues on its agenda. The request should be justified and submitted in writing or in electronic form at least 21 days before the proposed general meeting date.

As a general rule, the Management Board does not cancel general meetings that have been announced or change their dates, unless in exceptional or justified circumstances.

Authorization (in writing or in electronic form) granted by authorized individuals in accordance with the relevant excerpt from the competent register, or for individuals, pursuant to the Civil Code, is needed to participate in and vote at the general meeting. The aforesaid documents are verified when the list of attendees is made.

General meetings are opened by the President, Deputy President or another member of the Supervisory Board. In their absence, general meetings are opened by the President of the Management Board or another person designated by the Management Board. In accordance with the General Meeting Procedure of BOŚ S.A., the individual opening a general meeting is responsible for ensuring prompt election of its President, refraining from discussion of any business or formal issues. Except for the cases determined in the Code of Commercial Companies, general meetings are valid regardless of the number of represented shares.

Its resolutions are adopted by simple majority of votes, unless the Code of Commercial Companies or the Articles of Association of BOŚ S.A. set out stricter terms. In order to streamline the resolution voting process, an electronic vote counting system is used.

In particular, the general meeting is responsible for: • examining and approving the Management Board’s report on the activities of the Bank and

the financial statements;


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• examining and approving the Management Board’s report on the activities of the Bank’s Capital Group and the consolidated financial statements;

• adopting resolutions on profit distribution/loss coverage; • examining and approving the Supervisory Board’s report on its activities; • acknowledgment of the fulfilment of duties by members of the Bank’s governing bodies; • appointment and dismissal of Supervisory Board members; • amending the Bank’s Articles of Association; • authorizing the Supervisory Board to prepare a consolidated version of the amended Articles of

Association or to introduce material editorial changes as specified in the General Meeting's resolution; • adopting resolutions on share capital increase/reduction; • adopting resolutions on issues of convertible bonds or bonds with the pre-emptive right; • deciding on establishment or liquidation of the funds referred to in Article 36.1 of the Articles of

Association; • adopting resolutions on business combinations, disposals or winding up; • selection of liquidators and setting their fees; • determining remuneration of Supervisory Board members; • adopting resolutions on other issues raised by the Management Board and the Supervisory Board or

by the shareholders in line with the Code of Commercial Companies, the Banking Law and the Articles of Association.

The Bank’s shareholders have the following corporate rights: • The right to participate in and vote at general meetings.

Under Article 411.1 of the Code of Commercial Companies, each share gives the right to one vote at the general meeting. To be entitled to participate in the general meeting, individuals must meet the following conditions: − 16 days before the general meeting date (i.e. at the registration date) be the Bank’s shareholders

with the Bank’s shares recorded in their securities accounts (Article 4061.1 of the Code of Commercial Companies);

− not earlier than after the Bank’s announcement of a general meeting and not later than on the first working day after registration, request the entity maintaining their securities accounts where the Bank's shares are recorded to issue a personal certificate confirming their right to participate in the general meeting (Article 4063.2 of the Code of Commercial Companies).

• The right to motion for convening an extraordinary meeting and inclusion of specified issues on the agenda of the nearest meeting. The above right is conferred on a shareholder or shareholders representing at least 1/20th of the Bank's share capital. Under Article 401 of the Code of Commercial Companies, such a request should be submitted to the Management Board in writing or in electronic form at least 21 days before the proposed meeting date.

• The right to appeal against resolutions of the general meeting. Pursuant to Article 422 of the Code of Commercial Companies, a resolution of a general meeting that is in contravention of the Articles of Association or good trading practices, in conflict with the Bank’s interests or aimed to act to the detriment of a shareholder may be appealed against by the shareholder in an action against the Bank to revoke the said resolution.

• The right to elect members of the Supervisory Board by way of group voting. Pursuant to Article 385.3 of the Code of Commercial Companies, upon a motion of shareholders representing at least 1/5th of the share capital, Supervisory Board members should be elected by the next general meeting by way of separate group voting.

• The right to request information regarding the Bank. Under Article 428 of the Code of Commercial Companies, during the general meeting, at a shareholder’s request, the Management Board is obliged to provide the shareholder with information regarding the Bank if necessary to evaluate an issue included in the agenda. However, the Management Board should refuse provision of such information if: (i) its disclosure could be detrimental to the Bank, its related party or subsidiary, in particular due to disclosure of technical, trade or organizational secrets; (ii) its disclosure could expose a member of the Management Board to liability under criminal, civil or administrative law. In justified cases, the Management Board may provide the shareholder with written information, not later, though, than within two weeks of the date of its request at the shareholders’ meeting.

• The right to request copies of the Management Board’s report on the activities of the Bank and its financial statements, along with a copy of the Supervisory Board's report and auditor's opinion at least


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fifteen days before the date of the general meeting (Article 395.4 of the Code of Commercial Companies).

• The right to review the list of shareholders authorized to participate in the general meeting in the office of the Management Board and request its copy (Article 407.1 of the Code of Commercial Companies).

• The right to request provision of the list of shareholders free of charge, via e-mail (Article 407.11). • The right to request copies of motions regarding issues included in the agenda a week before the date

of the general meeting (Article 407.2 of the Code of Commercial Companies). • The right to motion for checking the list of attendees at the general meeting, by an appointed

committee consisting of at least three members. The aforesaid motion may be filed by shareholders holding 1/10th of the share capital represented at the general meeting. The motioning party has the right to elect one committee member (Article 410.2 of the Code of Commercial Companies).

• The right to review the book of minutes and request copies thereof certified by members of the Management Board (Article 421.3 of the Code of Commercial Companies).

• The right to review documents and to request copies of the documents referred to in Article 505.1 of the Code of Commercial Companies at the Bank’s office (in the case of business combination), in Article 540.1 of the Code of Commercial Companies (in the case of spinoff) and in Article 561.1 of the Code of Commercial Companies (in the case of transformation).

• In accordance with the Articles of Association, to resign from discussing or to delete an issue from the agenda following a motion of the shareholders, which requires a resolution of the general meeting adopted with the majority of 3/4ths of votes, at the consent of all motioning parties present at the general meeting.

• In line with the current practice, the President of the meeting enables each party opposing a resolution to present their arguments and justify the objection. The aforesaid issue is governed by the relevant provisions of the General Meeting Procedure of BOŚ S.A.

• In line with the current practice, written statements of general meeting participants are attached to the minutes.

The General Meeting Procedure of BOŚ S.A. is available on the Bank’s website (www.bosbank.pl), in the Investor Relations section.

3. BANK’S GOVERNING BODIES 3.1. General Meeting of the Bank The procedure of the general meeting, its powers, shareholders’ rights and their exercising are described in Section 2.8 of this statement. 3.2. Supervisory Board of the Bank

Composition of the Supervisory Board as at 31 December 2014: 1) Marcin Likierski - President of the Supervisory Board; 2) Piotr Bogdan Kaczyński - Deputy President of the Supervisory Board, Member; 3) Adam Grzegorz Wasiak - Secretary of the Supervisory Board; Members: 4) Jacek Czesław Ciepluch - Independent Member 5) Józef Kozioł 6) Andrzej Kazimierz Kraszewski - Independent Member 7) Mariusz Roman Karpiński - Independent Member 8) Ryszard Ochwat 9) Adam Aleksander Wojtaś - Independent Member

Information about the changes in the composition of BOŚ S.A. Supervisory Board in 2015:

During the General Shareholders’ Meeting on 10 June 2015, Marcin Likierski, President of the Supervisory



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Board, resigned from the function. Detailed reasoning of the decision was made public in the current report no 24/2015. The General Shareholders’ Meeting adopted the following resolutions: - Dismissed Mariusz Roman Karpiński and Andrzej Kazimierz Kraszewski from the function of a Member

of the Supervisory Board. - Appointed Zbigniew Januszewski and Marek Ignacy Mielczarek as Members of the Supervisory Board.

At its meeting held on 2 July 2015, the Supervisory Board elected Jacek Czesław Ciepluch as its President. As a result of the resolutions adopted by the above General Shareholders’ Meeting, the composition of the Supervisory Board since 2 July 2015 was as follow: 1) Jacek Czesław Ciepluch - President of the Supervisory Board, Independent Member 2) Piotr Bogdan Kaczyński - Deputy President of the Supervisory Board,

Independent Member 3) Adam Grzegorz Wasiak - Secretary of the Supervisory Board Members: 4) Bartosz Zbigniew Januszewski 5) Józef Kozioł 6) Marek Ignacy Mielczarek - Independent Member 7) Ryszard Ochwat 8) Adam Aleksander Wojtaś - Independent Member

Until 31 December 2015, the composition of the Supervisory Board remained unchanged. Principles of operations of the Bank’s Supervisory Board

Pursuant to the Articles of Association, the Supervisory Board consists of individuals appointed for the same term of office by the General Meeting. Their number may not be lower than 5 and higher than 11. The term of office lasts three years. The number of terms of office is not limited. The Supervisory Board appoints its President, deputy President and secretary from among its members.

The terms of office of members of the Supervisory Board expire as of the date of the General Meeting approving the report on the activities and the financial statements for the last full financial year during which the role of a member of the Supervisory Board was performed. The term of office of a member of the Supervisory Board also expires in the event of death, resignation or dismissal. Members of the Supervisory Board can be dismissed before the expiry of the term of office and replaced by other individuals. If a Supervisory Board member is dismissed, resigns or dies during the term of office, the Board may work until the vacancy is filled, provided that it has at least five members.

The Supervisory Board exercises ongoing supervision of all of the Bank’s operations. The Supervisory Board performs its duties jointly but certain supervisory tasks may be delegated to its individual members. In terms of supervisory authority, the Supervisory Board follows in its operations the standards and procedures resulting from: • corporate governance rules, specified in „Best Practice of the WSE Listed Companies” approved by

The Warsaw Stock Exchange Supervisory Board S.A. • ‘Principles of corporate governance for supervised institutions’ published by the Polish Financial

Supervision Authority. The Supervisory Board exercises a regular assessment of the application of the rules specified in ‘Principles of corporate governance for supervised institutions’ by the Bank, including the criterion of independence of the Supervisory Board members. The assessment is published on the Bank’s website and shared with other bodies of the Bank. In particular, the Supervisory Board is responsible for: • approval of the Bank’s strategy and annual financial plans; • approval of the principles of prudent and stable management, the overall risk level at the Bank as well

as banking risk management policies; • approval of the Bank’s information policy;


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• approval of internal procedures applicable to estimating internal capital, capital management and planning;

• approval of resolutions of the Management Board concerning the organizational structure of the Bank, except for branch and operations branch establishment and closing;

• notifying the Polish Financial Supervision Authority of the composition of the Management Board and its changes promptly after appointment or dismissal of Board members, as well as members of the Management Board responsible, in particular, for risk management and operations of the internal audit unit;

• evaluation of the Management Board’s report on the activities of the Bank and its financial statements for the last financial year in terms of compliance with underlying accounting records and evidence and consistency with the facts, as well as motions of the Management Board regarding profit distribution or loss coverage, and submission of an annual written report presenting the evaluation results to the General Meeting;

• evaluation of the Management Board’s report on the activities of the Capital Group of the Bank and its consolidated financial statements for the last financial year in terms of compliance with underlying accounting records and evidence and consistency with the facts, as well as submission of an annual written report presenting the evaluation results to the General Meeting;

• setting out the terms of employment of Management Board members; • adoption of the policy applicable to provision of loans, cash loans, bank guarantees or sureties to

members of the Bank’s governing bodies, its managers and other parties, as specified in Article 79 of the Banking Law;

• adoption of resolutions approving provision of loans, cash loans, bank guarantees or sureties to members of the Bank’s governing bodies and other parties, as specified in Article 79a of the Banking Law;

• approval of the Management Board’s motions regarding purchase of shares in companies, the par value of which increased by the value of shares already held by the Bank in these companies exceeds 5% of the Bank’s share capital, except for shares in listed companies;

• appointment of a certified auditor to audit the financial statements and other experts; • supervision of the introduction of a management system at the Bank and evaluation its adequacy

and effectiveness; • evaluation of periodic information about the banking risk level and the quality of risk management; • evaluation of periodic information on identified irregularities and findings of internal audits as well as

measures implemented for elimination/performance purposes; • approval of the procedure applicable to appointment and dismissal of the internal audit head

and the terms of his/her compensation; • approval of the variable compensation policy for the executives of the Bank and its periodic revision; • adoption of the Rules of the Supervisory Board; • determining the number of Management Board members and the approval of Management Board

resolutions on their areas of responsibility; • appointment and dismissal of the President, deputy chairmen and members of the Management

Board; • suspension, for sound reasons, of individual or all members of the Management Board and delegating

Supervisory Board members to temporarily perform the roles of the Management Board members who have been dismissed, resigned or cannot fulfil their duties for other reasons;

• examination of issues raised during the General Meeting and consulting its draft resolutions, except for those concerning the agenda.

Supervisory Board meetings are convened by its President when necessary, at least quarterly.

Members of the Supervisory Board are informed in writing of the date, venue and agenda of the planned meeting, at least seven days before the meeting date, and provided with the materials to be discussed.

Motions regarding convening the Supervisory Board meeting may be filed with the President of the Supervisory Board by its members or by the Management Board of the Bank. In such cases, a meeting is convened by the President of the Supervisory Board within two weeks of the receipt of the aforesaid motion. At a justified request of a member of the Supervisory Board, the President of the Management Board or the Management Board of the Bank, also at his own initiative, the President of the Supervisory Board may convene an urgent meeting, setting the date, venue and agenda.


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The Supervisory Board examines the issues on the agenda and makes decisions in the form of resolutions. A resolution may be adopted if at least half of the members are present at the meeting, including its President or deputy President, with all the members invited. Resolutions of the Supervisory Board concerning appointment and dismissal of Management Board members are adopted with the majority of 2/3 of votes. Unless otherwise required by the law, other resolutions of the Supervisory Board are adopted with the simple majority of votes. If the number of votes is equal, the vote of the President is decisive.

Supervisory Board members may participate in adoption of resolutions (except for those regarding any personnel issues and matters added to the agenda during the meeting) by casting their votes in writing through another member of the Supervisory Board or through direct remote communication means.

In exceptional cases, the Supervisory Board may adopt resolutions outside meetings, by circular letter or using direct remote communication means. A resolution is valid if the draft has been presented to all members of the Supervisory Board.

The first meeting of the Supervisory Board is convened by the President of the Management Board. The first meeting in the new term of office is held to constitute the Supervisory Board.

Detailed information regarding the powers, procedure and roles of the Board has been provided in Sections 17-20 of the Bank’s Articles of Association and the Rules of the Supervisory Board (available on the Bank’s website: wwww.bosbank.pl, Investor Relations section). The Supervisory Board appoints members of the Internal Audit Committee, the Remuneration Committee and the Ecology Committee from among its members. Members of the Supervisory Board may also be appointed as members of other committees. Audit Committee The Audit Committee supports the Supervisory Board in the management of the Bank, including the internal control and risk management systems as well as the financial reporting process. The Committee performs the tasks defined in the Act on statutory auditors and their self-governing body, auditing firms and on public oversight (Journal of Laws of 2009, No. 77, item 649, as amended), in the Articles of Association of BOŚ S.A. and in the resolutions of the Supervisory Board. Key tasks of the Audit Committee include: • monitoring efficiency of the internal control and risk management systems; • monitoring the financial reporting process at the Bank; • monitoring the performance of financial audit; • monitoring independence of the certified auditor and the entity authorized to audit financial

statements; • supervision of the internal audit unit, in particular, of its proper place in the organizational structure of

the Bank, including independence, in line with supervisory regulations, as well as approval of the internal audit plan.

The President of the Supervisory Board is the President of the Committee. The Committee meetings are held when necessary but not less than once a quarter. The President may convene an urgent meeting of the Committee. At least once a year, the Committee holds a closed meeting with the internal audit head and the compliance head, without members of the Management Board.

The composition of the Audit Committee in 2015 was the subject to changes. In the period from 1 January 2015 to 31 December 2015 the Audit Committee operated in the following composition:

1) Marcin Likierski President of Committee – until 10 June 2015, 2) Jacek Ciepluch President of Committee – since 2 July 2015, 3) Józef Kozioł Vice-President of Committee, 4) Adam Wojtaś Member of Committee, 5) Piotr Kaczyński Member of Committee, 6) Mariusz Karpiński Member of Committee – until 10 June 2015, 7) Bartosz Januszewski Member of Committee - since 2 July 2015.


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Changes in the composition of the members of the Audit Committee took place as a result of:

• the resignation of the President of the Supervisory Board Mr. Marcin Likierski during the Annual General Meeting of BOŚ S.A. on 10 June 2015,

• dismissal of Mr. Mariusz Karpiński from the Supervisory Board by virtue of resolution of General Shareholders’ Meeting of BOŚ S.A. on 10 June 2015,

• appointing of Mr. Jacek Ciepluch as the President of the Supervisory Board on 2 July 2015, • appointing of Mr. Bartosz Januszewski as the Member of the Audit Committee on 2 July 2015.

As a result of these changes at the end of the reporting year the Audit Committee consists of 5 members. Remuneration Committee The Remuneration Committee was established from among members of the Supervisory Board in order to fulfil the tasks defined in Resolution No. 258/2011 of the Polish Financial Supervision Authority of 4 October 2011, adopted under Article 9f, Article 9g and Article 128.6.2 of the Banking Law of 29 August 1997, and to perform the activities specified in Section 20.10.9 of the Articles of Association of Bank Ochrony Środowiska S.A., i.e. policy drafting and consultations, in particular: • consulting and drafting the remuneration policy for members of the Management Board of Bank

Ochrony Środowiska S.A.; • consulting the Variable Remuneration Policy for Executives of Bank Ochrony Środowiska S.A.,

including the amount of such compensation and its components, in compliance with Resolution No. 258/2011 of the Polish Financial Supervision Authority;

• consulting and monitoring the variable compensation paid to the Bank’s executives in relation to risk management and ensuring compliance of the Bank’s operations with the applicable laws and internal regulations.

The Committee meetings are held when necessary, at least twice a year. In 2015 8 Committee meetings were held. Composition of the Remuneration Committee in 2015: Ryszard Ochwat - President of the Committee, Jacek Ciepluch - Member of the Committee, Józef Kozioł - Member of the Committee. Ecology Committee The Ecology Committee contributes to fulfilment of the statutory mission of BOŚ S.A. by assisting the Supervisory Board and the Management Board of the Bank in developing its environmentally friendly operations and identifying its green initiatives. The Ecology Committee formulates recommendations and prepares opinions for the Supervisory Board and the Management Board concerning the growth objectives of BOŚ S.A. in terms of ecology, including its expansion on the market of green services and development of new green products offered to clients. In particular, the Ecology Committee: • recommends further development objectives for pro-ecological products to the Supervisory Board

and the Management Board; • issues opinions regarding information on green projects and initiatives undertaken by the Bank as well

as the funding for green projects, for the Supervisory Board; • supports the forms and methods of the Bank’s impact on efficient investments in environmental

protection; • supports the Bank’s cooperation with Narodowy Fundusz Ochrony Środowiska i Gospodarki Wodnej

(and its regional finds) as well as other environmental organizations; • supports the Bank’s activities regarding eco-policy, in relations with MPs and public administration,

including the Minister of Environment.


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The Committee meetings are convened by its President when necessary. Composition of the Ecology Committee in 2015: Andrzej Kraszewski - President of the Committee until 10 June 2015, Marek Mielczarek - President of the Committee since 2 July 2015, Ryszard Ochwat - Deputy President of the Committee, Jacek Ciepluch - Member of the Committee until 2 July 2015, Adam Wasiak - Member of the Committee, Bartosz Januszewski - Member of the Committee since 2 July 2015. 3.3. The Management Board of the Bank The Management Board The Composition of the Management Board of the Bank as at 31 December 2014: 1) Mariusz Klimczak - President of the Management Board, 2) Stanisław Kolasiński - Vice-President - First Deputy of the President, 3) Dariusz Daniluk - Vice-President, 4) Adam Zbigniew Grzebieluch - Vice-President, 5) Paweł Kazimierz Lemańczyk - Vice-President. Information about the changes in the composition of the Management Board in 2015:

a) On 29 May 2015 the Supervisory Board: - dismissed Mariusz Klimczak, President of the Board, - dismissed Adam Grzebieluch, Vice-President of the Board, - entrusted the duties of President of the Board to Dariusz Daniluk, Vice-President of the Board,

b) On 2 July 2015 the Supervisory Board decided to appoint Mr. Dariusz Daniluk - former Vice-President, acting President of the Board, as President of the Board of BOŚ S.A., subject to the approval of the Financial Supervision Commission,

c) On 15 September 2015 the Supervisory Board of BOŚ S.A., dismissed Mr. Paweł Lemańczyk from the position of Vice-President of the Board and appointed Mr. Piotr Lisiecki as Vice-President of the Board.

d) On 22 September 2015 the Financial Supervision Authority approved the appointment of Mr. Dariusz Daniluk as President of the Management Board of Bank Ochrony Środowiska S.A.

The Composition of the Management Board of the Bank as at 31 December 2015: 1) Dariusz Daniluk - President of the Management Board, 2) Stanisław Kolasiński - Vice-President - First Deputy of the President, 3) Piotr Bolesław Lisiecki - Vice-President.

Management Board procedure

The procedure, powers and tasks of the Management Board have been defined in Sections 21-23 of the Articles of Association and Rules of the Management Board (available on the Bank’s website: www.bosbank.pl, in the Investor Relations section).

In accordance with the Articles of Association, the Management Board is composed of at least three members being individuals, including the President, the First Deputy President and the remaining Deputy Chairmen or other members of the Management Board.

The Management Board handles the Bank’s affairs and represents it before third parties. Its decisions are taken jointly in the form of resolutions. The Bank’s Board of Management follows the rules of corporate governance:



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• specified in „Best Practice of WSE listed Companies” approved by The Exchange Supervisory Board. • specified in „Principles of corporate governance for supervised institutions” published by The Polish

Financial Supervision Authority. All exception from above mentioned rules are communicated by the Board of Management according to the procedures specified in above mentioned documents. Resolutions are adopted at meetings convened in accordance with the Rules of the Management Board. They are adopted with simple majority of votes. Resolutions may be adopted if all members of the Board have been informed about the meeting and at least half of them are present, including the President, or, in his/her absence, the First Deputy President or another member designated by the President. If the number of votes is equal, the vote of the President is decisive. If a member of the Management Board does not agree with an adopted resolution, his/her opinion to the contrary may be included in the minutes. However, he/she is not released from the obligation to comply with the resolution adopted by the Management Board. Members of the Management Board are not allowed to vote in matters that concern them personally, including where the Bank’s interest is in conflict with that of the Management Board member, his/her spouse or persons related to him/her by blood or affinity. Minutes are taken during Management Board meetings. Management Board meetings are convened by the President as necessary, at least twice a month. At a justified request of a Management Board member or at his/her own initiative, the President may convene an urgent meeting, setting its date, venue and agenda. Meetings of the Management Board are attended by its members and individuals invited by the President. During the meetings, the President of the Management Board presents the agenda for acceptance, chairs the meeting, gives the floor to speakers, decides on procedural issues, summarizes the discussion, drafts the resolutions and formulates recommendations and conclusions. In cases justified by business or legal and formal needs, a member of the Management Board may – at the consent of the President – present a topic not included in the agenda during the meeting. If the President’s term of office expires following his/her death, resignation or dismissal, the First Deputy President appointed at the consent of Polish Financial Supervisory Authority acts as the President and manages the Bank’s overall operations until appointment of a new President. In the absence of the President, the First Deputy President or another member of the Management Board designated by the President acts as the President and manages the Bank’s overall operations (except for appointment and dismissal of the managing director, Head Office organizational unit heads and deputy heads as well as branch heads). Deputy President or members of the Management Board manage the Bank’s operations to the extent specified by the President. VI. CORPORATE SOCIAL RESPOSIBILITY

Corporate Social Responsibility (CSR) is defined as a responsible partnership dialogue with stakeholder groups, including institutional clients, individual shareholders, partners and employees. The majority of the related initiatives undertaken by Bank Ochrony Środowiska focus on environmental protection. This objective is also clearly visible in the core business of the Bank, which involves provision of funding for green projects. It should be emphasized that through the green projects implemented by its clients, the Bank has contributed to a reduction of carbon dioxide emissions by almost 3.0 million tons per year and of sulfur dioxide by more than 486 000 tons per year. Renewable energy sources for which funding has been provided by the Bank may generate energy at the level of 2.1 million MWh a year. Eco-mission of the Bank ‘The Bank’s mission is to support projects ensuring development of the industry and environmental protection services, growth of the market of green products and services as well as creating and promoting eco-friendly attitudes and green initiatives aimed at preserving the natural environment’ (excerpt from the Articles of Association). One of the strategic objectives of BOŚ S.A. is to increase its share in the market of green project funding.


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The mission, strategy and objectives of the Bank have been consistently pursued as part of its business operations, in particular through provision of specialized banking services dedicated to environmental protection and water management initiatives. The Bank’s employees supported by environmental engineering experts are the pillar of such activities. BOŚ S.A. provides funding for green initiatives in various fields of environmental protection. The scope of its tasks is determined both by the needs affected by legislative processes which necessitate implementation of investment and technology solutions ensuring compliance with specific environmental protection standards as well as those resulting from growing social awareness. A number of the Bank’s projects are far beyond the scope of traditional banking services. The solutions developed by the Bank combine comprehensive client service with education regarding the benefits of using environmentally-friendly devices and installations. Therefore, the activities of the Bank show a strong synergy between building its value and market position and corporate social responsibility. Key CSR pillars The Bank’s corporate social responsibility is based on two pillars: • the Bank and its eco-friendly approach to business, both in the Retail and the Corporate and Public

Sector Division; • the BOŚ Foundation, whose CSR initiatives complement the business of its founder and include mainly

projects raising awareness of the importance of ecology and a healthy lifestyle as well as employee volunteer programs.

Strategic partnerships The major part of the Bank’s funding for green initiatives is provided in cooperation with other financial institutions which pursue similar objectives. Narodowy Fundusz Ochrony Środowiska i Gospodarki Wodnej is the leading institution providing funding for green projects in Poland, with the strategic objective to ‘improve the condition of the environment and sustainable management of its resources through stable, efficient and effective support of environmental initiatives and projects’. NFOŚiGW is one of the Bank’s founders, its majority shareholder and partner in green project funding. The Bank also cooperates with Wojewódzki Fundusz Ochrony Środowiska i Gospodarki Wodnej, which are an important tool supporting implementation of the national environmental policy. This ensures joint provision of funding for green projects and acts as a financial leverage for regional programs which support initiatives of key importance for improvement of the quality of the natural environment and sustainable growth. The Bank’s CSR initiatives have been recognized by independent organizations. Five initiatives undertaken by the Bank and the BOŚ Foundation in 2015 will be described in the Responsible Business Forum Report (FOB). The awarded good practices include participation in the Polskie Gwarancje Pochodzenia Energii programme, BOŚ EKObiegaton, #BrudnoTu campaign as well as two long-term campaigns – ‘Postaw na Słońce’ and ‘Raport Ekologiczny’, which presents the green projects carried out by the Bank. Bank Ochrony Środowiska as a part of RESPECT Index Bank Ochrony Środowiska joined the respected group of Companies listed within the RESPECT index on the Warsaw Stock Exchange. It is the ninth time that the RESPECT Index is published and concentrates the most socially committed companies on WSE. RESPECT Index is the first index in Central-Eastern Europe of corporate social responsible companies. This project was introduced by WSE in 2009, when the first composition of the Index was declared. The composition of the Index is selected from the largest companies listed as a part of WIG20, mWIG40 and sWIG80. The Index is composed from the companies that operate according to the best management standards concerning corporate and informational governance, investor relations and with respect to ecology and social responsibility.


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Signing UN Declaration – the Banking Sector and the Natural Environment In 1994, Bank Ochrony Środowiska S.A. was one of the first out of the 14 Polish banks to sign the UN Declaration – the Banking Sector and the Natural Environment, obliging it to support investments in line with eco-development principles. The declaration is an official support for green banking. Its signatories undertake to consider ecological risk in granting loans, to promote new green services and products and combine their statutory activities with environmental protection initiatives. They declared: ‘We want to integrate environmental protection issues with internal operations in a manner ensuring sustainable development’ and ‘We support preventive approach to environmental management with the purpose to predict and avoid potential sources of environmental degradation’. The aforesaid objectives have consistently been pursued by BOŚ S.A. Environmental policy The environmental policy, consistently pursued since the incorporation of the Bank, was formally expressed in a resolution of the Management Board adopted in 2011. According to the resolution: ‘Bank Ochrony Środowiska, being fully aware of the importance of CSR and sustainable development, cares for its clients and the natural environment.’ The tasks fulfilled with a view to implementing the Environmental Policy include both ones related to the Bank’s operations as an institution, such as: • acting in conformity with the environmental laws in force and compliance with their requirements

in the internal regulations of the Bank; • limiting the consumption of natural resources through rational use of water, electricity, heat and fuel; • rational waste management through limiting the production of waste, selective collection

and recycling/neutralization; • procurement of materials and equipment with the reduced impact on the environment as the key

criterion; and those aimed at raising the ecological awareness of the Bank’s employees and partners, e.g.: • promoting eco-friendly attitudes among employees, raising their awareness and shaping behavior; • promoting the idea of environmental protection among clients, both through development of green

products and services and promotional/marketing initiatives; • promoting sustainable development among the Bank’s business partners and contracting parties. The Environmental Policy of BOŚ S.A. is communicated to each employee of the Bank and published on the Bank’s website (www.bosbank.pl) in the ‘About us / Mission of BOŚ S.A.’ section. 1. BANK GREEN PRODUCTS OFFERED BY THE BANK In response to market needs The products offered by Bank Ochrony Środowiska S.A. to provide funding for green projects include both standard products and operating in Poland mechanisms that support environmental investments. Besides commercial loans involving only Bank’s resources, BOŚ offers also preferential loans which work as financial leverage strengthening the potential of national or regional financial institutions involving their resources to support pro-ecological initiatives. This is the nature of cooperation with Narodowy and Wojewódzki Fundusz Ochrony Środowiska i Gospodarki Wodnej, Bank Gospodarstwa Krajowego and foreign financial institutions, such as the European Investment Bank (EIB), the Council of Europe Development Bank (CEB) and KfW Bankengruppe. Thanks to the initiatives undertaken by the Bank based on agreements signed with the aforesaid institutions, a number of dedicated products supporting activities in line with the national and regional environmental policy priorities have been developed. The Bank’s offering has been designed to encourage prospective clients to use the available green products, promote eco-friendly attitudes and boost investment aimed at improving the condition of the natural environment. That is why preferential loans are of key importance. They offer principal subsidies granted from the donor’s funds following completion of the project and reducing the loan liability, or below-market interest rates due to the donor’s contribution. By the end of 2015, in cooperation with NFOŚiGW, BOŚ S.A. offered subsidized loans for energy-saving and passive



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houses, loans for micro-installations of RES (preferential loans with a subsidy under the Prosumer Program) as well as for small and micro-enterprises – for energy efficiency projects as part of POLSEFF 2. Loans granted in cooperation with NFOŚiGW are used for projects which pursue the objectives of the regional environmental policy. Therefore, the loan terms differ depending on the region, as regards the available form of funding, the scope of the investment project, the maximum loan amount and its share in the total investment costs, the term of the loan and the interest rates. Each Wojewódzki Fundusz decides which entities may apply for the loan. Green project loans are also granted under agreements between BOŚ S.A. and foreign financial institutions. Thanks to foreign capital, the funding structure may be attractive, the mark-up and fees reduced relative to the standard products offered by the Bank, the requirements as to the down-payment less demanding and the grace period longer. Other green projects which do not qualify for preferential loans are funded using commercial loans, the terms of which are suited to the needs of specific projects. One of the products with particular importance is Kredyt z Dobrą Energią – an investment loan supporting production of electricity using renewable energy sources. This loan is in the Bank’s portfolio since few years already, but is still a subject to modifications in order to customize it in line with investors’ needs. Environmental protection and water management investment loans combine the Bank’s business objectives with its mission. They also clearly demonstrate the Bank’s role in the environmental protection funding system in Poland. JESSICA Initiative The Bank’s involvement in the JESSICA Initiative, the aim of which is sustainable urban development, is also of major importance to the local communities. BOŚ S.A. is successful in attracting investors that have realized many diverse and interesting projects such as shopping centers, office spaces, training and recreation centers, conference centers and hotels and markets. The aim of the projects was to increase the economic, tourist and investment attractiveness of the city. A combination of business objectives with the social aspects of the JESSICA Initiative results in a series of positive changes, to include creation of new jobs, improvement of local infrastructure and development of micro-regions. Education and benefits – ‘eco’ programs and products EkoKredyt Prosument Bank Ochrony Środowiska is the only bank that facilitates Priority Program of NFOŚiGW ‘Prosument’, which is aimed at supporting micro-installations of renewable energy sources designed to produce electricity and heat. In the framework of ‘Prosument’ Program, donations and preferential loans are granted, directed at individual clients, local and housing communities, producing energy for households with the possibility of partial reselling to power networks. The Program promotes new renewable energy sources technologies and prosument attitudes (raising of investment and ecological awareness among individuals) and impacts the development of the market of hardware manufacturers and installers as well as creating jobs in this sector. Thanks to those characteristics, the Program combines advantages of attractive banking product with educational function, aligned with eco-mission of the Bank. BOŚ Bank in the Polskie Gwarancje Pochodzenia Energii Program Bank Ochrony Środowiska joined the Polskie Gwarancje Pochodzenia Energii Program – venture supporting the development of renewable energy sources market and educational campaign, raising the awareness of Poles about pro-ecological solutions in energetics. The Program was launched by the Polish Wind Energy Association (PWEA) in cooperation with Axpo Poland. According to PWEA, the Program is aimed at fulfilling 3 core purposes: providing financial support to the manufacturers of energy from renewable sources, raising ecological awareness of the society and supporting the development of whole renewable energy sources industry. Bank Ochrony Środowiska has participated in the Program since December 2015.


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EVENTS AND PUBLICATIONS Trade fairs and conferences The Bank’s ongoing marketing initiatives included participation in trade fairs, conferences and seminars improving the image of BOŚ S.A. as a leading bank providing funding for green projects, such as VI Forum Budownictwa Energooszczędnego i Pasywnego – Budma 2015, FORUM Termomodernizacja 2015, III Forum Fotowoltaika dla każdego – Multinational Fair Trades of Renewable Energy Green Power, II International Ecological Forum and other industry, countrywide and local events. Since 1992, BOŚ S.A. has participated in POLEKO, International Trade Fairs of Environmental Protection, the largest event promoting innovative green solutions in Central and Eastern Europe. Each year, thousands of people visit the fairs, including environmental protection and waste management experts from Poland and abroad. During the fairs, BOŚ S.A. presents its green products and its employees are experts and lecturers during conferences and seminars. Marketing projects

The most important marketing project finalized within the retail market segment in 2015 was the marketing campaign ‘EKOkonto bez Kosztów’ (‘EKOaccount without Costs’), conducted in the period of June-July. In the campaign, high-reaching media (TV and internet) were used. Additionally, after a long, few years period of Bank’s absence in the high-reaching media, an important objective of the campaign was to initiate the revitalization of the Bank’s image in the consciousness of the target group. Furthermore, in 2015, the Bank launched a campaign in cooperation with MasterCard, which was aimed at promoting credit cards and cashless transactions. The campaign enabled to fulfil the projected sales goals. Within the corporate market segment, a number of initiatives were launched, aimed at acquiring and maintaining client base. In October 2015, for the first time in the history of the Bank, in cooperation with the Bank’s own foundation, mass event with a sport and ecology theme – BOŚ EKObiegaton - was organized. Besides the above mentioned initiatives, number of activities were conducted, with the aim of promoting sale of priority retail and corporate products. Ecological report The Ecology Report of Bank Ochrony Środowiska has been prepared for 17 years. On the one hand, it is a response to the recommendations formulated in the UN Declaration ‘The Banking Sector and the Natural Environment’, and on the other, a useful material both for internal purposes and promotional campaigns. The report is a concise summary of the annual eco-friendly activities of the Bank against the background of Poland and the national environmental protection support system. Additionally, it presents non-business activities of BOŚ S.A. and its employees. The report emphasizes the importance of ecology as one of the key strategic objectives of the Bank. It focuses primarily on the green products offered by the Bank. The report provides an outline of general issues, with a special focus on the Bank’s initiatives undertaken during the last year, including the segment structure, key funding areas as well as the eco-friendly results of completed investment projects which were partially funded with bank loans. Monitoring of waste management • Paper, metal, wooden, plastic, glass, electronic waste generated from the Bank’s operations are

transferred to specialized company, with which the Bank has an agreement, where they are recycled and utilized.

• All tangible assets withdrawn from the service are subject to one of the following form of further management: - resale, - free-of-charge donation to public institutions, - transfer to specialized companies for utilization.


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• No tangible asset withdrawn from the service is thrown in the trash. Monitoring of energy usage Based on the analysis of water, energy and fuel usage, the Bank undertakes actions aimed at reducing the usage of these resources: • Supply in „green energy” – according to the agreement with TAURON S.A., the Bank is supplied with

energy only from renewable sources. • Electronic devices used by the Bank’s headquarters and branches are selected with energy efficiency

in mind. An example: the air conditioners that have been installed recently, are in inverter technology, which need much less energy than traditional technology.

• In the Bank’s Headquarters, the efficiency and utilization of air conditioning and heating devices is adjusted to the number of employees and their working hours.

• Change of lighting in the outdoor advertising panels – from traditional lightbulbs to energy saving LED.

• Reduction of illumination time of the outdoor advertising panels (controlled by the astronomic clocks, which are programmed to turn of the lighting between 23:00 and 4:00).

• Energy efficient light sources installed in new or modernized branches. • Rational usage of energy in Headquarters and branches – policies were implemented, which regulate

handling of air-conditioning, ventilation and heating devices, according to seasons and time of the day. Those policies are aimed at reducing consumption of energy by devices mentioned above, by defining timeframes of their working hours, aligned with employees working hours and by preventing of heating and cooling devices working simultaneously.

Fleet and fuel usage • The two vehicles with electric engines are used by the Bank for driving in Warsaw. • Vehicles used by the Bank meet the Euro 5 emission standard. • The usage of fuel by the Bank’s fleet was reduced by ca. 26% in comparison to 2014. • All liquids used in the mentioned above vehicles (oils, coolants, break fluids) are changed in

authorized services, which are obliged to properly utilize them. • Car inspections and repairs are conducted in authorized services and spent parts are obliged to be

utilized properly. Implementation of eco-friendly solutions In order to optimize the usage of energy, water, fuels and materials purchased by the Bank, a number of solutions were introduced: • sinks in the Bank’s Headquarters are equipped with water stream diffusers. • flushes with water saving functions are used in the Bank’s Headquarters • water conditioners are used in the Bank’s Headquarters • declarations of waste disposals submitted directly by the Bank, imply the segregation of wastes • effective management of available resources • verification of legitimacy and defined limits of each purchase, which contributes to the reduction of

usage of resources. • Ecological paper with the weight of 70g/m3 sourced from eucalyptus is used in the Bank. Pulp of

eucalyptus enables manufacturing of the paper, which has lower weight, emits no powder and is very elastic, which reduces clogging in the copying and printing machines. Eucalyptus is a very specific type of tree, with fast growing time (two times faster than pine), cultivated on specialized tree farms. Taking those facts into consideration, paper from eucalyptus is considered ecological.

• monitoring of paper demand – the amount of used paper is monitored using monthly reports from the system.

• reduction of the number of printing jobs by outsourcing printing and copying devices and thus reducing the number of those devices, introduction of default two-sided printing, following printing, scanning and sending documents in electronic form.

• according to the lease agreement of copying and printing devices, all spent consumables are subject of empty toners collection program, which are later picked and utilized by the company, with which the Bank signed the agreement.

• implementation of system, aimed at controlling and reporting of printing jobs, which registers all


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printed documents generated by employees (including number of pages and estimated cost), which enables to manage the structure of printing jobs.

• reduction of number of printed documents handed to clients by placing number of documents on the Bank’s website, so that Clients have direct access to them.

• retail clients can apply for loans and saving products via remote channels, where there is no paper documentation.

2. BOŚ FOUNDATION – STRATEGIC SOCIAL ENGAGEMENT OF THE BANK

2015 was an important year for the corporate foundation of Bank Ochrony Środowiska, because of the launching of a pro-ecological campaign ‘Postaw na Słońce’ concerning renewable energy sources, civic campaign #BrudnoTu and BOŚ EKObiegaton. The popular and respected health education programs were continued in schools, which involved over 50 thousand direct participants (‘Czas na zdrowie’, ‘Zdrowo jem więcej wiem’, ‘Sklepiki szkolne zdrowa reaktywacja’). Clients and employees of the BOŚ Group were also involved in social actions (Micro-donations, ‘Pomagam cały rok’, ‘Zielone Strony’). The corporate foundation of Bank Ochrony Środowiska also took care of the presence in the mass media, airing over 800 publication concerning its projects. ECOLOGY ‘Postaw na Słońce”’ In 2015 the Foundation has continued the project promoting the use of renewable energy sources in Poland. While in 2014 the campaign was focused on the use of outdoor data carriers, Internet and PR actions, 2015 was aimed at educational actions in schools. The Foundation organized two independent and free of charge research and film contests. Young people representing more than 300 schools performed energy efficiency analyses for selected buildings and practiced selection of appropriate PV micro-installations. In the film contest, students were asked to prepare their own educational spots focusing on renewable energy sources, mainly the use of PV cells. In the spring, more than 100 teams consisting of pupils, which were working under the supervision of teachers, were involved in the project. The culmination point of the activities in schools were the conferences about renewable energy sources organized by young people, aimed not only for school societies but also for local residents and authorities, representatives from renewable energy sources industry and the founder of BOŚ Foundation. In October 2015, in the headquarters of the Ministry of Environment, formal award ceremony was organized, during which the best teams from both contests were presented. Prizes in the total value of PLN 62 thousand – quality electronic devices and educational PV models were given to 20 teams (over 200 people). Simultaneously with the activities in schools, the BOŚ Foundation was conducting media campaign in the form of informational materials, consisting of: brochure about renewable energy sources (6 thousand copies – distributed during the conferences), posters (5 thousand copies), which were sent to schools and two open letters directed at local authorities and cooperatives (total of 6 thousand). Above actions were accompanied by the PR campaign in radio (514 airings of the spot in 13 broadcasts) and in the local press (38 publications in 25 newspapers). Until October 2015 the project was co-financed by NFOŚiGW. In the autumn, new edition of the project was launched (school year 2015/2016) financed entirely from the funds of the BOŚ Foundation. 116 teams applied for the new editions of the contests. Other activities concerning ecology education During summer holidays, nationwide social networking action was launched: #BrudnoTu. The Foundation encouraged to identifying, informing about and monitoring places, which required cleaning via designated www portal. Since the beginning of the project, 40 localizations have been submitted and 98 publications appeared in media. The company Xentivo - designer of mobile applications - became the partner of the campaign. The Company introduced free-of-charge functionality for mobile phones, allowing for the fast submitting of the localization in need of cleaning.


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In 2015 the Foundation launched pilot of the new campaign ‘Dobry kontakt’, which is aimed at strengthening civic organizations and promotion of BOŚ brand in 500 local communities in whole country. In cooperation with Academy of Philanthropy in Poland and Polish–American Freedom Foundation, specialized IT systems were chosen and financed, thanks to which selected organizations will be more effective in financing civic and ecological projects (implementation of the IT systems is scheduled for 2016). In march 2015 BOŚ Foundation organized a photographic contest via its Facebook portal – ‘Przyroda u Twoich drzwi’. Over 100 entries were submitted. Winners were presented with prizes. HEALTH EDUCATION In 2015 the BOŚ Foundation carried out 3 health education projects in schools. The most successful was contest for primary schools: ‘Zdrowo jem, więcej wiem’ (educational classes for primary schools pupils – classes 0-III). More than 20 thousand people participated (almost 900 teams). In the ‘Czas na zdrowie’ competition (organization of health-awareness picnics in schools) 321 schools took part, which meant more than 3 thousand direct, active participants. For the competition ‘Sklepiki szkolne – zdrowa reaktywacja’ (with the mini-donations for the revitalization of school kiosks as awards) 90 school submitted, with 39 schools receiving donations, which meant the direct involvement in revitalization of school kiosks of almost 900 people. In total the Foundation donated the amount of over PLN 100 thousand in awards and donations for the school, which participated in the Foundation’s projects. In April 2015 the Foundation launched PR campaign about proper storage and processing of food in households. Based on the results of research commissioned by the Foundation, list of Poles’ ‘kitchen sins’ was prepared and published. The BOŚ Foundation launched interactive application on aktywniepozdrowie.pl portal, which informs users about dangers in kitchen and how to avoid them. The campaign resulted in almost 100 publications in media. In the end of the summer holidays in 2015 the Foundation participated in public debate about new decree of Ministry of Health concerning the Act against junk food in schools, which entered into force. Open letter to the Health Minister concerning this subject was published. In the press releases, which were distributed on the occasion of the campaign, experts of the Foundation tried to break down stereotypes about financial and operational costs of introducing new, health-conscious regulations in schools. EMPLOYEE AND CLIENTS INVOLVMENT In October 2015 the BOŚ Foundation participated in the organization of ‘BOŚ Eko-Biegaton’ – first, open BOŚ run on the occasion of 25 years of Bank’s activities. During the event, volunteers and employees of the Foundation organized educational, ecological-themed contests for children in school age and their parents. About 1.5 thousand guests visited picnic zone established in cooperation with the State Forests. Income from sold runner’s packs for participants was donated to the Culture Park in Powsin. In 2015 the BOŚ Foundation organized two contests for the best voluntarily initiatives of BOŚ employees. From the submitted proposals, 10 was selected and financed, in which 43 volunteers were involved. For the projects organized in cooperation with local foundations, organizations and public institutions, the Foundation donated more than PLN 28 thousand. Individual philanthropy project was developed, which was aimed at donating monthly donations for scholarships for gifted children from poor families and for grants for the Bank’s employees in difficult life situations. In September 2015, collected funds were donated to the Święty Mikołaj Foundation. The BOŚ Foundation donated grants to 5 employees of the Bank. The fund is regularly supporting 62 employees of the Bank and the Foundation. In December 2015 employees of Dom Maklerski BOŚ joined the action. It was decided, that the donations from DM BOŚ employees will be donated to Nasze Dzieci Foundation, which operates by the Oncology Clinic in the Centre of Child Health in Warsaw. In December 2015 collection of gifts was organized among employees of the Bank, which were donated to the pupils of Święty Mikołaj Foundation.


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Signatures of the Members of Management Board of BOŚ S.A. Date

Name and surname

Position

Signature

18.03.2016 Sławomir Zawadzki

Vice-President acting as President of the Board

………………………

18.03.2016 Stanisław Kolasiński

Vice-President – the first deputy of the president of the Management Board

………………………

18.03.2016 Paweł Pitera

Vice-president of the Management Board

………………………

18.03.2016 Oskar Kowalewski Member of the Supervisory Board delegated to temporarily act as Vice-President

………………………

MANAGEMENT BOARD’S REPORT OF THE BANK … · 2016-04-07 · MANAGEMENT BOARS’S REPORT OF THE...

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