pekao bank annual report 2011

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2011 Annual Report

Meeting real needswith concrete solutions


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Annual Report 2011

Every day, life presents new challenges and opportunities. Every day,

we each have a new idea to present that involves tangible needs and requires

clear answers.

In this years annual report, we illustrate our way of banking with projects that

we implemented for businesses, institutions and communities which use our

customised solutions.

The initiatives we present are based on entrepreneurship, courageous

innovation, respect for tradition, and our strong bonds with local communities.

We strongly believe that being a bank today means making a concrete

difference, day in and day out, for those who have chosen to do business

with us. It means facing challenges together and creating a world of newopportunities.

The projects pictured in the report are only examples of our initiatives.

We are creating a world of relationships, where our stakeholders

can best meet the changing needs of the times.


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3Bank Pekao S.A. Annual Report 2011

Contents

Highlights 4

Supervisory Board and Management Board of Bank Pekao S.A. 5

Chairwomans Message to the Shareholders 6

CEOs Letter to the Shareholders 8

Summary of Performance 11

External Business Environment 15

Important Events and Achievements 23

Information for Investors 31

Activities of the Bank Pekao S.A. Group 37

Statement of Financial Position and Financial Results 57

Other Information 77

Corporate Governance 83

Corporate Social Responsibility 103

Prospects for Development 121

Statement of Bank Polska Kasa Opieki Spka Akcyjna

on Application of Corporate Governance Standards in 2011 127

Representations of the Banks Management Board 137

Consolidated Financial Statements of Bank Pekao S.A. Group

for the period ended on 31 December 2011 141

UniCredit Group Profile 275


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4 Annual Report 2011 Bank Pekao S.A.

Highlights

In order to assure data comparability, selected items for 2007 income statement are presented as combined data of the Bank Pekao S.A. Group and Pekao285, i.e. the part of Bank BPH SAmerged with Bank Pekao S.A. as a result of the merger of the spun-off part of Bank BPH SA as registered on November 29, 2007.

Income statement items for 2006-2007 are in line with those published for these periods respectively.* Data not audited / reviewed by the independent auditor.** Income statements for the period 2007-2011 include continuing and discontinued operations.*** Including debt securities eligible for rediscounting at Central Bank and net investments in financial leases to customers.**** Deposits include Amounts due to customers.***** Starting from the first half of 2010 including Centrum Bankowoci Bezporedniej Sp z o.o. (CBB) as a result of consolidation of the company under the full method since that date.

2011 2010 2009 2008

2007

COMBINED DATA* 2007 2006

INCOME STATEMENT (PLN MILLION) SELECTED ITEMS

Operating income** 7,731 7,218 7,053 7,834 8,355 5,398 4,658

Operating costs** (3,672) (3,649) (3,673) (3,787) (3,822) (2,754) (2,347)

Operating profit** 4,060 3,569 3,380 4,046 4,533 2,645 2,311

Profit before income tax** 3,593 3,102 2,998 4,346 4,366 2,605 2,180

Net profit for the period attributable toequity holders of the Bank

2,899 2,525 2,412 3,528 3,547 2,156 1,788

PROFITABILITY RATIOS

Return on average equity (ROE) 14.2% 13.1% 14.1% 23.5% 24.7% 23.7% 21.1%

Net interest margin 3.7% 3.6% 3.5% 4.1% 3.9% 4.1% 4.2%

Non-interest income / operating income 38.9% 40.4% 42.1% 39.3% 48.0% 49.3% 48.7%

Cost / income 47.5% 50.6% 52.1% 48.3% 45.7% 51.0% 50.4%

STATEMENT OF FINANCIAL POSITION (PLN MILLION) SELECTED ITEMS

Total assets 146,590 134,090 130,616 131,941 124,096 124,096 67,704

Loans and advances to customers*** 95,679 80,840 79,455 82,512 69,699 69,699 32,747

Amounts due to customers 108,437 99,807 97,250 90,889 89,944 89,944 51,794

Equity 21,357 20,257 18,371 16,036 14,747 14,747 8,893

STATEMENT OF FINANCIAL POSITION STRUCTURE RATIOS

Net loans / total assets 65.3% 60.3% 60.8% 62.5% 56.2% 56.2% 48.4%

Securities / total assets 20.4% 23.4% 21.0% 17.1% 19.8% 19.8% 25.1%

Deposits**** / total assets 74.0% 74.4% 74.5% 68.9% 72.5% 72.5% 76.5%Net loans / deposits 88.2% 81.0% 81.7% 90.8% 77.5% 77.5% 63.2%

Equity / total assets 14.6% 15.1% 14.1% 12.2% 11.9% 11.9% 13.1%

Capital Adequacy Ratio 17.0% 17.6% 16.2% 12.2% 12.1% 12.1% 16.5%

EMPLOYEES AND NETWORK

Total number of employees***** 20,357 20,783 20,874 21,992 22,926 22,926 15,647

Number of outlets (Bank Pekao S.A.and PJSC UniCredit Bank)

1,051 1,073 1,089 1,102 1,100 1,100 795

Number of ATMs (Bank Pekao S.A.and PJSC UniCredit Bank)

1,910 1,910 1,968 2,004 1,885 1,885 1,262


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Supervisory Board andManagement Board of Bank Pekao S.A.

Supervisory Board

Chairwoman

Deputy Chairman

Deputy Chairman

Secretary

Members

Management Board

President, CEO

Vice Presidents

Alicja Kornasiewicz

Roberto Nicastro

Jerzy Wonicki

Alessandro Decio

Pawe Dangel

Oliver Greene

Enrico Pavoni

Leszek Pawowicz

Krzysztof Pawowski

Luigi Lovaglio

Diego Biondo

Marco Iannaccone

Andrzej Kopyrski

Grzegorz Piwowar

Marian Wayski


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The 2011 performanceattests to the Banks strongposition and resilience to

increased volatility on

the financial markets.

The Banks sustainable

growth policy reinforced

its standing of the most stable

bank in terms of efficiency in

the Polish banking sector.

Chairwomans Message

to the Shareholders

Dear Shareholders,

The Supervisory Board of Bank Polska Kasa Opieki S.A. has

performed an evaluation of the Banks standing in 2011,

in accordance with the corporate governance rules prescribed

by Best Practices for WSE Listed Companies, adopted by

the Warsaw Stock Exchange. On behalf of the Supervisory

Board, I would like to present a short summary of

the evaluation.

In the opinion of the Supervisory Board, Bank Pekao S.A.

has a sound economic and financial position, it meets all

the requirements for safe operation and capital adequacy,

and ensures security of funds entrusted by clients.

The 2011 performance of the Bank and the Bank Pekao S.A.

Group was positively assessed by the Supervisory Board.

Net profits earned by the Bank and the Group translated into

a return on equity of 14.2%. The Banks focus on businessactivities and its highly active presence on the market

resulted in a significant growth in the loan portfolio.

Another noteworthy achievement was the effective

management of credit risk: thanks to its consistent and

responsible credit risk policy, the Bank reported a further

improvement in the quality of assets and a reduction of

the cost of risk, which gives it competitive edge. Effective

cost management is yet another of the Banks strengths.

The 2011 performance attests to the Banks strong position

and resilience to increased volatility on the financial markets.

The Banks sustainable growth policy reinforced its standing

of the most stable bank in terms of efficiency in the Polish

banking sector.

As in the past, the Banks activities in 2011 were appreciated

by the market, as evidenced by the numerous domestic

and international awards and distinctions for outstanding

achievements and an innovative approach to developingbanking services. The Supervisory Board extends its

congratulations to the Management Board, and shares


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Warsaw, April 26th 2012

Alicja Kornasiewicz

Chairwoman of the Supervisory Board

implementation of a risk management strategy, together

with policies and procedures for the management of

each type of risk, and for effective operation of the risk

management system and its ongoing improvement.

The Supervisory Board oversees compliance of the Banks

policy regarding exposures to different types of risk with

the Banks strategy and financial plan.

To sum up, the Supervisory Board views the Bank Pekaos

standing as sound and stable. This opinion is based primarily

on the very good financial performance posted by the Bank,

the high level of the Banks security, its operational efficiency,

successful and consistent risk management, strong balance-

sheet and capital structures, strict cost control, and effective

internal control system. Strong fundamentals position

the Bank to fully benefit from sustainable development

opportunities and a further improvement of efficiency. With

its robust capital and liquidity structure, it is well prepared

for the challenges that 2012 is likely to bring, despite

the expected deceleration of economic growth.

On behalf of the Supervisory Board, I would like to thank

the Banks Shareholders and Clients for the trust they haveplaced in us. I would also like to thank the Management

Board and Employees of the Bank and the Group companies

for their dedication and for contributing to the Banks good

performance in 2011. I hope 2012 will bring continued

stable growth of the Banks value for all its stakeholders.

the Management Boards view that the most important

awards were the titles of Patron of Culture 2011 and Top

Employer Poland 2011, granted in recognition of the Banks

deep commitment to the implementation of the corporate

social responsibility strategy, including support of culture and

investments in human capital.

In line with the requirements set forth in Best Practices

for WSE Listed Companies, the Supervisory Board assessed

the internal control and risk management systems in place

at the Bank.

In the opinion of the Supervisory Board, the internal control

system of Bank Pekao S.A. operates correctly and guarantees

effectiveness of the control processes. Internal control

is a continuous process, carried out at all organisational

levels: by the Banks governing bodies, its particular

organisational units, supervisors at all management levels,

and all employees. The Management Board is responsible

for planning and operation of the internal control system,

adjusting it to the size and profile of the risk involved

in the Banks activities. The Supervisory Board exercises

supervision over the internal control system and evaluates itsadequacy and effectiveness. It is assisted in the performance

of this task by the Audit Committee. It is the Supervisory

Boards opinion that the Banks internal control system is

characterised by a complete and comprehensive approach.

The dedicated structures established at the Bank fully cover

the key risks involved in the Banks operations. With respect

to its subsidiaries, the control functions are performed by

the Banks representatives in the respective companies

supervisory boards.

The Supervisory Board has also expressed a positive opinion

on the risk management system in place at the Bank, stating

that it is one of the Banks strengths. Risk management

at the Bank is characterised by a comprehensive and

consolidated approach and extends to all the Banks

units and subsidiaries. In line with the regulatory

requirements, the Banks risk management strategy,

adopted by the Management Board in the form of the ICAAP

Procedure, was approved by the Supervisory Board. The risk

management system is an integral part of the Banks

management system. It involves formal procedures designed

to identify, measure or estimate, and monitor risks, as well

as formal risk mitigation limits. Pursuant to applicablelaws and supervisory regulations, the Banks Management

Board is responsible in particular for the preparation and


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Warsaw, March 19th 2012

Luigi Lovaglio

President of the Management Board, CEO

We managed to deliver all this while keeping strict cost

discipline, with operating costs growing by 0.6% and

cost to income ratio improving further to 47.5%, while

keeping investing for the future.

On behalf of the Management Board, I would like to thank

our Clients and Shareholders for the trust placed in the Bank,

the Supervisory Board for their support to our initiatives and

the Banks employees for their commitment and hard work.

I extend my personal thanks to the Management Board

members, my closest associates, for our good, concerted

cooperation.

We are very well positioned for the future. We have capital,

we have liquidity, we have one vision and we live our values,

and most of all, we have great people. We have clear plans

to continue growing revenues, earnings and return on equity.

We keep focus on a range of key strategic imperatives

strong reputation, customer satisfaction, sound risk and

cost management and price discipline.

We want to be leader also in promoting the sustainable

economic growth and the quality of life in Poland, as webelieve that only in this way we can guarantee sustainability

of our business and value creation.

We are committed to continue delivering first-class service

to our clients and building long-term value for all our

shareholders as we write the next chapter in Bank Pekaos

proud history.

We reinforced our leading position in corporate banking,

measured both by the volume of business we were entrusted

by our clients and by our ability to deliver unique, highest

standard solutions. Our corporate loans portfolio increased

by 18.9% to PLN 62.1bn, while corporate deposits grew by

15.4% to PLN 56bn.

Likewise, we materially strengthened our position in retail

banking, where our long term focus and expertise in PLN only

lending products allowed us to continue growth strategy on

a decelerating market. Our PLN mortgage portfolio increased

by 26% to PLN 20.3bn, and consumer loans portfolio

expanded by 15.2% to PLN 6.8bn.

We continued to launch new innovative products, which

at the same time are safe, user-friendly and highly usable.

Bank Pekao was recognised as a true leader of innovation on

the retail market with its new mobile banking offering, which

was highly rated by experts.

We improved significantly the quality of our work,

regularly measured in customer and employee satisfaction

surveys. This was another year when the dedicationand hard work of our employees resulted in improved

satisfaction results and stronger reputation of the Bank.

Care for the interests of our clients is our guiding principle,

and the security of funds entrusted to us our top priority.

We build our reputation on our values and first of all, on

ethical, customer-oriented behaviour. We strongly believe

that what is good for our customers, it will be good for

the Banks reputation.

We are also engaged in and committed to supporting our

society above and beyond fruits of our normal business

activity. We consider corporate social responsibility as

a permanent rule of conduct, which we seek to follow when

building relations with our environment. Among others,

we have actively participated for many years in The Great

Orchestra of Christmas Charity, one of the leading charity

projects in Poland.

In pursuance of our CSR mission we also engage in charitable

activities through the Marian Kanton Bank Foundation,

established and financed by Bank Pekao. We continue to

support Polish culture. In recognition of our involvement in

supporting and promoting culture and art, we were honouredwith the title of Patron of Culture 2011 by the Minister of

Culture and National Heritage.


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Summary of Performance


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Summary of Performance

The Bank Pekao Group reported solid financial results for 2011, with thenet profit attributable to equity holders amounting to PLN 2,899.4 million,up by PLN 374.2 million (14.8%) in comparison with 2010.

The robust performance in 2011, with the operating profit higher by13.8% relative to 2010, was driven mainly by the improved operatingincome, with operating costs kept under control (up by only 0.6%, wellbelow the inflation rate).

The strength of the capital and liquidity structure of the Bank PekaoGroup is reflected in the capital adequacy ratio of 17.0% and the loans todeposits ratio at the level of 88.2% as at the end of December 2011.

This provides a basis for further sound and stable development of theGroups activity.

The Bank continued its policy of offering only PLN mortgage loans.The residual stock of mortgage loans denominated in foreign currencies,almost entirely acquired as a result of the merger with the spun-off partof Bank BPH SA, represents 6.5% of the Banks total loans.

In 2011, the Groups operating income amounted toPLN 7,731.3 million, which means an increase of PLN 513.3 million(7.1%) on 2010, with growth in total net interest income, dividend in-come and income from equity investments as well as net non-interest

income, in particular net fee and commission income.

Total net interest income, dividend income and income from equityinvestments in 2011 amounted to PLN 4,724.3 million and rose byPLN 421.3 million (9.8%) in comparison with 2010. Key factors con-tributing to the rise were higher volumes and effective management ofthe interest margin.

The Groups net non-interest income amounted toPLN 3,007.0 million, an increase of PLN 92.0 million (3.2%)in comparison with 2010, mainly as a result of higher net fee andcommission income and improved trading result.

In 2011, the operating costs were kept under control and amountedto PLN 3,671.7 million. They were higher than the operating costs in2010 by only PLN 22.6 million (0.6%), well below the inflation rate.

Net impairment losses on loans and off-balance sheet commitmentsamounted to PLN 537.9 million, which is a level similar to that reportedfor 2010.As at December 31st 2011, the ratio of impaired receivables to totalreceivables stood at 6.3% and was better by 0.4 p.p. than as at theend of 2010.

As at the end of December 2011, total amounts due to the Groupscustomers (including customer deposits, repo and sell-buy-backtransactions, structured certificates of deposit, and certificates ofdeposit) amounted to PLN 110,153.1 million, an increase ofPLN 10,087.0 million (10.1%) in comparison with the end of 2010.The total volume of retail customer deposits and structured certificatesof deposit amounted to PLN 48,762.7 million as at the end of 2011,and was PLN 2,424.6 million (5.2%) higher in comparison with theend of 2010. The value of the net assets of investment funds managedby Pioneer Pekao TFI S.A. was PLN 13,780.9 million as at the end of2011, which means a decrease of PLN 4,277.9 million (23.7%) rela-tive to the end of 2010, driven by the unfavourable situation on capital

markets.The total volume of corporate customer deposits, repo andsell-buy-back transactions, and certificates of deposit amounted toPLN 61,390.4 million as at the end of 2011, an increase ofPLN 7,662.4 million (14.3%) as compared with the end of 2010.

As at the end of 2011, the volume of retail loans stood atPLN 36,733.5 million, having grown by PLN 5,187.8 million (16.4%)relative to the end of 2010. The growth was achieved on the back ofhigh dynamics of sales of key lending products. Thanks to commer-cial focus, in 2011 the Banks sales of consumer loans increased by18% and sales of PLN mortgage loans were higher by almost 27%

compared with 2010.The volume of corporate loans, non-quoted securities, reverse repotransactions and securities issued by local governments increased byPLN 10,261.4 million (19.1%) as compared with the end of 2010 andamounted to PLN 63,914.8 million as at the end of 2011.


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Economic Growth 16

Labour Market 16

Inflation and Monetary Policy 17

Fiscal Policy 17

Foreign Sector 18

Capital Market 18

Banking Sector 19

Ukraine 21

External Business Environment


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External Business Environment

Economic Growth

According to the preliminary estimates released by the Polish CentralStatistical Office, Polands GDP growth rate in 2011 was 4.3% (higherthan in 2010, when it equalled 3.9%), and individual consumption roseby 3.1%.

While the growth rate remained at a similar level to the previous year, thegrowth structure changed. Investment expenditures became a significantcomponent of the domestic demand. This was mainly due to the publicsector investments, however a revival of investment activity was alsoevident in the private sector. In the second half of 2011, the impact of

domestic demand on the GDP growth was lower. Data for the fourthquarter show a significant downturn in private consumption, which canbe largely attributed to the deterioration on the labour market. In the

second half of the year, a more and more significant growth driver wasnet exports. In 2010, net exports negatively affected the GDP growth rate,whereas in 2011 they had a positive impact. It is also worth noting thatan improvement in the price competitiveness of Polish exporters, due tothe depreciation of the Polish currency in the second half of 2011, wasan important factor supporting strong export sales.

The GDP growth rate in 2012 is forecast at 3.1% year on year. a slow-down in investment growth is expected relative to 2011, owing mainly tothe deterioration of economic prospects abroad. Similarly to the second

half of 2011, net exports will be a substantial growth driver for GDP.

Retail Sales (%, yoy)

Wage bill (%, yoy)

01.200

6

07.200

6

01.2007

07.2007

01.200

8

07.200

8

01.200

9

07.200

9

01.201

0

01.201

1

07.201

0

07.201

1

-5

0

15

10

5

20

30

25

-4

-2

4

2

0

6

8

8

10

18

16

14

12

20

22

Employment in the corporate sector (%, YoY, LA)

Unemployment rate (%, RA)

06.200

4

12.200

4

06.2005

12.2005

06.200

6

12.200

6

06.2007

12.2007

06.200

8

12.200

8

06.200

9

12.200

9

06.201

0

12.201

0

06.201

1

12.201

1

Labour Market

Average employment at Polish companies in December 2011 was5,503.2 thousand, i.e. 123.8 thousand more than in December 2010.However, this growth is attributable in a large part to an update of thestatistical sample by the Polish Central Statistical Office at the beginningof 2011 (increase in the number of companies employing more than

9 persons), contributing 121.6 thousand to the employment growth figure.

The first half of 2011 brought a further improvement on the Polish labourmarket and rising employment, which peaked in July at the level of5,528.1 thousand. The second half of the year saw a gradual reduction inthe number of jobs. The decrease in the employment rate affected mainlythe processing industry, and was due to a slump in foreign orders.

The falling employment rate was accompanied by a decline in the numberof job offers, resulting primarily from a reduction in job subsidies.

The unemployment rate slightly increased from the 12.4% reported as atthe end of 2010, reaching 12.5% as at the end of December 2011.

The jobless rate is likely to continue an upward trend in 2012.

Due to the worsening situation on the labour market, the wage pressurein the Polish enterprise sector remained at a moderate level in 2011,although inflation expectations of households grew significantly. Averagepay in the enterprise sector rose by 5.0% year on year, compared with3.3% in 2010. As a result, nominal wages in the enterprise sector in-creased by 8.4% year on year (4.1% in 2010), which translates into 3.9%in real terms (1.5% in 2010) given the high inflation level.


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Inflation and Monetary Policy

CPI inflation in 2011 remained significantly above the inflation target setby the National Bank of Poland (NBP). According to estimates by the Pol-ish Central Statistical Office, average CPI inflation was 4.3% year on year,reaching the level of 4.6% in December 2011.

The main factors behind the continued increased level of the CPI indexwere food prices, expenditures related to the use and maintenance ofdwellings and energy, with a substantial contribution from transportprices, and in particular the prices of fuel. The impact of those factorswas amplified by non-recurrent events such as an increase in the VAT

and excise tax rates at the beginning of the year, changes of administeredand regulated prices, and a modification of the seasonal goods pricemonitoring system introduced by the Polish Central Statistical Office. Inaddition, fluctuations of the Polish zoty exchange rate, and especially itsdepreciation, had an effect on the prices of raw materials imported toPoland. Decrease in the CPI inflation rate in the second half of 2011 wasslower than expected, mainly due to changes in law concerning, inter alia,kindergarten fees and implementation of new Ministry of Healths regula-tions on reimbursable drug prices.

Lingering inflationary pressures, including a rise in the prices of services,had a relatively lasting effect on net core inflation, which at the end of

2011 reached the level of 3.1%, with an annual average of 2.4%, slightlybelow the inflation target.

2012 is expected to bring a gradual decrease in the CPI inflation, headingfor the inflation target. However, whether the target will be achieved willdepend on the degree of the Polish zoty appreciation during the year. Thepace of the core inflation decline will be slower. The average growth rateof CPI and core inflation will remain above the inflation target.

Appraisal of the inflation prospects at the beginning of 2011 and therelatively stable path of economic growth in Poland prompted the Mon-etary Policy Council to begin the cycle of monetary tightening. Overall, theMonetary Policy Council raised interest rates in the first half of 2011 by

100 b.p. in four steps, ending the series of increases with the referencerate at 4.5%. The second half of the year saw exacerbation of the risksthreatening Polands economy, arising mainly from external conditions.The economic situation on foreign markets, especially the debt crisis inEurope, increased concerns about the scale of the economic slowdown inthe region and globally.

Financial markets uncertainty contributed to easing monetary conditionsin Poland through a substantial weakening of the Polish zoty as a result ofan increased risk aversion on the market. Taking into account the impactof the Polish currency depreciation on the expected path of inflation inPoland, the National Bank of Poland decided to embark on a series of in-

terventions on the currency market in order to stabilise the exchange rate.

Concerns about the development of the situation in the euro zone and inthe global economy, coupled with the elevated CPI inflation path, increasethe probability of interest rate stabilisation in Poland in the first monthsof 2012. Signs of an economic slowdown in Poland and a gradual dropin CPI inflation may encourage the Monetary Policy Council to loosenmonetary conditions.

Fiscal Policy

Poland posted a lower-than-expected budget deficit in 2011, whichfollowed from higher-than-forecast non-tax income (mainly due to excise

duties and profit transfer from the National Bank of Poland) and taxrevenue on PIT, CIT and VAT (taking into account the effect of increasesin the VAT tax rates and higher than expected inflation and GDP growthrates in 2011). Another contributor was lower spending, driven mainly byreduced money transfer to open-end pension funds.

The parliamentary election in Poland in October 2011 caused uncertaintyabout the continuation of fiscal consolidation plans. The electoral successof the ruling coalition garanteed that the fiscal convergence programmewould be implemented.

Facing the deteriorating economic prospects, the Ministry of Finance pre-

pared in December an altered Budget Bill for 2012, which incorporatedrevised macroeconomic assumptions and additional measures (reforms)aimed at updating the public finance consolidation plan.

The Budget Bill for 2012 provides for the following government initiativesdesigned to bring the public sector deficit to a level below 3% of GDP: introduction of a temporary expenditure rule, 2 p.p. rise in the disability pension contribution, changes in excise taxes increase in the excise tax on tobacco and

fuel, removal of the preferential excise tax rate on bio-fuels, introduction of an expenditure rule for local government units, changes in the capital gains tax and increase in dividends, introduction of silver and copper mining fees.

Plans of the Ministry of Finance concerning the long-term planning ofpublic finances include raising the retirement age, removal of selectedtax abatements, changes in farmers social insurance, and introduction ofa permanent expenditure rule.

Consistent completion of fiscal consolidation plans by the Polish govern-ment enhanced the perception of Poland by the financial markets,including rating agencies, creating very good conditions for covering theborrowing needs at the beginning of 2012.


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Foreign Sector

According to initial estimates by the National Bank of Poland, in 2011the current account deficit amounted to EUR 15.2 billion vs.EUR 16.5 billion in 2010, which means a drop in relation to GDPto 4.1%, from 4.7% in 2010.

The lower current account deficit resulted from an improved servicesaccount surplus (growth to EUR 4.9 billion from EUR 2.3 billion in 2010)and a rise in the current transfers account balance surplus (fromEUR 2.8 billion in 2010 to EUR 4.1 billion), due to increased absorption offunds from the EU.

Higher trade deficit and net income account deficit affected the currentaccount balance. Goods trade account deficit increased fromEUR 8.9 billion in 2010 to EUR 10.3 billion in 2011 as exports dynamics(23.0% in 2010 vs. 10.3% in 2011) slowed down more significantly thanthe dynamics of imports (25.1% in 2010 vs. 10.7% in 2011). At the sametime, higher net income account deficit was connected with increaseddividend payments by Polish companies, due to their improving financialperformance: the net income account deficit rose to EUR 13.9 billion fromEUR 12.8 billion in 2010.

2011 brought a significant decline in foreign portfolio investments to

EUR 11.0 billion, from EUR 19.9 billion in 2010. This trend was seen inboth treasury and equity securities, which was a consequence of a signifi-cant rise in risk aversion on the global financial markets. On the otherhand, the inflow of foreign direct investments was markedly higher than in2010: ca. EUR 9.9 billion in comparison with EUR 6.7 billion in 2010. For-eign direct investments financed ca. 65% of the current account deficit in2011, which is an acceptable level, much better than in 2010 (ca. 41%).

In 2011, there was a further increase in the State Treasurys foreign debt.According to the data of the Ministry of Finance, as at the end of Decem-ber 2011, it amounted to PLN 246.4 billion, which translates into ca.PLN 51.6 billion growth (26.5%) relative to the end of December 2010.The growth was partly a result of the weakening of the Polish zoty againstthe foreign currencies in which the Polands foreign debt is denominated.

Capital Market

While 2010 proved to be successful for the Polish stock market, 2011saw a markedly higher volatility, and as a result ended with a significant

decrease of indices. Stock prices continued an upward trend during thefirst half of the year, and consequently there were no signs of the dra-matic changes that started in July and August. Among the major factorsshaping market trends were the developments and changes in sentimentson global financial markets. The weakness of the Warsaw Stock Exchange(WSE) in relation to more mature markets was further exacerbated by thereduced demand from local institutional investors (mainly open-end pen-sion funds, which were affected by lower contribution transfers).

The key drivers of the situation on the global financial markets, includingstock markets, were as follows: political tensions in Arabic countries, theearthquake in Japan, the prolonged dispute over the U.S. public debt ceil-

ing, downgrade of the U.S. credit rating, a series of credit downgrades inthe euro zone, increased concerns over the possible spill-over of the crisisto Spain and Italy, as well as failure to agree on solid anti-crisis measuresin Europe despite a series of EU summits. Especially Standard & Poorsdecision to downgrade the United States credit rating from the highestlevel surprised investors and sent major stock market indices down morethan 10 per cent within a few days.

During the rest of the year, stock markets all over the world strivedto make up for the losses, however with varying degrees of success.Unfortunately, the Warsaw Stock Exchange was among those that didnot succeed, although the economic outlook (Polands economy wasgoing to slow down less than other European economies) had suggested

a completely different scenario.

In an environment marked with a growing risk aversion and a flight tosafe-haven investments, investors reactions were very sharp, which re-peatedly led to double-digit drops in the prices of less liquid equities. Thevast majority of companies listed on the WSE are trading at a discountand, given the rather optimistic growth prospects, their stock prices mayappreciate in 2012.

The worst result was achieved by WIG-Plus index (40.77% decline invalue), representing the behaviour of the smallest companies quotedon the WSE, which do not qualify for the WIG20, mWIG40 or sWIG80

index. The drop of WIG20, the blue chip index, was substantially smaller(21.85%). The relatively best performer was the broad market index WIG (20.83% drop in value).

External Business Environment (cont.)

05.200

4

11.200

4

05.200

5

11.200

5

05.200

6

11.200

6

05.200

7

11.200

7

05.200

8

11.200

8

05.200

9

11.200

9

05.201

0

11.201

0

05.201

1

11.201

1

Exports (%, YoY, RA)

C/A balance (EUR m, LA)

Imports (%, YoY, RA)

-3,000

-2,000

-2,500

-1,000

-500

-1,500

0

1,000

500

2,000

1,500

-50

-40

-30

-20

-10

0

10

40

20

30


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Despite the poor sentiment, the WSE continued to attract new issuers.In 2011, it was the place of more IPOs than any other European stockexchange, with 172 companies floating their shares on the alternative in-vestment market NewConnect. Thirty eight IPOs were carried out on theWSE main market, slightly more than in 2010 (34 companies). The totalnumber of companies listed on the WSE main market and parallel market(without NewConnect) as at the end of 2011 was 426, of which 39 were

foreign companies. The market capitalisation of the WSE decreased by19.3% in 2011, to PLN 642.9 billion.

36,000

38,000

40,000

42,000

44,000

48,000

46,000

50,000

01.201

1

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1

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1

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1

06.201

1

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1

08.201

1

09.201

1

10.201

1

11.201

1

12.201

1

Indeks WIG

2,000

2,600

2,200

2,800

2,400

3,000

01.201

1

02.201

1

03.201

1

04.201

1

05.201

1

06.201

1

07.201

1

08.201

1

09.201

1

10.201

1

11.201

1

12.201

1

Index WIG20

The behavior of particular asset classes during the year had an impact onthe decisions of retail investors, and therefore more aggressive forms ofinvestment did not fare well. According to data of the Analizy Online service,the assets of investment funds shrank by PLN 5.7 billion (4.8%) in 2011,with net redemptions of PLN 3.3 billion. Similarly to 2010, the major benefi-ciaries were money market funds and bond funds (net subscriptions ofPLN 4.2 billion). The statistics for equity and mixed funds were worse

(net redemptions of PLN 2.9 billion and PLN 5.8 billion respectively).Net assets of equity funds and mixed funds decreased by more than 32%and 29% respectively. On the other hand, some types of funds posted netasset growth. These included private equity funds (up by 44.3%), debtfunds (up by 17.1%) and money market and cash funds (up by 20.2%).

1Based on aggregates published by the NBP for all monetary financial institutions, covering liabilities other than deposits and receivables other than loans.2Notably, sale of Polkomtel shares.

Banking Sector

In 2011, the overall condition and performance of the banking sectorwere driven by the macroeconomic determinants. Notably, continuationof the relatively strong economic growth contributed to improved financial

standing of businesses and households, which in turn reduced the cost ofrisk. Increased volatility across financial markets, caused by an escalationin the euro area crisis, left the sectors results unaffected, and only minoradjustments to interest rates made by the central bank had no significantimpact on the banking operations.

The year-on-year growth in the value of banks assets accelerated, toreach 11.7% at the end of 2011 (compared with a 9.6% year-on-yearrise recorded in December 2010).

In 2011, the following changes occurred in key deposit categories:1

a 13.5% year-on-year rise in deposits from households (compared

with a 9.8% year-on-year rise reported in 2010). Key factors

contributing to the enhanced growth included higher incomes earnedby households and a shift in the savings structure towards less riskyassets,

a 12.1% year-on-year rise in corporate deposits (compared witha 9.9% year-on-year rise reported in 2010). The major contribu-

tors to the robust growth in corporate deposits were strong financialperformance figures and certain non-recurring factors, such as ampleproceeds earned by companies from the sale of financial assets at theend of the year2,

a 1.6% year-on-year rise in other deposits (compared with a 3.9% year-on-year rise reported in 2010). The tepid growth in the category wascaused by a sharp decline in deposits from the Social Security Fund.

As a result of the changes described above, the deposit structure wasas follows: at the end of 2011 households deposits, corporate depositsand other deposits represented 62.7% (end of 2010: 61.8%), 26.7%(end of 2010: 26.6%), and 10.6% (end of 2010: 11.6%) of total deposits,

respectively.


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50%

30%

40%

10%

20%

-10%0%

-20%

Loans to households (y/y)

Loans to non-financial corporations (y/y)

Other loans (y/y)

01.200

9

07.200

9

01.201

0

07.201

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1

04.200

9

10.200

9

04.201

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10.201

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04.201

1

10.201

1

Loans by main sectors

Non-performing loans, % of portfolio

14%

18%16%

20%

10%

12%

6%

8%

2%

4%

0%

Loans to large corporations

Loans to SME

Housing loans

Consumer loans

03.200

9

06.200

9

09.200

9

12.200

9

03.201

0

06.201

0

09.201

0

12.201

0

03.201

1

06.201

1

09.201

1

As for the main loan categories, the following changes occurred in 2011: a 11.9% year-on-year rise in loans to households (compared with

a 14.0% year-on-year rise reported in 2010). The rise was driven bygrowth in housing loans, with consumer lending remaining sluggish. Tonote, the 2011 results were inflated by the depreciation of the Polishcurrency, which led to an increase in the value of foreign currencyloans (notably CHF-denominated loans). Year-on-year growth in loansto households cleared of the effect of FX differences is estimated inthe range of 7-8%,

a 19.1% year-on-year rise in loans to businesses (compared witha 0.2% year-on-year drop reported in 2010). The rise was fuelled bya recovery in investment across the enterprise sector and increased

borrowing of funds to finance M&A transactions. Similarly to theloans-to-households category, the depreciation of the zoty inflatedthe year-to-year growth in loans to businesses (by some 5 percentagepoints, according to estimates),

40%

30%

10%

20%

-10%

0%

-20%

Deposits of households (y/y)

Deposits of non-financial corporations (y/y)

Other deposits (y/y)

Deposits by main sectors

01.200

9

07.200

9

01.201

0

07.201

0

01.201

1

07.201

1

04.200

9

10.200

9

04.201

0

10.201

0

04.201

1

10.201

1

External Business Environment (cont.)

a 16.5% year-on-year rise in other loans (compared with a 10.3%year-on-year rise reported in 2010). The category rose mainly on theback of stronger portfolio of loans to local government institutions (upby 23.1% year on year) and a slight increase (2.9% year on year) indebt contracted by non-banking financial institutions.

At the end of 2011, loans to households, loans to businesses andother loans accounted for 61.0% (end of 2010: 62.3%), 29.7% (end of2010: 28.5%) and 9.3% (end of 2010: 9.2%) of the total loan portfolio,respectively.

At the end of 2011, gross loans to deposits ratio was 115.6%, compared

with 112.9% in December 2010 (if calculated using net receivables, thefigure would be 104.7% and 102.1%, respectively).

40%

35%

30%

20%

0%

10%

15%

25%

5%

122%

118%

106%

110%

112%

114%

116%

120%

108%

01.200

9

07.200

9

01.201

0

07.201

0

01.201

1

07.201

1

04.200

9

10.200

9

04.201

0

10.201

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04.201

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10.201

1

Loans to deposits (r.s.)

Total deposits (y/y)

Total loans (y/y)

Loans and deposits


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According to estimates, Ukrainian grain harvest in 2011 was in excessof 55 million tonnes. Likewise, the production of certain vegetablesand oilseed crops was also higher than ever before. The growth enginefor the construction industry was the infrastructure projects connectedwith the European Football Championship UEFA EURO 2012, whichis to be co-hosted by Ukraine. Towards the end of 2011, there wasa slowdown of economic activity in the industrial sector, mainly due toweaker foreign demand.

The inflation rate in Ukraine fell to 4.6% as at the end of 2011, incomparison with 9.1% at the end of 2010. This strong decline beganin September and was mainly driven by a fall in food prices after the

record high harvest. Another major factor lowering the inflation ratein 2011 was keeping the gas tariffs for household consumers at anunchanged level.

Although the inflation dropped, the Central Bank of Ukraine tightened themonetary policy in the second half of the year by reducing liquidity in thebanking sector. The second half of the year also brought an increase ininterest rates on the money market. The National Bank of Ukraine inter-vened on the foreign exchange market throughout the year, which helpedto stabilise the exchange rate of the Ukrainian Hryvnia against U.S. Dollarat around UAH 8/USD 1.

Thanks to a high rate of economic growth, which translated intoimproved financial performance of the corporate sector, budgetaryrevenues grew substantially. According to estimates, budget deficitamounted to ca. 1.7% of GDP in 2011. However, the good budgetresults should not be viewed as a reason for optimistic conclusionsfor the future, because the increase in tax revenue was mainly causedby changes of accounting principles governing recognition of retainedlosses.

It is estimated that Ukraine did not manage to reduce the public sectordeficit to the target level of 3.5% of GDP in 2011. a factor of key impor-tance to Ukraines public finance is the gas conflict with Russia, whichdoes not agree to reduce its gas prices. Under these circumstances,

the main IMF requirement is that gas prices for Ukrainian consumersshould be raised, but so far the Ukrainian government has refrainedfrom taking that step.

Negotiations between Ukraine and Russia on gas prices and further coop-eration with the International Monetary Fund remain fundamental issuesfor Ukraines macroeconomic situation in 2012.

The quality of the loan portfolio is of fundamental importance. The yearunder review saw: a marked decline in non-performing loans in the loans-to-businesses

category, from 12.3% of the total loan portfolio in December 2010 to10.5% at the end of 2011, as a consequence of the nominal value ofnon-performing loans having stabilised, with the entire portfolio havingexperienced substantial growth,

the share of non-performing loans in total loans to households remain-ing above 7% (7.2% at the end of 2011, flat on December 2010). Inthis loan category, a steady, slow uptrend is observed in the proportionof non-performing housing loans (2.3% in December 2011, comparedwith 1.8% in December 2010). The share of non-performing loans in

total loans to households excluding housing loans was 14.6% at theend of 2011 (December 2010: 14.0%).

In terms of financial performance, Polands banking sector showed a ro-bust improvement in 2011. According to the Polish Financial SupervisionAuthority, the sector posted overall net profit of PLN 15.7bn, up by 37.5%on the prior year. The key growth drivers were higher net interest incomeand lower cost of impairment losses on loans, accompanied by an onlyslight increase in operating expenses.

Presented below are landmark changes in the regulatory framework in2011:

further measures taken to restrict borrowers access to foreign cur-rency loans, scaling down of the Family in Their Own Homehousing loan subsidy

scheme, and changes to tax law designed to eliminate evasion of capital gains tax

on deposits with interest compounded daily.

A full effect of the changes listed above will be visible in 2012.

Ukraine

In 2011, the Ukrainian economy sustained its economic growth from

2010. The International Monetary Fund estimates that Ukraines GDPwent up by 4.7% in 2011, after a 4.2% growth in 2010 and a 14.5%decline in 2009. The estimates of the National Bank of Ukraine put the2011 economic growth rate even higher, stating it possibly exceeded 5%.

The main driver of the economic growth was domestic demand. Increasedconsumption was supported by a strong employment growth and higherreal wages as well as higher investment in inventories.

The main sectors of the economy that contributed to the growthwere agriculture, construction industry and domestic trade. The goodperformance of the agriculture sector was due to a record-high harvest.


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Bank Pekao was the only commercial company that received the Patron of Culture 2011 title,

awarded by the Minister of Culture and National Heritage for the Banks steady commitment to

supporting high culture. Bank Pekao was nominated to this prestigious award by our partners

over twenty leading cultural institutions across Poland.

Bank Pekao

as Patron of Culture 2011


25/286


Important Events and Achievements

Changes within the Group 24

Change of Name, Legal Form and Registered Office of a Company 24

Liquidation of a Company 24

Changes in the Statutory Bodies of the Bank 24

Supervisory Board 24

Management Board of the Bank 25

Organisational Changes 25

Awards and Distinctions 26

Bank Pekao S.A. as National Sponsor of the UEFA European

Football Championship UEFA EURO 2012

and the Official Bank of the Championship in Poland 28


26/286


Changes within the Group

The composition of the Bank Pekao Group is presented in the Notes tothe Consolidated Financial Statements of the Bank Pekao Group for theperiod ended December 31st 2011.

The most significant developments concerning the Group are presentedbelow.

Change of Name, Legal Form

and Registered Office of a Company

On February 8th 2011, the legal form of OJSC UniCredit Bank Ukrainewas changed from open joint stock company to public joint stock

Important Events and Achievements

Composition of the Supervisory Board of Bank Pekao S.A.:

31.12.2011 31.12.2010

Alicja KornasiewiczChairwoman of the Supervisory Board

Jerzy WonickiChairman of the Supervisory Board

Roberto NicastroDeputy Chairmanof the Supervisory Board

Federico GhizzoniDeputy Chairman,Secretary of the Supervisory Board

Jerzy WonickiDeputy Chairman of the Supervisory Board

Roberto NicastroDeputy Chairman of the Supervisory Board

Alessandro DecioSecretary of the Supervisory Board

Pawe DangelMember of the Supervisory Board

Pawe DangelMember of the Supervisory Board

Sergio ErmottiMember of the Supervisory Board

Oliver GreeneMember of the Supervisory Board

Oliver GreeneMember of the Supervisory Board

Enrico PavoniMember of the Supervisory Board

Enrico PavoniMember of the Supervisory Board

Leszek PawowiczMember of the Supervisory Board

Leszek PawowiczMember of the Supervisory Board

Krzysztof PawowskiMember of the Supervisory Board

Krzysztof PawowskiMember of the Supervisory Board

company, and currently the banks full name is Public Joint Stock Com-pany UniCredit Bank. The registered office of the bank was moved fromLuck to Kiev.

Liquidation of a Company

On October 20th 2010, the Extraordinary General Meeting of HoldingSp. z o.o. in liquidation resolved to commence the process of liquidationof the company, whose operations had already been discontinued. Theliquidation process will be continued in 2012.

Changes in the Statutory Bodies

of the Bank

Supervisory Board

Mr. Sergio Ermotti, Member of the Supervisory Board, resigned from hisposition in the Supervisory Board with effect from February 23rd 2011.

On April 14th 2011, Mr. Federico Ghizzoni, Deputy Chairman andSecretary of the Supervisory Board, resigned from his positions in theSupervisory Board with effect from April 30th 2011.

The Ordinary General Meeting of Shareholders held on April 19th 2011appointed Mrs. Alicja Kornasiewicz and Mr. Alessandro Decio to theSupervisory Board, with effect from May 1st 2011 and April 19th 2011respectively.

At a meeting held on June 1st 2011, the Supervisory Board appointedMrs. Alicja Kornasiewicz as Chairwoman of the Supervisory Board (uponher resignation from the position of President of the Banks ManagementBoard), Mr. Jerzy Wonicki (who resigned from the position of Chairman ofthe Supervisory Board) as Deputy Chairman of the Supervisory Board, andMr. Alessandro Decio as Secretary of the Supervisory Board.


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31.12.2011 31.12.2010

Luigi LovaglioPresident of the Management Board, CEO

Alicja KornasiewiczPresident of the Management Board

Diego BiondoVice President of the Management Board

Luigi LovaglioFirst Vice President of the Management BoardGeneral Manager

Marco IannacconeVice President of the Management Board

Diego BiondoVice President of the Management Board

Andrzej KopyrskiVice President of the Management Board

Marco IannacconeVice President of the Management Board

Grzegorz PiwowarVice President of the Management Board

Andrzej KopyrskiVice President of the Management Board

Marian WayskiVice President of the Management Board

Grzegorz PiwowarVice President of the Management Board

Marian WayskiVice President of the Management Board

Management Board of the Bank

On April 14th 2011, Mrs. Alicja Kornasiewicz resigned from the positionof President of the Banks Management Board with effect fromApril 30th 2011.

On April 14th 2011, based on the Supervisory Boards unanimous deci-sion, which entered into force on May 1st 2011, Mr. Luigi Lovaglio wasappointed as President of the Management Board and CEO for the current

joint term of office of the Banks Management Board. The appointmenttook effect from the date of obtaining the approval of the Polish FinancialSupervision Authority.

On July 19th 2011, the Polish Financial Supervision Authority unani-mously approved the appointment of Mr. Luigi Lovaglio as President ofthe Management Board of the Bank.

Composition of the Management Board of Bank Pekao S.A.:

Members of the Management Board are appointed for a joint three-yearterm of office. They are appointed and removed from office by the Super-visory Board. Vice Presidents and Members of the Management Board are

appointed and removed from office upon the request of the President ofthe Management Board. Appointment of two members of the Manage-ment Board, including the President, is subject to approval by the PolishFinancial Supervision Authority. The body which applies for the approval isthe Supervisory Board.

The Management Board runs the Banks affairs and represents the Bank.The Management Boards powers and responsibilities include all matterswhich, pursuant to the provisions of law or the Banks Statute, do not fallwithin the scope of competence of other governing bodies. The rules andprocedures for the activities of the Banks Management Board are stipu-lated in the Rules of Procedure for the Management Board of the Bank.

Members of the Management Board coordinate and supervise the Banksoperations in line with the allocation of responsibilities adopted undera resolution of the Management Board and approved by the SupervisoryBoard.

Mr. Luigi Lovaglio, President of the Management Board, coordinatedthe activities of the Members of the Management Board and super-vised a number of areas of the Banks activity, in particular: internalaudit, compliance, and corporate communication, including investorrelations.

Mr. Luigi Lovaglio headed the Management Board, convened and pre-

sided over the Board meetings, presented its stance to other governingbodies of the Bank and in relations with third parties, in particular with thestate authorities, and issued internal regulations.

Mr. Diego Biondo, Vice President of the Management Board, supervisedthe activity of the Risk Management Division.

Mr. Marco Iannaccone, Vice President of the Management Board,supervised the activity of the Finance Division.

Mr. Andrzej Kopyrski, Vice President of the Management Board,supervised the activity of the Corporate Banking and MIB Division.

Mr. Grzegorz Piwowar, Vice President of the Management Board,supervised the activity of the Retail Banking Division.

Mr. Marian Wayski, Vice President of the Management Board,supervised the activity of the Logistics and Procurement Division.

Organisational Changes

In 2011, there were changes in the organisational structure of BankPekao S.A.s Head Office.

One of key developments was the establishment of the Global BankingServices Area, grouping together the activities of the Organisation Divi-sion, IT Division, HR Shared Service Centre, Cost Management Depart-ment, and a newly created GBS Support Office.

Creation of the Global Banking Services Area was aimed at streamliningthe Banks activities relating to: operations and support services offeredto business divisions, increasing the scope for economies of scale,improvements in the quality and efficiency of operational processesand technical solutions, as well as the potential for optimisation ofadministrative costs.


28/286


Foundation, one of leading institutions assessing human resources man-agement policies globally.

The Top Employerscertificate is awarded to companies and organisationswhose employees have outstanding working conditions and developmentprospects, and which meet standards of excellence in HR management,as confirmed by CRFs research.

The certificate is granted on the basis of detailed research, whichincludes the key areas of HR policies and practices, such as primary ben-efits, secondary benefits, working environment, training and development,career development, and company culture.

In 2011, the label Top Employerswas granted to 20 companies in Poland,out of 360 organisations that qualified to take part in the project.

Bank Pekao S.A. scored the best results in the following areas: primarybenefits, training and development, and career development.

Promotional Emblem Teraz Polskafor the

Pekao24 System

The electronic banking system Pekao24 wasawarded Promotional Emblem Teraz Polskainthe 21st edition of the competition for the best

products and services. The distinction attests tothe high quality and state-of-the-art status ofthe services offered to Bank Pekao S.A.s clientsthrough e-channels.

Teraz Polskacompetition is organised by the Polish Promotional EmblemFoundation under the auspices of the Polish President. The Emblem isgranted to single out products and services of the highest quality. It is oneof the most highly-valued awards in Poland. The competition has beenorganised for 20 years.

Global Finance: Bank Pekao S.A. among Top

10 Safest Banks in CEE

Bank Pekao S.A. found its way to the TOP 10 listof the safest banks in CEE. In theWorlds SafestBanks 2011ranking announced by the GlobalFinancemagazine in August 2011, it secured thefourth position and won the first place amongPolish financial institutions.

The ranking winners were chosen on the basis of their long-term creditratings, assigned by leading rating agencies. The value of assets was alsotaken into consideration.

The high position in the ranking confirms our solid capital position and

superior risk management capabilities.

Awards and Distinctions

The activities of Bank Pekao S.A. in 2011 gained wide recognition,as evidenced by numerous awards and distinctions from bothPolish and foreign institutions, the most significant of which arepresented below.

The honours of particular importance to the Bank in 2011, besides thosereceived for achievements in the development of banking services andconsumer relations, were the awards bestowed on Bank Pekao S.A. inappreciation of its commitment to the pursuance of the Corporate SocialResponsibility (CSR) strategy: the titles of Patron of Culture 2011and Top

Employer Poland 2011.

Bank Pekao S.A.

Patron of Culture 2011

The Minister of Culture andNational Heritage honouredBank Pekao S.A. with the title

Patron of Culture 2011. This distinction is granted annually to only onecompany, for involvement in supporting and promoting culture and art.

The award of the Minister of Culture is of special importance as the Bankwas nominated by 21 cultural institutions from all over Poland. This is

a genuine source of pride and satisfaction for us.

Among projects that received support from the Bank were the most pres-tigious cultural events in Poland: International Festival Wratislavia Cantansin Wrocaw, 20th Mozart Festival in Warsaw and 15th ShakespearianFestival in Gdask.

In Poland, there is a great number of cultural institutions and events thatare worth supporting. It is an important role to play for the Bank a lead-ing financial institution, which prioritises supporting high culture withinits CSR strategy. The Banks commitment stems from a strong convictionthat patronage of culture is one of the most important duties of sociallyresponsible corporations. The Bank is guided by the objective of preserv-

ing the artistic heritage for future generations.

Bank Pekao S.A. has been involved in a broad range of events. For years,it has been cooperating with numerous cultural institutions: renownedtheaters, museums, organisers of festivals and musical events. Since2007, the Bank has funded awards granted by Polish PEN Club to writers,publishing houses and translators. For four years, the Bank has beenthe sponsor of the prestigious Paszporty POLITYKIpoll, as part of whichawards are granted to outstanding young artists.

Bank Pekao S.A. among the Best

Employers in Poland

Bank Pekao S.A. once again receivedthe Top Employerscertificate fromthe international Corporate Research

Important Events and Achievements (cont.)


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Global Finance: Award for Corporate

Banking Services of Bank Pekao S.A.

For the fourth consecutive year, BankPekao S.A. was awarded with two high-profile awards granted by the Global Financemagazine: Best Trade Finance Bank 2011, Best Foreign Exchange Provider 2011

in the Polish zoty category.

Bank Pekao S.A. was the only Polish bankrecognised with the awards.

The title Best Foreign Exchange Provider 2011is bestowed on outstanding institutions special-izing in FX operations and effectively supportingthe activities of their clients.

Global Finance: PekaoBIZNES24Named Best

Integrated Corporate Bank Sitein CEE

The Bank received the title of Best IntergratedCorporate Bank Sitefor its electronic bankingservice PekaoBIZNES24, which was recognisedas the best integrated Internet banking platform

for corporate clients in CEE in the Worlds BestInternet Banks 2011contest, organised by theinternational financial magazine Global Finance.

The international jury appreciated the Banks effective strategy for acquir-ing clients online and providing them with online services, the Bankswide range of online banking products and services, and a comprehen-sive approach to corporate clients.

This was yet another prestigious distinction granted to the PekaoBI-ZNES24 system after the awards received in the previous years, includingthe Europrodukt 2009, Zoty Bankier 2010and Innovation of the Year2010 titles.

Gold Emblem of Najwysza Jako Quality

International 2011for Pekao Integrated

Agreement Packages for Corporate Clients

and for the Pekao24 system

The Bank was announced a double winnerof the Najwysza Jako Quality International2011competition and received the Gold Em-

blem in the service category for its Pekao Integrated Agreement Pack-ages for corporate clients and for its electronic banking service Pekao24for individual clients.

The judging panel distinguished Pekao Integrated Agreement Pack-ages for the comprehensive solutions which enable clients to choose

the Banks products and services matching their individual needs anduse them effectively on the basis of simplified procedures, which fostersbuilding long-term relations with the Bank. Gold Emblem QI 2011 was yetanother distinction for Pekao Integrated Agreement, earlier awarded withthe Europrodukt 2009title.

The Gold Emblem for the Pekao24 electronicbanking service for individual clients is a tokenof recognition for the Banks efforts to imple-ment top quality electronic banking solutionsand develop the Internet service for clientswhile ensuring the highest service standard in

other forms of contact with the Bank.

The Najwysza Jako QualityInternationalcompetition is organised bythe editorial board of Forum Biznesu, a supplement to the DziennikGazeta Prawnadaily, under the auspices of the Ministry of Regional De-velopment, Polish Agency for Enterprise Development and Polish ForumISO 9000. Its objective is to identify and award entities which distinguishthemselves through utmost care for the quality of their products andservices.

EUROPRODUKTDistinction for the Pekao24

Electronic Banking System

The electronic banking platform Pekao24 wontheEUROPRODUKTtitle in the 16th edition ofthe competition held under the auspices ofthe Ministry of Economy and Polish Agency

for Enterprise Development. The jury especially appreciated the modern,intuitive and comprehensive nature of the service.

EUROPRODUKTis a prestigious nationwide competition held to single outproducts and services which are able to compete on the European marketon account of their high quality, cutting-edge technology, interestingoffering and commitment to providing comprehensive and professionalservices.

Mobile Trends Awards

The Banks mobile application Pekao24 was named the best applicationin the mobile banking category in the first edition of the Mobile TrendsAwardscompetition. The competition winners were selected by a judgingpanel comprising IT and mobile technology experts.

The mobile application of Bank Pekao S.A. is a modern way of access toa clients account and banking services through the Pekao24 electronicbanking platform. The application operates on all popular operatingsystems of mobile phones and tablets, and the range of available servicesis one of the most comprehensive among banking applications on thePolish market.


30/286


Euromoney: Bank Pekao S.A.

as the Best Bank in Poland

in Transactional Banking

In the Euromoneymagazines surveyclients chose Bank Pekao S.A. as the

Best Bank in Poland in 2011 in the area of the transactional bankingservices. The award is another proof that Bank Pekao S.A. is strengthen-ing its leading position in the Polish corporate banking sector.

The first place in the ranking of banks providing cash management servicesin Poland shows that the Banks clients appreciate the highest quality andinnovative solutions, created for clients convenience, with care about the

highest standard of services and maximum transaction safety.

GPW: Bank Pekao S.A. as Treasury

BondSpot Market Leader

In February 2011, having reviewed theactivities of the participants of the TreasuryBondSpot Poland market in 2010, the WarsawStock Exchange granted the title TreasuryBondSpot Poland Market Leaderto BankPekao S.A. Based on the registered turnover,the Bank was acknowledged as an indisput-

able market leader, with an 11% share in trading. The participants of the

Treasury BondSpot market are 30 domestic and foreign banks.

The activity of the market participants was assessed globally and in thefollowing categories: turnover in the spot segment, turnover in the condi-tional transactions segment, and activity during fixing sessions.

The most significant honour for the Bank was the statuette of TreasuryBondSpot Poland Market Leader 2011, which Pekao won despite strongcompetition from the other market participants. Apart from the first placein the general ranking, Bank Pekao S.A. was ranked on second position inthe category Largest turnover in the conditional transactions segment ofthe Treasury BondSpot Poland market in 2010.

Bank Pekao S.A. Named Bank of the Year

2011 in Commercial Real Estate Financing

Bank Pekao S.A. was named Financing Providerof the Year Poland 2011by the jury of the con-test organised by the Eurobuildmagazine oneof the most important professional magazinesof the commercial real estate sector in CEE.

The jury consisted of representatives of a num-ber of major companies from the commercial

real estate sector: real estate developers, project sponsors, consultants,law firms, and banks. In the final of the contest, the Bank competed

against five other financial institutions.

Innovation of the Year 2011Title for the

Loro Module for Correspondent Banks

The Loro Module for correspondent banks inthe PekaoBIZNES24online banking platformwas distinguished as Innovation of the Year2011in the contest organised by ForumBiznesu a supplement to the Dziennik Gazeta

Prawnadaily. The jury appreciated the solution that integrates innovativetechnology with a simple interface, and enjoys significant interest amongcorrespondent banks.

In comparison with the solutions offered by other banks, the Loro Module

stands out in terms of its extensive functionality and unique solutions,including balance estimations calculated on demand, access to originalfinancial messages from all settlement systems, and a communicationmodule, which enables transferring and recording authorised messagesto the Bank (inquiries and orders concerning financial transfers) andarchiving correspondence between the correspondent bank and BankPekao S.A.

Innovation of the Yearis a contest that promotes modern and originalsolutions, products and services of companies, institutions and organisa-tions operating in Poland in different industry sectors.

Bank Pekao S.A. as

National Sponsor of the UEFA European

Football Championship UEFA EURO 2012

and the Official Bank of

the Championship in Poland

On November 14th 2011, the Bank announced the signing of an agree-ment for sponsorship of the European Football Championship UEFA EURO2012. Under the agreement, the Bank became the Official Bank of the

Championship in Poland as well as the National Sponsor. The agreementdefines the Banks rights as the National Sponsor and provides that theBank will conduct for the UEFA all banking transactions related to UEFAEURO 2012 in Poland.

European Football Championship UEFA EURO 2012 is one of the twolargest events of this kind in Europe and the largest mass event in thehistory of Poland. According to conservative estimates, it will attractapproximately half a million football fans and tourists visiting Poland atthat time. The Bank has contributed to the event and has had an activerole in its organisation as it became a key strategic partner for financinginfrastructure projects related to UEFA EURO 2012, involving funds of

ca. PLN 4 billion.

Important Events and Achievements (cont.)


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The Bank provided funding and banking services for a number of projects,including: construction of the stadium in Gdansk, construction of the National Stadium in Warsaw, modernisation of five regional airports, modernisation of urban public transport, construction of roads and highways for UEFA EURO 2012.

Appointment of Bank Pekao S.A. as the Official Bank of the EuropeanChampionship confirms its strong position and opens up new opportuni-ties for business development and reinforcement of the Banks image asan institution of public trust.

The Bank ensures comprehensive transactional support for the UEFAEURO 2012 Championship, covering settlements with suppliers, han-dling ticket sales as well as supporting the sale of corporate packages.Moreover, a special offer of new products has been developed, includingcards labelled with the UEFA EURO 2012 logo, dedicated savingsproducts, etc. Those products will be promoted by a number of promo-tional campaigns, including contests in which the participants will havea chance to win free tickets for UEFA EURO 2012 matches.


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The Banks Share Capital and Shareholding Structure 32

Performance of Market Valuation of Bank Pekao S.A.s Stock 33

Dividend Payment History 34

Investor Relations 34

Financial Credibility Ratings Assigned to Bank Pekao S.A. 35

Rating A for Mortgage Covered Bonds Issued by

Pekao Bank Hipoteczny S.A. 35

Information for Investors


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Information for Investors

The Banks Share Capitaland Shareholding Structure

As at December 31st 2011, the share capital of the Bank amountedto PLN 262,382,129 and did not change by the date of release of thisreport. In 2011, the share capital of the Bank was increased by the totalamount of PLN 17,803 as a result of the issue of 17,803 Series G ordi-nary bearer shares, which were taken up by participants of the IncentiveProgramme implemented by the Bank Pekao Group.

137,650,000 Series A bearer shares with a par value of PLN 1 per share

7,690,000 Series B bearer shares with a par value of PLN 1 per share

10,630,632 Series C bearer shares with a par value of PLN 1 per share

9,777,571 Series D bearer shares with a par value of PLN 1 per share

373,644 Series E bearer shares with a par value of PLN 1 per share

621,411 Series F bearer shares with a par value of PLN 1 per share515,472 Series G bearer shares with a par value of PLN 1 per share

359,840 Series H bearer shares with a par value of PLN 1 per share

94,763,559 Series I bearer shares with a par value of PLN 1 per share

As at December 31st 2011, the share capital of Bank Pekao S.A. amounted to PLN 262,382,129 and was divided into 262,382,129 sharesof the following series:

All the existing shares are ordinary bearer shares. There are no specialpreferences or limitations connected with the shares, or differences in therights attached to them. The rights and obligations related to the sharesare defined by the provisions of the Polish Commercial Companies Codeand other applicable laws.

SHAREHOLDER

NUMBER OF SHARES AND

VOTES AT GENERAL MEETING

% OF SHARE CAPITAL AND TOTAL

VOTE AT GENERAL MEETING

NUMBER OF SHARES AND

VOTES AT GENERAL MEETING

% OF SHARE CAPITAL AND TOTAL VOTE

AT GENERAL MEETING

DECEMBER 31ST2011 DECEMBER 31ST2010

UniCredit S.p.A. 155,433,755 59.24% 155,433,755 59.24%

Other shareholders 106,948,374 40.76% 106,930,571 40.76%

Total 262,382,129 100.00% 262,364,326 100.00%

UniCredit S.p.A. has been the Banks major shareholder since August1999. As at December 31st 2011, UniCredit S.p.A. held 59.24% of theBanks share capital and the same percentage of the total vote at itsGeneral Meeting of Shareholders. The remaining shareholders interestsamounted to 40.76%. Since none of the remaining shareholders holdsmore than 5% of the total vote at the Banks General Meeting of Share-holders, they are not required to disclose information on their holdings ofBank Pekao S.A. shares.

On January 11th 2012, Aberdeen Asset Management PLC of Aberdeen(acting for and on behalf of itself and its subsidiaries) acquired 215,000shares of the Bank and exceeded 5% of the total number of voting rights

at the General Meeting of Shareholders, as reported by the Bank inthe current report released on January 17th 2012 (current reportNo. 3/2012). Currently, the investor holds 13,194,683 shares of theBank, representing the same number of voting rights and accountingfor 5.03% of all outstanding shares of the Bank and a correspondingpercentage of the total vote.

Polish open-end pension funds (OFE) constitute the group of financialinvestors holding significant equity interests in the Bank. Based on theirpublicly available financial statements, as at December 31st 2011 OFEheld in aggregate 11.8% of Bank Pekao S.A. shares.

The shareholders of Bank Pekao S.A. holding directly or indirectly, through their subsidiaries, at least 5% of the total number of votes at the GeneralMeeting of Bank Pekao S.A. are as follows:


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Source: Prospectuses and annual reports published by the open-end pension funds; closing share price of Bank Pekao S.A. as at the end of period.

Source: WSE.

Polish open-end pension funds holdings in Bank Pekao S.A.:

Performance of Market Valuation of

Bank Pekao S.A.s Stock

The shares of Bank Pekao S.A. are one of the most liquid equities inPoland and Central and Eastern Europe.

The Banks market capitalisation as at December 31st 2011 amountedto PLN 37.05 billion and was by 21.1% lower in comparison with theprevious year. Given the high capitalisation and liquidity, the Banksshares are part of many important stock indices maintained bydomestic and foreign institutions, including the Polish blue chip index WIG20.

With the average daily trading volume at the level of 504 thousand andthe worth of trading at PLN 19.6 billion in 2011, the share of the Bankstock in trading on the WSE amounted to 7.78%.

The Banks stock price decreased by 21.1% in 2011 (fromPLN 179.0 as at December 31st 2010 to PLN 141.2 as at December31st 2011), in line with the performance of the WIG20 index, whichwent down by 21.9% over the period.

SHAREHOLDER

NUMBER OF SHARES

AND VOTES AT

GENERAL MEETING

% OF SHARE CAPITAL

AND TOTAL VOTE AT

GENERAL MEETING

NUMBER OF SHARES

AND VOTES AT

GENERAL MEETING

% OF SHARE CAPITAL

AND TOTAL VOTE AT

GENERAL MEETING

DECEMBER 31ST2011 DECEMBER 31ST2010

Aviva OFE Aviva BZ WBK 7,409,785 2.82% 7,286,512 2.78%

ING OFE 5,216,783 1.99% 7,007,925 2.67%

OFE PZU Zota Jesie 4,859,005 1.85% 4,848,129 1.85%

Amplico OFE 2,928,048 1.12% 2,694,960 1.03%

AXA OFE 2,564,607 0.98% 2,284,347 0.87%

Generali OFE 1,737,638 0.66% 1,739,058 0.66%

Aegon OFE 1,514,571 0.58% 1,360,182 0.52%

Nordea OFE 1,429,360 0.54% 1,426,725 0.54%

PKO BP Bankowy OFE 1,123,915 0.43% 909,599 0.35%

Allianz Polska OFE 967,384 0.37% 973,783 0.37%

OFE Pocztylion 505,271 0.19% 786,198 0.30%

OFE Warta 410,063 0.16% 506,093 0.19%

OFE Polsat 194,150 0.07% 149,116 0.06%

Total 30,860,580 11.76% 31,972,627 12.19%

Over the year the price fluctuated in the range from PLN 115.1 toPLN 184.5. This volatility was mainly driven by the sentiment prevail-ing on global markets. The CEE region was one of the weakest amongemerging markets and the banking sector was one of the least popularamong investors.

Performance of Bank Pekao S.A.s stock in 2011:

-0.35

-0.3

-0.05

-0.2

-0.15

-0.25

0

0.05

-0.1

0.1

21.01

.201

1

31.12.20

10

10.02

.201

1

02.03

.201

1

22.03

.201

1

11.04

.201

1

04.05

.201

1

13.06

.201

1

24.05

.201

1

21.09

.201

1

01.09

.201

1

04.07

.201

1

22.07

.201

1

11.08

.201

1

11.10

.201

1

31.10

.201

1

22.11

.201

1

12.12

.201

1

Bank Pekao S.A.

WIG Banki

WIG 20

Bank Pekao S.A.


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Dividend Payment History

In 2011, the Bank paid out dividend for 2010 in the amount of PLN 6.8per share. Dividend yield was 4.8%.

The dividend payments in the period from 2002 to 2010 are presentedbelow:

Investor Relations

The Banks activity in the investor relations area is focused on providingtransparent and active communication with the market through activecooperation with investors, analysts and rating agencies as well as com-plying with disclosure requirements under applicable laws.

The Banks representatives regularly hold a lot of meetings with investorsin Poland and abroad, they take part in most of the regional and industrydedicated investor conferences and answer inquiries of the market. Eachquarter the Groups financial results are presented at conferences which

are webcast over the Internet. In 2011, there were four conferences heldto present the Banks financial performance and over 500 meetings withinvestors and analysts from ca. 300 investment firms.

Information for Investors (cont.)

DATE 2002 2003 2004 2005 2006 2007 2008 2009 2010

Dividend for the year (PLN million) 693 748 1,065 1,234 1,504 2,517 761 1,785

Dividend per 1 share (PLN) 4.18 4.50 6.40 7.40 9.00 9.60 2.90 6.80

The key goal of the Banks investor relations activities is to enable themarket to make informed evaluation of the Banks financial standing, itsmarket position and business model effectiveness against the backdropof the banking sector condition and the macroeconomic situation in thenational economy and on international markets.

All material investor information is available on the Banks website:http://www.pekao.com.pl/information_for_investors/.

Source: Bloomberg; average for the sector calculated based on 9 largest Polish banks listedon the WSE.

Source: Bloomberg; average for the sector calculated based on 9 largest Polish banks listedon the WSE.

Bank Pekao S.A. maintained its market premium in comparison withthe average for the Polish banking sector. As at December 31st 2011,

Market valuation of Bank Pekao S.A. in 2011:

the Banks P/BV and P/E ratios were 1.8 and 13.4 respectively.

P/BV

Bank Pekao S.A.

Avg Sector P/BV MF

1

1.2

2

1.6

1.8

1.4

2.2

2.4

21.01.20

11

31.12.20

10

10.02.20

11

02.03.20

11

22.03.20

11

11.04.20

11

04.05.20

11

13.06.20

11

24.05.20

11

21.09.20

11

01.09.20

11

04.07.20

11

22.07.20

11

11.08.20

11

11.10.20

11

31.10.20

11

22.11.20

11

12.12.20

11

P/E

Bank Pekao S.A.

Avg Sector P/E MF

21.01.20

11

31.12.20

10

10.02.20

11

02.03.20

11

22.03.20

11

11.04.20

11

04.05.20

11

13.06.20

11

24.05.20

11

21.09.20

11

01.09.20

11

04.07.20

11

22.07.20

11

11.08.20

11

11.10.20

11

31.10.20

11

22.11.20

11

12.12.20

11

7

9

8

17

13

15

11

19

10

18

14

16

12

20


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Bank Pekao S.A. has the highest individual rating and viability rating as-signed by Fitch Ratings to Polish banks.

On February 14th 2012, Standard & Poors rating agency (Standard& Poors) confirmed the Banks short-term rating at the level A-2 andthe stand-alone rating at the level bbb+, the highest rating assigned byStandard & Poors to a Polish bank. The outlook for the ratings was up-graded from negative to stable. The long-term rating of the Bank wasdowngraded by one notch from A- to BBB+ following prior downgrad-ing of the Republic of Italys ratings, and in consequence the downgradeof the rating of the Banks parent company, UniCredit S.p.A.

As a result, the Banks ratings assigned by Standard & Poors are as fol-lows: long-term credit rating BBB+, short-term rating A-2, outlook stable, and stand-alone rating bbb+.

Rating A for Mortgage Covered Bonds

Issued by Pekao Bank Hipoteczny S.A.

Fitch Ratings assigned the A rating to mortgage covered bonds issuedby Pekao Bank Hipoteczny S.A., a 100% subsidiary of Bank Pekao S.A.It was the highest rating ever awarded to Polish debt securities issued

by a private company. The reasons underlying the agencys decisionincluded the high rating assigned to Pekao Bank Hipoteczny S.A. (A-),legal regulations pertaining to the covered bonds security register, andthe excess of security over the volume of covered bonds in issue, asdeclared by the bank. The high rating assigned to the mortgage coveredbonds confirms Pekao Bank Hipotecznys ability to issue securities offer-ing a high level of security and raise long-term capital to fund its lendingactivity.

On October 4th 2011, Fitch Ratings confirmed the A rating assignedin 2010 to mortgage covered bonds issued by Pekao Bank HipotecznyS.A. On November 24th 2011, Fitch Ratings also confirmed the ratingassigned to Pekao Bank Hipoteczny S.A. at the level A-.* On January 25th 2012, Fitch Ratings withdrew the individual rating category.

** On July 20th 2011, Fitch Ratings added the viability rating to the ratings of all financialinstitutions they cover. The viability rating, just like the abandoned individual rating,represents assessment of the quality of a financial institution management, determiningits intrinsic creditworthiness. The rating is assigned on the familiar 19-point long-t

pekao bank annual report 2011

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