THE POLISH BANKS ASSOCIATION The Foundations and Drivers

THE POLISH BANKS ASSOCIATION The Foundations and Drivers of the Innovative Banking Sector in Poland Mieczysław Groszek Executive Vice President The Polish Banks Association ul. Kruczkowskiego 8 00 -380 Warsaw tel. +48 22 48 68 180 www. zbp. pl 30 September 2014, Boston

THE POLISH BANKS ASSOCIATION Achievements of the Polish Transition 1989 -2014 Poland Then and Now We, the People! Democracy & Market Free market! GDP per capita (Intl. dollars, PPP) 22, 201 6, 154 1989 1994 1999 2004 2009 2014* Source: IMF. 586 Inflation (annual, %) 52 Tertiary education enrolment rate (%) 13 1. 5 1989 1994 1999 2004 2009 2014 * Source: IMF. 1989 ul. Kruczkowskiego 8 00 -380 Warsaw tel. +48 22 48 68 180 www. zbp. pl * Forecasts. 2014* Source: Central Statistical Office.

Foundations and Drivers (1) THE POLISH BANKS ASSOCIATION Annual GDP growth 1989 -2014 (%) 10 § Stable economic growth 5 0 -5 -10 1989 1994 1999 2004 2009 Source: IMF. * Forecast. Cumulative GDP growth 2007 -12 (%) -4. 8 6. 2 § Resistance on economic crisis -7. 6 -4. 1 -1. 4 -1. 6 4. 2 2. 3 0. 6 -8. 7 -6. 8 ul. Kruczkowskiego 8 00 -380 Warsaw tel. +48 22 48 68 180 www. zbp. pl -5. 7 1. 1 -1. 2 -9. 0 20. 1 0. 8 11. 1 3. 3 -4. 0 -6. 3 5. 6 4. 1 -23. 6 -4. 6 Source: IMF. 2014*

Foundations and Drivers (2) No. of commercial banks THE POLISH BANKS ASSOCIATION § Prudent and competent banking 87 39 9 1989 1993 2014 No. of cooperative banks 1663 1653 ul. Kruczkowskiego 8 00 -380 Warsaw tel. +48 22 48 68 180 www. zbp. pl 1993 Source: Narodowy Bank Polski (national bank of Poland) innovations): 1. Consolidation of banks based on takeovers or mergers approved by FSA. 2. Recovery and resolution under the supervision of FSA. 566 1989 supervision (but not blocking 2014 3. Sound structure of the banking system as a result.

1989 THE POLISH BANKS ASSOCIATION Foundations and Drivers (3) 1 2008 28% 72% Domestic Foreign 2014 62% ul. Kruczkowskiego 8 00 -380 Warsaw tel. +48 22 48 68 180 www. zbp. pl 38% Source: The Polish Financial Supervision Authority. § Mixed structure of foreign and domestic capital in banks: 1. Inflow of know-how. 2. Fast modernization of the obsolete banks inherited from the communist era. 3. Good mixture between the established corporate culture of the western banks and the dynamism of the Polish employees. § POLISH SPECIFICITY: INNOVATIONS DRIVEN BY LARGE INSTITUTONS BOTH DOMESTIC AND FOREIGN.

Polish Banks Sound and Resilient (1) THE POLISH BANKS ASSOCIATION ROE by Country Austria Belgium Cyprus Germany France UK The Netherlands Poland Italy 2008 2. 3 -62. 3 13. 4 -11. 4 2. 2 -12. 5 17. 0 4. 9 2010 6. 6 10. 8 6. 2 2. 3 8. 3 4. 8 7. 2 12. 5 3. 8 2012 4. 5 2. 6 -178. 6 1. 3 3. 4 1. 9 5. 9 11. 7 -1. 2 CAR in the Polish banking sector (%) 15. 8 12. 1 13. 3 13. 8 13. 1 § Efficient: ROE = 11. 7%. § Resistant: no single bank got a bailout in the crisis. 11. 2 2007 2008 2009 2010 2011 ul. Kruczkowskiego 8 00 -380 Warsaw tel. +48 22 48 68 180 www. zbp. pl 13. 1 § Stable: CAR = 15. 8%. 2012 2013 Sources: The European Central Bank and the Polish Financial Supervision Authority.

Polish Banks Sound and Resilient (2) THE POLISH BANKS ASSOCIATION ul. Kruczkowskiego 8 00 -380 Warsaw tel. +48 22 48 68 180 www. zbp. pl Innovations in payments: § More than 50% of bank accounts can be accessed online. § 12% of mobile phone users are active using mobile banking. § 5% of mobile phone users pay mobile. § 60% of payment cards are contactless (NFC). Source: TNS and own sources.

THE POLISH BANKS ASSOCIATION Thank you for attention! Mieczysław Groszek Executive Vice President The Polish Banks Association ul. Kruczkowskiego 8 00 -380 Warsaw tel. +48 22 48 68 180 www. zbp. pl 30 September 2014, Boston

Polish Payment System – modern but secure and compliant Adam Tochmański Director of the Payment Systems Department Narodowy Bank Polski Sibos 2014 Boston

Polish Payment System – modern but secure and compliant Large value payment systems (LVPS) Polish payment system evolution TARGET 2 -NBP EURO PLN SORBNET-EURO Traditional interbank settlements in NBP branches Retail payment systems (RPS) 1989 1990 1991 1992 SORBNET SORB 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 SYBIR ELIXIR PLN Blue. Cash Express ELIXIR EURO Euro ELIXIR

Polish Payment System – modern but secure and compliant Payment systems in Poland – 2014 Large value payments Retail payments ELIXIR gross Blue. Cash Payment cards & innovative payment intruments Retail payment systems (RPS) Interbank payments from securities market net Express Euro. ELIXIR PLN EUR Customer payments gross SORBNET 2 RTGS net gross TARGET 2 -NBP RTGS Large value payment systems (LVPS) RPW gross / net gross kdpw_stream gross Securities depository (CSD) & securities settlement systems (SSS)

Polish Payment System – modern but secure and compliant COMPLIANT MODERN q Modern IT solutions q Different systems for large value and retail payments q Short settlement time q Two immediate payment systems q High usage of innovative payment instruments (contactless cards, mobile payments) q Flexibile approach towards the needs of different users Polish payment SECURE system q Reliable and secure IT platforms q International standards applied q Ongoing monitoring q Low share of card frauds q Three SIPS designated under SFD (SORBNET 2, TARGET 2 -NBP and ELIXIR) q All payment systems overseen by NBP q Ongoing assesment vs international standards

Polish Payment System – modern but secure and compliant The role of NBP in the payment system q Payment System Council and its subgroups Operator Regulator NBP Catalyst q Polish Banks Association and working groups q Alliance for non-cash payments and micropayments Overseer q Education – conferences & seminars

Adam Tochmański Director of the Payment Systems Department Narodowy Bank Polski +48 (22) 185 27 28 adam. tochmanski@nbp. pl

KDPW Group State-of-the-art post-trade infrastructure Ph. D. Iwona Sroka – President & CEO of KDPW and KDPW_CCP Boston, 30 September 2014

join the celebrations of the 25 th anniversary of economic freedom in Poland __________________ was established in 1991 was separated in 1994, as an independent, join stock company was created in 2011 17

Polish Capital Market vs. Europe Equity market Market Operator London Stock Exchange Group NYSE Euronext Deutsche Börse BME (Spanish Exchanges) SIX Swiss Exchange NASDAQ OMX Nordic Oslo Børs Warsaw Stock Exchange CEESEG - Vienna Athens Exchange Boerse Stuttgart Irish Stock Exchange CEESEG - Budapest CEESEG - Prague Bucharest Stock Exchange Bulgarian Stock Exchange CEESEG - Ljubljana Luxembourg Stock Exchange Malta Stock Exchange Bratislava Stock Exchange Cyprus Stock Exchange 2012 21, 37% 15, 36% 12, 42% 8, 31% 5, 69% 5, 71% 1, 42% 0, 57% 0, 23% 0, 15% 0, 14% 0, 09% 0, 11% 0, 13% 0, 01% 0, 00% 0, 00% 2013 20, 56% 15, 21% 12, 29% 7, 48% 6, 28% 5, 72% 1, 11% 0, 64% 0, 23% 0, 18% 0, 13% 0, 09% 0, 08% 0, 01% 0, 00% 0, 00% Futures market 18

Capital Market in CEE Region Share of Capitalisation of Exchanges in the CEE Region Share of Stocks Turnover in the CEE Region 9% 9% 7% 6% 9% 7% 9% 58% 56% 53% 48% 47% 45% 42% 35% 40% 46% 44% 47% 49% 2007 2008 2009 2010 2011 2012 2013 2% 1% 1% 1% 2% 2% 71% 73% 65% 58% 44% 2% 39% 26% 34% 42% 50% 54% 59% 26% 2007 2008 2009 2010 2011 2012 2013 Share of Numbers of Index Future Contracts in the CEE Region 30% 25% 20% 23% 14% 11% 8% 70% 75% 80% 77% 86% 88% 92% 2, 007 2, 008 2, 009 2, 010 2, 011 2, 012 2, 013 19

At-a-Glance Statistics: August 2014 § § § KDPW participants – 65 KDPW_CCP participants – 38 Issuers – 1152 (of which 77 are foreign) Deposited equities issues – 1099 Deposited bond issues – 1099 § § Capitalisation of shares in KDPW – EUR 138 billion (USD 178 billion) Capitalisation of bonds in KDPW – EUR 139 billion (USD 179 billion) § § Number of cleared transactions – cash market: 6. 14 M Value of cleared transactions – cash market: 22 EUR billion (USD 28 billion) § § Number of cleared transactions – derivatives market: 1. 95 M Value of cleared transactions – derivatives market: 33 EUR billion (USD 41 billion) 20

KDPW and KDPW_CCP 33% WSE Stable and credible shareholders Main objective: safety and stability of financial system Low risk profile - not-for-profit infrastructure institution Supervision by Polish FSA (KNF) and ESMA, oversight by Polish Central Bank (NBP) • • NBP Treasury KDPW_LEI 33% *** EU registration of KDPW Trade Repository – one of 4 first TRs registered in Europe LEI assigning (KDPW_LEI) Services for energy market (KDPW_GIR) Planned CSDR authorisation of KDPW • • 100 % *** • • EMIR authorisation of KDPW_CCP (3 rd in Europe) KDPW_CCP own capital: EUR 54 M (USD 70 M) Central counterparty functionality through novation Reporting to KDPW_TR (non mandatory) 21

CSD Services Key functionalities: Core Services Securities settlement system Regulated market Alternative Trading System Omnibus accounts foreign investors Ø Collective securities accounts on the CSD level, with option to segregate by investor/group of investors Ø Hold/Release mechanism (optional) Ø Cash settlement in central bank: money – PLN in Polish Central Bank (NBP), EUR in TARGET 2 Ø Agent for Securities lending & borrowing - automatic and negotiated Ø Settlement and collateral management for repo (Tri-party Repo Agent) Ø Partial settlement Ø CA: information, distribution of proceedings, tax services Ø GIR - clearing and settlement of energy market transactions Ø T+2 settlement cycle regarding to CSDR requirements OTC cash market Central Depository of Securities Maintaining securities accounts at the top-tier level Ø Initial recording of securities in a book-entry system Ancilliary Services Corporate Actions processing Operational links to foreign CSDs Commercial Services Trade Repository Numbering Agency (LEI, ISIN, FISIN) Commodities Clearing House (GIR KDPW) Tri-Party Repo CSD authorisation process planned for 2015/2016 22

CCP Services Key functionalities: Clearing of trades Regulated market ATS OTC derivatives OTC REPO Ø Central counterparty functionality through novation Ø Netting in cash (obligatory) and securities (optional) Ø Segregation of accounts (individual and aggregated accounts) Ø OTC derivatives: Clearing risk management SPAN Va. R Collateral management PLN T-bonds T-bills WIG 20 shares Bank guarantees Supplementary Services Derivatives trade reporting to KDPW_TR Authorised in April 2014 • Currently - PLN (FRA, IRS, OIS, Basis Swap, REPO) • Planned - EUR (FRA, IRS, OIS, Basis Swap, FX instruments) Ø OTC clearing based on Markit. Wire and SWIFT Accord instructions Ø Guarantee system for negotiated securities lending transactions Ø Margins calculated on intra-day and daily basis Ø STP with WSE trading system (UTP - NYSE Euronext) Ø Default waterfall and procedures compliant with EMIR Ø KDPW_CCP own capital: EUR 54 M (USD 70 M) 23

Future Developments The KDPW Group conducts its business operations on the basis of the Development Strategy for 2014 -2016, reflecting international trends in financial markets. The strategy defines a diverse business model for the KDPW Group, while leveraging the specific strengths and potential of the Polish financial market. Key Strategic Projects of the KDPW Group: § KDPW_CCP Ø Ø Ø § Integration of transaction clearing from diverse financial markets in Poland: regulated, interbank and commodity OTC multicurrency instruments Extending eligible collateral KDPW Ø Ø Strengthening the position of the Trade Repository Further development of securities lending and Tri-Party Repo services Creation of securities central valuation service Introducing ISO 20022 messaging with participants Ø Enhanced operational co-operation with other markets in the area of clearing and settlement 24

www. kdpw. eu www. kdpwccp. eu

Real-time, mobile and contactless – practical lessons from the evolution of the Polish payment market Michał Szymański Vice President of the Management Board Krajowa Izba Rozliczeniowa S. A. 30 September 2014, Boston

Real-time (immediate) retail payments • • Facts – Express. ELIXIR was launched in June 2012 as the second real-time retail system in Europe – The CAGR of number of transactions is at the level of 1600% – The demand is also visible in other EU countries so interoperability between such seems to be unavoidable Lessons learned – The infrastructure creates many new business opportunities like valueadded bank services for corporates (real-time reconciliation and account reporting) or real- time loans – Technical implementation by banks may be a challenge – Despite the 24/7 mode, due to technical reasons some banks are only available during time windows

Mobile payments • • Facts – 6 big banks in Poland started an initiative aimed at creating the standard for mobile payments (Polski Standard Płatności) – Another big bank runs an independent system – Both systems are based on ”one-time ticket” authentication Lessons learned – When there is demand for POS transactions, P 2 P payments and ATM withdrawals seem to create even more value for customers – Cooperation of banks is a necessary element and a challenge at the same time – The simplest possible user scenario (keying in the 6 -digit PIN) is prevailing due to simplicity for customers and merchants and also low technical requirements

Contactless card payments • • Facts – More than 90% of all issued cards are equipped with a chip, more than 60% contactless – Almost 57% of POS are contactless-capable – 30% of all card transactions are contactless Lessons learned – Security fears were visible at the beginning but their intensity has decreased with time/experience – Nevertheless some customers want to block the wireless functionality so there should be a procedure for that – The POS infrastructure makes mobile NFC technology an attractive choice for mobile payments

Poland’s banking: from nothing to innovation Michał Panowicz m. Bank | Managing Director | Products, Marketing & Digital

How to get? . . . …From here? . . . 25 …To there? YEARS 31

We started where so many emerging markets did… Poland in 1990 2 retail banks 400 branches / 1 per 96 k people 0 (zero) cards 0 (zero) ATMs ~100% cash 585% inflation 0 (zero) foreign Banks … roughly an equivalent of banking desert 32 3

Such starting point could have taken us anywhere Oligopoly Banking bubbles Special bank taxes Protectionism National champions Reactive regulation 1990 Sluggish followers Just OK Main stream banking Digital transformation 33 4

STAGE 1: Catching up through foreign investments 90’s PREMISE OUTCOME PRIVATISATION KNOW–HOW BRANCHES CAPITAL CORE IT SYSTEMS GOVERNANCE IT PRODUCTS COMPETITIVENESS STABILITY MODERN PRODUCTS MODERN PAYMENTS 34

STAGE 2: Massive innovations pushed by banking startups 2000’s PREMISE OUTCOME MODERN: COMPETITIVE NESS 1. DIRECT INNOVATION 3. COSTUMER FINANCE DIGITISATION 4. BRANCHES GOVERNANCE 5. BRANDING RE-BALANCE 6. SEGMENT OFFERINGS MODERNIZATI ON DIGITAL & REMOTE 2. ONLINE REGULATION 35

STAGE 3: Championing digital transformation NOW MOBILE PAYMENTS ULTRA MODERN DIGITAL MODERN BRANCHES TELCO BANKING 36 7

Our work ingreasingly recognized globally – THANK YOU!!! 37 8