Jego Ekscelencja - PDF document

1 Jego Ekscelencja Pan Jacek Czaputowic
Jego Ekscelencja Pan Jacek Czaputowicz Minister Spraw Zagranicznych Al. Szucha 23 PL - 00 - 580 Warszawa Commission européenne/ Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel. +32 22991111 EUROPEAN COMMISSION Brussels, 29.10.2019 C( 201 9 ) 7688 final PUBL IC VERSION This document is made available for information purposes only. Subject: State Aid SA.54463 (2019/N) – Poland T hird prolongation of the resolution scheme for cooperative banks and small commercial banks Excellency , 1. P ROCEDURE (1) On 20 December 2016, the Commission authorised until 30 June 2017 the Polish scheme for the resolution of cooperative banks and small commercial banks with total assets below EUR 3 billion ("the scheme") by its decision in State aid case SA.46575 ("the original decision") 1 . (2) On the basis of subsequent notification s , the Commission approved two prolongation s of the scheme in 2017 and 2018 2 . (3) On 22 May 2019 , Poland notified a third prolongation of the scheme . Further clarifications were submitted by the Polish authorities on 21 June 2019 , 12 and 29 July 2019, 5 August 2019 , 13 September , and 2 and 1 7 October 2019 . 1 Commission Decision of 20 December 2016 in case SA.46575 (2016/N) – Poland – Resolution scheme for cooperative banks and small commercial banks, OJ C 354, 20.09.2017, p. 4. . 2 Commission Decision of 2 August 2017 in case SA.48302 (2017/N) – Poland - Prolongation of the resolution scheme for cooperative banks and small commercial banks , OJ C 336 , 27.09.2017, p. 13; and Commission Decision of 10 August 2018 in case SA.51403 (2018/N) – Poland – Second p rolongation of the resolution scheme for cooperative banks and small commercial ba nks , OJ C 462, 23.10.2018, p. 6. 2 (4) In the reply dated 21 June 2019 , Poland agreed exceptionally to waive its rights deriving from Article 342 of the Treaty on the Functioning of the European Union ("TFEU") 3 in conjunction with Article 3 of Regulation 1/1958 4 and to have the present decision adopted and notified in Engli sh. 2. D ESCRIPTION AND USE O F THE SCHEME 2.1. Objective and description of the scheme (5) The Polish authorities stated that t he scheme is aimed at facilitating the orderly resolution of failing or likely to fail cooperative banks and small commercial banks in a way which is effective in protecting the exchequer and stability of the financial system and the economy , including the use of State aid through either the resolution fund or , as where foreseen in Article 109 of Directive 2014/59/EU 5 , through th

2 e deposit guara ntee fund , both of whic
e deposit guara ntee fund , both of which funds are managed by the Bank Guarantee Fund ("BGF") , which is also the Polish resolution authority 6 . (6) A detailed description of the scheme is provided in the original decision, in particular recital s (15 ) to (17) concerning the leg al basis of the scheme and recitals (18) to (49 ) on the general description of the scheme. The notified prolongation does not envisage any change compared to the scheme initially approved by the original decision , apart from clarifying the criteria for compatibility of potential liquidity aid to banks in resolution or bridge banks 7 . (7) Poland submitted that the only institutions eligible to benefit from the scheme are cooperative banks 8 and small commercial banks with total assets not exceeding EUR 3 billio n, in respect of which the BGF has initiated a resolution procedure pursuant to the Polish legislation implementing Directive 2014/59/EU 9 . Thus, in line with the requirements under point 6.4 of the 2013 Banking Communication 10 , aid measures will only be pro vided to banks with total assets up to EUR 3 billion. Banks with total assets above this threshold will not be covered by the scheme and any resolution action applied to them involving the use of State aid will therefore have to be notified individually fo r assessment and approval by the Commission, in line with Article 108 TFEU. 3 OJ C 326, 26.10.2012, p.1. 4 Council Regulation No 1 determining the languages to be used by the European Economic Community, OJ 17, 6.10.1958, p. 385. 5 Directive 2014/59/EU of the European Parliament and of the Counc il of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2011/35/EU, 2012/30/EU and 2013 /36/EU, and Regulations (EU) No 1093/2010 and EU No 648/2012, of the European Parliament and of the Council, OJ L 173, 12.6.2014, p. 190. 6 See recital s (14) and (58) – (68) of the original decision. 7 See recital (17) . 8 W ithin the meaning of Act of 7 December 2000 (Cooperative Banking Act) on the operation of cooperative banks, their affiliation and affiliating banks and Cooperative Law (Journal of Laws 20 14, Item 109 as amended ). 9 Act of 10 June 2016 on the Bank Guarantee Fund, the deposit guarantee scheme and resolution (consolidated text: Journal of Laws 2019, item 795 as amended) (the BGF Act ). 10 Communication from the Commission on the application, from 1 August 2013, of State aid rules to support measures in favour of banks in the context of the financial crisis, OJ C 216, 30

3 .7.2013, p. 1. 3 (8) The budget
.7.2013, p. 1. 3 (8) The budget envisaged by Poland for this scheme is PLN 29 billion, of which up to PLN 13 billion can be used in respect of small commercial banks and up to PLN 16 billion for cooper ative banks. Use of the scheme (9) The Polish authorities stated that as until 30 June 2019, no aid has been granted under the scheme. 3. P OSITION OF P OLAND (10) Poland requests a prolongation of the scheme for a period of six months from the date of adoption of this decision . It has made a series of commitments with regard to the scheme that can be found in the annex to this decision. 1 (11) Poland does not contest that the scheme constitutes State aid within the meaning of Article 107(1) TFEU, but is of the view that the proposed prolongation is compatible with the internal market on the basis of Article 107(3)(b) TFEU as it is necessary to remedy a serious disturbance in the economy of Poland. (12) Poland submitted a letter by the Polish Financial Supervision Authority ("PFSA") dated 15 May 2019 , further supporting the need for the proposed prolongation to safeguard the stability of the financial system in Poland, because prevailing market conditions do not allow for a termination of the scheme. In the view of the PFSA, the eligible small commercial banks are vulnerable to difficulties due to their business model, their profitability is lower than the commercial banking sector average . Poland notes th at the small commercial banks targeted by the scheme are less profitable than the average for the entire commercial bank ing sector ( return on assets : 0.33% for small banks vs 0.77% of all commercial banks; return on equity : 2.36% vs 6.7 6%; cost/income rati o: 62.87% vs 54.31%). Poland adds that out of twelve small commercial banks , five are at various stages of phasing out their operations 11 , while three other banks registered a net loss in 2018 . (13) As regards cooperative banks (all of which are eligible to use the scheme), o rganisational changes in the sector are still ongoing; credit risk remains high (with the non - performing loan ratio above the commercial banking sector average, in particular regarding the loans granted to SMEs and individual entrepreneurs) while interest rates are low. The sector’s profitability is, on average, also worse than that of the commercial banking sector ( return on assets : 0.5% for cooperative banks vs 0.77% for commercial banks; return on equity² : 5.2% vs 6.76%; cost/income ratio : 69.8% vs 54.31%). For 2018, 9 cooperative banks incurred a net loss. 11 Two banks are planning to close down, two are in wind - down and one ceased operation. 4 (14)

4 As regards capital adequacy, the coope
As regards capital adequacy, the cooperative banking sector as a whole is sufficiently capitalised (total capital ratio at 17.7% as of 31 December 2018), nonetheless five cooperative ba nks did not meet their total capital requirement of 8% in 2018 and two – as of 31 March 2019 12 . (15) While most cooperative banks have now joined one of the two existing institutional protection schemes (IPS), the process of creating those IPS and endowing them with sufficient capital is still under way 13 and the efficiency of the IPS is untested. Also, as of 1 June 2019 there were still 3 1 banks that remain ed outside the IPS (and thus could not use the support mechanisms offered by the IPS) . (16) Poland aims to avoid perturbations in the functioning of the sector of small credit institutions and wider financial spill - overs . (17) Poland clarifies that liquidity aid (loans and/or guarantees) to banks in resolution (and/or bridge banks) may be necessary to achieve the purpose of the scheme, and commits that such aid will only be granted: (a) to: (i) a bank in resolution and/or (ii) a bridge bank (if created); (b) within a 6 - month period from (i) the start of the resolution process, or (ii) if the bridge institution tool is used , from the commencement of the operations of the bridge institution ; (c) in principle, with maturities of one year at most; the exact maturities will depend on the beneficiary’s situation, the resolution strategy applied, and will be limited to the period necessary t o achieve the resolution objectives (as long as it does not go beyond 1 y ear) 14 ; (d) in principle, after the burden - sharing and bail - in requirements have been met 15 ; 12 Out of the five ban ks , which were in breach of their total capital ratio (TCR) as of 31 December 2018, four managed to be sold. A sixth bank breached its TCR as of 31 March 2019 (reporting a TCR of 3.8%), thus in total, and following the sale of four banks, two cooperative bank s were in breach of their total capital ratio as of 31 March 2019. 13 As of 31 December 2018, the support funds of the two IPS amounted to PLN 0.82 billion in total, of which PLN 0.67 billion has already been used. A support fund is a mechanism created to finance measures to provide support to IPS members to enhance their solvency and prevent insolvency, in line with Art. 22g of the Cooperative Banking Act. Another tool available for IPS members is a compulsory deposit mechanism, which is the main instrume nt to ensure the liquidity of IPS members. As of 31 December 2018 the total compulsory deposit of IPS members amounted to PLN 7.6 billion. 14 The liquidity support to a bridge insti

5 tution may be extended for further one -
tution may be extended for further one - year periods if it is necessary to e nsure its liquidity during the wind - down of the bridge institution. 15 Exceptionally, liquidity support may be granted before meeting those requirements subject to the following terms: Poland committed that (i) the competent Polish authorities prevent an o utflow of creditors and depositors that are to be bailed in , and (ii) once such preventive measures are no longer in place, Poland terminate s the liquidity support with immediate effect. 5 (e) for a remuneration that will meet at least the minimum levels set out in the 2011 Prolongation Communication 16 ; the remuneration for loans will be calculated based on the Commission’s Reference Rate Communication 17 ; (f) with respect to senior, fully collateralized debt ; (g) from the bank resolution fund managed by the BGF. 4. A SSESSMENT 4.1. Existence of State aid (18) According to Article 107(1) TFEU, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far a s it affects trade between Member States, be incompatible with the internal market. (19) For the reasons referred to in recitals (55) to (67) of the original decision , the Commission considers that the scheme constitutes State aid within the meaning of Article 107(1) TFEU because it concerns the provision of State resources to a certain sector, i.e. the financial sector, which is open to intense international competition. Under the scheme, participating banks may obtain capital support under conditions which wou ld not be available to them under market conditions, and so receive an advantage. Given the characteristics of the financial sector, which is a highly competitive market, any advantage from State resources to a bank affects intra - Union trade and threatens to distort competition . The notified prolongation of the scheme does not affect that finding. The scheme, therefore, remains State aid within the meaning of Article 107(1) TFEU. 4.2. Compatibility 4.2.1. Legal basis (20) Article 107(3)(b) TFEU empowers the Commission to f ind that an aid measure is compatible with the internal market, if it is intended to "remedy a serious disturbance in the economy of a Member State". (21) The measures proposed by Poland should be appropriate to remedy a serious disturbance in the Polish econo my. As presented by the Polish authorities, the banking system , which includes cooperative banks and small commercial banks , has a significant role in the Polish financial system. More specifically, cooperative banks have an important ro

6 le in providing fin ancial services t
le in providing fin ancial services to rural areas and the agricultural sector. The scheme for such bank s in case of failure or likely failure, provided the public interest test is considered met by the resolution 16 Commission's Communication on the application, from 1 January 2012, of State aid rules to support measures in favour of banks in the context of the financial crisis, OJ C 356, 6.12.2011, p. 7. 17 Communication from the Commission on the revision of the method for setting the reference and discount rates, OJ C 14, 19. 1.2008, p. 6 , as referred to in the regulation of the Polish Council of Ministers of 11 August 2004 on the detailed method of calculation of the value of State aid granted in various forms (consolidated text: OJ 2018, item 461). 6 authority , is an appropriate response to the potential disruptions that the Polish economy may experience otherwise . (22) Indeed, the letter from the PFSA dated 15 May 2019 and the submission from the Polish authorities of 21 June 2019 explain that there are vulnerabili ties in the small banking sector (both commercial and cooperative), regarding, among other things, the business model, profitability, credit risk, and the ongoing restructuring of the cooperative banking sector . A bank failure could, given the high contagi on risk, especially in the cooperative banking sector, lead to spill - over effects and have a material adverse impact on the Polish economy. Therefore, the reasons for the introduction of the scheme continue to apply . The Commission does not dispute this as sessment. (23) For those reasons, the conditions that were established by the 2008 Banking Communication 18 and the Commission's subsequent decisional practice and Communications (including the 2013 Banking Communication) are still present . (24) The 2013 Banking Commu nication confirms that the Commission will continue to encourage the exit of non - viable players in an orderly manner, where such institutions cannot credibly return to long - term viability. The notified State aid measure therefore must be assessed under sec tion 6 of the 2013 Banking Communication. 4.2.2. Compatibility assessment (25) Point 84 of the 2013 Banking Communication provides that the Commission will continue to consider approval of liquidation aid schemes for bank s of limited size. The measures envisaged by P oland cover precisely this type of institutions, limiting the application of the scheme to banks with a total balance sheet , which does not exceed EUR 3 billion . (26) Points 71 to 78 of the 2013 Banking Communication set forth the compatibility conditions for a id measures in the c

7 ontext of an orderly liquidation. Point
ontext of an orderly liquidation. Point 70 states that the Commission will assess the compatibility of liquidation aid measures aimed at resolving bank s on the same lines mutatis mutandis as set out in Sections 2, 3 and 4 of the Restruc turing Communication 19 . Finally, points 79 to 82 specify the applicable rules in case a bank is sold during the orderly liquidation procedure. (27) Therefore, the Commission considers that, in order for the notified aid measure to be compatible under Article 107(3)(b) TFEU, it must comply with the following criteria: (a) Limitation of liquidation costs : aid amounts should enable the bank to be wound up in an orderly fashion, while limiting the amount of aid to the minimum necessary; 18 Communication on the app lication of State Aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis, OJ C 270, 25.10.2008 19 Communication on the return to viability and the assessment of restructuring measures in the financial sector in the current crisis under the State aid rules, OJ C 195, 19.8.2009 , p. 9 . 7 (b) Limitation of distortions of co mpetition: aid should not result in longer - term damage to the level playing field and competitive markets and measures to limit distortions of competition due to State aid have to be taken as long as the beneficiary bank continues to operate; (c) Own contribut ion (burden - sharing): appropriate own contribution to liquidation costs should be provided by the aid beneficiary, particularly by preventing additional aid from being provided to the benefit of the shareholders and subordinated debt holders. Therefore, th e claims of shareholders and subordinated debt holders must not be transferred to any continuing economic activity; (d) Restoring long - term viability: the sale of an ailing bank to another financial institution can contribute to the restoration of long - term vi ability, if the purchaser is viable and capable of absorbing the transfer of the ailing bank, and may help to restore market confidence. (28) As regards the duration of the scheme, the current prolongation concerns a period of six months from the date of adopt ion of this decision , in line with the principle laid down in point 85 of the Banking Communication in connection with point 54 of that Communication . Limitation of liquidation costs (29) The scheme for bank s with total assets below EUR 3 billion aims at facilitating the acquisition of the distressed bank by a viable financial institution, selected through a competitive sale process (see recital s (32) to (36) of the original decision ). The scheme aims at obtaini

8 ng the highest possible pric e for the s
ng the highest possible pric e for the sold bank, thus reducing the final cost of resolution. (30) The application of burden - sharing and bail - in , in line with the requirements of the 2013 Banking Communication and Directive 2014/59/EU also limits the intervention from State resources, as t he losses of the bank s entering resolution will be covered from private sources first. (31) The Commission considers that in the context of a resolution, a liquidity outflow from customers withdrawing their funds cannot be excluded and that , in such circumstanc es, a necessity to ensure sufficient liquidity via other means may arise. The Commission considers that the conditions on which the liquidity support will be granted (as regards the remuneration in line with the Reference Rate Communication and the 2011 Pr olongation Communication, but also the six - month issuance window, the maturity of supported instruments up to 1 year, and the senior nature and full collateralisation of the support) are sufficient to conclude that the costs involved in the grant of liquid ity support under the scheme are limited to the minimum. Limitation of distortions of competition (32) As regards distortions of competition, the Commission notes that Poland has committed, in line with point s 78 and 47 ( e ) of the 2013 Banking Communication , th at as long as the beneficiary continues to operate, it will not actively compete on the market, enter new markets or pursue any new activities (see annex, point 13); it will not price deposits above market average and will not grant loans below the 8 market average (point 15); it will apply strict executive remuneration policies (point 16); will not undertake acquisitions (points 17 - 18) and will not engage in any aggressive commercial strategies ( point 19 ) 20 . Such safeguards help ensure that the participating bank s do not misuse the received State support to expand their activities. (33) Moreover, the activities of the bank s under resolution will be offered by the BGF to competitors through an open sale process providing opportunity to any competitor to acquire thos e activities . (34) Additionally, following transfer of assets and liabilities, the banks under resolution will cease to exist as a stand - alone competitor. The acquired activities will be integrated into the purchaser and those assets and liabilities excluded fr om the acquisition will be liquidated following the ordinary insolvency procedure. Likewise, in case the sale is not carried out within six months since the start of the resolution. the banking licence of the bank will eventually be withdrawn within a reas onable wind - down period. In case Poland considers it would not finalise a sale of the

9 activity within t 6 months , Poland has
activity within t 6 months , Poland has the possibility of notifying the individual case for assessment by the Commission outside of the scheme. (35) The Commission also notes t hat, in line with the 2013 Banking Communication, measures under the scheme are only available to small bank s with total assets of less than EUR 3 billion. Consequently, any aid measures that would be granted for bank s with total assets of more than EUR 3 billion must be notified individually. (36) In light of the above, the Commission is satisfied that State aid granted under the scheme will have a limited impact on competition in line with the requirements under the 2013 Banking Communication. Own contribution (Burden - Sharing) (37) For the notified measure to be declared compatible, section 3.1 .2 of the 2013 Banking Communication explains that shareholders and subordinate debt holders have to contribute as much as possible to the cost of the intervention. (38) Poland als o committed that , before the use of the deposit guarantee fund and/or the resolution fund, the conversion or a write - down of the junior creditor s and subordinated debt - holders will always be required thus compl ying with the burden - sharing requirements of the 2013 Banking Communication (see annex, point 6 ) . In addition , Poland states that the application of the bail - in tool according to Directive 2014/59/EU is an integral part of the scheme. (39) As regards potential liq uidity support , it may only be granted under the scheme after the burden - sharing and bail - in requirements have been implemented . (40) By way of exception from recital 39, it may happen that the bank in resolution needs liquidity in the first days of the resolu tion, before the burden - sharing and the bail - in requirements are implemented. While to a significant degree the need for liquidity in such period may be limited using the suspension power in line with Article 69 of Directive 2014/59/EU or a suspension of t he bank’s operations 20 All of those commitments also apply to bridge institutions (point 24 of the Commitments). 9 under Article 155 of the BGF Act 21 , this might not be fully sufficient to satisfy the bank’s liquidity needs 22 . The Commission notes that w hile in such cases the bank in resolution may still need access to liquidity, it is essential to e nsure that the burden - sharing and bail - in requirements are not circumvented in the period prior to their implementation. In particular, the Commission considers that new liquidity cannot be used to repay liabilities that are subject to the bail - in. In this regard, the Commission welcomes the commi

10 tment from the Polish authorities to (i
tment from the Polish authorities to (i) adopt the necessary measures to prevent an outflow of creditors and depositors that are subject to the bail - in requirement under Directive 2014/59/EU 23 , and (ii) to terminate the liquidity support with immediate effect, as soon as the preventive measures are no longer in place. On this basis, the Commission concludes that the requirement of burden - sharing pursuant to the 2013 Banking Communication and of bail - in pursuant to Di rective 2014/59/EU will be met in any event. Restoring long - term viability (41) As the scheme provides for the sale of the failing bank, certain principles of the Restructuring Communication have to be respected. According to the Restructuring Communication, in order to be compatible with Article 107(3)(b) TFEU, the restructuring of a financial institution has to lead to a restoration of the viability of the transferred bank or parts of it. The sale of a bank in distress should in particular fulfil the conditions set out in point 17 of the Restructuring Communication, i.e. the purchase r should demonstrate that the integrated entity will be viable and the requirements regarding own contribution and limitations of competition distortions are respected. In this respect, Poland has committed to perform an assessment of the viability of the resulting institution to be assured that the resulting entity will be viable in the long term. (42) Overall, t he Commission notes that Poland has committed to report on the utilisation of the scheme and thus on the compliance with the commitments it has undert aken. 21 Article 155 of the BGF Act reads: “1. Where necessary for the application of resolution tools, the [Bank Guarantee] Fund may decide to suspend the activities of a bank in resolution, a [credit] union in resolution or to suspend the ex ercise, in part or in full, of brokerage activities by a n investment firm in resolution. 2. The provisions of Article 159(3) of the Banking Act, Art. 74l(3) of the act on savings and credit unions, and Article 167 of the act on trading in financial instruments shall apply mutatis mutandis .” Article 159(3) of t he Polish Banking Act of 29 August 1997 (consolidated text: Journal of Laws 2018, item 2187, as amended) reads: “The conditions and scope of the activities of the bank during the period of suspension of activities shall be determined in the decisions refer red to in Article 158 (3). 1 and 2.” 22 The Commission understands that certain liabilities may need to be settled on an urgent basis, for example those that are excluded from the suspension power under Article 69(4) of Directive 2014/59/EU and Article 144 (2) of the BGF Act (such as

11 liabilities towards payment and securi
liabilities towards payment and securities settlement systems and their operators, or towards central banks ) or those that the resolution authorities decides to leave outside the scope of the suspension for operational or other reasons. 23 In terms of instruments that could be used to prevent the outflow of creditors in such cases, in their submission of 29 July 2019, the Polish authorities explained that to this effect they could use the suspension power foreseen in Article 69 o f Directive 2014/59/EU (as implemented in Article 144(1) of the BGF Act ) , or a suspension of business activities under Article 155 of the BGF Act. 10 Conclusions on the overall compatibility of the aid measures (43) In line with the considerations above, the Commission considers that the notified prolongation meets all the conditions and requirements of the 2013 Banking Communication, notably the provi sions on the conditions for authorization of liquidation aid ( S ection 6.2) and on liquidation schemes ( S ection 6.4). (44) The prolongation of the Polish scheme remains an appropriate, necessary and proportionate measure to remedy a serious disturbance of Polis h economy and does not alter the Commission’s previous assessment in the original decision . The notified prolongation of the scheme is therefore deemed to be compatible with the internal market pursuant to Article 107(3)(b) TFEU. (45) Therefore , the scheme can be prolonged for a period of six months . Any further prolongation will require the Commission’s approval and will have to be based on a review of the developments in financial markets and the scheme’s effectiveness . 5. C OMPLIANCE OF THE SCHEME WITH THE PROVISIONS OF D IRECTIVE 2014/59/EU ON BANK RECOVERY AND RESOLUTION (46) The Commission notes that the scheme does not seem to violate intrinsically linked provisions of Directive 2014/59/EU on bank recovery and resolution, which in this specific case relate to Article 44(5) and Article 59(3). (47) In addition, according to Directive 2014/59 /EU , Member States must apply provisions adopted to comply with Section 5 of Chapter IV of Title IV, which includes Article 44(5). In the case of Poland, the relevant leg islation transposing the Directive has been in force since 9 October 2016 24 . (48) The Commission therefore concludes that the notified prolongation does not appear to violate any intrinsically linked provisions of Directive 2014/59/EU. (49) The scheme can therefore be prolonged for a 6 - month period . Any further prolongation or extension will require the Commission's approval. 6. C ONCLUSION The Com mission has accordingly decided not to raise objections to the aid on the grounds t

12 hat it is compatible with the internal
hat it is compatible with the internal market pursuant to Article 107(3)(b) of the Treaty on the Functioning of the European Union. If this letter contains confidential information which should not be disclosed to third parties, please inform the Commission within fifteen work ing days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the I nternet site: http://ec.europa.eu/competition/elojade/isef/index.cfm . 24 Of course, any statement in previous decisions and in this decision as regards the resolution framework in place in Poland is without prejudice to any infringement action that could be undertaken with respect to Directive 2014/59/EU on bank recovery and resolution . 11 Your request should be sent electronically to the following address: European Commission, Directorate - General Com petition State Aid Greffe B - 1049 Brussels Stateaidgreffe@ec.europa.eu Yours faithfully , For the Commission Margret h e VESTAGER Member of the Commission 12 ANNEX COMMITMENTS FOR WIND ING - DOWN SCHEMES (THE "SCHEME S") FOR BANKS (INCLUDING COOPERATIVE BANKS) WITH TOTAL ASSETS OF LESS THAN EUR 3 BILLION UNDER THE FRAMEWORK OF THE 2013 BANKING COMMUNICATION AND IN LIGHT OF THE BANK RECOVERY AND RE SOLUTION DIRECTIVE ( DIRECTIVE 2014/59/EU) Poland her eby provides the following Commitments (the "Commitments") which are integral part of the scheme. The Commitments shall take effect upon the date of adoption of the European Commission's (the "Commission") decision approving the Schemes (“the Decision”). T he text of the Commitments shall be interpreted in the light of the Decision in the general framework of Union law, and by reference to Council Regulation (EU) 2015/1589. I. DEFINITIONS For the purpose of the Commitments, the following terms shall mean: 1. Bank : the bank or banks under resolution or winding - up scheme and all its subsidiaries. Therefore, it includes the entire Bank with all its subsidiaries and branches both banking and non - banking. 2. Purchaser : one or more natural or legal person(s) to acquire , in whole or in part, the institution under resolution. 3. Asset Management Company (AMC) : the legal entity to which selected assets and liabilities are transferred on the basis of the resolution measure authorized by the Decision. 4. Bridge institution: a lega l entity that meets the requirements laid down in Article 40(2) Directive 2014/59/EU, i.e.: to which selected assets and liabilitie

13 s were transferred on the basis of the
s were transferred on the basis of the Schemes. For the purpose of the Commitments, the singular of those terms shall include the plural (and vice versa), unless the Commitments provide otherwise. II. SCOPE 5. The Commitments shall apply to the Bank under resolution and to any parts of it that have not been transferred to the AMC or to a potential purchaser. III. COMMITMENTS RELATED TO THE USE OF STATE AID IN THE RESOLUTION PROCEDURE 6. In case this scheme is applied, the bail in tools will take place as foreseen in Directive 2014/59/EU. In any case, before the use of State aid, the conversion or a 13 write - down of the junior creditors and su bordinated debt - holders, will always be required in accordance with the requirements of the 2013 Banking Communication 25 , in order to limit the amount of aid to the minimum necessary. IV. COMMITMENTS RELATING TO AN INSTITUTION BENEFITTING FROM THIS SCHEME 7. The scheme shall apply only to distressed credit institutions with total assets of less than EUR 3.0 billion. 8. The sale process of the entity entering resolution shall not take longer than six months from the start of the resolution process. 9. If the Bank or part s of the Bank which are not going to be transferred to an AMC are not sold within the six - month period, the Bank or those remaining assets will become subject to winding - down proceedings and any remaining banking license shall be revoked no later than two years since the start of the resolution process. 10. The Purchaser shall have the appropriate authorisation to carry out the business it acquires when the transfer is made. 11. The licence, name, brand name and logo initially held by the Bank cannot be transferr ed to the purchaser. The banking licence of residual entity shall not be transferred to the Purchaser. The banking licence of residual entity shall be revoked once the sale is concluded. 12. For any sale performed, Poland commits that: a. The Purchaser shall be i ndependent from the Bank; b. For the purpose of acquiring the assets and liabilities of the bank entering resolution, the Purchaser shall not be financed directly or indirectly by the Bank; 13. As long as the Bank continues to operate, it shall not actively comp ete on the market, enter new markets or pursue any new activities. Its operations must in principle be limited to continuing and completing activities pending for existing customers, hence it cannot attract new customers. Any new activity with existing cus tomers must be limited to changing the terms of existing contracts and restructuring existing loans, provided that such changes improve the relevant asset's net present value. 14. No future claim of

14 shareholders and holders of subordinated
shareholders and holders of subordinated debt or any hybrid i nstruments of the initial shareholders of the Bank can be transferred to the Purchaser at the moment of the sale or to the AMC. 15. From the initiation of resolution procedure until the sale, the Bank shall not price deposits above market average and will not grant credit or other loan business below market average. 16. Before being sold, the Bank shall apply strict executive remuneration policies. The Bank will not pay to any employee, director or manager a total annual 25 Communication from the Commission on the application, from 1 August 2013, of State aid rules to support measures in favour of banks in the context of the financial crisis, ("Banking Communication"), OJ C 216, 30.7.2013, p. 1. 14 remuneration (wage, pension contribution, bonus) higher than 15 times the annual national average salary in Poland or 10 times the annual average salary of employees of the Bank. 17. Before being sold, the Bank shall not acquire any stake in any undertaking, b e it in the form of an asset or transfer of shares. That ban on acquisitions covers both undertakings which have the legal form of a company and any package of assets which forms a business. 18. The acquisition ban shall not apply to acquisitions that take p lace in the ordinary course of the banking business in the management of existing claims towards ailing firms, including the conversion of existing debt into equity instruments. and where the purchase price paid by the Bank for any acquisition is less than 0,01% of the balance sheet size of the Bank at the date of the approval of the decision, and where the cumulative purchase prices paid by the Bank for all such acquisitions starting with the Effective Date of the Commitments until the end of the restructu ring period, is less than 0,025% of the balance sheet size of the Bank at the Effective Date of the Commitments. 19. The Bank shall refrain from advertising referring to Resolution Fund support and from employing any aggressive commercial strategies which woul d not take place without the Resolution Fund support. V. COMMITMENTS FOR THE ASSET SEPARATION TOOL 20. The transfer value paid for the assets to be transferred out of the bank entering resolution to an AMC, would be determined at the most granular level of the portfolios, i.e.: at loan level according with the requirements of the Impaired Assets Communication, and should be at the current market value of those assets 26 . The current market value would be estimated by the independent valuation expert based on the d ata obtained from the Bank. 21. The transfer of assets, rights or liabilities of an institution under r

15 esolution to the AMC could be made only
esolution to the AMC could be made only if: - the situation of the particular market for those assets is of such a nature that the liquidation of those assets under normal insolvency proceedings could have an adverse effect on one or more financial markets; - such a transfer is necessary to ensure the proper functioning of the institution under resolution or bridge institution; - or such a transfer is necessary to maximize liquidation proceeds. VI. COMMITMENTS RELATED TO THE SALE PROCESS 22. The sale process shall be open and competitive, on market terms, with the aim to maximize the sale price, and at the same time exclude State aid to the Purchaser. 26 Communication from the Commission on the treatment of impaired assets in the Community banking sector (2009/C 72/01), ANNEX IV, Valuation and pricing principles and processes, section I. Valuation methodology and procedure. 15 23. Poland commits to lim it the amount of aid to the minimum necessary to keep the Bank afloat during the liquidation in view of the objective pursued while complying with the burden - sharing requirements of the 2013 Banking Communication. 24. A negative sales price shall be taken into account as an utilisation of the Scheme. 25. The sale price shall include all other instruments implying the use of State resources e.g.: compensations, guarantees, warranties and equivalent instruments which are present in the sale transaction. 26. If a sale is successfully achieved within the six - month time horizon, the responsible national authority shall perform an analysis of the long - term viability of the combined entity to result from the sale transaction. Inter alia, the analysis would have to show that: a. the resulting entity complies with all regulatory capital requirements, and is expected to continue to do so at least in the following three years, based on conservative assumptions; b. the resulting entity is able to cover all its costs and provide an approp riate return on equity; c. the Purchaser has the financial resources, proven expertise and incentive - to address any weaknesses of the acquired business; - to maintain and develop the acquired business as a viable institution; - to insure that that the merged e ntity does not suffer from the same vulnerabilities as the Bank prior to its resolution. VII. LIQUIDITY SUPPORT 27. liquidity support may be granted to: (i) the bank in resolution and/or (ii) a bridge bank (if created); 28. the liquidity support may only be granted w ithin a 6 - month period from (i) the start of the resolution process, or (ii) if the bridge institution tool is used: from the commencement of the operat

16 ions of the bridge institution; 29.
ions of the bridge institution; 29. in principle, liquidity support will be granted only after the burden - sh aring and bail - in requirements have been met; exceptionally liquidity support may be granted before meeting those requirements, as long as the Polish authorities prevent an outflow of creditors and depositors that are to be bailed in (once such preventiv e measures are no longer in place, Poland will terminate the liquidity support with immediate effect); 30. the maximum maturity of liquidity support will be one year; the exact maturities will depend on the beneficiary’s situation, the resolution strategy app lied, and will be limited to the period necessary to achieve the resolution objectives (as long as it does not go beyond 1 year). The liquidity support to the Bridge Bank may be extended for further one - year periods if it is necessary to ensure its liquidi ty during the wind - down of the Bridge Bank ; 16 31. the remuneration for liquidity support will meet at least the minimum levels set out in the 2011 Prolongation Communication; the remuneration for loans will be calculated based on the Commission ’s Reference Rate Communication ; 32. the debt borrowed from or guaranteed by the BGF under the scheme will be senior, fully collateralized debt (the collateral will cover the entire debt, including the interest) – collateralization will be based on the ‘best effort’ principle; 33. liquidity support will be financed from the bank res olution fund managed by the BGF; 34. Commitments no 10 - 19 and 22 - 26 also apply to the bridge institution and its acquirer. VIII. BRIDGE BANK 35. The Bridge Bank shall be sold no later than 6 months after its creation. If not sold within this period, the Bridge Bank shall enter a winding - down phase and shall cease to exist after 24 months from its creation. The Bridge Bank banking licence shall be withdrawn no later than 24 months from the date of the Bridge Bank's crea tion. IX. MONITORING 36. The operation of the Scheme and the utilized aid amounts on a half - year basis shall be reported by Poland no later than 45 days after the end of the relevant half - year, starting from the date of the approval of the decision. Those reports must also provide the information for each credit institution being liquidated. 37. When reporting on the use of the scheme, any amounts of aid granted during the sale of business, through guarantees or in any other form will be computed by an independent val uation expert and reported to the Commission as an utilisation of the scheme. X. INDIVIDUAL NOTIFICATION 38. Poland commits to notify individually cases of use of state aid for winding up banks with assets above EUR 3.0 billion involving s