The Supervisory Board and the Management Board of PKO Bank Polski SA in the reporting period

The Supervisory Board of PKO Bank Polski SA

The Supervisory Board of PKO Bank Polski SA is composed of 5 to 13 members appointed for a joint term of office of three years. Members of the Supervisory Board are appointed and dismissed by the General Shareholders’ Meeting.

On 26 June 2014 the State Treasury, as the Eligible Shareholder, on the basis of § 11 clause 1 of the Bank’s Memorandum of Association determined the number of the Supervisory Board members to include 9 persons, of which the Bank informed in a Current Report No. 53/2014. As at 31 December 2015, the Supervisory Board of the Bank consisted of 8 persons.

The current term of office of all the Supervisory Board members started on 26 June 2014.

Composition of the Supervisory Board of PKO Bank Polski SA as at 31 December 2015

Changes in the composition of the Supervisory Board in 2015

On 25 June 2015 the following changes in the composition of the Supervisory Board took place:

• Mr Tomasz Zganiacz – Deputy-Chairman of the Supervisory Board – resigned from his function as a member of the Supervisory Board as of 25 June 2015,
• The Ordinary General Shareholders’ Meeting of the Bank dismissed as of that day the member of the Supervisory Board of PKO Bank Polski SA - Mr Jarosław Klimont, and appointed Mrs Małgorzata Dec-Kruczkowska, and Mr Krzysztof Kilian as members of the Supervisory Board of the Bank,
• Treasury of State, as the Eligible Shareholder pursuant to § 12 p. 1 of the Articles of Association of the Bank appointed Mr Mirosław Czekaj - as Deputy Chairman of the Supervisory Board.

On 23 September 2015 Mrs Mirosława Boryczka resigned from her function as a member of the Supervisory Board as of 30 September 2015.

According to statements issued by members of the Supervisory Board, Mirosław Czekaj, Zofia Dzik, Krzysztof Kilian, Elżbieta Mączyńska – Ziemacka and Marek Mroczkowski meet the criteria of independency for members of the Supervisory Board set out in the Code of Best Practice for WSE Listed Companies. Other members of the Supervisory Board, ie. Jerzy Góra, Małgorzata Dec-Kruczkowska and Piotr Marczak, filed statements on lacking on the criteria of independence of the Bank and entities with significant connections with the Bank.

The Supervisory Board manner of functioning

The Supervisory Board acts based on the by-laws passed by the Supervisory Board and approved by the General Shareholders’ Meeting. Meetings of the Supervisory Board are convened at least once a quarter.

The Supervisory Board adopts resolutions by an absolute majority of votes with the presence of at least half of the Supervisory Board Members, including the Chairman or Deputy-Chairman of the Supervisory Board, except for resolutions indicated in the Bank’s Memorandum of Association concerning those matters that are required to be accepted by, apart from the quorum indicated, the qualified majority of 2/3 of total votes. Excluded from the vote are those members of the Supervisory Board to whom the given voted matter relates.

The Supervisory Board competencies

The competencies of the Supervisory Board, apart from the rights and obligations stipulated in generally binding legal regulations and the provisions of the Memorandum of Association of PKO Bank Polski SA, include passing resolutions relating specifically to:

1. approving the strategy of PKO Bank Polski SA and the annual financial plan approved by the Management Board,
2. accepting the Bank’s general level of risk,
3. appointing the entity to conduct the audit or review of the financial statements and giving consent to concluding contracts with such entity or its related entities,
4. passing the Internal Regulations in regard of:
   - the Supervisory Board,
   - defining the rules of granting loans, advances, bank’s guarantees and warranties to a member of the Management Board, the Supervisory Board, to a person holding a managerial position in the Bank and to entities related in terms of capital and organisation,
   - using other reserves,
5. appointing and dismissing the President of the Management Board and, at the request of the President of the Management Board, also the Vice-Presidents and other Management Board Members, and suspending Members of the Management Board from performing their duties, as well as delegating Members of the Supervisory Board to temporarily perform the duties of Members of the Management Board,
6. approving the Internal Regulations passed by the Management Board: of the Management Board, Management of special funds set up from the net profit, the Organisational Regulations of the Bank,
7. expressing prior consent to actions which meet specific criteria, including, i.e. things, purchasing and selling fixed assets and real estate, establishing a company, taking up or acquiring shares, concluding transactions between PKO Bank Polski SA and a related entity,
8. applying to the Polish Financial Supervision Authority for granting consent to appoint two Members of the Management Board, including the President of the Management Board.
9. evaluation of the functioning of the remuneration policy of the Bank and submit a report in this regard to the Annual General Meeting,
10. opinion on the application by the Bank "Principles of Corporate Governance for supervised institutions."

Changes in the Internal Regulations of the Supervisory Board

On 25 June 2015 General Shareholders’ Meeting acclaimed adopted by the Supervisory Board on 17 December 2014 amendment to the Regulations of the Supervisory Board by adding a provision that its members will ensure that their activities comply with the requirements adopted for use by the Bank of The Best Practices of WSE Listed Companies and The Principles of Corporate Governance for supervised institutions issued by the PFSA.

On 23 September 2015, the Supervisory Board adopted an amendment to the Rules of the Supervisory Board made due to the change in par. 17 p. 4 of the Articles of Association of the Bank. It enables the Supervisory Board issuing resolutions in circulation mode or using means of direct remote communication also in the cases referred to in § 15 p. 1 point 12 of the Articles of Association, i.e., among others express approvals by the Supervisory Board on the acquisition and disposal of fixed assets, real estate, company formation etc. This change will come into force on the date of its approval by the General Assembly.

Committees of the Supervisory Board

According to the Bank's Articles of Association, the Supervisory Board appoints from among its members an Audit Committee, and the Committee for Remuneration. The Supervisory Board may also appoint other committees from among its members.

According to the Internal Regulations of the Supervisory Board, it is entitled to appoint, and in cases, when the provisions of the law require, appoint permanent committees whose members perform functions as members of the Supervisory Board delegated to fulfil selected supervisory activities in the Bank. The Supervisory Board appoints particularly permanent committees:

The Audit Committee of the Supervisory Board, which is responsible in particular for executing the following tasks:

1) monitoring the process of the financial reporting, including the review of interim and annual financial statements of the Bank and the Group (standalone and consolidated), especially by:

• analysing:

- Information on significant changes in the accounting policy and financial reporting and ways of making estimates and judgments of management, when they are essential for the Bank's financial reporting,

- Bank's financial statements, together with the summary of significant adjustments to the reports, being the result of audit and the opinion of the audit of financial statements,

- Compliance of the financial reporting process with applicable laws and regulations on accounting,

- Problems, concerns and doubts that arise from the audit of financial statements of the Bank and the Group,

- Recommendations of the entity authorized to audit financial statements (auditor) of the Bank and the Group addressed to the Management Board and the Board's reply in this regard.

• presenting to the Supervisory Board recommendations on the opinion of the financial statements of the Bank and the Bank Group examined by the auditor,
• presenting to the Supervisory Board recommendations on the evaluation of the proposal of the Management Board regarding distribution of profit or covering of loss (including, in particular dividend policy) and issuance of securities,

2) monitoring efficiency of the systems of internal control, internal audit and risk management, in particular:

• evaluation of the Bank's activities related to the functioning of the internal control system and an assessment of its adequacy and effectiveness, in particular through:

- Opinions on the resolutions of the Board of Directors, the approval of which falls within the competence of the Supervisory Board regarding internal control system,

- Issuing opinions on submitted to the Supervisory Board periodic reports on the internal control system,

- Review of procedures for the anonymous reporting of infringements of the law and the applicable Bank's procedures and ethical standards to members of the Management Board or the Supervisory Board,

- A review of the writings of supervisory authorities addressed to the Management Board and the Supervisory Board together with answers.

• Analysing information gathered from the Risk Committee,
• monitoring the activity of Internal Audit department, in particular through:

- consulting the plan of internal audits in the Bank and an internal regulations of the Internal Audit Department

- performing a periodic review of the execution of the internal audit plan, ad-hoc audits and evaluating activities of the Internal Audit Department within the available resources,

- presenting an opinion to the Supervisory Board as regards appointing and dismissal the head of the Internal Audit Department

- monitoring of the remuneration levels of a director and employees of the Internal audit Department

• monitoring activities of the Compliance Department, in particular through:

- analysing information received from the Compliance Department on the review of the effectiveness of the compliance monitoring,

- opinions on the proposals of the President of the Management Board to the Supervisory Board on the appointment and dismissal of the Director of the Department of Compliance

- monitoring the level of remuneration of directors and the employees of the Department of Compliance

3) monitoring the execution of financial audit activities, in particular by means of:

• recommending to the Supervisory Board a registered audit company entitled to perform a financial audit of the Bank together with its evaluation, level of fee and supervision of work performed,
• examining written information submitted by the registered audit company about relevant issues concerning financial audit, of which in particular information concerning material irregularities in the Bank’s internal control system as regards financial reporting,
• agree with the entity authorized to audit the financial statements of the Bank and the Bank Group rules of conduct and activities of the proposed plan of action,
• examination of the reasons for termination of the contract with the entity authorized to audit financial statements of the Bank and the Bank Group.

4) monitoring the independence of a registered auditor and a registered audit company and on the services referred to in art. 48, clause 2 of the Act on Registered Auditors, in particular through obtaining:

• statements confirming the independence of a registered audit company and the independence of the registered auditors conducting the financial audit activities,
• information on the services referred to in art. 48, clause 2 of the Act on Registered Auditors, provided to the Bank.

The Remuneration Committee, whose tasks include evaluation and monitoring of an remuneration policy adopted by the Bank and supporting the Bank's governing bodies in shaping and implementing this policy. Committee is responsible in particular for executing the following tasks:

1. providing opinions on general rules approved by the Supervisory Board on the variable salary components policy for persons holding managerial positions, as defined in § 28 clause 1 of the Resolution No. 258/2011 of the Polish Financial Supervision Authority of 4 October 2011 on detailed principles for the functioning of the risk management system and internal control system and detailed terms of estimating internal capital by banks and reviewing the process of estimating and maintaining internal capital, and the principles for determining the variable salary components policy for persons holding managerial positions at the bank, including the amount and components of the salaries, based on prudent and stable risk management, capital and liquidity and special care about the long-term interests of the Bank and the interests of shareholders and the Bank’s investors,
2. making a periodical review of general principles of the variable salary components policy for persons holding managerial positions in the Bank and presentation of the results of the review to the Supervisory Board,
3. presentation to the Supervisory Board proposals of principles for remunerating, the variable salary components policy and remuneration of the Management Board members,
4. presentation to the Supervisory Board proposals related to appropriate forms of contracts with the Management Board members of the Bank,
5. giving opinions on motions for approval for a member of the Management Board to become involved in competitive business activities or participate in a competitive company as a shareholder of a civil law company, a partnership or as a member of a body in a corporation, or participate in another competitive legal person as a member of its body,
6. giving opinions on a review report concerning the implementation of the variable salary components policy carried out by the Internal Audit Department.
7. prepare the draft report evaluating the ongoing functionality of the remuneration policy of the Bank, which is presented to the General Meeting by the Supervisory Board.

Risk Committee (appointed 4 November 2015), which is responsible for executing of the following tasks:

1. evaluating the overall current and future readiness of the Bank to take risks, including the risk profile of the Group, in particular giving opinions about adopted by the Board strategic tolerance limits for individual types of risks for the Bank and the Group, the approval of which falls within the competence of the Supervisory Board,
2. evaluation of adopted by the Board risk management strategy in the Bank’s ongoing business and submitted by the Board information on the implementation of this strategy and other periodic reports on risk management and capital adequacy,
3. evaluation of other resolutions of the Board in scope of risk management and capital adequacy, approval of which is the competence of the Supervisory Board,
4. supporting the Supervisory Board in overseeing the implementation of the risk management strategy in the Bank's ongoing business by senior management,
5. a review of whether the price of assets and liabilities offered to customers fully envision the Bank's business model and its strategy in terms of risk, and if these prices do not adequately reflect the risks in accordance with this model and this strategy, an indication of directions of corrective measures to restore the adequacy of the price of assets and liabilities to the business model and risk strategy of the Bank; Committee monitors the implementation of these actions by the Board,
6. evaluating solutions for reduction of business risk with the use of bank’s non-life insurance and insurance of civil liability of members of the Board and proxies,
7. evaluating proposals of the Chairman of the Board on the appointment or dismissal of a member of the Board to supervise the management of risk material in the Bank's operations for the Supervisory Board,
8. issuing opinions on the information provided by the Bank to the public in relation to risk management strategies and risk management system,
9. performing other tasks assigned by the Supervisory Board on risk management at the Bank.

As at 31 December 2015, the Audit Committee of the Supervisory Board consisted of 4 members:

• Mirosław Czekaj (President of the Committee),
• Zofia Dzik (Vice-President of the Committee),
• Krzysztof Kilian (Member of the Committee),
• Piotr Marczak (Member of the Committee),

As at 31 December 2015, the Remuneration Committee consisted of 4 members:

• Małgorzata Dec-Kruczkowska (President of the Committee),
• Jerzy Góra (Vice-President of the Committee),
• Elżbieta Mączyńska-Ziemacka (Member of the Committee),
• Marek Mroczkowski (Member of the Committee).

As at 31 December 2015, the Risk Committee of the Supervisory Board consisted of 5 members:

• Jerzy Góra (President of the Committee),
• Mirosław Czekaj (Vice-President of the Committee),
• Zofia Dzik (Member of the Committee),
• Krzysztof Kilian (Member of the Committee),
• Piotr Marczak (Member of the Committee).

The Management Board of PKO Bank Polski SA

Pursuant to § 19 clause 1 and 2 of PKO Bank Polski SA Memorandum of Association, members of the Management Board are appointed by the Supervisory Board for a joint term of office of three years.

The Management Board is composed of 3 to 9 members. Appointment of two members of the Management Board, including the President of the Management Board, requires approval of the Polish Financial Supervision Authority. As at 31 December 2015, the Management Board of the Bank was composed of 7 members.

Current joint term of office of the Bank’s Management Board began at the end of the previous joint term of the Management Board started on 30 June 2011.

The Management Board of PKO Bank Polski SA as at 31 December 2015

Other functions performed by the Management Board Members of PKO Bank Polski SA (as at 31.12.2015)

In addition to above, members of the Management Board also participated in non-permanent Steering Committees set up as a part of term projects.

Changes in the composition of the Management Board in 2015

In 2015, the Management Board composition has not changed.

Rules of operations of the Bank’s Management Board

The manner of functioning of the Management Board is defined in the Regulation adopted by the Management Board and approved by the Supervisory Board.

Management Board makes decisions as resolutions. The resolutions of the Management Board are passed by an absolute majority of the votes of those present at the meeting of the Management Board. In the case of a voting tie, the President of the Management Board has the casting vote.

Statements on behalf of the Bank are made by:

• President of the Management Board independently,
• two members of the Management Board together or one member of the Management Board together with a proxy,
• two proxies acting together, or
• proxies acting independently or jointly within the limits of granted authorisation.

The Bank’s Management Board competencies

In accordance with § 20 clause 1 of the Memorandum of Association of PKO Bank Polski SA, the competences of the Management Board include all matters associated with the running of PKO Bank Polski SA’s business, with the exception of those restricted for the competence

of the General Shareholders’ Meeting or the Supervisory Board based on generally applicable law or the provisions of the Memorandum of Association of PKO Bank Polski SA, including purchasing and disposing of real properties, shares in real properties or the perpetual usufruct of land not requiring the approval of the General Shareholders’ Meeting based on § 9 clause 1 item 5 of the Memorandum of Association of PKO Bank Polski SA.

In accordance with § 20 clause 2 of the Memorandum of Association of PKO Bank Polski SA, the competences of the Management Board include making decisions on incurring liabilities or disposing of assets whose total value, in relation to one entity, exceeds 5% of own funds, with prejudice to the competences of the General Shareholders’ Meeting specified in § 9 of the Memorandum of Association of PKO Bank Polski SA specified in § 15 of the Memorandum of Association of PKO Bank Polski SA.

The Management Board passes specifically the following in the form of resolutions:

• determines the strategy of PKO Bank Polski SA,
• determines the annual financial plan, including the terms of its execution,
• passes the organisational regulations and the principles for segregation of duties,
• establishes and dissolves permanent committees of the Bank and determines their competences,
• passes the Internal Regulations of the Management Board,
• determines the internal regulations for managing the special funds set up from the net profit,
• determines the dividend payment dates in periods specified by the General Shareholders’ Meeting,
• appoints proxies,
• determines bank products and other banking and financial services,
• determines the principles for participation of PKO Bank Polski SA in other companies and organisations,
• determines the principles of operation of the internal control and annual plans of internal audits,
• establishes, transforms and liquidates organisational entities of PKO Bank Polski SA in Poland and abroad,
• defines the system of efficient risk management, internal control and internal capital estimate.

Committees of the Bank’s Management Board

In 2015 there were the following permanent committees in which Members of the Bank’s Management Board operated:

1) The Assets and Liabilities Committee of PKO Bank Polski SA, whose purpose is managing assets and equity and liabilities by influencing the structure of PKO Bank Polski SA statement of financial position and its off-balance sheet items in a manner conducive to achieving the optimum financial result. The Committee supports the Management Board in the following areas of the Bank’s operations:

• shaping the structure of the Bank’s statement of financial position,
• capital adequacy management,
• managing profitability, taking into account the specific nature of the individual areas of activity and respective risks,
• managing financial risk, of which market and liquidity risks, the business and credit risk (settlement and pre-settlement) of transaction on the wholesale market.

In particular, the Committee makes decisions concerning:

• limits related to the financial risks,
• limits related to settlement and credit transaction on the wholesale market,
• investment limits,
• limits specifying the appetite for portfolio credit risk,
• the ratios adjusting the transfer prices including individual rates of these ratios, and the method of their application,
• transfer prices for items classified in the investment bank portfolio in the Treasury Department,
• liquidity profile for the purpose of establishing transfer prices and replicated interest rate risk profiles,
• portfolio models and parameters, used for establishing impairment allowances and write-downs on loan exposures,
• significant financial and business risk models and their parameters.

The Committee issues recommendations to the Management Board or the Management Board Members, especially related to:

• shaping the structure of the statement of financial position,
• risk management: financial, settlement and pre-settlement transactions on wholesale and business market,
• launching of capital-related emergency activities and the capital needs,
• pricing policy in the individual business areas and interest rate levels and minimum lending margins,
• the financial model, including the principles for determining the management results and the transfer pricing system,
• hedging strategies as part of hedge accounting,
• taking any reorganisation actions after conducted comprehensive stress-tests.

2) The Risk Committee, the objective of which is to design strategic directions and tasks in the scope of banking risk in the context of the Bank’s strategy and conditions arising from the macroeconomic situation and the regulatory environment, analysing periodic reports related to the banking risks and developing appropriate guidance on their basis, as well as preparing the banking risk management strategy and its periodic verification. The tasks of the Committee include, in particular:

• monitoring the integrity, adequacy and effectiveness of the banking risk management system, capital adequacy and allocation of internal capital to individual business lines and implementing the risk management policy executed as part of the Bank’s adopted Strategy,
• analysing and evaluating the utilisation of strategic risk limits set in the Banking Risk Management Strategy,
• giving opinions on cyclical risk reports submitted for approval to the Supervisory Board and taking into account the information from the reports when issuing opinions.

3) The Loan Committee of the Bank, whose objective is credit risk management and mitigating of credit risk when making lending decisions or decisions concerning the non-performing loans management in PKO Bank Polski SA, and management of risk of occurring negative financial or reputation effects as a result of making incorrect business decisions on the basis of the credit risk models. The competencies of the Loan Committee include, in particular:

• making decisions in matters relating to the segregation of competencies for making lending and selling decisions, managing non-performing loans, industry and client limits, and securing the debt of PKO Bank Polski SA,
• making decisions related to credit risk models, in particular in the range of: models and credit policy parameters used in determining the scoring or rating evaluation, models and credit risk parameters consistent with the internal ratings method, the results of the validation of significant credit risk models and related proposals for changes in models, reports on the status of implementation of recommendations after validation; insignificant credit risk models; from monitoring of significant models and the quality of loan portfolios, for which credit risk models are used.
• issuing recommendations for the Management Board of PKO Bank Polski SA in matters relating to making decisions about lending transactions and changes in the material terms and conditions of these transactions, client internal limits, non-performing loans management, credit risk models, particularly in the field of credit policy parameters, which, due to external regulations, require the approval of the Management Board or the Supervisory Board.
• issuing an opinion concerning applications of credit transactions, leasing transactions or factoring transactions led by the entities of PKO Bank Polski SA Group, restructuring and debt collection clients of KREDOBANK SA and on significant credit risk models in the companies of the Bank Group.

4) The Operational Risk Committee, whose purpose is to effectively manage operational risk, increasing safety of the Bank operating activity. The Committee’s tasks include:

• determining the directions of operational risk management development,
• supervising the operation of the operational risk management,
• coordinating operational risk management,
• determining measures to be taken in case of an emergency which exposes the Bank to reputational risk and results in operating losses.

5) The Expense Committee of PKO Bank Polski SA, whose tasks include specifically:

• granting approval, expressing opinions on overheads and administrative expenses of on-going operations, arising from new agreements or annexes to existing agreements, and granting approval to exceed the budget of overheads and other administrative expenses of on-going operations, in accordance with the Bank’s internal cost management regulations,
• granting approval for further actions relating to areas identified as empty and refusing approval for new locations, in accordance with the Bank’s internal real estate management regulations,
• making decisions concerning projects, including i.e. the approval of project applications, approval and recommendation of project plans, approval of significant changes in projects, making decisions to suspend project execution or close projects, approval of assessments of the objectives achieved and effects of projects, in accordance with the Bank’s internal regulations on project and investment management,
• transfers of funds between the costs of on-going operations and the costs of projects or investments,
• approval of capital expenditure relating to the execution of tasks which do not meet the criteria of projects or investments.

6) The Strategy Committee, which objective is to supervise the strategic planning process and to manage the Bank’s strategy referred to in the Bank’s Memorandum of Association (§22 clause 5 item 1). The tasks of the Committee include in particular:

• managing the activities related to strategy development and implementation,
• approving the strategy development schedule and strategy implementation schedule,
• making key decisions necessary to ensuring the strategy’s execution, including implementation of strategic programmes,
• resolving any disputes arising during the work on individual strategic programmes.

7) The IT Architecture Committee of PKO Bank Polski SA, whose objective is to develop an IT architecture ensuring the implementation of the Bank’s Strategy by performing the following tasks:

• developing the key assumptions of the IT architecture of the Bank (the principles),
• evaluating the IT architecture functioning in the Bank on a periodical basis,
• developing a target architecture model,
• initiating measures aimed at achieving the target architecture model.

8) The Committee for IT Safety which objective is to increase the effectiveness of supervision and control over the information system’s safety in PKO Bank Polski SA (SIB). The Committee’s tasks include issuing recommendations on the SIB safety, in particular related to:

• coordinating and monitoring work related to the SIB safety,
• setting the directions for the Bank’s activities within the scope of SIB safety,
• specifying the desirable activities, which in the Committee’s opinion should be undertaken in the event of emergency situations which put the Bank’s image at risk and cause operating or financial losses in the area of SIB safety,
• monitoring the risk related to SIB safety.

9) Data Quality Committee which objective is to design strategic directions for the activities relating to data quality management and data architecture at the Bank in the context of the Data Management System (DMS), to supervise its operations, and to assess its

• effectiveness and the activities undertaken by the individual organisational teams and units. The Committee’s tasks include making decisions about data management at the Bank, in particular those relating to:
• directions for the development of the DMS,
• recommendations for the organisational teams and units of the Head Office, regarding data management activities,
• detailed data management solutions,
• assessing the effectiveness of the operations of the DMS, determining priority measures as part of the DMS, and drawing up periodical action plans,
• assigning ownership to groups of data,
• resolving disputes over the DMS at the request of the Committee members,
• accepting – particularly in cases justified by the need to ensure the Bank’s continued operations – deviations from data quality criteria and rules as well as data quality solutions standards.

Moreover, in addition to those mentioned above, members of the Bank’s Management Board also participated in the non-permanent committees, including steering committees set up as a part of realised projects.