This document is a free translation
of the Polish original. Terminology current
in Anglo-Saxon countries has been used where practicable for the purposes
of this translation in order to aid understanding. The binding Polish original
should be referred to in matters of interpretation.
Independent Auditor's Report
To the General
Shareholders’ Meeting and Supervisory Board
of ING Bank Śląski S.A.
Report on the Audit of the Annual Consolidated Financial Statements
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Opinion
We have audited the accompanying annual separate financial statements of ING Bank Śląski S.A. (the “Bank”), which comprise:
— the separate statement of financial position as at 31 December 2020;
and, for the period from 1 January to 31 December 2020:
— the statement of profit or loss;
— the statement of comprehensive income;
— the statement of changes in equity;
— the statement of cash flows;
and
— accounting policy and additional explanatory notes;
(the “separate financial statements”).
In our opinion, the accompanying separate financial statements of the Bank:
— give a true and fair view of the unconsolidated financial position of the Bank as at 31 December 2020 and of its unconsolidated financial performance and its unconsolidated cash flows for the financial year then ended in accordance with International Financial Reporting Standards, as adopted by the European Union (“IFRS EU”) and the adopted accounting policy;
— comply, in all material respects, with regard to form and content, with applicable laws and the provisions of the Bank's articles of association;
— have been prepared, in all material respects, on the basis of properly maintained accounting records in accordance with chapter 2 of the accounting act dated 29 September 1994 (the “Accounting Act”).
Our audit opinion on the separate financial statements is consistent with our report to the Audit Committee dated 12 March 2021.
Basis for Opinion
We conducted our audit in accordance with:
— International Standards on Auditing as adopted by the National Council of Statutory Auditors as National Standards on Auditing (the “NSA”) by the resolution no. 3430/52a/2019 dated 21 March 2019 and the resolution no. 1107/15a/2020 dated 8 September 2020; and
— the act on statutory auditors, audit firms and public oversight dated 11 May 2017 (the “Act on statutory auditors”); and
— regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities and repealing Commission Decision 2005/909/EC (the “EU Regulation”); and
— other applicable laws.
Our responsibilities under those regulations are further described in the Auditor’s Responsibility for the audit of the separate financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence and Ethics
We are independent of the Bank in accordance with International Ethics Standards Board for Accountants International Code of Ethics for Professional Accountants (including International Independence Standards) (“IESBA Code”) as adopted by the resolution of the National Council of Statutory Auditors, together with the ethical requirements that are relevant to our audit of the separate financial statements in Poland and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. During our audit the key statutory auditor and the audit firm remained independent of the Bank in accordance with requirements of the Act on statutory auditors and the EU Regulation.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the separate financial statements of the current period. They are the most significant assessed risks of material misstatements, including those due to fraud, described below and we performed appropriate audit procedures to address these matters. Key audit matters were addressed in the context of our audit of the separate financial statements as a whole, and in forming our opinion thereon we have summarised our response to those risks. We do not provide a separate opinion on these matters. We have determined the following key audit matters
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Expected credit losses on loans and other receivables from customer |
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The carrying
amount of loans and other receivables from customers (excluding those
measured at fair value through profit or loss) amounted to PLN 117,424.9million as at
31 December 2020. The charge for expected credit losses relating to the
aforementioned loan portfolio amounted to minus |
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Key audit matter |
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Our response |
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The procedures to estimate credit losses in respect to loans and other receivables from customers at amortized cost and at fair value through other comprehensive income comprise two major phases – identification of the impairment triggers or significant increase of credit risk and measurement of expected credit losses. The impairment triggers and triggers indicating significant increase of credit risk. are identified mainly on the basis of payment delinquencies, economic and financial standing of the debtor and current probability of default level as compared to the date of initial recognition of the exposure, while allowances for expected credit losses are estimated on an individual basis and collectively for homogenous loan portfolios collectively using statistical methods on the basis of risk parameters. The significant assumptions for the portfolio approach are risk parameters such as probability of default (PD), loss given default (LGD) or exposure at default (EAD), which are determined for homogenous groups of loan exposures based on historical data taking into account forward looking information on expected macroeconomic conditions. Allowances for credit losses are an estimate of expected credit losses on loans and other receivables from customers as at the balance sheet date to be incurred within the next 12 month period or within the lifetime of the exposure.
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Our audit procedures conducted with the support of our internal financial risk and IT system risk specialists included among others: assessment of the Bank’s methodology used for estimating expected credit losses in terms of their compliance with the requirements of applicable financial reporting standards and market practice; · assessment of the design and implementation and operating effectivness of relevant internal controls, including general IT system controls, applied in the process of identification of impairment or significant increase in credit risk triggers and estimation of expected credit losses. · analysis of the structure and dynamics of the loan portfolio including quality ratios and provision coverage (i.e. share of overdue loans, coverage ratio) in order to identify groups of loans with underestimated expected credit losses. · analysis of appropriateness of Bank’s identification of impairment and significant increase in credit risk triggers for the entire population of loans (overdue status, significant increase in PD, forbearance) · independent recalculation of expected credit losses for a sample of individually assessed impaired loans;
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As required by the relevant accounting standard, the measurement of expected credit losses takes into account forecasts of future macroeconomic conditions. The adoption of assumptions regarding the expected macroeconomic scenarios and the probability of their occurrence requires the Management to use subtantial judgment. Furthermore, estimating allowances for credit losses involves certain uncertainty and requires from the Bank’s Management to use substantial judgement. The main risk area comprises the failure to identify existing impairment triggers and significant increase of credit risk as well as the application of inappropriate data to calculate the parameters of statistical model, including use of inappropriate macroeconomic assumptions, which may not adequately reflect the expected credit losses existing as at a given balance sheet date and for loans that are assessed on an individual basis there is a risk of applying inappropriate assumptions regarding recovery scenarios, valuation of collateral or assumed timing of expected cash flows. |
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· critical assessment of assumptions and input data used for key credit risk parameters, PD, LGD and EAD including analysis of results of tests performed by the Bank regarding appropriateness of models used for estimating of expected losses; · recalculation of selected risk parameters and expected credit losses for a selected sample of exposures assessed collectively; · an independent assessment of adequacy of provisions for expected credit losses through comparison with loss incurred historically on a given portfolio; · for loans and other receivables from customers assessed individually on the basis of a selected sample, including borrower’s exposure to impact of COVID-19 – assessment of the appropriateness of identification of significant increase in credit risk and impairment triggers and for impaired assets – critical assessment of relevant assumptions adopted by the |
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Moreover, there is a risk of errors and risk of frauds occurring during the impairment allowances calculation process. A relatively small change in significant assumptions and model parameters, such as data and methods, may have a significant impact on the estimated credit losses of the Bank. Due to COVID-19 pandemic and its impact on macroeconomic environment, estimation uncertainty of expected credit losses increased as compared to previous years. We have considered this area as a key audit matter because of the size of the loan portfolio and the significant impact that estimation of expected credit losses may have on the separate financial statements. |
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Bank and independent recalculation of impairment allowances. · evaluation of completeness and accuracy of disclosures in the financial statements in respect to key estimates in respect to expected credit losses, including uncertainty resulting from possible impact of COVID-19 pandemic on relevant model parameters |
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Conduct risk, legal claims and customer complaints |
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Due to the risk related to the current and potential legal claims with borrowers who have obtained mortgage loans indexed to CHF in the past, as at 31 December 2020 the Bank recognized decrease in expected contractual cash flows as reduction in gross amounts of loans in the amount of PLN 300.0 million and the provisions of PLN 11.8 million. Provisions for other legal claims and conduct risk amounted to PLN 21.2 million. These matters were presented in Note 32 to the separate financial statements |
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Key audit matter |
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Our response |
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Bank operating on regulated markets is exposed to the risk of changes in law rulings and events (other than those arising from credit risk) that may result in lower than contractual cash flows from financial contracts with customers or in an obligation or liability arising from past events, the settlement of which will require outflow of resources embodying economic benefits ("risk amount"). We consider identification of such events by the Bank, providing a reliable estimate of the risk amount and disclosures in this respect to be the key audit matter. As at 31 December 2020, in particular, it refers to the impact of the decision of the Court of Justice of the European Union ("CJEU") of 3 October 2019 (Case C-260/18). Although this decision did not refer directly to Bank, it has resulted in consequences we refer to below. As a result of the decision, the number of court claims against the Bank filed by the borrowers who were granted mortgage loans indexed to CHF ("CHF loans") in the past years increased. The Bank assessed that this growth may continue for some time in the future, which in the absence of a single court ruling in this respect may result in lower expected cash flows from CHF loans than those resulting from the contractual agreements. In order to determine an estimate expected loss from the CHF loan portfolio, the Bank assessed, among other things, the probability of various scenarios |
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Our audit procedures included among others: · assessment of the accounting policy and methodology for calculating the Bank's estimates in relation to the recognition in the financial statements of the financial effects of CJEU judgment and other conduct risks, litigation and customer complaints; · assessment of the design and effectiveness of internal controls in the scope of identification, monitoring and estimation of conduct risk and risk arising from complaints and disputes with clients; · analysis of correspondence, reports and post-audit recommendations received by the Bank from regulatory authorities; · assessment of the Bank's internal analyzes and reports in the area of compliance risk and conduct risk; · assessment of the rationality of assumptions regarding the number of expected claims from customers on the basis of trends in this respect observed in the Bank, as well as the scale of complaints reported in other disputes in previous years; · historical analysis of the accuracy of estimates made in past periods from the perspective of losses that occurred in subsequent periods;
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with respect to future possible court judgments with respect to claims concerning CHF loans granted by the Bank, estimated the most probable number of new court claims and the time horizon in which they may occur. Estimates regarding the risk of mortgage loans indexed to CHF are subject to uncertainty in respect to assumptions. Relatively insignificant change in assumptions may have a significant impact on Bank’s losses. Due to abovementioned reasons preparing a reasonable risk estimate and disclosure in this regard in the financial statements are considered key audit matter. |
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· analysis of the correctness of significant input data used to prepare risk estimates resulting from judgment of the CJEU by agreeing them to the relevant IT systems of the Bank; · analysis of the sensitivity of estimates to changes in relevant assumptions and taking into account the above, assessment whether the adopted level of significant assumptions indicates the bias of the Management Board; · our independent determination of the range of reasonable assumptions, including alternative assumptions, making our own estimation on this basis and comparing it with the estimation of the Bank; · assessment of the completeness and correctness of disclosures required by International Financial Reporting Standards that are related to the presented estimates. |
Responsibility of the Management Board and Supervisory Board of the Bank for the Separate Financial Statements
The Management Board of the Bank is responsible for the preparation, on the basis of properly maintained accounting records, of separate financial statements that give a true and fair view in accordance with International Financial Reporting Standards, as adopted by the European Union, the adopted accounting policy, the applicable laws and the provisions of the Bank's articles of association and for such internal control as the Management Board of the Bank determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the separate financial statements, the Management Board of the Bank is responsible for assessing the Bank's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management Board of the Bank either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.
According to the Accounting Act, the Management Board and members of the Supervisory Board of the Bank are required to ensure that the separate financial statements are in compliance with the requirements set forth in the Accounting Act. Members of the Supervisory Board of the Bank are responsible for overseeing the Bank’s financial reporting process.
Auditor’s Responsibility for the Audit of the Separate Financial Statements
Our objectives are to obtain reasonable assurance about whether the separate financial statements as a whole are free from material misstatement, whether due to fraud or
error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with NSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these separate financial statements.
The scope of audit does not include assurance on the future viability of the Bank or on the efficiency or effectiveness with which the Management Board of the Bank has conducted or will conduct the affairs of the Bank.
As part of an audit in accordance with NSAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
— identify and assess the risks of material misstatement of the separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
— resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
— obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank's internal control;
— evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management Board of the Bank;
— conclude on the appropriateness of the Management Board of the Bank’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report on the audit of the separate financial statements to the related disclosures in the separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report on the audit of the
separate financial statements. However, future events or conditions may cause the Bank to cease to continue as a going concern;
— evaluate the overall presentation, structure and content of the separate financial statements, including the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Audit Committee of the Bank regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We provide the Audit Committee of the Bank with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with the Audit Committee of the Bank, we determine those matters that were of most significance in the audit of the separate financial statements of the current reporting period and are therefore the key audit matters. We describe these matters in our auditors’ report on the audit of the separate financial statements unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Other Information
The other information comprises:
— the selected financial data;
— the Management Board report on activities of ING Bank Śląski Group together with Management Board report on activities of the Bank for the year ended 31 December 2020 (the “Report on activities”), including letter from the Chairman, — the statement of the Management Board regarding the preparation of the separate financial statements, consolidated financial statements and report on activities, the Management Board’s information regarding the appointment of the audit firm and the corporate governance statement, which is a separate part of the Report on activities;
— the separate report on non-financial information referred to in art. 49b paragraph 9 of the Accounting Act;
— Report of the Supervisory Board on the results of assessment of the Annual Financial Statements of ING Bank Śląski S.A. for 2020
— the Supervisory Board’s assessment of the consolidated financial statements and the Report on activities;
— Supervisory Board’s Assessment of ING Bank Śląski S.A. Group Operations in 2020; and
— representation of the Supervisory Board concerning the Audit Committee
(together the “Other information”).
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Responsibility of the Management Board and Supervisory Board
The Management Board of the Bank is responsible for the Other information in accordance with applicable laws.
The Management Board and members of the Supervisory Board of the Bank are required to ensure that the report on activities of the Bank for the year ended 31 December 2020 (the “Report on activities”), including the corporate governance statement and the report on non-financial information referred to in art. 49b paragraph 9 of the Accounting Act are in compliance with the requirements set forth in the Accounting Act.
Auditor’s Responsibility
Our opinion on the separate financial statements does not cover the Other information.
In connection with our audit of the separate financial statements, our responsibility was to read the Other information and, in doing so, consider whether the Other information is materially inconsistent with the separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement in the Other information, we are required to report that fact.
In accordance with the Act on statutory auditors our responsibility was to report if the Report on activities was prepared in accordance with applicable laws and the
information given in the Report on activities is consistent with the separate financial statements.
Moreover, in accordance with the requirements of the Act on statutory auditors our responsibility was to report whether the Bank included in the statement on corporate governance information required by the applicable laws and regulations, and in relation to specific information indicated in these laws or regulations, to determine whether it complies with the applicable laws and whether it is consistent with the separate financial statements and to inform whether the Bank prepared a separate report on non-financial information.
Opinion on the Report on Activities
Based on the work undertaken in the course of our audit of the separate financial statements, in our opinion, the accompanying Report on activities, in all material respects:
— has been prepared in accordance with applicable laws, and
— is consistent with the separate financial statements.
Opinion on the Statement on Corporate Governance
In our opinion, the corporate governance statement, which is a separate part of the Report on activities, includes the information required by paragraph 70 subparagraph 6 point 5 of the Decree of the Ministry of Finance dated 29 March 2018 on current and periodic information provided by issuers of securities and the conditions for recognition as equivalent of information required by the laws of a non-member state (the “decree”).
Furthermore, in our opinion, the information identified in paragraph 70 subparagraph 6 point 5 letter c-f, h and letter i of the decree, included in the corporate governance statement, in all material respects:
— has been prepared in accordance with applicable laws; and
— is consistent with the separate financial statements.
Information about the Statement on Non-financial Information
In accordance with the requirements of the Act on statutory auditors, we report that the Bank has prepared a separate report on non-financial information referred to in art. 49b paragraph 9 of the Accounting Act.
We have not performed any assurance procedures in relation to the separate report on non-financial information and, accordingly, we do not express any assurance conclusion thereon.
Statement on Other Information
Furthermore, based on our knowledge about the Bank and its environment obtained in the audit of the separate financial statements, we have not identified material misstatements in the Report on activities and the Other information.
Report on Other Legal and Regulatory Requirements
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Information on Compliance with Prudential Regulations
The Management Board of the Bank is responsible for the Bank’s compliance with the applicable prudential regulations defined in separate laws, in particular for the appropriate determination of the capital ratios.
Our responsibility was to inform in our auditor’s report whether the Bank complies with the applicable prudential regulations defined in separate laws, in particular whether the Bank appropriately determined the capital ratios presented in note 4” Capital adequacy” in section Risk management and capital.
The audit objective was not to express an opinion on the Bank’s compliance with the applicable prudential regulations and therefore we do not express such an opinion.
Based on our audit of the separate financial statements of the Bank, we inform that we have not identified any instances of non-compliance, in the period from 1 January to 31 December 2020, of the Bank with the applicable prudential regulations, defined in separate laws, in particular with respect to the determination of the capital ratios as at 31 December 2020, that could have a material impact on the separate financial statements.
Appointment of the Audit Firm
We have been appointed for the first time to audit the annual separate financial statements of the Bank by resolution of the Supervisory Board dated 18 January 2013 and reappointed in the following years, including the resolution dated 30 June 2020, to audit the annual separate financial statements for the year ended 31 December 2020. Our period of total uninterrupted engagement is 8 years, covering the periods ended 31 December 2013 to 31 December 2020.
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On behalf of audit firm |
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KPMG Audyt Spółka z ograniczoną odpowiedzialnością sp.k. |
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Registration No. 3546 |
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Signed on the Polish original |
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Marcin Dymek |
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Key Statutory Auditor |
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Registration No. 9899 |
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Limited Partner, Proxy |
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Warsaw, 12 March 2021 |
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