Annual Consolidated

Financial Report

of the Bank Millennium S.A.

Capital Group

for the 12-month period

ending 31

December 2021

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

FINANCIAL HIGHLIGHTS

Amount ‘000 PLN

Amount ‘000 EUR

1.01.2021 -

31.12.2021

1.01.2020 -

31.12.2020

1.01.2021 -

31.12.2021

1.01.2020 -

31.12.2020

Interest income and other of similar nature

2 842 093

3 126 579

620 883

698 802

Fee and commission income

1 012 250

947 414

221 136

211 750

Profit (loss) before income tax

(1 000 943)

210 935

(218 666)

47 145

Profit (loss) after taxes

(1 331 866)

22 817

(290 959)

5 100

Total comprehensive income of the period

(2 390 356)

152 581

(522 197)

34 102

Net cash flows from operating activities

2 787 342

(3 137 601)

608 922

(701 265)

Net cash flows from investing activities

(556 582)

2 035 786

(121 591)

455 006

Net cash flows from financing activities

(444 950)

(1 064 540)

(97 204)

(237 929)

Net cash flows, total

1 785 810

(2 166 355)

390 128

(484 188)

Earnings (losses) per ordinary share (in PLN/EUR)

(1.10)

0.02

(0.24)

0.00

Diluted earnings (losses) per ordinary share

(1.10)

0.02

(0.24)

0.00

31.12.2021

31.12.2020

31.12.2021

31.12.2020

Total Assets

103 913 908

97 322 785

22 592 927

21 089 275

Liabilities to banks and other monetary institutions

539 408

1 057 652

117 278

229 187

Liabilities to customers

91 447 515

81 510 540

19 882 488

17 662 854

Equity

6 697 246

9 090 976

1 456 113

1 969 961

Share capital

1 213 117

263 755

262 875

Number of shares (pcs.)

1 213 116 777

Book value per share (in PLN/EUR)

5.52

7.49

1.20

1.62

Diluted book value per share (in PLN/EUR)

5.52

7.49

1.20

1.62

Total Capital Ratio (TCR)

17.06%

19.49%

17.06%

19.49%

Pledged or paid dividend per share (in PLN/EUR)

Exchange rates accepted to convert selected financial data into EUR

for items as at the balance sheet date

4.5994

4.6148

for items for the period covered by the report

(exchange rate calculated as the average of exchange

rates at the end of individual months of the period)

4.5775

4.4742

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

QUARTERLY FINANCIAL INFORMATION

CONSOLIDATED INCOME STATEMENT

Amount ‘000 PLN

1.01.2021 -

31.12.2021

1.10.2021 -

31.12.2021*

1.01.2020 -

31.12.2020

1.10.2020 -

31.12.2020*

Net interest income

2 713 143

767 099

2 583 060

624 635

Interest income and other of similar nature

2 842 093

805 787

3 126 579

665 243

Income calculated using the effective interest

method

2 778 204

800 465

3 018 124

646 986

Interest income from Financial assets at

amortised cost

2 620 651

749 737

2 704 672

597 735

Interest income from Financial assets at fair value

through other comprehensive income

157 553

50 728

313 452

49 251

Income of similar nature to interest from Financial

assets at fair value through profit or loss

63 889

5 322

108 455

18 257

Interest expenses

(128 950)

(38 688)

(543 519)

(40 608)

Net fee and commission income

830 612

214 960

746 056

192 730

Fee and commission income

1 012 250

260 504

947 414

240 546

Fee and commission expenses

(181 638)

(45 544)

(201 358)

(47 816)

Dividend income

3 761

323

3 678

136

Result on derecognition of financial assets and

liabilities not measured at fair value through profit or

loss

9 669

(569)

128 082

50 059

Results on financial assets and liabilities held for

trading

(9 296)

(2 151)

13 436

4 637

Result on non-trading financial assets mandatorily at

fair value through profit or loss

124 538

70 730

38 576

51 729

Result on hedge accounting

(3 185)

(1 431)

(10 259)

481

Result on exchange differences

(148 999)

(72 138)

120 521

14 285

Other operating income

317 295

106 606

160 766

72 191

Other operating expenses

(239 510)

(159 641)

(249 060)

(112 146)

Administrative expenses

(1 440 706)

(383 401)

(1 542 379)

(366 219)

Impairment losses on financial assets

(318 391)

(77 023)

(556 912)

(91 173)

Impairment losses on non-financial assets

(7 672)

(2 285)

(7 890)

(2 712)

Provisions for legal risk connected with FX mortgage

loans

(2 305 157)

(732 000)

(713 617)

(415 944)

Result on modification

(12 839)

(3 403)

(13 565)

(3 475)

Depreciation

(201 595)

(50 725)

(210 411)

(51 455)

Share of the profit of investments in subsidiaries

Banking tax

(312 611)

(82 012)

(279 147)

(70 120)

Profit before income taxes

(1 000 943)

(407 061)

210 935

(102 361)

Corporate income tax

(330 923)

(101 849)

(188 118)

(6 692)

Profit after taxes

(1 331 866)

(508 910)

22 817

(109 053)

Attributable to:

Owners of the parent

(1 331 866)

(508 910)

22 817

(109 053)

Non-controlling interests

Weighted average number of outstanding ordinary

shares (pcs.)

1 213 116 777

Profit (loss) per ordinary share (in PLN)

(1.10)

(0.42)

0,02

(0,09)

* quarterly financial information has not been audited by an independent auditor

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME

Amount ‘000 PLN

1.01.2021 -

31.12.2021

1.10.2021 -

31.12.2021*

1.01.2020 -

31.12.2020

1.10.2020 -

31.12.2020*

Result after taxes

(1 331 866)

(508 910)

22 817

(109 053)

Other comprehensive income items that may be (or were)

reclassified to profit or loss

(1 312 027)

(959 115)

160 748

(26 634)

Result on debt securities at fair value through other

comprehensive income

(977 534)

(698 843)

176 282

(28 073)

Hedge accounting

(334 493)

(260 272)

(15 534)

1 439

Other comprehensive income items that will not be

reclassified to profit or loss

5 249

5 278

(547)

(589)

Actuarial gains (losses)

6 071

(417)

Result on equity instruments at fair value through other

comprehensive income

(822)

(793)

(130)

(172)

Total comprehensive income items before taxes

(1 306 778)

(953 837)

160 201

(27 223)

Corporate income tax on other comprehensive income items

that may be (or were) reclassified to profit or loss

249 285

182 232

(30 541)

5 062

Corporate income tax on other comprehensive income items

that will not be reclassified to profit or loss

(997)

(1 003)

104

112

Total comprehensive income items after taxes

(1 058 490)

(772 608)

129 764

(22 049)

Total comprehensive income for the period

(2 390 356)

(1 281 518)

152 581

(131 102)

Attributable to:

Owners of the parent

(2 390 356)

(1 281 518)

152 581

(131 102)

Non-controlling interests

* quarterly financial information has not been audited by an independent auditor

   
 
 
 
 
 
 
 
 

 
  
This document is a translation of a document originally issued in Polish. 
The only binding version is the original Polish version. 
Annual Consolidated Financial Report  
of the Bank Millennium S.A. Capital Group 
for the 12-month period ending 31
st
 December 2021 
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS 
OF THE BANK MILLENNIUM S.A. CAPITAL GROUP 
  FOR THE 12-MONTH PERIOD ENDING 31
ST
 DECEMBER 2021 
 
TABLE OF CONTENT 
 CONSOLIDATED INCOME STATEMENT ............................................................... 6 
 CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME ............................ 7 
 CONSOLIDATED BALANCE SHEET .................................................................... 8 
 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ......................................... 10 
 CONSOLIDATED CASH FLOW STATEMENT ........................................................ 11 
 GENERAL INFORMATION ABOUT ISSUER AND THE ISSUER’S CAPITAL GROUP ............. 13 
 ACCOUNTING POLICY ................................................................................ 15 
1.  STATEMENT OF COMPLIANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS .................. 15 
2.  STANDARDS AND INTERPRETATIONS APPLIED IN 2021 AND THOSE NOT BINDING AT THE BALANCE SHEET DATE.. 22 
3.  ADOPTED ACCOUNTING PRINCIPLES ......................................................................... 23 
 FINANCIAL RISK MANAGEMENT .................................................................... 51 
1.  RISK MANAGEMENT ........................................................................................ 51 
2.  CAPITAL MANAGEMENT .................................................................................... 54 
3.  CREDIT RISK ............................................................................................... 59 
4.  MARKET RISK AND INTEREST RATE RISK .................................................................... 81 
5.  LIQUIDITY RISK ............................................................................................ 88 
6.  OPERATIONAL RISK ........................................................................................ 92 
 OPERATIONAL SEGMENTS ........................................................................... 94 
 TRANSACTIONS WITH RELATED ENTITIES ........................................................ 98 
1.  DESCRIPTION OF THE TRANSACTIONS WITH THE PARENT GROUP ............................................. 98 
2.  TRANSACTIONS WITH THE MANAGING AND SUPERVISING PERSONS ........................................... 99 
3.  INFORMATION ON COMPENSATIONS AND BENEFITS OF THE PERSONS SUPERVISING AND MANAGING THE BANK . 100 
 FAIR VALUE .......................................................................................... 101 
 CONTINGENT LIABILITIES AND ASSETS .......................................................... 107 
1.  LAWSUITS ............................................................................................... 107 
2.  OFF – BALANCE ITEMS .................................................................................... 111 
 LEGAL RISK RELATED TO FOREIGN CURRENCY MORTGAGE LOANS ........................ 113 
1.  COURT CLAIMS AND CURRENT PROVISIONS ON LEGAL RISK .................................................. 113 
2.  EVENTS THAT MAY IMPACT FX MORTGAGE LEAGAL RISK AND RELATED PROVISION ........................... 117 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS .................................... 119 
 INTEREST INCOME AND OTHER OF SIMILAR NATURE ........................................................ 119 
 INTEREST EXPENSE ....................................................................................... 119 
 FEE AND COMMISSION INCOME AND EXPENSE ............................................................... 120 
 DIVIDEND INCOME ........................................................................................ 121 
 RESULT ON DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AT FAIR VALUE THROUGH 
PROFIT OR LOSS .......................................................................................... 121 
 RESULTS ON FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING ........................................ 121 
 RESULTS ON NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS ..... 121 
 RESULT ON HEDGE ACCOUNTING .......................................................................... 122 
 OTHER OPERATING INCOME .............................................................................. 122 
 OTHER OPERATING EXPENSE .............................................................................. 122 
 ADMINISTRATIVE EXPENSES ............................................................................... 123 

 
 
 
 
 
  
 
 

This document is a translation of a document originally issued in Polish. 
The only binding version is the original Polish version. 
Annual Consolidated Financial Report  
of the Bank Millennium S.A. Capital Group 
for the 12-month period ending 31
st
 December 2021 
 IMPAIRMENT LOSSES ON FINANCIAL ASSETS ................................................................ 123 
 IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS ........................................................... 124 
 PROVISIONS FOR LEGAL RISK CONNECTED WITH FX MORTGAGE LOANS ...................................... 124 
 DEPRECIATION AND AMORTIZATION ....................................................................... 124 
 CORPORATE INCOME TAX ................................................................................. 125 
 EARNINGS PER SHARE .................................................................................... 126 
 CASH, BALANCES AT THE CENTRAL BANK .................................................................. 127 
 FINANCIAL ASSETS HELD FOR TRADING .................................................................... 128 
 NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS, OTHER THAN LOANS 
AND ADVANCES TO CUSTOMERS ........................................................................... 130 
 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME............................... 131 
 LOANS AND ADVANCES TO CUSTOMERS .................................................................... 132 
 FINANCIAL ASSETS AT AMORTISED COST OTHER THAN LOANS AND ADVANCES TO CUSTOMERS ................ 140 
 DERIVATIVES – HEDGE ACCOUNTING ...................................................................... 142 
 INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES .......................................... 146 
 TANGIBLE FIXED ASSETS .................................................................................. 147 
 INTANGIBLE FIXED ASSETS ................................................................................ 150 
 DEFERRED INCOME TAX  ASSETS........................................................................... 152 
 OTHER ASSETS ........................................................................................... 155 
 NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE ............................... 156 
 FINANCIAL LIABILITIES HELD FOR TRADING ................................................................ 157 
 LIABILITIES TO BANKS AND OTHER MONETARY INSTITUTIONS ............................................... 157 
 LIABILITIES TO CUSTOMERS ............................................................................... 158 
 SALE AND REPURCHASE AGREEMENTS ..................................................................... 159 
 DEBT SECURITIES ISSUED ................................................................................. 159 
 SUBORDINATED DEBT ..................................................................................... 161 
 PROVISIONS ............................................................................................. 162 
 OTHER LIABILITIES ....................................................................................... 163 
 EQUITY .................................................................................................. 165 
 FINANCIAL LIABILITIES BY CONTRACTUAL MATURITY ....................................................... 169 
 SUPPLEMENTARY INFORMATION ................................................................. 170 
1.  2020 DIVIDEND .......................................................................................... 170 
2.  DATA ABOUT ASSETS, WHICH SECURE LIABILITIES .......................................................... 170 
3.  SECURITIES COVERED BY TRANSACTIONS WITH A BUY-BACK CLAUSE (SBB) ................................. 171 
4.  OFFSETTING OF ASSETS AND LIABILITIES ON THE BASIS OF ISDA AGREEMENTS .............................. 172 
5.  ADDITIONAL EXPLANATIONS TO THE CASH FLOW STATEMENT ............................................... 172 
6.  INFORMATION ON CUSTODY ACTIVITY ..................................................................... 173 
7.  SHARE BASED PAYMENTS ................................................................................. 173 
8.  IMPACT OF COVID-19 PANDEMIC ON ACTIVITY OF BANK MILLENNIUM  GROUP ............................... 175 
9.  ADDITIONAL INFORMATION AND OTHER ESSENTIAL EVENTS BETWEEN THE DATE, FOR WHICH THE FINANCIAL 
REPORT WAS PREPARED AND ITS PUBLICATION DATE ....................................................... 176 
 
   

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

1. Consolidated Income Statement

Amount ‘000 PLN

Nota

1.01.2021 -

31.12.2021

1.01.2020 -

31.12.2020*

Net interest income

2 713 143

2 583 060

Interest income and other of similar nature

2 842 093

3 126 579

Income calculated using the effective interest method

2 778 204

3 018 124

Interest income from Financial assets at amortised cost

2 620 651

2 704 672

Interest income from Financial assets at fair value through other

comprehensive income

157 553

313 452

Income of similar nature to interest from Financial assets at fair value through

profit or loss

63 889

108 455

Interest expenses

(128 950)

(543 519)

Net fee and commission income

830 612

746 056

Fee and commission income

1 012 250

947 414

Fee and commission expenses

(181 638)

(201 358)

Dividend income

3 761

3 678

Result on derecognition of financial assets and liabilities not measured at fair value

through profit or loss

9 669

128 082

Results on financial assets and liabilities held for trading

(9 296)

13 436

Result on non-trading financial assets mandatorily at fair value through profit or loss

124 538

38 576

Result on hedge accounting

(3 185)

(10 259)

Result on exchange differences

(148 999)

120 521

Other operating income

317 295

160 766

Other operating expenses

(239 510)

(249 060)

Administrative expenses

(1 440 706)

(1 542 379)

Impairment losses on financial assets

(318 391)

(556 912)

Impairment losses on non-financial assets

(7 672)

(7 890)

Provisions for legal risk connected with FX mortgage loans

(2 305 157)

(713 617)

Result on modification

(12 839)

(13 565)

Depreciation

(201 595)

(210 411)

Share of the profit of investments in subsidiaries

Banking tax

(312 611)

(279 147)

Profit before income taxes

(1 000 943)

210 935

Corporate income tax

(330 923)

(188 118)

Profit after taxes

(1 331 866)

22 817

Attributable to:

Owners of the parent

(1 331 866)

22 817

Non-controlling interests

Weighted average number of outstanding ordinary shares

1 213 116 777

Profit (loss) per ordinary share (in PLN)

(1.10)

0.02

* data for 2020 has been restated in relation to the information presented in the report for 2020, more

information on this subject is provided in Chapter 7. "Accounting policy".

Notes on pages 13-178 are integral part of these consolidated financial statements.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

2. Consolidated Statement of Total

Comprehensive Income

Amount ‘000 PLN

1.01.2021 -

31.12.2021

1.01.2020 -

31.12.2020

Profit after taxes

(1 331 866)

22 817

Other comprehensive income items that may be (or were) reclassified to profit or loss

(1 312 027)

160 748

Result on debt securities at fair value through other comprehensive income

(977 534)

176 282

Hedge accounting

(334 493)

(15 534)

Other comprehensive income items that will not be reclassified to profit or loss

5 249

(547)

Actuarial gains (losses)

6 071

(417)

Result on equity instruments at fair value through other comprehensive income

(822)

(130)

Total comprehensive income items before taxes

(1 306 778)

160 201

Corporate income tax on other comprehensive income items that may be (or were)

reclassified to profit or loss

249 285

(30 541)

Corporate income tax on other comprehensive income items that will not be reclassified

to profit or loss

(997)

104

Total comprehensive income items after taxes

(1 058 490)

129 764

Total comprehensive income for the period

(2 390 356)

152 581

Attributable to:

Owners of the parent

(2 390 356)

152 581

Non-controlling interests

Notes on pages 13-178 are integral part of these consolidated financial statements.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

3. Consolidated Balance Sheet

ASSETS

Amount ‘000 PLN

Note

31.12.2021

31.12.2020*

31.12.2019*

Cash, cash balances at central banks

3 179 736

1 460 289

2 203 444

Financial assets held for trading

172 483

423 846

986 728

Derivatives

85 900

154 188

112 485

Equity instruments

145

245,1179

210

Debt securities

86 438

269 413

874 033

Non-trading financial assets mandatorily at fair value through profit or

loss, other than Loans and advances to customers

265 903

251 107

169 610

Equity instruments

138 404

200 772

66 609

Debt securities

127 499

50 335

103 001

Financial assets at fair value through other comprehensive income

17 997 699

18 642 615

21 870 164

Equity instruments

28 727

29 538

29 643

Debt securities

17 968 972

18 613 077

21 840 521

Loans and advances to customers

78 603 326

73 639 342

69 541 667

Mandatorily at fair value through profit or loss

362 992

1 615 753

1 498 195

Valued at amortised cost

78 240 334

72 023 589

68 043 472

Financial assets at amortised cost other than Loans and advances to

customers

1 076 456

730 598

1 037 869

Debt securities

37 088

38 818

48 153

Deposits, loans and advances to banks and other monetary

institutions

770 531

625 430

784 277

Reverse sale and repurchase agreements

268 837

66 350

205 439

Derivatives – Hedge accounting

14 385

21 795

43 159

Investments in subsidiaries, joint ventures and associates

Tangible fixed assets

549 788

571 813

666 330

Intangible fixed assets

392 438

384 781

342 653

Income tax assets

785 750

665 174

541 828

Current income tax assets

8 644

3 883

10 310

Deferred income tax assets

777 106

661 291

531 518

Other assets

857 650

509 035

399 778

Non-current assets and disposal groups classified as held for sale

18 294

22 390

39 441

Total assets

103 913 908

97 322 785

97 842 671

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

LIABILITIES AND EQUITY

Amount '000 PLN

Note

31.12.2021

31.12.2020*

31.12.2019*

LIABILITIES

Financial liabilities held for trading

143 016

168 553

353 000

Derivatives

126 402

103 775

150 735

Liabilities from short sale of securities

16 614

64 778

202 265

Financial liabilities measured at amortised cost

93 585 673

84 915 527

85 853 762

Liabilities to banks and other monetary institutions

539 408

1 057 652

1 578 848

Liabilities to customers

91 447 515

81 510 540

81 454 765

Sale and repurchase agreements

18 038

248 566

90 712

Debt securities issued

39 568

558 560

1 183 232

Subordinated debt

1 541 144

1 540 209

1 546 205

Derivatives – Hedge accounting

614 573

738 850

426 847

Provisions

595 530

158 650

91 455

Pending legal issues

551 176

106 922

38 062

Commitments and guarantees given

44 354

51 728

53 393

Income tax liabilities

1 496

30 843

38 590

Current income tax liabilities

1 496

30 843

38 590

Deferred income tax liabilities

Other liabilities

2 276 374

2 219 386

2 137 498

Total Liabilities

97 216 662

88 231 809

88 901 152

EQUITY

Share capital

1 213 117

Own shares

(21)

Share premium

1 147 502

Accumulated other comprehensive income

(858 633)

199 857

70 093

Retained earnings, including:

5 195 281

6 530 521

6 510 807

- current profit /loss

(1 331 866)

22 817

560 732

- other

6 527 147

6 507 704

5 950 075

Total equity

6 697 246

9 090 976

8 941 519

Total equity and total liabilities

103 913 908

97 322 785

97 842 671

31.12.2021

31.12.2020

31.12.2019

Book value of net assets

6 697 246

9 090 976

8 941 519

Number of shares (pcs.)

1 213 116 777

Book value per share (in PLN)

5.52

7.49

7.37

* data for years 2020 and 2019 has been restated in relation to the information presented in the report for 2020,

more information on this subject is provided in Chapter 7. "Accounting policy".

Notes on pages 13-178 are integral part of these financial statements.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

4. Consolidated Statement of Changes in Equity

Amount ‘000 PLN

Total

consolidated

equity

capital

Own

premium

Accumulated

other

comprehensive

income

Retained earnings

Unappropriated

result

Other

reserves

01.01.2021 – 31.12.2021

Equity at the beginning

of the period

9 090 976

1 213 117

(21)

1 147 502

199 857

156 258

6 374 263

Total comprehensive

income for 2021 (net)

(2 390 356)

(1 058 490)

(1 331 866)

current profit /loss

(1 331 866)

valuation of debt

securities at fair value

through other

comprehensive income

(791 803)

valuation of shares at

fair value through other

comprehensive income

(666)

hedge accounting

(270 938)

actuarial gains (losses)

4 917

Purchase and transfer of

own shares to employees

(3 374)

Transfer between items of

reserves

(22 817)

22 817

Equity at the end of the

period

6 697 246

1 213 117

(21)

1 147 502

(858 633)

(1 198 425)

6 393 706

01.01.2020 – 31.12.2020

Equity at the beginning

of the period

8 941 519

1 213 117

1 147 502

70 093

692 065

5 818 742

Total comprehensive

income for 2020 (net)

152 581

129 764

22 817

current profit /loss

22 817

valuation of debt

securities at fair value

through other

comprehensive income

142 788

valuation of shares at

fair value through other

comprehensive income

(105)

hedge accounting

(12 582)

actuarial gains (losses)

(337)

Purchase and transfer of

own shares to employees

(3 124)

(21)

(3 103)

Transfer between items of

reserves

(558 624)

558 624

Equity at the end of the

period

9 090 976

1 213 117

(21)

1 147 502

199 857

156 258

6 374 263

Detailed information concerning changes in different equity items are presented in the note (39).

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

5. Consolidated Cash Flow Statement

A. CASH FLOWS FROM OPERATING ACTIVITIES

Amount ‘000 PLN

1.01.2021 -

31.12.2021

1.01.2020 -

31.12.2020*

Profit (loss) after taxes

(1 331 866)

22 817

Total adjustments:

4 119 208

(3 160 418)

Interest received

2 840 116

3 126 039

Interest paid

(117 173)

(552 884)

Depreciation and amortization

201 595

210 411

Foreign exchange (gains)/ losses

11 797

Dividends

(3 761)

(3 678)

Changes in provisions

436 880

67 195

Result on sale and liquidation of investing activity assets

(11 483)

(134 008)

Change in financial assets held for trading

(207 232)

277 616

Change in loans and advances to banks

(74 610)

(159 335)

Change in loans and advances to customers

(7 533 210)

(6 667 219)

Change in receivables from securities bought with sell-back clause (loans and advances)

(202 947)

132 653

Change in financial liabilities valued at fair value through profit and loss (held for trading)

(149 815)

127 556

Change in deposits from banks

(364 842)

181 793

Change in deposits from customers

10 050 781

577 401

Change in liabilities from securities sold with buy-back clause

(228 737)

165 649

Change in debt securities

(265 008)

(308 893)

Change in income tax settlements

333 839

182 495

Income tax paid

(235 473)

(343 181)

Change in other assets and liabilities

(399 748)

(104 049)

Other

50 036

52 224

Net cash flows from operating activities

2 787 342

(3 137 601)

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

B. CASH FLOWS FROM INVESTING ACTIVITIES

Amount ‘000 PLN

1.01.2021 -

31.12.2021

1.01.2020 -

31.12.2020

Inflows:

223 396 042

94 157 770

Proceeds from sale of property, plant and equipment and intangible assets

13 323

25 855

Proceeds from sale of shares in related entities

Proceeds from sale of investment financial assets

223 378 958

94 128 237

Other

3 761

3 678

Outflows:

(223 952 624)

(92 121 984)

Acquisition of property, plant and equipment and intangible assets

(94 510)

(73 945)

Purchase of Euro Bank shares less cash acquired

Acquisition of investment financial assets

(223 858 114)

(92 048 039)

Other

Net cash flows from investing activities

(556 582)

2 035 786

C. CASH FLOWS FROM FINANCING ACTIVITIES

Amount ‘000 PLN

1.01.2021 -

31.12.2021

1.01.2020 -

31.12.2020

Inflows from financing activities:

13 000

Long-term bank loans

13 000

Issue of debt securities

Increase in subordinated debt

Net proceeds from issues of shares and additional capital paid-in

Other inflows from financing activities

Outflows from financing activities:

(444 950)

(1 077 540)

Repayment of long-term bank loans

(147 960)

(706 806)

Redemption of debt securities

(250 000)

(299 440)

Decrease in subordinated debt

Issue of shares expenses

Redemption of shares

Dividends paid and other payments to owners

Other outflows from financing activities

(46 990)

(71 294)

Net cash flows from financing activities

(444 950)

(1 064 540)

D. Net cash flows. Total (A + B + C)

1 785 810

(2 166 355)

- including change resulting from FX differences

4 072

8 548

E. Cash and cash equivalents at the beginning of the reporting period

1 586 434

3 752 789

F. Cash and cash equivalents at the end of the reporting period (D + E)

3 372 244

1 586 434

* data for 2020 has been restated in relation to the information presented in the report for 2020, more

information on this subject is provided in Chapter 7. "Accounting policy".

Additional information regarding cash flows statement is presented in point 5) of chapter 15.

“Supplementary information”. Information on liabilities classified as financing activities is presented

in points 32), 35), 36) of chapter 14. “Notes to the Consolidated Financial Report”.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

6. General Information about Issuer and the

Issuer’s Capital Group

Bank Millennium S.A. (the Bank) is a universal bank that operates in Poland, offering its services to

all market segments via a network of branches, corporate centres, individual advisors and mobile and

electronic banking.

The Bank, entered under the number KRS 0000010186 in the National Court Register kept by the Local

Court for the Capital City of Warsaw (Poland), 13th Business Department of the National Court

During the year, the name of the reporting entity and other identification data did not change.

The Bank is listed on the Warsaw Stock Exchange since 1992, first Bank ever to float its shares on the

WSE.

The Bank is a parent company of a Bank Millennium Capital Group (the Group) with almost 7,000

employees with core business comprising banking, leasing, factoring, brokerage, capital operations,

investment fund management and web portals activity.

Supervisory Board and Management Board of Bank Millennium S.A. as at 31 December 2021

Composition of the Supervisory Board as at 31 December 2021 was as follows:

▪ Bogusław Kott - Chairman of the Supervisory Board,

▪ Nuno Manuel da Silva Amado – Deputy Chairman of the Supervisory Board,

▪ Dariusz Rosati – Deputy Chairman and Secretary of the Supervisory Board,

▪ Miguel de Campos Pereira de Bragança – Member of the Supervisory Board,

▪ Olga Grygier-Siddons – Member of the Supervisory Board,

▪ Anna Jakubowski – Member of the Supervisory Board,

▪ Grzegorz Jędrys – Member of the Supervisory Board,

▪ Alojzy Nowak – Member of the Supervisory Board,

▪ Jose Miguel Bensliman Schorcht da Silva Pessanha – Member of the Supervisory Board

▪ Miguel Maya Dias Pinheiro – Member of the Supervisory Board,

▪ Beata Stelmach – Member of the Supervisory Board

▪ Lingjiang Xu – Member of the Supervisory Board.

Composition of the Management Board as at 31 December 2021 was as follows:

▪ Joao Nuno Lima Bras Jorge – Chairman of the Management Board,

▪ Fernando Maria Cardoso Rodrigues Bicho – Deputy Chairman of the Management Board,

▪ Wojciech Haase – Member of the Management Board,

▪ Andrzej Gliński – Member of the Management Board,

▪ Wojciech Rybak – Member of the Management Board,

▪ Antonio Ferreira Pinto Junior – Member of the Management Board,

▪ Jarosław Hermann – Member of the Management Board.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Capital Group of Bank Millennium S.A.

The Group’s parent entity is Bank Millennium S.A. while the ultimate parent entity of the Bank

Millennium S.A. is the Banco Comercial Portugues - company listed on the stock exchange in Lisbon.

The companies that belong to the Capital Group as at 31 December 2021, are presented by the table

below:

Company

Activity domain

Head office

% of the

Group’s

capital share

% of the

Group’s voting

Recognition in financial

statements

MILLENNIUM BANK

HIPOTECZNY S.A.

mortgage bank

Warsaw

100

full consolidation

MILLENNIUM

LEASING Sp. z o.o.

leasing services

Warsaw

100

full consolidation

MILLENNIUM DOM

MAKLERSKI S.A.

brokerage services

Warsaw

100

full consolidation

MILLENNIUM TFI S.A.

investment funds

management

Warsaw

100

full consolidation

MILLENNIUM

SERVICE Sp. z o.o.

rental and

management of real

estate, insurance and

brokers activity

Warsaw

100

full consolidation

MILLENNIUM GOODIE

Sp. z o.o.

web portals activity

Warsaw

100

full consolidation

MILLENNIUM

TELECOMMUNICATION

SERVICES Sp. z o.o.

financial operations -

equity markets,

advisory services

Warsaw

100

full consolidation

MILLENNIUM FINANCIAL

SERVICES Sp. z o.o.

the company is not yet

operating

Warsaw

100

full consolidation

Piast Expert Sp. z o.o.

in liquidation

marketing services

Tychy

100

full consolidation

LUBUSKIE FABRYKI MEBLI

S.A. in liquidation

furniture manufacturer

Świebodzin

50 (+1 share)

equity method valuation *

* Despite having a control over the Lubuskie Fabryki Mebli S.A., due to insignificant nature of this company from the

realization of the primary goal of the consolidated financial statements point of view, which is the correct presentation of

Group’s financial situation, the Group does not consolidate capital involvement in aforementioned enterprise.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

7. Accounting Policy

7.1. STATEMENT OF COMPLIANCE WITH THE INTERNATIONAL

FINANCIAL REPORTING STANDARDS

These financial statements of the Group have been prepared in accordance with International

Financial Reporting Standards (‘IFRS’), as adopted by the European Union and with respect to matters

not regulated by the above standards, in accordance with the accounting principles as set out in the

Accounting Act dated 29 September 1994 (unified text - Official Journal from 2021, item 217) and the

respective bylaws and regulations and the requirements for issuers of securities admitted or sought

to be admitted to trading on an official stock-exchange listing market. These financial statements

meet the reporting requirements described in the Regulation of the Minister of Finance of March 29,

2018 regarding current and periodic information published by issuers of securities and conditions for

recognizing as equivalent information required by the laws of a non-member state (Journal of Laws

of 2018, item 757).

This financial report was approved for publication by the Management Board on 21 February 2022.

Change of apllied accounting principles introduced in 2021

In 2021, the Bank (and in consequence – the Group) changed the accounting policy regarding the

recognition of provisions for future claims related to active CHF mortgage loans in the balance sheet.

As a result of changes in market conditions, such as the growing number of unfavourable court

judgments declaring the entire agreement or certain provisions of these credits to be invalid, the

Bank does not expect that all contractual cash flows related to these loans will be recovered. As a

result, commencing from 2021, the Bank allocates provisions for future claims and recognizes them

as a reduction of the gross carrying amount of loans for which a decrease in future cash flows is

expected, in accordance with paragraph B5.4.6 of IFRS 9 "Financial Instruments" (previously provisions

for future claims used to be recognized in accordance with IAS 37 "Provisions, Contingent Liabilities

and Contingent Assets"). As a result of the above change, the approach applied in accordance with

IAS 37 will be continued only with regard to claims relating to already repaid (or almost fully repaid)

receivables not recognised in the Bank's balance sheet.

In the opinion of the Bank, this way of presentation better reflects the risk related to FX mortgage

loans and enables the users of the financial statements a better assessment of the Bank's balance

sheet. Additionally, it is a change adjusting the Bank's accounting standards to the majority market

practice applied by the banking sector in this area.

In order to ensure comparability, the Bank has made appropriate adjustments to comparable data in

the balance sheet and cash flow as presented below, as well as in line with IAS1, point 39, an

additional column was presented in the balance sheet as at the end of 2019, reflecting the effect of

reclassification at the beginning of the earliest comparative period.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Amount ‘000 PLN

data as at

31.12.2020

published in

annual 2020 report

impact of

accounting

principles

change

restated data as at

31.12.2020,

presented in

hereby report

Cash, cash balances at central banks

1 460 289

Financial assets held for trading

423 846

Derivatives

154 188

Equity instruments

245

Debt securities

269 413

Non-trading financial assets mandatorily at fair value through

profit or loss, other than Loans and advances to customers

251 107

Equity instruments

200 772

Debt securities

50 335

Financial assets at fair value through other comprehensive income

18 642 615

Equity instruments

29 538

Debt securities

18 613 077

Loans and advances to customers

74 088 342

(449 000)

73 639 342

Mandatorily at fair value through profit or loss

1 615 753

Valued at amortised cost

72 472 589

(449 000)

72 023 589

Financial assets at amortised cost other than Loans and advances

to customers

730 598

Debt securities

38 818

Deposits, loans and advances to banks and other monetary

institutions

625 430

Reverse sale and repurchase agreements

66 350

Derivatives – Hedge accounting

21 795

Investments in subsidiaries, joint ventures and associates

Tangible fixed assets

571 813

Intangible fixed assets

384 781

Income tax assets

665 174

Current income tax assets

3 883

Deferred income tax assets

661 291

Other assets

509 035

Non-current assets and disposal groups classified as held for sale

22 390

Total assets

97 771 785

(449 000)

97 322 785

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Amount '000 PLN

data as at

31.12.2020

published in

annual 2020 report

impact of

accounting

principles

change

restated data as at

31.12.2020,

presented in

hereby report

LIABILITIES

Financial liabilities held for trading

168 553

Derivatives

103 775

Liabilities from short sale of securities

64 778

Financial liabilities measured at amortised cost

84 915 527

Liabilities to banks and other monetary institutions

1 057 652

Liabilities to customers

81 510 540

Sale and repurchase agreements

248 566

Debt securities issued

558 560

Subordinated debt

1 540 209

Derivatives – Hedge accounting

738 850

Provisions

607 650

(449 000)

158 650

Pending legal issues

555 922

(449 000)

106 922

Commitments and guarantees given

51 728

Income tax liabilities

30 843

Current income tax liabilities

30 843

Deferred income tax liabilities

Other liabilities

2 219 386

Total Liabilities

88 680 809

(449 000)

88 231 809

EQUITY

Share capital

1 213 117

Own shares

(21)

Share premium

1 147 502

Accumulated other comprehensive income

199 857

Retained earnings

6 530 521

Total equity

9 090 976

Total equity and total liabilities

97 771 785

(449 000)

97 322 785

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Amount ‘000 PLN

data as at

31.12.2019

published in

annual 2020 report

impact of

accounting

principles

change

restated data as at

31.12.2019,

presented in

hereby report

Cash, cash balances at central banks

2 203 444

Financial assets held for trading

986 728

Derivatives

112 485

Equity instruments

210

Debt securities

874 033

Non-trading financial assets mandatorily at fair value through

profit or loss, other than Loans and advances to customers

169 610

Equity instruments

66 609

Debt securities

103 001

Financial assets at fair value through other comprehensive income

21 870 164

Equity instruments

29 643

Debt securities

21 840 521

Loans and advances to customers

69 615 390

(73 723)

69 541 667

Mandatorily at fair value through profit or loss

1 498 195

Valued at amortised cost

68 117 195

(73 723)

68 043 472

Financial assets at amortised cost other than Loans and advances

to customers

1 037 869

Debt securities

48 153

Deposits, loans and advances to banks and other monetary

institutions

784 277

Reverse sale and repurchase agreements

205 439

Derivatives – Hedge accounting

43 159

Investments in subsidiaries, joint ventures and associates

Tangible fixed assets

666 330

Intangible fixed assets

342 653

Income tax assets

541 828

Current income tax assets

10 310

Deferred income tax assets

531 518

Other assets

399 778

Non-current assets and disposal groups classified as held for sale

39 441

Total assets

97 916 394

(73 723)

97 842 671

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Amount '000 PLN

data as at

31.12.2019

published in

annual 2020 report

impact of

accounting

principles

change

restated data as at

31.12.2019,

presented in

hereby report

LIABILITIES

Financial liabilities held for trading

353 000

Derivatives

150 735

Liabilities from short sale of securities

202 265

Financial liabilities measured at amortised cost

85 853 762

Liabilities to banks and other monetary institutions

1 578 848

Liabilities to customers

81 454 765

Sale and repurchase agreements

90 712

Debt securities issued

1 183 232

Subordinated debt

1 546 205

Derivatives – Hedge accounting

426 847

Provisions

165 178

(73 723)

91 455

Pending legal issues

111 785

(73 723)

38 062

Commitments and guarantees given

53 393

Income tax liabilities

38 590

Current income tax liabilities

38 590

Deferred income tax liabilities

Other liabilities

2 137 498

Total Liabilities

88 974 875

(73 723)

88 901 152

EQUITY

Share capital

1 213 117

Own shares

Share premium

1 147 502

Accumulated other comprehensive income

70 093

Retained earnings

6 510 807

Total equity

8 941 519

Total equity and total liabilities

97 916 394

(73 723)

97 842 671

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Cash flow from operating activities

Amount ‘000 PLN

data for period

1.01.2020 -

31.12.2020

published in annual

2020 report

impact of

accounting

principles

change

restated data for

period 1.01.2020

- 31.12.2020,

presented in

hereby report

Profit (loss) after taxes

22 817

Total adjustments:

(3 160 418)

Interest received

3 126 039

Interest paid

(552 884)

Depreciation and amortization

210 411

Foreign exchange (gains)/ losses

11 797

Dividends

(3 678)

Changes in provisions

442 472

(375 277)

67 195

Result on sale and liquidation of investing activity assets

(134 008)

Change in financial assets held for trading

277 616

Change in loans and advances to banks

(159 335)

Change in loans and advances to customers

(7 042 496)

375 277

(6 667 219)

Change in receivables from securities bought with sell-back

clause (loans and advances)

132 653

Change in financial liabilities valued at fair value through profit

and loss (held for trading)

127 556

Change in deposits from banks

181 793

Change in deposits from customers

577 401

Change in liabilities from securities sold with buy-back clause

165 649

Change in debt securities

(308 893)

Change in income tax settlements

182 495

Income tax paid

(343 181)

Change in other assets and liabilities

(104 049)

Other

52 224

Net cash flows from operating activities

(3 137 601)

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Changes of presentation introduced in 2021

The Group changed the presentation of interest on derivatives not covered by formal hedge

accounting. According to the Group's verified assessment, these revenues, even though they are

related with instruments included in the trading portfolio, but according to the economic sense of

cash flows from these transactions, constitute interest income and should be an element of the

interest margin, not one of the components of the financial instrument valuation, as it was previously

the case. In view of the above, the Group, starting from 2021, presents the interest in the Income

statement as part of the "Net interest income", while previously this interest was included in the item

“Results on financial assets and liabilities held for trading". In order to ensure comparability, the

Group has made appropriate adjustments to the comparable data in the Income statement as

presented below.

Amount ‘000 PLN

data for period

1.01.2020 -

31.12.2020 published

in annual 2020 report

impact of

accounting

principles

change

restated data for

period 1.01.2020 -

31.12.2020,

presented in hereby

report

Net interest income

2 548 600

34 460

2 583 060

Interest income and other of similar nature

3 092 119

34 460

3 126 579

Income calculated using the effective interest method

3 018 124

Interest income from Financial assets at amortised cost

2 704 672

Interest income from Financial assets at fair value through

other comprehensive income

313 452

Income of similar nature to interest from Financial assets at fair

value through profit or loss

73 995

34 460

108 455

Interest expenses

(543 519)

Net fee and commission income

746 056

Fee and commission income

947 414

Fee and commission expenses

(201 358)

Dividend income

3 678

Result on derecognition of financial assets and liabilities not

measured at fair value through profit or loss

128 082

Results on financial assets and liabilities held for trading

47 896

(34 460)

13 436

Result on non-trading financial assets mandatorily at fair value

through profit or loss

38 576

Result on hedge accounting

(10 259)

Result on exchange differences

120 521

Other operating income

160 766

Other operating expenses

(249 060)

Administrative expenses

(1 542 379)

Impairment losses on financial assets

(556 912)

Impairment losses on non-financial assets

(7 890)

Provisions for legal risk connected with FX mortgage loans

(713 617)

Result on modification

(13 565)

Depreciation

(210 411)

Share of the profit of investments in subsidiaries

Banking tax

(279 147)

Profit before income taxes

210 935

Corporate income tax

(188 118)

Profit after taxes

22 817

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

7.2. STANDARDS AND INTERPRETATIONS APPLIED IN 2021 AND THOSE

NOT BINDING AT THE BALANCE SHEET DATE

STANDARDS INITIALLY APPLIED IN CONSOLIDATED FINANCIAL STATEMENTS 2021

The following amendments to existing standards issued by the International Accounting Standards

Board (IASB) and approved for use in the EU were first applied in the Group's financial statements for

2021:

• Amendments to IFRS 9 “Financial Instruments”, IAS 39 “Financial Instruments: Recognition

and Measurement”, IFRS 7 “Financial Instruments: Disclosures”, IFRS 4 “Insurance Contracts”

and IFRS 16 “Leases” - Interest Rate Benchmark Reform — Phase 2 adopted by the EU on 13

January 2021 (effective for annual periods beginning on or after 1 January 2021),

• Amendments to IFRS 16 “Leases” - Covid-19-Related Rent Concessions beyond 30 June 2021

adopted by the EU on 30 August 2021 (effective from 1 April 2021 for financial years starting, at

the latest, on or after 1 January 2021),

• Amendments to IFRS 4 Insurance Contracts “Extension of the Temporary Exemption from

Applying IFRS 9” adopted by the EU on 16 December 2020 (the expiry date for the temporary

exemption from IFRS 9 was extended from 1 January 2021 to annual periods beginning on or after

1 January 2023).

The adoption of mentioned above amendments to the existing standards has not led to any material

changes in the Group’s financial statements 2021.

INFORMATION REGARDING ISSUED STANDARDS AND AMENDMENTS TO THE EXISTING STANDARDS ISSUED

BY IASB AND ADOPTED BY THE EU BUT NOT YET EFFECTIVE

Standards and amendments to the existing standards issued by IASB and adopted by the EU but not

yet effective:

• Amendments to IAS 16 “Property, Plant and Equipment” - Proceeds before Intended Use

adopted by the EU on 28 June 2021 (effective for annual periods beginning on or after 1 January

2022),

• Amendments to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” - Onerous

Contracts - Cost of Fulfilling a Contract adopted by the EU on 28 June 2021 (effective for annual

periods beginning on or after 1 January 2022),

• Amendments to IFRS 3 “Business Combinations” - Reference to the Conceptual Framework with

amendments to IFRS 3 adopted by the EU on 28 June 2021 (effective for annual periods beginning

on or after 1 January 2022),

• IFRS 17 “Insurance Contracts” including amendments to IFRS 17 adopted by the EU on 19

November 2021 (effective for annual periods beginning on or after 1 January 2023),

• Amendments to various standards due to “Improvements to IFRSs (cycle 2018 -2020)” resulting

from the annual improvement project of IFRS (IFRS 1, IFRS 9, IFRS 16 and IAS 41) primarily with a

view to removing inconsistencies and clarifying wording - adopted by the EU on 28 June 2021 (The

amendments to IFRS 1, IFRS 9 and IAS 41 are effective for annual periods beginning on or after 1

January 2022. The amendment to IFRS 16 only regards an illustrative example, so no effective date

is stated.).

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

NEW STANDARDS AND AMENDMENTS TO THE EXISTING STANDARDS ISSUED BY IASB BUT NOT YET

ADOPTED BY THE EU

At present, IFRS as adopted by the EU do not significantly differ from regulations adopted by the

International Accounting Standards Board (IASB) except for the following new standards and

amendments to the existing standards, which were not endorsed for use in EU (the effective dates

stated below are valid for full versions of standards):

• IFRS 14 “Regulatory Deferral Accounts” (effective for annual periods beginning on or after 1

January 2016) - the European Commission has decided not to launch the endorsement process of

this interim standard and to wait for the final standard,

• Amendments to IAS 1 “Presentation of Financial Statements” - Classification of Liabilities as

Current or Non-Current (effective for annual periods beginning on or after 1 January 2023),

• Amendments to IAS 1 “Presentation of Financial Statements” - Disclosure of Accounting

Policies (effective for annual periods beginning on or after 1 January 2023),

• Amendments to IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” -

Definition of Accounting Estimates (effective for annual periods beginning on or after 1 January

2023),

• Amendments to IAS 12 “Income Taxes” - Deferred Tax related to Assets and Liabilities arising

from a Single Transaction (effective for annual periods beginning on or after 1 January 2023),

• Amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in

Associates and Joint Ventures” - Sale or Contribution of Assets between an Investor and its

Associate or Joint Venture and further amendments (effective date deferred indefinitely until

the research project on the equity method has been concluded),

• Amendments to IFRS 17 “Insurance contracts” - Initial Application of IFRS 17 and IFRS 9 –

Comparative Information (effective for annual periods beginning on or after 1 January 2023).

The Group anticipates that the adoption of the aforementioned standard and amendments to existing

standards will have no material impact on the financial statements of the Group.

7.3. ADOPTED ACCOUNTING PRINCIPLES

Basis of Financial Statements Preparation

Consolidated financial statements of the Group prepared for the financial year from 1 January 2021

to 31 December 2021 include financial data of the Bank and its subsidiaries forming the Group.

These financial statements are prepared on the basis of the going concern assumption of the Group,

namely scale of business is not to be reduced substantially in a period of not less than one year from

the balance sheet date.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

For the year ended December 31, 2021, the Group incurred a financial loss. The financial loss in the

amount of PLN 1.332 billion was caused by the creation of provisions for legal risk related to the

portfolio of foreign currency mortgage loans (excluding Euro Bank) in the amount of PLN 2.086 billion,

additional costs incurred with individual amicable settlements with FX mortgage borrowers and with

legal costs. At same time the Group achieved good operational and business results, while actively

managing and mitigating the different risks related to the banking activity, what shows that there is

no threat to going concern.

The financial statements have been prepared in PLN, and all values, unless otherwise indicated, are

given in PLN rounded to one thousand.

The financial statements have been prepared based on the fair value principle for financial assets and

liabilities recognised at FVTPL including derivative instruments, and financial assets classified as

FVTOCI. Other items of financial assets and liabilities (including loans and advances) are presented at

amortized cost with effective interest rate applied less impairment charges (except loans which failed

SPPI test), or at their purchase price less impairment charges.

The preparation of financial statements in accordance with IFRS, as adopted by the EU, requires from

the management the use of estimates and assumptions that affect applied accounting principles and

the amounts (assets, liabilities, incomes and costs) reported in the financial statements and notes

thereto. The respective unit of the Group is responsible for selection, application, development, and

verification of adopted estimations; the assumptions are then subject to approval by the Group’s

management.

Estimations and assumptions applied to the presentation of value of assets, liabilities, revenues and

costs, are made on basis of historical data available and other factors considered to be relevant in

given circumstances. Applied assumptions related to the future and available data sources are the

base for making estimations regarding carrying value of assets and liabilities, which cannot be

determined explicitly on basis of other sources. The actual results may differ from those estimates.

The conformity between actual results and adopted estimations and assumptions is verified on regular

basis. Adjustments to estimates are recognized in the period when the estimation was changed,

provided that the adjustment applies to this period alone, or in the period when the estimation was

changed and in the following periods, should the adjustment impact both the current and future

periods.

The below-presented accounting principles have been applied to all reporting periods presented in

the consolidated financial statements.

All the entities subject to consolidation prepare their financial statements in accordance with the

same accounting standards applied by the whole Capital Group which is IFRS as adopted by the EU,

at the same balance sheet date.

Basis of Consolidation

Merger method

The merger method is used to account for business combination in which the Group acts as an

acquirer. The cost of an acquisition is measured as the fair value of the assets given, equity

instruments issued and liabilities incurred or assumed at the date of exchange excluding acquisition

related costs such as advisory, legal, valuation and similar professional services.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination

are measured initially at their fair values at the acquisition date, irrespective of the extent of any

non-controlling interests. The excess of the cost of acquisition over the fair value of the Group’s share

of the identifiable net assets acquired is recorded as goodwill. If the cost of combination is lower than

the Group’s interest in net fair value of identifiable assets, liabilities, contingent liabilities of the

acquired subsidiary, the Group reassesses identification and measures again the identifiable assets,

liabilities and contingent liabilities of the entity being acquired as well as measurement of the cost

of the combination. Any surplus remaining after the reassessment is immediately recognised in the

Profit and Loss Account.

Subsidiaries

Subsidiaries are those investees, including structured entities, that the Group controls because the

Group (i) has power to direct relevant activities of the investees that significantly affect their returns,

(ii) has exposure, or rights, to variable returns from its involvement with the investees, and (iii) has

the ability to use its power over the investees to affect the amount of investor’s returns. The existence

and effect of substantive rights, including substantive potential voting rights, are considered when

assessing whether the Group has power over another entity. For a right to be substantive, the holder

must have practical ability to exercise that right when decisions about the direction of the relevant

activities of the investee need to be made.

Subsidiaries are subject to consolidation from the date of taking over control by the Group until the

date on which the parent ceases to control the subsidiary.

Transactions, settlements and unrealized profits resulting from transactions among Group’s entities

are eliminated. The unrealised losses are also subject to elimination, as long as the transaction does

not provide evidence that the transferred asset is impaired.

Associates

Associates are any entities over which the Group has significant influence but do not control them,

generally accompanying a shareholding between 20% and 50% of the voting rights. Investments in

associates are initially accounted at purchase price and then accounted for by using the equity

method. The Group’s investment in associates includes goodwill (net of any accumulated impairment

loss) identified on acquisition.

The share of the Group in the profits (losses) of associates since the date of acquisition is recognised

in the profit and loss, whereas its share in changes in other reserves since the date of acquisition – in

other reserves. The carrying amount of the investment is adjusted by the total changes of different

items of equity after the date of their acquisition. When the share of the Group in the losses of an

associate becomes equal or greater than the share of the Group in that associate, the Group

discontinues the recognition of any further losses or creates provision only to such amount, it has

assumed obligations or has settled payments on behalf of the respective associate.

Any unrealised profits on transactions between the Group and its associates shall be eliminated in

proportion to the Group’s shareholding in the associates. Also unrealised losses are subject to

elimination, as long as the transaction does not deliver evidence that the transferred asset is

impaired.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Functional currency and presentation currency

The items contained in the consolidated financial statements of the Group are presented in the

currency of their basic economic environment, in which a given entity operates (‘the functional

currency’). The consolidated financial statements are presented in Polish zlotys, being the functional

currency and the presentation currency for the Bank – a parent company of the Group and for other

companies of the Group.

Transactions and balances

Transactions expressed in foreign currency are translated into the functional currency by applying the

exchange rate at the date of the transaction. Exchange rate profits and losses due to settlements of

these transactions and to the balance sheet valuation of assets and monetary commitments expressed

in foreign currency are accounted for in the profit and loss account.

Exchange rate differences on monetary items, both those valued at fair value through the profit and

loss account or valued at fair value through other comprehensive income are disclosed in the profit

and loss account.

Exchange rate differences on non-monetary items valued at fair value through the profit and loss, are

accounted in the profit and loss account. Exchange rate differences due to items, such as equity

instruments valued at fair value through other comprehensive income, are included in Other

comprehensive income.

Application of estimates in connection with Accounting Policies

The preparation of financial statements in accordance with IFRS requires from the Group the use of

estimates and assumptions that affect the amounts reported in the financial statements.

The estimates and assumptions, revised by the Group management on a regular basis, are made on

basis of historical experience and other factors, including expectations concerning future events,

considered being relevant in given circumstances.

Despite the fact, that such estimates are based on best knowledge about current conditions and

activities undertaken by the Group, the actual results may differ from the estimates. The major areas

for which the Group makes estimates are presented below:

▪ Impairment of loans and advances

Impairment estimation model within the Group has been based on the concept of “expected credit

loss”, (hereinafter: ECL). In result impairment charges are calculated based on expected credit losses

and forecasts of expected future economic conditions have to be taken into account when conducting

evaluation of credit risk of an exposure.

The methodology and assumptions adopted for determining credit impairments are regularly reviewed

in order to reduce discrepancies between the estimated and actual losses. In order to assess the

adequacy of the impairment determined both in individual analysis and collective analysis a historical

verification (backtesting) is conducted from time to time (at least once a year), which results will be

taken into account in order to improve the quality of the process.

Further details are presented in Chapter 8. “Financial Risk Management”.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

▪ Fair value of financial instruments

Fair value of financial instruments not quoted on active markets is determined with use of

measurement techniques consistent with the Group’s accounting policy. With respect to non-option

derivatives and debt securities use is made of models based on discounted cash flows. Option pricing

models are applied to option instruments. All models are approved prior to use and also calibrated to

ensure that attained results reflect the actual fair value of the measured instruments. If possible,

only observable data from the active market are used in the models.

In case of lack of measurement parameters coming from the active market, fair value is determined

on the basis of application of measurement techniques using estimated input parameters.

The Group measures financial instruments using the measurement methods below in the following

hierarchical order:

▪ Prices quoted on the active market for identical instruments for following financial

instruments:

Treasury fixed-coupon, zero-coupon debt securities and floating interest debt securities;

▪ Techniques of measurement based on parameters coming from the market for following

financial instruments:

Treasury floating interest debt securities,

Derivatives:

▪ FRA, IRS, CIRS,

▪ FX Swap, FX Forward,

▪ Embedded derivatives,

Bills issued by the Central Bank;

▪ Techniques of measurement with use of significant parameters not coming from the market:

Debt securities of other issuers (e.g. municipalities),

Shares of VISA Incorporation,

Loans and advances mandatorily at fair value through profit or loss,

Derivatives:

▪ FX Options acquired by the Group,

▪ Indexes options acquired/placed by the Group.

In order to determine the fair value of VISA preferred shares, the time value of money and the

time line for conversion of preferred stock in common stock of VISA were taken into account.

To estimate the fair value of loans, due to the lack of availability of the market value, an

internal valuation model was used, taking into account the assumption that at the time of

granting the loan the fair value is equal to transaction price.

The fair value of loans without recognized impairment is equal to the sum of future expected

cash flows discounted at the balance sheet date. The discounting rate is the sum of: the cost

of risk, the cost of financing, the value of the expected return.

The fair value of impaired loans is equal to the sum of future expected recoveries discounted

using the effective interest rate, recognizing that the average expected recoveries fully take

into account the element of credit risk.

For derivative financial instruments valuation the Group applies the component of credit risk

taking into account both: counterparty risk (credit value adjustment – CVA) and own Group’s

risk (debit value adjustment - DVA). The Group assesses that unobservable inputs related to

applying this component used for fair value measurement are not significant.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

▪ Impairment of other non-current assets

The Group assesses the existence of any indications that a non-current asset may be impaired at each

balance sheet date. If such indications exist, the Group performs an estimation of recoverable

amount. Estimation of value-in-use of a non-current asset (or cash generating units) requires

assumptions to be adopted, regarding, among others, amounts and timing of future cash flows, which

the Group may obtain from the given non-current asset (or cash generating unit). The Group performs

an estimation of the fair value less costs to sell on the basis of available market data regarding this

subject or estimations made by external parties.

▪ Provisions for legal risk connected with FX mortgage loans

A detailed description of the adopted valuation methodology is presented in Chapter 13 "Legal risk

related to foreign currency mortgage loans".

▪ Provisions for potential returns of costs associated with loans in case of early repayment

Taking into consideration The Court of Justice of the European Union verdict, in which it stated that

consumer has rights to demand the reduction of the total loan cost corresponding to interest and

costs for the remaining term of the agreement in case of early repayment of loan, Bank creates a

provision for potential returns to the clients. The provision is estimated based on the maximum

amount of potential returns and the probability of payment being made.

▪ Other Estimate Values

Retirement provision is calculated using an actuarial method by an independent actuary as the present

value of future liabilities of the Group due to employees based on headcount and remuneration as of

the date of the update. The estimation of the provision is made on the basis of several assumptions,

regarding macroeconomic conditions and employee turnover, mortality risk and other.

With regard to employee benefits, such as bonuses granted to directors and key management

personnel, bonuses for employees, the Management Board makes assumptions and estimates regarding

the amount of benefits as at the balance sheet date. The final amount of bonuses granted is

established by Personnel Committee of the Management Board or Personnel Committee of the

Supervisory Board.

Financial assets and liabilities

Classification

In accordance with the IFRS 9 requirements financial assets are classified at the moment of their

initial recognition (and the date of IFRS implementation) into one of three categories:

1) Financial assets valued at amortised cost (herein from „AC” – Amortised Cost),

2) Financial assets valued at fair value through profit & loss (herein from „FVTPL),

3) Financial assets valued at fair value through other comprehensive income (herein from „FVTOCI”).

The classification of financial instruments into one of the above categories is performed based on:

1) The business model of managing financial assets,

The assessment of the business model is aimed at determining whether the financial asset is held:

▪ to collect contractual cash flows resulting from the contract,

▪ both in order to collect contractual cash flows arising from the contract and the sale of a

financial asset or

▪ for other business purposes.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

2) Test of contractual cash flow characteristics connected with financial assets (herein from „SPPI

test”).

The purpose of the SPPI test (Solely Payment of Principal and Interest) is to assess the characteristics

of contract cash flows in order to verify if:

▪ The contractual terms trigger, at specific dates, certain cash flows which constitute solely a

payment of principal and interest on such principal,

▪ The principal constitutes the fair value of a loan at the moment of its recognition,

▪ The interest reflects the value of money over time and credit risk, liquidity risk, the Group’s

margin and other administrative costs connected with the value of the principal outstanding

at any given moment.

Financial instruments are classified at the moment of recognition or significant modification of the

instrument. A change in the classification of financial assets is caused by a change in the business

model. Reclassification is made prospectively, i.e. it does not affect fair value measurements, write-

downs or accrued interests recorded to the date of reclassification.

Business Models of the Group

In accordance with IFRS 9 the manner of assets management may be assigned to the following models:

1) Held To Collect (herein from „HTC”),

2) Both Held to Collect and for Sale (herein from “HTC&FS”),

3) Other models, e.g. trading activity, management of assets based on fair value fluctuations,

maximising cash flows through sales.

Held To Collect Model (HTC)

Model characteristics:

1) The objective of the model is to hold financial assets in order to collect their contractual cash

flows,

2) Sales are infrequent,

3) In principle, lower levels of sales compared to other models (in terms of frequency and volume).

Conditions allowing sale in the HTC model:

1) Low frequency,

2) Low volume,

3) Sale connected with credit risk (sale caused by the deterioration of the credit quality of a given

financial asset to a level at which it no longer meets the investment policy requirements).

A sale having at least one of the above features does not preclude qualifying a group of assets in the

HTC module.

Impact on classification and valuation:

Instruments assigned to the HTC model are classified as valued at amortised cost (AC) on condition

that the criteria of the SPPI Test are met. The value of instruments is calculated based on effective

interest rate which is applied to determine interest income and then adjusted for impairment

allowances reflecting expected credit losses. Consequently, subject to valuation at amortised cost is

the Group’s credit portfolio (except loans not meeting the SPPI test) and debt securities issued by

local government units (municipal bonds portfolio), because these instruments in principle are held

by the Group in order to collect contract cash flows, while sales transactions occur infrequently.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Both Held to Collect and for Sale Model (HTC&FS)

Model characteristics:

1) The integral objectives of the business model are both to collect contractual cash flows and sell

assets (in particular the model meets the assumptions of HTC&FS, if its objective is to manage

everyday liquidity needs, maintain an adopted interest yield profile and/or match the duration

of the financial assets and liabilities),

2) The levels of sales are usually higher than in the HTC model.

Impact on classification and valuation:

In accordance with IFRS 9 instruments assigned to the HTC&FS model are classified as valued at fair

value through other comprehensive income (FVTOCI) on condition that the contractual terms of these

instruments trigger at particular moments cash flows constituting solely a payment of principal and

interest on such principal (the SPPI test is met). These instruments are measured at fair value net of

impairment allowances, the fair value result is recognised in other comprehensive income until

financial assets is derecognised.

The HTC&FS model is applied mainly to the portfolio of debt government securities and money bills

of the National Bank of Poland in particular the liquidity and investment portfolio.

Equity instruments (with the exception of related entities) are classified as valued at fair value

through profit & loss (FVTPL), provided that entities which manage them do not intend to hold them

as a strategic investment, or at fair value through other comprehensive income (FVTOCI) for

instruments which are not held for trading purposes. The decision to use the option to value capital

instruments at fair value through other comprehensive income is taken by the Group on the day of

the initial recognition of the instrument and constitute an irrevocable designation (even at the

moment of selling, the profit/loss on the transaction shall not be recognised in the Profit and Loss

Account).

Other models

Model characteristics:

1) The business model does not meet the assumptions of the HTC and HTC&FS models.

2) The collecting of cash flows on interest and principal is not the main objective of the business

model (the SPPI test is not satisfied),

This category should include in particular:

1) Portfolios managed in order to collect cash flows from the sale of assets, in particular „held for

trading”,

2) Portfolios whose management results are evaluated at fair value.

A financial asset should be considered as held for trading, if:

1) It was purchased mainly for the purpose of selling in a very short term,

2) At the moment of initial recognition it is part of a portfolio of financial instruments managed

jointly for which there is evidence confirming a regularity that they have recently actually

generated short-term profits, or

3) Is a derivative instrument, with the exclusion of derivative instruments included in hedge

accounting and being effective hedging instruments.

The term „trading” means active and frequent purchases and sales of instruments. However, these

features do not constitute a necessary condition in order to classify a financial instrument as held for

trading.

Impact on classification and valuation:

Financial assets kept under models other than HTC or HTC&FS are valued at fair value through profit

& loss (FVTPL).

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

A business model other than HTC or HTC&FS shall apply to portfolios of the following financial assets:

1) Derivative instruments,

2) Debt securities held for trading,

3) Capital instruments not appointed to be a strategic investment

4) Financial assets irrevocably designated at initial recognition to be valued at fair value through

profit & loss (even in case the asset does not meet criteria to be FVTPL) in order to eliminate or

significantly mitigate accounting mismatch if would appear in case such designation is not made.

Test of characteristics of contractual cash flows (SPPI test)

The evaluation of the fulfilment of the SPPI Test is carried out in the following cases:

▪ granting a debt instrument;

▪ purchase of debt instrument;

▪ renegotiation of contractual terms;

The subject of the SPPI Test are the contractual terms of debt instruments recognised in the balance

sheet, whereas the off-balance sheet products are not analysed.

The SPPI test is carried out at the design stage of the product/loan agreement, which allows making

approvals with taking into account the future method of exposure valuation.

As part of the SPPI Test, the impact of the modified element on the cash flows resulting from the

concluded contract is assessed. Contract characteristics introducing volatility or cash flow risk not

directly related to interest and capital interest payments may be assessed as having no impact on the

classification (fulfilment of SPPI criteria) if they are defined as having negligible classification impact

(existence of a "de minimis" characteristic) or such impact is not negligible (no "de minimis" character)

but can only occur in extremely rare cases (existence of the "not genuine" attribute).

In cases where there is a modification of the time value of money, e.g. in case where a period of

interest rate mismatch with the base rate tenor, in order to verify the fulfilment of the SPPI Test,

the Group performs an assessment based on the Benchmark Test, i.e. a comparison of the instrument

resulting from the contract with the base instrument (which has the same contractual features as

the instrument under analysis, with the exception of the time value of money element).

Non-recourse assets (products for which the Group's claim is limited to certain debtor's assets or cash

flows from specific assets), in particular "project finance" and "object finance" products (products in

which the borrower, most often a special purpose vehicle is characterized by the minimum level of

equity, and the only component of its assets is the credited asset), are assessed by comparing the

value of the collateral in relation to the principal amount of the loan. Identification of the appropriate

buffer to cover the risk of changes in the value of the collateral satisfies the SPPI Test conditions.

The negative result of the SPPI Test implies the valuation of the debt instrument at FVTPL, causing a

departure from the valuation at amortized cost or FVTOCI.

Modifications to the terms of the loan agreement

Modifications to the terms of the loan agreement during the loan period include:

▪ changing the dates of repayment of all or part of the receivables,

▪ changes in the amount of the repayment instalments,

▪ changing the interest or stop charging interest,

▪ capitalization of arrears or current interest,

▪ currency conversion (unless such a possibility results from the original contract),

▪ establishing, amending or abolishing the existing security for receivables.

Any mentioned above modification may result in the need to exclude from the balance sheet and re-

classify the financial asset taking into account the SPPI test.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

If the contractual terms of the loan are modified, the Group performs a qualitative and quantitative

assessment to determine whether a given modification should be considered significant and,

consequently, derecognize the original financial asset from the balance sheet and recognize it as a

new (modified) asset at fair value. A significant modification takes place if the following conditions

are met:

▪ quantitative criterion: increase of the debtor's involvement, understood as the increase in the

capital of each individual credit exposure above 10% in relation to the capital before the increase.

If the quantitative criterion is above 10%, the modification is considered significant, while the

occurrence of the quantitative criterion up to 10% results in considering the modification as

insignificant. The quantitative criterion does not apply to loans under restructuring, i.e. in the

case of such exposures, any change in the debtor's involvement results in the recognition of a non-

material modification due to the fact that the settlement or restructuring agreement is intended

to recover the debt and does not constitute a new transaction concluded on different terms.

▪ qualitative criteria: conversion of the exposure to a different currency (unless the possibility of

conversion was included in the original contract), change in the SPPI test result. The occurrence

of the qualitative criterion results in considering the modification as significant.

If the cash flows resulting from the agreement are subject to modification, which does not lead to

derecognition of a given asset (so called ‘insignificant modification”), the Group adjusts the gross

carrying amount of the financial asset and recognizes the profit or loss due to insignificant

modification in the financial result (in a separate item of the Loss Profit Statement - "result on

modification "). The adjustment of the gross carrying amount of a financial asset is the difference

between the discounted cash flows before and after the contract modification. All costs and fees

incurred adjust the carrying amount of the modified financial asset and are depreciated in the period

remaining until the maturity date of the modified financial asset.

POCI assets

POCI assets ("purchased or originated credit-impaired") are financial assets that, upon initial

recognition, have an identified impairment. Financial assets that were classified as POCI at the time

of initial recognition are treated by the Group as POCI in all subsequent periods until they are

derecognized from balance sheet, and expected credit loss is estimated based on ECL covering

remaining life time of the financial asset, regardless of future changes in estimates of cash flows

generated by them (possible improvement of assets quality).

POCI assets can be created in 3 different ways, i.e.:

1) through the acquisition of a contract that meets the definition of POCI (e.g. as a result of the

purchase of the "bad credit" portfolio),

2) by entering into a contract that is POCI at the time of original granting (e.g. granting a loan to a

client in bad financial condition with the hope of improving it in the future)

3) through a significant modification of the contract included in stage 3 leading to derecognition of

the contract from the balance sheet, and then to its further recognition in the balance sheet as

a contract meeting the definition of POCI.

Financial liabilities

Upon initial recognition a financial liability shall be classified as:

1) a financial liability measured at fair value through profit loss, or

2) other financial liability (measured at AC).

Additionally, financial liabilities shall not be reclassified subsequent to their initial recognition.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Recognition of financial instruments in the balance sheet

The Group recognizes financial assets or liabilities on the balance sheet, when it becomes a party to

the contractual provisions of the instrument. Standardized purchase and sale transactions of financial

assets are recognized at the trade date.

All financial instruments at their initial recognition are valued at fair value adjusted, in the case of a

financial instrument not valued at fair value through profit or loss, by transaction costs that are

directly attributable to the acquisition or issue of the financial asset/liability.

De-recognition of financial instruments from the balance sheet

The Group derecognizes a financial asset when: the contractual rights to the cash flows from the

financial asset expire, or the Group transfers the financial asset to third party. The transfer takes

place when the Group:

▪ transfers the contractual right to receive the cash flows from the financial asset, or

▪ retains the contractual rights to receive the cash flows from the financial asset, but assumes a

contractual obligation to pay those cash flows to an entity from outside the Group.

On transferring a financial asset, the Group evaluates the extent to which it retains the risks and

rewards of ownership of the financial asset. Accordingly, where the Group:

▪ transfers substantially all the risks and rewards of ownership of the financial asset, it derecognises

the financial asset from the balance sheet,

▪ retains substantially all the risks and rewards of ownership of the financial asset, it continues to

recognise the financial asset in the balance sheet,

▪ neither transfers nor retains substantially all the risks and rewards of ownership of the financial

asset, it determines whether it has retained control of the financial asset. In this case if the Group

has retained control, it continues to recognise the financial asset in the balance sheet to the extent

of its continuing involvement in the financial asset, and if the Group has not retained control, it

derecognises the financial asset accordingly.

The Group removes a financial liability (or a part of a financial liability) from its balance sheet when

the obligation specified in the contract is discharged or cancelled or expired.

Hedge Accounting and Derivatives

Valuation at fair value

Derivative instruments are reported at fair value starting from the day of conclusion of the

transaction. Fair value is determined on the basis of quotations of instruments on active markets,

including pricing of recently concluded transactions. A market is considered as active when the quoted

instrument prices are regularly available and result from actual transactions on the market and

represent a level, at which the Group could conclude such transactions. If the market for the

instruments is not active the Group determines fair value with use of measurement techniques,

including models based on discounted cash flows and options measurement models. The measurement

techniques used by the Group are based on maximum use of input data coming from the active market,

such as interest rates, FX rates and implied volatilities. In case of lack of input data from the active

market the Group makes use in the measurement techniques of proprietary estimates of measurement

parameters, based on best knowledge and experience.

An additional element of the valuation of derivatives is a component of credit risk including both the

risk of the counterparty (credit value adjustment - CVA) and own Group’s risk (debit value adjustment

- DVA).

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Recognition of derivative instruments embedded in liabilities

The Group distinguishes and records in the balance sheet the derivatives which are a component of

hybrid instruments. A hybrid agreement contains an underlying (host) contract (not being a derivative)

and an embedded derivative which on the basis of a specific interest rate, price of financial

instrument, price of a commodity, rate of a currency, index of prices or rates or another variable

modifies part or the total of the cash flows resulting from the underlying contract.

Embedded derivative instruments are treated as stand-alone derivative instruments provided they

meet conditions presented below. Embedded derivative instruments are valued at fair value, and

their changes are recognized in the profit and loss. Embedded derivative instruments are recognized

and valued separately from the host contract if, and only if:

▪ the economic characteristics and risks of the embedded derivative are not closely related to

the economic characteristics and risks of the host contract,

▪ a separate instrument with the same terms as the embedded derivative would meet the

definition of a derivative; and

▪ the hybrid (combined) financial instrument is not measured at fair value with changes in fair

value recognized in profit or loss.

The method of recognizing the resulting fair value gain or loss depends on whether the given

derivative instrument is designated as a hedging instrument, and if it is, it also depends on the nature

of the hedging relationship and the hedged item.

Derivative instruments designated as hedging instruments – hedge accounting

The Group uses derivative instruments in order to hedge against interest rate risk and FX risk arising

from operating, financing and investing activities of the Group. Some derivative instruments are

designated as a hedging instrument of:

▪ cash flows hedges of recognized asset or liability or highly probable forecasted transaction

(cash flow hedges), or:

▪ fair value hedges of recognized asset or liability or firm commitment (fair value hedges).

Hedge accounting criteria

The Group uses hedge accounting, if the following conditions are met:

▪ At the inception of the hedge there is formal designation and documentation of the hedging

relationship and the Group's risk management objective and strategy for undertaking the

hedge. That documentation includes identification of the hedging instrument, the hedged

item or transaction, the nature of the risk being hedged. It documents also, at the inception

of the hedge and through the period of hedge relationship, the assessment of the hedging

instrument's effectiveness in offsetting the exposure to changes in fair value or cash flows of

the hedged item.

▪ The hedge is expected to be highly effective in achieving offsetting changes in fair value or

cash flows attributable to the hedged risk, consistently with the originally documented risk

management strategy for that particular hedging relationship (prospective effectiveness

test);

▪ For cash flow hedges, a forecast transaction that is the subject of the hedge must be highly

probable and must present an exposure to variations in cash flows that could ultimately affect

profit or loss (high probability test);

▪ The effectiveness of the hedge can be reliably measured, i.e. the fair value or cash flows of

the hedged item that are attributable to the hedged risk and the fair value of the hedging

instrument can be reliably measured;

▪ The hedge is assessed on an ongoing basis and determined actually to have been highly

effective throughout the financial reporting periods for which the hedge was designated

(backward-looking effectiveness test).

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Cash flow hedge

Cash flow hedge: a hedge of the exposure to variability in cash flows that (i) is attributable to a

particular risk associated with a recognised asset or liability (such as all or some future interest

payments on variable rate debt) or a highly probable forecast transaction and (ii) could affect profit

or loss.

A cash flow hedge is accounted for as follows: the portion of the gain or loss on the hedging instrument

that is determined to be an effective hedge is recognised in equity through the other comprehensive

income; and the ineffective portion of the gain or loss on the hedging instrument is recognised in

Result on financial instruments valued at fair value through profit and loss.

The associated gains or losses that were recognised in other comprehensive income (effective hedge),

at the moment of recognition of a financial asset and liability being a result of planned hedged future

transaction, are transferred into profit or loss in the same period or periods during which the asset

acquired or liability assumed affects the profit or loss.

In case of a hedge of non-financial asset or a non-financial liability, the associated gains and losses

recognised in other comprehensive income as an effective hedge, are transferred successively into

the profit or loss account in the same period or periods during which the asset acquired or liability

assumed affects the profit or loss account directly from equity or are transferred from equity to initial

purchase price in the balance sheet and recognized successfully in the periods, in which non – financial

asset or liability has impact on profit and loss account.

Fair value hedge

Fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or liability or

an unrecognised firm commitment, or an identified portion of such an asset, liability or firm

commitment, that is attributable to a particular risk and could affect the profit or loss.

Changes in the fair value of derivative instruments classified and eligible as fair value hedges are

recognised in the Profit and Loss along with their corresponding changes of the hedged asset or

liability relating to the risk hedged by the Group.

It means that any gains or losses resulting from re-measuring the hedging instrument at fair value (for

a derivative hedging instrument) are recognised in profit or loss and the gains or losses on the hedged

item attributable to the hedged risk adjust the carrying amount of the hedged item and are recognised

in profit or loss. This applies if the hedged item is otherwise measured at cost. Recognition of the

gain or loss attributable to the hedged risk in profit or loss applies if the hedged item is an FVOCI

asset. The valuation of hedged financial assets classified as FVOCI, resulting from factors other than

risk hedged, is recognized in other comprehensive income till the date of sale or maturity of this

financial asset.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Termination of hedge accounting

If the fair value hedge no longer meets the criteria for applying hedge accounting, the carrying value

adjustment of the hedged instrument valued at amortized cost and effective interest rate, is linearly

amortized through profit and loss account over the period ending on the maturity date. The value of

hedged financial assets classified as FVOCI resulting from factors other than hedged risks is recognized

in the revaluation reserve till the date of sale or maturity of this financial asset.

If the cash flow hedge no longer meets the criteria for hedge accounting, the valuation of hedging

instrument recognized in other comprehensive income at the date of the last effectiveness test

remains in equity until the realization of cash flow resulting from the hedged item. Then the amount

is transferred into profit and loss account in the periods, in which the hedged transaction influences

the profit and loss account.

Derivative instruments not qualifying as hedging instruments

Derivative instruments that are not subject to hedge accounting principles are classified as

instruments held for trading, and valued at fair value. The changes in fair value of derivative

instruments held for trading are recognized in the profit and loss in item ‘Results on financial assets

and liabilities held for trading’/‘Result on exchange differences’, which was described below.

The Group uses the following principles of recognition of gains and losses resulting from the valuation

of derivative instruments:

▪ FX forward

Forward transactions are valued at fair value on discounted future cash flows basis, taking into

account the credit risk of the counterparty (and the Group) as long as there is non-performance

risk of the transaction parties with respect to future settlement of the deal. Any changes in fair

value of FX forward transactions are recorded in ‘Result on exchange differences’ of the Profit and

Loss Account.

Moreover the Group designated selected FX forward transactions as hedging instruments. The

method of capturing and valuating hedging financial instruments was described in the part on

hedge accounting.

▪ FX SWAP

FX SWAP transactions are measured at fair value based on the discounted future cash-flow method

with use of interest rate curves based on spread reflecting current market conditions and with

taking into account the credit risk of the counterparty (and the Group) as long as there is non-

performance risk of the transaction parties with respect to future settlement of the deal. Changes

of fair value of FX SWAP transactions are reported in ‘Results on financial assets and liabilities

held for trading’ in the Profit and Loss Account.

▪ Interest Rate SWAP (IRS)

IRS transactions are valued at fair value on discounted future cash flows basis, taking into account

the credit risk of the counterparty (and the Group) as long as there is non-performance risk of the

transaction parties with respect to future settlement of the deal. Any changes in fair value of IRS

transactions are recorded in ‘Results on financial assets and liabilities held for trading’ of the

Profit and Loss Account.

Moreover the Group designated selected IRS transactions as hedging instruments. The method of

capturing and valuating hedging financial instruments was described in the part on hedge

accounting.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

▪ Cross – Currency Swap (CCS)

CCS transactions are measured at fair value based on the discounted future cash-flows method

with use of interest rate curves adjusted with market spread reflecting its term structure and with

taking into account the credit risk of the counterparty (and the Group) as long as there is non-

performance risk of the transaction parties with respect to future settlement of the deal. Changes

of fair value of CCS transactions are reported in ‘Results on financial assets and liabilities held for

trading’.

Moreover the Group designated selected CCS transactions as hedging instruments. The method of

recognition and measurement of hedging instruments was described in the part devoted to hedge

accounting.

▪ IRS transactions with embedded options

The transactions are valued at fair value: the swap component is valued with use of the future

cash flows discounting method taking into account the credit risk of the counterparty (and the

Group) as long as there is non-performance risk of the transaction parties with respect to future

settlement of the deal, while the option component is valued with use of the option valuation

models. Any changes in fair value of the above transactions are recorded in ‘Results on financial

assets and liabilities held for trading’ of the Profit and Loss Account. The option component hedges

options embedded in securities or deposits offered by the Group.

▪ FX and Index options

Option transactions are measured at fair value with use of option measurement models. In case of

options issued by the Group’s counterparties, the model measurement is supplemented with

impact on fair value of the estimated credit risk parameter. Changes of fair value of options are

reported in ‘Results on financial assets and liabilities held for trading’ line of the Profit and Loss

Account.

▪ Forward Rate Agreement (FRA)

FRA transactions are valued at fair value on discounted future cash flows basis and with taking into

account the credit risk of the counterparty (and the Group) as long as there is non-performance

risk of the transaction parties with respect to future settlement of the deal. Any changes in fair

value of FRA transactions are recorded in ‘Results on financial assets and liabilities held for trading’

of the Profit and Loss Account.

▪ Commodity futures

Commodity futures are measured at fair value based on the discounted future cash flow

methodology, using reference prices set at the LME reference market (London Metal Exchange),

whereas the Group does not keep own positions on the commodity market. Changes of fair value

are reported in ‘Results on financial assets and liabilities held for trading’ of the Profit and Loss

Account.

▪ Commodity options

Commodity options are measured at fair value with use of option valuation models as well as

reference prices set at the LME reference market (London Metal Exchange), whereas the Group

does not keep own positions on the commodity market. Changes of fair value are reported in

‘Results on financial assets and liabilities held for trading’ of the Profit and Loss Account.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Impairment of financial assets

Impairment

General assumptions of the model

Since 1 January 2018, impairment estimation model has been based on the concept of “expected

credit loss”, (hereinafter: ECL). As a direct result of this change, impairment charges now have to be

calculated based on expected credit losses and forecasts and expected future economic conditions

have to be taken into account when conducting evaluation of credit risk of an exposure.

The implemented impairment model applies to financial assets classified in accordance with IFRS 9 as

financial assets measured at amortized cost or at fair value through other comprehensive income,

(except for equity instruments) and for off balance liabilities.

According to IFRS 9, credit exposures are classified in the following categories:

▪ Stage 1 – non-impaired exposures, for which expected credit loss is estimated for the 12-

month period,

▪ Stage 2 – non-impaired exposures, for which a significant increase in risk has been identified

and for which expected credit loss is estimated for the remaining life time of the financial

asset,

▪ Stage 3 – exposures with identified signs of impairment, for which expected credit loss is

estimated for the remaining life time of the financial asset.

In the case of exposures classified as POCI (purchased or originated credit impaired) which, upon their

initial recognition in the balance sheet, are recognized as impaired, expected credit loss is estimated

based on ECL covering the remaining life time of the financial asset.

Identification of a significant increase in credit risk

Assets, for which there has been identified a significant increase in credit risk compared to the initial

recognition in the balance sheet, are classified in Stage 2. The significant increase in credit risk is

recognized based on qualitative and quantitative criteria. The qualitative criteria include:

▪ repayment delays of more than 30 days,

▪ forborne exposures in non-default status,

▪ procedural rating, which is reflecting early delays in payments,

▪ taking a risk-mitigating decision for corporate clients, triggered by the early warning system,

▪ events related to an increase in credit risk, the so called “soft signs” of impairment, identified

as part of an individual analysis involving individually significant customers.

The quantitative criterion involves a comparison of the lifetime PD value determined on initial

recognition of an exposure in the balance sheet, with the lifetime PD value determined at the current

reporting date. If an empirically determined threshold of the relative change in the lifetime PD value

is exceeded then an exposure is automatically transferred to Stage 2. The quantitative assessment

does not cover exposures analyzed individually.

Incorporation of forward looking information on economic conditions (FLI)

In the process of calculation of expected credit losses, the Group uses forward looking information

about macroeconomic events. The Macroeconomic Analysis Office prepares three macroeconomic

scenarios (base, optimistic and pessimistic) and determines the probability of their occurrence. The

forecasts translate directly or indirectly into the values of estimated parameters and exposures.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Unification of the default definition across the Group

Since the implementation of IFRS 9, the Group has adopted an uniform definition of default, both for

the purpose of calculation of capital requirements and for the estimation of impairment. Starting

from 2020, for the retail portfolio, the Group uses the definition of default, which is in line with the

EBA Guidelines (EBA/GL/2016/07), the so-called New Definition of Default. Unified Default definition

includes following triggers:

▪ DPD>90 days considering materiality thresholds for due amount: absolute PLN 400 retail and

PLN 2000 corporates and relative threshold of 1% in relation to total exposure,

▪ Restructured loans (forborne),

▪ Loans in vindication process,

▪ Other triggers defined in EBA Guidelines,

▪ Qualitative triggers identified in the individual analysis.

Bank is using cross-default approach for all segments.

PD Model

The PD model, created for the calculation of expected credit losses, is based on empirical data

concerning 12-month default rates, which are then used to estimate lifetime PD values (including FLI)

using appropriate statistical and econometric methods. The segmentation adopted for this purpose at

the customer level is consistent with the segmentation used for capital requirement calculation

purposes. Additionally, the Bank has been using rating information from internal rating models to

calculate PDs.

LGD Models

The LGD models for the retail portfolio used by the Bank in the capital calculation process were

adjusted to IFRS 9 requirements in the area of estimating impairment. The main components of these

models are the probability of cure and the recovery rate estimated on the basis of discounted cash

flows. The necessary adaptations to IFRS 9 include, among other things, exclusion of the conservatism

buffer, indirect costs, adjustments for economic slowdown. In addition, adjustments have been made

to reflect the current economic situation and to utilize forward looking information on

macroeconomic events.

For the corporate portfolio, LGD model is based on a component determining parameterized recovery

for the key types of collateral and a component determining the recovery rate for the unsecured part.

All the parameters were calculated on the basis of historical data, including discounted cash flows

achieved by the corporate debt recovery unit.

EaD Model

The EaD model used in the Group includes calculation of parameters such as: average limit utilization

(LU), credit conversion factor (CCF), prepayment ratio, behavioural life expectancy. Segmentation is

based on the type of customer (retail, corporate, leasing) and product (products with/without a

schedule). Forecasts of foreign exchange rates are used as FLI adjustment.

Write-offs

The Group directly reduces the gross carrying amount of a financial asset if there are no reasonable

grounds to recover a given financial asset in whole or partially. As a result of write-off, a financial

asset component ceases, in whole or partially, to be recognized in the financial statements.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet

when there is a legally enforceable right to offset the recognised amounts and there is an intention

to settle on a net basis, or realise the asset and settle the liability simultaneously.

Transactions with sell/buy-back clauses

Repo and sell-buy back transactions as well as reverse-repo and buy-sell back transactions, are

transactions of sale and purchase of securities for which a commitment has been made to repurchase

or resell them at a contractual date and for specified contractual price.

The Group presents financial assets sold with the repurchase clauses (repo, sell buy-back) in its

balance sheet, by simultaneously recognizing a financial liability resulting from the repurchase clause,

provided that risks and rewards relating to this asset are retained by the Group after the transfer.

When the Group purchases securities with a sell back clause (reverse repo, buy-sell-back), the

financial assets are presented as receivables arising from sell back clause.

Transactions with repurchase/resell agreement are measured at amortized cost. Securities, which are

the subjects of transactions with repurchase clause, are not removed from the balance sheet and are

measured in accordance with principles applicable for particular securities portfolio. The difference

between sale and repurchase price is treated as interest cost/ income, and is accrued over the period

of the agreement by application of an effective interest rate.

Receivables and liabilities from lease contracts

The Group is a party to lease contracts, on the basis of which it grants for paid use or benefit of non-

current assets or intangible assets for an agreed period of time.

In the case of lease contracts, which result in transferring substantially all risks and rewards incidental

to ownership of the asset under lease, the subject of the lease is derecognized. A receivable amount

is recognized instead, however, in an amount equal to the present value of minimum lease payments.

Lease payments are accounted for (apportioned between the financial income and the reduction of

the balance of receivables) to reach constant periodic rate of return from the outstanding receivables.

Lease payments for contracts, which do not fulfil qualifications of a finance lease, are recognized as

income in the profit and loss, using the straight-line method, throughout the period of the lease.

The Group is also a party to lease contracts, under which it takes for paid use or drawing benefits

another party’s non-current assets or intangible assets for an agreed period. These are mainly rental

agreements. In case of these contracts the financial report shows, both assets under the right of use

and liabilities under the lease, in separate items of the explanatory notes to the lines 'Tangible fixed

assets' and 'Other liabilities' respectively. On the start date of the lease, lease payments contained in

the valuation of the lease liability shall comprise following payments for the right to use the

underlying asset during the lease period, which remain due on that date:

• fixed lease payments less any and all due lease incentives,

• variable lease payments, which depend on the index or rate, initially valuated with use of this

index or this rate in accordance with their value on start date,

• amounts expected to be paid by the lessee under the guaranteed final value,

• the buy option strike price if it can be assumed with sufficient certainty that the lessee will

exercise this option,

• monetary penalties for lease termination if the lease terms and conditions stipulated that the

lessee may exercise the lease termination option.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

A right to use asset comprises:

• amount of initial valuation of the lease liability,

• any and all lease payments paid on the start date or before it, less any and all lease incentives

received.

Financial result reflects following items:

• depreciation of right to use,

• interest on lease liabilities,

• VAT on rent invoices reported in cost of rent.

The Group has adopted the following assumptions, based on which lease agreements are carried in

financial statements:

• calculation of liabilities and assets will use net values (VAT is excluded) of future cash flows,

• in case of agreements denominated in currency the liabilities will be carried in the original

currency of the contract while assets in Polish zloty converted at the rate from date of signing

the contract or an annex to the contract, which is also the day when the leasing starts,

• the right to use the asset will be depreciated according to the lease period,

• the Group uses the option of not recognizing leasing in the case of short-term contracts for space

lease,

• the Group also uses the option of not recognizing leasing in the case of leasing assets with a low

initial value, such as renting small areas, e.g. for garbage arbors, ramps, ATMs and devices such

as coffee machines, water dispensers, audiomarketing and aromatamarketing devices,

• new contracts will be discounted according to the SWAP rate on the day of signing the contract /

annex to the contract appropriate for the duration of the contract and applicable for the

currency, increased by the margin determined and updated in relation to the risk premium for

the financial liabilities incurred by the Group.

Property, plant and equipment and Intangible Fixed Assets

Own property, plant and equipment

Tangible fixed assets are the controlled fixed assets and outlays made to build such assets. Tangible

fixed assets include fixed assets with an expected period of use above one year, maintained to be

used to serve the Group’s needs or to be transferred to other entities, based on the lease contract or

for administrative purposes.

Tangible fixed assets are reported at historical cost less depreciation and impairment.

Fixed assets under construction are disclosed at purchase price or production costs and are not subject

to depreciation.

The Group recognizes as a part of the asset’s carrying value, the replacement costs as incurred, only

when it is probable that future economic benefits associated with these items will flow to the Group,

and the cost of the item can be reliably measured. Other outlays are recognised in profit and loss.

Costs of repairs and maintenance of property, plant and equipment are charged to the profit and loss

in the reporting period in which they were incurred.

Intangible Fixed Assets

An intangible asset is an identifiable non-pecuniary asset which does not have physical form and will

generate economic benefits for the Group in the future.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

The main components of intangible assets are licenses for computer software.

Purchased computer software licences are capitalised in the amount of costs incurred for the purchase

and adaptation for use of specific computer software. Expenses attached to the development or

maintenance of computer software is expensed when incurred.

Other intangibles purchased by the Group are recognized at cost less accumulated amortization and

accumulated impairment allowances.

Subsequent costs incurred after initial recognition of acquired intangible assets are recognized only

when it is probable that future economic benefits will flow to the Group. In the other cases, costs are

charged to the profit and loss in the reporting period in which they were incurred.

All intangible assets are subject to periodic review in order to verify whether there were triggers

indicating possible loss of values, which would require a test for the loss of values and an impairment

recognition.

Depreciation and amortization charges

The depreciation charge of tangible and intangible assets is accounted for on a straight line basis with

the use of defined depreciation rates throughout the period of their useful lives. The depreciable

amount is the cost of an asset, or other amount substituted for cost, less its residual value. The useful

life, amortization/ depreciation rates and residual values of tangible and intangible assets are

reviewed annually. Conclusions of the review may lead to a change of depreciation periods recognized

prospectively from the date of application.

Land, an intangible asset with an unspecified useful life, outlays for tangible assets and intangible

assets are not depreciated. At each balance sheet date intangible assets with indefinite useful life

are regularly tested for impairment.

The following depreciation rates are applied to basic categories of tangible and intangible assets and

for investment property:

Selected categories of property, plant and equipment:

Bank buildings: 2.5%

Lease holding improvements: usually for 10 years

Computer hardware: 20%

Network devices: 20%

Vehicles as standard: 25%

Telecommunication equipment: 10%

Intangibles (software): expected useful life

Main applications (systems): expected useful life

Depreciation and amortization charges are recognized as operating expenses in the profit and loss

account.

Non-current assets held for sale

The Group classifies a non-current asset as held for sale, if its carrying amount will be recovered

principally through a sale transaction rather than through continuing use. For this to be the case the

asset is available for immediate sale in its present condition subject only to terms that are usual and

customary for sales of such assets and its sale is highly probable. The sale is highly probable if the

appropriate level of management is committed to a plan to sell the asset (or disposal group), and an

active programme to locate a buyer and complete the plan has been initiated. Further, the asset is

actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition,

the sale is expected to qualify for recognition as a completed sale within one year from the date of

classification.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Non- current assets held for sale are measured at the lower of: its carrying amount or fair value less

cost to sell. Assets classified in this category are not depreciated.

When criteria for classification to non-current assets held for sale are not met, the Group ceases to

classify the assets as held for sale and makes reclassification to other assets category. The Group

measures a non-current asset that ceases to be classified as held for sale at the lower of:

▪ its carrying amount before the asset (or disposal group) was classified as held for sale,

adjusted for any depreciation, amortisation or revaluations that would have been recognised

had the asset (or disposal group) not been classified as held for sale, and

▪ its recoverable amount at the date of the subsequent decision not to sell.

Impairment of non-financial non-current assets

The Group assesses the existence of any indications that a non-current asset may be impaired at each

balance sheet date. If such indications exist, the Group estimates the recoverable amount of the asset

and if the recoverable amount of an asset is less than its carrying amount, the Group recognizes

impairment charge in the profit and loss.

The impairment loss is the difference between the carrying amount and the recoverable amount of

the asset. Recoverable amount is the higher of an asset’s fair value less cost to sell and its value in

use. Value in use is established for particular assets, if a given asset generates cash flows substantially

independent of those generated by other assets or groups of assets. If such indications exist, the

Group performs an estimation of recoverable value. If, and only if, the recoverable value of an asset

is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable value.

If pursuant to IAS 36, paragraph 21 there is no reason to believe that an asset’s value in use materially

exceeds its fair value less costs to sell, the asset’s fair value less costs to sell may be used as its

recoverable amount. This will be particularly the case of an asset that is held for disposal.

An impairment loss can be reversed only to the amount, where the book value of impaired asset does

not exceed its book value, which decreased by depreciation charge, would be established, if any

impairment loss would not be recognized.

Prepayments, Accruals and Deferred Income

Prepayments comprise of particular expenses which will be settled against the profit and loss as being

accrued over the future reporting periods. Prepayments are presented in the caption ‘Other assets’

in the balance sheet.

Accruals are liabilities for costs arising from services provided to the Group, which will be payable

over future periods. The accruals are recognized in the caption „Other Liabilities” in the balance

sheet.

Deferred income comprises among others received amounts of future services and other types of

income received in advance to be settled against in the profit and loss in future reporting periods.

They are presented in the caption „Other Liabilities’ in the balance sheet.

Provisions

Provisions are established when (1) the Group has an obligation (legal or constructive) as a result of

past events, and (2) it is probable (i.e. more likely than not) that an outflow of resources embodying

economic benefits will be required to settle the obligation; and (3) a reliable estimate can be made

of the amount of the obligation. If the effect is material, the amount of provision is measured by

discounted, expected cash flows using pre-tax rate that reflects current market assessments of the

time value of money and those risks specific to the liability.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

A provision for restructuring costs is recognised only when the general criteria for provisions

recognition as well as specific criteria for restructuring provision recognition specified in IAS 37 are

met. In particular, the constructive obligation to restructure arises only when the Group has a detailed

formal plan for the restructuring and has raised a valid expectation in those affected that it would

carry out the restructuring by starting to implement that plan or announcing its main features to

those affected by it.

A detailed formal plan for the restructuring identifies at least: the business or part of a business

concerned; the principal locations affected; the location, function, and approximate number of

employees who will be compensated for terminating their services; the expenditures that will be

undertaken; and when the plan will be implemented. A restructuring provision includes only the direct

expenditures arising from the restructuring, which are those that are both: (a) necessarily entailed

by the restructuring; and (b) not associated with the ongoing activities of the entity. The restructuring

provision does not cover future operating expenses.

Employee Benefits

Short-term employee benefits

Short-term employee benefits of the Group (other than termination benefits due wholly within 12

months after work is completed) comprises of wages, salaries, bonuses and paid annual leave and

social security contributions.

The Group recognizes the anticipated, undiscounted value of short-term employee benefits as an

expense of an accounting period when an employee has rendered service (regardless of payment date)

in correspondence with other on-balance liabilities.

The amount of short-term employee benefits on the unused holidays to which Group employees are

entitled is calculated as the sum of unused holidays to which particular Group employees are entitled.

Long-term employee benefits

The Group’s liabilities on long-term employee benefits are equal to the amount of future benefits,

which the employee will receive in return for providing his services in the current and earlier periods,

which are not fully due within 12 months from carrying out the work. In accordance with the

Employees Remuneration By-laws and the Labour Code employees having worked a specific number

of years and attained the required age are entitled to receive a pension severance payment.

Retirement pension severance payments provision is calculated using an actuarial method by an

independent actuary as the present value of the Group’s future liabilities due to employees according

to the headcount and wages as at the date of revaluation. Valuation is done using the projected unit

credit method. Under this method, each period of service gives power to an additional unit of benefit

entitlement and each unit of benefit is calculated separately. Computation takes into account that

the base salary of each employee will vary over time according to certain assumptions. The provision

is updated on an annual basis. The parameters that have a significant impact on the amount of current

liabilities are: the rate of mobility (rotation), the discount rate, the rate of wage growth. The nominal

discount rate for the calculation for 2021 has been set at 3.1%. The calculation of the commitments

is made for employees currently employed and do not apply to persons who will start working in the

future.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

In 2012, the Group implemented a policy specifying the principles of remuneration for persons having

a material impact on the risk profile of Bank Millennium Group, as amended, in accordance with the

requirements described in Resolution of the Polish Financial Supervision Authority No. 258/2011, and

then the Regulation of the Minister of Development and Finance of March 6, 2017 on the risk

management system and the internal control system, remuneration policy and the detailed method

of internal capital estimation in banks. In accordance with the policy, employees of the Group having

a significant impact on the Group's risk profile receive variable remuneration, part of which is paid in

the form of financial instruments: the Bank's phantom shares in 2017-2018; Bank Millennium own

shares: for 2019 and 2020. Commencing from 2019, by the decision of the General Meeting of Bank’s

Shareholders of August 27, 2019, the Group introduced an incentive program to remuneration entitled

persons previously identified as having a significant impact on the risk profile (Risk Taker). Under this

framework, the Own Shares acquired by the Company will be, in accordance with the applicable Risk

Taker's remuneration policy, intended for free acquisition in the appropriate number by the indicated

Risk Takers during the Program Term. Policy details are presented in Chapter 15, point 7).

Provisions for short-term and long-term employee benefits are recognized in the caption ‘Other

Liabilities’ in balance sheet in correspondence with the ‘staff costs’ in the profit and loss.

The Group fulfils a programme of post – employment benefits called defined contribution plan. Under

this plan the Group pays fixed contributions into the state pension fund. Post – employment benefits

are paid to an employee from the proceeds of the fund including the return on the invested

contributions. Consequently, the Group does not have a legal or constructive obligation to pay further

contributions if the fund does not hold sufficient assets to pay all employee benefits relating to

employee service.

Group’s Equity

Equity consists of capital and funds established in compliance with the respective provisions of the

law, i.e., the appropriate legislative acts, the Company by-laws, or the Articles of Association.

Equity is comprised of the share capital, share premium, revaluation reserve and retained earnings.

All balances of capital and funds are presented at nominal value.

Share Capital

Share capital is presented at nominal value, in accordance with the Articles of Association and the

entry in the Register of Companies.

If the entity acquires its own shares, then the paid amount together with the costs directly attributed

to such purchase is treated as a change in the Equity. Acquired own shares are treated as own shares

and disclosed as reduction of the Equity until the time they are cancelled.

Dividends for the financial year, which have been approved by the General Shareholders’ Meeting,

but not distributed as of the balance sheet day, are disclosed in the caption „Other Liabilities’ in the

balance sheet.

Share Premium

Share premium is formed from agio obtained from the issue of shares reduced by the attached direct

costs incurred with that issue.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Accumulated other comprehensive income

Accumulated other comprehensive income consists of: the valuation of financial assets measured at

fair value through other comprehensive income, the result of cash flow hedge valuation and actuarial

gains (losses) regarding provisions for retirement benefits with deferred income tax effect applied.

Accumulated other comprehensive income is not subject to distribution.

Retained Earnings

Retained earnings are created with charges against profit and are allocated for purposes specified in

the Articles of Association or other legal regulations (the remaining part of supplementary capital,

additional reserve capital, including general banking risk fund) or constitute previous years’

profit/loss or year-to-date net financial result.

The General Banking Risk Fund at Bank Millennium SA is created from profit after tax in accordance

with the Banking Act dated 29 August 1997 as later amended.

Net profit of the current year represents net profit adjusted by corporate income tax. Losses

attributed to non-controlling interests and exceeding the value of equity attributed to them are

charged to the Group’s equity.

Financial guarantee

A financial guarantee contract is a contract that requires the issuer to make specified payments to

reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due

in accordance with the original or modified terms of a debt instrument.

The financial guarantees granted are valued at the higher of the following values:

• amounts of write-offs for expected credit losses,

• the amount initially recognized less the cumulative amount of income recognized in accordance

with IFRS 15.

Interest income and other of similar nature

Interest income includes interest on financial instruments measured at amortized cost and financial

assets measured at fair value through other comprehensive income using the effective interest rate

method.

The effective interest rate method is a method of calculating the amortized cost of a financial asset

or financial liability and the allocation of interest cost or interest income and certain commissions

(constituting an integral part of the interest rate) to the relevant period. The effective interest rate

is the rate that exactly discounts the estimated future cash flows (in the period until the financial

instrument expires) up to the gross carrying amount of the asset / amortised cost of the liability.

When calculating the effective interest rate, the Group estimates cash flows considering all

contractual terms of a given financial instrument, without taking into account possible future losses

due to unpaid loans. This calculation includes all fees paid or received between parties to the

contract, which are an integral part of the effective interest rate, and transaction costs and all other

differences due to the premium or discount.

Interest income includes interest and commissions (received or due) included in the calculation of the

effective interest rate on: loans, interbank deposits and debt securities not classified into held for

trading category. Interest income also includes costs directly related to the conclusion of a loan

agreement borne by the Group (mainly commissions paid to external and own agents for concluding

a mortgage agreement and related property valuation costs related to this type of contract) that are

a component of the effective interest rate and are settled in time.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Upon recognizing the impairment of a financial instrument measured at amortized cost and financial

assets measured at fair value through other comprehensive income, interest income is recognized in

the Profit and Loss Account but is calculated on the newly established carrying amount of the financial

instrument (that is, less impairment).

Interest income also includes net interest income on derivative instruments designated and being

effective hedging instruments in hedge accounting (a detailed description of the existing hedging

relationships is included in note (24)).

Interest income on derivatives classified as held for trading as well as interest income and the

settlement of a discount or premium on debt financial instruments classified as held for trading are

recognized under the item "Revenue similar to interest on assets valued at fair value through profit

and loss" of the Profit and Loss Account. This item also includes interest income arising from assets

that are measured at fair value through profit and loss.

Interest costs

Interest costs include in particular interest resulting from financial instruments measured at

amortized cost using the effective interest rate method described above.

Interest costs on derivatives classified as held for trading are shown under "Result on financial assets

and liabilities held for trading" in the Profit and Loss Account.

Fee and commission Income/ Fee and commission Costs

Fee and commission income and expenses received from banking operations on client accounts, from

operations on payment cards and brokerage activity is recognized in the profit and loss at the time

the service is rendered; other fees and commissions are deferred and recognized as revenue over

time.

The basic types of commissions related to credit operations in the Group include among others: loan

origination fees and commissions, and commitment fees.

Fees and commissions (both income and expense) directly attributable to initial recognition of

financial assets with established repayment schedules are recognized in profit and loss account as

effective interest rate component and are part of interest income. Other, attributed to initial

recognition of financial assets without established repayment schedules are amortized on a straight-

line basis through the expected life of the financial instrument. Fees and commissions on pledge to

grant a loan, which is probable to be drawn, are deferred and since initial recognition of financial

assets are amortized as component of effective interest rate or on a straight-line basis based on above

mentioned criteria. In the case of loans and advances with undetermined instalment payments and

changes in interest, e.g. overdraft facilities and credit cards commissions are settled over the duration

of the card or overdraft limit by the straight-line method and included in commission income.

In connection with the Group's bancassurance activity (selling insurance services), based on the

criterion how the income from aforementioned activity is recorded, two groups of products can be

identified.

The first group consists of insurance products without direct links with the financial instrument (for

example: health insurance, personal accident insurance) - in this case the Group's remuneration is

recognised as income after performance of a significant act, i.e. in a date of commencement or

renewal of insurance policies, taking into account provisions for thinkable returns.

In the second group (where there is a direct link to a financial instrument, particularly when the

insurance product is offered to the customer only with credit product, i.e. there is not possibility to

buy from the bank separately, without a credit product, the same insurance product in terms of form,

legal and economic conditions) two sub-groups can be identified:

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

a) With respect to insurance connected with housing loans, in case of insurance premiums

collected monthly (life insurance and property insurance) remuneration is applied to Profit

and Loss Account upon remuneration receipt.

b) With respect to insurance associated with cash loans the Group allocate the total value of

remuneration for combined transaction due to their respect for the individual elements of

the transaction, after deducting by provision on the part of the remuneration to be

reimbursed, for example as a result of the cancellation by the customer with insurance,

prepayments or other titles. Provision estimate is based on an analysis of historical

information about the real returns in the past and predictions as to the trend returns in the

future.

Allocation of remuneration referred to above is based on the methodology of ‘relative fair value’

involving division of the total remuneration pro rata to, respectively, fair value of remuneration

with respect to financial instrument and fair value of intermediation service. Determination of

the above fair values is based on market data including, in particular, for:

▪ Intermediation services – upon market approach involving the use of prices and other

market data for similar market transactions,

▪ Remuneration relative to financial instrument – upon income approach based on

conversion of future amounts into present value using information on interest rates and

other charges applicable to identical or similar financial instruments offered separately

from the insurance product.

Individual, separated elements of a given transaction or several transactions considered jointly are

subject to the following income recognition principles:

▪ Fees charged by insurance agencies – partially including fee for performance of a

significant act, recognised in revenue on the day of commencement or renewal of

insurance policy.

▪ Fees/charges constituting an integral part of effective interest rate accruing on financial

instrument – treated as adjustment of effective interest rate and recognised under

interest income.

In 2021 Bank has reviewed the assumptions of the model applied for recognition of revenue from

bancassurance. In consequence in the field of insurance of cash loans the part of revenue

recognized on a one-off basis as commission for the execution of significant amounted to 7%

whereas in 2020 it was 5%

As of 31 December 2021, with respect to insurance products linked with cash loans, the Bank

estimated provisions against refunds of premiums, expressed as percentage ratio of refunds to the

level of gross fees, at 53%.

Remaining fees and commissions connected with financial services offered by the Group, such as:

▪ Asset management services;

▪ Services connected with cash management;

▪ Brokerage services;

are recognised in the Profit and Loss Account on an one-off basis.

Dividend Income

Dividend income is recognized in the profit and loss when the shareholders’ right to receive payment

is established.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Result on derecognition of financial assets and liabilities not measured at fair value through profit

or loss

The result on derecognition of financial assets and liabilities not measured at fair value through profit

or loss includes gains and losses arising from the sale of debt financial instruments classified to the

portfolio measured at fair value through comprehensive income and other gains and losses resulting

from investing activities.

Result on financial assets and liabilities held for trading

The result on financial assets and financial liabilities held for trading contains gains and losses on

disposal of financial instruments classified as financial assets / liabilities measured held for trading

and the effect of valuation of these instruments at fair value (incl. debt, equity and derivative

instruments intended for trading).

Result on non-trading financial assets mandatorily at fair value through profit or loss

The result on non-trading financial assets mandatorily at fair value through profit or loss includes

gains and losses on disposal and the effect of the measurement of financial instruments classified to

this category of assets.

Result on hedge accounting

The result on hedge accounting includes in particular: changes in the fair value of the hedging

instrument (including discontinuation), changes in the fair value of the hedged item resulting from

the hedged risk and inefficiencies resulting from cash flow hedges recognized in profit or loss.

Result on exchange differences

Foreign exchange differences include: i) realized result and result from the valuation of FX spot and

FX Forward transactions ii) positive and negative exchange rate differences, both realized and

unrealized, resulting from the daily valuation of foreign currency assets and liabilities, valid as at the

balance sheet day average NBP exchange rate and affecting income or expenses from the exchange

position.

Other Operating Income and Expenses

Other operating income and expenses include expenses and incomes not associated directly with the

Group’s banking and brokerage activity. In particular, this is result on sale and liquidation of fixed

assets, income from sale of other services, received and paid damages, penalties and fines and

provisions for litigations issues.

Income Tax

Corporate income tax comprises current and deferred tax.

Current income tax is calculated on profit before tax, established in accordance with appropriate

accounting regulations adjusted by non-taxable income and non-tax deductible expenses, with usage

of binding tax rate. Moreover, for tax purposes, the gross profit is adjusted by previous years’ income

and expenses realised for tax purposes in a given reporting period and deductions from income arising

from e.g. donations.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Deferred income tax is recognized in profit and loss, except for when it is recognized in other

comprehensive income or directly in equity because it relates to transactions that are also recognized

in other comprehensive income or directly in equity.

Provision for deferred income tax is recognized in liabilities in the caption ‘deferred income tax

liabilities’. Deferred income tax asset is recognized in assets as ‘deferred income tax assets’. The

Group offsets deferred tax assets and deferred tax liabilities within each individual companies of the

Group, because it has a legally enforceable right for such netting and the deferred tax assets and the

deferred tax liabilities relate to income taxes (levied by the same taxation authority).

Deferred income tax provision is recognised using the balance sheet method for all positive temporary

differences except when it arises from the amortization of goodwill or initial recognition of an asset

or liability in a transaction which is not a business combination and at the time of the transactions

affects neither accounting profit nor taxable profit (tax loss).

Deferred income tax assets are recognised using the balance sheet method with respect to tax loss

carry forwards and all negative temporary differences as at the balance sheet date between carrying

amount of an asset or liability in the balance sheet and its tax value only to the extent that it is

probable that future taxable profit will be available against which the deductions can be utilised.

Deferred income tax assets are not recognised for negative temporary differences arising from the

initial recognition of an asset or liability in a transaction which is not a business combination and at

the time of the transactions affects neither accounting profit nor taxable profit (tax loss).

An asset or a liability arising from temporary differences associated with investments in subsidiaries

and associates are not included in calculation of deferred income tax assets or liabilities, unless the

Group is able to control the timing of the reversal of the temporary differences and it is probable

that the temporary difference will reverse in the foreseeable future.

The amount of calculated deferred tax is based on expected degree of realisation of balance-sheet

values of assets and liabilities with use of tax rates, which are expected to be in force when the asset

is realised or provision eliminated, assuming the tax rates (and tax legislation) legally or factually in

force as of the balance sheet date.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

8. Financial Risk Management

The management of risk is one of the key tasks of the Management Board in the process of effective

management of the Group. It defines the framework for business development, profitability, and

stability, by creating rules ensuring the Group’s compliance with best internal control practices and

legal requirements and coordination of the strategy for managing all risks.

8.1. RISK MANAGEMENT

The mission of risk management in the Bank Millennium Group is to ensure that all types of risks are

managed, monitored, and controlled as required for the risk profile (risk appetite), nature and scale

of the Group's operations. Important principle of risk management is the optimization of the risk and

profitability trade-off – the Group pays special attention to ensure that its business decisions balance

risk and profit adequately.

The goals of the risk management mission are achieved through implementation of the following

actions:

▪ Development of risk management strategies, credit policy, processes and procedures defining the

principles for acceptance of the allowable level of types of risk,

▪ Increasingly wider implementation of the IT tools for risks identification, control, and

measurement,

▪ Increasing awareness of employees as regards their responsibility for proper risk management at

every level of the Group's organizational structure.

Risk management is centralized for the Group and considers the need to obtain the assumed

profitability and to maintain proper risk-capital relationship, in the context of having proper level of

capital to cover the risk. Within risk management system, a broad range of methods is used, both

qualitative and quantitative, including advanced mathematical and statistical tools supported by

adequate IT systems.

When defining the business and profitability targets, the Group considers the specified risk framework

(Risk Appetite) to ensure that business structure and growth will respect the risk profile that is

targeted and that will be reflected in several indicators such as:

▪ Loan growth in specific products / segments

▪ Structure of the loan portfolio

▪ Asset quality indicators

▪ Cost of risk

▪ Capital requirements / Economic capital

▪ Amount and structure of liquidity needed.

The risk management and control model at the Group’s level is based on the following main principles:

▪ ensuring the full-scope quantification and parameterization of various types of risks in the

perspective of optimizing balance sheet and off-balance sheet items to the assumed level of

profitability of business activity. The main areas of analysis encompass credit risk, market risk,

liquidity risk and operational risk, legal and litigation risk also are subject to specific attention;

▪ all types of risks are monitored and controlled in reference to the profitability of operations and

the level of capital necessary to ensure the safety of operations from the point of view of capital

adequacy. The results of risk measuring are regularly reported as part of the management

information system;

▪ the segregation of duties between risk origination, risk management and risk control.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

The Risk management process of the Group is presented in the below diagram:

The split of competence in the field of risk management is as follows:

▪ The Supervisory Board is responsible for overseeing the compliance of the Group’s risk-taking

policy with the Group’s strategy and its financial plan. Within the Supervisory Board acts the

Committee for Risk Matters, which supports it in realization of those tasks, among others, issuing

opinion on the Group's Risk Strategy, including the Group's Risk Appetite.

▪ The Management Board is responsible for the effectiveness of the risk management system,

internal capital estimation process, for reviewing the internal capital calculation and maintenance

process and the internal control systems;

▪ The Credit Committee, the Capital, Assets and Liabilities Committee, and the Liabilities at Risk

Committee are responsible for current management of different areas of banking risk, within the

framework determined by the Management Board;

▪ The Risk Committee and the Processes and Operational Risk Committee are responsible for defining

the policy and for monitoring and control of different areas of banking risk, within the framework

determined by the Management Board;

▪ The Validation Committee is responsible for confirmation of risk models validation results and

follow-up in the implementation of the measures defined by the Models Validation Office;

▪ The Sub-Committee for Court Cases is responsible for expressing opinions and taking decisions in

matters regarding court proceedings, for the cases when value of the dispute or direct effect for

assets value as a consequence of court verdict exceeds 1 mln PLN or as result of multiple cases

with the same nature, excluding cases belonging to the restructuring and recovery portfolio of

Bank’s receivables managed by the Corporate Recovery Department and Retail Restructuring and

Debt Collection Department. The Sub-Committee for Court Cases is also competent for disputes in

the portfolio of the Retail Restructuring and Debt Collection Department, which the nature of the

dispute corresponds to the nature of court disputes supervised by the Court Cases Risk Sub-

committee referred to in the first sentence above and matters relating to the determination of

terms of settlement as to the effects of legal relationships at the pre-trial stage or in circumstances

indicating a significant likelihood of litigation, and if materialized, would fall within the

competence of the Court Cases Risk Sub-committee, excluding cases managed by Corporate

Recovery Department;

▪ The Risk Department is responsible for risk management, including identifying, measuring,

analysing, monitoring, and reporting on risk within the Group. The Risk Department also prepares

risk management policies and procedures as well as provides information and proposes courses of

action necessary for the Capital, Assets and Liabilities Committee, Risk Committee and the

Management Board to make decisions with respect to risk management;

▪ The Rating Department is mainly responsible for risk rating assignment for Corporate clients (based

on the evaluation of clients’ creditworthiness) as well as for rating monitoring and potential

revision during the period of its validity. Rating assignment process is independent from credit

decision process;

Delineate key

risk definitions

Delineate the

models and

definitions to

classify

customers,

products,

processes, and

risk measures

Define Risk

Strategy

Defining

principles and

risk targets

according to risk

appetite, risk

capacity and

business

strategy

Define risk

policy

Defining

thresholds,

levels,

competences,

limits, cut-offs

according to Risk

Strategy

Implement

defined policy

Designing

products with

Business and

implement

them in tools

and

regulations,

Decision

processes

Monitor,

Control,

Reporting

Monitor the

models

performance and

the portfolios

behavior

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

▪ The Corporate Credit Underwriting Department, Mortgage Credit Underwriting Department and

Consumer Finance Underwriting Department, are responsible within the Corporate Customer

segment and Retail Customer segment, respectively, for the credit decision process, including

analysing customers’ financial situation, preparing credit proposals for the decision-making levels

and making credit decisions within specified limits;

▪ The Retail Liabilities Monitoring and Collection Department and Retail Liabilities Restructuring and

Recovery Department have responsibility for monitoring repayment of overdue debts by retail

customers and their collection;

▪ The Corporate Recovery Department develops specific strategies with respect to each debtor from

recovery portfolio, which aims to maximize timely collection of the outstanding debt and minimize

the risk incurred by the Group. This approach is constantly revised to reflect updated information,

and the best practices and experiences regarding collection of overdue debts;

▪ The Treasury Control and Analyses Office has responsibility for monitoring the use of part of the

Group’s limits, including counterparty and stop-loss limits, the Group’s FX position, results of

active trading and control of operations of the treasury segment;

▪ The Models Validation Office has responsibility for qualitative and quantitative models’ analysis

and validation, independent from the function of models development; development of the models

validation and monitoring tools; activities connected with issuing opinions on the adequacy of the

models for the segment, for which they were developed; preparing reports for the Validation

Committee needs;

▪ The Anti-fraud Sub-unit has responsibility for implementation and monitoring Bank policy

execution in the scope of fraud risk management in cooperation with others Bank units. The Sub-

unit constitutes a competence centre for anti-fraud process;

▪ The Compliance Department has the responsibility to ensure compliance with legal regulations,

related regulatory standards, market principles and standards as well as internal organization

regulations and codes of conduct;

▪ The Legal Department has responsibility for handling the litigation cases of the Bank, with support

of external legal offices and legal experts whenever necessary.

The Group has prepared a comprehensive guideline document for the risk management

policy/strategy: “Risk Strategy for 2022-2024”. The document takes a 3-year perspective and is

reviewed and updated annually. It is approved by the Bank’s Management Board and Supervisory

Board. The risk strategy is inextricably linked to other strategic documents, such as: Budget, Liquidity

Plan, and Capital Plan.

The Risk Strategy bases on the two concepts defined by the Group:

1. Risk profile – current risk profile in amount or type of risk the Group is currently exposed. The

Group should also have a forward-looking view how their risk profile may change under both

expected and stress economic scenarios in accordance with risk appetite,

2. Risk appetite – the maximum amount or type of risk the Group is prepared to accept/tolerate to

achieve its financial and strategic objective. Three zones are defined in accordance with warning

/ action required level.

Risk appetite must ensure that business structure and growth will respect the forward risk profile.

Risk appetite was reflected through defined indicators in several key areas, such as:

▪ Solvency,

▪ Liquidity and funding,

▪ Earnings volatility and Business mix,

▪ Franchise and reputation.

The Group has a clear risk strategy, covering retail credit, corporate credit, markets activity and

liquidity, operational and capital management. For each risk type and overall, the Group clearly

define the risk appetite.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

The Risk Management is mainly defined through the principles and targets defined in Risk Strategy

and complemented in more detail by the principles and qualitative guidelines defined in the following

documents:

▪ Capital Management and Planning Framework

▪ Credit Principles and Guidelines

▪ Rules on Concentration Risk Management

▪ Principles and Rules of Liquidity Risk Management

▪ Principles and Guidelines on Market Risk Management on Financial Markets

▪ Principles and Guidelines for Market Risk Management in Banking Book

▪ Investment Policy

▪ Principles and Guidelines for Management of Operational Risk

▪ Policy, Rules and Principles of the Model Risk Management

▪ Stress tests policy

▪ Regulations of Bank Millennium SA - Program of counteracting Anti-Money Laundering and

financing terrorism.

Within risk appetite, the Group has defined tolerance zones for its measures (build up based on the

“traffic lights” principle). As for all tolerance zones for risk appetite, it has been set:

▪ Risk appetite status – green zone means a measure within risk appetite, yellow zone

means an increased risk of risk appetite breach, red zone means risk appetite breach

▪ Escalation process of actions/decisions taken - bodies/organizational entities responsible

for decisions and actions in a particular zone

▪ Risk appetite monitoring process.

The Group pays particular attention to continuous improvement of the risk management process. One

measurable effect of this is a success of the received authorization to the further use of the IRB

approach in the process of calculating capital requirements.

8.2. CAPITAL MANAGEMENT

Capital management relates to two areas: capital adequacy management and capital allocation. For

both areas, management goals were set.

The goal of capital adequacy management is: (a) meeting the requirements specified in external

regulations (regulatory capital adequacy) and (b) ensuring the solvency in normal and stressed

conditions (economic capital adequacy/internal capital). Completing that goal, the Group strives to

achieve internal long-term capital limits (targets), defined in Risk Strategy.

Capital allocation purpose is to create value for shareholders by maximizing the return on risk in

business activity, considering established risk tolerance.

In a scope of capital management process, there is also a capital planning process. The goal of capital

planning is to designate the own funds (capital base that is risk-taking capacity) and capital usage

(regulatory capital requirements and economic capital) in a way to ensure that capital targets/limits

shall be met, given forecasted business strategy and risk profile – in normal and stressed

macroeconomic conditions.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Regulatory capital adequacy

The Group is obliged by law to meet minimum own funds requirements, set in art. 92 of Regulation

(EU) No 575/2013 on prudential requirements for credit institutions and investment firms (CRR).

At the same time, the following levels, recommendations, and buffers were included in capital

limits/targets setting:

▪ Pillar II RRE FX buffer - KNF recommendation to maintain additional own funds for the coverage

of additional capital requirements to secure the risk resulting from FX mortgage loans granted

to households, in line with art. 138.1.2a of Banking Act. A value of that buffer is defined for

banks by KNF every year because of Supervisory Review and Evaluation process (SREP) and relates

to risk that is in KNF’s opinion - inadequately covered by minimum own funds requirements, set

in CRR art. 92. At present, the buffer was set by KNF in recommendations issued in the end of

20210 in the level of 2.82 pp (Bank) and 2.79 pp (Group) as for Total Capital Ratio (TCR), which

corresponds to capital requirements over Tier 1 ratio of 2.11 pp in Bank and of 2.09 pp in Group,

and which corresponds to capital requirements over CET 1 ratio of 1.58 pp in Bank and 1.56 pp

in Group

;

▪ Combined buffer – defined in Act on macro prudential supervision over the financial system and

crisis management – that consists of:

▪ Capital conservation buffer at the level of 2.5%;

▪ Other systemically important institution buffer (OSII) – at the level of 0.25%, and the

value is set by KNF every year

;

▪ Systemic risk buffer at the level of 0% in force from March 2020, in line with Regulation

of Ministry of Development and Finance;

▪ Countercyclical buffer at the 0% level.

In accordance to binding legal requirements and recommendations of Polish Financial Supervisory

Authority (KNF), the Group defined minimum levels of capital ratios being at the same time capital

targets/limits. These are OCR (overall capital requirements) as for capital ratios.

That recommendation replaces the previous one from 2020, to maintain own funds for the coverage of additional capital

requirements at the level of 3.41 pp (Bank) and 3.35 pp (Group) as for TCR, which should have consisted of at least 2.56 pp

(Bank) and 2.52 pp (Group) as for Tier 1 capital and which should have consisted of at least 1.91 pp (Bank) and 1.88 pp (Group)

as for CET1 capital

In November 2020 KNF issued the decision on identification the Bank as other systemically important institution and

imposing OSII Buffer

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

The below table presents these levels as of 31 December 2021. The Bank will inform on each change

of required capital levels in accordance with regulations.

Capital ratio

31.12.2021

CET1 ratio

Bank

Group

Minimum

4.50%

Pillar II RRE FX

1.58%

1.56%

TSCR CET1 (Total SREP Capital Requirements)

6.08%

6.06%

Capital Conservation Buffer

2.50%

OSII Buffer

0.25%

Systemic risk buffer

0.00%

Countercyclical capital buffer

0.00%

Combined buffer

2.75%

OCR CET1 (Overall Capital Requirements CET1)

8.83%

8.81%

T1 ratio

Bank

Group

Minimum

6.00%

Pillar II RRE FX

2.11%

2.09%

TSCR T1 (Total SREP Capital Requirements)

8.11%

8.09%

Capital Conservation Buffer

2.50%

OSII Buffer

0.25%

Systemic risk buffer

0.00%

Countercyclical capital buffer

0.00%

Combined buffer

2.75%

OCR T1 (Overall Capital Requirements T1)

10.86%

10.84%

TCR ratio

Bank

Group

Minimum

8.00%

Pillar II RRE FX

2.82%

2.79%

TSCR TCR (Total SREP Capital Requirements)

10.82%

10.79%

Capital Conservation Buffer

2.50%

OSII Buffer

0.25%

Systemic risk buffer

0.00%

Countercyclical capital buffer

0.00%

Combined buffer

2.75%

OCR TCR (Overall Capital Requirements TCR)

13.57%

13.54%

Capital risk, expressed in the above capital targets/limits, is measured, and monitored in a regular

manner. As for all capital targets, there are determined some minimum ranges for those values.

Capital ratios in each range cause a need to take an appropriate management decision or action.

Regular monitoring of capital risk relies on classification of capital ratios to the right ranges and then

performing the evaluation of trends and drivers influencing capital adequacy.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Own funds capital requirements

The Group calculates its own funds requirements using standard methodologies and is implementing

at the same time a project of an implementation of internal ratings-based method (IRB) for calculation

of own funds requirements for credit risk and obtaining of approval decisions from Regulatory

Authorities on that matter.

In the end of 2012, Banco de Portugal (consolidating Regulator) with cooperation of Polish Financial

Supervision Authority (KNF) granted an approval to the use of IRB approach as to following loan

portfolios: (i) Retail exposures to individual persons secured by residential real estate collateral (RRE),

(ii) Qualifying revolving retail exposures (QRRE). According to the mentioned approval, minimum own

funds requirements calculated using the IRB approach should be temporarily maintained at no less

than 80% (“Regulatory floor”) of the respective capital requirements calculated using the

Standardized approach.

In the end of 2014, the Group received another decision by Competent Authorities regarding the IRB

process. According to its content, for the RRE and QRRE loan portfolios, the minimum own funds

requirements calculated using the IRB approach had to be temporarily maintained at no less than 70%

(“Regulatory floor”) of the respective capital requirements calculated using the Standardized

approach until the Bank fulfils further defined conditions.

In July 2017 the Group received the decision of Competent Authorities (ECB cooperating with KNF) on

approval the material changes to IRB LGD models and revoking the “Regulatory floor”.

Since 2018, the Group has been successively implementing a multi-stage process of implementing

changes to the IRB method, related to the requirements regarding the new definition of default. In

the first phase, in line with the “two-step approach” approved by Competent Authorities, the Group

in 2020 successfully implemented solutions for the new definition of default in the production

environment. The Group is obliged to include an additional conservative charge on the estimates of

the RWA value for exposures classified under the IRB approach. The level of this add-on, calculated

based on the supervisory algorithm, was set at 5% above the value resulting from the IRB method.

In 2021, all credit risk models included in the rating system subject to the current regulatory approval

were recalibrated and rebuilt. In 2021 the Group also obtained a decision from Competent Authorities

to approve significant changes to the IRB models used (LGD, LGD in-default and ELBE) for rating

systems subject to the IRB approval.

Internal capital

The Group defines internal capital according to Polish Banking Act, as the estimated amount needed

to cover all identified, material risks found in the Bank’s activity and changes in economic

environment, considering the anticipated level of risk in the future.

Internal capital is used in capital management in following processes: economic capital adequacy

management and capital allocation. The Bank defined an internal (economic) capital estimation

process. To this end, as for measurable risk types, mathematic and statistic models and methods are

used.

Maintaining economic capital adequacy means a coverage (provision) of internal capital (that is an

aggregated risk measure) by available financial resources (own funds). An obligation to banks to have

in place that sort of risk coverage stems from Banking Act. It was mirrored in the Group’s capital

targets/limits: economic capital buffer and economic capital buffer in stressed conditions.

In 2021, both above capital targets were met with a surplus. A surplus of own funds over internal

capital supports a further increase of banking activity, in areas with a higher risk-adjusted return.

At the same time internal capital is utilized in capital allocation process, to assign an internal capital

to products/business lines, calculating risk-adjusted performance measures, setting risk limits and

internal capital reallocation.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Capital adequacy – current state, evaluation, and trends

Capital adequacy of the Group over the last three years was as follows

Capital adequacy

31.12.2021

31.12.2020

31.12.2019

Risk-weighted assets

49 442.8

51 138.0

48 124.6

Own Funds requirements, including:

3 955.4

4 091.0

3 850.0

- Credit risk and counterparty credit risk

3 479.8

3 677.0

3 495.2

- Market risk

32.3

26.7

24.2

- Operational risk

433.0

382.6

326.9

- Credit Valuation Adjustment CVA

10.3

4.8

3.6

Own Funds, including:

8 436.3

9 969.0

9 668.5

Common Equity Tier 1 Capital

6 906.3

8 439.0

8 138.5

Tier 2 Capital

1 530.0

Total Capital Ratio (TCR)

17.06%

19.49%

20.09%

Minimum required level

13.54%

14.10%

18.37%

Surplus (+) / Deficit(-) of TCR capital adequacy (p.p.)

3.52

5.39

1.72

Tier 1 Capital ratio (T1)

13.97%

16.50%

16.91%

Minimum required level

10.84%

11.27%

15.15%

Surplus (+) / Deficit(-) of T1 capital adequacy (p.p.)

3.13

5.23

1.76

Common Equity Tier 1 Capital ratio (CET1)

13.97%

16.50%

16.91%

Minimum required level

8.81%

9.13%

12.73%

Surplus (+) / Deficit(-) of CET1 capital adequacy (p.p.)

5.16

7.37

4.18

Leverage ratio

6.46%

8.30%

8.11%

As at 2021 end, capital adequacy, measured by Common Equity Tier 1 Capital ratio and Total Capital

Ratio, decreased in one year period by ca 2.53 pp and by ca 2.43 pp respectively.

In 2021, risk-weighted assets (RWA) went down by ca PLN 1.7 billion (by 3.3%). The biggest yearly

change was credit risk RWA (fall by ca PLN 2.5 billion, by 5.4%). The second material driver was an

operational risk RWA rise (by ca PLN 0.6 billion), what stems from including in calculation higher

financial results from the last three years. Changes of market risk and CVA (credit valuation

adjustment) RWA were not material.

In 2021 Own Funds fell by ca PLN 1.5 billion (by 15.4%), mainly because of net financial loss caused

by legal risk provisions.

Group uses transitional arrangements for IFRS 9 and considers a temporary treatment of unrealized gains and losses on

bonds measured by fair value through other comprehensive income (FVOCI) in accordance with Art. 468 of the CRR. As at

31.12.2021, if IFRS 9 transitional arrangements and temporary treatment according to Art. 468 of the CRR had not been

applied, capital ratios were as follows:

- TCR: 15.84%

- T1: 12.74%

- CET1: 12.74%

- Leverage ratio: 5.90%

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Minimum capital levels required by KNF were achieved with a safe surplus.

Leverage ratio stood at the safe level of 6.46%, and it significantly exceeds the regulatory minimum

(3%).

In a long perspective, capital adequacy level of Bank and Group is evaluated as satisfactory.

MREL requirements

In November 2021, the Group received a joint decision of the Single Resolution Board (SRB) and the

Bank Guarantee Fund, obliging the Group to meet the minimum requirements for own funds and

eligible liabilities (MREL). Pursuant to this decision, the Group is required to meet the minimum

MREL

trea

requirement of 21.41% and the MREL

tem

requirement of 5.91% by December 31, 2023. The

decision also sets out a gradual path towards reaching the minimum requirements. Their level will be

updated annually.

In connection with the above decision, in January 2022, the Supervisory Board of the Bank approved

the Eurobond Issue Program with a total nominal value of no more than EUR 3 billion.

8.3. CREDIT RISK

The credit risk is one of the most important risk types for the Group and therefore considerable

attention is given to management of credit risk-bearing exposures. Credit risk relates to balance-

sheet credit exposures as well as off-balance sheet financial instruments, such as granted and

unutilized credit lines, guarantees and letters of credit, as well as limits for transactions in financial

instruments.

The credit policy is subject to periodic reviews and verification process considering the prevailing

market conditions and changes in the Group’s regulatory environment.

The Group uses several rating systems to manage credit risk depending on the type of exposure and

the customer segment involved. A rating system is a set of methods (models), processes, controls,

data collection procedures and IT systems that identify and measure credit risk, sort levels of exposure

by grades or pools (granting of credit rating) and quantify probability of default and expected loss

estimates for specific types of exposure.

(3a) Measurement of Credit Risk

Loans and advances

Measurement of credit risk, for the purpose of the credit portfolio management, on the level of

individual customers and transactions, on account of granted loans is done with the consideration of

three base parameters:

(i) Probability of Default (PD) of a customer or counterparty as regards their liability;

(ii) amount of Exposure At Default (EAD) and

(iii) the ratio of Loss Given Default (LGD) regarding the customer’s liability.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

(i) The Group assesses the probability of default (PD) of individual counterparties, using internal

rating models adapted to various categories of customers and transactions. Models were

developed in-house or at the level of the BCP Group, or with help of external providers, and

combine statistical analysis with assessment by a credit professional. The Group’s customers are

divided into 15 rating classes, which for the purposes of this Report have been grouped into 6

main brackets. The Group’s Master Ratings Scale, presented below, also contains the scale of

probabilities of non-compliance with the liabilities specified for a given class/rating group. Rating

models are subject to regular reviews and whenever necessary to relevant modification.

Modifications of models are confirmed by Validation Committee.

The Group regularly analyses and assesses rating results and their predictive power with respect

to cases of default. The process of assigning client risk assessments (for Corporates performed by

Rating Department independently from credit decision process and transactions) is supported by

IT systems, obtaining, and analysing information from internal and external databases.

The Group’s internal rating scale

Master scale

Description of rating

1-3

Highest quality

4-6

Good quality

7-9

Medium quality

10-12

Low quality

13-14

Watched/Procedural

Default

(ii) EAD – amount of exposure at default – concerns amount which according to the Group’s

predictions will be the Group’s receivables at the time of default against liabilities. Liabilities

are understood by the Group to mean every amount disbursed plus further amounts, which may

be disbursed until default, if such occurs.

(iii) LGD – loss given default is what the Group expects will be its losses resulting from actual cases

of default, with the consideration of internal and external costs of recovery and the discount

effect.

Unification of the default definition across the Group

Since the implementation of IFRS 9, the Group has adopted a uniform definition of default, both in

the calculation of capital requirements and for the purposes of estimating impairment. Starting from

2020, for the retail portfolio, the Group uses the definition of default in line with the EBA Guidelines,

the so-called New Definition of Default. Unified Default definition includes following triggers:

▪ DPD>90 days considering materiality thresholds for due amount: absolute PLN 400 retail and

PLN 2000 corporates and relative threshold of 1% in relation to total exposure,

▪ Restructured loans (forborne),

▪ Loans in vindication process,

▪ Other triggers defined in EBA Guidelines,

▪ Qualitative triggers identified in the individual analysis.

The Group is using cross-default approach for all segments.

In case of support measures related to the negative impact of the Covid-19 pandemic, the Group

adopted a sectoral approach, being in line with the EBA guidelines, according to which exposures with

credit holidays granted under private moratoria shouldn’t be treated as forborne exposures. However,

if there is a delay of more than 60 days on the customer's accounts after 3 months since expiration of

credit holidays, it was conservatively assumed that the customer should be classified in Stage 3.

Customers with credit holidays granted under public moratoria (under the Shield 4.0 government

program) were classified in Stage 3 (unless specific exclusion criteria specified by the Supervisor were

met).

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Debt Securities

Debt securities from State Treasury and from the Central Bank are monitored based on Polish rating.

Whereas the economic and financial situation of issuers of municipal debt securities is monitored on

a quarterly basis based on their finance reporting.

The Group doesn’t apply Low Credit Risk (LCR) exemption neither for State Treasury and Central Bank

exposures nor for any other groups of exposures.

Derivatives

The Group maintains strict control over the limits of net open derivative positions both with respect

to amounts and transaction maturities. Credit risk exposures resulting from derivatives are managed

as part of total credit limits defined for individual customers calculated based on verification of

natural exposure and analysis of customer’s financial situation, and as part of counterparties’ limits.

The Group offers Treasury products for FX risk or interest rate risk only for hedging purposes and

under Treasury limits assigned to clients or secured by specific collateral (deposit).

Most of the Group’s agreements include the possibility of calling the client to replenish the margin

deposit, (if the valuation of the client’s open position exceeds treasury limit, the so-called margin

call); and if the client does not supplement the deposit, the Group has the right to close the position.

Credit risk-based off-balance sheet liabilities

Credit risk-based off-balance sheet liabilities include guarantees, letters of credit as well as granted

credit lines. The main purpose of these instruments is to enable the customer to use the funds granted

by the Group in a specific way.

Guarantees and letters of credit of standby type (liability like guarantee) bears at least the same

credit risk as loans (in the case of guarantees and stand-by letters of credit type when valid claim

appears, the Group must make a payment).

Documentary and commercial letters of credit are a written, irrevocable, and final obligation of the

Group to accept payments based on compliant documents within the time limits specified in the

letters of credit and relate to a guarantee-like risk.

The available credit line balance is the non-utilised part of previously accepted amounts pertaining

to credit liabilities, available for use in the form of loans, guarantees or letters of credit. Considering

the credit risk of undertakings to grant credit, the Group is potentially exposed to a loss in an amount

equal to the sum of non-utilised liabilities. However, the probable loss amount is usually lower than

the total value of non-utilised liabilities because most of the undertakings to disburse credit depend

on customers’ particular credit conditions.

The Group monitors the period remaining to maturity of off-balance liabilities because long-term

liabilities usually involve a higher degree of credit risk than short-term liabilities.

(3b) Limits control and risk mitigation policy

The Group measures, monitors and controls large credit exposures and high credit risk concentrations,

wherever they are identified. Concentration risk management process encompasses single-name

exposures with respect to an individual borrower or group of connected borrowers (with material

capital, organizational or significant economic relations) and sectoral concentration – to economic

industries, geographical regions, countries, and the real estate financing portfolio (including FX

loans), portfolio in foreign currencies and other. Above types of sectoral exposures are subject to

internal limits system. Information about the utilization of limits is presented at the Supervisory

Board, the Committee for Risk Matters, and the Risk Committee.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

The internal (mentioned above) limits are monitored quarterly. Limits are subject to annual or more

frequent review, when deemed appropriate. The limits are approved by the Supervisory Board or the

Risk Committee.

Management of credit risk exposure is also performed through regular monitoring of customers’

economic and financial situation and/or track record of their relationship with the Group from the

point of view of punctual repayment of their principal and interest liabilities.

Collateral

The Group accepts collateral to mitigate its credit risk exposure; the main role of collateral is to

minimize loss in the event of customers' default in repayment of credit transactions in contractual

amounts and on contractual dates by ensuring an alternative source of repayment of due and payable

amounts.

Collateral is accepted in accordance with the credit policy principles defined for each customer

segment. The key principle is that collateral for credit transaction should correspond to the credit

risk incurred by the Group, considering the specific nature of the transaction (i.e., its type, amount,

repayment period and the customer's rating).

The credit policy defines the types, kinds and legal forms of collateral accepted in the Group as well

as more detailed requirements that are to ensure the probability of selling collateral of respective

types in the context of the Group's recovery experiences.

The Group pays special attention to the correct determination of collateral value. It defined the rules

for preparing and verifying collateral valuation and does its utmost to ensure that such valuations are

objective, conservative and reflect the true value of the collateral. To ensure effective establishment

of collateral, the Group has developed appropriate forms of collateral agreements, applications,

powers-of-attorney and representations.

In the retail segment, accepted collateral consists mainly of residential real property (mortgage loans)

and financial assets. In the corporate segment, are taken primarily all types of property (residential,

commercial, land) as well as the assignment of receivables from contracts.

Temporary collateral is also accepted in the period before the final collateral is established.

Additionally, the Group uses various forms of instruments supplementing the collateral, which

facilitate enforcement or increase probability of effective repayment of debt from a specific

collateral. Those instruments include statement of submitting to enforcement in the form of a notarial

deed, blank promissory note, power-of-attorney to a bank account, assignment of rights under an

insurance agreement.

The Group monitors the collateral to ensure that it satisfies the terms of the agreement, i.e., that

the final collateral of the transaction has been established in a legally effective manner or that the

assigned insurance policies are renewed. The value of the collateral is also monitored during the term

of the credit transaction.

In accordance with credit policy adopted in the Group it is also allowed to grant a transaction without

collateral, but this takes place according to principles, which are different depending on the client’s

segment. But in the case of the deterioration of the debtor’s economic and financial situation, in

documents signed with the client the Group stipulates the possibility of taking additional collateral

for the transaction.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

(3c) Policy with respect to impairment and creation of impairment charges

Organization of the Process

The process of impairment identification and measurement with respect to loan exposures is

regulated in the internal instruction introduced with IFRS9 application. The documentary defines in

detail the mode and principles of individual and collective analysis, including algorithms for

calculating parameters.

The methodology and assumptions adopted for determining credit impairments are regularly reviewed

to reduce discrepancies between the estimated and actual losses. To assess the adequacy of the

impairment determined both in individual analysis and collective analysis a historical verification

(backtesting) is conducted from time to time (at least oncea year), which results will be considered

to improve the quality of the process.

Supervision over the process of estimating impairment charges and provisions is exercised at the

Group by the Risk Department (DMR), which also has direct responsibility for individual analysis in the

business portfolio at the Bank, as well as collective analysis. In addition to DMR, the process also

involves recovery and restructuring units. These are the Corporate Recovery Department – DNG

(individual analysis for the recovery-restructuring portfolio for corporate customers) and the Retail

Liabilities Restructuring and Recovery Department - DRW (individual analysis of individually significant

retail impairments, mainly mortgages). DMR is a unit not connected with the process of lending; it is

supervised by the Management Board Member responsible for risk management. Similarly organized

is the impairment process at Millennium Leasing.

The Management Board of the Bank plays an active role in the process of determining impairment

charges and provisions. The results of credit portfolio valuation are submitted to the Management

Board for acceptance in a monthly cycle with a detailed explanation of the most important changes

with an impact on the overall level of impairment charges and provisions, in the period covered by

the analysis. Methodological changes resulting from the validation process and methodological

improvements are presented at the Validation Committee, and subsequently at the Risk Committee

which includes all the Management Board Members.

In monthly periods detailed reports are prepared presenting information about the Group’s retail

portfolio in various cross-sections, including the level of impairment charges and provisions, their

dynamics and structure. The recipients of these reports are Members of the Management Board,

supervising the activity of the Group in finance, risk and management information.

Expected credit loss measurement

Since implementation of IFRS9 in 2018, impairment estimation model within the Group has been based

on the concept of “expected credit loss”, (hereinafter: ECL). As a direct result of using this approach,

impairment charges now must be calculated based on expected credit losses and forecasts of expected

future economic conditions must be considered when conducting evaluation of credit risk of an

exposure.

The implemented impairment model applies to financial assets classified in accordance with IFRS 9

as financial assets measured at amortized cost or at fair value through other comprehensive income,

except for equity instruments.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

According to IFRS 9, credit exposures are classified in the following categories:

▪ Stage 1 – non-impaired exposures, for which expected credit loss is estimated for the 12-month

period,

▪ Stage 2 – non-impaired exposures, for which a significant increase in risk has been identified

(SICR) and for which expected credit loss is estimated for the remaining lifetime of the

financial asset,

▪ Stage 3 – credit impaired exposures, for which expected credit loss is estimated for the

remaining lifetime of the financial asset.

▪ POCI (purchased or originated credit impaired) – exposures which, upon their initial

recognition in the balance sheet, are recognized as impaired, expected losses are estimated

for the remaining life of the financial asset.

Identification of a significant increase in credit risk (SICR)

Assets, for which there has been identified a significant increase in credit risk compared to the initial

recognition in the balance sheet, are classified in Stage 2. The significant increase in credit risk is

recognized based on qualitative and quantitative criteria. The qualitative criteria include:

• repayment delays of more than 30 days,

• forborne exposures in non-default status,

• procedural rating, which is reflecting early delays in payments,

• taking a risk-mitigating decision for corporate clients, triggered by the early warning system,

• events related to an increase in credit risk, the so called “soft signs” of impairment, identified as

part of an individual analysis involving individually significant customers.

The quantitative criterion involves a comparison of the lifetime PD value determined on initial

recognition of an exposure in the balance sheet, with the lifetime PD value determined at the current

reporting date. If an empirically determined threshold of the relative change in the lifetime PD value

is exceeded, then an exposure is automatically transferred to Stage 2. The quantitative assessment

does not cover exposures analysed individually.

Individual analysis of impairment for credit receivables

Individual analysis contains customers identified as significantly important both for business portfolio

and recovery portfolio. Credit exposures are selected for individual analysis based on materiality

criteria which ensure that case-by case analysis covers at least 50% of the Group’s business corporate

portfolio and 80% of the portfolio managed by entities responsible for the recovery and restructuring

of corporate receivables.

Principal elements of the process of individual analysis:

1) Identification of soft signs of impairment being one of qualitative triggers of Significant Increase

of Credit Risk (SICR).

This process covers biggest business corporate customers, for which financial-economic situation is

analysed on a quarterly basis based on latest financial statement, events connected with company

activities, information concerning related entities and economic environment, expectation about

future changes, etc. There was defined catalogue of so called “soft signs of impairment”,

identification of which means significant increase of credit risk (SICR) and causing classification of all

exposures of such customer to Stage 2.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

2) Identification of impairment triggers.

The Group defined impairment triggers for individual analysis and adjusted them to its operational

profile. The catalogue of triggers contains among others following elements:

▪ The economic and financial situation pointing to the Customer’s considerable financial

problems,

▪ Breach of the contract, e.g., significant delays in payments of principal or interest

▪ Stating the customer’s unreliability in communicating information about his economic and

financial situation,

▪ Permanent lack of possibility of establishing contact with the customer in the case of violating

the terms of the agreement,

▪ High probability of bankruptcy or a different type of reorganizing the Customer’s

enterprise/business,

▪ Declaring bankruptcy or opening a recovery plan with respect to the Customer,

▪ Granting the Customer who has financial difficulties, facilities concerning financing conditions

(restructuring).

Internal regulations allow discovering above-mentioned triggers by indicating specific cases and

situations corresponding to them, with respect to triggers resulting from the Customer’s considerable

financial problems, violating the critical terms of the agreement and high probability of a bankruptcy

or different enterprise reorganization.

3) Scenario approach in calculation of impairment allowances for individually analysed customers.

If at least one of impairment triggers has been identified during the individual analysis, all exposures

of given customer are classified in Stage 3 and then detailed analysis of forecasted cash-flows should

be performed. Since introducing IFRS9 the Group is using scenario approach. It means that analyst

should define at least two recovery scenarios which reflect described and approved recovery

strategies: the main and alternative ones with assigned probabilities of realization. The Group has

defined guidelines regarding the weights used for individual scenarios. Scenarios can be based on

restructuring or vindication strategy; mixed solutions are also used. The whole process of individual

analysis is supported by especially dedicated Case-By-Case IT Tool especially useful in terms of

calculation impairment amount with usage of scenario approach.

Every scenario contains two general types of recoveries: direct cash-flows from customers and

recovered amounts from collateral.

4) Estimating expected cash-flows.

One element of the impairment calculation process is the estimation of the probability of cash flows

included in the timetable, pertaining to the following items: principal, interest, and other cash flows.

The probability of realizing cash flows included in the timetable results from the conducted

assessment of the customer’s economic and financial situation (indication of the sources of potential

repayments) must be justified and assessed based on current documentation and knowledge (broadly

understood) of his situation with the inclusion of financial projections. This information is gathered

by an analyst prior to the actual analysis in accordance with the guidelines specified in appropriate

Group regulations.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

In the event of estimating the probability of cash flows for customers in the portfolio managed by

restructuring-recovery departments analysts will consider the individual nature of each transaction

pointing among others to the following elements which may have an impact on the value of potential

cash flows:

▪ Operational strategy with respect to the Customer adopted by the Group,

▪ Results of negotiations with the customer and his attitude, i.e., willingness to settle his

arrears,

▪ Improvement/deterioration of his economic and financial situation,

The Group also uses the formal terms of setting and justifying the amount of probability and amount

of the payment by the Bank of funds under the extended off-balance sheet credit exposure such as

guarantees and letters of credit.

5) Estimation of the fair value of collateral, specifying the expected date of sale and estimation of

expected revenues from the sale after deduction of the costs of the recovery process.

The inclusion of cash flows from realization of collateral must be preceded by an analysis of how

realistically it can be sold and estimation of its fair value after recovery costs.

To ensure the fairness of the principles of establishing collateral recoveries, the Group prepared

guidelines for corporate segment with respect to the recommended parameters of the recovery rate

and recovery period for selected collateral groups. Depending on the place of the exposure in the

Bank’s structure (business portfolio, restructuring-recovery portfolio) and type of exposure (credit,

leasing) separate principles have been specified for portfolio types: business, restructuring-recovery,

and leasing portfolio. The recommended recovery rates and period of collateral recovery are verified

in annual periods.

Collective analysis of the credit portfolio

Subject to collective analysis are the following receivables from the group of credit exposures:

▪ Individually insignificant exposures;

▪ Individually significant exposures for which there has not been recognized impairment triggers

because of an individual analysis.

For the purposes of collective analysis, the Group has defined homogenous portfolios consisting of

exposures with a similar credit risk profile. These portfolios have been created based on segmentation

into business lines, types of credit products, number of days of default, type of collateral etc. The

division into homogenous portfolios is verified from time to time for their uniformity.

The expected credit loss in a collective analysis is calculated using Probability of Default (PD),

Exposure at Default (EAD), and Loss Given Default (LGD) parameters, which are the outcome of the

following models:

▪ The PD model is based on empirical data concerning 12-month default rates, which are then used

to estimate lifetime PD values using appropriate statistical and econometric methods. The

segmentation adopted for this purpose at the customer level is consistent with the segmentation

used for capital requirement calculation purposes. Additionally, the Bank has been using rating

information from internal rating models to calculate PDs.

▪ The LGD models for the retail portfolio used by the Group in the capital calculation process were

adjusted to IFRS 9 requirements in estimating impairment. The main components of these models

are the probability of cure and the recovery rate estimated based on discounted cash flows. The

necessary adaptations to IFRS 9 include, among other things, exclusion of the conservatism buffer,

indirect costs, and adjustments for economic slowdown. For the corporate portfolio LGD model is

based on a component determining parameterized recovery for the key types of collateral and a

component determining the recovery rate for the unsecured part. All the parameters were

calculated based on historical data, including discounted cash flows achieved by the corporate

debt recovery unit.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

▪ The EAD model used in the Group includes calculation of parameters such as: average limit

utilization (LU), credit conversion factor (CCF), prepayment ratio and behavioural lifetime.

Segmentation is based on the type of customer (retail, corporate, leasing) and product (products

with/without a schedule).

The results of models employed in collective analysis are subject to periodical verification. The

parameters and models are also covered by the process of models’ management governed by the

document „Principles of Managing Credit Risk Models”, which specifies, among others, the principles

of creating, approving, monitoring and validation, and historical verification of models.

Forward-looking information incorporated in the ECL models

In the process of calculation of expected credit losses, the Group uses forward-looking information

(FLI) about future macroeconomic events. FLI is used in PD, LGD, and EAD as well as in the process of

determination of SICR and allocation of exposures to Stage 2 (Transfer Logic). The Macroeconomic

Analysis Office prepares three macroeconomic scenarios (base, optimistic and pessimistic) and

determines the probability of their occurrence. Forecasts translate directly or indirectly into the

values of estimated parameters and exposures and their impact vary by model, product type, rating-

class etc. The Group uses macroeconomic forecasts prepared only internally. Forecasts are provided

on a quarterly basis for a 3-year time horizon.

As with any economic forecasts, the projections and likelihoods of occurrence are subject to

a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different

to those projected.

Economic variable assumptions

The most significant period-end assumptions used for the ECL estimate as of 31 December 2021 are

set out below.

Macroeconomic variable

Scenario

2022

2023

2024

Gross Domestic Product

Base

104.8

103.5

103.9

Optimistic

105.0

104.2

104.8

Mild recession

104.3

103.7

103.8

Retail Sales

Base

107.6

105.0

105.2

Optimistic

108.2

105.5

106.5

Mild recession

106.8

104.6

104.8

Unemployment rate

Base

6.4

5.9

4.9

Optimistic

5.7

5.5

4.5

Mild recession

7.5

6.9

6.5

The weightings assigned to each economic scenario on 31 December 2021 were as follows:

Base

Optimistic

Mild recession

Applied weighting

60%

20%

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

ECL sensitivity to macroeconomic scenarios

For assessing the sensitivity of ECL for future macroeconomic conditions, the Group calculated

unweighted ECL for each defined scenario separately. The impact for ECL of application of each of

the scenario separately does not exceed 1.3%.

Reversal of impairment

Impairment Instruction, being core document of Internal regulations, provides a detailed definition

of the principle of reversing impairment losses. In principle, reversing a loss and elimination of a

revaluation charge is possible in the case of cessation of the impairment triggers, including the

repayment of arrears or in the case of selling receivables. Reclassification to the Non-Impaired

category is possible only when the customer has successfully passed the „quarantine” period, during

which he will not show delay in the repayment of principal or interest above 30 days. The quarantine

period only starts counting after any eventual grace period that may be granted on the restructuring.

Detailed rules regarding the applicable quarantine periods (at least 3 or 12 months for forced

restructuring) and reclassification from default are in line with the EBA guidelines regarding the

definition of default.

Sale of receivables

In 2021, the Bank sold retail credit exposures classified as impaired, in the total gross amount of PLN

205.5 million.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

(3d) Maximum exposure to credit risk

31.12.2021

31.12.2020

Exposures exposed to credit risk connected with balance sheet assets

98 387 882

93 680 610

Deposits, loans and advances to banks and other monetary institutions

770 531

625 430

Loans and advances to customers:

78 603 326

73 639 342

Mandatorily at fair value through profit or loss:

362 992

1 615 753

Loans to private individuals:

362 952

1 602 751

Receivables on account of payment cards

264 628

830 971

Credit in current account

98 324

771 780

Loans to companies and public sector

13 002

Valued at amortized cost:

78 240 334

72 023 589

Loans to private individuals:

59 182 858

53 645 684

Receivables on account of payment cards

745 735

75 769

Cash loans and other loans to private individuals

14 724 155

13 617 103

Mortgage loans

43 712 968

39 952 812

Loans to companies

18 976 250

18 105 650

Loans to public entities

81 226

272 255

Financial derivatives and Adjustment from fair value hedge

100 285

175 983

Debt instruments held for trading

86 438

269 413

Debt instruments mandatorily at fair value through profit or loss

127 499

50 335

Debt instruments at fair value through other comprehensive income

17 968 973

18 613 077

Repurchase agreements

268 837

66 350

Other financial assets

461 993

240 680

Credit risk connected with off-balance sheet items

13 882 138

14 177 193

Financial guarantees

1 847 442

1 756 283

Credit commitments

12 034 696

12 420 910

The table above presents the structure of the Group’s exposures to credit risk as at 31

December

2021 and 31

December 2020, not taking into account risk-mitigating instruments. As regards balance-

sheet assets, the exposures presented above are based on net amounts presented in the balance

sheet.

Loans and advances to customers mandatorily at fair value through profit or loss

31.12.2021

31.12.2020

Mandatorily at fair value through profit or loss *

362 992

1 615 753

Companies

12 889

Individuals

362 952

1 602 751

Public sector

112

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

The credit quality of financial assets

PLN’000, as of the end of 2021

Stage 1 (12-

month ECL)

Stage 2

(lifetime ECL)

Stage 3

(lifetime ECL)

POCI

Total

Balance exposures exposed to credit risk

92 585 900

3 841 024

3 269 181

241 276

99 937 381

Balance impairment

340 172

296 298

1 722 517

15 259

2 374 246

Loans and advances to banks (external

rating Fitch: from BBB to AAA; Moody's:

from B3 to Aaa; S&P: from B+ to AAA)

770 770

Loans and advances to private individuals

(according to Master Scale):

55 562 450

2 808 509

2 462 479

241 217

61 074 655

▪ 1-3 Highest quality

36 891 356

113 844

3 235

37 008 435

▪ 4-6 Good quality

10 534 893

416 400

6 736

10 958 029

▪ 7-9 Medium quality

6 564 080

952 980

8 223

7 525 283

▪ 10-12 Low quality

1 549 913

828 615

4 201

2 382 729

▪ 13-14 Watched

5 379

496 627

2 997

505 003

▪ 15 Default

2 462 254

215 817

2 678 071

▪ Without rating *

16 829

225

17 105

Impairment

224 192

250 421

1 401 696

15 490

1 891 799

Loans and advances to companies

(according to Master Scale):

8 391 177

410 854

561 891

9 363 981

▪ 1-3 Highest quality

108 751

1 526

110 277

▪ 4-6 Good quality

2 056 585

19 171

2 075 756

▪ 7-9 Medium quality

3 683 368

69 822

3 753 190

▪ 10-12 Low quality

1 136 115

297 168

1 433 283

▪ 13-14 Watched

10 043

▪ 15 Default

561 891

561 950

▪ Without rating *

1 406 358

13 124

1 419 482

Impairment

68 447

18 872

216 026

(231)

303 114

Loans and advances to public entities

(according to Master Scale):

76 675

76 676

▪ -3 Highest quality

▪ 4-6 Good quality

▪ 7-9 Medium quality

▪ 10-12 Low quality

▪ 13-14 Watched

▪ 15 Default

▪ Without rating*

76 675

76 676

Impairment

163

Factoring (according to Master Scale):

3 041 750

82 612

25 372

3 149 734

▪ 1-3 Highest quality

398

▪ 4-6 Good quality

872 113

1 833

873 946

▪ 7-9 Medium quality

1 537 127

16 037

1 553 164

▪ 10-12 Low quality

594 442

64 634

659 076

▪ 13-14 Watched

▪ 15 Default

25 372

▪ Without rating *

37 670

108

37 778

Impairment

19 804

4 625

10 607

35 036

Leasing (according to Master Scale):

6 191 046

539 048

219 439

6 949 533

▪ 1-3 Highest quality

75 221

475

75 763

▪ 4-6 Good quality

589 691

2 746

592 448

▪ 7-9 Medium quality

1 284 443

21 524

1 306 013

▪ 10-12 Low quality

548 894

103 782

809

653 485

▪ 13-14 Watched

2 156

▪ 15 Default

204 576

▪ Without rating *

3 692 797

408 365

13 930

4 115 092

Impairment

27 566

22 380

94 188

144 134

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

PLN’000, as of the end of 2021

Stage 1 (12-

month ECL)

Stage 2

(lifetime ECL)

Stage 3

(lifetime ECL)

POCI

Total

Derivatives and adjustment from fair value

hedge (according to Master Scale):

100 285

▪ 1-3 Highest quality

26 400

▪ 4-6 Good quality

41 574

▪ 7-9 Medium quality

6 906

▪ 10-12 Low quality

8 000

▪ 13-14 Watched

▪ 15 Default

▪ Without rating

3 020

▪ fair value adjustment due to

hedge accounting

▪ Valuation of future FX

payments

▪ Hedging derivative

14 385

Trading debt securities (State Treasury**

bonds)

86 438

Debt securities mandatorily at fair value

through profit or loss

127 499

Investment debt securities (State Treasury

**, Central Bank**, Local Government, EIB)

17 968 973

Receivables from securities bought with

sell-back clause

268 837

PLN’000, as of the end of 2020

Stage 1 (12-

month ECL)

Stage 2

(lifetime ECL)

Stage 3

(lifetime ECL)

POCI

Total

Balance exposures exposed to credit risk

87 023 925

3 957 170

3 336 484

399 429

94 717 008

Balance impairment

365 159

292 937

1 688 178

26 361

2 372 635

Loans and advances to banks (external

rating Fitch: from BBB to AAA; Moody's:

from B3 to Aaa; S&P: from B+ to AAA)

625 430

Loans and advances to private individuals

(according to Master Scale):

50 736 844

2 395 682

2 304 706

399 370

55 836 602

▪ 1-3 Highest quality

29 968 500

24 559

3 872

29 996 931

▪ 4-6 Good quality

10 586 928

257 412

8 498

10 852 838

▪ 7-9 Medium quality

8 030 642

809 947

13 772

8 854 361

▪ 10-12 Low quality

2 130 299

827 538

7 998

2 965 835

▪ 13-14 Watched

9 680

476 123

3 379

489 182

▪ 15 Default

2 304 444

361 847

2 666 291

▪ Without rating *

10 795

103

262

11 164

Impairment

245 403

251 526

1 218 373

26 616

1 741 918

Loans and advances to companies

(according to Master Scale):

8 160 794

720 570

707 714

9 589 137

▪ 1-3 Highest quality

59 626

822

60 448

▪ 4-6 Good quality

1 711 520

86 777

1 798 297

▪ 7-9 Medium quality

3 818 823

243 449

4 062 272

▪ 10-12 Low quality

1 166 969

364 993

1 531 962

▪ 13-14 Watched

8 886

▪ 15 Default

707 714

707 773

▪ Without rating *

1 403 856

15 643

1 419 499

Impairment

75 776

19 185

313 000

(255)

407 706

Loans and advances to public entities

(according to Master Scale):

89 005

89 039

▪ -3 Highest quality

▪ 4-6 Good quality

▪ 7-9 Medium quality

▪ 10-12 Low quality

▪ 13-14 Watched

▪ 15 Default

▪ Without rating*

89 005

89 039

Impairment

225

252

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

PLN’000, as of the end of 2020

Stage 1 (12-

month ECL)

Stage 2

(lifetime ECL)

Stage 3

(lifetime ECL)

POCI

Total

Factoring (according to Master Scale):

2 607 598

216 464

34 553

2 858 615

▪ 1-3 Highest quality

▪ 4-6 Good quality

763 822

214

764 036

▪ 7-9 Medium quality

1 074 958

21 465

1 096 423

▪ 10-12 Low quality

738 390

194 677

933 067

▪ 13-14 Watched

▪ 15 Default

34 553

▪ Without rating *

30 423

108

30 530

Impairment

22 781

6 675

25 012

54 468

Leasing (according to Master Scale):

5 557 900

624 453

289 478

6 471 831

▪ 1-3 Highest quality

85 887

347

86 296

▪ 4-6 Good quality

624 117

2 030

626 241

▪ 7-9 Medium quality

1 278 044

18 986

413

1 297 443

▪ 10-12 Low quality

462 950

146 846

843

610 639

▪ 13-14 Watched

2 839

2 854

▪ 15 Default

268 101

▪ Without rating *

3 106 902

453 405

19 950

3 580 257

Impairment

20 974

15 551

131 766

168 291

Derivatives and adjustment from fair value

hedge (according to Master Scale):

297 514

▪ 1-3 Highest quality

52 505

▪ 4-6 Good quality

135 150

▪ 7-9 Medium quality

24 376

▪ 10-12 Low quality

18 173

▪ 13-14 Watched

3 625

▪ 15 Default

5 454

▪ Without rating

35 633

▪ fair value adjustment due to

hedge accounting

803

▪ Valuation of future FX

payments

▪ Hedging derivative

21 795

Trading debt securities (State Treasury**

bonds)

269 413

Investment debt securities (State Treasury

**, Central Bank**, Local Government, EIB)

18 613 077

Receivables from securities bought with

sell-back clause

66 350

* - the group of clients without an internal rating includes, among others, exposures related to loans to local government

units as well as investment projects and some leasing clients;

** – rating for Poland in 2019 A- (S&P), A2 (Moody’s), A- (Fitch)

(3e) Loans

Impaired loans and advances

The gross amount of impaired loans and advances broken down into customer segments is as follows:

Gross exposure in ‘000 PLN

31.12.2021

Loans and advances to customers

Loans and

advances to

banks

Total

Companies

Mortgages

Other retail

By type of analysis

Case by case analysis

598 790

217 799

3 873

820 462

Collective analysis

207 970

744 084

1 712 540

2 664 594

Total

806 760

961 883

1 716 413

3 485 056

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Gross exposure in ‘000 PLN

31.12.2020

Loans and advances to customers

Loans and

advances to

banks

Total

Companies

Mortgages

Other retail

By type of analysis

Case by case analysis

765 463

246 375

3 527

1 015 365

Collective analysis

266 374

768 588

1 648 062

2 683 024

Total

1 031 837

1 014 963

1 651 589

3 698 389

Loans and advances covered by case-by-case analysis

The quantification of the value of the portfolio subjected to case-by-case analysis as well as of the

value of created charges, split between impaired receivables (and respectively charges) is presented

in financial notes.

The tables below present the structure of the impaired portfolio subjected to case-by-case analysis.

Case by Case loans and advances to customers - by currency

31.12.2021

31.12.2020

Amount in

‘000 PLN

Share %

Coverage by

impairment

provisions

Amount in

‘000 PLN

Share %

Coverage by

impairment

provisions

PLN

580 700

70.8%

33.6%

772 004

76.0%

38.9%

CHF

133 501

16.3%

22.0%

162 121

16.0%

19.1%

EUR

105 991

12.9%

34.7%

80 539

7.9%

38.5%

USD

270

0.0%

39.2%

645

0.1%

21.0%

SEK

0.0%

76.1%

Total (Case by Case impaired)

820 462

100.0%

31.8%

1 015 365

100.0%

35.7%

Case by Case loans and advances to customers - by coverage ratio

31.12.2021

31.12.2020

Amount in ‘000 PLN

Share %

Amount in ‘000 PLN

Share %

Up to 20%

386 840

47.2%

443 124

43.7%

20% - 40%

125 450

15.3%

162 226

16.0%

40% - 60%

153 655

18.7%

135 207

13.3%

60% - 80%

92 191

11.2%

132 817

13.0%

Above 80%

62 326

7.6%

141 991

14.0%

Total (Case by Case impaired)

820 462

100.0%

1 015 365

100.0%

At the end of 2021, the financial impact from the established collaterals securing the Group’s

receivables with impairment recognized under individual analysis (Case by Case) amounted to PLN

397.6 million (at the end of 2020 respectively PLN 424.7 million). It is the amount, by which the level

of required provisions assigned to relevant portfolio would be higher if flows from collaterals were

not to be considered in individual analysis.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Restructured loans and advances

The restructuring of receivables is done by dedicated units (separately for corporate and retail

receivables).

The restructuring of both corporate and retail receivables allows the Group to take effective action

towards the customers, the purpose of which is to minimize losses and mitigate, as quickly as possible,

any risks to which the Group is exposed in connection with client transactions giving rise to the Group's

off-balance sheet receivables or liabilities.

The restructuring process applies to the receivables which, based on the principles in place in the

Group, are transferred to restructuring and recovery portfolios and includes setting new terms of

transactions which are acceptable for the Group (including the terms of their repayment and their

collateral and possibly obtaining additional collateral).

Recovery of retail receivables is a fully centralized process implemented in two stages:

▪ monitoring and amicable debt collection proceedings - conducted by Retail Liabilities

Monitoring and Collection Department,

▪ restructuring and execution proceedings – implemented by Retail Liabilities Restructuring

and Recovery Department.

Process performed by Retail Liabilities Monitoring and Collection Department involves direct

telephone contacts with Customers and obtaining repayment of receivables due to the Group. In case

of failure to receive repayment or in case the Customer applies for debt restructuring, the case is

taken over by the Retail Liabilities Restructuring and Recovery Department and involves all

restructuring and execution activities.

Recovery process is supported by specialized IT system covering the entire Customer portfolio, fully

automated at the stage of portfolio monitoring and supporting actions undertaken in later

restructuring and recovery phases. The behavioural scoring model constitutes an integral component

of the system, used at the warning stage. The system is used for retail liabilities collection process

applicable to all retail Customer segments.

The scoring model is based on internal calculations including, inter alia, Customer’s business segment

type of credit risk-based product (applicable, primarily, to mortgage products) and history of

cooperation with the Customer relative to previous restructuring and execution activities. Late

receivables from retail customers are sent to the IT system automatically no later than 4 days after

the date of the receivable becoming due and payable.

The restructuring and recovery process applicable to corporate receivables (i.e., balance and off-

balance receivables due from corporate and SME customers) is centralized and performed by the

Corporate Recovery Department. Recovery of corporate receivables aims to maximize the recovery

amounts and to mitigate risk incurred by the Group in the shortest possible periods of time by carrying

out the accepted restructuring and recovery strategies towards:

▪ the customer,

▪ corporate receivables,

▪ collateral ensuring their repayment.

The actions performed as part of those strategies include, among others: setting the terms and

conditions of Customer financing, terms and conditions of restructuring corporate receivables (also

within court restructuring proceedings), including the terms on which they will be repaid and secured,

obtaining valuable and liquid collateral, achieving amicable repayment, recovery of due and payable

receivables (also by court executive officer), also from collateral, actions performed within debtors’

bankruptcy proceedings, conducting required legal actions.

Corporate Recovery Department manages the corporate receivable restructuring and recovery process

by using IT applications supporting the decision-making process and monitoring. They provide

instantaneous information on receivables, collateral, approach used and key actions and dates.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

All restructured exposures are classified directly after signing sufficient annex/agreement to Stage 3.

In terms of regular payments such exposure can be cured when fulfil internally defined quarantine

rules in accordance with EBA Guidelines concerning New Definition of Default. Cured restructured

cases are classified to Stage 2 for at least following 2 years after cure in accordance with EBA technical

standards for forborne exposures.

The table below presents the loan portfolio with recognized impairment managed by the Group’s

organizational units responsible for loan restructuring.

Gross exposure in ‘000 PLN

31.12.2021

31.12.2020

Loans and advances to private individuals

1 102 917

1 103 434

Loans and advances to companies

215 258

214 521

Total

1 318 175

1 317 955

Exposures subject to measures applied in response to the COVID-19 crisis (in ‘000 PLN)

Information on loans and advances subject

to legislative and non-legislative moratoria,

TOTAL

Performing

Accumulated impairment

Performing

Accumulated

impairment

Of which:

grace

period of

capital and

interest

Of which: Instruments

with significant increase

in credit risk since initial

recognition but not

credit-impaired (Stage 2)

Loans and advances subject to moratorium

of which: Households

of which: Collateralised by residential

immovable property

of which: Non-financial corporations

of which: Small and Medium-sized Enterprises

of which: Collateralised by commercial

immovable property

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Loans and advances subject to legislative

and non-legislative moratoria

Non-performing

Inflows to

non-performing

exposures

Gross carrying amount

Non-performing

Of which: Unlikely to

pay that are not past-

due or past-due

Gross carrying

amount

<= 90 days

Loans and advances subject to moratorium

of which: Households

of which: Collateralised by residential

immovable property

of which: Non-financial corporations

of which: Small and Medium-sized Enterprises

of which: Collateralised by commercial

immovable property

Information on loans and advances subject to legislative and

non-legislative moratoria,

Non-performing

Accumulated impairment

Non-performing

Of which:

grace period

of capital and

interest

Of which:

Unlikely to pay

that are not

past-due or

past-due

Accumulated

impairment

<= 90 days

Loans and advances subject to moratorium

of which: Households

of which: Collateralised by residential immovable property

of which: Non-financial corporations

of which: Small and Medium-sized Enterprises

of which: Collateralised by commercial immovable property

Breakdown of loans and advances subject to legislative

and non-legislative moratoria by residual maturity of

moratoria, Gross carrying amount

Number of

obligors

TOTAL

Of which:

legislative

moratoria

expired

Loans and advances for which moratorium was offered

57 843

7 162 154

Loans and advances subject to moratorium (granted)

57 609

6 707 973

10 334

6 707 973

of which: Households

5 748 299

10 334

5 748 299

of which: Collateralised by residential immovable property

4 270 399

8 792

4 270 399

of which: Non-financial corporations

959 673

of which: Small and Medium-sized Enterprises

480 569

of which: Collateralised by commercial immovable property

68 465

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Breakdown of loans and advances subject to

legislative and non-legislative moratoria by

residual maturity of moratoria,

Gross carrying amount

Residual maturity of moratoria

<= 3 months

> 3 months

> 6 months

> 9 months

> 1 year

<= 6 months

<= 9 months

<= 12 months

Loans and advances subject to moratorium

(granted)

of which: Households

of which: Collateralised by residential

immovable property

of which: Non-financial corporations

of which: Small and Medium-sized Enterprises

of which: Collateralised by commercial

immovable property

Information on newly originated loans and advances

provided under newly applicable public guarantee

schemes introduced in response to COVID-19 crisis

Gross carrying amount

Gross carrying

amount

TOTAL

of which:

forborne

Inflows to

non-performing

exposures

Newly originated loans and advances subject to public

guarantee schemes

1 187 139

2 778

13 643

of which: Households

of which: Collateralised by residential immovable property

of which: Non-financial corporations

1 187 139

2 778

13 643

of which: Small and Medium-sized Enterprises

573 630

3 640

of which: Collateralised by commercial immovable property

(3f) Collateral transferred to the Group

In 2021 there were no major seizures by the Bank or sale of fixed assets constituting loan collateral.

The above situation was caused by the implementation of other more cost-effective paths of satisfying

oneself from lien or transfers of title (more effective in terms of time and money with the limitation

of costs), i.e., leading to the sale of the object of collateral under the Bank’s supervision and with

the allocation of obtained sources for repayment. A variety of such action is concluding agreements

with official receivers based on which the receiver for an agreed fee secures and stores objects of

collateral and in agreement with the Bank puts them up for sale and sells them (also as part of selling

organized parts or the debtor’s whole enterprise). Funds obtained in such a way are allocated directly

for repayment of the Bank’s receivables (such debt-collection procedure is implemented without

recording transferred collateral on the so-called “Fixed Assets for Sale”).

At the same time, a subsidiary of Bank - Millennium Leasing, takes control over some of assets leased

and leads active measures aimed at their disposal. Data about the value of these assets and their

changes during the reporting period are shown in note (30) "Non-current assets held for sale” of the

consolidated balance sheet.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

(3g) Policy for writing off receivables

Credit exposures, with respect to which the Group no longer expects any cash flows to be recovered

and for which impairment provisions (or fair value adjustments in case of overdue receivables

originated from derivatives) have been created fully covering the outstanding debt are written-off

the balance sheet against said provisions and transferred to off-balance. This operation does not cause

the debt to be cancelled and the legal and recovery actions, reasonable from the economic point of

view, are not interrupted to enforce repayment.

In most of cases the Group writes off receivables against impairment provisions when said receivables

are found to be unrecoverable i.e., among other things:

▪ obtaining a decision on ineffectiveness of execution proceedings;

▪ death of a debtor;

▪ confirmation that there are no chances to satisfy claims from the estate in bankruptcy;

▪ exhaustion of all opportunities to carry out execution due to the lack of assets of the main

debtor and other obligors (e.g., collateral providers)

Gross exposure write-offs in ‘000 PLN

In 2021

Loans and advances to customers

Loans and

advances to

banks

Total

Companies

Mortgages

Other retail

Receivables written-off excluded from

enforcement activity

12 013

7 605

48 765

68 383

Receivables written-off being subject to

enforcement activity

170 385

5 088

100 977

276 450

Total written-off

182 398

12 693

149 742

344 833

Gross exposure write-offs in ‘000 PLN

In 2020

Loans and advances to customers

Loans and

advances

to banks

Total

Companies

Mortgages

Other retail

Receivables written-off excluded from

enforcement activity

1 211

3 249

5 979

10 439

Receivables written-off being subject to

enforcement activity

135 780

7 401

76 602

219 783

Total written-off

136 991

10 650

82 581

230 222

(3h) Concentration of risks of financial assets with exposure to credit risk

Economy sectors

The table below presents the Group’s main categories of credit exposure broken down into

components, according to category of customers.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

31.12.2021

Financial

intermediation

Industry and

constructions

Wholesale and

retail business

Transport and

communication

Public sector

Mortgage loans

Consumer

loans*

Other sectors

Total

Loans and advances

to banks

770 770

Loans and advances

to customers

(Amortized cost)

179 229

6 039 623

5 741 512

2 853 161

53 419

44 288 635

16 786 020

4 672 981

80 614 580

Loans and advances

to customers

(FAIR VALUE)

362 952

362 992

Trading securities

86 438

86 583

Instruments valued

at amort. cost

37 089

Instruments

mandatorily at fair

value through P&L

265 903

Derivatives and

adjustment due to

fair value hedge

59 698

28 040

11 530

251

766

100 285

Investment securities

28 374

5 004

307

17 968 984

18 002 703

Repurchase

agreements

268 837

Total

1 572 864

6 072 711

5 753 043

2 853 747

18 145 930

44 288 635

17 148 972

4 673 840

100 509 742

* including: credit cards, cash loans, current accounts overdrafts

31.12.2020

Financial

intermediation

Industry and

constructions

Wholesale and

retail business

Transport and

communication

Public sector

Mortgage loans

Consumer

loans*

Other sectors

Total

Loans and advances

to banks

625 430

Loans and advances

to customers

(Amortized cost)

269 259

5 702 979

5 405 144

2 343 051

76 415

41 000 677

14 835 925

5 211 774

74 845 224

Loans and advances

to customers

(FAIR VALUE)

222

2 681

4 324

1 700

1 602 751

4 069

1 615 753

Trading securities

269 413

102

269 658

Instruments valued

at amort. cost

38 821

Instruments

mandatorily at fair

value through P&L

251 107

Derivatives and

adjustment due to

fair value hedge

102 704

39 387

23 959

2 359

7 574

175 983

Investment securities

29 184

5 004

308

18 613 089

18 647 619

Repurchase

agreements

66 350

Total

1 344 354

5 750 096

5 433 428

2 347 418

18 997 742

41 000 677

16 438 676

5 223 554

96 535 945

* including: credit cards, cash loans, current accounts overdrafts

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Loans and advances to customers by economy sectors and segment

Taking into consideration segments and activity sectors concentration risk, the Group defines internal

concentration limits in accordance with the risk tolerance allowing it to keep well diversified loan

portfolio.

The main items of loan book are mortgage loans (54.6%) and cash loans (18.3%). The portfolio of loans

to companies (including leasing) from different sectors like industry, construction, transport and

communication, retail and wholesale business, financial intermediation and public sector represents

almost 25% of the total portfolio.

Sector name

2021

Balance Exposure

(PLN million)

Share (%)

2020

Balance Exposure

(PLN million)

Share (%)

Credits for individual persons

61 503,7

75.9%

57 554,6

75.2%

Mortgage

44 288.6

54.6%

41 000.7

53.5%

Cash loan

14 831.6

18.3%

14 412.7

18.8%

Credit cards and other

2 383.5

2.9%

2 141.2

2.8%

Credit for companies*

19 540.2

24.1%

19 023.1

24.8%

Wholesale and retail trade; repair

5 741.5

7.1%

5 410.0

7.1%

Manufacturing

4 846.1

6.0%

4 596.0

6.0%

Construction

1 193.6

1.5%

1 109.8

1.4%

Transportation and storage

2 853.3

3.5%

2 344.9

3.1%

Public administration and defence

53.4

0.1%

76.5

0.1%

Information and communication

1 066.0

1.3%

1 305.5

1.7%

Other Services

1 245.2

1.5%

1 325.9

1.7%

Financial and insurance activities

179.2

0.2%

269.5

0.3%

Real estate activities

1 164.3

1.4%

1 058.6

1.4%

Professional, scientific, and technical

services

285.2

0.3%

242.0

0.4%

Mining and quarrying

91.5

0.1%

78.2

0.1%

Water supply, sewage, and waste

164.2

0.2%

160.1

0.2%

Electricity, gas, water

137.2

0.2%

510.1

0.7%

Accommodation and food service activities

195.4

0.2%

197.3

0.3%

Education

64.3

0.1%

79.3

0.1%

Agriculture, forestry, and fishing

93.2

0.1%

102.0

0.1%

Human health and social work activities

130.3

0.2%

122.8

0.2%

Culture, recreation, and entertainment

36.3

0.0%

34.6

0.0%

Total (gross)

81 043.9

100.0%

76 577.7

100.0%

* incl. Microbusiness, annual turnover below PLN 5 million

Concentration ratio of the 20 largest customers in the Group’s loan portfolio (considering groups of

connected entities) at the end of 2021 equals 6.2% comparing with 6.9% at the end of 2020.

Concentration ratio in 2021 also decreased for the 10 largest customers: to 4.5% from 5.0% at the end

of the previous year. This was the result of, among others, the repayment of revolving loans by several

large entities and sale one big transaction.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

8.4. MARKET RISK AND INTEREST RATE RISK

The market risk encompasses current and prospective impact on earnings or capital, arising from

changes in the value of the Group’s portfolio due to adverse movement in interest rates, foreign

exchange rates or prices of bonds, equities, or commodities.

The interest rate risk arising from Banking Book activities (IRRBB) encompasses current or prospective

impact to both the earnings and the economic value of the Group’s portfolio arising from adverse

movements in interest rates that affect interest rate sensitive instruments. The risk includes gap risk,

basis risk and option risk.

In 2021, the Group was preparing to fully adjust to implement statutory replacement rate for two

interest rate benchmarks, the Swiss Franc London Interbank Offered Rate (CHF LIBOR) and the Euro

Overnight Index Change (EONIA). As of 1 January 2022 (for CHF LIBOR) and 3 January 2022 (for EONIA),

all references to these rates in contracts and financial instruments were statutorily and automatically

replaced with references to new risk-free rates as per decision of the European Commission. For CHF

LIBOR, the nominated replacement rate is the new Swiss Franc risk-free rate SARON and for EONIA -

euro risk-free rate €STR.

The framework of market risk and interest rate risk management and its control are defined on a

centralized basis with the use of the same concepts and metrics which are used in all the entities of

the BCP Group.

Market-risk evaluation measures

The Group’s market risk measurement allows monitoring of all the risk types, which are generic risk

(including interest rate risk, foreign exchange risk, and equity risk), non-linear risk, specific risk and

commodity risk. In 2021 the commodities risk did not exist in the Group. The equity risk assumed to

be irrelevant since the Group’s engagement in equity instruments is immaterial.

Each market risk type is measured individually using an appropriate risk model and then integrated

measurement of total market risk is built from those assessments without considering any type of

diversification between the four risk types (the worst-case scenario).

The main measure used by the Group to evaluate market risks (interest rate risk, foreign exchange

risk, equity risk) is the parametric VaR (Value at Risk) model – an expected loss that may arise on the

portfolio over a specified period (holding period) and with specified probability (confidence level)

from an adverse market movement.

The Value at Risk in the Group (VaR) is calculated considering the holding period of 10 working days

and a 99% confidence level (one tail). In line with regulatory requirements of CRDIV / CRR, the

volatility associated with each market risk vertex considered in the VaR model (and respective

correlation between them) has been estimated by the equally weighted changes of market parameters

using the effective observation period of historical data of last year. The EWMA method (exponentially

weighted moving average method) with effectively shorter observation period is only justified by a

significant upsurge in price volatility.

To monitor and limit the positions in instruments, for which it is not possible to properly assess market

risk with the use of the VaR model (non-linear risk, commodity risk and specific risk), the appropriate

assessment rules were defined. The non-linear risk is measured according to internally developed

methodology which is in line with the VaR methodology – the same time horizon and significant level

is used. Specific and commodities’ risks are measured through standard approach defined in

supervisory regulations, with a corresponding change of the time horizon considered.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

The market risk measurement is carried out daily (intra-day and end-of-day), both on an individual

basis for each of the areas responsible for risk taking and risk management, and in consolidated terms

for Global Bank, Trading and Banking Book considering the effect of the diversification that exists

between the portfolios. In addition, each Book is divided into the risk management areas.

To ensure that the VaR model adopted is appropriate for the evaluation of the risks involved in the

open positions, a back-testing process has been instituted and is carried out daily.

All reported excesses are documented. This includes an explanation of their causes and their

incorporation in one of the three classes of excess explanation: adequacy of the model, insufficient

model accuracy or unanticipated market movements.

Parallel to the VaR calculation the portfolios are subject to a set of sensitivity analysis and stress

scenarios, to:

▪ Estimate the potential economic loss resulting from extreme variations in market risk

factors,

▪ Identify the market risk movements, possibly not captured by VaR, to which the portfolios

are more sensitive,

▪ Identify the actions that can be taken to reduce the impact of extreme variations in the

risk factors.

The following types of market scenarios are being applied:

▪ Parallel shifts of the yield curves;

▪ More steep or flat shape of the yield curves;

▪ Variations of the exchange rates;

▪ Historical adverse scenarios;

▪ Customized scenarios based on observed, adverse changes of market risk parameters.

The global VaR limit is expressed as a fraction of the consolidated Own Funds.in 2021, the VaR limits

were very conservative - set for Global Bank at no more than 2,6% and for Trading Book at 0,31% of

Own Funds). The limit is divided into the books, risk management areas and various types of risk,

which enables the Group for full measurement, monitoring and control of market risk. The market

risk exposure (VaR) together with the limit utilization is reported daily to all areas responsible for

management and control of market risk in the Group.

The market risk limits are revised at least once a year and to consider, inter alia, the change of the

consolidated Own Funds, current and projected balance sheet structure as well as the market

environment. The market risk limits valid for 2021 reflected the assumptions and risk appetite defined

under Risk Strategy 2021 - 2023.

Within the current market environment, the Group continued to act very prudently. The strong market

volatility in connection with the global COVID-19 pandemic and Monetary Policy Council’s (MPC’s)

series of decisions to increase interest rates in Poland resulted in significant increase of the Group’s

market and interest rate risk.

In 2021, the VaR for the Group that is jointly Trading Book and Banking Book, increased due to market

volatility and in 4Q 2021 breached the limits in place. All excesses of market risk limits are always

reported, documented, and ratified at the proper competence level.

In 2021 the VaR indicators for the Group remained on average at the level of PLN 161.7 million (63%

of the limit) and PLN 391.3 million (150% of the limit) as of the end of December 2021. The low level

of diversification effect relates to the fact that the Group’s market risk is mainly the interest rate

risk. The figures in the Table below also include the exposures to market risk generated in

subordinated companies, as the Bank manages market risk at central level. The diversification effect

applies to the generic risk and reflects correlation between its constituents.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

The market risk in terms of VaR for the Group (‘000 PLN):

VaR measures for market

risk (‘000 PLN)

VaR (2021)

31.12.2020

Average

Maximum

Minimum

31.12.2021

Total risk

96 894

161 704

586 186

63 847

391 280

Generic risk

95 256

160 151

584 728

62 220

389 833

Interest Rate Risk

95 227

160 153

584 748

62 224

389 761

FX Risk

190

149

2 917

232

Diversification Effect

0.2%

0.0%

Specific risk

1 638

1 542

1 641

1 445

The corresponding exposures as of 2020 respectively amounted to (‘000 PLN):

VaR measures for market

risk (‘000 PLN)

VaR (2020)

31.12.2019

Average

Maximum

Minimum

31.12.2020

Total risk

33 225

72 530

130 866

30 776

96 894

Generic risk

31 039

70 533

128 701

28 593

95 256

Interest Rate Risk

31 038

70 537

128 744

28 588

95 227

FX Risk

133

1 522

190

Diversification Effect

0.0%

0.2%

Specific risk

2 186

1 638

The market risk exposure divided into Trading Book and Banking Book together with risk type division

is presented in the table below (‘000 PLN):

Banking Book:

VaR measures for

market risk (‘000 PLN)

VaR (2021)

31.12.2020

Average

Maximum

Minimum

31.12.2021

Total risk

95 897

161 824

585 895

63 897

390 289

Generic risk

94 261

160 285

584 441

62 273

388 846

Interest Rate Risk

94 261

160 290

584 441

62 276

388 846

FX Risk

249

Diversification Effect

0.0%

Specific risk

1 636

1 539

1 639

1 443

VaR measures for

market risk (‘000 PLN)

VaR (2020)

31.12.2019

Average

Maximum

Minimum

31.12.2020

Total risk

31 263

71 467

132 279

29 842

95 897

Generic risk

29 080

69 472

130 116

27 659

94 261

Interest Rate Risk

29 080

69 472

130 116

27 659

94 261

FX Risk

Diversification Effect

0.0%

Specific risk

2 184

1 636

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Trading Book:

VaR measures for

market risk (‘000 PLN)

VaR (2021)

31.12.2020

Average

Maximum

Minimum

31.12.2021

Total risk

1 239

1 645

5 860

424

2 518

Generic risk

1 237

1 632

5 858

422

2 514

Interest Rate Risk

1 190

1 610

5 850

420

2 485

FX Risk

183

100

2 940

228

Diversification Effect

11.0%

7.9%

Specific risk

VaR measures for

market risk (‘000 PLN)

VaR (2020)

31.12.2019

Average

Maximum

Minimum

31.12.2020

Total risk

2 455

2 514

6 162

762

1 239

Generic risk

2 452

2 511

6 160

759

1 237

Interest Rate Risk

2 451

2 497

6 118

758

1 190

FX Risk

132

1 524

183

Diversification Effect

0.4%

11.0%

Specific risk

Open positions mostly included interest-rate instruments and FX risk instruments. The FX risk covers

all the foreign exchange exposures of the Group. According to the Risk Strategy approved in the

Group, the FX open position is allowed, however should be kept at low levels. For this purpose, the

Group has introduced a system of conservative limits for FX open positions (both Intraday and

Overnight limits) and allows keeping FX open positions only in Trading Book.

In 2021, as a general rule FX position generated in the Banking Book was fully transferred to the

Trading Book where it was managed daily. During 2021 the FX open position remained on average at

the level of PLN 9.5 million with maximum of PLN 59.3 million. In 2021, the FX Total open position

(Intraday as well as Overnight) remained below 2% of Own Funds and well below the maximum limits

in place.

Evolution of the total FX open position (Overnight) in Trading Portfolio (PLN thousand):

Total position

Period Average

Period Minimum

Period Maximum

The Last Day of

Period

2021

9 464

3 153

59 313

10 021

2020

7 590

2 353

37 584

4 954

In addition to above mentioned market risk limits, the stop loss limits are introduced for the financial

markets’ portfolios. The aim is to limit the maximum losses of the trading activity of the Group. In

case the limit is reached, a review of the management strategy and assumptions for the positions in

question must be undertaken.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

In the back-testing calculation for VaR model in Global Bank, nineteen excesses were detected during

the last twelve months (see table below, PLN thousand).

Reporting Date

VaR

(generic risk)

Theoretical change in the

value of the portfolio

(absolute values)

Number of excesses

in last 12 months *

2021-12-31

389 833

4 056

2020-12-31

95 256

34 824

* The excess is said to happen whenever the difference between the absolute change in portfolio value and VaR measure is

positive.

In 2021, all excesses in the process of VaR model back testing were caused by unanticipated market

movements caused by the COVID-19 pandemic uncertainty and MPC’s decisions to increase interest

rates in Poland, of which strong changes in Polish government bonds yields and short-term interest

rates in second half of 2021 had the most impact on VaR model performance. In consequences, due

to the number of excesses detected, the assessment of VaR model performance felt into red zone:

above 15 excesses. It forced immediate action in VaR calculations, including model parameters

calibration to most recent market observation and temporary volatility method changed from equal

weights to EWMA method, which is better suited during periods of significant upsurge in price

volatility. It allowed stopping further excesses in VaR back testing. Due to one year monitoring period,

higher number of excesses will be present for foreseeable future.

VaR assessment is supplemented by monitoring the market rate sensitivity to the above-mentioned

stress tests scenarios of portfolios carrying market risk.

The results of market risk sensitivity and customized stress tests were regularly reported to the

Capital, Assets and Liabilities Committee.

Interest rate risk in Banking Book (IRRBB)

In case of the Banking Book, the main component of the market risk is interest rate risk.

Exposure to interest rate risk in the Banking Book are primarily generated by the differences in

repricing dates of assets and liabilities as well as its reference indexes, if contractually existing. It is

specifically affected by the unbalance between assets and liabilities that have fixed rate, especially

by the liabilities which cannot have interest rate lower than 0. Consequently, the level of sensitivity

to interest rate changes is influenced by the level of interest rates taken as a reference. Additionally,

due to specificity of the polish legal system, the interest rate of credits is limited (it cannot exceed

two times Reference Rate of the National Bank of Poland increased by 7 percentage points). In

situations of decreasing interest rates, the impact on Net Interest Income is negative and depends on

the share of the loan portfolio that is affected by the new maximum rate. On the other hand,

assumptions regarding the timing and size of deposits repricing are also very important when assessing

the interest rate sensitivity and risk.

In the first 3 quarters of 2021, the interest rates in Poland stayed at its historical minimum (after

three rate cuts in 2020 - reference rate decreased to 0.10%, deposit rate to 0.0% and the Lombard

rate to 0,50%). The maximum interest rate for loan portfolio could not exceed 7.2% annually. In 4th

quarter 2021, series of interest rates increases driven by MPC’s decisions were reflected in change of

interests for loans with gradual or immediate repricing. On the other side, the interest rates on

deposits side still lagged increasing market rates.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Regarding the interest rate risk in Banking Book, the following principles are in place:

▪ The market risk that results from the commercial banking activity is hedged or transferred on the

monthly basis to areas that actively manage market risk and that are measured in terms of risk

and profit and loss,

▪ The Bank primarily uses natural hedging between loans and deposits as well as fixed rate bonds

and derivatives to manage interest rate risk with the main purpose of protecting the net interest

income.

The variations in market interest rate have an influence on the Group’s net interest income, both

under a short and medium-term perspective, also affecting its economic value in the long term. The

measurement of both is complementary in understanding the complete scope of interest rate risk in

Banking Book.

For this reason, apart from daily market risk measurement in terms of value at risk, the scope of the

additional measurement of interest rate risk covers both earnings-based and economic value

measures, which are quarterly:

▪ the impact on the economic value of equity (EVE) resulting from different shocks with

upward/downward yield curve movements, including scenarios defined by the supervisor

(standard, supervisory test assuming sudden parallel +/-200 basis points shift of the yield curve as

well as supervisory outlier test, SOT with set of six interest rate risk stress scenarios).

and monthly:

▪ the interest rate sensitivity in terms of BPVx100, that is the change of the portfolio’s value for the

parallel movement in the yield curve by 1 basis point multiplied by 100,

▪ the impact on net interest income over a time horizon of next 12 months resulting from one-off

interest rate shock of 100 basis points.

The interest rate risk measurement is carried for all the risk management areas in the Bank, with the

particular attention on Banking Book.

For interest rate risk management for non-maturing assets and liabilities or for the instruments with

Client’s option embedded, the Group is defining specific assumptions, including:

▪ Due date for balances and interest flows arising from non-maturing deposits are defined based on

historical data regarding customer behaviour, considering the stability of the volumes and with

assumption of a maximum maturity of 3 years,

▪ The tendency to faster repayment of receivables than contractually scheduled is taken under

consideration by calculating a prepayment rate in respect to all relevant Banks’ loan portfolios

based on historical data. It should be noted that mortgage loans that are the Group's loan product

with a dominant share, are indexed to floating interest rate. This causes that the tendency to

early repayment is less important for the interest rate risk.

▪ The equity, fixed assets, and other assets that are assumed to have repricing period of 1 year.

However, to understand the impact of the chosen maturity profile the IRRBB measurement is

carried out without inclusion of the equity capital to isolate the effects on both EVE and earnings

perspectives.

The results of the above-mentioned analysis for BPVx100 and economic value measures were regularly

monitored and reported to the Capital, Assets and Liabilities Committee, to Risk Committee, the

Management Board and Supervisory Board. Taking into account the increase of interest rates that

occurred in the 4th quarter 2021, the results of the IRRBB measurement as of the end of December

2021 indicate that the Group is now in a more balanced situation regarding the scenario of a decline

or increase in interest rates. The supervisory outlier test results of December 2021 show that even

under the most severe outlier test scenario, the decline of EVE for Banking Book is below supervisory

limit of 15% of Tier 1. Similarly, decline of EVE under standard scenario of sudden parallel +/-200

basis points shift of the yield curve also stayed far below supervisory maximum of 20% of Own Funds.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

The results of the sensitivity of the Banking Book to changes of interest rates in terms of BPVx100 and

EVE under supervisory stress tests are presented in Table below.

Sensitivity of the Banking Book to changes of interest rates was as follows (‘000 PLN):

31.12.2021

31.12.2020

BPVx100

PLN

220 217

(24 537)

CHF

9 890

16 864

EUR

125 092

97 308

USD

33 099

29 892

Other

6 385

4 946

TOTAL

394 682

124 471

Equity, fixed and other assets

53 142

77 253

TOTAL

447 813

201 725

Sensitivity of EVE to changes of interest rates (*)

31.12.2021

31.12.2020

Standard, supervisory test (parallel yield curve +/-200 bp % Own Funds)

-7.29%

-0.28%

Supervisory outlier test (the most severe scenario, % CET1)

-10.64%

-1.94%

(*) The principles listed in section 115 of the EBA IRRBB Guidelines were applied to calculate the change in EVE. The most

severe decline of EVE is presented.

The results of sensitivity of NII for the next 12 months after 31

December 2021 and for position in

Polish Zloty in Banking Book are carried out under the following assumptions:

• static balance sheet structure as of that reference date (no change during the following 12

months),

• reference level of net interest income assuming that all assets and liabilities with variable interest

rate already reflect market interest rates levels as of 31

December 2021 (for example, the NBP

Reference rate at the end of 2021 was set at 1.75%),

• application of a parallel move of 100 bps in the yield curve up and down is an additional shock to

all market interest rates levels as of 31

December 2021 and is set at the repricing date of the

assets and liabilities that happens during the 12 following months.

In a scenario of parallel decrease of interest rates by 100 bps, the results are negative and equal to -

162 mln or -6.0% of the Group’s NII reference level. In a scenario of parallel increase of interest rates

by 100 bps, the results are positive and equal to 160 mln or +5.9% of the Group’s NII reference level.

The level of asymmetry that existed in past reporting dates is now lower as interest rates were

meaningfully above 0% on 31

December 2021 and the leverage impact of the maximum interest rate

is now less strong than in previous years due to changes in the structure of portfolio and pricing of

loans.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

8.5. LIQUIDITY RISK

The objective of liquidity risk management is to ensure and maintain the Group’s ability to meet both

current, as well as future funding requirements considering costs of funding.

Liquidity risk reflects the possibility of incurring significant losses because of deteriorated financing

conditions (financing risk) and/or of the sale of assets for less than their market value (market

liquidity risk) to meet the needs for funding arising from the Group’s obligations.

There were no exposures to liquidity risk at a subsidiary level because the Bank manages liquidity risk

centrally. Both the financing requirements and any liquidity surplus of subsidiaries are managed by

transactions with the Bank unless specific market transactions are previously decided and agreed.

The Treasury Department is responsible for the day-to-day management of the Group’s liquidity

position in accordance with the adopted rules and procedures considering goals defined by the

Management Board and the Capital, Assets and Liabilities Committee.

In 2021, the COVID-19 pandemic still had an impact on global financial markets, however the Bank

did not observe any threat to its liquidity position due to the spread of COVID-19. The Group continued

to be characterized by solid liquidity position.

In 2021, in consequences of the increase of the deposits from Customers at the faster pace than loans,

the Group’s Loan-to-Deposit ratio decreased and was equalled to 86% at the end of December 2021

(comparing to level of 91% as of end of December 2020).

The liquid assets portfolio, that is portfolio of government debt securities, supplemented by the cash

and exposures to the National Bank of Poland, is treated as the Group's liquidity reserve, which will

overcome crisis situations. At the end of 2021, the share of Polish government securities (including

NBP Bills) in total securities portfolio amounted to 98% and allowed to reach the level of approx. PLN

17.6 billion (17% of total assets), whereas at the end of December 2020 was at the level of approx.

PLN 18.4 billion (19% of total assets).

Consequently, the large, diversified, and stable funding from retail, corporate and public sector

Clients remains the main source of financing of the Group. At the end of 2021 total Clients’ deposits

of the Group reached the level of PLN 91.4 billion. The deposit base constituted mainly funds of

individuals Clients, of which the share in total Client’s deposits equalled to approx. 72.2% at the end

of December 2021 (75.9% at the end of December 2020). The high share of funds from individuals had

a positive impact on the Group’s liquidity and supported the compliance of the supervisory liquidity

measures.

Concentration of the deposits base, based on the share of top 5 and top 20 depositors, at the end of

2021 amounted respectively to 3.6% and 6.5% (in December 2020 it was respectively 2.8% and 4.8%).

The level of deposit concentration is regularly monitored and did not have any negative impact on

the stability of the deposit base in 2021. In case of significant increase of the share of the largest

depositors, the additional funds from the depositors are not treated as stable. Despite of that, to

prevent deposit base fluctuations, the Group maintains the reserves of liquid assets in the form of

securities portfolio.

The deposit base is supplemented by the deposits from financial institutions and other money market

operations. In 2021, the source of medium-term funding remains also medium-term loans,

subordinated debt, own bonds issue and bank’s securities.

During 2021, no new bonds and bank’s securities were issued within the Group, and no new loans were

taken from financial institutions. The total balance sheet value of medium-term loans from financial

institutions at the end of 2021 amounted to PLN 369.3 million (at the end of December 2020 it was

PLN 518.8 million). The decrease of the total amount of the medium-term loans from financial

institutions was connected with standard repayment in accordance with the schedule.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

With the exception of subordinated bonds, at the end of December 2021 the total balance sheet

value of bonds and bank’s securities issued by the Group (without subordinated bonds) amounted to

PLN 39.6 million (PLN 558.6 million in nominal value in December 2020). The issue of bonds initially

planned on the Polish market in Q4, 2021, the liabilities under which could be classified as eligible

liabilities within the meaning of the Act of 10 June 2016 on the Bank Guarantee Fund, deposit

guarantee scheme and resolution, did not take place due to a gap in the Polish Bonds Act. In the first

half of 2022, the Bank plans to issue international senior non-preferred bonds as part of the Eurobond

issue program (EMTN), approved by the Bank's Supervisory Board on January 28, 2022. The total

nominal value of issued and unredeemed bonds may not exceed amount of the EMTN program, i.e.

EUR 3 billion at any time.

The Group manages FX liquidity using FX-denominated bilateral loans as well as Cross Currency Swap

and FX Swap transactions. The importance of swaps has been decreasing as a consequence of the

reduction of the FX mortgage loan portfolio and the hedge in foreign currency of the provisions for

legal risk. The swaps portfolio is diversified in term of counterparties and maturity dates. For most

counterparties, the Group has signed a Credit Support Annex to the master agreements. As a result,

in case of unfavourable changes of FX rates (PLN depreciation), the Group is obliged to place deposits

as a collateral with counterparties to secure the settlement of derivative instruments in the future,

and in case of favourable FX rates changes (PLN appreciation) receives deposits as a collateral from

the counterparties. In none of signed ISDA Schedules and Credit Support Annex (both international

and domestic) there exists a relationship between level of the Bank’s ratings and parameters of

collateral. The potential downgrade of any of the ratings will not have impact on method of

calculation and collateral exchange.

The Group assesses the possibility of unfavourable changes of FX rates (especially CHF and EUR, which

causes increase of liquidity needs), analyses the impact on liquidity risk and reflects this risk in the

liquidity plans.

Liquidity risk evaluation measures

The estimation of the Group’s liquidity risk is carried out with the use of both measures defined by

the supervisory authorities and internally, for which exposure limits were established.

The evolution of the Group’s liquidity position in short-term horizons is tested daily based on liquid

asset portfolio, Central Bank’s eligible collateral for standard monetary operation and two internally

defined indicators: immediate liquidity and quarterly liquidity. The last two indicators measure the

maximum borrowing requirement, which could arise on a particular day, taking into consideration the

cash-flow projections for spot date and period of 3 months, respectively.

These figures are compared with the exposure limits in force and reported daily to the areas

responsible for the management and control of the liquidity risk in the Group as well as presented in

monthly and/or quarterly basis to the Bank’s Management Board and Supervisory Board.

The liquidity risk limits are revised at least once a year to take into account, inter alia, the change

of the size of the consolidated own funds, current and expected balance sheet structure, historical

limits’ consumption, as well as current market conditions and supervisory requirements. According to

rules in place, all eventual excesses of internal liquidity risk limits are always reported, documented,

and ratified at the proper competence level.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

According to the Regulation of European Parliament and Council no 575/2013 on prudential

requirements for credit institutions and investment firms (CRR), the Group is calculating the liquidity

coverage requirement (LCR). The regulatory minimum of 100% for LCR valid in 2021 was compiled by

the Group (as of the end of December 2021 the LCR reached the level of 150%). The measure is

calculated daily and has been reported on the monthly basis to NBP since March 2014. Internally, the

LCR is estimated daily and reported to the areas responsible for the management and control of the

liquidity risk in the Group. In 2021, the Group complied also with supervisory measures imposed by

KNF Resolution 386/2008 as well as regularly calculated net stable funding requirement (NSFR). Since

June 2021 the NSFR as obligatory supervisory long term liquidity measure replaced M3 and M4

supervisory measures defined by the KNF. In each of the quarter, the NSFR was above the supervisory

minimum of 100% (supervisory minimum valid since June 2021).

Current Liquidity indicators PLN million

31.12.2021

Immediate liquidity

ratio (%)*

Quarterly liquidity

ratio (%)*

Central Bank Collateral

/ Total Deposits (%)**

Liquid assets

Portfolio (m PLN)***

LCR

(%)

Indicator

22%

19%

18 793

150%

31.12.2020

Immediate liquidity

ratio (%)*

Quarterly liquidity

ratio (%)*

Central Bank Collateral

/ Total Deposits (%)**

Liquid assets

Portfolio (m PLN)***

LCR

(%)

Indicator

21%

18 250

161%

* - Immediate and Quarterly Liquidity Indicator: Ratio between value of the Central Bank Collateral that is the liquidity buffer

available for discount with the Central Bank after applying haircuts for standard monetary transactions (including the

obligatory reserve excess) minus the net outflows (projected for the next 3 working days for Immediate Liquidity Indicator

and for the next 3 months for Quarterly Liquidity Indicator in all convertible currencies) and the total deposits.

** - Central Bank Collateral / Total Deposits: Ratio between value of the Central Bank Collateral that is the liquidity buffer

available for discount with the Central Bank after applying haircuts for standard monetary transactions (including the

obligatory reserve excess) and the total deposits. This ratio is calculated based on the face amount of the referred products.

*** - Liquid Assets Portfolio: The sum of cash, exposure to Central Bank (the surplus above the required obligatory reserve)

and Polish Government debt securities, NBP-Bills and due from banks with maturity up to 1 month. The debt securities

portfolio is reduced by NBP haircut for repo transactions and securities encumbered for non-liquidity purposes.

The Group monitors liquidity based on internal liquidity measures, considering the impact of FX rates

on the liquidity situation.

Additionally, the Group employs an internal structural liquidity analysis based on cumulative,

behaviour liquidity gaps calculated on a real basis (i.e., assuming the probability of cash flow

occurrence). The safe level adopted by the Group for the ratio of liquidity shortfall is established for

each time bucket below 5 years.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

In December 2021, liquidity gaps were maintained positive. The results of cumulative, behaviour

liquidity gaps (normal conditions) are presented in tables below.

31.12.2021

Adjusted Liquidity Gap (PLN million)

up to 6M

6M to 12M

1Y to 2Y

2Y to 3Y

3Y to 5Y

over 5Y

Adjusted balance assets

28 783

8 668

15 015

11 585

16 182

49 538

Adjusted balance liabilities

11 475

4 428

7 745

6 065

9 330

67 977

Balance-Sheet Gap

17 308

4 241

7 270

5 520

6 852

(18 439)

Cumulative Balance-Sheet Gap

17 308

21 549

28 819

34 339

41 190

22 752

Adjusted off-balance assets

309

Adjusted off-balance liabilities

(1 474)

(90)

(136)

(41)

(22)

(1)

Off-Balance Sheet Gap

(1 386)

(28)

173

(17)

(8)

Total Gap

15 923

4 213

7 443

5 503

6 844

(18 439)

Total Cumulative Gap

15 923

20 135

27 578

33 081

39 925

21 486

31.12.2020

Adjusted Liquidity Gap (PLN million)

up to 6M

6M to 12M

1Y to 2Y

2Y to 3Y

3Y to 5Y

over 5Y

Adjusted balance assets

27 740

7 286

12 584

9 874

13 861

38 160

Adjusted balance liabilities

13 075

4 649

8 351

6 358

9 321

59 142

Balance-Sheet Gap

14 665

2 637

4 233

3 516

4 539

(20 982)

Cumulative Balance-Sheet Gap

14 665

17 303

21 536

25 052

29 591

8 609

Adjusted off-balance assets

Adjusted off-balance liabilities

(1 400)

(49)

(83)

(65)

(35)

(4)

Off-Balance Sheet Gap

(1 318)

(8)

(12)

(2)

Total Gap

13 347

2 641

4 225

3 521

4 528

(20 984)

Total Cumulative Gap

13 347

15 989

20 214

23 735

28 263

7 278

The Group has developed a liquidity risk management tool defining sensitivity analysis and stress

scenarios (idiosyncratic, systemic and combination of both). For stress tests, liquidity gaps are

calculated on a real basis assuming a conservative approach to the assessment of probability of cash

flow occurrence among others considering a reduction of deposits, delays of loans repayment,

deteriorated liquidity of the secondary securities market, the highest cost of funding - the assumption

of the worst observed margins on deposits in the Bank, parallel shift of the yield curve and PLN

depreciation.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Stress tests are performed at least quarterly, to determine the Group’s liquidity-risk profile, to ensure

that the Group can fulfil its obligations in the event of a liquidity crisis and to update the liquidity

contingency plan and management decisions. Additionally, stress test results are used for setting

thresholds for early warning signals, which aim is to identify upcoming liquidity problems and to

indicate to the Management Board the eventual necessity of launching Liquidity Contingency Plan.

As of December 2021, the results of the stress test analysis demonstrated that the most severe is run

on Bank combined with rating downgrade scenario of which the survival period is 6 months, however

still above the limit of 3 months.

The information regarding the liquidity risk management, including the utilization of the established

limits for internal and supervisory measures, is reported monthly to the Capital, Assets and Liabilities

Committee and quarterly to the Management Board and Supervisory Board.

The process of the Group’s planning and budgeting covers the preparation of the Liquidity Plan to

make sure that the growth of business will be supported by an appropriate liquidity financing structure

and supervisory requirements in terms of quantitative liquidity measures will be met.

The Group has also emergency procedures for situations of increased liquidity risk – the Liquidity

Contingency Plan (contingency plan in case the Group’s financial liquidity deteriorates). The Liquidity

Contingency Plan establishes the concepts, priorities, responsibilities, and specific measures to be

taken in the event of a liquidity crisis. The Liquidity Contingency Plan is revised at least once a year.

In 2021 the Liquidity Contingency Plan was tested and revised to guarantee that it is operationally

robust. The Plan also adapted revised warning thresholds for early warning indicators, considering

scenarios and stress test results. The revised Plan was approved by the Supervisory Board in December

2021.

8.6. OPERATIONAL RISK

Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes,

people, and systems, or from external events, including legal risk and excluding strategic and

reputational risk (last two are treated as separate categories). Operational risk is demonstrated in

every aspect of activity of the organization and constitutes its intrinsic part.

In the year 2021 there could be observed a continuous use of standards implemented for the purpose

of efficient management of operational risk, which are in line with the best practice of national and

international financial institutions. The solutions adopted also proved successful in the situation

related to the COVID-19 pandemic. The adopted risk management structure describes the various

management levels and scopes of their duties and responsibilities.

Owners of defined business and support processes play a key role in the day-to-day operation of the

Bank. Process owner, basing on thorough knowledge about the process, accurately identifies and

mitigates recognized risks, thus constituting the first line of defence. The second line of defence is

the level of specialized units dealing with the organization of the management and control of an

acceptable level of risk, with consideration of the areas such as: compliance, antifraud, security and

business continuity as well as insurance and outsourcing. The third line of defence is the independent

internal audit unit.

Every decision regarding optimizing operational risk is preceded by cost-benefit analysis.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

A higher risk management level is the Processes and Operational Risk Committee, which focuses on

threats identified in more than one process. All and any activities concerning operational risk are

coordinated and supervised by the Risk Committee, the Management Board, and the Supervisory

Board.

In keeping with the adopted model, risk management is a process of continuous improvement as

regards identification, assessment, monitoring, mitigating, and reporting by:

▪ Gathering operational risk events,

▪ Self-assessment of operational risk in individual processes,

▪ Analysis and monitoring of risk indicators.

The Group gathers operational risk events in an IT tool. The tool supports management of operational

risk. Such events are being afterwards analysed in what concerns the source of event and possibility

of mitigating the effects and apply appropriate preventive actions. In the IT tool, events are being

ascribed to a certain risk category and proper process type, which is later used as a part of reporting

and risk self-assessment validation. The internal database of risk events additionally meets qualitative

and quantitative requirements for following the advanced approach in calculating capital

requirements on account of operational risk.

The risk self-assessment was being realized together with the processes review. It relied on

assessment of adopted solutions’ effectiveness in fulfilling expectations of Clients and business

partners in the scope of both, services quality, and costs optimization. Approved operational risk and

control methodology allowed assessment of risk level in each process, considering existing controls

and basing on accepted scenarios. Mitigation actions were proposed implemented and are monitored

for purposes of assessment of risk levels above the accepted tolerance threshold.

During the risk and control self-assessment exercise an analysis of performance indicators was made,

including risk indicators defined for each process. Key persons - responsible for creating and

implementation activities in given processes - have defined and adjusted the indicators thus to make

them the best forecasts of future risks. On-going monitoring of indicators serves the purpose of

increasing effectiveness and productivity of processes as well as effective control of risk on the level

of individual actions within processes.

Information about operational risk in processes is included in the top-level dashboards consolidating

information about the processes’ performance.

Considering the degree of development of operational risk management and the scale and profile of

its activity, the Bank calculates its capital requirement due to the operational risk using the Standard

Approach.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

9. Operational Segments

Information about operating segments has been prepared based on the reporting structure which is

used by the Management Board of the Bank for evaluating the results and managing resources of

operating segments. Group does not apply additional breakdown of activity by geographical areas

because of the insignificant scale of operations performed outside the Poland, in result such

complementary division is not presented.

The Group’s activity is pursued on the basis of diverse business lines, which offer specific products

and services targeted at the market segments listed below:

Retail Customer Segment

The Retail Customers Segment covers activity targeted at mass-market Customers, affluent

Customers, small companies and individual entrepreneurs.

The activity of the above business lines is developed with use of the full offer of banking products

and services as well as sales of specialised products offered by subsidiaries in the group. In the credit

products area the key products are mortgage loans, retail credit products, credit card revolving credit

as well leasing products for small companies. Meanwhile key Customers funds include: current and

saving accounts, term deposits, mutual funds and structured products. Additionally the offer

comprises insurance products, mainly linked with loans and credit cards, as well as specialised savings

products. The product offer for affluent customers was enriched to include selected mutual funds of

other financial intermediaries, foreign funds and structured bonds issued by the Bank.

Corporate Customer Segment

The Corporate Customers Segment is based on activity targeted at Small and Medium sized Companies

as well as Large Corporations. The offer is also addressed to Customers from the Public Sector.

Business in the Corporate Customers segment is pursued with use of a high quality offer of typical

banking products (loans for day-to-day activity, investment loans, current accounts, term deposits)

supplemented by a range of cash management products as well as treasury products (including

derivatives) and leasing and factoring services.

Treasury, ALM (assets and liabilities management) and Other

This segment covers the Group’s activity as regards investments by the Treasury Department,

brokerage, inter-bank market transactions and taking positions in debt securities, which are not

assigned to other segments.

This segment includes other assets and other liabilities, assets and liabilities connected with hedging

derivatives, liabilities connected with external funding of the Group and deferred income tax assets

not assigned to any of the segments.

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

For each segment the pre-tax profit is determined, comprising:

▪ Net interest income calculated on the basis of interest on external working assets and liabilities

of the segment as well as allocated assets and liabilities generating internal interest income or

cost. Internal income and costs are calculated based on market interest rates with internal

valuation model applied;

▪ Net commission income;

▪ Other income from financial transactions and FX gains, such as: dividend income, result on

investment and trading activity, FX gains/losses and result on other financial instruments;

▪ Other operating income and expenses;

▪ Costs on account of impairment of financial and non-financial assets;

▪ Segment share in operating costs, including personnel and administration costs;

▪ Segment share in depreciation costs;

▪ Operating profit calculated as a measure of segment profit differs from the IFRS financial result

before tax due to: share in net profits of associates and charge of bank tax. These items and the

income tax burden were presented only at the Group level.

The assets and liabilities of commercial segments are the operating assets and liabilities used by the

segment in its operations, allocated on business grounds. The difference between operating assets

and liabilities is covered by money market assets/liabilities and debt securities. The assets and

liabilities of the Treasury, ALM & Other segment are money market assets/liabilities and debt

securities not allocated to commercial segments.

Bank Millennium recent financial performance is significantly influenced by the costs related to

managing legacy FX mortgage portfolio of loans. To isolate these costs and other financial results

related to this portfolio Bank decided to isolate a new segment from Retail and present it in financial

statements as “FX mortgage”. Such change impacts only results presentation and is not triggering any

organizational changes in the Bank. New segment includes loans separated based on active FX

mortgage contracts for a given period and is applying to portfolios of retail mortgages originated in

Bank Millennium and Eurobank in foreign currencies. This portfolio is expected to run-off in line with

repayments of FX loans and conversions to PLN loans. Following P&L categories are presented as part

of financial performance of new segment:

1. Net Interest Income: Margin on FX loans (interest results less Fund Transfer Pricing).

2. FX results related to portfolio (mainly costs of amicable negotiations).

3. Cost of provisions for FX mortgage portfolio legal risk partially offset by valuation of SG

Indemnity in other operating income line regarding ex-EB portfolio

4. Cost of Credit Risk related to current FX portfolio.

5. Other Costs that are directly related to FX mortgages including, but not limited to:

i. Legal chancellery costs (administrative costs)

ii. Court costs related to FX mortgage cases (other operating costs)

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Income statement 1.01.2021 – 31.12.2021

In ‘000 PLN

Retail

Banking

Corporate

Banking

Treasury.

ALM & Other

Segments

excluding FX

mortgage

FX mortgage

TOTAL

Net interest income

1 847 076

335 342

431 001

2 613 419

99 724

2 713 143

Net fee and commission

income

639 993

186 389

4 215

830 597

830 612

Dividends, other income from

financial operations and

foreign exchange profit

111 344

75 912

20 057

207 313

(355 363)

(148 050)

Result on non-trading

financial assets mandatorily

at fair value through profit or

loss

39 881

84 657

124 538

Other operating income and

cost

(19 673)

(5 884)

(105 813)

(131 370)

209 155

77 785

Operating income

2 618 621

591 759

434 117

3 644 497

(46 469)

3 598 028

Staff costs

(645 620)

(139 811)

(29 891)

(815 322)

Administrative costs

(429 410)

(70 042)

(76 257)

(575 709)

(49 675)

(625 384)

Depreciation and

amortization

(171 352)

(25 528)

(4 715)

(201 595)

Operating expenses

(1 246 382)

(235 381)

(110 863)

(1 592 626)

(49 675)

(1 642 301)

Impairment losses on assets

(324 446)

(1 784)

(7 671)

(333 901)

7 838

(326 063)

Results on modification

(13 390)

551

(12 839)

Provisions for legal risk

connected with FX mortgage

loans

(2 305 157)

Total operating result

1 034 403

355 145

315 583

1 705 131

(2 393 463)

(688 332)

Share in net profit of

associated companies

Banking tax

(312 611)

Profit / (loss) before income

tax

(1 000 943)

Income taxes

(330 923)

Profit / (loss) after taxes

(1 331 866)

Balance sheet items as at 31.12.2021

In ‘000 PLN

Retail

Banking

Corporate

Banking

Treasury.

ALM &

Other

Segments

excluding FX

mortgage

TOTAL

Loans and advances to

customers

52 364 612

16 441 570

68 806 182

9 797 144

78 603 326

Liabilities to customers

70 999 352

20 208 669

239 494

91 447 515

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Income statement 1.01.2020 – 31.12.2020

In ‘000 PLN

Retail

Banking

Corporate

Banking

Treasury.

ALM & Other

Segments

excluding FX

mortgage

FX mortgage

TOTAL

Net interest income

1 534 859

305 674

642 014

2 482 547

100 513

2 583 060

Net fee and commission

income

588 674

154 232

3 915

746 821

(765)

746 056

Dividends, other income from

financial operations and

foreign exchange profit

46 478

68 154

183 467

298 099

(42 641)

255 458

Result on non-trading

financial assets mandatorily

at fair value through profit or

loss

(42 920)

81 496

38 576

Other operating income and

cost

(16 246)

(8 063)

(100 367)

(124 676)

36 382

(88 294)

Operating income

2 110 845

519 997

810 525

3 441 367

93 489

3 534 856

Staff costs

(685 841)

(142 216)

(28 273)

(856 330)

Administrative costs

(509 273)

(64 414)

(87 072)

(660 759)

(25 290)

(686 049)

Depreciation and

amortization

(190 088)

(17 242)

(3 081)

(210 411)

Operating expenses

(1 385 202)

(223 872)

(118 426)

(1 727 500)

(25 290)

(1 752 790)

Impairment losses on assets

(390 998)

(124 912)

(7 846)

(523 756)

(41 046)

(564 802)

Results on modification

(15 487)

1 922

(13 565)

Provisions for legal risk

connected with FX mortgage

loans

(713 617)

Total operating result

319 158

173 135

684 253

1 176 546

(686 464)

490 082

Share in net profit of

associated companies

Banking tax

(279 147)

Profit / (loss) before income

tax

210 935

Income taxes

(188 118)

Profit / (loss) after taxes

22 817

Balance sheet items as at 31.12.2020

In ‘000 PLN

Retail

Banking

Corporate

Banking

Treasury.

ALM &

Other

Segments

excluding FX

mortgage

TOTAL

Loans and advances to

customers

43 885 739

16 268 373

60 154 112

13 485 230

73 639 342

Liabilities to customers

65 413 189

15 919 233

178 118

81 510 540

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

10. Transactions with Related Entities

All and any transactions between entities of the Group in 2021 resulted from the current operations.

Apart from transactions described herein, in the indicated period neither Bank Millennium S.A., nor

subsidiaries of Bank Millennium S.A. made any other transactions with related entities, which

individually or jointly may have been significant and concluded under terms and conditions other than

market-based.

10.1. DESCRIPTION OF THE TRANSACTIONS WITH THE PARENT GROUP

The following are the amounts of transactions with the Capital Group of Bank’s parent company -

Banco Comercial Portugues (ultimate parent company), these transactions are mainly of banking

nature (in ‘000 PLN):

With parent company

With other entities from

parent group

31.12.2021

31.12.2020

31.12.2021

31.12.2020

ASSETS

Loans and advances to banks – accounts and deposits

611

1 237

Financial assets held for trading

Hedging derivatives

Other assets

LIABILITIES

Loans and deposits from banks

100

23 601

127 903

Debt securities

Financial liabilities held for trading

159

333

Hedging derivatives

Other liabilities

122

With parent company

With other entities from

parent group

2021

2020

2021

2020

Income from:

Interest

(325)

(232)

Commissions

101

102

Financial assets and liabilities held for trading

Expense from:

Interest

161

(190)

(325)

Commissions

Financial assets and liabilities held for trading

160

452

Other net operating

Administrative expenses

256

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

With parent company

With other entities from

parent group

31.12.2021

31.12.2020

31.12.2021

31.12.2020

Conditional commitments

103 198

100 774

granted

101 500

100 000

obtained

1 698

774

Derivatives (par value)

14 675

15 938

10.2. TRANSACTIONS WITH THE MANAGING AND SUPERVISING PERSONS

Information on total exposure towards the managing and supervising persons as at 31.12.2021 (in ‘000

PLN):

The managing persons

The supervising persons

Total debt limit

including an unutilized limit

211.5

145.2

112.0

64.2

The Group provides standard financial services to Members of the Management Board and Members of

the Supervisory Board and their relatives, which services comprise i.a.: keeping bank accounts,

accepting deposits or sale of financial instruments. In the Group’s opinion these transactions are

concluded on market terms and conditions. In accordance with the credit lending policy adopted in

the Bank, term credits described in this section have appropriate collateral to mitigate its credit risk

exposure.

Information on total exposure towards companies and groups personally related as at 31.12.2021

(in ‘000 PLN):

Entity

Loans granted

Guarantees

provided

Open credit lines

Relationship

Client 1

Personal with a supervising person

As a result of changes in the composition of the Supervisory Board, the personal relationship with the

client ceased in 2021.

Information on total exposure towards the managing and supervising persons as at 31.12.2020

(in ‘000 PLN):

The managing persons

The supervising persons

Total debt limit

including an unutilized limit

211.5

179.7

137.0

111.3

Information on total exposure towards companies and groups personally related as at 31.12.2020

(in ‘000 PLN):

Entity

Loans granted

Guarantees provided

Open credit lines

Relationship

Client 1

9 976

3 000

161

Personal with a supervising person

100

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

10.3. INFORMATION ON COMPENSATIONS AND BENEFITS OF THE PERSONS

SUPERVISING AND MANAGING THE BANK

Salaries (including the balance of created and reversed provisions for payments of bonuses) and

benefits of managing persons recognized in Profit and loss account of the Group were as follows (data

in thousand PLN):

Year

Salaries and bonuses

Benefits

Total

2021

10 500.0

1 831.1

12 331.1

2020

16 103.3

1 927.4

18 030.7

The benefits are mainly the costs of accommodation of the foreign members of the Management

Board. The values presented in the table above include items classified to the category of short-term

benefits and provision for variable remuneration components.

In 2021 and 2020, the Members of the Management Board did not receive any salaries or any fringe

benefits from Subsidiaries.

Remuneration of the Members of the Supervisory Board of the Bank (data in thousand PLN):

Period

Short term salaries and benefits

2021

2 167.3

2020

2 053.5

In 2021 the Members of the Bank's Supervisory Board received remuneration for performing their

functions in subsidiaries in the amount of PLN 105.6 thousand, (in 2020 - PLN 17.5 thousand).

101

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

11. Fair Value

The best reflection of fair value of financial instruments is the price which can be obtained for the

sale of assets or paid for the transfer of liability in case of market transactions (an exit price). For

many products and transactions for which market value to be taken directly from the quotations in

an active market (marking-to-market) is not available, the fair value must be estimated using internal

models based on discounted cash flows (marking-to-model). Financial cash flows for the various

instruments are determined according to their individual characteristics, and discounting factors

include changes in time both in market interest rates and margins.

According to IFRS 13 “Fair value measurement” in order to determinate fair value the Group applies

models that are appropriate under existing circumstances and for which sufficient input data is

available, based to the maximum extent on observable input whereas minimizing use of unobservable

input, namely:

Level 1 - valuation based on the data fully observable (active market quotations);

Level 2 - valuation models using the information not constituting the data from level 1, but

observable, either directly or indirectly;

Level 3 - valuation models using unobservable data (not derived from an active market).

Valuation techniques used to determine fair value are applied consistently. Change in valuation

techniques resulting in a transfer between these methods occurs when:

▪ transfer from Level 1 to 2 takes place when for the financial instruments measured according

to Level 1 quoted market prices from an active market are not available at the balance sheet

day (previously used to be);

▪ transfer from Level 2 to 3 takes place when for the financial instruments measured according

to the Level 2 value of parameters not derived from the market has become significant at the

balance sheet day (and previously used to be irrelevant).

Financial instruments not recognized at fair value in the balance sheet

All estimation models are arbitrary to some extent and this is why they reflect only the value of those

instruments for which they were built. In these circumstances the presented differences between fair

values and balance-sheet values cannot be understood to mean adjustments of the economic value

of the Group. Fair value of these instruments is determined solely in order to meet the disclosure

requirements of IFRS 13 and IFRS 7.

The main assumptions and methods applied in estimating fair value of assets and liabilities of the

Group are as follows:

Receivables and liabilities with respect to banks

The fair value of these instruments was determined by discounting the future principal and interest

flows with current rates, assuming that the flows arise on contractual dates.

102

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Loans and advances granted to customers valued at amortised cost

The fair value of such instruments without specified repayment schedule, given their short-term

nature and the time-stable policy of the Group with respect to this portfolio, is close to balance-sheet

value.

With respect to floating rate leasing products fair value was assessed by adjusting balance-sheet value

with discounted cash flows resulting from difference of spreads.

The fair value of instruments with defined maturity is estimated by discounting related cash flows on

contractual dates and under contractual conditions with the use of current zero-coupon rates and

credit risk margins.

In case of mortgage loans due to their long-term nature estimation of the future cash flows also

includes: the effect of early repayment and liquidity risk in foreign currencies.

Liabilities to customers

The fair value of such instruments without maturity or with maturity under 30 days is considered by

the Group to be close to balance-sheet value.

Fair value of instruments due and payable in 30 days or more is determined by discounting future cash

flows from principal and interest (including the current average margins by major currencies and time

periods) using current interest (including the original average margins by major currencies and time

periods) in contractual terms.

Liabilities from the issuance of structured debt securities

Liabilities from the issuance of structured debt securities - bank’s securities (BPW) are stated/priced

at fair value in accordance with Bank’s model. In this model, zero coupon bond price is calculated,

which afterwards is increased by the option price, which was basis for a strategy built in a given

structured bond.

The fair value of other liabilities arising from debt securities issued by the Bank (bonds (BKMO)) was

estimated based on the expected cash flows using current interest rates taking into account the

margin for credit risk. The current level of margins was appointed on the basis of recent transactions

of similar credit risk.

Subordinated liabilities and medium term loans

The fair value of these financial instruments is estimated on the basis of a model used for determining

the market value of floating-rate bonds with the current level of market rates and historical margin

for credit risk. Similar as in loan portfolio the Bank includes the level of the original margin as a part

of mid-term cost of financing obtained in the past in relation to the current margin level for the

comparable instruments, as long as reliable assessment is possible. Due to lack of the mid-term loans

liquid market as a reference to estimate current level of margins, the Bank used the original margin.

103

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

The table below presents results of the above-described analyses as at 31.12.2021 (data in PLN

thousand):

Note

Balance sheet value

Fair value

ASSETS MEASURED AT AMORTISED COST

Debt securities

37 088

37 764

Deposits, loans and advances to banks and other monetary

institutions

770 531

770 446

Loans and advances to customers*

78 240 334

76 143 058

LIABILITIES MEASURED AT AMORTISED COST

Liabilities to banks and other monetary institutions

539 408

538 811

Liabilities to customers

91 447 515

91 385 178

Debt securities issued

39 568

40 148

Subordinated debt

1 541 144

1 538 598

* The negative impact of fair value valuation of the loans portfolio is largely attributable to growth of loan spreads. The

methodology, which the Bank uses for valuation of the loans portfolio, assumes that current spreads best reflect existing

market conditions and economic situation. A corresponding rule is widely applied for valuation of debt securities, which are

not quoted on active markets. In result, paradoxically whenever the spreads of new loans increase, fair value of the “old”

loans portfolio falls.

Models used for determination of the fair value of financial instruments presented in the above table

and not recognized at fair value in Group’s balance sheet, use techniques based on parameters not

derived from the market. Therefore, they are considered as the third level of valuation.

The table below presents data as at 31.12.2020 (data in PLN thousand):

Note

Balance sheet value

Fair value

ASSETS MEASURED AT AMORTISED COST

Debt securities

38 818

39 559

Deposits, loans and advances to banks and other monetary

institutions

625 430

Loans and advances to customers*

72 023 589

70 543 415

LIABILITIES MEASURED AT AMORTISED COST

Liabilities to banks and other monetary institutions

1 057 652

1 057 991

Liabilities to customers

81 510 540

81 545 397

Debt securities issued

558 560

560 714

Subordinated debt

1 540 209

1 540 491

104

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Financial instruments recognized at fair value in the balance sheet

The table below presents balance-sheet values of instruments measured at fair value, by applied fair

value measurement technique:

Data in PLN‘000, as at 31.12.2021

Note

Quoted

market prices

Valuation

techniques -

observable inputs

Valuation techniques -

significant unobservable

inputs

Level 1

Level 2

Level 3

ASSETS

Financial assets held for trading

Valuation of derivatives

56 892

29 008

Equity instruments

145

Debt securities

86 438

Non-trading financial assets mandatorily at fair value

through profit or loss

Equity instruments

71 795

66 609

Debt securities

127 499

Loans and advances

362 992

Financial assets at fair value through other

comprehensive income

Equity instruments

290

28 437

Debt securities

17 933 983

34 990

Derivatives – Hedge accounting

14 385

LIABILITIES

Financial liabilities held for trading

Valuation of derivatives

96 918

29 483

Short positions

16 614

Derivatives – Hedge accounting

614 573

Data in ‘000 PLN, as at 31.12.2020

Note

Quoted

market prices

Valuation

techniques -

observable inputs

Valuation techniques -

significant unobservable

inputs

Level 1

Level 2

Level 3

ASSETS

Financial assets held for trading

Valuation of derivatives

133 815

20 373

Equity instruments

245

Debt securities

269 413

Non-trading financial assets mandatorily at fair value

through profit or loss

Equity instruments

134 163

66 609

Debt securities

50 335

Loans and advances

1 615 753

Financial assets at fair value through other

comprehensive income

Equity instruments

320

29 218

Debt securities

18 613 077

Derivatives – Hedge accounting

21 795

LIABILITIES

Financial liabilities held for trading

Valuation of derivatives

83 754

20 021

Short positions

64 778

Derivatives – Hedge accounting

738 850

105

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Using the criterion of valuation techniques as at 31.12.2021 Group classified into the third category

following financial instruments:

▪ credit exposures with a leverage / multiplier feature inbuilt in the definition of interest rate

(these are credit card exposures and overdraft limits for which the interest rate is based on

a multiplier: 4 times the lombard rate). To estimate the fair value of loans, due to the lack

of availability of the market value, an internal valuation model was used, taking into account

the assumption that at the time of granting the loan the fair value is equal to the carrying

value. The fair value of loans without recognized impairment is equal to the sum of future

expected cash flows discounted at the balance sheet date. The discounting rate is the sum

of: the cost of risk, the cost of financing, the value of the expected return. The fair value of

impaired loans is equal to the sum of future expected recoveries discounted using the

effective interest rate, recognizing that the average expected recoveries fully take into

account the element of credit risk. In case of an increase in the discount rate by 1 p.p.

valuation of the portfolio would have been reduced by -0.1% (sensitivity analysis: based on

the FV model for the portfolio of credit cards);

▪ index options, option transactions are measured at fair value with use of option measurement

models, the model measurement is supplemented with impact on fair value of the estimated

credit risk parameter;

▪ VISA Inc. engagement shares; the method of fair value calculation of this instrument considers

the time value of money and the time line for conversion of preferred stock in common stock

of VISA.

▪ other equity instruments measured at fair value (unquoted on an active market).

In the reporting period, the Group did not make transfers of financial instruments between the

techniques of fair value measurement.

Changes of fair values of instruments measured on the basis of valuation techniques with use of

significant parameters not derived from the market are presented in the table below (in ’000 PLN):

Indexes

options

Options

embedded in

securities issued

and deposits

Debt

securities

Loans and

advances

Balance on 31.12.2020

19 911

(19 559)

95 827

50 335

1 615 753

Settlement/sell/purchase

4 158

(5 055)

(1 348 014)

Change of valuation recognized in equity

(785)

Interest income and other of similar nature

55 372

Results on financial assets and liabilities

held for trading

4 328

(4 258)

Result on non-trading financial assets

mandatorily at fair value through profit or

loss

77 164

39 881

Result on exchange differences

Balance on 31.12.2021

28 397

(28 872)

95 046

127 499

362 992

For options on indexes concluded on an inactive market, and FX options the Group concludes back-

to-back transactions on the interbank market, in result estimated credit risk component has no impact

on the financial result.

106

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Accordingly Group’s estimation impact of adjustments for counterparty credit risk was not significant

from the point of view of individual derivative transactions concluded by the Bank. Consequently, the

Bank does not consider the impact of unobservable inputs used in the valuation of derivative

transactions for significant and in accordance with the provisions of IFRS 13.73 does not classify such

transactions for level 3 fair value measurements.

Indexes

options

Options

embedded in

securities issued

and deposits

Debt

securities

Loans and

advances

Balance on 31.12.2019

61 294

(60 944)

95 976

103 001

1 498 195

Settlement/sell/purchase

(34 996)

34 697

90 544

Change of valuation recognized in equity

(175)

Interest income and other of similar nature

69 934

Results on financial assets and liabilities

held for trading

(6 387)

6 688

Result on non-trading financial assets

mandatorily at fair value through profit or

loss

(52 666)

(42 920)

Result on exchange differences

Balance on 31.12.2020

19 911

(19 559)

95 827

50 335

1 615 753

107

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

12. Contingent liabilities and assets

12.1. LAWSUITS

Below please find the data on the court cases pending, brought up by and against entities of the

Group. A separate category are the proceedings related to the activities of the Tax Control Authority

described in Chapter 14. note 16) "Corporate Income Tax".

Court cases brought up by the Group

Value of the court litigations, as at 31.12.2021, in which the companies of the Group were a plaintiff,

totalled PLN 552.5 million.

Proceedings on infringement of collective consumer interests

On January 3 2018, the Bank received decision of the President of the Office of Competition and

Consumer Protection (UOKIK), in which the President of UOKIK found infringement by the Bank of the

rights of consumers. In the opinion of the President of UOKiK the essence of the violation is that the

Bank informed consumers (it regards 78 agreements) in responses to their complaints, that the court

verdict stating the abusiveness of the provisions of the loan agreement regarding exchange rates does

not apply to them. According to the position of the President of UOKiK the abusiveness of contract’s

clauses determined by the court in the course of abstract control is constitutive and effective for

every contract from the beginning. As a result of the decision, the Bank was obliged to:

1) send information on the UOKiK’s decision to the said 78 clients,

2) place the information on decision and the decision itself on the website and on Twitter,

3) to pay a fine amounting to PLN 20.7 mln.

The Bank lodged an appeal within the statutory time limit.

On January 7, 2020, the first instance court dismissed the Bank's appeal in its entirety. The bank

appealed against the judgment within the statutory deadline. The court presented the view that the

judgment issued in the course of the control of a contractual template (in the course of an abstract

control), recognizing the provisions of the template as abusive, determines the abusiveness of similar

provisions in previously concluded contracts. Therefore, the information provided to consumers was

incorrect and misleading. As regards the penalty imposed by UOKiK, the court pointed out that the

policy of imposing penalties by the Office had changed in the direction of tightening penalties and

that the court agrees with this direction.

In the Bank's assessment, the Court should not assess the Bank's behaviour in 2015 from the

perspective of today's case-law views on the importance of abstract control (it was not until January

2016 that the Supreme Court's resolution supporting the view of the President of UOKiK was

published), the more penalties for these behaviours should not be imposed using current policy. The

above constitutes a significant argument against the validity of the judgment and supports the appeal

which the Bank submitted to the Court of second instance.

According to current estimates of the risk of losing the dispute, the Bank has not created a provision.

108

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Proceedings on competition-restricting practice

The Bank (along with other banks) is also a party to the dispute with UOKiK, in which the President

of UOKiK recognized the practice of participating banks, including Bank Millennium, in an agreement

aimed at jointly setting interchange fee rates charged on transactions made with Visa and Mastercard

cards as restrictive of competition, and by decision of 29 December 2006 imposed a fine on the Bank

in the amount of PLN 12.2 million. The Bank, along with other banks, appealed the decision.

In connection with the judgment of the Supreme Court and the judgment of the Court of Appeal in

Warsaw of November 23, 2020, the case is currently pending before the court of first instance - the

Court of Competition and Consumer Protection. The Bank has created a provision in the amount equal

to the imposed penalty.

Proceedings in the matter of recognition of provisions of the agreement format as abusive

On 22 September 2020 The Bank received decision of the Chairman of the Office for Protection of

Competition and Consumers (OPCC Chairman) recognising clauses stipulating principles of currency

exchange applied in the so-called anti-spread annex as abusive and prohibited the use thereof.

Penalty was imposed upon the Bank in the amount of 10.5 million PLN. Penalty amount takes account

of two mitigating circumstances: cooperation with the Office for Protection of Competition and

Consumers and discontinuation of the use of provisions in question.

The Bank was also requested, after the decision becomes final and binding, to inform consumers, by

registered mail, to the effect that the said clauses were deemed to be abusive and therefore not

binding upon them (without need to obtain court’s decision confirming this circumstance) and publish

the decision in the case on the Bank’s web site.

In the decision justification delivered in writing the OPCC Chairman stated that FX rates determined

by the Bank were determined at Bank’s discretion (on the basis of a concept, not specified in any

regulations, of average inter-bank market rate). Moreover, client had no precise knowledge on where

to look for said rates since provision referred to Reuters, without precisely defining the relevant site.

Provisions relating to FX rates in Bank’s tables were challenged since the Bank failed to define when

and how many times a day these tables were prepared and published.

In justification of the decision, the OPCC Chairman also indicated that in the course of the proceeding,

Bank Millennium presented various proposed solutions, which the OPCC Chairman deemed to be

insufficient.

The decision is not final and binding. The Bank appealed against the said decision within statutory

term. The Bank believes that chances for it to win the case are positive.

109

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Court cases against the Group

As at 31.12.2021, the most important proceedings, in the group of the court cases where the Group’s

companies were defendant, were following:

- The Bank is a defendant in three court proceedings in which the subject of the dispute is the amount

of the interchange fee. In two of the abovementioned cases, the Bank was sued jointly and severally

with another bank, and in one with another bank and card organizations. The total value of claims

submitted in these cases is PLN 729.6 million. The proceedings with the highest value of the submitted

claim are brought by PKN Orlen SA, in which the plaintiff demands payment of PLN 635.7 million. The

plaintiff in this proceeding alleges that the banks acted under an agreement restricting competition

on the acquiring services market by jointly setting the level of the national interchange fee in the

years 2006-2014. In the other two cases, the charges are similar to those raised in the case brought

by PKN Orlen SA, while the period of the alleged agreement is indicated for the years 2008-2014.

According to current estimates of the risk of losing a dispute in these matters, the Bank did not create

a provision. In addition, we point out that the Bank participates as a side intervener in four other

proceedings regarding the interchange fee. Other banks are the defendant. Plaintiffs in these cases

also accuse banks of acting as part of an agreement restricting competition on the acquiring services

market by jointly setting the level of the national interchange fee in the years 2008-2014.

- A lawsuit brought up by Europejska Fundacja Współpracy Polsko-Belgijskiej/European Foundation

for Polish-Belgian Cooperation (EFWP-B) against Bank Millennium S.A., worth of the dispute 521.9

million PLN with statutory interest from 05.04.2016 until the day of payment. The plaintiff filed the

suit dated 23.10.2015 to the Regional Court in Warsaw; the suit was served to the Bank on 04.04.2016.

According to the plaintiff, the basis for the claim is damage to their assets, due to the actions taken

by the Bank and consisting in the wrong interpretation of the Agreement for working capital loan

concluded between the Bank and PCZ S.A., which resulted in placing the loan on demand. In the case

brought by EFWP-B, the plaintiff moved for securing the claim in the amount of 250.0 million PLN.

The petition was dismissed on 5.09.2016 with legal validity by the Appellate Court. The Bank is

requesting complete dismissal of the suit, stating disagreement with the charges raised in the claim.

Supporting the position of the Bank, the Bank’s attorney submitted a binding copy of final verdict of

Appeal Court in Wrocław favourable to the Bank, issued in the same legal state in the action brought

by PCZ SA against the Bank. At present, the Court of first instance is conducting evidence proceedings.

As at 31.12.2021, the total value of the subjects of the other litigations in which the Group appeared

as defendant, stood at PLN 2,206.0 million (excluding the class actions described below and in the

Chapter 13). In this group the most important category are cases related with FX loans mortgage

portfolio and cases related to forward transactions (option cases).

The class action related to the LTV insurance:

On the 3rd of December 2015 a class action was served on the Bank. A group of the Bank's debtors

(454 borrowers party to 275 loan agreements) is represented by the Municipal Consumer Ombudsman

in Olsztyn. The plaintiffs demanded payment of the amount of PLN 3.5 million, claiming that the

clauses of the agreements, pertaining to the low down payment insurance, are unfair and thus not

binding. Plaintiff extended the group in the court letter filed on the 4th of April 2018, therefore the

claims increased from PLN 3.5 million to over PLN 5 million.

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The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Actual status:

On the 1st of October 2018, the group's representative corrected the total amount of claims pursued

in the proceedings and submitted a revised list of all group members, covering the total of 697

borrowers – 432 loan agreements. The value of the subject of the dispute, as updated by the claimant,

is PLN 7,371,107.94.

By the resolution of 1 April 2020 the court established the composition of the group as per request of

the plaintiff and decided to take witness evidence in writing and called on the parties to submit

questions to the witnesses. The Bank submitted a pleading with questions to witnesses in July 2020.

By the court's decision of September 9, 2021, the court called the witnesses to testify in writing.

Witnesses will have two months for this operation from the service of the summons. In this case, the

date of the hearing can also be expected - approximately - in the first half of 2022. However it should

be noted, that the above forecast is conditioned by the result of the assessment of the impact of the

latest amendments to the Code of Civil Procedure on group proceedings. In the event of difficulties

with resolving doubts that have arisen as to which composition of the courts should currently conduct

these proceedings (one-person composition or, as before, three-person composition), it may be

necessary to clarify this issue by the Supreme Court in the form of a resolution, which will mean that

the date of the hearing should be expected even at the end of 2022.

As at 31 December 2021, there were also 327 individual court cases regarding LTV insurance (cases in

which only a claim for the reimbursement of the commission or LTV insurance fee is presented).

Lawsuits filed by Financial Ombudsman for discontinuation of unfair market practices

On 13 August 2020 the Bank received lawsuit from the Financial Ombudsman. The Financial

Ombudsman, in the lawsuit, demands that the Bank and the Insurer (TU Europa) be ordered to

discontinue performing unfair market practices involving, as follows:

- presenting the offered loan repayment insurance as protecting interests of the insured in case

when insurance structure indicates that it protects the Bank’s interests;

- use of clauses linking the value of insurance benefit with the amount of borrower’s debt;

- use of clauses determining the amount of insurance premium without prior risk assessment

(underwriting);

- use of clauses excluding insurer’s liability for insurance accidents resulting from earlier

causes.

Furthermore, the Ombudsman requires the Bank to be ordered to publish, on its web site, information

on use of unfair market practices.

The lawsuit does not include any demand for payment, by the Bank, of any specified amounts.

Nonetheless, if the practice is deemed to be abusive it may constitute grounds for future claims to

be filed by individual clients.

The case is being examined by the court of first instance.

FX mortgage loans legal risk

FX mortgage loans legal risk is described in the Chapter 13. “Legal risk related to foreign currency

mortgage loans”.

111

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

12.2. OFF – BALANCE ITEMS

Amount ‘000 PLN

31.12.2021

31.12.2020

Off-balance conditional commitments granted and received

16 007 921

15 722 748

Commitments granted:

13 882 138

14 177 193

loan commitments

12 034 696

12 420 910

guarantee

1 847 442

1 756 283

Commitments received:

2 125 784

1 545 555

financial

40 000

guarantee

2 085 784

1 545 555

The granted conditional commitments presented in the table above comprise commitments to grant

credit (such as: unutilised credit card limits, unutilised current account overdraft facilities, unutilised

tranches of investment loans) and issued guarantees and Letters of Credit (securing performance by

customers of the Group of their obligations to third parties). The value of above-presented guarantee

commitments presents the maximum value of a loss, which may be incurred by the Group, should the

customers default on their obligations. The Group creates provisions for impaired irrevocable

conditional commitments, reported in the “provisions” item under liabilities in the balance-sheet.

The provision value is determined as the difference between the estimated amount of utilised

conditional exposure and the present value of expected future cash flows under this credit exposure.

In this context, the Group considers that the values presented in the above table are similar to the

fair value of contingent liabilities.

The breakdown by entity of all net guarantee liabilities, reported in off-balance sheet items is

presented in the table below:

Customer – sector

31.12.2021

31.12.2020

financial sector

90 163

83 590

non-financial sector (companies)

1 755 666

1 671 080

public sector

1 613

Total

1 847 442

1 756 283

Guarantees and sureties granted to Clients

Commitments granted

31.12.2021

31.12.2020

Active guarantees and sureties

998 662

965 823

Lines for guarantees and sureties

854 763

794 752

Total

1 853 425

1 760 575

Provisions created

(5 983)

(4 292)

Commitments granted – guarantee after provisions

1 847 442

1 756 283

112

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

The structure of liabilities under active guarantees and sureties divided by particular criteria are

presented by the tables below (PLN’000):

By currency

31.12.2021

31.12.2020

PLN

694 618

674 840

Other currencies

304 044

290 983

Total:

998 662

965 823

By type of commitment

31.12.2021

31.12.2020

Number

Amount

Number

Amount

Guarantee

3 429

983 461

3 420

943 304

Surety

Re-guarantee

15 201

22 519

Total:

3 477

998 662

3 464

965 823

By object of the commitment

31.12.2021

31.12.2020

Number

Amount

% share

Number

Amount

% share

good performance of contract

2 750

529 664

53.03%

2 663

492 191

50.96%

punctual payment for goods or services

325

244 684

24.50%

298

229 175

23.73%

bid bond

13 483

1.35%

156

11 091

1.15%

rent payment

200

100 245

10.04%

222

99 120

10.26%

advance return

40 102

4.02%

53 738

5.56%

customs

49 159

4.92%

68 628

7.11%

other

13 262

1.33%

2 666

0.28%

payment of bank loan

8 063

0.81%

9 214

0.95%

Total:

3 477

998 662

100.00%

3 464

965 823

100.00%

113

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

13. Legal risk related to foreign currency mortgage

loans

13.1. COURT CLAIMS AND CURRENT PROVISIONS ON LEGAL RISK

On December 31, 2021, the Bank had 11,070 loan agreements and additionally 913 loan agreements

from former Euro Bank (94% loans agreements before the Court of first instance and 6% loans

agreements before the court of second instance) under individual ongoing litigations (excluding claims

submitted by the bank against clients i.e. debt collection cases) concerning indexation clauses of FX

mortgage loans submitted to the courts with the total value of claims filed by the plaintiffs amounting

to PLN 1,512.4 million and CHF 121.3 million (Bank Millennium portfolio: PLN 1,391.9 million and CHF

119.0 million and former Euro Bank portfolio: PLN 120.4 million and CHF 2.3 million).

The claims formulated by the clients in individual proceedings primarily concern the declaration of

invalidity of the contract and payment for reimbursement of allegedly undue performance, due to

the abusive nature of indexation clauses, or maintenance of the agreement in PLN with interest rate

indexed to CHF Libor.

In addition, the Bank is a party to the group proceedings (class action) subject matter of which is to

determine the Bank's liability towards the group members based on unjust enrichment (undue benefit)

ground in connection with the foreign currency mortgage loans concluded. It is not a payment dispute.

The judgment in these proceedings will not grant any amounts to the group members. The number of

credit agreements covered by these proceedings is 3,281. At the current stage, the composition of

the group has been established and confirmed by the court. The proceedings entered the phase of

reviewing the case on the merits. A decision on the admission of evidence will be taken by the court

at a closed session. The next hearing will be scheduled ex officio.

The pushy advertising campaign observed in the public domain affects the number of court disputes.

Until the end of 2019, 1,981 individual claims were filed against the Bank (in addition, 236 against

former Euro Bank), in 2020 the number increased by 3,007 (267) while in 2021 the number increased

by 6,149 (417).

Based on ZBP (the Polish Banking Association) data gathered from all banks having FX mortgage loans,

vast majority of disputes were finally resolved in favour of banks until 2019 year. However, after the

Court of Justice of the European Union (CJEU) judgment issued on 3 October 2019 (Case C-260/18)

the proportion have adversely changed and vast majority of court cases have been lost by banks,

particularly in first instance proceedings. As far as the Bank itself is concerned, until 31 of December

2021 only 245 cases were finally resolved (210 in claims submitted by clients against the Bank and 35

in claims submitted by the Bank against clients i.e. debt collection cases). 60% of finalised individual

lawsuits against the Bank were favourable for the Bank including remissions and settlements with

plaintiffs. Unfavourable rulings (40%) included both invalidation of loan agreements as well as

conversions into PLN+LIBOR. The Bank submits cassation appeals to the Supreme Court against

unfavourable for the Bank legally binding verdicts. On the other hand, the statistics of first instance

court decisions have been much more unfavourable in recent periods and its number has also

increased. In general, the Bank submits appeals against 1st instance negative court rulings.

The outstanding gross balance of the loan agreements under individual court cases and class action

against the Bank on 31.12.2021 was PLN 4,382 million (of which the outstanding amount of the loan

agreements under the class action proceeding was 962 million PLN).

114

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

If all Bank Millennium’s loan agreements currently under individual and class action court proceedings

would be declared invalid without proper compensation for the use of capital, the pre-tax cost could

reach PLN 4,020 million. Overall losses would be higher or lower depending on the final court

jurisprudence in this regard.

In 2021 the Bank created PLN 2,086.0 million provisions and PLN 219.2 million for former Euro Bank

originated portfolio. The final level of provisions for the Bank Millennium portfolio at the end of

December 2021 was at the level of PLN 3,078.9 million, and PLN 253.7 million for former Euro Bank

originated portfolio.

The methodology developed by the Bank is based on the following main parameters:

(1) the number of current (including class action) and potential future court cases that will appear

within a specified (three-year) time horizon,

(2) the amount of the Bank's potential loss in the event of a specific court judgment three negative

judgment scenarios were taken into account:

• invalidity of the agreement

• average NBP

• PLN + LIBOR

(3) the probability of obtaining a specific court verdict calculated on the basis of statistics of

judgments of the banking sector in Poland and legal opinions obtained. Variation in the level of

provisions or concrete losses will depend on the final court decisions about each case and on the

number of court cases.

(4) in the case of a loan agreement invalidity scenario, a new component recognized in the

methodology, taking legal assessments into consideration, is the calculation of the Bank's loss taking

into account the assignment of a minimum probability of receiving the settlement of a remuneration

for the cost of use of capital.

(5) new component recognized in the methodology is the amicable settlement with clients in or out

of court. Notwithstanding the Bank’s determination to continue taking all possible actions to protect

its interests in courts, the Bank has been open to its customers in order to reach amicable solutions

on negotiated terms, case by case, providing favourable conditions for conversion of loans to PLN

and/or early repayment (partial or total). As a result of these negotiations the number of active FX

mortgage loans was materially reduced in 2021. As the Bank is still conducting efforts to further

signing of agreements which involved some costs, a scenario of further materialization of negotiations

was added. However, it should be noted that:

a. negotiations are conducted on a case=by-case basis and can be stopped at any time by the

Bank

b. as the effort was material in 2021, the probability of success is going down and at the same

time, gradually most of the client base has had contact with the Bank regarding potential

negotiation of the conversion of the loans to PLN, so the Bank is taking a conservative

approach when calculating the potential future impact for the time being.

Legal risk from former Euro Bank portfolio is fully covered by Indemnity Agreement with Societe

Generale.

The Bank analyzed the sensitivity of the methodology for calculating provisions, for which a change

in the parameters would affect the value of the estimated loss to the legal risk of litigation:

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The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Parameter

Scenario

Impact on loss due to legal risk

related to the portfolio of mortgage

loans in convertible currencies

Change in the number of

lawsuits

Additionally, 1 p.p. of active

clients file a lawsuit against the

Bank

PLN 56 million

Change in the

probability of winning a

case

The probability of the Bank

winning a case is lower by 1 p.p

PLN 40 million

Change in estimated

losses for each variant

of the judgment

Increase in losses for each variant

of the judgment by 1 p.p

PLN 32.5 million

The Bank is open to negotiate case by case favourable conditions for early repayment or conversion

of loans to PLN. As a result of these negotiations the number of active FX mortgage loans decreased

by 8,449 (including 69 confirmed in court) in 2021 compared to over 57,800 active loans agreements

at the end of 2020. Cost incurred in conjunctions with these negotiations totalled PLN 364.3 million

year to date and is presented mainly in ‘Result on exchange differences’ in the profit and loss

statement.

Finally it should also be mentioned, that the Bank, as at 31.12.2021, had to maintain additional own

funds for the coverage of additional capital requirements related to FX mortgage portfolio risks (Pillar

II FX buffer) in the amount of 2.82 p.p. (2.79 p.p. at the Group level), part of which is allocated to

operational/legal risk.

On 3 October 2019, the Court of Justice of the European Union ('the CJEU') issued the judgment in

Case C-260/18 in connection with the preliminary questions formulated by the District Court of

Warsaw in the case against Raiffeisen Bank International AG. The judgment of the CJEU, as regards

the interpretation of European Union law made therein, is binding on domestic courts. The judgment

in question interpreted Article 6 of Directive 93/13. In the light of the subject matter judgment the

said provision must be interpreted in such a way that (i) the national court may invalidate a credit

agreement if the removal of unfair terms detected in this agreement would alter the nature of the

main subject-matter of the contract; (ii) the effects for the consumer’s situation resulting from the

cancellation of the contract must be assessed in the light of the circumstances existing or foreseeable

at the time when the dispute arose and the will of the consumer is decisive as to whether he wishes

to maintain the contract; (iii) Article 6 of the Directive precludes the filling-in of gaps in the contract

caused by the removal of unfair terms from the contract solely on the basis of national legislation of

a general nature or established customs; (iv) Article 6 of the Directive precludes the maintenance of

unfair terms in the contract if the consumer has not consented to the maintenance of such terms. It

can be noticed the CJEU found doubtful the possibility of a credit agreement being performed further

in PLN while keeping interest calculated according to LIBOR.

The CJEU judgment concerns only the situation where the national court has previously found the

contract term to be abusive. It is the exclusive competence of the national courts to assess, in the

course of judicial proceedings, whether a particular contract term can be regarded as abusive in the

circumstances of the case.

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The only binding version is the original Polish version.

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of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

On 29th April 2021, the CJEU issued the judgement in the case C-19/20 in connection with the

preliminary questions formulated by the District Court in Gdańsk in the case against of ex-BPH S.A.,

CJEU said that:

(i) it is for the national court to find that a term in a contract is unfair, even if it has been contractually

amended by those parties. Such a finding leads to the restoration of the situation that the consumer

would have been in in the absence of the term found to be unfair, except where the consumer, by

means of amendment of the unfair term, has waived such restoration by free and informed consent.

However, it does not follow from Council Directive 93/13 that a finding that the original term is unfair

would, in principle, lead to annulment of the contract, since the amendment of that term made it

possible to restore the balance between the obligations and rights of those parties arising under the

contract and to remove the defect which vitiated it.

(ii) the national court may remove only the unfair element of a term in a contract concluded between

a seller or supplier and a consumer where the deterrent objective pursued by Council Directive 93/13

is ensured by national legislative provisions governing the use of that term, provided that that element

consists of a separate contractual obligation, capable of being subject to an individual examination

of its unfair nature. At the same time, provisions of the Directive preclude the referring court from

removing only the unfair element of a term in a contract concluded between a seller or supplier and

a consumer where such removal would amount to revising the content of that term by altering its

substance.

(iii) the consequences of a judicial finding that a term if a contract concluded between a seller or

supplier and a consumer is unfair are covered by national law and the question of continuity of the

contract should be assessed by the national court of its own motion in accordance with an objective

approach on the basis of those provisions.

(iv) the national court, finding that a term in a contract concluded between a seller or supplier and

a consumer is unfair, shall inform the consumer, in the context of the national procedural rules after

both parties have been heard, of the legal consequences entailed by annulment of the contract,

irrespective of whether the consumer is represented by a professional representative.

On 7th May 2021, the Supreme Court composed of 7 judges of the Supreme Court, issued a resolution

for which the meaning of legal principle has been granted, stating that:

1. An abusive contractual clause (art. 3851 § 1 of the Civil Code), by force of the law itself, is

ineffective to the benefit of the consumer who may consequently give conscious and free consent to

this clause and thus restore its effectiveness retroactively.

2. If without the ineffective clause the loan agreement cannot bind, the consumer and the lender

shall be eligible for separate claims for return of monetary performances made in exercising this

agreement (art. 410 § 1 in relation to art. 405 of the Civil Code). The lender may demand return of

the performance from the moment the loan agreement becomes permanently ineffective.

In this context, taking into consideration the recent negative evolution in the court verdicts regarding

FX mortgage loans, and if such trend continues, the Bank will have to regularly review and may need

to continue to increase the balance of provisions allocated to court litigations.

It can reasonably be assumed that the legal issues relating to foreign currency mortgage loans will be

further examined by the national courts within the framework of disputes considered which would

possibly result in the emergence of further interpretations, which are relevant for the assessment of

the risks associated with subject matter proceedings. This circumstance indicates the need for

constant analysis of these matters. Further request for clarification and ruling addressed to the

European Court of Justice and Polish Supreme Court have already been filed and may still be filed

with potential impact on the outcome of the court cases.

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This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

13.2. EVENTS THAT MAY IMPACT FX MORTGAGE LEAGAL RISK AND

RELATED PROVISION

On 29 January 2021 a set of questions addressed by the First President of the Supreme Court to the

full Civil Chamber of the Supreme Court was published. This may have important consequences in

terms of clarifications of relevant aspects of the court rulings and their consequences. The Civil

Chamber of the Supreme Court has been requested for answering the questions concerning key

matters related to FX mortgage agreements: (i) is it permissible to replace - with the law provisions

or with a custom - the abusive provisions of an agreement which refer to FX exchange rate

determination; moreover, (ii) in case of impossibility of determining the exchange rate of a foreign

currency in the indexed/denominated credit agreement - is it permissible to keep the agreement still

valid in its remaining scope; as well as (iii) if in case of invalidity of the CHF credit there would be

applicable the theory of balance (i.e. does arise a single claim which is equal to the difference

between value of claims of bank and the customer) or the theory of two condictions (separate claims

for the bank and for the client that should be dealt with separately). The Supreme Court has also

been requested for answering the question on (iv) from which point in time there shall be starting the

limitation period in case of bank's claim for repayment of amounts paid as a loan and (v) whether

banks and consumers may receive remuneration for using their pecuniary means by another party.

On 11 May the Civil Chamber of the Supreme Court requested opinions on Swiss franc mortgage loans

from five institutions including the National Bank of Poland (NBP), the Polish Financial Supervision

Authority (UKNF), the Commissioner for Human Rights, the Children's Rights Ombudsman and the

Financial Ombudsman.

The positions of: the Commissioner for Human Rights, the Children's Rights Ombudsman and the

Financial Ombudsman are in general favorable to consumers, while the National Bank of Poland and

the Polish Financial Supervision Authority present a more balanced position, including fair principles

of treatment of FX mortgage borrowers vis-à-vis PLN mortgage borrowers, as well as balanced

economic aspects regarding solutions for the problem that could be considered by the Supreme Court.

In the next meeting of the Supreme Court that took place on 2 September 2021, the Court did not

address the answers to the submitted questions and no new meeting date is known. The Bank will

assess in due time the implications of the decisions of the Supreme Court on the level of provisions

for the legal risk.

In August 2021, the CJEU was asked for a preliminary ruling (C-520/21) whether, in the event that a

loan agreement concluded by a bank and a consumer is deemed invalid from the beginning due to

unfair contract terms, the parties, in addition to the reimbursement of the money paid in contracts

(bank - loan capital, consumer - installments, fees, commissions and insurance premiums) and

statutory interest for delay from the moment of calling for payment, may also claim any other

benefits, including receivables in particular, remuneration, compensation, reimbursement of costs or

valorization of the performance.

Notwithstanding the above there are a number of questions addressed by polish courts to the European

Court of Justice which may be relevant for the outcome of the court disputes in Poland.

The subject matter questions relate, in particular, to:

- the possibility of replacing of an abusive contractual clause with a dispositive law provision;

- the limitation period of a consumer claims concerning reimbursement of benefits made as

performance of an agreement which has been declared to be invalid

- the possibility of declaration by the Court of abusiveness of only part of a contractual provision.

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of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

With the scope of settlements between the Bank and borrower following the fall of the loan

agreement is also connected the legal issue directed to the seven-person composition of the Supreme

Court (case sign: III CZP 54/21). The date of case review has not been specified yet.

The Supreme Court was also presented with the issue of whether the loan agreement is a mutual

agreement in the light of the regulations concerning retention right.

On December 8, 2020, Mr. Jacek Jastrzębski, the Chairman of the Polish Financial Supervision

Authority (‘PFSA’) proposed a ‘sector’ solution to address the sector risks related to FX mortgages.

The solution would consist in offering by banks to their clients a voluntary possibility of concluding

arrangements based on which a client would conclude with the bank a settlement as if his/her loan

from the very beginning had been a PLN loan bearing interest at an appropriate WIBOR rate increased

by the margin historically employed for such loan.

Following that public announcement, the idea has been subject of consultations between banks under

the auspices of the PFSA and Polish Banking Association. Banks in general have been assessing the

conditions under which such solution could be implemented and consequent impacts.

As expressed in our previous financial reports, in the view of the Management Board of the Bank,

important aspects to take into consideration when deciding on potential implementation of such

program are : a) favourable opinion or at least non-objection from important public institutions; b)

support from National Bank of Poland to the implementation; c) level of legal certainty of the

settlement agreements to be signed with the borrowers; d) level of the financial impact on a pre- and

after tax basis; e) capital consequences including regulatory adjustments in the level of capital

requirements associated with FX mortgage loans.

Based on current information some of the above mentioned aspects are not likely to be fully clarified

and / or achieved.

At the time of publishing this report, neither the Management Board nor any other corporate body of

the Bank took any decision regarding implementation of such program. If / when a recommendation

regarding the program would be ready, the Management Board would submit it to the Supervisory

Board and General Shareholders meeting taking into consideration the relevance of such decision and

its implications.

Bank Millennium conducted a survey among its customers in cooperation with an external reputed

company regarding the willingness to accept settlement in the terms of the sector solution put

forward by the Chairman of KNF. 49% of clients enquired were preliminarily interested in benefitting

from the proposal, while 25% were not able to clearly express their opinion and 26% would not take

such offer.

According to the current calculations, implementation of a solution whereby loans would be

voluntarily converted to Polish zloty as if from the very beginning they had been a PLN loan bearing

interest at an appropriate WIBOR rate increased by the margin historically employed for such loans,

could imply provisions for the losses resulting from conversion of such loans (if all the existing portfolio

would be converted) with a pre-tax impact between PLN 4,390 million to PLN 4,848 million (not

audited data). The impacts can significantly change in case of variation of the exchange rate and

several assumptions. Impacts on capital could be partially absorbed and mitigated by the combination

of the existing surplus of capital over the current minimum requirements, the reduction of risk

weighted assets and the decrease or elimination of Pillar 2 buffer.

Due to the complexity and uncertainty regarding the outcome of court cases, as well as from potential

implementation of KNF Chairman solution or from potential Supreme Court decisions or European

Court of Justice decisions, it is difficult to reliably estimate potential impacts of such different

outcomes and their interaction as at the date of publication of the financial statements.

119

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Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

14. Notes to the Consolidated Financial

Statements

Amounts presented in the notes to the consolidated financial statements are presented in PLN

thousands.

1. INTEREST INCOME AND OTHER OF SIMILAR NATURE

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Interest income from Financial assets at fair value through other comprehensive income

157 554

313 452

Debt securities

157 554

313 452

Interest income from Financial assets at amortised cost

2 620 651

2 704 672

Balances with the Central Bank

3 753

5 252

Loans and advances to customers

2 511 866

2 512 410

Debt securities

620

1 065

Deposits, loans and advances to banks

287

793

Transactions with repurchase agreements

461

6 436

Hedging derivatives

103 664

178 716

Income of similar nature to interest, including:

63 888

108 455

Loans and advances to customers mandatorily at fair value through profit or loss

55 372

69 934

Financial assets held for trading - derivatives

7 902

34 460

Financial assets held for trading - debt securities

614

4 061

Total

2 842 093

3 126 579

In the line „Hedging derivatives” the Group presents net interest income from derivatives set as and

being effective cash flow and fair value hedges. A detailed description of the hedging relations used

by the Group is presented in note (24).

Interest income for the year 2021 contains interest accrued on impaired loans in the amount of PLN

106,321 thous. (for corresponding data in the year 2020 the amount of such interest stood at PLN

119,260 thous.).

2. INTEREST EXPENSE

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Interest expense from Financial liabilities measured at amortised cost

(128 947)

(543 464)

Liabilities to banks and other monetary institutions

(6 619)

(18 043)

Liabilities to customers

(68 744)

(444 088)

Transactions with repurchase agreement

(1 791)

(7 795)

Debt securities issued

(3 769)

(13 790)

Subordinated debt

(40 076)

(51 441)

Liabilities due to leasing agreements

(7 948)

(8 307)

Hedging derivatives

Other

(3)

(55)

Total

(128 950)

(543 519)

120

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

3. FEE AND COMMISSION INCOME AND EXPENSE

3a. Fee and commission income

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Resulting from accounts service

131 476

102 246

Resulting from money transfers, cash payments and withdrawals and other payment

transactions

78 916

67 738

Resulting from loans granted

212 472

191 340

Resulting from guarantees and sureties granted

13 425

13 799

Resulting from payment and credit cards

235 579

221 086

Resulting from sale of insurance products

156 824

169 721

Resulting from distribution of investment funds units and other savings products

63 876

65 959

Resulting from brokerage and custody service

17 259

19 159

Resulting from investment funds managed by the Group

72 690

66 941

Other

29 733

29 425

Total

1 012 250

947 414

3b. Fee and commission expense

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Resulting from accounts service

(6 029)

(20 022)

Resulting from money transfers. cash payments and withdrawals and other payment

transactions

(4 671)

(4 610)

Resulting from loans granted

(28 165)

(33 374)

Resulting from payment and credit cards

(86 391)

(93 514)

Resulting from brokerage and custody service

(3 087)

(3 321)

Resulting from investment funds managed by the Group

(11 675)

(10 417)

Resulting from insurance activity

(15 036)

(16 440)

Other

(26 584)

(19 660)

Total

(181 638)

(201 358)

121

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

4. DIVIDEND INCOME

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Financial assets held for trading

Non-trading financial assets mandatorily at fair value through profit or loss

1 333

906

Financial assets at fair value through other comprehensive income

2 426

2 772

Total

3 761

3 678

5. RESULT ON DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES

NOT MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Operations on debt instruments

12 896

130 767

Costs of financial operations

(3 227)

(2 685)

Total

9 669

128 082

6. RESULTS ON FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Result on debt instruments

(6 043)

12 867

Result on derivatives

(3 247)

518

Result on other financial operations

(6)

Total

(9 296)

13 436

7. RESULTS ON NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR

VALUE THROUGH PROFIT OR LOSS

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Loans and advances to customers

39 881

(42 920)

Result on equity instruments

7 493

134 163

Result on debt instruments

77 164

(52 667)

Total

124 538

38 576

The increase in the result on non-trading debt instruments mandatorily measured at fair value through

profit or loss results from the positive valuation of part of VISA Incorporation shares not admitted to

trading (which the Group presents as a debt instrument based on the interpretation of IAS 32, while

VISA shares admitted to trading are recognized as equity instruments).

The main reason for the increase in the result on loans and advances mandatorily measured at fair

value through profit or loss is described in Note 22a.

122

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

8. RESULT ON HEDGE ACCOUNTING

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Changes in the fair value of the hedging instrument (including abandonment)

13 813

(7 594)

Changes in the fair value of the hedged item resulting from the hedged risk

(13 301)

6 588

Inefficiency in cash flow hedges

(3 697)

(9 253)

Inefficiencies due to net investment hedges in foreign operations

Total

(3 185)

(10 259)

9. OTHER OPERATING INCOME

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Gain on sale and liquidation of property, plant and equipment, intangible assets

22 189

19 121

Indemnifications, penalties and fines received

3 376

4 325

Income from sale of other services

42 072

22 434

Income from collection service

5 653

4 749

Income from leasing business

4 044

4 039

Other

239 962

106 098

Total

317 296

160 766

10. OTHER OPERATING EXPENSE

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Loss on sale and liquidation of property, plant and equipment, intangible assets

(20 375)

(13 195)

Indemnifications, penalties and fines paid

(15 992)

(10 624)

Costs of provisions for disputed claims

(113 173)

(17 223)

Costs of leasing business

(2 445)

(4 528)

Donations made

(900)

(849)

Costs of collection service

(52 620)

(25 870)

Provisions for potential returns to clients*

(1 941)

(142 431)

Other

(32 064)

(34 340)

Total

(239 510)

(249 060)

* On 11 September 2019 The Court of Justice of the European Union ruled in the case of Lexitor against

SKOK Stefczyka, Santander Consumer Bank and mBank (case C 383/18) in which it stated that

consumer has rights to demand the reduction of the total loan cost corresponding to interest and

costs for the remaining term of the agreement in case of early repayment of loan.

Taking into consideration this verdict, in 2020 the Group recorded in the P&L provision amounting to

PLN 142.4 million. Part of this provision (PLN 88.5 million) was an accounting loss of Y2020 resulting

from ex-Euro Bank’s clients early repayments made before Euro Bank purchase date and was partially

compensated by positive valuation of indemnity agreement signed with Societe Generale S.A. (PLN

35.8 million) – this effect was recognised as „other operating income”.

In 2021, the Group did not create additional provisions on this account in the P&L, while the carrying

amount of the unsettled provision for potential returns as at December 31, 2021 was PLN 89.1 million.

123

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

11. ADMINISTRATIVE EXPENSES

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Staff costs:

(815 324)

(856 330)

Salaries

(672 585)

(720 734)

Surcharges on pay

(112 158)

(115 129)

Employee benefits, including:

(30 581)

(20 467)

provisions for retirement benefits

(7 124)

(3 470)

provisions for unused employee holiday

1 288

8 801

other

(24 745)

(25 798)

Other administrative expenses:

(625 382)

(686 049)

Costs of advertising, promotion and representation

(64 559)

(61 818)

IT and communications costs

(126 931)

(130 989)

Costs of renting

(54 214)

(78 055)

Costs of buildings maintenance, equipment and materials

(40 710)

(49 635)

ATM and cash maintenance costs

(27 536)

(27 322)

Costs of consultancy, audit and legal advisory and translation

(77 104)

(37 771)

Taxes and fees

(33 937)

(34 538)

KIR - clearing charges

(9 325)

(8 022)

PFRON costs

(7 147)

(8 183)

Banking Guarantee Fund costs

(118 217)

(167 190)

Financial Supervision costs

(12 776)

(10 283)

Other

(52 926)

(72 243)

Total

(1 440 706)

(1 542 379)

12. IMPAIRMENT LOSSES ON FINANCIAL ASSETS

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Impairment losses on loans and advances to customers

(325 829)

(558 966)

Impairment charges on loans and advances to customers

(1 607 589)

(1 667 611)

Reversal of impairment charges on loans and advances to customers

1 167 777

1 038 196

Amounts recovered from loans written off

57 421

50 818

Sale of receivables

62 555

19 590

Other directly recognised in profit and loss

(5 993)

Impairment losses on securities

Impairment charges on securities

(6)

Reversal of impairment charges on securities

Impairment losses on off-balance sheet liabilities

7 437

2 002

Impairment charges on off-balance sheet liabilities

(55 368)

(73 355)

Reversal of impairment charges on off-balance sheet liabilities

62 805

75 357

Total

(318 391)

(556 912)

124

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

13. IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Fixed assets

Other assets

(7 672)

(7 890)

Total

(7 672)

(7 890)

14. PROVISIONS FOR LEGAL RISK CONNECTED WITH FX MORTGAGE LOANS

01.01.2021 - 31.12.2021

TOTAL

Allocated for

credit portfolio

Provisions for

pending legal issues

Balance at the beginning of the period

960 046

884 755

75 291

Amounts written off

(24 059)

Costs of provisions for legal risk connected wIth FX

mortgage loans

2 305 157

Change of accounting principles from IAS 37 to IFRS 9

2 032 024

(2 032 024)

Increase of provisions due to FX rates differences

91 470

Balance at the end of the period

3 332 614

2 916 779

415 835

01.01.2020 - 31.12.2020

TOTAL

Allocated for

credit portfolio

Provisions for

pending legal issues

Balance at the beginning of the period

223 134

213 271

9 863

Amounts written off

Costs of provisions for legal risk connected wIth FX

mortgage loans

713 617

Change of accounting principles from IAS 37 to IFRS 9

671 484

(671 484)

Increase of provisions due to FX rates differences

23 295

Balance at the end of the period

960 046

884 755

75 291

15. DEPRECIATION AND AMORTIZATION

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Property, plant and equipment

(154 795)

(167 286)

Intangible assets

(46 800)

(43 125)

Total

(201 595)

(210 411)

125

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

16. CORPORATE INCOME TAX

16a. Income tax reported in income statement

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Current tax

(199 030)

(331 144)

Current year

(199 030)

(331 144)

Adjustment to previous years

Deferred tax:

(131 893)

143 026

Recognition and reversal of temporary differences

(129 643)

95 264

Recognition / (Utilisation) of tax loss

(2 250)

47 762

Total income tax reported in income statement

(330 923)

(188 118)

16b. Effective tax rate

01.01.2020 -

31.12.2020

01.01.2019 -

31.12.2019

Profit before tax

(1 000 943)

210 935

Statutory tax rate

19%

Income tax according to obligatory income tax rate of 19%

190 179

(40 078)

Impact of permanent differences on tax charges:

(523 326)

(150 740)

- Non-taxable income

43 815

20 038

Dividend income

461

527

Release of other provisions

43 057

9 432

Settlement with SG due to adjustment of Euro Bank S.A. purchase price

10 039

Other

297

- Cost which is not a tax cost

(567 141)

(170 778)

Write-down of unrealized deferred tax assets

(171)

Loss on sale of receivables

(17)

(8)

PFRON fee

(1 357)

(1 541)

Fees for Banking Guarantee Fund

(22 460)

(31 765)

Settlement of BFG SKOK PIAST

(397)

(1 824)

Banking tax

(59 396)

(53 038)

Income/cost of provisions for factoring and leasing receivables

1 073

492

Receivables written off

(21 535)

(2 324)

Costs of litigations and claims

(458 454)

(76 070)

Ccosts related to concluded agreements

(1 068)

Depreciation and insurance costs of cars (in excess of PLN 150,000)

(773)

(1 460)

Other

(2 757)

(3 070)

Deduction of the tax paid abroad

246

Other differences between gross financial result and taxable income with income tax

(including R&D relief)

2 224

2 454

Total income tax reported in income statement

(330 923)

(188 118)

Effective tax rate

/-/*

89,18%

* For the year 2021, the Group recorded a negative gross financial result and at the same time a tax

burden of a cost nature, therefore the Group did not calculate the effective tax rate.

126

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

16c. Deferred tax reported in equity

31.12.2021

31.12.2020

Valuation of investment assets at fair value through

other comprehensive income

129 857

(56 027)

Valuation of cash flow hedging instruments

71 993

8 439

Actuarial gains (losses)

(444)

708

Deferred tax reported directly in equity

201 406

(46 880)

Changes in deferred tax recognized directly in equity are presented in Note (39b).

Withholding tax audit for years 2015-17

On February 2019 the Head of Western Pomeranian Customs & Tax Office (Zachodniopomorski Urząd

Celno-Skarbowy w Szczecinie, ZUCS) commenced tax audits regarding the correctness of withholding

tax (WHT) settlements for years 2015 and 2016. On 17 December 2019 the Bank received audit results

as of 13 December 2019, in which ZUCS questioned WHT-exemption on coupon interest from bonds

paid to MB Finance AB with the seat in Sweden constituting a collateral to 10Y subordinated bonds

with a par value of EUR 150 mio. issued by this company in December 2007 (fully amortized in

December 2017). On 11 June 2021 Bank received 2nd instance decisions of ZUCS decreasing the

amount of WHT arrear from PLN 6.6 to 5.3 mio. This amount with penalty interests were paid by Bank

on 18 June 2021. Bank lodged complaints on these decisions to the administrative court in Szczecin

(WSA). WSA in its judgements as of 13 and 27 October 2021 wholly overruled both ZUCS’s decisions.

ZUCS appealed from these judgments to the Supreme Administrative Court.

On 13 April 2021 Head of ZUCS commenced a WHT audit for year 2017. As expected in the audit result

ZUCS challenged WHT-exemption on coupon interests paid by Bank to MBF in this year as well

(disputable WHT amount is ca. PLN 2.2 mio.). Bank does not agree with such findings as well and will

continue a dispute with ZUCS. Currently, Bank awaits for commencing a tax proceeding in order to

issue a decision by ZUCS.

Bank received an expert opinion as of January 29, 2020 of tax professors from the Public Finances

Law Department of the Faculty of Law and Administration at Nicolaus Copernicus University in Torun,

according to which ZUCS’s statement violates binding tax law provisions.

17. EARNINGS PER SHARE

Earnings per share (PLN)

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Profit/loss after taxes

(1 331 866)

22 817

Weighted average number of shares in the period

1 213 116 777

Profit/loss per share – basic and diluted

(1.10)

0.02

Earnings per share have been calculated by dividing net profit for the period by the weighted average

number of shares. At the same time due to the nature of the issue it was not necessary to make a

separate calculation of diluted Earnings per Share (the calculation methodology in case of absence of

diluting instruments is the same as in case of Earnings per Share; as a result diluted Earnings per Share

equals basic Earnings Per Share).

127

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

18. CASH, BALANCES AT THE CENTRAL BANK

18a. Cash, balances at the central bank

31.12.2021

31.12.2020

Cash

874 739

785 357

Cash in Central Bank

2 304 997

674 932

Other funds

Total

3 179 736

1 460 289

In the period from 31 December 2021 to 30 January 2022 the Bank was obliged to keep on its current

account with NBP (the central bank) an average balance of PLN 1,789,522 thousand (arithmetic

average of balances on the NBP current account on all days of the deposit-holding period).

18b. Cash, balances at the Central Bank – by currency

31.12.2021

31.12.2020

in Polish currency

2 918 689

1 203 776

in foreign currencies (after conversion to PLN):

261 047

256 513

- currency: USD

41 867

42 623

- currency: EUR

180 932

176 917

- currency: CHF

15 396

14 844

- currency: GBP

19 203

17 747

- other currencies

3 649

4 382

Total

3 179 736

1 460 289

128

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

19. FINANCIAL ASSETS HELD FOR TRADING

19a. Financial assets held for trading

31.12.2021

31.12.2020

Debt securities

86 438

269 413

Issued by State Treasury

86 438

269 413

a) bills

b) bonds

86 438

269 413

Other securities

a) quoted

b) non quoted

Equity instruments

145

245

Quoted on the active market

145

245

a) financial institutions

b) non-financial institutions

148

Adjustment from fair value hedge

Positive valuation of derivatives

85 900

154 188

Total

172 483

423 846

Information on financial assets securing liabilities is presented in point 2) of chapter 15.

19b. Debt securities valued at fair value through profit and loss (held for

trading), at balance sheet value

31.12.2021

31.12.2020

with fixed interest rate

61 340

222 091

with variable interest rate

25 098

47 322

Total

86 438

269 413

19c. Debt securities valued at fair value through profit and loss (held for

trading), by maturity

31.12.2021

31.12.2020

to 1 month

3 486

above 1 month to 3 months

above 3 months to 1 year

1 729

9 110

above 1 year to 5 years

70 202

203 785

above 5 years

14 507

53 032

Total

86 438

269 413

129

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

19d. Change of debt securities and equity instruments valued at fair value

through profit and loss (held for trading)

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Balance at the beginning of the period

269 658

874 243

Increases (purchase and accrual of interest and discount)

9 575 937

23 887 648

Reductions (sale and redemption)

(9 758 399)

(24 493 562)

Differences from valuation at fair value

(613)

1 329

Balance at the end of the period

86 583

269 658

19e. Financial assets and liabilities held for trading - Valuation of derivatives,

Adjustment from fair value hedge and Short positions as at:

31.12.2021

Par value of instruments with future maturity

Fair value

below 3

months

from 3 months

to 1 year

from 1 year

to 5 years

above 5

years

Total

Assets

Liabilities

1. Interest rate derivatives

1 581 520

5 143 978

7 451 331

189 000

(15 497)

10 099

25 596

Forward Rate Agreements

(FRA)

1 200 000

Interest rate swaps (IRS)

1 581 520

3 653 497

6 710 870

189 000

(15 511)

4 124

19 635

Other interest rate contracts:

options

290 481

740 461

5 975

5 961

2. FX derivatives*

17 634 779

1 959 787

508 031

(24 530)

46 793

71 323

FX contracts

2 296 389

1 333 632

226 723

9 077

16 603

7 526

FX swaps

15 338 390

626 155

281 308

(33 607)

30 190

63 797

Other FX contracts (CIRS)

FX options

3. Embedded instruments

69 733

144 415

560 079

(28 872)

28 872

Options embedded in

deposits

69 733

144 415

560 079

(28 872)

28 872

Options embedded in

securities issued

4. Indexes options

75 407

155 345

578 837

28 397

29 008

611

Total

19 361 439

7 403 525

9 098 278

189 000

(40 502)

85 900

126 402

Liabilities from short sale of debt securities

16 614

*Notional value for double-currency derivatives constitutes the sum of both transactions expressed in PLN

130

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

31.12.2020

Par value of instruments with future maturity

Fair value

below 3

months

from 3 months

to 1 year

from 1

year to 5

years

above 5

years

Total

Assets

Liabilities

1. Interest rate derivatives

994 077

2 071 597

8 491 695

84 901

21 976

35 184

13 208

Forward Rate Agreements

(FRA)

800 000

133

Interest rate swaps (IRS)

980 584

1 191 375

7 853 343

84 901

21 839

34 966

13 127

Other interest rate contracts:

options

13 493

80 221

638 352

2. FX derivatives*

12 851 396

4 301 888

649 597

28 085

98 631

70 547

FX contracts

2 597 635

1 693 617

433 337

19 095

34 360

15 265

FX swaps

10 253 760

2 608 272

216 259

8 990

64 271

55 282

Other FX contracts (CIRS)

FX options

3. Embedded instruments

252 018

707 315

408 113

(19 559)

19 559

Options embedded in

deposits

201 333

625 428

408 113

(17 815)

17 815

Options embedded in

securities issued

50 685

81 887

(1 744)

1 744

4. Indexes options

364 733

633 269

456 015

19 911

20 373

462

Total

14 462 223

7 714 069

10 005 420

84 901

50 413

154 188

103 775

Liabilities from short sale of debt securities

64 778

*Notional value for double-currency derivatives constitutes the sum of both transactions expressed in PLN.

20. NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE

THROUGH PROFIT OR LOSS, OTHER THAN LOANS AND ADVANCES TO

CUSTOMERS

31.12.2021

31.12.2020

Equity instruments

138 404

200 772

credit institutions

other corporates

138 404

200 772

Debt securities

127 499

50 335

credit institutions

other corporates

127 499

50 335

Total

265 903

251 107

131

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

21. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE

INCOME

21a. Financial assets at fair value through other comprehensive income (split

by category)

31.12.2021

31.12.2020

Debt securities

17 968 972

18 613 077

Issued by State Treasury

17 498 704

18 235 189

a) bills

b) bonds

17 498 704

18 235 189

Issued by Central Bank

34 990

a) bills

34 990

b) bonds

Other securities

435 278

377 888

a) listed

435 278

377 888

b) not listed

Shares and interests in other entities

28 727

29 538

Other financial instruments

Total financial assets at fair value through other comprehensive income

17 997 699

18 642 615

Including

Instrument listed on active market

17 934 272

18 613 396

Instrument not listed on active market

63 427

29 219

21b. Debt securities at fair value through other comprehensive income (split

by interest rate applied)

31.12.2021

31.12.2020

with fixed interest rate

17 934 272

14 759 536

with variable interest rate

63 427

3 853 541

Total

17 997 699

18 613 077

21c. Debt securities at fair value through other comprehensive income by

maturity

31.12.2021

31.12.2020

to 1 month

34 990

15 930

above 1 month to 3 months

above 3 months to 1 year

4 892 493

81 719

above 1 year to 5 years

12 617 995

17 483 598

above 5 years

423 494

1 031 830

Total

17 968 972

18 613 077

132

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

21d. Change of financial assets at fair value through other comprehensive

income

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Balance at the beginning of the period

18 642 615

21 870 164

Increases (purchase and accrual of interest and discount)

222 310 958

92 045 405

Reductions (sale and redemption)

(221 977 525)

(95 450 018)

Difference from measurement at fair value

(978 348)

177 038

Impairment allowances

Other

(1)

Balance at the end of the period

17 997 699

18 642 615

22. LOANS AND ADVANCES TO CUSTOMERS

22a. Loans and advances to customers mandatorily at fair value through profit

or loss

Balance sheet value:

31.12.2021

31.12.2020

Mandatorily at fair value through profit or loss *

362 992

1 615 753

Companies

12 889

Individuals

362 952

1 602 752

Public sector

112

At the implementation of IFRS9 Group separated credit exposures which include, in the interest rate

definition, leverage/multiplier feature and presents aforementioned exposures in these financial

statements as "Non-trading financial assets mandatorily at fair value through profit or loss - Credits

and advances". The provisions of IFRS 9 indicate that the multiplier feature modifies money over time

and causes the need to apply fair value measurement, however the economic sense of the transaction,

i.e. portfolio management not based on fair value and maintaining the portfolio to obtain cash flows

from the contract, constitute characteristics of portfolios valued at amortized cost. In 2021, as a

result of a change in contractual provisions (eliminating the multiplier feature), some of these

exposures began to be re-measured at amortized cost. The change concerned loans where clients

fully repaid their commitment, the interest on which was calculated based on the old formula

containing a multiplier. Exposures recorded after that time under new contractual conditions (without

a multiplier) are measured at amortized cost).

133

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

As a result, in 2021, the following changes were made to the financial statements:

1. in the Profit and loss account, approximately PLN 64 million of revenues was recognized in the item

"Result from the non trading loans mandatorily at fair value" due to the reversal of the costs of

previously recorded fair value adjustment. At the same time, in line with the credit portfolio risk

assessment rules applied in the Bank, the Bank created appropriate impairment allowances for

exposures measured at amortized cost, recognizing them as an expense in the Profit and loss account.

Due to the nature of the affected exposures, both amounts were of a similar value.

2. In the balance sheet, the value of the loan portfolio mandatorily measured at fair value through

the profit and loss account decreased by approximately PLN 1,280 million in net terms

The Bank writes down the gross carrying amount of a financial asset when there is no reasonable

probability that it will be fully (total writes off) or partially (partial writes off) recovered. Following

the recorded partial writes off the Bank transferred to off-balance sheet evidence (deducting the

carrying value of gross receivables) penalty interest amounting to PLN 373 million as at 31.12.2021.

22b. Loans and advances to customers valued at amortised cost

31.12.2021

Balance sheet value, gross

Accumulated impairment allowances

Balance sheet

value, net

Stage 1

Stage 2

Stage 3*

Stage 1

Stage 2

Stage 3*

Valued at amortised cost

73 262 717

3 866 807

3 485 056

(340 177)

(234 353)

(1 799 716)

78 240 334

Companies

17 458 183

1 032 369

806 767

(114 852)

(45 876)

(320 591)

18 816 000

Individuals

55 561 933

2 834 434

2 678 289

(224 196)

(188 477)

(1 479 125)

59 182 858

Public sector

242 601

(1 129)

241 476

* including POCI

31.12.2020

Balance sheet value, gross

Accumulated impairment allowances

Balance sheet

value, net

Stage 1

Stage 2

Stage 3*

Stage 1

Stage 2

Stage 3*

Valued at amortised cost

66 725 877

3 986 549

3 683 798

(365 159)

(230 339)

(1 777 137)

72 023 589

Companies

16 146 941

1 561 156

1 026 032

(118 205)

(41 408)

(468 866)

18 105 650

Individuals

50 309 936

2 425 215

2 652 451

(245 411)

(188 930)

(1 307 577)

53 645 684

Public sector

269 000

178

5 315

(1 543)

(1)

(694)

272 255

* including POCI

134

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

22c. Loans and advances to customers

31.12.2021

31.12.2020

Valued at

amortised cost

Mandatorily at

fair value through

profit or loss *

Valued at

amortised cost

Mandatorily at

fair value through

profit or loss *

Loans and advances

72 359 455

98 324

67 218 285

771 780

▪ to companies

12 356 995

12 188 367

▪ to private individuals

59 921 206

98 324

54 932 397

771 780

▪ to public sector

81 254

97 521

Receivables on account of payment cards

784 087

264 668

83 121

843 973

▪ due from companies

14 572

187

13 002

▪ due from private individuals

769 515

264 628

82 934

830 971

Purchased receivables

96 591

214 385

▪ from companies

96 591

214 385

▪ from public sector

Guarantees and sureties realised

8 020

7 419

Debt securities eligible for rediscount at

Central Bank

103

2 748

Financial leasing receivables

6 949 534

6 471 831

Other

18 876

3 618

Interest

397 914

394 817

Total:

80 614 580

362 992

74 396 224

1 615 753

Impairment allowances

(2 374 246)

(2 372 635)

Total balance sheet value:

78 240 334

362 992

72 023 589

1 615 753

22d. Quality of loans and advances to customers portfolio valued at amortised

cost

31.12.2021

31.12.2020

Loans and advances to customers (gross)

80 614 580

74 396 224

impaired

3 485 056

3 683 798

not impaired

77 129 524

70 712 426

Impairment write-offs

(2 374 246)

(2 372 635)

for impaired exposures

(1 799 716)

(1 777 137)

for not impaired exposures

(574 530)

(595 498)

Loans and advances to customers (net)

78 240 334

72 023 589

135

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

22e. Loans and advances to customers portfolio valued at amortised cost by

methodology of impairment assessment

31.12.2021

31.12.2020

Loans and advances to customers (gross)

80 614 580

74 396 224

case by case analysis

820 462

1 015 366

collective analysis

79 794 118

73 380 858

Impairment allowances

(2 374 246)

(2 372 635)

on the basis of case by case analysis

(261 290)

(362 318)

on the basis of collective analysis

(2 112 956)

(2 010 317)

Loans and advances to customers (net)

78 240 334

72 023 589

22f. Loans and advances to customers portfolio valued at amortised cost by

customers

31.12.2021

31.12.2020

Loans and advances to customers (gross)

80 614 580

74 396 224

corporate customers

19 539 924

19 008 622

individuals

61 074 656

55 387 602

Impairment allowances

(2 374 246)

(2 372 635)

for receivables from corporate customers

(482 448)

(630 717)

for receivables from private individuals

(1 891 798)

(1 741 918)

Loans and advances to customers (net)

78 240 334

72 023 589

136

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

22g. Movements in impairment allowances for loans and advances to

customers carried at amortised cost

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Balance at the beginning of the period

2 372 635

1 961 618

Change in value of provisions:

1 611

411 017

Impairment allowances created in the period

1 607 350

1 667 413

Amounts written off

(340 852)

(220 681)

Impairment allowances released in the period

(1 167 777)

(1 038 000)

Sale of receivables

(145 828)

(59 662)

KOIM created in the period*

35 850

37 798

Changes resulting from FX rates differences

9 287

20 250

Other

3 581

3 899

Balance at the end of the period

2 374 246

2 372 635

* In accordance with IFRS 9, the Group calculates interest on the loan portfolio with a recognized impairment based on the

net exposure value. For this purpose, the so-called impaired interest adjustment (“KOIM") is calculated and recorded as a

reduction of interest income. Aforementioned KOIM adjustment in the balance sheet is presented as an impairment

allowances, and as a consequence the reconciliation of the change in impairment allowances requires consideration of the

KOIM recognized in the interest income.

The Group records POCI assets in the balance sheet as a result of recognition of impaired loans after

the merger with Euro Bank and takeover of SKOK Piast. At the time of the merger, the aforementioned

assets included in the Bank's books at fair value.

The value of POCI assets is as follows:

Gross balance

sheet value

Accumulated

impairment

Net balance

sheet value

31.12.2021

- Companies

231

290

- Individuals

241 218

(15 488)

225 730

- Public sector

31.12.2020

- Companies

255

313

- Individuals

399 392

(26 607)

372 784

- Public sector

137

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

22h. Changes in impairment allowances and gross carrying amount of loans

and advances valued at amortised cost divided into stages and classes:

Companies: impairment allowances

Stage 1

Stage 2

Stage 3

POCI

Total

Balance at the beginning of the period

118 204

41 410

469 120

(255)

628 478

Transfers between stages

3 316

(26 554)

23 238

Increase due to granting or purchase

70 192

Changes in credit risk

(61 850)

33 604

27 310

(912)

Decrease due to derecognition (except exposures

sold and written off)

(13 385)

(2 890)

(15 396)

(31 671)

Sale of loans and advances

(1 395)

(4 616)

(6 011)

Loans and advances written off

(182 382)

KOIM

3 712

Other (including FX differences)

(229)

306

(164)

(87)

Balance at the end of the period

114 852

45 876

320 822

(231)

481 319

Companies: loans and advances balance sheet

value, gross

Stage 1

Stage 2

Stage 3

POCI

Total

Balance at the beginning of the period

16 146 941

1 561 155

1 025 974

18 734 129

Transfers between stages

(132 267)

(29 319)

161 586

Granted or purchased loans and advances

9 142 424

Repaid loans and advances

(7 396 680)

(504 923)

(238 622)

(8 140 225)

Loans and advances sold

(326 724)

(5 363)

(332 087)

Loans and advances written off

(192 909)

Other (including FX differences)

24 488

5 456

56 042

85 986

Balance at the end of the period

17 458 182

1 032 369

806 709

19 297 319

Individuals: impairment allowances

Stage 1

Stage 2

Stage 3

POCI

Total

Balance at the beginning of the period

245 411

188 930

1 280 970

26 607

1 741 918

Transfers between stages

184 638

(246 982)

62 343

Increase due to granting or purchase

183 399

Changes in credit risk

(348 060)

266 365

476 038

394 344

Decrease due to derecognition (except exposures

sold and written off)

(37 415)

(23 797)

(102 540)

(10 919)

(174 671)

Sale of loans and advances

(139 817)

Loans and advances written off

(205)

(1 920)

(156 145)

(200)

(158 470)

KOIM

32 139

Other (including FX differences)

(3 572)

5 882

10 648

12 958

Balance at the end of the period

224 196

188 477

1 463 637

15 488

1 891 798

138

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Individuals: loans and advances balance sheet

value, gross

Stage 1

Stage 2

Stage 3

POCI

Total

Balance at the beginning of the period

50 309 936

2 425 215

2 253 059

399 392

55 387 602

Transfers between stages

(1 583 891)

1 011 174

572 716

Granted or purchased loans and advances

13 507 559

Repaid loans and advances

(5 468 259)

(577 081)

(146 902)

(50 128)

(6 242 370)

Allocation of legal risk provisions to the loan

portfolio

(1 888 437)

(41 201)

(102 386)

(2 032 024)

Loans and advances sold

(107 481)

(93 473)

(200 954)

Loans and advances written off

(131 240)

(16 704)

(147 944)

Other (including FX differences)

685 024

14 299

99 305

2 131

800 759

Balance at the end of the period

55 561 933

2 832 407

2 437 071

241 218

63 104 653

Public sector: impairment allowances

Stage 1

Stage 2

Stage 3

POCI

Total

Balance at the beginning of the period

1 543

695

2 238

Transfers between stages

Increase due to granting or purchase

Changes in credit risk

(415)

(695)

(1 110)

Decrease due to derecognition (except exposures

sold and written off)

(24)

Other (including FX differences)

Balance at the end of the period

1 129

Public sector: loans and advances balance

sheet value, gross

Stage 1

Stage 2

Stage 3

POCI

Total

Balance at the beginning of the period

269 000

178

5 315

274 492

Transfers between stages

(1)

Granted or purchased loans and advances

22 330

Repaid loans and advances

(48 728)

(175)

(5 315)

(54 218)

Other (including FX differences)

Balance at the end of the period

242 600

242 604

22i. Loans and advances to customers portfolio valued at amortised cost by

maturity

31.12.2021

31.12.2020

Current accounts

3 968 352

2 746 506

to 1 month

1 570 044

1 054 951

above 1 month to 3 months

2 759 234

2 472 040

above 3 months to 1 year

8 345 528

7 924 173

above 1 year to 5 years

25 530 917

24 964 128

above 5 years

36 043 346

32 733 697

past due

1 999 245

2 105 912

Interest

397 914

394 817

Total gross

80 614 580

74 396 224

139

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

22j. Loans and advances to customers portfolio valued at amortised cost by

currency

31.12.2021

31.12.2020

Balance sheet

value, gross

Impairment

allowances

Balance sheet

value

Balance sheet

value, gross

Impairment

allowances

Balance sheet

value

in Polish currency

66 605 331

(2 073 560)

64 531 771

56 794 474

(2 060 429)

54 734 045

in foreign currencies (after

conversion to PLN)

14 009 249

(300 686)

13 708 563

17 601 750

(312 206)

17 289 544

currency: USD

116 213

(3 138)

113 075

115 866

(3 529)

112 337

currency: EUR

3 888 269

(78 771)

3 809 498

3 586 164

(71 339)

3 514 825

currency: CHF

9 998 378

(218 561)

9 779 817

13 895 610

(237 159)

13 658 451

currency: JPY

112

(111)

122

(121)

other currencies

6 277

(105)

6 172

3 988

(58)

3 930

Total

80 614 580

(2 374 246)

78 240 334

74 396 224

(2 372 635)

72 023 589

22k. Financial leasing receivables

31.12.2021

31.12.2020

Financial leasing receivables (gross)

7 408 772

6 777 327

Unrealised financial income

(459 238)

(305 496)

Financial leasing receivables (net)

6 949 534

6 471 831

Financial leasing receivables (gross) by maturity

Under 1 year

2 734 015

2 628 928

From 1 year to 2 years

1 909 331

1 719 645

From 2 year to 3 years

1 379 296

1 174 954

From 3 year to 4 years

744 956

665 775

From 4 year to 5 years

371 272

317 278

Above 5 years

269 902

270 747

Total

7 408 772

6 777 327

Financial leasing receivables (net) by maturity

Under 1 year

2 537 130

2 495 703

From 1 year to 2 years

1 785 043

1 638 037

From 2 year to 3 years

1 308 550

1 128 753

From 3 year to 4 years

709 426

642 028

From 4 year to 5 years

354 657

306 500

Above 5 years

254 728

260 810

Total

6 949 534

6 471 831

The main groups of items financed through leasing are the means of transport (tractors, trailers,

trucks, vans, cars, etc.), machinery and equipment, computers as well as industrial and commercial

real estate. The leasing portfolio of the Group includes contracts in which fees are set in PLN or in

EUR, based on floating or fixed interest rates.

Agreements with customers are concluded for term from 1 year to 10 years. Offered lease agreements

provide a diverse client's own contribution and the residual value of the object, as well as a diverse

amount of lease payments, e.g., depending on seasonality. After the end of the lease, a customer is

obliged to buy the item at a final price specified at the time of the conclusion of the agreement. The

object during the entire lease term is owned by the Group and constitutes a major collateral of lease

payments.

140

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

23. FINANCIAL ASSETS AT AMORTISED COST OTHER THAN LOANS AND

ADVANCES TO CUSTOMERS

23a. Financial assets at amortised cost other than Loans and advances to

customers

31.12.2021

Balance sheet value, gross

Accumulated impairment allowances

Balance sheet

value, net

Stage 1

Stage 2

Stage 3

Stage 1

Stage 2

Stage 3

Debt securities

37 089

(1)

37 088

Deposits, loans and advances to

banks and other monetary

institutions

770 770

(239)

770 531

Repurchase agreements

268 837

31.12.2020

Balance sheet value, gross

Accumulated impairment allowances

Balance sheet

value, net

Stage 1

Stage 2

Stage 3

Stage 1

Stage 2

Stage 3

Debt securities

38 821

(3)

38 818

Deposits, loans and advances to

banks and other monetary

institutions

625 430

Repurchase agreements

66 350

23b. Debt securities

31.12.2021

31.12.2020

credit institutions

other companies

public sector

37 088

38 818

Total

37 088

38 818

23c. Deposits, loans and advances to banks and other monetary institutions

31.12.2021

31.12.2020

Current accounts

152 661

102 748

Deposits

617 949

522 532

Interest

160

150

Total (gross) deposits, loans and advances

770 770

625 430

Impairment allowances

(239)

Total (net) deposits, loans and advances

770 531

625 430

141

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

23d. Deposits, loans and advances to banks and other monetary institutions

by maturity date

31.12.2021

31.12.2020

Current accounts

152 661

102 748

to 1 month

572 949

522 532

above 1 month to 3 months

40 000

above 3 months to 1 year

5 000

above 1 year to 5 years

above 5 years

past due

Interest

160

150

Total (gross) deposits, loans and advances

770 770

625 430

23e. Deposits, loans and advances to banks and other monetary institutions

by currency

31.12.2021

31.12.2020

in Polish currency

265 915

24 646

in foreign currencies (after conversion to PLN)

504 855

600 784

currency: USD

22 964

32 630

currency: EUR

364 048

488 671

currency: CNY

32 430

29 926

currency: GBP

4 390

7 397

currency: CHF

20 189

6 119

currency: JPY

29 031

7 301

other currencies

31 803

28 740

Total

770 770

625 430

23f. Change of impairment allowances for deposits, loans and advances to

banks and other monetary institutions

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Balance at the beginning of the period

Impairment allowances created in the period

(239)

Impairment allowances released in the period

Balance at the end of the period

(239)

142

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

23g. Reverse sale and repurchase agreements

31.12.2021

31.12.2020

credit institutions

66 351

other customers

268 533

budget

303

(1)

Total

268 836

66 350

24. DERIVATIVES – HEDGE ACCOUNTING

Starting from 1 January 2006 the Group established first formal hedging relationship against cash flow

volatility. One should note that as from IFRS implementation, pursuant to IAS39 the effect of valuation

of all derivatives not classified as and not being effective hedges is presented in result from financial

instruments valued at fair value through the profit and loss account. The employment of such

methodology resulted in the lack of coherence in the manner of presentation of financial instruments

in the profit and loss account. Net interest income from derivative transactions, concluded in order

to hedge cash flow in foreign currencies, from the economic point of view constitutes an interest

margin component (allows to adjust interest income from FX loans to the cost of funding resulting

from the zloty deposit portfolio). Implementation of formal hedge accounting permitted presentation

of the transactions in the Profit and Loss Account in accordance with their economic meaning.

The Risk Strategy approved in the Group defines a general rules for hedging of market risk generated

by its commercial activity. External transactions eligible for hedge accounting are pointed in the

Strategy just after the natural economic hedge. The Group applied (as at 31.12.2021) Cash Flow Hedge

relations to eliminate the variability of cash flows:

✓ on FX denominated mortgage loans and financing them PLN deposits,

✓ on PLN denominated financial assets,

✓ due to future income and interest costs denominated in foreign currencies,

attributable to interest rate risk and currency risk in the time horizon limited to maturity of hedging

instruments, presented in note (24b).

In addition, the Group applied a fair value hedge for a fixed interest rate debt instrument.

The underlying of hedged and hedging items are economically related in a way that they respond in

a similar way to the hedged risk, their fair value will offset in response to the market interest and FX

rates movements.

The Group performs the effectiveness tests on a monthly basis, calculates and compares the changes

in fair value of hedged and hedging positions. Hedge effectiveness is tested using hypothetical

derivative method, hedged items are presented as a hypothetical derivative, for which changes in the

fair value are calculated and compared with changes in fair value of hedging instruments. Hedge

ineffectiveness can arise from differences in repricing dates of hedged and hedging positions or from

designation as hedging item the existing derivative instrument. The Group designates hedging

instruments on their trade date and by this eliminates this source of ineffectiveness. Hedge

ineffectiveness reported by the Group includes amortization of the fair value changes recognized as

effective for derivatives classified on their termination date as hedging.

143

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Detailed information on cash flow hedge relations applied by the Group, items designated as hedged

and hedging and presentation of the result (as at 31.12.2021) is shown in a table below:

Hedge of volatility of the cash flows

generated by PLN denominated financial

assets

Cash flow volatility hedge for the flows

generated by FX mortgage portfolio and its

underlying PLN liabilities

Description of hedge

transactions

The Group hedges the risk of the volatility of

cash flows generated by PLN denominated

financial assets. The volatility of cash flows

results from interest rate risk.

The Group hedges the risk of the volatility of

cash flows generated by FX mortgages and by

PLN liabilities financially underlying such loans.

The volatility of cash flows results from the

currency risk and interest rate risk.

Hedged items

Cash flows resulting from PLN denominated

financial assets.

Cash flows resulting from the FX mortgage loan

portfolio and PLN deposits together with issued

debt PLN securities funding them.

Hedging instruments

IRS transactions

CIRS transactions

Presentation of the

result on the

hedged and hedging

transactions

Effective part of the valuation of hedging

instruments is recognised in revaluation

reserve; interest on both the hedged and the

hedging instruments are recognised in net

interest income.

Ineffective part of the valuation of hedging

instruments is recognized in the income

statement as a result on instruments measured

at fair value through profit and loss.

Effective part of the valuation of hedging

instruments is recognised in revaluation

reserve; interest on both the hedged and the

hedging instruments are recognised in net

interest income; valuation of hedging and

hedged instruments on FX differences is

recognised in Result on exchange differences.

Ineffective part of the valuation of hedging

instruments is recognized in the income

statement as a result on instruments measured

at fair value through profit and loss.

Fair value hedge of a fixed interest rate debt

instrument

Cash flow volatility hedge due to future

income and interest costs denominated in

foreign currencies

Description of hedge

transactions

The Group hedges part of the interest rate risk

associated with the change in the fair value of

a fixed-rate debt instrument recorded in other

comprehensive income, resulting from

fluctuations in market interest rate.

The Group hedges the risk of the volatility of

cash flows generated by income and interest

costs denominated in foreign currencies. The

volatility of cash flows results from the

currency risk.

Hedged items

A portfolio of fixed coupon debt securities

classified as financial assets measured at fair

value through other comprehensive income

denominated in PLN.

Cash flows resulting from income and interest

costs denominated in foreign currencies.

Hedging instruments

IRS transactions

FX position resulting from recognized future

leasing liabilities.

Presentation of the

result on the

hedged and hedging

transactions

The result on the change in the fair value

measurement of hedged items in the hedged

risk is referred to the result on hedge

accounting. The remaining part of the change

in fair value measurement is recognized in

other comprehensive income. Interest on debt

securities is recognized in net interest income.

The change in fair value measurement of

derivative instruments being a hedge is

presented in the result on hedge accounting,

and interest on these instruments is recognized

in the interest result.

The effective part of the spot revaluation of

hedging instruments is recognized in the

revaluation reserve.

The ineffective part of the valuation of the

hedging item is recognized in the income

statement as a result on instruments measured

at fair value through profit and loss.

144

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

24a. Hedge accounting

As at 31.12.2021

Par value of instruments with future maturity

Fair values

below 3

months

from 3

months to 1

year

from 1 year

to 5 years

above 5 years

Total

Assets

Liabilities

1. Derivative instruments constituting cash flow hedges related to interest rate and/or exchange rate *

CIRS contracts

1 963 585

1 491 326

12 328 234

(283 605)

14 385

297 990

IRS contracts

800 000

5 075 500

(316 584)

316 584

FXS contracts

2. Derivatives used as interest rate hedges related to interest rates

IRS contracts

90 000

3. Total hedging

derivatives

1 963 585

2 291 326

17 493 734

(600 189)

14 385

614 574

* Notional value for double-currency derivatives constitutes the sum of both transactions expressed in PLN.

As at 31.12.2020

Par value of instruments with future maturity

Fair values

below 3

months

from 3

months to 1

year

from 1 year

to 5 years

above 5 years

Total

Assets

Liabilities

1. Derivative instruments constituting cash flow hedges related to interest rate and/or exchange rate *

CIRS contracts **

4 214 237

5 833 452

20 482 303

(632 447)

21 795

654 242

IRS contracts

500 000

2 680 000

(45 903)

45 903

FXS contracts

2 531 417

(29 116)

29 116

2. Derivatives used as interest rate hedges related to interest rates

IRS contracts

50 000

90 000

(9 588)

9 588

3. Total hedging

derivatives

6 745 653

6 383 452

23 162 303

90 000

(717 055)

21 795

738 850

* Notional value for double-currency derivatives constitutes the sum of both transactions expressed in PLN.

** The item contains transactions with forward start date of the value of PLN 10,645,826 thousand, concluded in order to

ensure the continuity of the financing portfolio of CHF after the settlement of currently active contracts.

145

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

24b. Hedge accounting for cash flow volatility

Hedge relationship

Maximum date of occurrence of cash

flows whose value is hedged

Hedge of volatility of the cash flows generated by PLN denominated financial

assets

2026-11-05

Cash flow volatility hedge for the flows generated by FX mortgage portfolio and

its underlying PLN liabilities

2025-01-07

Fair value hedge of a fixed interest rate debt instrument

2026-08-26

Hedge of the volatility of cash flows generated by the portfolio of floating-rate

foreign currency mortgage loans

2030-04-30

The inefficient part of the valuation of hedging instruments recognized in the Profit and Loss Account in 2021 amounted to

PLN -3,696 thousand. (in 2020, it was PLN -9,253 thousand, respectively)

The inefficient part of the valuation of hedging instruments recognized in the Profit and loss account

and losses was presented in note (8).

24c. Cash flow hedge – Hedged Instruments

Type of

contract

Balance sheet item

Changes in fair value used

in the calculation of the

ineffectiveness in the

period

Balance in cash flow

hedge reserve for

continuing hedges

Balance in cash flow

hedge reserve for

discontinued hedges

- CIRS

Loans and advances to

customers

5 690

(26 914)

(1 304)

- IRS

Loans and advances to

customers

158 382

(158 382)

- FX swap

Loans and advances to

customers

3 643

- FX spot

Future interest income

and costs

(444)

(16 944)

- IRS

Issued debt securities

(11 499)

(1 049)

- IRS

Debt securities

179 211

(174 318)

Total

334 983

(376 558)

(2 353)

24d. Cash flow hedge – Hedging instruments

Type of contract

Changes in fair value used in the

calculation of the ineffectiveness

in the period

Ineffectiveness recognized in P&L

Amounts reclassified

from reserves to

results

- CIRS

(5 690)

(490)

- IRS

(158 382)

- FX swap

(3 643)

- FX spot

444

- IRS

11 499

(3 206)

- IRS

(179 211)

Total

(334 983)

(3 696)

146

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

24e. Fair value hedge – Hedged instruments

Type of contract

Balance sheet item

Changes in the fair value of the

hedged instrument used in the

calculation of the ineffectiveness in

the period

IRS

Debt instruments valued in other comprehensive

income

(13 301)

Total

(13 301)

24f. Fair value hedge – Hedging instruments

Type of contract

Changes in the fair value of the hedging

instrument used in the calculation of the

ineffectiveness in the period

Ineffectiveness recognized in P&L

IRS

13 813

512

Total

13 813

512

25. INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES

25a. Investments in related entities

31.12.2021

31.12.2020

Investments in associates

25b. Change of investments in related entities

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Balance at the beginning of the period

sale

equity method valuation

Balance at the end of the period

147

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

26. TANGIBLE FIXED ASSETS

26a. Property, plant and equipment

31.12.2021

31.12.2020

Land

2 434

Buildings and premises

67 944

67 073

Machines and equipment

89 749

88 121

Vehicles

9 664

9 490

Other fixed assets

23 077

23 872

Fixed assets under construction

63 315

59 257

Rights to use office space

293 605

321 566

Total

549 788

571 813

148

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

26b. Change of balance of property, plant and equipment (by type groups) in

the period 01.01.2021 – 31.12.2021

Land

Buildings

and

premises

Machines

and

equipment

Vehicles

Other

fixed

assets

Fixed assets

under

construction

Rights to

use office

space

TOTAL

a) gross value of property,

plant and equipment at the

beginning of the period

2 434

322 405

281 465

31 947

100 480

59 257

509 975

1 307 963

b) increases (on account of)

14 306

30 918

8 086

7 150

55 985

79 762

196 207

purchase

100

458

8 086

40 957

49 649

transfer from fixed assets

under construction

14 206

30 460

7 102

368

52 136

unpaid investments

14 660

recognition of rights to use

office space

79 762

c) reductions (on account of)

15 899

15 321

3 139

5 642

51 927

60 511

152 439

sale

4 116

9 231

3 139

2 699

19 185

liquidation

11 783

6 090

2 943

60 511

81 327

settlement of fixed assets

under construction

51 768

other

159

d) gross value of property,

plant and equipment at the

end of the period

2 434

320 812

297 062

36 894

101 988

63 315

529 226

1 351 731

e) cumulated depreciation

(amortization) at the

beginning of the period

246 458

193 344

22 457

76 607

188 409

727 275

f) depreciation over the

period (on account of)

(2 464)

13 969

4 773

2 303

47 212

65 793

current write-off (P&L)

10 269

28 554

8 007

6 950

101 015

154 795

reductions on account of

sale

(3 766)

(8 736)

(2 928)

(2 618)

(18 048)

reductions on account of

liquidation

(8 906)

(5 890)

(2 050)

(53 803)

(70 649)

transfer from impairment

allowance

other

(61)

(306)

g) cumulated depreciation

(amortization) at the end of

the period

243 994

207 313

27 230

78 910

235 621

793 068

h) impairment allowances at

the beginning of the period

8 874

8 875

creation of allowances

release of allowances

i) impairment allowances at

the end of the period

8 874

8 875

j) net value of property,

plant and equipment at the

end of the period

2 434

67 944

89 749

9 664

23 077

63 315

293 605

549 788

149

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

26c. Change of balance of property, plant and equipment (by type groups) in

the period 01.01.2020 – 31.12.2020

Land

Buildings

and

premises

Machines

and

equipment

Vehicles

Other

fixed

assets

Fixed assets

under

construction

Rights to

use office

space

TOTAL

a) gross value of property,

plant and equipment at the

beginning of the period

2 434

318 739

264 913

30 547

89 762

63 324

499 873

1 269 592

b) increases (on account of)

10 801

25 649

2 063

12 970

44 834

45 505

141 822

purchase

731

2 063

25 847

28 641

transfer from fixed assets

under construction

10 801

24 918

12 970

48 689

unpaid investments

18 987

recognition of rights to use

office space

45 505

c) reductions (on account of)

7 135

9 097

663

2 252

48 901

35 403

103 451

sale

2 786

5 033

592

227

8 638

liquidation

4 349

4 064

2 025

35 186

45 695

settlement of fixed assets

under construction

48 689

other

212

217

429

d) gross value of property,

plant and equipment at the

end of the period

2 434

322 405

281 465

31 947

100 480

59 257

509 975

1 307 963

e) cumulated depreciation

(amortization) at the

beginning of the period

239 616

171 816

15 265

71 117

96 573

594 387

f) depreciation over the

period (on account of)

6 842

21 528

7 192

5 490

91 836

132 888

current write-off (P&L)

11 884

29 773

7 752

6 868

111 009

167 286

reductions on account of

sale

(2 015)

(4 305)

(539)

(185)

(7 044)

reductions on account of

liquidation

(3 089)

(3 900)

(21)

(1 171)

(19 173)

(27 354)

transfer from impairment

allowance

other

(40)

(22)

g) cumulated depreciation

(amortization) at the end of

the period

246 458

193 344

22 457

76 607

188 409

727 275

h) impairment allowances at

the beginning of the period

8 874

8 875

creation of allowances

release of allowances

i) impairment allowances at

the end of the period

8 874

8 875

j) net value of property,

plant and equipment at the

end of the period

2 434

67 073

88 121

9 490

23 872

59 257

321 566

571 813

150

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

27. INTANGIBLE FIXED ASSETS

27a. Intangible fixed assets

31.12.2021

31.12.2020

Goodwill due to merger with Euro Bank

192 126

Other intangible fixed assets:

200 312

192 655

concessions, patents, licenses, know-how and similar assets

35 600

31 929

computer software

96 638

58 113

other

12 867

17 883

advances for intangible assets

55 207

84 730

Total

392 438

384 781

27b. Change of balance of intangible fixed assets (by type groups) in the

period 01.01.2021 – 31.12.2021

concessions,

patents, licenses,

know-how and

similar assets

computer

software

other

advances for

intangible

assets

TOTAL

a) gross value of intangible fixed assets

at the beginning of the period

65 645

366 492

28 171

84 730

545 038

b) increases (on account of)

17 328

70 519

58 740

146 587

purchase

44 239

44 278

unpaid investments

14 501

takeover from investments and

addvances

17 328

70 480

87 808

other

c) reductions (on account of)

248

7 871

1 306

88 263

97 688

liquidation

248

7 853

1 306

9 435

settlement of advances

88 175

other

d) gross value of intangible fixed assets

at the end of the period

82 725

429 140

26 865

55 207

593 937

e) cumulated depreciation at the

beginning of the period

33 716

304 391

10 288

348 395

f) depreciation over the period (on

account of)

13 409

24 123

3 710

41 242

current write-off (P&L)

13 657

28 127

5 016

46 800

liquidation

(248)

(3 987)

(1 306)

(5 541)

other

(17)

g) cumulated depreciation at the end

of the period

47 125

328 514

13 998

389 637

h) impairment allowances at the

beginning of the period

3 988

i) impairment allowances at the end of

the period

3 988

j) net value of intangible fixed assets at

the end of the period

35 600

96 638

12 867

55 207

200 312

151

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

27c. Change of balance of intangible fixed assets (by type groups) in the

period 01.01.2020 – 31.12.2020

concessions,

patents, licenses,

know-how and

similar assets

computer

software

other

advances for

intangible

assets

TOTAL

a) gross value of intangible fixed assets

at the beginning of the period

42 354

328 653

28 169

89 978

489 154

b) increases (on account of)

23 291

37 839

55 922

117 054

purchase

572

44 578

45 150

unpaid investments

11 344

takeover from investments and

addvances

23 291

37 267

60 560

other

c) reductions (on account of)

61 170

liquidation

settlement of advances

60 560

other

594

d) gross value of intangible fixed assets

at the end of the period

65 645

366 492

28 171

84 730

545 038

e) cumulated depreciation at the

beginning of the period

24 680

276 668

3 922

305 270

f) depreciation over the period (on

account of)

9 036

27 723

6 366

43 125

current write-off (P&L)

8 901

27 857

6 367

43 125

other

135

(134)

(1)

g) cumulated depreciation at the end

of the period

33 716

304 391

10 288

348 395

h) impairment allowances at the

beginning of the period

3 988

i) impairment allowances at the end of

the period

3 988

j) net value of intangible fixed assets at

the end of the period

31 929

58 113

17 883

84 730

192 655

152

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

28. DEFERRED INCOME TAX ASSETS

28a. Deferred income tax assets and liability

31.12.2021

31.12.2020

Deferred

income tax

asset

Deferred

income tax

provision

Net deferred

income tax

asset

Deferred

income tax

asset

Deferred

income tax

provision

Net deferred

income tax

asset

Difference between tax and balance

sheet depreciation

24 993

(26 214)

(1 221)

27 195

(19 806)

7 389

Balance sheet valuation of financial

instruments

(8 231)

(2 131)

(10 362)

138 727

(150 000)

(11 273)

Unrealised receivables/ liabilities on

account of derivatives

12 450

(13 284)

(834)

12 285

(14 486)

(2 201)

Interest on deposits and securities to

be paid/ received

12 215

(77 358)

(65 143)

31 410

(33 021)

(1 611)

Interest and discount on loans and

receivables

(75 831)

(77 272)

Income and cost settled at effective

interest rate

147 394

(1 455)

145 939

188 794

(1 221)

187 573

Impairment of loans presented as

temporary differences

445 223

454 771

Employee benefits

19 874

20 398

Rights to use

6 691

8 501

Provisions for future costs

93 345

87 013

Valuation of investment assets, cash

flows hedge and actuarial gains

(losses) recognized in other

comprehensive income

258 220

(56 814)

201 406

9 315

(56 197)

(46 882)

Shares valuation

1 273

(36 440)

(35 167)

1 273

(24 790)

(23 517)

Tax loss deductible in the future

54 855

57 105

Other

657

(2 326)

(1 669)

1 078

219

1 297

Net deferred income tax asset

1 068 959

(291 853)

777 106

1 037 865

(376 574)

661 291

including long-term net deferred

income tax asset

396 082

366 807

153

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

28b. Change of temporary differences

31.12.2020

Adjustments

to previous

years

Changes to

financial

result

Changes to

equity

31.12.2021

Difference between tax and balance sheet

depreciation

7 389

(8 610)

(1 221)

Balance sheet valuation of financial

instruments

(11 273)

911

(10 362)

Unrealised receivables/ liabilities on account

of derivatives

(2 201)

1 367

(834)

Interest on deposits and securities to be paid/

received

(1 611)

(63 532)

(65 143)

Interest and discount on loans and receivables

(77 272)

1 441

(75 831)

Income and cost settled at effective interest

rate

187 573

(41 634)

145 939

Impairment of loans presented as temporary

differences

454 771

(9 548)

445 223

Employee benefits

20 398

(524)

19 874

Rights to use

8 501

(1 810)

6 691

Provisions for future costs

87 013

6 332

93 345

Valuation of investment assets, cash flows

hedge and actuarial gains (losses) recognized in

other comprehensive income

(46 882)

248 288

201 406

Shares valuation

(23 517)

(11 650)

(35 167)

Tax loss deductible in the future

57 105

(2 250)

54 855

Other

1 296

(579)

(2 386)

(1 669)

Total

661 290

(579)

(131 893)

248 288

777 106

28c. Change of temporary differences

31.12.2019

Adjustments

to previous

years

Changes to

financial

result

Changes to

equity

31.12.2020

Difference between tax and balance sheet

depreciation

73 360

(65 971)

7 389

Balance sheet valuation of financial

instruments

(23 263)

11 990

(11 273)

Unrealised receivables/ liabilities on account

of derivatives

(6 364)

4 163

(2 201)

Interest on deposits and securities to be paid/

received

(3 204)

1 593

(1 611)

Interest and discount on loans and receivables

(74 140)

(3 132)

(77 272)

Income and cost settled at effective interest

rate

179 054

8 519

187 573

Impairment of loans presented as temporary

differences

363 612

91 159

454 771

Employee benefits

21 366

(968)

20 398

Rights to use

6 314

2 187

8 501

Provisions for future costs

22 361

64 652

87 013

Valuation of investment assets, cash flows

hedge and actuarial gains (losses) recognized in

other comprehensive income

(16 444)

(30 438)

(46 882)

Shares valuation

(22 415)

(1 102)

(23 517)

Tax loss deductible in the future

9 343

47 762

57 105

Other

1 938

17 186

(17 827)

1 297

Total

531 518

17 186

143 025

(30 438)

661 291

154

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

28d. Change of deferred income tax

1.01.2021 -

31.12.2021

1.01.2020 -

31.12.2020

Difference between tax and balance sheet depreciation

(8 610)

(65 971)

Balance sheet valuation of financial instruments

911

11 990

Unrealised receivables/ liabilities on account of derivatives

1 367

4 163

Interest on deposits and securities to be paid/ received

(63 532)

1 593

Interest and discount on loans and receivables

1 441

(3 132)

Income and cost settled at effective interest rate

(41 634)

8 519

Impairment of loans presented as temporary differences

(9 548)

91 159

Employee benefits

(524)

(968)

Rights to use

(1 810)

2 187

Provisions for future costs

6 332

64 652

Shares valuation

(11 650)

(1 102)

Tax loss deductible in the future

(2 250)

47 762

Other

(2 386)

(17 827)

Change of deferred income tax recognized in financial result

(131 893)

143 025

Valuation of investment assets, cash flows hedge and actuarial gains (losses) recognized in

other comprehensive income

248 288

(30 438)

28e. Negative temporary differences for which the deferred income tax asset

was not recognised in the balance sheet

Temporary differences expiry year

31.12.2021

31.12.2020

Unlimited

12 125

Total

12 125

The value of negative temporary differences presented in the above table was recalculated with the

valid tax rate.

In accordance with IAS 12, the Group offset deferred income tax assets with deferred income tax

liabilities

31.12.2021

31.12.2020

Net deferred income tax assets

777 106

661 291

Net deferred income tax provision

TOTAL

777 106

661 291

155

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

29. OTHER ASSETS

31.12.2021

31.12.2020

Expenses to be settled

116 040

95 556

Income to be received

34 688

27 290

Interbank settlements

Settlements of financial instruments transactions

23 469

Receivables from sundry debtors

411 022

222 208

Settlements with the State Treasury

57 701

13 813

Settlements for activities of Millennium Dom Maklerski S.A.

22 581

14 635

Other

221 916

158 220

Total other assets (gross)

887 417

531 734

Impairment allowances

(29 767)

(22 699)

Total other assets (net)

857 650

509 035

including other financial assets*

461 993

241 446

including long-term other assets

157

341

* - other financial assets includes all of the remaining other net assets excluding the Expenses to be settled and Settlements

with the State Treasury and Other items

As at December 31, 2021, the item "Receivables from sundry debtors" includes receivables due from

Société Générale S.A. under an “CHF Portfolio Indemnity and Guarantee Agreement” aimed at limiting

the risk associated with mortgage loans of the former Euro Bank in the amount of PLN 257.5 million.

As at December 31, 2021, the item "Receivables from sundry debtors" includes receivables due to

legally invalidated foreign currency mortgage loans in the amount of PLN 24.4 million.

156

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

30. NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD

FOR SALE

30a. Change of balance of non-current assets held for sale in the period

01.01.2021 – 31.12.2021

land

buildings,

premises, civil

and hydro-

engineering

structures

machines

and

equipment

vehicles

other fixed

assets

TOTAL

a) value at the beginning of the period

25 917

26 087

b) impairment allowances at the

beginning of the period

(64)

(40)

(27)

(6)

(3 560)

(3 697)

c) net value of non-current assets held for

sale at the beginning of the period

22 357

22 390

d) change of value in the period,

including:

(7 656)

- sale of non-current assets held for sale

e) value at the end of the period

18 261

18 431

f) change of impairment allowances in the

period, including:

3 560

- sale of non-current assets held for sale

g) impairment allowances at the end of

the period

(64)

(40)

(27)

(6)

(137)

h) net value of non-current assets held

for sale at the end of the period

18 261

18 294

30b. Change of balance of non-current assets held for sale in the period

01.01.2020 – 31.12.2020

land

buildings,

premises, civil

and hydro-

engineering

structures

machines

and

equipment

vehicles

other fixed

assets

TOTAL

a) value at the beginning of the period

39 408

39 578

b) impairment allowances at the

beginning of the period

(64)

(40)

(27)

(6)

(137)

c) net value of non-current assets held for

sale at the beginning of the period

39 408

39 441

d) change of value in the period,

including:

(13 491)

- sale of non-current assets held for sale

e) value at the end of the period

25 917

26 087

f) change of impairment allowances in the

period, including:

(3 560)

- sale of non-current assets held for sale

g) impairment allowances at the end of

the period

(64)

(40)

(27)

(6)

(3 560)

(3 697)

h) net value of non-current assets held

for sale at the end of the period

22 357

22 390

157

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

31. FINANCIAL LIABILITIES HELD FOR TRADING

31.12.2021

31.12.2020

Negative valuation of derivatives

126 402

103 775

Adjustment due to fair value hedge

Short sale of securities

16 614

64 778

Financial liabilities valued at fair value through profit and loss

143 016

168 553

The division of the negative valuation of derivatives into specific types of instruments is presented in

note (19).

32. LIABILITIES TO BANKS AND OTHER MONETARY INSTITUTIONS

32a. Liabilities to banks and other monetary institutions

31.12.2021

31.12.2020

In current account

63 176

57 220

Term deposits

106 570

481 490

Loans and advances received

368 313

517 283

Interest

1 349

1 659

Total

539 408

1 057 652

32b. Liabilities to banks and other monetary institutions by maturity

31.12.2021

31.12.2020

Current accounts

63 176

57 220

to 1 month

22 669

481 337

above 1 month to 3 months

93 900

50 000

above 3 months to 1 year

128 329

88 457

above 1 year to 5 years

229 985

378 979

above 5 years

Interest

1 349

1 659

Total

539 408

1 057 652

32c. Liabilities to banks and other monetary institutions by currency

31.12.2021

31.12.2020

in Polish currency

366 222

694 452

in foreign currencies (after conversion to PLN)

173 186

363 200

currency: USD

456

2 006

currency: EUR

172 730

233 291

currency: CHF

127 903

other currencies

Total

539 408

1 057 652

158

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

33. LIABILITIES TO CUSTOMERS

33a. Structure of liabilities to customers by type

31.12.2021

31.12.2020

Amounts due to private individuals

66 022 086

61 874 920

Balances on current accounts

56 192 055

50 825 949

Term deposits

9 565 716

10 807 126

Other

237 776

188 369

Accrued interest

26 539

53 476

Amounts due to companies

21 814 451

16 802 448

Balances on current accounts

15 070 590

12 883 222

Term deposits

6 398 936

3 579 089

Other

342 618

327 586

Accrued interest

2 307

12 551

Amounts due to public sector

3 610 978

2 833 172

Balances on current accounts

3 385 597

2 707 625

Term deposits

215 889

105 079

Other

9 417

20 461

Accrued interest

Total

91 447 515

81 510 540

33b. Liabilities to customers by maturity

31.12.2021

31.12.2020

Current accounts

74 408 748

66 416 796

to 1 month

7 004 091

4 681 105

above 1 month to 3 months

5 254 940

4 788 277

above 3 months to 1 year

2 803 883

3 759 671

above 1 year to 5 years

1 906 400

1 772 255

above 5 years

40 532

26 402

Interest

28 921

66 034

Total

91 447 515

81 510 540

33c. Liabilities to customers by currency

31.12.2021

31.12.2020

in Polish currency

81 696 293

73 182 612

in foreign currencies (after conversion to PLN)

9 751 222

8 327 928

currency: USD

2 168 713

2 024 993

currency: EUR

6 986 586

5 770 991

currency: GBP

393 914

348 618

currency: CHF

182 307

162 427

other currencies

19 702

20 899

Total

91 447 515

81 510 540

159

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

34. SALE AND REPURCHASE AGREEMENTS

Liabilities from securities sold with buy-back clause

31.12.2021

31.12.2020

a) to the Central Bank

b) to banks

248 566

c) to customers

18 037

d) interest

Total

18 038

248 566

35. DEBT SECURITIES ISSUED

35a. Liabilities from debt securities

31.12.2021

31.12.2020

Outstanding bonds and bills

39 450

323 800

Bank Securities

234 427

Interest

118

333

Total

39 568

558 560

35b. Liabilities from debt securities by final legal maturity

31.12.2021

31.12.2020

to 1 month

32 916

above 1 month to 3 months

102 442

above 3 months to 1 year

39 450

383 219

above 1 year to 5 years

39 650

above 5 years

Interest

118

333

Total

39 568

558 560

35c. Change of debt securities

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Balance at the beginning of the period

558 560

1 183 232

Increases, on account of:

3 769

43 339

issue of Banking Securities

29 549

Purchase of Euro Bank S.A. bonds

issue of bonds by the Bank

issue of bonds by the Millennium Leasing

interest accrual

3 769

13 790

Reductions, on account of:

(522 761)

(668 011)

repurchase of Banking Securities

(234 427)

(246 582)

repurchase of Euro Bank S.A. bonds

(250 000)

repurchase of bonds by the Bank

(299 440)

repurchase of bonds by the Millennium Leasing

(34 350)

(105 650)

interest payment

(3 984)

(16 339)

Balance at the end of the period

39 568

558 560

160

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

35d. Debt securities by type

As at December 31, 2021, the balance of issued debt securities for the Group comprised only of

Millennium Leasing's bonds:

As at 31.12.2021

Balance

sheet value

Final legal maturity

Market

Millennium Leasing - G13

39 568

2022-05-17

Razem

39 568

In the case of above bonds interest are accrued based on the notional value of bonds and paid

quarterly. As at 31.12.2021 interests accrued amounted to PLN 118 thousand.

Banking securities and debt securities issued by the Bank:

As at 31.12.2020

Balance sheet value

Final legal maturity

Market

BPW_2021/01

32 916

2021-01-29

BPW_2021/03

20 635

2021-03-01

BPW_2021/03A

14 004

2021-03-01

BPW_2021/03B

8 035

2021-03-29

BPW_2021/03C

25 618

2021-03-29

BPW_2021/04

7 365

2021-04-30

BPW_2021/04A

28 109

2021-04-30

BPW_2021/05

5 083

2021-05-28

BPW_2021/05A

9 292

2021-05-31

BPW_2021/05B

24 747

2021-05-31

BPW_2021/06A

11 593

2021-06-28

BPW_2021/06

11 198

2021-06-30

BPW_2021/06B

14 771

2021-06-30

BPW_2021/07

9 206

2021-07-22

BPW_2021/07A

11 855

2021-07-22

EBK_011221C

250 227

2021-12-01

Razem

484 654

Redemption of Banking Securities (BPW) shall be made by means of payment on redemption date of

the settlement amount, which is calculated on the date of determination of the settlement amount

with use of formulas indicated in terms and conditions of the issue. Calculation of the settlement

amount is made on the basis of financial or commodity market ratios.

In addition, as at 31/12/2020, the Group, in connection with the merger with Euro Bank S.A., showed

a liability under bonds issued by Euro Bank S.A. with a nominal value of PLN 250 million. The balance

of interest accrued on these liabilities was PLN 227 thousand.

Debt securities issued by the Millennium Leasing:

As at 31.12.2020

Balance

sheet value

Final legal maturity

Market

Millennium Leasing - G12

34 206

2021-02-04

Millennium Leasing - G13

39 700

2022-05-17

Total

73 906

In the case of bonds issued by Millennium Leasing interest are accrued based on the notional value of

bonds and paid quarterly. As at 31.12.2020 interests accrued amounted to PLN 106 thousand.

161

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

36. SUBORDINATED DEBT

36a. Subordinated debt

31.12.2021

31.12.2020

Amount of subordinated bonds in PLN - BKMO_071227R

700 000

Currency

PLN

Interest rate

4.81%

2.55%

Maturity

07.12.2027

Interest

2 214

1 174

Amount of subordinated bonds PLN in PLN - BKMO_300129W

830 000

Currency

PLN

Interest rate

2.55%

2.58%

Maturity

30.01.2029

Interest

8 930

9 035

Balance sheet value of subordinated debt

1 541 144

1 540 209

36b. Change of subordinated debt

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Balance at the beginning of the period

1 540 209

1 546 205

Increases, on account of:

40 076

51 441

issue of subordinated bonds

Merger with Euro Bank S.A.

interest accrual

40 076

51 441

Reductions, on account of:

(39 141)

(57 437)

Settlement of subordinated debt of Euro Bank S.A.

interest payment

(39 141)

(57 437)

Balance at the end of the period

1 541 144

1 540 209

During 2021 and 2020 the Group did not have any delays in the payment of principal and interest

instalments, nor did it infringe any contractual provisions resulting from its subordinated liabilities.

162

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

37. PROVISIONS

37a. Provisions

31.12.2021

31.12.2020

Provision for commitments and guarantees given

44 354

51 728

Provision for pending legal issues

551 176

106 922

Total

595 530

158 650

37b. Change of provision for commitments and guarantees given

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Balance at the beginning of the period

51 728

53 393

Charge of provision

55 368

73 356

Release of provision

(62 805)

(75 357)

FX rates differences

336

Balance at the end of the period

44 354

51 728

37c. Change of provision for pending legal issues

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Balance at the beginning of the period

106 922

38 062

Charge of provision

113 173

17 223

Release of provision

(9 463)

(13 440)

Utilisation of provision

(24 059)

(489)

Creation of provisions for legal risk connected with FX mortgage loans *

2 305 157

713 617

Allocation to the loans portfolio**

(2 032 024)

(671 484)

Reclassification

138

FX differences

91 470

23 295

Balance at the end of the period

551 176

106 922

* Creation of provisions for legal risk related to foreign currency mortgage loans is described in more

detail in Chapter 13 “Legal risk related to foreign currency mortgage loans”.

** In 2021, the Group changed its accounting policy and allocated a part of provisions created for legal

risk connected with FX mortgage loans to the loans portfolio, and an appropriate adjustment of

comparable data as at December 31, 2020 and December 31, 2019 presented in these financial

statements has been introduced (more information on this topic is presented in Chapter 7.

“Accounting Policy”).

163

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

38. OTHER LIABILITIES

38a. Other liabilities

31.12.2021

31.12.2020

Short-term

1 794 292

1 726 025

Accrued costs - bonuses, salaries

41 022

39 997

Accrued costs - other

199 379

201 084

Provisions for return of insurance fees

306 955

346 567

Interbank settlements

484 728

341 353

Provisions for potential return of fees in the event of early repayment of the loan

89 091

113 731

Settlement of transactions on financial instruments

31 833

1 537

Other creditors

300 503

348 213

Liabilities to public sector

42 624

30 688

Deferred income

45 613

55 028

Liabilities due to lease

97 886

101 562

Provisions for unused employee holiday

14 216

16 008

Provisions for retirement benefits

3 402

3 146

Settlement accounts for activities of Millennium Dom Maklerski S.A.

9 495

21 808

Other

127 545

105 303

Long-term

482 082

493 361

Provisions for retirement benefits

34 659

35 088

Liabilities due to lease

238 535

278 618

Accrued costs

9 173

13 339

Commitment to pay – BGF*

173 039

139 845

Other

26 676

26 471

Total

2 276 374

2 219 386

including other financial liabilities**

1 464 831

1 401 754

* - The Bank uses the option of contributing some of the fees paid to the BGF in the form of a payment obligation, which

involves recognizing a commitment to pay and simultaneously recording encumbered assets in the form of debt securities held

on a separate account created for this purpose.

** - other financial liabilities includes all of the other liabilities excluding the Liabilities to public sector, Deferred income,

Provisions for return, Commitment to pay – BGF, and other items.

As at December 31, 2021, the item "Other creditors" includes liabilities due to legally invalidated

foreign currency mortgage loans in the amount of PLN 20.1 million.

164

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

38b. Liabilities due to lease

31.12.2021

31.12.2020

Liabilities due to lease (gross)

352 353

399 595

Unrealised financial costs

(15 932)

(19 414)

Current value of minimum lease instalments

336 421

380 181

Liabilities due to lease (gross) by maturity

Under 1 year

102 356

106 629

From 1 year to 5 years

170 682

186 670

Above 5 years

79 315

106 295

Total

352 353

399 594

Liabilities due to lease (net) by maturity

Under 1 year

97 886

101 562

From 1 year to 5 years

161 337

175 569

Above 5 years

77 198

103 049

Total

336 421

380 180

38c. Change of provisions for unused employee holiday

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Balance at the beginning of the period

15 951

24 981

Charge of provisions/ reversal of provisions

(1 288)

(8 801)

Utilisation of provisions

(447)

(172)

Balance at the end of the period

14 216

16 008

38d. Change of provisions for retirement benefits

01.01.2021 -

31.12.2021

01.01.2020 -

31.12.2020

Balance at the beginning of the period

38 234

35 802

Charge of provisions/ reversal of provisions

7 124

3 470

Utilisation of provisions/ reclassification of provision

(1 233)

(1 454)

Actuarial gains (losses)

(6 064)

416

Balance at the end of the period

38 061

38 234

165

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

39. EQUITY

39a. Capital

The share capital of the Bank Millennium S.A. (equal to the Group’s share capital) is PLN 1,213,116,777

divided into 1,213,116,777 shares of PLN 1 par value each, as presented by the table below.

SHARE CAPITAL

Par value of one share = 1 PLN.

Series/

issue

Share type

Type of

preference

Number of

Value of

series/issue

(PLN)

Manner of

capital

coverage

Registration

date

Right to

dividend

registered founder

x2 as to voting

106 850

cash

30.06.1989

registered ordinary

150 000

cash

13.06.1990

01.01.1990

registered ordinary

150 000

cash

13.12.1990

01.01.1990

bearer ordinary

4 693 150

cash

17.05.1991

01.01.1991

bearer ordinary

1 700 002

cash

31.12.1991

01.01.1992

bearer ordinary

2 611 366

cash

31.01.1992

01.01.1992

bearer ordinary

1 001 500

cash

10.03.1992

01.01.1992

bearer ordinary

6 000 000

cash

28.05.1993

01.01.1992

bearer ordinary

9 372 721

cash

10.12.1993

01.01.1993

bearer ordinary

8 000 000

cash

30.05.1994

01.10.1993

bearer ordinary

7 082 129

cash

24.10.1994

01.10.1994

Increasing of par value of shares from 1 to 4 PLN

122 603 154

surplus

24.11.1994

1:4 split

122 603 154

05.12.1994

bearer ordinary

65 000 000

cash

12.08.1997

01.10.1996

bearer ordinary

196 120 000

capitals of Bank

Gdański S.A.

12.09.1997

01.10.1996

bearer ordinary

424 590 872

cash

31.12.2001

01.01.2001

bearer ordinary

363 935 033

cash

26.02.2010

01.01.2009

Total number of shares

1 213 116 777

Total share capital

1 213 116 777

In the reporting period there were no conversions of ordinary registered shares into the bearer shares.

As a consequence number of registered shares as of 31.12.2021 amounted to 107,608, of which 61,600

are founders’ shares, privileged so that one share entitles to two votes at the Annual General Meeting.

Because the Bank is a public company whose shares are traded on the WSE primary market, the Bank

has no detailed information about the shareholding structure as of December 31, 2021. Information

on the ultimate parent company - Banco Comercial Portugues S.A. presented in the table below, is

provided on the basis of data collected in connection with the registration of shareholders entitled to

participate in the Bank’s General Shareholders Meeting held on 24

March 2021.

In case of Nationale-Nederlanden Otwarty Fundusz Emerytalny, Aviva Otwarty Fundusz Emerytalny

Aviva Santander i Otwarty Fundusz Emerytalny PZU „Złota Jesień” the number of shares and their

participation in the Bank’s share capital were calculated on the basis of annual asset structure,

published as at 31 December 2021 (published on the websites, respectively: www.nn.pl, www.aviva.pl

and www.pzu.pl. For the purpose of the above calculation, the average Bank’s share price was

assumed to amount to 8.1658 PLN.

166

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Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

The largest shareholders of the Group’s parent entity – the Bank - (above 5% share in the vote at the

General Shareholders Meetings) were as follows:

Shareholder 31.12.2021

Number of

% share in

share capital

Number of

votes

% share in

votes at

Shareholders

’ Meeting

Banco Comercial Portugues S.A.

607 771 505

50.10

607 771 505

50.10

Nationale-Nederlanden Otwarty Fundusz Emerytalny

99 291 825

8.18

99 291 825

8.18

Aviva Otwarty Fundusz Emerytalny Aviva Santander

72 760 035

6.00

72 760 035

6.00

Otwarty Fundusz Emerytalny PZU „Złota Jesień”

69 451 428

5.73

69 451 428

5.73

Shareholder 31.12.2020

Number of

% share in

share capital

Number of

votes

% share in

votes at

Shareholders

’ Meeting

Banco Comercial Portugues S.A.

607 771 505

50.10

607 771 505

50.10

Nationale-Nederlanden Otwarty Fundusz Emerytalny

109 924 704

9.06

109 924 704

9.06

Otwarty Fundusz Emerytalny PZU „Złota Jesień”

85 697 263

7.06

85 697 263

7.06

Aviva Otwarty Fundusz Emerytalny Aviva Santander

76 760 035

6.33

76 760 035

6.33

39b. Accumulated other comprehensive income

Other comprehensive income arises on the recognition of:

▪ effect of valuation (at fair value) of financial assets FVTOCI in the net amount, i.e. after

having accounted for deferred tax. These values are taken off revaluation reserve at the

moment of excluding the valued assets from the books of account - in full or in part or at the

moment of recognising impairment (the effect of valuation is then put through the profit and

loss account), the effect on capital instruments valuation is not transferred to the profit and

loss account

▪ effect of valuation (at fair value) of derivatives hedging cash flows in the net amount, i.e.

having accounted for deferred tax. Revaluation reserve records such part of profits or losses

connected with the derivatives hedging cash flows which is an effective hedge, while the

ineffective part of the profits or losses connected with such hedging instrument is recognised

in the profit and loss account,

▪ actuarial gains (losses) at their net value, i.e. after deferred tax. Aforementioned gains or

losses result from the discounting of future liabilities arising from a provision created for

retirement benefits. Valuation is done using the projected unit cost method. The parameters

that have a significant impact on the amount of current liabilities are: the rate of mobility

(rotation) of employees, the discount rate, the rate of wage growth. These values are not

reclassified to the profit and loss account.

167

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Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Accumulated other comprehensive income

31.12.2021

31.12.2020

Effect of valuation (gross)

(1 060 039)

246 737

Deferred income tax

201 406

(46 880)

Net effect of valuation

(858 633)

199 857

The sources of revaluation reserve are as follows (data in PLN thousand):

Revaluation reserve on FVTOCI assets 1.01.2021 - 31.12.2021

Gross value

Deferred tax

Total

Revaluation reserve at the beginning of the period

294 881

(56 027)

238 854

Transfer to income statement of the period as a result of sale

(12 896)

2 450

(10 446)

Change connected with maturity of securities

(660)

125

(535)

Profit/loss on revaluation of FVTOCI debt securities, recognized in equity

(963 979)

183 155

(780 824)

Profit/loss on revaluation of FVTOCI shares, recognized in equity

(814)

155

(659)

Revaluation reserve at the end of the period

(683 468)

129 858

(553 610)

Revaluation reserve on available for sale financial assets 1.01.2020 - 31.12.2020

Gross value

Deferred tax

Total

Revaluation reserve at the beginning of the period

118 729

(22 558)

96 171

Transfer to income statement of the period as a result of sale

(131 653)

25 014

(106 639)

Change connected with maturity of securities

(794)

151

(643)

Profit/loss on revaluation of FVTOCI debt securities, recognized in equity

308 729

(58 659)

250 070

Profit/loss on revaluation of FVTOCI shares, recognized in equity

(130)

(105)

Revaluation reserve at the end of the period

294 881

(56 027)

238 854

Revaluation reserve on cash flows hedge financial instruments 1.01.2021 - 31.12.2021

Gross value

Deferred tax

Total

Revaluation reserve at the beginning of the period

(44 420)

8 439

(35 981)

Gains or losses on valuation of financial instruments recognized in equity

(338 189)

64 256

(273 933)

Transfer to income statement during period

3 698

(703)

2 995

Revaluation reserve at the end of the period

(378 911)

71 992

(306 919)

Revaluation reserve on cash flows hedge financial instruments 1.01.2020 - 31.12.2020

Gross value

Deferred tax

Total

Revaluation reserve at the beginning of the period

(28 886)

5 487

(23 399)

Gains or losses on valuation of financial instruments recognized in equity

(24 787)

4 710

(20 077)

Transfer to income statement during period

9 253

(1 758)

7 495

Revaluation reserve at the end of the period

(44 420)

8 439

(35 981)

168

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Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Revaluation reserve due to actuarial gains (losses) 1.01.2021 - 31.12.2021

Gross value

Deferred tax

Total

Revaluation reserve at the beginning of the period

(3 724)

708

(3 016)

Change in the obligations arising from the provision for retirement benefits

6 064

(1 152)

4 912

Revaluation reserve at the end of the period

2 340

(444)

1 896

Revaluation reserve due to actuarial gains (losses) 1.01.2020 - 31.12.2020

Gross value

Deferred tax

Total

Revaluation reserve at the beginning of the period

(3 308)

629

(2 679)

Change in the obligations arising from the provision for retirement benefits

(416)

(337)

Revaluation reserve at the end of the period

(3 724)

708

(3 016)

39c. Retained earnings

Supplementary

capital

Reserve

capital

General banking

risk fund

Retained

earnings

TOTAL

Retained earnings at the beginning of

the period 01.01.2021

472 698

5 672 663

228 902

156 258

6 530 521

appropriation of profit, including:

transfer to reserve capital

22 817

(22 817)

charge due to transfer of own shares

to employees

(3 374)

net profit/ (loss) of the period

(1 331 866)

Retained earnings at the end of the

period 31.12.2021

472 698

5 692 106

228 902

(1 198 425)

5 195 281

Supplementary

capital

Reserve

capital

General banking

risk fund

Retained

earnings

TOTAL

Retained earnings at the beginning of

the period 01.01.2020

472 698

5 117 142

228 902

692 065

6 510 807

appropriation of profit, including:

transfer to reserve capital

558 624

(558 624)

charge due to transfer of own shares

to employees

(3 103)

net profit/ (loss) of the period

22 817

Retained earnings at the end of the

period 31.12.2020

472 698

5 672 663

228 902

156 258

6 530 521

169

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Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

40. FINANCIAL LIABILITIES BY CONTRACTUAL MATURITY

31.12.2021

below

1 month

from

1 month to

3 months

from

3 months to 1

year

from

1 year to

5 years

above

5 years

TOTAL

Deposits from banks

86 199

97 607

130 669

232 407

546 882

Deposits from customers

81 477 566

5 214 179

2 824 137

1 910 432

40 532

91 466 846

Liabilities from securities sold with buy-

back clause

18 040

Debt securities

231

39 681

39 912

Subordinated debt

8 930

48 119

219 340

1 614 664

1 891 053

Liabilities from trading derivatives -

notional value

6 573 344

2 815 476

3 585 701

4 675 899

116 999

17 767 419

Liabilities from hedging derivatives -

notional value

444 840

556 050

1 556 228

11 347 744

13 904 862

Commitments granted - financial

12 034 696

Commitments granted - guarantee

1 847 442

TOTAL

102 491 288

8 683 312

8 184 535

18 385 822

1 772 195

139 517 152

31.12.2020

below

1 month

from

1 month to

3 months

from

3 months to 1

year

from

1 year to

5 years

above

5 years

TOTAL

Deposits from banks

538 846

54 332

131 282

542 933

1 267 393

Deposits from customers

71 112 816

4 803 627

3 791 886

1 805 710

26 402

81 540 441

Liabilities from securities sold with buy-

back clause

248 566

Debt securities

33 231

68 292

420 745

462

39 650

562 380

Subordinated debt

9 035

1 174

29 055

157 056

1 640 903

1 837 223

Liabilities from trading derivatives -

notional value

5 090 320

1 938 381

3 252 477

4 815 880

74 901

15 171 959

Liabilities from hedging derivatives -

notional value

596 974

2 878 268

3 048 832

12 513 231

19 037 305

Commitments granted - financial

12 420 910

Commitments granted - guarantee

1 756 283

TOTAL

91 806 981

9 744 074

10 674 277

19 835 272

1 781 856

133 842 460

170

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Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

15. Supplementary Information

15.1. 2020 DIVIDEND

Bank Millennium has a dividend policy of distributing between 35% to 50% of the Bank's net profit,

assuming that the recommendations of the Polish Financial Supervision Authority (PFSA) regarding the

payment of dividends will be implemented.

On December 16, 2020, the PFSA published its position on the dividend policy of commercial banks in

2021. Given the significant uncertainty about the further developments related to the COVID19

pandemic, the temporary nature of solutions used by banks to improve the capital situation during

the pandemic, persistently cautious supervisory positions in the EU with regard to dividend restrictions

and other forms of lowering capital resources and changing the EBA guidelines extending moratoria,

the PFSA deemed it necessary for commercial banks to suspend dividends. On January 13, the Bank

received a similar individual recommendation of the PFSA regarding the suspension of payments by

the Bank in the first half of 2021.

Based on the above recommendations, uncertainty as to the operating conditions caused by the

COVID-19 pandemic, the existing legal / operational risk, as well as taking into account the need to

provide appropriate capital support to increase the scale of business operations, the Bank's

Management Board presented a proposal and the Ordinary General Meeting of the Bank held on March

24, 2021 decided to retain the entire net profit generated during the year 2020 in the Bank's equity.

15.2. DATA ABOUT ASSETS, WHICH SECURE LIABILITIES

As at 31 December 2021 following assets of the Bank constituted collateral of liabilities (PLN’000):

No.

Type of assets

Portfolio

Secured liability

Par value of

assets

Balance sheet value

of assets

Treasury bonds OK0423

Held to Collect

and for Sale

Lombard credit granted to the Bank

by the NBP

130 000

124 254

Treasury bonds OK0423

Held to Collect

and for Sale

Securing the Fund for Protection of

Funds Guaranteed as part of the

Bank Guarantee Fund

328 000

313 502

Treasury bonds PS0425

Held to Collect

and for Sale

Securing the Fund for Protection of

Funds Guaranteed as part of the

Bank Guarantee Fund

7 000

6 399

Treasury bonds OK0423

Held to Collect

and for Sale

Security of payment obligation to

BFG contribution - guarantee fund

130 100

124 350

Treasury bonds OK0423

Held to Collect

and for Sale

Security of payment obligation to

BFG contribution - compulsory

resolution fund

106 500

101 793

Cash

receivables

initial deposit in KDPW CCP (MAGB)

5 000

Cash

receivables

ASO guarantee fund (PAGB)

398

Cash

receivables

payment to the OTC Guarantee Fund

- KDPW_CCP

8 989

Cash

receivables

Settlement on transactions

concluded

111 907

10.

Deposits

Deposits in banks

Settlement on transactions

concluded

572 681

11.

Leasing receivables

Loans and

advances

Loans granted to Millennnium

Leasing

215 120

TOTAL

1 615 696

1 584 394

171

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The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Additionally, as at December 31, 2021, the Group had concluded short-term transactions (usually

settled within 7 days) of Treasury securities sale with a repurchase agreement, subject of securities

worth PLN 17,933 thousand (corresponding liabilities are presented in Chapter 14, note 34).

As at 31 December 2020 following assets of the Bank constituted collateral of liabilities (PLN’000):

No.

Type of assets

Portfolio

Secured liability

Par value of

assets

Balance sheet value

of assets

Treasury bonds OK0722

Held to Collect

and for Sale

Lombard credit granted to the Bank

by the NBP

130 000

129 922

Treasury bonds OK0722

Held to Collect

and for Sale

Securing the Fund for Protection of

Funds Guaranteed as part of the

Bank Guarantee Fund

355 000

354 787

Treasury bonds PS0123

Held to Collect

and for Sale

Security of payment obligation to

BFG contribution - compulsory

resolution fund

88 000

94 473

Treasury bonds PS0123

Held to Collect

and for Sale

Security of payment obligation to

BFG contribution - guarantee fund

71 000

76 223

Treasury bonds PS0422

Held to Collect

and for Sale

initial settlement deposit in KDPW

CCP (MARI)

300 000

313 311

Cash

receivables

initial settlement deposit in KDPW

CCP (MARI)

100

Cash

receivables

ASO guarantee fund (PAGB)

2 415

Cash

receivables

payment to the OTC Guarantee Fund

- KDPW_CCP

5 617

Cash

receivables

Settlement on transactions

concluded

45 153

10.

Deposits

Deposits in banks

Settlement on transactions

concluded

503 532

11.

Leasing receivables

Loans and

advances

Loans granted to Millennnium

Leasing

274 731

TOTAL

1 775 548

1 800 264

Additionally, as at December 31, 2020, the Group had concluded short-term transactions (usually

settled within 7 days) of Treasury securities sale with a repurchase agreement, subject of securities

worth PLN 248,429 thousand (corresponding liabilities are presented in Chapter 14., note 34).

15.3. SECURITIES COVERED BY TRANSACTIONS WITH A BUY-BACK CLAUSE

(SBB)

As at 31 December 2021 following securities (presented in the Group’s balance-sheet) were underlying

Sell-buy-back transactions (PLN’000):

Type of security

Par value

Balance sheet value

Treasury bonds

21 347

17 933

TOTAL

21 347

17 933

In result of conclusion of Sell-Buy-Back transactions with the underlying securities presented in the

table above, the Group is exposed to risks, which are the same as in case of holding securities with

the same characteristics in its treasury portfolio.

172

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Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

As at 31 December 2020 following securities (presented in the Group’s balance-sheet) were underlying

Sell-buy-back transactions (PLN’000):

Type of security

Par value

Balance sheet value

Treasury bonds

233 004

248 429

TOTAL

233 004

248 429

15.4. OFFSETTING OF ASSETS AND LIABILITIES ON THE BASIS OF ISDA

AGREEMENTS

The majority of the Group's derivatives portfolio arises due to conclusion by the Bank framework ISDA

agreements (International Swaps and Derivatives Agreements). Provisions included in the agreements

define comprehensive procedures in case of infringement (mainly difficulties in payments), and

provide possibility to cancel a deal, making settlements with counterparty base on offset amount of

mutual receivables and liabilities. To date, the Bank has not exercised that option, however, in order

to meet information requirements as described in IFRS 7 the following table presents the fair values

of derivative instruments (both classified as held for trading and dedicated to hedge accounting) as

well as cash collaterals under ISDA framework agreements with a theoretical maximum amount

resulting from the settlement on the basis of compensation.

PLN’000

Amounts to be received

Amounts to be paid

Valuation of derivatives

100 285

629 896

Amount of cash collaterals accepted/granted

(14 796)

(563 242)

Financial assets and liabilities covered by framework ISDA

agreements allowing compensation

85 489

66 654

Theoretical maximum amount of compensation

(49 200)

Financial assets and liabilities covered by framework ISDA

agreements allowing compensation taking into account theoretical

amount of compensation

36 289

17 454

15.5. ADDITIONAL EXPLANATIONS TO THE CASH FLOW STATEMENT

For the purpose of the cash flow statement the following financial assets are classified by the Group

as cash or its equivalents (PLN’000):

31.12.2021

31.12.2020

Cash and balances with the Central Bank

3 179 735

1 460 289

Receivables from interbank deposits*

192 509

122 659

Debt securities issued by the State Treasury*

3 486

of which FVTOCI

of which held for trading

3 486

Total

3 372 244

1 586 434

* Financial assets with maturity below three months

173

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The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

For the purpose of the cash flow statement the following classification of activity types was adopted:

1. Operating activities – cover the basic scope of operations connected with services provided by the

Group’s units covering events whose purpose is to earn profit and not being investment or

financial activity,

2. Investment activities cover operations connected with the purchasing and selling of fixed assets,

in particular financial assets not included in the ”for trading” category, shares and shares in

subsidiaries, tangible and intangible fixed assets,

3. Financial activities cover activities connected with raising of funds in the form of capital or

liabilities, as well as servicing sources of funding.

15.6. INFORMATION ON CUSTODY ACTIVITY

As of 31.12.2021 the Custody Department of Bank Millennium S.A. maintained 13,148 accounts in

which Customers’ assets were kept with the total value of PLN 32.7 billion. Net revenue from the

custody business for 2021 amounted to PLN 6.2 million (including PLN 3.1 million from Capital Group

entities). The Custody Department serves as a depositary bank for 22 mutual funds including 21 of

Millennium TFI S.A.

15.7. SHARE BASED PAYMENTS

In 2012, the Group implemented a policy specifying the principles of remuneration for persons having

a material impact on the risk profile of Bank Millennium Group, as amended, in accordance with the

requirements described in Resolution of the Polish Financial Supervision Authority No. 258/2011, and

then the Regulation of the Minister of Development and Finance of March 6, 2017 on the risk

management system and the internal control system, remuneration policy and the detailed method

of internal capital estimation in banks. In accordance with the policy, employees of the Group having

a significant impact on the Group's risk profile receive variable remuneration, part of which is paid in

the form of financial instruments: the Bank's phantom shares in 2018; Bank Millennium own shares:

for 2019-2021. Commencing from 2019, by the decision of the General Meeting of Bank’s Shareholders

of August 27, 2019, the Group introduced an incentive program to remuneration entitled persons

previously identified as having a significant impact on the risk profile (Risk Taker). Under this

framework, the Own Shares acquired by the Company will be, in accordance with the applicable Risk

Taker's remuneration policy, intended for free acquisition in the appropriate number by the indicated

Risk Takers during the Program Term.

174

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Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Variable remuneration –

2021

2020

2019

2018

financial instruments for:

Kind of transactions in the light of

IFRS 2

Share-based payment transactions

Cash-settled share-

based payments

Commencement of vesting period

1 January 2021

1 January 2020

1 January 2019

1 January 2018

The date of announcing the program

27 August 2019

30 July 2012

Starting date of the program in

accordance with the definition of

IFRS 2

Date of the Personnel Committee meeting taking place after closing of financial

year

Number of granted instruments

Determined at the grant date of the program in accordance with the definition of

IFRS 2

Maturity date

3 years since the date of granting program

Vesting date

31 December 2021

31 December 2020

31 December 2019

31 December 2018

Vesting conditions

Employment in the

Group 2021,

results of the

Group and

individual

performance

Employment in the

Group 2020, results

of the Group and

individual

performance

Employment in the

Group 2019, results

of the Group and

individual

performance

Employment in the

Group 2018, results

of the Group and

individual

performance

Program settlement

Programs 2018: on the settlement date, the participant will be paid the amount of

cash being equal to the amount of held by a participant phantom shares multiplied

by arithmetic mean of the Bank's share price at the closing of last 10 trading sessions

on the Stock Exchange in Warsaw, preceding the settlement date. Aforementioned

value cannot be greater or less than 20% compared to the original value of the

deferred share pool. Phantom shares are settled in three equal annual instalments

starting from the date of the Personnel Committee which decides about assignment.

Programs 2019 – 2021: on the program settlement date, the participant will receive

the allocated treasury shares.

Program valuation

The fair value of the program is determined at each balance sheet date according to

the rules adopted for determining the value of the program on the settlement date.

Financial instruments granted to

Group’s employees who are not

members of the Management Board of

the Bank, for the year:

2021

2020

2020*

2019

2019*

2018

Own

Phantom

Own shares

Phantom

Date of shares assigning

03.07.2020

21.02.2020

23.01.2019

Number of shares

406 779

5 271

46 071

granted

deferred

406 779

5 271

46 071

Value as at assigning date (PLN)

1 296 323

48 210

423 028

granted

deferred

1 296 323

48 210

423 028

Fair value as at 31.12.2021 (PLN)

3 333 554

48 210

338 422

* Millennium TFI S.A. and Millennium Dom Maklerski S.A. continue to settle their programs on the basis of phantom shares in

accordance with the Remuneration Policy of these Group entities.

At the balance sheet date, the Personnel Committee of the Management Board has not taken a

decision on the amount of variable remuneration for Group’s employees who are not members of the

Management Board of the Bank for 2021.

175

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Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Financial instruments granted to

members of the Management Board of

the Bank, for the year:

2021

2020

2019

2018

Own shares

Phantom shares

Date of shares assigning

03.07.2020

31.05.2019

Number of shares

322 599

78 753

granted

0,00

deferred

322 599

78 753

Value as at assigning date (PLN)

1 028 052

717 444

granted

0,00

deferred

1 028 052

717 444

Fair value as at 31.12.2021 (PLN)

2 643 698

645 381

At the publication date of the Annual Report, the Personnel Committee of the Supervisory Board has

not taken a decision on the amount of variable remuneration for the members of the Management

Board for 2021.

PAYMENTS BASED ON THE FORMER EURO BANK SHARES

Bank Millennium took over the liabilities of Euro Bank to employees who were identified as having a

significant impact on the risk profile and received variable remuneration, part of which was paid in

the form of shares of the former Euro Bank in the years preceding the merger. On the day Euro Bank

was taken over by Bank Millennium, these shares ceased to exist. Therefore, Bank Millennium adopted

by decision of the Supervisory Board the rules of converting nonexistent Euro Bank shares into Bank

Millennium shares. In 2022: 237,848 shares of Bank Millennium, remain to be paid out.

15.8. IMPACT OF COVID-19 PANDEMIC ON ACTIVITY OF BANK

MILLENNIUM GROUP

The outbreak of coronavirus pandemic in 1Q20 resulted in rapid changes in the dynamics of the

Group’s business and enforced changes of its strategic priorities. Business dynamics saw significant

volatility during the year reflecting the level of the pandemic, anti-pandemic regulations introduced

by the government and their impact of activity of customers of the Group.

As a part of customer support, the Group introduced a programme of credit moratoria. After the

initial spike in late March/early April and in June 2020 when a part of retail customers applied for

extensions of credit holidays to six months, the number of applications for credit holidays in the retail

segment declined significantly. At the end of June 2020, loans with active and approved credit

holidays represented 10% of total loan portfolio, less than 12% of retail portfolio, less than 3% of retail

portfolio and around 12% of leasing portfolio. On December 31, 2020 there were 9,367 active ‘Covid-

19 credit holidays’ schemes relating to outstanding cash loans and 892 active holidays schemes on

mortgage loans with respective loan volumes of PLN 267 million and PLN 250 million. The public credit

moratoria introduced in June by the so called ‘Anti-crisis shield 4.0’ enjoyed little

take up so far with merely 444 applications filed by the end of the year (outstanding balance of PLN

53 million). The number of credit holidays for corporate customers also fell significantly (to c50) from

levels observed at the end of September 2020 with value of loans with deferred exposures totalling

PLN 44 million. The quality of PLN 7.6 billion worth of exposures that had been subject to credit

moratoria was solid with c2.5% delayed over 30 days or with default triggers identified. Cash loans

were at YE20 the segment where the proportion was the highest (5.1%), while PLN mortgages showed

least quality problems (1.1%). The use of credit holidays practically ceased after the first quarter of

2021.

176

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Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

The 4th wave of COVID-19 pandemic caused significant increase of infections and hospitalizations at

the end of year 2021. The increase of number of infections did not translate into increase of credit

risk level of the Bank (the Group). The inflow of new applications for Public Moratoria remained at

very low level - 28 requests in the Q4 2021 with exposure of PLN 6.9 million. All exposures with active

moratoria as of end of 2021 were classified as defaults and provisioned accordingly. The Bank closely

monitors quality of portfolio, in particular: early delays, demand for rescheduling offers, structure of

new defaults. Taking into account the current observations, the Bank (the Group) does not identify

any significant risk in its portfolio related to the COVID-19 pandemic.

Detailed information on exposures that are subject to credit moratorium is presented in section 9.3

point (3e) in this financial report.

15.9. ADDITIONAL INFORMATION AND OTHER ESSENTIAL EVENTS

BETWEEN THE DATE, FOR WHICH THE FINANCIAL REPORT WAS

PREPARED AND ITS PUBLICATION DATE

Mortgage Bank

Mortgage loans are an important element of the Bank’s retail business. Therefore, in June 2018, the

Bank submitted a request to the Polish Financial Supervision Authority (“PFSA”) for permission to

establish a mortgage bank. On June 16, 2020, PFSA issued a permission to establish a mortgage bank

under the name of “Millennium Bank Hipoteczny Spółka Akcyjna” with its head office in Warsaw.

Shareholders’ equity of Millennium Bank Hipoteczny Spółka Akcyjna shall be PLN 40,000,000 and has

been wholly covered by Bank Millennium S.A. with a cash contribution of PLN 120,000,000. Registered

ordinary shares in the number of 40,000,000 with nominal value of PLN 1 per share have been taken-

up by the Bank with the issue price of PLN 3 per share.

On May 20, 2021, the PFSA issued a permit to start operations by the Bank, which actually took place

on June 14, 2021. From the beginning of its operations, the Bank focused on the first and subsequent

transfers of mortgage loans granted by Bank Millennium, which will become the basis for the issue of

mortgage bonds secured on these loans (which activity is in Poland restricted to mortgage banks only).

The first transfer of mortgage loans from Bank Millennium was carried out on October 15, 2021. The

transfer of the first pool of mortgage loans to the Bank's balance sheet means the commencement of

earning interest income from clients. Preparatory work for the second transfer has also started, and

its finalization is planned for the second quarter of 2022.

The new Bank is to provide medium and long-term financing through the issuance of covered bonds

to support residential mortgage lending business.

IBOR reform

In March 2021, UK regulatory authority the FCA announced the discontinuation of publication of

London interbank interest rates developed by the ICE Benchmark Administration - LIBOR CHF, EUR,

GBP, JPY and USD (1W and 2M) at the end of 2021, as well as other USD LIBOR settings at the end of

June 2023. In regards to the decision above, in 2021 the Bank worked on the implementation of

solutions enabling a smooth transition to new rates. Furthermore, due to European Commission

Regulations, from January 1, 2022 (for CHF LIBOR - London interbank interest rate for the Swiss franc)

and January 3, 2022 (for EONIA - Euro Overnight index) all references to these rates in contracts and

instruments financial statements were automatically replaced with references to the new rates -

SARON and € STR respectively.

177

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

Eurobond Issue Programme

On 28 January 2022 the Bank’s Supervisory Board approved the Eurobond Issue Programme („EMTN

Programme”) of the total nominal value not higher than EUR 3 billion („Programme Amount”).

Notes issued under the EMTN Programme shall be issued in many series and the total nominal value

of issued and not purchased notes shall not, at any time, exceed the Programme Amount.

Notes shall be offered and sold outside the territory of the United States of America to an account of

or for persons other than US persons in accordance with Regulation S (Regulation S) issued under the

US Securities Act 1933, as later amended (U.S. Securities Act of 1993) („U.S. Securities Act”), on the

basis of a basic prospectus prepared by the Bank. The notes shall not be registered in accordance

with the U.S. Securities Act nor any other US state regulations regarding securities.

The Bank may apply for admission of particular series of notes for trading on the regulated market of

the Luxembourg Stock Exchange, the Warsaw Stock Exchange S.A. or any other market chosen by the

Bank. The EMTN Programme permits also issues of notes which will not be admitted to trading by any

relevant body, stock exchange or quotation system.

P2G buffer

On February 11, 2022, the Bank received a recommendation from the PFSA to limit the risk occurring

in the Bank's operations by maintaining both at the standalone and at consolidated basis own funds

to cover the additional capital add-on in order to absorb potential losses resulting from the occurrence

of stress conditions under Pillar II (P2G). The required level of total capital ratio is described in the

article 92 item 1 letter c of the regulation (EU) No. 575/2013 of the European Parliament and of the

Council on prudential requirements for credit institutions and amending regulation (EU) No 648/2012

and equals to 0.89 p.p. on the top of total capital ratio, increased by the additional own funds

requirement referred to in Article 138(2)(2) of the Banking Act and by the combined buffer

requirement referred to in Article 55(4) of the Act on macro prudential supervision. The additional

capital requirement should be made up of Common Equity Tier 1 capital only.

178

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Annual Consolidated Financial Report

of the Bank Millennium S.A. Capital Group

for the 12-month period ending 31

December 2021

There were no other significant events affecting the financial statements and future results of the

Group between the date on which the report was prepared and the date of its publication.

Date

Name and surname

Position/Function

Signature

21.02.2022

Joao Bras Jorge

Chairman of

the Management Board

Signed by a qualified

electronic signature

21.02.2022

Fernando Bicho

Deputy Chairman of

the Management Board

Signed by a qualified

electronic signature

21.02.2022

Wojciech Haase

Member of

the Management Board

Signed by a qualified

electronic signature

21.02.2022

Andrzej Gliński

Member of

the Management Board

Signed by a qualified

electronic signature

21.02.2022

Wojciech Rybak

Member of

the Management Board

Signed by a qualified

electronic signature

21.02.2022

Antonio Pinto Junior

Member of

the Management Board

Signed by a qualified

electronic signature

21.02.2022

Jarosław Hermann

Member of

the Management Board

Signed by a qualified

electronic signature