Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period
ending 31
st
December 2021
1
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
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
2 739 464
3 024 189
598 463
675 917
Fee and commission income
867 384
809 267
189 489
180 874
Profit (loss) before income tax
(1 047 940)
193 716
(228 933)
43 296
Profit (loss) after taxes
(1 357 452)
18 579
(296 549)
4 153
Total comprehensive income of the period
(2 200 148)
148 740
(480 644)
33 244
Net cash flows from operating activities
2 564 242
(3 331 136)
560 184
(744 521)
Net cash flows from investing activities
(479 078)
1 952 784
(104 659)
436 454
Net cash flows from financing activities
(299 354)
(788 003)
(65 397)
(176 121)
Net cash flows, total
1 785 810
(2 166 355)
390 128
(484 188)
31.12.2021
31.12.2020
31.12.2021
31.12.2020
Total Assets
103 388 069
96 566 626
22 478 599
20 925 420
Liabilities to banks and other monetary institutions
186 247
563 882
40 494
122 190
Liabilities to customers
91 672 296
81 832 471
19 931 360
17 732 615
Equity
6 632 182
8 835 703
1 441 967
1 914 645
Share capital
1 213 117
1 213 117
263 755
262 875
Number of shares (pcs.)
1 213 116 777
1 213 116 777
1 213 116 777
1 213 116 777
Book value per share (in PLN/EUR)
5.47
7.28
1.19
1.58
Diluted book value per share (in PLN/EUR)
5.47
7.28
1.19
1.58
Total Capital Ratio (TCR)
17.17%
19.16%
17.17%
19.16%
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
2
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
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
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
2 614 214
736 726
2 490 329
600 618
Interest income and other of similar nature
2 739 464
774 756
3 024 189
639 932
Income calculated using the effective interest method
2 675 575
769 434
2 915 734
621 675
Interest income from Financial assets at amortised
cost
2 381 845
657 665
2 602 344
572 415
Interest income from Financial assets at fair value
through other comprehensive income
293 730
111 769
313 390
49 260
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
(125 250)
(38 030)
(533 860)
(39 314)
Net fee and commission income
716 125
184 007
639 738
163 620
Fee and commission income
867 384
221 455
809 267
204 627
Fee and commission expenses
(151 259)
(37 448)
(169 529)
(41 007)
Dividend income
52 397
316
39 326
136
Result on derecognition of financial assets and liabilities
not measured at fair value through profit or loss
10 542
683
127 638
49 938
Results on financial assets and liabilities held for trading
(8 972)
(2 223)
12 919
4 710
Result on non-trading financial assets mandatorily at fair
value through profit or loss
124 538
70 729
38 576
51 729
Result on hedge accounting
(3 185)
(1 431)
(10 259)
481
Result on exchange differences
(149 855)
(72 228)
119 268
13 093
Other operating income
283 481
96 265
140 865
69 674
Other operating expenses
(198 660)
(147 522)
(219 836)
(104 587)
Administrative expenses
(1 380 202)
(364 631)
(1 497 120)
(353 579)
Impairment losses on financial assets
(276 613)
(71 005)
(477 193)
(70 790)
Impairment losses on non-financial assets
(7 642)
(2 285)
(7 846)
(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
(193 501)
(49 033)
(196 359)
(48 389)
Share of the profit of investments in subsidiaries
0
0
0
0
Banking tax
(312 611)
(82 012)
(279 148)
(70 121)
Profit before income taxes
(1 047 940)
(439 047)
193 716
(115 598)
Corporate income tax
(309 512)
(95 490)
(175 137)
(3 688)
Profit after taxes
(1 357 452)
(534 537)
18 579
(119 286)
* quarterly financial information has not been audited by an independent auditor
3
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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*
Profit after taxes
(1 357 452)
(534 537)
18 579
(119 286)
Other comprehensive income items that may be (or were)
reclassified to profit or loss
(1 044 799)
(808 741)
161 597
(26 644)
Result on debt securities at fair value through other
comprehensive income
(977 385)
(698 708)
177 131
(28 083)
Result on credit portfolio at fair value through other
comprehensive income
267 079
150 239
0
0
Hedge accounting
(334 493)
(260 272)
(15 534)
1 439
Other comprehensive income items that will not be
reclassified to profit or loss
4 434
4 434
(905)
(905)
Actuarial gains (losses)
5 219
5 219
(730)
(730)
Result on equity instruments at fair value through other
comprehensive income
(785)
(785)
(175)
(175)
Total comprehensive income items before taxes
(1 040 365)
(804 307)
160 692
(27 549)
Corporate income tax on other comprehensive income items
that may be (or were) reclassified to profit or loss
198 512
153 661
(30 703)
5 062
Corporate income tax on other comprehensive income items
that will not be reclassified to profit or loss
(842)
(842)
172
172
Total comprehensive income items after taxes
(842 696)
(651 489)
130 161
(22 315)
Total comprehensive income for the period
(2 200 148)
(1 186 026)
148 740
(141 600)
* quarterly financial information has not been audited by an independent auditor
4
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
ANNUAL FINANCIAL STATEMENTS OF THE BANK MILLENNIUM S.A.
FOR THE 12-MONTH PERIOD ENDING 31
ST
DECEMBER 2021
TABLE OF CONTENT
1. INCOME STATEMENT ................................................................................... 6
2. STATEMENT OF TOTAL COMPREHENSIVE INCOME ................................................ 7
3. BALANCE SHEET ........................................................................................ 8
4. STATEMENT OF CHANGES IN EQUITY ............................................................. 10
5. CASH FLOW STATEMENT ............................................................................ 11
6. GENERAL INFORMATION ABOUT ISSUER .......................................................... 13
7. ACCOUNTING POLICY ................................................................................ 14
7.1. STATEMENT OF COMPLIANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS .................. 14
7.2. STANDARDS AND INTERPRETATIONS APPLIED IN 2021 AND THOSE NOT BINDING AT THE BALANCE SHEET DATE.. 21
7.3. ADOPTED ACCOUNTING PRINCIPLES ......................................................................... 23
8. FINANCIAL RISK MANAGEMENT .................................................................... 50
8.1. RISK MANAGEMENT ........................................................................................ 50
8.2. CAPITAL MANAGEMENT .................................................................................... 54
8.3. CREDIT RISK ............................................................................................... 58
8.4. MARKET RISK AND INTEREST RATE RISK .................................................................... 81
8.5. LIQUIDITY RISK ............................................................................................ 88
8.6. OPERATIONAL RISK ........................................................................................ 92
9. TRANSACTIONS WITH RELATED ENTITIES ........................................................ 94
9.1. TRANSACTIONS WITH THE SUBSIDIARIES AND PARENT’S GROUP .............................................. 94
9.2. TRANSACTIONS WITH THE MANAGING AND SUPERVISING PERSONS ........................................... 97
9.3. INFORMATION ON COMPENSATIONS AND BENEFITS OF THE PERSONS SUPERVISING AND MANAGING THE BANK ... 98
10. FAIR VALUE ........................................................................................... 99
11. CONTINGENT LIABILITIES AND ASSETS .......................................................... 105
11.1. LAWSUITS ............................................................................................... 105
11.2. OFF BALANCE SHEET ITEMS ............................................................................... 109
12. LEGAL RISK RELATED TO FOREIGN CURRENCY MORTGAGE LOANS ........................ 111
12.1. COURT CLAIMS AND CURRENT PROVISIONS ON LEGAL RISK .................................................. 111
12.2. EVENTS THAT MAY IMPACT FX MORTGAGE LEGAL RISK AND RELATED PROVISION ............................ 115
13. NOTES TO THE FINANCIAL STATEMENTS ........................................................ 117
1. INTEREST INCOME AND OTHER OF SIMILAR NATURE ........................................................ 117
2. INTEREST EXPENSE ....................................................................................... 117
3. FEE AND COMMISSION INCOME AND EXPENSE ............................................................... 118
4. DIVIDEND INCOME ........................................................................................ 118
5. RESULT ON DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AT FAIR VALUE THROUGH
PROFIT OR LOSS .......................................................................................... 119
6. RESULTS ON FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING ........................................ 119
7. RESULTS ON NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS ..... 119
8. RESULT ON HEDGE ACCOUNTING .......................................................................... 119
9. OTHER OPERATING INCOME .............................................................................. 120
10. OTHER OPERATING EXPENSE .............................................................................. 120
11. ADMINISTRATIVE EXPENSES ............................................................................... 121
12. IMPAIRMENT LOSSES ON FINANCIAL ASSETS ................................................................ 121
13. IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS ........................................................... 122
5
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
14. PROVISIONS FOR LEGAL RISK CONNECTED WITH FX MORTGAGE LOANS ...................................... 122
15. DEPRECIATION AND AMORTIZATION ....................................................................... 122
16. CORPORATE INCOME TAX ................................................................................. 123
17. EARNINGS PER SHARE .................................................................................... 124
18. CASH, BALANCES AT THE CENTRAL BANK .................................................................. 125
19. FINANCIAL ASSETS HELD FOR TRADING .................................................................... 125
20. NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS, OTHER THAN LOANS
AND ADVANCES TO CUSTOMERS ........................................................................... 128
21. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME............................... 128
22. LOANS AND ADVANCES TO CUSTOMERS .................................................................... 129
23. FINANCIAL ASSETS AT AMORTISED COST OTHER THAN LOANS AND ADVANCES TO CUSTOMERS ................ 135
24. DERIVATIVES – HEDGE ACCOUNTING ...................................................................... 138
25. INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES .......................................... 142
26. TANGIBLE FIXED ASSETS .................................................................................. 144
27. INTANGIBLE FIXED ASSETS ................................................................................ 147
28. DEFERRED INCOME TAX ASSETS........................................................................... 149
29. OTHER ASSETS ........................................................................................... 151
30. NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE ............................... 152
31. FINANCIAL LIABILITIES HELD FOR TRADING ................................................................ 152
32. LIABILITIES TO BANKS AND OTHER MONETARY INSTITUTIONS ............................................... 152
33. LIABILITIES TO CUSTOMERS ............................................................................... 153
34. SALE AND REPURCHASE AGREEMENTS ..................................................................... 154
35. DEBT SECURITIES ISSUED ................................................................................. 154
36. SUBORDINATED DEBT ..................................................................................... 156
37. PROVISIONS ............................................................................................. 156
38. OTHER LIABILITIES ....................................................................................... 157
39. EQUITY .................................................................................................. 159
40. FINANCIAL LIABILITIES BY CONTRACTUAL MATURITY ....................................................... 163
14. SUPPLEMENTARY INFORMATION ................................................................. 164
14.1. 2020 DIVIDEND .......................................................................................... 164
14.2. DATA ABOUT ASSETS, WHICH SECURE LIABILITIES .......................................................... 164
14.3. SECURITIES COVERED BY TRANSACTIONS WITH A BUY-BACK CLAUSE (SBB) ................................. 165
14.4. OFFSETTING OF ASSETS AND LIABILITIES ON THE BASIS OF ISDA AGREEMENTS .............................. 166
14.5. ADDITIONAL EXPLANATIONS TO THE CASH FLOW STATEMENT ............................................... 166
14.6. INFORMATION ON CUSTODY ACTIVITY ..................................................................... 167
14.7. SHARE BASED PAYMENTS ................................................................................. 167
14.8. IMPACT OF COVID-19 PANDEMIC ON ACTIVITY OF BANK MILLENNIUM ....................................... 169
14.9. ADDITIONAL INFORMATION AND OTHER ESSENTIAL EVENTS BETWEEN THE DATE, FOR WHICH THE FINANCIAL
REPORT WAS PREPARED AND ITS PUBLICATION DATE ....................................................... 170
6
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
1. Income Statement
Amount ‘000 PLN
Nota
1.01.2021 -
31.12.2021
1.01.2020 -
31.12.2020*
Net interest income
2 614 214
2 490 329
Interest income and other of similar nature
1
2 739 464
3 024 189
Income calculated using the effective interest method
2 675 575
2 915 734
Interest income from Financial assets at amortised cost
2 381 845
2 602 344
Interest income from Financial assets at fair value through other comprehensive
income
293 730
313 390
Income of similar nature to interest from Financial assets at fair value through
profit or loss
63 889
108 455
Interest expenses
2
(125 250)
(533 860)
Net fee and commission income
716 125
639 738
Fee and commission income
3
867 384
809 267
Fee and commission expenses
3
(151 259)
(169 529)
Dividend income
4
52 397
39 326
Result on derecognition of financial assets and liabilities not measured at fair value
through profit or loss
5
10 542
127 638
Results on financial assets and liabilities held for trading
6
(8 972)
12 919
Result on non-trading financial assets mandatorily at fair value through profit or loss
7
124 538
38 576
Result on hedge accounting
8
(3 185)
(10 259)
Result on exchange differences
(149 855)
119 268
Other operating income
9
283 481
140 865
Other operating expenses
10
(198 660)
(219 836)
Administrative expenses
11
(1 380 202)
(1 497 120)
Impairment losses on financial assets
12
(276 613)
(477 193)
Impairment losses on non-financial assets
13
(7 642)
(7 846)
Provisions for legal risk connected with FX mortgage loans
14
(2 305 157)
(713 617)
Result on modification
(12 839)
(13 565)
Depreciation
15
(193 501)
(196 359)
Share of the profit of investments in subsidiaries
0
0
Banking tax
(312 611)
(279 148)
Profit before income taxes
(1 047 940)
193 716
Corporate income tax
16
(309 512)
(175 137)
Profit after taxes
(1 357 452)
18 579
* data for 2020 has been restated in relation to the information presented in the report for 2020, more
information on this subject is presented in Chapter 7 "Accounting policy".
Notes on pages 13-172 are integral part of these financial statements.
7
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
2. Statement of Total Comprehensive Income
Amount ‘000 PLN
1.01.2021 -
31.12.2021
1.01.2020 -
31.12.2020
Profit after taxes
(1 357 452)
18 579
Other comprehensive income items that may be (or were) reclassified to profit or loss
(1 044 799)
161 597
Result on debt securities at fair value through other comprehensive income
(977 385)
177 131
Result on credit portfolio at fair value through other comprehensive income
267 079
0
Hedge accounting
(334 493)
(15 534)
Other comprehensive income items that will not be reclassified to profit or loss
4 434
(905)
Actuarial gains (losses)
5 219
(730)
Result on equity instruments at fair value through other comprehensive income
(785)
(175)
Total comprehensive income items before taxes
(1 040 365)
160 692
Corporate income tax on other comprehensive income items that may be (or were)
reclassified to profit or loss
198 512
(30 703)
Corporate income tax on other comprehensive income items that will not be reclassified to
profit or loss
(842)
172
Total comprehensive income items after taxes
(842 696)
130 161
Total comprehensive income for the period
(2 200 148)
148 740
Notes on pages 13-172 are integral part of these financial statements.
8
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
3. Balance Sheet
ASSETS
Amount '000 PLN
Nota
31.12.2021
31.12.2020*
31.12.2019*
Cash, cash balances at central banks
18
3 179 736
1 460 289
2 203 444
Financial assets held for trading
19
173 089
424 777
987 465
Derivatives
86 651
155 365
113 432
Equity instruments
0
0
0
Debt securities
86 438
269 412
874 033
Non-trading financial assets mandatorily at fair value through profit or
loss, other than Loans and advances to customers
20
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
21
17 952 492
18 626 366
21 856 275
Equity instruments
28 433
29 219
29 367
Debt securities
17 924 059
18 597 147
21 826 908
Loans and advances to customers
22
78 237 587
73 052 432
68 615 506
Mandatorily at fair value through profit or loss
362 992
1 615 753
1 498 195
Fair valued through other comprehensive income
11 485 351
0
0
Valued at amortised cost
66 389 244
71 436 679
67 117 311
Financial assets at amortised cost other than Loans and advances to
customers
23
1 249 240
730 534
1 037 840
Debt securities
37 088
38 818
48 153
Deposits, loans and advances to banks and other monetary institutions
943 315
625 366
784 248
Reverse sale and repurchase agreements
268 837
66 350
205 439
Derivatives – Hedge accounting
24
14 385
21 795
43 159
Investments in subsidiaries, joint ventures and associates
25
208 889
208 874
88 874
Tangible fixed assets
26
528 565
541 326
622 506
Intangible fixed assets
27
385 199
373 720
331 978
Income tax assets
608 395
534 013
405 412
Current income tax assets
377
0
0
Deferred income tax assets
28
608 018
534 013
405 412
Other assets
29
584 589
341 393
249 448
Non-current assets and disposal groups classified as held for sale
30
0
0
0
Total assets
103 388 069
96 566 626
96 611 517
9
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
LIABILITIES AND EQUITY
Amount '000 PLN
Nota
31.12.2021
31.12.2020*
31.12.2019*
LIABILITIES
Financial liabilities held for trading
31
143 409
168 559
353 004
Derivatives
126 795
103 781
150 739
Liabilities from short sale of securities
16 614
64 778
202 265
Financial liabilities measured at amortised cost
93 417 725
84 669 783
85 127 543
Liabilities to banks and other monetary institutions
32
186 247
563 882
849 452
Liabilities to customers
33
91 672 296
81 832 471
81 637 517
Sale and repurchase agreements
34
18 038
248 566
90 712
Debt securities issued
35
0
484 655
1 003 657
Subordinated debt
36
1 541 144
1 540 209
1 546 205
Derivatives – Hedge accounting
24
614 573
738 850
426 847
Provisions
37
594 405
158 371
91 018
Pending legal issues
549 450
105 643
37 162
Commitments and guarantees given
44 955
52 728
53 856
Income tax liabilities
0
28 704
38 057
Current income tax liabilities
0
28 704
38 057
Deferred income tax liabilities
0
0
0
Other liabilities
38
1 985 775
1 966 656
1 884 961
Total Liabilities
96 755 887
87 730 923
87 921 430
EQUITY
Share capital
39
1 213 117
1 213 117
1 213 117
Own shares
(21)
(21)
0
Share premium
1 147 241
1 147 241
1 147 241
Accumulated other comprehensive income
39
(645 686)
197 009
66 848
Retained earnings, including:
39
4 917 531
6 278 357
6 262 881
- current profit /loss
(1 357 452)
18 579
600 683
- other
6 274 983
6 259 778
5 662 198
Total equity
6 632 182
8 835 703
8 690 087
Total equity and total liabilities
103 388 069
96 566 626
96 611 517
31.12.2021
31.12.2020
31.12.2019
Book value of net assets
6 632 182
8 835 703
8 690 087
Number of shares (pcs.)
1 213 116 777
1 213 116 777
1 213 116 777
Book value per share (in PLN)
5.47
7.28
7.16
* data for 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 13-172 are integral part of these financial statements.
10
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
4. Statement of Changes in Equity
Amount ‘000 PLN
Total
equity
Share
capital
Own
shares
Share
premium
Accumulated
other
comprehensive
income
Retained earnings
Unappropriated
result
Other
reserves
01.01.2021 – 31.12.2021
Equity at the beginning
of the period
8 835 703
1 213 117
(21)
1 147 241
197 009
18 579
6 259 778
Total comprehensive
income for 2021 (net)
(2 200 147)
0
0
0
(842 695)
(1 357 452)
0
current profit /loss
(1 357 452)
0
0
0
0
(1 357 452)
0
valuation of debt
securities at fair value
through other
comprehensive income
(791 682)
0
0
0
(791 682)
0
0
valuation of shares at
fair value through other
comprehensive income
(636)
0
0
0
(636)
0
0
valuation of credit
portfolio at fair value
through other
comprehensive income
216 334
0
0
0
216 334
0
0
hedge accounting
(270 938)
0
0
0
(270 938)
0
0
actuarial gains (losses)
4 227
0
0
0
4 227
0
0
Purchase and transfer of
own shares to employees
(3 374)
0
0
0
0
0
(3 374)
Transfer between items of
reserves
0
0
0
0
0
(18 579)
18 579
Equity at the end of the
period
6 632 182
1 213 117
(21)
1 147 241
(645 686)
(1 357 452)
6 274 983
01.01.2020 – 31.12.2020
Equity at the beginning
of the period
8 690 087
1 213 117
0
1 147 241
66 848
560 727
5 702 154
Total comprehensive
income for 2020 (net)
148 740
0
0
0
130 161
18 579
0
current profit /loss
18 579
0
0
0
0
18 579
0
valuation of debt
securities at fair value
through other
comprehensive income
143 476
0
0
0
143 476
0
0
valuation of shares at
fair value through other
comprehensive income
(142)
0
0
0
(142)
0
0
hedge accounting
(12 582)
0
0
0
(12 582)
0
0
actuarial gains (losses)
(591)
0
0
0
(591)
0
0
Purchase and transfer of
own shares to employees
(3 124)
0
(21)
0
0
0
(3 103)
Transfer between items
of reserves
0
0
0
0
0
(560 727)
560 727
Equity at the end of the
period
8 835 703
1 213 117
(21)
1 147 241
197 009
18 579
6 259 778
Detailed information concerning changes in different equity items are presented in the note (39).
11
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
5. 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
(1 357 452)
18 579
Total adjustments:
3 921 694
(3 349 715)
Interest received
2 737 821
3 023 642
Interest paid
(122 313)
(542 356)
Depreciation and amortization
193 501
196 362
Foreign exchange (gains)/ losses
0
11 797
Dividends
(52 397)
(39 326)
Changes in provisions
436 034
67 353
Result on sale and liquidation of investing activity assets
(8 812)
(130 880)
Change in financial assets held for trading
(206 907)
277 422
Change in loans and advances to banks
(247 436)
(159 300)
Change in loans and advances to customers
(7 389 277)
(6 921 185)
Change in receivables from securities bought with sell-back clause (loans and advances)
(202 948)
132 653
Change in financial liabilities valued at fair value through profit and loss (held for trading)
(149 427)
127 558
Change in deposits from banks
(364 108)
140 321
Change in deposits from customers
9 953 539
708 816
Change in liabilities from securities sold with buy-back clause
(228 737)
165 649
Change in debt securities
(231 161)
(205 425)
Change in income tax settlements
313 052
160 927
Income tax paid
(218 469)
(330 180)
Change in other assets and liabilities
(335 778)
(85 082)
Other
45 516
51 519
Net cash flows from operating activities
2 564 242
(3 331 136)
12
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
B. Cash flows from investing activities
Amount ‘000 PLN
1.01.2021 -
31.12.2021
1.01.2020 -
31.12.2020
Inflows:
220 202 228
94 162 558
Proceeds from sale of property, plant and equipment and intangible assets
9 932
21 666
Proceeds from sale of shares in related entities
0
0
Proceeds from sale of investment financial assets
220 139 899
94 101 566
Other
52 397
39 326
Outflows:
(220 681 306)
(92 209 774)
Acquisition of property, plant and equipment and intangible assets
(92 404)
(71 188)
Purchase of shares in subordinated companies
(14)
(120 000)
Acquisition of investment financial assets
(220 588 888)
(92 018 586)
Other
0
0
Net cash flows from investing activities
(479 078)
1 952 784
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:
0
0
Long-term bank loans
0
0
Issue of debt securities
0
0
Increase in subordinated debt
0
0
Net proceeds from issues of shares and additional capital paid-in
0
0
Other inflows from financing activities
0
0
Outflows from financing activities:
(299 354)
(788 003)
Repayment of long-term bank loans
(10 000)
(426 566)
Redemption of debt securities
(250 000)
(300 000)
Decrease in subordinated debt
0
0
Issue of shares expenses
0
0
Redemption of shares
0
0
Dividends paid and other payments to owners
0
0
Other outflows from financing activities
(39 354)
(61 437)
Net cash flows from financing activities
(299 354)
(788 003)
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 14.
“Supplementary information”. Information on liabilities classified as financing activities is presented
in points 32), 35), 36) of chapter 13. “Notes to the Financial Statements”.
13
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
6. General Information about Issuer
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 centers, 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 Register,
is seated in Poland, Warsaw, Stanisława Żaryna 2A.
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.
14
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
7. Accounting Policy
7.1. STATEMENT OF COMPLIANCE WITH THE INTERNATIONAL FINANCIAL
REPORTING STANDARDS
These financial statements of the Bank 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, in connection with the start of operations by the subsidiary Millennium Bank Hipoteczny S.A.,
the Bank created a new business model dedicated to mortgage loans intended for pooling (sale) to
Bank Hipoteczny. The portfolio of these loans has been classified to the HTC&FS model and is
measured at fair value with the measurement effect recognised in other comprehensive income.
In 2021, the Bank 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.
15
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
0
1 460 289
Financial assets held for trading
424 777
0
424 777
Derivatives
155 365
0
155 365
Equity instruments
0
0
0
Debt securities
269 412
0
269 412
Non-trading financial assets mandatorily at fair value through profit
or loss, other than Loans and advances to customers
251 107
0
251 107
Equity instruments
200 772
0
200 772
Debt securities
50 335
0
50 335
Financial assets at fair value through other comprehensive income
18 626 366
0
18 626 366
Equity instruments
29 219
0
29 219
Debt securities
18 597 147
0
18 597 147
Loans and advances to customers
73 501 432
(449 000)
73 052 432
Mandatorily at fair value through profit or loss
1 615 753
0
1 615 753
Valued at fair value through other comprehensive income
0
0
Valued at amortised cost
71 885 679
(449 000)
71 436 679
Financial assets at amortised cost other than Loans and advances to
customers
730 534
0
730 534
Debt securities
38 818
0
38 818
Deposits, loans and advances to banks and other monetary
institutions
625 366
0
625 366
Reverse sale and repurchase agreements
66 350
0
66 350
Derivatives – Hedge accounting
21 795
0
21 795
Investments in subsidiaries, joint ventures and associates
208 874
0
208 874
Tangible fixed assets
541 326
0
541 326
Intangible fixed assets
373 720
0
373 720
Income tax assets
534 013
0
534 013
Current income tax assets
0
0
0
Deferred income tax assets
534 013
0
534 013
Other assets
341 393
0
341 393
Non-current assets and disposal groups classified as held for sale
0
0
0
Total assets
97 015 626
(449 000)
96 566 626
16
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
168 559
0
168 559
Derivatives
103 781
0
103 781
Liabilities from short sale of securities
64 778
0
64 778
Financial liabilities measured at amortised cost
84 669 783
0
84 669 783
Liabilities to banks and other monetary institutions
563 882
0
563 882
Liabilities to customers
81 832 471
0
81 832 471
Sale and repurchase agreements
248 566
0
248 566
Debt securities issued
484 655
0
484 655
Subordinated debt
1 540 209
0
1 540 209
Derivatives – Hedge accounting
738 850
0
738 850
Provisions
607 371
(449 000)
158 371
Pending legal issues
554 643
(449 000)
105 643
Commitments and guarantees given
52 728
0
52 728
Income tax liabilities
28 704
0
28 704
Current income tax liabilities
28 704
0
28 704
Deferred income tax liabilities
0
0
0
Other liabilities
1 966 656
0
1 966 656
Total Liabilities
88 179 923
(449 000)
87 730 923
EQUITY
0
Share capital
1 213 117
0
1 213 117
Own shares
(21)
0
(21)
Share premium
1 147 241
0
1 147 241
Accumulated other comprehensive income
197 009
0
197 009
Retained earnings
6 278 357
0
6 278 357
Total equity
8 835 703
0
8 835 703
Total equity and total liabilities
97 015 626
(449 000)
96 566 626
17
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
0
2 203 444
Financial assets held for trading
987 465
0
987 465
Derivatives
113 432
0
113 432
Equity instruments
0
0
0
Debt securities
874 033
0
874 033
Non-trading financial assets mandatorily at fair value through profit
or loss, other than Loans and advances to customers
169 610
0
169 610
Equity instruments
66 609
0
66 609
Debt securities
103 001
0
103 001
Financial assets at fair value through other comprehensive income
21 856 275
0
21 856 275
Equity instruments
29 367
0
29 367
Debt securities
21 826 908
0
21 826 908
Loans and advances to customers
68 689 229
(73 723)
68 615 506
Mandatorily at fair value through profit or loss
1 498 195
0
1 498 195
Valued at fair value through other comprehensive income
0
0
0
Valued at amortised cost
67 191 034
(73 723)
67 117 311
Financial assets at amortised cost other than Loans and advances to
customers
1 037 840
0
1 037 840
Debt securities
48 153
0
48 153
Deposits, loans and advances to banks and other monetary
institutions
784 248
0
784 248
Reverse sale and repurchase agreements
205 439
0
205 439
Derivatives – Hedge accounting
43 159
0
43 159
Investments in subsidiaries, joint ventures and associates
88 874
0
88 874
Tangible fixed assets
622 506
0
622 506
Intangible fixed assets
331 978
0
331 978
Income tax assets
405 412
0
405 412
Current income tax assets
0
0
0
Deferred income tax assets
405 412
0
405 412
Other assets
249 448
0
249 448
Non-current assets and disposal groups classified as held for sale
0
0
0
Total assets
96 685 240
(73 723)
96 611 517
18
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
353 004
0
353 004
Derivatives
150 739
0
150 739
Liabilities from short sale of securities
202 265
0
202 265
Financial liabilities measured at amortised cost
85 127 543
0
85 127 543
Liabilities to banks and other monetary institutions
849 452
0
849 452
Liabilities to customers
81 637 517
0
81 637 517
Sale and repurchase agreements
90 712
0
90 712
Debt securities issued
1 003 657
0
1 003 657
Subordinated debt
1 546 205
0
1 546 205
Derivatives – Hedge accounting
426 847
0
426 847
Provisions
164 741
(73 723)
91 018
Pending legal issues
110 885
(73 723)
37 162
Commitments and guarantees given
53 856
0
53 856
Income tax liabilities
38 057
0
38 057
Current income tax liabilities
38 057
0
38 057
Deferred income tax liabilities
0
0
0
Other liabilities
1 884 961
0
1 884 961
Total Liabilities
87 995 153
(73 723)
87 921 430
EQUITY
0
Share capital
1 213 117
0
1 213 117
Own shares
0
0
0
Share premium
1 147 241
0
1 147 241
Accumulated other comprehensive income
66 848
0
66 848
Retained earnings
6 262 881
0
6 262 881
Total equity
8 690 087
0
8 690 087
Total equity and total liabilities
96 685 240
(73 723)
96 611 517
19
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
18 579
0
18 579
Total adjustments:
(3 349 715)
0
(3 349 715)
Interest received
3 023 642
0
3 023 642
Interest paid
(542 356)
0
(542 356)
Depreciation and amortization
196 362
0
196 362
Foreign exchange (gains)/ losses
11 797
0
11 797
Dividends
(39 326)
0
(39 326)
Changes in provisions
442 630
(375 277)
67 353
Result on sale and liquidation of investing activity assets
(130 880)
0
(130 880)
Change in financial assets held for trading
277 422
0
277 422
Change in loans and advances to banks
(159 300)
0
(159 300)
Change in loans and advances to customers
(7 296 462)
375 277
(6 921 185)
Change in receivables from securities bought with sell-back clause
(loans and advances)
132 653
0
132 653
Change in financial liabilities valued at fair value through profit
and loss (held for trading)
127 558
0
127 558
Change in deposits from banks
140 321
0
140 321
Change in deposits from customers
708 816
0
708 816
Change in liabilities from securities sold with buy-back clause
165 649
0
165 649
Change in debt securities
(205 425)
0
(205 425)
Change in income tax settlements
160 927
0
160 927
Income tax paid
(330 180)
0
(330 180)
Change in other assets and liabilities
(85 082)
0
(85 082)
Other
51 519
0
51 519
Net cash flows from operating activities
(3 331 136)
0
(3 331 136)
20
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Changes of presentation introduced in 2021
The Bank changed the presentation of interest on derivatives not covered by formal hedge accounting.
According to the Bank'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 Bank, 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 Bank 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
2 455 869
34 460
2 490 329
Interest income and other of similar nature
2 989 729
34 460
3 024 189
Income calculated using the effective interest method
2 915 734
0
2 915 734
Interest income from Financial assets at amortised cost
2 602 344
0
2 602 344
Interest income from Financial assets at fair value through
other comprehensive income
313 390
0
313 390
Income of similar nature to interest from Financial assets at fair
value through profit or loss
73 995
34 460
108 455
Interest expenses
(533 860)
0
(533 860)
Net fee and commission income
639 738
0
639 738
Fee and commission income
809 267
0
809 267
Fee and commission expenses
(169 529)
0
(169 529)
Dividend income
39 326
0
39 326
Result on derecognition of financial assets and liabilities not measured
at fair value through profit or loss
127 638
0
127 638
Results on financial assets and liabilities held for trading
47 379
(34 460)
12 919
Result on non-trading financial assets mandatorily at fair value
through profit or loss
38 576
0
38 576
Result on hedge accounting
(10 259)
0
(10 259)
Result on exchange differences
119 268
0
119 268
Other operating income
140 865
0
140 865
Other operating expenses
(219 836)
0
(219 836)
Administrative expenses
(1 497 120)
0
(1 497 120)
Impairment losses on financial assets
(477 193)
0
(477 193)
Impairment losses on non-financial assets
(7 846)
0
(7 846)
Provisions for legal risk connected with FX mortgage loans
(713 617)
0
(713 617)
Result on modification
(13 565)
0
(13 565)
Depreciation
(196 359)
0
(196 359)
Share of the profit of investments in subsidiaries
0
0
0
Banking tax
(279 148)
0
(279 148)
Profit before income taxes
193 716
0
193 716
Corporate income tax
(175 137)
0
(175 137)
Profit after taxes
18 579
0
18 579
21
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 Bank'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 Bank’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.).
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of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 Bank anticipates that the adoption of the aforementioned standard and amendments to existing
standards will have no material impact on the financial statements of the Bank.
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Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
7.3. ADOPTED ACCOUNTING PRINCIPLES
Basis of Financial Statements Preparation
Financial statements of the Bank are prepared for the financial year from 1 January 2021 to 31
December 2021 on the basis of the going concern assumption of the Bank, namely scale of business is
not to be reduced substantially in a period of not less than one year from the balance sheet date.
For the year ended December 31, 2021, the Bank incurred a financial loss. The financial loss in the
amount of PLN 1.358 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 Bank 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 Bank is responsible for selection, application, development, and
verification of adopted estimations; the assumptions are then subject to approval by the Bank’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 financial statements.
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Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Functional currency and presentation currency
Functional currency and presentation currency
The items contained in the financial statements of the Bank are presented in the currency of their
basic economic environment, in which a given entity operates (‘the functional currency’). The
financial statements are presented in Polish zlotys, being the functional currency and the presentation
currency for the Bank.
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.
Mergers under joint control
In the case of mergers of the Capital Group companies (transaction under joint control), the Bank
adopts the accounting principle consisting in the application of the "predecessor accounting" method.
In the separate financial statements, the Bank recognizes the carrying amounts of the assets and
liabilities of the acquiree that is a subsidiary according to the values included in the consolidated
financial statements of the Capital Group in relation to this subsidiary, including also goodwill arising
on the acquisition of this subsidiary.
A possible difference between the carrying amount of the net assets acquired after the adjustments
referred to above and the value of investments in a subsidiary disclosed in the separate financial
statements of the Bank is recognized in equity as "Retained earnings".
The net financial result achieved by the company being acquired up to the day preceding the date of
merger is disclosed in the Bank's financial statements under equity as "Retained earnings".
Application of estimates in connection with Accounting Policies
The preparation of financial statements in accordance with IFRS requires from the Bank the use of
estimates and assumptions that affect the amounts reported in the financial statements.
The estimates and assumptions, revised by the Bank 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 Bank, the actual results may differ from the estimates. The major areas
for which the Bank makes estimates are presented below:
▪ Impairment of loans and advances
Impairment estimation model within the Bank 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.
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Annual Financial Report
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st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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”.
▪ 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 Bank’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 Bank 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 Bank,
▪ Indexes options acquired/placed by the Bank.
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 Bank applies the component of credit risk taking
into account both: counterparty risk (credit value adjustment – CVA) and own Bank’s risk (debit
value adjustment - DVA). The Bank assesses that unobservable inputs related to applying this
component used for fair value measurement are not significant.
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Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
▪ Impairment of other non-current assets
The Bank assesses the existence of any indications that a non-current asset may be impaired at each
balance sheet date. If such indications exist, the Bank 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 Bank may
obtain from the given non-current asset (or cash generating unit). The Bank 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 12 "Legal risk
related to foreign currency mortgage loans".
• Valuation of the portfolio of loans dedicated to pooling to Mortgage Bank
In the case of the portfolio of mortgage loans in PLN, which will be subject to sale (pooling) to
Mortgage Bank in the future, it is measured at fair value through other comprehensive income.
The fair value of the loans is calculated as the sum of discounted cash flows from principal repayments
and interest payments on individual accounts.
Key assumptions:
i) for loans, the starting point for determining the projected cash flows (interest and
principal installments) are the schedules of principal and interest
ii) the calculation of the discount rate adopted to estimate the value of cash flows takes
into account: the WIBOR reference rate, the calibration margin determined on the basis
of the latest production of the mortgage loan portfolio analogous to the valued portfolio,
the cost of risk of the valued portfolio and the percentage of prepayment adjustment.
▪ 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 Bank 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.
27
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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.
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
Bank’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 Bank
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).
28
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 Bank’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
Bank in order to collect contract cash flows, while sales transactions occur infrequently.
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 as well as to the
portfolio of mortgage loans dedicated to pooling to Bank Hipoteczny.
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 Bank 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),
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Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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).
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 analyzed.
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, eg 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 Bank performs an assessment based on the Benchmark Test, ie 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).
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Annual Financial Report
of the Bank Millennium S.A.
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st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Non-recourse assets (products for which the Bank’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 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.
If the contractual terms of the loan are modified, the Bank 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 Bank 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 Bank as POCI in all subsequent periods until they are
derecognized from balance sheet, and expected credit loss is estimated based on ECL covering the
remaining life time of the financial asset, regardless of future changes in estimates of cash flows
generated by them (possible improvement of assets quality).
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Annual Financial Report
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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.
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.
Recognition of financial instruments in the balance sheet
The Bank 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 Bank derecognizes a financial asset when: the contractual rights to the cash flows from the
financial asset expire, or the Bank transfers the financial asset to third party. The transfer takes place
when the Bank:
▪ 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 Bank.
On transferring a financial asset, the Bank evaluates the extent to which it retains the risks and
rewards of ownership of the financial asset. Accordingly, where the Bank:
▪ 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 Bank
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 Bank has not retained control, it
derecognises the financial asset accordingly.
The Bank 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.
32
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 Bank could conclude such transactions. If the market for the
instruments is not active the Bank 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 Bank 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 Bank 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 Bank’s risk (debit value adjustment
- DVA).
Recognition of derivative instruments embedded in liabilities
The Bank 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 Bank uses derivative instruments in order to hedge against interest rate risk and FX risk arising
from operating, financing and investing activities of the Bank. 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).
33
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Hedge accounting criteria
The Bank 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 Bank’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).
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 Bank.
34
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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.
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 Bank 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 Bank) 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 Bank 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 Bank) 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.
35
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
▪ 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 Bank) 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 Bank designated selected IRS transactions as hedging instruments. The method of
capturing and valuating hedging financial instruments was described in the part on hedge
accounting.
▪ 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 Bank) 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 Bank 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
Bank) 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 Bank.
▪ FX and Index options
Option transactions are measured at fair value with use of option measurement models. In case of
options issued by the Bank’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 Bank) 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 Bank 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.
36
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
▪ 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 Bank 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.
Impairment of financial assets
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.
37
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Incorporation of forward looking information on economic conditions (FLI)
In the process of calculation of expected credit losses, the Bank 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.
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.
38
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
EaD Model
The EaD model used in the Bank 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 Bank 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.
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 Bank 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 Bank after the transfer.
When the Bank 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 Bank 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.
39
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
The Bank 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.
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 Bank 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 Bank uses the option of not recognizing leasing in the case of short-term contracts for space
lease and car leasing contracts,
• the Bank 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 Bank.
Property, plant and equipment and Intangible 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 Bank’s needs or to be transferred to other entities, based on the lease contract or
for administrative purposes.
40
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 Bank 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 Bank,
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 Assets
An intangible asset is an identifiable non-pecuniary asset which does not have physical form and will
generate economic benefits for the Bank in the future.
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 Bank 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 Bank. 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.
41
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 Bank 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.
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 Bank ceases to
classify the assets as held for sale and makes reclassification to other assets category. The Bank
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.
42
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Impairment of non-financial non-current assets
The Bank assesses the existence of any indications that a non-current asset may be impaired at each
balance sheet date. If such indications exist, the Bank estimates the recoverable amount of the asset
and if the recoverable amount of an asset is less than its carrying amount, the Bank 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 Bank 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 Bank, 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 Bank 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.
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 Bank 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.
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Annual Financial Report
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st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 Bank (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 Bank 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 Bank employees are
entitled is calculated as the sum of unused holidays to which particular Bank employees are entitled.
Long-term employee benefits
The Bank’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 Bank’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.
In 2012, the Bank implemented a policy specifying the principles of remuneration for persons having
a material impact on the risk profile of Bank Millennium, 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 Bank having
a significant impact on the Bank'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
44
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
shares: for 2019 and 2020. Commencing from 2019, by the decision of the General Meeting of Bank’s
Shareholders of August 27, 2019, the Bank 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 14., note 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 Bank fulfils a programme of post – employment benefits called defined contribution plan. Under
this plan the Bank 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 Bank 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.
Bank’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.
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.
45
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 Bank’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 Bank 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.
46
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 Bank 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 Bank'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 Bank'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.
47
Annual Financial Report
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for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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:
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 Bank 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 Bank, 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.
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Annual Financial Report
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for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
banking 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.
49
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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.
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
Bank offsets deferred tax assets and deferred tax liabilities, 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
Bank 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.
50
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 Bank. It defines the framework for business development, profitability, and
stability, by creating rules ensuring the Bank’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 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 Bank's operations. Important principle of risk management is the optimization of the risk and
profitability trade-off – the Bank 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 Bank's organizational structure.
Risk management is centralized for the Bank 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 Bank 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 Bank’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.
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Annual Financial Report
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for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
The Risk management process of the Bank 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 Bank’s risk-taking
policy with the Bank’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 Bank's Risk Strategy, including the Bank'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 Bank. 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.
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
52
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
▪ 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.
▪ The Corporate Credit Underwriting Department, Mortgage Credit Underwriting Department and
Consumer Finance Credit Underwriting Department have responsibility, 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 Bank 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 Bank is currently exposed. The Bank
should also have a forward-looking view how their risk profile may change under both expected
and stress economic scenarios in accordance with risk tolerance,
2. Risk appetite – the maximum amount or type of risk the Bank is prepared to accept/tolerate to
achieve its financial and strategic objective. Three zones are defined in accordance with
warning/action required level.
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Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 Bank 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 Bank clearly define
the risk appetite.
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 Bank 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 Bank 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.
54
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
8.2. CAPITAL MANAGEMENT
Capital management and planning
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, Bank 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 appetite.
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.
Regulatory capital adequacy
The Bank 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 p.p. (Bank) and 2.79 p.p. (Group) as for Total Capital Ratio (TCR),
which corresponds to capital requirements over Tier 1 ratio of 2.11 p.p. in Bank and of 2.09 p.p.
in Group, and which corresponds to capital requirements over CET 1 ratio of 1.58 p.p. in Bank
and 1.56 p.p. in Group
1
;
▪ 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
2
;
▪ 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.
1
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
2
In November 2020 KNF issued the decision on identification the Bank as other systemically important institution and
imposing OSII Buffer
55
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
In accordance to binding legal requirements and recommendations of Polish Financial Supervisory
Authority (KNF), Bank defined minimum levels of capital ratios, being at the same time capital
targets/limits. These are OCR (overall capital requirements) as for capital ratios.
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%
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%
2.50%
OSII Buffer
0.25%
0.25%
Systemic risk buffer
0.00%
0.00%
Countercyclical capital buffer
0.00%
0.00%
Combined buffer
2.75%
2.75%
OCR CET1 (Overall Capital Requirements CET1)
8.83%
8.81%
T1 ratio
Bank
Group
Minimum
6.00%
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%
2.50%
OSII Buffer
0.25%
0.25%
Systemic risk buffer
0.00%
0.00%
Countercyclical capital buffer
0.00%
0.00%
Combined buffer
2.75%
2.75%
OCR T1 (Overall Capital Requirements T1)
10.86%
10.84%
TCR ratio
Bank
Group
Minimum
8.00%
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%
2.50%
OSII Buffer
0.25%
0.25%
Systemic risk buffer
0.00%
0.00%
Countercyclical capital buffer
0.00%
0.00%
Combined buffer
2.75%
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.
56
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Own funds capital requirements
The Bank 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 Bank received another decision by Regulatory 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 Bank 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 Bank 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 Bank
in 2020 successfully implemented solutions for the new definition of default in the production
environment. The Bank 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 Bank 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 Bank 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.
57
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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.
Capital adequacy – current state, evaluation, and trends
Capital adequacy of Bank over the last three years was as follows
3
:
Capital adequacy
31.12.2021
31.12.2020
31.12.2019
Risk-weighted assets
48 895.7
50 757.4
47 267.6
Own Funds requirements, including:
3 911.7
4 060.6
3 781.4
- Credit risk and counterparty credit risk
3 477.7
3 688.3
3 455.8
- Market risk
32.3
26.6
24.2
- Operational risk
391.4
340.7
297.7
- Credit Valuation Adjustment CVA
10.3
4.9
3.7
Own Funds, including:
8 397.1
9 726.6
9 454.5
Common Equity Tier 1 Capital
6 867.1
8 196.6
7 924.5
Tier 2 Capital
1 530.0
1 530.0
1 530.0
Total Capital Ratio (TCR)
17.17%
19.16%
20.00%
Minimum required level
13.57%
14.16%
18.46%
Surplus (+) / Deficit (-) of TCR capital adequacy (pp)
3.60
5.00
1.54
Tier 1 Capital ratio (T1)
14.04%
16.15%
16.77%
Minimum required level
11.31%
11.31%
15.22%
Surplus (+) / Deficit (-) of T1 capital adequacy (pp)
2.73
4.84
1.55
Common Equity Tier 1 Capital ratio (CET1)
14.04%
16.15%
16.77%
Minimum required level
8.83%
9.16%
12.78%
Surplus (+) / Deficit (-) of CET1 capital adequacy (pp)
5.21
6.99
3.99
Leverage ratio
6.45%
8.06%
7.94%
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 2.11 pp and by ca 1.99 pp respectively.
In 2021, risk-weighted assets (RWA) went down by ca PLN 1.9 billion (by 3.7%). The biggest yearly
change was credit risk RWA (fall by ca PLN 2.6 billion, by 5.7%). 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.
3
Bank 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: 16.07%
- T1: 12.95%
- CET1: 12.95%
- Leverage ratio: 5.98%
58
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
In 2021 Own Funds fell by ca PLN 1.3 billion (by 13.7%), mainly because of net financial loss caused
by legal risk provisions.
Minimum capital levels required by KNF were achieved with a safe surplus.
Leverage ratio stood at the safe level of 6.45%, 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 Bank received a joint decision of the Single Resolution Board (SRB) and the
Bank Guarantee Fund, obliging the Bank to meet the minimum requirements for own funds and eligible
liabilities (MREL). Pursuant to this decision, the Bank is required to meet the minimum MREL
trea
requirement of 21.13% and the MREL
tem
requirement of 5.88% 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 Bank Millennium SA 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 Bank’s regulatory environment.
The Bank 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.
59
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
(i) The Bank 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 Bank’s customers are divided into 15 rating
classes, which for the purposes of this Report have been grouped into 6 main brackets. The Bank’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 Bank 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 Bank’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
15
Default
(ii) EAD – amount of exposure at default – concerns amount which according to the Bank’s predictions
will be the Bank’s receivables at the time of default against liabilities. Liabilities are understood
by the Bank 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 Bank 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 in the Bank
Since the implementation of IFRS 9, the Bank 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 Bank is using cross-default approach for all segments.
60
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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).
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 Bank 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 Bank 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 Bank 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 Bank’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 Bank 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 Bank 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 Bank must make a payment).
Documentary and commercial letters of credit are a written, irrevocable, and final obligation of the
Bank 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 Bank 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 Bank 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.
61
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
(3b) Limits control and risk mitigation policy
The Bank 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.
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 Bank from the
point of view of punctual repayment of their principal and interest liabilities.
Collateral
The Bank 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 Bank, 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 Bank as well
as more detailed requirements that are to ensure the probability of selling collateral of respective
types in the context of the Bank's recovery experiences.
The Bank 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 Bank 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 Bank 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 Bank 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.
62
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
In accordance with credit policy adopted in the Bank 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 Bank stipulates the possibility of taking additional collateral for
the transaction.
(3c) Policy with respect to impairment and creation of impairment charges
Organisation 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 document 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 once a year), which results will be considered
to improve the quality of the process.
The Supervision over the process of estimating impairment charges and provisions is exercised at the
Bank 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.
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 Bank’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 Bank in finance, risk, and management information.
Expected credit loss measurement
Since implementation of IFRS9 in 2018, impairment estimation model within the Bank 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.
63
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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.
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 Bank’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.
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Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
2) Identification of impairment triggers.
The Bank 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 reorganising 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 a different enterprise reorganisation.
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 Bank 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 realisation. The Bank 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 realising 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
Bank regulations.
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 Bank,
▪ Results of negotiations with the customer and his attitude, i.e., willingness to settle his
arrears,
▪ Improvement/deterioration of his economic and financial situation,
65
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
The Bank 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 realisation 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 Bank 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 separate
principles have been specified for portfolio types: business and restructuring-recovery. 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 recognised impairment triggers
because of an individual analysis.
For the purposes of collective analysis, the Bank 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 Bank 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.
▪ The EAD model used in the Bank 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) 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.
66
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Forward-looking information incorporated in the ECL models
In the process of calculation of expected credit losses, the Bank 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 Bank 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%
20%
ECL sensitivity to macroeconomic scenarios
For assessing the sensitivity of ECL for future macroeconomic conditions, the Bank 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%.
67
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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.
(3d) Maximum exposure to credit risk
31.12.2021
31.12.2020
Exposures exposed to credit risk connected with balance sheet assets
98 140 384
93 074 115
Deposits, loans and advances to banks and other monetary institutions
943 315
625 366
Loans and advances to customers:
78 237 586
73 052 432
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
40
13 002
Valued at fair value through other comprehensive income
11 485 351
0
Valued at amortised cost:
66 389 243
71 436 679
Loans to private individuals:
47 726 259
53 645 376
Receivables on account of payment cards
745 766
75 769
Cash loans and other loans to private individuals
14 723 782
13 616 795
Mortgage loans
32 256 711
39 952 812
Loans to companies and public sector
18 418 379
17 479 925
Loans to public entities
244 605
311 378
Financial derivatives and Adjustment from fair value hedge
101 036
177 160
Debt instruments held for trading
86 438
269 412
Debt instruments mandatorily at fair value through profit or loss
127 499
50 335
Debt instruments at fair value through other comprehensive income
17 924 059
18 597 147
Repurchase agreements
268 837
66 350
Other financial assets
451 614
235 913
Credit risk connected with off-balance sheet items
15 236 694
15 040 743
Financial guarantees
2 578 287
2 562 041
Credit commitments
12 658 407
12 478 702
The table above presents the structure of the Bank’s exposures to credit risk as at 31
st
December 2021
and 31
st
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.
68
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
40
12 889
▪ Individuals
362 952
1 602 751
▪ Public sector
0
112
Loans and advances to customers at fair value through other comprehensive income
Balance sheet value:
31.12.2021
31.12.2020
at fair value through other comprehensive income *
11 485 351
0
▪ Companies
0
0
▪ Individuals
11 485 351
0
▪ Public sector
0
0
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
81 703 408
3 061 378
3 044 606
241 276
88 050 668
Balance impairment
301 100
266 359
1 627 282
15 259
2 210 000
Loans and advances to banks (external rating
Fitch: from BBB to AAA; Moody's: from B3 to
Aaa; S&P: from B+ to AAA)
943 555
943 555
Loans and advances to private individuals
(according to Master Scale):
44 331 040
2 567 911
2 457 343
241 217
49 597 511
▪ 1-3 Highest quality
27 310 004
100 605
0
3 235
27 413 844
▪ 4-6 Good quality
9 285 120
380 922
0
6 736
9 672 778
▪ 7-9 Medium quality
6 209 483
818 005
0
8 223
7 035 711
▪ 10-12 Low quality
1 504 920
775 656
0
4 201
2 284 777
▪ 13-14 Watched
5 379
492 680
0
2 997
501 056
▪ 15 Default
0
0
2 457 343
215 817
2 673 160
▪ Without rating (*)
16 134
43
0
8
16 185
Impairment
212 250
242 862
1 400 649
15 490
1 871 251
Loans and advances to companies (according
to Master Scale):
8 517 165
410 854
561 891
59
9 489 969
▪ 1-3 Highest quality
108 751
1 526
0
0
110 277
▪ 4-6 Good quality
2 056 585
19 171
0
0
2 075 756
▪ 7-9 Medium quality
3 683 368
69 822
0
0
3 753 190
▪ 10-12 Low quality
1 136 115
297 168
0
0
1 433 283
▪ 13-14 Watched
0
10 043
0
0
10 043
▪ 15 Default
0
0
561 891
59
561 950
▪ Without rating (*)
1 532 346
13 124
0
0
1 545 470
Impairment
68 710
18 872
216 026
-231
303 377
69
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
PLN’000, as of the end of 2021
Stage 1 (12-
month ECL)
Stage 2
(lifetime
ECL)
Stage 3
(lifetime ECL)
POCI
Total
Loans and advances to public entities
(according to Master Scale):
76 675
1
0
0
76 676
▪ 1-3 Highest quality
0
0
0
0
0
▪ 4-6 Good quality
0
0
0
0
0
▪ 7-9 Medium quality
0
0
0
0
0
▪ 10-12 Low quality
0
0
0
0
0
▪ 13-14 Watched
0
0
0
0
0
▪ 15 Default
0
0
0
0
0
▪ Without rating (*)
76 675
1
0
0
76 676
Impairment
163
0
0
0
163
Factoring (according to Master Scale):
3 041 750
82 612
25 372
0
3 149 734
▪ 1-3 Highest quality
398
0
0
0
398
▪ 4-6 Good quality
872 113
1 833
0
0
873 946
▪ 7-9 Medium quality
1 537 127
16 037
0
0
1 553 164
▪ 10-12 Low quality
594 442
64 634
0
0
659 076
▪ 13-14 Watched
0
0
0
0
0
▪ 15 Default
0
0
25 372
0
25 372
▪ Without rating (*)
37 670
108
0
0
37 778
Impairment
19 804
4 625
10 607
0
35 036
Repurchased receivables from Millennium
Leasing (according to Master Scale):
6 285 354
0
0
0
6 285 354
▪ 1-3 Highest quality
72 186
0
0
0
72 186
▪ 4-6 Good quality
468 384
0
0
0
468 384
▪ 7-9 Medium quality
1 164 600
0
0
0
1 164 600
▪ 10-12 Low quality
670 851
0
0
0
670 851
▪ 13-14 Watched
2 109
0
0
0
2 109
▪ 15 Default
97 345
0
0
0
97 345
▪ Without rating (*)
3 809 879
0
0
0
3 809 879
Impairment
173
0
0
0
173
Derivatives and adjustment from fair value
hedge (according to Master Scale):
101 036
0
0
0
101 036
▪ 1-3 Highest quality
26 897
26 897
▪ 4-6 Good quality
41 607
41 607
▪ 7-9 Medium quality
7 015
7 015
▪ 10-12 Low quality
8 064
8 064
▪ 13-14 Watched
0
0
▪ 15 Default
0
0
▪ Without rating
3 069
3 069
▪ fair value adjustment due to
hedge accounting
0
0
▪ Valuation of future FX
payments
0
0
▪ Hedging derivative
14 385
14 385
Debt securities mandatorily at fair value
through profit or loss
127 499
127 499
Trading debt securities (State Treasury**
bonds)
86 438
86 438
Investment debt securities (State Treasury**,
Central Bank**, Local Government, EIB)
17 924 059
17 924 059
Receivables from securities bought with sell-
back clause
268 837
268 837
70
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
87 167 039
3 332 717
3 046 745
399 429
93 945 930
Balance impairment
344 584
277 386
1 556 412
26 361
2 204 743
Loans and advances to banks (external rating
Fitch: from BBB to AAA; Moody's: from B3 to
Aaa; S&P: from B+ to AAA)
625 366
625 366
Loans and advances to private individuals
(according to Master Scale):
50 736 536
2 395 682
2 304 445
399 370
55 836 033
▪ 1-3 Highest quality
29 968 500
24 559
0
3 872
29 996 931
▪ 4-6 Good quality
10 586 928
257 412
0
8 498
10 852 838
▪ 7-9 Medium quality
8 030 642
809 947
0
13 772
8 854 361
▪ 10-12 Low quality
2 130 299
827 538
0
7 998
2 965 835
▪ 13-14 Watched
9 680
476 123
0
3 379
489 182
▪ 15 Default
0
0
2 304 444
361 847
2 666 291
▪ Without rating (*)
10 487
103
1
4
10 595
Impairment
245 142
251 526
1 218 373
26 616
1 741 657
Loans and advances to companies (according
to Master Scale):
8 253 101
720 570
707 714
59
9 681 444
▪ 1-3 Highest quality
59 626
822
0
0
60 448
▪ 4-6 Good quality
1 711 520
86 777
0
0
1 798 297
▪ 7-9 Medium quality
3 818 823
243 449
0
0
4 062 272
▪ 10-12 Low quality
1 166 969
364 993
0
0
1 531 962
▪ 13-14 Watched
0
8 886
0
0
8 886
▪ 15 Default
0
0
707 714
59
707 773
▪ Without rating (*)
1 496 163
15 643
0
0
1 511 806
Impairment
76 046
19 185
313 000
-255
407 976
Loans and advances to public entities
(according to Master Scale):
89 005
1
33
0
89 039
▪ 1-3 Highest quality
0
0
0
0
0
▪ 4-6 Good quality
0
0
0
0
0
▪ 7-9 Medium quality
0
0
0
0
0
▪ 10-12 Low quality
0
0
0
0
0
▪ 13-14 Watched
0
0
0
0
0
▪ 15 Default
0
0
0
0
0
▪ Without rating (*)
89 005
1
33
0
89 039
Impairment
225
0
27
0
252
Factoring (according to Master Scale):
2 607 598
216 464
34 553
0
2 858 615
▪ 1-3 Highest quality
6
0
0
0
6
▪ 4-6 Good quality
763 822
214
0
0
764 036
▪ 7-9 Medium quality
1 074 958
21 465
0
0
1 096 423
▪ 10-12 Low quality
738 390
194 677
0
0
933 067
▪ 13-14 Watched
0
0
0
0
0
▪ 15 Default
0
0
34 553
0
34 553
▪ Without rating (*)
30 423
108
0
0
30 530
Impairment
22 781
6 675
25 012
0
54 468
71
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
PLN’000, as of the end of 2020
Stage 1 (12-
month ECL)
Stage 2
(lifetime
ECL)
Stage 3
(lifetime ECL)
POCI
Total
Repurchased receivables from Millennium
Leasing (according to Master Scale):
5 625 291
0
0
0
5 625 291
▪ 1-3 Highest quality
78 275
0
0
0
78 275
▪ 4-6 Good quality
449 159
0
0
0
449 159
▪ 7-9 Medium quality
1 076 171
0
0
0
1 076 171
▪ 10-12 Low quality
608 914
0
0
0
608 914
▪ 13-14 Watched
2 691
0
0
0
2 691
▪ 15 Default
64 329
0
0
0
64 329
▪ Without rating (*)
3 345 752
0
0
0
3 345 752
Impairment
390
0
0
0
390
Derivatives and adjustment from fair value
hedge (according to Master Scale):
297 233
0
0
0
297 233
▪ 1-3 Highest quality
52 505
52 505
▪ 4-6 Good quality
135 150
135 150
▪ 7-9 Medium quality
24 376
24 376
▪ 10-12 Low quality
18 173
18 173
▪ 13-14 Watched
3 625
3 625
▪ 15 Default
5 454
5 454
▪ Without rating
36 155
36 155
▪ fair value adjustment due to
hedge accounting
0
0
▪ Valuation of future FX
payments
0
0
▪ Hedging derivative
21 795
21 795
Trading debt securities (State Treasury**
bonds)
269 412
269 412
Investment debt securities (State Treasury**,
Central Bank**, Local Government, EIB)
18 597 147
18 597 147
Receivables from securities bought with sell-
back clause
66 350
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
499 440
217 799
3 873
0
721 112
Collective analysis
87 880
739 173
1 712 315
0
2 539 368
Total
587 320
956 972
1 716 188
0
3 260 480
72
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
645 893
246 375
3 527
0
895 795
Collective analysis
96 466
768 588
1 647 801
0
2 512 855
Total
742 359
1 014 963
1 651 328
0
3 408 650
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
515 319
71.5%
32.7%
677 403
75.6%
39.9%
CHF
133 501
18.5%
22.0%
162 121
18.1%
19.1%
EUR
72 022
10.0%
41.1%
55 570
6.2%
48.6%
USD
270
0.0%
39.2%
645
0.1%
21.0%
SEK
0
0.0%
56
0.0%
76.1%
Total (Case by Case impaired)
721 112
100.0%
31.6%
895 795
100.0%
36.7%
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%
341 584
47.4%
377 360
42.1%
20% - 40%
112 192
15.6%
141 413
15.8%
40% - 60%
135 702
18.8%
116 744
13.0%
60% - 80%
78 696
10.9%
127 375
14.2%
Above 80%
52 938
7.3%
132 903
14.9%
Total (Case by Case impaired)
721 112
100.0%
895 795
100.0%
At the end of 2021, the financial impact from the established collaterals securing the Bank’s
receivables with impairment recognised under individual analysis (Case by Case) amounted to PLN
358.5 million (at the end of 2020 respectively PLN 369.5 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.
73
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 Bank 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 Bank is exposed in connection with client transactions giving rise to the Bank's
off-balance sheet receivables or liabilities.
The restructuring process applies to the receivables which, based on the principles in place in the
Bank, are transferred to restructuring and recovery portfolios and includes setting new terms of
transactions which are acceptable for the Bank (including the terms of their repayment and their
collateral and possibly obtaining additional collateral).
Recovery of retail receivables is a fully centralised 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 Bank. 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 specialised 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 Bank 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.
74
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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.
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 recognised impairment managed by the Bank’s
organisational units responsible for loan restructuring.
Exposures subject to measures applied in response to the COVID-19 crisis (in ‘000 PLN)
Loans and advances subject to
legislative and non-legislative moratoria
Gross carrying amount
TOTAL
Performing
Performing
Gross carrying
amount
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
0
0
0
0
of which: Households
0
0
0
0
of which: Collateralised by residential
immovable property
0
0
0
0
of which: Non-financial corporations
0
0
0
0
of which: Small and Medium-sized
Enterprises
0
0
0
0
of which: Collateralised by commercial
immovable property
0
0
0
0
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
215 254
214 215
Total
1 318 171
1 317 649
75
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Loans and advances subject to
legislative and non-legislative moratoria
Gross carrying amount
Non-performing
Inflows to
non-performing
exposures
Non-performing
Gross carrying amount
Of which: Unlikely to pay that
are not past-due or past-due
<= 90 days
Loans and advances subject to
moratorium
0
0
0
of which: Households
0
0
0
of which: Collateralised by residential
immovable property
0
0
0
of which: Non-financial corporations
0
0
0
of which: Small and Medium-sized
Enterprises
0
0
0
of which: Collateralised by
commercial immovable property
0
0
0
Information on loans and advances
subject to legislative and non-legislative
moratoria,
Accumulated impairment
TOTAL
Performing
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
0
0
0
0
of which: Households
0
0
0
0
of which: Collateralised by residential
immovable property
0
0
0
0
of which: Non-financial corporations
0
0
0
0
of which: Small and Medium-sized
Enterprises
0
0
0
0
of which: Collateralised by commercial
immovable property
0
0
0
0
Information on loans and advances
subject to legislative and non-legislative
moratoria,
Accumulated impairment
Non-performing
Non-performing
Accumulated
impairment
Of which: grace period
of capital and interest
Of which: Unlikely to pay that
are not past-due or past-due
<= 90 days
Loans and advances subject to
moratorium
0
0
0
of which: Households
0
0
0
of which: Collateralised by residential
immovable property
0
0
0
of which: Non-financial corporations
0
0
0
of which: Small and Medium-sized
Enterprises
0
0
0
of which: Collateralised by
commercial immovable property
0
0
0
76
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
Of which:
expired
Loans and advances for which
moratorium was offered
53 578
5 993 042
Loans and advances subject to
moratorium (granted)
53 578
5 993 042
10 334
5 993 042
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
244 742
0
244 742
of which: Small and Medium-sized
Enterprises
196 373
0
196 373
of which: Collateralised by commercial
immovable property
68 465
0
68 465
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
> 6 months
<= 9 months
> 9 months
<= 12 months
> 1 year
Loans and advances subject to
moratorium (granted)
0
0
0
0
0
of which: Households
0
0
0
0
0
of which: Collateralised by residential
immovable property
0
0
0
0
0
of which: Non-financial corporations
0
0
0
0
0
of which: Small and Medium-sized
Enterprises
0
0
0
0
0
of which: Collateralised by
commercial immovable property
0
0
0
0
0
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
0
0
of which: Collateralised by residential
immovable property
0
0
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
0
0
77
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
(3f) Collateral transferred to the Bank
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”).
(3g) Policy for writing off receivables
Credit exposures, with respect to which the Bank 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 Bank 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
0
68 383
Receivables written-off being subject to
enforcement activity
99 547
5 088
100 977
0
205 612
Total written-off
111 560
12 693
149 742
0
273 995
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
0
10 439
Receivables written-off being subject to
enforcement activity
60 751
7 401
76 602
0
144 754
Total written-off
61 962
10 650
82 581
0
155 193
78
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
(3h) Concentration of risks of financial assets with exposure to credit risk
Economy sectors
The table below presents the Bank’s main categories of credit exposure broken down into
components, according to category of customers.
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
943 554
0
0
0
0
0
0
0
943 554
Loans and advances to
customers (Amortized
cost)
279 221
5 934 558
5 686 061
2 671 607
53 437
32 812 056
16 785 455
4 376 849
68 599 244
Loans and advances to
customers
(Fair value through OCI)
0
0
0
0
0
11 485 351
0
0
11 485 351
Loans and advances to
customers
(Fair value through P&L)
0
12
1
16
0
0
362 952
11
362 992
Trading securities
0
0
0
0
86 438
0
0
0
86 438
Instruments valued at
amort. cost
0
0
0
0
37 089
0
0
0
37 089
Instruments mandatorily
at fair value through P&L
265 903
0
0
0
0
0
0
0
265 903
Derivatives and
adjustment due to fair
value hedge
60 449
28 040
11 530
251
0
0
0
766
101 036
Investment securities
28 080
4 996
0
307
17 924 071
0
0
34
17 957 488
Repurchase agreements
268 837
0
0
0
0
0
0
0
268 837
Total
1 846 044
5 967 606
5 697 592
2 672 181
18 101 035
44 297 407
17 148 407
4 377 660
100 107 932
* including: credit cards, cash loans, current accounts overdrafts
79
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
625 366
0
0
0
0
0
0
0
625 366
Loans and advances to
customers (Amortized
cost)
331 200
5 514 079
5 285 491
2 122 368
76 419
41 000 677
14 835 356
4 924 832
74 090 422
Loans and advances to
customers
(Fair value through P&L)
222
2 681
4 324
1 700
4
0
1 602 751
4 069
1 615 751
Trading securities
0
0
0
0
269 412
0
0
0
269 412
Instruments valued at
amort. cost
0
0
0
0
38 821
0
0
0
38 821
Instruments mandatorily
at fair value through P&L
251 107
0
0
0
0
0
0
0
251 107
Derivatives and
adjustment due to fair
value hedge
103 881
39 387
23 959
2359
0
0
0
7574
177 160
Investment securities
28 865
4 996
0
308
18 597 159
0
0
35
18 631 363
Repurchase agreements
66 350
0
0
0
0
0
0
0
66 350
Total
1 406 991
5 561 143
5 313 774
2 126 735
18 981 815
41 000 677
16 438 107
4 936 510
95 765 752
* including: credit cards, cash loans, current accounts overdrafts
Loans and advances to customers by economy sectors and segment
Taking into consideration segments and activity sectors concentration risk, the Bank 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 (54.9%) and cash loans (18.5%). The portfolio of loans
to companies from different sectors like industry, construction, transport and communication, retail
and wholesale business, financial intermediation and public sector represents 24% of the total
portfolio.
80
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Sector name
2021
Balance Exposure
(PLN million)
Share
(%)
2020
Balance Exposure
(PLN million)
Share
(%)
Credits for individual persons
61 265.1
76.3%
57 554.0
75.9%
Mortgage
44 050.5
54.9%
41 000.7
54.1%
Cash loan
14 831.6
18.5%
14 412.7
19.0%
Credit cards and other
2 383.0
2.9%
2 140.6
2.8%
Credit for companies*
19 001.8
23.7%
18 268.9
24.1%
Wholesale and retail trade; repair
5 686.1
7.1%
5 290.3
7.0%
Manufacturing
4 758.6
5.9%
4 441.9
5.9%
Construction
1 176.0
1.5%
1 075.0
1.4%
Transportation and storage
2 671.6
3.3%
2 124.2
2.8%
Public administration and defence
53.4
0.1%
76.5
0.1%
Information and communication
1 067.0
1.3%
1 303.9
1.7%
Other Services
982.8
1.2%
1 109.6
1.4%
Financial and insurance activities
279.2
0.3%
331.5
0.4%
Real estate activities
1 188.1
1.5%
1 069.2
1.4%
Professional, scientific, and technical
services
266.4
0.3%
217.4
0.3%
Mining and quarrying
61.1
0.1%
48.1
0.1%
Water supply, sewage, and waste
164.4
0.2%
157.4
0.2%
Electricity, gas, water
137.2
0.2%
508.6
0.7%
Accommodation and food service activities
194.7
0.2%
192.2
0.2%
Education
63.1
0.1%
77.1
0.1%
Agriculture, forestry, and fishing
90.7
0.1%
95.6
0.1%
Human health and social work activities
127.2
0.2%
118.1
0.2%
Culture, recreation, and entertainment
34.2
0.0%
32.3
0.0%
Total (gross)
80 266.9
100.0%
75 822.9
100.0%
* incl. Microbusiness, annual turnover below PLN 5 million
Concentration ratio of the 20 largest customers in the Bank’s loan portfolio (considering groups of
connected entities) at the end of 2021 Is 5.9% comparing with 7.0% at the end of 2020. Concentration
ratio in 2021 also decreased for the 10 largest customers: to 4.5% from 5.1% 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.
81
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 Bank’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 Bank’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 Bank 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.
Market-risk evaluation measures
The Bank’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 Bank. The equity risk assumed to be
irrelevant since the Bank’s engagement in equity instruments is immaterial.
Each market risk type is measured individually using appropriate risk models 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 Bank 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 Bank (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.
82
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 Bank 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 Bank.
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 Bank continued to act very prudently. However, 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 Bank that is jointly Trading Book and Banking Book, increased due to market
volatility and in 4Q 2021 breached the VaR 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 Bank 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 diversification
effect applies to the generic risk and reflects correlation between its constituents. The low level of
diversification effect relates to the fact that the Bank’s market risk is mainly the interest rate risk.
83
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
The figures in the Table also include the exposures to market risk generated in subordinated
companies, as the Bank manages market risk at central level.
The market risk in terms of VaR for the Bank (‘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
8
232
Diversification Effect
0.2%
0.0%
Specific risk
1 638
1 542
1 641
1 445
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
12
133
1 522
15
190
Diversification Effect
0.0%
0.2%
Specific risk
2 186
0
0
0
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
0
72
249
0
0
Diversification Effect
0.0%
0.0%
Specific risk
1 636
1 539
1 639
1 443
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
0
0
0
0
0
Diversification Effect
0.0%
0.0%
Specific risk
2 184
0
0
0
1 636
84
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
9
228
Diversification Effect
11.0%
7.9%
Specific risk
2
2
5
2
2
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
11
132
1 524
11
183
Diversification Effect
0.4%
11.0%
Specific risk
2
0
6
0
2
Open positions mostly included interest-rate instruments and FX risk instruments. The FX risk covers
all the foreign exchange exposures of the Bank. According to the Risk Strategy, the FX open position
is allowed, however should be kept at low levels. For this purpose, the Bank 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 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 Bank. In
case the limit is reached, a review of the management strategy and assumptions for the positions in
question must be undertaken.
85
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
19
2020-12-31
95 256
34 824
9
* 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 risk 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.
86
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 uses primarily 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 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 Bank 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 Bank's loan
portfolios based on historical data. It should be noted that mortgage loans that are the
Bank'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.
87
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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. Considering 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 Bank is now in a more balanced situation regarding the scenario of a decline or increase in
interest rates. The supervisory outlier tests 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.
The results of the sensitivity of the Banking Book to changes of interest rates in terms of BPVx100 and
EVE under supervisory stress tests is 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
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
447 824
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 31st 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 31st 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 31st 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 -6.2% of the Bank’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 +6.1% of the Bank’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 31st 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.
88
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
8.5. LIQUIDITY RISK
The objective of liquidity risk management is to ensure and maintain the Bank’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 Bank’s obligations.
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 Bank’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 Bank continued
to be characterized by solid liquidity position.
In 2021, the Bank’s Loan-to-Deposit ratio decreased and was equalled to 85% at the end of December
2021 (comparing to level of 90% as of end of December 2020). The liquidity 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 Bank'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 (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 Bank. At the end of 2021 total Clients’ deposits
of the Bank reached the level of PLN 91.7 billion. The deposit base constituted mainly funds of
individuals Clients, of which the share in total Client’s deposits equalled to approx. 71.8% at the end
of December 2021 (75.4% at the end of December 2020). The high share of funds from individuals had
a positive impact on the Bank’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 Bank 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 Bank, 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 15.0 million (at the end of December 2020 it was PLN
25.0 million). The decrease of the total amount of the medium-term loans from financial institutions
related to standard repayment in accordance with the schedule.
89
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Except for subordinated bonds, at the end of December 2021, the Bank had no liabilities under bonds
issued by the Bank and bank securities (PLN 484.7 million at the end of 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 Bank 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 because 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 Bank has signed a Credit Support Annex to the master agreements. As a result, in case of
unfavourable changes of FX rates (PLN depreciation), the Bank 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 Bank 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 Bank’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 Bank’s liquidity position in short-term horizons (up to 3 months) 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.
Additionally, the liquid asset portfolio is calculated on the daily basis.
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 Bank 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 consider, 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.
90
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Current Liquidity indicators
31.12.2021
Immediate liquidity
ratio (%) *
Quarterly liquidity
ratio (%)*
Central Bank Collateral
/ Total Deposits (%)**
Liquid assets
Portfolio (m PLN)***
LCR (%)
Indicator
22%
22%
19%
18 793
142%
31.12.2020
Immediate liquidity
ratio (%)*
Quarterly liquidity
ratio (%)*
Central Bank Collateral
/ Total Deposits (%)**
Liquid assets
Portfolio (m PLN)***
LCR (%)
Indicator
21%
21%
21%
18 250
144%
* - 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 Bank monitors liquidity based on internal liquidity measures, considering the impact of FX rates
on the liquidity situation.
According to the Regulation of European Parliament and Council no 575/2013 on prudential
requirements for credit institutions and investment firms (CRR), the Bank is calculating the liquidity
coverage requirement (LCR). The regulatory minimum of 100% for LCR valid in 2021 was met by the
Bank (as of the end of December 2021 the LCR reached the level of 142%). 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 Bank. In 2021, the Bank complied also with supervisory measures imposed by KNF Resolution
386/2008 as well as regularly calculated net stable funding requirement (NSFR). Since 28
th
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%. At the end of December 2021, the NSFR was equal to 146%, at the end of December 2020 it
was 125% (supervisory minimum valid since June 2021).
Additionally, the Bank 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 Bank for the ratio of liquidity shortfall is established for each time bucket
below 5 years.
91
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
In December 2021, liquidity gaps were maintained positive and still at safe levels. 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
27 840
8 275
14 738
11 512
16 080
49 111
Adjusted balance liabilities
10 775
4 143
7 395
6 065
9 122
67 360
Balance-Sheet Gap
17 065
4 132
7 343
5 447
6 958
(18 249)
Cumulative Balance-Sheet Gap
17 065
21 197
28 540
33 988
40 945
22 696
Adjusted off-balance assets
89
61
309
24
14
1
Adjusted off-balance liabilities
(1 474)
(90)
(136)
(41)
(22)
(1)
Off-Balance Sheet Gap
(1 386)
(28)
173
(17)
(8)
(0)
Total Gap
15 680
4 104
7 516
5 430
6 950
(18 249)
Total Cumulative Gap
15 680
19 783
27 300
32 730
39 680
21 431
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
27 041
6 852
12 159
9 597
13 777
38 057
Adjusted balance liabilities
12 492
4 403
7 885
6 079
9 180
58 835
Balance-Sheet Gap
14 549
2 450
4 273
3 518
4 597
(20 778)
Cumulative Balance-Sheet Gap
14 549
16 999
21 273
24 790
29 387
8 609
Adjusted off-balance assets
82
53
75
70
23
2
Adjusted off-balance liabilities
(1 400)
(49)
(83)
(65)
(35)
(4)
Off-Balance Sheet Gap
(1 318)
4
(8)
5
(12)
(2)
Total Gap
13 231
2 454
4 266
3 523
4 585
(20 781)
Total Cumulative Gap
13 231
15 685
19 951
23 474
28 059
7 278
The Bank 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.
Stress tests are performed at least quarterly, to determine the Bank’s liquidity-risk profile, to ensure
that the Bank 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.
92
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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. The stress
tests results indicated that Bank has sufficient time to execute emergency procedures, in case of
eventual scenario materialization.
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 Bank’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 Bank has also emergency procedures for situations of increased liquidity risk – the Liquidity
Contingency Plan (contingency plan in case the Bank’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.
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.
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Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 Bank 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 process’s 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.
94
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
9. Transactions with Related Entities
9.1. TRANSACTIONS WITH THE SUBSIDIARIES AND PARENT’S GROUP
All transactions among members of the Group made in 2021 and 2020 were driven by current activity.
The below table presents major amounts of intergroup transactions, these were transactions with the
following entities:
▪ MILLENNIUM BANK HIPOTECZNY,
▪ MILLENNIUM LEASING,
▪ MILLENNIUM DOM MAKLERSKI,
▪ MILLENNIUM TFI
▪ MILLENNIUM SERVICE,
▪ MILLENNIUM TELECOMMUNICATION SERVICES,
▪ MILLENNIUM GOODIE,
▪ PIAST EXPERT.
and with the Capital Group of Bank parent company - Banco Comercial Portugues (ultimate parent
company), these transactions are mainly of banking nature.
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.
ASSETS AND LIABILITIES FROM TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) AS AT
31.12.2021
With
subsidiaries
With parent
company
With other entities
from parent group
ASSETS
Loans and advances to banks – accounts and deposits
172 801
611
0
Loans and advances to customers
6 410 915
0
0
Investments in associates
208 874
0
0
Financial assets valued at fair value through profit and loss (held for
trading)
751
0
0
Hedging derivatives
0
0
0
Other assets
34 361
0
0
LIABILITIES
Deposits from banks
1 133
100
0
Deposits from customers
464 275
0
0
Liabilities from securities sold with buy-back clause
0
0
0
Liabilities arising from debt securities
0
0
0
Financial liabilities valued at fair value through profit and loss (held
for trading)
394
159
0
Subordinated debt
0
0
0
Other liabilities, including:
64 085
0
65
financial leasing liabilities
60 956
0
0
95
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
ASSETS AND LIABILITIES FROM TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) AS AT
31.12.2020
With
subsidiaries
With parent
company
With other entities
from parent group
ASSETS
Loans and advances to banks – accounts and deposits
0
1 237
0
Loans and advances to customers
5 716 908
0
0
Investments in associates
208 874
0
0
Financial assets valued at fair value through profit and loss (held for
trading)
1 177
0
0
Hedging derivatives
0
0
0
Other assets
34 168
0
0
LIABILITIES
Deposits from banks
0
23 601
127 903
Deposits from customers
500 049
0
0
Liabilities from securities sold with buy-back clause
0
0
0
Liabilities arising from debt securities
0
0
0
Financial liabilities valued at fair value through profit and loss (held
for trading)
5
333
0
Subordinated debt
0
0
0
Other liabilities, including:
96 801
0
122
financial leasing liabilities
88 675
0
0
PROFIT AND LOSS ON TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) FOR THE PERIOD OF
1.01-31.12.2021
With
subsidiaries
With parent
company
With other entities
from parent group
Income from:
Interest
74 804
(325)
0
Commissions
25 400
101
0
Financial instruments valued at fair value through other
comprehensive income
1 398
0
0
Dividends
48 663
0
0
Other net operating
13 722
0
0
Expense from:
Interest
1 887
161
(190)
Commissions
37
0
0
Financial instruments valued at fair value through profit and loss
2 202
160
0
Other net operating
0
5
0
General and administrative expenses
14 719
0
36
96
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
PROFIT AND LOSS ON TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) FOR THE PERIOD OF
1.01-31.12.2020
With
subsidiaries
With parent
company
With other entities
from parent group
Income from:
Interest
89 131
(232)
0
Commissions
21 012
102
0
Financial instruments valued at fair value through profit and loss
1 544
0
0
Dividends
35 665
0
0
Other net operating
7 225
0
0
Expense from:
Interest
2 514
3
(325)
Commissions
119
0
0
Financial instruments valued at fair value through profit and loss
0
452
0
Other net operating
0
13
0
General and administrative expenses
24 114
0
256
OFF-BALANCE TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) AS AT 31.12.2021
With
subsidiaries
With parent
company
With other entities
from parent group
Conditional commitments
1 510 199
103 198
0
granted
1 506 920
101 500
0
obtained
3 278
1 698
0
Derivatives (par value)
72 276
14 675
0
OFF-BALANCE TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) AS AT 31.12.2020
With
subsidiaries
With parent
company
With other entities
from parent group
Conditional commitments
866 424
100 774
0
granted
863 550
100 000
0
obtained
2 874
774
0
Derivatives (par value)
100 662
15 938
0
97
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
9.2. 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 Bank 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 Bank’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
98
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
9.3. 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 Bank 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).
99
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
10. 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 Bank 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 Bank. 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
Bank 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.
100
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 Bank 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 Bank 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.
101
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
23
37 088
37 764
Deposits, loans and advances to banks and other monetary
institutions
23
943 315
943 230
Loans and advances to customers (*)
22
66 389 244
64 295 912
LIABILITIES MEASURED AT AMORTISED COST
Liabilities to banks and other monetary institutions
32
186 247
185 787
Liabilities to customers
33
91 672 296
91 609 959
Debt securities issued
35
0
0
Subordinated debt
36
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 Bank’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
23
38 818
39 559
Deposits, loans and advances to banks and other monetary
institutions
23
625 366
625 366
Loans and advances to customers (*)
22
71 436 679
69 958 960
LIABILITIES MEASURED AT AMORTISED COST
Liabilities to banks and other monetary institutions
32
563 882
563 835
Liabilities to customers
33
81 832 471
81 867 328
Debt securities issued
35
484 655
485 527
Subordinated debt
36
1 540 209
1 540 491
102
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
19
Valuation of derivatives
57 643
29 008
Debt securities
86 438
Non-trading financial assets mandatorily at fair value
through profit or loss
20
Equity instruments
71 795
66 609
Debt securities
127 499
Loans and advances
22
362 992
Financial assets at fair value through other
comprehensive income
21
Equity instruments
28 433
Debt securities
17 924 059
Loans and advances
22
11 485 351
Derivatives – Hedge accounting
24
14 385
LIABILITIES
Financial liabilities held for trading
31
Valuation of derivatives
97 312
29 483
Short positions
16 614
Derivatives – Hedge accounting
24
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
19
Valuation of derivatives
134 992
20 373
Debt securities
269 412
Non-trading financial assets mandatorily at fair value
through profit or loss
20
Equity instruments
134 163
66 609
Debt securities
50 335
Loans and advances
22
1 615 753
Financial assets at fair value through other
comprehensive income
21
Equity instruments
29 219
Debt securities
18 597 147
Derivatives – Hedge accounting
24
21 795
LIABILITIES
Financial liabilities held for trading
31
Valuation of derivatives
83 760
20 021
Short positions
64 778
Derivatives – Hedge accounting
24
738 850
103
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Using the criterion of valuation techniques as at 31.12.2021 Bank 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 Bank 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
Shares
Debt
securities
Loans and
advances
FVP&L
Loans and
advances
FVOCI
Balance as at 31.12.2020
19 911
(19 559)
95 827
50 335
1 615 753
0
Settlement/sell/purchase/transfer
4 158
(5 055)
0
0
(1 348 014)
11 081 946
Change of valuation recognized in
equity
0
0
(785)
0
0
267 079
Interest income and other of
similar nature
0
0
0
0
55 372
136 326
Results on financial assets and
liabilities held for trading
4 328
(4 258)
0
0
0
0
Result on non-trading financial
assets mandatorily at fair value
through profit or loss
0
0
0
77 164
39 881
0
Result on exchange differences
0
0
0
0
0
0
Balance as at 31.12.2021
28 397
(28 872)
95 042
127 499
362 992
11 485 351
104
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
For options on indexes concluded on an inactive market, and FX options the Bank concludes back-to-
back transactions on the interbank market, in result estimated credit risk component has no impact
on the financial result.
Accordingly Bank’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
Shares
Debt
securities
Loans and
advances
Balance as at 31.12.2019
61 294
(60 944)
95 976
103 001
1 498 195
Settlement/sell/purchase/transfer
(34 996)
34 697
0
0
90 544
Change of valuation recognized in equity
0
0
(175)
0
0
Interest income and other of similar
nature
0
0
0
0
69 934
Results on financial assets and liabilities
held for trading
(6 387)
6 688
0
0
0
Result on non-trading financial assets
mandatorily at fair value through profit
or loss
0
0
0
(52 666)
(42 920)
Result on exchange differences
0
0
26
0
0
Balance as at 31.12.2020
19 911
(19 559)
95 827
50 335
1 615 753
105
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
11. Contingent Liabilities and Assets
11.1. LAWSUITS
Below please find the data on the court cases pending, brought up by and against the Bank. A separate
category are the proceedings related to the activities of the Tax Control Authority described in
Chapter 13. note 16) "Corporate Income Tax".
Court cases brought up by the
Value of the court litigations, as at 31.12.2021, in which the Bank was a plaintiff, totalled PLN 498.3
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.
106
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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.
107
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Court cases against Bank
As at 31.12.2021, the most important proceedings, in the group of the court cases where the Bank
was a 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 Bank appeared
as defendant, stood at PLN 2,204.8 million (excluding the class actions described below and in the
Chapter 12). 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.
108
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 12. “Legal risk related to foreign currency
mortgage loans”.
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Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
11.2. OFF BALANCE SHEET ITEMS
OFF-BALANCE ITEMS
Amount ‘000 PLN
31.12.2021
31.12.2020
Off-balance conditional commitments granted and received
17 365 756
16 589 172
Commitments granted:
15 236 694
15 040 743
Loan commitments
12 658 407
12 478 702
guarantee
2 578 287
2 562 041
Commitments received:
2 129 062
1 548 429
financial
40 000
0
guarantee
2 089 062
1 548 429
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 Bank 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 Bank, should the
customers default on their obligations. The Bank 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 Bank 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 granted, reported in off-balance sheet items
is presented in the table below:
Customer – sector, amount ‘000 PLN
31.12.2021
31.12.2020
financial sector
803 464
871 846
non-financial sector (companies)
1 773 210
1 688 582
public sector
1 613
1 613
Total
2 578 287
2 562 041
As the parent company, the Bank granted 3 loan repayment guarantees to the subsidiary Millennium
Leasing for the total amount of PLN 430.0 million and a line for guarantees with a total value of PLN
283.1 million. In addition, the Bank provided guarantees and sureties to external entities on behalf
of Group companies. The total value of guarantee obligations from the above titles is presented in
the table:
Subordinated company, amount ‘000 PLN
31.12.2021
31.12.2020
Millennium Leasing Sp. z o.o.
713 831
789 138
Millennium Service Sp. z o.o.
12 551
12 509
Millennium Goodie Sp. z o.o.
5 000
5 000
Total
731 381
806 647
110
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Guarantees and sureties granted to Clients
Commitments granted – guarantee, amount ‘000 PLN
31.12.2021
31.12.2020
Active guarantees and sureties
1 434 928
1 734 814
Lines for guarantees and sureties
1 149 877
832 408
Total
2 584 805
2 567 222
Provisions created
(6 519)
(5 181)
Commitments granted – guarantee after provisions
2 578 287
2 562 041
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
897 677
978 315
Other currencies
537 251
756 499
Total:
1 434 928
1 734 814
By type of commitment
31.12.2021
31.12.2020
Number
Amount
Number
Amount
Guarantee
3 475
1 419 727
3 483
1 712 295
Surety
0
0
0
0
Re-guarantee
48
15 201
44
22 519
Total:
3 523
1 434 928
3 527
1 734 814
By object of the commitment
31.12.2021
31.12.2020
Number
Amount
% share
Number
Amount
% share
good performance of contract
2 776
532 730
37.13%
2 701
496 270
28.61%
rent payment
325
244 684
17.05%
298
229 175
13.21%
punctual payment for goods or services
107
16 713
1.16%
176
14 523
0.84%
bid bond
200
100 245
6.99%
222
99 120
5.71%
Other
56
40 102
2.79%
47
53 738
3.10%
advance return
39
49 159
3.43%
44
68 628
3.96%
Customs
17
438 033
30.53%
18
770 694
44.42%
payment of bank loan
3
13 262
0.92%
21
2 666
0.15%
Total:
3 523
1 434 928
100.00%
3 527
1 734 814
100.00%
111
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
12. Legal risk related to foreign currency mortgage
loans
12.1. 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).
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for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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:
113
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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.
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:
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Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
(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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for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
12.2. EVENTS THAT MAY IMPACT FX MORTGAGE LEGAL 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.
116
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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.
117
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
13. Notes to the Financial Statements
Amounts presented in the notes to the 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
293 731
313 390
Debt securities
157 405
313 390
Loans and advances
136 326
0
Interest income from Financial assets at amortised cost
2 381 845
2 602 344
Balances with the Central Bank
3 753
5 252
Loans and advances to customers
2 273 069
2 410 082
Debt securities
620
1 065
Deposits, loans and advances to banks
278
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
2 739 464
3 024 189
In the line „Hedging derivatives” the Bank 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 Bank is presented in note (24).
Interest income for the year 2021 contains interest accrued on impaired loans in the amount of PLN
100,927 thous. (for corresponding data in the year 2020 the amount of such interest stood at PLN
114,318 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
(125 247)
(533 813)
Liabilities to banks and other monetary institutions
(3 511)
(10 431)
Liabilities to customers
(68 970)
(444 615)
Transactions with repurchase agreement
(1 791)
(7 795)
Debt securities issued
(3 267)
(11 599)
Subordinated debt
(40 076)
(51 441)
Leasing liabilities
(7 632)
(7 932)
Hedging derivatives
0
0
Other
(3)
(47)
Total
(125 250)
(533 860)
118
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
131 838
102 572
Resulting from money transfers, cash payments and withdrawals and other payment
transactions
78 916
67 738
Resulting from loans granted
177 771
165 850
Resulting from guarantees and sureties granted
16 157
17 530
Resulting from payment and credit cards
235 579
221 085
Resulting from sale of insurance products
106 247
118 340
Resulting from distribution of investment funds units and other savings products
81 398
79 041
Resulting from brokerage and custody service
6 166
6 640
Other
33 312
30 471
Total
867 384
809 267
3b. Fee and commission expense
01.01.2021 -
31.12.2021
01.01.2020 -
31.12.2020
Resulting from accounts service
(6 054)
(20 132)
Resulting from money transfers. cash payments and withdrawals and other payment
transactions
(4 671)
(4 610)
Resulting from loans granted
(12 525)
(15 172)
Resulting from payment and credit cards
(86 390)
(93 515)
Resulting from selling insurance products
(15 036)
(16 440)
Other
(26 583)
(19 660)
Total
(151 259)
(169 529)
4. DIVIDEND INCOME
01.01.2021 -
31.12.2021
01.01.2020 -
31.12.2020
Non-trading financial assets mandatorily at fair value through profit or loss
1 333
906
Financial assets at fair value through other comprehensive income
2 401
2 755
Investments in subordinated companies
48 663
35 665
Total
52 397
39 326
119
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
Sale of the FVTOCI portfolio
1 398
0
Costs of financial operations
(3 751)
(3 129)
Total
10 543
127 638
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
(2 929)
52
Costs of financial operations
0
0
Total
(8 972)
12 919
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
(42 921)
Result on equity instruments
7 494
134 163
Result on debt instruments
77 163
(52 666)
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.
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
(13 302)
6 588
Inefficiency in cash flow hedges
(3 696)
(9 253)
Inefficiencies due to net investment hedges in foreign operations
0
0
Total
(3 185)
(10 259)
120
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
2 635
5 976
Income from sale of other services
17 098
11 893
Income from collection service
5 653
4 749
Other
258 095
118 247
Total
283 481
140 865
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
(4 366)
(2 733)
Indemnifications, penalties and fines paid
(11 966)
(7 307)
Costs of provisions for disputed claims
(112 726)
(16 874)
Costs related with providing other services
(2 588)
(3 643)
Donations made
(900)
(849)
Costs of collection service
(48 419)
(18 956)
Provision for potential returns to clients*
(1 941)
(142 431)
Other
(15 754)
(27 043)
Total
(198 660)
(219 836)
* 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 Bank 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 Bank 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.
121
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
11. ADMINISTRATIVE EXPENSES
01.01.2021 -
31.12.2021
01.01.2020 -
31.12.2020
Staff costs:
(767 923)
(813 783)
Salaries
(633 640)
(685 532)
Surcharges on pay
(105 774)
(109 254)
Employee benefits, including:
(28 509)
(18 997)
- provisions for retirement benefits
(6 159)
(2 984)
- provisions for unused employee holiday
1 382
8 750
- other
(23 732)
(24 763)
Other administrative expenses:
(612 279)
(683 337)
Costs of advertising, promotion and representation
(63 039)
(60 798)
IT and communications costs
(119 503)
(124 231)
Costs of renting
(51 570)
(80 165)
Costs of buildings maintenance, equipment and materials
(43 491)
(53 366)
ATM and cash maintenance costs
(28 013)
(27 891)
Costs of consultancy, audit and legal advisory and translation
(75 325)
(37 720)
Taxes and fees
(32 608)
(33 123)
KIR - clearing charges
(9 325)
(8 022)
PFRON costs
(6 705)
(7 704)
Banking Guarantee Fund costs
(118 210)
(167 185)
Financial Supervision costs
(12 713)
(10 203)
Other
(51 777)
(72 929)
Total
(1 380 202)
(1 497 120)
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
(284 449)
(478 709)
Impairment charges on loans and advances to customers
(1 416 012)
(1 466 595)
Reversal of impairment charges on loans and advances to customers
1 023 062
919 006
Amounts recovered from loans written off
51 939
49 249
Sale of receivables
62 555
19 590
Other directly recognised in profit and loss
(5 993)
41
Impairment losses on securities
1
52
Impairment charges on securities
(6)
0
Reversal of impairment charges on securities
7
52
Impairment losses on off-balance sheet liabilities
7 835
1 464
Impairment charges on off-balance sheet liabilities
(54 970)
(73 893)
Reversal of impairment charges on off-balance sheet liabilities
62 805
75 357
Total
(276 613)
(477 193)
122
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
13. IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS
01.01.2021 -
31.12.2021
01.01.2020 -
31.12.2020
Fixed assets
0
0
Other assets
(7 642)
(7 846)
Total
(7 642)
(7 846)
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)
0
(24 059)
Costs of provisions for legal risk connected wIth FX
mortgage loans
2 305 157
0
2 305 157
Change of accounting principles from IAS 37 to IFRS 9
0
2 032 024
(2 032 024)
Increase of provisions due to FX rates differences
91 470
0
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
0
0
0
Costs of provisions for legal risk connected wIth FX
mortgage loans
713 617
0
713 617
Change of accounting principles from IAS 37 to IFRS 9
0
671 484
(671 484)
Increase of provisions due to FX rates differences
23 295
0
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
(147 903)
(154 192)
Intangible assets
(45 598)
(42 167)
Total
(193 501)
(196 359)
123
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
(187 163)
(318 752)
Current year
(187 163)
(318 752)
Adjustment to prior periods
0
0
Deferred tax:
(122 349)
143 615
Recognition and reversal of temporary differences
(122 349)
143 615
Total income tax reported in income statement
(309 512)
(175 137)
16b. Effective tax rate
01.01.2021 -
31.12.2021
01.01.2020 -
31.12.2020
Profit before tax / (loss)
-1 047 940
193 716
Statutory tax rate
19%
19%
Income tax according to obligatory income tax rate of 19%
199 108
(36 806)
Impact of permanent differences on tax charges:
(510 845)
(141 031)
Non-taxable income
53 056
26 817
Dividend income
9 702
7 300
Release of other provisions
43 057
9 432
Settlement with SG due to adjustment of Euro Bank S.A. purchase price
0
10 039
Other
297
46
Cost which is not a tax cost
(563 900)
(167 848)
Write-down of unrealized deferred tax assets
0
(171)
Loss on sale of receivables
(17)
(8)
PFRON fee
(1 274)
(1 464)
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
(19 667)
(2 324)
Costs of litigations and claims
(458 454)
(76 070)
Ccosts related to concluded agreements
(1 068)
Other
(2 240)
(1 676)
Deduction of the tax paid abroad
0
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
(309 512)
(175 137)
Effective tax rate
/-/*
90.41%
* For the year 2021, the Bank 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.
124
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
16c. Deferred tax reported in equity
31.12.2021
31.12.2020
Valuation of investment assets at fair value through other comprehensive income
130 468
(55 383)
Valuation of credit portfolio at fair value through other comprehensive income
(50 745)
0
Valuation of cash flow hedging instruments
71 993
8 439
Actuarial gains (losses)
(259)
732
Deferred tax reported directly in equity
151 457
(46 212)
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
In accordance with the requirements of IAS 33, the Bank calculates earnings per share based on
consolidated data and presents it accordingly in the consolidated financial statements.
125
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
0
0
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
19. FINANCIAL ASSETS HELD FOR TRADING
19a. Financial assets held for trading
31.12.2021
31.12.2020
Debt securities
86 438
269 412
Issued by State Treasury
86 438
269 412
a) bills
b) bonds
86 438
269 412
Adjustment from fair value hedge
0
0
Positive valuation of derivatives
86 651
155 365
Total
173 089
424 777
Information on financial assets securing liabilities is presented in point 2) of Chapter 14.
126
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
47 321
Total
86 438
269 412
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
0
3 486
above 1 month to 3 months
0
0
above 3 months to 1 year
1 729
9 110
above 1 year to 5 years
70 202
203 783
above 5 years
14 507
53 033
Total
86 438
269 412
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
269 412
874 033
Increases (purchase and accrual of interest and discount)
9 558 488
23 863 524
Reductions (sale and redemption)
(9 740 856)
(24 469 464)
Differences from valuation at fair value
(606)
1 319
Balance at the end of the period
86 438
269 412
127
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
5 152 404
7 451 331
204 180
(15 062)
10 834
25 896
Forward Rate Agreements
(FRA)
0
1 200 000
0
0
0
0
0
Interest rate swaps (IRS)
1 581 520
3 661 923
6 710 870
204 180
(15 076)
4 859
19 935
Other interest rate contracts:
options
0
290 481
740 461
0
14
5 975
5 961
2. FX derivatives*
17 683 449
1 959 787
508 031
0
(24 607)
46 809
71 416
FX contracts
2 345 059
1 333 632
226 723
0
9 000
16 620
7 620
FX swaps
15 338 390
626 155
281 308
0
(33 607)
30 189
63 796
Other FX contracts (CIRS)
0
0
0
0
0
0
0
FX options
0
0
0
0
0
0
0
3. Embedded instruments
69 733
144 415
560 079
0
(28 872)
0
28 872
Options embedded in deposits
69 733
144 415
560 079
0
(28 872)
0
28 872
Options embedded in
securities issued
0
0
0
0
0
0
0
4. Indexes options
75 407
155 345
578 837
0
28 397
29 008
611
Total
19 410 109
7 411 951
9 098 278
204 180
(40 144)
86 651
126 795
Valuation of hedged position in fair value hedge accounting
-
0
0
Liabilities from short sale of debt securities
-
-
16 614
*Notional value for double-currency derivatives constitutes the sum of both transactions expressed in PLN
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
8 534 566
101 867
22 631
35 839
13 208
Forward Rate Agreements
(FRA)
0
800 000
0
0
133
133
0
Interest rate swaps (IRS)
980 584
1 191 375
7 896 214
101 867
22 494
35 621
13 127
Other interest rate contracts:
options
13 493
80 222
638 352
0
4
85
81
2. FX derivatives*
12 892 220
4 301 888
649 596
0
28 601
99 153
70 552
FX contracts
2 638 460
1 693 617
433 337
0
19 612
34 882
15 270
FX swaps
10 253 760
2 608 271
216 259
0
8 989
64 271
55 282
Other FX contracts (CIRS)
0
0
0
0
0
0
0
FX options
0
0
0
0
0
0
0
3. Embedded instruments
252 018
707 315
408 113
0
(19 559)
0
19 559
Options embedded in deposits
201 333
625 428
408 113
0
(17 815)
0
17 815
Options embedded in
securities issued
50 685
81 887
0
0
(1 744)
0
1 744
4. Indexes options
364 733
633 269
456 015
0
19 911
20 373
462
Total
14 503 048
7 714 069
10 048 290
101 867
51 584
155 365
103 781
Valuation of hedged position in fair value hedge accounting
-
0
0
Liabilities from short sale of debt securities
-
-
64 778
*Notional value for double-currency derivatives constitutes the sum of both transactions expressed in PLN
128
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
0
0
other corporates
138 404
200 772
Debt securities
127 499
50 335
credit institutions
0
0
other corporates
127 499
50 335
Total
265 903
251 107
21. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER
COMPREHENSIVE INCOME
21a. Financial assets at fair value through other comprehensive income
31.12.2021
31.12.2020
Debt securities
17 924 059
18 597 147
Issued by State Treasury
17 488 780
18 219 260
a) bills
0
0
b) bonds
17 488 780
18 219 260
Issued by Central Bank
0
0
a) bills
0
0
b) bonds
0
0
Other securities
435 279
377 887
a) listed
435 279
377 887
b) not listed
0
0
Shares and interests in other entities
28 433
29 219
Other financial instruments
0
0
Total financial assets at fair value through other comprehensive income
17 952 492
18 626 366
Including:
Instruments listed on the active market
17 924 059
18 597 147
Instruments not listed on the active market
28 433
29 219
21b. Debt securities at fair value through other comprehensive income
31.12.2021
31.12.2020
▪ with fixed interest rate
14 748 049
14 759 537
▪ with variable interest rate
3 176 010
3 837 610
Total
17 924 059
18 597 147
129
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
21c. Debt securities at fair value through other comprehensive income by maturity
31.12.2021
31.12.2020
▪ to 1 month
0
0
▪ above 1 month to 3 months
0
0
▪ above 3 months to 1 year
4 892 493
81 719
▪ above 1 year to 5 years
12 608 072
17 483 598
▪ above 5 years
423 494
1 031 830
Total
17 924 059
18 597 147
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
18 626 366
21 856 275
Increases (purchase and accrual of interest and discount)
220 431 922
92 015 953
Reductions (sale and redemption)
(220 127 625)
(95 422 844)
Difference from measurement at fair value
(978 170)
176 956
Impairment write-offs
0
0
Other
(1)
26
Balance at the end of the period
17 952 492
18 626 366
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
Lans and advances
98 324
771 780
- Individuals
98 324
771 780
Credit cards
264 668
843 973
- Companies
40
13 002
- Individuals
264 628
830 971
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).
130
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
22b. Loans and advances to customers at fair value through other comprehensive income
Balance sheet value:
31.12.2021
31.12.2020
at fair value through other comprehensive income *
11 485 351
0
▪ Companies
0
0
▪ Individuals
11 485 351
0
▪ Public sector
0
0
Balance sheet value - maturity
31.12.2021
31.12.2020
to 1 month
20 524
0
above 1 month to 3 months
40 323
0
above 3 months to 1 year
206 691
0
above 1 year to 5 years
1 432 742
0
above 5 years
9 785 071
0
Total
11 485 351
0
22c. 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
62 252 150
3 086 613
3 260 481
(301 099)
(204 420)
(1 704 481)
66 389 244
Companies
17 676 299
493 321
587 328
(88 670)
(23 496)
(226 403)
18 418 379
Individuals
44 331 071
2 593 288
2 673 153
(212 250)
(180 924)
(1 478 078)
47 726 260
Public sector
244 780
4
0
(179)
0
0
244 605
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
66 885 250
3 362 114
3 394 059
(344 844)
(214 789)
(1 645 111)
71 436 679
Companies
16 263 984
936 896
741 869
(99 169)
(25 859)
(337 795)
17 479 926
Individuals
50 309 628
2 425 215
2 652 190
(245 411)
(188 930)
(1 307 316)
53 645 376
Public sector
311 638
3
0
(264)
0
0
311 377
131
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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.
22d. Loans and advances to customers
31.12.2021
31.12.2020
Loans and advances
61 026 591
67 310 576
to companies
12 483 399
12 280 659
to private individuals
48 461 938
54 932 396
to public sector
81 254
97 521
Receivables on account of payment cards
784 117
83 131
due from companies
14711
197
due from private individuals
769 406
82 934
Purchased receivables
6 381 501
5 839 676
from companies
6 218 121
5 625 600
from public sector
163 380
214 076
Guarantees and sureties realised
8 020
7 419
Debt securities eligible for rediscount at Central Bank
103
2 748
Other
18 311
3 049
Interest
380 601
394 823
Total:
68 599 244
73 641 422
Impairment allowances
(2 210 000)
(2 204 743)
Total balance sheet value
66 389 244
71 436 679
22e. Quality of loans and advances to customers portfolio valued at amortised cost
31.12.2021
31.12.2020
Loans and advances to customers (gross)
68 599 244
73 641 422
impaired
3 260 481
3 394 059
not impaired
65 338 763
70 247 363
Impairment allowances
(2 210 000)
(2 204 743)
for impaired exposures
(1 704 481)
(1 645 111)
for not impaired exposures
(505 519)
(559 632)
Loans and advances to customers (net)
66 389 244
71 436 679
132
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
22f. 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)
68 599 244
73 641 422
case by case analysis
721 092
895 795
collective analysis
67 878 152
72 745 627
Impairment allowances
(2 210 000)
(2 204 743)
on the basis of case by case analysis
(227 756)
(328 561)
on the basis of collective analysis
(1 982 244)
(1 876 182)
Loans and advances to customers (net)
66 389 244
71 436 679
22g. Loans and advances to customers portfolio valued at amortised cost by customers
31.12.2021
31.12.2020
Loans and advances to customers (gross)
68 599 244
73 641 422
corporate customers
19 001 733
18 254 390
individuals
49 597 511
55 387 032
Impairment allowances
(2 210 000)
(2 204 743)
for receivables from corporate customers
(338 749)
(463 086)
for receivables from private individuals
(1 871 251)
(1 741 657)
Loans and advances to customers (net)
66 389 244
71 436 679
22h. 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
2 204 743
1 801 122
Change in value of provisions:
5 257
403 621
Impairment allowances created in the period
1 377 980
1 466 595
Amounts written off
(270 015)
(145 652)
Impairment allowances released in the period
(992 801)
(919 006)
Sale of receivables
(145 828)
(59 662)
KOIM created in the period(*)
35 850
37 798
Transfer to FVTOCI portfolio
(12 884)
0
Changes resulting from FX rates differences
9 372
19 510
Other
3 583
4 038
Balance at the end of the period
2 210 000
2 204 743
* In accordance with IFRS 9, the Bank 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.
133
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
The Bank records POCI assets in the balance sheet as a result of recognition of impaired loans after
the merger with Euro Bank S.A. and takeover of SKOK Piast. At the time of the merger, the
aforementioned assets were 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
59
231
290
- Individuals
241 218
(15 488)
225 730
- Public sector
0
0
0
31.12.2020
- Companies
59
255
313
- Individuals
399 392
(26 607)
372 784
- Public sector
0
0
0
22i. 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
99 169
25 859
338 049
(255)
462 822
Transfers between stages
11 891
(30 153)
18 262
0
0
Increase due to granting or purchase
45 241
0
0
0
45 241
Changes in credit risk
(54 521)
29 218
(3 647)
24
(28 927)
Decrease due to derecognition (except
exposures sold and written off)
(11 503)
(1 727)
(13 489)
0
(26 719)
Sale of loans and advances
(1 395)
0
(4 616)
0
(6 011)
Loans and advances written off
0
0
(111 545)
0
(111 545)
KOIM
0
0
3 712
0
3 712
Other (including FX differences)
(212)
299
(92)
0
(5)
Balance at the end of the period
88 670
23 496
226 634
(231)
338 569
Companies: loans and advances balance
sheet value, gross
Stage 1
Stage 2
Stage 3
POCI
Total
Balance at the beginning of the period
16 263 983
936 896
741 811
59
17 942 749
Transfers between stages
74 219
(150 741)
76 523
0
0
Granted or purchased loans and advances
7 105 600
0
0
0
7 105 600
Repaid loans and advances
(5 464 882)
(298 576)
(154 499)
0
(5 917 957)
Loans and advances sold
(326 724)
0
(5 363)
0
(332 087)
Loans and advances written off
0
0
(122 071)
0
(122 071)
Other (including FX differences)
24 103
5 742
50 869
0
80 714
Balance at the end of the period
17 676 299
493 320
587 269
59
18 756 948
134
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Individuals: impairment allowances
Stage 1
Stage 2
Stage 3
POCI
Total
Balance at the beginning of the period
245 411
188 930
1 280 709
26 607
1 741 657
Transfers between stages
163 947
(226 349)
62 402
0
0
Increase due to granting or purchase
183 399
0
0
0
183 399
Changes in credit risk
(331 219)
242 967
475 193
0
386 941
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
(12 884)
0
(139 817)
0
(152 701)
Loans and advances written off
(205)
(1 920)
(156 145)
(200)
(158 470)
KOIM
0
0
32 139
0
32 139
Other (including FX differences)
1 216
1 095
10 648
0
12 959
Balance at the end of the period
212 250
180 924
1 462 590
15 488
1 871 252
Individuals: loans and advances balance
sheet value, gross
Stage 1
Stage 2
Stage 3
POCI
Total
Balance at the beginning of the period
50 309 628
2 425 215
2 252 798
399 392
55 387 033
Transfers between stages
(1 339 861)
772 055
567 806
0
0
Granted or purchased loans and advances
13 507 559
0
0
0
13 507 559
Repaid loans and advances
(5 468 291)
(577 081)
(146 867)
(50 128)
(6 242 366)
Transfer to FVTOCI portfolio
(11 243 351)
0
0
0
(11 243 351)
Allocation of legal risk provisions to the
loan portfolio
(1 888 437)
(41 201)
(102 386)
0
(2 032 024)
Loans and advances sold
(242 000)
0
(107 481)
(93 473)
(442 954)
Loans and advances written off
0
0
(131 240)
(16 704)
(147 944)
Other (including FX differences)
695 824
14 299
99 305
2 131
811 559
Balance at the end of the period
44 331 071
2 593 288
2 431 935
241 218
49 597 512
Public sector: impairment allowances
Stage 1
Stage 2
Stage 3
POCI
Total
Balance at the beginning of the period
264
0
0
0
264
Transfers between stages
0
0
0
0
0
Increase due to granting or purchase
25
0
0
0
25
Changes in credit risk
(86)
0
0
0
(86)
Decrease due to derecognition (except
exposures sold and written off)
(24)
0
0
0
(24)
Other (including FX differences)
0
0
0
0
0
Balance at the end of the period
179
0
0
0
179
Public sector: loans and advances
balance sheet value, gross
Stage 1
Stage 2
Stage 3
POCI
Total
Balance at the beginning of the period
311 638
3
0
0
311 641
Transfers between stages
(1)
1
0
0
0
Granted or purchased loans and advances
22 330
0
0
0
22 330
Repaid loans and advances
(89 187)
0
0
0
(89 187)
Loans and advances sold
0
0
0
0
0
Loans and advances written off
0
0
0
0
0
Other (including FX differences)
0
0
0
0
0
Balance at the end of the period
244 780
4
0
0
244 784
135
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
22j. Loans and advances to customers portfolio valued at amortised cost by maturity
31.12.2021
31.12.2020
Current accounts
3 968 352
2 746 516
to 1 month
1 164 838
675 546
above 1 month to 3 months
2 361 732
2 143 833
above 3 months to 1 year
6 965 830
6 744 223
above 1 year to 5 years
25 062 654
25 663 239
above 5 years
26 699 794
33 167 590
past due
1 995 443
2 105 652
Interest
380 601
394 823
Total gross
68 599 244
73 641 422
22k. 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
54 790 940
(1 942 281)
52 848 659
56 292 558
(1 919 247)
54 373 311
in foreign currencies (after
conversion to PLN)
13 808 304
(267 719)
13 540 585
17 348 864
(285 496)
17 063 368
currency: USD
116 213
(3 138)
113 075
115 851
(3 524)
112 327
currency: EUR
3 687 714
(46 198)
3 641 516
3 333 690
(45 014)
3 288 676
currency: CHF
9 998 100
(218 279)
9 779 821
13 895 335
(236 900)
13 658 435
other currencies
6 277
(104)
6 173
3 988
(58)
3 930
Total
68 599 244
(2 210 000)
66 389 244
73 641 422
(2 204 743)
71 436 679
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 write-offs
Balance
sheet value,
net
Stage 1
Stage 2
Stage 3
Stage 1
Stage 2
Stage 3
Debt securities
37 089
0
0
(1)
0
0
37 088
Deposits, loans and
advances to banks and
other monetary
institutions
943 555
0
0
(239)
0
0
943 316
Repurchase agreements
268 837
0
0
0
0
0
268 837
136
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
31.12.2020
Balance sheet value, gross
Accumulated impairment write-offs
Balance
sheet value,
net
Stage 1
Stage 2
Stage 3
Stage 1
Stage 2
Stage 3
Debt securities
38 821
0
0
(3)
0
0
38 818
Deposits, loans and
advances to banks and
other monetary
institutions
625 366
0
0
0
0
0
625 366
Repurchase agreements
66 350
0
0
0
0
0
66 350
23b. Debt securities
31.12.2021
31.12.2020
credit institutions
0
0
other companies
0
0
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
152 645
102 684
Deposits
617 681
522 532
Loans and advances granted
173 055
0
Interest
173
150
Total (gross) deposits, loans and advances
943 554
625 366
Impairment allowances
(239)
0
Total (net) deposits, loans and advances
943 315
625 366
23d. Deposits, loans and advances to banks and other monetary institutions by maturity date
31.12.2021
31.12.2020
Current accounts
152 645
102 684
to 1 month
572 951
522 532
above 1 month to 3 months
40 000
0
above 3 months to 1 year
5 037
0
above 1 year to 5 years
172 749
0
above 5 years
0
0
past due
0
0
Interest
173
150
Total (gross) deposits, loans and advances
943 555
625 366
137
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
23e. Deposits, loans and advances to banks and other monetary institutions by currency
31.12.2021
31.12.2020
in Polish currency
438 699
24 582
in foreign currencies (after conversion to PLN)
504 856
600 784
▪ currency: USD
22 964
32 630
▪ currency: EUR
364 048
488 671
▪ currency: CNY
32 430
29 926
▪ currency: CHF
20 189
6 119
▪ currency: GBP
4 390
7 397
▪ currency: JPY
29 031
7 301
▪ other currencies
31 804
28 740
Total
943 555
625 366
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
0
0
Impairment allowances created in the period
(239)
0
Impairment allowances released in the period
0
0
Balance at the end of the period
(239)
0
23g. Reverse sale and repurchase agreements
31.12.2021
31.12.2020
credit institutions
0
66 351
other customers
268 533
0
interest
303
(1)
Total
268 837
66 350
138
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
24. DERIVATIVES – HEDGE ACCOUNTING
Starting from 1 January 2006 the Bank 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 Bank 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 Bank 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 Bank 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 Bank 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 Bank designates hedging
instruments on their trade date and by this eliminates this source of ineffectiveness. Hedge
ineffectiveness reported by the Bank includes amortization of the fair value changes recognized as
effective for derivatives classified on their termination date as hedging.
139
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Detailed information on cash flow hedge relations applied by the Bank, 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 Bank 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 Bank 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 Bank 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 Bank 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.
140
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
0
(283 605)
14 385
297 990
IRS contracts
0
800 000
5 075 500
0
(316 583)
0
316 583
FXS contracts
0
0
0
0
0
0
0
2. Derivatives used as interest rate hedges related to interest rates
IRS contracts
0
0
90 000
0
0
0
0
3. Total hedging
derivatives
1 963 585
2 291 326
17 493 734
0
(600 188)
14 385
614 573
* 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
0
(632 447)
21 795
654 242
IRS contracts
0
500 000
2 680 000
0
(45 903)
0
45 903
FXS contracts
2 531 417
0
0
0
(29 116)
0
29 116
2. Derivatives used as interest rate hedges related to interest rates
IRS contracts
0
50 000
0
90 000
(9 588)
0
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.
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).
141
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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)
0
- FX swap
Loans and advances to
customers
3 643
0
0
- FX spot
Future interest income
and costs
(444)
(16 944)
0
- IRS
Issued debt securities
(11 499)
0
(1 049)
- IRS
Debt securities
179 211
(174 318)
0
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)
0
- IRS
(158 382)
0
0
- FX swap
(3 643)
0
0
- FX spot
444
0
0
- IRS
11 499
(3 206)
0
- IRS
(179 211)
0
0
Total
(334 983)
(3 696)
0
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
142
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
25. INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES
25a. Investments in related entities
31.12.2021
31.12.2020
Investments in subsidiaries
208 889
208 874
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
208 874
88 874
Purchase of MILLENNIUM FINANCIAL SERVICES Sp. z o.o.
15
0
Establishing of Millennium Bank Hipoteczny S.A.
0
120 000
Liquidation of BG Leasing S.A. (shares)
0
(900)
Liquidation of BG Leasing S.A. (impairment allowance)
0
900
Balance at the end of the period
208 889
208 874
25c. Investments in related entities as at 31.12.2021
Name
Activity domain
Head office
% of the Bank’s
capital share
% of the Bank’s
voting share
MILLENNIUM BANK
HIPOTECZNY S.A.
Mortgage bank
Warszawa
100
100
MILLENNIUM LEASING
Sp. z o.o.
leasing services
Warszawa
100
100
MILLENNIUM DOM
MAKLERSKI S.A.
brokerage services
Warszawa
100
100
MILLENNIUM SERVICE
Sp. z o.o.
rental and management of
real estate, insurance and
brokers activity
Warszawa
100
100
MILLENNIUM GOODIE
Sp. z o.o.
web portals activity
Warszawa
100
100
MILLENNIUM
TELECOMMUNICATION
SERVICES Sp. z o.o.
financial operations - equity
markets, advisory services
Warszawa
98
98
MILLENNIUM FINANCIAL
SERVICES Sp. z o.o.
the company is not yet
operating
Warszawa
100
100
PIAST EXPERT
Sp. z o.o. in liquidation
marketing services
Tychy
100
100
LUBUSKIE FABRYKI MEBLI
S.A. in liquidation
furniture manufacturer
Świebodzin
50+1share
50+1share
143
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Name
Gross value of
shares/ interests
Impairment
allowances
Additional capital
paid in
Assets
Liabilities
Equity
Income
Profit / (Loss)
Relationship
MILLENNIUM BANK
HIPOTECZNY S.A.
120 000
0
0
290 502
176 147
40 000
901
(5 230)
subordinated
MILLENNIUM LEASING
Sp. z o.o.
63 942
0
0
7 331 012
7 122 396
48 195
123 024
26 124
subordinated
MILLENNIUM DOM
MAKLERSKI S.A.*
16 500
0
0
310 042
262 154
16 500
28 910
13 729
subordinated
MILLENNIUM SERVICE
Sp. z o.o.
1 000
0
0
91 302
30 442
1 000
49 750
31 165
subordinated
MILLENNIUM GOODIE
Sp. z o.o.
597
0
1 000
19 103
16 776
500
4 353
97
subordinated
MILLENNIUM
TELECOMMUNICATION
SERVICES Sp. z o.o.
98
0
0
442
35
100
1 538
34
subordinated
MILLENNIUM FINANCIAL
SERVICES Sp. z o.o.
14
0
0
the company is not yet operating
subordinated
PIAST EXPERT Sp. z
o.o. in liquidation
5 737
0
0
6 050
115
5 757
2
(48)
subordinated
LUBUSKIE FABRYKI
MEBLI S.A. in
liquidation
6 700
(6 700)
0
The company is under liquidation
subordinated
TOTAL
214 589
(6 700)
1 000
* Millennium Dom Maklerski S.A., subsidiary of the Bank, is a 100% holder of Millennium TFI S.A. shares
25d. Investments in related entities as at 31.12.2020
Name
Activity domain
Head office
% of the Bank’s
capital share
% of the Bank’s
voting share
MILLENNIUM BANK
HIPOTECZNY S.A.
Mortgage bank
Warszawa
100
100
MILLENNIUM LEASING
Sp. z o.o.
leasing services
Warszawa
100
100
MILLENNIUM DOM
MAKLERSKI S.A.
brokerage services
Warszawa
100
100
MILLENNIUM SERVICE
Sp. z o.o.
rental and management of
real estate, insurance and
brokers activity
Warszawa
100
100
MILLENNIUM GOODIE
Sp. z o.o.
web portals activity
Warszawa
100
100
MILLENNIUM
TELECOMMUNICATION
SERVICES Sp. z o.o.
financial operations - equity
markets, advisory services
Warszawa
98
98
PIAST EXPERT
Sp. z o.o. in liquidation
marketing services
Tychy
100
100
LUBUSKIE FABRYKI MEBLI
S.A. in liquidation
furniture manufacturer
Świebodzin
50+1share
50+1share
144
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Name
Gross value of
shares/ interests
Impairment
allowances
Additional
capital
paid in
Assets
Liabilities
Equity
Income
Profit / (Loss)
Relationship
MILLENNIUM BANK
HIPOTECZNY S.A.
120 000
0
0
120 421
720
40 000
18
(299)
subordinated
MILLENNIUM LEASING
Sp. z o.o.
63 942
0
0
6 731 488
6 549 118
48 195
110 203
(9 660)
subordinated
MILLENNIUM DOM
MAKLERSKI S.A.*
16 500
0
0
260 773
210 496
16 500
30 448
16 162
subordinated
MILLENNIUM SERVICE
Sp. z o.o.
1 000
0
0
127 511
65 175
1 000
57 636
32 648
subordinated
MILLENNIUM GOODIE
Sp. z o.o.
597
0
1 000
12 642
9 078
500
7 181
1 475
subordinated
MILLENNIUM
TELECOMMUNICATION
SERVICES Sp. z o.o.
98
0
0
405
33
100
1 195
26
subordinated
PIAST EXPERT Sp. z
o.o. in liquidation**
5 737
0
0
6 122
137
5 771
273
153
subordinated
LUBUSKIE FABRYKI
MEBLI S.A. in
liquidation
6 700
(6 700)
0
The company is under liquidation
subordinated
TOTAL
214 574
(6 700)
1 000
* Millennium Dom Maklerski S.A., subsidiary of the Bank, is a 100% holder of Millennium TFI S.A. shares
** data as at 30.09.2020
26. TANGIBLE FIXED ASSETS
26a. Property, plant and equipment
31.12.2021
31.12.2020
Land
2 270
2 270
Buildings and premises
67 554
66 639
Machines and equipment
88 546
87 064
Vehicles
6 862
5 851
Other fixed assets
23 184
24 018
Fixed assets under construction
63 187
59 156
Rights to use office space
276 962
296 328
Total
528 565
541 326
145
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
construc-
tion
Rights to
use
office
space
TOTAL
a) gross value of property, plant and
equipment at the beginning of the
period
2 270
305 447
246 557
22 714
90 165
59 156
454 477
1 180 786
b) increases (on account of)
0
14 206
30 438
7 691
7 102
55 936
83 336
198 709
purchase
0
0
0
0
0
40 908
0
40 908
transfer from fixed assets under
construction
0
14 206
30 438
0
7 102
0
0
51 746
financial lease
0
0
0
7 691
0
0
83 336
91 027
unpaid investments
0
0
0
0
0
14 660
0
14 660
other
0
0
0
0
0
368
0
368
c) reductions (on account of)
0
15 899
15 161
2 764
5 643
51 905
47 220
138 592
sale
0
0
2 656
0
371
0
0
3 027
liquidation
0
11 783
6 090
0
2 943
0
47 220
68 036
settlement of fixed assets under
construction
0
0
0
0
0
51 747
0
51 747
financial lease
0
4 116
6 415
2 764
2 329
0
0
15 624
other
0
0
0
0
0
158
0
158
d) gross value of property, plant
and equipment at the end of the
period
2 270
303 754
261 834
27 641
91 624
63 187
490 593
1 240 903
e) cumulated depreciation
(amortization) at the beginning of
the period
0
229 952
159 493
16 863
66 147
0
158 149
630 604
f) depreciation over the period (on
account of)
0
(2 608)
13 795
3 916
2 293
0
55 482
72 878
current write-off (P&L)
0
10 125
28 221
6 541
6 941
0
96 075
147 903
reductions on account of sale
0
0
(2 531)
0
(341)
0
0
(2 872)
reductions on account of
liquidation
0
(8 906)
(5 890)
0
(2 050)
0
(40 593)
(57 439)
financial lease
0
(3 766)
(6 045)
(2 625)
(2 277)
0
0
(14 713)
other
0
(61)
40
0
20
0
0
(1)
g) cumulated depreciation
(amortization) at the end of the
period
0
227 344
173 288
20 779
68 440
0
213 631
703 482
h) impairment allowances at the
beginning of the period
0
8 856
0
0
0
0
0
8 856
creation of allowances
0
0
0
0
0
0
0
0
release of allowances
0
0
0
0
0
0
0
0
i) impairment allowances at the end
of the period
0
8 856
0
0
0
0
0
8 856
j) net value of property, plant and
equipment at the end of the period
2 270
67 554
88 546
6 862
23 184
63 187
276 962
528 565
including assets used based on
leasing agreements
0
6 695
17 698
6 862
706
50
276 962
308 973
146
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
construc-
tion
Rights to
use
office
space
TOTAL
a) gross value of property, plant and
equipment at the beginning of the
period
2 270
300 860
230 315
21 807
79 446
63 102
444 227
1 142 027
b) increases (on account of)
0
10 801
24 843
1 501
12 970
44 730
45 269
140 114
purchase
0
0
0
0
0
25 743
0
25 743
transfer from fixed assets under
construction
0
10 801
24 843
0
12 970
0
0
48 614
financial lease
0
0
0
1 501
0
0
45 269
46 770
unpaid investments
0
0
0
0
0
18 987
0
18 987
c) reductions (on account of)
0
6 214
8 601
594
2 251
48 676
35 019
101 355
sale
0
2 375
1 273
0
63
0
0
3 711
liquidation
0
3 428
4 064
0
2 024
0
35 019
44 535
settlement of fixed assets under
construction
0
0
0
0
0
48 614
0
48 614
financial lease
0
411
3 264
594
164
0
0
4 433
other
0
0
0
0
0
62
0
62
d) gross value of property, plant
and equipment at the end of the
period
2 270
305 447
246 557
22 714
90 165
59 156
454 477
1 180 786
e) cumulated depreciation
(amortization) at the beginning of
the period
0
223 254
138 239
11 093
60 667
0
77 412
510 665
f) depreciation over the period (on
account of)
0
6 698
21 254
5 770
5 480
0
80 737
119 939
current write-off (P&L)
0
11 740
29 498
6 309
6 858
0
99 787
154 192
reductions on account of sale
0
(1 851)
(1 127)
0
(42)
0
0
(3 020)
reductions on account of
liquidation
0
(3 089)
(3 900)
0
(1 171)
0
(19 050)
(27 210)
financial lease
0
(164)
(3 177)
(539)
(143)
0
0
(4 023)
other
0
62
(40)
0
(22)
0
0
0
g) cumulated depreciation
(amortization) at the end of the
period
0
229 952
159 493
16 863
66 147
0
158 149
630 604
h) impairment allowances at the
beginning of the period
0
8 856
0
0
0
0
0
8 856
creation of allowances
0
0
0
0
0
0
0
0
release of allowances
0
0
0
0
0
0
0
0
i) impairment allowances at the end
of the period
0
8 856
0
0
0
0
0
8 856
j) net value of property, plant and
equipment at the end of the period
2 270
66 639
87 064
5 851
24 018
59 156
296 328
541 326
including assets used based on
leasing agreements
0
10 075
22 427
5 851
1 652
50
296 328
336 382
147
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
27. INTANGIBLE FIXED ASSETS
27a. Intangible fixed assets
31.12.2021
31.12.2020
Goodwill due to merger with Euro Bank S.A.
192 126
192 126
Other intangible fixed assets:
193 073
181 594
concessions, patents, licenses, know-how and similar assets
35 470
31 924
computer software
90 876
48 419
other
12 866
17 883
advances for intangible assets
53 861
83 368
Total
385 199
373 720
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
65 668
316 849
26 067
83 368
491 952
b) increases (on account of)
17 089
69 496
0
57 506
144 091
purchase
0
0
0
43 806
43 806
unpaid investments
0
0
0
13 700
13 700
settlement of advances
17 089
69 496
0
0
86 585
c) reductions (on account of)
248
3 918
1 307
87 013
92 486
liquidation
248
3 901
1 307
0
5 456
settlement of advances
0
0
0
86 953
86 953
other
0
17
0
60
77
d) gross value of intangible fixed
assets at the end of the period
82 509
382 427
24 760
53 861
543 557
e) cumulated depreciation at the
beginning of the period
33 744
268 430
8 184
0
310 358
f) depreciation over the period (on
account of)
13 295
23 121
3 710
0
40 126
current write-off (P&L)
13 543
27 039
5 016
0
45 598
liquidation
(248)
(3 901)
(1 306)
0
(5 455)
other
0
(17)
0
0
(17)
g) cumulated depreciation at the
end of the period
47 039
291 551
11 894
0
350 484
h) impairment allowances at the
beginning of the period
0
0
0
0
0
i) impairment allowances at the end
of the period
0
0
0
0
0
j) net value of intangible fixed assets
at the end of the period
35 470
90 876
12 866
53 861
193 073
148
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
42 376
279 582
26 065
89 388
437 411
b) increases (on account of)
23 292
37 267
2
55 134
115 695
purchase
0
0
0
43 790
43 790
unpaid investments
0
0
0
11 344
11 344
settlement of advances
23 292
37 267
2
0
60 561
c) reductions (on account of)
0
0
0
61 154
61 154
liquidation
0
0
0
0
0
settlement of advances
0
0
0
60 561
60 561
other
0
0
0
593
593
d) gross value of intangible fixed
assets at the end of the period
65 668
316 849
26 067
83 368
491 952
e) cumulated depreciation at the
beginning of the period
24 703
241 670
1 817
0
268 190
f) depreciation over the period (on
account of)
9 041
26 760
6 367
0
42 168
current write-off (P&L)
8 893
26 908
6 367
0
42 168
liquidation
0
0
0
0
0
other
148
(148)
0
0
0
g) cumulated depreciation at the
end of the period
33 744
268 430
8 184
0
310 358
h) impairment allowances at the
beginning of the period
0
0
0
0
0
i) impairment allowances at the end
of the period
0
0
0
0
0
j) net value of intangible fixed assets
at the end of the period
31 924
48 419
17 883
83 368
181 594
149
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
1 659
(3 421)
(1 762)
1 659
(3 507)
(1 848)
Balance sheet valuation of financial
instruments
(21 915)
(2 128)
(24 043)
128 219
(149 996)
(21 777)
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
10 742
(77 286)
(66 544)
30 241
(33 021)
(2 780)
Interest and discount on loans and
receivables
0
(75 737)
(75 737)
0
(77 075)
(77 075)
Income and cost settled at effective
interest rate
147 394
0
147 394
188 794
0
188 794
Impairment of loans presented as
temporary differences
398 267
0
398 267
405 834
0
405 834
Employee benefits
18 687
0
18 687
19 420
0
19 420
Rights to use
6 620
0
6 620
8 432
0
8 432
Provisions for future costs
88 584
0
88 584
83 764
0
83 764
Valuation of investment assets,
loans, cash flows hedge and
actuarial gains (losses) recognized
in other comprehensive income
207 631
(56 174)
151 457
9 172
(55 384)
(46 212)
Shares valuation
1 273
(36 440)
(35 167)
1 273
(24 790)
(23 517)
Other
2 332
(1 236)
1 096
3 054
125
3 179
Total
873 724
(265 706)
608 018
892 147
(358 134)
534 013
Net deferred income tax asset
313 432
279 894
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
(1 848)
86
(1 762)
Balance sheet valuation of financial
instruments
(21 777)
(2 266)
(24 043)
Unrealised receivables/ liabilities on
account of derivatives
(2 201)
1 367
(834)
Interest on deposits and securities to be
paid/received
(2 780)
(63 764)
(66 544)
Interest and discount on loans and
receivables
(77 075)
1 338
(75 737)
Income and cost settled at effective
interest rate
188 794
(41 400)
147 394
Impairment of loans presented as
temporary differences
405 834
(7 567)
398 267
Employee benefits
19 420
(733)
18 687
Rights to use
8 432
(1 812)
6 620
Provisions for future costs
83 764
4 820
88 584
Valuation of investment assets, loans, cash
flows hedge and actuarial gains (losses)
recognized in other comprehensive income
(46 212)
197 669
151 457
Shares valuation
(23 517)
(11 650)
(35 167)
Other
3 179
(1 315)
(768)
1 096
Total
534 013
(1 315)
(122 349)
197 669
608 018
150
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
(686)
0
(1 162)
0
(1 848)
Balance sheet valuation of financial
instruments
(22 519)
0
742
0
(21 777)
Unrealised receivables/ liabilities on
account of derivatives
(6 364)
0
4 163
0
(2 201)
Interest on deposits and securities to be
paid/received
(4 894)
0
2 114
0
(2 780)
Interest and discount on loans and
receivables
(73 860)
0
(3 215)
0
(77 075)
Income and cost settled at effective
interest rate
180 305
0
8 489
0
188 794
Impairment of loans presented as
temporary differences
321 341
0
84 493
0
405 834
Employee benefits
20 140
0
(720)
0
19 420
Rights to use
5 971
0
2 461
0
8 432
Provisions for future costs
19 408
0
64 356
0
83 764
Valuation of investment assets, cash flows
hedge and actuarial gains (losses)
recognized in other comprehensive income
(15 680)
0
0
(30 532)
(46 212)
Shares valuation
(22 415)
0
(1 102)
0
(23 517)
Other
4 665
15 518
(17 004)
0
3 179
Total
405 412
15 518
143 615
(30 532)
534 013
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
86
(1 162)
Balance sheet valuation of financial instruments
(2 266)
742
Unrealised receivables/ liabilities on account of derivatives
1 367
4 163
Interest on deposits and securities to be paid/ received
(63 764)
2 114
Interest and discount on loans and receivables
1 338
(3 215)
Income and cost settled at effective interest rate
(41 400)
8 489
Impairment of loans presented as temporary differences
(7 567)
84 493
Employee benefits
(733)
(720)
Rights to use
(1 812)
2 461
Provisions for future costs
4 820
64 356
Shares valuation
(11 650)
(1 102)
Other
(768)
(17 004)
Change of deferred income tax recognized in financial result
(122 349)
143 615
Valuation of investment assets, loans, cash flows hedge and actuarial gains (losses)
recognized in other comprehensive income
197 669
(30 532)
151
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
12 125
Total
12 125
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 Bank offset deferred income tax assets with deferred income tax
liabilities.
31.12.2021
31.12.2020
Net deferred income tax assets
608 018
534 013
Net deferred income tax provision
-
-
TOTAL
608 018
534 013
29. OTHER ASSETS
31.12.2021
31.12.2020
Expenses to be settled
109 339
97 328
Income to be received
27 141
21 187
Interbank settlements
0
12
Settlements of financial instruments transactions
23 469
0
Receivables from sundry debtors
426 993
237 992
Public and legal settlements
23 638
7 387
Total other assets (gross)
610 580
363 906
Impairment allowances
(25 991)
(22 513)
Total other assets (net)
584 589
341 393
▪ including other financial assets*
451 612
236 678
▪ including long-term other assets
969
1 879
* other financial assets includes all of the remaining other net assets excluding the Expenses to be settled and Public and
legal settlements 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.
152
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
30. NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD
FOR SALE
As at December 31, 2021 and December 31, 2020, the Bank did not classify any assets to the Non-
current asset held for sale.
31. FINANCIAL LIABILITIES HELD FOR TRADING
31.12.2021
31.12.2020
Negative valuation of derivatives
126 795
103 781
Adjustment due to fair value hedge
0
0
Short sale of securities
16 614
64 778
Financial liabilities valued at fair value through profit and loss
143 409
168 559
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
64 309
57 220
Term deposits
106 569
481 490
Loans and advances received
15 000
25 000
Interest
369
172
Total
186 247
563 882
32b. Liabilities to banks and other monetary institutions by maturity
31.12.2021
31.12.2020
Current accounts
64 309
57 220
▪ to 1 month
22 669
481 338
▪ above 1 month to 3 months
43900
0
▪ above 3 months to 1 year
40000
0
▪ above 1 year to 5 years
15 000
25 152
▪ above 5 years
0
0
Interest
369
172
Total
186 247
563 882
153
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
32c. Liabilities to banks and other monetary institutions by currency
31.12.2021
31.12.2020
in Polish currency
167 210
393 669
in foreign currencies (after conversion to PLN)
19 037
170 213
▪ currency: USD
456
2 006
▪ currency: EUR
18 581
40 304
▪ currency: CHF
0
127 903
▪ other currencies
0
0
Total
186 247
563 882
33. LIABILITIES TO CUSTOMERS
33a. Structure of liabilities to customers by type
31.12.2021
31.12.2020
Amounts due to private individuals
65 783 239
61 696 895
Balances on current accounts
55 953 207
50 647 924
Term deposits
9 565 717
10 807 126
Other
237 776
188 369
Accrued interest
26 539
53 476
Amounts due to companies
22 278 081
17 302 406
Balances on current accounts
15 481 067
13 183 715
Term deposits
6 434 038
3 761 220
Other
360 665
344 918
Accrued interest
2 311
12 553
Amounts due to public sector
3 610 976
2 833 170
Balances on current accounts
3 385 595
2 707 623
Term deposits
215 889
105 079
Other
9 417
20 461
Accrued interest
75
7
Total
91 672 296
81 832 471
33b. Liabilities to customers by maturity
31.12.2021
31.12.2020
Current accounts
74 819 869
66 539 262
to 1 month
6 817 747
4 763 568
above 1 month to 3 months
5 254 940
4 905 277
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
28 925
66 036
Total
91 672 296
81 832 471
154
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
33c. Liabilities to customers by currency
31.12.2021
31.12.2020
in Polish currency
81 904 492
73 480 869
in foreign currencies (after conversion to PLN)
9 767 804
8 351 602
▪ currency: USD
2 169 222
2 025 275
▪ currency: EUR
7 002 313
5 793 962
▪ currency: GBP
393 989
348 677
▪ currency: CHF
182 569
162 659
▪ other currencies
19 711
21 029
Total
91 672 296
81 832 471
34. SALE AND REPURCHASE AGREEMENTS
Liabilities from securities sold with buy-back clause
31.12.2021
31.12.2020
a) to the Central Bank
0
0
b) to banks
0
248 566
c) to customers
18 037
0
d) interest
1
0
Total
18 038
248 566
35. DEBT SECURITIES ISSUED
35a. Liabilities from debt securities
31.12.2021
31.12.2020
Outstanding bonds and bills
0
250 000
Bank Securities
0
234 428
Interest
0
227
Total
0
484 655
35b. Liabilities from debt securities by final legal maturity
31.12.2021
31.12.2020
▪ to 1 month
0
32 916
▪ above 1 month to 3 months
0
68 292
▪ above 3 months to 1 year
0
383 220
▪ above 1 year to 5 years
0
0
▪ above 5 years
0
0
Interest
0
227
Total
0
484 655
155
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
35c. Change of debt securities
01.01.2021 -
31.12.2021
01.01.2020 -
31.12.2020
Balance at the beginning of the period
484 655
1 003 657
Increases, on account of:
3 267
41 157
issue of Banking Securities
0
29 558
merger with Euro Bank S.A.
0
0
interest accrual
3 267
11 599
Reductions, on account of:
(487 922)
(560 159)
repurchase of Banking Securities
(234 428)
(246 582)
repurchase of bonds
(250 000)
(300 000)
interest payment
(3 494)
(13 577)
Balance at the end of the period
0
484 655
35d. Debt securities by type
As at December 31, 2021, the Bank did not have any liabilities related to issued securities.
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
25 619
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
-
Total
484 655
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.
As at 31/12/2020, the Bank, 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.
156
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
36. SUBORDINATED DEBT
36a. Subordinated debt
31.12.2021
31.12.2020
Amount of subordinated bonds inn - BKMO_071227R
700 000
700 000
Currency
PLN
PLN
Interest rate
4.81%
2.55%
Maturity
07.12.2027
07.12.2027
Interest
2 214
1 174
Amount of subordinated bonds PLN in PLN - BKMO_300129W
830 000
830 000
Currency
PLN
PLN
Interest rate
2.55%
2.58%
Maturity
30.01.2029
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
0
0
interest accrual
40 076
51 441
Reductions, on account of:
(39 141)
(57 437)
redemption of subordinated bonds
0
0
interest payment
(39 141)
(57 437)
Balance at the end of the period
1 541 144
1 540 209
During 2021 and 2020 the Bank 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.
37. PROVISIONS
37a. Provisions
31.12.2021
31.12.2020
Provision for commitments and guarantees given
44 955
52 728
Provision for pending legal issues
549 450
105 643
Total
594 405
158 371
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
52 728
53 856
Charge of provision
54 970
73 893
Release of provision
(62 805)
(75 357)
FX rates differences
62
336
Balance at the end of the period
44 955
52 728
157
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
105 643
37 162
Charge of provision
112 726
16 874
Release of provision
(9 463)
(13 331)
Utilisation of provision
(24 059)
(489)
Creation of provision for legal risk connected with FX mortgage loans*
2 305 157
713 617
Allocation to the loans portfolio**
(2 032 024)
(671 484)
FX rates differences
91 470
23 294
Balance at the end of the period
549 450
105 643
* Creation of provisions for legal risk related to foreign currency mortgage loans is described in more detail in Chapter 12
“Legal risk related to foreign currency mortgage loans”.
** In 2021, the Bank 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 as at
December 31, 2019 presented in these financial statements has been introduced (more information on this topic is presented
in Chapter 7. “Accounting Policy”).
38. OTHER LIABILITIES
38a. Other liabilities
31.12.2021
31.12.2020
Short-term
1 496 886
1 476 954
Accrued costs - bonuses, salaries
39 347
38 520
Accrued costs - other
187 959
188 382
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
168 629
246 069
Liabilities due to leases
95 369
105 202
Liabilities to public sector
36 570
25 511
Deferred income
39 158
50 446
Provisions for unused employee holiday
13 626
15 364
Provisions for retirement benefits
3 182
3 006
Other
439
1 266
Long-term
488 889
489 702
Provisions for retirement benefits
31 527
31 995
Accrued costs
0
0
Commitment to pay – BGF*
173 039
139 845
Liabilities due to leases
275 251
304 916
Accrued costs
9 072
12 946
Total
1 985 775
1 966 656
including other financial liabilities**
1 340 523
1 289 290
* 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.
158
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
38b. Liabilities from lease
31.12.2021
31.12.2020
Liabilities from lease (gross)
389 434
432 741
Unrealised financial costs
(18 814)
(22 623)
Current value of minimum lease instalments
370 620
410 118
Liabilities from lease (gross) by maturity
Under 1 year
101 072
111 588
From 1 year to 5 years
205 292
208 661
Above 5 years
83 070
112 492
Total
389 434
432 741
Liabilities from lease (net) by maturity
Under 1 year
95 369
105 202
From 1 year to 5 years
194 389
196 260
Above 5 years
80 862
108 656
Total
370 620
410 118
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
15 364
24 212
Charge of provisions/ reversal of provisions
(1 382)
(8 750)
Utilisation of provisions
(356)
(98)
Balance at the end of the period
13 626
15 364
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
35 001
32 728
Charge of provisions/ reversal of provisions
6 159
2 984
Utilisation of provisions/ reclassification of provision
(1 232)
(1 440)
Actuarial gains (losses)
(5 219)
729
Balance at the end of the period
34 709
35 001
159
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
39. EQUITY
39a. Capital
The share capital of the Bank Millennium S.A. 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
shares
Value of
series/issue
(PLN)
Manner of
capital
coverage
Registration
date
Right to
dividend
A
registered founder
x2 as to voting
106 850
106 850
cash
30.06.1989
30.06.1989
B1
registered ordinary
150 000
150 000
cash
13.06.1990
01.01.1990
B2
registered ordinary
150 000
150 000
cash
13.12.1990
01.01.1990
C
bearer ordinary
4 693 150
4 693 150
cash
17.05.1991
01.01.1991
D1
bearer ordinary
1 700 002
1 700 002
cash
31.12.1991
01.01.1992
D2
bearer ordinary
2 611 366
2 611 366
cash
31.01.1992
01.01.1992
D3
bearer ordinary
1 001 500
1 001 500
cash
10.03.1992
01.01.1992
E
bearer ordinary
6 000 000
6 000 000
cash
28.05.1993
01.01.1992
F
bearer ordinary
9 372 721
9 372 721
cash
10.12.1993
01.01.1993
G
bearer ordinary
8 000 000
8 000 000
cash
30.05.1994
01.10.1993
H
bearer ordinary
7 082 129
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
I
bearer ordinary
65 000 000
65 000 000
cash
12.08.1997
01.10.1996
J
bearer ordinary
196 120 000
196 120 000
capitals of Bank
Gdański S.A.
12.09.1997
01.10.1996
K
bearer ordinary
424 590 872
424 590 872
cash
31.12.2001
01.01.2001
L
bearer ordinary
363 935 033
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
th
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.
160
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
shares
% 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
shares
% 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 (related to debt securities and loans) 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.
Accumulated other comprehensive income
31.12.2021
31.12.2020
Effect of valuation (gross)
(797 143)
243 221
Deferred income tax
151 457
(46 212)
Net effect of valuation
(645 686)
197 009
161
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
291 495
(55 383)
236 112
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
(963 829)
183 128
(780 701)
Profit/loss on revaluation of FVTOCI shares, recognized in equity
(785)
149
(636)
Revaluation reserve at the end of the period
(686 675)
130 469
(556 206)
Revaluation reserve on FVTOCI assets 1.01.2020 - 31.12.2020
Gross value
Deferred tax
Total
Revaluation reserve at the beginning of the period
114 539
(21 762)
92 777
Transfer to income statement of the period as a result of sale
(130 767)
24 846
(105 921)
Change connected with maturity of securities
(794)
151
(643)
Profit/loss on revaluation of FVTOCI debt securities, recognized in equity
308 692
(58 651)
250 041
Profit/loss on revaluation of FVTOCI shares, recognized in equity
(175)
33
(142)
Revaluation reserve at the end of the period
291 495
(55 384)
236 111
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
(44 419)
8 439
(35 980)
Gains or losses on valuation of financial instruments recognized in equity
(338 189)
64 256
(273 933)
Transfer to income statement during period
3 696
(702)
2 994
Revaluation reserve at the end of the period
(378 912)
71 993
(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
(28 885)
5 488
(23 397)
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
(44 419)
8 439
(35 980)
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
(3 854)
732
(3 122)
Change in the obligations arising from the provision for retirement benefits
5 219
(992)
4 227
Revaluation reserve at the end of the period
1 365
(260)
1 105
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
(3 125)
593
(2 532)
Change in the obligations arising from the provision for retirement benefits
(729)
139
(590)
Revaluation reserve at the end of the period
(3 854)
732
(3 122)
162
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Revaluation reserve on FVTOCI credit portolio 1.01.2021 - 31.12.2021
Gross value
Deferred tax
Total
Revaluation reserve at the beginning of the period
0
0
0
Gains or losses on valuation of financial instruments recognized in equity
259 546
(49 314)
210 232
Transfer to Profit and loss due to impairment calculation
7 533
(1 431)
6 102
Revaluation reserve at the end of the period
267 079
(50 745)
216 334
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
374 957
5 655 919
228 902
18 579
6 278 357
appropriation of profit, including:
transfer to reserve capital
0
18 579
0
(18 579)
0
charge due to transfer of own shares
to employees
0
(3 374)
0
0
(3 374)
net profit/ (loss) of the period
0
0
0
(1 357 452)
(1 357 452)
Retained earnings at the end of the
period 31.12.2021
374 957
5 671 124
228 902
(1 357 452)
4 917 531
Supplementary
capital
Reserve capital
General banking
risk fund
Retained
earnings
TOTAL
Retained earnings at the beginning of
the period 01.01.2020
374 957
5 098 295
228 902
560 727
6 262 881
Merger with Euro Bank S.A.
appropriation of profit, including:
0
560 727
0
(560 727)
0
transfer to reserve capital
(3 103)
(3 103)
net profit/ (loss) of the period
0
0
0
18 579
18 579
Retained earnings at the end of the
period 31.12.2020
374 957
5 655 919
228 902
18 579
6 278 357
163
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
87 332
44 813
40 142
15 000
0
187 287
Deposits from customers
81 643 636
5 267 328
2 824 137
1 910 432
40 532
91 686 065
Liabilities from securities sold
with buy-back clause
18 040
0
0
0
0
18 040
Debt securities
0
0
0
0
0
0
Subordinated debt
8 930
0
48 119
219 340
1 614 664
1 891 053
Liabilities from trading
derivatives - notional value
6 597 730
2 815 476
3 594 126
4 675 899
132 180
17 815 411
Liabilities from hedging
derivatives - notional value
444 840
556 050
1 556 228
11 347 744
0
13 904 862
Commitments granted - financial
12 658 407
0
0
0
0
12 658 407
Commitments granted -
guarantee
2 578 287
0
0
0
0
2 578 287
TOTAL
104 037 202
8 683 667
8 062 752
18 168 415
1 787 376
140 739 412
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
538 663
42
0
25 714
0
564 419
Deposits from customers
71 312 381
4 920 627
3 791 886
1 805 710
26 402
81 857 006
Liabilities from securities sold
with buy-back clause
248 566
0
0
0
0
248 566
Debt securities
32 916
68 292
385 902
0
0
487 110
Subordinated debt
9 035
1 174
29 055
157 056
1 640 903
1 837 223
Liabilities from trading
derivatives - notional value
5 110 475
1 938 381
3 252 477
4 858 752
91 867
15 251 952
Liabilities from hedging
derivatives - notional value
596 974
2 878 268
3 048 832
12 513 231
0
19 037 305
Commitments granted - financial
12 478 702
0
0
0
0
12 478 702
Commitments granted -
guarantee
2 562 041
0
0
0
0
2 562 041
TOTAL
92 889 753
9 806 784
10 508 152
19 360 463
1 759 172
134 324 324
164
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
14. Supplementary Information
14.1. 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.
14.2. 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
1.
Treasury bonds OK0423
Held to Collect
and for Sale
Lombard credit granted to the Bank
by the NBP
130 000
124 254
2.
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
3.
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
4.
Treasury bonds OK0423
Held to Collect
and for Sale
Security of payment obligation to
BFG contribution - guarantee fund
130 100
124 350
5.
Treasury bonds OK0423
Held to Collect
and for Sale
Security of payment obligation to
BFG contribution - compulsory
resolution fund
106 500
101 793
6.
Cash
receivables
initial deposit in KDPW CCP (MAGB)
5 000
5 000
7.
Cash
receivables
ASO guarantee fund (PAGB)
398
398
8.
Cash
receivables
payment to the OTC Guarantee Fund
- KDPW_CCP
8 989
8 989
9.
Cash
receivables
Settlement on transactions
concluded
111 907
111 907
10.
Deposits
Deposits in banks
Settlement on transactions
concluded
572 681
572 681
TOTAL
1 400 575
1 369 273
165
Annual Financial Report
of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Additionally, as at December 31, 2021, the Bank 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 13., 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
1.
Treasury bonds OK0722
Held to Collect
and for Sale
Lombard credit granted to the Bank
by the NBP
130 000
129 922
2.
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
3.
Treasury bonds PS0123
Held to Collect
and for Sale
Security of payment obligation to
BFG contribution - compulsory
resolution fund
88 000
94 473
4.
Treasury bonds PS0123
Held to Collect
and for Sale
Security of payment obligation to
BFG contribution - guarantee fund
71 000
76 223
5.
Treasury bonds PS0422
Held to Collect
and for Sale
initial settlement deposit in KDPW
CCP (MARI)
300 000
313 311
6.
Cash
receivables
initial settlement deposit in KDPW
CCP (MARI)
100
100
7.
Cash
receivables
ASO guarantee fund (PAGB)
2 415
2 415
8.
Cash
receivables
payment to the OTC Guarantee Fund
- KDPW_CCP
5 617
5 617
9.
Cash
receivables
Settlement on transactions
concluded
45 153
45 153
10.
Deposits
Deposits in banks
Settlement on transactions
concluded
503 532
503 532
TOTAL
1 500 817
1 525 533
Additionally, as at December 31, 2020, the Bank 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 13., note (34).
14.3. SECURITIES COVERED BY TRANSACTIONS WITH A BUY-BACK CLAUSE
(SBB)
As at 31 December 2021 following securities (presented in the Bank’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 Bank is exposed to risks, which are the same as in case of holding securities with the
same characteristics in its treasury portfolio.
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Annual Financial Report
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for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
As at 31 December 2020 following securities (presented in the Bank’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
14.4. OFFSETTING OF ASSETS AND LIABILITIES ON THE BASIS OF ISDA
AGREEMENTS
The majority of the Bank'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
101 036
629 896
Amount of cash collaterals accepted/granted
(14 796)
(563 242)
Financial assets and liabilities covered by framework ISDA
agreements allowing compensation
86 240
66 654
Theoretical maximum amount of compensation
(49 200)
(49 200)
Financial assets and liabilities covered by framework ISDA
agreements allowing compensation taking into account
theoretical amount of compensation
37 040
17 454
14.5. ADDITIONAL EXPLANATIONS TO THE CASH FLOW STATEMENT
For the purpose of the cash flow statement the following financial assets are classified by the Bank
as cash or its equivalents:
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*
0
3 486
of which FVTOCI
0
0
of which held for trading
0
3 486
Total
3 372 244
1 586 434
* Financial assets with maturity below three months
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Annual Financial Report
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for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
Bank’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.
14.6. 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.
14.7. SHARE BASED PAYMENTS
In 2012, the Bank implemented a policy specifying the principles of remuneration for persons having
a material impact on the risk profile of Bank Millennium, 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 Bank having
a significant impact on the Bank'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 Bank 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.
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Annual Financial Report
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for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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
Bank 2021, results
of the Bank and
individual
performance
Employment in the
Bank 2020, results
of the Bank and
individual
performance
Employment in the
Bank 2019, results
of the Bank and
individual
performance
Employment in the
Bank 2018, results
of the Bank 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
Bank’s employees who are not
members of the Management Board of
the Bank, for the year:
2021
2020
2019
2018
Own shares
Own shares
Own shares
Phantom shares
Date of shares assigning
-
03.07.2020
23.01.2019
Number of shares
-
0
387 774
39 240
granted
-
0
0
0
deferred
-
0
387 774
39 240
Value as at assigning date (PLN)
-
0
1 235 758
360 298
granted
-
0
0
0
deferred
-
0
1 235 758
360 298
Fair value as at 31.12.2021 (PLN)
-
0
3 177 808
288 238
At the balance sheet date, the Personnel Committee of the Management Board has not taken a
decision on the amount of variable remuneration for Bank’s employees who are not members of the
Management Board of the Bank for 2021.
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Annual Financial Report
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for the 12-month period ending 31
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December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
Financial instruments granted to
members of the Management Board of
the Bank, for the year:
2021
2020
2019
2018
Own shares
Own shares
Own shares
Phantom shares
Date of shares assigning
-
03.07.2020
31.05.2019
Number of shares
-
0
322 599
78 753
granted
-
0
0,00
0,00
deferred
-
0
322 599
78 753
Value as at assigning date (PLN)
-
0
1 028 052
717 444
granted
-
0
0,00
0,00
deferred
-
0
1 028 052
717 444
Fair value as at 31.12.2021 (PLN)
-
0
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, respectively, remain to be paid out.
14.8. IMPACT OF COVID-19 PANDEMIC ON ACTIVITY OF BANK MILLENNIUM
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.
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for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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 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 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.
14.9. 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.
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of the Bank Millennium S.A.
for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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.
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for the 12-month period ending 31
st
December 2021
This document is a translation of a document originally issued in Polish.
The only binding version is the original Polish version.
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