Financial statements of PKO Bank Polski S.A. for the year ended 31 December 2021

 

This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.

 

SELECTED FINANCIAL DATA RELATING TO THE FINANCIAL STATEMENTS

SELECTED FINANCIAL DATA	PLN million			EUR million
			Change %			Change %
	2021	2020	(A-B)/B	2021	2020	(D-E)/E
	A	B	C	D	E	F
Net interest income/(expense)	8 711	9 184	(5.15)	1 903	2 053	(7.31)
Net fee and commission income	3 542	3 117	13.63	774	697	11.05
Net expected credit losses and net impairment allowances on non-financial assets	(1 199)	(2 316)	(48.23)	(262)	(518)	(49.42)
Administrative expenses	(5 304)	(5 180)	2.39	(1 159)	(1 158)	0.09
Profit before tax	5 976	(2 266)	363.72	1 306	(506)	358.10
Net profit	4 596	(2 944)	256.11	1 004	(658)	252.58
Earnings per share for the period - basic (in PLN/EUR)	3,68	(2,36)	255.93	0.80	(0.53)	250.94
Earnings per share for the period - diluted (in PLN/EUR)	3,68	(2,36)	255.93	0.80	(0.53)	250.94
Net comprehensive income	(2 504)	(1 835)	36.46	(547)	(410)	33.41
Total net cash flows	10 003	(8 867)	212.81	2 185	(1 982)	210.24

 

SELECTED FINANCIAL DATA	PLN million			EUR million
	31.12.2021	31.12.2020	Change % (A-B)/B	31.12.2021	31.12.2020	Change % (D-E)/E
	A	B	C	D	E	F
Total assets	388 816	345 027	12.69	84 536	74 765	13.07
Total equity	36 073	38 577	(6.49)	7 843	8 359	(6.17)
Share capital	1 250	1 250	-	272	271	0.37
Number of shares (in million)	1 250	1 250	-	1 250	1 250	-
Book value per share (in PLN/EUR)	28,86	30,86	(6.48)	6.27	6.69	(6.28)
Diluted number of shares (in million)	1 250	1 250	-	1 250	1 250	-
Diluted book value per share (in PLN/EUR)	28,86	30,86	(6.48)	6.27	6.69	(6.28)
Total capital ratio	19,84	19,78	0.30	19.84	19.78	0.30
Tier 1	36 445	37 564	(2.98)	7 924	8 140	(2.65)
Tier 2	2 700	2 700	-	587	585	0.34

 

SELECTED FINANCIAL STATEMENT ITEMS HAVE BEEN TRANSLATED INTO EUR AT THE FOLLOWING RATES	2021	2020
arithmetic mean of the NBP exchange rates at the end of a month (income statement, statement of comprehensive income and cash flow statement items)	4.5775	4.4742
	31.12.2021	31.12.2020
NBP mid exchange rates at the date indicated (statement of financial position items)	4.5994	4.6148

TABLE OF CONTENTS

INCOME STATEMENT

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

STATEMENT OF CHANGES IN EQUITY

CASH FLOW STATEMENT

General information about the bank

1. Business activities of the Bank

2. Changes in the Group companies

3. Information on members of the Supervisory Board and Management Board

4. Approval of the financial statements

5. Mortgage loans in convertible currencies

6. Statement of compliance

7. Going concern

8. Management Representation

9. Impact of the COVID-19 pandemic on the Bank’s operations

Accounting policies adopted to prepare the financial statements

10. The basis for preparation of the financial statements

11. Environmental issues and their impact on the financial statements

12. Interest rate benchmarks reform

13. New standards and interpretations and their amendments

14. Description of significant accounting policies

14.1. Functional currency, presentation currency and foreign currencies

14.2. Accounting for transactions

14.3. Derecognition of financial instruments from the statement of financial position

14.4. The principles for classification of financial instruments

14.5. Financial assets measured at amortized cost

14.6. Financial assets measured at fair value through other comprehensive income

14.7. Financial assets measured at fair value through profit or loss

14.8. Equity instruments

14.9. Reclassification of financial assets

14.10. Modifications – Changes in contractual cash flows

14.11. Measurement of purchased or originated credit-impaired financial assets (POCI)

14.12. Measurement of financial liabilities

15. Changes in the accounting policies applicable from 1 January 2021 and explanation of the differences between previously published financial statements and these financial statements

NOTES TO THE FINANCIAL STATEMENTS

16. Interest income and expense

17. Fee and commission income and expense

18. Dividend income

19. Gains/(losses) on financial transactions

20. Foreign exchange gains/ (losses)

21. Gains/(losses) on derecognition of financial instruments

22. Other operating income and expenses

23. Net allowances for expected credit losses

24. Net Impairment of non-financial assets

25. Cost of the legal risk of mortgage loans in convertible currencies

26. Administrative expenses

27. Tax on certain financial institutions

28. Income tax expense

29. Cash and balances with the Central Bank

30. Amounts due from banks

31. Hedge accounting

32. Other derivative instruments

33. Securities

33.1. Securities – financial assets by stage

33.2. Securities – Changes in the gross carrying amount during the period

33.3. Securities - Change in allowances for expected credit losses during the period

34. Repo and reverse repo transactions

35. Loans and advances to customers

35.1  Loans and advances to customers - financial assets by stage

35.2  loans and advances to customers - change in gross carrying amount

35.3  Loans and advances to customers – Changes in allowances for expected credit losses during the period

36. Intangible assets , property, plant and equipment

36.1. Intangible assets

36.2. Property, plant and equipment

37. Assets held for sale

38. Investments in subsidiaries, associates and joint ventures

39. Other assets

40. Amounts due to banks

41. Amounts due to customers

42. Financing received

43. Other liabilities

44. Provisions

45. Equity and shareholding structure of the Bank

46. Coverage of loss for 2021, distribution of retained earnings and Dividends

47. Leases

48. Contingent liabilities and off-balance sheet liabilities received and granted

49. Legal claims

50. Notes to the cash flow statement

51. Transactions with the State Treasury and related parties

52. Benefits for the PKO Bank Polski SA key management

53. Fair value hierarchy

55. Offsetting financial assets and financial liabilities

56. Assets pledged as collateral for liabilities and transferred financial assets

57. Financial assets and liabilities by currency

58. Contractual cash flows from the Bank’s financial liabilities, including derivative financial instruments

59. Current and non-current assets and liabilities

60. Risk management in the Bank

61. Specific risk management measures undertaken by the Bank in 2021

62. Credit risk management

63. Credit risk - financial information

64. Managing credit concentration risk in the Bank

65. Collateral

66. Forbearance practices

67. Exposure to the counterparty credit risk

68. Management of currency risk associated with mortgage loans for individuals

69. Interest rate risk management

70. Currency risk management

71. Liquidity risk management

72. Operational risk management

73. ESG risk management

74. Capital adequacy

75. Leverage ratio

76. Information on package sale of receivables

77. Fiduciary activities

78. Information on the entity authorized to audit the financial statements

79. Subsequent events

INCOME STATEMENT

INCOME STATEMENT	Note	2021	2020 restated
Net interest income/(expense)	16	8 711	9 184
Interest income		9 164	10 332
of which calculated under the effective interest rate method		8 356	8 934
Interest expenses		(453)	(1 148)
Net fee and commission income	17	3 542	3 117
Fee and commission income		4 646	4 088
Fee and commission expense		(1 104)	(971)
Other net income		1 213	438
Dividend income	18	624	332
Gains/(losses) on financial transactions	19	54	(106)
Foreign exchange gains/ (losses)	20	429	133
Gains/(losses) on derecognition of financial instruments	21	201	162
of which measured at amortized cost		1	(24)
Net other operating income and expense	22	(95)	(83)
Result on business activities		13 466	12 739
Net expected credit losses	23	(1 144)	(1 939)
Impairment of non-financial assets	24	(55)	(377)
Cost of the legal risk of mortgage loans in convertible currencies	25	-	(6 552)
Administrative expenses	26	(5 304)	(5 180)
of which net regulatory charges		(596)	(730)
Tax on certain financial institutions	27	(987)	(957)
Profit before tax		5 976	(2 266)
Income tax expense	28	(1 380)	(678)
Net profit		4 596	(2 944)
Earnings per share
– basic earnings per share for the period (PLN)		3.68	(2.36)
– diluted earnings per share for the period (PLN)		3.68	(2.36)
Weighted average number of ordinary shares during the period (in million)*		1 250	1 250

* In the years 2021 and 2020, there were no dilutive instruments. Therefore, the amount of diluted earnings per share is the same as the amount of basic earnings per share.

 

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF COMPREHENSIVE INCOME	Note	2021	2020
Net profit		4 596	(2 944)
Other comprehensive income		(7 100)	1 109
Items which may be reclassified to profit or loss		(7 107)	1 114
Cash flow hedges (net)		(4 021)	224
Cash flow hedges (gross)	31	(4 964)	276
Deferred tax	28,31	943	(52)
Fair value of financial assets measured at fair value through other comprehensive income (net)		(3 086)	890
Remeasurement of financial assets measured at fair value through other comprehensive income (gross)		(3 611)	1 283
Gains /losses transferred to the profit or loss (on disposal)	21	(200)	(186)
Deferred tax	28	725	(207)
Items which cannot be reclassified to profit or loss		7	(5)
Actuarial gains and losses (net)		7	(5)
Actuarial gains and losses (gross)		9	(6)
Deferred tax	28	(2)	1
Total net comprehensive income		(2 504)	(1 835)

 

STATEMENT OF FINANCIAL POSITION

	Note	31.12.2021	31.12.2020
ASSETS		388 816	345 027
Cash and balances with the Central Bank	29	11 421	7 397
Amounts due from banks	30	14 296	5 304
Derivative hedging instruments	31	327	618
Other derivative instruments	32	11 143	5 416
Securities	33	130 838	119 973
Loans and advances to customers	35	205 677	193 063
Property, plant and equipment	36.1	2 639	2 737
Assets held for sale	37	18	124
Intangible assets	36.2	2 896	2 737
Investments in subsidiaries	38	3 617	3 612
Investments in associates and joint ventures	38	275	257
Current income tax receivable		33	-
- of the Bank		11	-
- of the subsidiaries belonging to the Tax Group		22	-
Deferred income tax assets	28	3 599	1 806
Other assets	39	2 037	1 983

 

		31.12.2021	31.12.2020
LIABILITIES AND EQUITY		388 816	345 027
Liabilities		352 743	306 450
Amounts due to the Central Bank		8	-
Amounts due to banks	40	3 762	2 583
Derivative hedging instruments	31	4 624	543
Other derivative instruments	32	11 704	6 632
Transactions for the purpose of repurchase	34	49	47
Amounts due to customers	41	318 032	278 894
Loans and advances received	42.1	5 142	4 906
Securities in issue	42.2	-	4 020
Subordinated liabilities	42.3	2 716	2 716
Other liabilities	43	5 090	4 464
Current income tax liabilities		-	178
- of the Bank		-	166
- of the subsidiaries belonging to the Tax Group		-	12
Provisions	44	1 616	1 467
		‘	‘
EQUITY	45	36 073	38 577
Share capital		1 250	1 250
Reserves and accumulated other comprehensive income		24 727	34 771
Retained earnings		5 500	5 500
Net profit or loss for the year		4 596	(2 944)

 

 

 

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 December 2021	Share capital	Reserves and accumulated other comprehensive income					Retained earnings	Net profit or loss for the year	Total equity
		Reserves			Other comprehensive income	Total capital and reserves
		Supplementary capital	General banking risk fund	Other reserves
As at the beginning of the period	1 250	29 168	1 070	2 990	1 543	34 771	5 500	(2 944)	38 577
Transfer from retained earnings	-	-	-	-	-	-	(2 944)	2 944	-
Comprehensive income	-	-	-	-	(7 100)	(7 100)	-	4 596	(2 504)
Creating a special fund for the purpose of covering specific balance sheet losses (note 5)	-	(6 700)	-	6 700	-	-	-	-	-
Offset of accumulated losses	-	-	-	(2 944)	-	(2 944)	2 944	-	-
As at the end of the period	1 250	22 468	1 070	6 746	(5 557)	24 727	5 500	4 596	36 073

 

FOR THE YEAR ENDED 31 December 2020	Share capital	Reserves and accumulated other comprehensive income
		Reserves			Other comprehensive income		Total capital and reserves		Retained earnings		Net profit or loss for the year		Total equity
		Supplementary capital	General banking risk fund	Other reserves
As at the beginning of the period	1 250	29 168	1 070	3 099	434	33 771		1 556		3 835		40 412
Transfer from retained earnings	-	-	-	-	-	-		3 835		(3 835)		-
Comprehensive income	-	-	-	-	1 109	1 109		-		(2 944)		(1 835)
Offset of accumulated losses1	-	-	-	(111)	-	(111)		111		-		-
Transfer from retained earnings to other reserves	-	-	-	2	-	2		(2)		-		-
As at the end of the period	1 250	29 168	1 070	2 990	1 543	34 771		5 500		(2 944)		38 577

1 The item includes offset of prior year losses of PLN 111 million that arose as a result of the changes in accounting policies resulting from the first-time application of IFRS 16.

FOR THE YEAR ENDED 31 December 2021	Accumulated other comprehensive income
	Fair value of financial assets measured at fair value through other comprehensive income	Cash flow hedges	Actuarial gains and losses	Total
As at the beginning of the period	1 244	319	(20)	1 543
Total comprehensive income	(3 086)	(4 021)	7	(7 100)
As at the end of the period	(1 842)	(3 702)	(13)	(5 557)

 

FOR THE YEAR ENDED 31 December 2020	Accumulated other comprehensive income
	Fair value of financial assets measured at fair value through other comprehensive income	Cash flow hedges	Actuarial gains and losses	Total
As at the beginning of the period	354	95	(15)	434
Total comprehensive income	890	224	(5)	1 109
As at the end of the period	1 244	319	(20)	1 543

 

CASH FLOW STATEMENT

	Note	2021	2020
Cash flows from operating activities
Profit before tax		5 976	(2 266)
Income tax paid		(1 686)	(1 567)
Total adjustments:		21 961	35 921
Depreciation and amortization	26	868	853
(Gains)/losses on investing activities	50	(26)	(15)
Interest and dividends	50	(2 477)	(1 792)
Change in the balance of:
amounts due from banks	50	(3 018)	968
hedging derivatives		4 372	(149)
other derivative instruments		(655)	1 087
securities	50	(1 091)	(2 364)
loans and advances to customers	50	(12 398)	6 469
reverse repo transactions		-	1 081
non-current assets held for sale	50	108	(117)
other assets	50	(152)	(50)
accumulated allowances for expected credit losses	50	(110)	1 798
accumulated allowances on non-financial assets and other provisions	50	202	755
amounts due to the Central Bank		8	-
amounts due to banks		1 179	607
amounts due to customers		39 138	25 951
repo transactions		1	1
loans and advances received	50	305	11
liabilities in respect of securities in issue	50	18	380
subordinated liabilities		-	(14)
other liabilities	50	839	163
Other adjustments	50	(5 150)	298
Net cash from/used in operating activities		26 251	32 088

 

	Note	2021	2020
Cash flows from investing activities
Inflows from investing activities		58 414	63 964
Proceeds from sale of and interest on securities measured at fair value through other comprehensive income		54 624	61 734
Proceeds from sale of and interest on securities measured at amortized cost		3 036	1 865
Proceeds from sale of intangible assets, property, plant and equipment and assets held for sale		71	54
Other inflows from investing activities including dividends	50	683	311
Outflows on investing activities		(70 074)	(103 116)
Increase in equity of an associate		-	(5)
Increase in equity of joint ventures		(18)	-
Purchase of securities measured at fair value through other comprehensive income		(43 294)	(67 169)
Purchase of securities measured at amortized cost		(25 946)	(34 741)
Purchase of intangible assets and property, plant and equipment		(816)	(1 201)
Net cash used in investing activities		(11 660)	(39 152)

 

	Note	2021	2020
Cash flows from financing activities
Redemption of debt securities	50	(4 038)	(1 129)
Repayment of loans and advances	50	(69)	(131)
Payment of lease liabilities	50	(213)	(216)
Repayment of interest on long-term liabilities	50	(268)	(327)
Net cash from/used in financing activities		(4 588)	(1 803)
Total net cash flows		10 003	(8 867)
of which foreign exchange gains/(losses) on cash and cash equivalents	50	26	134
Cash and cash equivalents at the beginning of the period	50	9 126	17 993
Cash and cash equivalents at the end of the period	50	19 129	9 126

 

General information about the bank

1.   Business activities of the Bank

Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna (“PKO Bank Polski S.A.” or “the Bank”) was established by virtue of a decree signed on 7 February 1919 by the Head of State Józef Piłsudski, Prime Minister Ignacy Paderewski and Hubert Linde, post and telegraph minister and simultaneously the first president, as Pocztowa Kasa Oszczędnościowa. In 1950, the Bank began operating as Powszechna Kasa Oszczędności Bank Państwowy (state-owned bank). Pursuant to the Decree of the Council of Ministers dated 18 January 2000, Powszechna Kasa Oszczędności (a state owned bank) was transformed into a state-owned joint-stock company, Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna with its head office in Warsaw, ul. Puławska 15, 02-515 Warsaw, Poland.

On 12 April 2000, Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna was registered and entered into the Commercial Register maintained by the District Court for the City of Warsaw, Commercial Court, 16th Registration Department. At present, the court with jurisdiction over the Bank’s affairs is the District Court in Warsaw, the 13th Business Department of the National Court Register. The Bank was registered under the number KRS 0000026438 and was assigned the statistical number REGON 016298263.

According to the Bulletin of the Warsaw Stock Exchange (Ceduła Giełdowa), the Bank is classified under the macro-sector ‘‘Finance’’, in the ‘‘Banks’’ sector.

PKO Bank Polski SA is a universal deposit and credit bank which serves individuals, legal entities and other entities, both Polish and foreign. The Bank may hold and trade in cash in foreign currencies, as well as conduct foreign exchange and foreign currency transactions, open and maintain bank accounts in banks abroad, and deposit foreign currency in those accounts.

As at 31 December 2021, organizational entities comprising the Bank, through which the Bank conducts its operations, include: the Bank’s head office in Warsaw, Biuro Maklerskie PKO Banku Polskiego S.A. (the Brokerage House), 12 specialist organizational entities, 10 regional retail branches, 7 regional corporate branches, 23 corporate centres and 932 branches. The Bank also conducts operating activities in the Federal Republic of Germany in the form of a branch (the German Branch), the Czech Republic (the Czech Branch) and Slovakia (the Slovak Branch).

PKO Bank Polski S.A. is the parent entity of the PKO Bank Polski S.A. Group and a significant investor for associates and joint ventures of the Bank. Accordingly, PKO Bank Polski S.A. prepares consolidated financial statements of the Group, which include the financial data of these entities. The consolidated financial statements of the Capital Group are prepared and published at the same time as these separate financial statements of the Bank.

 

 

 

  

The PKO Bank Polski S.A. Group consists of the following subsidiaries:

 

No.	ENTITY NAME	REGISTERED OFFICE	ACTIVITY	% SHARE IN CAPITAL
	DIRECT SUBSIDIARIES			31.12.2021	31.12.2020
1	PKO Bank Hipoteczny S.A.	Warsaw	banking activities	100	100
2	PKO Towarzystwo Funduszy Inwestycyjnych S.A.	Warsaw	investment fund management	100	100
3	PKO Leasing S.A.	Łódź	leasing and loans	100	100
4	PKO BP BANKOWY PTE S.A.	Warsaw	pension fund management	100	100
5	PKO BP Finat sp. z o.o.	Warsaw	services, including transfer agent services and outsourcing of IT specialists	100	100
6	PKO Życie Towarzystwo Ubezpieczeń S.A.	Warsaw	life insurance	100	100
7	PKO Towarzystwo Ubezpieczeń S.A.	Warsaw	other personal insurance and property insurance.	100	100
8	PKO Finance AB	Stockholm, Sweden	financial services	100	100
9	KREDOBANK S.A.	Lviv, Ukraine	banking activities	100	100
10	Merkury - fiz an1	Warsaw	investing funds collected from fund participants	100	100
11	NEPTUN - fizan1	Warsaw		100	100
12	PKO VC - fizan1	Warsaw		100	100

1 PKO Bank Polski S.A. has investment certificates of the Fund; the percentage of the Fund’s investment certificates held is presented in the item “Share in capital”.

 

No.	ENTITY NAME	REGISTERED OFFICE	ACTIVITY	% SHARE IN CAPITAL*
	INDIRECT SUBSIDIARIES			31.12.2021	31.12.2020
	PKO Leasing S.A. GROUP
1	PKO Agencja Ubezpieczeniowa sp. z o.o.	Warsaw	intermediation in concluding insurance agreements	100	100
	1.1 PKO Leasing Finanse sp. z o.o.	Warsaw	sale of post-lease assets	100	100
2	PKO Leasing Sverige AB	Stockholm, Sweden	leasing	100	100
3	Prime Car Management S.A.	Gdańsk	leasing, fleet management	100	100
	3.1 Futura Leasing S.A.	Gdańsk	leasing and sales of post-lease assets	100	100
	3.2 Masterlease sp. z o.o.	Gdańsk	leasing	100	100
	3.3 MasterRent24 sp. z o.o.	Gdańsk	short-term lease of cars	100	100
4	PKO Faktoring S.A.	Warsaw	factoring	100	100
5	ROOF Poland Leasing 2014 DAC1	Dublin, Ireland	SPV established for securitization of lease receivables	-	-
6	Polish Lease Prime 1 DAC1	Dublin, Ireland		-	-
	PKO Życie Towarzystwo Ubezpieczeń S.A. GROUP
7	Ubezpieczeniowe Usługi Finansowe sp. z o.o.	Warsaw	services	100	100
	KREDOBANK S.A. GROUP
8	“KREDOLEASING” sp. z o.o.	Lviv, Ukraine	in organization	100	-
	Merkury - fiz an
9	“Zarząd Majątkiem Górczewska” sp. z o.o.	Warsaw	property management	100	100
10	Molina sp. z o.o.	Warsaw	general partner in partnerships limited by shares of a fund	100	100
11	Molina spółka z ograniczoną odpowiedzialnością 1 S.K.A.	Warsaw	buying and selling real estate on own account, real estate management	100	100
12	Molina spółka z ograniczoną odpowiedzialnością 2 S.K.A.	Warsaw		100	100
13	Molina spółka z ograniczoną odpowiedzialnością 4 S.K.A.	Warsaw		100	100
14	Molina spółka z ograniczoną odpowiedzialnością 5 S.K.A. in liquidation	Warsaw		100	100
15	Molina spółka z ograniczoną odpowiedzialnością 6 S.K.A. in liquidation	Warsaw		100	100
	NEPTUN - fizan
16	Qualia sp. z o.o.	Warsaw	after-sale services in respect of developer products	100	100
17	Sarnia Dolina sp. z o.o.	Warsaw	development activities	100	100
18	Bankowe Towarzystwo Kapitałowe S.A.	Warsaw	services	100	100
	18.1 “Inter-Risk Ukraina" additional liability company2	Kiev, Ukraine	debt collection	99.90	99.90
	18.2 Finansowa Kompania “Prywatne Inwestycje” sp. z o.o.3	Kiev, Ukraine	financial services	95.4676	95.4676
	18.2.1 Finansowa Kompania “Idea Kapitał” sp. z o.o.4	Lviv, Ukraine	services	100	100
19	“Sopot Zdrój” sp. z o.o.5	Sopot	real estate management	72.9769	72.9766

* share of direct parent in the entity’s equity

1 In accordance with IFRS 10, PKO Leasing S.A. controls the company even though it does not have a capital share in it.

2 Finansowa Kompania “Prywatne Inwestycje” sp. z o.o. is the second shareholder of the company.

3 “Inter-Risk Ukraina” – a company with additional liability – is the second shareholder of the company.

4 Until 26 July 2021, it was a subsidiary of KREDOBANK S.A. As at 31 December 2020, the share of KREDOBANK S.A. in the share capital of the company was presented in the item “Share in capital”.

5 On 14 January 2021 the reverse merger between “CENTRUM HAFFNERA” Sp. z o.o. – as the acquiree – and its subsidiary “Sopot Zdrój” Sp. z o.o. – as the acquirer – was registered with the National Court Register (KRS) competent for the acquirer. The share of NEPTUN - fizan in the share capital of “CENTRUM HAFFNERA” sp. z o.o was presented in the item “Share in capital” as at 31 December 2020.

 

The Bank has the following associates and joint ventures.

No.	ENTITY NAME	REGISTERED OFFICE	ACTIVITY	% SHARE IN CAPITAL*
				31.12.2021	31.12.2020
	Joint ventures of PKO Bank Polski S.A.
1	Operator Chmury Krajowej sp. z o.o.	Warsaw	cloud computing services	50	50
2	Centrum Elektronicznych Usług Płatniczych eService Sp. z o.o.	Warsaw	financial services support activities, including handling transactions concluded using payment instruments	34	34
	1 EVO Payments International s.r.o.	Prague, the Czech Republic	financial services support activities	100	100
	Joint venture NEPTUN - fizan
	2 “Centrum Obsługi Biznesu” sp. z o.o.	Poznań	real estate management	41.45	41.45
	Joint venture PKO VC - fizan
	3 BSafer sp. z o.o.	Stalowa Wola	managing marketing consents	35.06	35.06
	Associates of PKO Bank Polski S.A.
1	Bank Pocztowy S.A.	Bydgoszcz	banking activities	25.0001	25.0001
2	“Poznański Fundusz Poręczeń Kredytowych” sp. z o.o.	Poznań	guarantees	33.33	33.33

*share of the entity exercising joint control / having a significant impact / direct parent in the entity’s capital.

2.   Changes in the Group companies

In 2021, the following events occurred in the structure of the Group.

•        in January 2021 there was a reverse merger of “CENTRUM HAFFNERA” Sp. z o.o. as the acquired company and its subsidiary “Sopot Zdrój” Sp. z o.o. as the acquiring company;

•        in March 2021 the liquidation process of ROOF Poland Leasing 2014 DAC was commenced;

•        Finansowa Kompania “Prywatne Inwestycje” sp. z o.o. bought from KREDOBANK S.A. shares in the company Finansowa Kompania “Idea Kapitał” sp. z o.o. representing 100% of its share capital and carrying 100% of the votes at its General Shareholders’ Meeting; the above change on July 28, 2021 was registered in the Unified State Register of Legal Persons, Natural Persons - Entrepreneurs and Social Organizations of Ukraine;

•        On 27 August 2021, a new company, “KREDOLEASING” sp. z o.o., was registered in the Uniform State Register of Legal Persons, Individuals – Entrepreneurs and Social Organizations of Ukraine. The company’s sole shareholder is KREDOBANK S.A. and its share capital amounts to UAH 10 million. The company will provide leasing services; as at 31 December 2021 it was at the organizational stage.

3.   Information on members of the Supervisory Board and Management Board

As at 31 December 2021, the Bank’s Supervisory Board consisted of:

•        Maciej Łopiński – Chair of the Supervisory Board – appointed on 7 June 2021

•        Wojciech Jasiński – Deputy Chair of the Supervisory Board

•        Dominik Kaczmarski – Secretary of the Supervisory Board – appointed on 7 June 2021

•        Mariusz Andrzejewski – Member of the Supervisory Board

•        Grzegorz Chłopek – Member of the Supervisory Board

•        Andrzej Kisielewicz – Member of the Supervisory Board

•        Rafał Kos – Member of the Supervisory Board

•        Tomasz Kuczur – Member of the Supervisory Board – appointed on 14 October 2021

•        Krzysztof Michalski – Member of the Supervisory Board

•        Bogdan Szafrański – Secretary of the Supervisory Board – appointed on 14 October 2021

•        Agnieszka Winnik-Kalemba – Member of the Supervisory Board – appointed on 7 June 2021.

In 2021, there were the following changes in the composition of the Supervisory Board of the Bank:

•        Mr Marcin Izdebski resigned on 6 June 2021;

•        On 7 June 2021, the Annual General Shareholders’ Meeting of the Bank:

–          dismissed Ms Grażyna Ciurzyńska from the position of Supervisory Board member,

–          appointed Mr Dominik Kaczmarski, Mr Maciej Łopiński and Ms Agnieszka Winnik–Kalemba to the Supervisory Board;

•        Mr Piotr Sadownik resigned on 11 October 2021;

•        On 12 October 2021, the Extraordinary General Shareholders’ Meeting of the Bank:

–          dismissed Mr Zbigniew Hajłasz from the position of Supervisory Board member,

–          appointed Mr Tomasz Kuczur and Mr Bogdan Szafrański to the Supervisory Board.

As at 31 December 2021, the Bank’s Management Board consisted of:

•        Iwona Duda – Vice-President of the Management Board managing the work of the Management Board – appointed on 14 October 2021 with effect from 23 October 2021

•        Bartosz Drabikowski – Vice-President of the Management Board – appointed on 15 June 2021

•        Marcin Eckert – Vice-President of the Management Board – appointed on 7 June 2021

•        Wojciech Iwanicki – Vice-President of the Management Board – appointed on 14 October 2021

•        Maks Kraczkowski – Vice-President of the Management Board

•        Mieczysław Król – Vice-President of the Management Board

•        Artur Kurcweil – Vice-President of the Management Board – appointed on 14 September 2021

•        Piotr Mazur – Vice-President of the Management Board

On 26 January 2022, the Polish Financial Supervision Authority unanimously approved the appointment of Mrs Iwona Duda as President of the Management Board of PKO Bank Polski.

In 2021 there were the following changes in the composition of the Management Board of the Bank:

•        On 11 May 2021, Mr Zbigniew Jagiełło filed his resignation from the position of President of the Management Board and membership in the Management Board with effect as of the closing of the Annual General Shareholders’ Meeting of the Bank, which was convened for 7 June 2021;

•        On 8 June 2021, the Bank’s Supervisory Board:

–       appointed Mr Jan Emeryk Rościszewski, Vice-President of the Management Board, to the position of President of the Management Board, on the condition of obtaining PFSA approval and as of the date of such approval; it also entrusted to Jan Emeryk Rościszewski the management of the work of the Management Board (until the date of granting the PFSA approval);

–       appointed Mr Marcin Eckert to the Management Board;

•        On 15 June 2021, the Bank’s Supervisory Board:

–       dismissed Mr Rafał Kozłowski from the Management Board;

–       appointed Mr Bartosz Drabikowski to the Management Board;

•        On 26 July 2021, Mr Adam Marciniak resigned from his function of Vice-President of the Management Board and membership in the Management Board with effect from 13 August 2021;

•        On 3 September 2021, the PFSA approved the appointment of Mr Jan Emeryk Rościszewski for the position of President of the Management Board;

•        On 14 September 2021, the Bank’s Supervisory Board appointed Mr Artur Kurcweil to the Management Board;

•        On 14 October 2021, Mr Jan Emeryk Rościszewski resigned from the position of President of the Management Board and membership in the Management Board with effect from 22 October 2021;

•        On 14 October 2021, the Bank’s Supervisory Board:

–       dismissed Mr Rafał Antczak and Mr Jakub Papierski from the Management Board;

–       appointed Mrs. Iwona Duda to the position of Vice-President of the Management Board; at the same time, Iwona Duda was appointed President of the Management Board on the condition of obtaining PFSA approval and as of the date of such approval; it also entrusted to Iwona Duda the management of the work of the Management Board (in the period from 23 October 2021 to the date of granting the PFSA approval);

–       appointed Mr Wojciech Iwanicki to the Management Board.

The Bank’s Annual General Shareholders’ Meeting adopted the Policy on evaluation of suitability of candidates for members of the Management and Supervisory Boards of Powszechna Kasa Oszczędności Bank Polski S.A. and confirmed the suitability of the appointed body.

4.   Approval of the financial statements

These financial statements of the Bank (the financial statements), subject to review by the Audit Committee and adoption by the Supervisory Board of the Bank on 23 February 2022, were approved for publication by the Management Board on 23 February 2022.

5.   Mortgage loans in convertible currencies

On 23 April 2021, the Extraordinary General Shareholders’ Meeting of PKO Bank Polski S.A. made a decision on concluding settlement agreements with consumers who had signed mortgage loans with the Bank, which are indexed to foreign currencies or denominated in foreign currencies (hereinafter: settlements with consumers). In accordance with the aforementioned resolution:

•        a special fund of PLN 6 700 million was established for the purpose of covering the balance sheet losses that will arise as a result of recognizing the financial effects of the settlements with consumers;

•        the amount of PLN 6 700 million from the Bank’s supplementary capital created from retained earnings available for distribution was transferred to the aforementioned special fund;

•        the General Shareholders’ Meeting obliged the Bank’s Management Board to present for approval by the Bank’s Supervisory Board the terms and conditions on which the settlements will be concluded with consumers, including the terms and conditions for forgiving debt;

•        the Bank’s Management Board began concluding the settlements with consumers (including those that stipulate debt forgiveness) after the Bank’s Supervisory Board had issued a positive opinion on the terms and conditions on which they are to be concluded, including those relating to debt forgiveness (Supervisory Board resolution dated 27 May 2021).

In the period from June to September 2021, the Bank was working on the details of the solution, which included offering the customers the option to switch to a fixed interest rate. The Bank conducted a pilot programme concerning the settlements, which involved participating in mediation at the PFSA court of arbitration and concluding settlements in common courts.

On 4 October 2021, the Bank launched a programme of settlements for Swiss franc borrowers.

The settlement process is conducted remotely (an application is filed in the transactional system, mediations are conducted online) and the borrower appears at the branch only once, to sign the settlement agreement. During the mediation proceedings before the PFSA Court of Arbitration the customer will learn all financial parameters of the proposal, including the balance after conversion and the amount of overpayment, if any, to be reimbursed by the Bank. The process is cost-free and customer-friendly. The mediation costs are borne by the Bank.

The Bank offers this solution to retail customers who have (and still repay) housing loans granted in Swiss francs. This form of aid is available to the customers who obtained loans to finance their own housing needs. The mediations are conducted before the PFSA Court of Arbitration. Each application for mediation may only refer to a single loan agreement. Settlement agreements are not offered to the customers whose loans have already been repaid or disbursed in CHF in the total amount, or those who have used the Borrower Support Fund.

After having been converted to PLN, a foreign currency loan is treated as a loan originally granted in PLN. The other parameters, such as the term of the loan, form of repayment, the fees, commissions and insurance premiums incurred remain unchanged. The amount of the loan after conversion to PLN is calculated using the variable interest rate as at the date of the agreement. The interest rate is the sum of the WIBOR 3M reference rate and the margin. The Bank presents detailed calculations to the customers a few days before the mediation hearing at the Court of Arbitration.

Settlements are also offered as part of court proceedings and proceedings initiated by a motion to set a conciliatory hearing.

By the end of 2021, more than 19 000 motions for mediation were registered (by 22nd February 2022 - over 22.7 thousand). In total, 5 887 settlement agreements were concluded as at 31 December 2021, of which 5 754 were concluded during mediation proceedings and 133 were concluded in court (as of 22nd February 2022 – 9 343 settlement agreements concluded of which 9 191 cases where a settlement was signed in mediation proceedings and 152 in court proceedings).

More information on the portfolio of mortgage loans in convertible currencies and settlements with consumers is presented in the following notes: “Cost of the legal risk of mortgage loans in convertible currencies”, “Legal claims” and “Management of currency risk associated with mortgage loans for individuals”, “Currency risk management”.

6.   Statement of compliance

The financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU) as at 31 December 2021, and in the areas not regulated by these standards, in accordance with the requirements of the Accounting Act of 29 September 1994 and the respective secondary legislation issued on its basis, as well as the requirements relating to issuers of securities registered or applying for registration on an official stock market.

7.   Going concern

The financial statements have been prepared on the basis of the assumption that the Bank will continue as a going concern for a period of at least 12 months from the publication date, i.e. from 23 February 2022. As at the date of signing these financial statements, the Bank’s Management Board is not aware of any facts or circumstances that would indicate a threat to the Bank’s ability to continue in operation as a going concern for 12 months following the publication date as a result of any intended or compulsory discontinuation or significant limitation of the Bank’s existing operations.

8.   Management Representation

The Management Board hereby represents that, to the best of their knowledge, the financial statements and the comparative data have been prepared in accordance with the applicable rules of accounting practice and give a true, fair and clear view of the Bank’s financial position and results of operations.

9.   Impact of the COVID-19 pandemic on the Bank’s operations

The impact of COVID-19 pandemic on the operations of the Bank and the banking sector and measures adopted by Bank since the beginning of the pandemic to ensure safety of its Customers and employees and continuity of business processes are described in detail in the Bank’s financial statements for 2020 and the PKO Bank Polski S.A. Group Directors’ Report for 2020.

•           Impact on estimations and assumptions

The COVID-19 pandemic increased the level of uncertainty. Its consequences for the global economy and measures adopted by governments and regulators affect and may affect the Bank’s financial results and position, including, among others, on the expected credit losses or goodwill recognized. In 2021, the Bank did not identify any new adverse effects of the COVID pandemic. All the adverse effects that could be reasonably assessed had been recognized in 2020.

The Bank is monitoring the development on an ongoing basis and takes them into account in the current period.

•           Moratoria and public guarantees – loan portfolio modifications and quality

In order to mitigate the economic effects of the spread of the COVID-19 pandemic, the Bank introduced a number of corrective measures for retail customers, companies, enterprises, corporate customers and local authority units, which are aimed at mitigating the economic effects of the spread of COVID-19:

•        loan moratoria, including those that are consistent with the guidelines of the European Banking Authority;

•        granting loans and advances covered by the public guarantee programmes associated with the COVID-19 crisis.

The moratoria offered to the Bank’s Customers and the public guarantee programmes offered in 2020 are described in detail in the Bank’s financial statements for 2020 in the note “Specific activities in the area of risk management undertaken by the Bank in 2020” and in the Directors’ Report on the operations of the PKO Bank Polski S.A. Group in 2020.

Guarantees received by the Bank as part of public guarantee initiatives under an annex to the de minimis portfolio guarantee line agreement of 22 June 2018 (as amended) and the portfolio guarantee line agreement of the Liquidity Guarantee Fund of 10 April 2020 concluded with Bank Gospodarstwa Krajowego meet the definition of financial guarantees and are presented in note “Contingent liabilities and off-balance sheet commitments received and granted”.

The qualitative and quantitative impact of COVID-19 on the loan portfolio quality, including the estimated credit losses, is presented in the note “Credit risk – financial information”.

•           Goodwill and investments in associates and joint ventures – impairment test

Goodwill and investments in associates and joint ventures are subject to impairment tests annually and whenever there are indications of a potential impairment during the year.

The Bank did not recognize any additional impairment allowances for investments in subsidiaries, associates and joint ventures in 2021. The adverse effect of the COVID-19 pandemic on the business environment was taken into account in the impairment tests of goodwill on the acquisition of Nordea Bank Polska S.A. and the shares of Bank Pocztowy S.A. performed in 2020. As a result of the tests performed, in 2020 the Bank recognized write-downs in this respect under “Net impairment allowances on non-financial assets” (for more details, see the notes: “Net impairment allowances on non-financial assets”, “Intangible assets, property, plant and equipment” and Investments in subsidiaries, associates and joint ventures”).

•           Capital adequacy

The impact of COVID-19 on capital adequacy and the activities of the regulatory bodies – Regulation (EU) 2020/873 of the European Parliament and of the Council amending Regulations (EU) No 575/2013 and (EU) 2019/876 as regards certain adjustments in response to the COVID-19 pandemic (CRR Quick Fix) are described in the notes “Capital adequacy” and “Capital adequacy and other information subject to disclosure by the Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna Group as at 31 December 2021”.

 

Accounting policies adopted to prepare the financial statements

10.            The basis for preparation of the financial statements

The financial statements cover the year ended 31 December 2021 and include comparative data for the year ended 31 December 2020. The financial data is presented in Polish zloty (PLN) in millions, unless otherwise indicated.

These financial statements have been prepared on a fair value basis in respect of financial assets and liabilities measured at fair value through profit or loss, including derivatives and financial assets measured at fair value through other comprehensive income. The remaining financial assets are disclosed in amortized cost less allowances for expected loan losses. However the remaining financial liabilities are disclosed at amortized cost. Non-current assets are measured at acquisition cost less accumulated depreciation and impairment charges. Non-current assets (or groups of such assets) classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.

While preparing financial statements, the Bank makes certain estimates and assumptions, which have a direct influence on both the financial statements and enclosed supplementary information. The estimates and assumptions that are used by the Bank in determining the value of assets and liabilities as well as revenues and costs, are made based on historical data and other factors which are available and considered appropriate in the given circumstances. Assumptions regarding the future and the available data are used for assessing the carrying amounts of assets and liabilities which cannot be clearly determined using other sources. In making estimates the Bank takes into consideration the reasons and sources of the uncertainties that are anticipated at the end of the reporting period. Actual results may differ from estimates.

Estimates and assumptions made by the Bank are subject to periodic reviews. Changes in estimates are recognized in the period to which they relate.

11.  Environmental issues and their impact on the financial statements

Due to the nature of its business activities, the Bank’s direct impact on the natural environment is limited to the consumption of natural resources. The Bank’s indirect impact on the environment is related to the financing granted to business entities and public authorities and the Bank’s product offer. The Bank mitigates its direct impact on the environment and adjusts its lending policies addressed to the various sectors of the economy in order to also motivate its customers to mitigate their environmental impact.

The issues associated with the Bank’s environmental impact and its pro-environmental initiatives are described in the Directors’ Report of the PKO Bank Polski S.A. Group for 2021 in the section “Risk of adverse impact on the environment”.

In response to the growing interest of the investors and other users of the financial statements in climate-related issues and their potential impact on the financial position and results of companies, this note describes the impact of climate-related factors on the specific financial statement components, including in particular the impact of climate risk on the measurement of the expected credit losses and concentration of credit risk.

This disclosure takes into account the IASB guidelines provided in the document entitled “Effects of climate-related matters on financial statements” from November 2020.

The ESG risk was considered in the Bank’s risk management strategy in 2021. The ESG risk management issues are described in the note “ESG risk management”.

•      Sources of uncertainty of estimates, significant judgments and the ability to continue as a going concern

The Bank is exposed to climate risk, including:

•        physical risk (e.g. risk arising from more frequent/serious weather phenomena); and

•        economic transformation and climate change risk (e.g. risk associated with transition to less polluting, low-emission economy, extremization of the seasons).

The climate risk may potentially affect the estimates and assessments of the Bank (including those used in the calculation of allowances for expected credit losses).

There were no material estimates or judgments associated with climate factors that would have a significant effect on the amounts recognized in these financial statements.

Climate-related issues do not present a threat to the Bank’s ability to continue in operation as a going concern in the period of 12 months after the of approval of these financial statements by the Management Board for publication.

•      classification and measurement of financial instruments at fair value

The climate risk may affect the expected cash flows from loans granted and, therefore, expose the Bank to credit losses. The borrower-specific attributes, physical risk and transition risk may (individually or in combination) affect the expected cash flows, as well as the potential future economic scenarios which are taken into account in the measurement of expected credit losses.

The impact of climate-related risk factors on the expected credit losses will vary depending on the severity and duration of the anticipated climate threats, their direct and indirect impact on the borrower and the lender’s loan portfolio, and the loan portfolio duration.

The impact of climate-related risk factors on the Bank’s expected credit losses is potentially limited, as the Bank expects the most significant effects of climate change to appear in the mid- and long-term perspective. Therefore, their present impact on ECL will be limited in view of the relatively short-term duration of many bank loan portfolios. At the same time, it is important to monitor the rate and scale of such changes and their possible effect on the measurement of the allowances for expected credit losses.

Since 30 June 2021, as part of the lending process for customers from the corporate segment and the segment of firms and enterprises evaluated with the use of the rating method, the Bank each time assesses the impact of environmental, social and governance factors (ESG) on the customer’s creditworthiness. The Bank also examines the impact of credit transactions on ESG and classifies them to four categories, from transactions with a positive impact on ESG to those with a material negative impact. When assessing the ESG factors, the Bank takes into account such factors as the risk of climate change and its impact on the customer’s operations, potential influence of the customer on climate, factors related to human capital or health and safety, and governance factors (including the corporate culture and internal audit).

In the fair value measurement of financial instruments classified to level 3 of fair value the Bank does not use unobservable data relating to climate risk:

•        securities classified to level 3;

•        loans granted classified to level 3 – they generally constitute financing for households and their fair value is estimated under the discounted cash flow method using the effective credit margin;

•        not listed shares in other entities classified to level 3 – they do not include companies from sectors which are exposed to significant climate risk.

•      Property, plant and equipment, property, plant and equipment leased out under operating lease and intangible assets

Climate-related issues do not affect depreciation and amortization recognized by the Bank as at 31 December 2021 and 2020.

Moreover, climate-related factors did not cause any indications of impairment of non-financial assets and did not affect the recoverable value of the Bank’s non-financial assets as at 31 December 2021 and 2020.

•      Inventories

Climate-related issues do not affect the carrying amount of the inventories held by the Bank as at 31 December 2021 and 2020.

•      Taxation

Climate-related issues do not affect deferred income tax assets recognized by the Bank as at 31 December 2021 and 2020.

•      Provisions

In the years 2020-2021, there were no administrative proceedings relating to violations of environmental regulations or the Bank’s impact on climate that would lead to any fines being imposed on the Bank.

•      Legal claims

As at 31 December 2021 and 2020, there were no legal claims concerning any matters relating to climate or environment protection. In the years 2020-2021, there were no administrative proceedings relating to violations of environmental regulations or the Bank’s impact on climate that would lead to any fines being imposed on the Bank.

12.  Interest rate benchmarks reform

•      Legal environment

Interbank offering rates (IBORs), such as WIBOR, EURIBOR or LIBOR, are commonly used as benchmarks for determining interest rates charged on a wide scope of contracts and financial instruments.

A new standard has been developed in the European Union for designing, providing and applying interest rate benchmarks. The legal basis for the said standard is the Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014 (hereinafter: “BMR”). The BMR:

•        sets the rules for development and application of transparent, reliable and fair benchmarks;

•        provides extensive controls over the set-up of benchmarks;

•        expects the benchmarks to be determined, generally, on the basis of the actual transactions executed on a given market.

In October 2020, ISDA, an international organization setting standards for trading in derivative instruments, published the ISDA Protocol describing the procedure for replacing IBORs used in the current and new derivative transactions with new risk-free benchmarks. The Bank joined the Protocol in November 2020.

On 10 February 2021, the European Union published an amendment to the BMR, granting the European Commission and the Member States competences to designate replacements for benchmarks in cessation, if such cessation could threaten the stability of the EU market or a Member State market. By law, such a replacement will replace all references to a benchmark which ceased to be published in all contracts and financial instruments which do not contain fallback provisions or whose fallback provisions do not address the permanent cessation of a benchmark.

On 5 March 2021, the Financial Conduct Authority (FCA) announced that after 31 December 2021 it will no longer publish selected LIBORs due to the fact that they cannot be adapted to the BMR requirements. For the purposes of their continued use in contracts and financial instruments concluded by the end of 2021, the 1M, 3M and 6M LIBOR USD rates will be published until 30 June 2023, and the 1M, 3M and 6M LIBOR GBP and JPY rates, in a synthetic form, will be published until the end of 2022.

•      Adjustment of the individual benchmarks

In the case of EURIBOR, the process of adjustment to the BMR requirements was completed in June 2019 by extending the scope of transactions used to determine the ratio and implementing the waterfall model, which allows designating a transitional benchmark in the event of absence of transactions.

The WIBOR reform and its adjustment to the BMR requirements were completed in 2020 and they involved the same change in the benchmark calculation methodology as in the case of EURIBOR. On 16 December 2020, the PFSA granted GPW Benchmark S.A. permission to perform the function of administrator of the key benchmarks WIBID and WIBOR.

With respect to the LIBOR benchmarks, the aforementioned FCA decision on cessation of their publication and the simultaneous application of the aforementioned transitional solutions for USD, GBP and JPY to the existing portfolio remains in force. In the case of LIBOR CHF, the European Commission used its powers referred to above and issued the Implementing Regulation of 22 October 2021, designating 1M, 3M, 6M and 12M SARON compound rates, adjusted by a relevant spread, as replacements for the corresponding CHF LIBOR rates. The regulation will be applied as of 1 January 2022.

•      Adjustment of the Bank

Evolution of the legal environment and benchmark market migration in accordance with BMR may affect the Bank’s operations through the agreements signed with the customers and business partners, changes in the valuation of financial instruments and the need to adjust IT processes and systems.

Since the third quarter of 2020, the Bank has conducted an interdisciplinary project aimed at its adaptation to the requirements of the BMR, as well as the PFSA interpretations and guidelines, in particular in the area of:

•        development of a contingency plan and its implementation in the Bank’s contracts and rules and regulations;

•        adjustment of the offer of products and services;

•        adjustment of the Bank’s transactional, accounting, analytical, risk and reporting systems;

•        adjustment of the use of hedge accounting;

•        annexing the contracts and implementing the standards adopted by the markets;

•        cooperation with the banking sector aimed at developing a uniform interpretation of the regulations and standards of their implementation.

As a result of the project work, as of 1 January 2022 the Bank and the Bank’s Group will continue servicing the loan portfolios and new loan agreements using WIBOR and EURIBOR without any changes. With respect to the loan agreements using LIBOR which were concluded before 1 January 2022, a replacement designated by the European Commission for CHF and the “bridge” rates available until 30 June 2023 for USD and until 31 December 2022 for GBP will be used. The few agreements which used LIBOR EUR were annexed to EURIBOR. For new variable interest loans granted to corporate customers in foreign currencies, new benchmarks (referred to as risk-free rates) will be used, such as SARON for CHF, SOFR for USD, SONIA for GBP. Depending on the nature of the product, interest will be calculated daily or using compound interest rates – either “in advance” (based on historical rates) or “in arrears” (at the end of an interest period). As far as the financial market transactions are concerned, the Bank (as mentioned above) has joined the ISDA Protocol and will execute and settle transactions in accordance with that standard, i.e. using compound risk-free rates.

The following table presents the Bank’s exposure to significant types of interest rates affected by the interest rate benchmark reform, which had not been replaced as at 31 December 2021.

Financial assets	Foreign currencies translated into PLN
31.12.2021	LIBOR CHF	LIBOR USD	Other	Total
Loans and advances to customers (measured at amortized cost)	12 665	536	116	13 317
Total assets	12 665	536	116	13 317

 

Financial liabilities and off-balance sheet liabilities	Foreign currencies translated into PLN
31.12.2021	LIBOR CHF	LIBOR USD	Other	Total
Amounts due to customers (measured at amortized cost)	1	25	7	33
Provision for financial liabilities and guarantees granted	3	4	-	7
Total liabilities	4	29	7	40
Financial and guarantee liabilities granted	129	3 029	65	3 223

 

NOMINAL AMOUNT of derivative instruments	Foreign currencies translated into PLN
31.12.2021	LIBOR CHF	LIBOR USD	Other	Total
Derivative hedging instruments	8 458	833	-	9 291
- Purchase (floating leg)	3 640	833	-	4 473
- Sale (floating leg)	4 818	-	-	4 818
Other derivative instruments	10 562	1 726	-	12 288
- Purchase (floating leg)	5 270	973	-	6 243
- Sale (floating leg)	5 292	753	-	6 045

 

13.            New standards and interpretations and their amendments

•           Standards and interpretations and their amendments effective from 1 January 2021

Standards and interpretations*	Description of changes and impact
Amendments to IFRS 9, IFRS 7, IAS 39 and IFRS 16, IFRS 4 - IBOR reform - Phase 2 (1.01.2021/14.01.2021) 2021)	Regulations issued under Phase 2 of the IBOR reform relate to the following: •      changes to contractual cash flows – adding to IFRS 9 a practical expedient which will enable accounting for modifications of contractual cash flows arising from the IBOR reform by updating the effective interest rate of the contract to reflect the transition to an alternative benchmark rate (there will be no obligation to derecognize or adjust carrying amounts of financial instruments); a similar practical expedient was introduced with respect to accounting for lease modifications by lessees under IFRS 16; •      hedge accounting – there will be no need to discontinue applying hedge accounting solely due to the changes required by the reform, provided that the hedge meets other hedge accounting criteria, •      disclosures – companies will be obliged to disclose information on new risks arising from the reform and on how they manage the transition to alternative benchmark rates. For details, see the note “Interest rate benchmarks reform”.
amendments to IFRS 4 “Insurance contracts” (1.01.2021/16.12.2021)	The amendments move the date of termination of the temporary relief from the application of IFRS 9 from 1 January 2021 to 1 January 2023 in order to align it with the effective date of IFRS 17. The amendments provide for optional solutions in order to mitigate the impact of different effective dates of IFRS 9 and IFRS 17. The changes do not apply to the Bank

*(the effective date in the EU / date of endorsement by the EU is provided in parentheses)

•           NEW STANDARDS AND INTERPRETATIONS AND AMENDMENTS THERETO THAT HAVE BEEN PUBLISHED AND ENDORSED BY THE EUROPEAN UNION, BUT HAVE NOT COME INTO FORCE YET AND ARE NOT APPLIED BY THE BANK

Standards and interpretations*	Description of changes and impact
amendments to IFRS 3 “Business combinations” (1.01.2022/28.06.2021)	Amendments to IFRS 3 have updated references to the Conceptual Framework issued in 2018. In order to ensure that this update will not impact assets and liabilities which qualify for recognition at business combination, the amendment introduces new exceptions from the recognition and measurement principles of IFRS 3. The Bank does not expect these amendments to have a material effect on the financial statements.
Amendments to IAS 16 “Property, plant and equipment” (1.01.2022/28.06.2021)	The amendment specifies that, among other things, proceeds from selling items produced while bringing an asset to the desired location and condition cannot be deducted from the cost associated with that asset. Instead, such proceeds should be recognized in profit or loss together with the costs of producing such items. The Bank does not expect these amendments to have a material effect on the financial statements.
IFRS 17 “Insurance contracts” (1.01.2023/ 19.11.2021) and amendments to IFRS 17 (1.01.2023/ 19.11.2021)	IFRS 17 will replace IFRS 4, which enabled entities to recognize insurance contracts according to the accounting principles based on the national standards, which, as a result, meant applying many different solutions. IFRS 17 introduces the requirement to recognize all insurance contracts in a consistent manner, including, among others, with regard to the measurement of insurance liabilities, recognition of the profit or loss over time, accounting for reinsurance, separation of an investment component. The application of the standard should follow the full retrospective approach with certain exemptions. The Bank is in the process of analysing the impact of these amendments on the financial statements.
Amendment to IAS 37 “Provisions, contingent liabilities and contingent assets” (1.01.2022/28.06.2021)	The amendments clarify that, when assessing whether or not a contract is onerous, the cost of fulfilling a contract comprises all costs that relate directly to the contract. The Bank does not expect these amendments to have a material effect.
annual improvements to IFRS 2018-2020 (1.01.2022/28.06.2021)	•      The amendment to IFRS 1 relates to situations when a subsidiary adopts IFRS for the first time at a later date than its parent; in such a case, the subsidiary may decide to measure cumulative translation differences for all foreign operations using the amounts reported by its parent in its consolidated financial statements, based on the parent’s date of transition to IFRS. •      The amendment to IAS 41 aligns fair value measurement requirements set out in IAS 41 with the assumptions of IFRS 13. not applicable to the Bank •      The amendment to IFRS 9 clarifies which fees should be included for the purposes of the ‘10 per cent’ test in the case of derecognition of financial liabilities. •      Amendments to illustrative examples in IFRS 16 relating to identification of lease incentives. The Bank does not expect these amendments to have a material effect on the financial statements.

*(the effective date in the EU / date of endorsement by the EU is provided in parentheses)

•           New standards and interpretations, and amendments thereto, which have been published but have not been endorsed by the European Union

Standards and interpretations*	Description of changes and impact
amendments to IAS 1 - classification of liabilities (1.01.2023/ no data)	The changes relate to the classification of liabilities in the statement of financial position as short-term or long-term. They clarify that the classification of liabilities as short-term or long-term should take into account, as at the classification date, the existence of a debt extension, regardless of the entity's intention to use it for a period longer than 12 months, and should take into account the fulfillment of the conditions of such extension as at the date of assessment, if it is conditional. The Bank is in the process of analysing the impact of these amendments on the financial statements.
amendments to IAS 1 and IAS 8 (1.01.2023/ no data)	Amendments to IAS 1 contain guidelines on the application of the concept of materiality to disclosures of the accounting policies. Amendments to IAS 8 explain how companies should distinguish changes in accounting policies from changes in accounting estimates. The Bank is in the process of analysing the impact of these amendments on the financial statements.
Amendments to IAS 12 (1.01.2023/ no data)	Amendments to IAS 12 specify the principles of recording deferred tax on transactions in which the companies recognize both an asset and a liability, which in turn may result in possible positive and negative temporary differences at the same time. This applies, inter alia, to transactions such as leasing or liquidation liabilities. Entities are required to recognize deferred tax on this type of operation (it is not possible to apply the deferred tax exemption). The Bank does not expect these amendments to have a material effect on the financial statements.

*(the effective date in the EU / date of endorsement by the EU is provided in parentheses)

14.            Description of significant accounting policies

Major accounting policies and estimates and judgments applied in the preparation of these financial statements are presented in this note and in some notes further in the financial statements. In all years presented, these accounting policies are applied consistently, with the exception of issues described in the note “Changes in the accounting policies applicable from 1 January 2021 and explanation of the differences between previously published financial statements and these financial statements”.

14.1.                   Functional currency, presentation currency and foreign currencies

The financial statements are presented in Polish zlotys (PLN), which are the Bank’s functional and presentation currency. Items of the statement of financial position of the German and Slovak Branches are translated into the presentation currency from the functional currency (EUR) and items of the statement of financial position of the Czech Branch are translated into the presentation currency from the functional currency (CZK) using the average NBP exchange rate at the end of the reporting period. Items in the Branches’ profit and loss are translated into the presentation currency using the average exchange rate from the end of each month of the reporting period. The resulting exchange differences are recognized in other comprehensive income.

•      Transactions and balances in foreign currencies

Transactions expressed in foreign currencies are translated into the functional currency at the exchange rate applicable on the transaction date. At the end of each reporting period, the Bank translates:

•        monetary items in foreign currencies – at the closing exchange rate, i.e. the average exchange rate announced by the National Bank of Poland applicable at the end of the reporting period;

•        non-monetary items carried at historical cost in foreign currencies – at the exchange rate as at the date of the transaction;

•        non-cash items measured at fair value in a foreign currency are translated using the exchange rates prevailing as at the date of determination of the fair value.

Foreign exchange gains and losses arising from the settlement of such transactions and from the valuation of monetary and non-monetary assets and liabilities expressed in foreign currencies are recognized in the income statement.

14.2.                   Accounting for transactions

Financial assets and financial liabilities, including forward transactions and standardized transactions, which carry an obligation or a right to purchase or sell in the future an agreed number of specified financial instruments at a fixed price, are entered into the books of account under the date of the conclusion of the contract, irrespective of the settlement date provided in the contract.

14.3.                   Derecognition of financial instruments from the statement of financial position

Financial assets are derecognized from the statement of financial position when contractual rights to the cash flows from the financial asset expire or when the Bank does not have justified prospects for recovering the given financial asset in full or in part, or when the financial asset is transferred by the Bank to another entity. The financial asset is transferred when the Bank:

•        transfers the contractual rights to collect cash flows from that financial asset to another entity, or

•        retains the contractual rights to receive cash flows from the financial asset, but assumes a contractual obligation to pay cash flows to one or more recipients.

Upon the transfer of a financial asset, the Bank evaluates the extent to which it retains the risks and benefits associated with holding that financial asset. If:

•        substantially all risks and benefits associated with holding a given financial asset are transferred, the financial asset is eliminated from the statement of financial position;

•        the Bank retains substantially all risks and benefits associated with holding a given financial asset, the financial asset continues to be recognized in the statement of financial position;

•        substantially all risks and benefits associated with holding a given financial asset are neither transferred nor retained, the Bank determines whether it has maintained control over that financial asset. If the Bank has retained control, it continues to recognize the financial asset in the statement of financial position to the extent of its continuing involvement in the financial asset; if control has not been retained, then the financial asset is derecognized from the statement of financial position.

The Bank derecognizes a financial liability (or a part of a financial liability) from its statement of financial position when the obligation specified in the contract has been met or cancelled, or has expired.

The Bank derecognizes financial assets from its statement of financial position, among other things, when they are forgiven, their limitation period has expired or when they are irrecoverable. When the said assets are derecognized, they are charged to the respective credit loss allowances or losses in respect of legal risk.

In the event that no allowances have been recorded, or if the amount of the allowance is less than the amount of the financial asset, the amount of the impairment allowance is increased by the difference between the value of the asset and the amount of the allowance that has been recognized to date.

14.4.                   The principles for classification of financial instruments

The Bank classifies financial assets into the following categories:

•        measured at amortized cost;

•        measured at fair value through other comprehensive income;

•        measured at fair value through profit or loss.

The Bank classifies financial liabilities into the following categories:

•        measured at amortized cost;

•        measured at fair value through profit or loss.

Classification of financial assets as at the date of acquisition or origination depends on the business model adopted by the Bank for the purposes of managing a particular group of assets and on the characteristics of the contractual cash flows resulting from a single asset or group of assets. The Bank identifies the following business models:

•        the “held to collect” cash flows model, in which financial assets originated or acquired are held in order to collect gains from contractual cash flows – this model is typical for lending activities;

•        the “held to collect and sell” cash flows model, in which financial assets originated or acquired are held to collect gains from contractual cash flows, but they may also be sold (frequently and in transactions of a high volume) – this model is typical for liquidity management activities;

•        the residual model – other than the “held to collect” or the “held to collect and sell” cash flows model.

•      business model

The business model is determined/selected upon initial recognition of financial assets. The determination/selection is performed at the level of individual groups of assets, in the context of the business area in connection with which the financial assets originated or were acquired, and is based, among other things, on the following factors:

•        the method for assessing and reporting the results of the financial assets portfolio;

•        the method for managing the risk associated with such assets and the principles of remunerating the persons managing such portfolios.

In the “held to collect” business model, assets are sold occasionally, in the event of an increase in credit risk or a change in the laws or regulations. The purpose of selling the assets is to maintain the assumed level of regulatory capital. Assets are sold in accordance with the principles described in the portfolio management strategy or close to maturity, in the event of a decrease in the credit rating below the level assumed for a given portfolio, significant internal restructuring or acquisition of another business, the performance of a contingency or recovery plan or another unforeseeable factor independent of the Bank.

•      Assessment of contractual cash flow characteristics

The assessment of the contractual cash flow characteristics establishes, based on a test of contractual cash flows, whether contractual cash flows are solely payments of principal and interest (hereinafter “SPPI”). Interest is defined as consideration for the time value of money, credit risk relating to the principal remaining to be repaid within a specified period and other essential risks and costs associated with granting financing, as well as the profit margin.

Contractual cash flow characteristics do not affect the classification of the financial asset if:

•        their effect on the contractual cash flows from that asset could not be significant (de minimis characteristic);

•        they are not genuine, i.e. they affect the contractual cash flows from the instrument only in the case of occurrence of a very rare, unusual or very unlikely event (non-genuine characteristic).

In order to make such a determination, the potential impact of the contractual cash flow characteristics in each reporting period and throughout the whole life of the financial instrument is considered.

The SPPI test is performed for each financial asset in the “held to collect” or “held to collect and sell” models upon initial recognition (and for substantial modifications after subsequent recognition of a financial asset).

In the case of financial assets having characteristics associated with sustainable development (green loans, where a customer may benefit from a reduced margin upon presentation of an energy efficiency certificate), the cash flow changes are assessed taking into account the possible impact of the characteristic associated with sustainable development in every reporting period and cumulatively throughout the lending period. It is also considered whether the impact of this characteristic on contractual cash flows is associated with credit risk. If the interest is increased or decreased in consequence of an increase or a decrease in credit risk, which indicates a positive correlation between the credit margin and the credit risk level, the SPPI criteria are met.

The Bank analyses, among others, the following features of financial assets which result in the SPPI test being failed:

•        leverage in the design of interest rate, understood as a multiplier higher than 1;

•        a creditor’s right to participate in the profit – contractual cash flows are not only the repayment of principal and interest on the outstanding principal;

•        limitation of the debtor’s liabilities (resulting in a non-recourse asset);

•        early repayment and extension option contingent on a future economic event which does not relate to the agreement, particularly an event not related to a change in the borrower’s credit risk level;

•        covenants providing for an increase or decrease in interest rate in line with an increase or decrease in credit risk, which reflects a negative relation between the loan margin and the level of credit risk;

•        interest rates unilaterally determined by the Bank (administered interest rates), if they do not approximate variable market rates.

If the qualitative assessment performed as part of the SPPI test is insufficient to determine whether the contractual cash flows are solely payments of principal and interest, a benchmark test (quantitative assessment) is performed to determine the difference between the (non-discounted) contractual cash flows and the (non-discounted) cash flows that would occur should the time value of money remain unchanged (the reference level of cash flows). 

14.5.                   Financial assets measured at amortized cost

Financial assets (debt financial assets) are measured at amortized cost, provided that both the following conditions are met:

•        a financial asset is “held to collect”;

•        the contractual terms relating to the financial asset cause cash flows to arise in certain periods, which are only the result of repayment of the principal and the interest on the outstanding principal (passed SPPI test).

Upon initial recognition, these assets are measured at fair value. The initial value of an asset measured at amortized cost is adjusted by all commissions and fees which affect its effective return and constitute an integral element of the effective interest rate of this asset (commissions and fees arising in connection with activities performed by the Bank, and leading to the arising of the assets).

The carrying amount of this category of assets is determined using the effective interest rate described in the note “Interest income and expenses”, which is used to determine (calculate) the interest income generated by the asset in a given period, adjusting it for expected credit loss allowances.

Assets for which the schedule of future cash flows necessary for calculating the effective interest rate cannot be determined, are not measured at amortized cost. Such assets are measured at amounts due which also include interest on receivables, taking into consideration allowances for expected credit losses. Commissions and fees connected with the arising of or decisive for the financial qualities of such assets should be settled over the period of life of the asset using the straight-line method, and are included in commission income.

14.6.                   Financial assets measured at fair value through other comprehensive income

Financial assets (including debt instruments) are measured at fair value through other comprehensive income if both the following conditions are met:

•        the financial asset is held in accordance with the business model aimed at both receiving contractual cash flows and selling the asset; and

•        the terms and conditions of an agreement concerning the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding (the SPPI test is passed).

Financial assets measured at fair value through other comprehensive income are measured at fair value. The effects of adjustments to the fair value of those financial assets until their derecognition or reclassification are recognized in other comprehensive income, with the exception of interest income, gains or losses in respect of impairment allowances for expected credit losses and foreign exchange gains or losses recognized in the income statement. The gain or loss recognized in other comprehensive income constitutes the difference between the fair value of a financial asset as at the measurement date and the value of the asset at amortized cost.

If a financial asset is no longer recognized, the accumulated profit or loss, which was previously recognized in other comprehensive income, is reclassified from other comprehensive income to financial profit or loss in the form of a reclassification adjustment.

14.7.                   Financial assets measured at fair value through profit or loss

If financial assets do not satisfy any of the aforementioned criteria of measurement at amortized cost or at fair value through other comprehensive income, they are classified as financial assets measured at fair value through profit or loss.

Additionally, on initial recognition, a financial asset may be irrevocably classified as measured at fair value through profit or loss (option to measure at fair value through profit or loss) if this eliminates or significantly reduces inconsistency of measurement or recognition which would arise as a result of measuring assets or liabilities, or recognizing the related gains or losses according to different accounting principles (accounting mismatch). This option is available for debt instruments both under the “hold to collect”, and “hold to collect and sell” models.

In the financial statements, financial assets measured at fair value through profit or loss are presented as follows:

•          held for trading – financial assets which:

•        have been purchased mainly to sell or redeem in the foreseeable future; or

•        upon initial recognition they constitute part of a portfolio of specific financial instruments which are managed jointly and for which there is evidence that they currently generate short-term profits; or

•        are derivative financial instruments (with the exception of derivatives which are financial guarantee agreements or designated and effective hedges);

•          financial assets that are not held for trading and must be measured at fair value through profit or loss – financial assets that have not passed the test of cash flow characteristics (irrespective of the business model); or financial assets classified to the residual model;

•          financial assets designated to be measured at fair value through profit or loss at initial recognition (option to measure at fair value through profit or loss.

Gains or losses on assets measured at fair value through profit or loss are recognized in the income statement. Gains or losses on the measurement of the financial asset at fair value comprise the difference between the fair value of the asset and its value at amortized cost determined as at the measurement date.

14.8.                   Equity instruments

Investments in equity instruments are measured at fair value through profit or loss.

In the case of investments in equity instruments, the Bank did not use the option of measurement at fair value through other comprehensive income.

14.9.                   Reclassification of financial assets

Financial assets are reclassified only in the event of a change in the business model relating to the asset or a group of assets resulting from the commencement or discontinuation of a significant part of the entity’s operations. Such changes are very infrequent. Reclassification is presented prospectively, i.e. without changing the effects of fair value measurement in earlier periods write-downs or accrued interest that have been recognized to date.

The following are not treated as changes in the business model:

•        changes in the intentions regarding specific financial assets (even in the event of significant changes in market conditions);

•        temporary disappearance of a specific financial assets market;

•        transfer of financial assets between areas of operations using different business models.

No financial liabilities are reclassified.

14.10.              Modifications – Changes in contractual cash flows

Modification – understood as a change in the contractual cash flows in respect of a financial asset based on an annex to the contract, may be substantial or non-substantial. A change in the contractual cash flows resulting from execution of the terms of the contract is not a modification.

If the contractual cash flows associated with a financial asset are renegotiated or otherwise modified based on an annex to the agreement, and such renegotiation or modification does not lead to such a financial asset no longer being recognized (“a non-substantial modification”), the gross carrying amount of the financial asset is recalculated and gain or loss arising from such modification is recognized in the financial result. An adjustment of the carrying amount of a financial asset resulting from the modification is recognized in interest income/ expenses over time using the effective interest rate method. The carrying amount of a financial asset is calculated as the present value of renegotiated or modified contractual cash flows, discounted using the original effective interest rate on the financial asset (or, in the case of credit-impaired financial assets purchased or issued, the effective interest rate adjusted for credit risk) or, if applicable (e.g. with respect to gain or loss on a hedged item resulting from hedging), the updated effective interest rate. Any costs or fees incurred adjust the carrying amount of the modified financial asset and are amortized over the remaining part of the life of the modified financial asset.

In certain circumstances, renegotiation or modification of contractual cash flows associated with a financial asset may lead to derecognition of the financial asset. If an existing financial asset is derecognized due to its modification, and a modified asset is subsequently recognized, the modified asset is treated as a “new” financial asset (“a substantial modification”). The new asset is recognized at the fair value and a new effective interest rate applicable to the new asset is calculated. If the characteristics of a modified new financial asset (after signing an annex) comply with the arm’s length conditions, the carrying amount of that financial asset is equal to its fair value.

The assessment whether a given modification of financial assets is a substantial or a non-substantial modification depends on satisfaction of certain quantitative and qualitative criteria.

The following qualitative criteria have been adopted:

•        Currency translation;

•        Change of debtor, other than caused by the debtor’s death;

•        Introducing or removing a contractual characteristic that adversely affects the test of cash flow characteristics (SPPI test) or removal of these features;

The occurrence of at least one of these criteria results in a substantial modification.

The quantitative criterion consists of a 10% test analysing the change in the contractual terms of a financial asset resulting in a difference between the amount of future cash flows arising from the changed financial asset discounted using the original effective interest rate and the amount of the future cash flows that would arise from the original financial asset discounted using the same interest rate. The other quantitative criterion is an increase in a debtor’s exposure, which includes an increase in the capital and off-balance sheet liabilities granted of more than 10% in relation to the amount of capital and off-balance sheet liabilities prior to the increase for each individual exposure.

In the event of the occurrence of a quantitative criterion (a difference) of more than 10%, the modification is considered substantial, whereas a quantitative criterion of 10% or less means that the modification is considered non-substantial.

14.11.              Measurement of purchased or originated credit-impaired financial assets (POCI)

IFRS 9 distinguished a new category of purchased or originated credit-impaired financial assets (POCI).

POCI comprise debt financial assets measured at amortized cost and measured at fair value through other comprehensive income, i.e. loans and debt securities.

Such assets are initially recognized at the net carrying amount (net of write-downs), which corresponds to their fair value. Interest income on POCI assets is calculated based on the net carrying amount using the effective interest rate adjusted for credit risk recognized for the whole life of the asset. The interest rate adjusted for credit risk is calculated taking into account future cash flows adjusted for the effect of credit risk recognized over the whole life of the asset. The change in estimates of future recoveries in further reporting periods is recognized as a gain or loss on expected credit losses.

14.12.              Measurement of financial liabilities

Liabilities in respect of a short position in securities are measured at fair value through profit or loss.

Other financial liabilities are measured at amortized cost, using the effective interest rate method. In the case of financial liabilities for which it is not possible to estimate the schedule of future cash flows and the effective interest rate, they are measured at the amount due.

15.            Changes in the accounting policies applicable from 1 January 2021 and explanation of the differences between previously published financial statements and these financial statements

In order to better reflect its operations, the Bank made the following changes in its accounting policies:

•        reclassification of costs charged to the customer (1)

Up to the second quarter of 2021, the Bank presented the costs of debt collection, enforcement and court proceedings and related proceedings in commission expenses or other operating expenses. Recharges of such costs to the Bank’s customers were recognized as commission income. From the third quarter of 2021, the Bank presents such income and costs in net impairment of non-financial assets.

INCOME STATEMENT – selected items	2020 before restatement	(1)	2020 restated
Net fee and commission income	3 101	16	3 117
Fee and commission income	4 099	(11)	4 088
Fee and commission expense	(998)	27	(971)
Other net income	433	5	438
Net other operating income and expense	(88)	5	(83)
Result on business activities	12 718	21	12 739
Net Impairment allowances on non-financial assets	(356)	(21)	(377)
Net profit	(2 944)	-	(2 944)

 

NOTES TO THE FINANCIAL STATEMENTS

16.            Interest income and expense

Accounting policies

Interest income and expenses comprise interest, including premiums and discounts in respect of financial instruments measured at amortized cost and instruments measured at fair value through other comprehensive income, as well as income similar to interest income on instruments measured at fair value through profit or loss. Income similar to interest income includes interest income on hedging derivatives. Interest income and expenses also include fees and commissions received and paid, which are deferred using the effective interest rate and which are taken into account in the measurement of the financial instrument, including the costs of employee bonuses to the extent that relate directly to selling credit products.

Interest income and expenses are recognized on an accrual basis using the effective interest rate method, which discounts the estimated future cash flows throughout the expected useful life of a financial asset or financial liability to the gross carrying amount of the financial asset or amortized cost of the financial liability, with the exception of:

•        purchased or originated credit-impaired financial assets (POCI assets). Interest income on POCI assets is calculated on the net carrying amount using the effective interest rate adjusted by credit risk recognized over the life cycle of the asset;

•        financial assets which were not originally POCI assets, but subsequently became credit-impaired financial assets. Interest income on POCI assets is calculated on the net carrying amount using the original effective interest rate from the moment of recognizing premises for impairment of the asset.

The calculation of the effective interest rate covers all commissions, transaction costs paid and received by the parties to the contract, and all other premiums and discounts constituting an integral part of the effective interest rate.

Interest income also includes the effect of the fair value measurement of financial assets acquired as part of business combinations between subsidiaries and the impact of the European Union Court of Justice’s ruling on consumer rights to reduce the cost of loans repaid before contractual maturity (note “Legal claims”) by reducing interest income, as the estimated difference between the value of the commission deferred using the effective interest rate as at the anticipated date of early repayment of the loan and on a straight-line basis, according to which the Bank is returning commission. The estimates are based on historical early repayment periods and their probability.

•        Income and expenses resulting from sales of insurance products linked to loans and advances

Due to the fact that the Bank offers insurance products along with loans and advances and it is impossible to purchase an insurance product from the Bank that is identical as to legal form, conditions and economic content without purchasing a loan or an advance, the payments received by the Bank for the insurance products sold are treated as an integral part of the remuneration for the financial instruments offered.

Remuneration received and receivable by the Bank for offering insurance products for the products directly associated with the financial instruments is accounted for using the effective interest rate method and recognized in interest income. Remuneration is recognized in commission income upon sale or renewal of an insurance product only in the part relating to the intermediation service provided.

Remuneration is divided into the commission portion and the interest portion based on the proportion of the fair value of the financial instrument and the fair value of the intermediation service to the sum of these two values, in accordance with the relative fair value model comprising a range of different parameters, including the average effective interest rate on the financial instrument, the average contractual and economic (actual) lending or lease period, the average insurance premium amount, the term of the insurance policy, the independent insurance agent’s commission.

The fair value of a financial instrument is measured according to the income-based approach, involving the conversion of future cash flows to their present value using a discount rate consisting of a risk-free rate determined in relation to the average yield on 5-year and 10-year bonds in the past year, the risk premium determined in relation to the annual costs of credit risk and exceeding the credit risk premium, which reflects all other factors that the market participants would take into account in the fair value measurement under the current circumstances.

On the other hand, measurement of the fair value of the insurance intermediation service is based on the market approach, which consists in referring to prices and other information on identical or similar comparable market transactions.

Costs directly attributable to selling insurance products are accounted for in the same manner as the revenue, i.e. as a component of the amortized cost of a financial instrument or on a one-off basis.

The Bank makes periodical estimations of the remuneration amount that will be recoverable in the future due to the early termination of the insurance contract based on historical data on premiums collected and refunds made. The provision for future refunds is allocated to the financial instrument and insurance service in accordance with the relative fair value model.

The Bank reviews the correctness of the adopted parameters used in the relative fair value model and the ratio of provisions for refunds whenever the Bank becomes aware of significant changes in this respect, at least once a year.

Financial information

INTEREST INCOME	2021	2020
Loans and other amounts due from banks1	71	91
Pooling	1	6
Derivative hedging instruments	411	788
Debt securities:	1 788	1 772
measured at amortized cost	906	582
measured at fair value through other comprehensive income	873	1 170
measured at fair value through profit or loss	9	20
Loans and advances to customers	6 874	7 655
measured at amortized cost	6 140	6 672
measured at fair value through other comprehensive income	346	393
measured at fair value through profit or loss	388	590
Amounts due to customers (excluding loans and advances received)	19	20
Total	9 164	10 332
of which: interest income on impaired financial instruments	194	177
Interest income calculated using the effective interest rate method on financial instruments measured:	8 356	8 934
at amortized cost	7 137	7 371
at fair value through other comprehensive income	1 219	1 563
Income similar to interest income on instruments measured at fair value through profit or loss	808	1 398
Total	9 164	10 332

1 Loans and other amounts due from banks as at 31 December 2021 include interest income on cash on call accounts with a negative interest rate of PLN 10 million (as at 31 December 2020: PLN 3 million) and interest income on cash on the current account with the NBP of PLN 11 million (as at 31 December 2020: PLN 15 million).

In 2021, interest income was reduced by PLN 369 million (PLN 232 million in 2020) due to European Union Court of Justice’s ruling on the consumers’ right to reduce the cost of loans repaid before contractual maturity.

INTEREST INCOME BY SEGMENT	2021
	Retail segment	Corporate and investment segment	Transfer center and other	Total
Loans and other amounts due from banks	-	60	11	71
Pooling	-	1	-	1
Derivative hedging instruments	-	-	411	411
Debt securities	-	446	1 342	1 788
Loans and advances to customers	5 722	1 152	-	6 874
Amounts due to customers (excluding loans and advances received)	-	19	-	19
Total	5 722	1 678	1 764	9 164

 

INTEREST INCOME BY SEGMENT	2020
	Retail segment	Corporate and investment segment	Transfer center and other	Total
Loans and other amounts due from banks	-	76	15	91
Pooling	-	6	-	6
Derivative hedging instruments	-	-	788	788
Debt securities	-	741	1 031	1 772
Loans and advances to customers	6 173	1 482	-	7 655
Amounts due to customers (excluding loans and advances received)	-	20	-	20
Total	6 173	2 325	1 834	10 332

 

INTEREST EXPENSE	2021	2020
Amounts due to banks1	(22)	(14)
Interbank deposits	(7)	(9)
Loans and advances received	(197)	(202)
Leases	(8)	(15)
Amounts due to customers	(156)	(804)
Issues of securities	(15)	(28)
Subordinated liabilities	(48)	(76)
Total	(453)	(1 148)

1 As at 31 December 2021, the Bank recognized interest expenses on cash on call accounts with a negative interest rate of PLN 11 million in amounts due to banks (as at 31 December 2020: PLN 5 million).

	31.12.2021	31.12.2020
Interest on funds in the mandatory reserve account	1.75%	0.1%

 

During the course of a working day, the Bank may use funds from the mandatory reserve accounts for ongoing payments, on the basis of an instruction submitted to the National Bank of Poland (NBP). However, the Bank must ensure that the average monthly balance on this account complies with the requirements set in the mandatory reserve declaration.

Monthly average interest on loans and advances granted to customers in:	12.2021	12.2020
Non-financial enterprises:	3.40%	2.23%
excluding overdrafts	3.46%	2.34%
including renewable loans and overdrafts	3.29%	1.99%
Households:	4.41%	3.61%
including housing loans	3.03%	2.21%
including consumer loans	7.60%	6.97%
including other loans	4.84%	3.76%
including renewable loans and overdrafts	7.66%	6.09%

 

Monthly average interest on amounts due to customers in:	12.2021	12.2020
Non-financial enterprises:	0.14%	0.00%
including term deposits:	0.85%	0.38%
including current and overnight deposits:	0.06%	0.00%
Households:	0.04%	0.07%
including term deposits:	0.20%	0.22%
including current and overnight deposits:	0.01%	0.02%

 

17.            Fee and commission income and expense

Accounting policies

The Bank recognizes fee and commission income that is not accounted for using the effective interest rate in such a manner so as to reflect the transfer of the goods or services promised to a customer in an amount reflecting the consideration to which – in accordance with the Bank’s expectations – it will be entitled in return for the goods or services in accordance with the five stage model for recognizing revenue.

Fee and commission income includes one-off amounts charged by the Bank for services not related directly to the creation of financial assets, as well as amounts charged by the Bank for services performed, which are recognized on a straight-line basis. Fee and commission income also includes fees and commissions recognized on a straight- line basis, received on loans and advances granted with an unspecified schedule of future cash flows for which the effective interest rate cannot be determined.

Upon concluding a contract, the Bank assesses whether it will be capable of fulfilling the commitment to perform over time or at a point in time.

The accounting policies for recognizing commission income on sales of insurance products linked to loans and advances are described in note “Interest income and expenses”.

The foreign exchange margin included in the exchange rates offered to the Bank’s customers when providing foreign currency purchase/sale services is presented under commission income in the line “margin on foreign exchange transactions”.

Financial information

FEE AND COMMISSION INCOME	2021	2020
Loans and insurance	956	858
lending	732	671
offering insurance products	224	187
Investment funds, pension funds and brokerage activities	373	326
servicing investment funds and OFE (including management fees)	51	37
servicing and selling investment and insurance products	9	10
brokerage activities	313	279
Cards	1 490	1 299
Margins on foreign exchange transactions	582	476
Bank accounts and other	1 245	1 129
servicing bank accounts	958	870
cash operations	62	61
servicing foreign mass transactions	88	73
customer orders	57	53
fiduciary services	10	6
other	70	66
Total, of which:	4 646	4 088
income from financial instruments not measured at fair value through profit or loss	4 496	3 964

 

FEE AND COMMISSION EXPENSE	2021	2020
Loans and insurance	(115)	(106)
commission paid to external entities for product sales	(24)	(34)
cost of construction project supervision and property appraisal	(42)	(34)
fees to Biuro Informacji Kredytowej	(18)	(15)
loan handling	(31)	(23)
Investment funds, pension funds and brokerage activities	(32)	(27)
Cards	(835)	(728)
Bank accounts and other	(122)	(110)
clearing services	(36)	(33)
commissions for operating services provided by banks	(12)	(9)
sending short text messages (SMS)	(53)	(41)
selling banking products	(2)	(7)
servicing foreign mass transactions	(15)	(13)
other	(4)	(7)
Total	(1 104)	(971)

 

FEE AND COMMISSION INCOME BY SEGMENT	2021
	Retail segment	Corporate and investment segment	Transfer center and other	Total
Loans and insurance	688	268	-	956
lending	464	268	-	732
offering insurance products	224	-	-	224
Investment funds, pension funds and brokerage activities	137	236	-	373
servicing investment funds and OFE (including management fees)	40	11	-	51
servicing and selling investment and insurance products	9	-	-	9
brokerage activities	88	225	-	313
Cards	1 469	21	-	1 490
Margins on foreign exchange transactions	389	193	-	582
Bank accounts and other	954	291	-	1 245
servicing bank accounts	794	164	-	958
cash operations	31	31	-	62
servicing foreign mass transactions	48	40	-	88
customer orders	27	30	-	57
fiduciary services	-	10	-	10
Other	54	16	-	70
Total	3 637	1 009	-	4 646

 

FEE AND COMMISSION INCOME BY SEGMENT	2020
	Retail segment	Corporate and investment segment	Transfer center and other	Total
Loans and insurance	633	225	-	858
lending	446	225	-	671
offering insurance products	187	-	-	187
Investment funds, pension funds and brokerage activities	134	192	-	326
servicing investment funds and OFE (including management fees)	29	8	-	37
servicing and selling investment and insurance products	10	-	-	10
brokerage activities	95	184	-	279
Cards	1 278	21	-	1 299
Margins on foreign exchange transactions	319	157	-	476
Bank accounts and other	932	197	-	1 129
servicing bank accounts	765	105	-	870
cash operations	43	18	-	61
servicing foreign mass transactions	40	33	-	73
customer orders	29	24	-	53
fiduciary services	-	6	-	6
other	55	11	-	66
Total	3 296	792	-	4 088

 

18.            Dividend income

Accounting policies

Dividend income is recognized on the date when the shareholders’ rights to its receipt is determined, if the Bank is entitled to dividend, and if it is likely that it will obtain economic benefits related to the dividend and the amount of the dividend may be reliably determined.

Financial information

DIVIDEND INCOME	2021	2020
from subsidiaries	558	300
from associates and joint ventures	54	17
from financial assets held for trading	1	-
from financial instruments not held for trading, measured at fair value through profit or loss	11	15
Total	624	332

19.            Gains/(losses) on financial transactions

Accounting policies

The net gain/(loss) on financial transactions includes gains and losses arising from disposal of financial instruments designated as financial assets / liabilities measured at fair value through profit or loss and the effect of their measurement at fair value. This item also includes the ineffective portion of cash flow hedges in the case of hedging strategies in which IRS contracts are the hedging instrument, as well as gains and losses on the hedging instrument and hedged item relating to the hedged risk (fair value hedges).

financial information

GAINS/(LOSSES) ON FINANCIAL TRANSACTIONS	2021	2020
Financial instruments held for trading, of which:	213	60
Derivatives	211	47
Financial instruments not held for trading, measured at fair value through profit or loss, of which:	(127)	(168)
Loans and advances to customers	(112)	(157)
Hedge accounting	(32)	2
Total	54	(106)

20.            Foreign exchange gains/ (losses)

Accounting policies

Foreign exchange gains (losses) comprise foreign exchange gains and losses, both realized and unrealized, resulting from valuation of assets and liabilities denominated in foreign currencies and from the fair value measurement of foreign currency derivatives (FX forward, FX swap, CIRS and currency options). In the case of the hedging strategies in which CIRS contracts are the hedging instrument, this item also includes the ineffective portion of cash flow hedges.

Allowances for expected credit losses in respect of loans, advances and other foreign currency-denominated receivables, which are recorded in PLN, are revalued when the measurement of the underlying foreign currency-denominated assets changes. The effect of such remeasurement due to foreign exchange differences is recognized in foreign exchange gains/losses.

	2021	2020
Foreign exchange gains/ (losses)	429	133

 

21.            Gains/(losses) on derecognition of financial instruments

Accounting policies

Derecognition of financial instruments measured at fair value through other comprehensive income or at amortized cost typically relates to a sale or a substantial modification of such assets (see the note “Modifications – Changes in contractual cash flows”).

 

GAINS/(LOSSES) ON DERECOGNITION OF FINANCIAL INSTRUMENTS	2021	2020
measured at fair value through other comprehensive income	200	186
measured at amortized cost	1	(24)
Total	201	162

 

22.            Other operating income and expenses

Accounting policies

Other operating income and expenses comprise income and costs not directly related to banking activities. Other operating income mainly includes gains on sale/scrapping of property, plant and equipment, intangible assets and assets for sale, irrecoverable receivables collected, legal damages, fines and penalties received, and income from lease/rental of properties. Other operating expenses mainly include provisions for refunds to customers on early repayment of consumer and mortgage loans (see the note “Provisions”), losses on sale /scrapping of property, plant and equipment, intangible assets and assets for sale, and donations made.

Other operating income and expenses also include provisions recognized and released for legal claims, excluding legal claims relating to mortgage loans in foreign currencies and income and costs in respect of the valuation and sale of CO2 emission rights.

Financial information

OTHER OPERATING INCOME	2021	2020
Gains on sale or scrapping of property, plant and equipment, intangible assets and assets held for sale	29	17
Damages, compensation and penalties received	13	8
Ancillary income	33	30
Recovery of receivables expired, forgiven or written off	1	2
Release of provision for future payments	1	-
Release of provision recognized for legal claims excluding legal claims relating to repaid mortgage loans in convertible currencies	2	5
Other1	99	76
Total	178	138

1 As at 31 December 2021, the item “Other” comprised income on the sale of CO2 emission rights of PLN 54 million.

 

OTHER OPERATING EXPENSE	2021	2020
Losses on sale or scrapping of property, plant and equipment, intangible assets and assets held for sale	(3)	(2)
Donations made	(43)	(20)
Sundry expenses	(17)	(15)
Provision recognized for potential refunds of fees and commissions to customers	(27)	(106)
Provision for future payments	(3)	(1)
Provision recognized for legal claims excluding legal claims relating to repaid mortgage loans in convertible currencies1	(7)	(55)
Cost of providing additional financing to a subsidiary	(17)	-
Other2	(156)	(22)
Total	(273)	(221)

1 Under “Provision recognized for legal claims excluding legal claims relating to mortgage loans in convertible currencies”, the Bank recognized the cost PLN 41 million of the penalty imposed on the Bank by UOKiK for the Bank using clauses governing the method of determining the foreign currency buy and sell rates in template agreements with customers (further discussed in note “Legal claims”).

2 As at 31 December 2021, the item “Other” comprised cost of sale of CO2 emission rights of PLN 114 million.

23.            Net allowances for expected credit losses

Accounting policies

The allowance for expected credit losses is recognized in the financial statements in the following manner:

•        Financial assets measured at amortized cost: the allowance reduces the gross carrying amount of the financial asset; changes in the allowances amount are recognized in the income statement;

•        Off-balance sheet liabilities of a financial nature and financial guarantees: the allowance is presented as a provision under liabilities; changes in the provisions amount are recognized in the income statement;

•        Financial instruments measured at fair value through other comprehensive income: the carrying amount of assets recognized at fair value is not additionally decreased by the allowances; however, each change in the measurement is divided into the impairment component, which is recognized in the income statement, and the component relating to other changes in the fair value measurement, which is recognized in other comprehensive income;

•        Financial assets measured at fair value through profit and loss: no allowances for expected credit losses are recognized.

Estimates and judgments

With regard to impairment, the Bank applies the concept of expected losses.

The impairment model is applicable to financial assets that are not measured at fair value through profit or loss, comprising:

•        debt financial instruments comprising credit exposures and securities;

•        other financial assets;

•        off-balance sheet financial and guarantee liabilities.

Expected credit losses are not recognized for equity instruments.

Impairment allowances for exposure reflect 12-month or lifetime expected credit losses on such exposures for a given financial asset.

The time horizon of an expected loss depends on whether a significant increase in credit risk occurred since the moment of initial recognition. Based on this criterion, financial assets are allocated to 3 stages:

Stage 1 – exposures in which the credit risk is not significantly higher than upon initial recognition and no evidence of impairment is found;

Stage 2 – exposures in which the credit risk is significantly higher than upon initial recognition, but no evidence of impairment is found;

Stage 3 –assets in respect of which evidence of impairment is recognized, including assets granted or purchased with evidence of impairment recognized (upon being granted or purchased).

•      Material increase in credit risk

A material increase in credit risk is verified according to the likeliness of default and its changes with respect to the date of originating the loan.

The Bank uses a model based on a marginal PD calculation, i.e. the probability of default in a given month, to assess a material increase in credit risk for mortgage exposures and other retail exposures. This probability depends on the time that has passed from originating the exposure. This enables reflecting the differences in credit quality that are typical of exposures to individuals over the lifetime of the exposure. The marginal PD curves were determined on the basis of historic data at the level of homogeneous portfolios, which are separated according to the type of product, the year of their origination, the loan currency and the credit quality at the time of origination. The marginal PD is attributed to individual exposures by scaling the curve at the level of the portfolio to the individual assessment of the exposure / Customer using application models (using data from loan applications) and behavioural models. The Bank identifies the premise of a material increase in credit risk for a given exposure by comparing individual PD curves over the exposure horizon as at the date of initial recognition and as at the reporting date. Only the parts of the original and current PD curves which correspond to the period from the reporting date to the date of maturity of the exposure are compared as at each reporting date. The comparison is based on the average probability of default over the life of the loan in the period under review adjusted for current and forecast macroeconomic indicators.

The result of this comparison, referred to as α statistics, is referred to the threshold value above which an increase in credit risk is considered material. The threshold value is determined on the basis of the historical relationship between the values of the α statistics and the default arising. In this process the following probabilities are minimized:

•           classification into a set of credit exposures with a significant increase in the level of credit risk (based on the α statistic), for which no event of default took place during the audited period (type I error)

•           non-classification into the set of credit exposures with a significant increase in the level of credit risk (based on the statistics) for which an event of default occurred during the audited period (type II error).

According to data that is applicable at the end of 2021, an increase in the PD parameter by at least 2.6 compared to the value at the time of its recognition in the Bank’s accounts in respect of mortgage exposures and an increase by at least 2.5 in respect of other retail exposures constitutes a premise of a significant deterioration in credit quality (unchanged compared to end of 2020).

With respect to credit exposures for which the current risk of default does not exceed the level provided for in the price of the loan, the results of the comparison of the probability of default curves as at the date of initial recognition and as at the reporting date do not signify a material increase in credit risk.

The Bank uses a model based on Markov chains to assess material increases in credit risk for institutional Customers. Historical data is used to build matrices of probabilities of Customers migrating between individual classes of risk that are determined on the basis of the Bank’s rating and scoring models. These migrations are determined within homogeneous portfolios, classified using, inter alia, customer and customer segment assessment methodologies.

An individual highest acceptable value of the probability of default is set for each class of risk and portfolio on the date of the initial recognition of the credit exposure, which, if exceeded, is identified as a material increase in credit risk. This value is set on the basis of the average probability of default for classes of risk worse than that at initial recognition of the exposure, weighted by the probability of transition to those classes of risk in the given time horizon.

In accordance with the data as at the end of 2021 and 2020, the minimum deterioration in the class of risk which constitutes a premise of a material improvement of the credit presented compared to the current class of risk were as follows:

Risk category	PD range	Minimum range of the risk category deterioration indicating a significant increase in credit risk1
A-B	0.0 – 0.90%	3 categories
C	0.90 – 1.78%	3 categories
D	1.78 – 3.55%	2 categories
E	3.55-7.07%	1 category
F	7.07-14.07%	1 category
G	14.07-99.99%	not applicable2

1average values (the scopes are determined separately for homogeneous groups of customers)

2deterioration of the class of risk is a direct premise of impairment

The Bank uses all available qualitative and quantitative information to identify the remaining premises of a material increase in credit risk, including:

•        restructuring measures introducing forbearance for a debtor in financial difficulties;

•        delays in repayment of a material amount of principal or interest (understood as an amount in excess of PLN 400 or 1% of the debtor's total cumulative loan exposure to the Bank and the other entities of the Bank's Group) exceeding 30 days;

•        identified early warning signals as part of the monitoring process, suggesting a material increase in credit risk (including changes in collateral, modifications of the terms of agreement with the customer, in particular relating to the schedule of loan utilization or repayment, reduction of the Bank’s exposure to the customer);

•        a significant increase in the LTV ratio;

•        quarantine for Stage 2 exposures, which have not shown premises for impairment in the previous 3 months.

•        filing for consumer bankruptcy by any of the joint borrowers;

•        putting a credit exposure under management by restructuring and debt collection units of the Bank.

•      Impaired loans and definition of default

The premise for the impairment of a credit exposure is, in particular:

•        delays in repayment of a material amount of principal or interest (understood as an amount in excess of PLN 400 or 1% of the debtor's total cumulative loan exposure to the Bank and the other entities of the Bank's Group) exceeding 90 days;

•        a deterioration in the debtor’s economic and financial position or a risk to the completion of the investment project financed during the lending period, expressed by the classification into a rating class or class of risk suggesting a material risk of default (Rating H);

•        the conclusion of a restructuring agreement or the application of relief in debt repayment, which is forced by economic or legal reasons arising from the customer’s financial difficulties (until the claim is recognized as remedied);

•        filing a motion for the debtor’s bankruptcy, placing the debtor into liquidation or the opening of enforcement proceedings with respect to the debtor;

•        declaration of consumer bankruptcy by any of the joint borrowers;

•        information on death of all borrowers who are natural persons or entrepreneurs running individual business activity or a civil partnership (unless such business activity is continued by a successor);

•        the occurrence of other events indicating the debtor's inability to repay his total liability under the agreement.

In accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (“CRR”), the Bank defines a state of default if it assesses that the debtor is unable to repay the loan liability without resorting to exercising the collateral or if the exposure is overdue more than 90 days. The premises of default are identical to the premises for impairment of the exposure.

•      Calculation of the expected credit loss

The model for the calculation of the expected credit loss is based on applying detailed segmentation to the credit portfolio, taking into account the following characteristics at product and customer level:

•        type of credit product;

•        currency of the product;

•        year of granting;

•        assessment of risk of the customer’s default;

•        the customer’s business segment;

•        method of assessing the customer risk.

The Bank uses the calculated expected credit losses on an individual and on a portfolio basis.

The individual basis is used in respect of individually significant exposures. The expected credit loss from the exposure is determined as the difference between its gross carrying amount (in the case of an off-balance sheet credit exposure – the value of its balance sheet equivalent) and the present value of the expected future cash flows, established by taking into account the possible scenarios regarding the performance of the contract and the management of credit exposure, weighted by the probability of their realization.

The portfolio method is applied to exposures that are not individually significant and in in the event of a failure to identify premises of impairment.

In the portfolio method, the expected loss is calculated as the product of the credit risk parameters: the probability of default (PD), the loss given default (LGD) and the value of the exposure at default (EAD); each of these parameters assumes the form of a vector representing the number of months covering the horizon of estimation of the credit loss.

The Bank sets this horizon for retail exposures without a repayment schedule on the basis of behavioural data from historical observations. The loss expected both in the entire duration of the exposure and in a period of 12 months is the sum of expected losses in the individual periods discounted using the effective interest rate. The Bank adjusts the parameter specifying the level of exposure at the time of default by the future repayments arising from the schedule and potential overpayments and underpayments to specify the value of the asset at the time of default in a given period.

The calculation of expected credit losses encompasses estimates of future macroeconomic conditions. In terms of portfolio analysis, the impact of macroeconomic scenarios is taken into account in the amount of the individual risk parameters. The methodology for calculating the risk parameters includes the study of the dependencies of these parameters on the macroeconomic conditions based on historical data. Three macroeconomic scenarios based on the Bank’s own forecasts are used for calculating the expected loss – a baseline forecast with a probability of 75% and two alternative scenarios, with a probability of 20% and 5%, respectively. The scope of the forecast indicators includes the GDP growth index, the rate of unemployment, the WIBOR 3M rate, the LIBOR CHF 3M rate (from January 1, 2022 SARON 3M), the CHF/PLN exchange rate, the property price index and the NBP reference rate. The final expected loss is the weighted average probability of scenarios from expected losses corresponding to individual scenarios. The Bank assures compliance of the macroeconomic scenarios used for the calculation of the risk parameters with macroeconomic scenarios used for the credit risk budgeting processes. The baseline scenario uses the base macroeconomic forecasts. The forecasts are prepared on the basis of the quantitative models, taking into account adjustments for the presence of one-off events.

The extreme scenarios apply to cases of so-called internal shock, as a result of which the so-called external variables (foreign interest rates) do not change with respect to the baseline scenario. The extreme scenarios are developed on the basis of a statistical and econometric analysis, i.e. they do not reflect the events described, but the forecast path. Two scenarios are identified, optimistic and pessimistic. The share of the scenarios for the GDP path that falls between the optimistic and the pessimistic scenario is referred to as the probability of the baseline scenario. Such an assumption is used to forecast GDP growth, using a potential rate of growth of the Polish economy that varies over time, calculated with the use of quarterly data provided by the Central Statistical Office. The values of other macroeconomic variables used in the scenarios (rate of unemployment, property price index) are estimated after the extreme paths of GDP growth are defined.

The rate of unemployment is calculated on the basis of the quantified dependence on the difference between GDP growth and the potential rate of economic growth. The result is adjusted for significant structural changes taking place in the Polish economy, which are not encompassed by the quantitative model, in particular:

•        the ageing of the Polish population (and the appearance of unsatisfied demand for labour, which will limit the scale of increase in the rate of unemployment in a situation in an economic downturn);

•        the Polish labour market is nearing full employment (restrictions of supply mean that there is increasingly less space for a further decline in the rate of unemployment);

•        the inflow of immigrants (only partly included in the official statistics).

The level of the property price index is set on the basis of changes in GDP, taking into account the conditions of supply and demand on the market based on the data and trends presented by the NBP in the publication “Information on housing prices and the situation on the residential and commercial property market in Poland” and the Bank’s own analyses. The forecasts of deposit rates are mainly prepared on the basis of assumptions regarding central bank interest rates. The CHF/PLN exchange rate is a cross rate of the EUR/PLN and EUR/CHF exchange rates. Its forecasts are a combination of the forecasts for these two rates. The EUR/PLN and EUR/CHF forecasts are prepared on the basis of a macroeconomic analysis (current and historical) based on econometric methods, as well as on a technical analysis of the financial markets.

Both the process of assessing a material increase in credit risk and the process of calculating the expected loss are conducted monthly at the level of individual exposures. They use a dedicated computing environment that allows for the distribution of the results to the Bank’s internal units.

The Bank has separated the portfolio of financial assets with low credit risk by classifying financial instruments for which the average long-term default rate does not exceed the probability of default specified by the rating agency for the worst class investment rating. This portfolio includes, in particular, exposures to banks, governments, local government entities and housing cooperatives and communities.

financial information

NET ALLOWANCES FOR EXPECTED CREDIT LOSSES	Note	2021	2020
Amounts due from banks	30	(8)	(3)
Debt securities	33	(60)	(32)
- measured at fair value through other comprehensive income		(43)	(10)
- measured at amortized cost		(17)	(22)
Loans and advances to customers	35	(1 031)	(1 550)
- measured at fair value through other comprehensive income		(14)	(25)
- measured at amortized cost		(1 017)	(1 525)
Other financial assets	39	1	-
Provisions for financial liabilities and guarantees granted	44	(46)	(354)
Total		(1 144)	(1 939)

 

calculation of estimates

The impact of an increase/decrease in cash flows for the Bank’s loans and advances portfolio assessed for impairment on the basis of individual analysis of future cash flows arising both from own payments and foreclosure of collaterals, i.e. the exposures for which an individual method is applied and the impact of an increase/decrease in the portfolio parameters for the Bank’s loans and advances portfolio assessed on a portfolio basis is presented in the table below:

ESTIMATED CHANGE IN EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES RESULTING FROM MATERIALIZATION OF A SCENARIO OF THE RISK PARAMETERS, THE DETERIORATION OR IMPROVEMENT, OF WHICH:1	31.12.2021		31.12.2020
	scenario +10%	scenario -10%	scenario +10%	scenario -10%
changes in the present value of estimated future cash flows for the Bank’s portfolio of individually impaired loans and advances assessed on an individual basis	(154)	199	(198)	260
changes in the probability of default	176	(201)	181	(201)
changes in recovery rates	(492)	495	(476)	478

1 in plus – increase in allowances for expected credit losses, in minus – decrease in allowances for expected credit losses

The table below presents the estimated sensitivity of the level of allowances for expected credit losses to macroeconomic conditions, calculated as the change in the level of allowances for expected credit losses in respect of not impaired exposures resulting from the materialization of particular macroeconomic scenarios as at 31 December 2021 and 31 December 2020.

 

	31.12.2021		31.12.2020
	optimistic	pessimistic	optimistic	pessimistic
estimated change in the level of allowances for expected credit losses for not impaired exposures due to the materialization of particular macroeconomic scenarios (in PLN million)	(308)	227	(619)	488

 

The tables below present forecasts of the key macroeconomic parameters and their assumed probabilities of materialization.

scenario as at 31.12.2021	baseline			optimistic			pessimistic
probability	75%			5%			20%
	2022	2023	2024	2022	2023	2024	2022	2023	2024
GDP growth y/y	5.2	3.7	3.0	10.9	6.6	3.0	-0.5	0.9	3.0
Unemployment rate	3.0	2.6	2.5	2.0	1.7	2.5	4.0	3.5	2.5
Real estate price index	109.4	106.6	102.5	116.3	112.8	102.5	102.4	100.8	102.5
CHF/PLN	4.0	3.9	3.9	3.8	3.7	3.7	4.5	4.3	4.0

 

scenario as at 31.12.2020	baseline			optimistic			pessimistic
probability	75%			5%			20%
	2021	2022	2023	2021	2022	2023	2021	2022	2023
GDP growth y/y	5.4	4.7	3.0	9.9	7.0	3.0	0.8	2.4	3.0
Unemployment rate	5.9	4.5	3.7	5.2	3.4	3.7	8.0	5.6	3.7
Real estate price index	99.5	102.9	102.5	103.3	103.4	102.5	96.1	99.5	102.5
CHF/PLN	4.1	3.9	3.8	3.8	3.6	3.7	4.4	4.3	4.0

 

24.            Net Impairment of non-financial assets

NET IMPAIRMENT OF NON-FINANCIAL ASSETS	NOTE	2021	2020
Property, plant and equipment	36.2	(1)	(58)
Assets held for sale	37	(2)	(4)
Intangible assets	36.1	(2)	(116)
Investments in subsidiaries	38	-	(42)
Investments in associates and joint ventures	38	-	(88)
Other non-financial assets	39	(50)	(69)
Total		(55)	(377)

 

•           intangible assets

The Bank performs impairment tests of goodwill on acquisition of Nordea Bank Polska S.A. based on a discounted dividend model, by comparing the carrying amount of cash-generating units (‘CGUs”) with their recoverable value.

As at 31 December 2021, the Bank performed an impairment test in respect of goodwill on the acquisition of Nordea Bank Polska S.A. assigned to the retail CGU (see note “Intangible assets, property, plant and equipment”). The test did not identify impairment (in 2020, the Bank recognized an impairment allowance in the total amount of PLN 116 million).

•           Investments in associates and joint ventures

The impairment test performed as at 31 December 2021 did not identify a need to change the existing impairment allowance and the carrying amount of Bank Pocztowy recognized in the Bank’s books as at 31 December 2021 was the same as previously, i.e. PLN 0 (see note “Investments in subsidiaries, associates and joint ventures”).

 

25.            Cost of the legal risk of mortgage loans in convertible currencies

	2021	2020
Cost of the legal risk of mortgage loans in convertible currencies	-	(6 552)

 

IMPACT OF THE LEGAL RISK OF MORTGAGE LOANS IN CONVERTIBLE CURRENCIES	Gross carrying amount of mortgage loans in convertible currencies net of the cost of the legal risk of mortgage loans in convertible currencies	Accumulated cost of the legal risk of mortgage loans in convertible currencies	Gross carrying amount of mortgage loans in convertible currencies including the cost of the legal risk of mortgage loans in convertible currencies
as at 31.12.2021
Loans and advances to customers – adjustment reducing the carrying amount of loans	19 528	6 428	13 100
Provisions (note 44)		595
Total		7 023
as at 31.12.2020
Loans and advances to customers – adjustment reducing the carrying amount of loans	21 983	6 617	15 366
Provisions (note 44)		426
Total		7 043

 

As at 31 December 2021, the Bank recognized in its financial statements the impact of the legal risk associated with the portfolio of mortgage loans in convertible currencies.

The Bank recognizes as the decrease of the gross carrying amount of mortgage loans denominated in and indexed to foreign currencies the effect of legal risk related to potential litigation for the portfolio of mortgage loans in convertible currencies and existing legal claims related to loan exposures recognized as at the balance sheet date in the statement of financial position. If the estimated loss due to legal risk exceeds the gross value of the loan and for settled loans, the Bank recognizes provisions for legal risk as a liability of the Bank, in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

The change in the adjustment of the gross carrying amount of mortgage loans reflecting the expected impact of potential settlements and litigation in relation to the situation as at 31 December 2020 was mainly due to the fact that the settlements were offset against accumulated losses.

Changes during the period in the cost of the accumulated cost of the legal risk relating to mortgage loans in convertible currencies	2021	2020
Carrying amount at the beginning of the period	7 043	451
legal risk charged to profit/(loss)	-	6 552
revaluation of loss for the period	590	40
offset of settlements and judgments for the period against accumulated losses	(622)	-
other amendments	12	-
Carrying amount at the end of the period	7 023	7 043

Revaluation of the loss in respect of the legal risk is associated with the effect of changes in foreign exchange rates on the part of the loss which is recognized in the convertible currency as adjustment to the gross amount of loans.

Additional information on the portfolio of mortgage loans in convertible currencies is presented by the Bank in the notes “Mortgage loans in convertible currencies”, “Legal claims” and “Management of the risk associated with foreign currency mortgage loans for individuals”.

calculation of estimates

The Bank has identified a risk that the cash flows on the portfolio of mortgage loans denominated in and indexed to foreign currencies planned on the basis of schedules may not be fully recoverable and/or a liability resulting in a future outflow of funds may arise. The Bank decreases the gross carrying amount of mortgage loans denominated in and indexed to foreign currencies and/or recognizes provisions for legal risk in accordance with the requirements of IFRS 9 Financial instruments and IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The cost of legal risk was estimated taking into account a number of assumptions which have a significant effect on the amount of the estimates recognized in the Bank’s financial statements.

The costs of legal risk related to mortgage loans in convertible currencies were estimated using a statistical method taking into account the effect of customer characteristics as the sum of the products of: 

•        probabilities of specific outcomes of legal disputes and the amount of loss in the event of various dispute outcome scenarios, taking into account the current and expected number of court cases throughout the period of the Bank's exposure to such risk; and

•        probability of acceptance of settlement by the customer and the amount of loss resulting from the settlement. 

The Bank also estimates the probabilities of adverse outcomes for the actual and potential claims. Such probabilities are different for mortgage loans indexed to foreign currencies and denominated in foreign currencies. In the evaluation of such probabilities, the Bank uses the support of third party law firms. In the Bank’s opinion, the level of estimated costs of legal risk is also affected by such factors as: duration of legal proceedings (also estimated on the basis of relatively short statistics which do not meet the requirements of quantitative methods) and growing costs which must be incurred to initiate and conduct legal proceedings.

The Bank also took into account the effect on the probability of settlement of the tax preferences of the customers benefiting from the Regulation of the Minister of Finance of 27 March 2020 on suspending the collection of income tax on certain types of income (revenues) associated with mortgage loans granted for housing purposes, which was in force until the end of 2021. The Ministry of Finance has informed that another Regulation will be issued, extending these solutions for another year and covering also the settlements signed on or after 1 January 2022. Therefore, it is expected that the preferences will apply continuously.

Given the short horizon of the historical data available and a significant uncertainty as to the direction in which the legal solutions will evolve, the adopted methodology of assessing losses in respect of the legal risk will be periodically reviewed in the subsequent reporting periods. Uncertainty of estimates relates both to the number of future lawsuits and the court decisions in this respect, including those concerning the fees due to the Bank for using funds without an agreement (in the event of a verdict declaring a loan agreement invalid), and to the expected number of settlements, which can be affected in particular by changes in the judicial decisions concerning mortgage loans denominated in or indexed to foreign currencies, an increase in base interest rates or a change in the PLN/CHF exchange rate.

The Bank performed a sensitivity analysis of the models for which changes in the following parameters would have the following impact on the estimated loss in respect of the legal risk of the potential court cases:

SENSITIVITY ANALYSIS OF THE MODEL TO CHANGE OF KEY PARAMETERS	Increase in the cost of the legal risk relating to mortgage loans in convertible currencies
	31.12.2021	31.12.2020
1 p.p. increase in the number of lawsuits (at the cost of inactive customers)	92	65
1 p.p. decrease in the likelihood of the Bank winning in court (instead of a 1 p.p. increase in the probability of declaring an agreement invalid)	42	14
1 % increase in weighted average loss	35	13
1 p.p. decrease in the number of settlements	37	27
1 p.p. increase in the likelihood of compensation for the principal amount	(12)	N/A
1 p.p. increase in the lawsuit to settlement conversion ratio	(11)	N/A

 

In 2021 the Bank regularly, on a quarterly basis, monitored the model’s adequacy by comparing the actual key model parameters with the calculated values. In addition, new empirical data (more accurate or resulting from a longer observation) were gradually modifying or replacing previous assumptions. The model was also adjusted to the new processes launched by the Bank in the area of mortgage loans denominated in or indexed to foreign currencies granted in the past. The following major changes were introduced to the model:

•        updating the probabilities of specific outcomes of legal proceedings - on the basis of the current information received from the Bank’s legal advisors;

•        updating the probability of signing a settlement or filing a lawsuit based on empirical data;

•        determining the ratio of conversion of lawsuits to settlements over the loan’s lifetime on the basis of empirical data;

•        taking into account non-zero probability of a favourable outcome (for the Bank), where the customer is obliged to reimburse the fee for using funds without an agreement - in the event of a verdict declaring a loan agreement invalid;

•        updating the classification of exposures to the potential settlements portfolio.

 

26.            Administrative expenses

Accounting policies

Employee benefits	Employee benefits comprise wages and salaries and social insurance (including provisions for retirement and disability benefits, which are discussed in detail in the note“Provisions” ), as well as costs of the employee pension scheme constituting a defined contribution scheme and the programme of variable remuneration components for persons occupying managerial positions, a portion of which is recorded as a liability in respect of share-based payments settled in cash, in accordance with IFRS 2 Share-based payments (the programme of variable remuneration components is discussed in detail in the note “Remuneration of the PKO Bank Polski S.A. key management”). Moreover, as part of wages and salaries the Bank creates a provision for future liabilities in respect of compensation and severance bonuses paid out to employees with whom the employment relationship is terminated for reasons not related to the employees; and accruals related to costs attributable to the current period, which will be incurred in the following period, including bonuses and holiday pay, taking account of all unused holiday.
Overheads	Overheads include the costs of maintaining fixed assets, IT and telecommunications services costs, costs of administration, promotion and advertising, property protection and training. Lease payments under short-term and low-value leases are recognized in the income statement as an expense on a straight-line basis over the lease term.
contributions and payments to the BGF	According to IFRIC 21 “Levies” – fees paid by the Bank to the Bank Guarantee Fund are recognized in profit or loss upon the occurrence of the obligating event. The Bank makes contributions to the banks’ guarantee fund (quarterly) and the banks’ compulsory resolution (annually). Contributions to the guarantee fund and the mandatory restructuring fund are not tax-deductible.
Fees to PFSA	In accordance with IFRIC 21 "Levies", fees paid by the Bank to the Polish Financial Supervision Authority are recognized in profit or loss upon the occurrence of the obligating event. Both fees (to cover the cost of banking supervision and to cover the costs of supervision over the capital market) are paid once a year. Fees paid to the Polish Financial Supervision Authority are tax deductible.
Flat-rate income tax	The Act of 23 October 2018 on amendments to, among other things, the acts on income taxes, introduced a possibility of an alternative to taxation with WHT, namely a 3% tax on certain interest paid to non-residents. Therefore, on 29 March 2019 the Bank filed a notification on the election of the 3% taxation option with the tax office in respect of: •        interest on loans which is paid by the Bank to PKO Finance AB with its registered office in Sweden (pursuant to the Act, the election of the taxation option relates to the years 2014 -2022) and •        interest on eurobonds issued by the Bank before 1 January 2019.
Other taxes and fees	Property tax, payments made to the State Fund for Rehabilitation of Disabled Persons, municipal and administrative fees.

financial information

ADMINISTRATIVE EXPENSES	2021	2020
Employee benefits	(2 726)	(2 526)
Overheads, of which:	(1 114)	(1 071)
rent	(86)	(81)
IT	(328)	(295)
Depreciation and amortization	(868)	(853)
property, plant and equipment, of which:	(464)	(470)
IT	(85)	(82)
right-of-use assets	(217)	(210)
intangible assets, of which:	(404)	(383)
IT	(400)	(376)
Net regulatory charges	(596)	(730)
Total	(5 304)	(5 180)

 

EMPLOYEE BENEFITS	2021	2020
Wages and salaries, including:	(2 293)	(2 113)
costs of contributions to the employee pension plan	(64)	(60)
restructuring costs	(19)	(16)
Social insurance, of which:	(370)	(352)
contributions for disability and retirement benefits	(320)	(305)
Other employee benefits	(63)	(61)
Total	(2 726)	(2 526)

 

NET REGULATORY CHARGES	2021	2020
Contribution and payments to the Bank Guarantee Fund (BGF), including:	(461)	(646)
to the Resolution Fund	(232)	(296)
to the Bank Guarantee Fund	(229)	(350)
Fees to the PFSA	(39)	(29)
Flat-rate income tax	(7)	(7)
Other taxes and fees	(89)	(48)
Total	(596)	(730)

 

27.            Tax on certain financial institutions

As of 1 February 2016, the Act of 15 January 2016 on tax on certain financial institutions came into force, which covered, among other things, banks and insurance companies. The tax is charged on the surplus of an entity’s total assets above PLN 4 billion; in the case of banks, the assessment is based on the trial balance as at the end of each month. Banks are entitled to reduce the tax base by deducting such items as e.g. own funds or the value of Treasury securities. Additionally, banks reduce the tax base by the value of assets acquired from the NBP, constituting collateral of a refinancing loan granted by the NBP.

The tax rate for all taxpayers is 0.0366% per month, and the tax is paid monthly by the 25th day of the month following the month to which it relates. The tax paid is not tax-deductible for corporate income tax purposes.

TAX ON CERTAIN FINANCIAL INSTITUTIONS	2021	2020
Total	(987)	(957)

 

28.            Income tax expense

Accounting policies

Corporate income tax is recognized as current tax and deferred tax. The current income tax is recognized in the income statement. Deferred income tax, depending on the source of temporary differences, is recorded in the income statement or in other comprehensive income.

•        Current income tax

Current income tax is calculated on the basis of gross accounting profit adjusted by non-taxable income, taxable income that does not constitute accounting income, non-tax deductible expenses and tax-deductible costs which are not accounting costs, in accordance with tax regulations. These items mainly include income and expenses relating to accrued interest receivable and payable, allowances for expected credit losses and provisions for off-balance financial liabilities granted.

Pursuant to the principles governing the statute of limitations for tax liabilities, the correctness of income tax settlements may be audited within five years of the end of the year in which the deadline for the submission of the respective tax returns passed.

•        Deferred income tax

Deferred tax is recognized in the amount of the difference between the tax value of the assets and liabilities and their carrying amounts for the purpose of financial reporting. The Bank records deferred tax provisions and assets, which are recognized in the statement of financial position. Changes in the balance of deferred tax provisions and assets are recognized in mandatory charges to profit, with the exception of the effects of the measurement of financial assets measured at fair value through other comprehensive income, hedging instruments which are recognized in other comprehensive income, where changes in the balance of deferred tax provisions and assets are recognized in other comprehensive income. In determining deferred income tax, the deferred tax assets and provisions as at the beginning and as at the end of the reporting period are taken into account.

The carrying amounts of deferred tax assets are verified at each balance sheet date and decreased adequately if it is no longer likely that taxable income sufficient to realize a deferred tax asset in part or in full will be earned.

Deferred tax assets and provisions are valued using the tax rates which are expected to be in force in the period in which the asset will crystallize or the provision will be utilized, based on the tax rates (and tax regulations) binding as at the balance sheet date or tax rates and tax regulations that as at the balance sheet date are believed to be binding in the future.

Deferred tax assets are offset by the Bank against deferred tax provisions only when the Bank has an enforceable legal title to offset current income tax receivables against current income tax liabilities and deferred income tax is related to the same taxpayer and the same tax authority.

Financial information

•        income tax expense

	2021	2020
Income tax expense recognized in the income statement	(1 380)	(678)
Current income tax expense	(1 507)	(1 452)
Deferred income tax on temporary differences	127	774
Income tax expense recognized in other comprehensive income in respect of temporary differences	1 666	(258)
Total	286	(936)

•        reconciliation of the effective tax rate

RECONCILIATION OF THE EFFECTIVE TAX RATE	2021	2020
Profit or loss before tax	5 976	(2 266)
Tax at the statutory rate in force in Poland (19%)	(1 135)	431
Effect of permanent differences between profit before income tax and taxable income, including:	(250)	(1 115)
non-deductible impairment allowance on investments in subordinated entities	-	(24)
non-deductible allowances for expected credit losses on credit exposures and securities	(41)	(47)
contributions and payments to the Bank Guarantee Fund	(88)	(123)
tax on certain financial institutions	(187)	(182)
impairment allowance in respect of the identified impairment of goodwill of Nordea Bank Polska S.A.	-	(22)
cost of the legal risk of mortgage loans in convertible currencies	(25)	(769)
interest on foreign exchange gains in Sweden	(3)	4
3% flat-rate income tax on interest for non-residents	(1)	-
dividend income	118	63
other permanent differences	(23)	(15)
Effect of other differences between profit before income tax and taxable income, including donations	5	6
Income tax expense recognized in the income statement	(1 380)	(678)
Effective tax rate	23.09	(29.92)

•        net deferred tax assets

DEFERRED TAX PROVISION AND ASSET 2021	As at the beginning of the period	INCOME STATEMENT	OTHER COMPREHENSIVE INCOME	As at the end of the period
Interest accrued on receivables (loans)	243	(23)	-	220
Interest on securities	148	9	-	157
Valuation of securities	286	6	(292)	-
Valuation of derivative financial instruments	46	29	(74)	-
Difference between carrying amount and tax value of property, plant and equipment and intangible assets	165	26	-	191
Taxable income on the release of IBNR allowance, which was previously tax deductible, on implementation of IFRS 9	52	(13)	-	39
Deferred income tax provision, gross	940	34	(367)	607
Interest accrued on liabilities	35	(9)	-	26
Valuation of derivative financial instruments	-	80	868	948
Valuation of securities	40	69	424	533
Provision for employee benefits	76	16	(2)	90
Allowances for expected credit losses	1 166	53	-	1 219
Fair value measurement of loans	136	15	9	160
Commissions to be settled in time using straight-line valuation method and effective interest rate	749	31	-	780
Other deductible temporary differences	37	35	-	72
Provision for costs to be incurred	31	5	-	36
Impact of legal risk of mortgage loans in convertible currencies	476	(134)	-	342
Deferred tax asset, gross	2 746	161	1 299	4 206
Total effect of temporary differences	1 806	127	1 666	3 599
Deferred income tax assets (presented in the statement of financial position)	1 806	127	1 666	3 599

 

The Bank took into account the right to recognize deferred income tax assets in connection with the right to apply the tax preference in respect of the settlements covered by the Regulation of the Minister of Finance of 27 March 2020 on suspending the collection of income tax on certain types of income (revenues) associated with mortgage loans granted for housing purposes, which was in force until the end of 2021. The Ministry of Finance has informed that another Regulation will be issued, extending these solutions for another year and covering also the settlements signed on or after 1 January 2022. Therefore, it is expected that the preferences will apply continuously.

 

DEFERRED TAX PROVISION AND ASSET 2020	As at the beginning of the period	INCOME STATEMENT	OTHER COMPREHENSIVE INCOME	As at the end of the period
Interest accrued on receivables (loans)	208	35	-	243
Capitalized interest on performing housing loans	24	(24)	-	-
Interest on securities	114	34	-	148
Valuation of securities	106	(12)	192	286
Valuation of derivative financial instruments	12	(18)	52	46
Difference between carrying amount and tax value of property, plant and equipment and intangible assets	197	(32)	-	165
Taxable income on the release of IBNR allowance, which was previously tax deductible, on implementation of IFRS 9	65	(13)	-	52
Deferred income tax provision, gross	726	(30)	244	940
Interest accrued on liabilities	74	(39)	-	35
Valuation of securities	-	40	-	40
Provision for employee benefits	76	(1)	1	76
Allowances for expected credit losses	902	264	-	1,166
Fair value measurement of loans	138	13	(15)	136
Commissions to be settled in time using the straight-line valuation method and effective interest rate	760	(11)	-	749
Other deductible temporary differences	32	5	-	37
Provision for costs to be incurred	34	(3)	-	31
Impact of legal risk of mortgage loans in convertible currencies	-	476	-	476
Deferred tax asset, gross	2 016	744	(14)	2 746
Total effect of temporary differences	1 290	774	(258)	1 806
Deferred income tax assets (presented in the statement of financial position)	1 290	774	(258)	1 806

 

•        Tax Group

Based on the contract dated 5 November 2018, PKO Bank Polski S.A. with its two subsidiaries: PKO Bank Hipoteczny S.A. and PKO Leasing S.A., created the Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna Tax Group (Podatkowa Grupa Kapitałowa Powszechnej Kasy Oszczędności Banku Polskiego Spółki Akcyjnej, “PGK PKO Banku Polskiego S.A.”). The respective contract was registered by the Head of the Second Masovian Tax Office in Warsaw.

A tax group is an institution of the tax law stipulated in the provisions of the Corporate Income Tax Act. Its creation means that the income of the Tax Group companies will be consolidated for corporate income tax purposes and that certain solutions will be available facilitating the application of specific regulations of the Corporate Income Tax Act, dedicated specifically to tax groups.

PKO Bank Polski S.A. is the parent of PGK PKO Banku Polskiego S.A. PGK PKO Banku Polskiego S.A. was established for three tax years. The first tax year began on 1 January 2019.

By an agreement of 3 November 2021, PKO Bank Polski S.A., PKO Bank Hipoteczny S.A. and PKO Leasing S.A. extended the existence of PGK PKO Banku Polskiego S.A. for three subsequent tax years (2022 – 2024).

•        Tax policy

By resolution of the Management Board no. 392/C/2021 of 5 October 2021, approved by resolution of the Supervisory Board no. 154/2021 of 14 October 2021, the Bank implemented its Tax Strategy. On 17 December 2021, the Strategy was published at:https://www.pkobp.pl/grupa-pko-banku-polskiego/pko-bank-polski/strategia-podatkowa/. In the execution of its statutory obligations resulting from Article 27c of the Corporate Income Tax Act, the Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna Tax Group prepared in 2021 the Information on the tax strategy implemented in 2020, which is available at:https://www.pkobp.pl/grupa-pko-banku-polskiego/pko-bank-polski/strategia-podatkowa/lub: https://www.pkobp.pl/informacja-o-realizowanej-strategii-podatkowej/. On 21 December 2021, the Bank notified the head of the competent tax office of the address of the webpage on which the Information is available.

Corporate income tax paid on the income earned by PKO Bank Polski S.A. on operating activities in the years 2021 and 2020:

CORPORATE INCOME TAX	2021	2020
PKO Bank Polski S.A.	1 507	1 452
- Poland	1 507	1 452

 

29.            Cash and balances with the Central Bank

Accounting policies

The item “Cash and balances with the central bank” presents cash recognized at nominal value, and funds in the current account and deposits with the Central Bank measured at amortized cost, and if there is no schedule for future cash flows, at amounts due, including interest on those funds (if any).

financial information

CASH AND BALANCES WITH THE CENTRAL BANK	31.12.2021	31.12.2020
Current account with the Central Bank	7 955	4 068
Cash in hand	3 466	3 329
Total	11 421	7 397

 

30.            Amounts due from banks

Accounting policies

Principles of classification and measurement are described in the note “Description of significant accounting policies”. In the case of receivables for which no future cash flow schedule can be determined, and thus the effective interest rate cannot be determined, the receivable is measured at the amount due.

financial information

AMOUNTS DUE FROM BANKS	31.12.2021	31.12.2020
Measured at amortized cost	14 311	5 311
Deposits with banks	7 168	1 287
Current accounts	589	414
Loans and advances granted	6 554	3 421
Amount due from PKO Bank Hipoteczny S.A. in respect of the sale of mortgage-secured housing loans by the Bank	-	189
Gross amount	14 311	5 311
Allowances for expected credit losses	(15)	(7)
Net amount	14 296	5 304

As at 31 December 2021 and 31 December 2020 all amounts due from banks were classified as Stage 1.

 

AMOUNTS DUE FROM BANKS CHANGES IN GROSS CARRYING AMOUNT DURING THE PERIOD	2021	2020
Measured: at amortized cost
As at the beginning of the period	5 311	7 957
Financial instruments granted or acquired	7 123	3 245
Utilization of limits or disbursement of tranches	3 308	2 606
Repayments	(1 432)	(8 564)
Other changes	1	67
As at the end of the period	14 311	5 311

 

AMOUNTS DUE FROM BANKS - CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	2021	2020
Measured: at amortized cost
As at the beginning of the period	(7)	(4)
Increase due to recognition and purchase	-	(1)
Changes in credit risk (net)	(8)	(2)
As at the end of the period	(15)	(7)

 

AMOUNTS DUE FROM BANKS BY MATURITY	31.12.2021	31.12.2020
up to 1 month	7 566	1 897
1 to 3 months	140	-
3 months to 1 year	921	1
1 to 5 years	5 669	3 406
Total	14 296	5 304

 

31.            Hedge accounting

risk management strategy

The Bank applies hedge accounting to hedge its interest rate risk and foreign exchange risk. The hedging transactions are concluded to mitigate the risk of incurring losses as a result of unfavourable changes in foreign currency exchange rates and interest rates. Cash flows related to the transactions performed and the fair value of assets held are hedged.

The interest rate risk covers in particular:

•        the risk related to the repricing (change in interest rates) frequency and dates mismatch of the assets and liabilities, and of off-balance sheet items (repricing date mismatch risk);

•        the risk following from the change in the angle of inclination and shape of the yield curve (yield curve risk);

•        the risk resulting from an imperfect match between the reference rates used in respect of banking products and the changes in the market rates, or from imperfect transmission systems of changes in market interest rates on those products (base risk);

•        risks resulting from options, including embedded options, e.g. restrictions on interests on loans (option risk).

The Bank’s foreign exchange risk arises as a result of transactions performed under:

•        core business activities;

•        trading activities;

•        contracts concluded which generate foreign exchange risk.

The Bank has a system of threshold values and limits attributed to particular interest rate and foreign exchange risks, aimed at determining the maximum allowable risk level which ensures that the strategic tolerance limits are not exceeded.

accounting policies

The Bank decided to continue to apply the provisions of IAS 39 and did not apply IFRS 9 to hedge accounting.

•        Cash flow hedges

Changes in the fair value of a derivative financial instrument designated as a cash flow hedge are recognized directly in other comprehensive income in respect of the portion constituting the effective portion of the hedge. The ineffective portion of a hedge is recognized in the income statement in the item “Net income from financial instruments” or “Net foreign exchange gains (losses)”.

Amounts transferred directly to other comprehensive income are transferred to the income statement in the same period or periods in which the hedged planned transaction affects the income statement. Interest and foreign exchange gains/losses are presented in the income statement in “Net interest income” and “Net foreign exchange gains (losses)”, respectively.

The effectiveness tests comprise the measurement of hedging transactions net of interest accrued and foreign exchange gains (losses) on the nominal value of the hedging transactions (in the case of CIRS transactions).

Hedge effectiveness is verified through the use of prospective and retrospective effectiveness tests. The tests are performed on a monthly basis.

•        Fair value hedges

Changes in the fair value of a derivative hedging instrument designated as fair value hedge are recognized in “Net income from financial instruments” or “Net foreign exchange gains/(losses)”, net of the interest component. The interest component is presented in the same line item as interest income on the hedged item, i.e. In “Net interest income”.

A change in the fair value adjustment to the hedged item is recognized in “Net income from financial instruments” or Net foreign exchange gains/(losses).

The part of the fair value adjustment which is not hedged is recognized:

•        for a hedged item which is a financial asset or a financial liability classified as measured at fair value through profit or loss – as income or costs, as appropriate, in gains/(losses) on financial transactions;

•        for a hedged item which is a financial asset measured at fair value through other comprehensive income – in other comprehensive income, where the change in the fair value of financial instruments measured at fair value through other comprehensive is presented.

The effectiveness tests comprise the measurement of hedging transactions net of accrued interest.

Hedge effectiveness is verified through the use of prospective and retrospective effectiveness tests. The tests are performed on a monthly basis.

Types of hedging strategies used by the Bank

As at 31 December 2021, the Bank had active relationships as part of:

•        5 strategies for hedging cash flow volatility

•        5 strategies for hedging fair value volatility.

In 2021, as part of the hedging strategy “Hedges against fluctuations in cash flows from variable interest loans in EUR, resulting from the risk of changes in interest rates, using IRS transactions”, the Bank closed hedging relationships:

•      due to their failing to pass the prospective test of sufficient nominal amount. The effect of discontinuation of hedge accounting as part of the said relationship on the profit or loss amounted to PLN 0.4 million;

•      due to discontinuation of hedge accounting. The effect of the discontinuation of hedge accounting as part of the said relationship on the profit or loss amounted to PLN 1.2 million.

In 2021, as part of the hedging strategy “Hedges against fluctuations in cash flows from variable interest loans in PLN, resulting from the risk of changes in interest rates, using IRS transactions”, the Bank closed one hedging relationship due to the discontinuation of hedge accounting. The effect of the discontinuation of hedge accounting as part of the said relationship on the profit or loss amounted to PLN 7 million.

In 2021, as part of the hedging strategy “Hedges against fluctuations in the fair value of fixed interest FVOCI in PLN, resulting from the risk of changes in interest rates, using IRS transactions”, the Bank closed two hedging relationships due to their failing to pass the prospective effectiveness test. The effect of discontinuation of hedge accounting as part of the said relationships on the profit or loss amounted to PLN 0.7 million.

In 2021, the Bank introduced one hedging strategy constituting a fair value hedge:

•      “Hedges against fluctuations in the fair value of shares in a foreign entity whose functional currency is a foreign currency, measured in the separate financial statements of PKO Bank Polski S.A. by the acquisition accounting method less impairment allowances, resulting from exchange rate risk which will materialize upon a potential future disposal of the shares, using forward or NDF transactions”;

and two cash flow hedging strategies:

•      “Hedging against fluctuations in cash flows on variable interest PLN loans, resulting from a risk of changes in interest rates, and hedging against fluctuations in cash flows on financial liabilities in a convertible currency resulting from foreign currency risk, using two CIRS transactions”; and

•      “Hedging against fluctuations in cash flows on deposits in PLN, resulting from the risk of changes in interest rates, using IRS transactions”.

No changes were made to other hedging strategies in 2021.

In 2020, the Bank introduced two new hedging strategies constituting fair value hedges and cash flow hedges.

The table below summarizes the types of strategies applied by the Bank.

Type of hedging strategy	Cash flow hedges (Strategies no.: 1,2,3,4,5,6,7,8,9,15,16)
Hedged risk	foreign exchange risk and interest rate risk	interest rate risk
Hedging instrument	transactions CIRS float – float transactions CIRS fixed – float	IRS fixed - float transactions
Hedged item	•        the portfolio of variable interest loans in foreign currencies and •        the portfolio of short-term negotiated deposits in PLN, including their future renewals. In designating the hedged item, the Bank used the IAS39 AG 99C in the version adopted by the European Union, or •        fixed interest rate financial liability denominated in foreign currency or •        the portfolio of floating interest rate regular savings products in PLN or a financial liability in foreign currencies	•        the portfolio of loans in PLN or foreign currencies indexed to a floating interest rate •        the portfolio of deposits in PLN indexed to a floating interest rate
Sources of hedge ineffectiveness	•        margin on the hedging instrument •        differences in discount on the hedged item and the hedging instrument •        CVA/DVA adjustment of the hedging instrument	•        change in market parameters between the moment of determining the terms and conditions relating to the hedged item and the moment of concluding the hedge •        differences in discount on the hedged item and the hedging instrument •        CVA/DVA adjustment of the hedging instrument
	The period in which cash flows are expected to occur and affect the financial results: January 2022 – July 2024	The period in which cash flows are expected to occur and affect the financial results: January 2022 – December 2031

 

Type of hedging strategy	Fair value hedges (strategies nos.: 10,11,12,13, 14)
Hedged risk	interest rate risk	foreign exchange risk
Hedging instrument	IRS fixed – float transactions	Forward or NDF transactions
Hedged item	a component of the interest rate risk relating to a fixed interest rate loan or security in a foreign currency or in PLN, which corresponds to the market IRS rate	an amount of shares in a foreign entity equal to or lower than the total net carrying amount of the shares in the foreign entity
sources of hedge ineffectiveness	•        change in market parameters between the moment of determining the terms and conditions relating to the hedged item and the moment of concluding the hedge •        CVA/DVA adjustment of the hedging instrument •        difference between the present value of the floating leg of IRS and the present value of the nominal value of a security	none

 

 

HEDGED ITEM	CARRYING AMOUNT OF THE HEDGED ITEM	ITEM OF THE STATEMENT OF FINANCIAL POSITION	CHANGE IN THE FAIR VALUE OF THE HEDGED ITEM	STRATEGY NO.
31.12.2021
Cash flow hedges
Loans in CHF	265	Loans and advances to customers	8	4
Financial liability in USD	293	Amounts due to customers
Loans in PLN	93 421	Loans and advances to customers	4 495	2
Loans in EUR	524	Loans and advances to customers	139	6
Negotiated deposits in PLN	2 263	Amounts due to customers
Loans in EUR	139	Loans and advances to customers	1	3
Loans in PLN	3 393	Loans and advances to customers	(186)	15
Financial liability in USD	875	Securities in issue
Deposits in PLN	200	Amounts due to customers	(1)	16
Fair value hedges
Security in EUR	30	Securities measured at amortized cost	-	11
Security in EUR	202	Securities measured at fair value through other comprehensive income	(1)	12
Security in USD	130	Securities measured at fair value through other comprehensive income	1	12
Loans in EUR	15	Loans and advances to customers	-	10
Loans in USD	75	Loans and advances to customers	-	10
Security in PLN	-	Securities measured at fair value through other comprehensive income	(25)	13
Shares in Kredobank S.A.	74	Investments in subsidiaries	5	14
Total			4 436

 

HEDGED ITEM 31.12.2020	CARRYING AMOUNT OF THE HEDGED ITEM	ITEM OF THE STATEMENT OF FINANCIAL POSITION	CHANGE IN THE FAIR VALUE OF THE HEDGED ITEM	STRATEGY NO.
Cash flow hedges
Loans in CHF	525	Loans and advances to customers	280	1; 7
Negotiated deposits in PLN	1 939	Amounts due to customers
Loans in CHF	400	Loans and advances to customers	(2)	3
Loans in PLN	66 304	Loans and advances to customers	(387)	2
Loans in EUR	599	Loans and advances to customers	139	5, 6
Negotiated deposits in PLN	2 591	Amounts due to customers
Loans in EUR	704	Loans and advances to customers	(1)	3
Fair value hedges
Security in EUR	30	Securities measured at amortized cost	1	11
Security in EUR	102	Securities measured at fair value through other comprehensive income	1	12
Security in USD	158	Securities measured at fair value through other comprehensive income	5	12
Loans in EUR	174	Loans and advances to customers	1	10
Security in PLN	535	Securities measured at fair value through other comprehensive income	17	13
Total			54

 

Hedging derivative 31.12.2021		Nominal amount of hedging derivatives	Nominal-weighted average margin / Nominal-weighted average fixed interest rate	Carrying amount (fair value of hedging instruments)		Ineffective portion of cash flow hedges recognized in the income statement / Fair value adjustment to the hedged item	Change in the fair value of hedging instruments since designation	Strategy no.
				Assets	Liabilities
Cash flow hedges
IRS PLN	PLN	93 621	1.1372%	56	4 400	(6)	(4 475)	2; 16
IRS CHF	CHF	-	-	-	-	(1)	-	3
IRS EUR	EUR	663	0.0865%	9	2	-	6	6
CIRS PLN/CHF	float PLN	3 393	0.0971%	252	-	3	230	15
	float CHF	818	0.0690%
CIRS CHF/USD	float CHF	1 083	-	-	56	-	(52)	4; 15
	fixed USD	1 168	1.8581%
CIRS-EP EUR/PLN	fixed EUR	524	2.8913%	-	154	(1)	(146)
	float PLN	2 263	-
Fair value hedges
IRS EUR	EUR	247	(0.2178%)	7	1	(3)	1	10; 11; 12
IRS USD	USD	205	0.9993%	2	8	3	(1)	10; 12
IRS PLN	PLN	-	-	-	-	(25)	-	13
FWD	PLN	74	-	1	3	5	(5)	14
FWD	UAH	544	-
Total				327	4 624	(25)	(4 442)

 

Hedging derivative 31.12.2020		Nominal amount of hedging derivatives	Nominal-weighted average margin / Nominal-weighted average fixed interest rate	Carrying amount (fair value of hedging instruments)		Ineffective portion of cash flow hedges recognized in the income statement / Fair value adjustment to the hedged item	Change in the fair value of hedging instruments since designation	Strategy no.
				Assets	Liabilities
Cash flow hedges
CIRS CHF/PLN	float CHF	525	(0.0507%)	-	293	(1)	(278)	1
	float PLN	1 939	0.0000%
IRS PLN	PLN	66 304	0.8196%	590	8	2	398	2
IRS CHF	Fixed-float CHF	400	(0.4425%)	6	-	-	1	3
IRS EUR	Fixed-float EUR	1 228	(0.1479%)	22	6	(1)	18	3; 6
CIRS CHF/EUR	float CHF	-	-	-	-	6	-	4; 7; 9; 14
	fixed EUR	-	-
CIRS EUR/PLN	float EUR	75	0.0000%	-	17	(1)	(14)	5
	float PLN	328	(0.0500%)
CIRS-EP EUR/PLN	fixed EUR	524	0.5719%	-	164	(14)	(140)	6
	float PLN	2 263	0.0000%
Fair value hedges
IRS EUR	Fixed-float EUR	306	(0.2837%)	-	13	13	(3)	10; 11; 12
IRS USD	Fixed-float USD	158	1.3735%	-	20	17	(5)	12
IRS PLN	Fixed-float PLN	535	1.2437%	-	21	17	(17)	13
Total				618	542	38	(40)

 

Financial information

CARRYING AMOUNT OF HEDGING INSTRUMENTS	31.12.2021		31.12.2020
	Assets	Liabilities	Assets	Liabilities
Cash flow hedges	317	4 612	618	489
interest rate risk IRS	65	4 402	618	14
foreign exchange risk and interest rate risk – CIRS	252	210	-	475
Fair value hedges	10	12	-	54
interest rate risk IRS	9	9	-	54
foreign exchange risk – Forward	1	3	-	-
Total	327	4 624	618	543

 

Cash flow hedges

CHANGE IN OTHER COMPREHENSIVE INCOME RELATING TO CASH FLOW HEDGES AND AN INEFFECTIVE PORTION OF CASH FLOW HEDGES	2021	2020
Accumulated other comprehensive income at the beginning of the period, net	319	95
Impact on other comprehensive income during the period, gross	(4 964)	276
Gains/losses recognized in other comprehensive income during the period	(3 998)	253
Amount transferred from other comprehensive income to the income statement, of which:	(966)	23
- interest income	(425)	(797)
- net foreign exchange gains/(losses)	(541)	820
Tax effect	943	(52)
Accumulated other comprehensive income at the end of the period, net	(3 702)	319
Ineffective portion of cash flow hedges recognized in the income statement, including in:	(6)	(10)
Foreign exchange gains/ (losses)	1	(11)
Gains/(losses) on financial transactions	(7)	1

Fair value hedges

INTEREST RATE AND FOREIGN EXCHANGE RISK HEDGES	31.12.2021	31.12.2020
Fair value measurement of the hedging derivative instrument	(3)	(54)
Interest rate risk hedge – IRS fixed - float	(1)	(54)
Foreign exchange risk hedge – forward	(2)	-
Fair value adjustment of the hedged instrument attributable to the hedged risk	(21)	46
Interest rate risk hedge	(25)	46
Securities	(2)	5
Loans and advances to customers	(1)	4
Fair value adjustment recognized in OCI	(22)	37
Foreign exchange risk hedge – shares in a foreign entity whose functional currency is a foreign currency	4	-

 

NOMINAL VALUE OF HEDGING INSTRUMENTS BY MATURITY (in original currencies)	up to 1 month	1 to 3 months	3 months to 1 year	1 to 5 years	over 5 years	Total
31.12.2021
Hedge type: Cash flow hedge
Hedged risk: interest rate risk
IRS PLN fixed - float	1 800	1 801	21 078	61 515	7 427	93 621
IRS EUR  fixed - float	-	-	569	90	4	663
Hedged risk: foreign exchange and interest rate risks
CIRS float CHF/float PLN
float CHF	-	-	818	-	-	818
float PLN	-	-	3 393	-	-	3 393
CIRS fixed USD/float CHF
fixed USD	-	-	919	249	-	1 168
float CHF	-	-	858	225	-	1 083
CIRS float PLN/fixed EUR
float PLN	-	-	2 155	109	-	2 264
fixed EUR	-	-	499	25	-	524
Hedge type: Fair value hedge
Hedged risk: interest rate risk
IRS USD fixed - float	-	-	-	205	-	205
IRS PLN fixed - float	-	-	-	217	30	247
Hedged risk: foreign exchange risk
Forward PLN/UAH  - purchase of currency	-	27	46	-	-	73
Forward PLN/UAH  - sale of currency	-	186	358	-	-	544

 

NOMINAL VALUE OF HEDGING INSTRUMENTS BY MATURITY (in original currencies)	up to 1 month	1 to 3 months	3 months to 1 year	1 to 5 years	over 5 years	Total
31.12.2020
Hedge type: Cash flow hedges
Hedged risk: interest rate risk
IRS PLN fixed - float	2 150	1 520	12 464	49 427	744	66 305
IRS EUR  fixed - float	-	-	500	724	4	1 228
IRS CHF  fixed - float	-	-	400	-	-	400
Hedged risk: foreign exchange and interest rate risks
CIRS float CHF/float PLN
float CHF	-	-	500	25	-	525
float PLN	-	-	1 843	97	-	1 940
CIRS float EUR/float PLN
float EUR	-	75	-	-	-	75
float PLN	-	328	-	-	-	328
CIRS float PLN/fixed EUR
float PLN	-	-	-	2 263	-	2 263
fixed EUR	-	-	-	524	-	524
Hedge type: Fair value hedges
Hedged risk: interest rate risk
IRS USD fixed - float	-	-	-	158	-	158
IRS PLN fixed - float	-	-	82	188	36	306
IRS PLN fixed - float	-	-	-	-	535	535

 

Calculation of estimates

ESTIMATED CHANGE IN VALUATION OF HEDGING DERIVATIVES FOLLOWING A PARALLEL SHIFT IN YIELD CURVES:	31.12.2021		31.12.2020
	scenario +50bp	scenario -50bp	scenario +50bp	scenario -50bp
IRS	(853)	868	(537)	543
CIRS	(15)	15	(29)	29
Total	(868)	883	(566)	572

 

32.            Other derivative instruments

Accounting policies

The Bank uses derivative financial instruments for risk management purposes related to the Bank’s operations. The Bank most often uses the following derivative instruments: IRS, CIRS, FX Swap, options, commodity swap, FRA, Forward and Futures. Derivative financial instruments are stated at fair value from the transaction date. Every derivative with positive fair value is shown under “Other derivative financial instruments” as an asset, and if the fair value is negative – as a liability.

The Bank recognizes changes to the fair value measurement of derivative instruments which are not classified as hedging instruments and the gain/(loss) on the settlement of those instruments in the net gain/(loss) on financial instruments or net foreign exchange gains/(losses), depending on the type of derivative.

Estimates and judgments

The fair value of derivative instruments other than options is designated using the measurement methods that base on discounted cash flows which may be obtained from a given financial instrument. The measurement techniques for financial instruments other than options are based on yield curves constructed on the basis of available market data (deposit rates on the interbank market, quotations of IRS transactions). Options are valued using option pricing models. The variables and assumptions used in a valuation include, where available, data derived from observable markets.

The fair value of derivative instruments accounts for DVA (debit value adjustment), and CVA (credit value adjustment). The process of calculating CVA and DVA adjustments covers the selection of the method for designating the counterparty’s or the Bank’s credit risk spread (e.g. the market based measurement based on liquid quotations of prices of debt instruments issued by the counterparty, the implied spread from Credit Default Swap contracts), estimating the probability of the counterparty’s or the Bank’s default and the recovery rate, as well as the calculation of CVA and DVA adjustments.

Financial information

OTHER DERIVATIVE INSTRUMENTS - BY TYPE	31.12.2021		31.12.2020
	Assets	Liabilities	Assets	Liabilities
IRS	4 640	4 791	3 192	3 405
CIRS	935	1 298	535	1 505
FX Swap	586	312	377	315
Options	520	665	260	383
Commodity swap1	2 812	2 807	411	409
FRA	43	44	2	2
Forward	321	497	313	293
Commodity Forward2	1 286	1 276	326	320
Other	-	14	-	-
Total	11 143	11 704	5 416	6 632

1 The item comprises contracts for participation in the gas fuel market valued at PLN 2 574 million (as at 31 December 2020: PLN 341 million) - Assets and PLN 2 574 million (as at 31 December 2020: PLN 340 million) - Liabilities.

2 The item comprises valuation of contracts for CO2 emission rights.

 

	31.12.2021	31.12.2020
CVA and CDA adjustments	(11)	(15)

 

NOMINAL AMOUNTS OF UNDERLYING HEDGING INSTRUMENTS (BUY AND SELL TOGETHER) other hedging instruments
31.12.2021	up to 1 month	1 to 3 months	3 months to 1 year	1 to 5 years	over 5 years	Total
IRS	12 202	21 092	75 924	254 716	71 458	435 392
Purchase	6 101	10 546	37 962	127 358	35 729	217 696
Sale	6 101	10 546	37 962	127 358	35 729	217 696
CIRS	-	-	4 723	41 005	7 438	53 166
Purchase	-	-	2 345	20 321	3 718	26 384
Sale	-	-	2 378	20 684	37 20	26 782
FX Swap	35 950	25 888	18 396	24 898	-	105 132
Purchase of currencies	17 988	12 961	9 196	12 477	-	52 622
Sale of currencies	17 962	12 927	9 200	12 421	-	52 510
Options	27 076	27 666	58 663	29 268	1 203	143 876
Purchase	13 518	13 835	29 296	14 616	601	71 866
Sale	13 558	13 831	29 367	14 652	602	72 010
FRA	-	-	13 457	-	-	13 457
Purchase	-	-	6 126	-	-	6 126
Sale	-	-	7 331	-	-	7 331
Forward	12 810	11 284	19 075	20 892	-	64 061
Purchase of currencies	6 402	5 638	9 510	10 398	-	31 948
Sale of currencies	6 408	5 646	9 565	10 494	-	32 113
Other, including commodity swaps and futures (including stock exchange indices)	2 132	1 321	4 970	1 499	23	9 945
Purchase	1 067	668	2 481	750	9	4 975
Sale	1 065	653	2 489	749	14	4 970
Total	90 170	87 251	195 208	372 278	80 122	825 029

 

NOMINAL AMOUNTS OF UNDERLYING HEDGING INSTRUMENTS (BUY AND SELL TOGETHER) other hedging instruments
31.12.2020	up to 1 month	1 to 3 months	3 months to 1 year	1 to 5 years	over 5 years	Total
IRS	13 198	14 716	77 620	233 752	39 712	378 998
Purchase	6 599	7 358	38 810	116 876	19 856	189 499
Sale	6 599	7 358	38 810	116 876	19 856	189 499
CIRS	-	-	17 936	48 460	7 564	73 960
Purchase	-	-	8 799	23 825	3 772	36 396
Sale	-	-	9 137	24 635	3 792	37 564
FX Swap	28 763	12 923	9 428	5 373	-	56 487
Purchase of currencies	14 458	6 459	4 674	2 697	-	28 288
Sale of currencies	14 305	6 464	4 754	2 676	-	28 199
Options	5 154	9 685	25 008	10 345	1	50 193
Purchase	2 589	4 838	12 435	5 170	-	25 032
Sale	2 565	4 847	12 573	5 175	1	25 161
FRA	-	-	17 832	834	-	18 666
Purchase	-	-	8 680	584	-	9 264
Sale	-	-	9 152	250	-	9 402
Forward	6 513	14 387	18 565	7 955	47	47 467
Purchase of currencies	3 271	7 168	9 281	3 985	23	23 728
Sale of currencies	3 242	7 219	9 284	3 970	24	23 739
Other, including commodity swaps and futures (including stock exchange indices)	701	1 299	3 661	1 133	434	7 228
Purchase	351	650	1 832	567	233	3 633
Sale	350	649	1 829	566	201	3 595
Total	54 329	53 010	170 050	307 852	47 758	632 999

 

Calculation of estimates

The Bank made simulations aimed at determining the possible impact of the changes in the yield curve on the measurement of the transactions.

ESTIMATED CHANGE IN VALUATION OF DERIVATIVE INSTRUMENTS FOLLOWING A PARALLEL SHIFT IN YIELD CURVES:	31.12.2021		31.12.2020
	scenario +50bp	scenario -50bp	scenario +50bp	scenario -50bp
IRS	(847)	862	(530)	536
CIRS	(15)	15	(29)	29
other instruments	(13)	13	(4)	4
Total	(875)	890	(563)	569

 

33.            Securities

Accounting policies

Securities are classified and valued in accordance with the principles of selecting the business model and assessing the characteristics of contractual cash flows referred to in the note “Description of significant accounting policies”.

The item “Securities” also includes an adjustment relating to fair value hedge accounting for securities representing hedged items (see the note “Hedge accounting”).

financial information

SECURITIES	held for trading	not held for trading, measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
31/12/2021
Debt securities	279	503	57 641	72 055	130 478
Treasury bonds (in PLN)	69	-	37 371	50 787	88 227
Treasury bonds (in foreign currencies)	2	350	2 007	-	2 359
corporate bonds (in PLN) secured with the State Treasury guarantees	4	-	9 894	12 092	21 990
municipal bonds (in PLN)	15	-	4 127	5 022	9 164
corporate bonds (in PLN)1	182	153	3 810	1 927	6 072
corporate bonds (in foreign currencies)	-	-	432	2 227	2 659
mortgage covered bonds	7	-	-	-	7
Equity securities	32	330	-	-	362
shares in other entities - not listed	-	308	-	-	308
shares in other entities - listed	31	22	-	-	53
participation units in investment funds, investment certificates, rights to shares, pre-emptive rights	1	-	-	-	1
Total (excluding adjustment relating to fair value hedge accounting)	311	833	57 641	72 055	130 840
Adjustment relating to fair value hedge accounting	-	-	-	(2)	(2)
Total	311	833	57 641	72 053	130 838

1 The item includes bonds of international financial organizations of PLN 3 652 million

SECURITIES	held for trading	not held for trading, measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
31.12.2020
Debt securities	1 171	647	70 446	47 217	119 481
Treasury bonds (in PLN)	685	119	50 654	29 617	81 075
Treasury bonds (in foreign currencies)	4	367	2 090	-	2 461
Treasury bills	349	-	500	-	849
corporate bonds (in PLN) secured with the State Treasury guarantees	3	-	8 704	9 887	18 594
municipal bonds (in PLN)	15	-	4 640	5 060	9 715
corporate bonds (in PLN)1	107	161	3 835	1 517	5 620
corporate bonds (in foreign currencies)	-	-	23	1 136	1 159
mortgage covered bonds	8	-	-	-	8
Equity securities	27	460	-	-	487
shares in other entities - not listed	-	443	-	-	443
shares in other entities - listed	25	17	-	-	42
participation units in investment funds, investment certificates, rights to shares, pre-emptive rights	2	-	-	-	2
Total (excluding adjustment relating to fair value hedge accounting)	1 198	1 107	70 446	47 217	119 968
Adjustment relating to fair value hedge accounting	-	-	-	5	5
Total	1 198	1 107	70 446	47 222	119 973

1 The item includes bonds of international financial organizations of PLN 2 513 million

The item “Treasury bonds in PLN and in foreign currencies” comprises Polish Treasury bonds.

33.1. Securities – financial assets by stage

SECURITIES (excluding adjustment relating to fair value hedge accounting) 31.12.2021	Stage 1	Stage 2	Stage 3	Total	of which POCI
Measurement method: measured at fair value through other comprehensive income
Gross amount	57 252	44	397	57 693	380
Treasury bonds (in PLN)	37 371	-	-	37 371	-
Treasury bonds (in foreign currencies)	2 007	-	-	2 007	-
corporate bonds (in PLN) secured with the State Treasury guarantees	9 894	-	-	9 894	-
municipal bonds (in PLN)	4 083	44	-	4 127	-
corporate bonds (in PLN)	3 465	-	397	3 862	380
corporate bonds (in foreign currencies)	432	-	-	432	-
Allowances for expected credit losses	-	-	(52)	(52)	(52)
corporate bonds (in PLN)	-	-	(52)	(52)	(52)
Net amount	57 252	44	345	57 641	328
Treasury bonds (in PLN)	37 371	-	-	37 371	-
Treasury bonds (in foreign currencies)	2 007	-	-	2 007	-
corporate bonds (in PLN) secured with the State Treasury guarantees	9 894	-	-	9 894	-
municipal bonds (in PLN)	4 083	44	-	4 127	-
corporate bonds (in PLN)	3 465	-	345	3 810	328
corporate bonds (in foreign currencies)	432	-	-	432	-
Measured: at amortized cost
Gross amount	71 709	402	-	72 111	-
Treasury bonds (in PLN)	50 787	-	-	50 787	-
corporate bonds (in PLN) secured with the State Treasury guarantees	12 097	-	-	12 097	-
municipal bonds (in PLN)	4 982	57	-	5 039	-
corporate bonds (in PLN)	1 740	207	-	1 947	-
corporate bonds (in foreign currencies)	2 103	138	-	2 241	-
Allowances for expected credit losses	(30)	(26)	-	(56)	-
corporate bonds (in PLN) secured with the State Treasury guarantees	(5)	-	-	(5)	-
municipal bonds (in PLN)	(16)	(1)	-	(17)	-
corporate bonds (in PLN)	(3)	(17)	-	(20)	-
corporate bonds (in foreign currencies)	(6)	(8)	-	(14)	-
Net amount	71 679	376	-	72 055	-
Treasury bonds (in PLN)	50 787	-	-	50 787	-
corporate bonds (in PLN) secured with the State Treasury guarantees	12 092	-	-	12 092	-
municipal bonds (in PLN)	4 966	56	-	5 022	-
corporate bonds (in PLN)	1 737	190	-	1 927	-
corporate bonds (in foreign currencies)	2 097	130	-	2 227	-
Total securities
Gross amount	128 961	446	397	129 804	380
Allowances for expected credit losses	(30)	(26)	(52)	(108)	(52)
Net amount	128 931	420	345	129 696	328

 

SECURITIES (excluding adjustment relating to fair value hedge accounting) 31.12.2020	Stage 1	Stage 2	Stage 3	Total	of which POCI
Measurement method: measured at fair value through other comprehensive income
Gross amount	69 935	68	457	70 460	438
Treasury bonds (in PLN)	50 654	-	-	50 654	-
Treasury bonds (in foreign currencies)	2 090	-	-	2 090	-
Treasury bills	500	-	-	500	-
corporate bonds (in PLN) secured with the State Treasury guarantees	8 704	-	-	8 704	-
municipal bonds (in PLN)	4 573	67	-	4 640	-
corporate bonds (in PLN)	3 391	1	457	3 849	438
corporate bonds (in foreign currencies)	23	-	-	23	-
Allowances for expected credit losses	-	-	(14)	(14)	(14)
corporate bonds (in PLN)	-	-	(14)	(14)	(14)
Net amount	69 935	68	443	70 446	424
Treasury bonds (in PLN)	50 654	-	-	50 654	-
Treasury bonds (in foreign currencies)	2 090	-	-	2 090	-
Treasury bills	500	-	-	500	-
corporate bonds (in PLN) secured with the State Treasury guarantees	8 704	-	-	8 704	-
municipal bonds (in PLN)	4 573	67	-	4 640	-
corporate bonds (in PLN)	3 391	1	443	3 835	424
corporate bonds (in foreign currencies)	23	-	-	23	-
Measured: at amortized cost
Gross amount	47 026	228	-	47 254	-
Treasury bonds (in PLN)	29 617	-	-	29 617	-
corporate bonds (in PLN) secured with the State Treasury guarantees	9 889	-	-	9 889	-
municipal bonds (in PLN)	5 052	24	-	5 076	-
corporate bonds (in PLN)	1 330	204	-	1 534	-
corporate bonds (in foreign currencies)	1 138	-	-	1 138	-
Allowances for expected credit losses	(21)	(16)	-	(37)	-
corporate bonds (in PLN) secured with the State Treasury guarantees	(2)	-	-	(2)	-
municipal bonds (in PLN)	(16)	-	-	(16)	-
corporate bonds (in PLN)	(1)	(16)	-	(17)	-
corporate bonds (in foreign currencies)	(2)	-	-	(2)	-
Net amount	47 005	212	-	47 217	-
Treasury bonds (in PLN)	29 617	-	-	29 617	-
corporate bonds (in PLN) secured with the State Treasury guarantees	9 887	-	-	9 887	-
municipal bonds (in PLN)	5 036	24	-	5 060	-
corporate bonds (in PLN)	1 329	188	-	1 517	-
corporate bonds (in foreign currencies)	1 136	-	-	1 136	-
Total securities
Gross amount	116 961	296	457	117 714	438
Allowances for expected credit losses	(21)	(16)	(14)	(51)	(14)
Net amount	116 940	280	443	117 663	424

 

33.2. Securities – Changes in the gross carrying amount during the period

SECURITIES - CHANGE IN THE GROSS CARRYING AMOUNT DURING THE PERIOD (excluding adjustment relating to fair value hedge accounting)	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2021
Measured: at fair value through other comprehensive income
Carrying amount as at the beginning of the period, gross	69 935	68	457	70 460	438
Transfer from stage 2 and 3 to stage 1	49	(49)	-	-	-
Transfer from stage 1 and 3 to stage 2	(44)	44	-	-	-
Granting or purchase of financial instruments	43 203	-	-	43 203	-
Utilization of limits or disbursement of tranches	90	1	-	91	-
Repayments	(53 306)	(20)	(60)	(53 386)	(58)
Derecognition, including sale	(3)	-	-	(3)	-
Other changes	(2 672)	-	-	(2 672)	-
Gross carrying amount at the end of the period	57 252	44	397	57 693	380

 

SECURITIES  - CHANGE IN GROSS CARRYING AMOUNT DURING THE PERIOD (excluding adjustments relating to fair value hedge accounting)	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2021
Measured: at amortized cost
Carrying amount as at the beginning of the period, gross	47 026	228	-	47 254	-
Transfer from stage 2 and 3 to stage 1	25	(25)	-	-	-
Transfer from stage 1 and 3 to stage 2	(216)	216	-	-	-
Granting or purchase of financial instruments	25 837	-	-	25 837	-
Utilization of limits or disbursement of tranches	108	1	-	109	-
Repayments	(2 051)	(23)	-	(2 074)	-
Derecognition, including sale	(1)	-	-	(1)	-
Other changes	981	5	-	986	-
Gross carrying amount at the end of the period	71 709	402	-	72 111	-

 

SECURITIES - CHANGE IN THE GROSS CARRYING AMOUNT DURING THE PERIOD (excluding adjustment relating to fair value hedge accounting)	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2020
Measurement method:  measured at fair value through other comprehensive income
Carrying amount as at the beginning of the period, gross	60 613	59	463	61 135	463
Transfer from stage 2 and 3 to stage 1	8	(8)	-	-	-
Transfer from stage 1 and 3 to stage 2	(14)	14	-	-	-
Transfer from stage 1 and 2 to stage 3	(19)	-	19	-	-
Granting or purchase of financial instruments	66 211	4	-	66 215	-
utilization of limit or disbursement of tranches	953	-	1	954	1
Repayments	(61 710)	(1)	(23)	(61 734)	(23)
Non-substantial modifications	2	-	-	2	-
Derecognition of financial instruments, including sale	(11)	-	-	(11)	-
Write-off	-	-	(2)	(2)	(2)
Other changes	3 902	-	(1)	3 901	(1)
Gross carrying amount at the end of the period	69 935	68	457	70 460	438

 

SECURITIES - CHANGE IN THE GROSS CARRYING AMOUNT DURING THE PERIOD (excluding adjustment relating to fair value hedge accounting)	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2020
Measured: at amortized cost
Carrying amount as at the beginning of the period, gross	13 356	20	-	13 376	-
Transfer from stage 2 and 3 to stage 1	12	(12)	-	-	-
Transfer from stage 1 and 3 to stage 2	(105)	105	-	-	-
Granting or acquisition of financial instruments	34 610	-	-	34 610	-
Utilization of limit or disbursement of tranches	130	1	-	131	-
Repayments	(1 859)	(6)	-	(1 865)	-
Other changes	882	120	-	1002	-
Gross carrying amount at the end of the period	47 026	228	-	47 254	-

 

33.3. Securities - Change in allowances for expected credit losses during the period

SECURITIES – CHANGE IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2021
Measurement method:  measured at fair value through other comprehensive income
As at the beginning of the period	-	-	(14)	(14)	(14)
Transfer from stage 1 and 3 to stage 2	1	(1)	-	-	-
Increase due to recognition and purchase	(23)	-	-	(23)	-
Changes in credit risk (net)	15	-	(35)	(20)	(35)
Other changes	7	1	(3)	5	(3)
As at the end of the period	-	-	(52)	(52)	(52)

 

SECURITIES – CHANGE IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2021
Measured: at amortized cost
As at the beginning of the period	(21)	(16)	-	(37)	-
Transfer from stage 1 and 3 to stage 2	10	(10)	-	-	-
Increase due to recognition and purchase	(13)	-	-	(13)	-
Changes in credit risk (net)	5	(9)	-	(4)	-
Other changes	(11)	9	-	(2)	-
As at the end of the period	(30)	(26)	-	(56)	-

 

SECURITIES – CHANGE IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2020
Measurement method: measured at fair value through other comprehensive income
As at the beginning of the period	-	-	(5)	(5)	(5)
Increase due to recognition and purchase	(5)	-	-	(5)	-
Changes in credit risk (net)	3	-	(8)	(5)	(8)
Write-off	-	-	2	2	2
Other changes	2	-	(3)	(1)	(3)
As at the end of the period	-	-	(14)	(14)	(14)

 

SECURITIES – CHANGE IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2020
Measured: at amortized cost
As at the beginning of the period	(15)	-	-	(15)	-
Transfer from stage 1 and 3 to stage 2	4	(4)	-	-	-
Increase due to recognition and purchase	(6)	-	-	(6)	-
Changes in credit risk (net)	(1)	(15)	-	(16)	-
Other changes	(3)	3	-	-	-
As at the end of the period	(21)	(16)	-	(37)	-

•        other information

	31.12.2021	31.12.2020
allowance which does not reduce the fair value of securities measured at fair value through other comprehensive income	24	19

 

SECURITIES BY MATURITY (excluding adjustments relating to fair value hedge accounting)	held for trading	not held for trading, measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
31.12.2021
without a set date – equity securities	32	330	-	-	362
up to 1 month	7	2	59	-	68
1 to 3 months	3	-	122	9	134
3 months to 1 year	127	-	1 091	5 824	7 042
1to 5 years	99	364	33 239	38 165	71 867
over 5 years	43	137	23 130	28 057	51 367
Total	311	833	57 641	72 055	130 840

 

SECURITIES BY MATURITY (excluding adjustments relating to fair value hedge accounting)	held for trading	not held for trading, measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
31.12.2020
without a set date – equity securities	27	461	-	-	488
up to 1 month	1	2	4	7	14
1 to 3 months	351	-	503	12	866
3 months to 1 year	556	14	9 156	854	10 580
1 to 5 years	187	423	41 984	34 309	76 903
over 5 years	76	207	18 799	12 035	31 117
Total	1 198	1 107	70 446	47 217	119 968

 

34.            Repo and reverse repo transactions

Accounting policies

Reverse repo transactions are measured at amortized cost. The difference between the sale and repurchase (sale) price constitutes interest income and is settled over the period of the agreement using the effective interest rate.

Repo transactions are transactions of sale of securities with a granted promise of repurchase within a defined contractual term and at a specified price. The securities that are a component of repo transactions are not eliminated from the statement of financial position and are measured in accordance with the principles specified for each category of securities. The difference between the sale price and the repurchase price is recognized as interest expense and it is settled over the term of the contract using the effective interest rate.

35.            Loans and advances to customers

Accounting policies

Loans and advances to customers include amounts due in respect of loans and advances granted.

The category of loans and advances to customers measured at fair value through profit or loss includes the following products: cash loans, credits cards and revolving loans, whose contractual formula for interest calculation includes a multiplier.

Loans and advances to customers are classified in the individual measurement categories in accordance with the principles for selecting the business model and evaluating the characteristics of contractual cash flows referred to in the note “Description of significant accounting policies”.

The item “Loans and advances to customers” also includes an adjustment relating to fair value hedge accounting for loans representing hedged items (see the note “Hedge accounting”).

Additionally, the Bank recognizes the effect of:

•      the legal risk related to potential litigation for the portfolio of mortgage loans in convertible currencies and existing legal claims related to loan exposures recognized as at the balance sheet date in the statement of financial position

•      potential reimbursements of costs to customers in connection with the expected early repayment of active consumer and mortgage loans

when adjusting the gross carrying amount of real estate and consumer loans measured at amortized cost.

Financial information

LOANS AND ADVANCES TO CUSTOMERS 31.12.2021	not held for trading, measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
retail and private banking	4 462	13 531	102 189	120 182
real estate	4	13 531	76 849	90 384
consumer	4 458	-	25 340	29 798
companies and enterprises	43	-	17 343	17 386
real estate	-	-	5 533	5 533
business	43	-	11 810	11 853
corporate	54	-	68 056	68 110
real estate	-	-	75	75
business	54	-	67 981	68 035
Loans and advances to customers (excluding adjustment relating to fair value hedge accounting)	4 559	13 531	187 588	205 678
Adjustment relating to fair value hedge accounting	-	-	(1)	(1)
Total	4 559	13 531	187 587	205 677

 

LOANS AND ADVANCES TO CUSTOMERS 31.12.2020	not held for trading, measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
retail and private banking	5 895	14 054	93 748	113 697
real estate	7	14 054	71 363	85 424
consumer	5 888	-	22 385	28 273
companies and enterprises	46	-	16 835	16 881
real estate	-	-	5 673	5 673
business	46	-	11 162	11 208
corporate	68	-	62 413	62 481
real estate	-	-	292	292
business	68	-	62 121	62 189
Loans and advances to customers (excluding adjustment relating to fair value hedge accounting)	6 009	14 054	172 996	193 059
Adjustment relating to fair value hedge accounting	-	-	4	4
Total	6 009	14 054	173 000	193 063

 

35.1  Loans and advances to customers - financial assets by stage

LOANS AND ADVANCES TO CUSTOMERS (excluding adjustment relating to fair value hedge accounting) 31.12.2021	Stage 1	Stage 2	Stage 3	Total	of which POCI
Measured: at fair value through other comprehensive income
Gross amount	12 323	1 189	19	13 531	1
real estate	12 323	1 189	19	13 531	1
Net amount	12 323	1 189	19	13 531	1
real estate	12 323	1 189	19	13 531	1
Measured: at amortized cost
Gross amount	158 334	28 933	7 977	195 244	169
real estate	70 656	11 822	1 892	84 370	79
business loans	65 344	13 969	4 502	83 815	45
consumer loans	22 334	3 142	1 583	27 059	45
Allowances for expected credit losses	(614)	(2 003)	(5 039)	(7 656)	(2)
real estate	(50)	(572)	(1 291)	(1 913)	(18)
business loans	(346)	(911)	(2 767)	(4 024)	(12)
consumer loans	(218)	(520)	(981)	(1 719)	28
Net amount	157 720	26 930	2 938	187 588	167
real estate	70 606	11 250	601	82 457	61
business loans	64 998	13  058	1 735	79 791	33
consumer loans	22 116	2 622	602	25 340	73
Total loans and advances to customers
Gross amount	170 657	30 122	7 996	208 775	170
Allowances for expected credit losses	(614)	(2 003)	(5 039)	(7 656)	(2)
Net amount	170 043	28 119	2 957	201 119	168

 

LOANS AND ADVANCES TO CUSTOMERS (excluding adjustment relating to fair value hedge accounting) 31.12.2020	Stage 1	Stage 2	Stage 3	Total	of which POCI
Measurement method: measured at fair value through other comprehensive income
Gross amount	13 181	863	10	14 054	-
real estate	13 181	863	10	14 054	-
Net amount	13 181	863	10	14 054	-
real estate	13 181	863	10	14 054	-
Measured: at amortized cost
Gross amount	145 125	27 062	8 684	180 871	185
real estate	66 428	10 951	1 882	79 261	81
business loans	58 985	13 271	5 423	77 679	51
consumer loans	19 712	2 840	1 379	23 931	53
Allowances for expected credit losses	(537)	(1 863)	(5 475)	(7 875)	(34)
real estate	(42)	(522)	(1 369)	(1 933)	(26)
business loans	(297)	(920)	(3 179)	(4 396)	(4)
consumer loans	(198)	(421)	(927)	(1 546)	(4)
Net amount	144 588	25 199	3 209	172 996	151
real estate	66 386	10 429	513	77 328	55
business loans	58 688	12 351	2 244	73 283	47
consumer loans	19 514	2 419	452	22 385	49
Total loans and advances to customers
Gross amount	158 306	27 925	8 694	194 925	185
Allowances for expected credit losses	(537)	(1 863)	(5 475)	(7 875)	(34)
Net amount	157 769	26 062	3219	187 050	151

 

35.2  loans and advances to customers - change in gross carrying amount

LOANS AND ADVANCES TO CUSTOMERS - CHANGE IN GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2021
Measured: at fair value through other comprehensive income
Real estate loans
Gross carrying amount at the beginning of the period	13 181	863	10	14 054	-
Transfer from stage 2 and 3 to stage 1	105	(105)	-	-	-
Transfer from stage 1 and 3 to stage 2	(511)	512	(1)	-	-
Transfer from stage 1 and 2 to stage 3	(5)	(15)	20	-	-
Granting or purchase of financial instruments	82	4	-	86	-
Utilization of limit or disbursement of tranches	648	9	-	657	-
Repayments	(1 270)	(44)	(3)	(1 317)	-
Non-substantial modifications	25	1	-	26	-
Derecognition, including sale	(67)	(4)	-	(71)	-
Other changes	135	(32)	(7)	96	1
Gross carrying amount at the end of the period	12 323	1 189	19	13 531	1

 

LOANS AND ADVANCES TO CUSTOMERS - CHANGE IN GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2021
Measured: at amortized cost
Real estate loans
Gross carrying amount at the beginning of the period	66 428	10 951	1 882	79 261	81
Transfer from stage 2 and 3 to stage 1	886	(881)	(5)	-	-
Transfer from stage 1 and 3 to stage 2	(2 941)	2 997	(56)	-	-
Transfer from stage 1 and 2 to stage 3	(75)	(351)	426	-	-
Granting or purchase of financial instruments	1 842	285	20	2 147	17
Utilization of limit or disbursement of tranches	13 505	370	118	13 993	5
Repayments	(8 449)	(995)	(223)	(9 667)	(9)
Non-substantial modifications	47	2	-	49	-
Derecognition, including sale	(899)	(174)	(21)	(1 094)	(19)
Write-off	-	-	(266)	(266)	(6)
Other changes	312	(382)	17	(53)	10
Gross carrying amount at the end of the period	70 656	11 822	1 892	84 370	79

 

LOANS AND ADVANCES TO CUSTOMERS - CHANGE IN GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2021
Measured: at amortized cost
Business loans
Gross carrying amount at the beginning of the period	58 985	13 271	5 423	77 679	51
Transfer from stage 2 and 3 to stage 1	1 187	(1182)	(5)	-	-
Transfer from stage 1 and 3 to stage 2	(2 849)	2 921	(72)	-	-
Transfer from stage 1 and 2 to stage 3	(116)	(454)	570	-	-
Granting or purchase of financial instruments	10 708	1 942	173	12 823	25
Utilization of limit or disbursement of tranches	15 093	2 006	131	17 230	4
Repayments	(20 859)	(1 488)	(693)	(23 040)	(37)
Non-substantial modifications	(124)	(24)	(13)	(161)	(1)
Derecognition, including sale	(257)	(13)	(140)	(410)	(137)
Write-off	-	-	(900)	(900)	-
Change of the business model	-	-	(1)	(1)	-
Other changes	3 576	(3 010)	29	595	140
Gross carrying amount at the end of the period	65 344	13 969	4 502	83 815	45

 

LOANS AND ADVANCES TO CUSTOMERS - CHANGE IN GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2021
Measured: at amortized cost
Consumer loans
Gross carrying amount at the beginning of the period	19 712	2 840	1 379	23 931	53
Transfer from stage 2 and 3 to stage 1	487	(473)	(14)	-	-
Transfer from stage 1 and 3 to stage 2	(1 245)	1286	(41)	-	-
Transfer from stage 1 and 2 to stage 3	(301)	(367)	668	-	-
Granting or purchase of financial instruments	10 385	382	91	10 858	12
Utilization of limit or disbursement of tranches	1 183	180	117	1 480	2
Repayments	(8 230)	(452)	(182)	(8 864)	(14)
Non-substantial modifications	(5)	(3)	(4)	(12)	-
Derecognition, including sale	(7)	(10)	(36)	(53)	(32)
Write-off	-	-	(462)	(462)	(15)
Change of the business model	(3)	(11)	(24)	(38)	-
Other changes*	358	(230)	91	219	39
Gross carrying amount at the end of the period	22 334	3 142	1 583	27 059	45

* Other changes comprise the effect of foreign exchange rate changes, interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS - CHANGE IN GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2020
Measured: at fair value through other comprehensive income
Real estate loans
Gross carrying amount at the beginning of the period	9 438	177	8	9 623	-
Transfer from stage 2 and 3 to stage 1	69	(69)	-	-	-
Transfer from stage 1 and 3 to stage 2	(713)	714	(1)	-	-
Transfer from stage 1 and 2 to stage 3	(4)	(3)	7	-	-
Granting or purchase of financial instruments	356	12	-	368	-
Utilization of limit or disbursement of tranches	3 426	76	-	3 502	-
Repayments	(1 028)	(15)	(1)	(1 044)	-
Non-substantial modifications	39	4	-	43	-
Derecognition, including sale	(71)	(6)	-	(77)	-
Other changes, including foreign exchange gains/losses	1 669	(27)	(3)	1 639	-
Gross carrying amount at the end of the period	13 181	863	10	14 054	-

 

LOANS AND ADVANCES TO CUSTOMERS - CHANGE IN GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2020
Measured: at amortized cost
Real estate loans
Gross carrying amount at the beginning of the period	77 480	5 281	2 052	84 813	91
Transfer from stage 2 and 3 to stage 1	979	(977)	(2)	-	-
Transfer from stage 1 and 3 to stage 2	(8 220)	8 344	(124)	-	-
Transfer from stage 1 and 2 to stage 3	(71)	(179)	250	-	-
Granting or purchase of financial instruments	751	68	35	854	-
Utilization of limits or disbursement of tranches	5 777	48	65	5 890	1
Repayments	(8 261)	(562)	(120)	(8 943)	(12)
Non-substantial modifications	40	(5)	(2)	33	-
Derecognition, including sale	(235)	(18)	(7)	(260)	(7)
Write-off	-	-	(28)	(28)	-
Other changes1	(1 812)	(1 049)	(237)	(3 098)	8
Gross carrying amount at the end of the period	66 428	10 951	1 882	79 261	81

1 Including changes in the gross carrying amount disclosed in note 25 “Cost of the legal risk of mortgage loans in convertible currencies”

LOANS AND ADVANCES TO CUSTOMERS - CHANGE IN GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2020
Measured: at amortized cost
Business loans
Gross carrying amount at the beginning of the period	72 691	4 415	5 442	82 548	157
Transfer from stage 2 and 3 to stage 1	553	(531)	(22)	-	-
Transfer from stage 1 and 3 to stage 2	(6 333)	6 619	(286)	-	-
Transfer from stage 1 and 2 to stage 3	(369)	565	(196)	-	-
Granting or purchase of financial instruments	9 115	1  876	354	11 345	18
Utilization of limits or disbursement of tranches	8 782	1 109	201	10 092	27
Repayments	(25 176)	(1 435)	(685)	(27 296)	(153)
Non-substantial modifications	50	(31)	(16)	3	-
Derecognition, including sale	(124)	(22)	(29)	(175)	(29)
Write-off	-	-	(201)	(201)	-
Change of the business model	-	(1)	(6)	(7)	-
Other changes*	(204)	707	867	1 370	31
Gross carrying amount at the end of the period	58 985	13 271	5 423	77 679	51

* Other changes comprise the effect of foreign exchange rate changes, interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS - CHANGE IN GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2020
Measured: at amortized cost
Consumer loans
Gross carrying amount at the beginning of the period	19 135	1 713	1 189	22 037	40
Transfer from stage 2 and 3 to stage 1	507	(495)	(12)	-	-
Transfer from stage 1 and 3 to stage 2	(1 779)	1 815	(36)	-	-
Transfer from stage 1 and 2 to stage 3	(317)	(222)	539	-	-
Granting or purchase of financial instruments	7845	321	77	8 243	16
Utilization of limits or disbursement of tranches	787	138	98	1 023	3
Repayments	(6 900)	(282)	(101)	(7 283)	(5)
Non-substantial modifications	(9)	(5)	(2)	(16)	-
Derecognition, including sale	(6)	(2)	(47)	(55)	(39)
Write-off	-	-	(266)	(266)	(7)
Change of the business model	(6)	(6)	(54)	(66)	-
Other changes*	455	(135)	(6)	314	45
Gross carrying amount at the end of the period	19 712	2 840	1 379	23 931	53

* Other changes comprise the effect of foreign exchange rate changes, interest, measurement.

35.3  Loans and advances to customers – Changes in allowances for expected credit losses during the period

LOANS AND ADVANCES TO CUSTOMERS - CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2021
Measured: at fair value through other comprehensive income
Real estate loans
As at the beginning of the period	-	-	-	-	-
Transfer from stage 1 and 3 to stage 2	21	(21)	-	-	-
Transfer from stage 1 and 2 to stage 3	1	5	(6)	-	-
Changes in credit risk (net)	(1)	(7)	(6)	(14)	-
Other changes	(21)	23	12	14	-
As at the end of the period	-	-	-	-	-

* Other changes comprise the effect of foreign exchange rate changes, interest, measurement.

 

LOANS AND ADVANCES TO CUSTOMERS - CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2021
Measured: at amortized cost
Real estate loans
As at the beginning of the period	(42)	(522)	(1 369)	(1 933)	(26)
Transfer from stage 2 and 3 to stage 1	(2)	2	-	-	-
Transfer from stage 1 and 3 to stage 2	100	(111)	11	-	-
Transfer from stage 1 and 2 to stage 3	23	143	(166)	-	-
Increase due to recognition and purchase	(3)	(6)	(9)	(18)	(1)
Changes in credit risk (net)	(80)	(76)	16	(140)	3
Decrease due to derecognition	1	5	9	15	1
Changes due to modification without derecognition (net)	(2)	(2)	-	(4)	-
Write-off	-	-	266	266	6
Other changes*	(45)	(5)	(49)	(99)	(1)
As at the end of the period	(50)	(572)	(1 291)	(1 913)	(18)

* Other changes comprise the effect of foreign exchange rate changes, interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS - CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2021
Measured: at amortized cost
Business loans
As at the beginning of the period	(297)	(920)	(3 179)	(4 396)	(4)
Transfer from stage 2 and 3 to stage 1	(10)	10	-	-	-
Transfer from stage 1 and 3 to stage 2	201	(205)	4	-	-
Transfer from stage 1 and 2 to stage 3	47	123	(170)	-	-
Increase due to recognition and purchase	(141)	(42)	(129)	(312)	(2)
Changes in credit risk (net)	(61)	119	(242)	(184)	(7)
Decrease due to derecognition	2	3	99	104	1
Changes due to modification without derecognition (net)	(5)	8	(12)	(9)	-
Write-off	-	-	900	900	-
Other changes*	(82)	(7)	(38)	(127)	-
As at the end of the period	(346)	(911)	(2 767)	(4 024)	(12)

* Other changes comprise the effect of foreign exchange rate changes, interest, measurement.

 

LOANS AND ADVANCES TO CUSTOMERS - CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2021
Measured: at amortized cost
Consumer loans
As at the beginning of the period	(198)	(421)	(927)	(1 546)	(4)
Transfer from stage 2 and 3 to stage 1	(8)	8	-	-	-
Transfer from stage 1 and 3 to stage 2	227	(235)	8	-	-
Transfer from stage 1 and 2 to stage 3	162	211	(373)	-	-
Increase due to recognition and purchase	(91)	(14)	(39)	(144)	(1)
Changes in credit risk (net)	(291)	(100)	36	(355)	25
Decrease due to derecognition	2	6	15	23	-
Changes due to modification without derecognition (net)	(9)	(4)	1	(12)	-
Update of the applied estimation method (net)	2	12	5	19	-
Write-off	-	-	462	462	15
Other changes*	(14)	17	(169)	(166)	(7)
As at the end of the period	(218)	(520)	(981)	(1 719)	28

* Other changes comprise the effect of foreign exchange rate changes, interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS - CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2020
Measured: at fair value through other comprehensive income
Real estate loans
As at the beginning of the period	-	-	-	-	-
Transfer from stage 1 and 3 to stage 2	26	(26)	-	-	-
Transfer from stage 1 and 2 to stage 3	1	1	(2)	-	-
Changes in credit risk (net)	6	(26)	(2)	(22)	-
Changes due to modification without derecognition (net)	-	(2)	(1)	(3)	-
Other changes*	(33)	53	5	25	-
As at the end of the period	-	-	-	-	-

* Other changes comprise the effect of foreign exchange rate changes, interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS - CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2020
Measured: at amortized cost
Real estate loans
As at the beginning of the period	(41)	(479)	(1 352)	(1 872)	(32)
Transfer from stage 2 and 3 to stage 1	(2)	2	-	-	-
Transfer from stage 1 and 3 to stage 2	217	(240)	23	-	-
Transfer from stage 1 and 2 to stage 3	25	78	(103)	-	-
Increase due to recognition and purchase	(1)	(1)	-	(2)	-
Changes in credit risk (net)	(199)	80	212	93	5
Decrease due to derecognition	-	1	10	11	-
Changes due to modification without derecognition (net)	(15)	(9)	(1)	(25)	-
Write-off	-	-	28	28	-
Other changes*	(26)	46	(186)	(166)	1
As at the end of the period	(42)	(522)	(1 369)	(1 933)	(26)

* Other changes comprise the effect of foreign exchange rate changes, interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS - CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2020
Measured: at amortized cost
Business loans
As at the beginning of the period	(369)	(306)	(2 735)	(3 410)	3
Transfer from stage 2 and 3 to stage 1	(10)	10	-	-	-
Transfer from stage 1 and 3 to stage 2	397	(418)	21	-	-
Transfer from stage 1 and 2 to stage 3	119	125	(244)	-	-
Increase due to recognition and purchase	(80)	(34)	(71)	(185)	-
Changes in credit risk (net)	(307)	(285)	(177)	(769)	3
Decrease due to derecognition	1	1	8	10	-
Changes due to modification without derecognition (net)	(16)	(9)	(25)	(50)	-
Update of the applied estimation method (net)	(1)	-	-	(1)	-
Write-off	-	-	201	201	-
Other changes*	(31)	(4)	(157)	(192)	(10)
As at the end of the period	(297)	(920)	(3 179)	(4 396)	(4)

* Other changes comprise the effect of foreign exchange rate changes, interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS - CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2020
Measured: at amortized cost
Consumer loans
As at the beginning of the period	(148)	(226)	(788)	(1 162)	(26)
Transfer from stage 2 and 3 to stage 1	(7)	7	-	-	-
Transfer from stage 1 and 3 to stage 2	250	(256)	6	-	-
Transfer from stage 1 and 2 to stage 3	181	132	(313)	-	-
Increase due to recognition and purchase	(63)	(8)	(26)	(97)	(1)
Changes in credit risk (net)	(387)	(80)	(62)	(529)	4
Decrease due to derecognition	4	5	13	22	-
Changes due to modification without derecognition (net)	-	(2)	-	(2)	-
Update of the applied estimation method (net)	-	-	(1)	(1)	-
Write-off	-	-	266	266	7
Other changes*	(28)	7	(22)	(43)	12
As at the end of the period	(198)	(421)	(927)	(1 546)	(4)

* Other changes comprise the effect of foreign exchange rate changes, interest, measurement.

•        other information

LOANS AND ADVANCES ADVANCES TO CUSTOMERS BY MATURITY (excluding adjustments relating to fair value hedge accounting)	not held for trading, obligatorily measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
31.12.2021
up to 1 month	794	76	10 374	11 244
1 to 3 months	554	81	6 138	6 773
3 months to 1 year	2 110	367	27 284	29  761
1 to 5 years	1 058	2 088	74 285	77 431
over 5 years	43	10 919	69 507	80 469
Total	4 559	13 531	187 588	205 678

 

LOANS AND ADVANCES ADVANCES TO CUSTOMERS BY MATURITY (excluding adjustments relating to fair value hedge accounting)	not held for trading, obligatorily measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
31.12.2020
up to 1 month	1 032	69	8 154	9 255
1 to 3 months	674	80	6 728	7 482
3 months to 1 year	2 572	379	22 493	25 444
1 to 5 years	1 624	2 224	72 140	75 988
over 5 years	107	11 302	63 481	74 890
Total	6 009	14 054	172 996	193 059

 

36.            Intangible assets , property, plant and equipment

Accounting policies

Software - Acquired computer software licences are recognized in the amount of costs incurred on the purchase and preparation of the software for use, taking into consideration accumulated amortization and impairment allowances.

Goodwill - The Bank recognizes (since the legal merger with a subsidiary) goodwill related to the acquisition of this entity as intangible assets. Goodwill was recognized in the amount of excess of consideration paid over the value of the identifiable assets acquired and liabilities assumed, measured at fair value as at the acquisition date. Subsequent to the initial recognition goodwill is measured at the amount initially recognized less any cumulative impairment allowances.

Customer relations - As a result of the settlement of purchase transactions, customer relations were identified which are amortized using the reducing balance method based on the rate of economic benefits consumption arising from their use.

Other intangible assets - Other intangible assets acquired by the Bank are recognized at the cost of purchase or manufacture, less accumulated amortization and impairment allowances.

Development costs - The costs of completed development projects are classified as intangible assets in connection with the expected economic benefits to be obtained and meeting specific terms and conditions, i.e. if there is a possibility and intention to complete and use the internally generated intangible asset, there are appropriate technical and financial resources to complete the development and to use the asset and it is possible to reliably measure the expenditure incurred during its development which can be directly attributed to generating the intangible asset.

Property, plant and equipment - are measured at the cost of purchase or manufacture, less accumulated depreciation and impairment allowances.

Investment properties - are measured according to the accounting policies applied to property, plant and equipment.

Capital expenditure - The carrying amount of property, plant and equipment items is increased by additional capital expenditure incurred during their use, provided that they satisfy the criteria for classification to fixed assets. Right-of-use assets are presented in the same items in which the underlying assets would be presented, if they were owned by the Bank.

•      Amortization and depreciation

Depreciation of property, plant and equipment, amortization of intangible assets and depreciation of investment properties begins on the first day of the month following the month in which the asset has been commissioned, with the exception of right-of-use assets, for which depreciation begins in the same month in which they were commissioned, and ends no later than at the time when:

•        the amount of depreciation or amortization charges becomes equal to the initial cost of the asset, or

•        the lease period ends, or

•        the asset is designated for scrapping, or

•        the asset is sold, or

•        the asset is found to be missing, or

•        it is found - as a result of verification - that the expected residual value of the asset exceeds its (net) carrying amount, taking into account the expected residual value of the asset upon scrapping, i.e. the net amount that the Bank expects to obtain at the end of the useful life of the asset, net of its expected costs to sell.

For non-financial non-current assets it is assumed that the residual value is nil, unless there is an obligation by a third party to buy back the asset, or if there is an active market which will continue to exist at the end of the asset’s period of use and it is possible to determine the value of the asset on this market.

Costs relating to the purchase or construction of buildings are allocated to significant parts of the building (components) when such components have different useful lives or when each of the components generates benefits for the Bank in a different manner. Each component of a building is depreciated separately. Intangible assets with indefinite useful lives, which are subject to an annual impairment test, are not amortized.

•      Impairment allowances on non-financial non-current assets and right-of-use assets

Impairment allowances in respect of cash generating units first and foremost reduce the goodwill attributable to those cash generating units (groups of units), and then they reduce proportionally the carrying amounts of other assets in the unit (group of units).

An impairment allowance in respect of goodwill cannot be reversed. In the case of other assets, an impairment allowance may be reversed if the estimations used to determine the recoverable amount have changed. An impairment allowance may be reversed only to the extent that the carrying amount of an asset does not exceed the carrying amount – less depreciation/amortization – which would be determined had the impairment allowance not been recorded.

If there are indications of impairment of common assets, i.e. assets that do not generate cash flows independently from other assets or groups of assets, and the recoverable amount of a single common asset cannot be established, the Bank determines the recoverable amount at the level of the cash-generating unit to which a given asset belongs.

Estimates and judgments

•      Useful lives of property, plant and equipment, intangible assets and investment properties

In estimating useful lives of particular types of property, plant and equipment, intangible assets and investment properties, the following factors are considered:

•        expected physical wear and tear estimated based on the average periods of use recorded to date, reflecting the rate of wear and tear, intensity of use etc.;

•        technical or market obsolescence;

•        legal and other limitations of the asset’s use;

•        expected use of the asset;

•        climate-related issues, i.e. the climate factors potentially affecting the useful lives of assets (e.g. ageing, legal limitations or unavailability of assets);

When the period of use of a given asset results from a contract term, the useful life of such an asset corresponds to the period defined in the contract. If the estimated useful life is shorter than the period defined in the contract, the estimated useful life is applied. The amortization/depreciation method and useful life are verified at least once a year.

Depreciation /amortization periods applied by the Bank:

Fixed assets	Use periods
Buildings, premises, cooperative rights to premises (including investment real estate)	from 25 to 60 years
Improvements in foreign fixed assets (buildings, premises)	from 1 to 11 years (or the lease term, if shorter)
Machines, technical devices, tools and  instruments	from 2 to 15 years
Computer teams	from 2 to 10 years
Means of transport	from 3 to 5 years
Intangible assets	Use periods
Software	from 1 to 20 years
Other intangible assets	from 2 to 20 years

 

•      Impairment allowances

At the end of each reporting period the Bank assesses whether there are any indications of impairment of any non-financial non-current assets, right-of-use assets (or cash-generating units).

Indications of impairment of non-current assets include:

1) a decrease in the market value of an asset identified during the period of verification, which is significantly higher than impairment caused by the passage of time and ordinary use;

2) the occurrence of adverse changes (which has already occurred or will occur during the period) caused by technological, market, economic or legal factors in the Bank’s environment or on the markets to which the asset is addressed;

3) an increase in market interest rates (which has occurred or will occur in the period), which is likely to affect a discount rate used to calculate the value in use of a given asset and reduce its recoverable value significantly;

4) evidence of obsolescence of a given asset for the purposes of the operations conducted or its physical defect;

5) the occurrence of significant adverse changes (or likelihood of their occurrence in the near future) in the scope or manner of use of a given asset, such as e.g. plans to discontinue or restructure the operations in which the asset is used, plans for its early scrapping, a change in the estimated useful life of the asset from indefinite to definite;

6) evidence that the economic performance of a given asset is or will be in the future worse than expected;

7) the occurrence of adverse climate change which will contribute to a change in the expectations as to the further use of a given asset;

8) other indications of possible impairment.

If any such indications occur and annually in the case of intangible assets which are not amortized and goodwill, the Bank estimates the recoverable amount being the higher of the fair value less costs to sell or the value in use of a non-current asset (or a cash-generating unit), and, if the carrying amount of an asset exceeds its recoverable amount, the Bank recognizes an impairment allowance in the income statement. In order to estimate these amounts it is necessary to adopt assumptions concerning, among other things, the projected future cash flows that the Bank may obtain from further use or sale of a given non-current asset (or a cash-generating unit). Adopting different assumptions concerning the valuation of future cash flows could affect the carrying amount of certain non-current assets.

Financial information

36.1.                 Intangible assets

 

INTANGIBLE ASSETS	Software	Goodwill	Customer relationships	Other, including capital expenditure	of which: software	Total
31.12.2021
Gross carrying amount at the beginning of the period	5 907	871	86	463	406	7 327
Purchase	-	-	-	506	506	506
Transfers from capital expenditure	371	-	-	(370)	-	1
Scrapping and sale	(681)	-	-	(1)	-	(682)
Other	14	1	1	44	(327)	60
Gross carrying amount at the end of the period	5 611	872	87	642	585	7 212
Accumulated amortization as at the beginning of the period	(4 329)	-	(78)	(52)	-	(4 459)
Amortization charge for the period	(400)	-	(3)	(1)	-	(404)
Scrapping and sale	681	-	-	1	-	682
Other	-	-	(1)	-	-	(1)
Accumulated amortization as at the end of the period	(4 048)	-	(82)	(52)	-	(4 182)
Impairment allowances as at the beginning of the period	(15)	(116)	-	-	-	(131)
Recognized during the period	-	-	-	(2)	(2)	(2)
Other	-	(1)	-	-	-	(1)
Impairment allowances as at the end of the period	(15)	(117)	-	(2)	(2)	(134)
Net carrying amount at the beginning of the period	1 563	755	8	411	406	2 737
Net carrying amount at the end of the period	1 548	755	5	588	583	2 896

 

 

 

 

INTANGIBLE ASSETS	Software	Goodwill	Customer relationships	Other, including capital expenditure	of which: software	Total
31.12.2020
Gross carrying amount at the beginning of the period	5 366	871	86	384	330	6 707
Purchase	-	-	-	557	557	557
Transfers from capital expenditure	525	-	-	(525)	(525)	-
Other	16	-	-	47	44	63
Gross carrying amount at the end of the period	5 907	871	86	463	406	7 327
Accumulated amortization as at the beginning of the period	(3 955)	-	(74)	(49)	-	(4 078)
Amortization charge for the period	(376)	-	(4)	(3)	-	(383)
Other	2	-	-	-	-	2
Accumulated amortization as at the end of the period	(4 329)	-	(78)	(52)	-	(4 459)
Impairment allowances as at the beginning of the period	(15)	-	-	(8)	(8)	(23)
Recognized during the period	-	(116)	-	-	-	(116)
Other	-	-	-	8	8	8
Impairment allowances as at the end of the period	(15)	(116)	-	-	-	(131)
Net carrying amount at the beginning of the period	1 396	871	12	327	322	2 606
Net carrying amount at the end of the period	1 563	755	8	411	406	2 737

From the Bank’s perspective, expenditure incurred on the Integrated Information System (IIS) is a significant item of intangible assets. The total capital expenditure incurred on the IIS in the years 2005-2021 was PLN 1 462 million.

The net carrying amount of the Integrated Information System (IIS) as at 31 December 2021 was PLN 629 million (PLN 616 million as at 31 December 2020). The expected useful life of the system is 24 years. As at 31 December 2021, its remaining useful life is 9 years.

•      Goodwill

Net goodwill	31.12.2021	31.12.2020
Nordea Bank Polska S.A.	747	747
Assets taken over from CFP sp. z z o.o.	8	8
TOTAL	755	755

 

Goodwill

Impairment test – method

Nordea Bank Polska S.A.

The impairment test is conducted by comparing the carrying amounts of Cash Generating Units (‘CGUs’) with their recoverable amount. Two CGUs were identified to which goodwill on acquisition of Nordea Bank Polska S.A. was allocated – the retail and corporate CGU, which correspond to operating segments. The residual value of a CGU has been calculated by extrapolating the cash flow projections beyond the period of the forecast using the growth rate adopted at a level of 2.7%. Cash flow projections used in the impairment test cover a period of 10 years and are based on the assumptions included in the financial plans of the Bank for 2021, taking into account the effect of COVID-19 and the interest rate reductions on the current and anticipated macroeconomic situation. A discount rate of 8.13%, taking into account the risk-free rate and risk premium, was used for the discounting of the future cash flows. Goodwill of Nordea Bank Polska S.A. of PLN 747 million belongs to the retail segment. As at 31 December 2021, the Bank performed an impairment test in respect of goodwill on the acquisition of Nordea Bank Polska S.A. assigned to the retail CGU. The test did not identify impairment. On 30 June 2020, as a result of the impairment test performed in respect on goodwill on the acquisition of Nordea Bank Polska S.A., the Bank recognized an allowance of PLN 117 million in respect of the corporate CGU. The reasons for recognizing the allowance were the outbreak of the COVID-19 pandemic and its implications (an increase in the cost of credit risk and expected economic slowdown), as well as the interest rate decreases accompanied by a high level of regulatory charges (tax on certain financial institutions and the cost of payments to the BGF), which significantly reduced the expected profitability of banking operations.

36.2.                 Property, plant and equipment

PROPERTY, PLANT AND EQUIPMENT	Land and buildings	Machinery and equipment, including computer hardware	Fixed assets under construction	Other, including vehicles	Total	of which right-of-use assets
2021
Gross carrying amount at the beginning of the period	3 498	1 526	292	636	5 952	1 370
Purchase	96	-	204	10	310	106
Transfers from capital expenditure	89	153	(275)	33	-	-
Scrapping and sale	(53)	(118)	(1)	(35)	(207)	(1)
Other	42	(1)	(3)	(3)	35	1
Gross carrying amount at the end of the period	3 672	1 560	217	641	6 090	1 476
Accumulated depreciation as at the beginning of the period	(1 462)	(1 216)	-	(444)	(3 122)	(405)
Depreciation charge for the period	(293)	(118)	-	(53)	(464)	(217)
Scrapping and sale	48	118	-	35	201	-
Other	22	1	-	2	25	-
Accumulated depreciation as at the end of the period	(1 685)	(1 215)	-	(460)	(3 360)	(622)
Impairment allowances as at the beginning of the period	(92)	(1)	-	-	(93)	(5)
Recognized during the period	(1)	-	-	-	(1)	-
Other	3	-	-	-	3	-
Impairment allowances as at the end of the period	(90)	(1)	-	-	(91)	(5)
Net carrying amount at the beginning of the period	1 944	309	292	192	2 737	960
Net carrying amount at the end of the period	1 897	344	217	181	2 639	849

 

PROPERTY, PLANT AND EQUIPMENT	Land and buildings	Machinery and equipment, including computer hardware	Fixed assets under construction	Other, including vehicles	Total	of which right-of-use assets
2020
Gross carrying amount at the beginning of the period	3 275	1 458	221	634	5 588	1 008
Purchase	358	1	280	5	644	363
Transfers from capital expenditure	58	117	(206)	31	-	-
Scrapping and sale	(42)	(49)	-	(30)	(121)	(1)
Other	(151)	(1)	(3)	(4)	(159)	-
Gross carrying amount at the end of the period	3 498	1 526	292	636	5 952	1 370
Accumulated depreciation as at the beginning of the period	(1 240)	(1 145)	-	(423)	(2 808)	(195)
Depreciation charge for the period	(298)	(119)	-	(53)	(470)	(210)
Scrapping and sale	39	49	-	30	118	-
Other	37	(1)	-	2	38	-
Accumulated depreciation as at the end of the period	(1 462)	(1 216)	-	(444)	(3 122)	(405)
Impairment allowances as at the beginning of the period	(41)	-	-	(1)	(42)	(1)
Recognized during the period	(62)	(1)	-	-	(63)	(4)
Reversed during the period	5	-	-	-	5	-
Other	6	-	-	1	7	-
Impairment allowances as at the end of the period	(92)	(1)	-	-	(93)	(5)
Net carrying amount at the beginning of the period	1 994	313	221	210	2 738	812
Net carrying amount at the end of the period	1 944	309	292	192	2 737	960

non-current right-of-use assets

NON-CURRENT right-of-use assets	Land and buildings	Other, including vehicles	Total
31.12.2021
Gross carrying amount at the beginning of the period	1 326	44	1 370
Purchase	96	10	106
Scrapping and sale	(1)	-	(1)
Other	1	-	1
Gross carrying amount at the end of the period	1 422	54	1 476
Accumulated depreciation as at the beginning of the period	(383)	(22)	(405)
Depreciation charge for the period	(204)	(13)	(217)
Accumulated depreciation as at the end of the period	(587)	(35)	(622)
Impairment allowances as at the beginning of the period	(5)	-	(5)
Impairment allowances as at the end of the period	(5)	-	(5)
Net carrying amount at the beginning of the period	938	22	960
Net carrying amount at the end of the period	830	19	849

 

NON-CURRENT right-of-use assets	Land and buildings	Other, including vehicles	Total
31.12.2020
Gross carrying amount at the beginning of the period	970	38	1 008
Purchase	357	6	363
Scrapping and sale	(1)	-	(1)
Gross carrying amount at the end of the period	1 326	44	1 370
Accumulated depreciation as at the beginning of the period	(185)	(10)	(195)
Depreciation charge for the period	(198)	(12)	(210)
Accumulated depreciation as at the end of the period	(383)	(22)	(405)
Impairment allowances as at the beginning of the period	(1)	-	(1)
Recognized during the period	(4)	-	(4)
Impairment allowances as at the end of the period	(5)	-	(5)
Net carrying amount at the beginning of the period	784	28	812
Net carrying amount at the end of the period	938	22	960

calculation of estimates

The impact of changes in the useful lives of depreciated assets classified as land and buildings is presented in the table below:

CHANGE IN THE USEFUL LIVES OF DEPRECIATED ASSETS CLASSIFIED AS LAND AND BUILDINGS	31.12.2021		31.12.2020
	scenario +10 years	scenario -10 years	scenario +10 years	scenario -10 years
Depreciation costs	(31)	179	(30)	203

 

37.            Assets held for sale

Accounting policies

Only assets available for immediate sale in the current condition are classified as assets held for sale, provided that their sale is highly probable, i.e. the entity has decided to sell the asset and started to actively seek a buyer to complete the sale process. In addition, such assets are offered for sale at a price which is reasonable in view of their current fair value and it is expected that the sale will be completed within one year from the date of classification of the asset into this category.

These assets are recognized at the lower of their carrying amount and fair value less costs to sell. Impairment allowances on non-current assets held for sale are recognized in the income statement for the period in which the allowances were made. Assets classified to this category are not depreciated.

When the respective classification criteria to this category are no longer met, the Bank reclassifies the asset from non-current assets held for sale to another category of assets (as appropriate). Assets withdrawn from assets held for sale are measured at the lower of: 1) the carrying amount from before the moment of their classification to non-current assets held for sale, less amortization/depreciation that would have been recorded had the asset (or disposal group) not been classified as held for sale, 2) the recoverable amount as at the date of making the decision not to sell.

ASSETS HELD FOR SALE	31.12.2021	31.12.2020
Land and buildings	19	126
Other	-	1
Total, gross	19	127
Impairment allowances	(1)	(3)
Total	18	124

 

Assets held for sale - CHANGES IN ALLOWANCES	31.12.2021	31.12.2020
As at the beginning of the period	(3)	(1)
Recognized during the period	(2)	(4)
Other	4	2
As at the end of the period	(1)	(3)

 

38.            Investments in subsidiaries, associates and joint ventures

Accounting policies

Investments in subsidiaries, associates and joint ventures are measured at cost less impairment allowances. In the event of sale of investments in subsidiaries, which results in a loss of control, the Bank performs a fair value measurement of the remaining investment and accepts the resulting amount as a new cost for the purpose of subsequent measurement. An excess of the fair value of the investment over the carrying amount is recognized by the Bank in other operating income.

At each balance sheet date, the Bank makes an assessment of whether there are any indications of impairment of investments in subsidiaries, associates and joint ventures. If such indications exist, the Bank estimates the value in use of the investment or the fair value of the asset less costs to sell, whichever is higher, and if the carrying amount of the asset exceeds its recoverable value, the Bank recognizes an impairment allowance in the income statement. Estimation of the value in use requires making assumptions, among other things about future cash flows that the Bank may receive from dividends or cash inflows from a potential disposal of the investment, less costs to sell.

Financial information

31.12.2021	Gross amount	Impairment	Net amount
SUBSIDIARIES
PKO Bank Hipoteczny S.A.	1 650	-	1 650
KREDOBANK S.A.	1 072	(793)	279
PKO Leasing S.A.	496	-	496
PKO Życie Towarzystwo Ubezpieczeń S.A.	241	-	241
PKO Towarzystwo Funduszy Inwestycyjnych S.A.	225	-	225
PKO VC – fizan1	200	-	200
PKO BP BANKOWY PTE S.A.	151	(37)	114
NEPTUN – fizan1	132	-	132
Merkury - fiz an1	120	-	120
PKO Towarzystwo Ubezpieczeń SA	110	-	110
PKO Finance AB	24	-	24
PKO BP Finat sp. z o.o.	21	-	21
JOINT VENTURES
Centrum Elektronicznych Usług Płatniczych eService Sp. z o.o.	197	-	197
Operator Chmury Krajowej sp. z o.o.1	78	-	78
ASSOCIATES
Bank Pocztowy S.A.	184	(184)	-
“Poznański Fundusz Poręczeń Kredytowych” sp. z o.o.	2	(2)	-
Adjustment relating to fair value hedge accounting	5	-	5
Total	4 908	(1 016)	3 892

1 The Bank holds investment certificates of the Fund which allow it to control the Fund in accordance with IFRS.

31.12.2020	Gross amount	Impairment	Net amount
SUBSIDIARIES
PKO Bank Hipoteczny S.A.	1 650	-	1 650
KREDOBANK S.A.	1 072	(793)	279
PKO Leasing S.A.	496	-	496
PKO Życie Towarzystwo Ubezpieczeń S.A.	241	-	241
PKO Towarzystwo Funduszy Inwestycyjnych S.A.	225	-	225
PKO VC – fizan1	200	-	200
PKO BP BANKOWY PTE SA	151	(37)	114
NEPTUN – fizan1	132	-	132
Merkury - fiz an1	120	-	120
PKO Towarzystwo Ubezpieczeń SA	110	-	110
PKO Finance AB	24	-	24
PKO BP Finat sp. z o.o.	21	-	21
JOINT VENTURES
Centrum Elektronicznych Usług Płatniczych eService Sp. z o.o.	197	-	197
Operator Chmury Krajowej sp. z o.o.1	60	-	60
ASSOCIATES
Bank Pocztowy SA	184	(184)	-
“Poznański Fundusz Poręczeń Kredytowych” sp. z o.o.	2	(2)	-
Total	4 885	(1 016)	3 869

1 The Bank holds investment certificates of the Fund which allow to control the Fund in accordance with IFRS.

 

IMPAIRMENT ALLOWANCES – RECONCILIATION OF MOVEMENTS	31.12.2021	31.12.2020
As at the beginning of the period	1 016	915
Recognized during the period	-	124
Reversed during the period	-	(23)
As at the end of the period	1 016	1 016

 

The Bank did not recognize any additional impairment allowances for investments in subsidiaries, associates and joint ventures in 2021.

The impairment test performed as at 31 December 2021 did not identify a need to change the existing impairment allowance and the carrying amount of Bank Pocztowy recognized in the Bank’s books as at 31 December 2021 was the same as previously, i.e. PLN 0.

39.            Other assets

Accounting policies

Financial assets recognized in this item are stated at amounts due, comprising also potential interest on such assets, taking into consideration provisions for expected credit losses. Non-financial assets are measured in accordance with the valuation principles applicable to specific categories of assets recognized in this item.

FINANCIAL INFORMATION

OTHER ASSETS	31.12.2021	31.12.2020
Other financial assets	1 825	1 772
Settlements in respect of card transactions	1 251	1 221
Settlement of financial instruments	109	155
Receivables in respect of cash settlements	233	159
Receivables and settlements in respect of trading in securities	14	9
Dividends receivable and contributions to subsidiaries	99	21
Sale of foreign currencies	4	8
Trade receivables	94	84
Other	21	115
Other non-financial assets	212	211
Inventories	10	17
Receivables from subsidiaries belonging to the Tax Group	5	12
Assets for sale	27	28
Prepayments and deferred costs	58	71
Other	112	83
Total	2 037	1 983

 

OTHER FINANCIAL ASSETS	Stage 1	Stage 3	Total
31.12.2021
Gross amount	1 824	135	1 959
Allowances for expected credit losses	-	(134)	(134)
Net amount	1 824	1	1 825

 

OTHER FINANCIAL ASSETS	Stage 1	Stage 3	Total
31.12.2020
Gross amount	1 772	136	1 908
Allowances for expected credit losses	-	(136)	(136)
Net amount	1 772	-	1 772

 

OTHER FINANCIAL ASSETS - CHANGES IN GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 3	Total
2021
Carrying amount as at the beginning of the period, gross	1 772	136	1 908
Transfer from stage 1 and 2 to stage 3	(1)	1	-
Granting or purchase of financial instruments	1 825	-	1 825
Repayments	(1 771)	(3)	(1 774)
Other changes	(1)	1	-
Carrying amount as at the end of the period, gross	1 824	135	1 959

 

OTHER FINANCIAL ASSETS - CHANGES IN GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 3	Total
2020
Carrying amount as at the beginning of the period, gross	1 691	82	1 773
Granting or purchase of financial instruments	1 772	2	1 774
Repayments	(1 691)	(2)	(1 693)
Other changes	-	54	54
Carrying amount as at the end of the period, gross	1 772	136	1 908

 

OTHER FINANCIAL ASSETS - CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES IN THE PERIOD	Stage 1	Stage 3	Total
2021
As at the beginning of the period	-	(136)	(136)
Changes in credit risk (net)	-	(2)	(2)
Decrease due to derecognition	-	3	3
Other adjustments	-	1	1
As at the end of the period	-	(134)	(134)

 

OTHER FINANCIAL ASSETS - CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES IN THE PERIOD	Stage 1	Stage 3	Total
2020
As at the beginning of the period	-	(82)	(82)
Other adjustments	-	(54)	(54)
As at the end of the period	-	(136)	(136)

 

OTHER NON-FINANCIAL ASSETS	31.12.2021	31.12.2020
Gross amount	476	375
Allowances	(264)	(164)
Net amount	212	211

 

Other non-financial assets - CHANGES IN ALLOWANCES	31.12.2021	31.12.2020
As at the beginning of the period	(164)	(127)
Recognized during the period	(81)	(69)
Derecognition of assets and settlements	-	11
Reversed during the period	31	-
Other	(50)	21
As at the end of the period	(264)	(164)

•      Management of foreclosed collateral – item “assets for sale”

Foreclosed collaterals as a result of restructuring or debt collection activities are either designated for sale or used by the Bank for internal purposes. Details of the foreclosed assets are analysed in order to determine whether they can be used by the Bank for internal purposes. All of the assets foreclosed as a result of restructuring and debt collection activities in the years ended 31 December 2021 and 31 December 2020, respectively, were designated for sale. Activities undertaken by the Bank are aimed at selling assets as soon as possible. The primary procedure for the sale of assets is an open tender. In justified cases, the sale follows a different procedure depending on the specifics of the sold property.

40.            Amounts due to banks

Accounting policies

The principles of classification and measurement are discussed in note “Major accounting policies.”

Financial information

AMOUNTS DUE TO BANKS	31.12.2021	31.12.2020
Measured at amortized cost	3 762	2 583
Bank deposits	2 813	1 384
Current accounts	937	1 134
Other monetary market deposits	12	65
Total	3 762	2 583

 

AMOUNTS DUE TO BANKS BY MATURITY	31.12.2021	31.12.2020
Measured at amortized cost:	3 762	2 583
up to 1 month	3 702	2 582
from 1 to 3 months	20	-
from 3 months to 1 year	40	1
Total	3 762	2 583

 

41.            Amounts due to customers

Accounting policies

The principles of classification and measurement are discussed in the note “Major accounting policies.”.

Financial information

AMOUNTS DUE TO CUSTOMERS	Amounts due to households	Amounts due to corporate entities	Amounts due to public entities	Total
31.12.2021
Measured at amortized cost	242 522	55 680	19 830	318 032
Cash on current accounts and overnight deposits of which	203 299	45 442	19 731	268 472
savings accounts and other interest-bearing assets	57 147	16 055	13 301	86 503
Term deposits	38 506	9 529	76	48 111
Other liabilities	717	709	23	1 449
Total	242 522	55 680	19 830	318 032

 

AMOUNTS DUE TO CUSTOMERS	Amounts due to households	Amounts due to corporate entities	Amounts due to public entities	Total
31.12.2020
Measured at amortized cost	221 988	43 162	13 744	278 894
Cash on current accounts and overnight deposits of which	173 732	41 850	13 706	229 288
savings accounts and other interest-bearing assets	53 569	15 935	7 322	76 826
Term deposits	47 780	629	18	48 427
Other liabilities	476	683	20	1 179
Total	221 988	43 162	13 744	278 894

 

AMOUNTS DUE TO CUSTOMERS BY MATURITY	31.12.2021	31.12.2020
Measured at amortized cost:	318 032	278 894
up to 1 month	283 800	239 471
from 1 to 3 months	12 334	10 913
from 3 months to 1 year	10 675	17 587
from 1 to 5 years	5 757	3 254
over 5 years	5 466	7 669
Total	318 032	278 894

 

AMOUNTS DUE TO CUSTOMERS BY SEGMENT	31.12.2021	31.12.2020
retail and private banking	213 529	195 985
corporate	58 137	41 171
SME	46 366	41 738
Total	318 032	278 894

 

42.            Financing received

accounting policies

The principles of classification and measurement are discussed in the note “Major accounting policies.”.

Financial information

FINANCING RECEIVED	31.12.2021	31.12.2020
Loans and advances received from:	5 142	4 906
banks	13	14
international financial institutions	786	855
other financial institutions	4 343	4 037
Liabilities in respect of securities in issue, bonds issued by PKO Bank Polski SA	-	4 020
Subordinated liabilities	2 716	2 716
Total	7 858	11 642

 

42.1.                 Loans and advances received

Loans and advances received from banks

Date of receiving* a loan by the Bank	Nominal amount	Currency	Maturity	Carrying amount at 31.12.2021	Carrying amount at 31.12.2020
31.12.2020	14	PLN	31.12.2020	-	14
31.12.2021	13	PLN	31.12.2021	13	-
Total				13	14

*current loan from the National Bank of Poland – overdraft on the NOSTRO account

Loans and advances received from International Financial Organizations

Date of receiving a loan or advance	Nominal amount	Currency	Maturity	Carrying amount at 31.12.2021	Carrying amount at 31.12.2020
25.09.2013	75	EUR	25.09.2023	138	208
23.10.2018	646	PLN	23.10.2023	648	647
Total				786	855

 

Loans and advances received from other financial institutions

Date of receiving a loan	Nominal amount	Currency	Maturity	Carrying amount at 31.12.2021	Carrying amount at 31.12.2020
25.07.2012	50	EUR	25.07.2022	234	234
26.09.2012	1 000	USD	26.09.2022	4 109	3 803
Total				4 343	4 037

42.2.                 Liabilities in respect of debt securities in issue

LIABILITIES IN RESPECT OF DEBT SECURITIES IN ISSUE BY MATURITY	31.12.2021	31.12.2020
Measured at amortized cost:
from 3 months to 1 year	-	4 020
Total	-	4 020

Bonds issued by PKO Bank Polski S.A.

Issue date	Type of interest rate		Interest rate		Nominal amount	Currency		Maturity		Carrying amount at 31.12.2021	Carrying amount at 31.12.2020
25.07.2017	fixed	0.75		500			EUR		25.07.2021	-	2 314
02.11.2017	fixed	0.30		400			CHF		02.11.2021	-	1 706
Total										-	4 020

 

42.3.                 Subordinated liabilities

Type of liability	Type of interest rate	Nominal value	Currency	Period	Carrying amount
					31.12.2021	31.12.2020
Subordinated bonds	6M WIBOR +0.0155	1 700	PLN	28.08.2017 - 28.08.2027	1 710	1 710
Subordinated bonds	6M WIBOR +0.0150	1 000	PLN	05.03.2018 - 06.03.2028	1 006	1 006
TOTAL					2 716	2 716

 

The subordinated bonds were designated for increasing the Bank’s supplementary funds upon the approval of the Polish Financial Supervision Authority. 

43.            Other liabilities

Accounting policies

Liabilities included in this item are measured at amounts due which cover potential interest on the liabilities, and the accruals for future payments in reliably estimated, justified amounts necessary to meet the present obligation as at the end of the reporting period. Non-financial liabilities are measured in accordance with the measurement policies binding for particular types of liabilities recognized in this item.

Financial information

OTHER LIABILITIES	31.12.2021	31.12.2020
Other financial liabilities	3 322	2 983
Costs to be paid	475	387
Interbank settlements	377	272
Liabilities arising from investing activities and internal operations	176	379
Amounts due to suppliers	142	49
Liabilities and settlements in respect of trading in securities	294	246
Settlement of financial instruments	47	38
liabilities in respect of foreign exchange activities	329	245
Costs of financial support to a subsidiary	295	284
Liabilities in respect of payment cards	243	30
Lease liabilities	904	1 023
Other	40	30
Other non-financial liabilities	1 768	1 481
Deferred income	602	622
Liabilities from subsidiaries belonging to the Tax Group	27	-
Liability in respect of tax on certain financial institutions	92	79
Liabilities in respect of a contribution to the Bank Guarantee Fund maintained in the form of payment obligations	704	576
to the Resolution Fund	353	294
to the Banks’ Guarantee Fund	351	282
Liabilities under the public law	242	66
Other	101	138
Total	5 090	4 464

 

The item “Liabilities in respect of contributions to the Bank Guarantee Fund” includes an obligation to pay contributions to the BGF (see note “Assets pledged to secure liabilities and financial assets transferred”).

As at 31 December 2021 and as at 31 December 2020, the Bank did not have any liabilities in respect of which it did not meet its contractual obligations.

44.            Provisions

Accounting policies, and estimates and judgments

•      Provisions for financial liabilities and guarantees granted

The provision for financial liabilities and guarantees is established at the amount of the expected credit losses (for details please see the note “Net expected credit losses”).

In the portfolio analysis, when determining provisions, portfolio parameters estimated using statistical methods are used, based on historical observations of exposures with the same characteristics, the parameters which define a marginal probability of evidence of impairment, the average utilization of an off-balance sheet liability and the level of anticipated loss in the event of impairment in subsequent months in the period from the reporting date to the horizon of the calculation of the anticipated loss.

With regard to exposures which are material on an individual basis, and are subject to assessment, the provision is determined on a case by case basis – as the difference between the expected amount of the balance sheet exposure which will arise as a result of an off-balance sheet liability at the date of overdue amounts arising treated as evidence of impairment, and the present value of the expected future cash flows obtained from the exposure.

•      provisions for legal claims, excluding legal claims relating to mortgage loans in convertible currencies

The provisions for legal claims include disputes with business partners, customers and external institutions (e.g. UOKiK), and are created based on an evaluation of the probability of a court case being lost by the Bank and the expected amount of payment (litigation pending has been discussed in the detail in the note “Legal claims”). 

Provisions for legal claims are created in the amount of expected outflow of economic benefits.

•      Provisions for potential legal claims against the bank relating to mortgage loans in convertible currencies

The provisions are described in the note “Cost of the legal risk of mortgage loans in convertible currencies”.

•      Provisions for refunds of costs to the customers on early repayment of consumer loans

The amount of the provision for refunds of costs to customers on early repayment of consumer loans is affected by the percentage of prepaid consumer loans, expected amount of consumer claims referring to refunds of loan costs prepaid before the balance sheet data and the average amount of the refund. The expected amount of consumer claims and the average amount of the refund are based on the historical data relating to the number of claims filed and the average amounts of the refunds to customers.

•      provisions for pensions and other defined post-employment benefits

The provision for retirement and disability benefits resulting from the Labour Code is created individually for each employee on the basis of an actuarial valuation. The provision for employee benefits is determined on the basis of the Group’s internal regulations.

Valuation of the provision for employee benefits is performed using actuarial techniques and assumptions. The calculation of the provision includes all retirement and pension benefits expected to be paid in the future. The provision was created on the basis of a list of persons with all necessary employee information, in particular the length of their service, age and gender. The provisions calculated are equal to discounted future payments, taking into account staff turnover.

•      provisions for holiday pay

The provisions for holiday pay is established at the amount of expected inflows of cash, excluding discounting, based on the number of days of holiday remaining to be utilized by the Bank’s employees and average monthly salary.

•      other provisions

Other provisions mainly include provisions for potential claims on the sale of impaired loans portfolios, details of which have been presented in the note “Sale of impaired loan portfolios”.

Provisions for future payments are measured at reliably estimated, justified amounts necessary to meet the present obligation as at the end of the reporting period. All provisions are recognized in the profit and loss account, excluding actuarial gains and losses recognized in other comprehensive income.

If the effect of the time value of money is material, the amount of the provision is determined by discounting the estimated future cash flows to their present value, using the discount rate before tax which reflects the current market assessments of the time value of money and the potential risk related to a given obligation.

Financial information

FOR THE YEAR ENDED 31.12.2021	Provisions for financial liabilities and guarantees granted	Provisions for legal claims, excluding legal claims relating to repaid mortgage loans in convertible currencies	Provisions for legal claims against the bank relating to mortgage loans in convertible currencies	Provisions for refunds of costs to customers on early repayment of consumer and mortgage loans	Provisions for pensions and other defined post-employment benefits	Restructuring	Provision for holiday pay	Other provisions, including provisions for employee disputed claims	Total
As at the beginning of the period	626	96	426	23	61	38	77	120	1 467
Increases, including increases of existing provisions	46	7	189	27	7	19	29	34	358
Utilized amounts	-	(2)	(20)	(34)	(3)	(10)	(7)	(7)	(83)
Unused provisions reversed during the period	-	(2)	-	-	(10)	-	(8)	(5)	(25)
Other changes and reclassifications	-	-	-	(1)	-	-	-	(100)	(101)
As at the end of the period	672	99	595	15	55	47	91	42	1 616
Short-term provisions	568	-	-	15	8	47	91	-	729
Long-term provisions	104	99	595	-	47	-	-	42	887

 

FOR THE TEAR ENDED 31.12.2020	Provisions for financial liabilities and guarantees granted	provisions for legal claims, excluding legal claims relating to mortgage loans in convertible currencies	Provisions for legal claims against the bank relating to mortgage loans in convertible currencies	Provisions for refunds of costs to customers on early repayment of consumer and mortgage loans	Provisions for pensions and other defined post-employment benefits	Restructuring	Provision for holiday pay	Other provisions, including provisions for employee disputed claims	Total
As at the beginning of the period	268	50	29	104	55	41	80	26	653
Increases, including increases of existing provisions	354	55	398	106	13	16	15	117	1 074
Utilized amounts	-	(4)	-	(187)	(1)	(5)	-	(4)	(201)
Unused provisions reversed during the period	-	(5)	-	-	(7)	(13)	(18)	-	(43)
Other changes and reclassifications	4	-	(1)	-	1	(1)	-	(19)	(16)
As at the end of the period	626	96	426	23	61	38	77	120	1 467
Short-term provisions	535	-	-	23	7	38	77	-	680
Long-term provisions	91	96	426	-	54	-	-	120	787

 

Calculation of estimates

The Bank updated its estimates of provisions for pensions and other liabilities in respect of defined post-employment benefit plans as at 31 December 2020 using an external independent actuary’s calculations. The provisions calculated are equal to discounted future payments, taking into account staff turnover.

COMPONENTS AFFECTING THE PROVISION AMOUNT	31.12.2021	31.12.2020
financial discount rate adopted	3.60	1.20
weighted average ratio of employee mobility	9.26	9.19
average remaining period of service in years	7.60	7.68
10-year average assumed annual increase in the basis calculation of retirement benefits	2.66	2.53

 

The impact of the increase/decrease in the financial discount rate and of the planned increases of 1 p.p. in the provision base on the decrease/increase in the value of the provision for retirement and other defined benefit post- employment plans as at 31 December 2021 and as at 31 December 2020 is presented in the tables below: 

ESTIMATED CHANGE IN PROVISION for pensions and other liabilities in respect of defined post-employment benefits	31.12.2021			31.12.2020
	scenario +1pp		scenario -1pp	scenario +1pp		scenario -1pp
Discount rate	(4)	4		(5)	6
Planned increases in base amounts	5	(4)		6	(5)

 

The Bank performed a sensitivity analysis of the provision for reimbursement for customers on early repayments of consumer and mortgage loans before the balance sheet date as at 31 December 2021 and 31 December 2020 due to changes in the number of claims and average value of refund.

ESTIMATED CHANGE IN PROVISION	Change in the number of claims		Change in the average amount of reimbursement
	-10%	10%	-10%	10%
31.12.2021
Provision for refunds of costs to customers on early repayment of consumer and mortgage loans	(1)	1	(1)	1

 

ESTIMATED CHANGE IN PROVISION	Change in the number of claims		Change in the average amount of reimbursement
	-10%	10%	-10%	10%
31.12.2020
Provision for refunds of costs to customers on early repayment of consumer and mortgage loans	(2)	2	(2)	2

 

45.            Equity and shareholding structure of the Bank

Accounting policies

Equity constitutes capital and reserves created in accordance with the legal regulations.

The classification to particular components discussed below results from the Polish Commercial Companies Code, the Banking Law and the requirements of IAS 1.7, IAS 1.78.e, IAS 1.54.q-r and IAS 1.79.b.

Equity components:

•        Share capital is stated at the nominal value in accordance with the Articles of Association and entry in the Register of Businesses.

•        Supplementary capital is created according to the Articles of Association of the Bank, from annual write-offs from net profit, made until this capital reaches at least one third of the share capital and is intended to cover balance sheet losses that may arise in connection with the Bank’s operations. Supplementary capital may also be used for other purposes, in particular for increasing the share capital.

•        General banking risk fund is created from profit after tax in accordance with the Banking Law, and it is to cover unidentified risks of the Bank’s operations.

•        Other reserves are created from the appropriation of net profit. Other reserves are intended to cover any potential balance-sheet losses or to purchase treasury shares for redemption.

•        Accumulated other comprehensive income includes the effects of the measurement of financial assets at fair value through other comprehensive income, allowances for expected credit losses on these assets, the effective portion of cash flow hedges in hedge accounting, as well as actuarial gains and losses. Deferred tax on those items is recognized in other comprehensive income.

Financial information

•        Shareholding structure of the Bank

According to the information available as at 31 December 2021 the Bank’s shareholding structure is as follows:

NAME OF SHAREHOLDER	number of shares	% of shares	Nominal value of 1 share	Interest in the share capital (%)
As at 31 December 2021
State Treasury	367 918 980	29.43	PLN 1	29.43
National Nederlanden Otwarty Fundusz Emerytalny1	103 500 000	8.28	PLN 1	8.28
Aviva Open Pension Fund1	90 810 319	7.26	PLN 1	7.26
Other shareholders2	687 770 701	55.03	PLN 1	55.03
Total	1 250 000 000	100	---	100
As at 31 December 2020
State Treasury	367 918 980	29.43	PLN 1	29.43
Nationale Nederlanden Otwarty Fundusz Emerytalny	107 198 023	8.58	PLN 1	8.58
Aviva Open Pension Fund1	93 610 319	7.49	PLN 1	7.49
Other shareholders2	681 272 678	54.50	PLN 1	54.50
Total	1 250 000 000	100	---	100

 

1 Calculation of shareholdings as at the end of the year published by PTE in bi-annual and annual information about the structure of fund assets and quotation from the WSE Statistic Bulletin.

2 Including Bank Gospodarstwa Krajowego which, as at 31.12.2021 and as at 31.12.2020, held 24 487 297 shares, constituting a 1.96% share of the votes at the General Shareholders’ Meeting.

All the shares of PKO Bank Polski SA carry the same rights and obligations. No shares are preferred shares (one share entitles to one vote), in particular with regard to voting rights or dividend. The Articles of Association of PKO Bank Polski SA restrict the voting rights of shareholders holding more than 10% of the total number of votes at the General Shareholders’ Meeting and forbid those shareholders to execute more than 10% of the total number of votes at the General Shareholders’ Meeting. The above restriction does not apply to:

•               those shareholders who on the date of passing the resolution of the General Shareholders’ Meeting introducing the limitation of the voting rights had rights from the shares representing more than 10% of the total number of votes at the Bank (i.e. the State Treasury and BGK);

•               shareholders who have the rights from A-series registered shares (the State Treasury), and

•               shareholders acting jointly with the shareholders referred to in point (2) based on an agreement concerning the joint execution of voting rights from shares. Moreover, the restriction on the voting rights shall expire when the share of the State Treasury in the Bank’s share capital drops below 5%.

In accordance with § 6 (2) of the PKO Bank Polski SA’s Articles of Association, the conversion of A-series registered shares into bearer shares and the transfer of these shares requires the approval of the Council of Ministers in the form of a resolution. Conversion into bearer shares or transfer of A-series registered shares, after obtaining the aforementioned approval, results in the expiry of the aforementioned restrictions in respect of shares subject to conversion into bearer shares or transfer, to the extent to which this approval was given.

Pursuant to Art. 13 (1) (26) of the Act dated 16 December 2016 on the rules for managing the State property, the shares of PKO Bank Polski S.A. owned by the State Treasury may not be sold (excluding statutory exceptions).  

The Bank’s shares are listed on the Warsaw Stock Exchange.

•        Structure of PKO Bank Polski SA’s share capital:

Series	Type of shares	Number of shares	Nominal value of 1 share	Nominal value of the series
A Series	ordinary registered shares	312 500 000	PLN 1	312 500 000
A Series	ordinary bearer shares	197 500 000	PLN 1	197 500 000
B Series	ordinary bearer shares	105 000 000	PLN 1	105 000 000
C Series	ordinary bearer shares	385 000 000	PLN 1	385 000 000
D Series	ordinary bearer shares	250 000 000	PLN 1	250 000 000
Total	- - -	1 250 000 000	- - -	1 250 000 000

In 2021 and in 2020, there were no changes in the amount of the share capital of PKO Bank Polski SA. Shares of PKO Bank Polski SA issued are not preference shares and are fully paid up.

46.            Coverage of loss for 2021, distribution of retained earnings and Dividends

•        Coverage of loss for 2020 and distribution of retained earnings

On 7 June 2021, the Annual General Meeting of the Bank adopted resolutions on:

1)      covering the Bank’s loss for 2020 in an amount of PLN 2 943 792 603.05 from the special fund created based on the resolution of the Extraordinary General Meeting of the Bank dated 23 April 2021 for the purpose of covering specific balance sheet losses which would arise as a result of recognizing the financial effects of settlements with consumers who entered into loan agreements or mortgage loan agreements with the Bank indexed to foreign currencies or denominated in foreign currencies;

2)      leaving the retained earnings of PKO Bank Polski S.A. from previous years in an amount of PLN 5 500 000 000 as retained earnings.

•        Profit appropriation

On 10 September 2021, the Polish Financial Supervision Authority authorized the inclusion of the Bank’s net profit and the prudentially consolidated profit of the Bank’s Group for the period from 1 January 2021 to 30 June 2021, less any foreseeable charges and dividends, verified by the entity responsible for auditing the Bank’s financial statements, in the Tier 1 core capital. The above approval increased the value of own funds calculated for capital adequacy purposes of the Group by PLN 1 975 million and of the Bank by PLN 2 073 million.

•        Dividend policy

In March 2021, the Bank’s Supervisory Board adopted “The Dividend Policy of PKO Bank Polski S.A. and the PKO Bank Polski S.A. Group” (hereinafter the “Dividend Policy”). The Dividend Policy assumes the intention of the Bank to make stable dividend payments in the long term, maintaining the principle of prudent management of the Bank and the Bank’s Group in line with the requirements of the law and the PFSA’s positions concerning the assumptions of the dividend policy of commercial banks. The objective of the dividend policy is to optimally shape the capital structure of the Bank and the Bank’s Group, taking into account the return on capital and its cost and the capital needs related to development, while at the same time ensuring an appropriate level of capital adequacy ratios. According to the adopted Dividend Policy, the repurchase of treasury shares for redemption purposes is an additional tool for capital redistribution. Such repurchase of shares may be implemented in a situation where the book value of the shares is higher than their current market price, after obtaining the required consent from the PFSA.

•        The PFSA’s recommendations regarding dividend payments in 2021

In the first half of 2021, the PFSA considered it necessary for commercial banks to suspend dividend payments and not to take other actions, in particular those outside the scope of their current business and operational activities, that could result in a reduction in their capital base (without prior consultation with the supervision authority), as reflected in the PFSA’s announced position of 16 December 2020 and the PFSA’s individual recommendation to the Bank of 13 January 2021. Both the Bank’s Management and Supervisory Boards passed resolutions stating that they would supervise the implementation of the aforementioned recommendation of the PFSA within the scopes of their respective responsibilities.

On 24 June 2021, the PFSA adopted a position on the dividend policy of commercial banks for the second half of 2021, which allows for the payment of dividends from the 2020 profit upon fulfilment of the conditions set out in the aforementioned position. The PFSA upheld the recommendation not to take (without prior consultation with the supervision authority) other actions that could result in a reduction in the capital base, including possible dividend payments from retained earnings and redemption of treasury shares. The above position was confirmed in letters from the PFSA dated 30 June 2021 and 16 July 2021.

In December 2021, the PFSA adopted a position on the 2022 dividend policy of supervised institutions, which was subsequently confirmed in a letter dated 25 January 2022. The dividend payment criteria for commercial banks indicated in the PFSA’s positions are as follows:

an amount of up to 50% of the profit for 2021 may only be paid out by banks that fulfil all of the following criteria:

not implementing a recovery programme;

positively assessed in the supervisory review and assessment process (BION) – final BION score not worse than 2.5;

having a leverage ratio (LR) of more than 5%;

•      having a Tier 1 core capital ratio (CET1) of not less than the required minimum: 4.5% +56%* P2R requirement + combined buffer requirement (including 3% systemic risk buffer);

•      having a Tier 1 capital ratio (T1) not lower than the required minimum increased by 1.5 p.p: 6% +75%* P2R requirement + combined buffer requirement (including 3% systemic risk buffer);

•      having a total capital ratio (TCR) not lower than the required minimum increased by 1.5 p.p: 8% + P2R requirement + combined buffer requirement (including 3% systemic risk buffer);

•      an amount of up to 75% of the profit for 2021 may be paid only by banks meeting at the same time the criteria for payment of 50% taking into account, as part of the capital criteria, the bank’s sensitivity to an adverse macroeconomic scenario;

•      an amount of up to 100% of the profit for 2021 may be paid only by banks meeting at the same time the criteria for payment of 75% taking into account, as part of the capital criteria, the bank’s sensitivity to an adverse macroeconomic scenario regarding the growth of interest rates and its impact on credit risk.

The criteria set out in points 1-3 should be met by the bank both at the individual and consolidated level.

According to the letter from the PFSA, the Bank will receive an individual recommendation regarding both the possibility to pay dividends and other actions that may result in a reduction of the capital base, including the level of capital recommended under Pillar II (P2G). More information on this topic can be found in the 2021 Directors’ Report of the PKO Bank Polski S.A. Group for 2021 prepared together with the Directors’ Report of PKO Bank Polski S.A. in Chapter 7 “Equity and adequacy measures”.

The Bank’s intention is to pay dividend in 2022 from the net profit for 2021.

Pursuant to Article 395 § 2(2) of the Commercial Companies Code, the decision on profit distribution remains within the competences of the Bank’s Annual General Meeting.

47.            Leases

Accounting policies

Lease agreements or agreements containing a lease according to the Bank’s classification include agreements under which the Bank:

•        obtains the right of use of the identified asset and the supplier’s ability to substitute an alternative asset is not significant; and

•        has the right to obtain substantially all economic benefits from the right of use throughout the period of use; and

•        has the right to direct the use of the identified asset over the period of use, when:

•      the Bank has the right to direct how and for what purpose the asset is used throughout the period of use; or

•      the relevant decisions about how and for what purpose the asset is used are predetermined.

The Bank applies exceptions and does not recognize right-of-use assets and liabilities with respect to:

•        short-term leases, which include agreements without an option to buy an asset, concluded for a period not exceeding 12 months from the commencement of the agreement, in particular agreements concluded for an indefinite period with a short (up to 12 months) notice period, without significant penalties, which include in particular leasehold improvements incurred and relocation costs;

•        low-value leases (an asset’s value is lower than PLN 20 000, determined based on the value of a new asset, regardless of the age of the leased asset), excluding agreements for rental of space.

The Bank initially measures lease liabilities at the present value of the lease payments outstanding as at that date.

The amount of the lease liability is affected by:

•        fixed payments less any lease incentives payable;

•        variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

•        any residual guarantees expected from the lessee;

•        the exercise price of a purchase option if the probability that the Bank would exercise that option is higher than 50%;

•        payments of penalties for terminating the lease, if the lease agreement contains an option for the Bank to terminate the lease as a lessee.

The Bank does not classify variable fees that depend on external factors as lease payments.

After initial recognition the Bank’s lease liabilities are measured at amortized cost.

The Bank records revaluation of lease liabilities as an adjustment to the right-of-use asset. If as a result of remeasurement the carrying amount of the right-of-use asset is reduced to zero and the lease liability is further reduced, the Bank recognizes the remaining amount of the remeasurement as a profit or loss.

The Bank initially measures the right-of-use assets at cost, which comprises:

•        the amount of the initial measurement of the lease liability;

•        any lease payments made at or before the commencement date, less any lease incentives received;

•        any initial direct costs incurred by the Bank.

The Bank subsequently measures the right-of-use asset at cost less accumulated depreciation (depreciation calculated under the straight-line method) and accumulated impairment losses, and adjusted for any remeasurement of the lease liability.

To discount future lease payments, the Bank applies discount rates that:

•        are calculated based on yield curves reflecting the cost of financing in a given currency,

•        cover the tenor of the longest lease contract subject to measurement and reflecting – for a given currency – a fixed market interest rate and the Bank’s cost of financing (the tenors of the lease agreements are within the range of from 1 to 99 years);

•        have been read from the curve for maturity corresponding to one-half of the maturity of the lease agreement.

The Bank performs quarterly updates of the incremental borrowing rate for lease agreements.

The Bank applies the same discount rates for the portfolio of car leases and property leases, including rights to perpetual usufruct of land, taking into account the impact of the lease security on the discount rate applied.

The Bank recognizes the lease payments relating to short-term or low-value leases as cost using the straight-line method, over the term of the lease. The differences between the amounts paid and those arising from the straight- line recognition of the costs are recorded as prepayments or accruals.

Financial information:

LESSEE - LEASE AMOUNTS RECOGNIZED IN THE INCOME STATEMENT	2021	2020
Costs related to short-term lease contracts	(6)	(5)
Costs related to lease contracts for low-value assets (other than short-term), non-deductible VAT expenses and service charges	(81)	(77)
Total	(87)	(82)

 

48.            Contingent liabilities and off-balance sheet liabilities received and granted

Accounting policies

Upon initial recognition financial guarantee agreements are stated at fair value. In subsequent periods, as at the balance sheet date, financial guarantees are measured at the higher of:

•        allowances for expected credit losses; or

•        the amount of commission recognized initially, less accumulated amortization in accordance with IFRS 15.

FINANCIAL INFORMATION

•           Securities programmes covered with underwriting agreements (maximum Bank’s commitment to take up securities)

As at 31 December 2021 and 31 December 2020, no underwriting agreements have been entered into.

Contractual commitments

VALUE OF CONTRACTUAL COMMITMENTS CONCERNING:	31.12.2021	31.12.2020
intangible assets	15	24
property, plant and equipment	20	15
Total	35	39

•           Financial and guarantee commitments granted

FINANCIAL AND GUARANTEE COMMITMENTS GRANTED 31.12.2021	STAGE 1		STAGE 2		STAGE 3		Total	Provisions per IFRS 9	Net amount
	Nominal value	Provision	Nominal value	Provision	Nominal value	Provision
Credit lines and limits	59 496	(122)	8 572	(262)	98	(28)	68 166	(412)	67 754
housing	5 073	(12)	131	(5)	4	(2)	5 208	(19)	5 189
corporate	45 466	(95)	6 945	(187)	71	(20)	52 482	(302)	52 180
consumer	8 957	(15)	1 496	(70)	23	(6)	10 476	(91)	10 385
Other	2 670	-	-	-	-	-	2 670	-	2 670
Total financial commitments granted, including:	62 166	(122)	8 572	(262)	98	(28)	70 836	(412)	70 424
irrevocable commitments granted	23 910	(47)	4 401	(129)	56	(14)	28 367	(190)	28 177
POCI	-	-	-	-	14	(1)	14	(1)	13
guarantees in domestic and foreign trading	9 645	(9)	1 838	(56)	469	(191)	11 952	(256)	11 696
to financial entities	4 201	-	-	-	-	-	4 201	-	4 201
to non-financial entities	5 418	(9)	1 838	(56)	469	(191)	7 725	(256)	7 469
to public entities	26	-	-	-	-	-	26	-	26
domestic corporate bonds	2 000	-	-	-	-	-	2 000	-	2 000
to financial entities	2 000	-	-	-	-	-	2 000	-	2 000
domestic municipal bonds (state budget entities)	408	-	-	-	-	-	408	-	408
letters of credit	1 172	-	65	(4)	1	-	1 238	(4)	1 234
to non-financial entities	1 172	-	65	(4)	1	-	1 238	(4)	1 234
payment guarantees to financial entities	80	-	-	-	-	-	80	-	80
Total guarantees and pledges granted, including:	13 305	(9)	1 903	(60)	470	(191)	15 678	(260)	15 418
irrevocable commitments granted	6 681	(8)	1 834	(56)	469	(191)	8 984	(255)	8 729
performance guarantee	1 200	(2)	1 948	(38)	241	(163)	3 389	(203)	3 186
POCI	-	-	-	-	45	(2)	45	(2)	43
Total financial and guarantee commitments granted	75 471	(131)	10 475	(322)	568	(219)	86 514	(672)	85 842

 

FINANCIAL AND GUARANTEE COMMITMENTS GRANTED 31.12.2020	STAGE 1		STAGE 2		STAGE 3		Total	Provisions per IFRS 9	Net amount
	Nominal value	Provision	Nominal value	Provision	Nominal value	Provision
Credit lines and limits	58 227	(79)	6 590	(228)	118	(30)	64 935	(337)	64 598
housing	4 166	(9)	147	(5)	3	(2)	4 316	(16)	4 300
corporate	45 287	(56)	5 029	(186)	105	(25)	50 421	(267)	50 154
consumer	8 774	(14)	1 414	(37)	10	(3)	10 198	(54)	10 144
Other	3 002	(29)	-	-	-	-	3 002	(29)	2 973
Total financial commitments granted, including:	61 229	(108)	6 590	(228)	118	(30)	67 937	(366)	67 571
irrevocable commitments granted	30 121	(46)	2 883	(94)	42	(10)	33 046	(150)	32 896
POCI	-	-	-	-	20	-	20	-	20
guarantees in domestic and foreign trading	8 592	(4)	1 635	(88)	336	(162)	10 563	(254)	10 309
to financial entities	3 297	-	-	-	-	-	3 297	-	3 297
to non-financial entities	5 247	(4)	1 635	(88)	336	(162)	7 218	(254)	6 964
to public entities	48	-	-	-	-	-	48	-	48
domestic corporate bonds	2 000	-	-	-	-	-	2 000	-	2 000
to financial entities	2 000	-	-	-	-	-	2 000	-	2 000
domestic municipal bonds (state budget entities)	166	-	-	-	-	-	166	-	166
Letters of credit	1 427	(1)	77	(4)	13	(1)	1 517	(6)	1 511
to financial entities	201	-	-	-	-	-	201	-	201
to non-financial entities	1 226	(1)	77	(4)	13	(1)	1 316	(6)	1 310
payment guarantees to financial entities	83	-	-	-	-	-	83	-	83
Total guarantees and pledges granted, including:	12 268	(5)	1 712	(92)	349	(163)	14 329	(260)	14 069
irrevocable commitments granted	8 668	(4)	1 635	(88)	336	(162)	10 639	(254)	10 385
performance guarantee	1 681	(1)	998	(54)	182	(135)	2 861	(190)	2 671
POCI	-	-	-	-	1	-	1	-	1
Total financial and guarantee commitments granted	73 497	(113)	8 302	(320)	467	(193)	82 266	(626)	81 640

•           nominal value of commitments granted by maturity

COMMITMENTS GRANTED BY MATURITY AS AT 31.12.2021	up to 1 month (inclusive)	over 1 to 3 months (inclusive)	over 3 months to 1 year (inclusive)	over 1 to 5 years (inclusive)	over 5 years	Total
commitments granted - financial	11 623	6 464	24 667	17 992	10 090	70 836
commitments granted - guarantees and pledges	463	1 855	3 343	6 308	3 709	15 678
Total	12 086	8 319	28 010	24 300	13 799	86 514

 

COMMITMENTS GRANTED BY MATURITY AS AT 31.12.2020	up to 1 month (inclusive)	over 1 to 3 months (inclusive)	over 3 months to 1 year (inclusive)	over 1 to 5 years (inclusive)	over 5 years	Total
commitments granted - financial	10 669	5 835	17 622	25 437	8 374	67 937
commitments granted - guarantees and pledges	496	1 128	4 121	5 632	2 952	14 329
Total	11 165	6 963	21 743	31 069	11 326	82 266

 

•           Off-balance sheet liabilities received

OFF-BALANCE SHEET LIABILITIES RECEIVED BY NOMINAL VALUE	31.12.2021	31.12.2020
Financial	107	147
Guarantees	6 692	4 025
Total	6 799	4 172

 

49.            Legal claims

As at 31 December 2021, the total value of the subject matter of litigation in court proceedings (trials) pending in which the Bank is a defendant amounted to PLN 4 302 million (as at 31 December 2020: PLN 2 028 million), and the total value of the subject matter of litigation in court proceedings (trials) pending in which the Bank is the claimant as at 31 December 2021 was PLN 2 038 million (as at 31 December 2020: PLN 2 230 million).

•        litigation against the Bank relating to mortgage loans in convertible currencies

As at 31 December 2021, 12 349 on court proceedings were pending against the Bank (as at 31 December 2020: 5 372) relating to mortgage loans granted in previous years in foreign currency with a total value in dispute of PLN 3 855 million (as at 31 December 2020: PLN 1 404 million), including one group proceeding with 72 loan agreements. The Bank’s customers’ claims concerned mainly demands to determine the invalidity of all or part of the agreements or to receive refunds of allegedly undue benefits in connection with the abusive nature of the foreign currency clauses. None of the clauses used by the Bank in the agreements was entered in the register of prohibited contractual clauses. The number of lawsuits filed by customers against the Bank is significantly influenced by the intensive advertising campaign of law firms, which encourages borrowers to commission to them – for a fee – conducting cases against banks.

The Bank monitors the status of court rulings in cases indexed or denominated in foreign currencies on an ongoing basis with respect to the shaping and possible changes in rulings.

As at 31 December 2021, 207 final rulings have been issued by the courts in cases against the Bank (including 165 rulings after 3 October 2019). 67 of these rulings (including in 29 rulings issued after 3 October 2019) are favourable for the Bank. The Bank lodges cassation complaints to the Supreme Court against final rulings unfavourable to the Bank.

On 29 January 2021, in connection with the discrepancies in the interpretation of legal provisions in the jurisprudence of the Supreme Court and common courts and in order to ensure the uniformity of jurisprudence, the First President of the Supreme Court submitted a request for the full panel of the Civil Chamber of the Supreme Court to resolve the following legal issues concerning the subject of loans denominated and indexed in foreign currencies (legal basis: Article 83 § 1 of the Act of 8 December 2017 on the Supreme Court):

1.         If a provision of an indexed or denominated loan agreement relating to the method of determining the foreign currency exchange rate is found to constitute an illicit contractual provision and is not binding on the consumer – is it then possible to assume that another method of determining the foreign currency exchange rate resulting from law or custom takes its place?

If the above question is answered in the negative:

2.         In the event that it is impossible to establish a foreign currency exchange rate binding on the parties in a loan agreement indexed to such a currency, can the remainder of the agreement still be binding for the parties?

3.         If it is not possible to establish a binding rate for a foreign currency in a loan agreement denominated in a foreign currency, can the remainder of the agreement still be binding for the parties?

Notwithstanding the content of the answers to questions 1 to 3:

4.         In the event of the invalidity or ineffectiveness of a loan agreement, in the performance of which the bank disbursed to the borrower all or part of the amount of the loan and the borrower made repayments of the loan, do separate claims for wrongful performance arise for each of the parties, or does only a single claim arise, equal to the difference in performance, for the party whose total performance was higher?

5.         Where a loan agreement is invalid or ineffective as a result of the unlawful nature of certain of its terms, does the limitation period for the bank’s claim for repayment of the sums paid under the loan begin to run from the time at which those sums were paid?

6.         If, in the case of the invalidity or ineffectiveness of a loan agreement, either party has a claim for repayment of a performance made in performance of that agreement, may that party also claim a fee for the use of its funds by the other party?

A session of the full composition of the Civil Chamber for the examination of the aforementioned application was held on 11 May 2021. Before passing its resolution, the Supreme Court decided to consult five public institutions. Their opinions were prepared and sent to the Supreme Court. On 2 September 2021, the Supreme Court decided to apply to the CJEU for preliminary rulings on questions relating to the judicial system, which do not directly concern the issue of foreign currency loans.

In 2021, two resolutions of the Supreme Court and one ruling of the Court of Justice of the European Union were issued, which are significant from the perspective of the claims of Swiss franc borrowers. On 7 May 2021, the Supreme Court, represented by 7 judges of the Civil Chamber, passed the following resolution in case III CZP 6/21:

1)         A prohibited contractual clause (Article 3851 § 1 of the Civil Code) is, from the beginning, by operation of law, ineffective in favour of the consumer, who may however subsequently grant an informed and voluntary consent for such a clause and thus make it effective retrospectively.

2)         If a loan agreement cannot be binding without the ineffective clause, the consumer and the lender are entitled to bring separate claims for repayment of the benefits provided in the performance of the agreement (Article 410 § 1 in conjunction with Article 405 of the Civil Code). The lender may claim repayment of the benefit from the moment the loan agreement became permanently ineffective.

The resolution has the force of a legal rule, which means that an ordinary panel of the Supreme Court may not withdraw from the interpretation presented in an earlier resolution that has the force of a legal rule. If any panel of the Supreme Court intends to withdraw from a legal rule, it must present the legal issue for resolution to the full panel of the Chamber. In its justification for the said resolution, the Supreme Court referred to an earlier opinion (resolution III CZP 11/20 dated 16 February 2021) that the period of limitation of claims resulting from a loan agreement which is invalid due to the elimination of abusive clauses commences after the consumer has expressed informed consent not to be bound by the abusive clauses. The Supreme Court decided that since a consumer has the right to remedy an abusive contractual clause and express his/her willingness to be bound by it, the lender cannot be certain whether the agreement is effective until the consumer makes such a decision, and the agreement is ineffective (suspended) until such time. The lender’s claims may not arise before such ineffectiveness (suspension) ceases to exist (which generally occurs as a result of the borrower’s statement), and therefore the period of limitation commences at that moment.

Taking into account the content of the Supreme Court’s resolution III CZP 6/21 and the non-uniform decisions of the common courts made against it, the Bank has filed lawsuits against customers whose agreements have been validly annulled, or whose lawsuits were served on the Bank before 31 December 2018, for the return of the capital paid out and the cost of using the capital.

•        ACTIVITIES OF THE BANK UNDERTAKEN IN CONNECTION WITH A PROPOSAL OF THE CHAIR OF THE POLISH FINANCIAL SUPERVISION AUTHORITY AND THE EXPECTED MEETING OF THE SUPREME COURT REGARDING LOANS GRANTED IN FOREIGN CURRENCIES

In December 2020, the Chair of the Polish Financial Supervision Authority (hereinafter: the PFSA Chair) made a proposal aimed at providing a systemic solution to the problem of housing loans in Swiss francs. In accordance with this solution, the banks would voluntarily offer settlement agreements to their customers. Under such agreements, the customers would repay their loans to the bank as if they had been originally granted in PLN with interest at WIBOR plus a historical margin applied to such loans.

The Bank has analysed the benefits and risks associated with the possible approaches to the issue of foreign currency housing loans. In the Bank’s opinion, for both the Bank and its customers it is better to reach a compromise and conclude a settlement agreement than engage in long legal disputes whose outcome is uncertain.

On 23 April 2021, the Extraordinary General Shareholders’ Meeting approved the possibility of offering settlement agreements to the customers. Subsequently, by a resolution dated 27 May 2021, the Supervisory Board approved the terms and conditions for offering settlement agreements proposed by the PFSA Chair. The process of amicable resolution of disputes concerning the validity of housing loan agreements was launched on 4 October 2021. The settlements are offered during mediation proceedings conducted by the Mediation Centre of the PFSA Court of Arbitration, during court proceedings and during proceedings initiated by a motion for settlement. As at 31 December 2021, 5 673 settlement agreements were concluded during mediation proceedings and 133 during court proceedings.

•        Proceedings before the President of the Office of Competition and Consumer Protection (UOKiK)

Two proceedings have been brought before the President of UOKiK ex officio and are currently in progress:

•        Proceedings initiated on 26 July 2017 ex officio concerning using practices which violate the collective interests of customers. The Bank is charged with collecting higher instalments on loans and advances denominated in foreign currencies than those arising from the information on foreign exchange risk presented to the consumers before concluding agreements and transferring potential foreign exchange risk to the consumers. The Bank responded to the charges in its letter of 23 September 2017. In a letter dated 14 March 2019, the President of UOKiK asked the Bank 16 detailed questions in order to establish the circumstances that are necessary to resolve the case. The Bank gave the answers in a letter dated 10 May 2019. In a letter of 9 June 2021, the President of UOKiK extended the deadline for concluding the proceedings until 30 September 2021. By the decision of 18 November 2021, the President of UOKiK called on the Bank to provide further information, extending the deadline for concluding the proceedings to 31 December 2021. The Bank fulfilled the UOKiK President’s request on 6 December 2021. As at 31 December 2021, the Bank had not set up a provision for these proceedings.

•        Proceedings initiated ex officio on 12 March 2019 on the acknowledgement that the provisions of the template agreement are inadmissible. The proceedings are related to modification clauses which specify the circumstances in which the Bank is entitled to amend the terms and conditions of the agreement, including the amount of fees and commission. In the opinion of the President of UOKiK the modification clauses applied by the Bank give the Bank unilateral unlimited and arbitrary possibilities of modifying the execution of the agreement. Consequently, the President of UOKiK is of the opinion that the clauses applied by the Bank shape the rights and obligations of the consumers in a way that is contrary to good practice and are a gross violation of their interests, which justifies the conclusion that they are abusive. In a letter of 31 May 2019, the Bank commented on the allegations of the President of UOKiK. In a letter dated 30 December 2021 the President of UOKiK extended the term of concluding the proceedings until 31 March 2022. As at 31 December 2021, the Bank did not set up a provision against the proceedings

•        Proceedings before the court of competition and consumer protection regarding spread clauses

The proceedings were initiated by the Bank’s appeal (submitted on 13 November 2020) against the decision of the President of UOKiK dated 16 October 2020. In the said decision, the President of UOKiK declared the provisions of the template agreement “Annex to the housing loan/mortgage loan agreement” in the section “Appendix to the annex ‘Rules for determining foreign exchange spreads at PKO BP S.A.’” as inadmissible provisions and prohibited their use. In addition, the President of UOKiK ordered that all consumers being parties to the assessed annexes about the decision to declare them inadmissible and its consequences be informed no later than within nine months from the effective date of the decision and ordered that a declaration be published whose text was indicated in the decision on the Bank’s website not later than 1 month from the effective date of the decision and to keep it there for 4 months. Furthermore, the President of UOKiK imposed a fine on the Bank of PLN 41 million, payable to the Financial Education Fund. 

In its appeal against that decision, the Bank requested that the decision be amended by finding that there had been no breach of the ban on the use of prohibited contractual clauses, or by discontinuing the proceedings. It was also requested that the decision be annulled or amended by waiving or substantially reducing the fine. The appeal raised a number of substantive and procedural grounds of appeal. The Bank’s main arguments consist in pointing out that the decision of the President of UOKiK is a manifestation of unlawful and groundless interference with the Bank’s pricing policy, pointing out that there are no substantive grounds for the intervention of the President of UOKiK, i.e. there are no grounds for concluding that the Bank applied prohibited contractual provisions, and pointing out that the penalty imposed on the Bank is abnormally high. In response to the appeal, the President of UOKiK sustained the position expressed in the decision appealed against. The Bank is currently waiting for a hearing date to be set.

•        Proceedings related to restrictive practices on the market of payments with payment cards in Poland

The Bank is a party to proceedings initiated by the President of the Office of Competition and Consumer Protection (UOKiK) on the basis of a decision dated 23 April 2001 upon the request of the Polish Trade and Distribution Organization – Employers Association (Polska Organizacja Handlu i Dystrybucji – Związek Pracodawców) against operators of the Visa and Europay payment systems and banks issuing Visa and Europay/ Eurocard/ Mastercard banking cards.

The claims under these proceedings relate to the use of practices limiting competition on the market of banking card payments in Poland, consisting of applying pre-agreed “interchange” fees for transactions made using the Visa and Europay/Eurocard/Mastercard cards as well as limiting access to this market for external entities. On 29 December 2006, UOKiK decided that the practices, consisting of joint determination of the “interchange” fee, did limit market competition and ordered that any such practices should be discontinued, and imposed a fine on, among others, the Bank, in the amount of PLN 16.6 million. The Bank appealed against the decision of the President of UOKiK to the Court for Competition and Consumer Protection (Sąd Ochrony Konkurencji i Konsumentów - SOKiK). In its ruling dated 21 November 2013, SOKiK reduced the penalty imposed on the Bank to PLN 10.4 million. The parties to the proceedings appealed against the ruling. The Court of Appeal in Warsaw in its ruling dated 6 October 2015 reinstated the initial amount of the imposed fines set in the decision of the UOKiK, i.e. the fine of PLN 16.6 million (the fine imposed on PKO Bank Polski S.A.) and the fine of PLN 4.8 million (the fine imposed on Nordea Bank Polska S.A., and PKO Bank Polski S.A. is a legal successor of Nordea Bank Polska SA through a merger under Article 492 § 1(1) of the Commercial Companies Code). The Bank paid the fine in October 2015. As a result of a cassation appeal brought by the Bank, the Supreme Court in a ruling dated 25 October 2017 annulled the contested ruling of the Court of Appeal in Warsaw and submitted the case for re-examination. The fine paid by the Bank was reimbursed to the Bank on 21 March 2018. On 23 November 2020, the Court of Appeal in Warsaw issued a ruling in which it revoked the ruling of the District Court in Warsaw dated 21 November 2013 and submitted it for re-examination. As at 31 December 2021 the Bank recorded a provision for this litigation of PLN 21 million.

•        Claims for damages in respect of the interchange fee

The Bank was served eight summons to participate, as an outside intervener on the defendant’s side, in cases relating to the interchange fees. Other banks are defendants in the case. The claims vis-à-vis the sued banks total PLN 903 million and are pursued as damages for differences in interchange fees resulting from applying practices that restrict competition. Since these proceedings are not pending against the Bank, their value was not included in the total value of the cases against the Bank.

If the courts find the claims justified, the defendants may claim recourse in separate court proceedings from other banks, including, among others, from PKO Bank Polski S.A. As at 31 December 2021, the Bank joined seven proceedings as an outside intervener. Two of these proceedings resulted in non-final rulings favourable to the banks, dismissing the claimants’ claims.

•        Re-privatization claims relating to properties used by the Bank

As at the date of these financial statements, two proceedings are being conducted involving reprivatization claims. In one of the proceedings, which ended with a final court ruling favourable to the Bank, the opposing party lodged a cassation complaint, and the Supreme Court revoked the appealed judgment of the District Court and in that part submitted the case for re-examination. In the second proceedings, the subject matter of which is to confirm the invalidity of the decision refusing to grant temporary ownership of the Bank’s property to the applicant, the complaint of the opposing party has been lodged with the Supreme Administrative Court.

The Management Board of PKO Bank Polski S.A. believes that the probability of serious claims arising against the Bank as a result of the aforesaid proceedings is low.

50.            Notes to the cash flow statement

•           Cash and cash equivalents

Cash and cash equivalents consist of cash in hand, cash on nostro accounts and a deposit with the National Bank of Poland, as well as current amounts due from banks, as well as other cash equivalents with maturities up to 3 months from the date of acquisition.

CASH AND CASH EQUIVALENTS	2021	2020
Cash, current account with the Central Bank	11 421	7 397
Current amounts due from banks	7 683	1 700
Restricted cash and cash equivalents of which	25	29
- loans and advances to customers	25	29
Total	19 129	9 126

 

•           Restricted cash and cash equivalents

Cash of PLN 25 million (as at 31 December 2020: PLN 29 million) pledged as collateral for securities’ transactions conducted by Biuro Maklerskie PKO BP are deposited in the National Depository for Securities (KDPW_CCP), as part of the Guarantee Fund for the Settlement of Stock Exchange Transactions. Each direct participant who holds the status of settlement-making participant is obliged to make payments to the settlement fund which guarantees a proper settlement of the stock exchange transactions covered by that fund. The amount of the payments depends on the value of transactions made by each participant and is updated by KDPW_CCP on a daily basis.

•           Cash flows from interest and dividends, both received and paid

INTEREST INCOME ON:	2021	2020
loans to and other receivables from banks	70	138
hedging derivatives	419	670
debt securities	2 222	1 839
loans and advances to customers	5 869	6 616
Total	8 580	9 263

 

INTEREST EXPENSES - PAID:	2021	2020
amounts due to banks	(22)	(18)
amounts due to customers	(208)	(930)
loans and advances received	(193)	(209)
leases	(8)	(15)
debt securities	(293)	(38)
securities in issue	(26)	(29)
subordinated liabilities	(48)	(90)
Total	(798)	(1 329)

 

DIVIDEND INCOME RECEIVED	2021	2020
from subsidiaries, associates and joint ventures	533	295
financial instruments not held for trading, measured at fair value through profit or loss	11	15
Total	544	310

 

The above amounts of interest received do not include the amounts of commission recognized using the effective interest rate as interest income.  

•           Cash flows from operating activities - other adjustments

OTHER ADJUSTMENTS	2021	2020
Cash flow hedges	(4 964)	276
Actuarial gains and losses	9	(6)
Remeasurement of shares in subordinated entities and other changes	(5)	29
Scrapping of property, plant and equipment and intangible assets	(156)	19
Other	(34)	(20)
Total	(5 150)	298

 

•           Explanation of differences between changes in the statement of financial position items and changes in these items presented under operating activities in the cash flow statement

(GAINS)/LOSSES ON INVESTING ACTIVITIES	2021	2020
Gains on sale and scrapping of property, plant and equipment, intangible assets and assets held for sale	(29)	(17)
Losses on sale and scrapping of property, plant and equipment, intangible assets and assets held for sale	3	2
Total	(26)	(15)

 

INTEREST AND DIVIDENDS	2021	2020
Shown in investing activities	(2 744)	(2 120)
dividends received from subsidiaries, associates and joint ventures	(533)	(295)
dividends received from securities not held for trading, measured at fair value through profit or loss	(11)	(15)
interest received on securities measured at fair value through other comprehensive income	(1 238)	(1 331)
interest received on securities measured at amortized cost	(962)	(479)
Shown in financing activities:	267	328
interest paid on debt securities in issue	26	29
interest paid on subordinated liabilities	48	90
interest paid on loans and advances received	193	209
Total	(2 477)	(1 792)

 

CHANGES IN AMOUNTS DUE FROM BANKS	2021	2020
Change resulting from the balance sheet items	(8 992)	2 649
Changes in allowances for expected credit losses	(8)	(3)
Exclusion of the change in cash and cash equivalents	5 982	(1 678)
Total	(3 018)	968

 

CHANGE IN SECURITIES	2021	2020
Change resulting from the balance sheet items	(10 865)	(43 551)
Changes in allowances for expected credit losses	(57)	(31)
Fair value of financial assets measures at fair value through other comprehensive income	(3 811)	1 097
Recognition of acquisition / disposal of securities measured at fair value through other comprehensive income in investing activities	(10 092)	6 766
Recognition of acquisition / disposal of securities measured at amortized cost in investing activities	23 872	33 355
Other inflows/outflows from investing activities	(138)	-
Total	(1 091)	(2 364)

 

CHANGE IN LOANS AND ADVANCES TO CUSTOMERS	2021	2020
Change resulting from the balance sheet items	(12 613)	7 804
Changes in allowances for expected credit losses	219	(1 352)
Exclusion of the change in cash and cash equivalents	(4)	17
Total	(12 398)	6 469

 

CHANGE IN NON-CURRENT ASSETS HELD FOR SALE	2021	2020
Change resulting from the balance sheet items	106	(115)
Changes in allowances on non-current assets held for sale	2	(2)
Total	108	(117)

 

CHANGE IN OTHER ASSETS	2021	2020
Change resulting from the balance sheet items	(54)	41
Changes in allowances for other assets	(98)	(91)
Total	(152)	(50)

 

CHANGE IN LIABILITIES IN RESPECT OF LOANS AND ADVANCES RECEIVED	2021	2020
Change resulting from the balance sheet items	236	(120)
Recognition of drawing/repayment of long-term loans and advances under financing activities, including interest	69	131
Total	305	11

 

CHANGE IN LIABILITIES IN RESPECT OF SECURITIES IN ISSUE	2021	2020
Change resulting from the balance sheet items	(4 020)	(749)
Recognition of drawing/repayment of liabilities in respect of debt securities in issue under financing activities	4 038	1 129
Total	18	380

 

CHANGE IN ACCUMULATED ALLOWANCES FOR EXPECTED CREDIT LOSSES AND IMPAIRMENT ALLOWANCES ON NON-FINANCIAL AND OTHER ASSETS	2021	2020
Change in accumulated allowances and provisions for expected credit losses	(110)	1 798
for amounts due from banks	8	3
for loans and advances to customers	(219)	1 352
for securities	57	31
for other financial assets	(2)	54
provisions for financial liabilities and guarantees granted	46	358
Change in accumulated impairment allowances on non-financial assets and other provisions	202	755
for non-current assets held for sale	(2)	2
for property, plant and equipment	(2)	51
for intangible assets	3	108
for investments in subordinated entities	-	101
for other non-financial assets	100	37
other provisions	103	456
Total	92	2 553

 

CHANGE IN OTHER LIABILITIES	2021	2020
Change resulting from the balance sheet items	626	(53)
Recognition of lease payments in financing activities	213	216
Total	839	163

 

CHANGE IN LEASE LIABILITIES	2021	2020
Opening balance	1 023	819
Changes recorded in operating activities	94	420
- new agreements	32	289
- amendments	56	97
- interest	8	15
-foreign exchange differences	(2)	19
Recognition of lease payments in financing activities	(213)	(216)
Closing balance	904	1 023

•           Reconciliation of items presented in the statement of financial position with financing activities in the cash flow statement

2021	As at the beginning of the period	Recognized in financing activities in the cash flow statement		Recognized in operating activities in the cash flow statement		As at the end of the period
		Incurred	Repaid	Other changes
Loans and advances received	4 906	-	(69)	305		5 142
Liabilities in respect of securities in issue	4 020	-	(4 038)	18		-
Subordinated liabilities - subordinated bonds	2 716	-	-	-		2 716
Payment of lease liabilities	1 023	-	(213)	94		904
	x	x	x	x		x
Total	12 665	-	(4 320)	417		8 762

 

2020	As at the beginning of the period	Recognized in financing activities in the cash flow statement		Recognized in operating activities in the cash flow statement		As at the end of the period
		Incurred	Repaid	Other changes
Loans and advances received	5 026	-	(131)	11		4 906
Liabilities in respect of securities in issue	4 769	-	(1 129)	380		4 020
Subordinated liabilities - subordinated bonds	2 730	-	-	(14)		2 716
Payment of lease liabilities	819	-	(216)	420		1 023
	x	x	x	x		x
Total	13 344	-	(1 476)	797		12 665

 

51.            Transactions with the State Treasury and related parties

•        Transactions with the State Treasury

The State Treasury holds a 29.43% interest in the Bank’s share capital.

Pursuant to the Act of 30 November 1995 on the state support in repayment of certain housing loans, reimbursement of guarantee bonuses paid, and amendments to certain Acts, PKO Bank Polski SA receives payments from the State budget as the repurchase of interest receivable on housing loans.

TRANSACTIONS WITH THE STATE TREASURY	2021	2020
Income recognized on an accruals basis	73	78
Income recognized on a cash basis	19	64
Income from temporary redemption by the State Treasury of interest on housing loans in the “old portfolio”	54	14

 

As of 1 January 2018 based on the provisions of the Act of 30 November 1995 on state support in the repayment of certain housing loans, granting guarantee bonuses and reimbursement of guarantee bonuses paid, the borrowers acquired the right to be forgiven the remaining debt by the State Treasury, which will result in gradual (until 2026) full settlement of the housing loan indebtedness from the so-called “old” portfolio. The Bank conducts settlements in respect of repurchase of interest on housing loans by the State Budget and on this account the Bank received commission in 2021 and 2020 amounting to under PLN 1 million.

As of 1 January 1996, the Bank became the general distributor of value marks. The Bank receives commissions in this respect from the State Treasury – in 2021 and in 2020, the Bank received commission on this account of under PLN 1 million.

Biuro Maklerskie PKO BP plays the role of an agent for the issue of retail Treasury bonds under the agreement signed with the Ministry of Finance on 11 February 2003. Under this agreement, Biuro Maklerskie PKO BP receives a fee for providing the services of an agent for the issue of bonds – in 2021 in the amount of PLN 144 million, and in 2020 in the amount of PLN 128 million.

•        Significant transactions with the State Treasury’s related entities

The Bank’s exposure and the value of the Bank’s liabilities to 10 entities related to the State Treasury with the highest total exposure are presented below.

SIGNIFICANT TRANSACTIONS WITH THE STATE TREASURY’S RELATED ENTITIES	BALANCE SHEET EXPOSURE, INCLUDING EXPOSURE TO LOANS AND DEBT INSTRUMENTS		OFF-BALANCE SHEET EXPOSURE		LIABILITIES IN RESPECT OF DEPOSITS
	31.12.2021	31.12.2020	31.12.2021	31.12.2020	31.12.2021	31.12.2020
counterparty 1	-	-	2 453	2 453	2 870	793
counterparty 2	16 337	16 845	30	30	1 068	737
counterparty 3	3 392	644	4 438	950	71	46
counterparty 4	697	623	1 976	1 693	54	63
counterparty 5	277	1 617	2 111	714	86	48
counterparty 6	575	46	1 410	1 191	-	114
counterparty 7	247	465	1 598	2 036	453	98
counterparty 8	887	129	662	2 046	145	41
counterparty 9	717	999	820	1 156	874	11
counterparty 10	95	313	813	706	-	-

 

	2021	2020
Interest and commission income	119	206
Interest and commission expense	(7)	(16)

 

As at 31 December 2021 and as at 31 December 2020, respectively, no allowances for expected credit losses were recognized for the aforementioned receivables using the individualized method.

In the opinion of the Bank, all transactions with entities related to the State Treasury are concluded on an arm’s-length basis.

•        Related-party transactions – capital links

Transactions between the Bank as the parent and its subsidiaries, associates and joint ventures are presented in the table below. All transactions presented below were arm’s length transactions. Repayment terms are within a range of from one month to seventeen years.

31.12.2021 Company name	Receivables	of which loans	Liabilities	Off-balance sheet liabilities granted
KREDOBANK SA and its subsidiary	19	-	29	325
Merkury - fiz an and its subsidiaries	-	-	-	-
NEPTUN - fizan and its subsidiaries	130	130	31	-
PKO Bank Hipoteczny SA	6 597	6 545	842	4 665
PKO BP BANKOWY PTE SA	-	-	10	-
PKO BP Finat sp. z o.o.	-	-	36	10
PKO Finance AB	802	-	4 637	-
PKO Leasing SA and its subsidiaries	19 018	19 018	212	4 940
PKO Towarzystwo Funduszy Inwestycyjnych SA	-	-	194	-
PKO Towarzystwo Ubezpieczeń SA	-	-	40	-
PKO Życie Towarzystwo Ubezpieczeń SA and its subsidiary	-	-	342	-
Total	26 566	25 693	6 373	9 940
For the period ended 31.12.2021 Company name	Total income	of which interest and commission income	Total expense	of which interest and commission expense
KREDOBANK SA and its subsidiary	3	3	-	-
Merkury - fiz an and its subsidiaries	2	2	-	-
NEPTUN - fizan and its subsidiaries	2	2	-	-
PKO Bank Hipoteczny SA	99	79	5	5
PKO BP BANKOWY PTE SA	1	1	-	-
PKO BP Finat sp. z o.o.	30	-	7	-
PKO Finance AB	35	35	190	190
PKO Leasing SA and its subsidiaries	477	193	-	-
PKO Towarzystwo Funduszy Inwestycyjnych SA	207	6	-	-
PKO Towarzystwo Ubezpieczeń SA	76	76	-	-
PKO Życie Towarzystwo Ubezpieczeń SA and its subsidiary	97	44	8	8
Total	1 029	441	210	233

 

31.12.2020 Company name	Receivables	of which loans	Liabilities	Off-balance sheet liabilities granted
KREDOBANK SA and its subsidiary	11	-	19	296
Merkury - fiz an and its subsidiaries	-	-	25	-
NEPTUN - fizan and its subsidiaries	156	156	34	-
PKO Bank Hipoteczny SA	3 439	3 215	1 155	7 078
PKO BP BANKOWY PTE SA	-	-	13	-
PKO BP Finat sp. z o.o.	-	-	9	10
PKO Finance AB	742	-	4 343	-
PKO Leasing SA and its subsidiaries	16 753	16 753	16	5 708
PKO Towarzystwo Funduszy Inwestycyjnych SA	21	-	164	-
PKO Towarzystwo Ubezpieczeń SA	-	-	14	-
PKO Życie Towarzystwo Ubezpieczeń SA and its subsidiary	-	-	494	-
Total	21 122	20 124	6 286	13 092
for the period ended 31.12.2020 Company name	Total income	of which interest and commission income	Total expense	of which interest and commission expense
KREDOBANK SA and its subsidiary	1	1	-	-
Merkury - fiz an and its subsidiaries	-	-	-	-
NEPTUN - fizan and its subsidiaries	2	2	-	-
PKO Bank Hipoteczny SA	234	207	5	4
PKO BP BANKOWY PTE SA	9	1	-	-
PKO BP Finat sp. z o.o.	45	-	6	-
PKO Finance AB	24	24	192	192
PKO Leasing SA and its subsidiaries	236	233	-	-
PKO Towarzystwo Funduszy Inwestycyjnych SA	236	6	1	1
PKO Towarzystwo Ubezpieczeń SA	55	54	-	-
PKO Życie Towarzystwo Ubezpieczeń SA and its subsidiary	36	36	10	10
Total	878	564	214	207

 

31.12.2021 Company name	Receivables	of which loans	Liabilities	Off-balance sheet liabilities granted
Centrum Elektronicznych Usług Płatniczych eService sp. z o.o.	83	28	133	33
“Centrum Obsługi Biznesu” Sp. z o.o.	17	17	5	-
Bank Pocztowy SA	-	-	-	1
“Poznański Fundusz Poręczeń Kredytowych” sp. z o.o.	-	-	1	-
Operator Chmury Krajowej sp. z o.o.	-	-	12	852
Total	100	45	151	886
For the period ended 31.12.2021 Company name	Total income	of which interest and commission income	Total expense	of which interest and commission expense
Centrum Elektronicznych Usług Płatniczych eService sp. z o.o.	698	588	106	105
Operator Chmury Krajowej sp. z o.o.	-	-	24	-
Total	698	588	130	105

 

31.12.2020 Company name	Receivables	of which loans	Liabilities	Off-balance sheet liabilities granted
Centrum Elektronicznych Usług Płatniczych eService sp. z o.o.	54	6	168	54
“Centrum Obsługi Biznesu” Sp. z o.o.	17	17	4	-
Bank Pocztowy SA	-	-	-	1
“Poznański Fundusz Poręczeń Kredytowych” sp. z o.o.	-	-	22	-
Operator Chmury Krajowej sp. z o.o.	-	-	18	767
Total	71	23	212	822
For the period ended 31.12.2020 Company name	Total income	of which interest and commission income	Total expense	of which interest and commission expense
Centrum Elektronicznych Usług Płatniczych eService sp. z o.o.	543	517	92	91
Total	543	517	92	91

 

•        Related-party transactions – personal links

As at 31 December 2021, thirteen entities were related to the Bank through the key management personnel of PKO Bank Polski S.A. or close family members of the key management personnel. As at 31 December 2020, it was seven entities. In 2021 and in 2020, no transactions were conducted between the Bank and those entities.

52.            Benefits for the PKO Bank Polski SA key management

Accounting policies

Short-term employee benefits include, apart from the basic salary, also the part of the variable remuneration component paid in cash which is not deferred.

The deferred part of the variable remuneration component paid in cash was recognized as other long-term benefits.

Non-deferred and deferred remuneration components granted in the form of financial instruments i.e. Phantom shares (for which conversion into cash is carried out after an additional period of retention) are recognized as share-based payments settled in cash in accordance with the principles described below.

•        VARIABLE REMUNERATION COMPONENTS OF KEY MANAGEMENT PERSONNEL IN THE BANK

Variable remuneration components are granted in the form of: non-deferred remuneration (in the first year after the calendar year constituting an appraisal period), and deferred remuneration (for the next three years after the first year of the appraisal period), whereas both the non-deferred and deferred remuneration is awarded in equal parts in cash and in the form of financial instruments, i.e. phantom shares (for which conversion into cash is carried out after an additional period of retention).

The component of remuneration in the form of the financial instrument is converted into phantom shares after granting a particular component – taking into consideration the median of the daily average prices of the Bank’s shares (Volume Weighted Average Price) on the Warsaw Stock Exchange, published in the Thomson Reuters or Bloomberg information systems – from the fourth quarter of the appraisal period. Next, after a period of retention and deferral period, the shares are converted into cash – taking into consideration the median of the daily average prices of the Bank’s shares (Volume Weighted Average Price) on the Warsaw Stock Exchange from the third quarter of the calendar year preceding the payment (the Management Board) and the third quarter of the calendar year in which the payment is made (other persons in management positions), published in the Thomson Reuters or Bloomberg information systems.

The deferred remuneration may be reduced in the event of deterioration in the financial performance of the Bank, a loss incurred by the Bank or deterioration of other variables related to the performance in the period of appraisal of key management personnel and results of the organizational units/cells supervised or managed by these people, which were revealed after the appraisal period.

FINANCIAL INFORMATION

COST OF REMUNERATION OF THE BANK’S MANAGEMENT AND SUPERVISORY BOARDS (in PLN thousand)	2021	2020
Management Board of the Bank
Short-term employee benefits	9 644	9 162
Long-term employee benefits	957	1 484
Share-based payments settled in cash1	11 040	3 711
Benefits to the Bank’s Management Board members who ceased to perform their functions	2 654	-
Total	24 295	14 357
Supervisory Board of the Bank
Short-term employee benefits	1 532	1 388
Total	1 532	1 388

1  The increase in the cost of remuneration of the Bank’s Management Board in the line “Share-based payments settled in cash” in 2021 compared to the comparable period is due to the revaluation of provisions for variable remuneration components based on the current price of the Bank’s shares.

LOANS AND ADVANCES GRANTED BY THE BANK TO THE MEMBERS OF THE MANAGEMENT AND SUPERVISORY BOARDS AS AT THE REPORTING DATES (in PLN thousand)	31.12.2021	31.12.2020
Supervisory Board of the Bank	2 214	902
Management Board of the Bank	89	769
Total	2 303	1 671

In 2021, no new loans and credits were granted to members of the Management Board and Supervisory Board

The interest rates and repayment terms do not differ from the arm’s-length conditions and repayment terms for similar banking products.

The Bank provides the key management personnel, members of the Supervisory Board and their families with standard financial services which comprise, among other things, operating bank accounts, accepting deposits, granting loans and providing other financial services. All these transactions are concluded on an arm’s length basis.

•        Variable remuneration components 

PROVISION FOR VARIABLE REMUNERATION COMPONENTS	31.12.2021	31.12.2020
	(for 2017-2021)	(for 2016-2020)
Management Board (including members who ceased to perform their functions)	26	18
Other Risk Takers (persons holding managerial positions other than members of the Bank’s Management Board)	74	63
Total provision	100	81
Remuneration paid during the year	2021	2020
	(for 2016-2020)	(for 2015-2019)
- granted in cash	16	13
Management Board (including members who ceased to perform their functions)	3	3
Other Risk Takers (persons holding managerial positions other than members of the Bank’s Management Board)	13	10
- granted in the form of financial instruments	26	4
Management Board (including members who ceased to perform their functions)	5	4
Other Risk Takers (persons holding managerial positions other than members of the Bank’s Management Board)	21	-
Total remuneration paid	42	17

 

53.            Fair value hierarchy

Accounting policies, and estimates and judgments

Depending on the classification of financial assets and liabilities to a specific level of the hierarchy, different methods of fair value measurement are used.

•        Level 1: Prices quoted on active markets

Financial assets and liabilities whose fair value is stated directly at prices quoted (not adjusted) on active markets for identical assets and liabilities. In this category, the Bank classifies financial and equity instruments for which there is an active market and for which the fair value is determined with reference to the market value, which is a bid price:

•        debt securities valued using fixing from the Bondspot platform or Bloomberg or Reuters information services;

•        debt and equity securities which are traded on regulated markets, including in the Biuro Maklerskie PKO BP portfolio;

•        derivative instruments, which are traded on a regulated market.

•        Level 2: Valuation techniques based on observable market data

Financial assets and liabilities whose fair value is determined using valuation models where all significant entry data are observable on the market directly (as prices) or indirectly (based on prices). In this category, the Bank classifies financial instruments for which there is no active market:

Financial assets and liabilities measured at fair value	Valuation method (technique)	Observable inputs
Derivative financial instruments – CIRS, IRS, FRA	The discounted future cash flows model based on the yield curves.	Yield curves are built based on market rates, market data of the money market, market transactions of FRA, IRS, basis swap.
Derivative financial instruments – currency option, interest rate options, equity exotic options, fx forward, fx swap transactions	Valuation models specific for particular type of a currency option. The model of discounted future cash flows based on yield curves for FX forward and FX swap transactions. The prices of equity exotic options embedded in structured products are obtained from the market (market prices).	Yield curves built based on money market rates, market rate of swap points, volatility levels for specific currency pairs, NBP fixing exchange rates. For the valuation of exotic equity options embedded in structured products, market prices of these options are obtained.
Municipal bonds in PLN	Yield curve and risk margin model.	Yield curves are built based on market rates, money market data, IRS transactions market.
Corporate bonds	Yield curve and risk margin model.	Yield curves are built based on market rates, money market data, IRS transactions market.
Commodity swap transactions	Commodity price curve model.	Commodity price and yield curves are built based on money market rates, market rates of SWAP points.

•        Level 3: Other valuation techniques

Financial assets and liabilities whose fair value is determined using valuation models for which input data is not based on observable market data (unobservable input data). In this category, the Bank classified financial instruments, which are measured using internal valuation models:

The fair value of equity and debt securities classified as financial assets is determined by the organizational units of the Head Office responsible for them, including the Treasury Products Department and the Brokerage House. In their internal regulations, these units specify the detailed measurement methods, including determination of the data sources used for measurement purposes and the method of performing the calculation.

The Credit Risk Department develops the assumptions of the fair value model for financial assets arising from loans and advances granted or other financing agreements being the substitute of loans. The Assets and Liabilities Management Committee approves the fair value model for loan exposures.

Financial assets and liabilities measured at fair value	Valuation method (technique)	unobservable input
Financial instruments not held for trading, mandatorily measured at fair value through profit or loss
Loans and advances to customers	Discounted cash flow method.	Effective margin on loans.
C-series preference shares of Visa Inc.	Estimation of the fair value based on the current market value of the listed ordinary shares of Visa Inc., including a discount which takes into account the limited liquidity of C-series shares and the terms and conditions of conversion of C-series shares into ordinary shares.	Discount taking into account the limited liquidity of C-series shares and the terms of converting the C-series shares into ordinary shares.
Corporate bonds	Yield curve and risk margin model. Yield curves are built based on market rates, money market data and IRS transactions market data.	Credit spread (credit margins determined on the basis of initial margins modified by credit indices quotes ascribed to issuers based on their ratings and business sectors).
Shares in Biuro Informacji Kredytowej S.A.	Estimation of the fair value based on the present value of the forecast results of the company	Forecast results of the company. Discount rate.
Shares in Polski Standard Płatności sp. z o.o.	Estimation of the fair value based on the present value of the forecast results of the company.	Forecast results of the company. Discount rate.
Shares in Society For Worldwide Interbank Financial Telecommunication	Market value of the shares estimated by the company.	Market value estimated by the company. Discount rate.
Shares in Krajowa Izba Rozliczeniowa SA	Estimation of the fair value based on the present value of the forecast results of the company.	Forecast results of the company. Discount rate.
Shares in Wałbrzyska Specjalna Strefa Ekonomiczna “Invest-Park” sp z o.o.	Fair value determined by an appraiser using the net adjusted assets method.	Value of the company’s net assets.
Shares in Wielkopolska Gildia Rolno-Ogrodnicza SA	Fair value determined by an appraiser using the net adjusted assets method.	Value of the company’s net assets.
Financial instruments measured at fair value through other comprehensive income
Corporate bonds	Yield curve and risk margin model. Yield curves are built based on market rates, money market data and IRS transactions market data.	Credit spread (credit margins determined on the basis of initial margins modified by credit indices quotes ascribed to issuers based on their ratings and business sectors).
loans and advances to customers	Discounted cash flow method.	Effective margin on loans.

 

Financial information

ASSETS MEASURED AT FAIR VALUE 31.12.2021	Carrying amount	Level 1	Level 2	Level 3
		Prices quoted on active markets	Valuation techniques based on observable market data	Other valuation techniques
Hedging derivatives	327	-	327	-
Other derivative instruments	11 143	-	11 143	-
Securities	58 785	44 748	12 912	1 125
held for trading	311	254	-	57
debt securities	279	222	-	57
shares in other entities - listed	31	31	-	-
participation units in investment funds, investment certificates, rights to shares, pre-emptive rights	1	1	-	-
not held for trading, measured at fair value through profit or loss	833	373	1	459
debt securities	503	351	-	152
shares in other entities - listed	22	22	-	-
shares in other entities - not listed	308	-	1	307
measured at fair value through OCI	57 641	44 121	12 911	609
Loans and advances to customers	18 090	-	-	18 090
not held for trading, measured at fair value through profit or loss	4 559	-	-	4 559
housing loans	4	-	-	4
corporate loans	97	-	-	97
consumer loans	4 458	-	-	4 458
measured at fair value through OCI	13 531	-	-	13 531
housing loans	13 531	-	-	13 531
Total financial assets measured at fair value	88 345	44 748	24 382	19 215

 

LIABILITIES MEASURED AT FAIR VALUE	Carrying amount	Level 1	Level 2	Level 3
31.12.2021		Prices quoted on active markets	Valuation techniques based on observable market data	Other valuation techniques
Hedging derivatives	4 624	-	4 624	-
Other derivative instruments	11 704	-	11 704	-
Total financial liabilities measured at fair value	16 328	-	16 328	-

 

ASSETS MEASURED AT FAIR VALUE 31.12.2020	Carrying amount	Level 1	Level 2	Level 3
		Prices quoted on active markets	Valuation techniques based on observable market data	Other valuation techniques
Hedging derivatives	618	-	618	-
Other derivative instruments	5 416	-	5 416	-
Securities	72 751	64 285	7 147	1 319
held for trading	1 198	844	354	-
debt securities	1 171	817	354	-
shares in other entities - listed	25	25	-	-
participation units in investment funds, investment certificates, rights to shares, pre-emptive rights	2	2	-	-
not held for trading, measured at fair value through profit or loss	1 107	506	1	600
debt securities	647	489	-	158
shares in other entities - listed	17	17	-	-
shares in other entities - not listed	443	-	1	442
measured at fair value through OCI	70 446	62 935	6 792	719
Loans and advances to customers	20 063	-	-	20 063
not held for trading, measured at fair value through profit or loss	6 009	-	-	6 009
housing loans	7	-	-	7
corporate loans	114	-	-	114
consumer loans	5 888	-	-	5 888
measured at fair value through OCI	14 054	-	-	14 054
housing loans	14 054	-	-	14 054
Total financial assets measured at fair value	98 848	64 285	13 181	21 382

 

LIABILITIES MEASURED AT FAIR VALUE	Carrying amount	Level 1	Level 2	Level 3
31.12.2020		Prices quoted on active markets	Valuation techniques based on observable market data	Other valuation techniques
Hedging derivatives	543	-	543	-
Other derivative instruments	6 632	-	6 632	-
Total financial liabilities measured at fair value	7 175	-	7 175	-

 

IMPACT OF ESTIMATES ON FAIR VALUE MEASUREMENT OF LEVEL 3 FINANCIAL INSTRUMENTS	31.12.2021		31.12.2020
	Fair value under		Fair value under
	positive scenario	negative scenario	positive scenario	negative scenario
Shares in Visa Inc.1	128	113	255	244
Other equity investments2	191	173	200	181
Corporate bonds3	762	760	879	876
Loans and advances to customers4	18 307	17 576	20 303	19 529

 

1 Scenario assuming a discount rate in respect of the future conditions of converting C-series shares to ordinary shares at a level of 0%/100% respectively

   2 Scenario assuming a change in the discount rate of +/- 0.5 p.p.

3 Scenario assuming a change in the credit spread of +/-10%

4 Scenario assuming a change in the company’s value of +/- -5%

 

The reconciliation of changes to fair value of the financial instruments at Level 3 is presented in the table below.

RECONCILIATION OF CHANGES DURING THE REPORTING PERIOD TO FAIR VALUE AT LEVEL 3	2021	2020
Opening balance at the beginning of the period	21 382	20 729
Increase in exposure to equity instruments	7	-
Decrease in exposure to equity instruments	(152)	-
Increase in exposure to corporate bonds	57	31
Decrease in exposure to corporate bonds	(9)	(596)
Increase in exposure to loans and advances to customers	1 594	4 713
Decrease in exposure to loans and advances to customers	(3 463)	(3 891)
Transfers from level 2,1 to level 3	-	154
Transfers from level 3 to level 21	-	(1 063)
Reclassification from “measured at amortized cost” to “measured at fair value through profit or loss”	39	73
Net gain/(loss) in financial instruments measured at fair value through profit or loss	56	(172)
Change in the valuation recognized in OCI	(148)	68
Foreign exchange differences	9	-
Other	(157)	1 336
As at the end of the period	19 215	21 382

1 due to changing the method of calculating the risk margin

54.            Financial assets and financial liabilities not presented at fair value in the statement of financial position

The Bank holds financial instruments which are not presented at the fair value in the statement of financial position.

For many financial instruments, the market values are unattainable hence the presented fair values are estimated with the use of an array of measurement techniques.

All model calculations include certain simplifying assumptions and therefore are sensitive to those assumptions. For certain categories of financial instruments, it has been assumed that their carrying amount equals approximately their fair values, which is due to the lack of expected material differences between their carrying amount and fair value resulting from the features of these categories (such as short-term nature, high correlation with market parameters, the unique nature of the instrument).

 

ITEM	MAJOR METHODS AND ASSUMPTIONS USED WHEN ESTIMATING FAIR VALUES OF FINANCIAL INSTRUMENTS NOT MEASURED AT FAIR VALUE
AMOUNTS DUE FROM AND TO BANKS	•        interbank placements and deposits – the model based on expected cash flows discounted using the current interbank market rates; •        interbank deposits and placements with maturities of up to 7 days or with variable interest, loans or advances granted and received on the interbank market with variable interest (with interest rate changes occurring every 3 months or less) – fair value equals the carrying amount.
SECURITIES	•        treasury bonds – market quotations; •        corporate bonds in PLN secured with the State Treasury guarantees - discounted cash flow method, calculated using yield curves, prices available from Bloomberg (BVAL – Bloomberg Valuation Service) and Refinitiv Eikon •        corporate and municipal bonds – discounted cash flow method, calculated using yield curves and credit margins
LOANS AND ADVANCES TO CUSTOMERS	•        not impaired: the model based on estimating the present value of future cash flows by discounting cash flows using current interest rates; the model takes into account the credit risk margin and adjusted maturities derived from the loan agreements. The current level of margins was determined for transactions concluded in the last quarter ending on the balance sheet date involving instruments with a similar credit risk profile. The current margin for loans in PLN adjusted for the cost of foreign currency acquisition in basis-swap transactions was applied to loans in foreign currencies. •        impaired: fair values approximate carrying amounts; •        loans and advances to customers: a part of the housing loan portfolio (the “old” housing loan portfolio), loans with no specific repayment schedule, loans due as at the moment of valuation – fair values are equal to carrying amounts;
AMOUNTS DUE TO CUSTOMERS	•        deposits and other amounts due to customers other than banks, with fixed maturities; •        the model of expected cash flows discounted using current interest rates appropriate for the individual deposit products. The fair value is calculated for each deposit and liability, and then the fair values for the entire deposit portfolio are grouped by product type and by customer segment. •        amounts due to customers: liabilities with no specific repayment schedule, other specific products for which no active market exists – fair values are equal to carrying amounts.
DEBT SECURITIES IN ISSUE	The model of expected cash flows discounted using the current interbank market rates and market quotations
SUBORDINATED LIABILITIES	The model of expected cash flows discounted based on yield curves
CASH AND BALANCES WITH THE CENTRAL BANK AND AMOUNTS DUE TO THE CENTRAL BANK	Fair values are equal to carrying amounts.
OTHER FINANCIAL ASSETS AND FINANCIAL LIABILITIES	Fair values are equal to carrying amounts.

 

31.12.2021	carrying amount	Level 1	Level 2	Level 3
Cash and balances with Central Bank	11 421	11 421	-	-
Amounts due from banks	14 296	-	14 295	-
Securities (excluding adjustments relating to fair value hedge accounting)	72 055	66 989	7 320	1 770
treasury bonds (in PLN)	50 787	46 836	-	-
corporate bonds (in PLN) secured with State Treasury guarantees	12 092	11 063	-	-
municipal bonds (in PLN)	5 022	-	5 075	-
municipal bonds (in foreign currencies)	-	-	-	-
corporate bonds (in PLN)	1 927	-	-	1 770
corporate bonds (in foreign currencies)	2 227	-	2 245	-
Loans and advances to customers (excluding adjustments relating to fair value hedge accounting)	187 588	-	-	189 672
housing loans	82 457	-	-	82 131
corporate loans	79 791	-	-	81 664
consumer loans	25 340	-	-	25 877
Other financial assets	1 825	-	-	1 825
Amounts due to the Central Bank	8	-	8	-
Amounts due to banks	3 762	-	3 762	-
Repo transactions	49	-	49	-
Amounts due to customers	318 032	-	-	318 015
amounts due to households	242 522	-	-	242 506
amounts due to business entities	55 680	-	-	55 679
amounts due to public sector	19 830	-	-	19 830
Loans and advances received	5 142	-	-	5 262
Subordinated liabilities	2 716	-	2 719	-
Other financial liabilities	3 322	-	-	3 322

 

31.12.2020	carrying amount	Level 1	Level 2	Level 3
Cash and balances with Central Bank	7 397	-	-	-
Amounts due from banks	5 304	-	5 304	-
Securities (excluding adjustments relating to fair value hedge accounting)	47 217	40 663	6 218	1 539
treasury bonds (in PLN)	29 617	30 648	-	-
corporate bonds (in PLN) secured with the State Treasury guarantees	9 887	10 015	-	-
municipal bonds (in PLN)	5 060	-	5 056	-
corporate bonds (in PLN)	1 517	-	-	1 539
corporate bonds (in foreign currencies)	1 136	-	1 162	-
Loans and advances to customers (excluding adjustments relating to fair value hedge accounting)	172 996	-	-	174 176
housing loans	77 328	-	-	76 895
corporate loans	73 283	-	-	74 455
consumer loans	22 385	-	-	22 826
Other financial assets	1 772	-	-	1 772
Amounts due to banks	2 583	-	2 583	-
Repo transactions	47	-	47	-
Amounts due to customers	278 894	-	-	278 892
amounts due to households	221 988	-	-	221 986
amounts due to business entities	43 162	-	-	43 162
amounts due to public sector	13 744	-	-	13 744
Loans and advances received	4 906	-	-	5 153
Liabilities in respect of securities in issue	4 020	-	4 035	-
Subordinated liabilities	2 716	-	2 768	-
Other financial liabilities	2 983	-	-	2 983

 

55.            Offsetting financial assets and financial liabilities

The Bank enters into offsetting arrangements, i.e. ISDA agreements (International Swaps and Derivatives Association Master Agreements) and GMRA agreements (Global Master Repurchase Agreements), which make it possible to offset financial assets and liabilities (close out netting) in the event of an infringement with respect to one of the parties of the agreement. These agreements are of particular importance to mitigate the risk posed by derivative instruments, because they enable offsetting both matured liabilities (mitigating the settlement risk) and non-matured liabilities of the parties (mitigating the pre-settlement risk). However, these agreements do not meet the requirements set out in IAS 32, because the right to offset is conditional on the occurrence of a specific future event (instances of infringement).

Exposures arising from derivatives are further secured by margin deposits provided by counterparties as part of executing CSA (Credit Support Annex).

OFFSETTING ASSETS	Total financial assets	Derivatives	Reverse repo transactions
31.12.2021
Recognized financial assets, gross	11 471	11 471	-
Financial liabilities subject to offsetting, gross	(1)	(1)	-
Financial assets recognized in the statement of financial position, net	11 470	11 470	-
Amounts subject to enforceable framework agreement or similar agreement concerning offsetting, including related to:	2 631	2 631	-
(i) recognized financial instruments which do not meet the offsetting criteria	1 104	1 104	-
(ii) financial collateral (including cash)	1 527	1 527	-
Net amount	8 839	8 839	-

 

OFFSETTING LIABILITIES	Total financial liabilities	Derivatives	Repo transactions
31.12.2021
Recognized financial liabilities, gross	16 378	16 329	49
Gross amounts of financial assets which are offset in accordance with the criteria set out in §42 of IAS 32	(1)	(1)	-
Financial assets recognized in the statement of financial position, net	16 377	16 328	49
Amounts subject to enforceable framework agreement or similar agreement concerning offsetting, including related to:	2 631	2 631	-
(i) recognized financial instruments which do not meet the offsetting criteria	1 104	1 104	-
(ii) financial collateral (including cash)	1 527	1 527	-
Net amount	13 746	13 697	49

 

OFFSETTING ASSETS	Total financial assets	Derivatives	Reverse repo transactions
31.12.2020
Recognized financial assets, gross	6 039	6 039	-
Financial liabilities subject to offsetting, gross	(5)	(5)	-
Financial assets recognized in the statement of financial position, net	6 034	6 034	-
Amounts subject to enforceable framework agreement or similar agreement concerning offsetting, including related to:	1 093	1 093	-
(i) recognized financial instruments which do not meet the offsetting criteria	516	516	-
(ii) financial collateral (including cash)	577	577	-
Net amount	4 941	4 941	-

 

OFFSETTING LIABILITIES	Total financial liabilities	Derivatives	Repo transactions
31.12.2020
Recognized financial liabilities, gross	7 227	7 180	47
Financial liabilities subject to offsetting, gross	(5)	(5)	-
Financial assets recognized in the statement of financial position, net	7 222	7 175	47
Amounts subject to enforceable framework agreement or similar agreement concerning offsetting, including related to:	993	993	-
(i) recognized financial instruments which do not meet the offsetting criteria	516	516	-
(ii) financial collateral (including cash)	477	477	-
Net amount	6 229	6 182	47

 

56.            Assets pledged as collateral for liabilities and transferred financial assets

•           Collateral for liabilities in respect of repo transactions

ASSETS PLEDGED AS COLLATERAL FOR LIABILITIES – LIABILITIES IN RESPECT OF REPURCHASE TRANSACTIONS	31.12.2021	31.12.2020
Debt securities	43	43
Repo transactions	49	47
Net position	(6)	(4)

 

•           Fund for the protection of guaranteed funds

ASSETS PLEDGED AS COLLATERAL FOR LIABILITIES – FUND FOR THE PROTECTION OF GUARANTEED FUNDS	31.12.2021	31.12.2020
Value of the fund	1 036	1 100
Nominal value of the collateral	1 100	1 100
Type of collateral	Treasury bonds	Treasury bonds
Maturity of collateral	25.04.2024	25.04.2024
Carrying amount of the collateral	1 093	1 201

 

The assets pledged as collateral for the fund are Treasury bonds which mature in the period that ensures securing the carrying amount over the period specified in the Act of 10 June 2016 on the Bank Guarantee Fund, Deposit Guarantee Scheme and Resolution. The Fund is increased or decreased on 1 July of each year, in proportion to the amount representing the basis for calculation of the mandatory reserve deposits. These assets are treated as assets pledged as collateral for own liabilities.

•           Funds securing liabilities in respect of contributions to the Bank Guarantee Fund (BGF)

ASSETS PLEDGED AS COLLATERAL FOR LIABILITIES - Funds securing liabilities in respect of contributions to the Bank Guarantee Fund (BGF)	31.12.2021	31.12.2020
Value of the contribution made in the form of payables	704	576
Nominal value of the assets in which funds corresponding to payables were invested	862	711
Type of collateral	Treasury bonds	Treasury bonds
Maturity of collateral	2024 - 2031	2024 - 2028
Carrying amount of the collateral	856	726

 

Starting from 2017, the value of contributions in the form of payment obligations represents 30% of the contributions to the Bank Guarantee Fund (“the BGF”) for the Deposit Guarantee Fund or the Bank Resolution Fund. Assets securing payment commitments include Treasury bonds pledged for BGF in an amount which ensures maintaining the ratio of the value of property rights securing payment commitments to the amount of payment commitments of no less than 110%. To establish the minimum ratio of assets to the amount of payment commitment, the value of property rights securing payment commitments is determined at the amount specified based on the last fixing rate of the day in the electronic market for Treasury securities organized by the minister responsible for budgetary matters, plus interest due as at the valuation date, unless interest has already been included in the fixing rate.

Such assets funds are treated as assets pledged as collateral for own liabilities, they cannot be pledged or encumbered in any way, are excluded from judicial or administrative enforcement proceedings and do not form part of the estate in bankruptcy. The amount of funds securing payment commitments relating to contributions to the BGF will be increased on payment dates of contributions to the Deposit Guarantee Fund (quarterly) and the Bank Resolution Fund (in the third quarter of a given year) representing not more than 30% of the contribution established by the BGF.

The amount of these funds may decrease if the Bank is called by the BGF to transfer in cash the amount corresponding to the value of payment commitments.

•           Legal limitations relating to the Bank’s title

In the years ended 31 December 2021 and 31 December 2020, respectively, there were no intangible assets or property, plant and equipment items to which the Bank’s legal title would be limited and pledged as collateral for the Bank’s liabilities.

57.            Financial assets and liabilities by currency

Financial assets BY CURRENCY	Currency translated to PLN
31.12.2021	PLN	CHF	EUR	USD	Other	Total
Cash and balances with Central Bank	10 586	35	534	109	157	11 421
Amounts due from banks	10 290	6	3 467	87	446	14 296
Hedging derivatives	309	-	16	2	-	327
Other derivative instruments	10 536	-	509	88	10	11 143
Securities	125 694	-	2 414	2 730	-	130 838
- held for trading	309	-	2	-	-	311
- not held for trading, mandatorily measured at fair value through profit or loss	355	-	354	124	-	833
- measured at fair value through OCI	55 202	-	1 330	1 109	-	57 641
- measured at amortized cost	69 828	-	728	1 497	-	72 053
Loans and advances to customers	172 207	12 705	19 274	1 330	161	205 677
- not held for trading, mandatorily measured at fair value through profit or loss	4 559	-	-	-	-	4 559
- measured at fair value through OCI	13 531	-	-	-	-	13 531
- measured at amortized cost	154 117	12 705	19 274	1 330	161	187 587
Other financial assets	1 742	1	45	24	13	1 825
Total assets	331 364	12 747	26 259	4 370	787	375 527

 

Financial liabilities and off-balance sheet liabilities BY CURRENCY	Currency translated to PLN
31.12.2021	PLN	CHF	EUR	USD	Other	Total
Amounts due to Central Bank	8	-	-	-	-	8
- measured at amortized cost	8	-	-	-	-	8
Amounts due to banks	903	-	2 700	120	39	3 762
Hedging derivatives	4 613	-	3	8	-	4 624
Other derivative instruments	10 915	-	682	97	10	11 704
Repo transactions	49	-	-	-	-	49
Amounts due to customers	284 016	931	21 371	8 729	2 985	318 032
- measured at amortized cost	284 016	931	21 371	8 729	2 985	318 032
Loans and advances received	661	-	372	4 109	-	5 142
Subordinated liabilities	2 716	-	-	-	-	2 716
Other financial liabilities	2 101	6	718	91	406	3 322
Provision for financial liabilities and guarantees granted	560	3	101	4	4	672
Total liabilities	306 542	940	25 947	13 158	3 444	350 031
Financial and guarantee commitments granted	71 748	130	9 658	4 327	651	86 514

 

Financial assets BY CURRENCY	Currency translated to PLN
31.12.2020	PLN	CHF	EUR	USD	Other	Total
Cash and balances with Central Bank	6 505	39	544	126	183	7 397
Amounts due from banks	3 878	4	1 025	165	232	5 304
Hedging derivatives	591	6	21	-	-	618
Other derivative instruments	5 004	-	326	80	6	5 416
Securities	116 091	-	2 105	1 777	-	119 973
- held for trading	1 193	-	5	-	-	1 198
- not held for trading, mandatorily measured at fair value through profit or loss	484	-	371	252	-	1 107
- measured at fair value through OCI	68 333	-	1 419	694	-	70 446
- measured at amortized cost	46 081	-	310	831	-	47 222
Loans and advances to customers	158 548	15 048	17 712	1 420	335	193 063
- not held for trading, mandatorily measured at fair value through profit or loss	6 009	-	-	-	-	6 009
- measured at fair value through OCI	14 054	-	-	-	-	14 054
- measured at amortized cost	138 485	15 048	17 712	1 420	335	173 000
Other financial assets	1 660	16	73	10	13	1 772
Total assets	292 277	15 113	21 806	3 578	769	333 543

 

Financial liabilities and off-balance sheet liabilities BY CURRENCY	Currency translated to PLN
31.12.2020	PLN	CHF	EUR	USD	Other	Total
Amounts due to banks	1 295	6	1 248	16	18	2 583
- measured at amortized cost	1 295	6	1 248	16	18	2 583
Hedging derivatives	505	-	18	20	-	543
Other derivative instruments	6 053	-	495	78	6	6 632
Repo transactions	47	-	-	-	-	47
Amounts due to customers	251 145	741	16 353	8 195	2 460	278 894
- measured at amortized cost	251 145	741	16 353	8 195	2 460	278 894
Loans and advances received	662	-	441	3 803	-	4 906
Liabilities in respect of securities in issue	-	1 706	2 314	-	-	4 020
Subordinated liabilities	2 716	-	-	-	-	2 716
Other financial liabilities	1 920	3	617	113	330	2 983
Provision for financial liabilities and guarantees granted	531	2	84	6	3	626
Total liabilities	264 874	2 458	21 570	12 231	2 817	303 950
Financial and guarantee commitments granted	68 795	135	8 701	4 061	574	82 266

58.            Contractual cash flows from the Bank’s financial liabilities, including derivative financial instruments

Contractual cash flows from the financial liabilities, excluding derivative financial instruments

The amounts disclosed comprise non-discounted future cash flows, both in respect of principal and interest (if applicable), in accordance with the contract, for the entire period to the date of the liability’s maturity. Where the party to whom the Bank has a liability is able to select the settlement deadline, it has been assumed that the earliest date on which the Bank is obliged to settle the liability shall be taken into account. Where the Bank is obliged to settle the liabilities in instalments, each instalment is allocated to the earliest period in which the Bank might be obligated to settle. In the case of liabilities where instalment amounts are not fixed, the terms binding as at the reporting date have been adopted.

CONTRACTUAL CASH FLOWS FROM THE BANK’S FINANCIAL LIABILITIES, EXCLUDING DERIVATIVE FINANCIAL INSTRUMENTS	Up to 1 month inclusive	Over 1 month to 3 months inclusive	Over 3 months to 1 year inclusive	Over 1 year to 5 years inclusive	Over 5 years	Contractual amount	Carrying amount
31.12.2021
Amounts due to Central Bank	8	-	-	-	-	8	8
Amounts due to banks	3 703	20	40	-	-	3 763	3 762
Repo transactions	-	-	49	-	-	49	49
Amounts due to customers	283 854	12 347	10 714	5 972	5 611	318 498	318 032
Loans and advances received	1	93	4 397	789	-	5 280	5 142
Subordinated liabilities	-	25	62	585	2 857	3 529	2 716
Lease liabilities	18	36	156	533	255	998	904
Other financial liabilities	2 323	-	-	95	-	2 418	2 418
Total	289 907	12 521	15 418	7 974	8 723	334 543	333 031
Off-balance sheet liabilities:
financing granted	11 623	6 464	24 667	17 992	10 090	70 836	-
guarantees granted	463	1 855	3 343	6 308	3 709	15 678	-

 

CONTRACTUAL CASH FLOWS THE BANK’S FINANCIAL LIABILITIES, EXCLUDING DERIVATIVE FINANCIAL INSTRUMENTS	Up to 1 month inclusive	Over 1 month to 3 months inclusive	Over 3 months to 1 year inclusive	Over 1 year to 5 years inclusive	Over 5 years	Contractual amount	Carrying amount
31.12.2020
Amounts due to banks	2 582	-	1	-	-	2 583	2 583
Repo transactions	-	-	-	50	-	50	47
Amounts due to customers	239 488	10 940	17 640	3 263	7 871	279 202	278 894
Loans and advances received	-	-	185	5 027	-	5 212	4 906
Liabilities in respect of securities in issue	-	-	4 791	-	-	4 791	4 020
Subordinated liabilities	-	24	24	236	2 878	3 162	2 716
Lease liabilities	20	37	159	451	404	1 071	1 023
Other financial liabilities	1 882	-	-	78	-	1 960	1 960
Total	243 972	11 001	22 800	9 105	11 153	298 031	296 149
Off-balance sheet liabilities:
financing granted	10 669	5 835	17 622	25 437	8 374	67 937	-
guarantees granted	496	1 128	4 121	5 632	2 952	14 329	-

 

•        Contractual cash flows from liabilities in respect of derivative financial instruments for which the valuation as at the balance sheet date was negative (a liability) and which are settled on a gross basis

The amounts disclosed comprise non-discounted future cash flows, both in respect of principal and interest (if applicable).

CONTRACTUAL CASH FLOWS FROM LIABILITIES IN RESPECT OF DERIVATIVE FINANCIAL INSTRUMENTS FOR WHICH THE VALUATION AS AT THE BALANCE SHEET DATE WAS NEGATIVE (A LIABILITY) AND WHICH ARE SETTLED ON A GROSS BASIS	Up to 1 month inclusive	Over 1 month to 3 months inclusive	Over 3 months to 1 year inclusive	Over 1 year to 5 years inclusive	Over 5 years	Contractual amount
31.12.2021
- outflows (principal and interest)	(10 931)	(9 529)	(9 695)	(16 935)	(225)	(47 315)
- inflows (principal and interest)	10 861	9 462	12 223	21 599	623	54 768

 

CONTRACTUAL CASH FLOWS FROM LIABILITIES IN RESPECT OF DERIVATIVE FINANCIAL INSTRUMENTS FOR WHICH THE VALUATION AS AT THE BALANCE SHEET DATE WAS NEGATIVE (A LIABILITY) AND WHICH ARE SETTLED ON A GROSS BASIS	Up to 1 month inclusive	Over 1 month to 3 months inclusive	Over 3 months to 1 year inclusive	Over 1 year to 5 years inclusive	Over 5 years	Contractual amount
31.12.2020
- outflows (principal and interest)	(5 755)	(6 126)	(10 441)	(8 249)	(269)	(30 840)
- inflows (principal and interest)	5 675	6 250	13 731	16 128	694	42 478

•        Contractual cash flows from liabilities in respect of derivative financial instruments for which the valuation as at the balance sheet date was negative (a liability) and which are settled on a net basis

In the case of IRS and NDF transactions, non-discounted future net cash flows in respect of interest and principal have been presented and in the case of the remaining derivative instruments settled on a net basis, the amount of the valuation as at 31 December 2021 and as at 31 December 2020, respectively, was adopted as the cash flow amount.

CONTRACTUAL CASH FLOWS FROM LIABILITIES IN RESPECT OF DERIVATIVE FINANCIAL INSTRUMENTS FOR WHICH THE VALUATION AS AT THE BALANCE SHEET DATE WAS NEGATIVE (A LIABILITY) AND WHICH ARE SETTLED ON A NET BASIS	Up to 1 month inclusive	Over 1 month to 3 months inclusive	Over 3 months to 1 year inclusive	Over 1 year to 5 years inclusive	Over 5 years	Contractual amount
31.12.2021
- IRS	(114)	(179)	(106)	(477)	(22)	(898)
- other derivatives: options, FRA, NDF	(1 603)	(711)	(2 529)	(845)	(7)	(5 695)

 

CONTRACTUAL CASH FLOWS FROM LIABILITIES IN RESPECT OF DERIVATIVE FINANCIAL INSTRUMENTS FOR WHICH THE VALUATION AS AT THE BALANCE SHEET DATE WAS NEGATIVE (A LIABILITY) AND WHICH ARE SETTLED ON A NET BASIS	Up to 1 month inclusive	Over 1 month to 3 months inclusive	Over 3 months to 1 year inclusive	Over 1 year to 5 years inclusive	Over 5 years	Contractual amount
31.12.2020
- IRS	(189)	(264)	(205)	(76)	65	(669)
- other derivatives: options, FRA, NDF	(365)	(1 297)	(1 002)	(227)	-	(2 891)

59.            Current and non-current assets and liabilities

FINANCIAL ASSETS	Current	Non-current	Total carrying amount
31.12.2021
Cash and balances with Central Bank	11 421	-	11 421
Amounts due from banks	8 627	5 669	14 296
Hedging derivatives	316	11	327
Other derivative instruments	5 024	6 119	11 143
Securities	7 603	123 235	130 838
- held for trading	169	142	311
- not held for trading, mandatorily measured at fair value through profit or loss	331	502	833
- measured at fair value through OCI	1 272	56 369	57 641
- measured at amortized cost	5 831	66 222	72 053
Loans and advances to customers	47 777	157 900	205 677
- not held for trading, mandatorily measured at fair value through profit or loss	3 458	1 101	4 559
- measured at fair value through OCI	524	13 007	13 531
- measured at amortized cost	43 795	143 792	187 587
Other financial assets	1 825	-	1 825
Total financial assets	82 593	292 934	375 527

 

FINANCIAL ASSETS	Current	Non-current	Total carrying amount
31.12.2020
Cash and balances with Central Bank	7 397	-	7 397
Amounts due from banks	1 898	3 406	5 304
Hedging derivatives	227	391	618
Other derivative instruments	1 856	3 560	5 416
Securities	11 953	108 020	119 973
- held for trading	935	263	1 198
-not held for trading, mandatorily measured at fair value through profit or loss	477	630	1 107
- measured at fair value through OCI	9 663	60 783	70 446
- measured at amortized cost	878	46 344	47 222
Reverse repo transactions	-	-	-
Loans and advances to customers	42 185	150 878	193 063
- not held for trading, mandatorily measured at fair value through profit or loss	4 278	1 731	6 009
- measured at fair value through OCI	528	13 526	14 054
- measured at amortized cost	37 379	135 621	173 000
Other financial assets	1 772	-	1 772
Total financial assets	67 288	266 255	333 543

 

FINANCIAL LIABILITIES	Current	Non-current	Total carrying amount
31.12.2021
Amounts due to Central Bank	8	-	8
Amounts due to banks	3 762	-	3 762
- measured at amortized cost	3 762	-	3 762
Hedging derivatives	596	4 028	4 624
Other derivative instruments	5 012	6 692	11 704
Repo transactions	49	-	49
Amounts due to customers	306 809	11 223	318 032
- measured at amortized cost	306 809	11 223	318 032
Loans and advances received	4 356	786	5 142
Subordinated liabilities	-	2 716	2 716
Other financial liabilities	2 534	788	3 322
Provision for financial liabilities and guarantees granted	568	104	672
Total financial liabilities	323 694	26 337	350 031

 

 

FINANCIAL LIABILITIES	Current	Non-current	Total carrying amount
31.12.2020
Amounts due to banks	2 583	-	2 583
- measured at amortized cost	2 583	-	2 583
Hedging derivatives	308	235	543
Other derivative instruments	2 411	4 221	6 632
Repo transactions	-	47	47
Amounts due to customers	267 971	10 923	278 894
- measured at amortized cost	267 971	10 923	278 894
Loans and advances received	14	4 892	4 906
Liabilities in respect of securities in issue	4 020	-	4 020
Subordinated liabilities	-	2 716	2 716
Other financial liabilities	2 098	885	2 983
Provision for financial liabilities and guarantees granted	535	91	626
Total financial liabilities	279 940	24 010	303 950

 

OBJECTIVES AND PRINCIPLES OF RISK MANAGEMENT

60.            Risk management in the Bank

Risk management is one of the most important internal processes in Bank.

It is aimed at ensuring (in the changing environment) the profitability of business activities while ensuring an appropriate level of control and keeping the risk level within the risk tolerances and limits system adopted by the Bank, in a changing macroeconomic environment. The level of risk is an important part of the planning processes.

The Bank identifies risks in its operations and analyses the impact of each type of risk on its business. All the risks are managed; some of them have a material effect on the profitability and capital needed to cover them. The following risks are considered material for the Bank: credit risk, risk of foreign currency mortgage loans for households, currency risk, interest rate risk, liquidity risk (including financing risk), operating risk, business risk, risk of macroeconomic changes and model risk. The Bank assesses the materiality of all the identified risks on a regular basis, at least annually.

A detailed description of the management policies for material risks is presented in the “Report on capital adequacy and other information subject to publication by the PKO Bank Polski SA Group”.

Risk management objective

The objective of the risk management is to strive to maintain the level of risk within the accepted tolerances in order to:

•        protect shareholder value:

•        protect customer deposits;

•        support the Bank in conducting efficient operations.

The risk management objectives are achieved, in particular, by providing appropriate information on the risk, so that decisions are made in full awareness of the particular risks involved.

Main principles of risk management

Risk management at the Bank is based, in particular, on the following principles:

•        the risk management covers all the risks identified;

•        the risk management process is appropriate from the perspective of the scale of operations and materiality, scale and complexity of a given risk, and adjusted on an on-going basis to take account of the new risks and their sources;

•        risk management methods (especially models and their assumptions) and risk measurement or assessment systems are tailored to the scale and complexity of individual risks, the current and planned operations of the Bank and its operating environment, and are periodically verified and validated;

•        the area of risk management remains organizationally independent of business activities;

•        risk management is integrated into the planning and controlling systems;

•        the level of risk is monitored and controlled on an on-going basis;

•        the risk management process supports the implementation of the Bank’s strategy in compliance with the Risk Management Strategy, in particular with respect to the level of risk tolerance.

risk management process

The process of risk management in the Bank consists of the following stages:

•        risk identification:

Risk identification consists of recognizing the existing and potential sources of risk and estimating the significance of its potential impact on the Bank’s operations. As part of risk identification, the risks considered to be material in the Bank’s operations are identified.

•        risk measurement and assessment:

Risk measurement and assessment are aimed at determining the scale of threats connected with the risks arising. Risk measurement covers determining the risk assessment measures adequate to the type and significance of the risk, and data availability. Quantitative and qualitative risk measurement results are the basis for the risk assessment aimed at identifying the scale or scope of risk.

As part of risk measurement, the Bank carries out:

•        specific stress tests which are conducted separately for individual risk types and are used to assess sensitivity of a given risk to unfavourable market conditions,

•        comprehensive stress tests conducted jointly for the concentration risk and risks regarded as material, used to determine sensitivity of the capital adequacy measures and Bank’s results to the occurrence of a negative scenario of changes in the environment and the functioning of the Bank.

The stress-tests are conducted by the Bank based on assumptions which ensure a sound assessment of the risk, in particular taking into account the Recommendations of the Polish Financial Supervision Authority.

•        risk control:

Risk control involves the determination of risk control mechanisms adjusted to the scale and complexity of the Bank’s activities, especially in the form of strategic tolerance limits for the individual types of risk. Strategic risk tolerance limits are subject to regular monitoring, and if they are exceeded, the Bank takes management actions.

•        risk forecasting and monitoring:

Risk forecasting involves foreseeing future risk levels, taking into account the assumed business development projections, and internal and external events. Risk level forecasts are assessed by the Bank (so-called “reverse stress tests”) in order to verify their accuracy.

Risk monitoring involves observing deviations from the forecasts or the adopted benchmarks (e.g. limits, thresholds, plans, prior period measurements, recommendations and instructions issued by external supervisory and regulatory authority). Risk monitoring and forecasting frequency is adequate to the materiality and variability of specific risks.

•        risk reporting:

Risk reporting consists in informing about the results of the risk identification, measurement, assessment and forecasting, causes of changes in the risks, actions taken and recommended. The scope, frequency and form of the reporting are adjusted to the managerial level of the recipients. If potential liquidity problems arise, the Supervisory Board is immediately informed about significant changes in the risk level, and in particular, about threats and remedial actions taken, and of their impact on the Bank’s liquidity level.

•        management actions:

Management actions consist of determining the desired risk level favourable for building the structure of assets and liabilities. Management actions may result, in particular, in:

•        acceptance of the risk – determining the acceptable risk level, taking into account business needs and developing management actions in the event that the level is exceeded;

•        reduction of the risk – mitigation of the impact of the risk factors or effects of its materialization (e.g. By reducing or diversifying the risk exposure, determining limits, utilizing collaterals);

•        transfer of the risk – transferring responsibility for covering potential losses (e.g. by transferring the risk to another entity with the use of legal instruments, such as insurance contracts, security services agreements for a building, accepting guarantees);

•        risk avoidance – resignation from the risk-generating activity or elimination of the probability of materialization of the risk factor, including in particular determination of zero tolerance to risk.

Organization of risk management at PKO Bank Polski S.A.

Risk management in the Bank takes place in all of the organizational units of the Bank.

The organization of risk management in PKO Bank Polski SA is presented in the diagram below:

The Supervisory Board supervises and evaluates the risk management process, in particular, on the basis of regular reports on the risk, taking into account the adequacy and effectiveness of the risk management system and information about the implementation of the risk management strategy, also at the level of limits which limit the risk and conclusion from stress tests, and if necessary, orders the verification of the process.

The Supervisory Board is supported by the following committees: the Supervisory Board for Nominations and Remuneration Committee, the Supervisory Board Risk Committee and the Supervisory Board Audit Committee.

In respect of risk management, the Management Board of PKO Bank Polski SA is responsible for strategic risk management, including supervising and monitoring actions taken by the Bank in respect of risk management. The Management Board makes major decisions affecting the risk profile of the Bank and adopts internal regulations concerning risk management. It ensures operation of the risk management system, monitors and assesses its functioning, and transfers the respective information to the Supervisory Board. In its risk management activities, the Management Board is supported by the following committees:

the Risk Committee;

•        the Asset and Liability Committee (ALCO);

•        The Bank’s Credit Committee;

•        the Operational Risk Committee.

The risk management process is carried out at three independent but complementary levels:

THE FIRST LEVEL – is formed of organizational structures responsible for product management, selling products and servicing customers, and of other structures which perform operational tasks that generate risk, which function based on internal regulations. This function is performed by all of the Bank’s and the Group’s entities. The Bank’s entities implement appropriate risk controls, including in particular limits, designed by them and located at the second level. They also ensure that they are met by means of appropriate controls.

THE SECOND LEVEL – covers compliance units and involves the identification, measurement, evaluation and/or control, monitoring and reporting of significant types of risks, and of the threats and irregularities identified; the tasks are performed by dedicated organizational structures acting on the basis of the applicable internal regulations of the Bank; the objective of these structures is to ensure that the tasks performed as part of the first level are properly governed in the internal regulations of the Bank and that they effectively limit the risk, support risk measurement, assessment and analysis and contribute to operational effectiveness. The function is performed, in particular. by the Risk Management Area, the Compliance Department and relevant committees. The second level supports actions taken to eliminate unfavourable deviations from the financial plan, with respect to the amounts impacting the quantitative strategic risk tolerance limits specified in the financial plan. These tasks are performed in particular in the entities of the Bank responsible for controlling.

THE THIRD LEVEL – consists of the internal audit function which performs independent audits of individual components of the Bank’s management system, including the risk management system, and the internal control system; the internal audit operates independently of the first and second levels and may support their actions by way of consultation, but without the possibility to impact the decisions taken. The function is performed in accordance with the Bank’s internal regulations concerning the operation of the internal control system.

The independence of the levels consists of ensuring organizational separation at the following levels:

•        the function of the second level with regard to creating system solutions is independent of the function of the first level;

•        the function of the third level is independent of the functions of the first and second levels;

61.            Specific risk management measures undertaken by the Bank in 2021

With a view to safeguarding a good quality loan portfolio and minimizing the impact of COVID-19 on Customers, in 2021 the Bank monitored the situation of Customers on an ongoing basis and adjusted its lending policy to the market and economic situation.

In 2021, the Polish Development Fund Group (PFR) started the process of clearing the PFR Financial Shield subsidies for micro, small and medium-sized enterprises. The clearing process is carried out by the bank through which the financial subsidy agreement was concluded. In PKO Bank Polski S.A. it took place through iPKO, iPKO biznes and Inteligo banking (only for Shield 1.0).

As part of the clearance process of the Financial Shield 1.0 (begun in April 2021), the Bank provided forms to over 67 thousand companies by 31 December 2021. Nearly 64.8 thousand companies received a positive decision from the PFR on writing off the loan - subsidies with a total value of PLN 10 billion were cleared, and the write-off amounted to PLN 6.4 billion. The Bank provided repayment schedules to customers who are obliged to repay the outstanding balance of the subsidies after the write-off, together with the accounts assigned to the repayments. In addition, the Bank monitors subsidy repayments by sending notices to Customers with identified delays.

The process of clearing the PFR financial subsidy obtained under the Financial Shield 2.0 took place exclusively through iPKO and iPKO business banking and started in November 2021. In the first stage, the clearance of the subsidies was carried out by companies with SME status (1.4 thousand companies). As part of the process of filing the Clearance Forms, these companies were obliged to submit JPK files. In the second place, the clearing process concerns micro firms (7.4 thousand companies). Implementation of the process began in January 2022. The decision on writing off a loan will be communicated to the beneficiaries by the end of April/July 2022 (currently the amendment is being processed at the level of the Council of Ministers).

•      Mortgage loans and advances indexed to or denominated in foreign currencies (see note “mortgage loans in convertible currencies”

62.            Credit risk management

•      Definition

Credit risk is defined as the risk losses being incurred as a result of a customer’s default on its liabilities towards the Bank or the risk of a decrease in the economic value of amounts due to the Bank as a result of a deterioration in a customer’s ability to repay the customers’ liabilities.

•      Risk management objective

The objective of credit risk management is to minimize losses on the loan portfolio as well as to minimize the risk of occurrence of loans at risk of impairment, while maintaining the expected level of profitability and value of the loan portfolio.

The Bank follows mainly the following principles of credit risk management:

•        every loan transaction is subject to comprehensive credit risk assessment, which is reflected in an internal rating or credit scoring;

•        credit risk relating to loan transactions is measured at the stage of examining a loan application and on a regular basis, as part of the monitoring process, taking into consideration changes in external conditions and in the financial standing of the borrowers and links between the Bank’s customers;

•        credit risk assessment of exposures is separated from the sales function by ensuring an appropriate organizational structure, independence in developing and validating tools supporting an assessment of credit risk and independence of decisions approving deviations from the suggestions resulting from using these tools;

•        terms and conditions of a loan transactions offered to a customer depend on the assessment of credit risk level generated by the transaction;

•        credit decisions may be taken solely by persons authorized to do so;

•        credit risk is diversified, in particular, in terms of geographical areas, industries, products and customers;

•        an expected credit risk level is secured by collateral received by the Bank, risk margins from customers and impairment allowances (provisions) for expected credit losses.

•        an incentive system contributes to compliance with the credit risk management policies and principles adopted by the Bank.

The aforementioned principles are implemented by the Bank through the use of advanced credit risk management methods, both at the level of individual credit exposures and of the entire loan portfolio of the Bank. The methods are verified and developed to ensure compliance with the requirements of the internal rating-based method (IRB), i.e. an advanced credit risk measurement method which may be used to calculate the capital requirements for credit risk, subject to approval by the Polish Financial Supervision Authority.

The credit decision limits depend primarily on: the amount of the exposure to a given customer, the amount of an individual credit transaction and the duration of the lending period.

•      Measurement and assessment of credit risk: Credit risk measurement and assessment methods

In order to assess the level of credit risk and profitability of its loan portfolios, the Bank uses different credit risk measurement and valuation methods, including:

•        probability of default (PD);

•        loss given default (LGD);

•        credit conversion factor (CCF);

•        expected credit loss (ECL);

•        credit value at risk (CVaR);

•        the share and structure of impaired credit exposures;

•        coverage ratio of impaired loans;

•        cost of credit risk;

•        stress tests.

The Bank systematically expands the scope of credit risk measures adopted, taking into account the requirements of the IRB method, and extends the use of risk measures to cover the entire loan portfolio of the Bank.

The portfolio credit risk measurement methods allow, among other things, to reflect the credit risk in the price of products, determine the best conditions of financing availability and determine the level of impairment allowances.

The Bank performs analyses and stress-tests relating to the impact of the potential changes in the macroeconomic environment on the quality of the Bank’s loan portfolio, and the results of such analyses and stress tests are presented in reports to the Bank’s governing bodies. Such information enables identification and implementation of the measures mitigating the negative effects of the impact of unfavourable market conditions on the Bank’s profit or loss.

The credit risk assessment process at the Bank takes into account the requirements of the Polish Financial Supervision Authority as laid down in the PFSA Recommendations.

The description of performing the estimates of expected credit losses is disclosed in the Note “Allowances for expected credit losses”.

•        Measurement and assessment of credit risk: Rating and scoring methods

An assessment of the risk of individual loan transactions is performed by the Bank using the scoring and rating methods which are supported by dedicated IT applications. The risk assessment method is defined in the Bank’s internal regulations whose main aim is to ensure a uniform and objective evaluation of credit risk during the lending process.

The Bank evaluates the credit risk of retail customers in two dimensions: qualitative and quantitative borrowing capacity assessment. A quantitative creditworthiness assessment consists of examining a customer’s financial position, and the qualitative risk assessment involves scoring and assessing a customer’s credit history obtained from the Bank’s internal records and external databases.

In the case of some corporate customers in the small- and medium-sized enterprises segment who meet certain criteria, the Bank assesses credit risk using the scoring method. Such assessment refers to low-value, non-complex loan transactions and it is performed in two dimensions: a customer’s borrowing capacity and his creditworthiness. An assessment of the borrowing capacity consists of examining a customer’s economic and financial position, and the assessment of creditworthiness involves scoring and evaluating the customer’s credit history obtained from the Bank’s internal records and external databases.

In other cases, the rating method is used for institutional customers.

An assessment of the credit risk associated with financing institutional customers is performed by the Bank in two dimensions: the customer and the transaction. The measures involved include an evaluation of a customer's creditworthiness, i.e. the rating, and an assessment of the transaction risk, i.e. the customer’s ability to repay the amounts due at the amounts and dates specified. 

Rating models for institutional customers are developed using the Bank’s internal data, thus ensuring that they are tailored to the risk profiles of the Bank’s customers. Models are based on a statistical dependence analysis between the default and a customer’s risk scoring. The scoring includes an evaluation of financial ratios, qualitative factors and behavioural factors. A customer’s risk assessment depends on the size of the assessed enterprise. In addition, the Bank applies a model for the assessment of credited entrepreneurs in the formula of specialized lending, which allows an adequate credit risk assessment of large projects involving real estate financing (e.g. office space, retail space, industrial space) and infrastructure projects (e.g. telecommunication, industrial or public utility infrastructure).

Rating models are implemented within the IT tool which supports the assessment of the Bank’s credit risk associated with the financing of institutional customers.

In order to examine the correctness of the operation of the methods applied by the Bank, credit risk assessment methodologies relating to individual loan exposures are subject to periodical reviews.

The credit risk assessment process in the Bank takes into account the requirements of the Polish Financial Supervision Authority as defined in Recommendation S concerning good practices for the management of mortgage-secured loan exposures and Recommendation T concerning good practices for the management of retail credit exposures.

Starting from 30 June 2021, in the lending process for corporate Customers and SME Customers evaluated with the use of the rating method, the Bank each time assesses the impact of environmental, social and governance factors (ESG factors) on the Customer’s creditworthiness, and identifies credit transactions with an increased financial leverage (levered transactions). The Bank also examines the impact of credit transactions on ESG and classifies them to four categories, from transactions with a positive impact on ESG to those with material negative impact. When assessing the ESG factors, the Bank takes into account such factors as the risk of climate change and its impact on the Customer’s operations, potential influence of the Client on climate, factors related to human capital or health and safety, and governance factors (including the corporate culture and internal audit).

Information on rating and scoring assessments is widely used in the Bank to manage credit risk, in the system of credit decision authorizations, to determine the amounts triggering the credit risk assessment services and in the credit risk measurement and reporting system.

•        Measurement and assessment of credit risk: Credit risk forecasting and monitoring

Credit risk forecasting and monitoring involves preparing risk level forecasts and monitoring deviations from the forecasts or the adopted benchmarks (e.g. limits, thresholds, plans, prior period measurements, recommendations and instructions issued by external supervisory and regulatory authority), and performing (specific and comprehensive) stress tests. Risk level forecasts are subject to regular backtesting.

Credit risk is monitored at the level of individual customers, groups of related customers, credit transactions and their collateral, and at portfolio level.

Credit risk monitoring at the individual loan transaction level is governed, in particular, by the Bank’s internal regulations concerning:

•        assessment of the credit risk related to customer financing;

•        methods of assessing customers;

•        identification of groups of related entities;

•        evaluation of collateral and inspection of investments;

•        recognition of allowances for expected credit losses;

•        Early Warning System;

•        operating procedures.

In order to accelerate the response to the warning signals noted reflecting an increased credit risk level, the Bank uses and develops an IT application, Early Warning System (EWS).

Credit risk monitoring at the portfolio level consists of:

•        supervising the level of the portfolio credit risk on the basis of the adopted tools used for measuring credit risk, taking into consideration the identified sources of credit risk and analysing the effects and actions taken as part of system management;

•        recommending preventive measures in the event of identifying an increased level of credit risk.

•        Credit risk reporting

Credit risk reporting includes periodical reporting of the loan portfolio risk exposure.

Monthly and quarterly credit risk reports are prepared in the Bank. Credit risk reporting should ensure the fullest possible information on credit risk, in particular regarding the effectiveness of the credit risk management policy, identification of sources and factors of credit risk, measurement of the cost of credit risk, monitoring of compliance with limits and taking corrective and preventive action.

•        Management actions relating to credit risk

The purpose of management actions is to shape and optimize the credit risk management system and credit risk level at the Bank.

The credit risk management actions include particularly:

•        issuing internal regulations governing the credit risk management system;

•        issuing recommendations, guidelines for conduct, explanations and interpretations of internal regulations;

•        taking decisions regarding the acceptable level of credit risk, including in particular lending decisions;

•        developing and improving credit risk control tools and mechanisms which make it possible to maintain the credit risk level within the limits acceptable to the Bank;

•        developing and monitoring the operation of credit risk management controls;

•        developing and improving credit risk assessment methods and models;

•        developing and improving IT tools used in credit risk management;

•        planning actions and issuing recommendations.

In managing credit risk, the Bank uses in particular the following tools and risk control mechanisms:

•        strategic limits of tolerance to credit risk and concentration risk which set the maximum level of these risks the Bank is ready to accept. These limits take into account, among other things, the requirements of the CRR Regulation, the Polish Banking Law or Recommendations S and T.

•        internal limits of tolerance to credit risk or concentration risk including:

a)        limits determining the level of tolerance to portfolio credit risk and concentration risk;

b)        industry-related limits, which reduce the risk level related to financing institutional customers conducting business activities in industries characterized by a high level of credit risk;

c)        competence limits, which set the maximum level of competences to make lending decision with respect to customers, including customers of entities belonging to the Bank’s Group;

•        verification of the quality of the lending processes;

•        branch rating, which is set for independent branches selling lending products to corporate and individual customers;

•        threshold amounts which trigger involvement of risk analysts in the credit risk assessment.

Credit risk management tools from the customer and transaction level include:

•        minimum transaction requirements determined for a given type of transaction (e.g. maximum loan amount, required collateral);

•        the principles of defining credit availability, including cut-offs – the minimum number of points awarded in the process of qualitative assessment with the use of a scoring system, or the customer’s rating class above which a lending transaction can be concluded with a customer;

•        minimum credit margins – credit risk margins relating to a lending transaction concluded by the Bank with a given customer, where the interest rate offered to the customer should not be lower than the reference rate plus credit risk margin.

•        Use of credit risk mitigation techniques - collateral

Collateral management policy plays a significant role in establishing minimum transaction terms. The Bank’s collateral management policy is meant to properly protect it against credit risk to which the Bank is exposed, including first of all by establishing collateral that is as liquid as possible. Collateral may be considered liquid if it is possible to be sold without a significant decrease in its price and at a time which does not expose the Bank to a change in the collateral value due to price fluctuations typical of a given asset.

The Bank strives to diversify collateral in terms of its forms and assets used as collateral.

The Bank evaluates collateral from the perspective of the actual possibility of using it to satisfy its claims.

In addition, when assessing collateral, the Group takes into account the following factors:

•        the economic, financial and economic or social and financial position of entities which provide personal guarantees;

•        the condition and market value of the assets accepted as collateral and their vulnerability to depreciation in the period of maintaining the collateral (the impact of the technological wear and tear of a collateralized asset on its value),

•        potential economic benefits to the Bank resulting from a specific method of securing receivables, including, in particular, the possibility of reducing impairment allowances for expected credit losses;

•        the method of establishing collateral, including the typical duration and complexity of formalities, as well as the necessary costs (the costs of maintaining collateral and the enforcement against the collateral), using the Bank's internal regulations concerning the assessment of collateral;

•        the complexity, time-consuming nature and economic and legal conditions of the effective realization of collateral, in the context of enforcement restrictions and the applicable principles for the distribution of the sums obtained from individual enforcement or in the course of bankruptcy proceedings, the ranking of claims;

•        the type of collateral depends on the level of risk of a given customer or transaction.

When granting loans intended to finance housing and commercial funding properties, a mortgage is an obligatory type of collateral.

Until effective protection is established (depending on the type and amount of a loan), the Bank may accept temporary collateral in a different form.

With regard to consumer loans, usually personal guarantees (a civil law surety/guarantee, a bill of exchange) are used or collateral is established on the customer’s bank account, car or securities.

The collateral for loans intended for the financing of small- and medium-sized enterprises as well as corporate customers is established, among other things: on receivables from business operations, bank accounts, movables, real estate or securities.

63.            Credit risk - financial information

•   IMPACT OF COVID 19 ON THE QUALITY OF LOAN PORTFOLIO

 

Exposures covered by statutory non-statutory moratoria are presented in the tables below:

•   gross carrying amount of active and expired exposures

Loans and advances covered by statutory and non-statutory moratoria by residual period of the moratoria	31.12.2021
	Number of debtors	Carrying amount, gross
			Of which: statutory moratoria	Of which: expired	Residual period of moratoria
					<= 3 months
Loans and advances in respect of which moratoria were offered	123 380	20 191
Loans and advances covered by moratoria in line with the EBA guidelines	123 380	20 191	70	20 191	-
retail and private banking		14 183	70	14 183	-
real estate		11 288	48	11 288	-
consumer		2 895	22	2 895	-
SME		2 276	-	2 276	-
business		679	-	679	-
real estate		1 597	-	1 597	-
corporate		3 732	-	3 732	-
business		2 944	-	2 944	-
real estate		788	-	788	-

 

Loans and advances covered by statutory and non-statutory moratoria by residual period of the moratoria	31.12.2020
	Number of debtors	Carrying amount, gross
			Of which: statutory moratoria	Of which: expired	Residual period of moratoria
					<= 3 months
Loans and advances in respect of which moratoria were offered	168 699	25 679
Loans and advances covered by moratoria in line with the EBA guidelines	168 699	25 679	39	23 249	2 430
retail and private banking		17 938	39	16 149	1 789
real estate		13 667	27	12 261	1 406
consumer		4 271	12	3 888	383
SME		2 950	-	2 858	92
business		1 404	-	1 388	16
real estate		1 546	-	1 470	76
corporate		4 791	-	4 242	549
business		3 389	-	2 841	548
real estate		1 402	-	1 401	1

•   gross carrying amount of active exposures

As at 31 December 2021, there were no active loan exposures covered by moratoria

Loans and advances covered by moratoria in line with the EBA guidelines (statutory and non-statutory)	31.12.2020
	Carrying amount, gross
		Performing			Non-performing
			including: exposures covered by restructuring	of which: Stage 2		including: exposures covered by restructuring	of which: there is little probability that the liability will be repaid, but the liability is not overdue or is overdue < = 90 days
Loans and advances covered by moratoria in line with the EBA guidelines	2 430	2 379	31	1 379	51	3	48
retail and private banking	1 789	1 738	31	1 164	51	3	48
real estate	1 406	1 376	28	1 002	30	2	28
consumer	383	362	3	162	21	1	20
SME	92	92	-	21	-	-	-
business	16	16	-	11	-	-	-
real estate	76	76	-	10	-	-	-
corporate	549	549	-	194	-	-	-
business	548	548	-	194	-	-	-
real estate	1	1	-	-	-	-	-

•   accumulated impairment of active exposures

As at 31 December 2021, there was no impairment of loan exposures covered by moratoria

Loans and advances covered by moratoria in line with the EBA guidelines (statutory and non-statutory)	31.12.2020
	Accumulated impairment, accumulated loss of fair value due to credit risk
		Performing			Non-performing
			including: exposures covered by restructuring	of which: Stage 2		including: exposures covered by restructuring	of which: there is little probability that the liability will be repaid, but the liability is not overdue or is overdue < = 90 days
Loans and advances covered by moratoria in line with the EBA guidelines:	(85)	(70)	(3)	(62)	(15)	(1)	(15)
retail and private banking	(77)	(62)	(3)	(56)	(15)	(1)	(15)
real estate	(45)	(37)	(2)	(34)	(8)	(1)	(8)
consumer	(32)	(25)	(1)	(22)	(7)	-	(7)
SME	(2)	(2)	-	(1)	-	-	-
business	(1)	(1)	-	(1)	-	-	-
real estate	(1)	(1)	-	-	-	-	-
corporate	(6)	(6)	-	(5)	-	-	-
business	(6)	(6)	-	(5)	-	-	-

•   gross carrying amount and maximum eligible guarantee amount for newly granted loans covered by guarantees

Newly granted loans and advances under new public guarantee programs introduced in relation to the COVID-19 crisis	31.12.2021
	Carrying amount, gross		Maximum recognizable amount of guarantees
		Including: exposures covered by restructuring	Public guarantee received in relation to the COVID-19 crisis
Newly granted loans and advances covered by public guarantee programs	4 904	48	3 923
SME	3 981	29	3 185
business	3 981	29	3 185
corporate	923	19	738
business	923	19	738

 

Newly granted loans and advances under new public guarantee programs introduced in relation to the COVID-19 crisis	31.12.2020
	Carrying amount, gross		Maximum recognizable amount of guarantees
		Including: exposures covered by restructuring	Public guarantee received in relation to the COVID-19 crisis
Newly granted loans and advances covered by public guarantee programs	3 416	22	-
SME	2 478	11	-
business	2 478	11	-
corporate	938	11	-
business	938	11	-

When recognizing the impact of the COVID–19 pandemic on the loan portfolio in 2021, the Bank took into account three scenarios in respect of the main developments of the macroeconomic parameters. An assessment of the pandemic’s impact is performed based on the correlation between an expected loss and a change in the macroeconomic parameters under each of the three scenarios developed based on the Bank’s internal forecasts. The range of the forecast ratios comprises, among other things, the GDP rate indicators and unemployment rate, because these parameters have a major impact on the level of recognized changes in the valuation of the Bank’s assets. In order to adequately account for the high quarterly variability of macroeconomic ratios in the risk parameter models (in particular in the probability of default (PD) model), the average values of the said indices over a 2-year period were adopted. The additional write-down due to COVID-19 is the result of the significant deterioration in the macroeconomic forecasts in all three scenarios considered, and from the determination of a significant increase in the credit risk for exposures subject to moratoria with the highest PD values. The increase in the PD parameter results in an increase in the anticipated loss on individual loans, and consequently, the migration of some of them to Stage 2.

The applied approach to the impact of macroeconomic forecasts on risk parameters describes the situation simultaneously in all branches of the economy and may not take into account the problems of individual industries caused by the pandemic, which is why the Group has conducted additional analyses of the loan portfolio. These analyses, carried out by risk experts, mainly included an assessment of the impact of specific macroeconomic conditions not taken into account in the portfolio approach and helped identify clients and industries particularly affected by the current economic situation. This includes the construction, hotel, automotive and lease of office and retail space sectors. Exposures with the highest PD values that belonged to the identified industries were flagged with the premise of a “significant increase in credit risk” and covered by increased allowances, which account for approximately 28% of the allowances on the entire portfolio of loans classified in Phase 2.

•           Exposure to credit risk

MAXIMUM EXPOSURE TO CREDIT RISK - FINANCIAL INSTRUMENTS NOT SUBJECT TO IMPAIRMENT REQUIREMENTS	31.12.2021	31.12.2020
Hedging derivatives	327	618
Other derivative instruments	11 143	5 416
Securities:	1 144	2 305
held for trading	311	1 198
not held for trading, measured at fair value through profit or loss	833	1 107
Loans and advances to customers not held for trading, measured at fair value through profit or loss	4 559	6 009
real estate loans	4	7
corporate loans	97	114
consumer loans	4 458	5 888
Total	17 173	14 348

 

•           Modifications

FINANCIAL ASSETS SUBJECT TO MODIFICATION	2021		2020
Financial assets subject to modification during the period:	Stage 2	Stage 3	Stage 2	Stage 3
valuation amount at amortized cost before modification	1 028	601	1 900	743
gain/loss on modification	(8)	(4)	(3)	-
Financial assets subject to modification since initial recognition:	31.12.2021		31.12.2020
gross carrying amount of financial assets subject to modification for which expected losses were calculated over the lifetime and which are classified as Stage 1 after modification	20		99

 

•           Receivables written off during the period, subject to recovery procedures

The table below presents the outstanding amounts of financial assets to be repaid, which were written down during the reporting period and which are still subject to debt recovery activities.

RECEIVABLES WRITTEN OFF	2021		2020
	Partly written off	Entirely written off	Partly written off	Entirely written off
Loans and advances to customers	39	826	29	146
real estate loans	5	183	3	7
corporate loans	14	566	5	37
consumer loans	20	77	21	102
Other financial assets	-	-	1	-
Total	39	826	30	146

 

The Bank adopted the following criteria for writing off receivables:

•        the receivable has fully matured and, in particular, is the consequence of a loan, advance, contractual overdraft, guarantee or warranty of loan, advance or bond repayment;

•        in accordance with IAS and IFRS the allowance for expected credit losses:

•           covers 100% of the gross carrying amount of the asset; or

•           exceeds 90% of the gross carrying amount of the asset and: actions have been or are still being taken in respect of the receivable which did not lead to its recovery, and the assessment of the probability of recovering the receivable (which, in particular, accounts for the decisions of the bailiff or the receiver) transferability of collateral, level of satisfaction, record in the land and mortgage register indicate that the entire receivable will not be recovered, or that the repayments of the receivable did not cover interest accrued on a current basis over the past 12 calendar months.

•           Past due financial assets subject to impairment or impaired

PAST DUE FINANCIAL ASSETS SUBJECT TO IMPAIRMENT OR IMPAIRED	up to 30 days	over 30 to 90 days	over 90 days	TOTAL
31.12.2021
Stage 1	1 069	-	-	1 069
Loans and advances to customers:	1 069	-	-	1 069
real estate loans	64	-	-	64
corporate loans	862	-	-	862
consumer loans	143	-	-	143
Stage 2	586	164	47	797
Loans and advances to customers:	586	164	47	797
real estate loans	356	90	35	481
corporate loans	70	24	4	98
consumer loans	160	50	8	218
Stage 3	131	108	780	1 019
Loans and advances to customers:	131	108	780	1 019
real estate loans	53	44	151	248
corporate loans	37	15	423	475
consumer loans	41	49	206	296
TOTAL	1 786	272	827	2 885

 

PAST DUE FINANCIAL ASSETS SUBJECT TO IMPAIRMENT OR IMPAIRED	up to 30 days	over 30 to 90 days	over 90 days	TOTAL
31.12.2020
Stage 1	484	-	-	484
Loans and advances to customers:	484	-	-	484
real estate loans	149	-	-	149
corporate loans	184	-	-	184
consumer loans	151	-	-	151
Stage 2	803	221	-	1 024
Loans and advances to customers:	803	221	-	1 024
real estate loans	563	109	-	672
corporate loans	79	43	-	122
consumer loans	161	69	-	230
Stage 3	170	149	1 137	1 456
Loans and advances to customers:	170	149	1 137	1 456
real estate loans	42	36	184	262
corporate loans	98	82	778	958
consumer loans	30	31	175	236
TOTAL	1 457	370	1 137	2 964

 

To specify whether a loan is overdue, the Bank takes into account the minimum levels of matured amounts exceeding PLN 400 and 1% with reference to the debtor’s entire credit exposure in the balance sheet of the Bank and other entities belonging to the Bank’s Group.

Loans and advances to customers were secured by the following collateral established for the Bank: mortgages, registered pledges, transfer of ownership, restrictions on a deposit account, insurance of the credit exposure, as well as guarantees and sureties.

•      Quality of the portfolio covered by the rating model for loans and advances granted to customers

CREDIT RISK EXPOSURES BY PD PARAMETER 31.12.2021	Carrying amount, gross
	Stage 1	Stage 2	Stage 3	TOTAL	POCI
REAL ESTATE LOANS	82 979	13 011	1 911	97 901	80
0.00 - 0.02%	5 717	15	-	5 732	-
0.02 - 0.07%	27 753	362	-	28 115	-
0.07 - 0.11%	12 361	511	-	12 872	-
0.11 - 0.18%	12 948	1 273	2	14 223	2
0.18 - 0.45%	15 285	4 258	4	19 547	4
0.45 - 1.78%	4 843	4 068	8	8 919	8
1.78 - 99.99%	238	2 516	9	2 763	9
100%	-	-	1 888	1 888	57
no internal rating	3 834	8	-	3 842	-
BUSINESS LOANS	65 344	13 969	4 502	83 815	45
0.00 - 0.45%	29 653	123	-	29 776	-
0.45 - 0.90%	7 314	1 749	-	9 063	-
0.90 - 1.78%	9 626	746	-	10 372	-
1.78 - 3.55%	7 061	1 876	-	8 937	-
3.55 - 7.07%	7 381	5 752	-	13 133	-
7.07 - 14.07%	3 593	2 415	-	6 008	-
14.07 - 99.99%	157	1 239	-	1 396	-
100%	-	-	4 502	4 502	45
no internal rating	559	69	-	628	-
CONSUMER LOANS	22 334	3 142	1 583	27 059	45
0.00 - 0.45%	7 605	171	-	7 776	-
0.45 - 0.90%	5 839	222	-	6 061	-
0.90 - 1.78%	4 405	432	-	4 837	-
1.78 - 3.55%	2 704	608	-	3 312	-
3.55 - 7.07%	1 059	579	-	1 638	-
7.07 - 14.07%	355	396	-	751	-
14.07 - 99.99%	80	679	1	760	1
100%	-	-	1 582	1 582	44
no internal rating	287	55	-	342	-
Total	170 657	30 122	7 996	208 775	170

1 This item refers mainly to the Housing Association and Cooperatives portfolio.

CREDIT RISK EXPOSURES BY PD PARAMETER 31.12.2020	Carrying amount, gross
	Stage 1	Stage 2	Stage 3	TOTAL	POCI
REAL ESTATE LOANS	79 609	11 814	1 892	93 315	81
0.00 - 0.02%	5 590	15	-	5 605	-
0.02 - 0.07%	25 147	82	1	25 230	1
0.07 - 0.11%	11 385	65	2	11 452	2
0.11 - 0.18%	13 383	107	1	13 491	1
0.18 - 0.45%	14 268	4 042	5	18 315	5
0.45 - 1.78%	5 046	3 930	7	8 983	7
1.78 - 99.99%	473	3 532	10	4 015	10
100%	-	-	1 866	1 866	55
no internal rating	4 317	41	-	4 358	-
BUSINESS LOANS	58 985	13 271	5 423	77 679	51
0.00 - 0.45%	25 034	98	-	25 132	-
0.45 - 0.90%	4 440	99	-	4 539	-
0.90 - 1.78%	10 263	265	-	10 528	-
1.78 - 3.55%	8 594	1 634	-	10 228	-
3.55 - 7.07%	6 384	7 230	-	13 614	-
7.07 - 14.07%	3 725	2 559	-	6 284	-
14.07 - 99.99%	363	1 312	-	1 675	-
100%	-	-	5 423	5 423	51
no internal rating	182	74	-	256	-
CONSUMER LOANS	19 712	2 840	1 379	23 931	53
0.00 - 0.45%	6 280	118	-	6 398	-
0.45 - 0.90%	4 675	155	-	4 830	-
0.90 - 1.78%	4 025	221	-	4 246	-
1.78 - 3.55%	2 491	296	-	2 787	-
3.55 - 7.07%	986	668	-	1 654	-
7.07 - 14.07%	418	499	-	917	-
14.07 - 99.99%	136	812	-	948	-
100%	-	-	1 379	1 379	53
no internal rating	701	71	-	772	-
Total	158 306	27 925	8 694	194 925	185

•      Quality of the portfolio covered by the rating model for off-balance sheet liabilities

CREDIT RISK EXPOSURES BY PD PARAMETER 31.12.2021	Carrying amount, gross
	Stage 1	Stage 2	Stage 3	TOTAL	POCI
OFF-BALANCE SHEET LIABILITIES
0.00 - 0.45%	21 981	124	-	22 105	-
0.45 - 0.90%	8 203	1 504	-	9 707	-
0.90 - 1.78%	9 722	563	-	10 285	-
1.78 - 3.55%	7 494	981	-	8 475	-
3.55 - 7.07%	7 136	2 184	-	9 320	-
7.07 - 14.07%	2 506	3 655	-	6 161	-
14.07 - 99.99%	36	109	-	145	-
100%	-	-	568	568	59
no internal rating	18 393	1 355	-	19 748	-
Total	75 471	10 475	568	86 514	59

1 This item refers mainly the State Treasury exposures and credit lines for derivative transactions.

CREDIT RISK EXPOSURES BY PD PARAMETER 31.12.2020	Carrying amount, gross
	Stage 1	Stage 2	Stage 3	TOTAL	POCI
OFF-BALANCE SHEET LIABILITIES
0.00 - 0.45%	22 936	118	-	23 054	-
0.45 - 0.90%	6 292	151	-	6 443	-
0.90 - 1.78%	12 530	563	-	13 093	-
1.78 - 3.55%	5 821	826	-	6 647	-
3.55 - 7.07%	6 084	3 966	-	10 050	-
7.07 - 14.07%	2 966	1 219	-	4 185	-
14.07 - 99.99%	113	150	-	263	-
100%	-	-	467	467	20
no internal rating	16 755	1 309	-	18 064	-
Total	73 497	8 302	467	82 266	20

 

•      Quality of the portfolio covered by the rating model for amounts due from banks

CREDIT RISK EXPOSURES BY PD PARAMETER 31.12.2021	Carrying amount, gross
AMOUNTS DUE FROM BANKS	Stage 1	Stage 2	Stage 3	TOTAL	POCI
EXTERNAL RATINGS	14 311	-	-	14 311	-
AA	303	-	-	303	-
A	13 596	-	-	13 596	-
BBB	394	-	-	394	-
BB	18	-	-	18	-
TOTAL	14 311	-	-	14 311	-

 

CREDIT RISK EXPOSURES BY PD PARAMETER 31.12.2020	Carrying amount, gross
AMOUNTS DUE FROM BANKS	Stage 1	Stage 2	Stage 3	TOTAL	POCI
EXTERNAL RATINGS	5 311	-	-	5 311	-
AAA	3	-	-	3	-
AA	387	-	-	387	-
A	1 449	-	-	1 449	-
BBB	3 454	-	-	3 454	-
BB	17	-	-	17	-
B	1	-	-	1	-
TOTAL	5 311	-	-	5 311	-

•      Quality of the portfolio covered by the rating model for debt securities

CREDIT RISK EXPOSURES BY PD PARAMETER 31.12.2021	Carrying amount, gross
DEBT SECURITIES	Stage 1	Stage 2	Stage 3	TOTAL	POCI
EXTERNAL RATINGS	103 917	-	-	103 917	-
AAA	3 654	-	-	3 654	-
AA	42	-	-	42	-
A	97 945	-	-	97 945	-
BBB	1 002	-	-	1 002	-
BB	1 274	-	-	1 274	-
INTERNAL RATINGS	24 078	446	397	24 921	380
0.00-0.45%	22 224	-	-	22 224	-
0.45-0.90%	1 469	101	-	1 570	-
0.90-1.78%	146	-	-	146	-
1.78-3.55%	211	83	-	294	-
3.55-7.07%	13	100	-	113	-
7.07-14.07%	15	162	-	177	-
100.00%	-	-	397	397	380
no internal rating	966	-	-	966	-
TOTAL	128 961	446	397	129 804	380

 

CREDIT RISK EXPOSURES BY PD PARAMETER 31.12.2020	Carrying amount, gross
DEBT SECURITIES	Stage 1	Stage 2	Stage 3	TOTAL	POCI
EXTERNAL RATINGS	91 293	-	-	91 293	-
AAA	2 513	-	-	2 513	-
AA	5	-	-	5	-
A	86 887	-	-	86 887	-
BBB	1 642	-	-	1 642	-
BB	246	-	-	246	-
INTERNAL RATINGS	24 902	296	457	25 655	438
0.00-0.45%	8 645	-	-	8 645	-
0.45-0.90%	686	89	-	775	-
0.90-1.78%	15 220	2	-	15 222	-
1.78-3.55%	149	118	-	267	-
3.55-7.07%	186	3	-	189	-
7.07-14.07%	16	84	-	100	-
100.00%	-	-	457	457	438
no internal rating	766	-	-	766	-
TOTAL	116 961	296	457	117 714	438

 

64.            Managing credit concentration risk in the Bank

The Bank defines credit concentration risk as the risk arising from a considerable exposure to single customers or groups of related customers whose repayment capacity depends on a common risk factor. The Bank analyses the concentration risk, among other things towards:

•        the largest entities (customers);

•        the largest groups of related customers;

•        industry sectors;

•        geographical regions;

•        currencies;

•        exposures secured with a mortgage.

•           Risk management objective

The objective of concentration risk management is to ensure a safe structure of the loan portfolio by mitigating threats arising from excessive concentrations relating to exposures characterized by a potential to generate significant losses at the Bank.

•           Measurement and assessment of concentration risk

The Bank measures and assesses concentration risk by examining the actual aggregate exposure to a customer or a group of related customers and the actual aggregate exposure in the individual groups of loan portfolios.

The Bank’s actual exposure complies with the definition of exposure in the CRR, which comprises all assets or off-balance sheet items, including exposures in the banking and trading book and indirect exposures arising from the security applied.

Concentration risk is identified by recognizing the factors due to which the risk may arise or the level of the Bank’s exposure may change, including potential risk factors resulting, for example, from the planned activities of the Bank. In the process of identifying concentration risk, the Bank:

•        identifies and updates the structure of the group of related customers;

•        aggregates the exposures towards a customer or a group of related customers;

•        applies exemptions from regulatory limits for large exposures, in accordance with the CRR. The Bank’s tolerance to concentration risk is determined by:

•        external regulatory limits arising from Article 395 of the CRR and from Article 79a of the Banking Law;

•        internal limits of the Bank:

•        strategic limits of concentration risk tolerance;

•        limits that define the appetite for concentration risk.

The Bank uses the following to measure concentration risk:

•        the ratio of the Bank’s exposure to concentration risk with respect to individual customers or groups of related customers to the Bank’s Tier 1 capital;

•        the industry or geographic concentration ratio which indicates the share of groups with the highest exposure / number in the Bank’s loan portfolio;

•        Gini coefficient;

•        graphs of portfolio concentration (Lorenz curve).

To measure concentration risk and evaluate the effect of internal and external factors on the concentration risk, the Bank performs stress tests with respect to concentration risk for large exposures.

•           Monitoring and forecasting concentration risk

The Bank monitors concentration risk:

•       on an individual level, by verifying the exposure concentration ratio for a customer or a group of related customers, each time before applying for a decision on granting financing or increasing the amount of the exposure, and before taking other actions resulting in increasing the Bank’s exposure on other accounts;

•        on a systemic level, by:

•        daily control over compliance with the external concentration limit and identifying large exposures;

•        monthly control over the limit arising from Article 79a of the Banking Law;

•        monthly or quarterly control over compliance with the Bank’s internal limits with respect to concentration risk;

•        monitoring early warning ratios with respect to concentration;

•        monthly or quarterly monitoring and assessment of the concentration risk at portfolio level.

The Bank forecasts changes in the level of concentration risk as part of its analyses and reviews of internal limits and the concentration risk management policy and in the process of stress testing concentration risk. 

The Bank performs stress tests to examine, for example, the effect of macroeconomic factors on individual concentrations, the impact of decisions of other financial market participants, decisions on customer mergers, dependency on other risks, for example, currency risk, which may contribute to the materialization of concentration risk and the effect of other factors from the internal and external environment on the concentration risk.

Concentration risk is an element of comprehensive stress tests which enables the evaluation of the forecast effect of correlated credit, interest rate, currency, operating and liquidity risks and concentration risk on the expected credit loss of the Bank.

•           Concentration risk reporting

Reports on currency risk are prepared on a daily, monthly and quarterly basis.

Concentration risk reporting comprises periodic (monthly or quarterly) reporting to the Bank’s relevant bodies on the scale of exposure to concentration risk, which may lead to a significant change in the Bank’s risk profile, including in particular:

•        utilization of limits defining risk appetite and exceeding those limits;

•        early warning ratios;

•        stress-test results;

•        portfolio concentration risk and concentration of the Bank’s largest exposures and compliance with concentration standards arising from the Banking Law Act.

•           Management actions relating to concentration risk

The purpose of management actions is to shape and optimize the concentration risk management process and concentration risk level at the Bank (preventing excessive concentrations).

Management actions comprise in particular:

•        publishing the Bank’s internal regulations on the process of concentration risk management, defining the tolerance level for concentration risk, determining limits and threshold amounts;

•        issuing recommendations, guidelines for conduct, explanations and interpretations of internal regulations;

•        taking decisions concerning an acceptable level of concentration risk, including in particular decisions determining the threshold values of limits reflecting concentration risk appetite;

•        developing and improving concentration risk control tools which make it possible to maintain the concentration risk level within the limits acceptable to the Bank;

•        developing and improving concentration risk assessment methods taking into account the changeability of the macroeconomic situation, including crises on foreign and domestic markets and changeability of the regulatory environment;

•        developing and improving IT tools to support concentration risk management.

•           Concentration by the largest entities (customers)

The Polish Banking Law Act sets maximum exposure limits for the Bank. The risk of concentration of exposures to individual customers and groups of related customers is monitored in accordance with the CRR, according to which the Bank does not assume an exposure to a customer or a group of related customers the value of which exceeds 25% of the value of its eligible capital.

As at 31 December 2021 and 31 December 2020, concentration limits were not exceeded. As at 31 December 2021, the largest exposure to a single entity amounted to 52.60%1 of the Bank’s Tier 1 capital (46,93%1 of the Bank’s eligible capital as at 31 December 2020).

The Bank’s exposure to the 20 largest non-banking customers2:

31.12.2021				31.12.2020
No.	Credit exposures include loans, advances, purchased debt, bill of exchange discounts, realized guarantees, and interest receivables as well as off-balance sheet and capital exposures	Share in the loan portfolio, including off-balance sheet and capital exposures	Concentration ratio –(relation of exposure to the value of the Bank’s eligible capital)		Credit exposures include loans, advances, purchased debt, bill of exchange discounts, realized guarantees, and interest receivables as well as off-balance sheet and capital exposures	Share in the loan portfolio, including off-balance sheet and capital exposures	Concentration ratio –(relation of exposure to the value of the Bank’s eligible capital)
13	19 187	5.61%	52.60%	13	18 894	5.89%	46.93%
23	16 367	4.78%	44.87%	23	16 875	5.26%	41.91%
3	5 939	1.74%	16.28%	3	2 831	0.88%	7.03%
43	3 531	1.03%	9.68%	43	2 530	0.79%	6.28%
5	2 606	0.76%	7.15%	5	2 453	0.76%	6.09%
6	2 453	0.72%	6.73%	6	2 366	0.74%	5.88%
7	2 377	0.69%	6.52%	7	2 273	0.71%	5.65%
8	1 984	0.58%	5.44%	8	2 267	0.71%	5.63%
9	1 774	0.52%	4.86%	9	2 120	0.66%	5.27%
103	1 750	0.51%	4.80%	10	2 046	0.64%	5.08%
11	1 549	0.45%	4.25%	11	1 593	0.50%	3.96%
12	1 538	0.45%	4.22%	123	1 527	0.48%	3.79%
13	1 485	0.43%	4.07%	13	1 202	0.37%	2.99%
14	1 436	0.42%	3.94%	14	1 171	0.37%	2.91%
15	1 340	0.39%	3.68%	15	1 007	0.31%	2.50%
16	1 207	0.35%	3.31%	16	923	0.29%	2.29%
17	1 167	0.34%	3.20%	17	855	0.27%	2.12%
18	1 115	0.33%	3.06%	18	826	0.26%	2.05%
19	1 056	0.31%	2.90%	19	797	0.25%	1.98%
20	1 015	0.30%	2.78%	203	789	0.25%	1.96%
Total	70 877	20.71%	194.32%	Total	65 345	20.39%	162.29%

1 exposure excluded or partly excluded from the exposure concentration limit under the CRR  

2 off-balance sheet exposure includes the liability arising from derivative transactions in an amount equal to their balance sheet equivalent

3 exposure excluded or partly excluded from the exposure concentration limit under the CRR

•           Concentration by the largest groups of related customers

The largest concentration of the Bank’s exposures to a group of related customers was 7.17% of the Bank’s loan portfolio (as at 31 December 2020, it was 7.18%).

As at 31 December 2021 and 31 December 2020, the largest concentration of the Bank’s exposures was, accordingly: 67.22%1 of the Bank’s Tier 1 capital and 57.20%1 of the Bank’s eligible capital.

The Bank’s exposure2 to the 5 largest groups3:

31.12.2021				31.12.2020
No.	Credit exposures include loans, advances, purchased debt, bill of exchange discounts, realized guarantees, and interest receivables as well as off-balance sheet and capital exposures	Share in the loan portfolio, including off-balance sheet and capital exposures	Concentration ratio –(relation of exposure to the value of the Bank’s eligible capital)	No.	Credit exposures include loans, advances, purchased debt, bill of exchange discounts, realized guarantees, and interest receivables as well as off-balance sheet and capital exposures	Share in the loan portfolio, including off-balance sheet and capital exposures	Concentration ratio – Relation of exposure to the value of the Bank’s eligible capital
11	24 518	7.17%	67.22%	11	23 031	7.18%	57.20%
21	17 242	5.04%	47.27%	21	17 594	5.49%	43.70%
3	6 286	1.84%	17.23%	3	3 623	1.13%	9.00%
4	2 977	0.87%	8.16%	4	2 653	0.83%	6.59%
5	2 842	0.83%	7.79%	5	2 623	0.82%	6.51%
Total	53 865	15.75%	147.68%	Total	49 525	15.45%	123.00%

 

1 exposure partly excluded from the exposure concentration limit under the CRR

2 off-balance sheet exposure includes the liability arising from derivative transactions in an amount equal to their balance sheet equivalent (in accordance with Article 274(2) of the CRR).

3  the list does not include exposure to the State Treasury (relevant for groups in which the State Treasury has control)

 

•           Concentration by industry

The structure of the Bank’s exposure by industry sector is dominated by entities operating in the “Financial and insurance activity” and “Industrial processing” sections. The Bank’s exposure to these sectors represents approximately 41% of the industry portfolio.

CONCENTRATION BY INDUSTRY
SECTION SYMBOL	SECTION NAME	31.12.2021		31.12.2020
		EXPOSURE	NUMBER OF ENTITIES	EXPOSURE	NUMBER OF ENTITIES
K	Financial and insurance activities	25.11	1.48	23.20	1.56
C	Industrial processing	16.58	9.69	14.36	9.69
L	Real estate administration	11.56	21.22	12.92	21.85
G	Wholesale and retail trade, repair of motor vehicles	10.66	21.50	10.86	21.65
O	Public administration and national defence, obligatory social security	13.08	3.28	15.13	4.10
Other exposures		23.01	42.83	23.53	41.15
Total		100.00	100.00	100.00	100.00

 

•           Concentration by geographical regions

The Bank’s loan portfolio is diversified in terms of geographical concentration.

The Bank classifies the structure of the loan portfolio by geographical regions depending on the customer area – it differs for the Retail Market Area (ORD) and for the Corporate and Investment Banking Area (OKI).

In 2021, as in 2020, the largest concentration of the ORD loan portfolio was in the Warsaw region and Katowice region - these regions account for around 27.5% of the ORD portfolio (as at 31 December 2020: 27.5%)

CONCENTRATION OF CREDIT RISK BY GEOGRAPHICAL REGION FOR RETAIL CUSTOMERS (%)	31.12.2021	31.12.2020
Warsaw region	16.40	16.94
Katowice region	11.09	11.00
Poznań region	10.46	10.50
Kraków region	8.44	8.61
Łódź region	8.95	8.86
Wrocław region	10.72	10.68
Gdańsk region	10.30	10.47
Lublin region	7.26	7.12
Białystok region	6.58	6.48
Szczecin region	8.43	8.39
Head Office	0.77	0.74
Other	0.60	0.22
Total	100.00	100.00

 

In 2021, the highest concentration of the OKI loan portfolio was in the central macro-region - 44.5% of the OKI portfolio (as at 31 December 2020: 42.0%)

CONCENTRATION OF CREDIT RISK BY GEOGRAPHICAL REGION FOR CORPORATE CUSTOMERS (%)	31.12.2021	31.12.2020
Head Office	6.58	8.46
central macroregion	44.50	41.96
northern macroregion	7.62	7.81
western macroregion	11.01	12.06
southern macroregion	9.10	11.02
south-eastern macroregion	9.57	7.47
north-eastern macroregion	3.70	3.84
south-western macroregion	6.10	6.22
Other	-	0.01
Foreign countries	1.82	1.15
Total	100.00	100.00

•           Concentration of credit risk by currency

As at 31 December 2021, the share of exposures in convertible currencies other than PLN in the entire Bank’s portfolio amounted to 16.6% (as at 31 December 2020: 17.1%)

Exposures in EUR represent the largest part of the Bank’s foreign currency exposure with a 55.1% share in the entire foreign currency portfolio of the Bank as at the end of 2021 (as at 31 December 2020: 50.4%) A consistent decrease in CHF loans has been observed, mainly as a result of the Bank’s activities related to concluding settlement agreements with customers holding housing loans in this currency. The share of loans in CHF in the Bank’s portfolio as at the end of 2021 amounted to 5.9% (as at 31 December 2020: 7.3%)

CONCENTRATION OF CREDIT RISK BY CURRENCY (%)	31.12.2021	31.12.2020
PLN	83.41	82.88
Foreign currencies, of which:	16.59	17.12
CHF	5.94	7.25
EUR	9.15	8.62
USD	1.44	1.08
GBP	0.01	0.02
Other	0.05	0.14
Total	100.00	100.00

•           Other types of concentration

The Bank analyses the structure of its housing loan portfolio by LTV levels. Both in 2021 and in 2020, the largest concentration was in the LTV range of 41%-60%.

THE BANK’S HOUSING LOAN PORTFOLIO STRUCTURE BY LTV	31.12.2021	31.12.2020
0% - 40%	32.15	27.17
41% -60%	40.68	37.30
61% - 80%	23.31	29.36
81% - 90%	2.98	3.96
91% - 100%	0.48	0.97
over 100%	0.40	1.24
Total	100.00	100.00

 

	31.12.2021	31.12.2020
average LTV for the portfolio of loans in CHF	51.23	55.96
average LTV for the entire portfolio	50.52	53.67

65.            Collateral

In the period ended 31 December 2021, the Bank did not make any changes to its collateral policies.

The Bank takes into account the collateral held for credit exposures when estimating the expected credit loss. With respect to individually significant exposures that meet the conditions for impairment, future collateral recoveries are estimated individually and taken into account in determining the expected loss, with a weight corresponding to the assessment of the probability of implementation of the debt recovery scenario. The value of collateral recoveries estimated under the recovery scenario for impaired exposures at the balance sheet date was PLN 866 million (as at 31 December 2020: PLN 1 811 million). The Bank has decided in 2021 to adopt a conservative approach to the use of mortgage collateral for which it does not have a current appraisal report in the process of estimating expected credit loss using the individualized method.

The Bank does not have any exposures for which, due to the value of the collateral, it has not recognized an allowance for expected credit loss.

66.            Forbearance practices

Forbearance is defined by the Bank as actions aimed at amending the contractual terms agreed with a debtor or an issuer, forced by the debtor’s or issuer’s difficult financial situation (restructuring activities introducing concessions that otherwise would not have been granted). The aim of forbearance activities is to restore a debtor’s or an issuer’s ability to settle their liabilities towards the Bank and to maximize the efficiency of managing non-performing loans, i.e. obtaining the highest possible recoveries while minimizing the costs incurred.

Forbearance changes in repayment terms may consist of:

•        dividing the debt due into instalments;

•        changing the repayment scheme (annuity payments, degressive payments);

•        extending the loan period;

•        changing the interest rate;

•        changing the margin;

•        reducing the debt.

As a result of concluding a forbearance agreement and repaying the amounts due under it on a timely basis, a non-performing loan becomes a performing loan.

The provision of facilities within the framework of forbearance, as a premise of impairment, results in the recognition of the premise of impairment and the classification of the credit exposure into the portfolio of exposures at risk of impairment.

The inclusion of such exposures in the portfolio of performing exposures (discontinuing recognition of the forbearance agreement as an impairment trigger) takes place at least 12 months after the introduction of forbearance, provided that all payments in arrears and at least six scheduled payments have been made by the customer and, in the Bank’s opinion, the current situation of the customer does not pose a threat to their compliance with the terms of the restructuring agreement (except where the forbearance agreement comprises reducing the receivables).

Exposures cease to meet the criteria of a forborne exposure when all of the following conditions are met:

•        at least 24 months have passed from the date of including the exposure into the portfolio of performing exposures (conditional period);

•        as at the end of the conditional period referred to above, the customer has no debt towards the Bank overdue for more than 30 days;

•        at least 12 instalments have been repaid on a timely basis and in the amounts agreed.

Forborne exposures are monitored on an on-going basis. Throughout the whole period of their recognition allowances are recognized for these exposures in the amount of expected losses over the life horizon of the exposure.

31.12.2021	Instruments with modified terms and conditions	Refinancing	Total, gross	Impairment allowance	Total, net
Performing exposures
Not held for trading, measured at fair value through profit or loss	13	-	13	-	13
consumer loans	13	-	13	-	13
Measured at amortized cost:	703	1	704	(66)	638
real estate loans	263	-	263	(25)	238
corporate loans	358	1	359	(27)	332
consumer loans	82	-	82	(14)	68
Total performing exposures	716	1	717	(66)	651
Non-performing exposures
Not held for trading, measured at fair value through profit or loss	193	-	193	-	193
consumer loans	39	-	39	-	39
corporate bonds	154	-	154	-	154
Measured at fair value through OCI	402	-	402	(52)	350
real estate loans	5	-	5	-	5
corporate bonds	397	-	397	(52)	345
Measured at amortized cost:	2 169	47	2 216	(1 138)	1 078
real estate loans	452	-	452	(264)	188
corporate loans	1 571	46	1 617	(852)	765
consumer loans	146	1	147	(22)	125
Total non-performing exposures	2 764	47	2 811	(1 190)	1 621
TOTAL EXPOSURES SUBJECT TO FORBEARANCE	3 480	48	3 528	(1 256)	2 272

 

31.12.2020	Instruments with modified terms and conditions	Refinancing	Total, gross	Impairment allowance	Total, net
Performing exposures
Not held for trading, measured at fair value through profit or loss	17	-	17	-	17
consumer loans	17	-	17	-	17
Measured at fair value through OCI:	1	-	1	-	1
real estate loans	1	-	1	-	1
Measured at amortized cost:	942	-	942	(65)	877
real estate loans	372	-	372	(29)	343
corporate loans	508	-	508	(28)	480
consumer loans	62	-	62	(8)	54
Total performing exposures	960	-	960	(65)	895
Non-performing exposures
Not held for trading, measured at fair value through profit or loss	207	-	207	-	207
consumer loans	47	-	47	-	47
corporate bonds	160	-	160	-	160
Measured at fair value through OCI:	461	-	461	(14)	447
real estate loans	4	-	4	-	4
corporate bonds	457	-	457	(14)	443
Measured at amortized cost:	2 105	32	2 137	(981)	1 156
real estate loans	426	-	426	(236)	190
corporate loans	1 556	30	1 586	(716)	870
consumer loans	123	2	125	(29)	96
Total non-performing exposures	2 773	32	2 805	(995)	1 810
TOTAL EXPOSURES SUBJECT TO FORBEARANCE	3 733	32	3 765	(1 060)	2 705

 

LOANS AND ADVANCES TO CUSTOMERS SUBJECT TO FORBEARANCE	2021	2020
Recognized interest income on forborne loans and advances granted to customers	80	82

67.            Exposure to the counterparty credit risk

CONCENTRATION OF CREDIT RISK – INTERBANK MARKET AND NON-WHOLESALE MARKET – EXPOSURE AS AT 31.12.2021*
Counterparty	Country	Rating		Interbank market - wholesale			Non-wholesale market			Total
				Deposit (nominal value)	Derivatives (market value, excluding collateral if positive)	Securities (nominal value)	Nominal balance sheet exposure	Nominal off-balance sheet exposure	Cash on NOSTRO accounts
Counterparty 1	Poland		A	-	2	64	6 544	4 665	-	11 275
Counterparty 2	Poland		A	-	5	7 668	-	-	-	7 673
Counterparty 3	Luxembourg		AAA	-	-	3 656	-	-	-	3 656
Counterparty 4	Germany		BBB	-	516	-	-	-	2	518
Counterparty 5	Germany		AA	-	394	-	1	10	5	410
Counterparty 6	Ukraine		NONE	-	-	-	-	313	18	331
Counterparty 7	Germany		BBB	-	245	-	-	-	-	245
Counterparty 8	Poland		A	-	12	5	150	-	-	167
Counterparty 9	Poland		BBB	155	4	3	-	-	-	162
Counterparty 10	France		A	-	131	-	-	-	-	131
Counterparty 11	Poland		A	70	58	-	-	-	-	128
Counterparty 12	UK		NONE	-	116	-	-	-	-	116
Counterparty 13	France		A	-	109	-	-	-	-	109
Counterparty 14	Belgium		A	-	75	-	-	-	21	96
Counterparty 15	United States of America		AA	-	5	-	3	12	66	86
Counterparty 16	Norway		AA	-	84	-	-	-	1	85
Counterparty 17	Russian Federation		BBB	-	-	-	-	-	79	79
Counterparty 18	France		A	-	40	-	-	-	-	40
Counterparty 19	Japan		A	-	-	-	-	-	24	24
Counterparty 20	Luxembourg		A	-	-	-	2	18	-	20

* Excluding exposures to the State Treasury and the National Bank of Poland

CONCENTRATION OF CREDIT RISK – INTERBANK MARKET AND NON-WHOLESALE MARKET – EXPOSURE AS AT 31.12.2020*
Counterparty	Country	Rating	Interbank market - wholesale			Non-wholesale market			Total
			Deposit	Derivatives (market value, excluding collateral if positive)	Securities (nominal value)	Nominal balance sheet exposure	Nominal off-balance sheet exposure	Cash on NOSTRO accounts
Counterparty 1	Poland	BBB	-	1	19	3 222	7 078	-	10 320
Counterparty 2	Poland	A	-	13	3 513	-	-	-	3 526
Counterparty 3	Luxembourg	AAA	-	-	2 344	-	-	-	2 344
Counterparty 6	Ukraine	NONE	-	-	-	-	289	11	300
Counterparty 8	Poland	A	-	(1)	2	150	-	-	152
Counterparty 77	UK	AA	-	135	-	-	-	-	135
Counterparty 7	Germany	BBB	-	130	-	-	-	-	130
Counterparty 23	France	A	-	(85)	-	125	-	-	125
Counterparty 24	Finland	AA	-	(142)	-	-	110	-	110
Counterparty 15	United States of America	AA	-	(17)	-	1	12	74	87
Counterparty 4	Germany	BBB	-	78	-	-	-	4	82
Counterparty 80	France	A	-	(3)	-	72	-	-	72
Counterparty 85	Poland	NONE	-	58	-	-	-	-	58
Counterparty 14	Belgium	A	-	5	-	-	-	47	52
Counterparty 37	Poland	BBB	-	48	1	-	-	-	49
Counterparty 16	Norway	AA	-	37	-	-	-	1	38
Counterparty 28	UK	A	-	-	-	-	-	21	21
Counterparty 20	Luxembourg	A	-	-	-	2	18	-	20
Counterparty 38	Ireland	AA	-	17	-	-	-	-	17
Counterparty 21	Germany	BBB	-	6	-	-	-	11	17

* Excluding exposures to the State Treasury and the National Bank of Poland

The Bank had access to two clearing houses through which it clears interest rate derivative transactions specified in the EMIR Regulation with selected domestic and foreign counterparties. In order to limit the credit risk in respect of derivative transactions and securities transactions, the Bank concludes with its counterparties framework agreements (under the ZBP, ISDA and ICMA standards). The framework agreements allow to offset mutual amounts payable (reduction of the settlement risk) and non-payable (reduction of pre-settlement risk), resulting from transactions, and also utilize the close-out netting mechanism upon termination of the framework agreement as a result of default or an event justifying termination with regard to one or both parties to the agreement.

Moreover, the Bank concludes with its counterparties collateral agreements (CSA – Credit Support Annex under the ISDA standard, or a Collateral Agreement under the ZBP standard), under which each party undertakes, upon meeting the premises stipulated therein, to establish appropriate collateral together with the right to offset. Exemptions include derivative transactions concluded between members of the Group: PKO Bank Polski S.A. and PKO Bank Hipoteczny S.A., which were exempted from the obligation to exchange collaterals under Art. 4 (2) of the EMIR Regulation.

68.            Management of currency risk associated with mortgage loans for individuals

The Bank analyses its portfolio of foreign currency mortgage loans to individuals in a specific manner. The Bank monitors the quality of the portfolio on an on-going basis and reviews the risk of deterioration of the portfolio quality. Currently, the quality of the portfolio is at an acceptable level. The Bank takes into consideration the risk of foreign currency mortgage loans for individuals in the capital adequacy and equity management.

HOUSING LOANS AND ADVANCES TO INDIVIDUALS (RETAIL AND PRIVATE BANKING) BY CURRENCY	31.12.2021			31.12.2020
	gross	impairment allowance	net	gross	impairment allowance	net
in local currency	76 566	(1 043)	75 523	69 001	(1 056)	67 945
PLN	76 566	(1 043)	75 523	69 001	(1 056)	67 945
in foreign currency	15 610	(749)	14 861	18 198	(719)	17 479
CHF	13 100	(679)	12 421	15 366	(647)	14 719
EUR	2 469	(67)	2 402	2 787	(68)	2 719
USD	33	(3)	30	36	(4)	32
OTHER	8	-	8	9	-	9
TOTAL	92 176	(1 792)	90 384	87 199	(1 775)	85 424

 

FOREIGN CURRENCY HOUSING LOANS AND ADVANCES TO INDIVIDUALS BY THE GRANTING DATE		INDEXED	DENOMINATED	Total
31.12.2021
up to 2002	Gross amount	-	42	42
	Allowances for credit losses	-	(1)	(1)
	Net amount	-	41	41
	Number of loans granted	-	3 930	3 930
from 2003 to 2006	Gross amount	-	2 939	2 939
	Allowances for credit losses	-	(108)	(108)
	Net amount	-	2 831	2 831
	Number of loans granted	-	37 734	37 734
from 2007 to 2009	Gross amount	-	7 240	7 240
	Allowances for credit losses	-	(515)	(515)
	Net amount	-	6 725	6 725
	Number of loans granted	-	45 782	45 782
from 2010 to 2012	Gross amount	2 807	2 567	5 374
	Allowances for credit losses	(55)	(68)	(123)
	Net amount	2 752	2 499	5 251
	Number of loans granted	9 739	11 208	20 947
from 2013 to 2016	Gross amount	4	11	15
	Allowances for credit losses	-	(2)	(2)
	Net amount	4	9	13
	Number of loans granted	18	37	55
Total	Gross amount	2 811	12 799	15 610
	Allowances for credit losses	(55)	(694)	(749)
	Net amount	2 756	12 105	14 861
	Number of loans granted	9 757	98 691	108 448

 

FOREIGN CURRENCY HOUSING LOANS AND ADVANCES TO INDIVIDUALS BY THE GRANTING DATE			INDEXED	DENOMINATED	Total
31.12.2020
up to 2002 year	Gross amount		-	59	59
	Allowances for credit losses		-	(1)	(1)
	Net amount		-	58	58
	Number of loans granted			5 444	5 444
from 2003 to 2006	Gross amount		-	3 617	3 617
	Allowances for credit losses		-	(106)	(106)
	Net amount		-	3 511	3 511
	Number of loans granted			42 445	42 445
from 2007 to 2009	Gross amount		-	8 464	8 464
	Allowances for credit losses		-	(491)	(491)
	Net amount		-	7 973	7 973
	Number of loans granted			51 166	51 166
from 2010 to 2012	Gross amount		3 137	2 904	6 041
	Allowances for credit losses		(48)	(72)	(120)
	Net amount		3 089	2 832	5 921
	Number of loans granted		10 596	11 955	22 551
from 2013 to 2016	Gross amount		5	12	17
	Allowances for credit losses		-	(1)	(1)
	Net amount		5	11	16
	Number of loans granted		18	43	61
Total	Gross amount		3 142	15 056	18 198
	Allowances for credit losses		(48)	(671)	(719)
	Net amount		3 094	14 385	17 479
	Number of loans granted		10 614	111 053	121 667

 

69.            Interest rate risk management

Interest rate risk management

•           Definition

Interest rate risk is a risk of losses being incurred on the Bank’s balance sheet and off-balance sheet items sensitive to interest rate fluctuations, as a result of changes in market interest rates.

•           Risk management objective

To reduce the potential losses resulting from market interest rate fluctuations to an acceptable level by properly shaping the structure of balance sheet and off-balance sheet items.

•           Risk identification and measurement

The Bank uses the following measures of interest rate risk: interest income sensitivity, economic value sensitivity, value at risk (VaR), stress tests and repricing gaps.

•           Control

Control over interest rate risk consists of determining interest rate risk limits and thresholds tailored to the scale and complexity of the Bank’s operations, in particular the strategic limit of tolerance to interest rate risk.

•           Risk forecasting and monitoring

The Bank regularly monitors:

•        the levels of interest rate risk measures;

•        utilization of the strategic limit of tolerance to interest rate risk;

•        utilization of internal limits and thresholds of interest rate risk.

•           Reporting

Reports on interest rate risk are prepared on a daily, weekly, monthly and quarterly basis.

•           Management actions

The main tools for interest rate risk management used by the Bank are: interest rate risk management procedures, interest rate risk limits and thresholds.

The Bank established limits and thresholds for interest rate risk comprising, among other things, the following: interest income sensitivity, sensitivity of the economic value and losses.

FINANCIAL INFORMATION

The Bank’s exposure to interest rate risk remained within the adopted limits as at 31 December 2021 and 31 December 2020. The Bank was mainly exposed to PLN interest rate risk.

The Bank categorizes its portfolios from the perspective of interest rate risk management:

•        the banking book - comprises balance sheet and off-balance sheet items not included in the trading book, in particular items resulting from the Bank’s core activities, transactions concluded for investment and liquidity purposes and their hedging transactions;

•        the trading book - comprises transactions concluded on financial instruments as part of activities conducted on own account and on behalf of the customers.

Banking book

In order to monitor interest rate risk, the Bank applies interest rate risk measures that reflect the identified five main types of interest rate risk:

•        the risk of revaluation date mismatch;

•        the yield curve risk;

•        the basis risk;

•        the customer option risk; and

•        credit spread risk in the banking book (CSRBB).

•           Sensitivity of interest income

The sensitivity of interest income to sudden shifts in the yield curve is determined by a potential financial effect of such a shift reflected in a changed amount of interest income in a given time horizon. The change results from the mismatch between revaluation dates of assets, liabilities and off-balance sheet liabilities granted and received (in particular derivative instruments) sensitive to interest rate fluctuations.

Sensitivity of interest income in the banking book of the Bank to the abrupt shift in the yield curve of 100 bp down in a one-year horizon in all currencies is shown in the table below:

NAME OF THE MEASURE	31.12.2021	31.12.2020
Sensitivity of interest income (PLN million)	(824)	(510)

•           Sensitivity of economic value

Sensitivity of economic value reflects the fair value changes of items in the portfolio arising from the parallel shift of the yield curves by 100 bp up or down (the most unfavourable of the scenarios mentioned).

The table below presents the economic value sensitivity measure (BPV) of the banking book of the Bank in all currencies as at 31 December 2021 and 31 December 2020:

NAME OF THE MEASURE	31.12.2021	31.12.2020
Sensitivity of economic value (PLN million)	(1 317)	(454)

 

Trading book

In order to monitor the interest rate risk in the trading book the Bank applies the value-at-risk (VaR) measure.

•           Value at risk

The IR VaR measure is a potential amount of loss that may be incurred in normal market conditions in a specific time (i.e. horizon) and with an assumed level of probability related to changes in interest rate curves.

The IR VaR in the Bank’s trading book is shown in the table below:

NAME OF THE MEASURE	31.12.2021	31.12.2020
IR VaR for a 10-day time horizon at a confidence level of 99% (PLN million):
Average value	17	11
Maximum value	34	20
Value at the end of the period	31	13

 

70.            Currency risk management

Currency risk management

•           Definition

Currency risk is the risk of incurring losses due to unfavourable exchange rate fluctuations. The risk is generated by maintaining open currency positions in various foreign currencies.

•           Risk management objective

To reduce the potential losses resulting from exchange rate fluctuations to an acceptable level by properly shaping the currency structure of balance sheet and off-balance sheet items.

•           Risk identification and measurement

The Bank uses the following measures of the currency risk: value-at-risk (VaR) and stress tests.

•           Control

Control over currency risk consists of determining currency risk limits and thresholds tailored to the scale and complexity of the Bank’s operations, in particular the strategic limit of tolerance to currency risk.

•           Risk forecasting and monitoring

The Bank regularly monitors:

•        the level of currency risk measures;

•        utilization of the strategic limit of tolerance to currency risk;

•        utilization of internal limits and thresholds of currency risk.

•           Reporting

Reports on currency risk are prepared on a daily, weekly, monthly and quarterly basis.

•           Management actions

The main tools for currency risk management used by the Bank are:

•        currency risk management procedures;

•        currency risk limits and thresholds;

•        defining allowable types of foreign currency transactions.

The Bank has set limits and thresholds for currency risk for, among other things: currency positions, Value at Risk calculated for a 10-day time horizon and loss on the currency market.

FINANCIAL INFORMATION

•           Sensitivity measures

The FX VaR measure is a potential value of loss that may occur in normal market conditions at a specific time (i.e. horizon) and with an assumed level of probability related to changes in foreign exchange rates.

Stress tests are used to estimate loss in the event of abrupt changes on the currency market which are not described using statistical measures by default.

The Bank’s FX VaR, in aggregate for all currencies, is presented in the table below:

NAME OF SENSITIVITY MEASURE	31.12.2021	31.12.2020
VaR for a 10-day time horizon at a confidence level of 99% (in PLN million)1	3	615

•           Foreign currency position

The Bank’s foreign currency positions are presented in the table below:

FOREIGN CURRENCY POSITION1	31.12.2021	31.12.2020
EUR	258	171
CHF	(44)	(14 361)
Other (Global, Net)	(88)	-

1 The positions do not include structural positions in UAH (PLN 1 072.3 million) and in EUR (PLN 23.5 million), for which the Bank obtained approval from the PFSA to exclude them from the calculation of the currency positions, not affecting the Bank’s profit or loss.

Currency positions (in addition to volatility of foreign exchange rates) are a key factor determining the level of currency risk to which the Bank is exposed. The foreign currency positions are determined by all foreign currency transactions concluded, both in the statement of financial position and off-balance sheet transactions, with the exception of structural positions in UAH (PLN 1 072.3 million) and in EUR (PLN 23.5 million), for which the Bank obtained approval from the PFSA to exclude them from the calculation of the currency positions.

As at the end of 2020, the Bank recognized a material foreign currency position in CHF in an amount of approx. PLN 14.2 billion in connection with the Bank’s intention confirmed by the resolution of the Extraordinary General Meeting of 23 April 2021 to conclude settlement agreements with the consumers who had concluded foreign currency mortgage loan agreements with the Bank. In the first half of 2021, the Bank secured the full amount of this currency position (see the Note “Mortgage loans in convertible currencies”).

71.            Liquidity risk management

•           Definition

Liquidity risk is the risk of the inability to settle liabilities as they become due because of an absence of liquid assets. The lack of liquidity may be due to the inappropriate structure of assets and liabilities, including off-balance sheet, a mismatch of cash flows, customers failing to settle their liabilities, a sudden withdrawal of funds by the customers or other market events.

The Bank also manages financing risk which takes into account the risk of losing the existing sources of financing and inability to renew the required means of financing or the loss of access to new sources of financing.

•           Risk management objective

To ensure the necessary level of funds needed to settle current and future liabilities (also potential ones) as they become due, taking into account the nature of the activities conducted and the needs which may arise due to changes in the market environment, by appropriately establishing the structure of balance sheet and off-balance sheet assets and liabilities.

•           Risk identification and measurement

The Bank uses the following measures of the liquidity risk:

•        contractual and adjusted liquidity gap;

•        liquidity surplus;

•        liquidity coverage ratio (LCR);

•        net stable funding ratio (NSFR);

•        liquidity reserve;

•        the ratio of stable funds to illiquid assets;

•        measures of stability of the deposit and loan portfolios;

•        liquidity stress tests.

•           Risk control

Control over the liquidity risk consists in determining liquidity risk limits and thresholds tailored to the scale and complexity of the Bank’s operations, in particular the strategic limit of tolerance to liquidity risk.

•           Risk forecasting and monitoring

The Bank regularly monitors:

•        utilization of the strategic limit of tolerance to liquidity risk;

•        utilization of regulatory liquidity standards;

•        utilization of internal limits and thresholds of liquidity risk;

•        concentration of the sources of financing;

•        early warning indicators – monitored in order to detect early unfavourable developments which may have a negative impact on the Bank’s or the financial sector’s liquidity position (when exceeded, early warning indicators trigger liquidity contingency plans).

The Bank also makes regular forecasts of liquidity risk which take into account the current developments in the Bank’s operations. Liquidity forecasts include primarily the levels of selected liquidity risk measures envisaged in the forecasts of the Bank’s assets and liabilities and in selected stress test scenarios.

•           Reporting

Liquidity reports are developed on a daily, weekly, monthly and quarterly basis and once a year, an in-depth long-term liquidity analysis is performed. The reports contain information on liquidity risk exposure and on the risk limits utilization. The reports are addressed mainly to: ALCO, RC, the Management Board, the Risk Committee and the Supervisory Board.

•           Management actions / Risk management tools

The main tools for liquidity risk management used by the Bank are:

•        procedures for liquidity risk management, in particular contingency plans;

•        limits and thresholds to mitigate short-term, medium-term and long-term liquidity risk;

•        supervisory liquidity standards;

•        deposit, investment and securities purchase and sale transactions as well as derivatives, including transactions for the sale or purchase of securities;

•        transactions ensuring long-term financing of the lending activities.

The Bank’s policy concerning liquidity is based on keeping an appropriate level of liquidity surplus and supervisory and internal measures of liquidity risk and financing through appropriate shaping of the portfolio of liquid securities, and stable sources of financing (a stable deposit base, in particular). In liquidity risk management, money market instruments, including NBP open market operations, are also used.

FINANCIAL INFORMATION

•           Liquidity gap

The adjusted liquidity gap comprises a set of particular balance sheet and off-balance sheet categories in respect of their adjusted maturities.

	on demand	0-1 month	1 - 3 months	3-6 months	6-12 months	12-24 months	24-60 months	over 60 months
31.12.2021
Adjusted periodic gap	9 604	84 503	(8 396)	(3 436)	(1 085)	15 878	33 475	(130 543)
Adjusted cumulative periodic gap	9 604	94 107	85 712	82 275	81 190	97 069	130 543	-
31.12.2020
Adjusted periodic gap	6 558	68 407	(6 911)	(2 892)	(838)	11 124	30 948	(106 396)
Adjusted cumulative periodic gap	6 558	74 965	68 054	65 162	64 324	75 448	106 396	-

1 brought to comparability with the data as at 31 December 2020.

In all time horizons, the adjusted cumulative liquidity gap was positive as at 31 December 2021 and also as at

31 December 2020. This means that the Group has a surplus of the assets receivable over the liabilities payable.

•           Supervisory liquidity measures

The following supervisory liquidity measures (specified by the provisions approved at the EU level) are regularly set and monitored at the Bank:

•        Liquidity Coverage Ratio (LCR) - defining the relation of high-quality liquid assets to net outflows in the 30-day horizon in stress conditions (supervisory measure specified in the CRR Regulation);

•        Net Stable Funding Ratio (NSFR) - a measure defining the relationship of items providing stable funding to items requiring stable funding;

SUPERVISORY LIQUIDITY MEASURES	31.12.2021	31.12.2020
NSFR - net stable funding ratio	130.60	139.10
LCR - liquidity coverage ratio	176.50	204.70

 

In the period ended 31 December 2021 and 31 December 2020, liquidity measures remained above their respective supervisory limits.

•           Core deposit base

As at 31 December 2021, the core deposit base constituted approx. 94.3% of all deposits placed with the Bank (excluding the interbank market), which represents a decrease of around 0.5 p.p. compared with the end of 2020.

•           Structure of the sources of financing

STRUCTURE OF THE BANK’S SOURCES OF FINANCING	31.12.2021	31.12.2020
Total deposits (excluding interbank market)	86.27	84.17
Interbank market deposits	1.01	0.72
Equity	10.61	11.63
Market financing	2.11	3.48
Total	100.00%	100.00%

 

72.            Operational risk management

•           Definition

Operational risk is defined as the risk of losses being incurred due to a mismatch or unreliability of the internal processes, people and systems may or due to external events. Operational risk includes legal risk and cyber security risk:

•        legal risk - the risk of incurring a loss due to ignorance, misunderstanding and non-application of legal norms and accounting standards, the inability to enforce contractual provisions, unfavourable interpretations or decisions of courts or public administration bodies;

•        cyber security risk - the degree of exposure by potential negative cyber security risk factors, related to information and communication technologies, which may cause financial damage to the organization by compromising the availability, integrity, confidentiality or accountability of information processed in SIB resources.

Operational risk excludes reputation risk and business risk.

•           Risk management objective

The objective of operational risk management is to ensure operational and cost efficiency and business security by limiting the occurrence of operational events and their negative consequences.

 

•           Risk identification and measurement

There are two levels of operational risk management at the Bank:

•        systemic operational risk management - which consists of creating solutions for the Bank to control the level of operational risk that enables the Bank to achieve its objectives;

•        on-going operational risk management - aimed at preventing operational events and responding to operational events that occur, for which each Bank employee is responsible within the scope of his/her tasks and responsibilities.

The process of operational risk management is carried out at the level of the whole Bank and at the levels of individual areas of systemic operational risk management.

Operational risk management comprises the identification of operational risk in particular through collecting data about the operational risk and the self-assessment of operational risk.

In order to manage operational risk, the Bank gathers internal and external data about operational events and the causes and effects of their occurrence, data on the factors of the business environment, results of operational risk self-assessment, data on the operational risk indicators and data related to the quality of the internal control system.

The operational risk self-assessment comprises the identification and assessment of operational risk for the Bank’s products, processes and applications as well as organizational changes and it is conducted cyclically and before implementing new or changed Bank products, processes and applications, using the data gathered on operational events and information obtained during the measurement, monitoring, cooperation with the Bank Group’s entities and operational risk reporting, including internal audits and security audits.

The measurement of operational risk comprises:

•        calculating operational risk indicators: KRI (Key Risk Indicators) and RI (Risk Indicators);

•        calculating the requirement for own funds to cover operational risk under the AMA approach (the Bank, including the German and Czech Branches and excluding the Branch in Slovakia) and BIA (the Branch in Slovakia);

•        stress-tests;

•        calculating the Bank's internal capital.

•           Control

Control of operational risk includes determining risk control mechanisms tailored to the scale and complexity of the Banks activities, in the form of operational risk limits, in particular the strategic limits of tolerance of operational risk, loss limits, operational risk indicators with thresholds and critical values.

•           Risk forecasting and monitoring

The Bank regularly monitors:

•        utilization of the strategic tolerance and operational risk losses limits for the Bank;

•        operational events and their consequences;

•        results of the operational risk self-assessment;

•        the requirement in respect of own funds to cover operational risk, in accordance with the BIA approach in the case of the Slovak Branch and in accordance with the AMA approach in the case of the remaining activities of the Bank;

•        the results of stress tests, including reverse stress tests;

•        operational risk indicator values in relation to thresholds and critical values;

•        the level of risk for the Bank and the areas and tools for managing operational risk in the Bank such as self-assessment, operational risk indicators, loss limits;

•        the effectiveness and timeliness of actions undertaken to reduce or transfer operational risk;

•        management actions relating to the presence of elevated or high levels of operational risk and their effectiveness in reducing the level of operational risk.

•           Reporting

Information relating to operational risk is reported for the purpose of senior management, the Operational Risk Committee, the Risk Committee, the Management Board and the Supervisory Board in monthly and quarterly cycles. Each month, information about operational risk is prepared and forwarded to the ORC, senior management staff, the organizational units of the Bank responsible for systemic operational risk management. The reports are addressed to the ORC, the RC, the Management Board and the Supervisory Board. The scope of the information is diversified and tailored to the scope of responsibilities of individual recipients of information.

•           Management actions

Management actions are taken in the following cases:

•        on an initiative of ORC or the Management Board;

•        on the initiative of the Bank’s organizational units managing operational risk;

•        when operational risk has exceeded the levels determined by Management Board or ORC.

In particular, when the risk level is elevated or high, the Bank uses

the following approaches and instruments to manage the operational risk:

•        risk reduction – mitigating the impact of risk factors or the consequences of their occurrence by introducing or strengthening various types of instruments for managing operational risk such as:

•           control instruments (including approval, internal control, segregation of duties);

•           human resources management instruments (selection of staff, increasing the qualifications of employees, incentive systems);

•           determination or verification of threshold values and critical operational risk indicators;

•           determination or verification of operational risk limits;

•           contingency plans;

•        risk transfer – transfer of responsibility for covering potential losses on a third-party:

•           insurance;

•           outsourcing;

•        risk avoidance - resignation from the risk-generating activity or eliminating the probability of the risk factor’s occurrence.

73.            ESG risk management

The ESG risk (environmental, social and corporate governance) has been defined by the Bank as a risk of negative financial consequences to the Bank resulting from the current or future impact of ESG risk factors on customers and counterparties or the Bank’s balance sheet items. ESG risks include environmental, social and corporate governance risks.

The objective of ESG risk management is to support the sustainable development and long-term value creation of the Bank in line with the Bank’s Strategy by managing the impact of ESG factors in an integrated way.

The Bank manages ESG risk as part of its management of other risks as, due to the nature of ESG risk, it is not a separate risk but a cross-cutting risk affecting the Bank’s individual risks, in particular credit risk. Management of the individual risks is the responsibility of the organizational units nominated by the Management Board. The committees functioning in the Bank within the scope of their tasks and competences take decisions, issue recommendations and opinions on activities related to ESG risk. The Bank applies the principle of “double materiality” by taking into account the following perspective

a)      the impact of ESG factors on the Bank’s operations, financial results and development;

b)      and the impact of the Bank’s activities on society and the environment.

In its Risk Management Strategy, the Bank has defined a quantitative strategic tolerance limit for ESG risk as the proportion of loans to customers in carbon-intensive industries to the Bank’s total assets. Financial, capital and strategic plans are reviewed and evaluated in terms of the level of risk generated and compliance with sustainable development taking into account ESG risks in the short, medium and long term.

The Bank implements a plan to integrate ESG risks into the Bank’s risk management system and, in accordance with the plan, defines ESG risk management processes in a comprehensive manner incorporating them into the existing risk management framework. The integration consists of adapting the existing methods of identification, measurement and control of individual risks, taking into account the cause and effect relationships between these risks and ESG factors.

74.            Capital adequacy

•           Capital adequacy

Capital adequacy is the state in which the level of risk incurred by the Bank in connection with its business development can be covered by its capital whose level and structure are adequate to the applicable supervisory requirements, specific risk tolerance level and adopted time horizon. The process of managing capital adequacy comprises, in particular, compliance with the applicable regulations of the supervisory and control authorities, as well as the risk tolerance level determined within the Bank and the capital planning process, including the policy concerning the sources of acquisition of capital.

The objective of capital adequacy management is to ensure an appropriate level and structure of own funds which is adequate to the scale of the Bank’s activities, supervisory requirements and exposure to risk.

The process of managing the Bank’s capital adequacy comprises:

•        specifying and pursuing the Bank’s capital targets;

•        identifying and monitoring significant types of risk;

•        measuring or estimating internal capital to cover individual risk types of risk and total internal capital;

•        determining threshold values for capital adequacy measures;

•        forecasting, monitoring and reporting the level and structure of own funds;

•        managing the structure of the balance sheet to optimize the quality of the Bank’s own funds;

•        emergency measures with regard to capital;

•        stress-tests;

•        forecasting requirements for own funds;

•        assessing the profitability of individual business areas and customer segments.

Capital adequacy measures include:

•        total capital ratio (TCR);

•        the ratio of own funds to internal capital;

•        Tier 1 core capital ratio (CET1);

•        Tier 1 capital ratio (T1);

•        leverage ratio;

•        MREL ratio - TREA;

•        MREL ratio - TEM.

The objective of monitoring the level of capital adequacy measures is to determine the degree of compliance with supervisory requirements and to identify cases which require emergency measures to be implemented or the preparation of a capital protection plan.

Major regulations applicable in the capital adequacy assessment process include:

•        the Polish Banking Law;

•        the CRR Regulation;

•        the Act of 5 August 2015 on macroprudential supervision over the financial system and crisis management in the financial system (as amended), (the Act on macroprudential supervision);

•        the Regulation of the Minister of finance, funds and regional policy of 8 June 2021 on the risk management and internal control systems and remuneration policy in banks (effective from 11 June 2021);

•        the Regulation of the Minister of finance, funds and regional policy of 27 July 2021 on the detailed method of estimating internal capital and conducting reviews of estimation strategies and procedures and maintaining a permanent level of internal capital by banks (effective from 4 August 2021);

•        the Act of 10 June 2016 on the Bank Guarantee Fund, Deposit Guarantee Scheme and Resolution (as amended).

Minimum level of capital ratios maintained by the Bank in accordance with Art. 92 of the CRR Regulation
•        total capital ratio (TCR)	8.0%
•        Tier 1 capital ratio (T1)	6.0%
•        Tier 1 core capital ratio (CET1)	4.5%

 

Obligation to maintain a combined buffer above the minimum amounts specified in Art. 92 of the CRR, representing the sum of the applicable buffers	31.12.2021	31.12.2020
Total:	3.51%	3.51%
•        conservation buffer	2.5%	2.5%
•        countercyclical buffer	0.01%	0.01%
•        systemic risk buffer	0%	0%1
•        due to identifying the Bank as another systemically important institution (“O-SII”)	1%	1%2

1  On 19 March 2020, in connection with the COVID-19, the Regulation of the Minister of Finance cancelling the systemic risk buffer came into effect Nevertheless, the previously applicable buffer of 3% is taken into account in the calculation of the required level of ratios to meet dividend payment conditions.

2 of total exposure to the risks calculated in accordance with the CRR.

Discretionary capital requirement (“domiar kapitałowy”) (an additional capital requirement in order to hedge the risk resulting from mortgage secured loans and advances to households)	31.12.2021	31.12.2020
•        for the total capital ratio:	0.12p.p.	0.27p.p.
•        for the Tier 1 capital ratio:	0.09p.p.	0.20p.p.
•        for the Tier 1 core capital ratio:	0.07p.p	0.15p.p

On 2 December 2021, PKO Bank Polski S.A. received a letter from the Bank Guarantee Fund (BGF) on the minimum requirement for own funds and eligible liabilities (MREL). The BGF set the target MREL requirement for the Bank based on the consolidated data at the total risk exposure amount (TREA) and the total exposure measure (TEM), which must be fulfilled at the end of 2023. Additionally, the BGF set interim targets.

The required levels are specified in the table below:

in %	31.12.2021	31.12.2022	31.12.2023
MREL (TREA)	12.02	13.91	15.80
MREL (TEM)	3.00	4.46	5.91

The impact of IFRS 9 on own funds and capital adequacy measures is governed by Regulation 2017/2395 of the European Parliament and of the Council of 12 December 2017 amending Regulation (EU) No 575/2013 as regards transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds and for the large exposures treatment of certain public sector exposures denominated in the domestic currency of any Member State. According to this regulation, banks are allowed to apply transitional provisions in respect of own funds and increase the common equity capital Tier 1 connected with the implementation of a new impairment model over the subsequent 5 years from 1 January 2018, whereas the adjustment ratio decreases gradually.

Moreover, on 27 June 2020, Regulation 2020/873 of the European Parliament and of the Council of 24 June 2020 amending Regulation (UE) No. 575/2013 and (UE) 2019/876 as regards certain adjustments in response to the COVID-19 pandemic (hereinafter Regulation 2020/873) came into effect. This provision allows to mitigate the impact on the write-offs recorded as of 1 January 2020 on Tier 1 capital. 

Such a solution can be applied up to 2024, inclusive, whereas the adjustment ratio allocated to this value decreases gradually. The Bank decided that in the light of Art. 473a (7a) of the CRR implemented by the aforesaid Regulation, it would apply an option according to which the adjustment mitigating the impact of the introduction of IFRS 9 on own funds would receive a risk weight equal to 100% and the resulting value would be added to the total exposure.

According to Article 468 of the CRR (as amended by the aforementioned Regulation 2020/873), banks may apply the provisional treatment of unrealized gains and losses measured at fair value through other comprehensive income in connection with the COVID-19 pandemic. This approach enables excluding from the calculation of the Bank’s common equity position the portion of the unrealized gains and losses accumulated from 31 December 2019 included in the balance sheet under “changes in fair value of debt instruments measured at fair value through OCI”, corresponding to exposures to central governments, regional governments or local authorities, and to public sector entities, excluding those financial assets that are impaired due to credit risk. PKO Bank Polski SA has decided to apply the above provisional treatment from December 2021 data onwards and has notified the Polish Financial Supervision Authority about its decision.

In addition, from the November 2021 data onwards, the Bank has decided to avail itself of the option indicated in the European Banking Authority’s guidance set out in the Single Rulebook Q&A No. 2015_1887. According to the EBA’s response, deferred tax assets related to gains or losses on cash flow hedges (which are not included in own funds according to Article 33 of the CRR) do not have to be included either in deferred tax assets included in deductions from own funds according to Articles 36 and 48 of the CRR.

•           Own funds for capital adequacy purposes

In 2021 and 2020, the Bank’s capital adequacy level remained at a safe level, well above the supervisory limits.

•           Requirements relating to own funds (Pillar I)

The Bank calculates own funds requirements for the following types of risk:

credit risk	under the standard approach, using the following formulas with regard to: balance sheet exposures - the product of a carrying amount (accounting for adjustments for specific credit risk), the risk weight of the exposure calculated according to the standardized approach in calculating the own funds requirement with regard to credit risk and 8% (accounting for the recognizable collateral), off-balance sheet liabilities granted - the product of the amount of a liability (accounting for adjustments for specific credit risk), the risk weight of the product, the risk weight of off-balance sheet exposure calculated according to the standardized approach in calculating the own funds requirement with regard to credit risk and 8% (accounting for the recognizable collateral), off-balance sheet transactions (derivative instruments) – the product of the risk weight of an off-balance sheet transaction calculated according to the standardized approach in calculating the own funds requirement with regard to credit risk and 8%.
operational risk	•      in accordance with the AMA approach – with respect to the Bank’s activities, taking into account the branch in Germany and the branch in the Czech Republic and excluding the branch in Slovakia; •      in accordance with the BIA approach - with respect to the activities of the branch in Slovakia.
market risk	•      currency risk - calculated under the core approach; •      commodity risk - calculated under the simplified approach; •      equity instruments risk - calculated under the simplified approach; •      specific risk of debt instruments - calculated under the core approach; •      general risk of debt instruments - calculated under the duration-based approach, •      other types of risk other than delta risk (non-delta risk) calculated under the scenario approach in the case of options for which the Bank uses its own valuation models and under the delta plus approach for other options.
Other risks	•      settlement risk and delivery risk – calculated under the approach specified in Title V, “Own funds requirements for settlement risk” of the CRR Regulation; •      counterparty credit risk – calculated under the approach set out in Chapter 6, “Counterparty credit risk” of Title II, “Capital requirements for credit risk” of the CRR Regulation; •      credit valuation adjustment risk – calculated under the approach specified in Title VI, “Own funds requirements for credit valuation adjustment risk” of the CRR Regulation; •      exceeding the large exposures limit – calculated under the approach set out in paragraphs 395-401 of the CRR Regulation.

 

Adequacy – a note to the financial statements	31.12.2021	31.12.2020
Equity	36 073	38 577
capital: share capital, supplementary capital, other reserves, and general risk reserve	31 534	34 478
retained earnings	5 500	5 500
net profit or loss for the year	4 596	(2 944)
other comprehensive income	(5 557)	1 543
Exclusions from equity:	894	319
net profit or loss for the year	4 596	-
cash flow hedges	(3 702)	319
Other fund reductions:	3 417	2 254
goodwill	755	755
other intangible assets	1 333	1 138
additional asset adjustments (AVA, DVA, NPE, capital exposures and DTA above the thresholds specified in Art. 48 of the CRR)	1 329	361
Provisional treatment of unrealized gains and losses on securities measured at fair value through OCI according to Art. 468 of the CRR	1 249
Temporary reversal of IFRS 9 impact	1 361	1 560
Current period profit/loss, included by permission from the PFSA	2 073	-
Tier 1 capital	36 445	37 564
Tier 2 capital (subordinated debt)	2 700	2 700
Own funds	39 145	40 264
Requirements for own funds	15 787	16 287
Credit risk	14 069	13 268
Operational risk1	1 490	1 339
Market risk2	183	1 652
Credit valuation adjustment risk	45	28
Settlement / delivery risk	-	-
Total capital ratio	19.84	19.78
Tier 1 capital ratio	18.47	18.45

1 In 2021, there was an increase in the own funds requirement for operational risk of PLN 151, mainly due to the growing costs of legal risk related to the portfolio of mortgage loans in CHF.

2. The value of the market risk-related requirement at the end of 2020 comprised mainly the currency risk-related requirement of PLN 1 167 million, resulting from recording additional allowances for legal risk related to foreign currency loans. The foreign currency position was reduced in the first half of 2021.

If the transitional arrangements for the partial reversal of the impact of IFRS9 under Article 473a of the CRR had not been applied, the Bank’s Tier 1 capital would have amounted to PLN 34 843 million, the total capital would have amounted to PLN 37 543 million, the Tier 1 capital ratio would have been 17.83%, the total capital ratio would have been 19.22% and the leverage ratio 8.81%.

If the provisional treatment of unrealized gains and losses measured at fair value through other comprehensive income under Article 468 of the CRR had not been applied, the Bank’s Tier 1 capital would have amounted to PLN 34 971 million, the total capital would have amounted to PLN 37 671 million, the Tier 1 capital ratio would have been 17.77%, the total capital ratio would have been 19.14% and the leverage ratio 8.80%.

•           INTERNAL CAPITAL (PILLAR II)

In 2020, the Bank calculated internal capital in accordance with the commonly binding legal regulations:

•        the CRR Regulation;

•        the Polish Banking Law;

•        the Regulation of the Minister of finance, funds and regional policy of 8 June 2021 on the risk management and internal control systems and remuneration policy in banks (effective from 11 June 2021);

•        the Regulation of the Minister of finance, funds and regional policy of 27 July 2021 on the detailed method of estimating internal capital and conducting reviews of estimation strategies and procedures and maintaining a permanent level of internal capital by banks (effective from 4 August 2021);

•        The Act on macro-prudential supervision;

and the Bank’s internal regulations.

Internal capital constitutes an estimated amount of capital necessary to cover all material types of risk arising from the Bank’s operations. The purpose of estimating the internal capital is to determine own funds at a level ensuring operational safety, taking into account changes in the profile and scale of the activities conducted and adverse stress conditions, and enabling more effective management of the Bank aimed at improving the profitability of operations and profitability of the capital invested.

The internal capital for covering significant risk types is determined using the methods specified in the internal regulations.

The ratio of own funds to its internal capital remained at a level exceeding both the statutory limit and the Bank’s internal limit.

•           DISCLOSURES (PILLAR III)

The Bank publishes annual information in particular concerning risk management and capital adequacy in accordance with: the CRR Regulation and the executive acts to the CRR, guidelines of the European Banking Authority, including guidelines concerning disclosure requirements pursuant to section eight of the CRR Regulation (“EBA guidelines”), the Act on macro-prudential supervision, the Polish Banking Law Act, Recommendations H, M and P issued by the Polish Financial Supervision Authority as part of the Report, “Capital adequacy and other information to be published by the Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna Group as at 31 December 2021.”

Details of the scope of information disclosed, the method of its verification and publication are presented in PKO Bank Polski SA Capital Adequacy Information Policies and other information to be published, which are available on the Bank’s website (www.pkobp.pl).

75.            Leverage ratio

The Bank calculates the leverage ratio as one of its capital adequacy measures.

The objective of excessive leverage risk management is to ensure an appropriate relationship between the amount of the Tier 1 capital and the total of balance sheet assets and off-balance sheet liabilities granted by the Bank.

For the purpose of measuring the risk of excessive financial leverage, a leverage ratio is calculated by the Bank as a measure of Tier 1 capital divided by the measure of total exposure and is expressed as a percentage rate. The leverage ratio as at 31 December 2021 and 31 December 2020 was above the internal and external limits, as well as above the minimum levels as recommended by the PFSA.

To maintain the leverage ratio at an acceptable level, the Bank set up a strategic tolerance limit and a threshold for the ratio and they are regularly monitored and verified periodically. 

	Leverage ratio exposures specified in CRR related to capital requirements
	31.12.2021	31.12.2020
Total capital and exposure measure
Tier 1 capital	36 445	37 564
Total exposure measure for leverage ratio calculation	397 415	352 760
Leverage ratio
Leverage ratio (in %)	9.17	10.65

 

76.            Information on package sale of receivables

In 2021, the Bank effected package sales (balance sheet and off-balance sheet receivables) of more than 40 thousand individual receivables from retail and business customers amounting to more than PLN 1 331 million (PLN 716 million in 2020). The total carrying amount of the provisions for potential claims on the sale of receivables as at 31 December 2021 amounted to PLN 2.3 million (as at 31 December 2020, it was PLN 2 million). As a result of the sale, all risks and rewards were transferred, hence the Bank derecognized these assets.

The Bank did not receive any securities on account of the aforementioned transactions.

OTHER NOTES

77.            Fiduciary activities

The Parent Company is a direct participant in the Central Securities Depository of Poland (Krajowy Depozyt Papierów Wartościowych) and the Securities Register (at the National Bank of Poland). The Parent Company maintains securities accounts and handles transactions on the domestic and foreign markets, provides fiduciary services and performs a depository role for pension and investment funds. Assets held by the Parent Company as part of providing fiduciary services have not been disclosed in these financial statements since they do not meet the definition of the Parent Company’s assets.

78.            Information on the entity authorized to audit the financial statements 

On 13 December 2018, pursuant to § 15 clause 1 point 2 of the Bank’s Articles of Association, the Bank’s Supervisory Board selected PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp. k. (hereinafter PwC) as the audit firm to audit and review the financial statements of the Bank and of the Bank’s Group for the years 2020-2021. PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnoscią Audyt sp. k. with its registered office in Warsaw, ul. Polna 11 is entered in the list of audit companies maintained by the National Board of Registered Auditors under the number 144. On 24 January 2019, the Bank concluded an agreement with PwC for the audit and review of the financial statements of the Bank and of the Bank’ Group for the years 2020-2021.

Moreover, on 23 September 2021, the Bank’s Supervisory Board appointed PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp. k. as the audit firm to conduct audits and reviews of the financial statements of the Bank and the Bank’s Group for the years 2022-2023.

Based on the Supervisory Board’s declaration, the Management Board states that the appointment of the PwC audit firm to audit the Group’s consolidated financial statements for the year ended 31 December 2021 and the Bank’s financial statements for the year ended 31 December 2021 (Audit) was made in accordance with the provisions of the law and the internal rules of the Bank accepted by the Supervisory Board on the appointment of the audit firm, which were in force as at the date on which the choice was made. At the same time, based on the Supervisory Board’s declaration, the Management Board states that:

•        the PwC audit firm and the members of the team conducting the Audit satisfied the conditions for preparing an impartial and independent Audit report, in accordance with the generally applicable provisions of the law, standards of practising the profession and principles of professional ethics;

•        the generally binding provisions of the law related to the rotation of audit firms and the key registered auditor auditing the Group’s consolidated financial statements and the Bank’s financial statements and the related mandatory waiting periods are observed at the Bank;

•        the Bank has a policy on and a procedure for the selection of audit firms for auditing the Bank’s and the Group’s financial statements, as well as a policy on the provision of admissible non-audit services by the audit firm conducting the audit, affiliates of that audit firm and a member of the network of audit firms, to the Bank and companies from the Bank’s Group, including services that are conditionally released from the prohibition of provision of services by the audit firm.

TOTAL AMOUNT OF NET REMUNERATION DUE TO THE AUDIT FIRM AUDITING THE FINANCIAL STATEMENTS IN RESPECT OF: (in PLN thousand)	2021	2020
audit of financial statements	1 529	1 804
assurance services, including reviews of the financial statements	798	530
Total	2 327	2 334

 

79.            Subsequent events

•        On 26 January 2022, the Polish Financial Supervision Authority unanimously agreed to appoint Iwona Duda as President of the Management Board of PKO Bank Polski. From 23 October 2021, Iwona Duda performed the function of Vice-President of PKO Bank Polski and was in charge of the work of the Company’s Management Board.

•        The Bank’s Management Board monitors closely the political and economic situation in Ukraine and the significant risk of increased tension in its relations with Russia not only on the Ukraine-Russia line but also on the EU/US-Russia line, which may have a material impact on the Bank’s operations in 2022. The Bank does not believe that these events have any impact on the Bank’s financial statements for the year ended 31 December 2021.

•        On 11 February 2022, the Bank received an individual recommendation from the PFSA regarding the level of the capital surcharge under Pillar II (P2G) with an indication to mitigate the risks present in the Bank’s operations by maintaining, both at the separate  and consolidated level, own funds sufficient to cover the additional capital surcharge in order to absorb potential losses resulting from stress events, at 0.29% above the total capital ratio referred to in Article 92(1)(c) of the Regulation No 575/2013, plus the additional own funds requirement referred to in Article 138(2)(2) of the Banking Law Act and the combined buffer requirement referred to in Article 55(4) of the Act on macro-prudential supervision. The additional surcharge should consist entirely of common Tier 1 capital.

 

Signatures of all Members of the Bank’s Management Board

23.02.2022	Iwona Duda	President of the Management Board
23.02.2022	Bartosz Drabikowski	Vice-President of the Management Board
23.02.2022	Marcin Eckert	Vice-President of the Management Board
23.02.2022	Wojciech Iwanicki	Vice-President of the Management Board
23.02.2022	Maks Kraczkowski	Vice-President of the Management Board
23.02.2022	Mieczysław Król	Vice-President of the Management Board
23.02.2022	Artur Kurcweil	Vice-President of the Management Board
23.02.2022	Piotr Mazur	Vice-President of the Management Board

 

 

Signature of the person responsible

for maintaining the books of account

 

 

Danuta Szymańska

Director of the Accounting Division

 

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