This is a translation of the Independent Auditor’s Report originally issued in Polish
INDEPENDENT AUDITOR’S REPORT
To Shareholders’ Meeting and the Supervisory Board of Bank Millennium S.A.
Report on the Audit of the Annual Financial Statements
Opinion
We have audited the annual financial statements of Bank Millennium S.A. (the “Bank”), which comprise
the balance sheet as at December 31, 2022 and the profit and loss account, statement of changes in equity,
cash flow statement for the year then ended, and notes to the financial statements, including a summary
of significant accounting policies and other explanatory information (the “financial statements”).
In our opinion, financial statements:
− give a true and fair view of the economic and financial position of the Bank as at December 31, 2022,
and of its financial performance and its cash flows for the year then in accordance with the applicable
International Financial Reporting Standards (“IFRSs”), as endorsed by the European Union, and the adopted
accounting policies;
− comply, as regards their form and content, with the applicable laws and the articles of association
of the Bank;
− have been prepared based on properly kept accounting records, in accordance with Section 2
of the Accounting Act of 29 September 1994 (the “Accounting Act”, Journal of Laws of 2023, item 120).
Our opinion is consistent with the Additional Report to the Audit Committee which we issued on the same day.
Basis for Opinion
We conducted our audit in accordance with the Polish Standards on Auditing (“PSAs”) in the wording
of the International Standards on Auditing adopted by the National Council of Statutory Auditors
and in compliance with the Act on Statutory Auditors, Audit Firms and Public Oversight of 11 May 2017
(the “Act on Statutory Auditors”, Journal of Laws of 2022, item 1302, as amended) as well as Regulation (EU)
No 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding
statutory audit of public-interest entities (“EU Regulation”, Official Journal of the European Union L158,
as amended). Our responsibilities under those standards are further described in the Auditor’s Responsibilities
for the Audit of the Financial Statements section of our report.
We are independent of the Bank in accordance the principles of professional ethics specified in the International
Code of Ethics for Professional Accountants (including International Independence Standards) (“Code of ethics”)
developed and issued by the International Ethics Standards Board for Accountants and adopted by the National
Council of Statutory Auditors, together with the ethical requirements that are relevant to the audit of the financial
statements in Poland, and we have fulfilled our other ethical responsibilities in accordance with these
requirements and the Code of ethics. Throughout the audit, both the key statutory auditor and the audit firm
remained independent of the Bank in accordance with the independence requirements set out in the Act
on Statutory Auditors and in the EU Regulation.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
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Emphasis of Matter
Please note the disclosure in section 12.2 of the financial statements, in which the Management Board
of the Bank provided relevant information on the pending decision of the Civil Chamber of the Supreme Court
and the Court of Justice of the European Union, which may have an impact on the current status of disputes
concerning mortgage loans indexed to Swiss franc (CHF) and the alternative settlement solution currently being
applied to the above-mentioned loans. Our opinion is not qualified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit
of the financial statements of the current period. They encompass the most significant assessed risks of material
misstatement, including assessed risks of material misstatement due to fraud. These matters were addressed
in the context of our audit of the financial statements as a whole, and in forming our opinion thereon.
We summarized our response to those risks and, where appropriate, we presented the key findings related to
those risks. We do not provide a separate opinion on these matters.
Key audit matter
How we addressed the matter
Provisions for litigations concerning the portfolio of mortgage loans indexed to Swiss franc (CHF)
The Bank has granted foreign currency
mortgage loans indexed to CHF ("CHF loans").
As it is presented in the Note
13.22k of the financial statement Loans
and advances to customers the gross value
of CHF loans deducted by the change of
expected cash flows resulting from legal risk,
amounted to approx. 7 billion
as of 31 December 2022. As it is described in
the Note 12.1 of the financial statements Court
claims and current provisions on legal risk,
the Bank is a defendant in numerous legal cases
which include claims regarding the partial
invalidity of the credit agreements,
i.e. in terms of indexation provisions or a ruling
that the agreements are fully invalid.
Management's judgments regarding
the recognition and measurement of provisions
for legal cases are inherently burdened with risk
and may change in the future due to the fact
that the estimated results of the current cases
depend on future resolutions.
It should be noted that the judgement
of the European Union Court of Justice from
3 October 2019 regarding CHF loans increases
the uncertainty of estimates of the essential
provisions.
In addition, further expected decisions
of the European Union Court of Justice
(regarding the legitimacy of including by banks
the remuneration for cost of capital) may affect
amount of necessary provisions.
Due to the materiality of the CHF loan portfolio,
as well as the significant role and complexity of
Our procedures included, among the others:
−
understanding of the process and controls of the Bank
towards creation of individual provisions on CHF loans
legal cases and review of the mentioned process and
controls with regard to the model applied for
the estimation of the provision for CHF loans portfolio;
−
verification of the methodology of estimating provisions
with regard to the legal proceedings and proposed
settlements related to loans indexed to CHF and
the analysis of the rationality and validity of the adopted
assumptions as well as the correctness of the input data
and the calculation of the provisions estimates, including
especially:
-
the probability of assumed scenarios and
the occurrence of the particular types of verdicts
for pending and future legal cases;
-
the estimated amount of losses in the event
of the each type of verdict and the proposed
settlements;
-
the estimated inflow of new individual claims
and estimated number of settlements and their
distribution over the time;
−
verification of the list of claims in which the Bank
is a defendant and verification of the opinions
of the external lawyers including verification
of independent confirmations from external law firms;
−
assessment of the adequacy and the completeness
of provisions for the legal cases identified by the Bank
with regard to the existing legal documentation,
and analysis of the provision sensitivity to the changes
in the most important assumptions;
−
we performed review of the current and expected
jurisdiction in case of CHF loans claims;
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Key audit matter
How we addressed the matter
the Management Board's judgments and
estimates regarding provisions for the current
and potential claims and the proposed
settlements, the recognition and the valuation
of the mentioned provision was considered as
the key audit matter.
−
analysis of the significant data after the balance sheet
date in relation to the assumptions adopted by the Bank
as at the balance sheet date;
−
analysis of the accuracy and completeness of disclosures
in the financial statements in this respect.
Impairment of loans and borrowings granted to customers
Detailed information on the methods and
models applied by the Bank and the level
of impairment losses on loans and advances to
customers is presented in point 7.3 Adopted
accounting principles, point 8.3 Credit risk
and Note 13.22 Loans and advances
to customers in the financial statements.
This matter was considered by Deloitte to be
the key audit matter due to the significant
impact of impairment allowances on valuation
of credit receivables as well as due to the fact
that they require a significant judgement
of the Bank's Management Board and adoption
of significant assumptions in the process
of their estimation, including the adopted
macroeconomic estimates, especially with
regard to the estimation of credit risk
parameters in models of expected credit losses
calculation in accordance with the
requirements of the International Financial
Reporting Standard 9 "Financial Instruments"
(IFRS 9).
We have critically analyzed the design and implementation
of the process and policy of calculation of the impairment
allowances on credit exposures and we have assessed
the control system in this process, including automated
controls in the Bank's IT systems, considering also possible
omission of controls.
Our audit procedures included reconciliation of the loan
database with the general ledger of the Bank to confirm
the completeness of the recognition of credit receivables that
are the basis for impairment losses calculation, as well
as the value of these impairment allowances on loans.
With regard to the verification of the correct application
of the requirements of IFRS 9, our procedures included,
among the others:
− evaluation of the methodology applied by the Bank with
respect to the classification and valuation of financial
assets in terms of their compliance with the requirements
of IFRS 9 and with the market practice;
− evaluation of the Bank's impairment methodology from
the perspective of compliance with the requirements
of IFRS 9, in particular as regards the application of SICR
criteria, which means a significant increase in credit risk
from the moment of granting a loan, for a selected
sample of loan exposures, definition of default, adopted
PD and LGD parameters and taking into account
prospective information in the calculation of expected
credit losses;
− assessment of the completeness and correctness
of the disclosures, especially as regards the credit risk
of financial assets.
For the collectively assessed loans, we have performed,
among the others, the following procedures:
− analysis of the applied methodology of estimating
allowances for expected credit losses, including adequacy
of risk parameters used by the Bank;
− independent recalculation of the expected loss
allowances for randomly selected exposures and chosen
parameters in the portfolio approach;
− evaluation of changes in the assumptions made for
the construction of models used for the measurement
of credit risk and the applied approach to the verification
of models based on historical data (so-called "back-
tests").
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Key audit matter
How we addressed the matter
With regard to the impairment estimated on the basis
of the individual method we have performed the following
procedures:
− analysis of the correctness of the process of identifying
the triggers for impairment;
− assessment of the correctness of the estimation of write-
offs for the selected sample of the credit exposures with
identified evidence of the impairment in terms
of the correctness of the assumed values of collaterals
and assumptions concerning other cash flows.
Revenue recognition of interest income and fee and commission income
Interest income and fee and commission
income are presented in detail in Note
13.1 Interest income and other of similar nature
and Note 13.3 Fee and commission income and
expenses in the financial statements.
We assess this as key audit matter due to
the share of interest and commission income
in the Bank's total income and the fact that
they are the key elements of the Bank's
profitability assessment.
Our procedures included, among the others:
− analysis of the internal control environment in terms
of the recognition and presentation of the interest
income and the fee and commission income;
− review of the accounting policy with regard to
the revenue recognition and assessment of the rules for
determining the effective interest rate on interest income
on loans, including automatic controls in the IT systems
of the Bank;
− analysis of trends in interest and commission income
recognition, including explanation of unusual events and
one-off transactions;
− detailed verification of revenues recognized as one-off;
− evaluation of the existence and valuation of revenues
based on a sample of transactions.
Assessment of the going concern assumption
In accordance with International Standard
on Auditing 570, the auditor shall evaluate
management’s assessment of the entity’s ability
to continue as a going concern.
As it is described in point 7.1 Statement
of compliance with International Financial
Reporting Standards of the financial
statements, the financial statements were
prepared with going concern assumption which
assumes continuation of the Bank’s operations
for at least 12 months from the date of financial
statements.
Due to the introduction of so-called credit
holidays for 2022 and 2023 years the Bank has
incurred a financial loss. The recognition
of the costs of so-called credit holidays resulted
in a temporary deterioration of capital ratios
which caused a necessity of launching
of the Recovery Plan (which together with
the Capital Protection Plan is currently being
realized by the Bank).
International Standard on Auditing 570 requires a number
of audit procedures that we performed in response to
the Bank's implementation of the Recovery Plan and
the Capital Protection Plan:
− review of the Bank's Recovery Plan and Capital Protection
Plan;
− discussion with the Bank’s Management Board regarding
plans and actions to be taken to secure the continuation
of the Banks's operations and realization of the Bank's
Recovery Plan and Capital Protection Plan;
− assessment of the feasibility of realization of the above-
mentioned plans by the Bank;
− discussion with management and analysis of potential
impact of the future materialization of uncertainties
including risks related to possible extension of so-called
credit holidays and an unfavorable development of
jurisdiction line in relation FX mortgage loans;
− review of the capital adequacy ratios together with
a sensitivity analysis in the event of negative scenarios;
− review of the Bank’s liquidity position;
− review of relevant minutes and correspondence with
regulator in this regard;
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Key audit matter
How we addressed the matter
After execution of plans approved by the Polish
Financial Supervision Authority the capital
ratios as at 31 December 2022 are above
the minimal requirements. However,
as presented in point 8.2 Capital management
of the financial statements the Bank is required
to comply with additional capital requirements.
Lack of meeting capital requirements
by the Bank may trigger regulatory actions and
impact continuance of the Bank’s operations.
− analysis of the disclosure in the financial statements
regarding the adoption of the going concern principle.
Responsibilities of the Management Board and the Supervisory Board for the Financial Statements
The Bank’s Management Board is responsible for the preparation – based on properly kept accounting records –
of financial statements which give a true and fair view of the economic and financial position of the Bank
and of its financial performance in accordance with the applicable International Financial Reporting Standards,
as endorsed by the European Union, the adopted accounting policies as well as the applicable laws and articles
of association, and for such internal control as the Management Board determines is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Bank’s Management Board is responsible for assessing the Bank’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the Management Board either intends to liquidate the Bank or to cease
operations, or has no realistic alternative but to do so.
The Management Board and members of the Supervisory Board of the Bank are obliged to ensure that
the financial statements meet the requirements of the Accounting Act. Members of the Supervisory Board are
responsible for overseeing the Bank’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted
in accordance with PSAs will always detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
The scope of an audit does not include an assurance about the future profitability of the Bank or the effectiveness
or efficiency of the Management Board in managing the Bank’s affairs at present or in the future.
As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
− identify and assess the risks of material misstatement of the financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control;
− obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Bank’s internal control;
− evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by the Bank’s Management Board;
− conclude on the appropriateness of the Bank’s Management Board’s use of the going concern basis
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of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related
to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify
our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Bank to cease to continue as a going concern;
− evaluate the overall presentation, structure and content of the financial statements, including
the disclosures, and whether the financial statements represent the underlying transactions and events
in a manner that achieves fair presentation.
We communicate with the Bank’s Supervisory Board regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the Bank’s Supervisory Board with a statement that we have complied with relevant ethical
requirements regarding independence, and that we will communicate with it all relationships and other matters
that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Bank’s Supervisory Board, we determined those matters that were
of most significance in the audit of the financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
Other Information, Including the Report on the Activities
Other information includes a report on the Bank’s activities in the financial year ended December 31, 2022
(the “Report on the Activities”), together with a statement of compliance with corporate governance principles
and a non-financial information statement, as referred to in Article 49b. 1 of the Accounting Act, which constitute
separate parts of the report (together: the “Other Information”).
The Report on the activities of the Bank Millennium Group and the Bank for 2022, in accordance with Article
55(2a) of the Accounting Act, has been prepared jointly.
Responsibilities of the Management Board and the Supervisory Board
The Bank’s Management Board is responsible for the preparation of the Other Information in accordance with
the applicable laws.
The Management Board and members of the Supervisory Board of the Bank are obliged to ensure that the Report
on the Activities, along with the separate parts, meet the requirements of the Accounting Act.
Auditor’s Responsibilities
Our opinion on the financial statements does not cover the Other Information. In connection with our audit
of the financial statements, our responsibility is to read the Other Information and, in doing so, consider whether
the Other Information is materially inconsistent with the financial statements or our knowledge obtained
in the audit or otherwise appears to be materially misstated. If, based on the work we have performed,
we conclude that there is a material misstatement of this Other Information, we are required to report that fact
in our auditor’s report. Additionally, under the Act on Statutory Auditors we are obliged to express an opinion
on whether the Report on the Activities has been prepared in accordance with the applicable laws and whether
it is consistent with the information contained in the financial statements. Furthermore, in addition, as required
by Article 111a(3) of the Banking Act of 29 August 1997 (Journal of Laws 2021, item 2439), hereinafter referred
to as the "Banking Act", we are obliged to state whether a non-financial information statement has been prepared
by the Bank and to express an opinion on whether the Bank has included the necessary information
in the statement of compliance with corporate governance principles.
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Opinion on the Report on the Activities
Based on our work performed during the audit, we are of the opinion that the Report on the Activities:
− has been prepared in accordance with Article 49 of the Accounting Act and par. 70 of the Regulation
of the Minister of Finance of 29 March 2018 on current and periodic information published by issuers
of securities and the rules of equal treatment of the information required by the laws of non-member states
(the “Current Information Regulation”, Journal of Laws of 2018, item 757, as amended);
− is consistent with the information contained in the financial statements.
Furthermore, in the light of the knowledge and understanding of the Bank and its environment obtained
in the course of the audit, we have not identified any material misstatements of the Report on the Activities.
Opinion on the Statement of Compliance with Corporate Governance Principles
In our opinion, the statement of compliance with corporate governance principles contains all the information
referred to in par. 70.6.5 of the Current Information Regulation. We are also of the opinion that the information
referred to in par. 70.6.5(c)-(f), (h) and (i) of the Regulation, as contained in the statement of compliance with
corporate governance principles, is in accordance with the applicable laws and consistent with the information
included in the financial statements.
Information on Non-Financial Information
In accordance with the requirements of the Act on Statutory Auditors, we would like to inform you that the Bank
prepared a separate report on non-financial information and included this information in the Report
on the Activities, and also attached this report to the annual financial statements of the Bank. By the date
of this audit report, the Bank had published report on non-financial information on its website.
We have not performed any assurance services relating to the separate non-financial information statement and
we do not express any form of assurance conclusion thereon.
Report on Other Legal and Regulatory Requirements
Information on the compliance with the binding prudence principles
The Management Board of the Bank is responsible for compliance with prudent principles determined
by the Banking Law, resolutions of Management of National Bank of Poland and resolutions of Polish Financial
Supervisory Authorities. Based on the performed audit our responsibility was to present information whether
the Bank complied with the binding prudence principles. Our objective was not to express an opinion
on adherence to those principles.
Based on the work conducted during the audit we would like to inform you that we did not identify any breach
other than described in point 8.2 of the financial statements of the prudent principles and we did not identify
discrepancies that might have significant influence on the financial statement of the Bank, especially in the area
of correctness of calculation of capital ratio.
Statement Concerning Provision of Non-Audit Services
To the best of our knowledge and belief, we represent that non-audit services which we have provided to
the Bank and to its subsidiaries are not prohibited under Article 5.1 of the EU Regulation and Article 136
of the Act on Statutory Auditors. The non-audit services which we provided to the Bank and to its subsidiaries
in the audited period have been listed in point 13.5 in the Report on the Activities.
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Appointment of the Auditor
We were appointed as the auditor of the Bank’s financial statements by resolution no. 10/2021 of Supervisory
Board dated on February 22, 2021. Our total uninterrupted period of engagement to audit the Bank’s financial
statements is four consecutive financial years, i.e. starting from the financial year ended December 31, 2019.
The key statutory auditor on the audit resulting in this independent auditor’s report is Dorota Snarska-Kuman.
Acting on behalf of Deloitte Audyt Spółka z ograniczoną odpowiedzialnością Sp. k. with its registered seat
in Warsaw, entered under number 73 on the list of audit firms, in the name of which the financial statements
have been audited by the key statutory auditor:
Dorota Snarska-Kuman
Registered under number 9667
Warsaw, 15 February 2023