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

 

 

 

Separate financial statements of PKO Bank Polski S.A. for the year ended 31 December 2022

 

SELECTED FINANCIAL DATA RELATING TO THE FINANCIAL STATEMENTS

SELECTED FINANCIAL DATA	PLN million			EUR million
			Change %			Change %
	2022	2021	(A-B)/B	2022	2021	(D-E)/E
	A	B	C	D	E	F
Net interest income/(expense)	11 224	8 711	28.85	2 394	1 903	25.80
Net fee and commission income	3 818	3 493	9.30	814	763	6.68
Net expected credit losses and net impairment allowances on non-financial assets	(1 209)	(1 199)	0.83	(258)	(262)	(1.53)
Administrative expenses	(6 925)	(5 253)	31.83	(1 477)	(1 148)	28.66
Profit before tax	4 562	5 976	(23.66)	973	1 306	(25.50)
Net profit	3 258	4 596	(29.11)	695	1 004	(30.78)
Earnings per share for the period - basic (in PLN/EUR)	2.61	3.68	(29.08)	0.56	0.80	(30.00)
Earnings per share for the period - diluted (in PLN/EUR)	2.61	3.68	(29.08)	0.56	0.80	(30.00)
Net comprehensive income	299	(2 504)	(111.94)	64	(547)	(111.70)
Total net cash flows	10 482	10 003	4.79	2 236	2 185	2.33

 

SELECTED FINANCIAL DATA	PLN million			EUR million
	31.12.2022	31.12.2021	Change % (A-B)/B	31.12.2022	31.12.2021	Change % (D-E)/E
	A	B	C	D	E	F
Total assets	405 168	388 816	4.21	86 392	84 536	2.20
Total equity	34 084	36 073	(5.51)	7 268	7 843	(7.33)
Share capital	1 250	1 250	-	267	272	(1.84)
Number of shares (in million)	1 250	1 250	-	1 250	1 250	-
Book value per share (in PLN/EUR)	27.27	28.86	(5.51)	5.81	6.27	(7.34)
Diluted number of shares (in million)	1 250	1 250	-	1 250	1 250	-
Diluted book value per share (in PLN/EUR)	27.27	28.86	(5.51)	5.81	6.27	(7.34)
Total Capital Ratio (%)	18.86	20.23	(6.77)	18.86	20.23	(6.77)
Tier 1	34 810	36 956	(5.80)	7 422	8 035	(7.62)
Tier 2	2 584	2 700	(4.30)	551	587	(6.13)

 

SELECTED FINANCIAL STATEMENT ITEMS HAVE BEEN TRANSLATED INTO EUR AT THE FOLLOWING RATES	2022	2021
arithmetic mean of the NBP exchange rates at the end of a month (income statement, statement of comprehensive income and cash flow statement items)	4.6883	4.5775
	31.12.2022	31.12.2021
NBP mid exchange rates at the date indicated (statement of financial position items)	4.6899	4.5994

 

TABLE OF CONTENTS

SEPARATE STATEMENT OF COMPREHENSIVE INCOME

SEPARATE STATEMENT OF FINANCIAL POSITION

SEPARATE STATEMENT OF CHANGES IN EQUITY

SEPARATE 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. Representation by the Management Board

6. Statement of compliance

7. Going concern

8. The basis for preparation of the financial statements

DESCRIPTION OF SIGNIFICANT ACCOUNTING POLICIES

9. Functional currency, presentation currency and foreign currencies

10. Investments in subsidiaries, associates and joint ventures

11. General accounting policies for financial instruments

11.1. Accounting for transactions

11.2. Offsetting financial instruments

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

11.4. The principles for classification of financial instruments

11.5. Financial assets measured at amortized cost

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

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

11.8. Equity instruments

11.9. Reclassification of financial assets

11.10. Modifications – Changes in contractual cash flows

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

11.12. Measurement of financial liabilities

12. Environmental issues

13. Changes in accounting policies applicable from 1 January 2022 and explanation of the differences between previously published financial statements and these financial statements

14. New standards and interpretations and their amendments

SUPPLEMENTARY NOTES TO THE INCOME STATEMENT

15. Interest income and expense

16. Fee and commission income and expenses

17. Fee and commission income by segment

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. Impairment of non-financial assets

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

26. Administrative expenses

27. Tax on certain financial institutions

28. Income tax

29. Earnings per share

SUPPLEMENTARY NOTES TO THE STATEMENT OF FINANCIAL POSITION – FINANCIAL INSTRUMENTS

30. Cash and balances with the Central Bank

31. Amounts due from banks

32. Hedge accounting and other derivative instruments

32.1. Hedge accounting – financial information

32.2. Other derivative instruments – financial information

33. Securities

34. Repo and reverse repo transactions

35. Loans and advances to customers

36. Amounts due to banks

37. Amounts due to customers

38. Financing received

38.1. Loans and advances received

38.2. Liabilities in respect of debt securities in issue

38.3. Subordinated liabilities

OTHER SUPPLEMENTARY NOTES TO THE STATEMENT OF FINANCIAL POSITION AND CONTINGENT LIABILITIES

39. Intangible assets

40. Property, plant and equipment

41. Assets held for sale

42. Investments in subsidiaries, associates and joint ventures

43. Other assets

44. Other liabilities

45. Provisions

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

47. Legal claims

48. Equity and shareholding structure of the Bank

49. Fair value hierarchy

50. Financial assets and financial liabilities not presented at fair value in the statement of financial position

RISK MANAGEMENT IN THE BANK

51. Risk management in the Bank

52. Specific risk management measures undertaken by the Bank in 2022

53. Credit risk management

54. Credit risk – financial information

54.1. Financial assets by stage

54.2. Change in the gross carrying amount

54.3. Changes in allowances for expected credit losses

54.4. Other disclosures

55. Offsetting financial assets and financial liabilities

56. Managing credit concentration risk in the Bank

57. Collateral

58. Exposure to the counterparty credit risk

59. Forbearance practices

60. Information on package sale of receivables

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

62. Interest rate risk management

63. Currency risk management

63.1. Financial assets and liabilities by currency

64. Liquidity risk management

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

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

64.3. Current and non-current assets and liabilities

65. Operational risk management

66. ESG risk management

Capital management at the bank

67. Capital adequacy

68. Leverage ratio

69. Dividends and distribution of retained earnings

OTHER NOTES

70. Notes to the cash flow statement

71. Transactions with the State Treasury and related parties

72. Benefits for the PKO Bank Polski SA key management

73. Leases

74. Government grants

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

76. Impact of the geopolitical situation in Ukraine on PKO Bank Polski S.A.

77. Interest rate benchmarks reform

78. Subsequent events

SEPARATE INCOME STATEMENT

INCOME STATEMENT	Note	2022	2021
Net interest income/(expense)	15, 17	11 224	8 711
Interest and similar income		18 524	9 164
of which calculated under the effective interest rate method		17 972	8 356
Interest expense		(7 300)	(453)
Net fee and commission income	16, 17	3 818	3 493
Fee and commission income		5 317	4 646
Fee and commission expense		(1 499)	(1 153)
Other net income		758	1 211
Dividend income	18	488	624
Gains/(losses) on financial transactions	19	356	54
Foreign exchange gains/ (losses)	20	(108)	429
Gains/(losses) on derecognition of financial instruments	21	(11)	201
of which measured at amortized cost		13	1
Net other operating income and expense	22	33	(97)
Result on business activities		15 800	13 415
Net expected credit losses	23	(1 120)	(1 144)
Impairment of non-financial assets	24	(89)	(55)
Cost of legal risk of mortgage loans in convertible currencies	25	(1 914)	-
Administrative expenses	26	(6 925)	(5 253)
of which net regulatory charges		(1 826)	(594)
Tax on certain financial institutions	27	(1 190)	(987)
Profit before tax		4 562	5 976
Income tax expense	28	(1 304)	(1 380)
Net profit		3 258	4 596
Earnings per share	29
– basic earnings per share for the period (PLN)		2.61	3.68
– diluted earnings per share for the period (PLN)		2.61	3.68
Weighted average number of ordinary shares during the period (in million)*		1 250	1 250

* In 2022 and 2021, there were no dilutive instruments. Therefore, the amount of diluted earnings per share is the same as the amount of basic earnings per share.

SEPARATE STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF COMPREHENSIVE INCOME	Note	2022	2021
Net profit		3 258	4 596
Other comprehensive income		(2 959)	(7 100)
Items which may be reclassified to profit or loss		(2 953)	(7 107)
Cash flow hedges (net)		(1 326)	(4 021)
Cash flow hedges (gross)	32	(1 637)	(4 964)
Deferred tax	28,32	311	943
Fair value of financial assets measured at fair value through other comprehensive income (net)		(1 627)	(3 086)
Remeasurement of financial assets measured at fair value through other comprehensive income (gross)		(2 036)	(3 611)
Gains /losses transferred to the profit or loss (on disposal)	21	24	(200)
Deferred tax	28	385	725
Items which cannot be reclassified to profit or loss		(6)	7
Actuarial gains and losses (net)		(6)	7
Actuarial gains and losses (gross)	45	(8)	9
Deferred tax	28	2	(2)
Total net comprehensive income		299	(2 504)

SEPARATE STATEMENT OF FINANCIAL POSITION

	Note	31.12.2022	31.12.2021
ASSETS		405 168	388 816
Cash and balances with the Central Bank	30	15 719	11 421
Amounts due from banks	31	19 442	14 296
Derivative hedging instruments	32	217	327
Other derivative instruments	32	13 745	11 143
Securities	34	130 986	130 838
Reverse repo transactions	34	7	-
Loans and advances to customers	35	208 918	205 677
Property, plant and equipment	40	2 505	2 639
Assets held for sale	41	10	18
Intangible assets	39	2 933	2 896
Investments in subsidiaries	42	3 560	3 617
Investments in associates and joint ventures	42	275	275
Current income tax receivable		47	33
- of the Bank		-	11
- of the subsidiaries belonging to the Tax Group		47	22
Deferred tax assets	28	4 694	3 599
Other assets	43	2 110	2 037

 

		31.12.2022	31.12.2021
LIABILITIES AND EQUITY		405 168	388 816
Liabilities		371 084	352 743
Amounts due to the Central Bank		9	8
Amounts due to banks	36	2 928	3 762
Derivative hedging instruments	32	6 727	4 624
Other derivative instruments	32	14 002	11 704
Repo transactions	34	-	49
Amounts due to customers	37	334 856	318 032
Loans and advances received	38	726	5 142
Subordinated liabilities	38	2 781	2 716
Other liabilities	44	6 480	5 090
Current income tax liabilities		527	-
- of the Bank		379	-
- of the subsidiaries belonging to the Tax Group		148	-
Provisions	45	2 048	1 616
		'	'
EQUITY	48	34 084	36 073
Share capital		1 250	1 250
Reserves and accumulated other comprehensive income		21 768	24 727
Retained earnings		7 808	5 500
Net profit or loss for the year		3 258	4 596

SEPARATE STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 December 2022	Share capital	Reserves and accumulated other comprehensive income					Retained earnings	Net profit or loss for the year	Total equity
		Reserves			Accumulated other comprehensive income	Total reserves and accumulated other comprehensive income
		Supplementary capital	General banking risk fund	Other reserves
As at the beginning of the period	1 250	22 468	1 070	6 746	(5 557)	24 727	5 500	4 596	36 073
Transfer from retained earnings	-	-	-	-	-	-	4 596	(4 596)	-
Dividend	-	-	-	-	-	-	(2 288)	-	(2 288)
Comprehensive income	-	-	-	-	(2 959)	(2 959)	-	3 258	299
As at the end of the period	1 250	22 468	1 070	6 746	(8 516)	21 768	7 808	3 258	34 084

 

 

 

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			Accumulated other comprehensive income	Total reserves and accumulated other comprehensive income
		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)
Special fund set up for the purpose of covering individual balance sheet losses	-	(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 2022	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	(1 842)	(3 702)	(13)	(5 557)
Total comprehensive income	(1 627)	(1 326)	(6)	(2 959)
As at the end of the period	(3 469)	(5 028)	(19)	(8 516)

 

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)

SEPARATE CASH FLOW STATEMENT

	Note	2022	2021
Cash flows from operating activities
Profit before tax		4 562	5 976
Income tax paid		(1 311)	(1 686)
Total adjustments:		10 390	21 961
Depreciation and amortization	26	909	868
(Gains)/losses on investing activities	70	(14)	(26)
Interest and dividends received	70	(4 189)	(2 744)
Interest paid:		342	267
Change in:
amounts due from banks	70	1 027	(3 018)
hedging derivatives		2 213	4 372
other derivative instruments		(304)	(655)
securities	70	(3 600)	(1 091)
loans and advances to customers	70	(3 924)	(12 398)
reverse repo transactions		(7)	-
non-current assets held for sale	70	8	108
other assets	70	(87)	(152)
accumulated allowances for expected credit losses	70	821	(110)
accumulated allowances on non-financial assets and other provisions	70	332	202
amounts due to the Central Bank		1	8
amounts due to banks		(834)	1 179
amounts due to customers		16 824	39 138
repo transactions		(49)	1
loan and advances received	70	803	305
liabilities in respect of debt securities in issue	70	-	18
subordinated liabilities		65	-
other liabilities	70	1 632	839
Other adjustments	70	(1 579)	(5 150)
Net cash from/used in operating activities		13 641	26 251

 

	Note	2022	2021
Cash flows from investing activities
Inflows from investing activities		91 385	58 414
Redemption of securities measured at fair value through other comprehensive income		78 672	53 386
Interest received on securities measured at fair value through other comprehensive income		1 883	1 238
Redemption of securities measured at amortized cost		7 758	2 074
Interest received on securities measured at amortized cost		1 719	962
Proceeds from sale of intangible assets, property, plant and equipment and assets held for sale		51	71
Other inflows from investing activities including dividends	70	1 302	683
Outflows on investing activities		(86 453)	(70 074)
Increase in equity of joint ventures		-	(18)
Purchase of securities measured at fair value through other comprehensive income		(83 145)	(43 294)
Purchase of securities measured at amortized cost		(1 813)	(25 946)
Purchase of intangible assets and property, plant and equipment		(788)	(816)
Other outflows on investing activities	70	(707)	-
Net cash from/used in investing activities		4 932	(11 660)

 

	Note	2022	2021
Cash flows from financing activities
Payment of dividends	69; 70	(2 288)	-
Redemption of debt securities		-	(4 038)
Repayment of loans and advances	70	(5 219)	(69)
Payment of lease liabilities	70	(242)	(213)
Repayment of interest on long-term liabilities	70	(342)	(268)
Net cash from financing activities		(8 091)	(4 588)
Total net cash flows		10 482	10 003
of which foreign exchange gains/(losses) on cash and cash equivalents	70	105	26
Cash and cash equivalents at the beginning of the period		19 129	9 126
Cash and cash equivalents at the end of the period	70	29 611	19 129

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, 13th Commercial Division 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 2022, 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 924 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	OWNERSHIP INTEREST (%)
	DIRECT SUBSIDIARIES			31.12.2022	31.12.2021
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 lending	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	Sollentuna, 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. holds 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	OWNERSHIP INTEREST (%)*
	INDIRECT SUBSIDIARIES			31.12.2022	31.12.2021
	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
	ROOF Poland Leasing 2014 DAC1	Dublin, Ireland	SPV established for securitization of lease receivables	-	-
5	Polish Lease Prime 1 DAC2	Dublin, Ireland	SPV established for securitization of lease receivables	-	-
	PKO Życie Towarzystwo Ubezpieczeń S.A. GROUP
6	Ubezpieczeniowe Usługi Finansowe sp. z o.o.	Warsaw	services	100	100
	KREDOBANK S.A. GROUP
7	“KREDOLEASING” sp. z o.o.	Lviv, Ukraine	in organization	100	100
	Merkury - fiz an
8	“Zarząd Majątkiem Górczewska” sp. z o.o.	Warsaw	property management	100	100
9	Molina sp. z o.o.	Warsaw	general partner in partnerships limited by shares of a fund	100	100
10	Molina spółka z ograniczoną odpowiedzialnością 1 S.K.A.	Warsaw	buying and selling real estate on own account, real estate management	100	100
11	Molina spółka z ograniczoną odpowiedzialnością 2 S.K.A.3	Warsaw	buying and selling real estate on own account, real estate management	100	100
12	Molina spółka z ograniczoną odpowiedzialnością 4 S.K.A.3	Warsaw		100	100
	Molina spółka z ograniczoną odpowiedzialnością 5 S.K.A.4 w likwidacji (in liquidation)3	Warsaw		-	100
13	Molina spółka z ograniczoną odpowiedzialnością 6 S.K.A. w likwidacji (in liquidation)	Warsaw		100	100
	NEPTUN - fizan
14	Qualia sp. z o.o.	Warsaw	after-sale services in respect of developer products	100	100
15	Sarnia Dolina sp. z o.o.	Warsaw	development activities	100	100
16	Bankowe Towarzystwo Kapitałowe S.A.	Warsaw	services	100	100
	16.1 “Inter-Risk Ukraina" spółka z dodatkową odpowiedzialnością5	Kiev, Ukraine	debt collection	99.90	99.90
	16.2 Finansowa Kompania “Prywatne Inwestycje” sp. z o.o.6	Kiev, Ukraine	financial services	95.4676	95.4676
	16.2.1 Finansowa Kompania “Idea Kapitał” sp. z o.o.	Lviv, Ukraine	services	100	100
17	“Sopot Zdrój" sp. z o.o.	Sopot	property management	72.9769	72.9769

* share of direct parent in the entity’s equity

1)        In June 2022, the Company was deleted from the Irish register of companies and thus ceased to be part of the PKO Bank Polski S.A. Group. As at 31 December 2021, in accordance with IFRS 10, PKO Leasing S.A. exercised control over the Company, although it did not have an equity share in it

2)        In accordance with IFRS 10, PKO Leasing S.A. exercises control over the company, although it does not have a capital share In it.

3)        The company’s Extraordinary General Shareholders’ Meeting resolved to put the company into liquidation as of 1 December 2022 – the change had not been entered in the National Court Register by 31 December 2022.

4)        The company’s liquidation was completed in July 2022 and the company was deleted from the National Court Register.

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

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

The Bank has the following associates and joint ventures.

No.	ENTITY NAME	REGISTERED OFFICE	ACTIVITY	OWNERSHIP INTEREST (%)*
				31.12.2022	31.12.2021
	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	property 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
3	System Ochrony Banków Komercyjnych S.A.	Warsaw	manager of the security system referred to in Article 130e of the Banking Law	21.11	-

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

2.   Changes in the Group companies

In 2022, the following events occurred in the structure of the Group.

•        liquidation of ROOF Poland Leasing 2014 (an entity from the PKO Leasing S.A. portfolio) was completed,

•        liquidation of Molina spółka z ograniczoną odpowiedzialnością 5 S.K.A. w likwidacji (in liquidation) (an entity from the Merkury fiz an portfolio) was completed.

The aforementioned companies ceased to be members of the PKO Bank Polski S.A. Group.

On 1 August 2022, System Ochrony Banków Komercyjnych S.A. was entered into the National Court Register. The company manages the protection system referred to in Article 4(1)(9a) of the Banking Law, which was established by 8 commercial banks, including PKO Bank Polski S.A. The Bank acquired 21,113 shares of the company with a total nominal value of PLN 211,130, representing 21.1% of the share capital and carrying 21.1% of the votes at the company’s General Meeting. The company was classified as an associate of the Bank.

With effect from 1 December 2022, the Extraordinary General Shareholders' Meeting of the companies: Molina spółka z ograniczoną odpowiedzialnością 2 S.K.A and Molina spółka z ograniczoną odpowiedzialnością 4 S.K.A resolved to put the companies into liquidation. These companies are members of the Bank Group and form the portfolio of MERKURY fiz an – a fund with a direct subsidiary of PKO Bank Polski SA. In January 2023, the above changes were entered in the National Court Register.

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

Composition of the Bank's Supervisory Board as at 31 December 2022:

•        Maciej Łopiński – Chair of the Supervisory Board

•        Wojciech Jasiński – Deputy Chair of the Supervisory Board

•        Dominik Kaczmarski – Secretary of the Supervisory Board

•        Mariusz Andrzejewski – 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

•        Krzysztof Michalski – Member of the Supervisory Board

•        Robert Pietryszyn – Member of the Supervisory Board

•        Bogdan Szafrański – Member of the Supervisory Board

•        Agnieszka Winnik-Kalemba – Member of the Supervisory Board

The Bank’s Annual General Meeting, in accordance with the Policy on the Assessment of Suitability of Candidates for Members and Members of the Supervisory Board of Powszechna Kasa Oszczędności Bank Polski S.A., conducted a periodic assessment of the suitability of the Supervisory Board, confirming the individual suitability of the Bank’s Supervisory Board members and the collective suitability of the entire body.

On 17 October 2022, Mr Grzegorz Chłopek resigned as a member of the Bank’s Supervisory Board with effect as of 17 October 2022.

On 18 October, the Extraordinary General Shareholders’ Meeting of the Bank appointed Mr Robert Pietryszyn to the Bank’s Supervisory Board.

Composition of the Bank's Management Board as at 31 December 2022:

•        Paweł Gruza – Vice-President of the Management Board managing the work of the Management Board

•        Maciej Brzozowski – Vice-President of the Management Board

•        Marcin Eckert – Vice-President of the Management Board

•        Wojciech Iwanicki – Vice-President of the Management Board

•        Maks Kraczkowski – Vice-President of the Management Board

•        Mieczysław Król – Vice-President of the Management Board

•        Artur Kurcweil – Vice-President of the Management Board

•        Piotr Mazur – Vice-President of the Management Board

On 26 January 2022, the Polish Financial Supervision Authority unanimously approved the appointment of Ms Iwona Duda as President of the Bank’s Management Board and therefore on 26 January 2022, Ms Iwona Duda started performing the function of President of the Bank’s Management Board.

On 24 March 2022, the Bank’s Supervisory Board appointed Mr Maciej Brzozowski a Member of the Bank’s Management Board for a joint term of office which started on 3 July 2020, and entrusted him with the position of Vice-President of the Bank’s Management Board as of 25 March 2022.

On 9 August 2022, Ms Iwona Duda resigned as Chairman of the Bank’s Management Board as well as from the Bank’s Management Board itself as of the end of 9 August 2022. At the same time, the Bank’s Supervisory Board appointed Mr Paweł Gruza as Vice-President of the Bank’s Management Board as of 10 August 2022 for the current joint term of office of the Bank’s Management Board, which commenced on 3 July 2020, and subject to the approval of the Polish Financial Supervision Authority and as of the date of such approval, appointed Mr Paweł Gruza as President of the Bank’s Management Board. Until the approval by the Polish Financial Supervision Authority, the Supervisory Board has entrusted Mr Paweł Gruza with directing the work of the Management Board.

On 15 December 2022, the Bank's Supervisory Board removed Mr Bartosz Drabikowski from the Bank's Management Board. At the same time, the Supervisory Board resolved to appoint Mr Andrzej Kopyrski to the Bank's Management Board as Vice-President of the Bank's Management Board, effective 1 January 2023, for the current joint term of office of the Bank's Management Board, which commenced on 3 July 2020.

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 9 March 2023, were approved for publication by the Management Board on 9 March 2023.

5.   Representation by the Management Board

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.

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 2022, 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 date of approval for publication by the Management Board, i.e. from 9 March 2023. 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.

The Bank's Management Board considered the impact of: current situation in Ukraine, legal risk of mortgage loans in convertible currencies and loan holidays introduced by the Act on crowdfunding for business ventures and assistance to borrowers and assessed that these factors do not cause significant uncertainty regarding the Bank's ability to continue as a going concern.

The external business conditions covering the macroeconomic environment (e.g. a gradual slowdown of the economy in relation to external shocks, inflation, interest rate increases), the situation on the financial markets, the state of the Polish banking and non-banking sector, the regulatory and legal environment, as well as the factors that will affect future financial results are described in detail in the Management Board Report on the operations of the PKO Bank Polski S.A. Capital Group (note 2 "External conditions of operations").

Disclosures concerning: the situation in Ukraine are presented in the note “The impact of the geopolitical situation in Ukraine on PKO Bank Polski S.A.”, the legal risk of mortgage loans in convertible currencies in the notes “Cost of legal risk of mortgage loans in convertible currencies” and “Subsequent events” and loan holidays in the note “Loans and advances to customers”.

8.   The basis for preparation of the financial statements

The financial statements cover the year ended 31 December 2022 and include comparative data for the year ended 31 December 2021. The financial data is presented in Polish zloty (PLN) in millions, unless otherwise indicated. Annual consolidated financial statements of PKO Bank Polski S.A. Group from 1 January 2022 to 31 December 2022 will be published and approved on the same date as the separate financial statements of PKO Bank Polski S.A. The requirement for its preparation and publication is based on legal regulations.

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 at 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 losses. 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 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.

DESCRIPTION OF SIGNIFICANT ACCOUNTING POLICIES

Major accounting policies and estimates and judgments applied in the preparation of these financial statements are presented in this Chapter and in individual 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 2022 and explanation of the differences between previously published financial statements and these financial statements”.

9.   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 mid-exchange rate quoted by the NBP at the end of the reporting period. Items in the Branches’ profit and loss are translated into the presentation currency using the mid-exchange rate quoted at 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 denominated 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 mid-exchange rate quoted by the National Bank of Poland 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-monetary 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 denominated in foreign currencies are recognized in the income statement.

EUR/PLN	2022	2021
Foreign exchange rates as at the end of the period	4.6899	4.5994
Arithmetic mean of exchange rates as at the last day of each month in the period	4.6883	4.5775
The highest exchange rate during the period	4.8698	4.6834
The lowest exchange rate during the period	4.5756	4.4805

 

CZK/PLN	2022	2021
Foreign exchange rates as at the end of the period	0.1942	0.1850
Arithmetic mean of exchange rates as at the last day of each month in the period	0.1909	0.1785
The highest exchange rate during the period	0.1980	0.1850
The lowest exchange rate during the period	0.1851	0.1727

 

10.            Investments in subsidiaries, associates and joint ventures

Investments in subsidiaries, associates and joint ventures are measured at cost less impairment losses. 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 loss in the income statement. Estimation of the value in use requires making assumptions about, among other factors, future cash flows that the Bank may receive from dividends or cash inflows from a potential disposal of the investment, less costs to sell.

11.            General accounting policies for financial instruments

11.1.        Accounting for transactions

Financial assets and financial liabilities, including forward transactions and regular-way 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 contract, irrespective of the settlement date provided in the contract.

11.2.        Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

11.3.        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 receive the cash flows of the financial asset, 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 rewards of ownership of the financial asset. If:

•        substantially all risks and rewards of ownership of a financial asset are transferred, the financial asset is eliminated from the statement of financial position;

•        the Bank retains substantially all risks and rewards of ownership of a financial asset, the financial asset continues to be recognized in the statement of financial position;

•        substantially all risks and rewards of ownership of a 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 excludes financial assets from the statement of financial position when, among other things, they are subject to invalidation by a final court judgement, cancellation by prescription or they are uncollectible. When the said assets are derecognized, they are charged to the respective credit loss allowances or losses in respect of legal risk (in case of invalidation of CHF loans).

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

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 is discharged or cancelled or expires.

11.4.        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 benefits 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 benefits 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 by the Bank upon initial recognition of financial assets. The Bank determines the business model 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 on the principal amount outstanding (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). 

11.5.        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 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).

Upon initial recognition, these financial 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 origination 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.

If the timing of future cash flows and, consequently, the effective interest rate, cannot be determined, the receivables are measured at the amount due.

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

Financial assets (debt financial 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).

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. For methods of determining fair value, see note “Fair value hierarchy”.

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 income of a similar nature to interest income, gains or losses in respect of allowances for expected credit losses and foreign exchange gains or losses recognized in profit or loss. 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 profit or loss in the form of a reclassification adjustment.

11.7.         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:

•        are acquired or incurred principally for the purpose of selling or repurchasing it in the near term; or

•        on initial recognition are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or

•        are a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).

•          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 contractual 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 profit or loss. 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.

The gains and losses arising from disposal of financial instruments designated as financial assets measured at fair value through profit or loss and the effect of their measurement at fair value are recognised in profit or loss under the heading “Gains/(losses) on financial transactions”.

Income similar to interest income on instruments measured at fair value through profit or loss are recognised in profit or loss under the heading “Interest income and expenses”.

11.8.         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.

11.9.         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 measurements, allowances or accrued interest recognised to date.

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

•        a change in intention related to particular financial assets (even in circumstances of significant changes in market conditions);

•        the temporary disappearance of a particular market for financial assets;

•        a transfer of financial assets between areas of operation with different business models.

Financial liabilities are not reclassified.

11.10.    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.

When the contractual cash flows of a financial asset are renegotiated or otherwise modified based on an annex to the agreement or by general legislation, and the renegotiation or modification does not result in the derecognition of that financial asset (“Non-substantial modification”), the gross carrying amount of the financial asset is recalculated and gain or loss arising from such modification is recognized in profit or loss (as income or interest expense). 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 financial asset’s original effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impaired financial assets) or, if applicable (e.g. with respect to gain or loss on a hedged item resulting from hedging), the revised 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 conversion;

•        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. The third criterion is the extension of the original term of cash loans, business loans serviced in branch by more than 1 year and by more than double the residual term; cash loans, business loans handled by collection units by more than 1 year; home loans serviced in branch and handled by collection units by more than 4 years.

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.

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.

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

IFRS 9 distinguishes a 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 allowances), 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 over the life of the asset. The credit-adjusted effective interest rate is calculated taking into account future cash flows adjusted for the effect of credit risk recognized over the 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.

11.12.    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.

12.            Environmental issues

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. Indirect environmental impact involves the Bank's provision of financing the Bank's product offering. 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 2022 in the following sections:

•        13.4 “Non-financial factors in the Bank's strategy”,

•        13.5 “Key non-financial performance indicators”,

•        13.7 “Material topics: management and risks”, including: 13.7.6 “Environment”, 13.7.7 “Climate” and 13.7.8 “Sustainable development”.

From 2021 onwards, ESG risks have been included in the Bank's risk management strategy. For issues related to ESG risk management, see note “ESG risk management”.

This note describes the impact of climate-related factors on the specific components of the Bank’s financial statement, including in particular the impact of climate risk on the measurement of the expected credit losses and concentration of credit risk. 

•      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).

As detailed below, 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, in view of the relatively short-term duration of many bank loan portfolios, expects the most significant effects of climate change to appear in the mid- and long-term perspective. 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.

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 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:

•        debt securities classified at level 3 – generally constitute financing of business entities from industries not exposed to significant climate risk (e.g. insurance companies, developers),

•        granted loans classified as level 3 – they generally represent financing for households and their fair value is estimated by applying the discounted cash-flow method using an effective credit spread,

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

•      Property, plant and equipment, intangible assets

Climate-related issues do not affect depreciation and amortization recognized by the Bank as at 31 December 2022 and 2021. Moreover, climate-related factors did not cause any indications of impairment of non-financial assets and did not affect their recoverable value as at 31 December 2022 and 2021.

•      Inventories – Climate-related issues do not affect the carrying amount of inventories held by the Bank as at 31 December 2022 and 2021.

•       Taxes Climate-related issues do not affect deferred income tax assets recognized by the Bank as at 31 December 2022 and 2021.

•      provisions and litigation As at 31 December 2022 and 2021, there were no proceedings involving any climate or environmental issues at the Bank. In 2022-2021, 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.

13.             Changes in accounting policies applicable from 1 January 2022 and explanation of the differences between previously published financial statements and these financial statements

In order to better reflect its activities and ensure comparability with the banking sector, the Bank has made the following changes to its accounting policies:

1.       Income statement

•        reclassification of card-related costs (1)

Starting from the first quarter of 2022, the Bank has presented card-related costs in net fee and commission income under card-related costs. Previously, they have been presented in administrative expenses as material costs.

•        reclassification of the costs of transport of cash to the Bank’s customers (2)

Starting from the first quarter of 2022, the Bank has presented the costs of transport of cash in net fee and commission income under the costs of bank accounts relating to clearing services. Previously, they have been presented in administrative expenses as material costs of IT services.

•        reclassification of the costs of voluntary membership fees (3)

Starting from the first quarter of 2022, the Bank has presented the costs of voluntary membership fees as a component of other operating expenses. Previously, these costs were presented as administrative expenses.

INCOME STATEMENT – SELECTED ITEMS	01.01- 31.12.2021 before restatement	(1)	(2)	(3)	01.01- 31.12.2021 restated
Net fee and commission income	3 542	(45)	(4)	-	3 493
Fee and commission expense	(1 104)	(45)	(4)	-	(1 153)
Other net income	1 213	-	-	(2)	1 211
Net other operating income and expense	(95)	-	-	(2)	(97)
Result on business activities	13 466	(45)	(4)	(2)	13 415
Administrative expenses	(5 304)	45	4	2	(5 253)
of which net regulatory charges	(596)	-	-	2	(594)
Net profit	4 596	-	-	-	4 596

 

2.       Cash flow statements

From the financial statements for 2022 onwards, the item “interest and dividends” in the section on cash flows from operating activities has been split into “interest and dividends received” and “interest paid”.

CASH FLOWS FROM OPERATING ACTIVITIES – SELECTED DATA	01.01- 31.12.2021 before restatement	(1)	01.01- 31.12.2021 restated
Interest and dividends (old item)	(2 477)	2 477	-
Interest and dividends received (new items)	-	(2 744)	(2 744)
Interest paid (new items)	-	267	267

 

14.            New standards and interpretations and their amendments

•        Standards and interpretations and their amendments effective from 1 January 2022

Standards and interpretations *	Description of changes and impact
amendments to IFRS 3 “Business combinations” (1.01.2022/28.06.2021)	Amendments to IFRS 3 update the references to the Conceptual Framework issued in 2018. They also added a requirement that, for transactions and other events within the scope of IAS 37 or IFRIC 21, an acquirer applies IAS 37 or IFRIC 21 (instead of conceptual framework) to identify the liabilities it has assumed in business combination. Moreover, the standard added an explicit statement that an acquirer does not recognize contingent asset acquired in a business combination. No impact on the financial statement.
Amendments to IAS 16 “Property, plant and equipment” (1.01.2022/28.06.2021)	The amendments indicated, among other things, that proceeds from the use of a fixed asset not yet placed in service should be recognised in the income statement and not deducted from the cost of the fixed asset. No material impact on the financial statements.
Amendment to IAS 37 “Provisions, contingent liabilities and contingent assets” (1.01.2022/28.06.2021)	The amendments clarified that, when assessing whether a contract is onerous, the costs of performing the contract include both direct incremental costs and the allocation of other direct costs. No material impact on the financial statements.
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. These amendments do not apply to the Bank •      The amendment to IFRS 9 clarifies which fees should be included for 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. No material impact 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 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
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 “Insurance Contracts”, which enabled entities to recognize insurance contracts according to the accounting principles based on the national standards. The aim of the new standard is to introduce new uniform rules for the measurement of insurance and reinsurance contracts, ensuring greater comparability of reporting between providers of insurance products, and to provide a number of new disclosures for the benefit of users of financial statements. In 2022, the Bank carried out a project involving the Group companies aimed at implementing IFRS 17 as of 1 January 2023. During the project, the Bank carried out an analysis of its products (e.g. performance bonds) in terms of identification of links with the requirements of IFRS 17. The analysis confirmed that there were no insurance products in the Bank. Therefore, the new standard will have no impact on the Bank's separate financial statements.
Amendments to IAS 1 “Presentation of financial statements” and IAS 8 “Accounting policies, changes in accounting estimates and errors” (1.01.2023/2.03.2022))	Amendments to IAS 1 contain guidelines on the application of the term “material” in disclosures of the accounting policies. Instead of significant accounting policies, the amendments require disclosure of material information about accounting policies, with explanations and examples of how an entity can identify material information about accounting policies. The amendments to IAS 8 introduce a new definition of accounting estimates. Under the new definition, accounting estimates are monetary amounts in the financial statements that are subject to measurement uncertainty. The introduction of the definition of accounting estimates and other amendments to IAS 8 are intended to help entities distinguish between changes in accounting policies and changes in accounting estimates. The Bank is of the opinion that these changes will have an impact on the scope of information presented in its financial statements.
Amendments to IAS 12 “Income taxes” (1.01.2023/11.08.2022)	Amendments to IAS 12 require that the entities recognise in the financial statements deferred tax assets and liabilities resulting from transactions, other than business combinations, in which equal amounts of deductible and taxable temporary differences arise on initial recognition. 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.
Amendment to IFRS 16 “Leases” (1.01.2024/ no data)	The amendments clarify how a seller-lessee should measure sale and leaseback transactions that meet the requirements of IFRS 15 to recognise an asset as a sale. In particular, the measurement of the lease liability should not take into account gains and losses associated with the retained right of use. The seller-lessee may still recognise in profit or loss the gains and losses associated with the partial or total termination of a lease. A retrospective approach will apply to these amendments. The Bank is in the process of analysing the impact of these amendments on the financial statements.

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

SUPPLEMENTARY NOTES TO THE INCOME STATEMENT

15.            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. 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 costs of remuneration of agents and intermediaries for the sale of the financial instrument, 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 these assets is calculated on the net carrying amount using the effective interest rate, adjusted for the credit risk recognised for the entire life of the asset, with the calculation of interest income for the respective month being made for financial assets classified as POCI at the end of the previous month based on the net carrying amount calculated using the previous month's net-to-gross ratio;

•        financial assets which were not originally POCI assets, but subsequently became credit-impaired financial assets. Interest income on these 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, with the calculation of interest income for the respective month being made for financial assets classified as stage 3 at the end of the previous month based on the net carrying amount calculated using the previous month's net-to-gross ratio;

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 impact of the European Union Court of Justice’s ruling on consumer rights to reduce the cost of loans repaid before contractual maturity 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.

•        effect of statutory credit holidays, introduced by the Act on crowdfunding for business ventures and assistance to borrowers, recognised in the second half of 2022 in correspondence with the gross carrying amount of mortgage loans granted in PLN (Note „Loans and advances to customers”).

•         the impact of the amendment of the Act of 23 March 2017 on mortgage credit and supervision of mortgage credit intermediaries and agents (Journal of Laws of 2020, items 1027 and 2320 and of 2022, items 872 and 1488), concerning the reimbursement of the additional mortgage cost associated with waiting for the mortgage to be registered in the mortgage register, borne by the customer until the mortgage is registered in the mortgage register by deducting interest income, as the value of the estimated return of the margin for customers calculated until the date of registration of the mortgage in the mortgage register.

•        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.

The remuneration received and payable to the Bank for offering insurance products for products directly linked to financial instruments is accounted for using the effective interest rate method and recognised in interest income and, in the part corresponding to the performance of the intermediation service, is recognised in commission income when the insurance product is sold or renewed. 

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 returns, according to the relative fair value model, is allocated to the financial instrument and recognised as a deduction from its gross carrying amount and to the insurance service – recognised under provisions.

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 AND SIMILAR INCOME	2022	2021
Loans and other amounts due from banks1	1 401	71
Pooling	-	1
Derivative hedging instruments	-	411
Debt securities:	3 684	1 788
measured at amortized cost	1 497	906
measured at fair value through other comprehensive income	2 158	873
measured at fair value through profit or loss	29	9
Loans and advances to customers²	13 410	6 874
measured at amortized cost	12 004	6 140
measured at fair value through other comprehensive income	883	346
measured at fair value through profit or loss	523	388
Amounts due to customers (excluding loans and advances received)	29	19
Total	18 524	9 164
of which: interest income on impaired financial instruments	368	194
Interest income calculated using the effective interest rate method on financial instruments measured:	17 972	8 356
at amortized cost	14 931	7 137
at fair value through other comprehensive income	3 041	1 219
Income similar to interest income on instruments measured at fair value through profit or loss	552	808
Total	18 524	9 164

1 Under loans and other receivables from banks, the Bank recognized interest income on funds in call accounts (central clearing through a clearing broker) of PLN 297 million as at 31 December 2022 (PLN 4 million as at 31 December 2021) and interest income on funds in the current account with the NBP of PLN 560 million (PLN 11 million as at 31 December 2021).

² The item loans and advances to customers includes the impact of the effect of statutory credit holidays, recognized in the second half of 2022 for an amount of PLN 2 443 million (note “Loans and advances to customers”).

INTEREST EXPENSE	2022	2021
Hedging derivatives	(3 142)	-
Amounts due to banks	(134)	(22)
Interbank deposits	(6)	(7)
Loans and advances received	(198)	(197)
Leases	(14)	(8)
Amounts due to customers	(3 642)	(156)
issues of securities	-	(15)
subordinated liabilities	(164)	(48)
Total	(7 300)	(453)

 

	31.12.2022	31.12.2021
Interest on funds in the mandatory reserve account	6.75%	1.75%

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.

16.            Fee and commission income and expenses

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	2022	2021
Loans and insurance	964	956
lending	757	732
offering insurance products	207	224
Investment funds, pension funds and brokerage activities	406	373
servicing investment funds and OFE (including management fees)	16	51
servicing and selling investment and insurance products	6	9
brokerage activities	384	313
Cards	1 958	1 490
Margins on foreign exchange transactions	727	582
Bank accounts and other	1 262	1 245
servicing bank accounts	929	958
cash operations	77	62
servicing foreign mass transactions	102	88
customer orders	63	57
fiduciary services	9	10
other	82	70
Total, of which:	5 317	4 646
income from financial instruments not measured at fair value through profit or loss	5 208	4 496

Fiduciary activities

The Bank 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.

 

FEE AND COMMISSION EXPENSE	2022	2021
Loans and insurance	(91)	(115)
commission paid to external entities for product sales	(22)	(24)
cost of construction project supervision and property appraisal	(27)	(42)
fees to Biuro Informacji Kredytowej	(22)	(18)
loan handling	(20)	(31)
Investment funds, pension funds and brokerage activities	(29)	(32)
Cards	(1 234)	(880)
Bank accounts and other	(145)	(126)
clearing services	(53)	(40)
commissions for operating services provided by banks	(13)	(12)
sending short text messages (SMS)	(50)	(53)
selling banking products	(1)	(2)
servicing foreign mass transactions	(22)	(15)
other	(6)	(4)
Total	(1 499)	(1 153)

 

17.            Fee and commission income by segment

accounting policies: “Interest income and expense”, “Fee and commission income and expense”

Financial information

INTEREST INCOME BY SEGMENT	2022
	Retail segment	Corporate and investment segment	Transfer center and other	Total
Loans and other amounts due from banks	-	841	560	1 401
Debt securities	-	2 019	1 665	3 684
Loans and advances to customers	9 349	4 061	-	13 410
Amounts due to customers (excluding loans and advances received)	-	29	-	29
Total	9 349	6 950	2 225	18 524

 

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

 

FEE AND COMMISSION INCOME BY SEGMENT	2022
	Retail segment	Corporate and investment segment	Transfer center and other	Total
Loans and insurance	673	291	-	964
lending	466	291	-	757
offering insurance products	207	-	-	207
Investment funds, pension funds and brokerage activities	99	307	-	406
servicing investment funds and OFE (including management fees)	8	8	-	16
servicing and selling investment and insurance products	6	-	-	6
brokerage activities	85	299	-	384
Cards	1 906	52	-	1 958
Margins on foreign exchange transactions	521	206	-	727
Bank accounts and other	995	267	-	1 262
servicing bank accounts	808	121	-	929
cash operations	32	45	-	77
servicing foreign mass transactions	59	43	-	102
customer orders	27	36	-	63
fiduciary services	-	9	-	9
other	69	13	-	82
Total	4 194	1 123	-	5 317

 

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

 

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	2022	2021
from subsidiaries	423	558
from associates and joint ventures	52	54
from financial assets held for trading	1	1
from financial instruments not held for trading, measured at fair value through profit or loss	12	11
Total	488	624

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).

Related notes: Hedge accounting and other financial instruments”, “Securities”, “Loans and advances to customers”.

Financial information

GAINS/(LOSSES) ON FINANCIAL TRANSACTIONS	2022	2021
Financial instruments held for trading, of which:	399	213
Derivatives¹	399	211
Equity instruments	(2)	4
Debt securities	2	(2)
Other	-	-
Financial instruments not held for trading, measured at fair value through profit or loss, of which:	(26)	(127)
Equity instruments	13	(3)
Debt securities	6	(12)
Loans and advances to customers	(45)	(112)
Hedge accounting	(17)	(32)
Total	356	54

1 of which under stock options and stock exchange indices PLN 212 million (PLN 25 million in the comparable period 2021).

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 (for details, please see the note “Hedge accounting and other financial instruments”).

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.

	2022	2021
Foreign exchange gains/ (losses)	(108)	429

Decrease in net foreign exchange gains (losses), mainly as a result of the recognition in 2021 of a foreign exchange gain of approximately PLN 328 million following the decision of the Extraordinary Shareholders' Meeting of the Bank of 23 April 2021 to offer settlements to customers and a deterioration in the gain or loss on foreign exchange transactions due to an increase in PLN interest rates and an increase in the cost of currency conversion in 2022, with an improvement in the net income on customer operations;

 

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

Accounting policies: „Modifications – Changes in contractual cash flows”.

related notes: „Statement of comprehensive income”

Financial information

GAINS/(LOSSES) ON DERECOGNITION OF FINANCIAL INSTRUMENTS	2022	2021
measured at fair value through other comprehensive income	(24)	200
measured at amortized cost	13	1
Total	(11)	201

22.            Other operating income and expenses

Accounting policies:

Other operating income comprises income 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 income also includes reversed provisions 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 allowances.

Other operating expenses include mainly provisions for refunds to customers on early repayment of consumer and mortgage loans before the CJEU ruling (see note “Provisions”), losses on sale /scrapping of property, plant and equipment, intangible assets and assets repossessed for debt, and donations made.

Other operating expenses also include provisions recognized 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 allowances.

Related notes: “Provisions”

Financial information

OTHER OPERATING INCOME	2022	2021
Gains on sale or scrapping of property, plant and equipment, intangible assets and assets held for sale	17	29
Damages, compensation and penalties received	15	13
Ancillary income	33	33
Recovery of receivables expired, forgiven or written off	1	1
Reversal of provision for future payments	-	1
Reversal of provision recognized for legal claims excluding legal claims relating to repaid mortgage loans in convertible currencies	3	2
Income from sale of CO2 emission allowances	43	54
Inne1	76	45
Total	188	178

1  including revenue from the sale of coins for collectors' purposes of PLN 10 million (PLN 8 million in 2021).

OTHER OPERATING EXPENSES	2022	2021
Losses on sale or scrapping of property, plant and equipment, intangible assets and assets held for sale	(3)	(3)
Damages, compensation and penalties paid	(1)	-
Donations made	(51)	(43)
Sundry expenses	(15)	(17)
Recognition of provision for potential refunds of fees and commission to customers	(13)	(27)
Recognition of provision for future payments	(2)	(3)
Recognition of provision for legal claims excluding legal claims relating to repaid mortgage loans in convertible currencies	(7)	(7)
Costs of financial support to a subsidiary	-	(17)
Costs from sale of CO2 emission allowances	(25)	(114)
Inne1	(38)	(44)
Total	(155)	(275)

1  including the costs of external services for the recovery of PLN 20 million (PLN 15 million in 2021).

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:

The Bank reviews its loan portfolio for impairment at least quarterly. To determine whether an impairment should be recognised in the income statement, the Bank assesses whether there is any data indicating a measurable reduction in the estimated future cash flows relating to the loan portfolio. The methodology and assumptions used to determine the estimated cash flow amounts and the periods over which they will occur are reviewed on a regular basis.

•      measurement and assessment of credit risk: expected credit losses

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).

•      Significant increase in credit risk

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

•        Mortgage and other retail exposures

The Bank uses a model based on a marginal PD calculation, i.e. the probability of default in a given month, to assess a significant 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 significant 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 significant. 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 2022, 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 2021).

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 significant increase in credit risk.

•        Exposures to institutional customers

In order to assess the significant increase in credit risk for institutional customers the Bank applies the model based on the Markov chains. Historical data is used to build matrices of probabilities of Customers migrating between individual categories 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 category of risk and portfolio on the date of the initial recognition of the credit exposure, which, if exceeded, is identified as a significant increase in credit risk. This value is set on the basis of the average probability of default for categories of risk worse than that at initial recognition of the exposure, weighted by the probability of transition to those categories of risk in the given time horizon.

In accordance with the data as at the end of 2022 and 2021, the minimum deterioration in the category of risk which constitutes a premise of a significant increase in credit risk compared to the current category 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 applicable 2

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

2 deterioration of the risk category is a direct indication of impairment

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

•        marking a credit exposure as POCI without any indication of impairment,

•        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;

•        transfer of the credit exposure for management by the Bank’s restructuring and debt collection units;

•        use by the borrower of a mortgage loan from statutory support in loan repayment.

•      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 risk category 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 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.

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.

•      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 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.

In the calculations of expected credit losses the estimates concerning future macroeconomic conditions are taken into account. 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 projections are used for calculating the expected loss:

•        a baseline scenario with a probability of 75%

•        and two alternative scenarios, with a probability of 20% and 5%, respectively.

The scope of the projected indicators includes:

•        GDP growth rate,

•        unemployment rate,

•        WIBOR 3M rate,

•        LIBOR CHF 3M rate (from 1 January 2022: SARON 3M),

•        CHF/PLN exchange rate,

•        property price index and

•        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 projections. The projections 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 projected path. Two scenarios are identified, optimistic and pessimistic.

The share of the scenarios for the GDP path (GDP growth rate) 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 project 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 projections for 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 projections are a combination of projections for these two rates. The EUR/PLN and EUR/CHF projections 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.

In 2022, in the macroeconomic model, the Bank dropped the solutions resulting directly from the approach adopted during the pandemic, i.e. the inclusion of the 2-year average GDP and unemployment projection from the pandemic period as the basis for estimating macroeconomic indicators and the inclusion of the impact of credit holidays on the reduced materialization of credit risk. At the same time, factors are included in the model to reflect current domestic and global events: the impact of the current macroeconomic situation (high inflation) on customers’ ability to settle their obligations, as well as the impact of Russia’s invasion of Ukraine on fuel prices and, consequently, on the health of companies. Additional factors in the model include: 

●      taking into account an increase in the interest rate on the quality of the credit portfolio and increases in energy prices on the situation of enterprises, using the historically observed portfolio quality dependency on the level of interest rates and energy prices,

•        taking into account the rise in energy prices on the situation of enterprises using historically observed dependence, 

•        consideration of the effect of exchange rate volatility on the quality of the foreign currency housing loan portfolio, as a result of the escalation of hostilities in Ukraine. 

In addition, due to the significant influx of refugees and the uncertainty of its impact on the labour market, the model in all portfolios does not take into account a decrease in unemployment as a factor improving the quality of the loan portfolio.

The applied approach to the impact of macroeconomic forecasts on risk parameters describes the situation in all sectors of the economy at the same time and may not take into account the problems of individual industries caused by the pandemic, therefore the Bank conducted additional analyzes 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 is particularly the case in the construction, hotel, automotive, office and retail rental sectors, as well as in energy-intensive industries. Exposures with highest PD values (D rating or worse) belonging to identified industries were marked with the indication of "significant increase in credit risk" and covered by increased write-downs. In the fourth quarter of 2022, the forecasts of macroeconomic indicators were taken into account in the estimates, and thus the allowance for these customers was determined based on PD for the worst rating class. As a result of these analyses, the Bank increased the write-downs for expected credit losses by approx. PLN 399 million, which represents approx. 25% of the value of write-downs on the entire portfolio of economic loans classified as Stage 2.

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

scenario as at 31.12.2022	Baseline			optimistic			pessimistic
probability	75%			5%			20%
	2023	2024	2025	2023	2024	2025	2023	2024	2025
GDP growth y/y	(0.3)	2.8	2.9	5.2	8.2	6.2	(5.8)	(2.5)	(0.4)
Unemployment rate	3.9	4.7	3.9	2.9	3.4	3.1	4.3	5.3	4.3
Property price index	97.0	96.1	98.2	103.9	110.8	114.9	90.6	83.1	83.6
WIBOR 3M (%)	6.8	5.8	4.6	7.3	6.1	4.7	6.2	4.6	3.8
CHF/PLN	4.6	4.2	4.1	4.4	4.1	4.0	5.1	5.3	4.9

 

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
Property 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

 

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 2022 and 31 December 2021.

	31.12.2022		31.12.2021
	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)	(290)	527	(308)	227

 

The table below presents the estimated sensitivity of the level of allowances for expected losses as a result of scenarios of deterioration or improvement in risk parameters as at 31 December 2022 and 31 December 2021.

ESTIMATED CHANGE IN THE LEVEL OF IMPAIRMENT ALLOWANCE RESULTING FROM MATERIALIZATION OF A SCENARIO OF THE RISK PARAMETERS, THE DETERIORATION OR IMPROVEMENT, OF WHICH:1	scenario +10%	scenario (10%)	scenario +10%	scenario (10%)
	31.12.2022		31.12.2021
Changes in the present value of estimated cash flows for the portfolio assessed on an individual basis
SECURITIES	(37)	49	(33)	46
Stage 1	-	12	-	12
Stage 3	(37)	37	(33)	34
LOANS AND ADVANCES TO CUSTOMERS	(92)	138	(120)	153
Stage 3	(92)	138	(120)	153
Changes in the probability of default
SECURITIES	8	(8)	6	(6)
Stage 1	8	(8)	5	(5)
Stage 2	1	(1)	1	(1)
LOANS AND ADVANCES TO CUSTOMERS	201	(237)	170	(195)
Stage 1	101	(107)	75	(82)
Stage 2	100	(130)	95	(113)
Changes in recovery rates
SECURITIES	(9)	9	(8)	8
Stage 1	(8)	8	(6)	6
Stage 2	(1)	1	(2)	2
LOANS AND ADVANCES TO CUSTOMERS	(545)	547	(484)	487
Stage 1	(163)	163	(132)	132
Stage 2	(215)	216	(206)	207
Stage 3	(167)	167	(145)	149

1 “()” decrease in write-downs", “+” increase in write-downs

Related notes: “Amounts due from banks”, “Securities”, “Loans and advances to customers”, “Other assets”, “Provisions”, “Credit risk – FINANCIAL INFORMATION”.

Financial information

NET ALLOWANCES FOR EXPECTED CREDIT LOSSES	2022	2021
Amounts due from banks	(2)	(8)
Debt securities	27	(60)
- measured at fair value through other comprehensive income	41	(43)
- measured at amortized cost	(14)	(17)
Loans and advances to customers¹	(977)	(1 031)
- measured at fair value through other comprehensive income	(20)	(14)
- measured at amortized cost	(957)	(1 017)
Other financial assets	(13)	1
Provisions for financial liabilities and guarantees granted	(155)	(46)
Total	(1 120)	(1 144)

1 of which for consumer loans in the amount of PLN 596 million (PLN 469 million in 2021) and business loans in the amount of PLN 290 million (PLN 401 million in 2021).

24.            Impairment of non-financial assets

Accounting policies:

Impairment losses 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 loss in respect of goodwill is not reversed. In the case of other assets, an impairment loss may be reversed if the estimations used to determine the recoverable amount have changed. An impairment loss 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 loss 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:

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, as well as intangible assets not yet placed in service 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 loss 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.

Related notes: Intangible assets, Property, plant and equipment, Assets held for sale, Investments in associates and joint ventures, Other assets

Financial information

NET IMPAIRMENT OF NON-FINANCIAL ASSETS	NOTE	2022	2021
Property, plant and equipment	40	(3)	(1)
Assets held for sale	41	-	(2)
Intangible assets	39	-	(2)
Investments in subsidiaries	42	(52)	-
Other non-financial assets	43	(34)	(50)
Total		(89)	(55)

 

CHANGE IN ACCUMULATED IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS	Opening balance	Impairment of non-financial assets	Other	Closing balance
2022
Property, plant and equipment	(91)	(3)	-	(94)
Non-current assets held for sale	(1)	-	-	(1)
Intangible assets	(134)	-	2	(132)
Investments in subsidiaries	(830)	(52)	-	(882)
Investments in associates and joint ventures	(186)	-	-	(186)
Other non-financial assets	(264)	(34)	30	(268)
Total	(1 506)	(89)	32	(1 563)

 

CHANGE IN ACCUMULATED IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS	Opening balance	Impairment of non-financial assets	Other	Closing balance
2021
Property, plant and equipment	(93)	(1)	3	(91)
Non-current assets held for sale	(3)	(2)	4	(1)
Intangible assets	(131)	(2)	(1)	(134)
Investments in subsidiaries	(830)	-	-	(830)
Investments in associates and joint ventures	(186)	-	-	(186)
Other non-financial assets	(164)	(50)	(50)	(264)
Total	(1 407)	(55)	(44)	(1 506)

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

Accounting policies and estimates and judgments:

In connection with the current legal disputes regarding loans in convertible currencies, 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 Bank recognizes as the decrease of the gross carrying amount of mortgage loans 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 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 has also taken into account, as an impact on the probability of settlements, the tax preferences of customers falling within the scope of the Regulation of the Minister of Finance of 11 March 2022 on suspending the collection of income tax on certain types of income (revenue) related to a mortgage loan granted for residential purposes, as amended by the Regulation of 20 December 2022, which is in force until 31 December 2024.

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. The uncertainty in the estimates relates both to the number of future lawsuits and court decisions in this regard, including the remuneration to which the Bank is entitled for the customer's non-contractual use of capital in the event of a cancellation scenario (currently the model takes into account a probability of non-recovery of the cost of capital of 70%, thus the probability of recovery of the cost of capital is 30%) and to the expected number of settlements, which may be influenced in particular by changes in the jurisprudential line on mortgages denominated or indexed to foreign currencies, an increase in underlying interest rates or a change in the PLN/CHF exchange rate.

In 2022 and 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;

The Bank carried out an analysis of the model's sensitivity to changes in key parameters:

ANALYSIS OF THE MODEL'S SENSITIVITY TO CHANGES IN KEY PARAMETERS	Increase/decrease of cost of legal risk of mortgage loans in convertible currencies
	31.12.2022	31.12.2021
1 p.p. increase in the number of lawsuits (at the cost of inactive customers)	64	92
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)	63	42
1% increase in weighted average loss	57	35
1 p.p. decrease in the number of settlements	22	37
1 p.p. decrease in the likelihood of compensation for the principal amount1	40	12
1 p.p. increase in the lawsuit to settlement conversion ratio	(26)	(11)

1 When estimating the cost of legal risk of mortgage loans in convertible currencies, the Bank takes into account the probability of recovering the cost of capital at the level of 30%. Eliminating this particular assumption, while maintaining the other parameters of the model, would increase the cost of legal risk by PLN 1 200 million

The above sensitivity analysis includes scenarios of court decisions analyzed by the Bank and loans for which the Bank estimates a non-zero probability of a lawsuit being filed by the customer.

From 2022 onwards, the Bank has recognized the effects of final judgments declaring the invalidity of loan agreements in convertible currencies. As a consequence of the aforementioned judgments, the Bank ceased to recognize receivables from active loan agreements in the Bank’s assets (under “Loans and advances to customers”). At the same time, the Bank recognized, under “Other assets”, receivables from principal disbursed to customers and the Bank’s claims for reimbursement for non-contractual use of principal, as well as liabilities, relating to the reimbursement of principal and interest instalments paid by customers (“Other liabilities”).

Related notes: “Loans and advances to customers”, “Other assets”, “Provisions” “Legal claims” and “Management of currency risk associated with mortgage loans for individuals”, “Subsequent events ”.

Financial information

Starting from 4 October 2021, following a decision of 23 April 2021 of the Extraordinary General Meeting of PKO Bank Polski S.A., the Bank has been concluding settlements with consumers who concluded loan agreements or cash advance agreements with the Bank secured by mortgages and indexed to foreign currencies or denominated in foreign currencies (hereinafter: settlements with consumers).

As at 31 December 2022, nearly 37.5 thousand applications for mediation were recorded (as at 31 December 2021 – more than 19 thousand applications). The total number of settlements concluded as at 31 December 2022 was 20 396, of which 19 786 were concluded in mediation proceedings and 610 in court proceedings. As at 31 December 2021, the total number of settlements concluded was 5 887, of which 5 754 were concluded in mediation proceedings and 133 in court proceedings. Starting from 20 June 2022, the Bank enabled concluding settlement agreements with respect to MIX mortgage loans granted in CHF designated for housing purposes.

 

IMPACT OF LEGAL RISK OF MORTGAGE LOANS IN CONVERTIBLE CURRENCIES	Gross carrying amount of mortgage loans in convertible currencies net of the cost of legal risk of mortgage loans in convertible currencies	Accumulated cost of legal risk of mortgage loans in convertible currencies	Gross carrying amount of mortgage loans in convertible currencies including the cost of legal risk of mortgage loans in convertible currencies
as at 31.12.2022
Loans and advances to customers – adjustment reducing the carrying amount of loans	19 012	7 378	11 634
- related to the portfolio of mortgage loans in CHF	16 731	7 378	9 353
Provisions (note 45) and adjustment to the gross carrying amount of other assets		945
Total		8 323
as at 31.12.2021
Loans and advances to customers – adjustment reducing the carrying amount of loans	22 038	6 428	15 610
- related to the portfolio of mortgage loans in CHF	19 528	6 428	13 100
Provisions (note 45)		595
Total		7 023

 

Change in the accumulated cost of legal risk of mortgage loans in convertible currencies during the period	2022	2021
Carrying amount at the beginning of the period	7 023	7 043
revaluation of loss for the period	864	590
offset of settlements and judgments for the period against accumulated losses	(1 478)	(622)
increase in adjustment to gross carrying amount of loans and advances to customers and other assets, increase in provisions for legal risk	1 914	-
other changes	-	12
Carrying amount at the end of the period	8 323	7 023

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 carrying amount of loans.

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 recognises 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.

For additional information, see also the note “Provisions” 

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.

Depreciation and amortisation

Costs of depreciation of property, plant and equipment, including right-of-use property, plant and equipment are recognised under the heading “Administrative expenses”, item “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 placed in service, with the exception of right-of-use assets, for which depreciation begins in the same month in which they were placed in service, 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.

Costs of depreciation of property, plant and equipment, including right-of-use property, plant and equipment are recognised under the heading “Administrative expenses”.

costs of regulatory charges – In this item, the Bank presents mainly the charges paid by the Bank, resulting from the legal regulations governing the Bank's activities, to other entities, i.e. the Polish Financial Supervision Authority (PFSA), the Bank Guarantee Fund (BGF), the Borrower Support Fund (BFWK) and also to the assistance fund operated by System Ochrony Banków Komercyjnych S.A. (SOBK). In this item, the Bank also recognises other taxes other than income tax expense and tax on certain financial institutions, which is presented under a separate heading:

•         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 the 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 the Rehabilitation of Disabled Persons, motor vehicle tax, excise duty, court and stamp duties, fees related to mediation at the PFSA, a contribution to finance the activities of the Financial Ombudsman and their Office, as well as municipal and administrative fees.

Estimates and judgments:

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 usage 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	Useful lives
Buildings, premises, cooperative rights to premises (including investment real estate)	from 25 to 60 years
Leasehold improvements (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 units	from 2 to 10 years
Vehicles	from 3 to 5 years
Intangible assets	Useful lives
Software	from 1 to 24 years
Other intangible assets	from 2 to 20 years

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	31.12.2022		31.12.2021
	scenario +10 years	scenario -10 years	scenario +10 years	scenario -10 years
Depreciation costs	(29)	163	(31)	179

Related notes:  “Intangible assets”, “Property, plant and equipment”, “Provisions”, “Benefits for the PKO Bank Polski SA key management.”, “Leasing”

Financial information

ADMINISTRATIVE EXPENSES	2022	2021
Employee benefits	(2 933)	(2 726)
Overheads, of which:	(1 257)	(1 065)
rent	(89)	(86)
IT	(338)	(314)
Depreciation and amortization	(909)	(868)
property, plant and equipment, of which:	(467)	(464)
IT	(103)	(85)
right-of-use assets	(218)	(217)
intangible assets, of which:	(442)	(404)
IT	(439)	(400)
Costs of regulatory charges	(1 826)	(594)
Total	(6 925)	(5 253)

 

EMPLOYEE BENEFITS	2022	2021
Wages and salaries, including:	(2 449)	(2 293)
costs of contributions to the employee pension plan	(69)	(64)
restructuring costs	-	(19)
Social security, of which:	(411)	(370)
contributions for disability and retirement benefits	(355)	(320)
Other employee benefits	(73)	(63)
Total	(2 933)	(2 726)

 

COSTS OF REGULATORY CHARGES	2022	2021
Contribution and payments to the Bank Guarantee Fund, of which:	(382)	(461)
to the Resolution Fund	(264)	(232)
to the Bank Guarantee Fund	(118)	(229)
Fees to the PFSA	(41)	(39)
Borrower Support Fund	(307)	-
Fee for the assistance fund operated by SOBK	(956)	-
Flat-rate income tax	(5)	(7)
Other taxes and fees	(135)	(87)
Total	(1 826)	(594)

•        Fee for the assistance fund operated by System Ochrony Banków Komercyjnych S.A.:

On 14 June 2022, PKO Bank Polski S.A. and 7 other commercial banks, i.e. Alior Bank S.A., BNP Paribas Bank Polska S.A., ING Bank Śląski S.A., mBank S.A., Millennium Bank S.A., Bank Polska Kasa Opieki S.A. and Santander Bank Polska S.A. (the Participating Banks) formed a system for the protection of commercial banks, which is referred to in Chapter 10a of the Banking Law. The system is supervised by the PFSA.

The aim of the protection system is to ensure the liquidity and solvency of the Participating Banks on the terms and conditions and to the extent specified in the protection system agreement, as well as to support the resolution regime carried out by the Bank Guarantee Fund (BGF). The Participating Banks formed the company System Ochrony Banków Komercyjnych S.A. as the system’s Management Entity with a share capital of PLN 1 million. SOBK established an assistance fund to provide funds for the financing of the protection system’s tasks. The fund is financed by contributions from participating banks. Each Participating Bank was obliged to pay an amount equal to 0.40% of the guaranteed funds as at the end of the first quarter of 2022. The Bank’s contribution to the aid fund of PLN 872 million was paid on 2 August 2022. In order to provide funds for the financing of the protection system’s tasks, the Bank made another payment to the aid fund managed by SOBK S.A. of PLN 84 million in the third quarter of 2022. In total, the Bank paid PLN 956 million to the aid fund in 2022.

Fee for the borrower support fund:

The Act of 14 July 2022 on crowdfunding for businesses and support for borrowers introduced changes in the operation of the Borrower Support Fund, which will offer support to borrowers of up to PLN 2,000 per month, payable over a period of up to 36 months. Repayment of the support will begin after two years in 144 equal and interest-free instalments. The customers who have repaid the first 100 instalments in time may be relieved from the obligation to repay a part of the support received. A customer can benefit from the support when one of the following conditions is met:

•        at least one of the borrowers is unemployed;

•        the monthly housing loan servicing costs exceed 50 per cent of the customer’s monthly income;

•        monthly income after deduction of the loan costs does not exceed PLN 1 552 per person in a one-person household or PLN 1 200 per person in a multi-person household in 2022.

From this, the Fund has been injected with additional funds of approximately PLN 1.4 billion until the end of 2022. In 2022, the Bank recognised a cost in respect of additional payments to the Borrower Support Fund of PLN 307 million.

27.            Tax on certain financial institutions

accounting policies:

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. The tax is charged on the surplus of a Bank’s total assets above PLN 4 billion, 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. As a result of the amendment to the Act on taxation of certain financial institutions, effective from 7 May 2022, banks may reduce the tax base by the value of bonds purchased and loans or advances, respectively, issued or granted by the Bank Guarantee Fund or an asset management entity referred to in the Act of 10 June 2016 on the Bank Guarantee Fund, Deposit Guarantee Scheme and Resolution.

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.

Financial information

TAX ON CERTAIN FINANCIAL INSTITUTIONS	2022	2021
Total	(1 190)	(987)

28.            Income tax

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 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 base of assets and liabilities and their carrying amounts for the purpose of financial reporting. The Bank recognises deferred tax liabilities and assets in the statement of financial position. Changes in deferred tax liabilities 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 deferred tax liabilities and assets are recognized in other comprehensive income. In determining deferred income tax, deferred tax assets and liabilities as at the beginning and as at the end of the reporting period are taken into account.

The carrying amount of a deferred tax asset is reviewed as at the end of each reporting period and is subject to appropriate reduction to the extent it is no longer probable that taxable income sufficient for a partial or full realisation of this deferred tax asset would be generated.

Deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply in the period in which the asset is realized or liability is settled, using tax rates (and tax laws) that prevail at the reporting date. those whose future use is certain at the reporting date.

The Bank offsets deferred tax assets against deferred tax liabilities only if it has a legally enforceable right to set off current income tax assets against current income tax liabilities and the deferred income tax is attributable to the same taxable entity and the same taxation authority.

Financial information

•        tax expense

	2022	2021
Income tax expense recognized in the income statement	(1 304)	(1 380)
Current income tax expense	(1 701)	(1 507)
Deferred income tax on temporary differences	397	127
Income tax expense recognized in other comprehensive income in respect of temporary differences	698	1 666
Total	(606)	286

•        reconciliation of the effective tax rate

RECONCILIATION OF THE EFFECTIVE TAX RATE	2022	2021
Profit or loss before tax	4 562	5 976
Tax at the statutory rate in force in Poland (19%)	(867)	(1 135)
Effect of permanent differences between profit before income tax and taxable income, including:	(437)	(250)
non-deductible impairment losses on investments in subordinates	(10)	-
non-deductible allowances for expected credit losses on credit exposures and securities	(25)	(41)
contributions and payments to the Bank Guarantee Fund	(72)	(88)
tax on certain financial institutions	(226)	(187)
cost of legal risk of mortgage loans in convertible currencies	(143)	(25)
interest on foreign exchange gains in Sweden	4	(3)
3% flat-rate income tax on interest for non-residents	-	(1)
dividend income	92	118
Borrower Support Fund	(58)	-
other permanent differences	1	(23)
Effect of other differences between profit before income tax and taxable income, including donations	-	5
Income tax expense recognized in the income statement	(1 304)	(1 380)
Effective tax rate	28.58	23.09

•        net deferred tax assets

DEFERRED TAX LIABILITIES AND ASSET 2022	As at the beginning of the period	INCOME STATEMENT	OTHER COMPREHENSIVE INCOME	As at the end of the period
Interest accrued on receivables (loans)	220	118	-	338
Interest on securities	157	59	-	216
Difference between carrying amount and tax base of property, plant and equipment and intangible assets	191	17	-	208
Taxable income on the reversal of IBNR allowance, which was previously tax deductible, on implementation of IFRS 9	39	(13)	-	26
Deferred tax liabilities, gross	607	181	-	788
Interest accrued on liabilities	26	159	-	185
Valuation of derivative financial instruments	948	65	311	1 324
Valuation of securities	533	59	387	979
Provision for employee benefits	90	(2)	2	90
Allowances for expected credit losses	1 219	130	-	1 349
Fair value measurement of loans	160	11	(2)	169
Commissions to be settled in time using the straight-line valuation method and effective interest rate	824	163	-	987
Other deductible temporary differences	28	1	-	29
Provision for costs to be incurred	36	13	-	49
Effect legal risk of mortgage loans in convertible currencies	342	(21)		321
Deferred tax asset, gross	4 206	578	698	5 482
Total effect of temporary differences	3 599	397	698	4 694
Deferred tax assets (presented in the statement of financial position)	3 599	397	698	4 694

The Bank took into account the right to recognize deferred 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 11 March 2022 on suspending the collection of income tax on certain types of income (revenues) associated with mortgage loans granted for housing purposes, as amended by the Regulation of 20 December 2022, which is effective until 31 December 2024.

DEFERRED TAX LIABILITIES 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	(75)	-
Difference between carrying amount and tax base of property, plant and equipment and intangible assets	165	26	-	191
Taxable income on the reversal of IBNR allowance, which was previously tax deductible, on implementation of IFRS 9	52	(13)	-	39
Deferred tax liabilities, 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 the straight-line valuation method and effective interest rate	749	75	-	824
Other deductible temporary differences	37	(9)	-	28
Provision for costs to be incurred	31	5	-	36
Effect 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 tax assets (presented in the statement of financial position)	1 806	127	1 666	3 599

•        Tax Group

Pursuant to the agreement dated 3 November 2021, PKO Bank Polski S.A., PKO Bank Hipoteczny S.A. and PKO Leasing S.A. have extended the operation of PGK PKO Banku Polskiego S.A. ("PGK PKO Bank Polski S.A."), which was established pursuant to the agreement dated 5 November 2018, for a further three fiscal years (2022 - 2024). These agreements have been registered with the relevant head of the tax office.

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. Current income tax settlements are presented broken down into receivables and liabilities of PKO Bank Polski S.A. and receivables and liabilities of subsidiaries included in the Tax Group.

•        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 2022 the Information on the tax strategy implemented in 2021, which is available at https://www.pkobp.pl/grupa-pko-banku-polskiego/pko-bank-polski/strategia-podatkowa/ or: https://www.pkobp.pl/informacja-o-realizowanej-strategii-podatkowej/. On 20 December 2022, 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 2022 and 2021:

CORPORATE INCOME TAX	2022	2021
PKO Bank Polski S.A.	1 701	1 507
- Poland	1 701	1 507

 

29.            Earnings per share

Basic earnings per share is calculated by dividing profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, adjusted for the effect of all dilutive potential ordinary shares.

	2022	2021
Profit attributable to ordinary shareholders (in PLN thousand)	3 258	4 596
Weighted average number of ordinary shares during the period (in million)	1 250	1 250
Earnings per share (in PLN per share)	2.61	3.68

There were no discontinued operations in the years ended 31 December 2022 and 31 December 2021 respectively.

In the years 2022 and 2021, there were no dilutive instruments.

SUPPLEMENTARY NOTES TO THE STATEMENT OF FINANCIAL POSITION – FINANCIAL INSTRUMENTS

30.            Cash and balances with the Central Bank

Accounting policies:

Valuation and classification into categories is carried out in accordance with the principles for determining the business model and assessing the characteristics of contractual cash flows referred to in note “General accounting policies for financial instruments”.

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	31.12.2022	31.12.2021
Current account with the Central Bank	7 690	7 955
Cash in hand	4 078	3 466
Deposits with the Central Bank	3 951	-
Total	15 719	11 421

31.            Amounts due from banks

Accounting policies

Classification into valuation categories is carried out in accordance with the principles for determining the business model and assessing the characteristics of contractual cash flows referred to in note “General accounting policies for financial instruments”.

Financial information

For more information on credit risk exposures, see note “Credit risk – financial information”.

AMOUNTS DUE FROM BANKS	31.12.2022	31.12.2021
Measured at amortized cost	19 458	14 311
Deposits with banks	13 098	7 168
Current accounts	865	589
Loans and advances granted	5 495	6 554
Gross carrying amount	19 458	14 311
Allowances for expected credit losses	(16)	(15)
Net carrying amount	19 442	14 296

 

AMOUNTS DUE FROM BANKS BY MATURITY	31.12.2022	31.12.2021
up to 1 month	13 819	7 566
1 to 3 months	100	140
3 months to 1 year	55	921
1 to 5 years	5 368	5 669
more than 5 years	100	-
Total	19 442	14 296

 

32.            Hedge accounting and 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.

A derivative is presented under “Other hedging instruments” (if the instrument qualifies for hedge accounting) or “Other derivatives” (if the instrument does not qualify for hedge accounting) - as an asset if its fair value is positive or a liability if its fair value is negative.

For other derivatives (not designated for hedge accounting), the Bank recognises changes in the fair value of the instruments and the gain or loss on the settlement of these instruments in either the net gain or loss on financial instruments, depending on the type of instrument.

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.

Interest rate risk includes 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 as part of:

•        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.

The Bank decided to further 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 gain or loss on 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 Bank hedges both assets that generate interest income and liabilities that generate interest expense using IRS or CIRS transactions.

The Bank consistently applies the method of presenting the total net interest income/(expense) on hedging instruments for all hedging strategies in the line “derivative hedging instruments” under “Net interest income” – the positive total amount for a period is presented in “Interest income” and the negative total amount is presented in “Interest expenses”.

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 gain or loss on 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”.

The Bank hedges both assets that generate interest income and liabilities that generate interest expense using IRS or CIRS transactions. The Bank consistently applies the method of presenting the total net interest income/(expense) on hedging instruments for all hedging strategies in the line “derivative hedging instruments” under “Net interest income” – the positive total amount for a period is presented in “Interest income” and the negative total amount is presented in “Interest expenses”.

A change in the fair value adjustment to the hedged item is recognized in “Net income from financial instruments”.

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.

The items securities, loans and advances to customers, investment in subsidiaries and amounts due to customers include an adjustment for fair value hedge accounting for securities, loans and advances to customers and amounts due to customers, investment in subsidiaries respectively, representing the hedged item.

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.

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 HEDGING DERIVATIVES OTHER THAN OPTIONS FOLLOWING A PARALLEL SHIFT IN YIELD CURVES:	31.12.2022		31.12.2021
	+50bp scenario	-50bp scenario	+50bp scenario	-50bp scenario
IRS	(760)	774	(853)	868
CIRS	21	(21)	(15)	15
other instruments	(5)	5	-	-
Total	(744)	758	(868)	883

 

ESTIMATED CHANGE IN VALUATION OF DERIVATIVES OTHER THAN OPTIONS FOLLOWING A PARALLEL SHIFT IN YIELD CURVES:	31.12.2022		31.12.2021
	+50bp scenario	scenario -50bp	+50bp scenario	scenario -50bp
IRS	(757)	771	(847)	862
CIRS	22	(22)	(15)	15
other instruments	(7)	7	(13)	13
Total	(742)	756	(875)	890

 

32.1.        Hedge accounting – financial information

types of hedging strategies used by the Bank

As at 31 December 2022, the Bank had active relationships as part of:

•        5 strategies for hedging cash flow volatility;

•        5 strategies for hedging fair value volatility.

In 2022, the Bank terminated the hedging relationships:

•        as part of the hedging strategy “Hedges against fluctuations in cash flows from variable interest loans in PLN, resulting from interest rate risk, using IRS transactions”, the Bank terminated hedging relationships due to the discontinuation of hedge accounting, and the effect of discontinuing hedge accounting in the above relationships on profit or loss was PLN (-17.8) million.

•        as part of the hedging strategy “Hedging fair value volatility of fixed-interest-rate loans in convertible currencies resulting from interest rate risk, using IRS transactions”, due to failure to meet the prospective effectiveness test. The effect of discontinuing hedge accounting in the above relationships on profit or loss was PLN 2.6 million.

•        as part of the hedging strategy “Hedging fair value volatility of fixed-interest-rate security measured at fair value through other comprehensive income in convertible currencies resulting from interest rate risk, using IRS transactions”, due to failure to meet the prospective effectiveness test. The effect of discontinuing hedge accounting in the above relationships on profit or loss was PLN 3 million.

In 2022, the Bank implemented new hedging strategies:

•        hedging fair value volatility of a portfolio of financial liabilities in PLN measured at amortized cost, resulting from interest rate risk, using IRS transactions’

•        hedging fair value volatility of a portfolio of financial liabilities in convertible currencies measured at amortized cost, resulting from interest rate risk, using IRS transactions.

In 2022, the Bank discontinued the following hedging strategies as a result of the expiry of transactions:

•        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 losses, resulting from exchange rate risk which will materialize upon a potential future disposal of the shares, using forward or NDF transactions;

•        Hedges against fluctuations in cash flows on variable interest PLN loans, resulting from interest rate risk, and hedging against fluctuations in cash flows on financial liabilities in a convertible currency resulting from foreign currency risk, using two CIRS transactions;

•        Hedges against fluctuations in cash flows on deposits in PLN, resulting from interest rate risk, using IRS transactions.

No changes were made to other hedging strategies in 2022.

In 2021, the Bank introduced one hedging strategy constituting a fair value hedge and two hedging strategies constituting a cash flow hedge.

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)
Risk hedged	foreign exchange risk and interest rate risk	interest rate risk
Hedging instrument	float – float CIRSs fixed – float CIRSs	fixed - float IRSs
Hedged item	•   the portfolio of floating 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 2023 – June 2025	The period in which cash flows are expected to occur and affect the financial results: January 2023 – December 2032

 

Type of hedging strategy	Fair value volatility hedges (strategy No: 10,11,12,13,14,17,18)
Risk hedged	interest rate risk	foreign exchange risk
Hedging instrument	fixed – float IRSs	Forward or NDFs
Hedged item	•   interest rate risk component relating to a fixed interest rate loan or security in a foreign currency or in PLN, which corresponds to the market IRS rate •   interest rate risk component of a portfolio of financial liabilities replicated by a portfolio of fixed-rate instruments measured at amortised cost, corresponding to the market IRS ate	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
31.12.2022
Cash flow hedges
Loans in CHF	225	Loans and advances to customers	19	4
Financial liability in USD	249	Amounts due to customers
Loans in PLN	76 959	Loans and advances to customers	6 013	2
Loans in EUR	525	Loans and advances to customers	56	6
Negotiated deposits in PLN	2 457	Amounts due to customers
Loans in EUR	789	Loans and advances to customers	27	3
Fair value hedges
Security in EUR	30	Securities measured at amortized cost	(6)	11
Security in EUR	202	Securities measured at fair value through other comprehensive income	(8)	12
Security in USD	81	Securities measured at fair value through other comprehensive income	(3)	12
Loans in EUR	13	Loans and advances to customers	(1)	10
Security in PLN	-	Securities measured at fair value through other comprehensive income	(21)	13
Shares in Kredobank S.A.	-	Investments in subsidiaries	-	14
Portfolio of financial liabilities in PLN	2 841	Amounts due to customers	(38)	17
Portfolio of financial liabilities in EUR	729	Amounts due to customers	20	18
Total			6 058

 

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	Liabilities in respect of debt 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

 

Hedging derivative 31.12.2022		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	76 960	3.1717%	44	6 380	-	(5 973)	2; 16
IRS EUR	EUR	1 314	1.6952%	-	176	(2)	(115)	3
CIRS PLN/CHF	float PLN	-	0.0000%	-	-	(3)	-	15
	float CHF	-	0.0000%
CIRS CHF/USD	float CHF	225	-	-	33	(1)	(21)	4
	fixed USD	249	0.3871%
CIRS-EP EUR/PLN	fixed EUR	525	8.0307%	20	5	-	31	6
	float PLN	2 457	-
Fair value hedges
IRS EUR	EUR	974	1.5789%	75	91	25	(6)	10;11;12;18
IRS USD	USD	81	1.5128%	14		(18)	3	10;12
IRS PLN	PLN	2 841	6.2990%	64	42	(58)	30	13;17
Total				217	6 727	(57)	(6 051)

 

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)

 

CARRYING AMOUNT OF HEDGING INSTRUMENTS	31.12.2022		31.12.2021
	Assets	Liabilities	Assets	Liabilities
Cash flow hedges	64	6 595	317	4 612
interest rate risk – IRS	44	6 557	65	4 402
foreign exchange risk and interest rate risk – CIRS	20	38	252	210
Fair value hedges	153	132	10	12
interest rate risk – IRS	153	132	9	9
foreign exchange risk – Forward	-	-	1	3
Total	217	6 727	327	4 624

 

•        Cash flow hedges

CHANGE IN OTHER COMPREHENSIVE INCOME RELATING TO CASH FLOW HEDGES AND AN INEFFECTIVE PORTION OF CASH FLOW HEDGES	2022	2021
Accumulated other comprehensive income at the beginning of the period, net	(3 702)	319
Impact on other comprehensive income during the period, gross	(1 637)	(4 964)
Gains/losses recognized in other comprehensive income during the period	(5 501)	(3 998)
Amounts transferred from other comprehensive income to the income statement, of which:	3 864	(966)
- net interest income	3 150	(425)
- foreign exchange gains/ (losses)	714	(541)
Tax effect	311	943
Accumulated other comprehensive income at the end of the period, net	(5 028)	(3 702)
Ineffective portion of cash flow hedges recognized in the income statements, including in:	(6)	(6)
Foreign exchange gains/ (losses)	(4)	1
Gains/(losses) on financial transactions	(2)	(7)

•        Fair value hedges

INTEREST RATE AND FOREIGN EXCHANGE RISK HEDGES	31.12.2022	31.12.2021
Fair value measurement of the hedging derivative instrument	20	(3)
Interest rate risk hedge – fixed - float IRSs	20	(1)
Foreign exchange risk hedge – forward	-	(2)
Fair value adjustment of the hedged instrument attributable to the hedged risk	(51)	(21)
Interest rate risk hedge	(51)	(25)
Securities	(30)	(2)
Loans and advances to customers	(8)	(1)
Fair value adjustment recognized in OCI	(69)	(22)
Amounts due to customers	56	-
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	More than 5 years	Total
31.12.2022
Hedge type: Cash flow hedges
Hedged risk: interest rate risk
PLN fixed - float IRSs	-	1 501	29 674	43 498	2 287	76 960
EUR fixed - float IRSs	-	-	150	1 110	54	1 314
Risk hedged: foreign exchange and interest rate risks
Fixed USD/float CHF CIRSs
fixed USD	-	-	133	116	-	249
float CHF	-	-	120	105	-	225
Float PLN/fixed EUR CIRSs
float PLN	-	-	-	2 457	-	2 457
fixed EUR	-	-	-	525	-	525
Hedge type: Fair value hedges
Hedged risk: interest rate risk
PLN fixed - float IRSs	-	-	-	-	2 841	2 841
USD fixed - float IRSs	-	-	-	81	-	81
EUR fixed - float IRSs	-	-	100	748	126	974

 

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	More than 5 years	Total
31.12.2021
Hedge type: Cash flow hedges
Hedged risk: interest rate risk
PLN fixed - float IRSs	1 800	1 801	21 078	61 515	7 427	93 621
EUR fixed - float IRSs	-	-	569	90	4	663
Risk hedged: foreign exchange and interest rate risks
Float CHF/float PLN CIRSs
float CHF	-	-	818	-	-	818
float PLN	-	-	3 393	-	-	3 393
Fixed USD/float CHF CIRSs
fixed USD	-	-	919	249	-	1 168
float CHF	-	-	858	225	-	1 083
Float PLN/fixed EUR CIRSs
float PLN	-	-	2 155	109	-	2 264
fixed EUR	-	-	499	25	-	524
Hedge type: Fair value hedges
Hedged risk: interest rate risk
USD fixed - float IRSs	-	-	-	205	-	205
EUR fixed - float IRSs	-	-	-	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

 

32.2.        Other derivative instruments – financial information

OTHER DERIVATIVE INSTRUMENTS - BY TYPE	31.12.2022		31.12.2021
	Assets	Liabilities	Assets	Liabilities
IRS	8 275	8 101	4 640	4 791
CIRS	991	1 374	935	1 298
FX Swap	1 245	1 039	586	312
Options	842	926	520	665
Commodity swap1	1 380	1 384	2 812	2 807
FRA	24	24	43	44
Forward	577	799	321	497
Commodity Forward2	404	355	1 286	1 276
Other	7	-	-	14
Total	13 745	14 002	11 143	11 704

1 The item includes valuation of gas market participation contracts: assets of PLN 1 229 million (PLN 2 574 million as at 31 December 2021 ) – and liabilities of PLN 1 237 million (PLN 2 574 million as at 31 December 2021 ).

2 The item includes valuation of contracts for CO2 emission allowances.

 

	31.12.2022	31.12.2021
CVA and CDA adjustments	153	(11)

 

NOMINAL AMOUNTS OF UNDERLYING INSTRUMENTS (BUY AND SELL TOGETHER) other derivative instruments
31.12.2022	up to 1 month	1 to 3 months	3 months to 1 year	1 to 5 years	more than 5 years	Total
IRS	6 730	16 972	88 148	236 010	53 496	401 356
Purchase	3 365	8 486	44 074	118 005	26 748	200 678
Sale	3 365	8 486	44 074	118 005	26 748	200 678
CIRS	14 124	-	2 870	31 020	2 168	50 182
Purchase	7 025	-	1 435	15 362	1 084	24 906
Sale	7 099	-	1 435	15 658	1 084	25 276
FX Swap	34 139	32 795	36 739	29 127	-	132 800
Purchase of currencies	17 044	16 362	18 356	14 769	-	66 531
Sale of currencies	17 095	16 433	18 383	14 358	-	66 269
Options	21 765	46 129	62 797	29 681	1 787	162 159
Purchase	10 817	22 857	31 486	14 871	892	80 923
Sale	10 948	23 272	31 311	14 810	895	81 236
FRA	-	-	38 913	1 910	-	40 823
Purchase	-	-	20 016	932	-	20 948
Sale	-	-	18 897	978	-	19 875
Forward	7 494	25 761	30 225	6 528	-	70 008
Purchase of currencies	3 753	12 891	15 151	3 124	-	34 919
Sale of currencies	3 741	12 870	15 074	3 404	-	35 089
Other, including commodity swap, commodity forward and futures	1 091	2 171	6 877	251	-	10 390
Purchase	546	1 108	3 431	126	-	5 211
Sale	545	1 063	3 446	125	-	5 179
Total	85 343	123 828	266 569	334 527	57 451	867 718

 

NOMINAL AMOUNTS OF UNDERLYING INSTRUMENTS (BUY AND SELL TOGETHER) other derivative instruments
31.12.2021	up to 1 month	1 to 3 months	3 months to 1 year	1 to 5 years	more than 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	3 720	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 swap, commodity forward and futures	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

 

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 “General accounting policies for financial instruments”.

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

 

Financial information

For more information on credit risk exposures, see note “Credit risk – 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
31.12.2022
Debt securities	171	366	62 286	67 821	130 644
Treasury bonds (in PLN)	89	-	40 649	45 870	86 608
Treasury bonds (in foreign currencies)	2	321	3 977	-	4 300
corporate bonds (in PLN) secured with the State Treasury guarantees	3	-	9 373	12 100	21 476
municipal bonds (in PLN)	14	-	5 046	6 182	11 242
corporate bonds (in PLN)1	56	45	2 852	1 990	4 943
corporate bonds (in foreign currencies)	-	-	389	1 679	2 068
mortgage covered bonds	7	-	-	-	7
Equity securities	28	344	-	-	372
shares in other entities - not listed	-	324	-	-	324
shares in other entities - listed	27	20	-	-	47
participation units in investment funds, investment certificates, rights to shares, pre-emptive rights	1	-	-	-	1
Total (excluding adjustment relating to fair value hedge accounting)	199	710	62 286	67 821	131 016
Adjustment relating to fair value hedge accounting (note “Hedge accounting and other financial instruments”)	-	-	-	(30)	(30)
Total	199	710	62 286	67 791	130 986

1 The item includes bonds of international financial organizations of PLN 3,550 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
31.12.2021
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 (note “Hedge accounting and other financial instruments”)	-	-	-	(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

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

	31.12.2022	31.12.2021
allowance not reducing the fair value of securities measured at fair value through other comprehensive income	37	24

 

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
31.12.2022
without a stated maturity – equity securities	28	344	-	-	372
up to 1 month	20	-	3 142	1 513	4 675
1 to 3 months	-	-	223	7	230
3 months to 1 year	17	-	3 455	751	4 223
1 to 5 years	110	366	35 771	37 702	73 949
more than 5 years	24	-	19 695	27 848	47 567
Total	199	710	62 286	67 821	131 016

 

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 stated maturity – 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
1 to 5 years	99	364	33 239	38 165	71 867
more than 5 years	43	137	23 130	28 057	51 367
Total	311	833	57 641	72 055	130 840

 

34.            Repo and reverse repo transactions

Reverse repo transactions are measured at amortized cost. The difference between the purchase 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.

At 31 December 2022, the value of reverse repo transactions amounted to PLN 7 million (PLN 0 at 31 December 2021). As of 31 December 2022 the Bank did not conclude any transactions with repurchase agreements (as at 31 December 2021 the value of these transactions amounted to PLN 49 million).

35.            Loans and advances to customers

Accounting policies

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 “General accounting policies for financial instruments”.

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, credit cards and revolving loans, whose contractual formula for interest calculation includes a multiplier.

The Bank adjusts the gross carrying amount of housing loans measured at amortised cost by recognizing 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 (see “Cost of legal risk of mortgage loans in convertible currencies”)

•        the so-called statutory credit holidays, recognized in the second half of 2022.

The statutory credit holidays  were introduced by the Act of 14 July 2022 on the crowdfunding of business ventures and on assistance for borrowers (hereinafter: the “Act”), containing a package of assistance for mortgage borrowers. According to the Act, statutory credit holidays apply to mortgage loans granted in Polish zloty and provide the possibility to suspend loan repayment for up to 8 months between 2022 and 2023 – two months in each of Q3 and Q4 of 2022 and one month in each of the four quarters of 2023. The loan repayment suspension can be used by the customer if the agreement was concluded before 1 July 2022 and the loan period ends after 31 December 2022. Credit holidays can only be used for one loan. The repayment schedule of loan instalments is extended by the number of credit holiday months used.

The Bank believes that the entitlement of customers to benefit from the suspension of loan repayments is a statutory cash flow modification that occurs on the date the Act has been signed by the President, i.e. 14 July 2022.

The bank adjusted the gross carrying amount of mortgage loans by deducting interest income of PLN 2 443 million. The value of the adjustment was determined as the difference between the present value of the estimated cash flows resulting from the loan agreements, taking into account the suspension of instalment payments, and the present gross carrying amount of the loan portfolio. The loss calculation is based on the assumption that approximately 63% of customers holding a PLN-denominated mortgage loan will choose to benefit from credit holidays (customer participation rate).

By the end of December 2022 218.6 thousand of the Bank's customers applied for a suspension of mortgage repayment, representing 50% of the total number and 66% of the gross carrying amount of total loans eligible for credit holidays. The total number of suspensions requested as at 31 December 2022 was 1 397 thousand (of which 614.7 thousand related to suspensions in 2023), representing 40% of the maximum number of instalments to be suspended for all eligible customers.

As at 31 December 2022, the Bank has assessed the adequacy of the level of credit holiday loss in terms of value, using the following assumptions:

1)      similar to that in 2022 – this analysis is based on a breakdown of customers into 4 groups illustrating their level of activity to date, on the basis of which the potential level of activity for 2023 has been determined;

2)      for the group of customers who applied for credit holidays in 2022 but did not apply for suspensions of principal and interest instalments for 2023 at the end of the year, an interest rate revaluation effect was taken into account, calculated on the basis of the change in base rates between the date of recognition of the loss on credit holidays and 31 December 2022;

3)      the loss on all principal and interest instalment suspensions effected in 2022 and requested for 2023 was reduced by the effect of prepayments witnessed on the basis of customer behaviour in the second half of 2022 and projected for 2023, prudentially adjusted for uncertainty regarding possible prepayments in 2023;

4)      on the basis of monthly data on the inflow of new applications in 2022, using an extrapolation function, the trend of applications that may arrive by the end of the programme was established on the basis of which, using interest rates as at 31 December 2022, the potential loss was estimated.

The results of the above analysis confirmed that the credit holiday loss recognised by the Bank in the amount of PLN 2,443 million is at an adequate level. An increase in the customer participation rate in the future, and thus the level of costs arising from it, could potentially be driven by factors such as rising unemployment levels, changing customer behaviour and rising market interest rates.

In addition, the Bank adjusts the gross carrying amount of residential and consumer loans measured at amortised cost by recognising the impact of potential reimbursements to customers for the expected early repayment of active consumer and mortgage loans in the future.

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 and other financial instruments”).

Estimates and judgments: Net expected credit losses, Cost of legal risk of mortgage loans in convertible currencies

The sensitivity of the loss amount to a +/- 10 pp change in the customer participation rate is presented in the table below:

	increase in customer participation rate by 10 pp	decrease in customer participation rate by 10 pp
impact on credit holiday loss ("+" increase; "()" decrease)	379	(379)

Financial information

For more information on credit risk exposures, see note “Credit risk – financial information”.

LOANS AND ADVANCES TO CUSTOMERS 31.12.2022	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	3 480	11 895	98 475	113 850
real estate	4	11 895	72 274	84 173
consumer	3 476	-	26 201	29 677
companies and enterprises	44	-	17 011	17 055
real estate	-	-	5 381	5 381
business	44	-	11 630	11 674
corporate	41	-	77 980	78 021
real estate	-	-	118	118
business	41	-	77 862	77 903
Loans and advances to customers (excluding adjustment relating to fair value hedge accounting)	3 565	11 895	193 466	208 926
Adjustment relating to fair value hedge accounting (note “Hedge accounting and other financial instruments”)	-	-	(8)	(8)
Total	3 565	11 895	193 458	208 918

 

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 (note “Hedge accounting and other financial instruments”)	-	-	(1)	(1)
Total	4 559	13 531	187 587	205 677

 

LOANS AND ADVANCES TO CUSTOMERS BY MATURITY (excluding adjustments relating to fair value hedge accounting)	not held for trading, mandatorily measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
31.12.2022
up to 1 month	730	94	8 724	9 548
1 to 3 months	453	50	6 915	7 418
3 months to 1 year	1 733	210	30 724	32 667
1 to 5 years	603	1 301	76 137	78 041
more than 5 years	46	10 240	70 966	81 252
Total	3 565	11 895	193 466	208 926

 

LOANS AND ADVANCES TO CUSTOMERS BY MATURITY (excluding adjustments relating to fair value hedge accounting)	not held for trading, mandatorily 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
more than 5 years	43	10 919	69 507	80 469
Total	4 559	13 531	187 588	205 678

 

36.            Amounts due to banks

Accounting policies: Valuation and classification into categories is carried out in accordance with the principles for determining the business model and assessing the characteristics of contractual cash flows referred to in note “General accounting policies for financial instruments”.

Financial information

AMOUNTS DUE TO BANKS	31.12.2022	31.12.2021
Measured at fair value through profit or loss:	2	-
Liabilities in respect of a short position in securities	2	-
Measured at amortized cost	2 926	3 762
Deposits from banks	1 936	2 813
Current accounts	974	937
Other monetary market deposits	16	12
Total	2 928	3 762

 

AMOUNTS DUE TO BANKS BY MATURITY	31.12.2022	31.12.2021
Measured at fair value through profit or loss:	2	-
up to 1 month	2	-
Measured at amortized cost:	2 926	3 762
up to 1 month	2 880	3 702
1 to 3 months	31	20
3 months to 1 year	15	40
Total	2 928	3 762

37.            Amounts due to customers

Accounting policies:

Valuation and classification into categories is carried out in accordance with the principles for determining the business model and assessing the characteristics of contractual cash flows referred to in note “General accounting policies for financial instruments”.

The item “Amounts due to customers” also includes an adjustment relating to fair value hedge accounting for amounts due to customers representing hedged items (note “Hedge accounting and other financial instruments”).

Financial information

AMOUNTS DUE TO CUSTOMERS	Amounts due to households	Amounts due to business entities	Amounts due to state budget entities	Total
31.12.2022
Measured at fair value through profit or loss	-	5	-	5
Liabilities in respect of a short position in securities	-	5	-	5
Measured at amortized cost	260 729	56 990	17 188	334 907
Cash on current accounts and overnight deposits of which	178 629	38 931	16 224	233 784
savings accounts and other interest-bearing assets	41 877	12 452	11 615	65 944
Term deposits	81 600	17 481	913	99 994
Other liabilities	500	578	51	1 129
Amounts due to customers (excluding adjustment relating to fair value hedge accounting)	260 729	56 995	17 188	334 912
Adjustment relating to fair value hedge accounting (note “Hedge accounting and other financial instruments”)	(56)	-	-	(56)
Total	260 673	56 995	17 188	334 856

 

AMOUNTS DUE TO CUSTOMERS	Amounts due to households	Amounts due to business entities	Amounts due to state budget 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
Amounts due to customers (excluding adjustment relating to fair value hedge accounting)	242 522	55 680	19 830	318 032
Total	242 522	55 680	19 830	318 032

 

AMOUNTS DUE TO CUSTOMERS BY MATURITY (excluding adjustment relating to fair value hedge accounting)	31.12.2022	31.12.2021
Measured at fair value through profit or loss:	5	-
up to 1 month	5	-
Measured at amortized cost:	334 907	318 032
up to 1 month	268 980	283 800
1 to 3 months	29 026	12 334
3 months to 1 year	10 177	10 675
1 to 5 years	21 385	5 757
more than 5 years	5 339	5 466
Total	334 912	318 032

 

AMOUNTS DUE TO CUSTOMERS BY SEGMENT	31.12.2022	31.12.2021
Amounts due to customers (excluding adjustment relating to fair value hedge accounting)	334 912	318 032
retail and private banking	232 858	213 529
corporate	55 115	58 137
companies and enterprises	46 939	46 366
Adjustment relating to fair value hedge accounting (note “Hedge accounting and other financial instruments”)	(56)	-
Total	334 856	318 032

 

38.            Financing received

Accounting policies: Valuation and classification into categories is carried out in accordance with the principles for determining the business model and assessing the characteristics of contractual cash flows referred to in note “General accounting policies for financial instruments”.

Financial information

FINANCING RECEIVED	31.12.2022	31.12.2021
Loans and advances received from:	726	5 142
banks	-	13
international financial organizations	726	786
other financial institutions	-	4 343
Subordinated liabilities	2 781	2 716
Total	3 507	7 858

 

38.1. Loans and advances received

LOANS AND ADVANCES RECEIVED BY MATURITY	31.12.2022	31.12.2021
up to 1 month	-	13
3 months to 1 year	726	4 343
1 to 5 years	-	786
TOTAL	726	5 142

 

Loans and advances received from banks

Date of receiving* a loan by the Bank	Value (nominal)	Currency	Maturity	Carrying amount at 31.12.2022	Carrying amount at 31.12.2021
31.12.2021	13	PLN	31.12.2021	-	13
Total					13

*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 by the Bank	Value (nominal)	Currency	Maturity	Carrying amount at 31.12.2022	Carrying amount at 31.12.2021
25.09.2013	75	EUR	25.09.2023	70	138
23.10.2018	646	PLN	23.10.2023	656	648
Total				726	786

 

Loans and advances received from other financial institutions

Date of receiving a loan by the Bank	Value (nominal)	Currency	Maturity	Carrying amount at 31.12.2022	Carrying amount at 31.12.2021
25.07.2012	50	EUR	25.07.2022	-	234
26.09.2012	1 000	USD	26.09.2022	-	4 109
Total				-	4 343

38.2. Liabilities in respect of debt securities in issue

As at 31 December 2022 and 2021, the Bank had no liabilities in respect of debt securities in issue.

38.3. Subordinated liabilities

Type of liability	Type of interest rate	Notional amount	Currency	Period	Carrying amount
					31.12.2022	31.12.2021
Subordinated bonds	6M WIBOR +0.0155	1 700	PLN	28.08.2017 - 28.08.2027	1 752	1,710
Subordinated bonds	6M WIBOR +0.0150	1 000	PLN	05.03.2018 - 06.03.2028	1 029	1 006
TOTAL					2 781	2 716

 

The subordinated bonds were designated for increasing the Bank’s supplementary funds upon the approval of the Polish Financial Supervision Authority. Due to unfavourable market circumstances, a decision was made on 1 August 2022 to abandon the early redemption of the series OP0827 subordinated bonds issued by the Bank on 28 August 2017. On the same day, the Management Board of PKO Bank Polski S.A. decided not to proceed with the Bank's issue of subordinated bonds in the format of subordinated bonds with a ten-year maturity (earlier, on 26 April 2022, a resolution of the Bank's Management Board was adopted to authorise the issue of such bonds).

On 8 August 2022, the Management Board of the Bank approved the establishment of a programme for the issue of Eurobonds by the Bank as the issuer (the Euro Medium Term Notes Programme – the “EMTN Programme”) of up to EUR 4 billion. Under the EMTN Programme, it will be possible to issue unsecured Eurobonds in any currency, including those in respect of which obligations may be classified as eligible liabilities or as the Bank’s own funds. Bonds issued under the EMTN Programme will be registered with the international central securities depository (ICSD) operated by Euroclear Bank SA/NV or Clearstream Banking société anonyme. The Bank may apply for admission of individual series of Eurobonds to trading on a regulated market operated by the Luxembourg Stock Exchange, the Warsaw Stock Exchange.

On 16 December 2022, the Moody's Investors Service rating agency assigned a (P)Baa3 rating to the EMTN Programme, for the unsecured bonds designated as Senior Non Preferred.

On 20 December 2022, the Prospectus for the EMTN Programme was approved by the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg. 

On 1 February 2023, as part of the inaugural issue under the EMTN programme, the Bank issued 3-year Senior Preferred Notes with a total value of EUR 750 million, with the option of early redemption two years after issue. The coupon of the issue is fixed, at 5.625%, payable annually until the early redemption date, and variable thereafter, with quarterly payments. Moody’s Investors Service has assigned a rating of A3 to the issue. The bonds were admitted to trading on a regulated market on the Luxembourg Stock Exchange.

OTHER SUPPLEMENTARY NOTES TO THE STATEMENT OF FINANCIAL POSITION AND CONTINGENT LIABILITIES

39.            Intangible assets

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 losses.

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 accumulated impairment losses.

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 losses.

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.

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.

Related notes:

•        Useful lives – note “Administrative expenses”;

•        Impairment losses – note “Net impairment losses on non-financial assets”

Financial information

INTANGIBLE ASSETS	Software	Goodwill	Customer relations	Other, including capital expenditure	of which: software	Total
2022
Gross carrying amount at the beginning of the period	5 611	872	87	642	585	7 212
Purchase	-	-	-	429	429	429
Transfers from capital expenditure	454	-	-	(454)	(454)	-
Other	9	-	-	42	42	51
Gross carrying amount at the end of the period	6 074	872	87	659	602	7 692
Accumulated amortization as at the beginning of the period	(4 048)	-	(82)	(52)	-	(4 182)
Amortization charge for the period	(439)	-	(2)	(1)	-	(442)
Other	(3)	-	-	-	-	(3)
Accumulated amortization as at the end of the period	(4 490)	-	(84)	(53)	-	(4 627)
Impairment losses as at the beginning of the period	(15)	(117)	-	(2)	(2)	(134)
Other	-	-	-	2	2	2
Impairment losses as at the end of the period	(15)	(117)	-	-	-	(132)
Carrying amount as at the beginning of the period, net	1 548	755	5	588	583	2 896
Carrying amount as at the end of the period, net	1 569	755	3	606	602	2 933

 

INTANGIBLE ASSETS	Software	Goodwill	Customer relations	Other, including capital expenditure	of which: software	Total
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	-	-	(371)	(327)	-
Scrapping and sale	(681)	-	-	-	-	(681)
Other	14	1	1	44	-	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 losses as at the beginning of the period	(15)	(116)	-	-	-	(131)
Recognized during the period	-	-	-	(2)	(2)	(2)
Other	-	(1)	-	-	-	(1)
Impairment losses as at the end of the period	(15)	(117)	-	(2)	(2)	(134)
Carrying amount as at the beginning of the period, net	1 563	755	8	411	406	2 737
Carrying amount as at the end of the period, net	1 548	755	5	588	583	2 896

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 2006–2022 was PLN 1 392 million (PLN 1 462 million in 2005-2021).

The net carrying amount of the Integrated Information System (IIS) as at 31 December 2022 was PLN 651 million (PLN 629 million as at 31 December 2021). The expected useful life of the system is 24 years. As at 31 December 2022, its remaining useful life is 8 years.

•      Goodwill

Net goodwill	31.12.2022	31.12.2021
Nordea Bank Polska S.A.	747	747
Assets taken over from CFP sp. z o.o.	8	8
TOTAL	755	755

 

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. The residual value of a CGU has been calculated by extrapolating the cash flow projections beyond the projection period using the growth rate adopted at a level of 3.5%. Cash flow projections used in the impairment test covered a period of 10 years and are based on the assumptions included in the financial plan of the Bank for 2023. A discount rate of 12.50%, taking into account the risk-free rate and risk premium, was used for the discounting of the future cash flows.

At the time of the acquisition, two cash-generating units ("CGUs") were distinguished to which the goodwill arising from the acquisition of Nordea Bank Polska SA was allocated – retail and corporate CGUs, corresponding to the operating segments. The Bank recognised an impairment loss on the goodwill attributable to the corporate CGU of PLN 117 million on 30 June 2020. Goodwill of Nordea Bank Polska S.A. of PLN 747 million belongs to the retail segment. 

As at 31 December 2022, 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.

40.            Property, plant and equipment

Accounting policies:

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

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.

Related notes:

•        Useful lives – note “Administrative expenses”;

•        Impairment losses – note “Net impairment losses on non-financial assets”

Financial information

•        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
2022
Gross carrying amount at the beginning of the period	3 672	1 560	217	641	6 090
Purchase, including modifications	153	12	172	22	359
Transfers from capital expenditure	49	142	(233)	42	-
Scrapping and sale	(30)	(89)	-	(24)	(143)
Other	(17)	(5)	(1)	(7)	(30)
Gross carrying amount at the end of the period	3 827	1 620	155	674	6 276
Accumulated depreciation as at the beginning of the period	(1 685)	(1 215)	-	(460)	(3 360)
Depreciation charge for the period	(284)	(133)	-	(50)	(467)
Scrapping and sale	17	89	-	23	129
Other	11	5	-	5	21
Accumulated depreciation as at the end of the period	(1 941)	(1 254)	-	(482)	(3 677)
Impairment losses as at the beginning of the period	(90)	(1)	-	-	(91)
Recognized during the period	(3)	-	-	-	(3)
Impairment losses as at the end of the period	(93)	(1)	-	-	(94)
Carrying amount as at the beginning of the period, net	1 897	344	217	181	2 639
Carrying amount as at the end of the period, net	1 793	365	155	192	2 505

 

PROPERTY, PLANT AND EQUIPMENT	Land and buildings	Machinery and equipment, including computer hardware	Fixed assets under construction	Other, including vehicles	Total
2021
Gross carrying amount at the beginning of the period	3 498	1 526	292	636	5 952
Purchase, including modifications	96	-	204	10	310
Transfers from capital expenditure	89	153	(275)	33	-
Scrapping and sale	(53)	(118)	(1)	(35)	(207)
Other	42	(1)	(3)	(3)	35
Gross carrying amount at the end of the period	3 672	1 560	217	641	6 090
Accumulated depreciation as at the beginning of the period	(1 462)	(1 216)	-	(444)	(3 122)
Depreciation charge for the period	(293)	(118)	-	(53)	(464)
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)
Impairment losses as at the beginning of the period	(92)	(1)	-	-	(93)
Recognized during the period	(1)	-	-	-	(1)
Other	3	-	-	-	3
Impairment losses as at the end of the period	(90)	(1)	-	-	(91)
Carrying amount as at the beginning of the period, net	1 944	309	292	192	2 737
Carrying amount as at the end of the period, net	1 897	344	217	181	2 639

 

As at 31 December 2022, the net carrying amount of investment properties was PLN 332 thousand (as at 31 December 2021, PLN 339 thousand)

41.            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 losses on non-current assets held for sale are recognized in the income statement for the period in which the losses were recognized. 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 reclassified 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 the decision to discontinue the sale.

Related notes:

•        Useful lives – note “Administrative expenses”;

•        Impairment losses – note “Net impairment losses on non-financial assets”

 Financial information

ASSETS HELD FOR SALE	31.12.2022	31.12.2021
Land and buildings	11	19
Total gross	11	19
Impairment losses	(1)	(1)
Total	10	18

 

Assets held for sale - CHANGES IN IMPAIRMENT LOSSES	31.12.2022	31.12.2021
As at the beginning of the period	(1)	(3)
Recognized during the period	-	(2)
Other	-	4
As at the end of the period	(1)	(1)

 

42.            Investments in subsidiaries, associates and joint ventures

Financial information

31.12.2022	Gross carrying amount	Impairment	Net carrying amount
SUBSIDIARIES
PKO Bank Hipoteczny S.A.	1 650	-	1 650
KREDOBANK S.A.	1 072	(845)	227
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 S.A.	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.	78	-	78
ASSOCIATES
Bank Pocztowy S.A.	184	(184)	-
“Poznański Fundusz Poręczeń Kredytowych" sp. z o.o.	2	(2)	-
Total	4 903	(1 068)	3 835

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

31.12.2021	Gross carrying amount	Impairment	Net carrying 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 S.A.	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.	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.

In 2022, the Bank recognised an additional impairment loss on its investment in KREDOBANK SA of PLN 52 million (see note: Impact of the geopolitical situation in Ukraine on PKO Bank Polski S.A.)

The impairment test performed as at 31 December 2022 did not identify a need to change the existing impairment loss and the carrying amount of Bank Pocztowy recognized in the Bank’s books as at 31 December 2022 was the same as previously, i.e. PLN 0.

43.            Other assets

Accounting policies:

Valuation and classification of other financial assets into categories is carried out in accordance with the principles for determining the business model and assessing the characteristics of contractual cash flows referred to in note “General accounting policies for financial instruments”.

Other 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.

Other non-financial assets are measured in accordance with the valuation principles applicable to specific categories of assets recognized in this item.

Financial information

For more information on credit risk exposures, see note “Credit risk – financial information”.

OTHER ASSETS	31.12.2022	31.12.2021
Other financial assets	1 654	1 825
Settlements in respect of card transactions	620	1 251
Settlement of financial instruments	134	109
Receivables in respect of cash settlements	340	233
Receivables and settlements in respect of trading in securities	24	14
Dividends receivable and contributions to subsidiaries	-	99
Sale of foreign currencies	118	4
Trade receivables	97	94
Other	321	21
Other non-financial assets	456	212
Inventories	19	10
Receivables from subsidiaries belonging to the Tax Group	-	5
Assets for sale	31	27
Prepayments and deferred costs	81	58
Receivables from the State Budget in respect of flat-rate income tax	12	-
Pozostałe1	313	112
Total	2 110	2 037

1  under “Other” as at 31 December 2022 includes an amount of PLN 186 million (PLN 281 million of gross receivables and PLN (95) million of gross adjustments to other assets) due to the recognition of receivables for capital paid out to customers and an amount of PLN 40 million due to claims by the Bank for reimbursement of costs for non-contractual use of capital (see note “Cost of legal risk of mortgage loans in convertible currencies”).

•        Other non-financial assets

OTHER NON-FINANCIAL ASSETS	31.12.2022	31.12.2021
Gross amount	724	476
Impairment losses	(268)	(264)
Net carrying amount	456	212

 

Other non-financial assets – CHANGES IN IMPAIRMENT LOSSES	2022	2021
As at the beginning of the period	(264)	(164)
Recognized during the period	(58)	(81)
Derecognition of assets and settlements	36	-
Reversed during the period	24	31
Other	(6)	(50)
As at the end of the period	(268)	(264)

•      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 2022 and 31 December 2021, respectively, were designated as held 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.

44.            Other liabilities

Accounting policies:

Valuation and classification of other liabilities into categories is carried out in accordance with the principles referred to in note “General accounting policies for financial instruments”.

Other financial liabilities included in this item are measured at amounts due which cover potential interest on the liabilities, and the accrual for future payments in reliably estimated, justified amounts necessary to meet the present obligation as at the end of the reporting period.

Other 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	31.12.2022	31.12.2021
Other financial liabilities	4 176	3 322
Costs to be paid	538	475
Interbank settlements	868	377
Liabilities arising from investing activities and internal operations	134	176
Amounts due to suppliers	71	142
Liabilities and settlements in respect of trading in securities	354	294
Settlement of financial instruments	41	47
liabilities in respect of foreign exchange activities	761	329
Costs of financial support to a subsidiary	190	295
Liabilities in respect of payment cards	314	243
Lease liabilities	864	904
Other	41	40
Other non-financial liabilities	2 304	1 768
Deferred income	596	602
Liabilities from subsidiaries belonging to the Tax Group	83	27
Liability in respect of tax on certain financial institutions	100	92
Liabilities in respect of a contribution to the Bank Guarantee Fund maintained in the form of payment obligations	818	704
to the Resolution Fund	432	353
to the Bank Guarantee Fund	386	351
Liabilities under the public law	460	242
Pozostałe1	247	101
Total	6 480	5 090

1 including PLN 132 million due to the recognition of a liability relating to the reimbursement of principal and interest instalments paid by customers on mortgage loans in convertible currencies (see note “Mortgage loans in convertible currencies”)

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 2022 and as at 31 December 2021, the Bank did not have any liabilities in respect of which it did not meet its contractual obligations.

45.            Provisions

Accounting policies:

•      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 recognized 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.

•      provision for pensions and other defined post-employment benefits

The provision for retirement and disability benefits resulting from the Labour Code is recognized 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 recognized 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.

•      provision for accrued holiday entitlements

The provision for accrued holiday entitlements is recognized 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.

estimates and judgments:

The Bank updated its estimates of provisions for pensions and other liabilities in respect of defined post-employment benefit plans as at 31 December 2021 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:	31.12.2022	31.12.2021
financial discount rate adopted	6.80	3.60
weighted average ratio of employee mobility	9.46	9.26
average remaining period of service in years	7.40	7.60
10-year average assumed annual increase in the basis calculation of retirement benefits	3.55	2.66

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 2022 and as at 31 December 2021 is presented in the tables below: 

ESTIMATED CHANGE IN PROVISION for pensions and other liabilities in respect of defined post-employment benefits	31.12.2022			31.12.2021
	+1pp scenario		-1pp scenario	+1pp scenario		-1pp scenario
Discount rate	(4)	5		(4)	4
Planned increases in base amounts	6	(4)		5	(4)

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 2022 and 31 December 2021 due to changes in the number of claims and average value of a refund.

ESTIMATED CHANGE IN PROVISION	Change in the number of claims		Change in the average amount of reimbursement
	-10%	10%	-10%	10%
31.12.2022
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%
31.12.2021
Provision for refunds of costs to customers on early repayment of consumer and mortgage loans	(1)	1	(1)	1

Financial information

FOR THE YEAR ENDED 31.12.2022	Provisions for financial liabilities and guarantees granted¹	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 accrued holiday entitlements	Other provisions, including provisions for employee disputed claims	Total
As at the beginning of the period	672	99	595	15	55	47	91	42	1 616
Increases, including increases of existing provisions	155	7	383	13	15	-	25	50	648
Utilized amounts	-	(7)	(127)	(12)	(5)	(12)	(8)	(34)	(205)
Unused provisions reversed during the period	-	(3)	-	-	(1)	-	(11)	-	(15)
Other changes and reclassifications	2	1	-	1	-	-	-	-	4
As at the end of the period	829	97	851	17	64	35	97	58	2 048
Short-term provisions	684	-	-	17	10	35	97	-	843
Long-term provisions	145	97	851	-	54	-	-	58	1 205

1 See note “Credit risk – 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 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 accrued holiday entitlements	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

 

Provisions for disability and retirement benefits(actuarial provision)	2022	2021
Liability at the beginning of the period	52	60
Current service cost	3	3
Interest expense	2	1
Actuarial (gains) and losses recognized in other comprehensive income	8	(9)
Benefits paid	(4)	(3)
Liability at the end of the period (net)	61	52

 

Breakdown of actuarial gains and losses (actuarial provision)	Total amount of provisions
	2022	2021
Change in financial assumptions	(10)	(11)
Other changes	18	2
Total actuarial (gains) and losses	8	(9)

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

Accounting policies: 

As part of its operations, the Bank enters into transactions that are not recognised as assets or liabilities in the statement of financial position when concluded but give rise to contingent liabilities. In accordance with IAS 37, the contingent liability is:

1)         a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank;

2)         a present obligation that arises from past events but is not recognised in the statement of financial position because it is not probable that an outflow of cash or other assets will be required to settle the obligation, or the amount of the obligation (liability) cannot be measured reliably.

For the principles of recognising provisions for off-balance sheet commitments granted, see the note "Provisions"

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 2022 and 31 December 2021, no underwriting agreements have been entered into.

Contractual commitments

VALUE OF CONTRACTUAL COMMITMENTS CONCERNING	31.12.2022	31.12.2021
intangible assets	76	15
property, plant and equipment	-	20
Total	76	35

•           Financial and guarantee commitments granted

For more information on credit risk exposures, see note “Credit risk – financial information”.

FINANCIAL AND GUARANTEE COMMITMENTS GRANTED 31.12.2022	Total	Provisions per IFRS 9	Net carrying amount
Credit lines and limits	75 496	(586)	74 910
real estate	3 646	(21)	3 625
business	61 242	(412)	60 830
consumer	10 608	(153)	10 455
Other	2 825	-	2 825
Total financial commitments granted, including:	78 321	(586)	77 735
irrevocable commitments granted	39 391	(301)	39 090
POCI	5	(1)	4
guarantees in domestic and foreign trading	12 634	(236)	12 398
to financial entities	4 839	-	4 839
to non-financial entities	7 724	(236)	7 488
to public entities	71	-	71
domestic corporate bonds to financial entities	2 000	-	2 000
domestic municipal bonds (state budget entities)	315	-	315
letters of credit to non-financial entities	1 514	(7)	1 507
payment guarantees to financial entities	76	-	76
Total guarantees and sureties granted, including:	16 539	(243)	16 296
irrevocable commitments granted	8 897	(234)	8 663
performance guarantee	3 640	(203)	3 437
POCI	284	(5)	279
Total financial and guarantee commitments granted	94 860	(829)	94 031

 

FINANCIAL AND GUARANTEE COMMITMENTS GRANTED 31.12.2021	Total	Provisions per IFRS 9	Net carrying amount
Credit lines and limits	68 166	(412)	67 754
real estate	5 208	(19)	5 189
business	52 482	(302)	52 180
consumer	10 476	(91)	10 385
Other	2 670	-	2 670
Total financial commitments granted, including:	70 836	(412)	70 424
irrevocable commitments granted	28 367	(190)	28 177
POCI	14	(1)	13
Guarantees and sureties granted
guarantees in domestic and foreign trading	11 952	(256)	11 696
to financial entities	4 201	-	4 201
to non-financial entities	7 725	(256)	7 469
to public entities	26	-	26
domestic corporate bonds to financial entities	2 000	-	2 000
domestic municipal bonds (state budget entities)	408	-	408
letters of credit to non-financial entities	1 238	(4)	1 234
payment guarantees to financial entities	80	-	80
Total guarantees and sureties granted, including:	15 678	(260)	15 418
irrevocable commitments granted	8 984	(255)	8 729
performance guarantee	3 389	(203)	3 186
POCI	45	(2)	43
Total financial and guarantee commitments granted	86 514	(672)	85 842

•           nominal value of commitments granted by maturity

COMMITMENTS GRANTED BY MATURITY AS AT 31.12.2022	up to 1 month (inclusive)	1 to 3 months (inclusive)	3 months to 1 year (inclusive)	1 year to 5 years inclusive	More than 5 years	Total
commitments granted - financial	15 343	4 639	27 638	22 375	8 326	78 321
commitments granted - guarantees and sureties	496	934	6 136	5 344	3 629	16 539
Total	15 839	5 573	33 774	27 719	11 955	94 860

 

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

•           Off-balance sheet liabilities received

OFF-BALANCE SHEET LIABILITIES RECEIVED BY NOMINAL VALUE	31.12.2022	31.12.2021
Financial	109	107
Guarantees	8 579	6 692
Total	8 688	6 799

47.            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 8 212 million (as at 31 December 2021: PLN 4 302 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 2022 was PLN 2 225 million (as at 31 December 2021: PLN 2 038 million).

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

As at 31 December 2022, 19 522 on court proceedings were pending against the Bank (as at 31 December 2021: 12 349) relating to mortgage loans granted in previous years in foreign currency with a total value in dispute of PLN 7 725 million (as at 31 December 2021: PLN 3 855 million), including one group proceeding with 72 loan agreements. The subject matter of the Bank's clients' actions is mainly claims for declaration of invalidity of an agreement or for payment of amounts paid by the client to the Bank in performance of an invalid agreement. Customers allege abusive provisions or that the agreements are contrary to the law. 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 2022, 995 final rulings have been issued by the courts in cases against the Bank (including 954 rulings after 3 October 2019). 106 of these rulings (including in 67 rulings issued after 3 October 2019) are favourable for 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 2019, for the return of the capital paid out and the cost of using the capital. The issue of the mutual settlement of the parties to a credit agreement after its collapse is the subject of preliminary questions to the CJEU in Case C-520/21, to which another bank is a party. The questions referred in this case relate, inter alia, to the right of banks to recover from their customers the benefits received by the latter in connection with the provision of capital by the bank to them and the nonrecovery of that capital for the duration of the loan agreement. On 16 February 2023, an opinion of the General Ombudsman was delivered. The Ombudsman took the view that the provisions of Directive 93/13 do not preclude a consumer, in addition to reimbursing funds paid under an invalid contract, from also claiming additional benefits from a bank, but that it is nevertheless for the national court to determine, in the light of national law, whether consumers are entitled to pursue such claims and, if so, to rule on their merits. The Ombudsman did not rule out that such claims may constitute an abuse of law. With respect to analogous claims of banks exceeding the performance (paid-up capital), the General Ombudsman found that they conflict with the provisions of Directive 93/13. The Ombudsman's opinion is not beneficial to banks, but the CJEU is not bound by this opinion. It needs to be noted that the case in which the questions referred for a preliminary ruling in Case C-520/21 were raised does not concern the bank's claims. The Bank's claims against the customer were raised in another case, which also raised preliminary questions of a similar content to Case C-520/21. This case is registered under reference C-756/22. The Bank is not a party to these proceedings.

The bank is a party to other proceedings before the CJEU. In the Bank's case, a preliminary question was put to the CJEU regarding the possibility for the Authorities entitled to do so to bring extraordinary complaints to the Supreme Court in cases that ended with a final and favourable decision for the Bank. The case was registered at the CJEU under reference C-720/21. The bank has filed a written position in the case and is awaiting action on the part of the CJEU.

•        LITIGATION AGAINST THE BANK CONCERNING MORTGAGE LOANS BEARING INTEREST AT A FLOATING RATE

The bank has been served with 5 lawsuits in which customers challenge that the mortgage agreement was based on a floating interest rate structure and the rules for setting the WIBOR benchmark rate. The Bank disputes the validity of the claims raised in these cases.

•      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.

•      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 to which the Bank replied by 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 2022, 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, indicating that they are unfounded. The Bank pointed out, among other things, that the contested clauses are specific and they precisely define the circumstances entitling the Bank to change the template. By order of 7 June 2022, UOKiK summoned the Bank to provide a range of information regarding the disputed clauses, the Bank's turnover and the revenue generated from changes in fees and commissions based on the disputed clauses. The UOKiK summons was implemented on 11 July and 30 September 2022. By order of 13 January 2023, the President of UOKiK extended the deadline for completion of the proceedings until 28 April 2023. As at 31 December 2022, the Bank had not set up a provision for these proceedings.

•        Proceedings before the court of competition and consumer protection

Two proceedings involving the Bank are pending before the Court of Competition and Consumer Protection:

•        Proceedings on 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, the UOKiK recognised practices involving the joint determination of interchange fees as restrictive of competition and ordered them to be abandoned, at the same time imposing, inter alia, a fine of PLN 16.6 million on the Bank. 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 2022 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 2022, the Bank joined eight proceedings as an outside intervener.  Two of these proceedings resulted in final judgments in favour of the defendants dismissing the plaintiffs' claims, and one in a non-final judgment dismissing the plaintiffs' claim to a significant extent due to the acceptance of part of the statute of limitations.

•        Re-privatization claims relating to properties used by the Bank

As at the date of the financial statements, there are two proceedings to which the Bank is a party. In one proceeding, the Bank filed a cassation appeal against an unfavourable final judgment dismissing the Bank's claims. The second proceeding, concerning the annulment of the decision refusing to grant the applicant temporary ownership of the Bank's property, is pending before the Supreme Administrative Court, as the other party has filed a cassation appeal.

The probability of serious claims arising against the Bank as a result of the aforesaid proceedings is low.

48.            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.

Equity components:

•        • Share capital is the capital of the parent, 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 at PKO Bank Polski S.A. 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 for other purposes, in particular for the payment of dividends, interim dividends or the purchase of treasury shares for cancellation.

•        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 2022, the Bank’s shareholding structure is as follows:

ENTITY NAME	number of shares	% of votes	Notional amount of 1 share	Ownership interest (%)
As at 31 December 2022
State Treasury	367 918 980	29.43%	PLN 1	29.43%
Nationale Nederlanden Otwarty Fundusz Emerytalny1	108 266 112	8.66%	PLN 1	8.66%
Allianz fund group1,2	106 567 559	8.53%	PLN 1	8.53%
Other shareholders3	667 247 349	53.38%	PLN 1	53.38%
Total	1 250 000 000	100%	---	100%
As at 31 December 2021
State Treasury	367 918 980	29.43%	PLN 1	29.43%
Nationale Nederlanden Otwarty Fundusz Emerytalny1	103 500 000	8.28%	PLN 1	8.28%
Allianz fund group4	96 568 413	7.73%	PLN 1	7.73%
Other shareholders3	682 012 607	54.56%	PLN 1	54.56%
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 The group includes: Allianz Polska Open Pensions Fund, Allianz Polska Voluntary Pension Fund, Drugi Allianz Polska Open Pension Fund.

3  Including Bank Gospodarstwa Krajowego, which as at 31 December 2022 and 31 December 2021 held 24,487,297 shares carrying 1.96% of the votes at the GSM.

4  The figure as at 31 December 2021 includes shares held by former funds: Aviva Open Pension Fund and Allianz Open Pension Fund; it does not include shares held by Allianz Polska Voluntary Pension Fund.

All shares of PKO Bank Polski S.A. carry the same rights and obligations. No shares are preference shares, in particular with respect to voting rights (one share carries one vote) or dividend. The Articles of Association of PKO Bank Polski S.A. limit the voting right of shareholders holding more than 10% of the total number of votes at the General Shareholders’ Meeting and prohibit these shareholders from exercising 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 in the Bank (i.e. the State Treasury and BGK);

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

•               shareholders acting jointly with the shareholders referred to in the second bullet point based on agreements concluded concerning the joint execution of voting rights on shares. Moreover, limitations to the voting rights of the shareholders expire at the moment 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 S.A.’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 S.A.’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 2022 and in 2021, there were no changes in the amount of the share capital of PKO Bank Polski S.A. Shares of PKO Bank Polski S.A. issued are not preference shares and are fully paid up.

FAIR VALUE OF FINANCIAL INSTRUMENTS

49.            Fair value hierarchy

Accounting policies

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, OIS, basis swap.
Derivative financial instruments – currency option, interest rate options, equity options, fx forward, fx swap transactions	Valuation models specific for particular type of a currency option, interest rate option and Equity option. The model of discounted future cash flows based on yield curves for FX forward and FX swap transactions.	Yield curves built based on money market rates, market rate of swap points, volatility levels for specific currency pairs, NBP fixing exchange rates.
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.
NBP money market bills	Yield curve method	Yield curves are built based on money market data and OIS (overnight index swap) transactions market.

•        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.
of Visa Inc. preference	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.
A-series Preferred 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 A-series Preferred shares and the terms and conditions of conversion of A-series Preferred shares into A-series shares	Discount taking into account the limited liquidity of A-series Preferred shares and the terms of converting the A-series Preferred shares into A-series 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 projected results of the company	Projected 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 projected results of the company	Projected 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 S.A.	Estimation of the fair value based on the present value of projected results of the company	Projected 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 S.A.	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 31.12.2022	Carrying amount	Level 1	Level 2	Level 3
		Prices quoted on active markets	Valuation techniques based on observable market data	Other valuation techniques
Derivative hedging instruments	217	-	217	-
Other derivative instruments	13 745	1	13 744	-
Securities	63 195	49 614	12 578	1 003
held for trading	199	199	-	-
debt securities	171	171	-	-
shares in other entities - listed	27	27	-	-
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	710	341	1	368
debt securities	366	321	-	45
shares in other entities - listed	20	20	-	-
shares in other entities - not listed	324	-	1	323
measured at fair value through other comprehensive income	62 286	49 074	12 577	635
debt securities	62 286	49 074	12 577	635
Loans and advances to customers	15 460	-	-	15 460
not held for trading, measured at fair value through profit or loss	3 565	-	-	3 565
housing loans	4	-	-	4
business loans	85	-	-	85
consumer loans	3 476	-	-	3 476
measured at fair value through other comprehensive income	11 895	-	-	11 895
housing loans	11 895	-	-	11 895
Total financial assets measured at fair value	92 617	49 615	26 539	16 463

 

LIABILITIES MEASURED AT FAIR VALUE	Carrying amount	Level 1	Level 2	Level 3
31.12.2022		Prices quoted on active markets	Valuation techniques based on observable market data	Other valuation techniques
Derivative hedging instruments	6 727	-	6 727	-
Other derivative instruments	14 002	-	14 002	-
Liabilities in respect of a short position in securities	7	7	-	-
Total financial liabilities measured at fair value	20 736	7	20 729	-

 

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
Derivative hedging instruments	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 other comprehensive income	57 641	44 121	12 911	609
debt securities	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
business loans	97	-	-	97
consumer loans	4 458	-	-	4 458
measured at fair value through other comprehensive income	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
Derivative hedging instruments	4 624	-	4 624	-
Other derivative instruments	11 704	-	11 704	-
Total financial liabilities measured at fair value	16 328	-	16 328	-

 

IMPACT OF ESTIMATES ON FAIR VALUE MEASUREMENT OF LEVEL 3 FINANCIAL INSTRUMENTS	31.12.2022		31.12.2021
	Fair value in		Fair value in
	positive scenario	negative scenario	positive scenario	negative scenario
Shares in Visa Inc.1	145	133	128	113
Other equity investments2	189	171	191	173
Corporate bonds3	681	679	762	760
Loans and advances to customers4	16 145	14 682	18 307	17 576

 

1scenario 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 +/- 0.5%

 

RECONCILIATION OF CHANGES DURING THE REPORTING PERIOD TO FAIR VALUE AT LEVEL 3	2022	2021
Opening balance at the beginning of the period	19 215	21 382
Increase in exposure to equity instruments	11	7
Decrease in exposure to equity instruments	(3)	(152)
Increase in exposure to corporate bonds	-	57
Decrease in exposure to corporate bonds	(65)	(9)
Increase in exposure to loans and advances to customers	2 051	1 594
Decrease in exposure to loans and advances to customers	(4 598)	(3 463)
Reclassification from “measured at amortized cost” to “measured at fair value through other comprehensive income”	81	-
Reclassification from “measured at amortized cost” to “measured at fair value through profit or loss”	-	39
Reclassification from “measured at fair value through profit or loss” to “measured at amortised cost”	(207)	-
Net gain/(loss) on financial instruments measured at fair value through profit or loss	50	56
Change in the valuation recognized in OCI	(55)	(148)
Foreign exchange differences	9	9
Other	(26)	(157)
Closing balance	16 463	19 215

 

50.         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 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.
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.

 

31.12.2022	carrying amount	Level 1	Level 2	Level 3
Cash and balances with the Central Bank	15 719	4 078	11 641	-
Amounts due from banks	19 442	-	19 440	-
Securities (excluding adjustments relating to fair value hedge accounting)	67 821	49 183	7 779	1 710
Treasury bonds (in PLN)	45 870	38 773	-	-
corporate bonds (in PLN) secured with the State Treasury guarantees	12 100	10 410	-	-
municipal bonds (in PLN)	6 182	-	6 332	-
corporate bonds (in PLN)	1 990	-	-	1 710
corporate bonds (in foreign currencies)	1 679	-	1 447	-
Reverse repo transactions	7	-	7	-
Loans and advances to customers (excluding adjustment relating to fair value hedge accounting)	193 466	-	-	196 253
housing loans	77 773	-	-	78 069
business loans	89 492	-	-	91 398
consumer loans	26 201	-	-	26 786
Other financial assets	1 654	-	-	1 654
Amounts due to the Central Bank	9	-	9	-
Amounts due to banks	2 926	-	2 926	-
Amounts due to customers (excluding adjustment relating to fair value hedge accounting)	334 907	-	-	334 006
amounts due to households	260 729	-	-	259 829
amounts due to business entities	56 990	-	-	56 989
amounts due to public sector	17 188	-	-	17 188
Loans and advances received	726	-	-	726
Subordinated liabilities	2 781	-	2 603	-
Other financial liabilities	4 176	-	-	4 176

 

31.12.2021	carrying amount	Level 1	Level 2	Level 3
Cash and balances with the Central Bank	11 421	3 466	7 955	-
Amounts due from banks	14 296	-	14 295	-
Securities (excluding adjustments relating to fair value hedge accounting)	72 055	57 899	7 320	1 770
Treasury bonds (in PLN)	50 787	46 836	-	-
corporate bonds (in PLN) secured with the State Treasury guarantees	12 092	11 063	-	-
municipal bonds (in PLN)	5 022	-	5 075	-
corporate bonds (in PLN)	1 927	-	-	1 770
corporate bonds (in foreign currencies)	2 227	-	2 245	-
Loans and advances to customers (excluding adjustment relating to fair value hedge accounting)	187 588	-	-	189 672
housing loans	82 457	-	-	82 131
business 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

RISK MANAGEMENT IN THE BANK

51.            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 S.A. 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 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.

52.            Specific risk management measures undertaken by the Bank in 2022

During the twelve months ended 31 December 2022:

•      The Bank monitored the situation of its customers and adjusted its credit policy with a view to securing a good quality loan portfolio. As part of the measurement of credit exposures, the Bank specifically took into account information on customers' economic ties with counterparties in Ukraine, Belarus and Russia. For specific actions taken by the Bank in the area of risk management in relation to the situation in Ukraine, see note “ Impact of the geopolitical situation in Ukraine on PKO Bank Polski S.A.” Section „risk management in relation to the situation in Ukraine”.

•        Internal regulations were adapted to the requirements of Recommendation R of the PFSA regarding the quarterly monitoring of legal collateral that is taken into account in the estimation of expected credit losses in order to ensure the identification of market conditions/events that may or do affect the legal effectiveness of the collateral and its value taken into account in the estimation of these losses.

•      In order to mitigate the level of credit risk resulting from interest rate increases and inflation, changes were made to the parameters used in the assessment of the creditworthiness of individual borrowers applying for housing loans (in accordance with the PFSA’s Recommendation S). As part of these changes, the minimum value of the interest rate buffer was increased to 5 p.p., the minimum subsistence costs were increased, and the maximum acceptable DStI (debt service to income) values were changed.

•      In terms of interest rate risk, the banking sector was challenged by larger than expected increases in interest rates. In a series of interest rate increases commenced in the fourth quarter of 2021, the reference rate was increased to 6.75% as at the end of the third quarter of 2022, resulting in persistent negative valuation of the portfolio of debt instruments and derivative instruments hedging interest income. At the same time, the customers’ interest in mortgage loans temporarily based on fixed interest rates continues, affecting the interest income sensitivity measures of the Bank.

•      The Bank maintained a safe level of liquidity, allowing for a quick and effective response to potential threats. The Bank structured its sources of funding accordingly by adjusting its deposit offering (in particular deposit interest rates) to meet current needs and by repaying maturing funds raised from the financial market through issuance,

•      The tasks aimed at expanding the IT systems that enable the collection of ESG data, in particular on environmental risks, and preparing for the systemic disclosure of this data were carried out (see note ESG Risk management).

53.            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;

•        terms and conditions of a loan transactions offered to a customer depend on the assessment of credit risk level generated by the transaction;

•        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 testing.

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. The functioning of these methods is supported by specialist 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.

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.

•        Reporting of credit risk

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 designed 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 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.

See also the information in the note “Collateral”.

54.            Credit risk – financial information

54.1. Financial assets by stage

•        Amounts due from banks

As at 31 December 2022 and 31 December 2021 all amounts due from banks were classified as Stage 1.

•        Securities

SECURITIES (excluding adjustment relating to fair value hedge accounting) 31.12.2022	Stage 1	Stage 2	Stage 3	Total	of which POCI
Measurement method: measured at fair value through other comprehensive income
Gross carrying amount	61 908	2	374	62 284	359
Treasury bonds (in PLN)	40 649	-	-	40 649	-
Treasury bonds (in foreign currencies)	3 977	-	-	3 977	-
corporate bonds (in PLN) secured with the State Treasury guarantees	9 373	-	-	9 373	-
municipal bonds (in PLN)	5 044	2	-	5 046	-
corporate bonds (in PLN)	2 476	-	374	2 850	359
corporate bonds (in foreign currencies)	389	-	-	389	-
Allowances for expected credit losses	-	-	2	2	2
corporate bonds (in PLN)	-	-	2	2	2
Net carrying amount	61 908	2	376	62 286	361
Treasury bonds (in PLN)	40 649	-	-	40 649	-
Treasury bonds (in foreign currencies)	3 977	-	-	3 977	-
corporate bonds (in PLN) secured with the State Treasury guarantees	9 373	-	-	9 373	-
municipal bonds (in PLN)	5 044	2	-	5 046	-
corporate bonds (in PLN)	2 476	-	376	2 852	361
corporate bonds (in foreign currencies)	389	-	-	389	-
Measurement method: at amortized cost
Gross carrying amount	67 555	336	-	67 891	-
Treasury bonds (in PLN)	45 875	-	-	45 875	-
corporate bonds (in PLN) secured with the State Treasury guarantees	12 108	-	-	12 108	-
municipal bonds (in PLN)	6 206	-	-	6 206	-
corporate bonds (in PLN)	1 818	195	-	2 013	-
corporate bonds (in foreign currencies)	1 548	141	-	1 689	-
Allowances for expected credit losses	(45)	(25)	-	(70)	-
Treasury bonds (in PLN)	(5)	-	-	(5)	-
corporate bonds (in PLN) secured with the State Treasury guarantees	(8)	-	-	(8)	-
municipal bonds (in PLN)	(24)	-	-	(24)	-
corporate bonds (in PLN)	(4)	(19)	-	(23)	-
corporate bonds (in foreign currencies)	(4)	(6)	-	(10)	-
Net carrying amount	67 510	311	-	67 821	-
Treasury bonds (in PLN)	45 870	-	-	45 870	-
corporate bonds (in PLN) secured with the State Treasury guarantees	12 100	-	-	12 100	-
municipal bonds (in PLN)	6 182	-	-	6 182	-
corporate bonds (in PLN)	1 814	176	-	1 990	-
corporate bonds (in foreign currencies)	1 544	135	-	1 679	-
Total securities
Gross carrying amount	129 463	338	374	130 175	359
Allowances for expected credit losses	(45)	(25)	2	(68)	2
Net carrying amount	129 418	313	376	130 107	361

 

SECURITIES (excluding adjustments 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 carrying 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 carrying 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	-
Measurement method: at amortized cost
Gross carrying 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 carrying 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 carrying amount	128 961	446	397	129 804	380
Allowances for expected credit losses	(30)	(26)	(52)	(108)	(52)
Net carrying amount	128 931	420	345	129 696	328

•        Loans and advances to customers

LOANS AND ADVANCES TO CUSTOMERS (excluding adjustment relating to fair value hedge accounting) 31.12.2022	Stage 1	Stage 2	Stage 3	Total	of which POCI
Measurement method: measured at fair value through other comprehensive income
Gross carrying amount	11 372	502	21	11 895	1
housing loans	11 372	502	21	11 895	1
Allowances for expected credit losses	-	-	-	-	-
Net carrying amount	11 372	502	21	11 895	1
housing loans	11 372	502	21	11 895	1
Measurement method: at amortized cost
Gross carrying amount	168 347	25 972	7 496	201 815	195
housing loans	68 579	9 542	1 727	79 848	90
business loans	76 267	13 447	4 009	93 723	55
consumer loans	23 501	2 983	1 760	28 244	50
Allowances for expected credit losses	(855)	(2 853)	(4 641)	(8 349)	20
housing loans	(90)	(710)	(1 275)	(2 075)	(15)
business loans	(418)	(1 542)	(2 271)	(4 231)	(1)
consumer loans	(347)	(601)	(1 095)	(2 043)	36
Net carrying amount	167 492	23 119	2 855	193 466	215
housing loans	68 489	8 832	452	77 773	75
business loans	75 849	11 905	1 738	89 492	54
consumer loans	23 154	2 382	665	26 201	86
Loans and advances to customers, total
Gross carrying amount	179 719	26 474	7 517	213 710	196
Allowances for expected credit losses	(855)	(2 853)	(4 641)	(8 349)	20
Net carrying amount	178 864	23 621	2 876	205 361	216

 

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
Measurement method: measured at fair value through other comprehensive income
Gross carrying amount	12 323	1 189	19	13 531	1
housing loans	12 323	1 189	19	13 531	1
Allowances for expected credit losses	-	-	-	-	-
Net carrying amount	12 323	1 189	19	13 531	1
housing loans	12 323	1 189	19	13 531	1
Measurement method: at amortized cost
Gross carrying amount	158 334	28 933	7 977	195 244	169
housing loans	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)
housing loans	(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 carrying amount	157 720	26 930	2 938	187 588	167
housing loans	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
Loans and advances to customers, total
Gross carrying amount	170 657	30 122	7 996	208 775	170
Allowances for expected credit losses	(614)	(2 003)	(5 039)	(7 656)	(2)
Net carrying amount	170 043	28 119	2 957	201 119	168

•        Other financial assets

OTHER FINANCIAL ASSETS	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2022
Gross amount	1 653	-	145	1 798	-
Allowances for expected credit losses	-	-	(144)	(144)	-
Net carrying amount	1 653	-	1	1 654	-

 

OTHER FINANCIAL ASSETS	Stage 1	Stage 2	Stage 3	Total	of which POCI
31.12.2021
Gross amount	1 824	-	135	1 959	-
Allowances for expected credit losses	-	-	(134)	(134)	-
Net carrying amount	1 824	-	1	1 825	-

•        Financial and guarantee commitments granted

FINANCIAL AND GUARANTEE COMMITMENTS GRANTED 31.12.2022	STAGE 1		STAGE 2		STAGE 3		Total	Provisions per IFRS 9	Net carrying amount
	Nominal value	Provision	Nominal value	Provision	Nominal value	Provision
Credit lines and limits	68 144	(135)	7 220	(406)	132	(45)	75 496	(586)	74 910
real estate	3 531	(13)	107	(5)	8	(3)	3 646	(21)	3 625
business	55 832	(96)	5 310	(281)	100	(35)	61 242	(412)	60 830
consumer	8 781	(26)	1 803	(120)	24	(7)	10 608	(153)	10 455
Other	2 824	-	-	-	1	-	2 825	-	2 825
Total financial commitments granted, including:	70 968	(135)	7 220	(406)	133	(45)	78 321	(586)	77 735
irrevocable commitments granted	35 862	(60)	3 429	(211)	100	(30)	39 391	(301)	39 090
POCI	-	-	1	-	4	(1)	5	(1)	4
Guarantees and sureties granted
guarantees in domestic and foreign trading	10 598	(5)	1 357	(72)	679	(159)	12 634	(236)	12 398
to financial entities	4 839	-	-	-	-	-	4 839	-	4 839
to non-financial entities	5 688	(5)	1 357	(72)	679	(159)	7 724	(236)	7 488
to public entities	71	-	-	-	-	-	71	-	71
domestic corporate bonds to financial entities	2 000	-	-	-	-	-	2 000	-	2 000
domestic municipal bonds (state budget entities)	315	-	-	-	-	-	315	-	315
letters of credit to non-financial entities	1 343	(1)	171	(6)	-	-	1 514	(7)	1 507
payment guarantees to financial entities	76	-	-	-	-	-	76	-	76
Total guarantees and sureties granted, including:	14 332	(6)	1 528	(78)	679	(159)	16 539	(243)	16 296
irrevocable commitments granted	6 988	(5)	1 262	(71)	647	(158)	8 897	(234)	8 663
performance guarantee	2 499	(2)	860	(54)	281	(147)	3 640	(203)	3 437
POCI	-	-	-	-	284	(5)	284	(5)	279
Total financial and guarantee commitments granted	85 300	(141)	8 748	(484)	812	(204)	94 860	(829)	94 031

 

FINANCIAL AND GUARANTEE COMMITMENTS GRANTED 31.12.2021	STAGE 1		STAGE 2		STAGE 3		Total	Provisions per IFRS 9	Net carrying 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
real estate	5 073	(12)	131	(5)	4	(2)	5 208	(19)	5 189
business	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 and sureties granted
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 to financial entities	2 000	-	-	-	-	-	2 000	-	2 000
domestic municipal bonds (state budget entities)	408	-	-	-	-	-	408	-	408
Letters of credit 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 sureties 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

54.2. Change in the gross carrying amount

•        Securities

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
2022
Measurement method: measured at fair value through other comprehensive income
Gross carrying amount at the beginning of the period	57 252	44	397	57 693	380
Transfer from stage 2 and 3 to stage 1	44	(44)	-	-	-
Transfer from stage 1 and 3 to stage 2	(2)	2	-	-	-
Granting or purchase of financial instruments	82 925	-	-	82 925	-
Utilization of limit or disbursement of tranches	219	-	1	220	-
Repayments	(78 669)	-	(3)	(78 672)	-
Non-substantial modifications	(7)	-	-	(7)	-
Other changes*	146	-	(21)	125	(21)
Gross carrying amount at the end of the period	61 908	2	374	62 284	359

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

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
2022
Measurement method: at amortized cost
Gross carrying amount at the beginning of the period	71 709	402	-	72 111	-
Transfer from stage 2 and 3 to stage 1	56	(56)	-	-	-
Transfer from stage 1 and 3 to stage 2	(6)	6	-	-	-
Granting or purchase of financial instruments	1 692	-	-	1 692	-
Utilization of limit or disbursement of tranches	120	1	-	121	-
Repayments	(7 728)	(30)	-	(7 758)	-
Other changes*	1 712	13	-	1 725	-
Gross carrying amount at the end of the period	67 555	336	-	67 891	-

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

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
2021
Measurement method: measured at fair value through other comprehensive income
Gross carrying amount at the beginning of the period	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 limit 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

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

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
2021
Measurement method: at amortized cost
Gross carrying amount at the beginning of the period	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 limit 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	-

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

•        Loans and advances to customers

LOANS AND ADVANCES TO CUSTOMERS - CHANGE IN GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
2022
Measurement method: measured at fair value through other comprehensive income
Real estate loans
Gross carrying amount at the beginning of the period	12 323	1 189	19	13 531	1
Transfer from stage 2 and 3 to stage 1	845	(843)	(2)	-	-
Transfer from stage 1 and 3 to stage 2	(333)	337	(4)	-	-
Transfer from stage 1 and 2 to stage 3	(6)	(13)	19	-	-
Granting or purchase of financial instruments	1 061	36	1	1 098	1
Utilization of limit or disbursement of tranches	166	5	1	172	-
Repayments	(1 855)	(30)	(3)	(1 888)	-
Non-substantial modifications	5	1	-	6	-
Derecognition, including sale	(1 059)	(37)	(3)	(1 099)	(2)
Write-off	-	-	(2)	(2)	-
Category change	80	1	-	81	-
Other changes*	145	(144)	(5)	(4)	1
Gross carrying amount at the end of the period	11 372	502	21	11 895	1

* 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
2022
Measurement method: at amortized cost
Real estate loans
Gross carrying amount at the beginning of the period	70 656	11 822	1 892	84 370	79
Transfer from stage 2 and 3 to stage 1	5 741	(5 713)	(28)	-	-
Transfer from stage 1 and 3 to stage 2	(4 861)	4 986	(125)	-	-
Transfer from stage 1 and 2 to stage 3	(83)	(215)	298	-	-
Granting or purchase of financial instruments	5 546	249	37	5 832	34
Utilization of limit or disbursement of tranches	8 457	338	148	8 943	9
Repayments	(12 632)	(1 350)	(259)	(14 241)	(13)
Non-substantial modifications	50	5	-	55	-
Derecognition, including sale	(4 432)	(188)	(43)	(4 663)	(41)
Write-off	-	-	(200)	(200)	(1)
Other changes*	137	(392)	7	(248)	23
Gross carrying amount at the end of the period	68 579	9 542	1 727	79 848	90

* 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
2022
Measurement method: at amortized cost
Business loans
Gross carrying amount at the beginning of the period	65 344	13 969	4 502	83 815	45
Transfer from stage 2 and 3 to stage 1	3 032	(3 015)	(17)	-	-
Transfer from stage 1 and 3 to stage 2	(4 954)	5 020	(66)	-	-
Transfer from stage 1 and 2 to stage 3	(155)	(197)	352	-	-
Granting or purchase of financial instruments	17 489	910	255	18 654	59
Utilization of limit or disbursement of tranches	19 446	2 434	329	22 209	3
Repayments	(27 419)	(2 109)	(918)	(30 446)	(27)
Non-substantial modifications	(19)	(7)	(11)	(37)	1
Derecognition, including sale	(2 878)	(107)	(103)	(3 088)	(92)
Write-off	-	-	(466)	(466)	3
Category change	6	3	-	9	-
Other changes*	6 375	(3 454)	152	3 073	63
Gross carrying amount at the end of the period	76 267	13 447	4 009	93 723	55

* 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
2022
Measurement method: at amortized cost
Consumer loans
Gross carrying amount at the beginning of the period	22 334	3 142	1 583	27 059	45
Transfer from stage 2 and 3 to stage 1	1 161	(1 136)	(25)	-	-
Transfer from stage 1 and 3 to stage 2	(1 518)	1 580	(62)	-	-
Transfer from stage 1 and 2 to stage 3	(360)	(355)	715	-	-
Granting or purchase of financial instruments	10 299	482	131	10 912	23
Utilization of limit or disbursement of tranches	986	190	214	1 390	2
Repayments	(10 162)	(460)	(213)	(10 835)	(21)
Non-substantial modifications	(10)	(2)	(1)	(13)	-
Derecognition, including sale	(26)	(39)	(58)	(123)	(52)
Write-off	-	-	(587)	(587)	(4)
Category change	219	21	(34)	206	3
Other changes*	578	(440)	97	235	54
Gross carrying amount at the end of the period	23 501	2 983	1 760	28 244	50

* 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
2021
Measurement method: 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

* 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
2021
Measurement method: 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

* Includes 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
2021
Measurement method: 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	(1 182)	(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)	-
Category change	-	-	(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

* 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
2021
Measurement method: 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)	1 286	(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)
Category change	(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.

•        Other financial assets:

OTHER FINANCIAL ASSETS - CHANGE IN GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
2022
Gross carrying amount at the beginning of the period	1 824	-	135	1 959	-
Transfer from stage 1 and 2 to stage 3	(12)	-	12	-	-
Granting or purchase of financial instruments	1 654	-	-	1 654	-
Repayments	(1 812)	-	-	(1 812)	-
Write-off	-	-	(2)	(2)	-
Other changes	(1)	-	-	(1)	-
Gross carrying amount at the end of the period	1 653	-	145	1 798	-

 

OTHER FINANCIAL ASSETS - CHANGE IN GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
2021
Gross carrying amount at the beginning of the period	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	-	-
Gross carrying amount at the end of the period	1 824	-	135	1 959	-

54.3. Changes in allowances for expected credit losses

•        Securities

SECURITIES – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
2022
Measurement method: measured at fair value through other comprehensive income
As at the beginning of the period	-	-	(52)	(52)	(52)
Increase due to recognition and purchase	(12)	-	-	(12)	-
Changes in credit risk (net)¹	11	1	41	53	41
Other adjustments	1	(1)	13	13	13
As at the end of the period	-	-	2	2	2

1 Changes in credit risk (net) include the effect on the amount of the allowance due to increases or decreases in the amount of financial assets due to accrued and paid interest income, the effect of the passage of time on expected losses, changes in estimates due to updates or reviews of risk parameters and changes in economic forecasting data.

SECURITIES – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
2022
Measurement method: at amortized cost
As at the beginning of the period	(30)	(26)	-	(56)	-
Transfer from stage 1 and 3 to stage 2	1	(1)	-	-	-
Increase due to recognition and purchase	(8)	-	-	(8)	-
Changes in credit risk (net)¹	(7)	1	-	(6)	-
Other adjustments	(1)	1	-	-	-
As at the end of the period	(45)	(25)	-	(70)	-

1 Changes in credit risk (net) include the effect on the amount of the allowance due to increases or decreases in the amount of financial assets due to accrued and paid interest income, the effect of the passage of time on expected losses, changes in estimates due to updates or reviews of risk parameters and changes in economic forecasting data.

SECURITIES – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
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)¹	15	-	(35)	(20)	(35)
Other adjustments	7	1	(3)	5	(3)
As at the end of the period	-	-	(52)	(52)	(52)

1 Changes in credit risk (net) include the effect on the amount of the allowance due to increases or decreases in the amount of financial assets due to accrued and paid interest income, the effect of the passage of time on expected losses, changes in estimates due to updates or reviews of risk parameters and changes in economic forecasting data.

 

SECURITIES – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	of which POCI
2021
Measurement method: 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)¹	5	(9)	-	(4)	-
Other adjustments	(11)	9	-	(2)	-
As at the end of the period	(30)	(26)	-	(56)	-

1 Changes in credit risk (net) include the effect on the amount of the allowance due to increases or decreases in the amount of financial assets due to accrued and paid interest income, the effect of the passage of time on expected losses, changes in estimates due to updates or reviews of risk parameters and changes in economic forecasting data.

•        Loans and advances to customers

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
2022
Measurement method: measured at fair value through other comprehensive income
Real estate loans
As at the beginning of the period	-	-	-	-	-
Transfer from stage 2 and 3 to stage 1	(2)	2	-	-	-
Transfer from stage 1 and 3 to stage 2	26	(27)	1	-	-
Transfer from stage 1 and 2 to stage 3	2	6	(8)	-	-
Increase due to recognition and purchase	(2)	(1)	(1)	(4)	(1)
Changes in credit risk (net)¹	(5)	(8)	(7)	(20)	(1)
Decrease due to derecognition	2	1	1	4	1
Write-off	-	-	2	2	-
Other adjustments²	(21)	27	12	18	1
As at the end of the period	-	-	-	-	-

1 Changes in credit risk (net) include the effect on the amount of the allowance due to increases or decreases in the amount of financial assets due to accrued and paid interest income, the effect of the passage of time on expected losses, changes in estimates due to updates or reviews of risk parameters and changes in economic forecasting data.

² Other adjustments include 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
2022
Measurement method: at amortized cost
Real estate loans
As at the beginning of the period	(50)	(572)	(1 291)	(1 913)	(18)
Transfer from stage 2 and 3 to stage 1	(17)	17	-	-	-
Transfer from stage 1 and 3 to stage 2	236	(249)	13	-	-
Transfer from stage 1 and 2 to stage 3	30	101	(131)	-	-
Increase due to recognition and purchase	(16)	(7)	(24)	(47)	(23)
Changes in credit risk (net)¹	(30)	(127)	84	(73)	(9)
Decrease due to derecognition	23	7	21	51	20
Changes due to modification without derecognition (net)	(1)	-	(1)	(2)	-
Write-off	-	-	200	200	1
Other adjustments²	(265)	120	(146)	(291)	14
As at the end of the period	(90)	(710)	(1 275)	(2 075)	(15)

1 Changes in credit risk (net) include the effect on the amount of the allowance due to increases or decreases in the amount of financial assets due to accrued and paid interest income, the effect of the passage of time on expected losses, changes in estimates due to updates or reviews of risk parameters and changes in economic forecasting data.

²  Other adjustments include 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
2022
Measurement method: at amortized cost
Business loans
As at the beginning of the period	(346)	(911)	(2 767)	(4 024)	(12)
Transfer from stage 2 and 3 to stage 1	(28)	28	-	-	-
Transfer from stage 1 and 3 to stage 2	516	(524)	8	-	-
Transfer from stage 1 and 2 to stage 3	49	74	(123)	-	-
Increase due to recognition and purchase	(228)	(48)	(108)	(384)	(63)
Changes in credit risk (net)¹	184	(580)	438	42	(7)
Decrease due to derecognition	10	5	36	51	35
Changes due to modification without derecognition (net)	(3)	(2)	6	1	(1)
Write-off	-	-	466	466	(3)
Other adjustments²	(572)	416	(227)	(383)	50
As at the end of the period	(418)	(1 542)	(2 271)	(4 231)	(1)

1 Changes in credit risk (net) include the effect on the amount of the allowance due to increases or decreases in the amount of financial assets due to accrued and paid interest income, the effect of the passage of time on expected losses, changes in estimates due to updates or reviews of risk parameters and changes in economic forecasting data.

² Other adjustments include 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
2022
Measurement method: at amortized cost
Consumer loans
As at the beginning of the period	(218)	(520)	(981)	(1 719)	28
Transfer from stage 2 and 3 to stage 1	(24)	24	-	-	-
Transfer from stage 1 and 3 to stage 2	295	(305)	10	-	-
Transfer from stage 1 and 2 to stage 3	208	198	(406)	-	-
Increase due to recognition and purchase	(110)	(12)	(60)	(182)	(36)
Changes in credit risk (net)¹	(16)	(68)	(373)	(457)	(6)
Decrease due to derecognition	1	4	28	33	27
Changes due to modification without derecognition (net)	(2)	(3)	(1)	(6)	-
Update of the applied estimation method (net)	6	1	9	16	5
Write-off	-	-	587	587	4
Other adjustments²	(487)	80	92	(315)	14
As at the end of the period	(347)	(601)	(1 095)	(2 043)	36

1 Changes in credit risk (net) include the effect on the amount of the allowance due to increases or decreases in the amount of financial assets due to accrued and paid interest income, the effect of the passage of time on expected losses, changes in estimates due to updates or reviews of risk parameters and changes in economic forecasting data.

² Other adjustments include 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
2021
Measurement method: 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	(1)	(7)	(6)	(14)	-
Other adjustments*	(21)	23	12	14	-
As at the end of the period	-	-	-	-	-

1 Changes in credit risk (net) include the effect on the amount of the allowance due to increases or decreases in the amount of financial assets due to accrued and paid interest income, the effect of the passage of time on expected losses, changes in estimates due to updates or reviews of risk parameters and changes in economic forecasting data.

² Other adjustments include 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
2021
Measurement method: 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)¹	(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 adjustments²	(45)	(5)	(49)	(99)	(1)
As at the end of the period	(50)	(572)	(1 291)	(1 913)	(18)

1 Changes in credit risk (net) include the effect on the amount of the allowance due to increases or decreases in the amount of financial assets due to accrued and paid interest income, the effect of the passage of time on expected losses, changes in estimates due to updates or reviews of risk parameters and changes in economic forecasting data.

² Other adjustments include 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
2021
Measurement method: 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)¹	(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 adjustments²	(82)	(7)	(38)	(127)	-
As at the end of the period	(346)	(911)	(2 767)	(4 024)	(12)

1 Changes in credit risk (net) include the effect on the amount of the allowance due to increases or decreases in the amount of financial assets due to accrued and paid interest income, the effect of the passage of time on expected losses, changes in estimates due to updates or reviews of risk parameters and changes in economic forecasting data.

² Other adjustments include 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
2021
Measurement method: 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)¹	(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 adjustments²	(14)	17	(169)	(166)	(7)
As at the end of the period	(218)	(520)	(981)	(1 719)	28

1 Changes in credit risk (net) include the effect on the amount of the allowance due to increases or decreases in the amount of financial assets due to accrued and paid interest income, the effect of the passage of time on expected losses, changes in estimates due to updates or reviews of risk parameters and changes in economic forecasting data.

² Other adjustments include the effect of foreign exchange rate changes, interest, measurement.

•        Other financial assets:

OTHER FINANCIAL ASSETS - CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES IN THE PERIOD – Stage 3	2022	2021
As at the beginning of the period	(134)	(136)
Changes in credit risk (net)¹	(13)	(2)
Decrease due to derecognition	-	3
Write-off	2	-
Other adjustments	1	1
As at the end of the period	(144)	(134)

1 Changes in credit risk (net) include the effect on the amount of the allowance due to increases or decreases in the amount of financial assets due to accrued and paid interest income, the effect of the passage of time on expected losses, changes in estimates due to updates or reviews of risk parameters and changes in economic forecasting data.

54.4. Other disclosures

MAXIMUM EXPOSURE TO CREDIT RISK - FINANCIAL INSTRUMENTS NOT SUBJECT TO IMPAIRMENT REQUIREMENTS	31.12.2022	31.12.2021
Derivative hedging instruments	217	327
Other derivative instruments	13 745	11 143
Securities:	909	1 144
held for trading	199	311
not held for trading, measured at fair value through profit or loss	710	833
Loans and advances to customers not held for trading, measured at fair value through profit or loss	3 565	4 559
housing loans	4	4
business loans	85	97
consumer loans	3 476	4 458
Total	18 436	17 173

•           Modifications

FINANCIAL ASSETS SUBJECT TO MODIFICATION	2022		2021
Financial assets subject to modification during the period:	Stage 2	Stage 3	Stage 2	Stage 3
valuation amount at amortized cost before modification	655	222	1 028	601
gain (loss) on modification	3	(2)	(8)	(4)
Financial assets subject to modification since initial recognition:	31.12.2022		31.12.2021
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	305		20

•           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	2022		2021
	Partly written off	Entirely written off	Partly written off	Entirely written off
Loans and advances to customers	96	159	39	826
housing loans	15	21	5	183
business loans	11	115	14	566
consumer loans	70	23	20	77
Other financial assets	-	-	-	-
Total	96	159	39	826

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 (net)	up to 30 days	30 to 90 days	over 90 days	TOTAL
31.12.2022
Stage 1	991	4	-	995
Loans and advances to customers:	991	4	-	995
housing loans	151	2	-	153
business loans	527	1	-	528
consumer loans	313	1	-	314
Stage 2	1 034	225	50	1 309
Loans and advances to customers:	1 034	225	50	1 309
housing loans	441	113	34	588
business loans	402	38	4	444
consumer loans	191	74	12	277
Stage 3	174	112	993	1 279
Loans and advances to customers:	174	112	993	1 279
housing loans	28	32	225	285
business loans	94	23	469	586
consumer loans	52	57	299	408
TOTAL	2 199	341	1 043	3 583

 

PAST DUE FINANCIAL ASSETS SUBJECT TO IMPAIRMENT OR IMPAIRED (net)	up to 30 days	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
housing loans	64	-	-	64
business loans	862	-	-	862
consumer loans	143	-	-	143
Stage 2	586	164	47	797
Loans and advances to customers:	586	164	47	797
housing loans	356	90	35	481
business 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
housing loans	53	44	151	248
business loans	37	15	423	475
consumer loans	41	49	206	296
TOTAL	1 786	272	827	2 885

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 31.12.2022	Gross carrying amount
	Stage 1	Stage 2	Stage 3	TOTAL	POCI
REAL ESTATE LOANS	79 951	10 044	1 748	91 743	91
0.00 - 0.02%	1 173	1	-	1 174	-
0.02 - 0.07%	25 872	120	-	25 992	-
0.07 - 0.11%	14 567	106	-	14 673	-
0.11 - 0.18%	13 695	209	-	13 904	1
0.18 - 0.45%	14 283	1 907	-	16 190	5
0.45 - 1.78%	5 486	4 165	-	9 651	8
1.78 - 99.99%	526	3 564	-	4 090	13
100%	-	-	1 766	1 766	62
no internal rating	4 349	(28)	(18)	4 303	2
BUSINESS LOANS	76 267	13 447	4 009	93 723	55
0.00 - 0.45%	35 380	313	-	35 693	-
0.45 - 0.90%	8 939	344	-	9 283	-
0.90 - 1.78%	10 527	643	-	11 170	-
1.78 - 3.55%	9 842	3 006	-	12 848	-
3.55 - 7.07%	7 875	4 542	-	12 417	-
7.07 - 14.07%	3 170	3 378	-	6 548	-
14.07 - 99.99%	164	1 186	-	1 350	-
100%	-	-	4 009	4 009	55
no internal rating	370	35	-	405	-
CONSUMER LOANS	23 501	2 983	1 760	28 244	50
0.00 - 0.45%	5 069	51	-	5 120	-
0.45 - 0.90%	6 315	103	-	6 418	-
0.90 - 1.78%	5 354	311	-	5 665	-
1.78 - 3.55%	3 384	484	-	3 868	-
3.55 - 7.07%	1 804	526	-	2 330	1
7.07 - 14.07%	795	506	-	1 301	1
14.07 - 99.99%	225	949	-	1 174	2
100%	-	-	1 760	1 760	45
no internal rating	555	53	-	608	1
Total	179 719	26 474	7 517	213 710	192

 

CREDIT RISK EXPOSURES BY PD PARAMETER 31.12.2021	Gross carrying amount
	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

•      Quality of the portfolio covered by the rating model for off-balance sheet liabilities

CREDIT RISK EXPOSURES BY PD PARAMETER 31.12.2022	Gross carrying amount
	Stage 1	Stage 2	Stage 3	TOTAL	POCI
OFF-BALANCE SHEET LIABILITIES
0.00 - 0.45%	23 859	1 294	-	25 153	-
0.45 - 0.90%	12 667	98	-	12 765	-
0.90 - 1.78%	10 593	819	-	11 412	-
1.78 - 3.55%	8 598	1 401	-	9 999	-
3.55 - 7.07%	5 872	1 453	-	7 325	-
7.07 - 14.07%	2 542	2 323	-	4 865	-
14.07 - 99.99%	27	131	-	158	-
100%	-	-	812	812	289
no internal rating	21 142	1 229	-	22 371	-
Total	85 300	8 748	812	94 860	289

 

CREDIT RISK EXPOSURES BY PD PARAMETER 31.12.2021	Gross carrying amount
	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

•      Quality of the portfolio covered by the rating model for amounts due from banks

CREDIT RISK EXPOSURES BY PD PARAMETER 31.12.2022	Gross carrying amount
AMOUNTS DUE FROM BANKS	Stage 1	Stage 2	Stage 3	TOTAL	POCI
EXTERNAL RATINGS	19 458	-	-	19 458	-
AAA	700	-	-	700	-
AA	3 926	-	-	3 926	-
A	14 756	-	-	14 756	-
BBB	70	-	-	70	-
BB	4	-	-	4	-
B	2	-	-	2	-
		-	-
TOTAL	19 458	-	-	19 458	-

 

CREDIT RISK EXPOSURES BY PD PARAMETER 31.12.2021	Gross carrying amount
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	-

•      Quality of the portfolio covered by the rating model for debt securities

CREDIT RISK EXPOSURES BY PD PARAMETER 31.12.2022	Gross carrying amount
DEBT SECURITIES	Stage 1	Stage 2	Stage 3	TOTAL	POCI
EXTERNAL RATINGS	103 039	-	-	103 039	-
AAA	5 715	-	-	5 715	-
AA	41	-	-	41	-
A	95 742	-	-	95 742	-
BBB	205	-	-	205	-
BB	1 336	-	-	1 336	-
INTERNAL RATINGS	26 255	338	374	26 967	359
0.00-0.45%	25 083	-	-	25 083	-
0.45-0.90%	720	2	-	722	-
0.90-1.78%	62	76	-	138	-
1.78-3.55%	202	-	-	202	-
3.55-7.07%	188	113	-	301	-
7.07-14.07%	-	147	-	147	-
100.00%	-	-	374	374	359
no internal rating	169	-	-	169	-
TOTAL	129 463	338	374	130 175	359

 

CREDIT RISK EXPOSURES BY PD PARAMETER 31.12.2021	Gross carrying amount
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

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
31.12.2022
Recognized financial assets, gross	13 973	13 966	7
Financial liabilities subject to offsetting, gross	(4)	(4)	-
Financial assets recognized in the statement of financial position, net	13 969	13 962	7
Amounts subject to enforceable framework agreement or similar agreement concerning offsetting, including related to:	1 628	1 628	-
(i) recognized financial instruments which do not meet the offsetting criteria	912	912	-
(ii) financial collateral (including cash)	716	716	-
Net amount	12 341	12 334	7

 

OFFSETTING LIABILITIES	Total financial liabilities	Derivatives	Repo transactions
31.12.2022
Recognized financial liabilities, gross	20 733	20 733	-
Gross amounts of financial assets which are offset in accordance with the criteria set out in §42 of IAS 32	(4)	(4)	-
Financial assets recognized in the statement of financial position, net	20 729	20 729	-
Amounts subject to enforceable framework agreement or similar agreement concerning offsetting, including related to:	2 978	2 978	-
(i) recognized financial instruments which do not meet the offsetting criteria	912	912	-
(ii) financial collateral (including cash)	2 066	2 066	-
Net amount	17 751	17 751	-

 

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
Financial liabilities subject to offsetting, gross	(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

56.            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 Art. 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.

•        Expected impact of regulatory changes on the concentration of the bank's exposure in 2023

The Bank anticipates an increase in the level of exposure concentration in connection with Article 500a of the CRR Regulation, which provides for the possibility of applying a 0% risk weight for exposures to the State Treasury in the denominated or domestic currency of another Member State only until the end of 2022 (the 0% risk weight allows exposures to be excluded from the concentration limit).

•           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 Tier 1 capital.

As at 31 December 2022 and 31 December 2021, concentration limits were not exceeded. As at 31 December 2022, the largest exposure to a single entity amounted to 60.07%1 of the Bank’s Tier 1 capital (52.60%1 of the Bank’s eligible capital as at 31 December 2021).

The Bank’s exposure to the 20 largest non-banking customers2:

31.12.2022				31.12.2021
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 T1 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 T1 capital)
11	20 910	5.90%	60.07%	11	19 187	5.61%	52.60%
21	16 128	4.55%	46.33%	21	16 367	4.78%	44.87%
3	4 699	1.33%	13.50%	3	5 939	1.74%	16.28%
41	4 531	1.28%	13.02%	41	3 531	1.03%	9.68%
51	3 676	1.04%	10.56%	5	2 606	0.76%	7.15%
6	2 756	0.78%	7.92%	6	2 453	0.72%	6.73%
7	2 453	0.69%	7.05%	7	2 377	0.69%	6.52%
81	2 292	0.65%	6.59%	8	1 984	0.58%	5.44%
9	2 164	0.61%	6.22%	9	1 774	0.52%	4.86%
10	1 928	0.54%	5.54%	101	1 750	0.51%	4.80%
11	1 775	0.50%	5.10%	11	1 549	0.45%	4.25%
12	1 657	0.47%	4.76%	12	1 538	0.45%	4.22%
131	1 618	0.46%	4.65%	13	1 485	0.43%	4.07%
14	1 595	0.45%	4.58%	14	1 436	0.42%	3.94%
15	1 462	0.41%	4.20%	15	1 340	0.39%	3.68%
16	1 374	0.39%	3.95%	16	1 207	0.35%	3.31%
17	1 326	0.37%	3.81%	17	1 167	0.34%	3.20%
18	1 296	0.37%	3.72%	18	1 115	0.33%	3.06%
19	1 237	0.35%	3.55%	19	1 056	0.31%	2.90%
20	1 134	0.32%	3.26%	20	1 015	0.30%	2.78%
Total	76 009	21.46%	218.35%	Total	70 877	20.71%	194.32%

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.

•           Concentration by the largest groups of related customers

The largest concentration of the Bank’s exposures to a group of related customers was 7.84% of the Bank’s loan portfolio (as at 31 December 2021, it was 7.17%).

As at 31 December 2022 and 31 December 2021, the largest concentration of the Bank’s exposures was, respectively: 79.77%1 of the Bank's Tier 1 capital and 67.22%1 of the Bank's Tier 1 capital.

The Bank’s2 exposure to the 5 largest groups of related customers3:

31.12.2022				31.12.2021
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 T1 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 consolidated T1 capital)
11	27 769	7.84%	79.77%	11	24 518	7.17%	67.22%
21	17 134	4.84%	49.22%	21	17 242	5.04%	47.27%
3	5 798	1.64%	16.66%	3	6 286	1.84%	17.23%
41	3 688	1.04%	10.59%	4	2 977	0.87%	8.16%
5	2 855	0.81%	8.20%	5	2 842	0.83%	7.79%
Total	57 244	16.17%	164.44%	Total	53 865	15.75%	147.68%

 

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

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 40.1% of the industry portfolio.

CONCENTRATION BY INDUSTRY
SECTION SYMBOL	SECTION NAME	31.12.2022		31.12.2021
		EXPOSURE	NUMBER OF ENTITIES	EXPOSURE	NUMBER OF ENTITIES
K	Financial and insurance activities	22.44	1.29	25.11	1.48
C	Industrial processing	17.64	9.63	16.58	9.69
O	Public administration and national defence, obligatory social security	11.76	3.17	13.08	3.28
G	Wholesale and retail trade, repair of motor vehicles	11.47	21.18	10.66	21.50
L	Real estate administration	11.32	20.02	11.56	21.22
Other exposures		25.37	44.71	23.01	42.83
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 Client Area and for Institutional Client Area.

In 2022, the largest concentration of the ORD loan portfolio was in the Warsaw region and Katowice region – these regions account for 27.4% of the ORD portfolio (as at 31 December 2021: 27.5%)

CONCENTRATION OF CREDIT RISK BY GEOGRAPHICAL REGION FOR RETAIL CUSTOMERS (%)	31.12.2022	31.12.2021
Warsaw region	16.16	16.40
Katowice region	11.29	11.09
Poznań region	10.47	10.46
Kraków region	8.42	8.44
Łódź region	8.90	8.95
Wrocław region	10.84	10.72
Gdańsk region	10.17	10.30
Lublin region	7.25	7.26
Białystok region	6.56	6.58
Szczecin region	8.46	8.43
Head Office	0.79	0.77
Other	0.69	0.60
Total	100.00	100.00

In 2022, the highest concentration of the Institutional Client loan portfolio was in the central macro-region - 44.2% of the OKI portfolio (as at 31 December 2021: 44.5%)

CONCENTRATION OF CREDIT RISK BY GEOGRAPHICAL REGION FOR CORPORATE CUSTOMERS (%)	31.12.2022	31.12.2021
Head Office	4.56	6.58
central macroregion	44.16	44.50
northern macroregion	8.73	7.62
western macroregion	10.56	11.01
southern macroregion	10.08	9.10
south-eastern macroregion	9.03	9.57
north-eastern macroregion	3.63	3.70
south-western macroregion	6.54	6.10
Other	0.16	-
Foreign countries	2.55	1.82
Total	100.00	100.00

•           Concentration of credit risk by currency

As at 31 December 2022, the share of exposures in convertible currencies other than PLN in the entire Bank’s portfolio amounted to 16.96% (as at 31 December 2021: 16.59%).

Exposures in EUR represent the largest part of the Bank’s foreign currency exposure with a 68.5% share in the entire foreign currency portfolio of the Bank as at the end of 2022 (as at 31 December 2021: 55.1%). 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 2022 amounted to 4.2% (as at 31 December 2021: 5.9%)

CONCENTRATION OF CREDIT RISK BY CURRENCY (%)	31.12.2022	31.12.2021
PLN	83.04	83.41
Foreign currencies, of which:	16.96	16.59
CHF	4.19	5.94
EUR	11.62	9.15
USD	1.12	1.44
UAH	0.01	0.01
GBP	-	-
Other	0.02	0.05
Total	100.00	100.00

•           Other types of concentration

The Bank analyses the structure of its housing loan portfolio by LTV levels. At the end of 2022, the largest concentration is in the LTV range of 0%-40% (in 2021, the largest concentration is in the LTV range of 41%-60%).

THE BANK’S HOUSING LOAN PORTFOLIO STRUCTURE BY LTV	31.12.2022	31.12.2021
0% - 40%	41.36	32.15
41%-60%	39.84	40.68
61% - 80%	16.23	23.31
81% - 90%	1.94	2.98
91% - 100%	0.27	0.48
over 100%	0.36	0.40
Total	100.00	100.00

 

	31.12.2022	31.12.2021
average LTV for the portfolio of loans in CHF	47.27	51.23
average LTV for the entire portfolio	45.57	50.52

57.            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 981 million (as at 31 December 2021: PLN 866 million).

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 losses.

See also information in notes  “Credit risk management”, “Use of credit risk mitigation techniques – collateral”.

58.            Exposure to the counterparty credit risk

 

CONCENTRATION OF CREDIT RISK – INTERBANK MARKET AND NON-WHOLESALE MARKET – EXPOSURE AS AT 31.12.2022*
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 and LORO accounts
Counterparty 1	Poland	A	-	30	7	5 484	7 735	14	13 270
Counterparty 2	Poland	A	-	(32)	7 667	-	-	-	7 667
Counterparty 3	Luxembourg	AAA	-	-	3 656	-	-	-	3 656
Counterparty 4	Switzerland	AA	880	-	-	-	-	-	880
Counterparty 5	Switzerland	AA	704	-	-	-	-	-	704
Counterparty 6	Germany	AAA	694	-	-	-	-	-	694
Counterparty 7	Switzerland	AA	593	-	-	-	-	-	593
Counterparty 8	France	A	484	-	-	-	-	-	484
Counterparty 9	Switzerland	AA	399	-	-	-	-	-	399
Counterparty 10	Germany	AA	-	335	-	3	29	5	372
Counterparty 11	France	A	-	353	-	-	-	-	353
Counterparty 12	Ukraine	NONE	-	-	-	-	339	-	339
Counterparty 13	Switzerland	AA	300	-	-	-	-	-	300
Counterparty 14	Poland	A	275	15	-	-	-	-	290
Counterparty 15	Germany	BBB	-	260	-	-	-	-	260
Counterparty 16	United States of America	AA	-	-	-	4	11	192	207
Counterparty 17	Poland	A	-	17	2	150	-	-	169
Counterparty 18	Belgium	A	-	103	-	-	-	60	163
Counterparty 19	France	A	-	42	-	-	-	91	133
Counterparty 20	Germany	A	-	-	-	-	-	126	126

 

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 27	Germany	BBB	-	516	-	-	-	2	518
Counterparty 10	Germany	AA	-	394	-	0.3	10	4	408
Counterparty 12	Ukraine	NONE	-	-	-	-	313	18	331
Counterparty 15	Germany	BBB	-	245	-	-	-	-	245
Counterparty 17	Poland	A	-	12	5	150	-	-	167
Counterparty 25	Poland	BBB	155	4	3	-	-	-	162
Counterparty 23	France	A	-	131	-	-	-	-	131
Counterparty 14	Poland	A	70	58	-	-	-	-	128
Counterparty 31	United Kingdom	NONE	-	116	-	-	-	-	116
Counterparty 11	France	A	-	109	-	-	-	-	109
Counterparty 18	Belgium	A	-	75	-	-	-	20	95
Counterparty 16	United States of America	AA	-	5	-	3	12	66	86
Counterparty 30	Norway	AA	-	84	-	-	-	-	84
Counterparty 77	Russian Federation	BBB	-	-	-	-	-	79	79
Counterparty 84	France	A	-	40	-	-	-	-	40
Counterparty 39	Japan	A	-	-	-	-	-	24	24
Counterparty 10	Luxembourg	A	-	-	-	2	18	-	20

* Excluding exposures to the State Treasury and the National Bank of Poland

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 have been exempted from the obligations imposed by the EMIR Regulation regarding the exchange of collateral.

The Bank had access to two clearing houses (CCP) through which it settles clears interest rate derivative transactions specified in the EMIR Regulation with selected domestic and foreign counterparties.

As of 1 September 2022, the Bank entered into the Initial Margin (IM) exchange requirement under the EMIR Regulation. The requirement applies to certain types of derivative transactions, not cleared at a CCP, entered into on or after 1 September 2022 with counterparties that have also entered into the requirement. Initial margin is deposited with the depositary by the two parties to the transaction, in the form of acceptable securities, when the so-called IM threshold (the amount by which the IM threshold is reduced) is exceeded.  The amount of the calculated IM requirement is monitored until the threshold IM is exceeded. The Bank signs IM documentation with its counterparties, based on the ISDA standard.

59.            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.

31.12.2022	Instruments with modified terms and conditions	Refinancing	Total gross	Impairment losses	Total, net
Performing exposures
Not held for trading, measured at fair value through profit or loss	12	-	12	-	12
consumer loans	12	-	12	-	12
Measured at fair value through OCI:	1	-	1	-	1
housing loans	1	-	1	-	1
Measured at amortized cost:	656	2	658	(48)	610
housing loans	209	-	209	(12)	197
business loans	344	2	346	(23)	323
consumer loans	103	-	103	(13)	90
Total performing exposures	669	2	671	(48)	623
Non-performing exposures
Not held for trading, measured at fair value through profit or loss	74	-	74	-	74
consumer loans	29	-	29	-	29
corporate bonds	45	-	45	-	45
Measured at fair value through OCI:	377	-	377	2	379
housing loans	3	-	3	-	3
corporate bonds	374	-	374	2	376
Measured at amortized cost:	1 644	35	1 679	(796)	883
housing loans	338	-	338	(244)	94
business loans	1 179	34	1 213	(542)	671
consumer loans	127	1	128	(10)	118
Total non-performing exposures	2 095	35	2 130	(794)	1 336
TOTAL EXPOSURES SUBJECT TO FORBEARANCE	2 764	37	2 801	(842)	1 959

 

31.12.2021	Instruments with modified terms and conditions	Refinancing	Total gross	Impairment losses	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
housing loans	263	-	263	(25)	238
business 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
housing loans	5	-	5	-	5
corporate bonds	397	-	397	(52)	345
Measured at amortized cost:	2 169	47	2 216	(1 138)	1 078
housing loans	452	-	452	(264)	188
business 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

 

LOANS AND ADVANCES TO CUSTOMERS SUBJECT TO FORBEARANCE	2022	2021
Recognized interest income on forborne loans and advances granted to customers	135	80

60.            Information on package sale of receivables

In 2022, the Bank effected package sales (balance sheet and off-balance sheet receivables) of nearly 43 thousand individual receivables from retail and business customers amounting to more than PLN 1,351 million (PLN 1,331 million in 2021). The total carrying amount of the provisions for potential claims on the sale of receivables as at 31 December 2022 amounted to PLN 4 million (as at 31 December 2021, 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.

61.            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.

According to the reports on the Financial Stability Committee meetings published on 28 March 2022, 23 September 2022 and 9 December 2022, the legal risk of foreign currency housing loans remains the most significant source of risks to financial system stability identified by the FSC, as the number of court cases related to these loans continues to increase and a significant share of these cases ends in the annulment of loan agreements. In the FSC’s view, court decisions leading to the annulment of an agreement, and even more so those compromising the economic logic of settlements between the parties after such annulment, are not proportionate to the effects of the most frequently challenged contractual provisions, they distort the functioning of basic market mechanisms and generate very significant burdens for the banking sector. This could result in a significant weakening of its resilience, with negative consequences for depositors and the banks’ ability to continue to finance the development of the Polish economy. In the FSC’s opinion, it is reasonable to recall the publicly available positions presented by the NBP and the Office of the Polish Financial Supervision Authority in relation to the proceedings before the Supreme Court. The legal system should not disregard the principles of economics and social justice and unjustifiably favour foreign currency borrowers over those who, at the same time, decided to take a PLN loan, for example to avoid the exchange risk. The abusiveness of contractual provisions, as raised by borrowers, cannot be used instrumentally to avoid unfavourable consequences of the agreement concluded, related to the materialization of the exchange rate risk. In accordance with market economy principles, including the principles of consideration and equivalence of benefits, the provision of financial capital should be accompanied by an obligation to return it and by remuneration from the recipient of the capital, at least covering the costs incurred. In the FSC’s view, amicable solutions (customer settlements) remain a valuable alternative to the judicial route to dispute resolution.

 

HOUSING LOANS AND ADVANCES TO INDIVIDUALS (RETAIL AND PRIVATE BANKING) BY CURRENCY	31.12.2022			31.12.2021
	gross	impairment loss	net	gross	impairment loss	net
in local currency	74 481	(1 179)	73 302	76 566	(1 043)	75 523
PLN	74 481	(1 179)	73 302	76 566	(1 043)	75 523
in foreign currency	11 634	(763)	10 871	15 610	(749)	14 861
CHF	9 353	(677)	8 676	13 100	(679)	12 421
EUR	2 243	(82)	2 161	2 469	(67)	2 402
USD	32	(4)	28	33	(3)	30
OTHER	6	-	6	8	-	8
TOTAL	86 115	(1 942)	84 173	92 176	(1 792)	90 384

 

FOREIGN CURRENCY HOUSING LOANS AND ADVANCES TO INDIVIDUALS BY THE GRANTING DATE		INDEXED	DENOMINATED	Total	INDEXED	DENOMINATED	Total
31.12.2022
up to 2002	Gross amount	-	28	28	-	42	42
	Allowances for credit losses	-	(1)	(1)	-	(1)	(1)
	Net amount	-	27	27	-	41	41
	Number of loans granted	-	2 737	2 737	-	3 930	3 930
from 2003 to 2006	Gross amount	-	1 976	1 976	-	2 939	2 939
	Allowances for credit losses	-	(111)	(111)	-	(108)	(108)
	Net amount	-	1 865	1 865	-	2 831	2 831
	Number of loans granted	-	30 771	30 771	-	37 734	37 734
from 2007 to 2009	Gross amount	-	4 911	4 911	-	7 240	7 240
	Allowances for credit losses	-	(490)	(490)	-	(515)	(515)
	Net amount	-	4 421	4 421	-	6 725	6 725
	Number of loans granted	-	35 811	35 811	-	45 782	45 782
from 2010 to 2012	Gross amount	2 436	2 268	4 704	2 807	2 567	5 374
	Allowances for credit losses	(74)	(85)	(159)	(55)	(68)	(123)
	Net amount	2 362	2 183	4 545	2 752	2 499	5 251
	Number of loans granted	8 741	10 344	19 085	9 739	11 208	20 947
from 2013 to 2016	Gross amount	4	11	15	4	11	15
	Allowances for credit losses	-	(2)	(2)	-	(2)	(2)
	Net amount	4	9	13	4	9	13
	Number of loans granted	18	34	52	18	37	55
Total	Gross carrying amount	2 440	9 194	11 634	2 811	12 799	15 610
	Allowances for credit losses	(74)	(689)	(763)	(55)	(694)	(749)
	Net carrying amount	2 366	8 505	10 871	2 756	12 105	14 861
	Number of loans granted	8 759	79 697	88 456	9 757	98 691	108 448

 

62.            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 monitors, on a regular basis:

•        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. The reports contain information on interest rate 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

The main tools for interest rate risk management used by the Bank are:

•        interest rate risk management procedures;

•        currency risk limits and thresholds;

•        transactions that reduce interest income sensitivity or economic value sensitivity.

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 2022 and 31 December 2021. 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.

The Bank’s exposure to interest rate risk remained within the adopted limits as at 31 December 2022 and 31 December 2021. Due to the principle of keeping interest rate risk in the trading book at a limited level, this risk is primarily generated by positions in the banking book.

In order to mitigate the interest rate risk of the banking book, the Bank uses limits and thresholds, as well as risk mitigation transactions based on information on the level of risk (using a measure of interest income sensitivity, a measure of economic value sensitivity, shock analyses and repricing gap) and planned business development. In order to hedge the level of future cash flows and the volatility of fair value arising from interest rate risk, hedging strategies approved by the Bank's Management Board are applied using IRS/CIRS transactions as part of hedge accounting, which are described in Chapter 13.

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	31.12.2022	31.12.2021
Sensitivity of interest income (PLN million)	(712)	(824)

•           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 2022 and 31 December 2021:

NAME OF THE MEASURE	31.12.2022	31.12.2021
Sensitivity of economic value (PLN million)	(886)	(1 317)

 

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	31.12.2022	31.12.2021
IR VaR for a 10-day time horizon at a confidence level of 99% (PLN million):
Average value	37	17
Maximum value	86	34
Value at the end of the period	56	31

63.            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 monitors, on a regular basis:

•        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. 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

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	31.12.2022	31.12.2021
VaR for a 10-day time horizon at a confidence level of 99% (PLN million):	128	3

•           Foreign currency position

The Bank’s foreign currency positions are presented in the table below:

FOREIGN CURRENCY POSITION1	31.12.2022	31.12.2021
EUR	(70)	258
CHF	(1,625)	(44)
Other (Global, Net)	(18)	(88)

1 The positions do not include structural positions in UAH (PLN 461.8 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 461.8 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.

63.1. Financial assets and liabilities by currency

Financial assets BY CURRENCY	Currency translated to PLN
31.12.2022	PLN	CHF	EUR	USD	Other	Total
Cash and balances with the Central Bank	13 838	42	1 320	216	303	15 719
Amounts due from banks	11 173	12	5 055	2 909	293	19 442
Derivative hedging instruments	128	-	75	14	-	217
Other derivative instruments	12 271	-	1 215	245	14	13 745
Securities	124 499	-	2 476	4 011	-	130 986
- held for trading	197	-	2	-	-	199
- not held for trading, mandatorily measured at fair value through profit or loss	241	-	326	143	-	710
- measured at fair value through other comprehensive income	57 919	-	1 238	3 129	-	62 286
- measured at amortized cost	66 142	-	910	739	-	67 791
Reverse repo transactions	7	-	-	-	-	7
Loans and advances to customers	173 606	8 904	24 882	1 457	69	208 918
- not held for trading, mandatorily measured at fair value through profit or loss	3 565	-	-	-	-	3 565
- measured at fair value through other comprehensive income	11 895	-	-	-	-	11 895
- measured at amortized cost	158 146	8 904	24 882	1 457	69	193 458
Other financial assets	1 412	12	141	44	45	1 654
Total assets	336 934	8 970	35 164	8 896	724	390 688

 

Financial liabilities and off-balance sheet liabilities BY CURRENCY	Currency translated to PLN
31.12.2022	PLN	CHF	EUR	USD	Other	Total
Amounts due to the Central Bank	9	-	-	-	-	9
Amounts due to banks	943	-	1 880	86	19	2 928
- measured at fair value through profit or loss	2	-	-	-	-	2
- measured at amortized cost	941	-	1 880	86	19	2 926
Derivative hedging instruments	6 460	-	267	-	-	6 727
Other derivative instruments	12 630	-	1 230	129	13	14 002
Amounts due to customers	287 465	1 348	28 934	13 641	3 468	334 856
- measured at fair value through profit or loss	5	-	-	-	-	5
- measured at amortized cost	287 460	1 348	28 934	13 641	3 468	334 851
Loans and advances received	656	-	70	-	-	726
Subordinated liabilities	2 781	-	-	-	-	2 781
Other financial liabilities	2 820	3	831	271	251	4 176
Provisions for financial liabilities and guarantees granted	714	3	97	5	10	829
Total liabilities	314 478	1 354	33 309	14 132	3 761	367 034
Financial and guarantee commitments granted	75 950	119	12 691	5 198	902	94 860

 

Financial assets BY CURRENCY	Currency translated to PLN
31.12.2021	PLN	CHF	EUR	USD	Other	Total
Cash and balances with the Central Bank	10 586	35	534	109	157	11 421
Amounts due from banks	10 290	6	3 467	87	446	14 296
Derivative hedging instruments	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 other comprehensive income	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 other comprehensive income	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 the Central Bank	8	-	-	-	-	8
Amounts due to banks	903	-	2 700	120	39	3 762
- measured at amortized cost	903	-	2 700	120	39	3 762
Derivative hedging instruments	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
Provisions 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

 

64.            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.

•           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 monitors, on a regular basis:

•        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 gather the information on liquidity risk exposure and updates on the use of limits for that risk. 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
31.12.2022
Adjusted periodic gap	8 548	67 153	(10,815)	(2,012)	(350)	24 862	23 609	(110,995)
Adjusted cumulative periodic gap	8 548	75 701	64 886	62 874	62 524	87 386	110 995	-
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	-

1 brought to comparability with the data as at 31 December 2021.

In all time horizons, the adjusted cumulative liquidity gap was positive as at 31 December 2022 and also as at 31 December 2021. 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	31.12.2022	31.12.2021
NSFR - net stable funding ratio	131.8%	130.6%
LCR - liquidity coverage ratio	155.8%	176.5%

In the period ended 31 December 2022 and 31 December 2021, liquidity measures remained above their respective supervisory limits.

•           Core deposit base

As at 31 December 2022, the core deposit base constituted approx. 91.2% of all deposits placed with the Bank (excluding the interbank market), which represents a decrease of around 3.1 p.p. compared with the end of 2021.

•           Structure of the sources of financing

STRUCTURE OF THE BANK’S SOURCES OF FINANCING	31.12.2022	31.12.2021
Total deposits (excluding interbank market)	89.99%	86.27%
Interbank market deposits	0.82%	1.01%
Equity	8.27%	10.61%
Market financing	0.92%	2.11%
Total	100%	100%

 

64.1. 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 up to 3 months inclusive	Over 3 months up to 1 year inclusive	Over 1 year to up to 5 years inclusive	Over 5 years	Amount (contractual)	Amount (carrying)
31.12.2022
Amounts due to the Central Bank	9	-	-	-	-	9	9
Amounts due to banks	2 913	31	15	-	-	2 959	2 928
Amounts due to customers	270 082	29 434	11 022	24 404	7 105	342 047	334 856
Loans and advances received	11	-	752	-	-	763	726
Subordinated liabilities	-	119	116	2 503	1 036	3 774	2 781
Lease liabilities	20	38	156	425	228	867	864
Other financial liabilities	3 234	-	-	78	-	3 312	3 312
Total	276 269	29 622	12 061	27 410	8 369	353 731	345 476
Off-balance sheet liabilities
financing granted	15 343	4 639	27 638	22 375	8 326	78 321	-
guarantees granted	496	934	6 136	5 344	3 629	16 539	-

 

CONTRACTUAL CASH FLOWS THE BANK’S FINANCIAL LIABILITIES, EXCLUDING DERIVATIVE FINANCIAL INSTRUMENTS	Up to 1 month inclusive	Over 1 month up to 3 months inclusive	Over 3 months up to 1 year inclusive	Over 1 year to up to 5 years inclusive	Over 5 years	Amount (contractual)	Amount (carrying)
31.12.2021
Amounts due to the 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 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 up to 3 months inclusive	Over 3 months up to 1 year inclusive	Over 5 years inclusive	More than 5 years	Amount (contractual)
31.12.2022
- outflows (principal and interest)	(15 101)	(16 307)	(16 715)	(11 293)	(166)	(59 582)
- inflows (principal and interest)	16 488	15 834	15 493	14 144	526	62 485

 

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 up to 3 months inclusive	Over 3 months up to 1 year inclusive	Over 5 years inclusive	More than 5 years	Amount (contractual)
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 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 2022 and as at 31 December 2021, 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 up to 3 months inclusive	Over 3 months up to 1 year inclusive	Over 5 years inclusive	More than 5 years	Amount (contractual)
31.12.2022
- IRS	(481)	(1 655)	(1 204)	(272)	(27)	(3 639)
- other derivatives: options, FRA, NDF	(279)	(692)	(1 713)	(609)	(19)	(3 312)

 

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 up to 3 months inclusive	Over 3 months up to 1 year inclusive	Over 5 years inclusive	More than 5 years	Amount (contractual)
31.12.2021
- IRS	(114)	(179)	(106)	(477)	(22)	(898)
- other derivatives: options, FRA, NDF	(1 603)	(711)	(2 529)	(845)	(7)	(5 695)

64.2. 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 REPO TRANSACTIONS	31.12.2022	31.12.2021
Debt securities	-	43
Repo transactions	-	49
Net position	-	(6)

 

•           Fund for the Protection of Guaranteed Funds

ASSETS PLEDGED AS COLLATERAL FOR LIABILITIES – FUND FOR THE PROTECTION OF GUARANTEED FUNDS	31.12.2022	31.12.2021
Value of the fund	1 016	1 036
Nominal value of the collateral	1 300	1 100
Type of collateral	Treasury bonds	Treasury bonds
Maturity of collateral	25.04.2024	25.04.2024
Carrying amount of the collateral	1 258	1 093

 

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)	31.12.2022	31.12.2021
Value of the contribution made in the form of payables	818	704
Nominal value of the assets in which funds corresponding to payables were invested	1 027	862
Type of collateral	Treasury bonds	Treasury bonds
Maturity of collateral	2024-2031	2024-2031
Carrying amount of the collateral	994	856

Starting from 2017, the value of contributions in the form of payment obligations represents 30% of the contributions to 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 2022 and 31 December 2021, 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.

64.3. Current and non-current assets and liabilities

FINANCIAL ASSETS	Current	Non-current	Total carrying amount
31.12.2022
Cash and balances with the Central Bank	15 719	-	15 719
Amounts due from banks	13 974	5 468	19 442
Derivative hedging instruments	10	207	217
Other derivative instruments	4 862	8 883	13 745
Securities	9 470	121 516	130 986
- held for trading	65	134	199
- not held for trading, mandatorily measured at fair value through profit or loss	344	366	710
- measured at fair value through other comprehensive income	6 820	55 466	62 286
- measured at amortized cost	2 241	65 550	67 791
Reverse repo transactions	7	-	7
Loans and advances to customers	49 625	159 293	208 918
- not held for trading, mandatorily measured at fair value through profit or loss	2 916	649	3 565
- measured at fair value through other comprehensive income	354	11 541	11 895
- measured at amortized cost	46 355	147 103	193 458
Other financial assets	1 654	-	1 654
Total financial assets	95 321	295 367	390 688

 

FINANCIAL ASSETS	Current	Non-current	Total carrying amount
31.12.2021
Cash and balances with the Central Bank	11 421	-	11 421
Amounts due from banks	8 627	5 669	14 296
Derivative hedging instruments	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 other comprehensive income	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 other comprehensive income	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 LIABILITIES	Current	Non-current	Total carrying amount
31.12.2022
Amounts due to the Central Bank	9	-	9
Amounts due to banks	2 928	-	2 928
- measured at fair value through profit or loss	2	-	2
- measured at amortized cost	2 926	-	2 926
Derivative hedging instruments	1 455	5 272	6 727
Other derivative instruments	5 067	8 935	14 002
Amounts due to customers	308 132	26 724	334 856
- measured at fair value through profit or loss	5	-	5
- measured at amortized cost	308 127	26 724	334 851
Loans and advances received	726	-	726
Subordinated liabilities	-	2 781	2 781
Other financial liabilities	3 445	731	4 176
Provisions for financial liabilities and guarantees granted	684	145	829
Total financial liabilities	322 446	44 588	367 034

 

FINANCIAL LIABILITIES	Current	Non-current	Total carrying amount
31.12.2021
Amounts due to the Central Bank	8	-	8
Amounts due to banks	3 762	-	3 762
- measured at amortized cost	3 762	-	3 762
Derivative hedging instruments	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
Provisions for financial liabilities and guarantees granted	568	104	672
Total financial liabilities	323 694	26 337	350 031

65.            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;

•      calculation of internal capital.

•       Audit/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 monitors, on a regular basis:

•           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:

o        control instruments (including approval, internal control, segregation of duties);

o        human resources management instruments (selection of staff, increasing the qualifications of employees, incentive systems);

o        determination or verification of threshold values and critical operational risk indicators;

o        determination or verification of operational risk limits;

o        contingency plans;

•      risk transfer – transfer of responsibility for covering potential losses on a third-party:

o        insurance;

o        outsourcing;

•      risk avoidance - resignation from the risk-generating activity or eliminating the probability of the risk factor’s occurrence.

66.            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

•      the impact of ESG factors on the Bank’s operations, financial results and development;

•      and the impact of the Bank’s activities on society and the environment.

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. 

One component of environmental risk management is a strategic ESG risk tolerance limit. A measure of the tolerance of this risk is the value of loans to customers in carbon-intensive industries divided by the value of the gross business loan portfolio. In 2022, the share of loans to customers in carbon-intensive industries was 0.38% with a tolerance limit for the Bank and the Group set at≤0.8%. This limit is monitored on a quarterly basis and reported to the Bank's Management Board. The Bank decided to increase its financing in the district heating sector and to selectively finance energy security transactions (coal purchases) on a transitional basis, in view of the war in Ukraine and the increase in energy commodity prices and the need to secure coal supplies from alternative sources other than Russia, thus pursuing its social responsibility dimension..

The Bank develops standards for defining green loans to non-financial enterprises with environmental objectives beyond the adaptation/mitigation of climate change.

Within the Bank, a "green credit product" means financing renewable energy sources, measures to improve energy efficiency, reduce pollution of the environment and over-use of natural resources, to combat climate change, and support the on-going activity of entities pursuing the objectives of sustainable development.

In the Risk Management Area, the Bank performs tasks to ensure compliance with the following external regulations:

•                     Taxonomy (Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 including delegated regulations) – the Bank is engaged in a project to operationalize the technical criteria of the EU Taxonomy;

Implementing Technical Standards – Commission Implementing Regulation (EU) 2022/2453 of 30 November 2022 amending the implementing technical standards laid down in Implementing Regulation (EU) 2021/637 as regards the disclosure of environmental, social and governance risks in accordance with Article 449a of Regulation (EU) No 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms amending Regulation (EU) No 648/2012.

As part of these tasks, the Bank is working to expand its IT systems for collecting, aggregating and managing sustainability data.

Capital management at the bank

67.            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	31.12.2022	31.12.2021
Total:	4.52%	3.51%
•        conservation buffer	2.5%	2.5%
•        countercyclical buffer	0.02%	0.01%
•        systemic risk buffer¹	0%	0%1
•        due to identifying the Bank as another systemically important institution (“O-SII”)	2%2	1%

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 The buffer represents a share of total exposure to the risks calculated in accordance with the CRR. On 20 December 2022, the Bank received the PFSA’s decision dated 16 December 2022, regarding a change of the other systemically important institution buffer imposed on the Bank.

Discretionary capital requirement (“domiar kapitałowy”) (an additional capital requirement in order to hedge the risk resulting from mortgage secured loans and advances to households)	31.12.20221	31.12.2021
•        for the total capital ratio:	0,00p.p.	0,12p.p.
•        for the Tier 1 capital ratio	0,00p.p.	0,09p.p.
•        for the Tier 1 core capital ratio	0,00p.p.	0,07p.p.

1 On 7 November 2022, the Bank received a decision from PFSA in which the PFSA declared the expiration of the decision on the recommendation to the Bank to comply with the additional capital requirement, i.e. in addition to the amount calculated in accordance with the appropriate legal provisions.

On 2 December 2022, 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, and set interim targets.

The required levels are specified in the table below:

in %	31.12.2022	31.12.2023
MREL (TREA)	11.68	15.36
MREL (TEM)	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 2022 and 2021, the Bank’s capital adequacy level remained at a safe level, well above the supervisory limits. The minimum capital requirements were satisfied over the entire period.

•           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.

 

Capital adequacy	31.12.2022	31.12.2021 restated	31.12.2021 published
Equity	34 084	36 073	36 073
capital: share capital, supplementary capital, other reserves, and general risk reserve	31 534	31 534	31 534
retained earnings	7 808	5 500	5 500
net profit or loss for the year	3 258	4 596	4 596
other comprehensive income	(8 516)	(5 557)	(5 557)
Exclusions from equity:	(1 770)	894	894
net profit or loss for the year	3 258	4 596	4 596
cash flow hedges	(5 028)	(3 702)	(3 702)
Other fund reductions:	4 692	3 336	3 417
goodwill	755	755	755
other intangible assets	1 390	1 333	1 333
additional asset adjustments (AVA, DVA, NPE, capital exposures and DTA above the thresholds specified in Art. 48 of the CRR)	2 547	1 248	1 329
Provisional treatment of unrealized gains and losses on securities measured at fair value through OCI according to Art. 468 of the CRR	1 360	1 249	1 249
Temporary reversal of IFRS 9 impact	1 393	1 555	1 361
Current period profit/loss, included by permission from the PFSA	895	2 309	2 073
Tier 1 capital	34 810	36 956	36 445
Tier 2 capital (subordinated debt)	2 584	2 700	2 700
Own funds	37 394	39 656	39 145
Requirements for own funds	15 858	15 685	15 787
Credit risk	13 423	13 967	14 069
Operational risk1	2 043	1 490	1 490
Market risk2	342	183	183
Credit valuation adjustment risk	50	45	45
Total capital ratio	18.86	20.23	19.84%
Tier 1 capital ratio	17.56	18.85	18.47%

1 In 2022, there was an increase in the own funds requirement for operational risk of PLN 553, mainly due to the growing costs of legal risk related to the portfolio of mortgage loans in CHF.

2. Increase in the value of the market risk-related requirement at the end of 2022 comprised mainly the currency risk-related requirement of PLN 138 million.

Pursuant to Art. 26 (2) of CRR, an institution may include interim or year-end profits in CET1 after a formal decision was taken confirming the final profit or loss of the institution for the year, or before it has taken the formal decision, only with the competent authority’s prior permission. In line with the European Banking Authority's (EBA) guidance in the single rulebook Q&A setting out the EBA's position on when to recognise annual and interim profits in capital adequacy data (Q&A 2018_3822, Q&A 2018_4085 and Q&A 2013_208), from the point at which the institution formally meets the criteria to include the profit for the period in Tier 1 capital, it is considered that the profit should be included on a retrospective date (the date of the profit rather than the date the criterion is met) and an adjustment to own funds should be made to the date to which the profit relates.

As the Bank's Annual General Meeting approved the distribution of the profit on 12 May 2022, the above guidelines apply to the Bank's own funds for the figures as at 31 December 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 33 167 million, the total capital would have amounted to PLN 35 751 million, the Tier 1 capital ratio would have been 16.90%, the total capital ratio would have been 18.22% and the leverage ratio 8.10%.

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 33 202 million, the total capital would have amounted to PLN 35 786 million, the Tier 1 capital ratio would have been 16.80%, the total capital ratio would have been 18.11% and the leverage ratio 8.07%.

•           INTERNAL CAPITAL (PILLAR II)

In 2022, 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 quarterly 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. The last report was prepared 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).

68.            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 2022 and 31 December 2021 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
	31.12.2022	31.12.2021 restated	31.12.2021 published
Total capital and exposure measure
Tier 1 capital	34 810	36 956	36 445
Total exposure measure for leverage ratio calculation	411 721	397 415	397 415
Leverage ratio
Leverage ratio (in %)	8.45	9.30	9.17

69.            Dividends and distribution of retained earnings 

Pursuant to the Dividend Policy adopted in 2022, the Bank’s intention is to ensure stable dividend distributions to the shareholders in the long term, taking into account the principle of prudent management of the Bank and the Bank’s Group, in compliance with the law and the PFSA position on the dividend policy assumptions of commercial banks.

On 15 of December 2022, the Bank adopted a dividend policy for the Bank and the Bank’s Group (“Dividend policy”). The Dividend policy takes into account the Bank’s intention to provide stable dividend payments in the long term, in accordance with the principle of prudent management of the Bank and the Bank's Group, in compliance with the law and the PFSA position on the dividend policy assumptions of commercial banks. The objective of the Dividend policy is to optimize the capital structure of the Bank and the Bank's Group, while considering the return on equity, the cost of capital and the capital needs for development, and maintaining an appropriate level of the capital adequacy ratios and meeting the minimum requirement for own funds and eligible liabilities (MREL). The repurchase of treasury shares for cancellation is an additional tool for capital redistribution. The General Meeting gives its consent to the acquisition of treasury shares by the Bank, after prior approval of the Supervisory Board, specifying the terms of the acquisition, including the maximum number of shares to be acquired, the period of authorization to acquire shares, which may not exceed five years and the maximum and minimum amount of consideration for the acquired shares, if the acquisition takes place for consideration. Purchase of treasury shares for cancellation in each case requires the Bank to obtain the prior consent of the Polish Financial Supervision Authority.

On 12 May 2022, the Annual General Meeting of PKO Bank Polski S.A. (AGM) passed a resolution on distribution of profit of PKO Bank Polski S.A. for 2021, in accordance with which:

•        the amount of PLN 2,287,500,000 (i.e. 49.77% of the Bank’s net profit) was earmarked for the payment of dividend;

•        the remaining net profit of PLN 2,308,836,372 was transferred to retained earnings.

The gross dividend is PLN 1.83 per share. The AGM set the dividend (record) date as 4 August 2022 and the dividend payment date as 23 August 2022. All 1,250 million shares are eligible for the dividend.

At the same time, the AGM passed a resolution to leave PKO Bank Polski S.A.’s retained earnings, in the amount of PLN 5,500,000,000, undistributed.

The aforementioned resolutions are consistent with the individual recommendation of the Polish Financial Supervision Authority dated 23 February 2022, in which the PFSA recommended that the Bank should mitigate the risk of its operations by:

•        refraining from payment of a dividend in excess of 50% of the profit earned in the 2021;

•        refraining from any other actions taken without consultation with the supervisory authority, in particular not included in the scope of the current business and operating activities, which could result in a decrease in own funds, including any payment of dividend from retained earnings or redemption of treasury shares.

At the same time, the PFSA confirmed that the Bank met the requirements for payment of dividend at a level of up to 50% of the net profit for 2021, as defined in December 2021 in the PFSA position on dividend policies of supervised institutions for 2022.

•           The PFSA’s recommendations regarding dividend payments in 2023

On 6 December 2022, the PFSA adopted a position on the 2023 dividend policy of commercial banks, cooperative and associating banks, insurance companies, reinsurance companies, insurance and reinsurance companies, investment fund companies, universal pension companies and brokerage houses.

The dividend payment criteria for commercial banks indicated in the PFSA’s positions are as follows:

1.       an amount of up to 50% of the profit for 2022 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: 6% +75%* P2R requirement + combined buffer requirement (including 3% systemic risk buffer);

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

2.       An amount of up to 75% of the profit for 2022 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 (P2G recommendation).

3.       An amount of up to 100% of the profit for 2022 may be paid only by banks meeting at the same time the criteria for payment of 75% and whose portfolio of receivables from the non-financial sector is characterised by good credit quality (share of NPLs, including debt instruments, not exceeding 5%).

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

Additionally, the PFSA indicated that the banks which have considerable portfolios of foreign currency housing loans should adjust the rate of dividend distribution based on two additional criteria:

•        Criterion 1 – based on the share of foreign currency housing loans for households in the total portfolio of amounts due from the non-financial sector;

•        Criterion 2 – based on the share of foreign currency housing loans granted in 2007 and 2008 in the foreign currency housing loans for households’ portfolio.

The PFSA recommended that appropriate adjustments be applied, depending on the size of the Bank's portfolio:

•        Criterion 1:

– banks with a share exceeding 5% – adjustment of the dividend rate by 20 p.p.;

– banks with a share exceeding 10% – adjustment of the dividend rate by 40 p.p.;

– banks with a share exceeding 20% – adjustment of the dividend rate by 60 p.p.;

– banks with a share exceeding 30% – adjustment of the dividend rate by 100 p.p.;

•        Criterion 2:

– banks with a share exceeding 20% – adjustment of the dividend rate by 30 p.p.;

– banks with a share exceeding 50% – adjustment of the dividend rate by 50 p.p.;

whereas the total value of the adjustment (maximum 100%) is the sum of adjustments resulting from both criteria.

The Bank’s intention is to pay dividend in 2023 from the net profit for 2022.

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.

OTHER NOTES

70.            Notes to the cash flow statement

•        Cash and cash equivalents

Accounting policies:

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.

financial information

CASH AND CASH EQUIVALENTS	2022	2021
Cash, current account with the Central Bank	11 768	11 421
Deposits with the Central Bank	3 951	-
Current amounts due from banks	13 857	7 683
Restricted cash and cash equivalents of which	35	25
- loans and advances to customers	35	25
Total	29 611	19 129

 

•           Restricted cash and cash equivalents

Cash  in the amount of PLN 35 million (as at 31 December 2021: PLN 25 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:	2022	2021
loans to and other receivables from banks	1 369	70
hedging derivatives	-	419
debt securities	3 639	2 222
loans and advances to customers	12 954	5 869
Total	17 962	8 580

The above amounts of interest received do not include the amounts of commission recognized using the effective interest rate as interest income.  

INTEREST EXPENSES – PAID:	2022	2021
amounts due to banks	(127)	(22)
amounts due to customers	(2 775)	(208)
loans and advances received	(243)	(193)
leases	(14)	(8)
hedging derivatives	(2 616)	-
debt securities	(89)	(293)
issues of securities	-	(26)
subordinated liabilities	(99)	(48)
Total	(5 963)	(798)

 

DIVIDEND INCOME RECEIVED	2022	2021
from subsidiaries, associates and joint ventures	574	533
from financial assets held for trading	1	-
financial instruments not held for trading, measured at fair value through profit or loss	12	11
Total	587	544

•           Cash flows from operating activities – other adjustments

OTHER ADJUSTMENTS	2022	2021
Cash flow hedges	(1 637)	(4 964)
Actuarial gains and losses	(8)	9
Remeasurement of shares in subordinated entities and other changes	5	(5)
Scrapping of property, plant and equipment and intangible assets	(64)	(156)
Other changes	125	(34)
Total	(1 579)	(5 150)

•           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	2022	2021
Gains on sale and scrapping of property, plant and equipment, intangible assets and assets held for sale	(17)	(29)
Losses on sale and scrapping of property, plant and equipment, intangible assets and assets held for sale	3	3
Total	(14)	(26)

 

Analytics for "Interest and dividends received" and "Interest paid" in cash flow from operating activities	2022	2021
Reported under investing activities:	(4 189)	(2 744)
dividends received from subsidiaries, associates and joint ventures	(574)	(533)
dividends received from securities held for trading	(1)	-
dividends received from securities not held for trading, measured at fair value through profit or loss	(12)	(11)
interest received on securities measured at fair value through other comprehensive income	(1 883)	(1 238)
interest received on securities measured at amortized cost	(1 719)	(962)
Reported under financing activities:	342	267
interest paid on debt securities in issue	-	26
interest paid on subordinated liabilities	99	48
interest paid on loans and advances received	243	193
Total	(3 847)	(2 477)

 

CHANGES IN AMOUNTS DUE FROM BANKS	2022	2021
Change resulting from the balance sheet items	(5 146)	(8 992)
Changes in allowances for expected credit losses	(1)	(8)
Exclusion of the change in cash and cash equivalents	6 174	5 982
Total	1 027	(3 018)

 

CHANGE IN SECURITIES	2022	2021
Change resulting from the balance sheet items	(148)	(10 865)
Changes in allowances for expected credit losses	40	(57)
Fair value of financial assets measured at fair value through other comprehensive income	(2 012)	(3 811)
Recognition of acquisition / disposal of securities measured at fair value through other comprehensive income in investing activities	4 473	(10 092)
Recognition of acquisition / disposal of securities measured at amortized cost in investing activities	(5 945)	23 872
Other inflows from investing activities	(8)	(138)
Total	(3 600)	(1 091)

 

CHANGE IN LOANS AND ADVANCES TO CUSTOMERS	2022	2021
Change resulting from the balance sheet items	(3 241)	(12 613)
Changes in allowances for expected credit losses	(694)	219
Exclusion of the change in cash and cash equivalents	11	(4)
Total	(3 924)	(12 398)

 

CHANGE IN NON-CURRENT ASSETS HELD FOR SALE	2022	2021
Change resulting from the balance sheet items	8	106
Changes in impairment losses on non-current assets held for sale	-	2
Total	8	108

 

CHANGE IN OTHER ASSETS	2022	2021
Change resulting from the balance sheet items	(73)	(54)
Changes in impairment losses on other assets and inventory write-downs	(14)	(98)
Total	(87)	(152)

 

CHANGE IN LIABILITIES IN RESPECT OF LOANS AND ADVANCES RECEIVED	2022	2021
Change resulting from the balance sheet items	(4 416)	236
Recognition of drawing/repayment of long-term loans and advances under financing activities, including interest	5 219	69
Total	803	305

 

CHANGE IN LIABILITIES IN RESPECT OF SECURITIES IN ISSUE	2022	2021
Change resulting from the balance sheet items	-	(4 020)
Recognition of drawing/repayment of liabilities in respect of debt securities in issue under financing activities	-	4 038
Total	-	18
CHANGE IN ACCUMULATED ALLOWANCES FOR EXPECTED CREDIT LOSSES AND IMPAIRMENT LOSSES ON NON-FINANCIAL AND OTHER ASSETS	2022	2021
Change in accumulated allowances and provisions for expected credit losses	821	(110)
for amounts due from banks	1	8
for loans and advances to customers	693	(219)
for securities	(40)	57
for other financial assets	10	(2)
provisions for financial liabilities and guarantees granted	157	46
Change in accumulated impairment losses on non-financial assets and other provisions	332	202
on non-current assets held for sale	-	(2)
on property, plant and equipment	3	(2)
on intangible assets	(2)	3
on investments in subordinated entities	52	-
on other non-financial assets	4	100
other provisions	275	103
Total	1 153	92

 

CHANGE IN OTHER LIABILITIES	2022	2021
Change resulting from the balance sheet items	1 390	626
Recognition of lease payments in financing activities	242	213
Total	1 632	839

 

CHANGE IN LEASE LIABILITIES	2022	2021
Opening balance	904	1 023
Changes recorded in operating activities:	202	94
- new agreements	62	32
- closing of agreements	(4)	-
- modifications	122	56
- interest	14	8
- foreign exchange differences	8	(2)
Recognition of lease payments in financing activities	(242)	(213)
Closing balance	864	904

•           Reconciliation of items presented in the statement of financial position with financing activities in the cash flow statement

2022	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 (interest, foreign exchange differences and other)
Loans and advances received	5 142	-	(5 219)	803	726
from banks	13	-	-	(13)	-
from customers	5 129	-	(5 219)	816	726
Subordinated liabilities - subordinated bonds	2 716	-	-	65	2 781
Payment of lease liabilities¹	904	-	(242)	202	864
	x	x	x	x	x
Total	8 762	-	(5 461)	1 070	4 371

1 See the details in the note “Leasing”

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 (interest, foreign exchange differences and other)
Loans and advances received	4 906	-	(69)	305	5 142
from banks	14	-	-	(1)	13
from customers	4 892	-	(69)	306	5 129
Liabilities in respect of debt 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

Other investment inflows include dividend proceeds and proceeds from the sale of equity securities. Other investment expenditure includes purchases of equity securities.

In 2022, in the item "other investment expenditure", the Bank presents the effect of the purchase of PKN ORLEN shares in the amount of PLN 707 million and in the item "other investment inflows" the effect of the sale of these shares in the amount of PLN 715 million. On 29 September 2022, the Bank acquired 14,161,080 PKN ORLEN S.A. bearer shares from the State Treasury – Minister of State Assets for a price equal to the result of the multiplication of the number of shares and the price of one share in accordance with the closing price of PKN ORLEN S.A. shares on the main market of the Warsaw Stock Exchange on the date of conclusion of the agreement decreased by the discount determined on market terms. On 30 September 2022, the Bank concluded a total return swap with PKN ORLEN S.A. for a period of 1 month, where the underlying instrument were acquired shares. PKN ORLEN S.A. made a cash deposit to the Bank as collateral for the receivables, which was subject to interest at market conditions. On 18 October 2022, the Bank disposed of all shares in PKO ORLEN S.A. The sale took place under the accelerated bookbuilding (ABB) formula.

71.            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	2022	2021
Income recognized on an accruals basis	65	73
Income recognized on a cash basis	12	19
Income from temporary redemption by the State Treasury of interest on housing loans in the “old portfolio”	53	54

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 2022 and 2021 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 2022 and in 2021, 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 2022 in the amount of PLN 254 million, and in 2021 in the amount of PLN 144 million.

•        Significant transactions with the State Treasury’s related parties

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 PARTIES	BALANCE SHEET EXPOSURE, INCLUDING EXPOSURE TO LOANS AND DEBT INSTRUMENTS		OFF-BALANCE SHEET EXPOSURE		LIABILITIES IN RESPECT OF DEPOSITS
	31.12.2022	31.12.2021	31.12.2022	31.12.2021	31.12.2022	31.12.2021
counterparty 1	-	-	2 453	2 453	2 820	2 870
counterparty 2	16 097	16 337	31	30	87	1 068
counterparty 3	245	887	1 081	662	5	145
counterparty 4	422	277	3 807	2 111	2 087	86
counterparty 5	833	697	2 096	1 976	6	54
counterparty 6	118	118	1 500	-	275	3 225
counterparty 7	1 643	247	4 610	1 598	1 088	453
counterparty 8	751	575	557	1 410	-	-
counterparty 9	608	717	1 320	820	59	874
counterparty 10	841	896	816	444	-	-

 

	2022	2021
Interest and commission income	420	119
Interest and commission expense	(497)	(7)

As at 31 December 2022, the allowance for expected credit losses on an individualized basis for the above exposures amounted to PLN 1 million (as at 31 December 2021 it amounted to PLN 0 million).

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

The Bank provides services to its entities related through capital, including maintaining bank accounts, accepting deposits, granting loans and advances, issue of debt securities, granting of guarantees and spot exchange transactions and offering participation units and certificates of investment funds, lease products, factoring products and insurance products of the Bank Group companies, and services offered by Brokerage Office of PKO Bank Polski S.A.

The Bank provides services to PKO Bank Hipoteczny S.A. within the scope of intermediation in sales of housing loans for individuals, performing tasks as part of post-transaction services in respect of these loans and support tasks under the outsourcing agreement. The Bank offers its infrastructure and IT services and rents office space to selected Bank’s Group companies. Together with Centrum Elektronicznych Usług Płatniczych eService sp. z o.o., the Bank renders services of payment transaction clearance.

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.

31.12.2022 Company name	Receivables	of which loans	Liabilities	Off-balance sheet liabilities granted
KREDOBANK SA and its subsidiary	-	-	39	345
Merkury - fiz an and its subsidiaries	-	-	21	-
NEPTUN - fizan and its subsidiaries	151	151	30	-
PKO Bank Hipoteczny S.A.	5 506	5 470	509	7 735
PKO BP BANKOWY PTE S.A.	-	-	15	-
PKO BP Finat sp. z o.o.	-	-	38	15
PKO Finance AB	-	-	190	-
PKO Leasing SA and its subsidiaries	21 805	21 778	27	5 305
PKO Towarzystwo Funduszy Inwestycyjnych S.A.	-	-	223	-
PKO Towarzystwo Ubezpieczeń S.A.	-	-	16	1
PKO Życie Towarzystwo Ubezpieczeń SA and its subsidiary	-	-	129	-
Subsidiaries, total	27 462	27 399	1 237	13 401

 

For the period ended 31.12.2022 Company Name	Total income	of which interest and commission income	Total expense	of which interest and commission expense
KREDOBANK SA and its subsidiary	2	2	-	-
NEPTUN - fizan and its subsidiaries	3	3	1	1
PKO Bank Hipoteczny S.A.	904	800	-	-
PKO BP BANKOWY PTE S.A.	1	1	-	-
PKO BP Finat sp. z o.o.	4	-	8	1
PKO Finance AB	29	29	159	159
PKO Leasing SA and its subsidiaries	1 222	1 054	-	-
PKO Towarzystwo Funduszy Inwestycyjnych S.A.	146	1	7	7
PKO Towarzystwo Ubezpieczeń S.A.	36	36	-	-
PKO Życie Towarzystwo Ubezpieczeń SA and its subsidiary	70	40	3	3
Subsidiaries, total	2 417	1 966	178	171

 

31.12.2021 Company name	Receivables	of which loans	Liabilities	Off-balance sheet liabilities granted
KREDOBANK SA and its subsidiary	19	-	29	325
NEPTUN - fizan and its subsidiaries	130	130	31	-
PKO Bank Hipoteczny S.A.	6 597	6 545	842	4 665
PKO BP BANKOWY PTE S.A.	-	-	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 S.A.	-	-	194	-
PKO Towarzystwo Ubezpieczeń S.A.	-	-	40	-
PKO Życie Towarzystwo Ubezpieczeń SA and its subsidiary	-	-	342	-
Subsidiaries, 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	Costs, total	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 S.A.	99	79	5	5
PKO BP BANKOWY PTE S.A.	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 S.A.	207	6	-	-
PKO Towarzystwo Ubezpieczeń S.A.	76	76	-	-
PKO Życie Towarzystwo Ubezpieczeń SA and its subsidiary	97	44	8	8
Subsidiaries, total	1 029	441	210	203

 

31.12.2022 Company name	Receivables	of which loans	Liabilities	Off-balance sheet liabilities granted
Centrum Elektronicznych Usług Płatniczych eService sp. z o.o.	64	-	206	63
“Centrum Obsługi Biznesu" sp. z o.o.	11	10	2	-
Bank Pocztowy S.A.	-	-	-	1
Operator Chmury Krajowej sp. z o.o.	-	-	31	917
Associates and joint ventures, total	75	10	239	981

 

For the period ended 31.12.2022 Company name	Total income	of which interest and commission income	Total expense	of which interest and commission income
Centrum Elektronicznych Usług Płatniczych eService sp. z o.o.	850	783	198	198
“Centrum Obsługi Biznesu" sp. z o.o.	1	1	1	1
Operator Chmury Krajowej sp. z o.o.	-	-	29	-
System Ochrony Banków Komercyjnych¹	-	-	956	-
Associates and joint ventures, total	851	784	1 184	199

1  for more details, see note “Operating expenses”

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 S.A.	-	-	-	1
“Poznański Fundusz Poręczeń Kredytowych" sp. z o.o.	-	-	1	-
Operator Chmury Krajowej sp. z o.o.	-	-	12	852
Associates and joint ventures, 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 income
Centrum Elektronicznych Usług Płatniczych eService sp. z o.o.	698	588	106	105
“Centrum Obsługi Biznesu" sp. z o.o.	-	-	24	-
Associates and joint ventures, total	698	588	130	105

 

•        Related-party transactions – personal links

As at 31 December 2022, ten 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 2021, it was thirteen entities. In 2022 and in 2021, no transactions were conducted between the Bank and those entities.

72.            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)	2022	2021
Management Board of the Bank
Short-term employee benefits	12 975	9 644
Long-term employee benefits	1 988	957
Share-based payments settled in cash1	438	11 040
Benefits to the Bank’s Management Board members who ceased to perform their functions	1 244	2 654
Total	16 645	24 295
Supervisory Board of the Bank
Short-term employee benefits	2 165	1 532
Total	2 165	1 532

1 The decrease in the cost of variable remuneration of the Bank’s Management Board in the item “Share-based payments settled in cash” in 2022 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)	31.12.2022	31.12.2021
Supervisory Board of the Bank	-	2 214
Management Board of the Bank	101	89
Total	101	2 303

In 2022, the members of the Bank's Management Board as at 31 December 2022 did not receive any remuneration from the Bank's related entities. As at 31 December 2021, members of the Management Board of the Bank received remuneration from the Bank's related entities in the amount of PLN 33 thousand.

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	31.12.2022	31.12.2021
	(for 2018-2022)	(for 2017-2021)
Management Board (including members who ceased to perform their functions)	20	26
Other Risk Takers (persons holding managerial positions other than members of the Bank’s Management Board)	60	74
Total provision	80	100
Remuneration paid during the year	2022	2021
	(for 2017-2021)	(for 2016-2020)
- granted in cash	18	16
Management Board (including members who ceased to perform their functions)	4	3
Other Risk Takers (persons holding managerial positions other than members of the Bank’s Management Board)	14	13
- granted in the form of financial instruments	19	26
Management Board (including members who ceased to perform their functions)	5	5
Other Risk Takers (persons holding managerial positions other than members of the Bank’s Management Board)	14	21
Total remuneration paid	32	42

73.            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 the lease commencement date, the Bank measures the lease liability by:

•        increasing the carrying value to reflect interest on the lease liability;

•        reducing the carrying value to reflect the lease payments made; and

•        remeasuring the carrying value to reflect any reassessment or lease modifications, or to reflect revised fixed lease payments.

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	2022	2021
Costs related to short-term lease contracts	(6)	(6)
Costs related to lease contracts for low-value assets (other than short-term), non-deductible VAT expenses and service charges	(84)	(81)
Total	(90)	(87)

The interest expense on the lease liability is recognised under “Interest expense”, line item “leases”.

Depreciation charge for right-of-use assets is recognized under “Administrative expenses”, line item “Amortization and depreciation” and the breakdown of those costs by class of underlying asset is presented in tables “Non-current right-of-use assets”

The lease liability is recognised under the line "Other liabilities" in the statement of financial position, line item "lease liability".

The following tables present information on the non-current right-of-use assets, which are presented under “Property, plant and equipment” in the statement of financial position.

NON-CURRENT right-of-use assets	Land and buildings	Machinery and equipment, including computer hardware	Other, including vehicles	Total
2022
Gross carrying amount at the beginning of the period	1 422	-	54	1 476
Increases	153	12	22	187
Scrapping and sale	(4)	-	-	(4)
Other	-	1	(1)	-
Gross carrying amount at the end of the period	1 571	13	75	1 659
Accumulated depreciation as at the beginning of the period	(587)	-	(35)	(622)
Depreciation charge for the period	(203)	(2)	(13)	(218)
Accumulated depreciation as at the end of the period	(790)	(2)	(48)	(840)
Impairment losses as at the beginning of the period	(5)	-	-	(5)
Impairment losses as at the end of the period	(5)	-	-	(5)
Carrying amount as at the beginning of the period, net	830	-	19	849
Carrying amount as at the end of the period, net	776	11	27	814

 

NON-CURRENT right-of-use assets	Land and buildings	Other, including vehicles	Total
2021
Gross carrying amount at the beginning of the period	1 326	44	1 370
Increases	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 losses as at the beginning of the period	(5)	-	(5)
Impairment losses as at the end of the period	(5)	-	(5)
Carrying amount as at the beginning of the period, net	938	22	960
Carrying amount as at the end of the period, net	830	19	849

74.            Government grants

Accounting policies:

The Bank recognises government grants received when there is reasonable assurance that the Bank will meet the conditions associated with the government grants and the government grants will be received. The Bank considers the receipt of grant funding on the basis of a payment application verified by the grantor institution to be sufficient assurance of receipt of the government grant.

The Bank recognises government grants received for assets as a reduction in the carrying value of the tangible or intangible assets for which it received such grants and recognises them in profit or loss: over the useful life of the tangible or intangible assets subject to depreciation through reduced depreciation.

Grants received to income are recognized by the Bank as a reduction of the costs for which it has received these grants:

•        systematically in the periods in which it recognizes the costs for which the grant is received, from the accruals in which the grant was recognized when received, 

•        on a one-off basis in the period in which the grant is received and relates to expenditure already incurred.

Financial information:

In 2022, the Bank received grants for costs incurred in connection with publicly funded research and development projects through the National Research and Development Centre. The disbursement of funds was based on the financial assistance granted in connection with the agreements concluded between the Bank and the National Centre for Research and Development.

In 2022, the amount of the grant was PLN 7 million (2021: 6 million).

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

On 23 September 2021, pursuant to § 15 clause 1 point 2 of the Bank’s Articles of Association, the 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 2022–2023. PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp. k. with its registered office in Warsaw, ul. Polna 11, is entered in the list of audit firms maintained by the National Board of Registered Auditors under the number 144. On 31 January 2022, the Bank concluded an agreement with PwC for the audit and review of the financial statements of the Bank and the Bank’ Group for the years 2022-2023. The financial statements of the Bank and the Bank's Group for 2020-2021 were also audited by PwC in accordance with the Supervisory Board's decision of 13 December 2018.

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 2022 and the Bank’s financial statements for the year ended 31 December 2022 (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)	2022	2021
audit of financial statements	1 549	1 529
assurance services, including reviews of the financial statements	1 010	798
Total	2 559	2 327

On 15 December 2022, the Supervisory Board selected KPMG Audyt Spółka z ograniczoną odpowiedzialnością sp.k. as the audit firm to audit and review the financial statements of the Bank and of the Bank’s Group for the years 2024–2026.

76.            Impact of the geopolitical situation in Ukraine on PKO Bank Polski S.A.

•           Ukrainian companies in the PKO Bank Polski S.A. Group

The PKO Bank Polski S.A. Group conducts activities in Ukraine through the KREDOBANK S.A. Group, ‘‘Inter-Risk Ukraina’’ spółka z dodatkową odpowiedzialnością (company with additional liability), Finansowa Kompania ‘‘Prywatne Inwestycje’’ sp. z o.o. and Finansowa Kompania “Idea Kapitał” sp. z o.o.

The impairment tests of KREDOBANK S.A., performed quarterly using the discounted dividends method, in recent years showed an excess of value in use over the net carrying amount; however, for prudential reasons the impairment loss on shares in Kredobank had been maintained at the same level since 2015. The test performed as 31 March 2022, taking into account the effect of the war in Ukraine and an additional discount of 25% associated with uncertainty as to the further developments in this regard, revealed a need to increase the impairment loss by PLN 52 million and reduce the net carrying amount of shares in KREDOBANK S.A. to PLN 227 million. Subsequent tests carried out in 2022, including a test prepared as at 31 December 2022, did not indicate a need to increase the level of impairment losses, thus confirming the correctness of the main assumptions previously used in the valuation model.

•           Risk management in connection with the situation in Ukraine

The Bank monitors sanction regulations on an ongoing basis and implements them to the extent appropriate to its specific business.

The Bank has introduced guidelines for the financing of and providing banking services to

•      customers conducting business whose business model is based on the benefits of active operation in the markets of Russia and Belarus or through significant links (e.g. economic, personal),

•      customers on whom sanctions have been or can be imposed in connection with Russia's aggression in Ukraine.

The Bank performed an analysis of the business loans portfolio of its Polish customers from the perspective of the customers’ exposure to the adverse effects of the military conflict in Ukraine. If we adopt a threshold of at least 5% of the turnover generated from transactions with business partners from Russia, Belarus or Ukraine, the risk-exposed portfolio amounts to approx. PLN 3.8 billion. For the purpose of the measurement of credit exposures, the Bank considered the information on the scale of the Polish customers’ business relations with partners from Ukraine, Belarus and Russia, and performed an assessment of various scenarios of development of the macroeconomic situation. The exposures of these customers were classified to Stage 2 and were subject to the valuation of expected credit losses throughout their lifetime. If the probability of a customer repaying its loan liabilities was assessed as low, the exposures were reclassified to Stage 3. Retail exposures granted to Russian, Belarusian or Ukrainian nationals, which as at 31 December 2022 amounted to PLN 234 million, were reclassified by the Bank into Stage 2 and their credit risk was measured over the life of these loans.

As at 31 December 2022, the value of write-downs for expected credit losses on the above-mentioned portfolios amounted to PLN 111 million.

The Bank has maintained a safe level of liquidity, allowing for a quick and effective response to potential threats.

During the 12 months ended 31 December 2022, PKO Bank Polski S.A. monitored the cash volumes in the Bank’s branches and ATMs on an ongoing basis due to a temporarily increased interest in cash withdrawals (in response to the outbreak of the war in Ukraine) and used its best efforts to allow customers to withdraw cash.

At the same time, in connection with the war in Ukraine, the Bank formed a Support Group led by the Head of the Crisis Staff, whose tasks include preventing disruption to the critical processes of the Bank, exchange of information within the Group and coordination of the aid provided. The Bank takes actions to mitigate the threats associated with the war in Ukraine on an ongoing basis, in particular with respect to ensuring access to the Bank’s systems, cyber security and the continuity of cash services and other processes.

77.            Interest rate benchmarks reform

•           Legal environment

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.

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.

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 with a consultation on publishing these rates in synthetic form until the end of September 2024, the 1M and 6M LIBOR GBP rates in synthetic form will be published until the end of March 2023 and for the 3M term until the end of March 2024, the 1M, 3M and 6M LIBOR JPY rates in synthetic form were published until the end of 2022.

The European Commission, in Implementing Regulation (EU) 2021/1847 of 14 October 2021 on the designation of a statutory replacement for certain settings of CHF LIBOR, which is in force by operation of law and directly applicable in all Member States of the European Union as of 1 January 2022, has determined substitutes for the CHF LIBOR rates. These substitutes are the 1-month or 3-month SARON compound rate with an indicated value of the adjustment spread, respectively. The SARON rate replaced the CHF LIBOR rate in every contract and financial instrument within the European Union, so this also applied to Polish borrowers.

The WIBOR reform and its adjustment to the BMR requirements were completed in 2020. It 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.

•        announcement on the use of a replacement for WIBOR

The Act of 7 July 2022 on the crowdfunding of business ventures and on assistance for borrowers initiated the reform of the WIBOR index. The WIBOR index will be discontinued and replaced by a replacement. The law contains a legal delegation to promulgate it by means of a regulation. The process of determining a replacement for WIBOR will be regulated by law. According to the regulation of the Minister of Finance, the replacement of the WIBOR rate will apply to contracts and financial instruments that meet the requirements of the BMR Regulation. The regulation of the Minister of Finance will also specify the corrective margin and the date from which the conversion will be effective.

In July 2022, the National Working Group on Benchmark Reform (NWG) has been established to ensure the credibility, transparency and reliability of the development and application of the new benchmark interest rate.

The National Working Group comprises representatives of the Ministry of Finance, the National Bank of Poland, the Office of the Financial Supervision Authority, the Bank Guarantee Fund, the Polish Development Fund, the Warsaw Stock Exchange, the National Depository for Securities, Bank Gospodarstwa Krajowego, the WSE Benchmark, as well as representatives of banks, investment fund companies, insurance companies, factoring and leasing companies, entities that are issuers of bonds, including corporate and municipal bonds, and clearing houses.

The work of the National Working Group shall be coordinated and supervised by the Steering Committee, composed of representatives of key institutions: the Financial Supervision Authority, the National Bank of Poland, the Ministry of Finance, the Bank Guarantee Fund, the Polish Development Fund, as well as the WSE Benchmark – the administrator of reference rates – and the Association of Polish Banks.

NGR's activities are carried out in a project formula in which project streams have been identified and in which representatives of PKO Bank Polski S.A. actively participate.

On 1 September 2022, the Steering Committee of the National Working Group appointed in connection with the planned benchmark reform (NWG SC) decided to choose the WIRON® index as an alternative interest rate benchmark, calculated based on the actual overnight (ON) transactions concluded with large enterprises and financial institutions. The selection of the benchmark and the parameters to be taken into account in its development was preceded by public consultations with financial and non-financial market entities. The administrator of WIRON®, within the meaning of BMR, is GPW Benchmark, which is entered in the register maintained by the European Securities and Markets Authority (ESMA). WIRON® is intended to become a critical interest rate benchmark within the meaning of BMR, which will be applied in financial agreements and instruments.

On 27 September 2022, the NWG SC adopted a Road Map specifying a schedule of actions aimed at replacing WIBOR with WIRON® in accordance with the BMR. The Road Map indicates that the benchmark reform will be implemented by the end of 2024. At the same time, a new offer of financial products based on WIRON® will be implemented in 2023-2024 and the full readiness to discontinue the development and publication of the WIBOR and WIBID® benchmarks will be reached at the beginning of 2025.

•        Adjustment of the Bank

Evolution of the legal environment and benchmark market migration in accordance with BMR will 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, including the WIBOR reform, 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.

Representatives of many organisational units of the Bank, including in particular those responsible for product areas, as well as issues related to risk and financial management, participate in the project's works. On the part of the companies, representatives of PKO Leasing S.A and PKO Faktoring S.A participate. The structure of the project takes into account the division into streams covering products and processes where there is an element of applying the WIBOR reference index and the cyclical reporting of statuses with regard to individual streams. In the current phase of the project, intensive work is underway at the Bank to adapt the technological infrastructure, as well as involving the preparation of internal processes and documentation (including rules and regulations).

Since 1 January 2022, the Bank continued servicing the loan portfolios and new loan agreements using WIBOR and EURIBOR without any changes.

The Bank is working on analysing the risks and monitoring them on an ongoing basis; however, due to the early stage of the reform, more detailed information on the transition process will be provided as the WIBOR reform work progresses. Moreover, due to the lack of formal information on the potential regulatory event referred to in Article 23c(1) of the BMR, the lack of the Regulation of the Minister of Finance referred to in Article 61c of the Act of 5 August 2015 on macro-prudential oversight of the financial system and crisis management in the financial system concerning the replacement, or even for the draft of such a regulation, lack of information the amount of adjustment spread or the method of calculating this spread as well as the lack of the market for hedging instruments and taking into account the current stage of work of the National Working Group and implementation of the roadmap, currently, it is not possible to estimate the financial impact of the WIBOR rate reform.

The following tables present 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 2022.

Financial assets
31.12.2022	WIBOR PLN
Amounts due from banks	3 674
Securities	12 660
Loans and advances to customers	142 029
Total assets	158 363

 

Financial liabilities and off-balance sheet liabilities
31.12.2022	WIBOR PLN
Amounts due to customers	6 830
Subordinated liabilities	2 781
Provisions for financial liabilities and guarantees granted	412
Total liabilities	10 023
Financial and guarantee commitments granted	32 051

 

NOMINAL AMOUNT of derivative instruments
31.12.2022	WIBOR PLN
Derivative hedging instruments	82 258
- Purchase (floating leg)	2 457
- Sale (floating leg)	79 801
Other derivative instruments	184 399
- Purchase (floating leg)	93 143
- Sale (floating leg)	91 256

 

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 are 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) are used, such as SARON for CHF, SOFR for USD, SONIA for GBP. Depending on the nature of the product, interest is 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 executes and settles transactions in accordance with that standard, i.e. using compound risk-free rates.

The tables below show the Bank's exposure to the material types of interest rates impacted by the reform of interest rate benchmarks with a transition to the revised benchmarks after 31 December 2021.

Financial assets	Currency translated to PLN
31.12.2022	SARON CHF	SONIA GBP	SOFR USD	TOTAL
Loans and advances to customers	8 896	12	681	9 589
Total assets	8 896	12	681	9 589

 

Financial liabilities and off-balance sheet liabilities	Currency translated to PLN
31.12.2022	SARON CHF	SONIA GBP	SOFR USD	TOTAL
Amounts due to customers	2	2	155	159
Provisions for financial liabilities and guarantees granted	3	-	5	8
Total liabilities	5	2	160	167
Financial and guarantee commitments granted	118	-	3 063	3 181

 

NOMINAL AMOUNT of derivative instruments	Currency translated to PLN
31.12.2022	SARON CHF	SONIA GBP	SOFR USD	TOTAL
Derivative hedging instruments	1 073	-	355	1 428
- Purchase (floating leg)	-	-	355	355
- Sale (floating leg)	1 073	-	-	1 073
Other derivative instruments	10 616	-	1 940	12 556
- Purchase (floating leg)	5 300	-	1 244	6 544
- Sale (floating leg)	5 316	-	696	6 012

•        hedge accounting

The amendments to IFRS allow for the assumption that future cash flows – although subject to changes in the future as a result of the transition to alternative benchmark rates – are still highly probable and thus the existing hedging relationships can be maintained.

78.            Subsequent events

1.       On 1 February 2023, as part of the inaugural issue, the Bank issued 3-year Senior Preferred Notes with a total value of EUR 750 million, with the option of early redemption two years after issue. The coupon of the issue is fixed, at 5.625%, payable annually until the early redemption date, and variable thereafter, with quarterly payments. Moody’s Investors Service has assigned a rating of A3 to the issue. The bonds were admitted to trading on a regulated market on the Luxembourg Stock Exchange.

2.       On 16 February 2023, the Opinion of the General Ombudsman was published in Case C-520/21 concerning the possibility for consumers and Banks to claim beyond the consideration provided under a loan agreement that has been declared invalid by the Court. The General Ombudsman concluded that:

•        as far as consumer claims are concerned – they do not conflict with the Directive, but the validity of such claims would have to result from national law, and it is for the national court to decide. The General Ombudsman emphasised that this does not mean that consumers' claims must be upheld, and that national courts may also exercise their jurisdiction to dismiss such an action where it constitutes an abuse of rights.

•        as regards claims by banks – provisions of the Directive preclude the Bank from bringing such claims against consumers.

By contrast, the Advocate does not comment directly on other potential formulas for settling the time value of money, and in particular does not formulate a clear thesis on how to define the concept of 'principal', subject to reimbursement.

In the Bank's view, the opinion of the Advocate General of the CJEU constitutes a post-reporting date event that does not require adjustment under IAS 10 Events subsequent to the reporting period, due to the fact that:

•        the Advocate's opinion is non-binding,

•        the case in which the questions referred for a preliminary ruling in Case C-520/21 were raised does not concern the Bank's claims. The Bank's claims against the customer were raised in another case, which also raised preliminary questions of a similar content to Case C-520/21. This case is registered under reference C-756/22,

•        the inability to predict the final outcome of the CJEU's decision, in particular the uncertainty as to whether the CJEU's decision will contain explicit instructions or merely general guidelines leaving the national courts to assess and decide on the details,

•        uncertainty about the future practice of national courts in enforcing CJEU judgments.

In the Bank's view, the Ombudsman's opinion cannot form the basis for recognising its effects in the cost of legal risk on mortgage loans in CHF in these financial statements.

However, in the Bank's opinion:

1)      The level of additional legal risk costs recognised by the Bank will depend primarily on customer behaviour, i.e. whether the number of lawsuits brought by customers is in line with current model assumptions or whether the opinion of the CJEU ombudsman will have a significant impact on increasing the number of lawsuits. The Ombudsman's opinion and the subsequent ruling of the CJEU may result in negative trends affecting the level of estimated risk, resulting from an increased propensity of customers to file lawsuits.

2)      At the date of publication of these financial statements, the Bank is unable to estimate the potential impact of these factors beyond the sensitivity analysis presented in note 26 Cost of legal risk of foreign currency mortgage loans.

3)      As at the date of publication of these financial statements, the Bank is not able to estimate the impact of potential customers' claims that exceed return of cash benefits.

In the opinion of the Bank's Management Board, the information available to it as at 31 December 2022 does not indicate any risk of a breach of the legally required minimum levels of capital adequacy or a threat to the going concern assumption adopted in the financial statements.

3.       On 27 February 2023, after obtaining the necessary corporate approvals, the Bank concluded with the counterparty a guarantee agreement providing unfunded credit protection in respect of a portfolio of selected corporate credit receivables of the Bank, in accordance with the CRR.

The total value of the Bank's debt portfolio covered by this guarantee is over PLN 12 292 million, and the portfolio consists of the bond portfolio of PLN 1 515 million (“Portfolio A”) and the portfolio of other receivables of PLN 10 777 million (“Portfolio B”). The coverage ratio is 100% for Portfolio A and 80% for Portfolio B, therefore the total Guarantee amount is PLN 10 137 million. The maximum term of the guarantee is 60 months, provided that the Bank is entitled to terminate it before the expiry of its term.

 

Signatures of all Members of the Bank’s Management Board

 

Paweł Gruza	Vice-President of the Management Board managing the work of the Management Board
Maciej Brzozowski	Vice-President of the Management Board
Marcin Eckert	Vice-President of the Management Board
Wojciech Iwanicki	Vice-President of the Management Board
Andrzej Kopyrski	Vice-President of the Management Board
Maks Kraczkowski	Vice-President of the Management Board
Mieczysław Król	Vice-President of the Management Board
Artur Kurcweil	Vice-President of the Management Board
Piotr Mazur	Vice-President of the Management Board
SIGNATURE OF A PERSON WHO IS RESPONSIBLE FOR MAINTAINING THE ACCOUNTING RECORDS
Danuta Szymańska	Director of the accounting division

 

The original Polish document is signed with a qualified electronic signatures library: