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This document is a free translation of the Polish original. Terminology current
in Anglo-Saxon countries has been used where practicable for the purposes
of this translation in order to aid understanding. The binding Polish original
should be referred to in matters of interpretation.
Independent Auditor's Report
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To the
General Shareholders’ Meeting and Supervisory Board
of ING Bank Śląski S.A.
Report on the Audit of the Annual Separate Financial Statements |
Opinion |
We have audited the accompanying annual separate financial statements of ING Bank Śląski S.A. (the “Bank”), which comprise:
• the statement of financial position as at 31 December 2022;
and, for the period from 1 January to 31 December 2022:
• the statement of profit or loss;
• the statement of comprehensive income;
• the statement of changes in equity;
• the statement of cash flows;
and
• accounting policy and additional notes;
(the “separate financial statements”).
In our opinion, the accompanying separate financial statements of the Bank:
• give a true and fair view of the unconsolidated financial position of the Bank as at 31 December 2022 and of its unconsolidated financial performance and its unconsolidated cash flows for the financial year then ended in accordance with International Financial Reporting Standards, as adopted by the European Union (“IFRS EU”) and the adopted accounting policy;
• comply, in all material respects, with regard to form and content, with applicable laws and the provisions of the Bank's articles of association;
• have been prepared, in all material respects, on the basis of properly maintained accounting records in accordance with chapter 2 of the accounting act dated 29 September 1994 (the “Accounting Act”).
Our audit opinion on the separate financial statements is consistent with our report to the Audit Committee dated 17 March 2023.
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Basis for Opinion |
We conducted our audit in accordance with:
• International Standards on Auditing as adopted by the National Council of Statutory Auditors as National Standards on Auditing (the “NSA”); and
• the act on statutory auditors, audit firms and public oversight dated 11 May 2017 (the “Act on statutory auditors”); and
• regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities and repealing Commission Decision 2005/909/EC (the “EU Regulation”); and
• other applicable laws.
Our responsibilities under those standards and regulations are further described in the Auditor’s Responsibility for the Audit of the Separate Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence and Ethics |
We are independent of the Bank in accordance with International Ethics Standards Board for Accountants International Code of Ethics for Professional Accountants (including International Independence Standards) (“IESBA Code”) as adopted by the resolution of the National Council of Statutory Auditors, together with the ethical requirements that are relevant to our audit of the separate financial statements in Poland and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. During our audit the key statutory auditor and the audit firm remained independent of the Bank in accordance with requirements of the Act on statutory auditors and the EU Regulation.
Key Audit Matters |
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the separate financial statements of the current period. They are the most significant assessed risks of material misstatements, including those due to fraud. Key audit matters were addressed in the context of our audit of the separate financial statements as a whole, and in forming our opinion thereon we have summarised our response to those risks. We do not provide a separate opinion on these matters. We have determined the following key audit matters:
Expected credit losses on loans and other receivables from customers measured at amortized cost and measured at fair value through other comprehensive income |
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The carrying amount of loans and other receivables from customers measured at amortized cost and measured at fair value through other comprehensive income amounted to PLN 148,711.1 million as at 31 December 2022, expected credit losses amounted to PLN 2,977.6 million as at 31 December 2022. The charge for expected credit losses relating to the aforementioned loan portfolio amounted to minus PLN 642.3million for the year 2022 (Notes 9 and 21 of the separate financial statements). |
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Key audit matter |
Our response |
Loans and other receivables from customers are measured at amortized cost or fair value through other comprehensive income including expected credit losses. In the process of estimation of expected credit losses two phases can be identified – identification of impairment triggers or |
Our audit procedures carried out with the support of our internal financial risk and IT system risk specialists included among others • Assessment of the Bank’s methodology used for estimating expected credit losses in terms |
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triggers of significant increase in credit risk and measurement of expected credit losses. The impairment triggers and triggers indicating significant increase of credit risk are identified mainly on the basis of payment delinquencies, economic and financial standing of the debtor and current probability of default level as compared to the date of initial recognition of the exposure, while allowances for expected credit losses are estimated on an individual basis and collectively for homogenous loan portfolios collectively using statistical methods on the basis of risk parameters. The significant assumptions for the portfolio approach are risk parameters such as probability of default (PD), loss given default (LGD), exposure at default (EAD) or criteria/threshold for staging criteria, which are determined for homogenous groups of loan exposures based on historical data taking into account forward looking information on expected macroeconomic conditions. Allowances for credit losses are an estimate of expected credit losses on loans and other receivables from customers as at the balance sheet within the period of 12 months or within the lifetime of the exposure. Measurement of expected credit losses requires from the Management of the Bank significant judgment and selection of significant assumptions, in particular in respect to identification of impairment triggers, triggers of significant increase in credit risk, data selection to estimate statistical model parameters, expected macroeconomic scenarios and their probability of occurrence. Moreover, in respect to individually assessed loans, key judgements and assumptions comprise recovery scenarios, valuation of collateral or timing of cash flows assumed by the Bank. Relatively insignificant change in the mentioned assumptions or other model parameters may have significant effect on the estimate of expected credit losses. Since the start of the COVID-19 pandemic, war in Ukraine and high inflation which influenced the increase in base interest rates, the macroeconomic environment is subject to significant volatility, which is reflected in changes of macroeconomic parameter as well as changes in relations of macroeconomic parameters and credit risk parameters of loan portfolios. As a result, in the span of the last two years the estimation uncertainty of expected credit losses increased, which required the Management Board of the Bank to apply increased substantial judgement in relations to assumptions of expected credit losses model, such as |
of their compliance with the requirements of applicable financial reporting standards and market practice. • Assessment of the design and implementation and operating effectiveness of relevant internal controls, including general IT system controls, applied in the process of identification of impairment or significant increase in credit risk triggers and estimation of expected credit losses. • Analysis of the structure and developments of the loan portfolio including quality ratios and provision coverage (i.e. share of overdue loans, coverage ratio) in order to identify groups of loans with underestimated expected credit losses. • Analysis of appropriateness of Bank’s stage allocation based on qualitative and quantitative criteria. • Independent recalculation of selected credit risk parameters for a sample of expected credit losses models. • Critical assessment of assumptions and input data used in retrospective review performer by the Bank to verify adequacy of expected credit losses. • Independent assessment of adequacy of provisions for expected credit losses in 12-month horizon through comparison with loss incurred historically on a given portfolio. • For loans and other receivables from customers assessed individually on the basis of a selected sample, assessment of the appropriateness of identification of significant increase in credit risk and impairment triggers and for impaired assets – critical assessment of relevant assumptions adopted by the Bank and independent recalculation of impairment allowances. • Evaluation of completeness and accuracy of disclosures in the consolidated financial statements in respect to key estimates related to expected credit losses, including analysis of sensitivity of expected credit losses to key model assumptions. |
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macroeconomic scenarios and management overlays. We have considered this area as a key audit matter because of inherent risk of error, risk of fraud and uncertainty related to estimation of expected credit losses and because it requires substantial judgement from the Management Board of the Bank and considering the size of the loan portfolio has significant impact on the financial statements. |
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Conduct risk, legal claims and customer complaints (loans indexed to CHF) |
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As at 31 December 2022 due to an update of expected contractual cash flows from loans indexed to CHF, the Bank decreased the gross amount of loans by PLN 581.6 million. Furthermore, the provisions for repaid loans indexed to CHF amounted to PLN 53.7 million as at 31 December 2022. These matters were presented in Notes 3.6 and 31 to the separate financial statements. |
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Key audit matter |
Our response |
Bank operating on regulated markets is exposed to the risk of changes in law interpretations and events (other than those arising from credit risk) that may result in lower than contractual cash flows from financial contracts with customers or in an obligation or liability arising from past events, the settlement of which will require outflow of resources embodying economic benefits ("risk amount"). As at 31 December 2022, in particular, it refers to the impact of the decision of the Court of Justice of the European Union ("CJEU") of 3 October 2019 (Case C-260/18). As a result of the decision, the Bank observes an increase year by year in the number of court claims against the Bank filed by the borrowers who were granted mortgage loans indexed to CHF ("CHF loans"). The Bank assessed that this growth may continue for some time in the future, which in current ruling pattern may result in lower expected cash flows from CHF loans than those resulting from the contractual agreements and as a result a loss for the Bank. In order to determine an estimate expected loss from the CHF loan portfolio, the Bank assessed both court claims that results in annulment of the contract as well as settlements with customers, assuming significant judgement on expected number of annulments and estimated number of possible settlements with customers. Estimates regarding the risk of mortgage loans indexed to CHF requires judgement from the |
Our audit procedures included among others: • Assessment of Bank’s accounting policy and methodology for calculation and recognition in consolidated financial statements of estimates in respect to financial effect of CJEU CHF verdicts and other conduct risk, legal claims and customer claims • Assessment of the design and implementation of monitoring and internal controls in the scope of identification, monitoring and estimating conduct risk and legal claims risk • Analysis of correspondence, reports and post-audit recommendations received by the Bank from regulatory authorities • Analysis of operational risk event database to identify items that may have an impact on financial statements • Analysis of complaints submitted by customers and their impact (including potential) on the Bank • Analysis of confirmations of court cases received from external legal counsel representing the Bank in proceedings and the estimation of financial effects resulting from these cases made by external legal counsel • Assessment of the rationality of assumptions used in estimate of gross carrying amount |
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Management of the Bank and significant effort and attention from the auditor in the audit due to uncertainty of assumptions influencing the amount of gross carrying adjustment to loans. Due to abovementioned reasons preparing a reasonable risk estimate and disclosure in this regard in the financial statements are considered key audit matter. |
adjustment related to legal claim risk, such as number of exposures for which expected cash flows will require adjustment as a result of annulment or settlement. The procedure comprised: - verification of appropriateness of input data used in the preparation of the estimate, by reconciling the data to relevant IT systems used by the Bank - recalculation of estimated financial effects for the Bank in case of annulment or settlement scenarios - analysis of sensitivity of estimates to changes in key assumptions and based on the above, evaluation, whether the assumed levels may indicate Management’s bias • Assessment of the completeness and correctness of disclosures required by International Financial Reporting Standards that are related to the presented estimates |
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Responsibility of the Management Board and Supervisory Board of the Bank for the Separate Financial Statements |
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The Management Board of the Bank is responsible for the preparation, on the basis of properly maintained accounting records, of separate financial statements that give a true and fair view in accordance with IFRS EU, the adopted accounting policy, the applicable laws and the provisions of the Bank's articles of association and for such internal control as the Management Board of the Bank determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the separate financial statements, the Management Board of the Bank is responsible for assessing the Bank's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management Board of the Bank either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.
According to the Accounting Act, the Management Board and members of the Supervisory Board of the Bank are required to ensure that the separate financial statements are in compliance with the requirements set forth in the Accounting Act. Members of the Supervisory Board of the Bank are responsible for overseeing the Bank’s financial reporting process.
Auditor’s Responsibility for the Audit of the Separate Financial Statements |
Our objectives are to obtain reasonable assurance about whether the separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with NSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these separate financial statements.
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The scope of audit does not include assurance on the future viability of the Bank or on the efficiency or effectiveness with which the Management Board of the Bank has conducted or will conduct the affairs of the Bank.
As part of an audit in accordance with NSAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
• identify and assess the risks of material misstatement of the separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
• obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank's internal control;
• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management Board of the Bank;
• conclude on the appropriateness of the Management Board of the Bank’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report on the audit of the separate financial statements to the related disclosures in the separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report on the audit of the separate financial statements. However, future events or conditions may cause the Bank to cease to continue as a going concern;
• evaluate the overall presentation, structure and content of the separate financial statements, including the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Audit Committee of the Bank regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We provide the Audit Committee of the Bank with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with the Audit Committee of the Bank, we determine those matters that were of most significance in the audit of the separate financial statements of the current reporting period and are therefore the key audit matters. We describe these matters in our auditors’ report on the audit of the separate financial statements unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Other Information |
The other information comprises:
• the selected financial data;
• the Management Board report on activities of ING Bank Śląski Group together with Management Board report on activities of the Bank for the year ended 31 December 2022 (the “Report on activities”), including letter from the Chairman, the statement of the Management Board regarding the preparation of the separate financial statements, consolidated financial statements and report
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on activities, the Management Board’s information regarding the appointment of the audit firm and the corporate governance statement, which is a separate part of the Report on activities;
• the separate report on non-financial information referred to in art. 49b paragraph 9 of the Accounting Act;
• Report of the Supervisory Board on the results of assessment of the Annual Financial Statements of ING Bank Śląski S.A. for 2022;
• the Supervisory Board’s assessment of the consolidated financial statements and the Report on activities;
• Supervisory Board’s Assessment of ING Bank Śląski S.A. Group Operations in 2022; and
• representation of the Supervisory Board concerning the Audit Committee.
(together the “other information”).
Responsibility of the Management Board and Supervisory Board
The Management Board of the Bank is responsible for the other information in accordance with applicable laws.
The Management Board and members of the Supervisory Board of the Bank are required to ensure that the report on activities, including the corporate governance statement and the report on non-financial information referred to in art. 49b paragraph 9 of the Accounting Act are in compliance with the requirements set forth in the Accounting Act.
Auditor’s Responsibility
Our opinion on the separate financial statements does not cover the other information.
In connection with our audit of the separate financial statements, our responsibility was to read the other information and, in doing so, consider whether the other information is materially inconsistent with the separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement in the other information, we are required to report that fact.
In accordance with the Act on statutory auditors our responsibility was to report if the report on activities was prepared in accordance with applicable laws and the information given in the report on activities is consistent with the separate financial statements.
Moreover, in accordance with the requirements of the Act on statutory auditors our responsibility was to report whether the Bank included in the statement on corporate governance the information required by the applicable laws and regulations, and in relation to specific information indicated in those laws or regulations, to determine whether it complies with the applicable laws and is consistent with the separate financial statements and to inform whether the Bank prepared a separate report on non-financial information.
Opinion on the Report on Activities
Based on the work undertaken in the course of our audit of the separate financial statements, in our opinion, the accompanying report on activities, in all material respects:
• has been prepared in accordance with applicable laws, and
• is consistent with the separate financial statements.
Opinion on the Statement on Corporate Governance
In our opinion, the corporate governance statement, which is a separate part of the report on activities, includes the information required by paragraph 70 subparagraph 6 point 5 of the Decree of the Ministry of Finance dated 29 March 2018 on current and periodic information provided by issuers of
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securities and the conditions for recognition as equivalent of information required by the laws of a non-member state (the “decree”).
Furthermore, in our opinion, the information identified in paragraph 70 subparagraph 6 point 5 letter c-f, h and letter i of the decree, included in the corporate governance statement, in all material respects:
• has been prepared in accordance with applicable laws; and
• is consistent with the separate financial statements.
Information about the Statement on Non-financial Information
In accordance with the requirements of the Act on statutory auditors, we report that the Bank has prepared a separate report on non-financial information referred to in art. 49b paragraph 9 of the Accounting Act.
We have not performed any assurance procedures in relation to the separate report on non-financial information and, accordingly, we do not express any assurance conclusion thereon.
Statement on other Information
Furthermore, based on our knowledge about the Bank and its environment obtained in the audit of the separate financial statements, we have not identified material misstatements in the report on activities and the other information.
Report on Other Legal and Regulatory Requirements |
Information on Compliance with Prudential Regulations |
The Management Board of the Bank is responsible for the Bank’s compliance with the applicable prudential regulations defined in separate laws, in particular for the appropriate determination of the capital ratios.
Our responsibility was to inform in our auditor’s report whether the Bank complies with the applicable prudential regulations defined in separate laws, in particular whether the Bank appropriately determined the capital ratios presented in note I.1.4.3 “Capital adequacy”.
The audit objective was not to express an opinion on the Bank’s compliance with the applicable prudential regulations and therefore we do not express such an opinion.
Based on our audit of the separate financial statements of the Bank, we inform that we have not identified any instances of non-compliance, in the period from 1 January to 31 December 2022, of the Bank with the applicable prudential regulations, defined in separate laws, in particular with respect to the determination of the capital ratios as at 31 December 2022, that could have a material impact on the separate financial statements.
Statement on Services Other than Audit of the Financial Statements |
To the best of our knowledge and belief, we did not provide prohibited non-audit services referred to in Art. 5 paragraph 1 second subparagraph of the EU Regulation and Art. 136 of the act on statutory auditors.
Appointment of the Audit Firm |
We have been appointed for the first time to audit the annual separate financial statements of the Bank by resolution of the Supervisory Board dated 18 January 2013 and reappointed in the following years, including the resolution dated 30 June 2020, to audit the annual separate financial statements
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for the year ended 31 December 2022. Our period of total uninterrupted engagement is 10 years, covering the periods ended 31 December 2013 to 31 December 2022.
On behalf of audit firm
KPMG Audyt Spółka z ograniczoną odpowiedzialnością sp.k.
Registration No. 3546
Signed on the Polish original
Marcin Podsiadły
Key Statutory Auditor
Registration No. 12774
Proxy
Warsaw, 17 March 2023