Report

This is a translation of the Independent Auditor’s Report originally issued in Polish

INDEPENDENT AUDITOR’S REPORT

To Shareholders’ Meeting and the Supervisory Board of Bank Millennium S.A.

Report on the Audit of the Annual Financial Statements

Opinion

We have audited the annual financial statements of Bank Millennium S.A. (the “Bank”), which comprise the balance sheet as of 31 December 2023 and the profit and loss account, statement of comprehensive income, statement of changes in equity, cash flow statement for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information (the “financial statements”).

In our opinion, financial statements:

give a true and fair view of the economic and financial position of the Bank as of December 31, 2023, and of its financial performance and its cash flows for the year then in accordance with the applicable International Financial Reporting Standards (“IFRSs”), as endorsed by the European Union, and the adopted accounting policies;

comply, as regards their form and content, with the applicable laws and the articles of association of the Bank;

have been prepared based on properly kept accounting records, in accordance with Section 2 of the Accounting Act of 29 September 1994 (the “Accounting Act”, Journal of Laws of 2023, item 120 as amended).

Our opinion is consistent with the Additional Report to the Audit Committee which we issued on the same day.

Basis for Opinion

We conducted our audit in accordance with the Polish Standards on Auditing (“PSAs”) in the wording of the International Standards on Auditing adopted by the National Council of Statutory Auditors and in compliance with the Act on Statutory Auditors, Audit Firms and Public Oversight of 11 May 2017 (the “Act on Statutory Auditors”, Journal of Laws of 2023, item 1015, as amended) as well as Regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities (“EU Regulation”, Official Journal of the European Union L158, as amended). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.

We are independent of the Bank in accordance the principles of professional ethics specified in the International Code of Ethics for Professional Accountants (including International Independence Standards) (“Code of ethics”) developed and issued by the International Ethics Standards Board for Accountants and adopted by the National Council of Statutory Auditors, together with the ethical requirements that are relevant to the audit of the financial statements in Poland, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of ethics. Throughout the audit, both the key statutory auditor and the audit firm remained independent of the Bank in accordance with the independence requirements set out in the Act on Statutory Auditors and in the EU Regulation.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Matter

The Company’s financial statements for the year ended 31 December 2022 were audited by another auditor who expressed an unqualified opinion on those financial statements on 15 February 2023.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. They encompass the most significant assessed risks of material misstatement, including assessed risks of material misstatement due to fraud. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon. We summarized our response to those risks and, where appropriate, we presented the key findings related to those risks. We do not provide a separate opinion on these matters.

Key audit matter	How we addressed the matter
Provisions for litigations concerning the portfolio of mortgage loans indexed to Swiss franc (CHF)
The Bank granted foreign currency mortgage loans indexed to CHF (“CHF loans”). As it is presented in the Note 13.22 to the financial statement Loans and advances to customers in point 13.22k Loans and advances to customers measured in amortized cost by foreign currency structure the gross carrying amount of CHF loans reduced by the change of expected cash flows resulting from legal risk as of 31 December 2023 amounted to PLN 3 121 973 thousands. As it is described in the Note 12.1 to the financial statements Court claims and current provisions on legal risk, the Bank is a defendant in numerous legal cases which include claims regarding the partial invalidity of the credit agreements, i.e. in terms of indexation provisions or a ruling that the agreements are fully invalid. Management's judgments regarding the recognition and measurement of provisions for lawsuits and legal risk are inherently burdened with risk and may change over time due to the fact that the estimated results of the current cases depend on future court ruling. The judgement of the Court of Justice of the European Union (CJEU) from 3 October 2019 regarding CHF loans increases the uncertainty of estimates related to recognition of provisions. The case law of the CJEU interpreted the causes and effects of the invalidity of foreign currency mortgage loan agreements. Further judicial practice of Polish courts will play an important role in fulfilling the content of the Tribunal's instructions, and, moreover, this practice will be of significant importance as to issues which, considering the scope of the CJEU's competences, are subject to national jurisprudence. Due to the materiality of the CHF loan portfolio, as well as the significant role and complexity of the Management Board's judgments and estimates regarding provisions for the current and potential claims and the proposed settlements, the recognition and the valuation of the mentioned provision was considered as the key audit matter.	As part of the audit procedures, we familiarized ourselves and assessed the accounting policy used by the Bank to account for the costs of legal risk of CHF loans. Our audit procedures also included understanding of the process for establishing provision for the CHF loan lawsuits and assessing the design and implementation of controls in relation to the model used to estimate this provision. With respect to the model used to estimate provision our procedures included, among the others:  assessment of the methodology of estimating provisions in relation to the legal proceedings and proposed settlements related to CHF loans and the analysis of the rationality and validity of the adopted assumptions, including especially: - the probability of occurrence of the particular types of verdicts for pending legal cases; - the estimated amount of losses in the event of the each type of verdict and the proposed settlements; - the estimated inflow of new individual claims and estimated number of settlements and their distribution over the time;  based on random sample verification of accuracy of the underlying data used in calculation;  verification of mathematical accuracy of the calculation;  assessment of the adequacy and the completeness of provisions for the legal cases recognized by the Bank with regard to the existing legal documentation, and analysis of the provision sensitivity to the changes in the most important assumptions. Moreover with our legal specialists we performed review of the current and expected jurisdiction in case of CHF loans claims. We analyzed significant data after the balance sheet date in relation to the assumptions adopted by the Bank as at the balance sheet date. Our procedures included also analysis of the accuracy and completeness of disclosures in the financial statements in accordance with applicable reporting standards.
Impairment of loans and advances granted to customers
Detailed information on the methods and models applied by the Bank and the level of impairment losses on loans and advances to customers is presented in point 7.3 Adopted accounting principles, point 8.3 Credit risk and Note 13.22 Loans and advances to customers in the financial statements. As presented in note 13.22 to financial statement Loans and advances to customers point 22h. Change in impairment losses on loans and advances measured in amortized cost amount of impairment losses as of 31 December 2023 amounted to PLN 2 299 364 thuosand. Estimation of impairment allowance requires significant judgement of the Bank's Management Board and adoption in the process calculation, significant macroeconomic assumption and estimates especially with regard to the estimation of credit risk parameters in models of expected credit losses calculation in accordance with the requirements of the International Financial Reporting Standard 9 Financial Instruments (IFRS 9). We considered matter to be the key audit matter due to the significant impact of impairment allowances on valuation of credit receivables.	We critically analyzed the design and implementation of the process and policy of recognition of the impairment allowances on credit exposures and we assessed the control system in this process, including automated controls in the Bank's IT systems, considering also possible override of controls. Our audit procedures included reconciliation of the loan database with the Bank’s general ledger to confirm the completeness of the recognition of credit receivables that are the basis for impairment losses calculation, as well as the value of these impairment allowances on loans. In relation to the verification of the correct application of the requirements of IFRS 9, our procedures included, among the others:  assessment of the methodology applied by the Bank with respect to the classification and valuation of financial assets in terms of their compliance with the requirements of IFRS 9 and with the market practice;  evaluation of the Bank's impairment methodology from the perspective of compliance with the requirements of IFRS 9, in particular as regards the application of SICR criteria, which means a significant increase in credit risk from the moment of granting a loan, for a selected sample of loan exposures, definition of default, adopted PD and LGD parameters and taking into account prospective information in the calculation of expected credit losses;  assessment of the completeness and correctness of the disclosures, especially as regards the credit risk of financial assets. For the collectively assessed loans, we performed, among others, the following procedures:  analysis of the applied methodology of estimating allowances for expected credit losses, including adequacy of risk parameters used by the Bank;  independent recalculation of the expected credit loss for randomly selected exposures and chosen parameters in the portfolio approach;  evaluation of changes in the assumptions made for the construction of models used for the measurement of credit risk and the applied approach to the verification of models based on historical data (so-called “back-tests”). In relation to the impairment estimated on the basis of the individual method we performed the following procedures:  analysis of the correctness of the process of identifying the triggers for impairment;  evaluation of the correctness of the estimation of allowance for the selected sample of the credit exposures with identified indicators of the impairment in terms of the correctness of the assumed values of collaterals and assumptions concerning other cash flows. Our procedures also included analysis of disclosures in the financial statements in terms of their completeness and adequacy in accordance with applicable reporting standards.
Result on bancassurance transaction
As disclosed in Note 13.5 Result on derecognition of financial assets and liabilities not measured at fair value through profit or loss of the financial statements, in 2023 the Bank entered into an agreement for the sale of 80% of shares in Millennium Financial Services sp. z o.o. (the “Company”) to Towarzystwo Ubezpieczeń na Życie Europa S.A., which acquired 72% of the Company's shares and Towarzystwo Ubezpieczeń Europa S.A., which acquired 8% of the Company's shares (collectively, the “Buyers”). The Bank also entered into agreements with the Buyers and the Company concerning the exclusive insurance distribution model, including cooperation agreements, distribution agreements and agency agreements. The strategic insurance cooperation provides long-term (10 years) cooperation in the field of bancassurance with respect to specific insurances related to credit products offered by the Bank. In connection with the sale of the Company's shares, in 2023 the Bank recognized in the profit and loss account a result in the total amount of PLN 652.4 million. Due to the significance of the result recognized on the transaction and the fact that the accounting treatment of the individual agreements comprising the transaction contains a significant level of professional judgment, we consider this area to be a key audit matter.	As part of the audit procedures, we reviewed the agreements concluded with the Buyers and the Company. With respect to bancassurance transactions, we analysed the correctness of recognition the transaction in the light of International Financial Reporting Standards, including among others:  we assessed the accounting policy adopted by the Bank for the purposes of accounting for the transaction;  we analysed in detail the fulfilment of the conditions for the loss of control over the Company;  we assessed the completeness of the Bank's identification of performance obligations and the principles of allocating remuneration to the identified components of performance obligations;  we analysed the remaining agreements concluded with the Buyers and the Company in terms of identifying performance obligations and the correctness of assigning contractual remuneration to them. In relation to the recognition and classification in the Bank’s financial statements the remaining 20% of shares in the Company:  we assessed the correctness of the classification and valuation rules adopted;  with the support of our internal valuation specialists, we analysed the valuation of 20% of the Company's shares remaining in the Bank, including a critical analysis of selected assumptions. Our procedures also included an analysis of disclosures in the financial statements in terms of their completeness and adequacy in accordance with applicable reporting standards.
Assessment of the going concern assumption
As described in Section 7.1 Statement of Compliance with International Financial Reporting Standards Statement of the Financial Statements, the financial statements have been prepared using the going concern assumption, which means that the Bank's operations continue to be a going concern for at least 12 months from the date of preparation of the financial statements. The government’s programme to help borrowers introduced in 2022, which covered the years 2022 and 2023, resulted in the need to launch the Recovery Plan and the Capital Protection Plan, which were still implemented by the Bank in 2023. Based on the activities carried out by the Bank under the Plans, the capital ratios as of 31 December 2023 were above the minimum requirements. Due to the fact that the Bank continues to implement the Capital Protection Plan and Recovery Plan, we consider this area to be a key audit matter	In response to the Bank's implementation of the Recovery Plan and the Capital Protection Plan we performed:  analysis of the Recovery Plan and and the Capital Protection Plan;  discussion with the Bank's Management Board on plans and actions to be taken to ensure the continuation of the Bank's operations and the implementation of the Bank Recovery Plan and Capital Protection Plan;  assessment of the Bank's ability to implement the above plans;  discussion with the Bank's Management Board and analysis of scenarios of the potential impact of future uncertainties, including the risk related to the possible extension of the so-called credit holidays and further development of court jurisdiction in the field of FX mortgage loans;  review of capital adequacy ratios with a sensitivity analysis in the event of negative scenarios;  review of the Bank's liquidity position;  review of protocols and correspondence with the regulator in this respect;  analysis of disclosures in the financial statements concerning the Bank's going concern assumptions.

Responsibilities of the Management Board and the Supervisory Board for the Financial Statements

The Bank’s Management Board is responsible for the preparation – based on properly kept accounting records – of financial statements which give a true and fair view of the economic and financial position of the Bank and of its financial performance in accordance with the applicable International Financial Reporting Standards, as endorsed by the European Union, the adopted accounting policies as well as the applicable laws and articles of association, and for such internal control as the Management Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Bank’s Management Board is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management Board either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

The Management Board and members of the Supervisory Board of the Bank are obliged to ensure that the financial statements meet the requirements of the Accounting Act. Members of the Supervisory Board are responsible for overseeing the Bank’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with PSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

The scope of an audit does not include an assurance about the future profitability of the Bank or the effectiveness or efficiency of the Management Board in managing the Bank’s affairs at present or in the future.

As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
 obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control;
 evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Bank’s Management Board;
 conclude on the appropriateness of the Bank’s Management Board’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern;
 evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Bank’s Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Bank’s Supervisory Board with a statement that we have complied with relevant ethical requirements regarding independence, and that we will communicate with it all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with the Bank’s Supervisory Board, we determined those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Other Information, Including the Report on the Activities

Other information consists of the Management Board Report on the activity of Bank Millennium S.A. and Capital Group of Bank Millennium S.A. in 2023 (the "Activity Report"), prepared together with the Corporate Governance Statement, which is a separate part of this report (together "Other Information").

Responsibilities of the Management Board and the Supervisory Board

The Bank’s Management Board is responsible for the preparation of the Other Information in accordance with the applicable laws.

The Management Board and members of the Supervisory Board of the Bank are obliged to ensure that the Report on the Activities, along with the separate part, meet the requirements of the Accounting Act.

Auditor’s Responsibilities

Our opinion on the financial statements does not cover the Other Information. In connection with our audit of the financial statements, our responsibility is to read the Other Information and, in doing so, consider whether the Other Information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this Other Information, we are required to report that fact in our auditor’s report. Additionally, under the Act on Statutory Auditors we are obliged to express an opinion on whether the Report on the Activities has been prepared in accordance with the applicable laws and whether it is consistent with the information contained in the financial statements. In addition, in accordance with the requirements of Article 111a(3) of the Law of 29 August 1997 on Banking Law (Journal of Laws 2023, item 2488), hereinafter referred to as “Banking Law”, it was our responsibilities to analysis the indicated financial information contained in the Report on the Activities. Furthermore, we are obliged to state whether a non-financial information statement has been prepared by the Bank and to express an opinion on whether the Bank has included the necessary information in the statement of compliance with corporate governance principles.

Opinion on the Report on the Activities

Based on our work performed during the audit, we are of the opinion that the Report on the Activities:

 has been prepared in accordance with Article 49 of the Accounting Act and par. 70 of the Regulation of the Minister of Finance of 29 March 2018 on current and periodic information published by issuers of securities and the rules of equal treatment of the information required by the laws of non-member states (the “Current Information Regulation”, Journal of Laws of 2018, item 757, as amended);
 is consistent with the information contained in the financial statements.

Furthermore, in the light of the knowledge and understanding of the Bank and its environment obtained in the course of the audit, we have not identified any material misstatements of the Report on the Activities.

Opinion on the Statement of Compliance with Corporate Governance Principles

In our opinion, the statement of compliance with corporate governance principles contains all the information referred to in par. 70.6.5 of the Current Information Regulation. We are also of the opinion that the information referred to in par. 70.6.5(c)-(f), (h) and (i) of the Regulation, as contained in the statement of compliance with corporate governance principles, is in accordance with the applicable laws and consistent with the information included in the financial statements.

Information on Non-Financial Information

In accordance with the requirements of the Act on Statutory Auditors, we would like to inform you that the Bank prepared a separate report on non-financial information and included this information in the Report on the Activities, and also attached this report to the annual financial statements of the Bank. By the date of this audit report, the Bank had published report on non-financial information on its website.

We have not performed any assurance services relating to the separate non-financial information statement and we do not express any form of assurance conclusion thereon.

Report on Other Legal and Regulatory Requirements

Information on the compliance with the binding prudence principles

The Management Board of the Bank is responsible for compliance with prudent principles determined by separate regulations, and in particular, for correct determination of capital ratios.

Our obligation is to inform in the audit report whether the Bank complies with the applicable prudential regulations specified in separate regulations, in particular whether the Bank correctly determined the capital ratios presented in point 8.2 of the financial statements Capital management.

The purpose of the audit of the separate financial statements was not to express an opinion on the Bank's compliance with applicable prudential regulations, and therefore we do not express an opinion on this matter. Based on the work we have performed, we would like to inform you that we have not identified any cases of non-compliance by the Bank in the period from 1 January 2023 to 31 December 2023, with the applicable prudential regulations specified in separate regulations and we have not identified any misstatements in the determination by the Bank as at 31 December 2023, capital ratios in accordance with separate regulations that would have a significant impact on the separate financial statements.

Statement Concerning Provision of Non-Audit Services

To the best of our knowledge and belief, we represent that non-audit services which we have provided to the Bank and to its subsidiaries are not prohibited under Article 5.1 of the EU Regulation and Article 136 of the Act on Statutory Auditors. The non-audit services which we provided to the Bank and to its subsidiaries in the audited period are listed in point 13.5 in the Report on the Activities.

Appointment of the Auditor

We were appointed as the auditor of the Bank’s financial statements by resolution no. 58/2023 of Supervisory Board dated on 11 December 2023. This is our first year as auditor of the Company.

The key statutory auditor on the audit resulting in this independent auditor’s report is Barbara Gryszko.

Acting on behalf of Deloitte Assurance Spółka z ograniczoną odpowiedzialnością with its registered seat in Warsaw, entered under number 4260 on the list of audit firms, in the name of which the financial statements have been audited by the key statutory auditor:

Barbara Gryszko

Registered under number 13312

Warsaw, February 28, 2024