Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period

ending 31

December 2023

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Financial Highlights

Amount ‘000 PLN

Amount ‘000 EUR

1.01.2023 -

31.12.2023

1.01.2022 -

31.12.2022

1.01.2023 -

31.12.2023

1.01.2022 -

31.12.2022

Interest income and other of similar nature

8 300 383

4 900 722

1 832 962

1 045 309

Fee and commission income

912 357

906 708

201 474

193 398

Profit (loss) before income tax

1 224 773

(764 694)

270 465

(163 107)

Profit (loss) after taxes

510 259

(1 029 899)

112 680

(219 674)

Total comprehensive income of the period

1 209 770

(1 223 066)

267 152

(260 876)

Net cash flows from operating activities

13 945 189

9 697 560

3 079 496

2 068 460

Net cash flows from investing activities

(11 946 312)

1 254 962

(2 638 087)

267 680

Net cash flows from financing activities

2 166 447

(93 677)

478 413

(19 981)

Net cash flows, total

4 165 324

10 858 845

919 822

2 316 158

31.12.2023

31.12.2022

31.12.2023

31.12.2022

Total Assets

124 887 757

110 643 322

28 723 035

23 591 830

Liabilities to banks and other monetary institutions

565 384

625 144

130 033

133 296

Liabilities to customers

107 505 636

98 264 816

24 725 307

20 952 433

Equity

6 614 263

5 404 493

1 521 220

1 152 368

Share capital

1 213 117

279 006

258 666

Number of shares (pcs.)

1 213 116 777

Book value per share (in PLN/EUR)

5.45

4.46

1.25

0.95

Diluted book value per share (in PLN/EUR)

5.45

4.46

1.25

0.95

Total Capital Ratio (TCR)

19.04%

14.53%

19.04%

14.53%

Pledged or paid dividend per share (in PLN/EUR)

Exchange rates accepted to convert selected financial data into EUR

for items as at the balance sheet date

4.3480

4.6899

for items for the period covered by the report

(exchange rate calculated as the average of exchange rates

at the end of individual months of the period)

4.5284

4.6883

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Quarterly financial information

INCOME STATEMENT

Amount ‘000 PLN

1.01.2023 -

31.12.2023

1.10.2023 -

31.12.2023*

1.01.2022 -

31.12.2022

1.10.2022 -

31.12.2022*

Net interest income

5 134 504

1 255 492

3 237 781

1 312 562

Interest income and other of similar nature

8 300 383

2 080 855

4 900 722

2 005 149

Income calculated using the effective interest method

8 191 912

2 047 483

4 929 519

1 987 369

Interest income from Financial assets at amortised

cost, including:

6 385 562

1 615 466

3 696 751

1 604 806

- the impact of the adjustment to the gross

carrying amount of loans due to credit holidays

(11 404)

(1 291 600)

93 000

Interest income from Financial assets at fair value

through other comprehensive income

1 806 350

432 017

1 232 768

382 563

Result of similar nature to interest from Financial

assets at fair value through profit or loss

108 471

33 372

(28 797)

17 780

Interest expenses

(3 165 879)

(825 363)

(1 662 941)

(692 587)

Net fee and commission income

683 726

166 413

714 957

180 056

Fee and commission income

912 357

225 147

906 708

231 501

Fee and commission expenses

(228 631)

(58 734)

(191 751)

(51 445)

Dividend income

32 137

153

45 592

384

Result on derecognition of financial assets and liabilities

not measured at fair value through profit or loss

541 425

1 582

(2 377)

(638)

Results on financial assets and liabilities held for trading

47 982

50 355

(528)

(1 828)

Result on non-trading financial assets mandatorily at fair

value through profit or loss

12 359

761

25 696

14 670

Result on hedge accounting

1 160

(357)

(7 130)

(1 551)

Result on exchange differences

(76 838)

(29 243)

(203 746)

(18 692)

Other operating income

405 347

125 840

239 141

56 033

Other operating expenses

(260 264)

(63 675)

(176 977)

(73 658)

Administrative expenses

(1 713 662)

(456 226)

(1 817 488)

(399 928)

Impairment losses on financial assets

(222 266)

(50 782)

(300 641)

(70 255)

Impairment losses on non-financial assets

(84)

(31)

(3 515)

(770)

Provisions for legal risk connected with FX mortgage loans

(3 065 380)

(701 580)

(2 017 320)

(504 540)

Result on modification

(88 184)

(20 323)

(126 664)

(61 253)

Depreciation

(207 189)

(51 855)

(202 412)

(50 534)

Share of the profit of investments in subsidiaries

Banking tax

(169 063)

Profit before income taxes

1 224 773

226 524

(764 694)

380 058

Corporate income tax

(714 514)

(135 353)

(265 205)

(157 309)

Profit after taxes

510 259

91 171

(1 029 899)

222 749

* quarterly financial information has not been audited by an independent auditor

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

STATEMENT OF TOTAL COMPREHENSIVE INCOME

Amount ‘000 PLN

1.01.2023 -

31.12.2023

1.10.2023 -

31.12.2023*

1.01.2022 -

31.12.2022

1.10.2022 -

31.12.2022*

Profit after taxes

510 259

91 171

(1 029 899)

222 749

Other comprehensive income items that may be (or were)

reclassified to profit or loss

869 606

115 111

(242 703)

562 767

Result on debt securities at fair value through other

comprehensive income

671 753

92 337

(204 299)

278 172

Result on credit portfolio at fair value through other

comprehensive income

(154 014)

(55 419)

(11 255)

99 034

Hedge accounting

351 867

78 193

(27 149)

185 561

Other comprehensive income items that will not be

reclassified to profit or loss

(6 012)

4 225

4 097

Actuarial gains (losses)

(10 434)

8 367

8 477

Result on equity instruments at fair value through other

comprehensive income

4 422

(4 142)

(4 380)

Total comprehensive income items before taxes

863 594

109 099

(238 478)

566 864

Corporate income tax on other comprehensive income items

that may be (or were) reclassified to profit or loss

(165 225)

(21 871)

46 114

(106 926)

Corporate income tax on other comprehensive income items

that will not be reclassified to profit or loss

1 142

(803)

(779)

Total comprehensive income items after taxes

699 511

88 370

(193 167)

459 160

Total comprehensive income for the period

1 209 770

179 541

(1 223 066)

681 909

* quarterly financial information has not been audited by an independent auditor

 
 
 
 
 
 
 
  
 
 
 
 
 

This document is a translation of a document originally issued in Polish. 
The only binding version is the original Polish version. 
Annual Financial Report 
of the Bank Millennium S.A.  
for the 12-month period ending 31
st
 December 2023 
ANNUAL FINANCIAL STATEMENTS OF THE BANK MILLENNIUM S.A.  
FOR THE 12-MONTH PERIOD ENDING 31
ST
 DECEMBER 2023 
 
TABLE OF CONTENT 
 INCOME STATEMENT ................................................................................... 6 
 STATEMENT OF TOTAL COMPREHENSIVE INCOME ................................................ 7 
 BALANCE SHEET ........................................................................................ 8 
 STATEMENT OF CHANGES IN EQUITY ............................................................. 10 
 CASH FLOW STATEMENT ............................................................................ 11 
 GENERAL INFORMATION ABOUT ISSUER .......................................................... 13 
 ACCOUNTING POLICY ................................................................................ 14 
1.  STATEMENT OF COMPLIANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS .................. 14 
2.  STANDARDS AND INTERPRETATIONS APPLIED IN 2023 AND THOSE NOT BINDING AT THE BALANCE SHEET DATE.. 16 
3.  ADOPTED ACCOUNTING PRINCIPLES ......................................................................... 18 
 FINANCIAL RISK MANAGEMENT .................................................................... 46 
1.  RISK MANAGEMENT ........................................................................................ 46 
2.  CAPITAL MANAGEMENT .................................................................................... 51 
3.  CREDIT RISK ............................................................................................... 57 
4.  MARKET RISK AND INTEREST RATE RISK .................................................................... 78 
5.  LIQUIDITY RISK ............................................................................................ 85 
6.  OPERATIONAL RISK ........................................................................................ 89 
7.  RISK OF NEGATIVE IMPACT ON THE NATURAL ENVIRONMENT .................................................. 90 
 TRANSACTIONS WITH RELATED ENTITIES ........................................................ 91 
1.  TRANSACTIONS WITH THE SUBSIDIARIES AND PARENT’S GROUP .............................................. 91 
2.  TRANSACTIONS WITH THE MANAGING AND SUPERVISING PERSONS ........................................... 94 
3.  INFORMATION ON COMPENSATIONS AND BENEFITS OF THE PERSONS SUPERVISING AND MANAGING THE BANK ... 95 
 FAIR VALUE ........................................................................................... 96 
 CONTINGENT LIABILITIES AND ASSETS .......................................................... 101 
1.  LAWSUITS ............................................................................................... 101 
2.  OFF BALANCE SHEET ITEMS ............................................................................... 106 
 LEGAL RISK RELATED TO FOREIGN CURRENCY MORTGAGE LOANS ........................ 108 
1.  COURT CLAIMS AND CURRENT PROVISIONS ON LEGAL RISK .................................................. 108 
2.  EVENTS THAT MAY IMPACT FX MORTGAGE LEGAL RISK AND RELATED PROVISION ............................ 118 
 NOTES TO THE FINANCIAL STATEMENTS ........................................................ 119 
 INTEREST INCOME AND OTHER OF SIMILAR NATURE ........................................................ 119 
 INTEREST EXPENSE ....................................................................................... 119 
 FEE AND COMMISSION INCOME AND EXPENSE ............................................................... 120 
 DIVIDEND INCOME ........................................................................................ 120 
 RESULT ON DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AT FAIR VALUE THROUGH 
PROFIT OR LOSS .......................................................................................... 121 
 RESULTS ON FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING ........................................ 122 
 RESULTS ON NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS ..... 122 
 RESULT ON HEDGE ACCOUNTING .......................................................................... 122 
 OTHER OPERATING INCOME .............................................................................. 123 
 OTHER OPERATING EXPENSE .............................................................................. 123 
 ADMINISTRATIVE EXPENSES ............................................................................... 124 
 IMPAIRMENT LOSSES ON FINANCIAL ASSETS ................................................................ 124 

 
 
 
 
 
  
 
 

Annual Financial Report 
of the Bank Millennium S.A.  
for the 12-month period ending 31
st
 December 2023 
This document is a translation of a document originally issued in Polish. 
The only binding version is the original Polish version. 
 IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS ........................................................... 125 
 PROVISIONS FOR LEGAL RISK CONNECTED WITH FX MORTGAGE LOANS ...................................... 125 
 DEPRECIATION AND AMORTIZATION ....................................................................... 125 
 CORPORATE INCOME TAX ................................................................................. 126 
 EARNINGS PER SHARE .................................................................................... 128 
 CASH, BALANCES AT THE CENTRAL BANK .................................................................. 128 
 FINANCIAL ASSETS HELD FOR TRADING .................................................................... 129 
 NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS, OTHER THAN LOANS 
AND ADVANCES TO CUSTOMERS ........................................................................... 131 
 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME............................... 131 
 LOANS AND ADVANCES TO CUSTOMERS .................................................................... 132 
 FINANCIAL ASSETS AT AMORTISED COST OTHER THAN LOANS AND ADVANCES TO CUSTOMERS ................ 138 
 DERIVATIVES – HEDGE ACCOUNTING ...................................................................... 141 
 INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES .......................................... 145 
 TANGIBLE FIXED ASSETS .................................................................................. 148 
 INTANGIBLE FIXED ASSETS ................................................................................ 151 
 DEFERRED INCOME TAX  ASSETS........................................................................... 154 
 OTHER ASSETS ........................................................................................... 156 
 NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE ............................... 157 
 FINANCIAL LIABILITIES HELD FOR TRADING ................................................................ 157 
 LIABILITIES TO BANKS AND OTHER MONETARY INSTITUTIONS ............................................... 157 
 LIABILITIES TO CUSTOMERS ............................................................................... 158 
 SALE AND REPURCHASE AGREEMENTS ..................................................................... 159 
 DEBT SECURITIES ISSUED ................................................................................. 159 
 SUBORDINATED DEBT ..................................................................................... 160 
 PROVISIONS ............................................................................................. 161 
 OTHER LIABILITIES ....................................................................................... 162 
 EQUITY .................................................................................................. 163 
 FINANCIAL LIABILITIES BY CONTRACTUAL MATURITY ....................................................... 167 
 SUPPLEMENTARY INFORMATION ................................................................. 169 
1.  2022 DIVIDEND .......................................................................................... 169 
2.  DATA ABOUT ASSETS, WHICH SECURE LIABILITIES .......................................................... 169 
3.  SECURITIES COVERED BY TRANSACTIONS WITH A BUY-BACK CLAUSE (SBB) ................................. 170 
4.  OFFSETTING OF ASSETS AND LIABILITIES ON THE BASIS OF ISDA AGREEMENTS .............................. 171 
5.  ADDITIONAL EXPLANATIONS TO THE CASH FLOW STATEMENT ............................................... 171 
6.  INFORMATION ON CUSTODY ACTIVITY ..................................................................... 172 
7.  SHARE BASED PAYMENTS ................................................................................. 172 
8.  ADDITIONAL INFORMATION AND OTHER ESSENTIAL EVENTS BETWEEN THE DATE, FOR WHICH THE FINANCIAL 
REPORT WAS PREPARED AND ITS PUBLICATION DATE ....................................................... 174 
 
   

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

1. Income Statement

Amount ‘000 PLN

Note

1.01.2023 -

31.12.2023

1.01.2022 -

31.12.2022

Net interest income

5 134 504

3 237 781

Interest income and other of similar nature

8 300 383

4 900 722

Income calculated using the effective interest method

8 191 912

4 929 519

Interest income from Financial assets at amortised cost, including:

6 385 562

3 696 751

- the impact of the adjustment to the gross carrying amount of loans due

to credit holidays

(11 404)

(1 291 600)

Interest income from Financial assets at fair value through other comprehensive

income

1 806 350

1 232 768

Result of similar nature to interest from Financial assets at fair value through

profit or loss

108 471

(28 797)

Interest expenses

(3 165 879)

(1 662 941)

Net fee and commission income

683 726

714 957

Fee and commission income

912 357

906 708

Fee and commission expenses

(228 631)

(191 751)

Dividend income

32 137

45 592

Result on derecognition of financial assets and liabilities not measured at fair value

through profit or loss

541 425

(2 377)

Results on financial assets and liabilities held for trading

47 982

(528)

Result on non-trading financial assets mandatorily at fair value through profit or loss

12 359

25 696

Result on hedge accounting

1 160

(7 130)

Result on exchange differences, including:

(76 838)

(203 746)

- costs of settlements on foreign currency mortgage loans

(273 791)

(382 239)

Other operating income

405 347

239 141

Other operating expenses

(260 264)

(176 977)

Administrative expenses

(1 713 662)

(1 817 488)

Impairment losses on financial assets

(222 266)

(300 641)

Impairment losses on non-financial assets

(84)

(3 515)

Provisions for legal risk connected with FX mortgage loans

(3 065 380)

(2 017 320)

Result on modification, including:

(88 184)

(126 664)

- costs of settlements on foreign currency mortgage loans

(52 227)

(102 153)

Depreciation

(207 189)

(202 412)

Share of the profit of investments in subsidiaries

Banking tax

(169 063)

Profit before income taxes

1 224 773

(764 694)

Corporate income tax

(714 514)

(265 205)

Profit after taxes

510 259

(1 029 899)

Notes on pages 13-176 are integral part of these financial statements.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

2. Statement of Total Comprehensive Income

Amount ‘000 PLN

1.01.2023 -

31.12.2023

1.01.2022 -

31.12.2022

Profit after taxes

510 259

(1 029 899)

Other comprehensive income items that may be (or were) reclassified to profit or loss

869 606

(242 703)

Result on debt securities at fair value through other comprehensive income

671 753

(204 299)

Result on credit portfolio at fair value through other comprehensive income

(154 014)

(11 255)

Hedge accounting

351 867

(27 149)

Other comprehensive income items that will not be reclassified to profit or loss

(6 012)

4 225

Actuarial gains (losses)

(10 434)

8 367

Result on equity instruments at fair value through other comprehensive income

4 422

(4 142)

Other comprehensive income items before taxes

863 594

(238 478)

Corporate income tax on other comprehensive income items that may be (or were)

reclassified to profit or loss

(165 225)

46 114

Corporate income tax on other comprehensive income items that will not be reclassified to

profit or loss

1 142

(803)

Other comprehensive income items after taxes

699 511

(193 167)

Total comprehensive income for the period

1 209 770

(1 223 066)

Notes on pages 13-176 are integral part of these financial statements.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

3. Balance Sheet

ASSETS

Amount '000 PLN

Note

31.12.2023

31.12.2022

Cash, cash balances at central banks

5 094 984

9 536 090

Financial assets held for trading

609 252

363 618

Derivatives

498 577

339 295

Equity instruments

121

113

Debt securities

110 554

24 210

Non-trading financial assets mandatorily at fair value through profit or loss, other than

Loans and advances to customers

147 623

201 036

Equity instruments

66 609

128 979

Debt securities

81 014

72 057

Financial assets at fair value through other comprehensive income

21 924 652

16 438 458

Equity instruments

28 789

24 393

Debt securities

21 895 863

16 414 065

Loans and advances to customers

72 405 446

75 855 606

Mandatorily at fair value through profit or loss

19 349

97 982

Fair valued through other comprehensive income

11 799 748

11 221 252

Valued at amortised cost

60 586 349

64 536 372

Financial assets at amortised cost other than Loans and advances to customers

21 469 710

5 308 320

Debt securities

18 439 780

3 893 212

Deposits, loans and advances to banks and other monetary institutions

1 866 688

1 410 245

Reverse sale and repurchase agreements

1 163 242

4 863

Derivatives – Hedge accounting

74 213

135 804

Investments in subsidiaries, joint ventures and associates

399 223

247 823

Tangible fixed assets

553 087

557 542

Intangible fixed assets

481 128

432 820

Income tax assets

368 279

643 196

Current income tax assets

Deferred income tax assets

368 279

643 196

Other assets

1 360 160

923 009

Non-current assets and disposal groups classified as held for sale

Total assets

124 887 757

110 643 322

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

LIABILITIES AND EQUITY

Amount '000 PLN

Note

31.12.2023

31.12.2022

LIABILITIES

Financial liabilities held for trading

579 331

384 928

Derivatives

576 611

380 144

Liabilities from short sale of securities

2 720

4 784

Financial liabilities measured at amortised cost

112 664 017

100 701 796

Liabilities to banks and other monetary institutions

565 384

625 144

Liabilities to customers

107 505 636

98 264 816

Sale and repurchase agreements

Debt securities issued

3 027 952

243 753

Subordinated debt

1 565 045

1 568 083

Derivatives – Hedge accounting

193 664

554 544

Provisions

1 444 173

1 015 266

Pending legal issues

1 401 798

975 092

Commitments and guarantees given

42 375

40 174

Income tax liabilities

460 456

31 662

Current income tax liabilities

460 456

31 662

Deferred income tax liabilities

Other liabilities

2 931 853

2 550 633

Total Liabilities

118 273 494

105 238 829

EQUITY

Share capital

1 213 117

Own shares

(21)

Share premium

1 147 241

Accumulated other comprehensive income

(139 342)

(838 853)

Retained earnings, including:

4 393 268

3 883 009

- current profit /loss

510 259

(1 029 899)

- other

3 883 009

4 912 908

Total equity

6 614 263

5 404 493

Total equity and total liabilities

124 887 757

110 643 322

31.12.2023

31.12.2022

Book value of net assets

6 614 263

5 404 493

Number of shares (pcs.)

1 213 116 777

Book value per share (in PLN)

5.45

4.46

Notes on pages 13-176 are integral part of these financial statements.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

4. Statement of Changes in Equity

Amount ‘000 PLN

Total

equity

capital

Own

premium

Accumulated

other

comprehensive

income

Retained earnings

Unappropriated

result

Other

reserves

01.01.2023 – 31.12.2023

Equity at the beginning

of the period

5 404 493

1 213 117

(21)

1 147 241

(838 853)

(1 029 899)

4 912 908

Total comprehensive

income for 2023 (net)

1 209 770

699 511

510 259

current profit /loss

510 259

other comprehensive

income items after

taxes

699 511

Purchase and transfer of

own shares to employees

Transfer between items of

reserves

1 029 899

(1 029 899)

Equity at the end of the

period

6 614 263

1 213 117

(21)

1 147 241

(139 342)

510 259

3 883 009

Amount ‘000 PLN

Total

equity

capital

Own

premium

Accumulated

other

comprehensive

income

Retained earnings

Unappropriated

result

Other

reserves

01.01.2022 – 31.12.2022

Equity at the beginning

of the period

6 632 182

1 213 117

(21)

1 147 241

(645 686)

(1 357 452)

6 274 983

Total comprehensive

income for 2022 (net)

(1 223 066)

(193 167)

(1 029 899)

current profit /loss

(1 029 899)

other comprehensive

income items after

taxes

(193 167)

Purchase and transfer of

own shares to employees

(4 623)

Transfer between items

of reserves

1 357 452

(1 357 452)

Equity at the end of the

period

5 404 493

1 213 117

(21)

1 147 241

(838 853)

(1 029 899)

4 912 908

Detailed information concerning changes in different equity items are presented in the note (39).

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

5. Cash Flow Statement

A. Cash flows from operating activities

Amount ‘000 PLN

1.01.2023 -

31.12.2023

1.01.2022 -

31.12.2022

Profit (loss) after taxes

510 259

(1 029 899)

Total adjustments:

13 434 930

10 727 459

Interest received

7 783 242

4 533 681

Interest paid

(2 835 628)

(1 318 210)

Depreciation and amortization

207 189

202 412

Foreign exchange (gains)/ losses

Dividends

(32 137)

(45 592)

Changes in provisions

428 907

420 861

Result on sale and liquidation of assets

(643 337)

3 030

Change in financial assets held for trading

142 502

(306 034)

Change in loans and advances to banks

(167 390)

(394 536)

Change in loans and advances to customers

(3 087 504)

(1 615 669)

Change in receivables from securities bought with sell-back clause (loans and advances)

(1 226 207)

237 879

Change in financial liabilities valued at fair value through profit and loss (held for trading)

(166 477)

181 490

Change in deposits from banks

(39 152)

471 373

Change in deposits from customers

11 984 160

7 835 818

Change in liabilities from securities sold with buy-back clause

35 178

34 833

Change in debt securities

509 530

243 753

Change in income tax settlements

744 479

265 139

Income tax paid

(204 851)

(222 967)

Change in other assets and liabilities

(128 685)

84 995

Other

131 111

115 203

Net cash flows from operating activities

13 945 189

9 697 560

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

B. Cash flows from investing activities

Amount ‘000 PLN

1.01.2023 -

31.12.2023

1.01.2022 -

31.12.2022

Inflows:

474 152 795

157 367 900

Proceeds from sale of property, plant and equipment and intangible assets

9 150

3 204

Proceeds from sale of shares in related entities

600 000

12 161

Proceeds from sale of investment financial assets

473 511 508

157 306 943

Other

32 137

45 592

Outflows:

(486 099 107)

(156 112 938)

Acquisition of property, plant and equipment and intangible assets

(184 006)

(138 079)

Purchase of shares in subordinated companies

(99 000)

(51 095)

Acquisition of investment financial assets

(485 816 101)

(155 923 764)

Other

Net cash flows from investing activities

(11 946 312)

1 254 962

C. Cash flows from financing activities

Amount ‘000 PLN

1.01.2023 -

31.12.2023

1.01.2022 -

31.12.2022

Inflows from financing activities:

2 316 276

Long-term bank loans

Issue of debt securities

2 316 276

Increase in subordinated debt

Net proceeds from issues of shares and additional capital paid-in

Other inflows from financing activities

Outflows from financing activities:

(149 829)

(93 677)

Repayment of long-term bank loans

(5 000)

(10 000)

Redemption of debt securities

Decrease in subordinated debt

Issue of shares expenses

Redemption of shares

Dividends paid and other payments to owners

Other outflows from financing activities

(144 829)

(83 677)

Net cash flows from financing activities

2 166 447

(93 677)

D. Net cash flows. Total (A + B + C)

4 165 324

10 858 845

- including change resulting from FX differences

(21 705)

4 630

E. Cash and cash equivalents at the beginning of the reporting period

14 231 089

3 372 244

F. Cash and cash equivalents at the end of the reporting period (D + E)

18 396 413

14 231 089

Additional information regarding cash flows statement is presented in point 5) of chapter 14.

“Supplementary information”. Information on liabilities classified as financing activities is presented

in points 32), 35), 36) of chapter 13. “Notes to the Financial Statements”.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

6. General Information about Issuer

Bank Millennium S.A. (the Bank) is a universal bank that operates in Poland, offering its services to all

market segments via a network of branches, corporate centers, individual advisors and mobile and

electronic banking.

The Bank, entered under the number KRS 0000010186 in the National Court Register kept by the Local

Court for the Capital City of Warsaw (Poland), 13th Business Department of the National Court

The Bank is listed on the Warsaw Stock Exchange since 1992, first Bank ever to float its shares on the

WSE.

The Bank is a parent company of a Bank Millennium Capital Group (the Group) with over 6,700 employees

with core business comprising banking, leasing, factoring, brokerage, capital operations, investment

fund management and web portals activity.

Supervisory Board and Management Board of Bank Millennium S.A. as at 31 December 2023

Composition of the Supervisory Board as at 31 December 2023 was as follows:

▪ Bogusław Kott - Chairman of the Supervisory Board,

▪ Nuno Manuel da Silva Amado – Deputy Chairman of the Supervisory Board,

▪ Dariusz Rosati – Deputy Chairman and Secretary of the Supervisory Board,

▪ Miguel de Campos Pereira de Bragança – Member of the Supervisory Board,

▪ Olga Grygier-Siddons – Member of the Supervisory Board,

▪ Anna Jakubowski – Member of the Supervisory Board,

▪ Grzegorz Jędrys – Member of the Supervisory Board,

▪ Alojzy Nowak – Member of the Supervisory Board,

▪ Jose Miguel Bensliman Schorcht da Silva Pessanha – Member of the Supervisory Board

▪ Miguel Maya Dias Pinheiro – Member of the Supervisory Board,

▪ Beata Stelmach – Member of the Supervisory Board

▪ Lingjiang Xu – Member of the Supervisory Board.

Composition of the Management Board as at 31 December 2023 was as follows:

▪ Joao Nuno Lima Bras Jorge – Chairman of the Management Board,

▪ Fernando Maria Cardoso Rodrigues Bicho – Deputy Chairman of the Management Board,

▪ Wojciech Haase – Member of the Management Board,

▪ Andrzej Gliński – Member of the Management Board,

▪ Wojciech Rybak – Member of the Management Board,

▪ Antonio Ferreira Pinto Júnior – Member of the Management Board,

▪ Jarosław Hermann – Member of the Management Board.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

7. Accounting Policy

7.1. STATEMENT OF COMPLIANCE WITH THE INTERNATIONAL FINANCIAL

REPORTING STANDARDS

These financial statements of the Bank have been prepared in accordance with International Financial

Reporting Standards (‘IFRS’), as adopted by the European Union and with respect to matters not

regulated by the above standards, in accordance with the accounting principles as set out in the

Accounting Act dated 29 September 1994 (unified text - Official Journal from 2023, item 120) and the

respective bylaws and regulations and the requirements for issuers of securities admitted or sought

to be admitted to trading on an official stock-exchange listing market. These financial statements

meet the reporting requirements described in the Regulation of the Minister of Finance of March 29,

2018 regarding current and periodic information published by issuers of securities and conditions for

recognizing as equivalent information required by the laws of a non-member state (Journal of Laws

of 2018, item 757).

This financial report was approved for publication by the Management Board on 28 February 2024.

Following the signing by the President of the Republic of Poland and announcement in the Journal of

Laws of the Republic of Poland on the same day of the Act of 7 July 2022 on crowdfunding for business

ventures and assistance to borrowers (‘the Act’), introducing, among others, a possibility of up to 8

months of Credit Holidays in 2022-2023 for PLN mortgage borrowers, the Group recorded in 2022 a

pre-tax cost of PLN 1,324.2 million (PLN 1,072,6 million after tax), of which PLN 1,291.6 million

related to the Bank, and PLN 32.6 million related to Millennium Bank Hipoteczny S.A.

Due to costs generated as a result of the above mentioned Act, it could be reasonably assumed that

the Bank would record a negative net result for the 3rd quarter of 2022 and as a result its capital

ratios could fall below the current minimum requirements set by Polish Financial Supervision Authority

(‘PFSA’). As the emergence of risk of a breach of respective capital ratios represents a prerequisite

stipulated in the art. 142 sec. 1 and 2 of the Banking Act of 29 August 1997 (Journal of Laws 2021,

item 2439, i.e. 28 December 2021, as amended), on July 15

the Management Board of the Bank took

a decision to launch the Recovery Plan, notifying of the fact both PFSA and Bank Guarantee Fund.

Additionally, the Bank has also submitted to PFSA the Capital Protection Plan, pursuant to the Article

60 sec. 1 of the Act of 5 August 2015 on macroprudential supervision of the financial system and crisis

management in the financial system (Journal of Laws of 2022, item 963, i.e. of 6 May 2022, as

amended). PFSA approved this plan on 28th October 2022 and communicated this fact to the Bank on

14th November 2022.

In 2023 Bank continued to realize Capital Protection Plan (and Recovery Plan, which according to the

rules of the banking law is updated yearly), which foresaw the increase of capital ratios comfortably

above the minimum required levels through a combination of further improvement of operational

profitability and capital optimization initiatives such as management of risk weighted assets (including

securitizations).

Since the launch of the Capital Protection Plan, the Bank/Group has managed to significantly improve

its capital ratios, placing them clearly above the new regulatory requirements: as at December 31,

2023, the Tier 1 ratio was 555 bps (Bank) and 488 bps (Group) above the minimum requirement, and

the total capital ratio (TCR) was 682 bps (Bank) and 585 bps (Group) above the minimum requirement.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

As part of the capital improvement initiatives, in 2023, the Group completed two synthetic

securitization transactions: the first was completed in July and concerned a portfolio of leasing

receivables, while the second one was completed in December and concerned a cash loan portfolio.

As part of these transactions, the Bank/Group transferred a significant part of the credit risk of the

securitized portfolios to investors. Assuming no extraordinary factors, the Bank/Group plans to

maintain capital ratios above the minimum required levels with a safe surplus.

In terms of MRELtrea and MRELtem requirements, the Group presents a surplus compared to the

minimum levels required as at December 31, 2023, and also meets the MRELtrea requirement after

the inclusion of the Combined Buffer Requirement. Assuming no extraordinary factors, the Group

plans to maintain both MREL ratios above the minimum required levels with a safe surplus.

The Bank monitors, on the current basis, the financial situation and, if needed, will undertake actions

to launch additional remedial activities. In particular, the Bank is aware of potential risks connected

with potential extension of so-called Credit Holidays for 2024. If such risk would materialize, it could

imply additional provisions that would decrease the net result of the Bank/Group. Additionally,

further negative developments regarding the legal risk of FX mortgage loans could imply the need to

increase the level of provisions for such risk apart from the provisions that might result from current

trends. In the Bank’s view, these events, if materialized, would adversely affect the results of the

Bank/Group in 2024, and would reduce the organic generation of capital that is envisaged, but would

not prevent the Bank/Group from continuing to implement its strategy and the generation of results

that would mitigate the impact of such events.

The liquidity position of Bank Millennium Group remained strong in 2023. LCR ratio reached the level

of 327% at the of December 2023, well above the supervisory minimum of 100%. Loan-to-deposit ratio

remained at secure level of 69% and the share of liquid debt securities (mainly bonds issued by the

sovereigns, multilateral development banks and NBP bills) in the Group’s total assets remains

significant at 32%.

At same time the Bank achieved good operational and business results, while actively managing and

mitigating the different risks related to the banking activity. Taking into account the above

circumstances and identified uncertainties, in particular, the Bank's capacity to meet capital solvency

ratios and MREL requirements in subsequent reporting periods - the Bank's Management Board based

on the analysis of all aspects of the Bank's operations and its current and forecast financial position,

concluded that the application of the going concern assumption in the preparation of these financial

statements is appropriate.

In 2023, the Bank did not change its accounting principles or the method of financial data

presentation.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

7.2. STANDARDS AND INTERPRETATIONS APPLIED IN 2023 AND THOSE

NOT BINDING AT THE BALANCE SHEET DATE

STANDARDS INITIALLY APPLIED IN FINANCIAL STATEMENTS 2023

The following amendments to existing standards issued by the International Accounting Standards

Board (IASB) and approved for use in the EU were first applied in the Bank's financial statements for

2023:

Standard

Title

IFRS 17

New standard IFRS 17 “Insurance Contracts” including the June 2020 and

December 2021 Amendments to IFRS 17

Amendments to IAS 1

Disclosure of Accounting Policies

Amendments to IAS 8

Definition of Accounting Estimates

Amendments to IAS 12

Deferred Tax related to Assets and Liabilities arising from a Single Transaction

Amendments to IAS 12

International Tax Reform — Pillar Two Model Rules*

* exception specified in amendments to IAS 12 (that an entity does not recognise and does not disclose information about

deferred tax assets and liabilities related to the OECD pillar two income taxes) is applicable immediately upon issuance of the

amendments and retrospectively in accordance with IAS 8. The remaining disclosure requirements are required for annual

reporting periods beginning on or after 1 January 2023.

The adoption of mentioned above amendments to the existing standards has not led to any material

changes in the Bank’s financial statements 2023.

INFORMATION REGARDING ISSUED STANDARDS AND AMENDMENTS TO THE EXISTING STANDARDS ISSUED BY IASB AND

ADOPTED BY THE EU BUT NOT YET EFFECTIVE

Standards and amendments to the existing standards issued by IASB and adopted by the EU but not

yet effective:

Standard

Title

Effective date

Amendments to IFRS 16

Lease Liability in a Sale and Leaseback

1 January 2024

Amendments to IAS 1

Classification of Liabilities as Current or Non-

Current and Non-current Liabilities with

Covenants

1 January 2024

The Bank anticipates that the adoption of the aforementioned standard and amendments to existing

standards will have no material impact on the financial statements of the Bank.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

NEW STANDARDS AND AMENDMENTS TO THE EXISTING STANDARDS ISSUED BY IASB BUT NOT YET ADOPTED BY THE EU

At present, IFRS as adopted by the EU do not significantly differ from regulations adopted by the

International Accounting Standards Board (IASB) except for the following new standards and

amendments to the existing standards, which were not endorsed for use in EU:

Standard

Title

EU adoption status

Amendments to IFRS

Lease Liability in a Sale and Leaseback

(IASB effective date: 1 January 2024)

Not yet adopted by EU

Amendments to IAS 7

and IFRS 7

Supplier Finance Arrangements

(IASB effective date: 1 January 2024)

Not yet adopted by EU

Amendments to IAS 21

Lack of Exchangeability

(IASB effective date: 1 January 2025)

Not yet adopted by EU

IFRS 14

Regulatory Deferral Accounts

(IASB effective date: 1 January 2016)

the European Commission has

decided not to launch the

endorsement process of this

interim standard and to wait

for the final standard

Amendments to IFRS

10 and IAS 28

Sale or Contribution of Assets between an

Investor and its Associate or Joint Venture and

further amendments (effective date deferred by

IASB indefinitely but earlier application

permitted)

Endorsement process

postponed indefinitely until

the research project on the

equity method has been

concluded

The Bank anticipates that the adoption of the aforementioned standard and amendments to existing

standards will have no material impact on the financial statements of the Bank.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

7.3. ADOPTED ACCOUNTING PRINCIPLES

Basis of Financial Statements Preparation

Financial statements of the Bank are prepared for the financial year from 1 January 2023 to 31

December 2023 on the basis of the going concern assumption of the Bank, namely scale of business is

not to be reduced substantially in a period of not less than one year from the balance sheet date.

The financial statements have been prepared in PLN, and all values, unless otherwise indicated, are

given in PLN rounded to one thousand.

The financial statements, have been prepared based on the fair value principle for financial assets

and liabilities recognised at FVTPL including derivative instruments, and financial assets classified as

FVTOCI. Other items of financial assets and liabilities (including loans and advances) are presented at

amortized cost with effective interest rate applied less impairment charges (except loans which failed

SPPI test), or at their purchase price less impairment charges.

The preparation of financial statements in accordance with IFRS, as adopted by the EU, requires from

the management the use of estimates and assumptions that affect applied accounting principles and

the amounts (assets, liabilities, incomes and costs) reported in the financial statements and notes

thereto. The respective unit of the Bank is responsible for selection, application, development, and

verification of adopted estimations; the assumptions are then subject to approval by the Bank’s

management.

Estimations and assumptions applied to the presentation of value of assets, liabilities, revenues and

costs, are made on basis of historical data available and other factors considered to be relevant in

given circumstances. Applied assumptions related to the future and available data sources are the

base for making estimations regarding carrying value of assets and liabilities, which cannot be

determined explicitly on basis of other sources. The actual results may differ from those estimates.

The conformity between actual results and adopted estimations and assumptions is verified on regular

basis. Adjustments to estimates are recognized in the period when the estimation was changed,

provided that the adjustment applies to this period alone, or in the period when the estimation was

changed and in the following periods, should the adjustment impact both the current and future

periods.

The below-presented accounting principles have been applied to all reporting periods presented in

the financial statements.

Functional currency and presentation currency

The items contained in the financial statements of the Bank are presented in the currency of their

basic economic environment, in which a given entity operates (‘the functional currency’). The

financial statements are presented in Polish zlotys, being the functional currency and the presentation

currency for the Bank.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Transactions and balances

Transactions expressed in foreign currency are translated into the functional currency by applying the

exchange rate at the date of the transaction. Exchange rate profits and losses due to settlements of

these transactions and to the balance sheet valuation of assets and monetary commitments expressed

in foreign currency are accounted for in the profit and loss account.

Exchange rate differences on monetary items, both those valued at fair value through the profit and

loss account or valued at fair value through other comprehensive income are disclosed in the profit

and loss account.

Exchange rate differences on non-monetary items valued at fair value through the profit and loss, are

accounted in the profit and loss account. Exchange rate differences due to items, such as equity

instruments valued at fair value through other comprehensive income, are included in Other

comprehensive income.

Mergers under joint control

In the case of mergers of the Capital Group companies (transaction under joint control), the Bank

adopts the accounting principle consisting in the application of the "predecessor accounting" method.

In the separate financial statements, the Bank recognizes the carrying amounts of the assets and

liabilities of the acquiree that is a subsidiary according to the values included in the consolidated

financial statements of the Capital Group in relation to this subsidiary, including also goodwill arising

on the acquisition of this subsidiary.

A possible difference between the carrying amount of the net assets acquired after the adjustments

referred to above and the value of investments in a subsidiary disclosed in the separate financial

statements of the Bank is recognized in equity as "Retained earnings".

The net financial result achieved by the company being acquired up to the day preceding the date of

merger is disclosed in the Bank's financial statements under equity as "Retained earnings".

Application of estimates in connection with Accounting Policies

The preparation of financial statements in accordance with IFRS requires from the Bank the use of

estimates and assumptions that affect the amounts reported in the financial statements.

The estimates and assumptions, revised by the Bank management on a regular basis, are made on

basis of historical experience and other factors, including expectations concerning future events,

considered being relevant in given circumstances.

Despite the fact, that such estimates are based on best knowledge about current conditions and

activities undertaken by the Bank, the actual results may differ from the estimates. The major areas

for which the Bank makes estimates are presented below:

▪ Impairment of loans and advances

Impairment estimation model within the Bank has been based on the concept of “expected credit

loss”, (hereinafter: ECL). In result impairment charges are calculated based on expected credit losses

and forecasts of expected future economic conditions have to be taken into account when conducting

evaluation of credit risk of an exposure.

The methodology and assumptions adopted for determining credit impairments are regularly reviewed

in order to reduce discrepancies between the estimated and actual losses. In order to assess the

adequacy of the impairment determined both in individual analysis and collective analysis a historical

verification (backtesting) is conducted from time to time (at least once a year), which results will be

taken into account in order to improve the quality of the process.

Further details are presented in Chapter 8. “Financial Risk Management”.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

▪ Fair value of financial instruments

Fair value of financial instruments not quoted on active markets is determined with use of

measurement techniques consistent with the Bank’s accounting policy. With respect to non-option

derivatives and debt securities use is made of models based on discounted cash flows. Option pricing

models are applied to option instruments. All models are approved prior to use and also calibrated to

ensure that attained results reflect the actual fair value of the measured instruments. If possible,

only observable data from the active market are used in the models.

In case of lack of measurement parameters coming from the active market, fair value is determined

on the basis of application of measurement techniques using estimated input parameters.

The Bank measures financial instruments using the measurement methods below in the following

hierarchical order:

▪ Prices quoted on the active market for identical instruments for following financial instruments:

Treasury fixed-coupon, zero-coupon debt securities and floating interest debt securities;

▪ Techniques of measurement based on parameters coming from the market for following financial

instruments:

Treasury floating interest debt securities,

Derivatives:

▪ FRA, IRS, CIRS,

▪ FX Swap, FX Forward,

▪ Embedded derivatives,

Bills issued by the Central Bank;

▪ Techniques of measurement with use of significant parameters not coming from the market:

Debt securities of other issuers (e.g. municipalities),

Shares of VISA Incorporation,

Loans and advances mandatorily at fair value through profit or loss,

Derivatives:

▪ FX Options acquired by the Bank,

▪ Indexes options acquired/placed by the Bank.

In order to determine the fair value of VISA preferred shares, the time value of money and the

time line for conversion of preferred stock in common stock of VISA were taken into account.

To estimate the fair value of loans, due to the lack of availability of the market value, an internal

valuation model was used, taking into account the assumption that at the time of granting the

loan the fair value is equal to transaction price.

The fair value of loans without recognized impairment is equal to the sum of future expected cash

flows discounted at the balance sheet date. The discounting rate is the sum of: the cost of risk,

the cost of financing, the value of the expected return.

The fair value of impaired loans is equal to the sum of future expected recoveries discounted using

the effective interest rate, recognizing that the average expected recoveries fully take into

account the element of credit risk.

For derivative financial instruments valuation the Bank applies the component of credit risk taking

into account both: counterparty risk (credit value adjustment – CVA) and own Bank’s risk (debit

value adjustment - DVA). The Bank assesses that unobservable inputs related to applying this

component used for fair value measurement are not significant.

▪ Impairment of other non-current assets

The Bank assesses the existence of any indications that a non-current asset may be impaired at each

balance sheet date. If such indications exist, the Bank performs an estimation of recoverable amount.

Estimation of value-in-use of a non-current asset (or cash generating units) requires assumptions to

be adopted, regarding, among others, amounts and timing of future cash flows, which the Bank may

obtain from the given non-current asset (or cash generating unit). The Bank performs an estimation

of the fair value less costs to sell on the basis of available market data regarding this subject or

estimations made by external parties.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

▪ Provisions for legal risk connected with FX mortgage loans

The Bank estimated the impact of legal risk on the recoverability of the expected cash flows resulting

from concluded contracts for the active portfolio of mortgage loans in CHF, adjusting, in accordance

with point B5.4.6 of IFRS 9, the gross carrying amount of the portfolio by reducing the expected cash

flows from mortgage loan contracts denominated or indexed to CHF, and recognized a provision in

accordance with International Accounting Standard 37 Provisions, Contingent Liabilities and

Contingent Assets (“IAS 37”) for fully repaid loans and in a situation where the gross carrying amount

of the loan was lower than the value of the assessed risk.

A detailed description of the adopted valuation methodology is presented in Chapter 12 "Legal risk

related to foreign currency mortgage loans".

• Adjustment due to credit holidays

The way the adjustment has been recognised is presented later in this Chapter.

• Valuation of the portfolio of loans dedicated to pooling to Mortgage Bank

In the case of the portfolio of mortgage loans in PLN, which will be subject to sale (pooling) to

Mortgage Bank in the future, it is measured at fair value through other comprehensive income.

The fair value of the loans is calculated as the sum of discounted cash flows from principal repayments

and interest payments on individual accounts.

Key assumptions:

i) for loans, the starting point for determining the projected cash flows (interest and principal

installments) are the schedules of principal and interest

ii) the calculation of the discount rate adopted to estimate the value of cash flows takes into

account: the WIBOR reference rate, the calibration margin determined on the basis of the latest

production of the mortgage loan portfolio analogous to the valued portfolio, the cost of risk of

the valued portfolio and the percentage of prepayment adjustment.

▪ Provisions for potential returns of costs associated with loans in case of early repayment

Taking into consideration The Court of Justice of the European Union verdict, in which it stated that

consumer has rights to demand the reduction of the total loan cost corresponding to interest and

costs for the remaining term of the agreement in case of early repayment of loan, Bank creates a

provision for potential returns to the clients. The provision is estimated based on the maximum

amount of potential returns and the probability of payment being made.

▪ Other Estimate Values

Retirement provision is calculated using an actuarial method by an independent actuary as the present

value of future liabilities of the Bank due to employees based on headcount and remuneration as of

the date of the update. The estimation of the provision is made on the basis of several assumptions,

regarding macroeconomic conditions and employee turnover, mortality risk and other.

With regard to employee benefits, such as bonuses granted to directors and key management

personnel, bonuses for employees, the Management Board makes assumptions and estimates

regarding the amount of benefits as at the balance sheet date. The final amount of bonuses granted

is established by Personnel Committee of the Management Board or Personnel Committee of the

Supervisory Board.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Financial assets and liabilities

Classification

In accordance with the IFRS 9 requirements financial assets are classified at the moment of their

initial recognition (and the date of IFRS implementation) into one of three categories:

1) Financial assets valued at amortised cost (herein from „AC” – Amortised Cost),

2) Financial assets valued at fair value through profit & loss (herein from „FVTPL),

3) Financial assets valued at fair value through other comprehensive income (herein from „FVTOCI”).

The classification of financial instruments into one of the above categories is performed based on:

1) The business model of managing financial assets,

The assessment of the business model is aimed at determining whether the financial asset is

held:

▪ to collect contractual cash flows resulting from the contract,

▪ both in order to collect contractual cash flows arising from the contract and the sale of

a financial asset or

▪ for other business purposes.

2) Test of contractual cash flow characteristics connected with financial assets (herein from „SPPI

test”).

The purpose of the SPPI test (Solely Payment of Principal and Interest) is to assess the

characteristics of contract cash flows in order to verify if:

▪ The contractual terms trigger, at specific dates, certain cash flows which constitute

solely a payment of principal and interest on such principal,

▪ The principal constitutes the fair value of a loan at the moment of its recognition,

▪ The interest reflects the value of money over time and credit risk, liquidity risk, the

Bank’s margin and other administrative costs connected with the value of the principal

outstanding at any given moment.

Financial instruments are classified at the moment of recognition or significant modification of the

instrument. A change in the classification of financial assets is caused by a change in the business

model. Reclassification is made prospectively, i.e. it does not affect fair value measurements, write-

downs or accrued interests recorded to the date of reclassification.

Business Models of the Bank

In accordance with IFRS 9 the manner of assets management may be assigned to the following models:

1) Held To Collect (herein from „HTC”),

2) Both Held to Collect and for Sale (herein from “HTC&FS”),

3) Other models, e.g. trading activity, management of assets based on fair value fluctuations,

maximising cash flows through sales.

Held To Collect Model (HTC)

Model characteristics:

1) The objective of the model is to hold financial assets in order to collect their contractual cash

flows,

2) Sales are infrequent,

3) In principle, lower levels of sales compared to other models (in terms of frequency and volume).

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Conditions allowing sale in the HTC model:

1) Low frequency,

2) Low volume,

3) Sale connected with credit risk (sale caused by the deterioration of the credit quality of a given

financial asset to a level at which it no longer meets the investment policy requirements).

A sale having at least one of the above features does not preclude qualifying a group of assets in the

HTC module.

Impact on classification and valuation:

Instruments assigned to the HTC model are classified as valued at amortised cost (AC) on condition

that the criteria of the SPPI Test are met. The value of instruments is calculated based on effective

interest rate which is applied to determine interest income and then adjusted for impairment

allowances reflecting expected credit losses. Consequently, subject to valuation at amortised cost is

the Bank’s credit portfolio (except loans not meeting the SPPI test) and debt securities issued by local

government units (municipal bonds portfolio), because these instruments in principle are held by the

Bank in order to collect contract cash flows, while sales transactions occur infrequently.

Both Held to Collect and for Sale Model (HTC&FS)

Model characteristics:

1) The integral objectives of the business model are both to collect contractual cash flows and sell

assets (in particular the model meets the assumptions of HTC&FS, if its objective is to manage

everyday liquidity needs, maintain an adopted interest yield profile and/or match the duration

of the financial assets and liabilities),

2) The levels of sales are usually higher than in the HTC model.

Impact on classification and valuation:

In accordance with IFRS 9 instruments assigned to the HTC&FS model are classified as valued at fair

value through other comprehensive income (FVTOCI) on condition that the contractual terms of these

instruments trigger at particular moments cash flows constituting solely a payment of principal and

interest on such principal (the SPPI test is met). These instruments are measured at fair value net of

impairment allowances, the fair value result is recognised in other comprehensive income until

financial assets is derecognised.

The HTC&FS model is applied mainly to the portfolio of debt government securities and money bills

of the National Bank of Poland in particular the liquidity and investment portfolio as well as to the

portfolio of mortgage loans dedicated to pooling to Bank Hipoteczny.

Equity instruments (with the exception of related entities) are classified as valued at fair value

through profit & loss (FVTPL), provided that entities which manage them do not intend to hold them

as a strategic investment, or at fair value through other comprehensive income (FVTOCI) for

instruments which are not held for trading purposes. The decision to use the option to value capital

instruments at fair value through other comprehensive income is taken by the Bank on the day of the

initial recognition of the instrument and constitute an irrevocable designation (even at the moment

of selling, the profit/loss on the transaction shall not be recognised in the Profit and Loss Account).

Other models

Model characteristics:

1) The business model does not meet the assumptions of the HTC and HTC&FS models.

2) The collecting of cash flows on interest and principal is not the main objective of the business

model (the SPPI test is not satisfied),

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

This category should include in particular:

1) Portfolios managed in order to collect cash flows from the sale of assets, in particular „held for

trading”,

2) Portfolios whose management results are evaluated at fair value.

A financial asset should be considered as held for trading, if:

1) It was purchased mainly for the purpose of selling in a very short term,

2) At the moment of initial recognition it is part of a portfolio of financial instruments managed

jointly for which there is evidence confirming a regularity that they have recently actually

generated short-term profits, or

3) Is a derivative instrument, with the exclusion of derivative instruments included in hedge

accounting and being effective hedging instruments.

The term “trading” means active and frequent purchases and sales of instruments. However, these

features do not constitute a necessary condition in order to classify a financial instrument as held for

trading.

Impact on classification and valuation:

Financial assets kept under models other than HTC or HTC&FS are valued at fair value through profit

& loss (FVTPL).

A business model other than HTC or HTC&FS shall apply to portfolios of the following financial assets:

1) Derivative instruments,

2) Debt securities held for trading,

3) Capital instruments not appointed to be a strategic investment,

4) Financial assets irrevocably designated at initial recognition to be valued at fair value through

profit & loss (even in case the asset does not meet criteria to be FVTPL) in order to eliminate or

significantly mitigate accounting mismatch if would appear in case such designation is not made.

Test of characteristics of contractual cash flows (SPPI test)

The evaluation of the fulfilment of the SPPI Test is carried out in the following cases:

▪ granting a debt instrument;

▪ purchase of debt instrument;

▪ renegotiation of contractual terms.

The subject of the SPPI Test are the contractual terms of debt instruments recognised in the balance

sheet, whereas the off-balance sheet products are not analyzed.

The SPPI test is carried out at the design stage of the product/loan agreement, which allows making

approvals with taking into account the future method of exposure valuation.

As part of the SPPI Test, the impact of the modified element on the cash flows resulting from the

concluded contract is assessed. Contract characteristics introducing volatility or cash flow risk not

directly related to interest and capital interest payments may be assessed as having no impact on the

classification (fulfilment of SPPI criteria) if they are defined as having negligible classification impact

(existence of a "de minimis" characteristic) or such impact is not negligible (no “de minimis”

character) but can only occur in extremely rare cases (existence of the “not genuine” attribute).

In cases where there is a modification of the time value of money, eg in case where a period of

interest rate mismatch with the base rate tenor, in order to verify the fulfilment of the SPPI Test,

the Bank performs an assessment based on the Benchmark Test, ie a comparison of the instrument

resulting from the contract with the base instrument (which has the same contractual features as the

instrument under analysis, with the exception of the time value of money element).

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Non-recourse assets (products for which the Bank’s claim is limited to certain debtor's assets or cash

flows from specific assets), in particular "project finance" and "object finance" products (products in

which the borrower, most often a special purpose vehicle is characterized by the minimum level of

equity, and the only component of its assets is the credited asset), are assessed by comparing the

value of the collateral in relation to the principal amount of the loan. Identification of the appropriate

buffer to cover the risk of changes in the value of the collateral satisfies the SPPI Test conditions.

The negative result of the SPPI Test implies the valuation of the debt at FVTPL, causing a departure

from the valuation at amortized cost or FVTOCI.

Modifications to the terms of the loan agreement

Modifications to the terms of the loan agreement during the loan period include:

▪ changing the dates of repayment of all or part of the receivables,

▪ changes in the amount of the repayment instalments,

▪ changing the interest or stop charging interest,

▪ capitalization of arrears or current interest,

▪ currency conversion (unless such a possibility results from the original contract),

▪ establishing, amending or abolishing the existing security for receivables.

Any mentioned above modification may result in the need to exclude from the balance sheet and re-

classify the financial asset taking into account the SPPI test.

If the contractual terms of the loan are modified, the Bank performs a qualitative and quantitative

assessment to determine whether a given modification should be considered significant and,

consequently, derecognize the original financial asset from the balance sheet and recognize it as a

new (modified) asset at fair value. A significant modification takes place if the following conditions

are met:

▪ quantitative criteria:

- increase in the debtor's exposure, understood as an increase in the capital of each single credit

exposure above 10% compared to the capital before the increase. If the quantitative criterion

exceeds 10%, the modification is considered significant, while the occurrence of the quantitative

criterion up to 10% results in the modification being considered insignificant.

- extending the financing period, understood as extending the maturity date of the current

agreement. The modification is considered significant if the financing period is extended by: 8

years for mortgage loans, 5 years for other credit exposures in the retail segment, 3 years for

exposures in the corporate segment.

▪ qualitative criteria: conversion of the exposure to another currency (unless the possibility of

conversion was included in the original agreement), change of SPPI test result, change of debtor,

change of legal form or type of financial instrument. The occurrence of a qualitative criterion

results in recognizing the modification as significant.

If the cash flows resulting from the agreement are subject to modification, which does not lead to

derecognition of a given asset (so called ‘insignificant modification”), the Bank adjusts the gross

carrying amount of the financial asset and recognizes the profit or loss due to insignificant

modification in the financial result (in a separate item of the Loss Profit Statement – “result on

modification”). The adjustment of the gross carrying amount of a financial asset is the difference

between the discounted cash flows before and after the contract modification. All costs and fees

incurred adjust the carrying amount of the modified financial asset and are depreciated in the period

remaining until the maturity date of the modified financial asset.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Credit Holidays

Following the signing by the President of the Republic of Poland and announcement in the Journal of

Laws of the Republic of Poland on the same day of the Act of 7 July 2022 on crowdfunding for business

ventures and assistance to borrowers (“the Act”), introducing, among others, a possibility of up to 8

months of credit holidays (suspension of instalment payments up to 8 monthly instalments) in 2022-

2023 (“Credit Holidays”) for PLN mortgage borrowers, the Bank initially recognized a one-off cost in

July 2022 in the amount of PLN 1,384.6 million. The adjustment was calculated and recognized in

accordance with IFRS 9, reducing interest income on assets measured at amortized cost and, on the

other hand, the gross value of mortgage loans in PLN. The amount of the adjustment was originally

initially calculated as the difference between the gross value of the loan portfolio as at the calculation

date and the current value of estimated cash flows under loan agreements, taking into account the

assumption that 80% of eligible loan principals that will suspend the repayment instalment. As a result

of the analysis of customer behaviour carried out in December 2022, the Bank adjusted the estimates

of the percentage of eligible loan principals that will suspend repayment instalments to 68%. As a

result of the above and the currently expected costs, the value of the adjustment recognized as a

reduction of the Bank's interest income in 2022 was reduced to PLN 1,291.6 million. As a result of the

final settlement, in December 2023 the Bank recognized an additional adjustment (reduction) of

interest income by the amount of PLN 11.4 million.

Pursuant to the concluded agreement, in the event of the entry into force of regulations enabling

customers to take advantage of subsequent credit holidays (not mentioned above), Bank Millennium

undertakes to return to Millennium Mortgage Bank the equivalent of benefits in the form of lost

interest income in connection with the suspension of repayment of loans constituting an element of

proceeds from sold mortgage loan portfolios (applies to proceeds from the portfolio that was sold by

Bank Millennium to Millennium Mortgage Bank in November 2023 and tranches sold later).

POCI assets

POCI assets ("purchased or originated credit-impaired") are financial assets that, upon initial

recognition, have an identified impairment. Financial assets that were classified as POCI at the time

of initial recognition are treated by the Bank as POCI in all subsequent periods until they are

derecognized from balance sheet, and expected credit loss is estimated based on ECL covering the

remaining life time of the financial asset, regardless of future changes in estimates of cash flows

generated by them (possible improvement of assets quality).

POCI assets can be created in 3 different ways, i.e.:

1) through the acquisition of a contract that meets the definition of POCI (e.g. as a result of the

purchase of the "bad credit" portfolio),

2) by entering into a contract that is POCI at the time of original granting (e.g. granting a loan to a

client in bad financial condition with the hope of improving it in the future)

3) through a significant modification of the contract included in stage 3 leading to derecognition of

the contract from the balance sheet, and then to its further recognition in the balance sheet as a

contract meeting the definition of POCI.

Receivables and liabilities from lease contracts

The Bank is a party to lease contracts, on the basis of which it grants for paid use or benefit of non-

current assets or intangible assets for an agreed period of time.

In the case of lease contracts, which result in transferring substantially all risks and rewards incidental

to ownership of the asset under lease, the subject of the lease is derecognized. A receivable amount

is recognized instead, however, in an amount equal to the present value of minimum lease payments.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Lease payments are accounted for (apportioned between the financial income and the reduction of

the balance of receivables) to reach constant periodic rate of return from the outstanding receivables.

Lease payments for contracts, which do not fulfil qualifications of a finance lease, are recognized as

income in the profit and loss, using the straight-line method, throughout the period of the lease.

The Bank is also a party to lease contracts, under which it takes for paid use or drawing benefits

another party’s non-current assets or intangible assets for an agreed period. These are mainly rental

agreements. In case of these contracts the financial report shows, both assets under the right of use

and liabilities under the lease, in separate items of the explanatory notes to the lines “Tangible fixed

assets” and “Other liabilities” respectively. On the start date of the lease, lease payments contained

in the valuation of the lease liability shall comprise following payments for the right to use the

underlying asset during the lease period, which remain due on that date:

• fixed lease payments less any and all due lease incentives,

• variable lease payments, which depend on the index or rate, initially valuated with use of this

index or this rate in accordance with their value on start date,

• amounts expected to be paid by the lessee under the guaranteed final value,

• the buy option strike price if it can be assumed with sufficient certainty that the lessee will

exercise this option,

• monetary penalties for lease termination if the lease terms and conditions stipulated that the

lessee may exercise the lease termination option.

A right to use asset comprises:

• amount of initial valuation of the lease liability,

• any and all lease payments paid on the start date or before it, less any and all lease incentives

received.

Financial result reflects following items:

• depreciation of right to use,

• interest on lease liabilities,

• VAT on rent invoices reported in cost of rent.

The Bank has adopted the following assumptions, based on which lease agreements are carried in

financial statements:

• calculation of liabilities and assets will use net values (VAT is excluded) of future cash flows,

• in case of agreements denominated in currency the liabilities will be carried in the original

currency of the contract while assets in Polish zloty converted at the rate from date of signing

the contract or an annex to the contract, which is also the day when the leasing starts,

• the right to use the asset will be depreciated according to the lease period,

• the Bank uses the option of not recognizing leasing in the case of short-term contracts for space

lease and car leasing contracts,

• the Bank also uses the option of not recognizing leasing in the case of leasing assets with a low

initial value, such as renting small areas, e.g. for garbage arbors, ramps, ATMs and devices such

as coffee machines, water dispensers, audiomarketing and aromatamarketing devices,

• new contracts will be discounted according to the SWAP rate on the day of signing the contract /

annex to the contract appropriate for the duration of the contract and applicable for the

currency, increased by the margin determined and updated in relation to the risk premium for

the financial liabilities incurred by the Bank.

Financial liabilities

Upon initial recognition a financial liability shall be classified as:

1) a financial liability measured at fair value through profit loss, or

2) other financial liability (measured at AC).

Additionally, financial liabilities shall not be reclassified subsequent to their initial recognition.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Recognition of financial instruments in the balance sheet

The Bank recognizes financial assets or liabilities on the balance sheet, when it becomes a party to

the contractual provisions of the instrument. Standardized purchase and sale transactions of financial

assets are recognized at the trade date.

All financial instruments at their initial recognition are valued at fair value adjusted, in the case of a

financial instrument not valued at fair value through profit or loss, by transaction costs that are

directly attributable to the acquisition or issue of the financial asset/liability.

De-recognition of financial instruments from the balance sheet

The Bank derecognizes a financial asset when: the contractual rights to the cash flows from the

financial asset expire, or the Bank transfers the financial asset to third party. The transfer takes place

when the Bank:

▪ transfers the contractual right to receive the cash flows from the financial asset, or

▪ retains the contractual rights to receive the cash flows from the financial asset, but assumes a

contractual obligation to pay those cash flows to an entity from outside the Bank.

On transferring a financial asset, the Bank evaluates the extent to which it retains the risks and

rewards of ownership of the financial asset. Accordingly, where the Bank:

▪ transfers substantially all the risks and rewards of ownership of the financial asset, it derecognises

the financial asset from the balance sheet;

▪ retains substantially all the risks and rewards of ownership of the financial asset, it continues to

recognise the financial asset in the balance sheet;

▪ neither transfers nor retains substantially all the risks and rewards of ownership of the financial

asset, it determines whether it has retained control of the financial asset. In this case if the Bank

has retained control, it continues to recognise the financial asset in the balance sheet to the extent

of its continuing involvement in the financial asset, and if the Bank has not retained control, it

derecognises the financial asset accordingly.

The Bank removes a financial liability (or a part of a financial liability) from its balance sheet when

the obligation specified in the contract is discharged or cancelled or expired.

Hedge Accounting and Derivatives

Valuation at fair value

Derivative instruments are reported at fair value starting from the day of conclusion of the

transaction. Fair value is determined on the basis of quotations of instruments on active markets,

including pricing of recently concluded transactions. A market is considered as active when the quoted

instrument prices are regularly available and result from actual transactions on the market and

represent a level, at which the Bank could conclude such transactions. If the market for the

instruments is not active the Bank determines fair value with use of measurement techniques,

including models based on discounted cash flows and options measurement models. The measurement

techniques used by the Bank are based on maximum use of input data coming from the active market,

such as interest rates, FX rates and implied volatilities. In case of lack of input data from the active

market the Bank makes use in the measurement techniques of proprietary estimates of measurement

parameters, based on best knowledge and experience.

An additional element of the valuation of derivatives is a component of credit risk including both the

risk of the counterparty (credit value adjustment - CVA) and own Bank’s risk (debit value adjustment

- DVA).

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Recognition of derivative instruments embedded in liabilities

The Bank distinguishes and records in the balance sheet the derivatives which are a component of

hybrid instruments. A hybrid agreement contains an underlying (host) contract (not being a derivative)

and an embedded derivative which on the basis of a specific interest rate, price of financial

instrument, price of a commodity, rate of a currency, index of prices or rates or another variable

modifies part or the total of the cash flows resulting from the underlying contract.

Embedded derivative instruments are treated as stand-alone derivative instruments provided they

meet conditions presented below. Embedded derivative instruments are valued at fair value, and

their changes are recognized in the profit and loss. Embedded derivative instruments are recognized

and valued separately from the host contract if, and only if:

▪ the economic characteristics and risks of the embedded derivative are not closely related to

the economic characteristics and risks of the host contract,

▪ a separate instrument with the same terms as the embedded derivative would meet the

definition of a derivative; and

▪ the hybrid (combined) financial instrument is not measured at fair value with changes in fair

value recognized in profit or loss.

The method of recognizing the resulting fair value gain or loss depends on whether the given

derivative instrument is designated as a hedging instrument, and if it is, it also depends on the nature

of the hedging relationship and the hedged item.

Derivative instruments designated as hedging instruments – hedge accounting

The Bank uses derivative instruments in order to hedge against interest rate risk and FX risk arising

from operating, financing and investing activities of the Bank. Some derivative instruments are

designated as a hedging instrument of:

▪ cash flows hedges of recognized asset or liability or highly probable forecasted transaction

(cash flow hedges), or:

▪ fair value hedges of recognized asset or liability or firm commitment (fair value hedges).

Hedge accounting criteria

The Bank uses hedge accounting, based on IAS 39, if the following conditions are met:

▪ At the inception of the hedge there is formal designation and documentation of the hedging

relationship and the Bank’s risk management objective and strategy for undertaking the hedge.

That documentation includes identification of the hedging instrument, the hedged item or

transaction, the nature of the risk being hedged. It documents also, at the inception of the hedge

and through the period of hedge relationship, the assessment of the hedging instrument's

effectiveness in offsetting the exposure to changes in fair value or cash flows of the hedged item;

▪ The hedge is expected to be highly effective in achieving offsetting changes in fair value or cash

flows attributable to the hedged risk, consistently with the originally documented risk

management strategy for that particular hedging relationship (prospective effectiveness test);

▪ For cash flow hedges, a forecast transaction that is the subject of the hedge must be highly

probable and must present an exposure to variations in cash flows that could ultimately affect

profit or loss (high probability test);

▪ The effectiveness of the hedge can be reliably measured, i.e. the fair value or cash flows of the

hedged item that are attributable to the hedged risk and the fair value of the hedging instrument

can be reliably measured;

▪ The hedge is assessed on an ongoing basis and determined actually to have been highly effective

throughout the financial reporting periods for which the hedge was designated (backward-looking

effectiveness test).

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Cash flow hedge

Cash flow hedge: a hedge of the exposure to variability in cash flows that (i) is attributable to a

particular risk associated with a recognised asset or liability (such as all or some future interest

payments on variable rate debt) or a highly probable forecast transaction and (ii) could affect profit

or loss.

A cash flow hedge is accounted for as follows: the portion of the gain or loss on the hedging instrument

that is determined to be an effective hedge is recognised in equity through the other comprehensive

income; and the ineffective portion of the gain or loss on the hedging instrument is recognised in

Result on financial instruments valued at fair value through profit and loss.

The associated gains or losses that were recognised in other comprehensive income (effective hedge),

at the moment of recognition of a financial asset and liability being a result of planned hedged future

transaction, are transferred into profit or loss in the same period or periods during which the asset

acquired or liability assumed affects the profit or loss.

In case of a hedge of non-financial asset or a non-financial liability, the associated gains and losses

recognised in other comprehensive income as an effective hedge, are transferred successively into

the profit or loss account in the same period or periods during which the asset acquired or liability

assumed affects the profit or loss account directly from equity or are transferred from equity to initial

purchase price in the balance sheet and recognized successfully in the periods, in which non – financial

asset or liability has impact on profit and loss account.

Fair value hedge

Fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or liability or

an unrecognised firm commitment, or an identified portion of such an asset, liability or firm

commitment, that is attributable to a particular risk and could affect the profit or loss.

Changes in the fair value of derivative instruments classified and eligible as fair value hedges are

recognised in the Profit and Loss along with their corresponding changes of the hedged asset or

liability relating to the risk hedged by the Bank.

It means that any gains or losses resulting from re-measuring the hedging instrument at fair value (for

a derivative hedging instrument) are recognised in profit or loss and the gains or losses on the hedged

item attributable to the hedged risk adjust the carrying amount of the hedged item and are recognised

in profit or loss. This applies if the hedged item is otherwise measured at cost. Recognition of the

gain or loss attributable to the hedged risk in profit or loss applies if the hedged item is an FVOCI

asset. The valuation of hedged financial assets classified as FVOCI, resulting from factors other than

risk hedged, is recognized in other comprehensive income till the date of sale or maturity of this

financial asset.

Termination of hedge accounting

If the fair value hedge no longer meets the criteria for applying hedge accounting, the carrying value

adjustment of the hedged instrument valued at amortized cost and effective interest rate, is linearly

amortized through profit and loss account over the period ending on the maturity date. The value of

hedged financial assets classified as FVOCI resulting from factors other than hedged risks is recognized

in the revaluation reserve till the date of sale or maturity of this financial asset.

If the cash flow hedge no longer meets the criteria for hedge accounting, the valuation of hedging

instrument recognized in other comprehensive income at the date of the last effectiveness test

remains in equity until the realization of cash flow resulting from the hedged item. Then the amount

is transferred into profit and loss account in the periods, in which the hedged transaction influences

the profit and loss account.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Derivative instruments not qualifying as hedging instruments

Derivative instruments that are not subject to hedge accounting principles are classified as

instruments held for trading, and valued at fair value. The changes in fair value of derivative

instruments held for trading are recognized in the profit and loss in item “Results on financial assets

and liabilities held for trading”/“Result on exchange differences”, which was described below.

The Bank uses the following principles of recognition of gains and losses resulting from the valuation

of derivative instruments:

▪ FX forward

Forward transactions are valued at fair value on discounted future cash flows basis, taking into

account the credit risk of the counterparty (and the Bank) as long as there is non-performance risk

of the transaction parties with respect to future settlement of the deal. Any changes in fair value

of FX forward transactions are recorded in “Result on exchange differences” of the Profit and Loss

Account.

Moreover the Bank designated selected FX forward transactions as hedging instruments. The

method of capturing and valuating hedging financial instruments was described in the part on

hedge accounting.

▪ FX SWAP

FX SWAP transactions are measured at fair value based on the discounted future cash-flow method

with use of interest rate curves based on spread reflecting current market conditions and with

taking into account the credit risk of the counterparty (and the Bank) as long as there is non-

performance risk of the transaction parties with respect to future settlement of the deal. Changes

of fair value of FX SWAP transactions are reported in “Results on financial assets and liabilities

held for trading” in the Profit and Loss Account.

▪ Interest Rate SWAP (IRS)

IRS transactions are valued at fair value on discounted future cash flows basis, taking into account

the credit risk of the counterparty (and the Bank) as long as there is non-performance risk of the

transaction parties with respect to future settlement of the deal. Any changes in fair value of IRS

transactions are recorded in “Results on financial assets and liabilities held for trading” of the

Profit and Loss Account.

Moreover the Bank designated selected IRS transactions as hedging instruments. The method of

capturing and valuating hedging financial instruments was described in the part on hedge

accounting.

▪ Cross – Currency Swap (CCS)

CCS transactions are measured at fair value based on the discounted future cash-flows method

with use of interest rate curves adjusted with market spread reflecting its term structure and with

taking into account the credit risk of the counterparty (and the Bank) as long as there is non-

performance risk of the transaction parties with respect to future settlement of the deal. Changes

of fair value of CCS transactions are reported in “Results on financial assets and liabilities held for

trading”.

Moreover the Bank designated selected CCS transactions as hedging instruments. The method of

recognition and measurement of hedging instruments was described in the part devoted to hedge

accounting.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

▪ IRS transactions with embedded options

The transactions are valued at fair value: the swap component is valued with use of the future

cash flows discounting method taking into account the credit risk of the counterparty (and the

Bank) as long as there is non-performance risk of the transaction parties with respect to future

settlement of the deal, while the option component is valued with use of the option valuation

models. Any changes in fair value of the above transactions are recorded in “Results on financial

assets and liabilities held for trading” of the Profit and Loss Account. The option component hedges

options embedded in securities or deposits offered by the Bank.

▪ FX and Index options

Option transactions are measured at fair value with use of option measurement models. In case of

options issued by the Bank’s counterparties, the model measurement is supplemented with impact

on fair value of the estimated credit risk parameter. Changes of fair value of options are reported

in “Results on financial assets and liabilities held for trading” line of the Profit and Loss Account.

▪ Forward Rate Agreement (FRA)

FRA transactions are valued at fair value on discounted future cash flows basis and with taking into

account the credit risk of the counterparty (and the Bank) as long as there is non-performance risk

of the transaction parties with respect to future settlement of the deal. Any changes in fair value

of FRA transactions are recorded in “Results on financial assets and liabilities held for trading” of

the Profit and Loss Account.

▪ Commodity futures

Commodity futures are measured at fair value based on the discounted future cash flow

methodology, using reference prices set at the LME reference market (London Metal Exchange),

whereas the Bank does not keep own positions on the commodity market. Changes of fair value

are reported in “Results on financial assets and liabilities held for trading” of the Profit and Loss

Account.

▪ Commodity options

Commodity options are measured at fair value with use of option valuation models as well as

reference prices set at the LME reference market (London Metal Exchange), whereas the Bank does

not keep own positions on the commodity market. Changes of fair value are reported in “Results

on financial assets and liabilities held for trading” of the Profit and Loss Account.

Impairment of financial assets

General assumptions of the model

Since 1 January 2018, impairment estimation model has been based on the concept of “expected

credit loss”, (hereinafter: ECL). As a direct result of this change, impairment charges now have to be

calculated based on expected credit losses and forecasts and expected future economic conditions

have to be taken into account when conducting evaluation of credit risk of an exposure.

The implemented impairment model applies to financial assets classified in accordance with IFRS 9 as

financial assets measured at amortized cost or at fair value through other comprehensive income,

(except for equity instruments) and for off balance liabilities.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

According to IFRS 9, credit exposures are classified in the following categories:

▪ Stage 1 – non-impaired exposures, for which expected credit loss is estimated for the 12-month

period,

▪ Stage 2 – non-impaired exposures, for which a significant increase in risk has been identified and

for which expected credit loss is estimated for the remaining life time of the financial asset,

▪ Stage 3 – exposures with identified signs of impairment, for which expected credit loss is estimated

for the remaining life time of the financial asset.

In the case of exposures classified as POCI (purchased or originated credit impaired) which, upon their

initial recognition in the balance sheet, are recognized as impaired, expected credit loss is estimated

based on ECL covering the remaining life time of the financial asset.

Identification of a significant increase in credit risk

Assets, for which there has been identified a significant increase in credit risk compared to the initial

recognition in the balance sheet, are classified in Stage 2. The significant increase in credit risk is

recognized based on qualitative and quantitative criteria. The qualitative criteria include:

▪ repayment delays of more than 30 days,

▪ forborne exposures in non-default status,

▪ using the support of the Borrower Support Fund,

▪ occurrence of seizures on current accounts resulting from enforcement orders,

▪ procedural rating, which is reflecting early delays in payments,

▪ taking a risk-mitigating decision for corporate clients, triggered by the early warning system,

▪ events related to an increase in credit risk, the so called “soft signs” of impairment, identified as

part of an individual analysis involving individually significant customers.

The quantitative criterion involves a comparison of the lifetime PD value determined on initial

recognition of an exposure in the balance sheet, with the lifetime PD value determined at the current

reporting date. If an empirically determined threshold of the relative change in the lifetime PD value

is exceeded then an exposure is automatically transferred to Stage 2. The quantitative assessment

does not cover exposures analyzed individually.

Incorporation of forward looking information on economic conditions (FLI)

In the process of calculation of expected credit losses, the Bank uses forward looking information

about macroeconomic events. The Macroeconomic Analysis Office prepares three macroeconomic

scenarios (base, optimistic and pessimistic) and determines the probability of their occurrence. The

forecasts translate directly or indirectly into the values of estimated parameters and exposures.

Unification of the default definition across the Group

Since the implementation of IFRS 9, the Group has adopted an uniform definition of default, both for

the purpose of calculation of capital requirements and for the estimation of impairment. Starting

from 2020, for the retail portfolio, the Group uses the definition of default, which is in line with the

EBA Guidelines (EBA/GL/2016/07), the so-called New Definition of Default. Unified Default definition

includes following triggers:

▪ DPD>90 days considering materiality thresholds for due amount: absolute PLN 400 for retail

and PLN 2000 for corporates and relative threshold of 1% in relation to total exposure,

▪ Restructured loans (forborne),

▪ Loans in vindication process,

▪ Other triggers defined in EBA Guidelines,

▪ Qualitative triggers identified in the individual analysis.

Bank is using cross-default approach for all segments.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

PD Model

The PD model, created for the calculation of expected credit losses, is based on empirical data

concerning 12-month default rates, which are then used to estimate lifetime PD values (including FLI)

using appropriate statistical and econometric methods. The segmentation adopted for this purpose at

the customer level is consistent with the segmentation used for capital requirement calculation

purposes. Additionally, the Bank has been using rating information from internal rating models to

calculate PDs.

LGD Models

The LGD models for the retail portfolio used by the Bank in the capital calculation process were

adjusted to IFRS 9 requirements in the area of estimating impairment. The main components of these

models are the probability of cure and the recovery rate estimated on the basis of discounted cash

flows. The necessary adaptations to IFRS 9 include, among other things, exclusion of the conservatism

buffer, indirect costs, adjustments for economic slowdown. In addition, adjustments have been made

to reflect the current economic situation and to utilize forward looking information on

macroeconomic events (FLI).

For the corporate portfolio, LGD model is based on a component determining parameterized recovery

for the key types of collateral and a component determining the recovery rate for the unsecured part.

All the parameters were calculated on the basis of historical data, including discounted cash flows

achieved by the corporate debt recovery unit.

EaD Model

The EaD model used in the Bank includes calculation of parameters such as: average limit utilization

(LU), credit conversion factor (CCF), prepayment ratio, behavioural life expectancy. Segmentation is

based on the type of customer (retail, corporate, leasing) and product (products with/without a

schedule). Forecasts of foreign exchange rates are used as FLI adjustment.

Write-offs

The Bank directly reduces the gross carrying amount of a financial asset if there are no reasonable

grounds to recover a given financial asset in whole or partially. As a result of write-off, a financial

asset component ceases, in whole or partially, to be recognized in the financial statements.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet

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.

Transactions with sell/buy-back clauses

Repo and sell-buy back transactions as well as reverse-repo and buy-sell back transactions, are

transactions of sale and purchase of securities for which a commitment has been made to repurchase

or resell them at a contractual date and for specified contractual price.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The Bank presents financial assets sold with the repurchase clauses (repo, sell buy-back) in its balance

sheet, by simultaneously recognizing a financial liability resulting from the repurchase clause,

provided that risks and rewards relating to this asset are retained by the Bank after the transfer.

When the Bank purchases securities with a sell back clause (reverse repo, buy-sell-back), the financial

assets are presented as receivables arising from sell back clause.

Transactions with repurchase/resell agreement are measured at amortized cost. Securities, which are

the subjects of transactions with repurchase clause, are not removed from the balance sheet and are

measured in accordance with principles applicable for particular securities portfolio. The difference

between sale and repurchase price is treated as interest cost/ income, and is accrued over the period

of the agreement by application of an effective interest rate.

Property, plant and equipment and Intangible Assets

Own property, plant and equipment

Tangible fixed assets are the controlled fixed assets and outlays made to build such assets. Tangible

fixed assets include fixed assets with an expected period of use above one year, maintained to be

used to serve the Bank’s needs or to be transferred to other entities, based on the lease contract or

for administrative purposes.

Tangible fixed assets are reported at historical cost less depreciation and impairment.

Fixed assets under construction are disclosed at purchase price or production costs and are not subject

to depreciation.

The Bank recognizes as a part of the asset’s carrying value, the replacement costs as incurred, only

when it is probable that future economic benefits associated with these items will flow to the Bank,

and the cost of the item can be reliably measured. Other outlays are recognised in profit and loss

when incurred.

Costs of repairs and maintenance of property, plant and equipment are charged to the profit and loss

in the reporting period in which they were incurred.

Intangible Assets

An intangible asset is an identifiable non-pecuniary asset which does not have physical form and will

generate economic benefits for the Bank in the future.

The main components of intangible assets are licenses for computer software.

Purchased computer software licences are capitalised in the amount of costs incurred for the purchase

and adaptation for use of specific computer software. Expenses attached to the development or

maintenance of computer software is expensed when incurred.

Other intangibles purchased by the Bank are recognized at cost less accumulated amortization and

accumulated impairment allowances.

Subsequent costs incurred after initial recognition of acquired intangible assets are recognized only

when it is probable that future economic benefits will flow to the Bank. In the other cases, costs are

charged to the profit and loss in the reporting period in which they were incurred.

All intangible assets are subject to periodic review in order to verify whether there were triggers

indicating possible loss of values, which would require a test for the loss of values and an impairment

recognition.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Depreciation and amortization charges

The depreciation charge of tangible and intangible assets is accounted for on a straight line basis with

the use of defined depreciation rates throughout the period of their useful lives. The depreciable

amount is the cost of an asset, or other amount substituted for cost, less its residual value. The useful

life, amortization/ depreciation rates and residual values of tangible and intangible assets are

reviewed annually. Conclusions of the review may lead to a change of depreciation periods recognized

prospectively from the date of application.

Land, an intangible asset with an unspecified useful life, outlays for tangible assets and intangible

assets are not depreciated. At each balance sheet date intangible assets with indefinite useful life

are regularly tested for impairment.

The following depreciation rates are applied to basic categories of tangible and intangible assets and

for investment property:

Selected categories of property, plant and equipment:

Bank buildings: 2.5%

Lease holding improvements: usually for 10 years

Computer hardware: 20%

Network devices: 20%

Vehicles as standard: 25%

Telecommunication equipment: 10%

Intangibles (software): expected useful life

Main applications (systems): expected useful life

Depreciation and amortization charges are recognized as operating expenses in the profit and loss

account.

Non-current assets held for sale

The Bank classifies a non-current asset as held for sale, if its carrying amount will be recovered

principally through a sale transaction rather than through continuing use. For this to be the case the

asset is available for immediate sale in its present condition subject only to terms that are usual and

customary for sales of such assets and its sale is highly probable. The sale is highly probable if the

appropriate level of management is committed to a plan to sell the asset (or disposal group), and an

active programme to locate a buyer and complete the plan has been initiated. Further, the asset is

actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition,

the sale is expected to qualify for recognition as a completed sale within one year from the date of

classification.

Non-current assets held for sale are measured at the lower of: its carrying amount or fair value less

cost to sell. Assets classified in this category are not depreciated.

When criteria for classification to non-current assets held for sale are not met, the Bank ceases to

classify the assets as held for sale and makes reclassification to other assets category. The Bank

measures a non-current asset that ceases to be classified as held for sale at the lower of:

▪ its carrying amount before the asset (or disposal group) was classified as held for sale,

adjusted for any depreciation, amortisation or revaluations that would have been recognised

had the asset (or disposal group) not been classified as held for sale, and

▪ its recoverable amount at the date of the subsequent decision not to sell.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Impairment of non-financial non-current assets

The Bank assesses the existence of any indications that a non-current asset may be impaired at each

balance sheet date. If such indications exist, the Bank estimates the recoverable amount of the asset

and if the recoverable amount of an asset is less than its carrying amount, the Bank recognizes

impairment charge in the profit and loss.

The impairment loss is the difference between the carrying amount and the recoverable amount of

the asset. Recoverable amount is the higher of an asset’s fair value less cost to sell and its value in

use. Value in use is established for particular assets, if a given asset generates cash flows substantially

independent of those generated by other assets or groups of assets.

If such indications exist, the Bank performs an estimation of recoverable value. If, and only if, the

recoverable value of an asset is less than its carrying amount, the carrying amount of the asset is

reduced to its recoverable value.

If pursuant to IAS 36, paragraph 21 there is no reason to believe that an asset’s value in use materially

exceeds its fair value less costs to sell, the asset’s fair value less costs to sell may be used as its

recoverable amount. This will be particularly the case of an asset that is held for disposal.

An impairment loss can be reversed only to the amount, where the book value of impaired asset does

not exceed its book value, which decreased by depreciation charge, would be established, if any

impairment loss would not be recognized.

Prepayments

Prepayments comprise of particular expenses which will be settled against the profit and loss as being

accrued over the future reporting periods. Prepayments are presented in the caption “Other assets”

in the balance sheet.

Accruals and Deferred Income

Accruals are liabilities for costs arising from services provided to the Group, which will be payable

over future periods. The accruals are recognized in the caption “Other Liabilities” in the balance

sheet. Deferred income comprises among others received amounts of future services and other types

of income received in advance to be settled against in the profit and loss in future reporting periods.

They are presented in the caption “Other Liabilities” in the balance sheet.

Provisions

Provisions are established when (1) the Bank has an obligation (legal or constructive) as a result of

past events, and (2) it is probable (i.e. more likely than not) that an outflow of resources embodying

economic benefits will be required to settle the obligation; and (3) a reliable estimate can be made

of the amount of the obligation. If the effect is material, the amount of provision is measured by

discounted, expected cash flows using pre-tax rate that reflects current market assessments of the

time value of money and those risks specific to the liability.

A provision for restructuring costs is recognised only when the general criteria for provisions

recognition as well as specific criteria for restructuring provision recognition specified in IAS 37 are

met. In particular, the constructive obligation to restructure arises only when the Bank has a detailed

formal plan for the restructuring and has raised a valid expectation in those affected that it would

carry out the restructuring by starting to implement that plan or announcing its main features to

those affected by it.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

A detailed formal plan for the restructuring identifies at least: the business or part of a business

concerned; the principal locations affected; the location, function, and approximate number of

employees who will be compensated for terminating their services; the expenditures that will be

undertaken; and when the plan will be implemented.

A restructuring provision includes only the direct expenditures arising from the restructuring, which

are those that are both: (a) necessarily entailed by the restructuring; and (b) not associated with the

ongoing activities of the entity. The restructuring provision does not cover future operating expenses.

Employee Benefits

Short-term employee benefits

Short-term employee benefits of the Bank (other than termination benefits due wholly within 12

months after work is completed) comprises of wages, salaries, bonuses and paid annual leave and

social security contributions.

The Bank recognizes the anticipated, undiscounted value of short-term employee benefits as an

expense of an accounting period when an employee has rendered service (regardless of payment date)

in correspondence with other on-balance liabilities.

The amount of short-term employee benefits on the unused holidays to which Bank employees are

entitled is calculated as the sum of unused holidays to which particular Bank employees are entitled.

Long-term employee benefits

The Bank’s liabilities on long-term employee benefits are equal to the amount of future benefits,

which the employee will receive in return for providing his services in the current and earlier periods,

which are not fully due within 12 months from carrying out the work. In accordance with the

Employees Remuneration By-laws and the Labour Code employees having worked a specific number

of years and attained the required age are entitled to receive a pension severance payment.

Retirement pension severance payments provision is calculated using an actuarial method by an

independent actuary as the present value of the Bank’s future liabilities due to employees according

to the headcount and wages as at the date of revaluation. Valuation is done using the projected unit

credit method. Under this method, each period of service gives power to an additional unit of benefit

entitlement and each unit of benefit is calculated separately. Computation takes into account that

the base salary of each employee will vary over time according to certain assumptions. The provision

is updated on an annual basis. The parameters that have a significant impact on the amount of current

liabilities are: the rate of mobility (rotation), the discount rate, the rate of wage growth. The nominal

discount rate for the calculation for 2023 has been set at 5.35%. The calculation of the commitments

is made for employees currently employed and do not apply to persons who will start working in the

future.

In 2012, the Bank implemented a policy specifying the principles of remuneration for persons having

a significant impact on the risk profile of Bank Millennium, as amended. In accordance with the policy,

the Bank's employees who have a significant impact on its risk profile receive variable remuneration,

part of which is paid in the form of financial instruments. Until 2018, the financial instrument took

the form of phantom shares. From 2019, the Bank, by decision of the General Meeting of Shareholders

of the Bank on August 27, 2019, introduced a 3-year incentive program to reward eligible persons

previously identified as having a significant impact on the risk profile (Risk Taker). As part of it, the

Own Shares purchased by the Bank were, in accordance with the applicable Risk Takers' remuneration

policy, intended as a financial instrument for free acquisition in an appropriate number by designated

Risk Takers during the Program Period. In bonus programs effective from January 1, 2020, financial

instruments were awarded to Risk Takers I - Members of the Management Board of Bank Millennium

SA. In 2023, the Personnel Committee of the Supervisory Board decided to convert own shares granted

to Members of the Management Board in the 2021 program in the form of own shares into phantom

shares. Under the 2022 program, phantom shares were granted as a financial instrument. Detailed

information is presented in Chapter 14) point 7).

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Provisions for short-term and long-term employee benefits are recognized in the caption “Other

Liabilities” in balance sheet in correspondence with the “staff costs” in the profit and loss.

The Bank fulfils a programme of post – employment benefits called defined contribution plan. Under

this plan the Bank pays fixed contributions into the state pension fund. Post – employment benefits

are paid to an employee from the proceeds of the fund including the return on the invested

contributions. Consequently, the Bank does not have a legal or constructive obligation to pay further

contributions if the fund does not hold sufficient assets to pay all employee benefits relating to

employee service.

Bank’s Equity

Equity consists of capital and funds established in compliance with the respective provisions of the

law, i.e., the appropriate legislative acts, the Company by-laws, or the Articles of Association.

Equity is comprised of the share capital, share premium, revaluation reserve and retained earnings.

All balances of capital and funds are presented at nominal value.

Share Capital

Share capital is presented at nominal value, in accordance with the Articles of Association and the

entry in the Register of Companies.

If the entity acquires its own shares, then the paid amount together with the costs directly attributed

to such purchase is treated as a change in the Equity. Acquired own shares are treated as own shares

and disclosed as reduction of the Equity until the time they are cancelled.

Dividends for the financial year, which have been approved by the General Shareholders’ Meeting,

but not distributed as of the balance sheet day, are disclosed in the caption „Other Liabilities” in the

balance sheet.

Share Premium

Share premium is formed from agio obtained from the issue of shares reduced by the attached direct

costs incurred with that issue.

Accumulated other comprehensive income

Accumulated other comprehensive income consists of: the valuation of financial assets measured at

fair value through other comprehensive income, the result of cash flow hedge valuation and actuarial

gains (losses) regarding provisions for retirement benefits with deferred income tax effect applied.

Accumulated other comprehensive income is not subject to distribution.

Retained Earnings

Retained earnings are created with charges against profit and are allocated for purposes specified in

the Articles of Association or other legal regulations (the remaining part of supplementary capital,

additional reserve capital, including general banking risk fund) or constitute previous years’

profit/loss or year-to-date net financial result.

The General Banking Risk Fund at Bank Millennium SA is created from profit after tax in accordance

with the Banking Act dated 29 August 1997 as later amended.

Net profit of the current year represents net profit adjusted by corporate income tax. Losses

attributed to non-controlling interests and exceeding the value of equity attributed to them are

charged to the Bank’s equity.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Financial guarantee

A financial guarantee contract is a contract that requires the issuer to make specified payments to

reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due

in accordance with the original or modified terms of a debt instrument.

The financial guarantees granted are valued at the higher of the following values:

• amounts of write-offs for expected credit losses,

• the amount initially recognized less the cumulative amount of income recognized in accordance

with IFRS 15.

Interest income and other of similar nature

Interest income includes interest on financial instruments measured at amortized cost and financial

assets measured at fair value through other comprehensive income using the effective interest rate

method.

The effective interest rate method is a method of calculating the amortized cost of a financial asset

or financial liability and the allocation of interest cost or interest income and certain commissions

(constituting an integral part of the interest rate) to the relevant period. The effective interest rate

is the rate that exactly discounts the estimated future cash flows (in the period until the financial

instrument expires) up to the gross carrying amount of the asset / amortised cost of the liability.

When calculating the effective interest rate, the Bank estimates cash flows considering all contractual

terms of a given financial instrument, without taking into account possible future losses due to unpaid

loans. This calculation includes all fees paid or received between parties to the contract, which are

an integral part of the effective interest rate, and transaction costs and all other differences due to

the premium or discount.

Interest income includes interest and commissions (received or due) included in the calculation of the

effective interest rate on: loans, interbank deposits and debt securities not classified into held for

trading category. Interest income also includes costs directly related to the conclusion of

a loan agreement borne by the Group (mainly commissions paid to external and own agents for

concluding a mortgage agreement and related property valuation costs related to this type of

contract) that are a component of the effective interest rate and are settled in time.

Upon recognizing the impairment of a financial instrument measured at amortized cost and financial

assets measured at fair value through other comprehensive income, interest income is recognized in

the Profit and Loss Account but is calculated on the newly established carrying amount of the financial

instrument (that is, less impairment).

Interest income also includes net interest income on derivative instruments designated and being

effective hedging instruments in hedge accounting (a detailed description of the existing hedging

relationships is included in note (24)).

Interest income and costs on derivatives classified as held for trading as well as interest income and

the settlement of a discount or premium on debt financial instruments classified as held for trading

are recognized under the item "Result of similar nature to interest from financial assets at fair value

through profit and loss" of the Profit and Loss Account. This item also includes interest income arising

from assets that are measured at fair value through profit and loss.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Interest costs

Interest costs include in particular interest resulting from financial instruments measured at

amortized cost using the effective interest rate method described above.

Fee and commission Income/ Fee and commission Costs

Fee and commission income and expenses received from banking operations on client accounts, from

operations on payment cards and brokerage activity is recognized in the profit and loss at the time

the service is rendered; other fees and commissions are deferred and recognized as revenue over

time.

The basic types of commissions related to credit operations in the Bank include among others: loan

origination fees and commissions, and commitment fees.

Fees and commissions (both income and expense) directly attributable to initial recognition of

financial assets with established repayment schedules are recognized in profit and loss account as

effective interest rate component and are part of interest income. Other, attributed to initial

recognition of financial assets without established repayment schedules are amortized on

a straight-line basis through the expected life of the financial instrument. Fees and commissions on

pledge to grant a loan, which is probable to be drawn, are deferred and since initial recognition of

financial assets are amortized as component of effective interest rate or on a straight-line basis based

on above mentioned criteria. In the case of loans and advances with undetermined instalment

payments and changes in interest, e.g. overdraft facilities and credit cards commissions are settled

over the duration of the card or overdraft limit by the straight-line method and included in commission

income.

In connection with the Bank's bancassurance activity (selling insurance services), based on the

criterion how the income from aforementioned activity is recorded, two groups of products can be

identified.

The first group consists of insurance products without direct links with the financial instrument (for

example: health insurance, personal accident insurance) - in this case the Bank's remuneration is

recognised as income after performance of a significant act, i.e. in a date of commencement or

renewal of insurance policies, taking into account provisions for thinkable returns.

In the second group (where there is a direct link to a financial instrument, particularly when the

insurance product is offered to the customer only with credit product, i.e. there is not possibility to

buy from the bank separately, without a credit product, the same insurance product in terms of form,

legal and economic conditions) two sub-groups can be identified:

a) With respect to insurance connected with housing loans, in case of insurance premiums

collected monthly (life insurance and property insurance) remuneration is applied to Profit

and Loss Account upon remuneration receipt.

b) With respect to insurance associated with cash loans the Bank allocate the total value of

remuneration for combined transaction due to their respect for the individual elements of

the transaction, after deducting by provision on the part of the remuneration to be

reimbursed, for example as a result of the cancellation by the customer with insurance,

prepayments or other titles. Provision estimate is based on an analysis of historical

information about the real returns in the past and predictions as to the trend returns in the

future.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Allocation of remuneration referred to above is based on the methodology of “relative fair

value” involving division of the total remuneration pro rata to, respectively, fair value of

remuneration with respect to financial instrument and fair value of intermediation service.

Determination of the above fair values is based on market data including, in particular, for:

▪ Intermediation services – upon market approach involving the use of prices and other

market data for similar market transactions,

▪ Remuneration relative to financial instrument – upon income approach based on

conversion of future amounts into present value using information on interest rates and

other charges applicable to identical or similar financial instruments offered separately

from the insurance product.

Individual, separated elements of a given transaction or several transactions considered

jointly are subject to the following income recognition principles:

▪ Fees charged by insurance agencies – partially including fee for performance of a

significant act, recognised in revenue on the day of commencement or renewal of

insurance policy.

▪ Fees/charges constituting an integral part of effective interest rate accruing on financial

instrument – treated as adjustment of effective interest rate and recognised under

interest income.

Remaining fees and commissions connected with financial services offered by the Bank, such as:

▪ Asset management services;

▪ Services connected with cash management;

▪ Brokerage services;

are recognised in the Profit and Loss Account on an one-off basis.

Dividend Income

Dividend income is recognized in the profit and loss when the shareholders’ right to receive payment

is established.

Result on derecognition of financial assets and liabilities not measured at fair value through profit

or loss

The result on derecognition of financial assets and liabilities not measured at fair value through profit

or loss includes gains and losses arising from the sale of debt financial instruments classified to the

portfolio measured at fair value through comprehensive income and other gains and losses resulting

from investing activities.

In 2023, the Bank completed a bancassurance transaction, part of the result of which was recognized

in “Result on derecognition of financial assets and liabilities not measured at fair value through profit

or loss”, more information on this subject is presented in Chapter 13., note (5).

Result on financial assets and liabilities held for trading

The result on financial assets and financial liabilities held for trading contains gains and losses on

disposal of financial instruments classified as financial assets / liabilities measured held for trading

and the effect of valuation of these instruments at fair value (incl. debt, equity and derivative

instruments intended for trading).

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Result on non-trading financial assets mandatorily at fair value through profit or loss

The result on non-trading financial assets mandatorily at fair value through profit or loss includes

gains and losses on disposal and the effect of the measurement of financial instruments classified to

this category of assets.

Result on hedge accounting

The result on hedge accounting includes in particular: changes in the fair value of the hedging

instrument (including discontinuation), changes in the fair value of the hedged item resulting from

the hedged risk and inefficiencies resulting from cash flow hedges recognized in profit or loss.

Result on exchange differences

Foreign exchange differences include: i) realized result and result from the valuation of FX spot and

FX Forward transactions ii) positive and negative exchange rate differences, both realized and

unrealized, resulting from the daily valuation of foreign currency assets and liabilities, valid as at the

balance sheet day average NBP exchange rate and affecting income or expenses from the exchange

position.

Other Operating Income and Expenses

Other operating income and expenses include expenses and incomes not associated directly with the

banking activity. In particular, this is result on sale and liquidation of fixed assets, income from sale

of other services, received and paid damages, penalties and fines and provisions for litigations issues.

Franchise fees

Franchise is a model of cooperation between the Bank and independent entrepreneurs who, based on

concluded agreements of the nature of agency agreements, defined by law, perform agency activities

in the sale of products and services from the Bank’s offer to the Bank’s clients and potential clients.

The cooperating franchisees use the Bank’s trademarks and know-how when performing the

agreement, and franchise outlets are almost as functional for customers as Bank’s own outlets

(excluding investment products). For cooperation, the Bank charges a franchise fee for the use of

trademarks and fees for renting IT equipment from the Bank necessary to perform activities in a given

branch and pays franchisees commissions on banking products and services sold.

Banking tax

The tax on certain financial institutions ("banking tax") is the tax presented in the Income Statement

under "Banking tax" levied on bank’s assets (it is not an income tax). In accordance with the Polish

Act of January 15, 2016 on the tax on certain financial institutions (consolidated text - Journal of

Laws 2023, item 623), domestic banks are the taxpayers and the tax base is defined as a surplus of

the total value of the bank's assets resulting from the trial balance, determined as at the last day of

the month, based on entries in the general ledger accounts, over the amount of PLN 4 billion. The

banking tax is 0.0366% of the tax base per month. As a result of the implementation of the Recovery

Plan from July 2022, Bank Millennium S.A. benefited from the exemption from the banking tax starting

from that month.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Other taxes

The Bank is also taxpayer of the following taxes:

1) value added tax (VAT) performing activities both taxable (e.g. leasing, factoring services) and

exempt from VAT (e.g. banking services, brokerage);

2) real estate tax;

3) tax on means of transport;

4) other taxes occasionally charged to them (e.g. tax on civil law transactions, excise duty, foreign

withholding tax not subject to deduction).

In addition, the Bank is required to pay various fees (e.g. stamp duty, fees for perpetual usufruct of

land). Costs related to these taxes and fees are presented in the Administrative Expenses Note under

“Taxes and fees”.

Revenues, costs and assets are recognized in the amount less VAT, tax on civil law transactions and

other sales taxes, except when the sales tax paid on the purchase of goods and services is not

recoverable from tax authorities; then VAT is recognized as an expense or as part of the cost of

acquiring an asset, respectively. The amount of tax recoverable or payable to the tax authorities is

presented in the financial statement as part of receivables or liabilities.

Income Tax

Corporate income tax comprises current and deferred tax.

Current income tax is calculated on profit before tax, established in accordance with appropriate

accounting regulations adjusted by non-taxable income and non-tax deductible expenses, with usage

of binding tax rate. Moreover, for tax purposes, the gross profit is adjusted by previous years’ income

and expenses realised for tax purposes in a given reporting period and deductions from income arising

from e.g. donations.

Deferred income tax is recognized in profit and loss, except for when it is recognized in other

comprehensive income or directly in equity because it relates to transactions that are also recognized

in other comprehensive income or directly in equity.

Provision for deferred income tax is recognized in liabilities in the caption “Deferred income tax

liabilities”. Deferred income tax asset is recognized in assets as “Deferred income tax assets”. The

Bank offsets deferred tax assets and deferred tax liabilities, because it has a legally enforceable right

for such netting and the deferred tax assets and the deferred tax liabilities relate to income taxes

(levied by the same taxation authority).

Deferred income tax provision is recognised using the balance sheet method for all positive temporary

differences except when it arises from the amortization of goodwill or initial recognition of an asset

or liability in a transaction which is not a business combination and at the time of the transactions

affects neither accounting profit nor taxable profit (tax loss).

Deferred income tax assets are recognised using the balance sheet method with respect to tax loss

carry forwards and all negative temporary differences as at the balance sheet date between carrying

amount of an asset or liability in the balance sheet and its tax value only to the extent that it is

probable that future taxable profit will be available against which the deductions can be utilised.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Deferred income tax assets are not recognised for negative temporary differences arising from the

initial recognition of an asset or liability in a transaction which is not a business combination and at

the time of the transactions affects neither accounting profit nor taxable profit (tax loss).

An asset or a liability arising from temporary differences associated with investments in subsidiaries

and associates are not included in calculation of deferred income tax assets or liabilities, unless the

Bank is able to control the timing of the reversal of the temporary differences and it is probable that

the temporary difference will reverse in the foreseeable future.

The amount of calculated deferred tax is based on expected degree of realisation of balance-sheet

values of assets and liabilities with use of tax rates, which are expected to be in force when the asset

is realised or provision eliminated, assuming the tax rates (and tax legislation) legally or factually in

force as of the balance sheet date.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

8. Financial Risk Management

The management of risk is one of the key tasks of the Management Board in the process of effective

management of the Bank. It defines the framework for business development, profitability, and

stability, by creating rules ensuring the Bank’s compliance with best internal control practices and

legal requirements and coordination of the strategy for managing all risks.

8.1. RISK MANAGEMENT

The mission of risk management in the Bank Millennium is to ensure that all types of risks are

managed, monitored, and controlled as required for the risk profile (risk appetite), nature and scale

of the Bank's operations. Important principle of risk management is the optimization of the risk and

profitability trade-off – the Bank pays special attention to ensure that its business decisions balance

risk and profit adequately.

The goals of the risk management mission are achieved through implementation of the following

actions:

▪ Development of risk management strategies, credit policy, processes and procedures defining

the principles for acceptance of the allowable level of types of risk,

▪ Increasingly wider implementation of the IT tools for risks identification, control, and

measurement,

▪ Increasing awareness of employees as regards their responsibility for proper risk management at

every level of the Bank's organizational structure.

Risk management is centralized for the Bank and considers the need to obtain the assumed

profitability and to maintain proper risk-capital relationship, in the context of having proper level of

capital to cover the risk. Within risk management system, a broad range of methods is used, both

qualitative and quantitative, including advanced mathematical and statistical tools supported by

adequate IT systems.

When defining the business and profitability targets, the Bank considers the specified risk framework

(Risk Appetite) to ensure that business structure and growth will respect the risk profile that is

targeted and that will be reflected in several indicators such as:

▪ Loan growth in specific products / segments

▪ Structure of the loan portfolio

▪ Asset quality indicators

▪ Cost of risk

▪ Capital requirements / Economic capital

▪ Amount and structure of liquidity needed.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The risk management and control model at the Bank’s level is based on the following main principles:

▪ ensuring the full-scope quantification and parameterization of distinct types of risks in the

perspective of optimizing balance sheet and off-balance sheet items to the assumed level of

profitability of business activity. The primary areas of analysis encompass credit risk, market

risk, liquidity risk and operational risk; legal, compliance and litigation risks also are subject to

specific attention,

▪ all types of risks are monitored and controlled in reference to the profitability of operations and

the level of capital necessary to ensure the safety of operations from the point of view of capital

adequacy. The results of risk measuring are regularly reported as part of the management

information system,

▪ the segregation of duties between risk origination, risk management and risk control.

The Risk management process of the Bank is presented in the below diagram:

The split of competence in the field of risk management is as follows:

▪ The Supervisory Board is responsible for overseeing the compliance of the Bank’s risk-taking

policy with the Bank’s strategy and its financial plan. Within the Supervisory Board acts the

Committee for Risk Matters, which supports it in realization of those tasks, among others, issuing

opinion on the Bank's Risk Strategy, including the Bank's Risk Appetite.

▪ The Management Board is responsible for the effectiveness of the risk management system,

internal capital estimation process, for reviewing the internal capital calculation and

maintenance process and the internal control systems.

▪ The Credit Committee, the Capital, Assets and Liabilities Committee, and the Liabilities at Risk

Committee are responsible for current management of different areas of banking risk, within the

framework determined by the Management Board.

▪ The Risk Committee and the Processes and Operational Risk Committee are responsible for

defining the policy and for monitoring and control of different areas of banking risk, within the

framework determined by the Management Board.

▪ The Product Committee reviews proposals for the implementation and withdrawal of products

and services from the bank's offering.

▪ The AML Committee is responsible for supervision of anti-money laundering and terrorism

financing in the Bank and cooperation in the area of combating financial crime.

▪ The Validation Committee is responsible for confirmation of risk models’ validation results and

follow-up in the implementation of the measures defined by the Models Validation Office.

Delineate key

risk definitions

Delineate the

models and

definitions to

classify

customers,

products,

processes, and

risk measures

Define Risk

Strategy

Defining

principles and

risk targets

according to risk

appetite, risk

capacity and

business

strategy

Define risk

policy

Defining

thresholds,

levels,

competences,

limits, cut-offs

according to Risk

Strategy

Implement

defined policy

Designing

products with

Business and

implement

them in tools

and

regulations,

Decision

processes

Monitor,

Control,

Reporting

Monitor the

models

performance and

the portfolios

behavior

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

▪ The Sustainability Committee is responsible for making key decisions regarding sustainable

development in the Bank Millennium S.A. Group, in relation to environmental, social and

governance factors.

▪ The Sub-Committee for Court Cases is responsible for expressing opinions and taking decisions in

matters regarding court proceedings, for the cases when value of the dispute or direct effect for

assets value as a consequence of court verdict exceeds 1 mln PLN or as result of multiple cases

with the same nature, excluding cases belonging to the restructuring and recovery portfolio of

Bank’s receivables managed by the Corporate Recovery Department and Retail Restructuring and

Debt Collection Department. The Sub-Committee for Court Cases is also competent for disputes

in the portfolio of the Retail Restructuring and Debt Collection Department, which the nature of

the dispute corresponds to the nature of court disputes supervised by the Court Cases Risk Sub-

committee referred to in the first sentence above and matters relating to the determination of

terms of settlement as to the effects of legal relationships at the pre-trial stage or in

circumstances indicating a significant likelihood of litigation (such as in the process of FX

mortgage negotiations and amicable settlements with borrowers), and if materialized, would fall

within the competence of the Court Cases Risk Sub-committee, excluding cases managed by

Corporate Recovery Department.

▪ The Risk Department is responsible for risk management, including identifying, measuring,

analysing, monitoring, and reporting on risk within the Bank. The Risk Department also prepares

risk management policies and procedures as well as provides information and proposes courses

of action necessary for the Capital, Assets and Liabilities Committee, Risk Committee, and the

Management Board to make decisions with respect to risk management.

▪ The Rating Department is mainly responsible for risk rating assignment for Corporate clients

(based on the evaluation of clients’ creditworthiness) as well as for rating monitoring and

potential revision during the period of its validity. Rating assignment process is independent from

credit decision process.

▪ The Corporate Credit Underwriting Department, Mortgage Credit Underwriting Department and

Consumer Finance Credit Underwriting Department have responsibility, within the Corporate

Customer segment and Retail Customer segment, respectively, for the credit decision process,

including analysing customers’ financial situation, preparing credit proposals for the decision-

making levels, and making credit decisions within specified limits.

▪ The Retail Liabilities Monitoring and Collection Department and Retail Liabilities Restructuring

and Recovery Department have responsibility for monitoring repayment of overdue debts by

retail customers and their collection.

▪ The Corporate Recovery Department develops specific strategies with respect to each debtor

from recovery portfolio, which aims to maximize timely collection of the outstanding debt and

minimize the risk incurred by the Group. This approach is constantly revised to reflect updated

information, and the best practices and experiences regarding collection of overdue debts.

▪ The Treasury Control and Analyses Office has responsibility for monitoring the use of part of the

Group’s limits, including counterparty and stop-loss limits, the Group’s FX position, results of

active trading and control of operations of the treasury segment.

▪ The Models Validation Office has responsibility for qualitative and quantitative models’ analysis

and validation, independent from the function of models’ development; development of the

models’ validation and monitoring tools; activities connected with issuing opinions on the

adequacy of the models for the segment, for which they were developed; preparing reports for

the Validation Committee needs.

▪ The purpose of the Sustainability Department is to supervise and coordinate the process of

implementing the principles of sustainable development in the Bank and the Group.

▪ The Anti-fraud Sub-unit has responsibility for implementation and monitoring Bank policy

execution in the scope of fraud risk management in cooperation with others Bank units. The Sub-

unit constitutes a competence centre for anti-fraud process.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

▪ The Compliance Department has the responsibility to ensure compliance with legal regulations,

related regulatory standards, market principles and standards as well as internal organization

regulations and codes of conduct, and in anti-money laundering process.

▪ The Legal Department has responsibility for handling the litigation cases of the Bank, with

support of external legal offices and legal experts whenever necessary.

The Bank has prepared a comprehensive guideline document for the risk management policy/strategy:

“Risk Strategy for 2024-2026”. The document takes a 3-year perspective and is reviewed and updated

annually. It is approved by the Bank’s Management Board and Supervisory Board. The risk strategy is

inextricably linked to other strategic documents, such as: Budget, Liquidity Plan, and Capital Plan.

The Risk Strategy bases on the two concepts defined by the Group:

1. Risk profile – current risk profile in amount or type of risk the Bank is currently exposed. The Bank

should also have a forward-looking view how their risk profile may change under both expected

and stress economic scenarios in accordance with risk tolerance,

2. Risk appetite – the maximum amount or type of risk the Bank is prepared to accept/tolerate to

achieve its financial and strategic objective. Three zones are defined in accordance with

warning/action required level.

Risk appetite must ensure that business structure and growth will respect the forward risk profile.

Risk appetite was reflected through defined indicators in several key areas, such as:

▪ Solvency

▪ Liquidity and funding

▪ Earnings volatility and Business mix

▪ Operational activity and reputation.

The Bank has a clear risk strategy, covering retail credit, corporate credit, markets activity and

liquidity, operational and capital management. For each risk type and overall, the Bank clearly define

the risk appetite.

The Risk Management is mainly defined through the principles and targets defined in Risk Strategy

and complemented in more detail by the principles and qualitative guidelines defined in the following

documents:

▪ Capital Management and Planning Framework

▪ Credit Principles and Guidelines

▪ Rules on Concentration Risk Management

▪ Principles and Rules of Liquidity Risk Management

▪ Principles and Guidelines on Market Risk Management on Financial Markets

▪ Principles and Guidelines for Market Risk Management in Banking Book

▪ Investment Policy

▪ Principles and Guidelines for Management of Operational Risk

▪ Policy, Rules, and Principles of the Model Risk Management

▪ Stress tests policy

▪ Sustainability Policy

▪ Regulations of Bank Millennium SA - Program of counteracting Anti-Money Laundering and

financing terrorism.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Within risk appetite, the Bank has defined tolerance zones for its measures (build up based on the

“traffic lights” principle). As for all tolerance zones for risk appetite, it has been set:

▪ Risk appetite status – green zone means a measure within risk appetite, yellow zone means

an increased risk of risk appetite breach, red zone means risk appetite breach.

▪ Escalation process of actions/decisions taken - bodies/organizational entities responsible for

decisions and actions in a particular zone..

▪ Risk appetite monitoring process.

The Bank pays particular attention to continuous improvement of the risk management process. One

measurable effect of this is a success of the received authorization to the further use of the IRB

approach in the process of calculating capital requirements.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

8.2. CAPITAL MANAGEMENT

Capital management and planning

Capital management relates to two areas: capital adequacy management and capital allocation. For

both areas, management goals were set.

The goal of capital adequacy management is: (a) meeting the requirements specified in external

regulations (regulatory capital adequacy) and (b) ensuring the solvency in normal and stressed

conditions (economic capital adequacy/internal capital). Completing that goal, Bank strives to

achieve internal long-term capital limits (targets), defined in Risk Strategy.

Capital allocation purpose is to create value for shareholders by maximizing the return on risk in

business activity, considering established risk appetite.

In a scope of capital management process, there is also a capital planning process. The goal of capital

planning is to designate the own funds (capital base that is risk-taking capacity) and capital usage

(regulatory capital requirements and economic capital) in a way to ensure that capital targets/limits

shall be met, given forecasted business strategy and risk profile – in normal and stressed

macroeconomic conditions.

Regulatory capital adequacy

The Bank is obliged by law to meet minimum own funds requirements, set in art. 92 of Regulation

(EU) No 575/2013 on prudential requirements for credit institutions and investment firms, amending

Regulation (EU) No 648/2012 (CRR). At the same time, the following buffers were included in capital

targets/limits:

▪ Pillar II FX mortgage loans buffer (P2R buffer) - KNF decision regarding order to maintain

additional own funds to secure risk resulting from FX mortgage loans granted to households,

under the art. 138.2.2 of Banking Act. A value of that buffer is defined for particular banks by

KNF every year as a result of Supervisory Review and Evaluation Process (SREP) and relates to

risk that is in KNF’s opinion - inadequately covered by minimum own funds requirements, set in

CRR art. 92. At present, the buffer was set by KNF in the decisions issued in the end of 2023 in

the level of 1.47 pp (Bank) and 1.46 pp (Group) as for Total Capital Ratio (TCR), which

corresponds to capital requirements over Tier 1 ratio of 1.10 pp (Bank and Group), and which

corresponds to capital requirements over CET1 ratio of 0.82 pp (Bank and Group)

;

▪ Combined buffer – defined in Act on macro prudential supervision over the financial system and

crisis management – that consists of:

▪ Capital conservation buffer at the level of 2.5%;

▪ Other systemically important institution buffer (OSII) – at the level of 0.25%, and the

value is set by KNF each year

;

▪ Systemic risk buffer at the level of 0% in force from March 2020, in line with Regulation

of Ministry of Development and Finance;

▪ Countercyclical buffer at the 0% level.

That decision replaces the previous recommendation from 2022, to maintain own funds for the coverage of additional capital

requirements at the level of 1.95 pp (Bank) and 1.94 pp (Group) as for TCR, which should have consisted of at least 1.47 pp

(Bank) and 1.46 pp (Group) as for Tier 1 capital and which should have consisted of at least 1.10 pp (Bank) and 1.09 pp (Group)

as for CET1 capital.

In November 2020 KNF issued the decision on identification the Bank as other systemically important institution and

imposing OSII Buffer of 0.25%

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

In accordance to binding legal requirements and recommendations of Polish Financial Supervisory

Authority (KNF), the Bank defined regulatory minimum levels of capital ratios, being at the same time

the base of defining capital limits.

The below table presents these levels as of 31 December 2023. The Bank will inform on each change

of required capital levels in accordance with regulations.

Capital ratio

31.12.2023

CET1 ratio

Bank

Group

Minimum

4.50%

P2R Buffer

0.82%

TSCR CET1 (Total SREP Capital Requirements)

5.32%

Capital Conservation Buffer

2.50%

OSII Buffer

0.25%

Systemic risk buffer

0.00%

Countercyclical capital buffer

0.00%

Combined buffer

2.75%

OCR CET1 (Overall Capital Requirements CET1)

8.07%

T1 ratio

Bank

Group

Minimum

6.00%

P2R Buffer

1.10%

TSCR T1 (Total SREP Capital Requirements)

7.10%

Capital Conservation Buffer

2.50%

OSII Buffer

0.25%

Systemic risk buffer

0.00%

Countercyclical capital buffer

0.00%

Combined buffer

2.75%

OCR T1 (Overall Capital Requirements T1)

9.85%

TCR ratio

Bank

Group

Minimum

8.00%

P2R Buffer

1.47%

1.46%

TSCR TCR (Total SREP Capital Requirements)

9.47%

9.46%

Capital Conservation Buffer

2.50%

OSII Buffer

0.25%

Systemic risk buffer

0.00%

Countercyclical capital buffer

0.00%

Combined buffer

2.75%

OCR TCR (Overall Capital Requirements TCR)

12.22%

12.21%

In December 2023, the Bank received a recommendation to maintain, own funds to cover an additional

capital charge (“P2G”) to absorb potential losses resulting from the occurrence of stresses, at the

level of 1.59 pp and 1.60 (on an individual and consolidated level) over the OCR value. According to

the recommendation, the additional capital charge should consist fully of common equity Tier 1

capital (CET1 capital).

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Capital risk, expressed in the above capital targets/limits, is measured, and monitored in a regular

manner. Capital limits were defined based on the minimum regulatory capital levels. They are the

basis of setting safety zones and risk appetite. Capital ratios in each zone determine the need to

make appropriate decisions or management actions. Regular monitoring of capital risk is based on the

classification of capital ratios into appropriate zones, and then the assessment of trends and factors

influencing the level of capital adequacy is carried out.

Own funds capital requirements

The Bank calculates its own funds requirements using standard methodologies and is implementing at

the same time a project of an implementation of internal ratings-based method (IRB) for calculation

of own funds requirements for credit risk and obtaining of approval decisions from Regulatory

Authorities on that matter.

In the end of 2012, Banco de Portugal (consolidating Regulator) with cooperation of Polish Financial

Supervision Authority (KNF) granted an approval to the use of IRB approach as to following loan

portfolios: (i) Retail exposures to individual persons secured by residential real estate collateral (RRE),

(ii) Qualifying revolving retail exposures (QRRE). According to the mentioned approval, minimum own

funds requirements calculated using the IRB approach should be temporarily maintained at no less

than 80% (“Regulatory floor”) of the respective capital requirements calculated using the

Standardized approach.

In the end of 2014, the Bank received another decision by Regulatory Authorities regarding the IRB

process. According to its content, for the RRE and QRRE loan portfolios, the minimum own funds

requirements calculated using the IRB approach had to be temporarily maintained at no less than 70%

(“Regulatory floor”) of the respective capital requirements calculated using the Standardized

approach until the Bank fulfils further defined conditions.

In July 2017, the Bank received the decision of Competent Authorities (ECB cooperating with KNF) on

approval the material changes to IRB LGD models and revoking the “Regulatory floor”.

Since 2018, the Bank has been successively implementing a multi-stage process of implementing

changes to the IRB method, related to the requirements regarding the new definition of default. In

the first phase, in line with the “two-step approach” approved by Competent Authorities, the Bank

in 2020 successfully implemented solutions for the new definition of default in the production

environment. The Bank is obliged to include an additional conservative charge on the estimates of

the RWA value for exposures classified under the IRB approach. The level of this add-on, calculated

based on the supervisory algorithm, was set at 5% above the value resulting from the IRB method.

In 2021, all credit risk models included in the rating system subject to the current regulatory approval

were recalibrated and rebuilt. In 2021 the Bank also obtained a decision from Competent Authorities

to approve significant changes to the IRB models used (LGD, LGD in-default and ELBE) for rating

systems subject to the IRB approval.

In 2022 and 2023, further work was carried out on credit risk models for the remaining credit portfolios

covered by the IRB method roll-out plan: other retail exposures and corporate exposures.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Internal capital

The Bank defines internal capital according to Polish Banking Act, as the estimated amount needed

to cover all identified, material risks found in the Bank’s activity and changes in economic

environment, considering the anticipated level of risk in the future.

Internal capital is used in capital management in following processes: economic capital adequacy

management and capital allocation. The Bank defined an internal (economic) capital estimation

process. To this end, as for measurable risk types, mathematic and statistic models and methods are

used.

Maintaining economic capital adequacy means a coverage (provision) of internal capital (that is an

aggregated risk measure) by available financial resources (own funds). An obligation to banks to have

in place that sort of risk coverage stems from Banking Act. It was mirrored in the Group’s capital

targets/limits: economic capital buffer and economic capital buffer in stressed conditions.

In 2023, both above capital targets were met with a surplus.

At the same time internal capital is utilized in capital allocation process, to assign an internal capital

to products/business lines, calculating risk-adjusted performance measures, setting risk limits and

internal capital reallocation.

Capital ratios and capital adequacy – current state, evaluation, and trends.

Capital ratios of the Bank over the last three years was as follows

31.12.2023

31.12.2022

31.12.2021

Risk-weighted assets

37 960.4

48 046.0

48 895.7

Own Funds requirements, including:

3 036.8

3 843.7

3 911.7

- Credit risk and counterparty credit risk

2 589.0

3 386.7

3 477.7

- Market risk

15.4

18.0

32.3

- Operational risk

427.0

432.3

391.4

- Credit Valuation Adjustment CVA

5.4

6.7

10.3

Own Funds, including:

7 228.3

6 980.1

8 397.1

Common Equity Tier 1 Capital

5 847.4

5 458.9

6 867.1

Tier 2 Capital

1 380.9

1 521.2

1 530.0

Total Capital Ratio (TCR)

19.04%

14.53%

17.17%

Tier 1 Capital ratio (T1)

15.40%

11.36%

14.04%

Common Equity Tier 1 Capital ratio (CET1)

15.40%

11.36%

14.04%

Leverage ratio

4.77%

4.74%

6.45%

Bank uses transitional arrangements for IFRS 9 and considers a temporary treatment of unrealized gains and losses on bonds

measured by fair value through other comprehensive income (FVOCI) in accordance with Art. 468 of the CRR. As at 31.12.2023,

if IFRS 9 transitional arrangements and temporary treatment according to Art. 468 of the CRR had not been applied, capital

ratios were as follows:

- TCR: 18.84%

- T1: 15.20%

- CET1: 15.20%

- Leverage ratio: 4.71%

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Capital adequacy showed as surpluses/deficits on required or recommended levels is presented in the

below table.

Capital adequacy

31.12.2023

31.12.2022

31.12.2021

Total Capital Ratio (TCR)

19.04%

14.53%

17.17%

Minimum required level (OCR)

12.22%

12.70%

13.57%

Surplus (+) / Deficit (-) of TCR capital adequacy (p.p.)

6.82

1.83

3.6

Minimum recommended level TCR (OCR+P2G)

13.81%

14.42%

13.57%

Surplus (+) / Deficit (-) on recommended level (p.p.)

5.23

0.11

3.6

Tier 1 Capital ratio (T1)

15.40%

11.36%

14.04%

Minimum required level (OCR)

9.85%

10.22%

11.31%

Surplus (+) / Deficit (-) of T1 capital adequacy (p.p.)

5.55

1.14

2.73

Minimum recommended level T1 (OCR+P2G)

11.44%

11.94%

11.31%

Surplus (+) / Deficit (-) on recommended level (p.p.)

3.96

-0.58

2.73

Common Equity Tier 1 Capital ratio (CET1)

15.40%

11.36%

14.04%

Minimum required level (OCR)

8.07%

8.35%

8.83%

Minimum recommended level CET1 (OCR+P2G)

9.66%

10.07%

8.83%

Surplus (+) / Deficit (-) on recommended level (p.p.)

5.74

1.29

5.21

Leverage ratio

4.77%

4.74%

6.45%

Minimum required level

3.00%

Surplus (+) / Deficit (-) of Leverage ratio (p.p.)

1.77

1.74

3.45

As at 2023 end, capital adequacy, measured by Common Equity Tier 1 Capital ratio and Total Capital

Ratio, increased in one year period by ca 4.04 pp and by ca 4.51 pp, respectively.

Risk-weighted assets (RWA) decreased in 2023 by PLN 10,086 million (by 21%). The largest annual

change concerned RWA for credit risk - a decrease of PLN 9,972 million (by 23.6%). One of the main

factors of this decline were loan securitization transactions - the total impact of securitization on the

RWA reduction at the end of 2023 is estimated at approximately PLN 5,035 million. Changes in RWA

for operational risk, market risk and CVA (due to fair value adjustment due to credit risk) were not

significant - a total decrease of PLN 114 million.

Own funds increased in 2023 by PLN 248 million (by 3.6%), mainly as a result of including the net

profit for the first half of 2023 in own funds (an increase by PLN 339 million).

The minimum capital ratios required by the Polish Financial Supervision Authority in terms of the

combined buffer requirement (OCR) are achieved with a large surplus at the end of 2023. Also, in

terms of the levels expected by the Polish Financial Supervision Authority, including the additional

P2G level, they were achieved for all capital ratios with a clear surplus. The Bank has fully regained

capital adequacy.

Leverage ratio stood at the safe level of 4.77%, and it significantly exceeds the regulatory minimum

(3%).

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Securitization transaction

In December 2023, the Bank carried out a synthetic securitization transaction of a portfolio of

unsecured cash loans with a total value of PLN 7.2 billion. This was the largest synthetic securitization

transaction concluded by the Bank so far. As part of the transaction, the Bank transferred a significant

part of the credit risk of the securitized portfolio to the investor. The securitized loan portfolio

remains on the Bank's balance sheet. The risk of the securitized portfolio is transferred via a credit

protection instrument in the form of credit risk-related bonds issued in December 2023 (“CLN Bonds”)

in the amount of PLN 489 million.

UniCredit Bank AG acted as the organizer and placement agent of the transaction. The transaction

meets the requirements for transferring a significant part of the risk specified in the CRR Regulation

(Regulation No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential

requirements for credit institutions and investment firms).

Minimum requirement for own funds and eligible liabilities (MREL)

The Bank manages MREL requirements ratios in a manner analogous to capital adequacy ratios.

The Bank received a joint decision from the resolution authorities in June 2023, obliging it to comply

with MREL requirements. The decision sets updated minimum requirements that must be met by

December 31, 2023 - at the levels of 18.89% (consolidated MRELtrea) and 5.91% (consolidated

MRELtem). Additionally, in relation to the above decisions, the Bank should also meet the MREL

requirement taking into account the Combined Buffer Requirement (currently 2.75%).

Taking into account the above, in September 2023, the Bank successfully completed the subscription

of senior non-preferred bonds with a total value of EUR 500 million under the Euro Medium Term

Notes Issuance Program with a total nominal value of no more than EUR 3 billion (Current Reports No.

27/2023 and 30/2023).

MREL

31.12.2023

30.09.2023

30.06.2023

31.12.2022

MRELtrea ratio (consolidated)

23.77%

22.05%

14.93%

14.77%

Minimum required level MRELtrea

18.89%

14.42%

15.60%

Surplus (+) / Deficit (-) of MRELtrea (pp)

4.88

7.63

0.51

-0.83

Minimum required level including Combined Buffer

requirement (CBR)

21.64%

17.17%

18.35%

Surplus (+) / Deficit (-) of MRELtrea+CBR (pp)

2.13

4.88

-2.24

-3.58

MRELtem (consolidated)

7.50%

7.72%

5.87%

6.04%

Minimum required level of MRELtem

5.91%

4.46%

3.00%

Surplus (+) / Deficit (-) of MRELtem (pp)

1.59

3.26

1.41

3.04

In terms of the MRELtrea and MRELtem requirements, the Group presents a surplus compared to the

minimum required levels as of December 31, 2023, and also meets the MRELtrea Requirement after

the inclusion of the Combined Buffer Requirement.

In addition, in December 2023, the Bank received a letter from the Bank Guarantee Fund informing

that due to the update of the P2R buffer by the PFSA, the target updated minimum required MRELtrea

be of the combined buffer requirement for the Bank would be 18.03% MRELtrea with a minimum

subordination requirement, while the target MRELtem would be 5.91%, with a subordination

requirement. The Fund will propose the above MRELtem levels as part of the joint decision process in

the 2023/2024 planning cycle.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

8.3. CREDIT RISK

The credit risk is one of the most important risk types for the Bank Millennium SA and therefore

considerable attention is given to management of credit risk-bearing exposures. Credit risk relates to

balance-sheet credit exposures as well as off-balance sheet financial instruments, such as granted

and unutilized credit lines, guarantees and letters of credit, as well as limits for transactions in

financial instruments.

The credit policy is subject to periodic reviews and verification process considering the prevailing

market conditions and changes in the Bank’s regulatory environment.

The Bank uses several rating systems to manage credit risk depending on the type of exposure and

the customer segment involved. A rating system is a set of methods (models), processes, controls,

data collection procedures and IT systems that identify and measure credit risk, sort levels of exposure

by grades or pools (granting of credit rating) and quantify probability of default and expected loss

estimates for specific types of exposure.

In 2023, in the corporate segment, the Group focused on analysis of the loan portfolio and borrowers'

industries in order to monitor risk, with particular emphasis on customers directly affected by the

negative effects of the conflict in Ukraine, as well as customers with low profitability, potentially

most exposed to negative changes in the macroeconomic environment. In the retail segment, the

Bank focused on adaptation its lending policy to the changing macroeconomic environment, in

particular, changes were implemented to mitigate the potential increase in risk related to rising credit

costs and inflation.

(3a) Measurement of Credit Risk

Loans and advances

Measurement of credit risk, for the purpose of the credit portfolio management, on the level of

individual customers and transactions, on account of granted loans is done with the consideration of

three base parameters:

(i) Probability of Default (PD) of a customer or counterparty as regards their liability;

(ii) amount of Exposure at Default (EAD) and

(iii) the ratio of Loss Given Default (LGD) regarding the customer’s liability.

(i) The Bank assesses the probability of default (PD) of individual counterparties, using internal rating

models adapted to various categories of customers and transactions. Models were developed in-

house or at the level of the BCP Group, or with help of external providers, and combine statistical

analysis with assessment by a credit professional. The Bank’s customers are divided into 15 rating

classes, which for the purposes of this Report have been grouped into 6 main brackets. The Bank’s

Master Ratings Scale, presented below, also contains the scale of probabilities of non-compliance

with the liabilities specified for a given class/rating group. Rating models are subject to regular

reviews and whenever necessary to relevant modification. Validation Committee confirm

modifications of models.

The Bank regularly analyses and assesses rating results and their predictive power with respect to

cases of default. The process of assigning client risk assessments (for Corporates performed by

Rating Department independently from credit decision process and transactions) is supported by

IT systems, obtaining, and analysing information from internal and external databases.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The Bank’s internal rating scale

Master scale

Description of rating

1-3

Highest quality

4-6

Good quality

7-9

Medium quality

10-12

Low quality

13-14

Watched/Procedural

Default

(ii) EAD – amount of exposure at default – concerns amount which according to the Bank’s predictions

will be the Bank’s receivables at the time of default against liabilities. Liabilities are understood

by the Bank to mean every amount disbursed plus further amounts, which may be disbursed until

default, if such occurs.

(iii) LGD – loss given default is what the Bank expects will be its losses resulting from actual cases of

default, with the consideration of internal and external costs of recovery and the discount effect.

Unification of the default definition in the Bank

Since the implementation of IFRS 9, the Bank has adopted a uniform definition of default, both in the

calculation of capital requirements and for the purposes of estimating impairment. The Group uses

the definition of default in line with the EBA Guidelines, the so-called New Definition of Default.

Unified Default definition includes following triggers:

▪ DPD>90 days considering materiality thresholds for due amount: absolute PLN 400 for retail and

PLN 2000 for corporates and relative threshold of 1% in relation to total exposure,

▪ Restructured loans (forborne),

▪ Loans in vindication process,

▪ Other triggers defined in EBA Guidelines,

▪ Qualitative triggers identified in the individual analysis.

The Bank is using cross-default approach for all segments.

Debt Securities

Debt securities from Polish State Treasury and from the Polish Central Bank are monitored based on

Polish rating. Whereas the economic and financial situation of issuers of municipal debt securities is

monitored on a quarterly basis based on their financial reporting. Debt securities from other European

Union member states and supra national institutions are monitored based on their respective ratings.

The Bank doesn’t apply Low Credit Risk (LCR) exemption neither for State Treasury and Central Bank

exposures nor for any other groups of exposures.

Derivatives

The Bank maintains strict control over the limits of net open derivative positions both with respect

to amounts and transaction maturities. Credit risk exposures resulting from derivatives are managed

as part of total credit limits defined for individual customers calculated based on verification of

natural exposure and analysis of customer’s financial situation, and as part of counterparties’ limits.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The Bank offers Treasury products for FX risk or interest rate risk only for hedging purposes and under

Treasury limits assigned to clients or secured by collateral - deposit.

Most of the Bank’s agreements include the possibility of calling the client to replenish the margin

deposit, (if the valuation of the client’s open position exceeds treasury limit, the so-called margin

call); and if the client does not supplement the deposit, the Bank has the right to close the position.

Credit risk-based off-balance sheet liabilities

Credit risk-based off-balance sheet liabilities include granted guarantees and letters of credit,

granted and unused limits (credit, factoring, guarantees and letters of credit and cards) as well as

granted and unpaid tranches of non-renewable loans. The primary purpose of these instruments is to

enable the customer to manage in a specific manner the funds allocated by the Group.

Granted guarantees and letters of credit granted are unconditional and irrevocable - after the receipt

of a claim compliant with the terms of the guarantee or letter of credit, the Group must make

a payment. Typically, guarantees and letters of credit are related to commercial transactions.

In the case of most of the granted and unused limits, the Group has the option of refusing to execute

the client's instruction regarding the use of funds from these limits - either unconditionally or upon

meeting the conditions set out in the documents and by-laws applicable to a given limit.

In the case of granted and undisbursed tranches of non-revolving loans, their disbursement depends

on the fulfilment of the conditions set out in the documents and by-laws applicable to a given non-

revolving loan.

(3b) Limits control and risk mitigation policy

The Bank measures, monitors and controls large credit exposures and high credit risk concentrations,

wherever they are identified. Concentration risk management process encompasses single-name

exposures with respect to an individual borrower or group of connected borrowers (with material

capital, organizational or significant economic relations) and sectoral concentration – to economic

industries, geographical regions, countries, and the real estate financing portfolio (including FX

loans), portfolio in foreign currencies and other. Above types of sectoral exposures are subject to

internal limits system. Information about the utilization of limits is presented at the Supervisory

Board, the Committee for Risk Matters, and the Risk Committee.

The internal limits (mentioned above) are monitored quarterly. Limits are subject to annual or more

frequent review, when deemed appropriate. The limits are approved by the Supervisory Board or the

Risk Committee.

Management of credit risk exposure is also performed through regular monitoring of customers’

economic and financial situation and/or track record of their relationship with the Bank from the

point of view of punctual repayment of their principal and interest liabilities.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Collateral

The Bank accepts collateral to mitigate its credit risk exposure; the key role of collateral is to

minimize loss in the event of customers' default in repayment of credit transactions in contractual

amounts and on contractual dates by ensuring an alternative source of repayment of due and payable

amounts. Collateral is accepted in accordance with the credit policy principles defined for each

customer segment. The key principle is that collateral for credit transaction should correspond to the

credit risk incurred by the Bank, considering the specific nature of the transaction (i.e., its type,

amount, repayment period and the customer's rating).

The credit policy defines the types, kinds and legal forms of collateral accepted in the Bank as well

as more detailed requirements that are to ensure the probability of selling collateral of respective

types in the context of the Bank's recovery experiences.

The Bank pays special attention to the correct determination of collateral value. It defined the rules

for preparing and verifying collateral valuation and does its utmost to ensure that such valuations are

objective, conservative and reflect the true value of the collateral. To ensure effective establishment

of collateral, the Bank has developed appropriate forms of collateral agreements, applications,

powers-of-attorney, and representations.

In the retail segment, accepted collateral consists mainly of residential real property (mortgage loans)

and financial assets. In the case of the corporate segment, all types of real estate (residential,

commercial, land) are accepted, as well as assignments of receivables under contracts.

Temporary collateral is also accepted in the period before the final collateral is established.

Additionally, the Bank uses various forms of instruments supplementing the collateral, which facilitate

enforcement or increase probability of effective repayment of debt from a specific collateral. Those

instruments include statement of submitting to enforcement in the form of

a notarial deed, blank promissory note, power-of-attorney to a bank account, assignment of rights

under an insurance agreement.

The Bank monitors the collateral to ensure that it satisfies the terms of the agreement, i.e., that the

final collateral of the transaction has been established in a legally effective manner or that the

insurance policies are renewed. The value of the collateral is also monitored during the term of the

credit transaction.

In accordance with credit policy adopted in the Bank it is also allowed to grant a transaction without

collateral, but this takes place according to principles, which are different depending on the client’s

segment. But in the case of the deterioration of the debtor’s economic and financial situation, in

documents signed with the client the Bank stipulates the possibility of taking additional collateral for

the transaction.

(3c) Policy with respect to impairment and creation of impairment charges

Organisation of the Process

The process of impairment identification and measurement with respect to loan exposures is

regulated in the internal instruction introduced with IFRS9 application. The document defines in detail

the mode and principles of individual and collective analysis, including algorithms for calculating

parameters.

The methodology and assumptions adopted for determining credit impairments are regularly reviewed

to reduce discrepancies between the estimated and actual losses. To assess the adequacy of the

impairment determined both in individual analysis and collective analysis a historical verification

(back testing) is conducted from time to time (at least once a quarter), which results will be

considered to improve the quality of the process.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The Supervision over the process of estimating impairment charges and provisions is exercised at the

Bank by the Risk Department (DMR), which also has direct responsibility for individual analysis in the

business portfolio at the Bank, as well as collective analysis. In addition to DMR, the process also

involves recovery and restructuring units. These are the Corporate Recovery Department – DNG

(individual analysis for the recovery-restructuring portfolio for corporate customers) and the Retail

Liabilities Restructuring and Recovery Department - DRW (individual analysis of individually significant

retail impairments, mainly mortgages). DMR is a unit not connected with the process of lending; it is

supervised by the Management Board Member responsible for risk management.

The Management Board of the Bank plays an active role in the process of determining impairment

charges and provisions. The results of credit portfolio valuation are submitted to the Management

Board for acceptance in a monthly cycle with a detailed explanation of the most significant changes

with an impact on the overall level of impairment charges and provisions, in the period covered by

the analysis. Methodological changes resulting from the validation process and methodological

improvements are presented at the Validation Committee, and subsequently at the Risk Committee

which includes all the Management Board Members.

In monthly periods detailed reports are prepared presenting information about the Bank’s retail

portfolio in various cross-sections, including the level of impairment charges and provisions, their

dynamics and structure. The recipients of these reports are Members of the Management Board,

supervising the activity of the Bank in finance, risk, and management information.

Expected credit loss measurement

Since implementation of IFRS9 in 2018, impairment estimation model within the Bank has been based

on the concept of “expected credit loss”, (hereinafter: ECL). As a direct result of using this approach,

impairment charges now must be calculated based on expected credit losses and forecasts of expected

future economic conditions must be considered when conducting evaluation of credit risk of an

exposure.

The implemented impairment model applies to financial assets classified in accordance with IFRS 9

as financial assets measured at amortized cost or at fair value through other comprehensive income,

except for equity instruments.

According to IFRS 9, credit exposures are classified in the following categories:

▪ Stage 1 – non-impaired exposures, for which expected credit loss is estimated for the 12-month

period,

▪ Stage 2 – non-impaired exposures, for which a significant increase in risk has been identified

(SICR) and for which expected credit loss is estimated for the remaining lifetime of the

financial asset,

▪ Stage 3 – credit impaired exposures, for which expected credit loss is estimated for the

remaining lifetime of the financial asset.

▪ POCI (purchased or originated credit impaired) – exposures which, upon their initial recognition

in the balance sheet, are recognized as impaired, expected losses are estimated for the

remaining life of the financial asset.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Identification of a significant increase in credit risk (SICR)

Assets, for which there has been identified a significant increase in credit risk compared to the initial

recognition in the balance sheet, are classified in Stage 2. The significant increase in credit risk is

recognized based on qualitative and quantitative criteria. The qualitative criteria include:

▪ repayment delays of more than 30 days,

▪ forborne exposures in non-default status,

▪ using the support from Banking Support Fund,

▪ occurrence of seizures on current accounts resulting from enforcement orders,

▪ procedural rating, which is reflecting early delays in payments,

▪ taking a risk-mitigating decision for corporate clients, triggered by the early warning system,

▪ events related to an increase in credit risk, the so called “soft signs” of impairment, identified

as part of an individual analysis involving individually significant customers.

The quantitative criterion involves a comparison of the lifetime PD value determined on initial

recognition of an exposure in the balance sheet, with the lifetime PD value determined at the current

reporting date. If an empirically determined threshold of the relative change in the lifetime PD value

is exceeded, then an exposure is automatically transferred to Stage 2. The quantitative assessment

does not cover exposures analysed individually.

Individual analysis of impairment for credit receivables

Individual analysis contains customers identified as significantly important both for business portfolio

and recovery portfolio. Credit exposures are selected for individual analysis based on materiality

criteria which ensure that case-by case analysis covers at least 50% of the Bank’s business corporate

portfolio and 80% of the portfolio managed by entities responsible for the recovery and restructuring

of corporate receivables.

Principal elements of the process of individual analysis:

1) Identification of soft signs of impairment being one of qualitative triggers of Significant Increase

of Credit Risk (SICR).

This process covers biggest business corporate customers, for which financial-economic situation is

analysed on a quarterly basis based on latest financial statement, events connected with company

activities, information concerning related entities and economic environment, expectation about

future changes, etc. There was defined catalogue of so called “soft signs of impairment,”

identification of which means significant increase of credit risk (SICR) and causing classification of all

exposures of such customer to Stage 2.

2) Identification of impairment triggers.

The Bank defined impairment triggers for individual analysis and adjusted them to its operational

profile. The catalogue of triggers contains among others following elements:

▪ The economic and financial situation pointing to the Customer’s considerable financial

problems,

▪ Breach of the contract, e.g., significant delays in payments of principal or interest

▪ Stating the customer’s unreliability in communicating information about his economic and

financial situation,

▪ Permanent lack of possibility of establishing contact with the customer in the case of violating

the terms of the agreement,

▪ High probability of bankruptcy or a different type of reorganising the Customer’s

enterprise/business,

▪ Declaring bankruptcy or opening a recovery plan with respect to the Customer,

▪ Granting the Customer who has financial difficulties, facilities concerning financing conditions

(restructuring).

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Internal regulations allow discovering above-mentioned triggers by indicating specific cases and

situations corresponding to them, with respect to triggers resulting from the Customer’s considerable

financial problems, violating the critical terms of the agreement and high probability of a bankruptcy

or a different enterprise reorganisation.

3) Scenario approach in calculation of impairment allowances for individually analysed customers.

If at least one of impairment triggers has been identified during the individual analysis, all exposures

of given customer are classified in Stage 3 and then detailed analysis of forecasted cash-flows should

be performed. Since introducing IFRS9 the Bank is using scenario approach. It means that analyst

should define at least two recovery scenarios which reflect described and approved recovery

strategies: the main and alternative ones with assigned probabilities of realisation. The Bank has

defined guidelines regarding the weights used for individual scenarios. Scenarios can be based on

restructuring or vindication strategy; mixed solutions are also used. The entire process of individual

analysis is supported by especially dedicated Case-By-Case IT Tool especially useful in terms of

calculation impairment amount with usage of scenario approach.

Every scenario contains two general types of recoveries: direct cash-flows from customers and

recovered amounts from collateral.

4) Estimating expected cash-flows.

One element of the impairment calculation process is the estimation of the probability of cash flows

included in the timetable, pertaining to the following items: principal, interest, and other cash flows.

The probability of realising cash flows included in the timetable results from the conducted

assessment of the customer’s economic and financial situation (indication of the sources of potential

repayments) must be justified and assessed based on current documentation and knowledge

(universally understood) of his situation with the inclusion of financial projections. This information

is gathered by an analyst prior to the actual analysis in accordance with the guidelines specified in

appropriate Bank regulations.

In the event of estimating the probability of cash flows for customers in the portfolio managed by

restructuring-recovery departments analysts will consider the individual nature of each transaction

pointing among others to the following elements which may have an impact on the value of potential

cash flows:

▪ Operational strategy with respect to the Customer adopted by the Bank,

▪ Results of negotiations with the customer and his attitude, i.e., willingness to settle his

arrears,

▪ Improvement/deterioration of his economic and financial situation,

The Bank also uses the formal terms of setting and justifying the amount of probability and amount

of the payment by the Bank of funds under the extended off-balance sheet credit exposure such as

guarantees and letters of credit.

5) Estimation of the fair value of collateral, specifying the expected date of sale and estimation of

expected revenues from the sale after deduction of the costs of the recovery process.

The inclusion of cash flows from realisation of collateral must be preceded by an analysis of how

realistically it can be sold and estimation of its fair value after recovery costs.

To ensure the fairness of the principles of establishing collateral recoveries, the Bank prepared

guidelines for corporate segment with respect to the recommended parameters of the recovery rate

and recovery period for selected collateral groups. Depending on the place of the exposure in the

Bank’s structure (business portfolio, restructuring-recovery portfolio) and type of exposure separate

principles have been specified for portfolio types: business and restructuring-recovery. The

recommended recovery rates and period of collateral recovery are verified in annual periods.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Collective analysis of the credit portfolio

Subject to collective analysis are the following receivables from the group of credit exposures:

▪ Individually insignificant exposures.

▪ Individually significant exposures for which there has not been recognised impairment triggers

because of an individual analysis.

For the purposes of collective analysis, the Bank has defined homogenous portfolios consisting of

exposures with a similar credit risk profile. These portfolios have been created based on segmentation

into business lines, types of credit products, number of days of default, type of collateral etc. The

division into homogenous portfolios is verified from time to time for their uniformity.

The expected credit loss in a collective analysis is calculated using Probability of Default (PD),

Exposure at Default (EAD), and Loss Given Default (LGD) parameters, which are the outcome of the

following models:

▪ The PD model is based on empirical data concerning 12-month default rates, which are then used

to estimate lifetime PD values using appropriate statistical and econometric methods. The

segmentation adopted for this purpose at the customer level is consistent with the segmentation

used for capital requirement calculation purposes. Additionally, the Bank has been using rating

information from internal rating models to calculate PDs.

▪ The LGD models for the retail portfolio used by the Bank in the capital calculation process were

adjusted to IFRS 9 requirements in estimating impairment. The main components of these models

are the probability of cure and the recovery rate estimated based on discounted cash flows. The

necessary adaptations to IFRS 9 include, among other things, exclusion of the conservatism buffer,

indirect costs, and adjustments for economic slowdown.

▪ For the corporate portfolio, LGD model is based on a component determining parameterized

recovery for the key types of collateral and a component determining the recovery rate for the

unsecured part. All the parameters were calculated based on historical data, including discounted

cash flows achieved by the corporate debt recovery unit.

▪ The EAD model used in the Bank includes calculation of parameters such as: average limit

utilization (LU), credit conversion factor (CCF), prepayment ratio and behavioural lifetime.

Segmentation is based on the type of customer (retail, corporate) and product (products

with/without a schedule).

The results of models employed in collective analysis are subject to periodical verification. The

parameters and models are also covered by the process of models’ management governed by the

document „Principles of Managing Credit Risk Models,” which specifies, among others, the principles

of creating, approving, monitoring and validation, and historical verification of models.

Forward-looking information incorporated in the ECL models

In the process of calculation of expected credit losses, the Bank uses forward-looking information

(FLI) about future macroeconomic events. FLI is used in PD, LGD, and EAD as well as in the process of

determination of SICR and allocation of exposures to Stage 2 (Transfer Logic). The Macroeconomic

Analysis Office prepares three macroeconomic scenarios (baseline, optimistic and pessimistic) and

determines the probability of their occurrence. Forecasts translate directly or indirectly into the

values of estimated parameters and exposures and their impact vary by model, product type, rating-

class etc. The Bank uses macroeconomic forecasts prepared only internally. Forecasts are provided

on a quarterly basis for a 3-year time horizon.

As with any economic forecasts, the projections and likelihoods of occurrence are subject to

a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different

to those projected.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Economic variable assumptions

The most significant period-end assumptions used for the ECL estimate as of 31 December 2023 are

set out below.

Macroeconomic variable

Scenario

2024

2025

2026

Gross Domestic Product

Base

102.9

103.5

103.3

Optimistic

104.1

104.6

104.0

Mild recession

101.5

102.3

103.2

Retail Sales

Base

105.0

106.1

105.2

Optimistic

106.0

106.9

105.8

Mild recession

103.0

104.3

104.8

Unemployment rate

Base

5.3

5.2

5.0

Optimistic

4.4

4.5

4.4

Mild recession

6.8

7.1

7.0

The weightings assigned to each economic scenario on 31 December 2023 were as follows:

Base

Optimistic

Mild recession

Applied weighting

70%

10%

20%

ECL sensitivity to macroeconomic scenarios

For assessing the sensitivity of ECL for future macroeconomic conditions, the Bank calculated

unweighted ECL for each defined scenario separately. The impact for ECL of application of each of

the scenario separately does not exceed 2.0%.

Reversal of impairment

Impairment Instruction being core document of Internal regulations provides a detailed definition of

the principle of reversing impairment losses. In principle, reversing a loss and elimination of

a revaluation charge is possible in the case of cessation of the impairment triggers, including the

repayment of arrears or in the case of selling receivables. Reclassification to the Non-Impaired

category is possible only when the customer has successfully passed the “quarantine” period, during

which he will not show delay in the repayment of principal or interest above 30 days. The quarantine

period only starts counting after any eventual grace period that may be granted on the restructuring.

Detailed rules regarding the applicable quarantine periods (at least 3 or 12 months for forced

restructuring) and reclassification from default are in line with the EBA guidelines regarding the

definition of default.

Sale of receivables

In 2023, the Bank sold credit exposures classified as impaired, in the total balance sheet amount of

PLN 238 million.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

(3d) Maximum exposure to credit risk

31.12.2023

31.12.2022

Exposures exposed to credit risk connected with balance sheet assets

117 750 843

98 943 261

Deposits, loans and advances to banks and other monetary institutions

1 866 688

1 410 245

Loans and advances to customers:

72 405 447

75 855 607

Mandatorily at fair value through profit or loss:

19 349

97 982

Loans to private individuals:

19 280

97 916

Receivables on account of payment cards

8 753

74 208

Credit in current account

10 527

23 708

Loans to companies

Valued at fair value through other comprehensive income

11 799 748

11 221 252

Valued at amortised cost:

60 586 349

64 536 373

Loans to private individuals:

43 531 149

46 059 185

Receivables on account of payment cards

1 148 190

977 645

Cash loans and other loans to private individuals

15 872 412

14 835 620

Mortgage loans

26 510 547

30 245 920

Loans to companies and public sector

17 003 760

18 275 638

Loans to public entities

51 440

201 550

Financial derivatives and Adjustment from fair value hedge

572 790

475 099

Debt instruments held for trading

110 554

24 210

Debt instruments mandatorily at fair value through profit or loss

81 014

72 057

Debt instruments at fair value through other comprehensive income

21 895 863

16 414 065

Debt instruments at amortised cost

18 439 780

3 893 212

Repurchase agreements

1 163 242

4 863

Other financial assets

1 215 465

793 903

Credit risk connected with off-balance sheet items

14 264 568

14 030 294

Financial guarantees

1 713 980

2 419 611

Credit commitments

12 550 588

11 610 683

The table above presents the structure of the Bank’s exposures to credit risk as of 31 December 2023

and 31 December 2022, not considering risk-mitigating instruments. As regards balance-sheet assets,

the exposures presented above are based on net amounts presented in the balance sheet.

Loans and advances to customers mandatorily at fair value through profit or loss

31.12.2023

31.12.2022

Mandatorily at fair value through profit or loss *

19 349

97 982

▪ Companies

▪ Individuals

19 280

97 916

▪ Public sector

* The above data includes the fair value adjustment, in the amount of:

(21 772)

(38 999)

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Loans and advances to customers at fair value through other comprehensive income

Balance sheet value:

31.12.2023

31.12.2022

at fair value through other comprehensive income *

11 799 748

11 221 252

▪ Companies

▪ Individuals

11 799 748

11 221 252

▪ Public sector

* The above data includes the fair value adjustment, in the amount of:

101 810

255 824

The credit quality of financial assets

PLN’000, as of the end of 2023

Stage 1 (12-

month ECL)

Stage 2

(lifetime

ECL)

Stage 3

(lifetime ECL)

POCI

Total

Balance exposures exposed to credit risk

99 170 260

4 689 208

2 980 468

116 789

106 956 725

Balance impairment

368 334

329 468

1 577 638

23 924

2 299 364

Loans and advances to banks (external rating

Fitch: from BBB to AAA; Moody's: from B3 to

Aaa; S&P: from B+ to AAA)

1 866 848

Loans and advances to private individuals

(according to Master Scale):

38 933 934

3 968 908

2 579 655

93 690

45 576 188

▪ 1-3 Highest quality

21 924 854

143 690

2 941

22 071 485

▪ 4-6 Good quality

8 297 717

940 110

3 332

9 241 159

▪ 7-9 Medium quality

6 585 768

1 165 848

3 021

7 754 637

▪ 10-12 Low quality

2 021 353

1 140 779

1 154

3 163 287

▪ 13-14 Watched

1 428

578 470

741

580 639

▪ 15 Default

2 579 655

82 501

2 662 156

▪ Without rating (*)

102 814

102 825

Impairment

297 243

302 936

1 419 526

25 124

2 044 828

Loans and advances to companies (according

to Master Scale):

8 182 213

636 402

362 494

23 099

9 204 208

▪ 1-3 Highest quality

218 968

1 732

220 700

▪ 4-6 Good quality

1 548 483

43 490

1 591 973

▪ 7-9 Medium quality

3 454 666

186 005

3 640 671

▪ 10-12 Low quality

1 141 101

330 044

1 471 144

▪ 13-14 Watched

37 072

▪ 15 Default

362 233

23 099

385 332

▪ Without rating (*)

1 818 995

38 060

261

1 857 316

Impairment

53 867

24 425

145 862

-1 200

222 954

Loans and advances to public entities

(according to Master Scale):

51 748

51 749

▪ 1-3 Highest quality

▪ 4-6 Good quality

558

▪ 7-9 Medium quality

▪ 10-12 Low quality

▪ 13-14 Watched

▪ 15 Default

▪ Without rating (*)

51 190

51 191

Impairment

120

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

PLN’000, as of the end of 2023

Stage 1 (12-

month ECL)

Stage 2

(lifetime

ECL)

Stage 3

(lifetime ECL)

POCI

Total

Factoring (according to Master Scale):

2 402 318

83 896

38 319

2 524 533

▪ 1-3 Highest quality

28 385

1 360

29 745

▪ 4-6 Good quality

918 089

▪ 7-9 Medium quality

1 103 218

28 638

1 131 856

▪ 10-12 Low quality

302 794

53 877

356 671

▪ 13-14 Watched

▪ 15 Default

38 319

▪ Without rating (*)

49 831

49 852

Impairment

16 240

2 107

12 251

30 598

Repurchased receivables from Millennium

Leasing (according to Master Scale):

5 529 101

▪ 1-3 Highest quality

▪ 4-6 Good quality

▪ 7-9 Medium quality

▪ 10-12 Low quality

▪ 13-14 Watched

▪ 15 Default

▪ Without rating (*)

5 529 101

Impairment

864

Derivatives and adjustment from fair value

hedge (according to Master Scale):

513 645

▪ 1-3 Highest quality

317 799

▪ 4-6 Good quality

58 159

▪ 7-9 Medium quality

23 339

▪ 10-12 Low quality

1 330

▪ 13-14 Watched

▪ 15 Default

▪ Without rating

97 949

▪ fair value adjustment due to

hedge accounting

▪ Valuation of future FX

payments

▪ Hedging derivative

15 069

Trading debt securities (State Treasury**

bonds)

110 554

Debt securities mandatorily at fair value

through profit or loss

81 014

Investment debt securities (State Treasury**,

Central Bank**, Local Government, EIB)

21 895 863

Receivables from securities bought with sell-

back clause

1 163 242

Debt securities valued at amortised cost

18 439 780

* The group of clients without an internal rating includes, among others, exposures related to loans to local government units

as well as investment projects and some leasing clients.

** rating for Poland in 2023 A- (S&P), A2 (Moody’s), A- (Fitch).

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

PLN’000, as of the end of 2022

Stage 1 (12-

month ECL)

Stage 2

(lifetime

ECL)

Stage 3

(lifetime ECL)

POCI

Total

Balance exposures exposed to credit risk

80 599 294

5 388 250

2 932 656

152 407

89 072 606

Balance impairment

330 475

369 400

1 529 098

13 163

2 242 135

Loans and advances to banks (external rating

Fitch: from BBB to AAA; Moody's: from B3 to

Aaa; S&P: from B+ to AAA)

1 410 526

Loans and advances to private individuals

(according to Master Scale):

40 776 086

4 510 648

2 590 354

137 197

48 014 285

▪ 1-3 Highest quality

23 697 845

130 532

2 811

23 831 188

▪ 4-6 Good quality

8 352 277

1 154 450

4 272

9 510 999

▪ 7-9 Medium quality

6 552 017

1 359 188

5 196

7 916 401

▪ 10-12 Low quality

2 167 401

1 217 930

3 241

3 388 572

▪ 13-14 Watched

1 904

648 529

1 131

651 564

▪ 15 Default

2 590 354

120 546

2 710 899

▪ Without rating (*)

4 642

4 661

Impairment

244 528

337 581

1 359 855

13 137

1 955 100

Loans and advances to companies (according

to Master Scale):

8 430 850

730 350

325 835

15 209

9 502 244

▪ 1-3 Highest quality

129 205

11 777

101 568

▪ 4-6 Good quality

1 972 706

84 885

2 057 591

▪ 7-9 Medium quality

3 571 405

209 531

3 780 936

▪ 10-12 Low quality

1 056 509

380 069

1 436 579

▪ 13-14 Watched

19 992

▪ 15 Default

325 574

15 209

340 783

▪ Without rating (*)

1 701 024

24 095

261

1 725 380

Impairment

64 827

28 950

159 697

253 500

Loans and advances to public entities

(according to Master Scale):

54 186

54 187

▪ 1-3 Highest quality

▪ 4-6 Good quality

▪ 7-9 Medium quality

▪ 10-12 Low quality

▪ 13-14 Watched

▪ 15 Default

▪ Without rating (*)

54 186

54 187

Impairment

115

Factoring (according to Master Scale):

2 822 857

147 251

16 467

2 986 576

▪ 1-3 Highest quality

2 126

▪ 4-6 Good quality

1 090 884

3 729

1 094 613

▪ 7-9 Medium quality

1 286 389

99 826

1 386 215

▪ 10-12 Low quality

409 431

43 673

453 104

▪ 13-14 Watched

▪ 15 Default

16 467

▪ Without rating (*)

34 027

34 050

Impairment

20 014

2 869

9 546

32 429

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

PLN’000, as of the end of 2022

Stage 1 (12-

month ECL)

Stage 2

(lifetime

ECL)

Stage 3

(lifetime ECL)

POCI

Total

Repurchased receivables from Millennium

Leasing (according to Master Scale):

6 221 283

▪ 1-3 Highest quality

109 240

▪ 4-6 Good quality

509 803

▪ 7-9 Medium quality

1 086 666

▪ 10-12 Low quality

497 792

▪ 13-14 Watched

3 620

▪ 15 Default

216 763

▪ Without rating (*)

3 797 399

Impairment

991

Derivatives and adjustment from fair value

hedge (according to Master Scale):

475 099

▪ 1-3 Highest quality

179 635

▪ 4-6 Good quality

63 791

▪ 7-9 Medium quality

18 068

▪ 10-12 Low quality

5 261

▪ 13-14 Watched

▪ 15 Default

▪ Without rating

72 540

▪ fair value adjustment due to

hedge accounting

▪ Valuation of future FX

payments

▪ Hedging derivative

135 804

Debt securities mandatorily at fair value

through profit or loss

24 210

Trading debt securities (State Treasury**

bonds)

72 057

Investment debt securities (State Treasury**,

Central Bank**, Local Government, EIB)

16 414 065

Receivables from securities bought with sell-

back clause

4 863

Debt securities valued at amortised cost

3 893 212

* - the group of clients without an internal rating includes, among others, exposures related to loans to local government

units as well as investment projects and some leasing clients;

** rating for Poland in 2022: A- (S&P), A2 (Moody’s), A- (Fitch).

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

(3e) Loans

Impaired loans and advances

The gross amount of impaired loans and advances broken down into customer segments is as follows:

Gross exposure in ‘000 PLN

31.12.2023

Loans and advances to customers

Loans and

advances

to banks

Total

Companies

Mortgages

Other retail

By type of analysis

Case by case analysis

286 606

115 334,57

2 881

404 821

Collective analysis

137 045

768 457,86

1 775 483

2 680 986

Total

423 651

883 792

1 778 364

3 085 807

Gross exposure in ‘000 PLN

31.12.2022

Loans and advances to customers

Loans and

advances

to banks

Total

Companies

Mortgages

Other retail

By type of analysis

Case by case analysis

265 382

144 728

1 988

412 098

Collective analysis

91 867

870 298

1 693 885

2 656 050

Total

357 248

1 015 027

1 695 873

3 068 148

Loans and advances covered by case-by-case analysis

The quantification of the value of the portfolio subjected to case-by-case analysis as well as of the

value of created charges, split between impaired receivables (and respectively charges) is presented

in financial notes.

The tables below present the structure of the impaired portfolio subjected to case-by-case analysis.

Case by Case loans and advances to customers - by currency

31.12.2023

31.12.2022

Amount in

‘000 PLN

Share %

Coverage by

impairment

provisions

Amount in

‘000 PLN

Share %

Coverage by

impairment

provisions

PLN

291 133

71.9%

30.8%

299 501

72.7%

37.4%

CHF

36 341

9.0%

19.2%*

74 311

18.0%

17.3%*

EUR

77 348

19.1%

47.7%

38 287

9.3%

68.4%

USD

0.0%

SEK

0.0%

Total (Case by Case impaired)

404 821

100.0%

33.0%

412 098

100.0%

36.6%

*) coverage excluding legal risk provisions, if included the coverage would be 53.6% (2023) and 35.8% (2022)

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Case by Case loans and advances to customers - by coverage ratio

31.12.2023

31.12.2022

Amount in ‘000 PLN

Share %

Amount in ‘000 PLN

Share %

Up to 20%

168 186

41.5%

151 870

36.9%

20% - 40%

119 674

29.6%

84 240

20.4%

40% - 60%

40 637

10.0%

55 748

13.5%

60% - 80%

20 892

5.2%

87 632

21.3%

Above 80%

55 431

13.7%

32 609

7.9%

Total (Case by Case impaired)

404 821

100.0%

412 098

100.0%

At the end of 2023, the financial impact from the established collaterals securing the Bank’s

receivables with impairment recognised under individual analysis (Case by Case) amounted to PLN

198.8 million (at the end of 2022 respectively PLN 200.6 million). It is the amount, by which the level

of required provisions assigned to relevant portfolio would be higher if flows from collaterals were

not to be considered in individual analysis.

Restructured loans and advances

The restructuring of receivables is done by dedicated units (separately for corporate and retail

receivables).

The restructuring of both corporate and retail receivables allows the Bank to take effective action

towards the customers, the purpose of which is to minimize losses and mitigate, as quickly as possible,

any risks to which the Bank is exposed in connection with client transactions giving rise to the Bank's

off-balance sheet receivables or liabilities.

The restructuring process applies to the receivables which, based on the principles in place in the

Bank, are transferred to restructuring and recovery portfolios and includes setting new terms of

transactions which are acceptable for the Bank (including the terms of their repayment and their

collateral and possibly obtaining additional collateral).

Recovery of retail receivables is a fully centralised process implemented in two stages:

▪ monitoring and amicable debt collection proceedings - conducted by Retail Liabilities

Monitoring and Collection Department,

▪ restructuring and execution proceedings – implemented by Retail Liabilities Restructuring

and Recovery Department.

Process performed by Retail Liabilities Monitoring and Collection Department involves direct

telephone contacts with Customers and obtaining repayment of receivables due to the Bank. In case

of failure to receive repayment or in case the Customer applies for debt restructuring, the case is

taken over by the Retail Liabilities Restructuring and Recovery Department and involves all

restructuring and execution activities.

Recovery process is supported by specialised IT system covering the entire Customer portfolio, fully

automated at the stage of portfolio monitoring and supporting actions undertaken in later

restructuring and recovery phases. The behavioural scoring model constitutes an integral component

of the system, used at the warning stage. The system is used for retail liabilities collection process

applicable to all retail Customer segments.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The scoring model is based on internal calculations including, inter alia, Customer’s business segment

type of credit risk-based product (applicable, primarily, to mortgage products) and history of

cooperation with the Customer relative to previous restructuring and execution activities. Late

receivables from retail customers are sent to the IT system automatically no later than 4 days after

the date of the receivable becoming due and payable.

The restructuring and recovery process applicable to corporate receivables (i.e., balance and off-

balance receivables due from corporate and SME customers) is centralized and performed by the

Corporate Recovery Department. Recovery of corporate receivables aims to maximize the recovery

amounts and to mitigate risk incurred by the Bank in the shortest possible periods of time by carrying

out the accepted restructuring and recovery strategies towards:

▪ the customer,

▪ corporate receivables,

▪ collateral ensuring their repayment.

The actions performed as part of those strategies include, among others: setting the terms and

conditions of Customer financing, terms and conditions of restructuring corporate receivables (also

within court restructuring proceedings), including the terms on which they will be repaid and secured,

obtaining valuable and liquid collateral, achieving amicable repayment, recovery of due and payable

receivables (also by court executive officer), also from collateral, actions performed within debtors’

bankruptcy proceedings, conducting required legal actions.

Corporate Recovery Department manages the corporate receivable restructuring and recovery process

by using IT applications supporting the decision-making process and monitoring. They provide

instantaneous information on receivables, collateral, approach used and key actions and dates.

All restructured exposures are classified directly after signing sufficient annex/agreement to Stage 3.

In terms of regular payments such exposure can be cured when fulfil internally defined quarantine

rules in accordance with EBA Guidelines concerning New Definition of Default. Cured restructured

cases are classified to Stage 2 for at least following 2 years after cure in accordance with EBA technical

standards for forborne exposures.

The table below presents the loan portfolio with recognised impairment managed by the Bank’s

organisational units responsible for loan restructuring.

(3f) Collateral transferred to the Bank

In 2023 there were no major seizures by the Bank or sale of fixed assets constituting loan collateral.

The above situation was caused by the implementation of other more cost-effective paths of satisfying

oneself from lien or transfers of title (more effective in terms of time and money with the limitation

of costs), i.e., leading to the sale of the object of collateral under the Bank’s supervision and with

the allocation of obtained sources for repayment. A variety of such action is concluding agreements

with official receivers based on which the receiver for an agreed fee secures and stores objects of

collateral and in agreement with the Bank puts them up for sale and sells them (also as part of selling

organized parts or the debtor’s whole enterprise). Funds obtained in such a way are allocated directly

for repayment of the Bank’s receivables (such debt-collection procedure is implemented without

recording transferred collateral on the so-called “Fixed Assets for Sale”).

Gross exposure in ‘000 PLN

31.12.2023

31.12.2022

Loans and advances to private individuals

1 327 462

1 379 028

Loans and advances to companies

191 320

206 328

Total

1 518 782

1 585 355

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

(3g) Policy for writing off receivables

Credit exposures, with respect to which the Bank no longer expects any cash flows to be recovered

and for which impairment provisions (or fair value adjustments in case of overdue receivables

originated from derivatives) have been created fully covering the outstanding debt are written-off

the balance sheet against said provisions and transferred to off-balance. This operation does not cause

the debt to be cancelled and the legal and recovery actions, reasonable from the economic point of

view, are not interrupted to enforce repayment.

In most of cases the Bank writes off receivables against impairment provisions when said receivables

are found to be unrecoverable i.e., among other things:

▪ obtaining a decision on ineffectiveness of execution proceedings;

▪ death of a debtor;

▪ confirmation that there are no chances to satisfy claims from the estate in bankruptcy;

▪ exhaustion of all opportunities to carry out execution due to the lack of assets of the

main debtor and other obligors (e.g., collateral providers).

Gross exposure write-offs in ‘000 PLN

In 2023

Loans and advances to customers

Loans and

advances

to banks

Total

Companies

Mortgages

Other retail

Receivables written-off excluded from

enforcement activity

482

12 498

23 506

36 486

Receivables written-off being subject to

enforcement activity

3 459

114 155

117 676

Invalidated Mortgage FX Receivables

23 907

Total written-off

3 941

36 467

137 660

178 069

Gross exposure write-offs in ‘000 PLN

In 2022

Loans and advances to customers

Loans and

advances

to banks

Total

Companies

Mortgages

Other retail

Receivables written-off excluded from

enforcement activity

10 807

8 485

27 356

46 648

Receivables written-off being subject to

enforcement activity

16 801

173 496

190 297

Total written-off

27 609

8 485

200 852

236 945

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

(3h) Concentration of risks of financial assets with exposure to credit risk

Economy sectors

The table below presents the Bank’s main categories of credit exposure broken down into

components, according to category of customers.

31.12.2023

Financial

intermediation

Industry and

constructions

Wholesale and

retail business

Transport and

communication

Public sector

Mortgage loans

Consumer

loans*

Other sectors

Total

Loans and advances to

banks

1 866 848

Loans and advances to

customers (Amortized

cost)

6 625 870

3 184 931

4 305 847

557 179

25 262

27 100 062

18 476 051

2 610 511

62 885 713

Loans and advances to

customers (Fair value

through OCI)

11 799 748

Loans and advances to

customers

(Fair value through P&L)

19 280

19 349

Trading securities

110 554

110 675

Instruments valued at

amortised cost

1 716 205

16 723 581

18 439 786

Instruments mandatorily

at fair value through P&L

147 623

Derivatives and

adjustment due to fair

value hedge

541 888

19 001

7 830

2 032

2 040

572 791

Investment securities

473 361

4 996

290

21 450 968

21 929 648

Repurchase agreements

1 163 242

Total

12 535 065

3 209 022

4 313 680

559 563

38 310 365

38 899 810

18 495 331

2 612 587

118 935 423

* including: credit cards, cash loans, current accounts overdrafts

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

31.12.2022

Financial

intermediation

Industry and

constructions

Wholesale and

retail business

Transport and

communication

Public sector

Mortgage loans

Consumer loans*

Other sectors

Total

Loans and advances to

banks

1 410 526

Loans and advances to

customers (Amortized

cost)

784 926

5 724 949

5 560 871

2 708 668

33 159

30 845 153

17 169 580

3 951 201

66 778 507

Loans and advances to

customers

(Fair value through OCI)

11 221 252

Loans and advances to

customers

(Fair value through P&L)

97 916

97 982

Trading securities

24 210

24 323

Instruments valued at

amortised cost

398 828

3 494 390

3 893 218

Instruments mandatorily

at fair value through P&L

201 036

Derivatives and

adjustment due to fair

value hedge

447 219

17 209

8 339

223

2 109

475 099

Investment securities

24 033

4 996

313

16 414 077

16 443 454

Repurchase agreements

4 863

Total

3 271 458

5 747 229

5 569 222

2 709 262

19 965 836

42 066 405

17 267 496

3 953 352

100 550 260

* including: credit cards, cash loans, current accounts overdrafts

Loans and advances to customers by economy sectors and segment

Taking into consideration segments and activity sectors concentration risk, the Bank defines internal

concentration limits in accordance with the risk tolerance allowing it to keep well diversified loan

portfolio.

The main items of loan book are mortgage loans (52%) and cash loans (21.5%). The portfolio of loans

to companies from different sectors like industry, construction, transport and communication, retail

and wholesale business, financial intermediation and public sector represents 23% of the total

portfolio.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Sector name

2023

Balance Exposure

(PLN million)

(%)

2022

Balance Exposure

(PLN million)

(%)

Credits for individual persons

57 370.7

76.8%

59 165.0

75.9%

Mortgage

38 853.6

52.0%

41 858.5

53.7%

Cash loan

16 037.3

21.5%

14 893.9

19.1%

Credit cards and other

2 479.8

3.3%

2 412.5

3.1%

Credit for companies*

17 309.6

23.2%

18 763.9

24.1%

Wholesale and retail trade; repair

4 305.8

5.8%

5 560.9

7.1%

Manufacturing

2 631.1

3.5%

4 572.9

5.9%

Construction

553.9

0.7%

1 152.0

1.5%

Transportation and storage

557.1

0.7%

2 708.7

3.5%

Public administration and defence

25.3

0.0%

33.2

0.0%

Information and communication

813.1

1.1%

1 077.1

1.4%

Other Services

293.6

0.4%

874.9

1.1%

Financial and insurance activities

6 625.9

8.9%

784.9

1.0%

Real estate activities

675.8

0.9%

792.2

1.0%

Professional, scientific, and technical

services

288.8

0.4%

345.7

0.4%

Mining and quarrying

2.3

0.0%

61.0

0.1%

Water supply, sewage, and waste

55.8

0.1%

157.6

0.2%

Electricity, gas, water

35.3

0.0%

100.6

0.1%

Accommodation and food service activities

183.6

0.2%

206.8

0.3%

Education

68.1

0.1%

68.2

0.1%

Agriculture, forestry, and fishing

17.9

0.0%

101.8

0.1%

Human health and social work activities

142.8

0.2%

128.0

0.2%

Culture, recreation, and entertainment

33.4

0.0%

37.3

0.0%

Total (gross)

74 680.3

100.0%

77 928.9

100.0%

* incl. Microbusiness, annual turnover below PLN 5 million

Concentration ratio of the 20 largest customers in the Bank’s loan portfolio (considering groups of

connected entities) at the end of 2023 equals 5.2% comparing with 5.7% at the end of 2022.

Concentration ratio in 2023 also decreased for the 10 largest customers: from 4.4% at the end of the

previous year to 4.0%.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

8.4. MARKET RISK AND INTEREST RATE RISK

The market risk encompasses current and prospective impact on earnings or capital, arising from

changes in the value of the Bank’s portfolio due to adverse movement in interest rates, foreign

exchange rates or prices of bonds, equities, or commodities.

The interest rate risk arising from Banking Book activities (IRRBB) encompasses current or prospective

impact to both the earnings and the economic value of the Bank’s portfolio arising from adverse

movements in interest rates that affect interest rate sensitive instruments. The risk includes gap risk,

basis risk and option risk.

Market risk

The Bank’s market risk measurement allows monitoring of all the risk types, which are generic risk

(including interest rate risk, foreign exchange risk and equity risk), non-linear risk, specific risk, and

commodity risk. In 2023 the non-linear and commodities risk did not exist in the Bank. The equity risk

assumed to be irrelevant since the Bank’s engagement in equity instruments is immaterial.

Each market risk type is measured individually using appropriate risk models and then integrated

measurement of total market risk is built from those assessments without considering any type of

diversification between the four risk types (the worst-case scenario).

The main measure used by the Bank to evaluate market risks (interest rate risk, foreign exchange

risk, equity risk) is the parametric VaR (Value at Risk) model – an expected loss that may arise on the

portfolio over a specified period (holding period) and with specified probability (confidence level)

from an adverse market movement.

The Value at Risk in the Bank (VaR) is calculated considering the holding period of 10 working days

and a 99% confidence level (one tail). In line with regulatory requirements of CRD V/CRR II, the

volatility associated with each market risk vertex considered in the VaR model (and respective

correlation between them) has been estimated by the equally weighted changes of market parameters

using the effective observation period of historical data of last year. The EWMA method (exponentially

weighted moving average method) with effectively shorter observation period is only justified by a

significant upsurge in price volatility.

To monitor and limit the positions in instruments, for which it is not possible to accurately assess

market risk with the use of the VaR model (non-linear risk, commodity risk and specific risk), the

appropriate assessment rules were defined. The non-linear risk is measured according to internally

developed methodology which is in line with the VaR methodology – the same time horizon and

significant level is used. Specific and commodities’ risks are measured through standard approach

defined in supervisory regulations, with a corresponding change of the time horizon considered.

The market risk measurement is carried out daily (intra-day and end-of-day), both on an individual

basis for each of the areas responsible for risk taking and risk management, and in consolidated terms

for Global Bank, Trading and Banking Book considering the effect of the diversification that exists

between the portfolios. In addition, each Book is divided into the risk management areas.

To ensure that the VaR model adopted is appropriate for the evaluation of the risks involved in the

open positions, a back-testing process has been instituted and is carried out daily.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

All reported excesses are documented. This includes an explanation of their causes and their

incorporation in one of the three classes of excess explanation: adequacy of the model, insufficient

model accuracy or unanticipated market movements.

Parallel to the VaR calculation the portfolios are subject to a set of sensitivity analysis and stress

scenarios, to:

▪ Estimate the potential economic loss resulting from extreme variations in market risk

factors,

▪ Identify the market risk movements, possibly not captured by VaR, to which the portfolios

are more sensitive,

▪ Identify the actions that can be taken to reduce the impact of extreme variations in the

risk factors.

The following types of market scenarios are being applied:

▪ Parallel shifts of the yield curves;

▪ More steep or flat shape of the yield curves;

▪ Variations of the exchange rates;

▪ Historical adverse scenarios;

▪ Customized scenarios based on observed, adverse changes of market risk parameters.

The global VaR limit is expressed in million PLN. The limit is divided into the books, risk management

areas and distinct types of risk, which enables the Bank for full measurement, monitoring, and control

of market risk. The market risk exposure (VaR) together with the limit utilization is reported daily to

all areas responsible for management and control of market risk in the Bank.

The market risk limits are revised at least once a year and to consider, inter alia, the change of the

consolidated Own Funds, current and projected balance sheet structure as well as the market

environment. The market risk limits valid for 2023 reflected the assumptions and risk appetite defined

under Risk Strategy 2023-2025. The current limits in place have been valid since 1 October 2023 and

remains conservative - level for Global Bank is no more than 537.7m PLN and for Trading Book no

more than 19.4m PLN.

In 2023, the VaR limits were not breached for Global Bank and also for Trading and Banking Book.

It should be noted that the value at risk in Banking Book is only complementary risk measurement tool

as positions are expected to be held to maturity and are in large majority not marked to market (see

next section - Interest rate risk in Banking Book, IRRBB). All excesses of market risk limits are always

reported, documented, and ratified at the proper competence level.

Within the current market environment, the Bank continued to act very prudently. In 2023 the VaR

indicators for the Bank remained on average at the level of PLN 317.2million (58% of the limit) and

PLN 270.0 million (50% of the limit) as of the end of December 2023. The diversification effect applies

to the generic risk and reflects correlation between its constituents. The low level of diversification

effect relates to the fact that the Bank’s market risk is mainly the interest rate risk. The figures in

the Table also include the exposures to market risk generated in subordinated companies, as the Bank

manages market risk at central level.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The market risk in terms of VaR for the Bank (‘000 PLN):

VaR measures for market

risk (‘000 PLN)

VaR (2023)

31.12.2022

Average

Maximum

Minimum

31.12.2023

Total risk

372 712

317 222

422 101

190 970

269 971

Generic risk

359 279

288 142

395 934

172 162

199 442

Interest Rate Risk

359 270

288 120

395 935

172 158

199 439

FX Risk

229

156

6 704

Equity Risk

Diversification Effect

0.1%

0.0%

Specific risk

13 432

29 080

70 818

13 432

70 529

The corresponding exposures as of 2022 respectively amounted to (‘000 PLN):

VaR measures for market

risk (‘000 PLN)

VaR (2022)

31.12.2021

Average

Maximum

Minimum

31.12.2022

Total risk

391 280

456 628

736 729

270 212

372 712

Generic risk

389 833

451 590

735 324

257 021

359 279

Interest Rate Risk

389 761

451 587

735 219

257 020

359 270

FX Risk

232

113

2 958

229

Equity Risk

Diversification Effect

0.0%

0.1%

Specific risk

1 445

5 035

13 465

1 375

13 432

The market risk exposure divided into Trading Book and Banking Book together with risk type division

is presented in the table below (‘000 PLN):

Banking Book:

VaR measures for

market risk (‘000 PLN)

VaR (2023)

31.12.2022

Average

Maximum

Minimum

31.12.2023

Total risk

372 708

314 227

412 345

189 577

269 052

Generic risk

359 277

285 148

386 154

170 770

198 527

Interest Rate Risk

359 277

285 148

386 154

170 770

198 527

FX Risk

Equity Risk

Diversification Effect

0.0%

Specific risk

13 430

29 079

70 813

13 430

70 525

VaR measures for

market risk (‘000 PLN)

VaR (2022)

31.12.2021

Average

Maximum

Minimum

31.12.2022

Total risk

390 289

455 758

731 045

270 331

372 708

Generic risk

388 846

450 725

729 643

257 143

359 277

Interest Rate Risk

388 846

450 725

729 643

257 143

359 277

FX Risk

Equity Risk

Diversification Effect

0.0%

Specific risk

1 443

5 033

13 463

1 373

13 430

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Trading Book:

VaR measures for

market risk (‘000 PLN)

VaR (2023)

31.12.2022

Average

Maximum

Minimum

31.12.2023

Total risk

1 336

4 116

12 309

393

1 078

Generic risk

1 334

4 115

12 309

389

1 075

Interest Rate Risk

1 310

4 064

12 146

390

1 071

FX Risk

240

111

4 375

Equity Risk

Diversification Effect

16.2%

3.1%

Specific risk

VaR measures for

market risk (‘000 PLN)

VaR (2022)

31.12.2021

Average

Maximum

Minimum

31.12.2022

Total risk

2 518

3 111

9 532

743

1 336

Generic risk

2 514

3 106

9 528

741

1 334

Interest Rate Risk

2 485

3 090

9 507

734

1 310

FX Risk

228

113

2 961

240

Equity Risk

Diversification Effect

7.9%

16.2%

Specific risk

Open positions mostly included interest-rate instruments and FX risk instruments. The FX risk covers

all the foreign exchange exposures of the Bank. According to the Risk Strategy, the FX open position

is allowed, however should be kept at low levels. For this purpose, the Bank has introduced a system

of conservative limits for FX open positions (both Intraday and Overnight limits) and allows keeping

FX open positions only in Trading Book.

In 2023, as a rule FX position generated in the Banking Book was fully transferred to the Trading Book

where it was managed daily. During 2023 the FX open position remained on average at the level of

PLN 12.1 million with maximum of PLN 50.6 million. In 2023, the FX Total open position (Intraday as

well as Overnight) remained below 2% of Own Funds and well below the maximum limits in place.

Evolution of the total FX open position (Overnight) in Trading Portfolio (PLN thousand):

Total position

Period Average

Period Minimum

Period Maximum

The Last Day of

Period

2023

12 149

3 320

50 622

13 344

2022

10 549

2 126

42 300

6 202

In addition to above mentioned market risk limits, the stop loss limits are introduced for the financial

markets’ portfolios. The aim is to limit the maximum losses of the trading activity of the Bank. In

case the limit is reached, a review of the management strategy and assumptions for the positions in

question must be undertaken. Stop loss limits were not reached.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

In the back-testing calculation for VaR model in Trading Book, eight excesses were detected during

the last twelve months (see table below, PLN thousand).

Reporting Date

VaR

(generic risk)

Theoretical change in the

value of the portfolio

(absolute values)

Number of excesses

in last 12 months *

2023-12-31

1 075

502

2022-12-31

1 334

617

* The excess is said to happen whenever the difference between the absolute change in portfolio value and VaR measure is

positive.

In 2023, all excesses in the process of VaR model back testing were caused by unanticipated market

movements caused mainly by changes on Swap Curve, PLN Government Yield Curve and Money

Market. The number of excesses proves the model adequacy (green zone: 1 - 8 excesses acceptable).

VaR assessment is supplemented by monitoring the market risk sensitivity to the above-mentioned

stress tests scenarios of portfolios carrying market risk.

The results of market risk sensitivity and customized stress tests were regularly reported to the

Capital, Assets and Liabilities Committee.

Interest rate risk in Banking Book (IRRBB)

In case of the Banking Book, the main component of the market risk is interest rate risk.

Exposure to interest rate risk in the Banking Book are primarily generated by the differences in

repricing dates of assets and liabilities as well as its reference indexes, if contractually existing. It is

specifically affected by the unbalance between assets and liabilities that have fixed rate, especially

by the liabilities which cannot have interest rate lower than zero. Consequently, the level of

sensitivity to interest rate changes is influenced by the level of interest rates taken as a reference.

Additionally, due to specificity of the polish legal system, the interest rate of credits is limited (it

cannot exceed two times Reference Rate of the National Bank of Poland increased by 7 percentage

points). In situations of decreasing interest rates, the impact on Net Interest Income is negative and

depends on the share of the fixed rate loan portfolio that is affected by the new maximum rate. On

the other hand, assumptions regarding the timing and size of deposits repricing are also important

when assessing the interest rate sensitivity and risk.

Regarding the interest rate risk in Banking Book, the following principles are in place:

▪ The market risk that results from the commercial banking activity is hedged or transferred

on the monthly basis to areas that actively manage market risk and that are measured in

terms of risk and profit and loss,

▪ The Bank primarily uses natural hedging between loans and deposits as well as fixed rate

bonds and derivatives to manage interest rate risk with the main purpose of protecting the

net interest income.

The variations in market interest rate have an influence on the Bank’s net interest income, both under

a short and medium-term perspective, also affecting its economic value in the long term. The

measurement of both is complementary in understanding the complete scope of interest rate risk in

Banking Book.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

For this reason, apart from daily market risk measurement in terms of value at risk, the scope of the

additional measurement of interest rate risk covers both earnings-based and economic value

measures, which are quarterly:

▪ the impact on the economic value of equity (EVE) resulting from 200 bps

upward/downward yield curve movements, including scenarios defined by the supervisor

(standard, supervisory test assuming sudden parallel +/-200 basis points shift of the yield

curve as well as supervisory outlier test (SOT) with set of six interest rate risk stress

scenarios).

▪ the impact on net interest income over a time horizon of next 12 months resulting from

supervisory outlier test (SOT) shocks including parallel up and parallel down scenarios.

and monthly:

▪ the impact on the economic value of equity (EVE) resulting from 100 bps

upward/downward yield curve movements,

▪ the interest rate sensitivity in terms of BPVx100, that is the change of the portfolio’s value

for the parallel movement in the yield curve by 1 basis point multiplied by 100,

▪ the impact on net interest income over a time horizon of next 12 months resulting from

one-off interest rate shock of 100 basis points.

The interest rate risk measurement is carried for all the risk management areas in the Bank, with the

particular attention on Banking Book.

For interest rate risk management for non-maturing assets and liabilities or for the instruments with

Client’s option embedded, the Bank is defining specific assumptions, including:

▪ Due date for balances and interest flows arising from non-maturing deposits are defined

based on historical data regarding customer behaviour, considering the stability of the

volumes and with assumption of a maximum maturity of 5 years for Polish Zlotys and 2

years for other currencies,

▪ The tendency to faster repayment of receivables than contractually scheduled is taken

under consideration by calculating a prepayment rate in respect to all relevant Banks’ loan

portfolios based on historical data. The scope of repayment analysis includes mortgage and

personal loans indexed both to fixed and variable rate.

▪ The equity, fixed assets, and other assets that are assumed to have repricing period of 1 or

3 years. However, to understand the impact of the chosen maturity profile the IRRBB

measurement is carried out without inclusion of the equity capital to isolate the effects

on both EVE and earnings perspectives.

The results of the above-mentioned analysis for BPVx100 and economic value measures were regularly

monitored and reported to the Capital, Assets and Liabilities Committee, to Risk Committee, the

Management Board and Supervisory Board. The results of the IRRBB measurement as of the end of

December 2023 indicate that from an economic value of equity perspective, the Bank is most exposed

to the scenario of interest rates increase (which is caused by significant growth of fixed rate assets

portfolio in 2023). The supervisory outlier test results of December 2023 (last available data) show

that even under the most severe outlier test scenario, the decline of EVE for Banking Book is below

supervisory limit of 15% of Tier 1.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The results of the sensitivity of the Banking Book to changes of interest rates in terms of BPVx100 and

EVE under supervisory stress tests are presented in Table below.

Sensitivity of the Banking Book to changes of interest rates was as follows (‘000 PLN):

31.12.2023

31.12.2022

BPVx100

PLN

-291 188

164 145

CHF

-8 200

-6 573

EUR

3 046

28 615

USD

23 121

19 695

Other

3 588

3 751

TOTAL

-269 634

209 632

Equity, fixed and other assets

112 975

28 570

TOTAL

-156 659

238 203

EVE sensitivity to changes of interest rates

30.12.2023

31.12.2022

Standard, supervisory test (parallel yield curve +/-200 bp % Own Funds)

-7.33%

-6.05%

Supervisory outlier test (the most severe scenario, % CET1)

-11.05%

-9.33%

The results of sensitivity of NII for the next 12 months after 31

December 2023 and for position in

Polish Zloty in Banking Book are carried out under the following assumptions:

• static balance sheet structure as of that reference date (no change during the following 12

months),

• reference level of net interest income if all assets and liabilities with variable interest rate

already reflect market interest rates levels as of 31 December 2023 (for example, the NBP

Reference rate at the end of 2023 was set at 5.75%),

• application of a parallel move of 100 bps in the PLN yield curve up and down is an additional shock

to all market interest rates levels as of 31 December 2023 and is set at the repricing date of the

assets and liabilities that happens during the 12 following months.

In a scenario of parallel decrease of Polish interest rates by 100 bps, the results are negative and

equal to PLN -67 million or 1.3% of the Bank’s NII reference level. In a scenario of parallel increase of

Polish interest rates by 100 bps, the results are positive and equal to PLN 46 million or 0.9% of the

Bank’s NII reference level. The results show that the Bank is now in balanced situation regarding

impacts in the scenario of a decline or increase in interest rates. The impact is currently significantly

below limit (10% of a reference NII level from previous 12 months).

Sensitivity of NII for PLN to changes of interest rates

31.12.2023

31.12.2022

Parallel yield curve increase by 100bp

0.9%

+4.1%

Parallel yield curve decrease by 100bp

1.3%

-4.1%

Similar sensitivity results for all significant currencies (PLN, CHF, EUR, USD) under a 100 bp shock (for

each currency) under the same assumptions are presented in the table below.

Sensitivity of NII for all significant currencies to changes of

interest rates

31.12.2023

31.12.2022

Parallel yield curve increase by 100bp

2.1%

5.2%

Parallel yield curve decrease by 100bp

-2.6%

-5.5%

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

8.5. LIQUIDITY RISK

The objective of liquidity risk management is to ensure and maintain the Bank’s ability to meet both

current, as well as future funding requirements considering costs of funding.

Liquidity risk reflects the possibility of incurring significant losses because of deteriorated financing

conditions (financing risk) and/or of the sale of assets for less than their market value (market

liquidity risk) to meet the needs for funding arising from the Bank’s obligations.

Both the financing requirements and any liquidity surplus of subsidiaries are managed by transactions

with the Bank unless specific market transactions are previously decided and agreed. The Treasury

Department is responsible for the day-to-day management of the Bank’s liquidity position in

accordance with the adopted rules and procedures considering goals defined by the Management

Board and the Capital, Assets and Liabilities Committee.

In 2023, the Bank continued to be characterized by solid liquidity position. All the supervisory and

internal liquidity indicators remained significantly above minimum limits in place. The steps taken as

part of standard and binding risk management procedures have proved sufficient for managing

liquidity in the current market environment.

In 2023, in consequences of the increase of the deposits from Customers at the faster pace than loans,

there was further improvement of the Bank’s Loan-to-Deposit ratio to 67% at the end of December

2023 (comparing to level of 77% as of end of December 2022). The liquidity assets portfolio is treated

by the Bank’s as liquidity reserve, which will overcome crisis situations. The liquidity assets portfolio

consists of liquid debt securities issued or guaranteed by Polish government, other EU’s sovereigns,

European Union, and multilateral development banks. It is additionally supplemented by the cash and

exposures to the National Bank of Poland. At the end of 2023, the share of above-mentioned liquid

debt securities (including NBP Bills) in total securities portfolio amounted to 99.9% and allowed to

reach the level of approx. PLN 40.7 billion (33% of total assets), whereas at the end of December 2022

PLN 20.3 billion (18% of total assets).

Consequently, the large, diversified, and stable funding from retail, corporate and public sector

Clients remains the main source of financing of the Bank. At the end of 2023 total Clients’ deposits

of the Bank reached the level of PLN 107.5 billion (PLN 98.3 billion at the end of December 2022).

The deposit base constituted mainly funds of individuals Clients, of which the share in total Client’s

deposits equalled to approx. 71.3% at the end of December 2023 (70.0% at the end of December 2022).

The high share of funds from individuals had a positive impact on the Bank’s liquidity and supported

the compliance of the supervisory liquidity measures.

Concentration of the deposits base, based on the share of top 5 and top 20 depositors, at the end of

2023 amounted respectively to 2.3% and 5.4% (in December 2022 it was respectively 4.0% and 7.3%).

The level of deposit concentration is regularly monitored and did not have any negative impact on

the stability of the deposit base in 2023. In case of significant increase of the share of the largest

depositors, the additional funds from the depositors are not treated as stable. Despite of that, to

prevent deposit base fluctuations, the Bank maintains the reserves of liquid assets in the form of

securities portfolio.

The deposit base is supplemented by the deposits from financial institutions and other money market

operations. At the end of 2023, the source of medium-term funding remained also subordinated debt,

own EUR bonds issue and securitization of loan portfolio.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The total Credit Linked Notes issued by the Bank amounts to PLN 731.5 million at the end of 2023

year (PLN 242.5 million at the end of 2022). During 2023, the Bank issued Credit Link Notes amounted

to PLN 489 million in the framework of synthetic securitisation transaction. The Bank has no medium-

term loans from financial institutions at the end of 2023 (at the end of December 2022 it was PLN 5.0

million).

The Bank manages FX liquidity using FX-denominated deposits, own issue of EUR bonds as well as

Cross Currency Swap and FX Swap transactions. The importance of swaps has been decreasing because

of the reduction of the FX mortgage loan portfolio and the hedge in foreign currency of most of the

provisions for legal risk. The swaps portfolio is diversified in term of counterparties and maturity

dates. For most counterparties, the Bank has signed a Credit Support Annex to the master agreements.

As a result, in case of unfavourable changes of FX rates (PLN depreciation), the Bank is obliged to

place deposits as a collateral with counterparties to secure the settlement of derivative instruments

in the future, and in case of favourable FX rates changes (PLN appreciation) receives deposits as a

collateral from the counterparties. There is no relationship between level of the Bank’s ratings and

parameters of collateral in any of the signed ISDA Schedules and Credit Support Annexes (both

international and domestic). The potential downgrade of any of the ratings will not have impact on

method of calculation and collateral exchange. It should be noted that the need of currency swaps

has been decreasing at a relevant pace due to the reduction in the FX mortgage loan portfolio.

The Bank assesses the possibility of unfavourable changes of FX rates (especially CHF and EUR, which

causes increase of liquidity needs), analyses the impact on liquidity risk and reflects this risk in the

liquidity plans.

Liquidity risk evaluation measures

The estimation of the Bank’s liquidity risk is carried out with the use of both measures defined by the

supervisory authorities and internally, for which exposure limits were established.

The evolution of the Bank’s liquidity position in short-term horizons is tested daily based on liquid

asset portfolio, Central Bank’s eligible collateral for standard monetary operation and two internally

defined indicators: immediate liquidity and quarterly liquidity. The last two indicators measure the

maximum borrowing requirement, which could arise on a particular day, taking into consideration the

cash-flow projections for spot date and period of 3 months, respectively. Additionally, the liquid asset

portfolio is calculated on the daily basis.

These figures are compared with the exposure limits in force and reported daily to the areas

responsible for the management and control of the liquidity risk in the Bank as well as presented in

monthly and/or quarterly basis to the Bank’s Management Board and Supervisory Board.

The liquidity risk limits are revised at least once a year to consider, inter alia, the change of the size

of the consolidated own funds, current and expected balance sheet structure, historical limits’

consumption, as well as current market conditions and supervisory requirements. According to rules

in place, all eventual excesses of internal liquidity risk limits are always reported, documented, and

ratified at the proper competence level.

According to the final provisions of CRD V/CRR II package, the Bank is calculating the liquidity

coverage requirement (LCR) and the net stable funding ratio (NSFR). The regulatory minimum of 100%

for both LCR and NSFR was complied by the Bank. LCR improved substantially during 2023 and reached

the level of 309% at the end of December 2023 (218% as of the end of December 2022). The increase

was mainly connected with significant increase of deposits from retail Clients, which was invested in

liquid assets portfolio. The measure is calculated daily and has been reported on the monthly basis

to NBP since March 2014. Internally, the LCR is estimated daily and reported to the areas responsible

for the management and control of the liquidity risk in the Bank. NSFR is monitored and reported

monthly. In 2023, the NSFR was above the supervisory minimum of 100% (supervisory minimum valid

since June 2021). NSFR reached the level of 185% at the end of December 2023 (160% as of the end

of December 2022).

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Current Liquidity indicators

31.12.2023

Immediate liquidity

ratio (%) *

Quarterly liquidity

ratio (%)*

Central Bank Collateral

/ Total Deposits (%)**

Liquid assets

Portfolio (m PLN)***

LCR (%)

Indicator

34%

37%

28%

41 358

309%

31.12.2022

Immediate liquidity

ratio (%)*

Quarterly liquidity

ratio (%)*

Central Bank Collateral

/ Total Deposits (%)**

Liquid assets

Portfolio (m PLN)***

LCR (%)

Indicator

28%

25%

24 349

218%

* - Immediate and Quarterly Liquidity Indicator: Ratio between value of the liquidity buffer available for discount with the

Central Bank (NBP) minus the net outflows projected for the next 3 working days for Immediate Liquidity Indicator and for

the next 3 months for Quarterly Liquidity Indicator in all convertible currencies and the total deposits. The liquidity buffer

is determined as the difference between the sum of the portfolio of unencumbered central bank (NBP) eligible assets after

haircuts, mobilized or not to the respective monetary policy pool, and by cash and deposits held in the NBP in the part

available for withdrawal, and the gross funding with NBP and accrued interest

** - Central Bank Collateral / Total Deposits: Ratio between the value after haircuts of the eligible collateral for NBP, plus

the cash and deposits in the Central Bank (NBP) deducted of the minimum reserve requirements and the total customers’

deposits

*** - Liquid Assets Portfolio: The sum of cash, nostro balance (reduced by the required obligatory reserve), unencumbered

liquid securities portfolio, NBP-Bills and short-term, due from banks (up to 1 month).

The Bank monitors liquidity based on internal liquidity measures, considering the impact of FX rates

on the liquidity situation.

Additionally, the Bank employs an internal structural liquidity analysis based on cumulative, behaviour

liquidity gaps calculated. The safe level adopted by the Bank for the ratio of liquidity shortfall is

established for each time bucket below 5 years.

In December 2023, liquidity gaps were maintained positive and still at safe levels. The results of

cumulative, behaviour liquidity gaps (normal conditions) are presented in tables below.

2023-12-31

Adjusted Liquidity Gap (PLN mln)

Up to 6M

Up to 1Y

Up to 2Y

Up to 5Y

Counterbalancing capacity

40 501

Outflows

12 051

1 691

2 639

9 017

Outflows Cumulated

12 051

13 742

16 381

25 399

Inflows

13 557

4 421

7 642

14 518

Inflows Cumulated

13 557

17 979

25 620

40 138

Liquidity Gap

42 008

2 730

5 002

5 500

Liquidity Gap Cumulated

42 008

44 738

49 740

55 240

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

2022-12-31

Adjusted Liquidity Gap (PLN mln)

Up to 6M

Up to 1Y

Up to 2Y

Up to 5Y

Counterbalancing capacity

25 068

Outflows

12 099

4 670

3 726

6 734

Outflows Cumulated

12 099

16 769

20 495

27 229

Inflows

12 588

5 192

11 325

13 561

Inflows Cumulated

12 588

17 779

29 105

42 666

Liquidity Gap

25 556

522

7 599

6 827

Liquidity Gap Cumulated

25 556

26 078

33 677

40 504

The Bank structural liquidity risk management tool covers sensitivity analysis and stress scenarios

(idiosyncratic, systemic and combination of both). For stress tests, liquidity gaps are calculated on a

real basis assuming a conservative approach to the assessment of probability of cash flow occurrence

among others considering increased deposits outflows, decreased or delayed loans repayment inflows,

deteriorated liquidity of the secondary securities market, the highest cost of funding - the assumption

of the worst observed margins on deposits in the Bank, parallel shift of the yield curve and PLN

depreciation.

Stress tests are performed at least quarterly, to determine the Bank’s liquidity-risk profile, to ensure

that the Bank can fulfil its obligations in the event of a liquidity crisis and to update the liquidity

contingency plan and management decisions. Additionally, stress test results are used for setting

thresholds for early warning signals, which aim is to identify upcoming liquidity problems and to

indicate to the Management Board the eventual necessity of launching Liquidity Contingency Plan.

The assumptions for both internal structural liquidity analysis and stress tests are annually revised.

The last revision was carried out in December 2023. The approach is based on additional liquidity

monitoring metrics’ maturity ladder for supervisory liquidity reporting, however, includes internal

adjustments according to behavioural assumptions on balance and off-balance outflows and inflows.

As the maturity ladder is a contractual liquidity gap that assumes static balance sheet, the internal

assumptions regarding roll-over of funding and future interests cash flows were aligned and

eliminated. In December 2023 cumulative liquidity gap was positive and significantly better than in

December 2022, mainly due to increase on deposits from retail Clients, which was reflected in liquid

assets portfolio (counterbalancing capacity). The internally defined limit of 12% total assets was not

breached and the liquidity position was confirmed as solid. As of December 2023, also the results of

the stress test analysis demonstrated that liquidity position is not threatened as even in the most

severe scenario the survival period is still significantly above the limit of 3 months.

The information regarding the liquidity risk management, including the utilization of the established

limits for internal and supervisory measures, is reported monthly to the Capital, Assets and Liabilities

Committee and quarterly to the Management Board and Supervisory Board.

The process of the Bank’s planning and budgeting covers the preparation of the Liquidity Plan to make

sure that the growth of business will be supported by an appropriate liquidity financing structure and

supervisory requirements in terms of quantitative liquidity measures will be met.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The Bank has also emergency procedures for situations of increased liquidity risk – the Liquidity

Contingency Plan (contingency plan in case the Bank’s financial liquidity deteriorates). The Liquidity

Contingency Plan establishes the concepts, priorities, responsibilities, and specific measures to be

taken in the event of a liquidity crisis. The Liquidity Contingency Plan is revised at least once a year.

In 2023 the Liquidity Contingency Plan was tested and revised to guarantee that it is operationally

robust. The Plan also confirmed warning thresholds for early warning indicators, considering scenarios

and stress test results. The revised Plan was approved by the Supervisory Board in November 2023.

8.6. OPERATIONAL RISK

Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes,

people, and systems, or from external events, including legal risk and excluding strategic and

reputational risk (last two are treated as separate categories). Operational risk is demonstrated in

every aspect of activity of the organization and constitutes its intrinsic part.

In the year 2023 there could be observed a continuous use of standards implemented for the purpose

of efficient management of operational risk, which are in line with the best practice of national and

international financial institutions. The solutions adopted also proved successful in the situation

related to the COVID-19 pandemic and the war in Ukraine. The adopted risk management structure

describes the various management levels and scopes of their duties and responsibilities.

Owners of defined business and support processes play a key role in the day-to-day operation of the

Bank. Process owner, basing on thorough knowledge about the process, accurately identifies and

mitigates recognized risks, thus constituting the first line of defence. The second line of defence is

the level of specialized units dealing with the organization of the management and control of an

acceptable level of risk, with consideration of the areas such as: compliance, anti-money laundering,

antifraud, security and business continuity as well as insurance and outsourcing. The third line of

defence is the independent internal audit unit.

Every decision regarding optimizing operational risk is preceded by cost-benefit analysis.

A higher risk management level is the Processes and Operational Risk Committee, which focuses on

threats identified in more than one process. All and any activities concerning operational risk are

coordinated and supervised by the Risk Committee, the Management Board, and the Supervisory

Board.

In keeping with the adopted model, risk management is a process of continuous improvement as

regards identification, assessment, monitoring, mitigating, and reporting by:

▪ Gathering operational risk events,

▪ Self-assessment of operational risk in individual processes,

▪ Analysis and monitoring of risk indicators.

The Bank gathers operational risk events in an IT tool. The tool supports management of operational

risk. Such events are being afterwards analysed in what concerns the source of event and possibility

of mitigating the effects and apply appropriate preventive actions. In the IT tool, events are being

ascribed to a certain risk category and proper process type, which is later used as a part of reporting

and risk self-assessment validation. The internal database of risk events additionally meets qualitative

and quantitative requirements for following the advanced approach in calculating capital

requirements on account of operational risk.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The risk self-assessment was being realized together with the processes review. It relied on

assessment of adopted solutions’ effectiveness in fulfilling expectations of Clients and business

partners in the scope of both, services quality, and costs optimization. Approved operational risk and

control methodology allowed assessment of risk level in each process, considering existing controls

and basing on accepted scenarios. Mitigation actions were proposed implemented and are monitored

for purposes of assessment of risk levels above the accepted tolerance threshold.

During the risk and control self-assessment exercise an analysis of performance indicators was made,

including risk indicators defined for each process. Key persons - responsible for creating and

implementation activities in given processes - have defined and adjusted the indicators thus to make

them the best forecasts of future risks. On-going monitoring of indicators serves the purpose of

increasing effectiveness and productivity of processes as well as effective control of risk on the level

of individual actions within processes.

Information about operational risk in processes is included in the top-level dashboards consolidating

information about the process’s performance.

Considering the degree of development of operational risk management and the scale and profile of

its activity, the Bank calculates its capital requirement due to the operational risk using the Standard

Approach.

8.7. RISK OF NEGATIVE IMPACT ON THE NATURAL ENVIRONMENT

The risk of impact on the natural environment is associated mainly with the possible negative impact

of the Group on the environment and climate through its own operations, banking products and

services offered, including project finance, and managing climate, transformation and physical risks

to the Group. The Group prevents this risk by submitting to legal regulations, monitoring its own

environmental impact, and implementing environmentally friendly actions and observing the

“Environmental Policy of the Bank Millennium Group”, “ESG - Management and control principles”,

and the “Responsible Financing Principles”. The Group has incorporated environmental and social

risks in the client assessment, lending and project financing processes or offering investment products

(including Millennium TFI), taking into account not only the risks related to the business sectors in

which the clients operate, but also their approach to environmental, social and corporate governance

issues.

More information on managing the Group's impact on the environment and climate is presented in the

ESG report of the Bank and the Group.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

9. Transactions with Related Entities

9.1. TRANSACTIONS WITH THE SUBSIDIARIES AND PARENT’S GROUP

All transactions among members of the Group made in 2023 and 2022 were driven by current activity.

The below table presents major amounts of intergroup transactions, these were transactions with the

following entities:

▪ MILLENNIUM BANK HIPOTECZNY,

▪ MILLENNIUM LEASING,

▪ MILLENNIUM CONSULTING,

▪ MILLENNIUM TFI

▪ MILLENNIUM SERVICE,

▪ MILLENNIUM TELECOMMUNICATION SERVICES,

▪ MILLENNIUM GOODIE,

▪ PIAST EXPERT.

and with the Capital Group of Bank parent company - Banco Comercial Portugues (ultimate parent

company), these transactions are mainly of banking nature.

Apart from transactions described herein, in the indicated period neither Bank Millennium S.A., nor

subsidiaries of Bank Millennium S.A. made any other transactions with related entities, which

individually or jointly may have been significant and concluded under terms and conditions other than

market-based.

ASSETS AND LIABILITIES FROM TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) AS AT

31.12.2023

With

subsidiaries

With parent

company

With other entities

from parent group

ASSETS

Loans and advances to banks – accounts and deposits

1 073 252

2 097

Loans and advances to customers

6 397 168

Investments in associates

346 714

Financial assets valued at fair value through profit and loss (held for

trading)

328

Hedging derivatives

Other assets

18 815

LIABILITIES

Deposits from banks

1 873

719

Deposits from customers

259 209

Liabilities from securities sold with buy-back clause

Liabilities arising from debt securities

Financial liabilities valued at fair value through profit and loss (held

for trading)

423

Subordinated debt

Other liabilities, including:

39 951

215

financial leasing liabilities

34 675

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

ASSETS AND LIABILITIES FROM TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) AS AT

31.12.2022

With

subsidiaries

With parent

company

With other entities

from parent group

ASSETS

Loans and advances to banks – accounts and deposits

677 151

2 575

Loans and advances to customers

7 056 501

Investments in associates

247 823

Financial assets valued at fair value through profit and loss (held for

trading)

Hedging derivatives

Other assets

29 259

LIABILITIES

Deposits from banks

974

434

Deposits from customers

226 300

Liabilities from securities sold with buy-back clause

Liabilities arising from debt securities

Financial liabilities valued at fair value through profit and loss (held

for trading)

1 332

Subordinated debt

Other liabilities, including:

48 264

financial leasing liabilities

41 467

PROFIT AND LOSS ON TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) FOR THE PERIOD OF

1.01-31.12.2023

With

subsidiaries

With parent

company

With other entities

from parent group

Income from:

Interest

431 240

2 676

Commissions

25 484

120

Financial instruments valued at fair value through other

comprehensive income

3 221

Dividends

28 706

Other net operating

25 100

Expense from:

Interest

11 707

Commissions

Financial instruments valued at fair value through profit and loss

Other net operating

General and administrative expenses

9 995

431

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

PROFIT AND LOSS ON TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) FOR THE PERIOD OF

1.01-31.12.2022

With

subsidiaries

With parent

company

With other entities

from parent group

Income from:

Interest

328 439

1 008

Commissions

25 296

149

Financial instruments valued at fair value through profit and loss

Dividends

41 796

Other net operating

19 507

Expense from:

Interest

11 780

Commissions

Financial instruments valued at fair value through profit and loss

346

Other net operating

General and administrative expenses

11 240

138

OFF-BALANCE TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) AS AT 31.12.2023

With

subsidiaries

With parent

company

With other entities

from parent group

Conditional commitments

1 181 891

25 513

granted

879 028

obtained

302 863

25 513

Derivatives (par value)

124 156

OFF-BALANCE TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) AS AT 31.12.2022

With

subsidiaries

With parent

company

With other entities

from parent group

Conditional commitments

1 203 256

141 185

granted

1 199 836

120 593

obtained

3 420

20 593

Derivatives (par value)

139 897

13 705

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

9.2. TRANSACTIONS WITH THE MANAGING AND SUPERVISING PERSONS

Information on total exposure towards the Bank’s managing and supervising persons as at 31.12.2023

(in ‘000 PLN):

The managing persons

The supervising persons

Total debt limit

including an unutilized limit

258.0

193.0

111.0

105.6

The Bank provides standard financial services to Members of the Management Board and Members of

the Supervisory Board and their relatives, which services comprise i.a.: keeping bank accounts,

accepting deposits or sale of financial instruments. In the Bank’s opinion these transactions are

concluded on market terms and conditions. In accordance with the credit lending policy adopted in

the Bank, term credits described in this section have appropriate collateral to mitigate its credit risk

exposure.

Information on total exposure towards companies and groups personally related as at 31.12.2023 (in

‘000 PLN):

Entity

Loans granted

Guarantees

provided

Open credit lines

Relationship

Client 1

Personal with a supervising person

Information on total exposure towards the managing and supervising persons as at 31.12.2022 (in ‘000

PLN):

The managing persons

The supervising persons

Total debt limit

including an unutilized limit

236.0

178.5

111.0

106.0

Information on total exposure towards companies and groups personally related as at 31.12.2022 (in

‘000 PLN):

Entity

Loans granted

Guarantees

provided

Open credit lines

Relationship

Client 1

Personal with a supervising person

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

9.3. INFORMATION ON COMPENSATIONS AND BENEFITS OF THE PERSONS

SUPERVISING AND MANAGING THE BANK

Salaries (including the balance of created and reversed provisions for payments of bonuses) and

benefits of managing persons recognized in Profit and loss account of the Bank were as follows (data

in thousand PLN):

Year

Salaries and bonuses

Benefits

Total

2023

18 801.7

2 112.2

20 914.0

2022

9 937.5

1 962.4

11 899.9

The benefits are mainly the costs of accommodation of the foreign members of the Management

Board. The values presented in the table above include items classified to the category of short-term

benefits and provision for variable remuneration components.

In 2023 and 2022, the Members of the Management Board did not receive any salaries or any fringe

benefits from Subsidiaries.

Remuneration of the Members of the Supervisory Board of the Bank (data in thousand PLN):

Year

Short term salaries and benefits

2023

2 125.5

2022

2 051.1

In 2023 the Members of the Bank's Supervisory Board received remuneration for performing their

functions in subsidiaries in the amount of PLN 140.0 thousand, (in 2022 - PLN 140.0 thousand).

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

10. Fair Value

The best reflection of fair value of financial instruments is the price which can be obtained for the

sale of assets or paid for the transfer of liability in case of market transactions (an exit price). For

many products and transactions for which market value to be taken directly from the quotations in

an active market (marking-to-market) is not available, the fair value must be estimated using internal

models based on discounted cash flows (marking-to-model). Financial cash flows for the various

instruments are determined according to their individual characteristics, and discounting factors

include changes in time both in market interest rates and margins.

According to IFRS 13 “Fair value measurement” in order to determinate fair value the Bank applies

models that are appropriate under existing circumstances and for which sufficient input data is

available, based to the maximum extent on observable input whereas minimizing use of unobservable

input, namely:

Level 1 - valuation based on the data fully observable (active market quotations);

Level 2 - valuation models using the information not constituting the data from level 1, but

observable, either directly or indirectly;

Level 3 - valuation models using unobservable data (not derived from an active market).

Valuation techniques used to determine fair value are applied consistently. Change in valuation

techniques resulting in a transfer between these methods occurs when:

▪ transfer from Level 1 to 2 takes place when for the financial instruments measured according

to Level 1 quoted market prices from an active market are not available at the balance sheet

day (previously used to be);

▪ transfer from Level 2 to 3 takes place when for the financial instruments measured according

to the Level 2 value of parameters not derived from the market has become significant at the

balance sheet day (and previously used to be irrelevant).

Financial instruments not recognized at fair value in the balance sheet

All estimation models are arbitrary to some extent and this is why they reflect only the value of those

instruments for which they were built. In these circumstances the presented differences between fair

values and balance-sheet values cannot be understood to mean adjustments of the economic value

of the Group. Fair value of these instruments is determined solely in order to meet the disclosure

requirements of IFRS 13 and IFRS 7.

The main assumptions and methods applied in estimating fair value of assets and liabilities of the

Bank are as follows:

Receivables and liabilities with respect to banks

The fair value of these instruments was determined by discounting the future principal and interest

flows with current rates, assuming that the flows arise on contractual dates.

Loans and advances granted to customers valued at amortised cost

The fair value of such instruments without specified repayment schedule, given their short-term

nature and the time-stable policy of the Group with respect to this portfolio, is close to balance-sheet

value.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The fair value of instruments with defined maturity is estimated by discounting related cash flows on

contractual dates and under contractual conditions with the use of current zero-coupon rates and

credit risk margins.

In case of mortgage loans due to their long-term nature estimation of the future cash flows also

includes: the effect of early repayment and liquidity risk in foreign currencies.

Debt securities valued at amortised cost

The fair value of debt securities at amortised cost (mainly Treasury bonds in the Held to Collect

portfolio) was calculated on market quotations basis.

Liabilities to customers

The fair value of such instruments without maturity or with maturity under 30 days is considered by

the Group to be close to balance-sheet value.

Fair value of instruments due and payable in 30 days or more is determined by discounting future cash

flows from principal and interest (including the current average margins by major currencies and time

periods) using current interest (including the original average margins by major currencies and time

periods) in contractual terms.

Subordinated liabilities, debt securities issued and medium-term loans

The fair value of these financial instruments is estimated on the basis of a model used for determining

the market value of floating-rate bonds with the current level of market rates and historical margin

for credit risk and in the case of fixed-rate coupon bonds, by discounting cash flows at the current

level of market rates and the original credit risk margin. Similar as in loan portfolio the Bank includes

the level of the original margin as a part of mid-term cost of financing obtained in the past in relation

to the current margin level for the comparable instruments, as long as reliable assessment is possible.

Due to lack of the mid-term loans liquid market as a reference to estimate current level of margins,

the Bank used the original margin.

The table below presents data as at 31.12.2023 (data in PLN thousand):

Note

Balance sheet value

Fair value

ASSETS MEASURED AT AMORTISED COST

Debt securities

18 439 780

18 794 293

Deposits, loans and advances to banks and other monetary

institutions

1 866 688

1 866 684

Loans and advances to customers (*)

60 586 349

59 576 844

LIABILITIES MEASURED AT AMORTISED COST

Liabilities to banks and other monetary institutions

565 384

Liabilities to customers

107 505 636

107 542 781

Debt securities issued

3 027 952

3 369 409

Subordinated debt

1 565 045

1 563 479

* The negative impact of fair value valuation of the loans portfolio is largely attributable to growth of loan spreads. The

methodology, which the Bank uses for valuation of the loans portfolio, assumes that current spreads best reflect existing

market conditions and economic situation. A corresponding rule is widely applied for valuation of debt securities, which are

not quoted on active markets. In result, paradoxically whenever the spreads of new loans increase, fair value of the “old”

loans portfolio falls.

Models used for determination of the fair value of financial instruments presented in the above table

and not recognized at fair value in Bank’s balance sheet, use techniques based on parameters not

derived from the market. Therefore, they are considered as the third level of valuation.

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The table below presents data as at 31.12.2022 (data in PLN thousand):

Note

Balance sheet value

Fair value

ASSETS MEASURED AT AMORTISED COST

Debt securities

3 893 212

3 811 648

Deposits, loans and advances to banks and other monetary

institutions

1 410 245

1 410 166

Loans and advances to customers (*)

64 536 372

62 166 022

LIABILITIES MEASURED AT AMORTISED COST

Liabilities to banks and other monetary institutions

625 144

625 163

Liabilities to customers

98 264 816

98 289 469

Debt securities issued

243 753

244 519

Subordinated debt

1 568 083

1 568 949

Financial instruments recognized at fair value in the balance sheet

The table below presents balance-sheet values of instruments measured at fair value, by applied fair

value measurement technique:

Data in PLN‘000, as at 31.12.2023

Note

Quoted market

prices

Valuation

techniques -

observable inputs

Valuation

techniques -

significant

unobservable

inputs

Level 1

Level 2

Level 3

ASSETS

Financial assets held for trading

Valuation of derivatives

81 819

416 758

Equity instruments

121

Debt securities

110 554

Non-trading financial assets mandatorily at fair value

through profit or loss

Equity instruments

66 609

Debt securities

81 014

Loans and advances

19 349

Financial assets at fair value through other

comprehensive income

Equity instruments

247

28 542

Debt securities

12 201 721

9 694 142

Loans and advances

11 799 748

Derivatives – Hedge accounting

74 213

LIABILITIES

Financial liabilities held for trading

Valuation of derivatives

151 265

425 346

Short positions

2 720

Derivatives – Hedge accounting

193 664

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Data in ‘000 PLN, as at 31.12.2022

Note

Quoted market

prices

Valuation

techniques -

observable inputs

Valuation

techniques -

significant

unobservable

inputs

Level 1

Level 2

Level 3

ASSETS

Financial assets held for trading

Valuation of derivatives

87 859

251 436

Equity instruments

113

Debt securities

24 210

Non-trading financial assets mandatorily at fair value

through profit or loss

Equity instruments

62 370

66 609

Debt securities

72 057

Loans and advances

97 982

Financial assets at fair value through other

comprehensive income

Equity instruments

247

24 146

Debt securities

13 914 533

2 499 532

Loans and advances

11 221 252

Derivatives – Hedge accounting

135 804

LIABILITIES

Financial liabilities held for trading

Valuation of derivatives

125 722

254 422

Short positions

4 784

Derivatives – Hedge accounting

554 544

Using the criterion of valuation techniques as at 31.12.2023 Bank classified into the third category

following financial instruments:

▪ credit exposures with a leverage / multiplier feature inbuilt in the definition of interest rate

(these are credit card exposures and overdraft limits for which the interest rate is based on

a multiplier: 4 times the lombard rate). To estimate the fair value of loans, due to the lack

of availability of the market value, an internal valuation model was used, taking into account

the assumption that at the time of granting the loan the fair value is equal to the carrying

value. The fair value of loans without recognized impairment is equal to the sum of future

expected cash flows discounted at the balance sheet date. The discounting rate is the sum

of: the cost of risk, the cost of financing, the value of the expected return. The fair value of

impaired loans is equal to the sum of future expected recoveries discounted using the

effective interest rate, recognizing that the average expected recoveries fully take into

account the element of credit risk. In case of an increase in the discount rate by 1 pp valuation

of the portfolio would have been reduced by -0.1% (sensitivity analysis: based on the FV model

for the portfolio of credit cards);

▪ index options, option transactions are measured at fair value with use of option measurement

models, the model measurement is supplemented with impact on fair value of the estimated

credit risk parameter;

▪ VISA Inc. engagement shares; the method of fair value calculation of this instrument considers

the time value of money and the time line for conversion of preferred stock in common stock

of VISA.

▪ other equity instruments measured at fair value (unquoted on an active market).

In the reporting period, the Bank did not make transfers of financial instruments between the

techniques of fair value measurement.

100

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Changes of fair values of instruments measured on the basis of valuation techniques with use of

significant parameters not derived from the market are presented in the table below (in ’000 PLN):

Indexes

options

Options

embedded in

securities issued

and deposits

Debt

securities

Loans and

advances

FVP&L

Loans and

advances

FVOCI

Balance as at 31.12.2022

247 414

(250 400)

90 755

72 057

97 982

11 221 252

Settlement/sell/purchase/transfer

94 879

(96 807)

(87 670)

(202 552)

Change of valuation recognized in

equity

4 422

(154 014)

Interest income and other of

similar nature

9 995

935 062

Results on financial assets and

liabilities held for trading

63 319

(66 993)

Result on non-trading financial

assets mandatorily at fair value

through profit or loss

8 957

(958)

Result on exchange differences

(26)

Balance as at 31.12.2023

405 612

(414 200)

95 151

81 014

19 349

11 799 748

For options on indexes concluded on an inactive market, and FX options the Bank concludes back-to-

back transactions on the interbank market, in result estimated credit risk component has no impact

on the financial result.

Accordingly Bank’s estimation impact of adjustments for counterparty credit risk was not significant

from the point of view of individual derivative transactions concluded by the Bank. Consequently, the

Bank does not consider the impact of unobservable inputs used in the valuation of derivative

transactions for significant and in accordance with the provisions of IFRS 13.73 does not classify such

transactions for level 3 fair value measurements.

Indexes

options

Options

embedded in

securities issued

and deposits

Debt

securities

Loans and

advances

FVP&L

Loans and

advances

FVOCI

Balance as at 31.12.2021

28 397

(28 872)

95 042

127 499

362 992

11 485 351

Settlement/sell/purchase/transfer

214 404

(216 420)

(60 296)

(306 117)

(1 021 563)

Change of valuation recognized in

equity

(4 380)

(11 255)

Interest income and other of

similar nature

28 604

768 719

Results on financial assets and

liabilities held for trading

4 613

(5 109)

Result on non-trading financial

assets mandatorily at fair value

through profit or loss

4 854

12 503

Result on exchange differences

Balance as at 31.12.2022

247 414

(250 400)

90 755

72 057

97 982

11 221 252

101

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

11. Contingent Liabilities and Assets

11.1. LAWSUITS

Below please find the data on the court cases pending, brought up by and against entities of the

Group. A separate category are the proceedings related to the activities of the Tax Control Authority

described in Chapter 13. note 16) "Corporate Income Tax".

Court cases brought up by the Bank

Value of the court litigations, as at 31.12.2023, in which the Bank was a plaintiff, totalled PLN 3,500.2

million. The increase in the value of claims in cases brought by the Bank Millennium (the Bank)

compared to previous periods results from the fact that lawsuits were filed against clients from the

portfolio of foreign currency mortgage loans.

Proceedings on infringement of collective consumer interests

On January 3, 2018, the Bank received a decision of the Chairman of the Office for Protection of

Competition and Consumers (OPCC Chairman), in which the OPCC Chairman found infringement by

the Bank of the rights of consumers. In the opinion of the OPCC Chairman the essence of the violation

is that the Bank informed consumers (it regards 78 agreements) in responses to their complaints, that

the court verdict stating the abusiveness of the provisions of the loan agreement regarding exchange

rates does not apply to them. According to the position of the OPCC Chairman the abusiveness of

contract’s clauses determined by the court in the course of abstract control is constitutive and

effective for every contract from the beginning. As a result of the decision, the Bank was obliged to:

1) send information on the UOKiK’s decision to the said 78 clients,

2) place the information on decision and the decision itself on the website and on Twitter,

3) to pay a fine amounting to PLN 20.7 mln.

The Bank lodged an appeal within the statutory time limit.

On January 7, 2020, the first instance court dismissed the Bank's appeal in its entirety. The Bank

appealed against the judgment within the statutory deadline. The court presented the view that the

judgment issued in the course of the control of a contractual template (in the course of an abstract

control), recognizing the provisions of the template as abusive, determines the abusiveness of similar

provisions in previously concluded contracts. Therefore, the information provided to consumers was

incorrect and misleading. As regards the penalty imposed by OPCC, the court pointed out that the

policy of imposing penalties by the Office had changed in the direction of tightening penalties and

that the court agrees with this direction.

In the Bank's assessment, the Court should not assess the Bank's behaviour in 2015 from the

perspective of today's case-law views on the importance of abstract control (it was not until January

2016 that the Supreme Court's resolution supporting the view of the OPCC Chairman was published),

the more penalties for these behaviours should not be imposed using current policy. The above

constitutes a significant argument against the validity of the judgment and supports the appeal which

the Bank submitted to the Court of second instance.

The second instance court, in its judgment of February 24, 2022, completely revoked the decision of

the OPCC Chairman. On August 31, 2022, the OPCC Chairman lodged a cassation appeal to the Supreme

Court. The Bank believes that the prognosis regarding the litigation chances of winning the case before

the Supreme Court is positive.

102

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Proceedings on competition-restricting practice

The Bank (along with other banks) is also a party to the dispute with OPCC, in which the OPCC

Chairman recognized the practice of participating banks, including Bank Millennium, in an agreement

aimed at jointly setting interchange fee rates charged on transactions made with Visa and Mastercard

cards as restrictive of competition, and by decision of 29 December 2006 imposed a fine on the Bank

in the amount of PLN 12.2 million. The Bank, along with other banks, appealed the decision.

In connection with the judgment of the Supreme Court and the judgment of the Court of Appeal in

Warsaw of November 23, 2020, the case is currently pending before the court of first instance - the

Court of Competition and Consumer Protection. The Bank has created a provision in the amount equal

to the imposed penalty.

Proceedings in the matter of recognition of provisions of the agreement format as abusive

On 22 September 2020 The Bank received decision of the Chairman of the Office for Protection of

Competition and Consumers (OPCC Chairman) recognising clauses stipulating principles of currency

exchange applied in the so-called anti-spread annex as abusive and prohibited the use thereof.

Penalty was imposed upon the Bank in the amount of 10.5 million PLN. Penalty amount takes account

of two mitigating circumstances: cooperation with the Office for Protection of Competition and

Consumers and discontinuation of the use of provisions in question.

The Bank was also requested, after the decision becomes final and binding, to inform consumers, by

registered mail, to the effect that the said clauses were deemed to be abusive and therefore not

binding upon them (without need to obtain court’s decision confirming this circumstance) and publish

the decision in the case on the Bank’s web site.

In the decision justification delivered in writing the OPCC Chairman stated that FX rates determined

by the Bank were determined at Bank’s discretion (on the basis of a concept, not specified in any

regulations, of average inter-bank market rate). Moreover, client had no precise knowledge on where

to look for said rates since provision referred to Reuters, without precisely defining the relevant site.

Provisions relating to FX rates in Bank’s tables were challenged since the Bank failed to define when

and how many times a day these tables were prepared and published.

In justification of the decision, the OPCC Chairman also indicated that in the course of the proceeding,

Bank Millennium presented various proposed solutions, which the OPCC Chairman deemed to be

insufficient.

The Bank appealed against the said decision within statutory term.

On March 31, 2022, the first instance court revoked the entire decision of the Chairman of the OPCC.

On May 23, 2022, the Chairman of the OPCC filed an appeal. On October 26, 2022, the Court of Appeal

changed the judgment of the court of first instance and shared the position of the Chairman of the

OPCC as to the abusiveness of the provisions regarding the determination of exchange rates in the

annexes concluded with foreign currency borrowers. On November 21, 2022, the Court of Appeals, at

the request of the Bank, suspended the execution of the judgment until the end of the cassation

proceedings. On January 30, 2023 the Bank filled a cassation appeal to the Supreme Court.

103

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Court cases against the Bank

As at 31.12.2023, the most important proceedings, in the group of the court cases where the Bank

was defendant, were following:

- The Bank is a defendant in court proceedings brought by PKN Orlen SA, in which the subject of the

dispute is the amount of the interchange fee and the plaintiff demands payment of PLN 635.7 million.

The plaintiff in this proceeding alleges that the banks acted under an agreement restricting

competition on the acquiring services market by jointly setting the level of the national interchange

fee in the years 2006-2014. In this case, the Bank was sued jointly with another bank and card

organizations. According to current estimates of the risk of losing a dispute in these matters, the Bank

did not create a provision. In addition, we point out that the Bank participates as a side intervener in

four other proceedings regarding the interchange fee. Other banks are the defendant. Plaintiffs in

these cases also accuse banks of acting as part of an agreement restricting competition on the

acquiring services market by jointly setting the level of the national interchange fee in the years

2008-2014.

- A lawsuit brought up by shareholder of PCZ S.A. in bankruptcy (PHM, then the European Foundation

for Polish-Belgian Cooperation - EFWP-B, currently called The European Foundation for Polish-Kenyan

Cooperation) against Bank Millennium S.A., worth of the dispute 521.9 million PLN with statutory

interest from 05.04.2016 until the day of payment. The plaintiff filed the suit dated 23.10.2015 to

the Regional Court in Warsaw; the suit was served to the Bank on 04.04.2016. According to the

plaintiff, the basis for the claim is damage to their assets, due to the actions taken by the Bank and

consisting in the wrong interpretation of the Agreement for working capital loan concluded between

the Bank and PCZ S.A., which resulted in placing the loan on demand. The Bank is requesting complete

dismissal of the suit, stating disagreement with the charges raised in the claim. Supporting the

position of the Bank, the Bank’s attorney submitted a binding copy of final verdict of Appeal Court in

Wrocław favourable to the Bank, issued in the same legal state in the action brought by PCZ SA against

the Bank. On May 10, 2023, the Court of First Instance announced a judgment dismissing the claim in

its entirety. The verdict is not final, the plaintiff filed an appeal, the date of the appeal hearing has

not yet been set.

As at 31.12.2023, the total value of the subjects of the other litigations in which the Bank appeared

as defendant, stood at PLN 5,546.9 million (excluding the class actions described below and in the

Chapter 12). In this group the most important category are cases related with FX loans mortgage

portfolio.

The class action related to the LTV insurance:

On the 3 of December 2015 a class action was served on the Bank. A group of the Bank's debtors (454

borrowers party to 275 loan agreements) is represented by the Municipal Consumer Ombudsman in

Olsztyn. The plaintiffs demanded payment of the amount of PLN 3.5 million, claiming that the clauses

of the agreements, pertaining to the low down payment insurance, are unfair and thus not binding.

Plaintiff extended the group in the court letter filed on the 4 of April 2018, therefore the claims

increased from PLN 3.5 million to over PLN 5 million.

Actual status:

On the 1st of October 2018, the group's representative corrected the total amount of claims pursued

in the proceedings and submitted a revised list of all group members, covering the total of 697

borrowers – 432 loan agreements. The value of the subject of the dispute, as updated by the claimant,

is PLN 7,371,107.94.

By the resolution of 1 April 2020 the court established the composition of the group as per request of

the plaintiff and decided to take witness evidence in writing. The hearing date was set for October

18, 2024.

As at 31 December 2023, there were also 138 individual court cases regarding LTV insurance (cases in

which only a claim for the reimbursement of the commission or LTV insurance fee is presented).

104

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Lawsuits filed by Financial Ombudsman for discontinuation of unfair market practices

On 13 August 2020 the Bank received lawsuit from the Financial Ombudsman. The Financial

Ombudsman, in the lawsuit, demands that the Bank and the Insurer (TU Europa) be ordered to

discontinue performing unfair market practices involving, as follows:

- presenting the offered loan repayment insurance as protecting interests of the insured in case

when insurance structure indicates that it protects the Bank’s interests;

- use of clauses linking the value of insurance benefit with the amount of borrower’s debt;

- use of clauses determining the amount of insurance premium without prior risk assessment

(underwriting);

- use of clauses excluding insurer’s liability for insurance accidents resulting from earlier causes.

Furthermore, the Ombudsman requires the Bank to be ordered to publish, on its web site, information

on use of unfair market practices.

The lawsuit does not include any demand for payment, by the Bank, of any specified amounts.

Nonetheless, if the practice is deemed to be abusive it may constitute grounds for future claims to

be filed by individual clients.

The case is being examined by the court of first instance.

Court cases concerning Art. 45 of the Consumer Credit Act

By December 31, 2023, the Bank received 419 lawsuits in which the plaintiffs (both clients and

companies purchasing claims), alleging violation of the information obligations provided in Art. 30 of

the Consumer Credit Act, demand reimbursement of interest and other costs incurred in connection

with taking out a loan (free loan sanction within the meaning of Article 45). As of December 31, 2023,

16 cases have been legally concluded, and in all these cases the Bank won the dispute. The Bank

believes that the prognosis regarding the litigation chances of winning the remaining disputes are

positive and therefore it has not created provisions in this respect.

Court cases regarding mortgage loans in PLN

By December 31, 2023, the Bank recorded the receipt of 63 lawsuits by borrowers of mortgage loans

in PLN for reimbursement of benefits provided under the loan agreement. One final judgment was

issued dismissing the borrowers' claim. The borrowers' allegations focus on the WIBOR ratio as an

incomprehensible, unverifiable element affecting the consumer's liability, as well as the issue of

insufficient information on the effects of variable interest rates provided to the consumer by the bank

before the conclusion of the contract.

Based on publicly available information, it can be assumed that there will be an increase in the

number of lawsuits concerning mortgage loans in PLN. This phenomenon affects the entire sector of

banking services. It is possible that a "new business model" will be created in the area of law firms,

which consists in questioning mortgage contracts containing a variable interest rate clause based on

the WIBOR reference index.

On June 29, 2023 the Polish Financial Supervision Authority (KNF) announced that it had assessed the

ability of the WIBOR interest rate reference index to measure the market and economic realities. The

KNF stated that the WIBOR interest rate reference index is capable of measuring the market and

economic realities for which it was established. According to the Commission's assessment, the WIBOR

ratio responds appropriately to changes in liquidity conditions, changes in central bank rates and

economic realities (https://www.knf.gov.pl/komunikacja/komunikaty?articleId=82924&p_id=18 ).

105

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

On July 26, 2023, the Polish Financial Supervision Authority (PFSA) presented its position on legal and

economic issues related to mortgage loan agreements in Polish currency in which the WIBOR interest

rate reference index is used. This position can be used in court proceedings and can then be treated

as an 'amicus curiae' opinion. The Polish Financial Supervision Authority stated that the WIBOR

reference index meets all legal requirements. In the opinion of the Polish Financial Supervision

Authority, there are no grounds to question the credibility and legality of WIBOR, in particular in the

context of the use of this indicator in mortgage loan agreements in the Polish currency

(Stanowisko_UKNF_dot_zagadnien_prawnych_i_ekonomicznych_zw_ze_wskaznikiem_referencyjnym_

WIBOR_83233.pdf).

Administrative penalty proceedings by the Polish Financial Supervision Authority

On 22 December 2023, the Polish Financial Supervision Authority (KNF) started administrative

proceedings against bank Millennium S.A. that might result in a penalty being imposed on the Bank

under Article 176i(1)(4) of the Act on trading in financial instruments. At this stage of the proceedings,

the amount of the potential penalty cannot be estimated.

FX mortgage loans legal risk

FX mortgage loans legal risk is described in the Chapter 12. “Legal risk related to foreign currency

mortgage loans”.

106

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

11.2. OFF BALANCE SHEET ITEMS

OFF-BALANCE ITEMS

Amount ‘000 PLN

31.12.2023

31.12.2022

Off-balance conditional commitments granted and received

17 283 356

16 365 564

Commitments granted:

14 264 568

14 030 294

Loan commitments

12 550 588

11 610 683

guarantee

1 713 980

2 419 611

Commitments received:

3 018 788

2 335 270

financial

6 884

guarantee

3 018 788

2 328 386

The granted conditional commitments presented in the table above comprise commitments to grant

credit (such as: unutilised credit card limits, unutilised current account overdraft facilities, unutilised

tranches of investment loans) and issued guarantees and Letters of Credit (securing performance by

customers of the Bank of their obligations to third parties). The value of above-presented guarantee

commitments presents the maximum value of a loss, which may be incurred by the Bank, should the

customers default on their obligations. The Bank creates provisions for impaired irrevocable

conditional commitments, reported in the “provisions” item under liabilities in the balance-sheet.

The provision value is determined as the difference between the estimated amount of utilised

conditional exposure and the present value of expected future cash flows under this credit exposure.

In this context, the Bank considers that the values presented in the above table are similar to the fair

value of contingent liabilities.

The breakdown by entity of all net guarantee liabilities granted, reported in off-balance sheet items

is presented in the table below:

Customer – sector, amount ‘000 PLN

31.12.2023

31.12.2022

financial sector

164 734

465 503

non-financial sector (companies)

1 541 946

1 949 877

public sector

7 300

4 238

Total

1 713 980

2 419 618

As the parent company, the Bank granted subisdiaries lines for guarantees with a total value of PLN

36.4 million. In addition, the Bank provided guarantees and sureties to external entities on behalf of

Group’s companies. The total value of guarantee obligations from the above titles is presented in the

table:

Subordinated company, amount ‘000 PLN

31.12.2023

31.12.2022

Millennium Leasing Sp. z o.o.

20 000

354 495

Millennium Service Sp. z o.o.

12 732

12 722

Millennium Goodie Sp. z o.o.

5 000

Total

37 732

372 217

107

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Guarantees and sureties granted to Clients

Commitments granted – guarantee, amount ‘000 PLN

31.12.2023

31.12.2022

Active guarantees and sureties

1 074 850

1 472 187

Lines for guarantees and sureties

642 747

954 066

Total

1 717 597

2 426 252

Provisions created

(3 617)

(6 634)

Commitments granted – guarantee after provisions

1 713 980

2 419 618

The structure of liabilities under active guarantees and sureties divided by particular criteria are

presented by the tables below (PLN’000):

By currency

31.12.2023

31.12.2022

PLN

716 929

857 171

Other currencies

357 921

615 016

Total:

1 074 850

1 472 187

By type of commitment

31.12.2023

31.12.2022

Number

Amount

Number

Amount

Guarantee

3 299

1 058 547

3 417

1 456 797

Surety

Re-guarantee

16 303

15 391

Total:

3 364

1 074 850

3 475

1 472 187

By object of the commitment

31.12.2023

31.12.2022

Number

Amount

% share

Number

Amount

% share

good performance of contract

2 760

573 259

53.34%

2 780

555 850

37.76%

rent payment

249

295 486

27.49%

287

339 003

23.03%

punctual payment for goods or services

14 290

1.33%

13 441

0.91%

bid bond

159

81 397

7.58%

185

83 118

5.65%

Other

42 591

3.96%

48 423

3.29%

advance return

19 481

1.81%

53 251

3.62%

Customs

7 589

0.70%

343 501

23.32%

payment of bank loan

40 757

3.79%

35 600

2.42%

Total:

3 364

1 074 850

100.00%

3 475

1 472 187

100.00%

108

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

12. Legal risk related to foreign currency mortgage

loans

12.1. COURT CLAIMS AND CURRENT PROVISIONS ON LEGAL RISK

On December 31, 2023, the Bank had 20,914 loan agreements and additionally 1,780 loan agreements

from former Euro Bank under individual ongoing litigations (excluding claims submitted by the Bank

against clients i.e. debt collection cases) concerning indexation clauses of FX mortgage loans

submitted to the courts (64% loans agreements before the courts of first instance and 36% loans

agreements before the courts of second instance) with the total value of claims filed by the plaintiffs

amounting to PLN 4,130.6 million and CHF 281.5 million (Bank Millennium portfolio: PLN 3,780.2

million and CHF 272.6 million and former Euro Bank portfolio: PLN 350.4 million and CHF 8.8 million).

Out of 20,914 BM loan agreements in ongoing individual cases 240 are also part of class action. From

the total number of individual litigations against the Bank approximately 2,260 or 11% were submitted

by borrowers that had already naturally or early fully repaid the loan or were converted to polish

zloty at the moment of submission and had not a settlement agreement and approximately another

730 cases correspond to loans that were fully repaid since then (as court proceedings are lengthy).

The claims formulated by the clients in individual proceedings primarily concern the declaration of

invalidity of the contract and payment for reimbursement of paid principal and interest instalments

as undue performance, due to the abusive nature of indexation clauses, or maintenance of the

agreement in PLN with interest rate indexed to CHF Libor.

In addition, the Bank is a party to the group proceedings (class action) subject matter of which is to

determine the Bank's liability towards the group members based on unjust enrichment (undue benefit)

ground in connection with the foreign currency mortgage loans concluded. It is not a payment dispute.

The judgment in these proceedings will not directly grant any amounts to the group members. The

number of credit agreements covered by these proceedings is 3,273. Out of 3,273 loan agreements in

class action 240 are also part of ongoing individual cases, 858 concluded settlements and 7 received

final verdicts (invalidation of loan agreement). On 24 May 2022 the court issued a judgment on the

merits, dismissing the claim in full. On 13 December 2022 the claimant filed an appeal against the

judgment of 24 May 2022. On 20 November 2023 the claimant requested granting interim measures

to secure the claims against the Bank. In a decision of 27 December 2023, the request for granting

interim measures was dismissed.

The pushy advertising campaign observed in the public domain affects the number of court disputes.

Until the end of 2019, 1,985 individual claims were filed against the Bank (in addition, 236 against

former Euro Bank), in 2020 the number increased by 3,005 (265), in 2021 the number increased by

6,159 (423), in 2022 the number increased by 5,755 (408), while in 2023 the number increased by

6,871 (647).

Based on ZBP (the Polish Banking Association) data gathered from all banks having FX mortgage loans,

vast majority of disputes were finally resolved against the banks. As far as the Bank Millennium (incl.

former Euro Bank portfolio) is concerned, from 2015 until the end of 2023, 3,341 cases were finally

resolved (3,263 in claims submitted by clients against the Bank and 78 in claims submitted by the

Bank against clients i.e. debt collection cases) out of which 925 were settlements, 56 were remissions,

64 rulings were favourable for the Bank and 2,296 were unfavourable including both invalidation of

loan agreements as well as conversions into PLN+LIBOR. The Bank files appeals against negative

judgements of the courts of 1 instance declaring invalidation of loan agreements. Simultaneously the

Bank undertakes proper legal actions in order to secure repayment of initially disbursed capital of the

loan.

109

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The outstanding gross balance of the loan agreements under individual court cases and class action

against the Bank (incl. former Euro Bank portfolio) on 31 December 2023 was PLN 6,264 million (of

which the outstanding amount of the loan agreements under the class action proceeding was PLN 763

million).

If all Bank Millennium’s originated loan agreements currently under individual and class action court

proceedings would be declared invalid without any compensation for the use of capital, the pre-tax

cost could reach PLN 6,955 million excluding potential amounts connected with interest. Overall

losses would be higher or lower depending on the final court jurisprudence in this regard.

In the 12 months of 2023, the Bank created PLN 2,828.1 million of provisions for Bank Millennium

originated portfolio and PLN 237.3 million for former Euro Bank originated portfolio. The balance

sheet value of provisions for the Bank Millennium portfolio at the end of December 2023 was at the

level of PLN 7,268.8 million, and PLN 603.0 million for former Euro Bank originated portfolio.

The methodology developed by the Bank of calculating provisions for legal risk involved with indexed

loans is based on the following main parameters:

(i) the number of ongoing cases (including class action agreements) and potential future lawsuits

that will arise within the specified (three-year) time horizon. As regards the number of future

court cases,, the Bank monitors customer behaviours, follows market trends and expert

comments, which resulted in the adjustment of previous assumptions. As a result, in the

methodology of calculating provisions for legal risk in the case of active loans (loans with an

outstanding balance as at the date of filing the lawsuit), the Bank increased the estimated

percentage of customers covered by methodology in this group of clients to 83% of the total

number of currently active loans compared to 77% at the end of IIIQ2023. Regarding loans already

fully repaid or converted to polish zloty, the Bank attributes a much lower probability of

becoming the subject of a court case based on statistical analysis. In particular: a) the Bank

assesses the risk connected with the settlements reached with the clients in the past as negligible

b) from the group of loans that have been repaid (naturally or early, or converted into polish

zloty loan) and were not subject of a settlement agreement, the Bank assumes that circa 16%

sued or will decide to sue the Bank in the future;

(ii) the currently estimated amount of the Bank's potential loss in the event of a specific court

judgment;

(iii) the probability of obtaining a specific court judgment calculated on the basis of statistics of

judgments in cases where Bank is a party and legal opinions obtained;

(iv) the Bank does not include in the methodology of calculating an element related to to the

potential claim for remuneration for the client in connection with the repayments made by him

or her;

(v) estimates involved with amicable settlements with clients, concluded in court or out of court:

a. the Bank assumes 12% probability of success of reaching a settlement within negotiations

made with clients during court proceedings;

b. negotiations in court or out of court are conducted on a case-by-case basis and can be

stopped at any time by the Bank;

c. due to significant negotiation efforts already made in the past, the probability of success in

these negotiations in the future is decreasing, and at the same time most customers have

already been contacted by or contacted the Bank regarding the possible conversion of loans

into PLN, so at the moment the Bank adopts a conservative approach when taking into

account the potential impact of this factor.

110

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The Bank is open to negotiate case by case favourable conditions for early repayment or conversion

of loans to PLN. As a result of these negotiations, the number of active FX mortgage loans originated

by Bank Millennium decreased by 21,428: 1,363 in 2020; 8,450 in 2021; 7,943 in 2022 and 3,672 in

2023. As of the end of 2023, the Bank had 32,425 active FX mortgage loans. Cost incurred in

conjunctions with these negotiations totalled PLN 1,340.1 million: PLN 44.5 million in 2020; PLN 364.6

million in 2021; PLN 515.2 million in 2022 and PLN 415.8 million in 2023 is presented mainly in ‘Result

on exchange differences’ and also in ‘Result on modification’ in the profit and loss statement (the

values of costs charged to particular items of the Income Statement due to settlements are presented

in Note 14 in Chapter 13 of the Notes to the Financial Statements).

Legal risk from former Euro Bank portfolio is fully covered by Indemnity Agreement with Société

Générale S.A.

The Bank analyzed the sensitivity of the methodology for calculating provisions, for which a change

in the parameters would affect the value of the estimated loss to the legal risk of litigation:

Parameter

Scenario

Impact on the

loss

Change in the assumed number of

court cases

In addition to above assumed numbers,

1,000 new customers file a lawsuit against

the Bank

PLN 167 mln

Change of estimated losses for each

variant of judgment

Change of losses for each judgment

variant by 1 pp

PLN 75 mln

Change in probability of success in

negotiations with court client

Change of probability by 1 pp

PLN 18 mln

On December 8, 2020, Mr. Jacek Jastrzębski, the Chairman of the Polish Financial Supervision

Authority (“PFSA”) proposed a “sector” solution to address the sector risks related to FX mortgages.

The solution would consist in offering banks’ clients a voluntary possibility of concluding arrangements

based on which a client would settle a CHF Mortgage Loan as if it was a PLN loan bearing interest at

an appropriate WIBOR rate increased by the margin historically employed for such loans. The decision

to generally implement this solution could imply the need of creating upfront provisions for the losses

resulting from the conversion of CHF Mortgage Loans. The Bank in practice has been using elements

of the proposal of above system solution on many individual negotiations with FX mortgage borrowers,

including in the course of court proceedings.

Due to the circumstances stemming from the CJEU which excludes demanding by the Bank amounts

exceeding the return of disbursed capital, the possibility of successful implementation of a general

offer of KNF solution is low.

Finally it should also be mentioned, that the Bank, as at 31 December 2023, had to maintain additional

own funds for the coverage of additional capital requirements related to FX mortgage portfolio risks

(Pillar II FX buffer) in the amount of 1.47 pp (1.46 pp at the Group level), part of which is allocated

to operational/legal risk.

111

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Taking into consideration the recent negative evolution in the court verdicts regarding FX mortgage

loans, the Bank will have to regularly review and may need to continue to increase the balance of

provisions allocated to court litigations.

It can reasonably be assumed that the legal issues relating to foreign currency mortgage loans will be

further examined by the national courts within the framework of disputes considered which would

possibly result in the emergence of further interpretations, which are relevant for the assessment of

the risks associated with subject matter proceedings. This circumstance indicates the need for

constant analysis of these matters.

The Court of Justice of the European Union and the Polish Supreme Court rulings relevant to risk

assessment

Jurisprudence of the Court of Justice of the European Union

On 3 October 2019, the Court of Justice of the European Union (the CJEU) issued the judgment in

Case C-260/18 in connection with the preliminary questions formulated by the District Court of

Warsaw in the case against Raiffeisen Bank International AG. The judgment of the CJEU, as regards

the interpretation of European Union law made therein, is binding on domestic courts. The judgment

in question interpreted Article 6 of Directive 93/13. In the light of the subject matter judgment the

said provision must be interpreted in such a way that (i) the national court may invalidate a credit

agreement if the removal of unfair terms detected in this agreement would alter the nature of the

main subject-matter of the contract; (ii) the effects for the consumer’s situation resulting from the

cancellation of the contract must be assessed in the light of the circumstances existing or foreseeable

at the time when the dispute arose and the will of the consumer is decisive as to whether he wishes

to maintain the contract; (iii) Article 6 of the Directive precludes the filling-in of gaps in the contract

caused by the removal of unfair terms from the contract solely on the basis of national legislation of

a general nature or established customs; (iv) Article 6 of the Directive precludes the maintenance of

unfair terms in the contract if the consumer has not consented to the maintenance of such terms. It

can be noticed the CJEU found doubtful the possibility of a credit agreement being performed further

in PLN while keeping interest calculated according to LIBOR.

The CJEU judgment concerns only the situation where the national court has previously found the

contract term to be abusive. It is the exclusive competence of the national courts to assess, in the

course of judicial proceedings, whether a particular contract term can be regarded as abusive in the

circumstances of the case.

On 29 April 2021, the CJEU issued the judgement in the case C-19/20 in connection with the

preliminary questions formulated by the District Court in Gdańsk in the case against of ex-BPH S.A.,

the CJEU said that:

(i) it is for the national court to find that a term in a contract is unfair, even if it has been

contractually amended by those parties. Such a finding leads to the restoration of the

situation that the consumer would have been in in the absence of the term found to be unfair,

except where the consumer, by means of amendment of the unfair term, has waived such

restoration by free and informed consent. However, it does not follow from Council Directive

93/13 that a finding that the original term is unfair would, in principle, lead to annulment of

the contract, since the amendment of that term made it possible to restore the balance

between the obligations and rights of those parties arising under the contract and to remove

the defect which vitiated it;

112

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

(ii) the national court may remove only the unfair element of a term in a contract concluded

between a seller or supplier and a consumer where the deterrent objective pursued by Council

Directive 93/13 is ensured by national legislative provisions governing the use of that term,

provided that that element consists of a separate contractual obligation, capable of being

subject to an individual examination of its unfair nature. At the same time, provisions of the

Directive preclude the referring court from removing only the unfair element of a term in a

contract concluded between a seller or supplier and a consumer where such removal would

amount to revising the content of that term by altering its substance;

(iii) the consequences of a judicial finding that a term if a contract concluded between a seller

or supplier and a consumer is unfair are covered by national law and the question of continuity

of the contract should be assessed by the national court of its own motion in accordance with

an objective approach on the basis of those provisions;

(iv) the national court, finding that a term in a contract concluded between a seller or supplier

and a consumer is unfair, shall inform the consumer, in the context of the national procedural

rules after both parties have been heard, of the legal consequences entailed by annulment of

the contract, irrespective of whether the consumer is represented by a professional

representative.

On November 18, 2021, the Court of Justice of the European Union (CJEU) issued a judgment in case

C-212/20 in connection with questions submitted by the District Court for Warsaw Wola in Warsaw in

the case against Raiffeisen Bank International AG. The CJEU stated that:

(i) the content of the clause of the loan agreement concluded between the entrepreneur and

the consumer fixing the purchase and sale price of the foreign currency to which the loan is

indexed should, on the basis of clear and comprehensible criteria, enable the consumer who

is reasonably well informed and sufficiently observant and rational to understand how the

exchange rate of the foreign currency used to calculate the amount of the loan instalments

is determined, so that the consumer is able to determine himself at any time the exchange

rate used by the entrepreneur;

(ii) a national court which has found that a term of the agreement concluded between an

entrepreneur and a consumer is unfair cannot interpret that term in order to mitigate its

unfairness, even if such an interpretation would correspond to the common will of the parties.

On 10 June 2021, the Court of Justice of the European Union (CJEU) issued an order in case C-198/20

in connection with questions submitted by the District Court for Warsaw Wola in Warsaw in the case

against Santander Bank Polska SA. The CJEU stated that the protection provided for in Council

Directive 93/13/EEC is granted to all consumers, not just those who can be considered to be “duly

informed and reasonably observant and circumspect average consumer”.

On 8 September 2022, the Court of Justice of the European Union (CJEU) issued a judgment in joined

cases C-80/21, C-81/21, C-82/21 in connection with questions submitted by the District Court for

Warsaw Śródmieście in Warsaw in cases against Deutsche Bank SA and mBank SA. The CJEU stated

that:

(i) a national court may find that the parts of a contractual term of the agreement concluded

between a consumer and an entrepreneur which render it unfair are unfair, if such a deletion

would not amount to a change in the content of that term that affects its substance, which is

for the referring court to verify;

(ii) a national court cannot, after annulling an unfair term contained in an agreement concluded

between a consumer and an entrepreneur which does not render the agreement invalid in its

entirety, replace that term with a supplementary provision of the national law;

113

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

(iii) a national court may not, after having declared invalid an unfair term contained in an

agreement concluded between a consumer and an entrepreneur which entails the invalidity

of that agreement in its entirety, replace the contractual term which has been declared

invalid either by interpretation of the parties' declaration of intent in order to avoid the

cancellation of that agreement or by a provision of national law of a supplementary nature,

even if the consumer has been informed of the effects of the invalidity of that agreement,

and accepted them;

(iv) the ten-year limitation period for a consumer's claim seeking reimbursement of sums unduly

paid to the entrepreneur in performance of an unfair term of a loan agreement does not start

to run on the date of each performance made by the consumer if the consumer was not able

on that date to assess on his own the unfairness of the contractual term or if he had not

become aware of the unfair nature of that term and without taking into account the

circumstances that the agreement provided for a repayment period – in this case thirty years

– well in excess of the ten-year statutory limitation period.

On March 16, 2023, the Court of Justice of the European Union issued a judgment in a case registered

under case number C-6/22, following preliminary questions submitted by the District Court for

Warsaw-Wola in a case against the former Getin Noble Bank S.A. In the judgment, the CJEU ruled

that:

(i) in the event that a contract concluded between a consumer and a seller or supplier is declared

invalid because one of its terms is unfair, it is for the Member States, by means of their

national law, to make provision for the effects of that invalidation, in compliance with the

protection granted to the consumer by that directive, in particular, by ensuring the

restoration of the legal and factual situation that he or she would have been in if that unfair

term had not existed;

(ii) a national court is not allowed:

a. to examine of its own motion, without any prerogative conferred on it by national law in

that regard, the financial situation of a consumer who has sought the invalidation of the

contract between him or her and a seller or supplier on account of the presence of an

unfair term without which the contract cannot legally continue to exist, even if that

invalidation is liable to expose the consumer to particularly unfavourable consequences

and

b. to refuse to declare that invalidation where the consumer has expressly sought it, after

being objectively and exhaustively informed of the legal consequences and the

particularly unfavourable financial consequences which it may have for him or her;

(iii) a national court is not allowed, after it has found that a term in a contract concluded between

a seller or supplier and a consumer is unfair, to fill gaps resulting from the removal of the

unfair term contained therein by the application of a provision of national law which cannot

be characterised as a supplementary provision. However, it is for the national court, taking

account of its domestic law as a whole, to take all the measures necessary to protect the

consumer from the particularly unfavourable consequences which annulment of the contract

might entail for him or her.

114

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

On June 8, 2023, the Court of Justice of the European Union issued a judgment in a case registered

under case number C-570/21, following preliminary questions submitted by the District Court in

Warsaw in a case against the former Getin Noble Bank S.A. In the judgment, the CJEU ruled that:

(i) provisions of Council Directive 93/13 must be interpreted as meaning that the concept of

‘consumer’, within the meaning of that provision, covers a person who has concluded a loan

contract intended for a purpose in part within and in part outside his or her trade, business

or profession, together with a joint-borrower who did not act within his or her trade, business

or profession, where the trade, business or professional purpose is so limited as not to be

predominant in the overall context of that contract;

(ii) provisions of Directive 93/13 must be interpreted as meaning that in order to determine

whether a person falls within the concept of ‘consumer’, within the meaning of that provision,

and, specifically, whether the trade, business or professional purpose of a loan contract

concluded by that person is so limited as not to be predominant in the overall context of that

contract, the referring court is required to take into consideration all the relevant

circumstances surrounding that contract, both quantitative and qualitative, such as, in

particular, the distribution of the borrowed capital between, on the one hand, a trade,

business or profession and, on the other hand, a non-professional activity and, where there

are several borrowers, the fact that only one of them is pursuing a professional purpose or

that the lender made the grant of credit intended for consumer purposes conditional on a

partial allocation of the amount borrowed to the repayment of debts connected with a trade,

business or profession.

On June 15, 2023, the Court of Justice of the European Union issued a judgment in a case registered

under case number C-287/22, following preliminary questions submitted by the District Court in

Warsaw in a case against the former Getin Noble Bank S.A. In the judgment, the CJEU ruled that

provisions of the Directive 93/13 must be interpreted as precluding national case-law according to

which a national court may dismiss an application for the grant of interim measures lodged by a

consumer seeking the suspension, pending a final decision on the invalidity of the loan agreement

concluded by that consumer on the ground that that loan agreement contains unfair terms, of the

payment of the monthly instalments due under that loan agreement, where the grant of those interim

measures is necessary to ensure the full effectiveness of that decision.

On June 15, 2023, the CJEU issued a judgment in a case registered under case number C-520/21,

following preliminary questions submitted by the District Court in Warsaw in a case against Bank

Millennium, in which indicated that Directive 93/13 does not expressly regulate the consequences of

invalidity of a contract concluded between a credit institution and a consumer after the removal of

unfair terms contained therein. The CJEU stated that:

(i) the provisions of the Directive 93/13 do not preclude a judicial interpretation of national law,

according to which the consumer has the right to demand compensation from the credit

institution beyond the reimbursement of monthly instalments and costs paid for the

performance of this contract and the payment of statutory default interest from the date of

the request for payment provided that the objectives of Directive 93/13 and the principle of

proportionality are respected;

(ii) the provisions of Directive 93/13 preclude the judicial interpretation of national law,

according to which a credit institution has the right to demand compensation from the

consumer that goes beyond the return of the capital paid for the performance of this contract

and beyond the payment of statutory default interest from the date of the request for

payment.

115

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

On September 21, 2023, the CJEU issued a judgement in a case registered under case number C-

139/22, following preliminary questions submitted by the District Court in Warsaw in a case against

mBank. The CJEU stated that:

(i) provisions of the Directive 93/13 must be interpreted as not precluding a contractual term

which has not been individually negotiated from being regarded as unfair by the national

authorities concerned merely by virtue of the fact that its content is equivalent to that of a

standard contract term entered in the national register of standard business terms held to be

unlawful;

(ii) the contractual term which, because of the circumstances for the performance of certain

obligations of the consumer concerned provided for in that term, must be regarded as unfair,

may not cease to be considered unfair on account of another term of that contract which

provides for the possibility for that consumer to perform those obligations under different

circumstances;

(iii) a seller or supplier is obliged to inform the consumer concerned of the essential

characteristics of the contract concluded with that seller or supplier and the risks associated

with that contract, even though that consumer is its employee and has relevant knowledge in

the field of the contract.

On December 7, 2023, the CJEU issued the judgement in the case C-140/22 in connection with the

preliminary questions formulated by the District Court in Warsaw in the case against of mBank S.A.

The Court stated that provisions of the Directive 93/13 must be interpreted as meaning that, in the

context of the cancellation, in its entirety, of a mortgage loan agreement concluded with a consumer

by a banking institution on the ground that that agreement contains an unfair term without which it

cannot continue in existence:

(i) they preclude the judicial interpretation of national law according to which the exercise of

the rights which that consumer draws from that directive is conditional on the lodging, by

that consumer, before a court, of a declaration by which he or she states, first, not to consent

to that unfair term remaining effective, secondly, to be aware of the fact that the nullity of

that term entails the cancellation of that agreement and, moreover, of the consequences of

that cancellation and, thirdly, to consent to the cancellation of that agreement;

(ii) they preclude the compensation sought by the consumer concerned in respect of the

restitution of the sums paid by him or her in the performance of the agreement at issue being

reduced by the equivalent of the interest which that banking institution would have received

if that agreement had remained in force.

The Court of Justice of European Union by an order of December 11, 2023, closed the case registered

under case number C-756/22 initiated by the District Court in Warsaw in the case brought by Bank

Millennium and ruled that the provisions of Directive 93/13 must be interpreted as meaning that, in

the context of declaring a mortgage loan agreement concluded with a consumer by a banking

institution to be invalid in its entirety on the grounds that, that the contract contains unfair terms

without which it cannot be continued, they preclude a judicial interpretation of the law of a Member

State according to which that institution is entitled to recover from that consumer amounts other

than the capital paid in performance of that contract and statutory interest for delay from the time

of the demand for payment.

116

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

On December 14, 2023, the CJEU issued the judgement in the case C-28/22 in connection with the

preliminary questions referred by the District Court in Warsaw in the case of ex-Getin Noble Bank S.A.

The Court stated that:

(i) provisions of Directive 93/13 read in the light of the principle of effectiveness must be

interpreted as precluding a judicial interpretation of national law according to which,

following the cancellation of a mortgage loan agreement concluded with a consumer by a

seller or supplier, on account of unfair terms contained in that agreement, the limitation

period for the claims of that seller or supplier stemming from the nullity of that agreement

starts to run only as from the date on which the agreement becomes definitively

unenforceable, whereas the limitation period for the claims of that consumer stemming from

the nullity of that agreement begins to run as from the day on which the consumer became

aware, or should reasonably have become aware, of the unfair nature of the term entailing

such nullity;

(ii) provisions of the Directive 93/13 must be interpreted as not precluding a judicial

interpretation of national law according to which it is not for a seller or supplier who has

concluded a mortgage loan agreement with a consumer to ascertain whether the consumer is

aware of the consequences of the removal of the unfair terms contained in that agreement

or of that agreement being no longer capable of continuing in existence if those terms were

removed;

(iii) provisions of the Directive 93/13, read in the light of the principle of effectiveness, must be

interpreted as precluding a judicial interpretation of national law according to which, where

a mortgage loan agreement concluded with a consumer by a seller or supplier is no longer

capable of continuing in existence after the unfair terms in that agreement have been

removed, that seller or supplier may rely on a right of retention which allows him or her to

make the restitution of the sums which it has received from that consumer conditional on

that consumer making an offer to repay the sums which he or she has himself or herself

received from that seller or supplier or to provide a security for the repayment of those sums,

where the exercise by that seller or supplier of that right of retention entails the loss, for

that consumer, of the right to obtain default interest as from the expiry of the time limit set

for performance by the seller or supplier concerned, following receipt by that seller or

supplier of a request to repay the sums he or she had been paid in performance of that

agreement.

The Court of Justice of the European Union by an order of January 15, 2024, closed the case registered

under case number C-488/23 following a question from the District Court of Warsaw, indicating that

the right of a financial institution to demand the valorization of the disbursed capital after a loan

agreement has been declared invalid was excluded in the judgment of June 15, 2023 issued in case

C-520/21.

117

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

On January 18, 2024, the CJEU issued the judgement in the case C-531/22 in connection with the

preliminary questions referred by the District Court in Warsaw in the case of ex-Getin Noble Bank S.A.

The Court stated that:

(i) the provisions of Directive 93/13 preclude national legislation which provides that a national

court may not examine of its own motion the potentially unfair nature of the terms contained

in a contract and draw the consequences thereof, where it is supervising enforcement

proceedings carried out on the basis of a final decision to issue an order for payment which is

subject to res judicata:

a. if the regulations do not provide for such an examination at the stage of issuing a payment

order, or

b. if such examination is provided for only at the stage of opposition to the order for

payment in question, provided that there is a significant risk that the consumer in

question will not file the required opposition either because the time limit specified for

this purpose is very short, or because of the cost of the proceedings before the court in

relation to the amount of the disputed debt, or because the national legislation does not

provide for the obligation to provide that consumer with all the information necessary

for him to establish the extent of his rights;

(ii) the provisions of Directive 93/13 do not preclude national case law according to which the

entry of a term of a contract in a national register of prohibited clauses has the effect of

declaring that term unfair in any proceedings involving a consumer, including against a trader

other than the one against whom proceedings for the entry of the said term in that national

entered in the said register, but has the same meaning and has the same effect with respect

to the consumer in question.

Jurisprudence of the Polish Supreme Court

On 7 May 2021, the Supreme Court composed of 7 judges of the Supreme Court, issued a resolution

for which the meaning of legal principle has been granted, stating that:

(i) an abusive contractual clause (art. 385(1) § 1 of the Civil Code), by force of the law itself, is

ineffective to the benefit of the consumer who may consequently give conscious and free

consent to this clause and thus restore its effectiveness retroactively;

(ii) if without the ineffective clause the loan agreement cannot bind, the consumer and the lender

shall be eligible for separate claims for return of monetary performances made in exercising

this agreement (art. 410 § 1 in relation to art. 405 of the Civil Code). The lender may demand

return of the performance from the moment the loan agreement becomes permanently

ineffective.

On April 28, 2022 the Supreme Court issued a resolution (III CZP 40/22) in which it indicated that in

disputes with consumers, the provision of Article 358(1) of the Civil Code is a special provision to

Article 353(1) of the Civil Code, which means that if the prerequisites for the application of both

provisions exist, the court should apply the special provision and declare the contractual provision

permanently ineffective, rather than invalid. This decision of the Supreme Court should be perceived

as significantly limiting the risk of the bank's claims for return of capital being time-barred.

118

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The effect of the Supreme Court's resolution of 7 May 2021 is that the bank is entitled to a refund of

the cash benefit provided by the bank in performance of a permanently ineffective contract. Taking

into account the uncertainty as to the starting point of the limitation period for the bank's claims,

the Bank, in order to protect its interests, files lawsuits for payment against borrowers in a court

dispute with the bank. The bank's demand consists of a claim for return of the capital made available

to the borrower under the contract. By 31 December 2023 the Bank filed about 8.1 thousands lawsuits

against the borrowers.

Due to the CJEU jurisprudence interpreting the causes and effects of invalidity of foreign currency

mortgage loan agreements, the area of interpretation of regulations by Polish courts in this respect

appears to be limited. However, further jurisprudential practice of the Polish courts will play an

important role in fulfilling the content of the CJEU's guidance and, moreover, this practice will be of

significant importance as regards issues that, given the scope of the CJEU's competence, are subject

to national jurisprudence.

12.2. EVENTS THAT MAY IMPACT FX MORTGAGE LEGAL RISK AND

RELATED PROVISION

The issues related to the statute of limitations for the Bank's and the customer's restitutionary claims

following the invalidation of a loan agreement remain an area that may be subject to further analysis

in the jurisprudence of Polish courts. Legal interpretations in this subject may be particularly

significant for the Bank's claims as to the commencement of the running of the limitation period of

its claims, by eliminating or confirming the risk of its claims being deemed time-barred in a given

case.

In addition, the extent of the consumer's and the bank's entitlement to statutory interest for delay on

restitution claims may be an important legal issue.

The issue that remains unresolved in the jurisprudence of common courts and the Supreme Court is

also the issue of the admissibility of borrowers’ claims in the event of the invalidity of a loan

agreement for payment of amounts beyond the reimbursement of monthly installments and costs paid

for the execution of that agreement and beyond the payment of statutory default interest from the

date of the demand for payment, which, in light of the CJEU's judgment of June 15, 2023 in case C-

520/21, remains not excluded. Due to the uncertainty of the direction of case law in this area, as of

the date of publication of the report, it is difficult to reliably assess the impact of potential rulings.

119

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

13. Notes to the Financial Statements

Amounts presented in the notes to the financial statements are presented in PLN thousands.

1. INTEREST INCOME AND OTHER OF SIMILAR NATURE

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Interest income from Financial assets at fair value through other comprehensive income

1 806 350

1 232 768

Debt securities

871 288

464 049

Loans and advances

935 062

768 719

Interest income from Financial assets at amortised cost

6 385 562

3 696 751

Balances with the Central Bank

222 277

166 369

Loans and advances to customers, including:

5 508 395

3 302 440

- the impact of the adjustment to the gross carrying amount of loans due to credit

holidays

(11 404)

(1 291 600)

Debt securities

552 276

85 566

Deposits, loans and advances to banks

34 786

26 151

Transactions with repurchase agreements

67 828

26 095

Hedging derivatives

90 130

Result of similar nature to interest, including:

108 471

(28 797)

Loans and advances to customers mandatorily at fair value through profit or loss

9 995

28 604

Financial assets held for trading - derivatives

93 610

(61 492)

Financial assets held for trading - debt securities

4 866

4 091

Total

8 300 383

4 900 722

Interest income for the year 2023 contains interest accrued on impaired loans in the amount of PLN

214,843 thous. (for corresponding data in the year 2022 the amount of such interest stood at PLN

163,046 thous.).

Interest income from instruments measured at amortized cost for 2023 includes an adjustment for

credit holidays (reducing income) in the amount of PLN 11.4 million (for corresponding data in the

year 2022 the amount of adjustment stood at PLN 1,291.6 million), more information on this subject

is presented in Chapter 7.3 Adopted accounting principles.

2. INTEREST EXPENSE

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Interest expense from Financial liabilities measured at amortised cost

(3 165 879)

(1 662 941)

Liabilities to banks and other monetary institutions

(12 602)

(26 945)

Liabilities to customers

(2 834 187)

(1 464 489)

Transactions with repurchase agreement

(35 178)

(52 871)

Debt securities issued

(115 891)

(1 253)

Subordinated debt

(141 686)

(110 181)

Leasing liabilities

(9 325)

(7 202)

Hedging derivatives

(17 010)

Other

Total

(3 165 879)

(1 662 941)

In the "Hedging derivatives" line, the Bank presents interest income on account of derivative

instruments designated and being effective hedging instruments in terms of securing cash flows and

fair value. A detailed description of the hedging relationships used by the Bank is included in note

(24).

120

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

3. FEE AND COMMISSION INCOME AND EXPENSE

3a. Fee and commission income

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Resulting from accounts service

117 576

138 040

Resulting from money transfers, cash payments and withdrawals and other payment

transactions

94 976

91 496

Resulting from loans granted

169 111

166 554

Resulting from guarantees and sureties granted

14 924

16 609

Resulting from payment and credit cards

293 979

268 501

Resulting from sale of insurance products

117 975

127 141

Resulting from distribution of investment funds units and other savings products

46 094

52 525

Resulting from brokerage and custody service

12 215

10 374

Other

45 507

35 468

Total

912 357

906 708

3b. Fee and commission expense

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Resulting from accounts service

(44 320)

(22 858)

Resulting from money transfers. cash payments and withdrawals and other payment

transactions

(4 930)

(5 480)

Resulting from loans granted

(9 466)

(10 898)

Resulting from payment and credit cards

(111 309)

(105 252)

Resulting from brokerage and fiduciary services

(2 233)

(1 383)

Resulting from selling insurance products

(9 518)

(11 546)

Other

(46 855)

(34 334)

Total

(228 631)

(191 751)

4. DIVIDEND INCOME

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Trading financial assets

Non-trading financial assets mandatorily at fair value through profit or loss

630

1 322

Financial assets at fair value through other comprehensive income

2 801

2 457

Investments in subordinated companies

28 706

41 796

Total

32 137

45 592

121

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

5. RESULT ON DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES

NOT MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Result on bancassurance transaction

553 912

Operations on debt instruments

(12 353)

(166)

Sale of the FVTOCI portfolio

2 441

515

Costs of financial operations

(2 575)

(2 726)

Total

541 425

(2 377)

Bancassurance transaction

On February 13, the Bank's Management Board announced that after obtaining the necessary corporate

approvals, on February 13, 2023, the Bank concluded an agreement ("Agreement") for the sale of 80%

of shares in Millennium Financial Services sp. z o. o. ("Company") to Towarzystwo Ubezpieczeń na

Życie Europa S.A., which acquires 72% of the Company's shares, and Towarzystwo Ubezpieczeń Europa

S.A., which acquires 8% of the Company's shares (collectively, the "Buyer").

The Bank also concluded agreements with the Buyers and the Company regarding the exclusive

insurance distribution model, including cooperation agreements, distribution agreements and agency

agreements. Strategic insurance cooperation provides for long-term (10 years) cooperation in the field

of bancassurance in relation to specific insurance related to credit products offered by the Bank.

The essence of the transaction provided for in the Agreement was the direct purchase of Shares by

the Buyers from the Bank for a defined initial price, which may be subject to a price adjustment

mechanism after the closing of the Transaction.

On March 29, 2023, 80% of the shares in the company were transferred to the Buyers, and the final

settlement of the transaction, together with the price adjustment, took place in December 2023.

Since as part of the transaction, in addition to Agreement, the Bank also concluded other agreements

with the Buyers and the Company, the Bank analyzed individual agreements and their economic

effects in accordance with the requirements of IFRS 10, IFRS 15 and IFRS 9. As a result, the Bank

identified contractual obligations and assessed the assignment of contractual remuneration for

individual elements of the transaction, determining the appropriate method of recognizing revenues

from single contractual obligations.

As a result, the Bank recognized in 2023 in the Profit and Loss Account total result of PLN 652.4 million

(gross), which consisted of:

1) profit realized on sale: payment of the price less the fair value of the shares at the moment of

loss of control in the amount of PLN 553.9 million (gross) was included in the item “Result on

derecognition of financial assets and liabilities not measured at fair value through profit or loss”;

2) an inflow of PLN 54.0 million (gross) as a valuation of the derivative at the time of final settlement

of the transaction in December 2023, resulting from the agreed potential future remuneration

payments, was recognized as “Result on financial assets and liabilities held for trading”;

3) At the same time, due to the loss of control over the Company, the Bank valued the remaining

non-controlling share in the Company at fair value of PLN 52.2 million (gross), this amount was

included in "Other operating income".

122

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Starting from the moment of loss of control, the investment in the Company is treated as an

involvement in an associated entity (the Bank holds 20% of the shares in the Company) and is valued

at the Group level using the equity method, while in the Bank's financial statements the valuation

model is fair value with the valuation effect recorded in the Profit and Loss Account.

The Bank's assessment was made on the basis of IFRS and their interpretations applicable as at the

date of these financial statements.

6. RESULTS ON FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Result on debt instruments

6 003

(13 179)

Result on derivatives

41 955

12 646

Result on other financial operations

Total

47 982

(528)

7. RESULTS ON NON-TRADING FINANCIAL ASSETS MANDATORILY AT

FAIR VALUE THROUGH PROFIT OR LOSS

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Loans and advances to customers

(958)

12 503

Result on equity instruments

4 360

8 339

Result on debt instruments

8 957

4 854

Total

12 359

25 696

8. RESULT ON HEDGE ACCOUNTING

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Changes in the fair value of the hedging instrument (including abandonment)

42 413

5 230

Changes in the fair value of the hedged item resulting from the hedged risk

(43 499)

(6 119)

Inefficiency in cash flow hedges

2 246

(6 241)

Inefficiencies due to net investment hedges in foreign operations

Total

1 160

(7 130)

123

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

9. OTHER OPERATING INCOME

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Gain on sale and liquidation of property, plant and equipment, intangible assets

4 923

1 371

Income from sale of other services

10 085

12 167

Income from collection service

11 745

4 552

Income from write-back of provisions for disputed claims

11 783

8 116

Valuation of the Société Générale S.A. guarantee and indemnity agreement

259 921

169 682

Valuation of the remaining non-controlling share in the Europa MFS Sp. z o.o.

52 487

Other

54 403

43 253

Total

405 347

239 141

10. OTHER OPERATING EXPENSE

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Loss on sale and liquidation of property, plant and equipment, intangible assets

(1 631)

(2 024)

Indemnifications, penalties and fines paid

(37 134)

(18 454)

Costs of provisions for disputed claims

(30 208)

(27 325)

Costs related with providing other services

(2 737)

(2 269)

Donations made

(1 086)

(1 673)

Costs of collection service

(144 561)

(98 347)

Costs of legal representation

(26 568)

(10 040)

Other

(16 339)

(16 845)

Total

(260 264)

(176 977)

On 11 September 2019 The Court of Justice of the European Union ruled in the case of Lexitor against

SKOK Stefczyka, Santander Consumer Bank and mBank (case C 383/18) in which it stated that

consumer has rights to demand the reduction of the total loan cost corresponding to interest and

costs for the remaining term of the agreement in case of early repayment of loan.

Taking into consideration this verdict, the Group creates provisions for potential returns which as at

December 31, 2023 amounted to PLN 76.4 million.

124

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

11. ADMINISTRATIVE EXPENSES

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Staff costs:

(982 355)

(865 074)

Salaries

(805 121)

(710 949)

Surcharges on pay

(138 630)

(120 201)

Employee benefits, including:

(38 604)

(33 924)

- provisions for retirement benefits

(4 600)

(5 609)

- provisions for unused employee holiday

(3 227)

(90)

- other

(30 777)

(28 225)

Other administrative expenses:

(731 307)

(952 414)

Costs of advertising, promotion and representation

(70 864)

(64 201)

IT and communications costs

(152 432)

(131 011)

Costs of renting

(59 724)

(46 486)

Costs of buildings maintenance, equipment and materials

(49 115)

(47 224)

ATM and cash maintenance costs

(35 106)

(32 957)

Costs of consultancy, audit and legal advisory and translation

(146 957)

(95 474)

Taxes and fees

(42 129)

(36 976)

KIR - clearing charges

(12 855)

(11 305)

PFRON costs

(8 071)

(6 098)

Banking Guarantee Fund costs

(60 034)

(121 101)

Financial Supervision costs

(14 178)

(12 648)

Cost of payments to IPS

(276 120)

Other

(79 842)

(70 813)

Total

(1 713 662)

(1 817 488)

12. IMPAIRMENT LOSSES ON FINANCIAL ASSETS

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Impairment losses on loans and advances to customers

(219 847)

(305 490)

Impairment charges on loans and advances to customers

(1 299 920)

(1 417 533)

Reversal of impairment charges on loans and advances to customers

962 459

979 345

Amounts recovered from loans written off

39 689

47 278

Sale of receivables

77 926

85 416

Other directly recognised in profit and loss

(1)

Impairment losses on securities

(5)

Impairment charges on securities

(2)

(5)

Reversal of impairment charges on securities

Impairment losses on off-balance sheet liabilities

(2 420)

4 854

Impairment charges on off-balance sheet liabilities

(40 336)

(42 130)

Reversal of impairment charges on off-balance sheet liabilities

37 916

46 984

Total

(222 266)

(300 641)

125

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

13. IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Fixed assets

Other assets

(84)

(3 515)

Total

(84)

(3 515)

14. PROVISIONS FOR LEGAL RISK CONNECTED WITH FX MORTGAGE

LOANS

01.01.2023 - 31.12.2023

TOTAL

Allocated for credit

portfolio

Provisions for

pending legal issues

Balance at the beginning of the period

5 395 344

4 572 901

822 443

Amounts written off

(521 769)

Costs of provisions for legal risk connected wIth FX

mortgage loans

3 065 380

Allocation to the loans portfolio

2 532 494

(2 532 494)

Increase of provisions due to FX rates differences

(67 166)

Balance at the end of the period

7 871 789

6 516 460

1 355 329

01.01.2022 - 31.12.2022

TOTAL

Allocated for credit

portfolio

Provisions for

pending legal issues

Balance at the beginning of the period

3 332 614

2 916 779

415 835

Amounts written off

(223 036)

Costs of provisions for legal risk connected wIth FX

mortgage loans

2 017 320

Allocation to the loans portfolio

1 610 712

(1 610 712)

Increase of provisions due to FX rates differences

268 445

Balance at the end of the period

5 395 344

4 572 901

822 443

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Costs of settlements recognized in the profit and loss account, including:

(326 018)

(484 392)

- included in the “Result on exchange differences”

(273 791)

(382 239)

- included in the “Result on modification”

(52 227)

(102 153)

Costs of settlements charged to previously created provisions

(90 169)

(30 774)

15. DEPRECIATION AND AMORTIZATION

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Property, plant and equipment

(153 446)

(149 679)

Intangible assets

(53 743)

(52 733)

Total

(207 189)

(202 412)

126

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

16. CORPORATE INCOME TAX

16a. Income tax reported in income statement

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Current tax

(603 679)

(254 175)

Current year

(605 053)

(254 175)

Adjustment to prior periods

1 374

Deferred tax:

(110 835)

(11 030)

Recognition and reversal of temporary differences

(110 835)

(11 030)

Total income tax reported in income statement

(714 514)

(265 205)

16b. Effective tax rate

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Profit before tax / (loss)

1 224 773

(764 694)

Statutory tax rate

19%

Income tax according to obligatory income tax rate of 19%

(232 707)

145 292

Impact of permanent differences on tax charges:

(488 299)

(413 301)

Non-taxable income

54 668

41 596

Dividend income

5 986

8 411

Release of other provisions

48 570

32 027

Other

112

1 158

Cost which is not a tax cost

(542 967)

(454 897)

PFRON fee

(1 533)

(1 158)

Fees for Banking Guarantee Fund

(11 406)

(23 009)

Banking tax

(604)

(32 122)

Receivables written off

(14 945)

(9 255)

Costs of litigations and claims

(512 055)

(388 265)

Other

(2 424)

(1 088)

Amount of deductible temporary differences for which no deferred tax asset was

recognized in the balance sheet

2 116

Deduction of the tax paid abroad

112

234

Other differences between gross financial result and taxable income with income tax

(including R&D relief)

6 380

454

Total income tax reported in income statement

(714 514)

(265 205)

Effective tax rate

58.34%

/-/*

* For the year 2022 the Bank recorded a negative gross financial result and at the same time a tax burden of a cost nature,

therefore the Group did not calculate the effective tax rate.

127

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

16c. Deferred tax reported in equity

31.12.2023

31.12.2022

Valuation of investment assets at fair value through other comprehensive income

41 599

170 072

Valuation of credit portfolio at fair value through other comprehensive income

(19 344)

(48 607)

Valuation of cash flow hedging instruments

10 297

77 151

Actuarial gains (losses)

133

(1 849)

Deferred tax reported directly in equity

32 685

196 767

Changes in deferred tax recognized directly in equity are presented in Note (39b).

Withholding tax audit for years 2015-17

On 12 February 2019 the Head of Western Pomeranian Customs & Tax Office (Zachodniopomorski

Urząd Celno-Skarbowy w Szczecinie, ZUCS) commenced tax audits regarding the correctness of

withholding tax (WHT) settlements for years 2015 and 2016. On 17 December 2019 the Bank received

audit results as of 13 December 2019, in which ZUCS questioned WHT-exemption on coupon interest

from bonds paid to MB Finance AB with the seat in Sweden constituting a collateral to 10Y

subordinated bonds with a par value of EUR 150 mio. issued by this company in December 2007 (fully

amortized in December 2017). On 11 June 2021 Bank received 2nd instance decisions of ZUCS

decreasing the amount of WHT arrear from PLN 6.6 to 5.3 mio. This amount with penalty interests

were paid by Bank on 18 June 2021. Bank lodged complaints on these decisions to the administrative

court in Szczecin (WSA). WSA in its judgements as of 13 and 27 October 2021 wholly overruled both

ZUCS’s decisions. ZUCS appealed from these judgments to the Supreme Administrative Court (NSA).

On 13 April 2021 Head of ZUCS commenced a WHT audit for year 2017. As expected in the audit result

ZUCS challenged WHT-exemption on coupon interests paid by Bank to MBF in this year as well

(disputable WHT amount is ca. PLN 2.2 mio.). Bank does not agree with such findings as well and will

continue a dispute with ZUCS. On 21 March 2022 Bank received the ZUCS’s decision on WHT audit

transformation into a tax proceeding. On 30 June 2022 Bank received the ZUCS’s decision determining

WHT arrear of ca. PLN 2.2 mio. Bank appealed from this decision. On 23 February 2023 WSA suspended

the court litigation concerning WHT for 2017 until the final NSA’s judgements regarding WHT for years

2015-16.

Bank received an expert opinion as of January 29, 2020 of tax professors from the Public Finances

Law Department of the Faculty of Law and Administration at Nicolaus Copernicus University in Torun,

according to which ZUCS’s statement violates binding tax law provisions.

Judgement of the Supreme Administrative Court

On 6 December 2023, the Supreme Administrative Court issued a judgment on the Bank's complaint

against the tax ruling of the Director of the National Tax Information Service on the rules for

recognizing the effects in CIT of cancellations of mortgage loans indexed to foreign currencies and

foreign currency loans (in particular in CHF) adjudicated by common courts. According to the ruling,

the Bank should recognise the tax consequences not by recognising the resulting losses as tax-

deductible costs, but by adjusting the revenues from the above-mentioned loans and advances (FX

gains, interest, commissions and fees) previously taxed with CIT, taking into account the rules of

limitation of tax liabilities. Until the above judgment was issued, the Bank prudently did not recognize

losses due to cancellations for CIT and deferred tax purposes and is currently in the process of

analysing and preparing a methodology and process both in order to make appropriate adjustments

to CIT liabilities due to cancellations in previous years, as well as to recognize the relevant asset in

deferred tax relating in a fair manner to the probable cancellations of the above-mentioned loans

and advances in the future. Indeed, there are doubts as to the detailed rules for the adjustment of

revenues, which may change the final amounts of the adjustments.

128

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

17. EARNINGS PER SHARE

In accordance with the requirements of IAS 33, the Bank calculates earnings per share based on

consolidated data and presents it accordingly in the consolidated financial statements.

18. CASH, BALANCES AT THE CENTRAL BANK

18a. Cash, balances at the central bank

31.12.2023

31.12.2022

Cash

919 265

935 916

Cash in Central Bank

4 175 719

8 600 174

Other funds

Total

5 094 984

9 536 090

In the period from 30 November 2023 to 1 January 2024 the Bank was obliged to keep on its current

account with NBP (the central bank) an average balance of PLN 3,517,988 thousand (arithmetic

average of balances on the NBP current account on all days of the deposit-holding period).

18b. Cash, balances at the Central Bank – by currency

31.12.2023

31.12.2022

in Polish currency

4 399 501

4 406 496

in foreign currencies (after conversion to PLN)

695 483

5 129 594

▪ currency: USD

69 123

100 673

▪ currency: EUR

582 187

4 991 057

▪ currency: CHF

17 089

15 756

▪ currency: GBP

18 251

17 508

▪ other currencies

8 833

4 600

Total

5 094 984

9 536 090

129

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

19. FINANCIAL ASSETS HELD FOR TRADING

19a. Financial assets held for trading

31.12.2023

31.12.2022

Debt securities

110 554

24 210

Issued by State Treasury

110 554

24 210

a) bills

b) bonds

110 554

24 210

Equity instruments

121

113

Positive valuation of derivatives

498 577

339 295

Total

609 252

363 618

Information on financial assets securing liabilities is presented in point 2) of Chapter 14.

19b. Debt securities valued at fair value through profit and loss (held for trading), at balance sheet

value

31.12.2023

31.12.2022

▪ with fixed interest rate

48 243

18 353

▪ with variable interest rate

62 311

5 857

Total

110 554

24 210

19c. Debt securities valued at fair value through profit and loss (held for trading), by maturity

31.12.2023

31.12.2022

to 1 month

2 790

912

above 1 month to 3 months

above 3 months to 1 year

1 657

2 050

above 1 year to 5 years

75 307

15 995

above 5 years

30 800

5 253

Total

110 554

24 210

19d. Change of debt securities and equity instruments valued at fair value through profit and loss

(held for trading)

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Balance at the beginning of the period

24 323

86 438

Increases (purchase, takeover and accrual of interest and discount)

10 685 599

5 891 243

Reductions (sale and redemption)

(10 599 136)

(5 954 084)

Differences from valuation at fair value

(111)

726

Balance at the end of the period

110 675

24 323

130

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

19e. Financial assets and liabilities held for trading - Valuation of derivatives, Adjustment from fair

value hedge and Short positions as at:

31.12.2023

Par value of instruments with future maturity

Fair value

below 3

months

from 3 months

to 1 year

from 1 year

to 5 years

above 5

years

Total

Assets

Liabilities

1. Interest rate derivatives

2 317 330

2 514 918

7 492 310

383 670

(9 488)

12 060

21 548

Forward Rate Agreements

(FRA)

Interest rate swaps (IRS)

2 197 874

2 255 207

6 836 859

363 000

(9 488)

538

10 026

Other interest rate contracts:

options

119 456

259 711

655 451

20 670

11 522

2. FX derivatives*

7 839 593

3 413 391

122 070

(59 958)

69 759

129 717

FX contracts

1 526 891

737 568

61 066

(28 087)

9 993

38 080

FX swaps

6 312 702

2 675 823

61 004

(31 871)

59 766

91 637

Other FX contracts (CIRS)

FX options

3. Embedded instruments

472 247

2 018 329

858 866

(414 200)

414 200

Options embedded in deposits

472 247

2 018 329

858 866

(414 200)

414 200

Options embedded in

securities issued

4. Indexes options

549 165

2 172 086

875 462

405 612

416 758

11 146

Total

11 178 335

10 118 723

9 348 709

383 670

(78 034)

498 577

576 611

Valuation of hedged position in fair value hedge accounting

Liabilities from short sale of debt securities

2 720

*Notional value for double-currency derivatives constitutes the sum of both transactions expressed in PLN

31.12.2022

Par value of instruments with future maturity

Fair value

below 3

months

from 3 months

to 1 year

from 1 year

to 5 years

above 5

years

Total

Assets

Liabilities

1. Interest rate derivatives

1 039 534

1 664 741

9 507 306

257 449

(28 540)

29 235

57 775

Forward Rate Agreements

(FRA)

Interest rate swaps (IRS)

1 039 534

1 526 317

8 751 790

233 297

(29 042)

1 293

30 335

Other interest rate contracts:

options

138 424

755 516

24 152

502

27 942

27 440

2. FX derivatives*

12 135 778

1 648 761

160 657

(9 323)

58 624

67 947

FX contracts

1 995 563

1 023 642

85 933

(12 358)

11 939

24 297

FX swaps

9 203 270

625 119

74 724

1 436

44 663

43 227

Other FX contracts (CIRS)

936 945

1 599

2 022

423

FX options

3. Embedded instruments

257 952

2 439 784

(250 400)

250 400

Options embedded in deposits

257 952

2 439 784

(250 400)

250 400

Options embedded in

securities issued

4. Indexes options

301 357

2 551 648

247 414

251 436

4 022

Total

13 175 312

3 872 811

14 659 395

257 449

(40 849)

339 295

380 144

Valuation of hedged position in fair value hedge accounting

Liabilities from short sale of debt securities

4 784

*Notional value for double-currency derivatives constitutes the sum of both transactions expressed in PLN

131

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

20. NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE

THROUGH PROFIT OR LOSS, OTHER THAN LOANS AND ADVANCES TO

CUSTOMERS

31.12.2023

31.12.2022

Equity instruments

66 609

128 979

credit institutions

other corporates

66 609

128 979

Debt securities

81 014

72 057

credit institutions

other corporates

81 014

72 057

Total

147 623

201 036

21. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER

COMPREHENSIVE INCOME

21a. Financial assets at fair value through other comprehensive income

31.12.2023

31.12.2022

Debt securities

21 895 863

16 414 065

Issued by State Treasury

11 756 814

13 515 705

a) bills

b) bonds

11 756 814

13 515 705

Issued by Central Bank

9 694 142

2 499 532

a) bills

9 694 142

2 499 532

b) bonds

Other securities

444 907

398 828

a) listed

444 907

398 828

b) not listed

Shares and interests in other entities

28 789

24 393

Other financial instruments

Total financial assets at fair value through other comprehensive income

21 924 652

16 438 458

Including:

Instruments listed on the active market

12 201 967

13 914 781

Instruments not listed on the active market

9 722 685

2 523 677

21b. Debt securities at fair value through other comprehensive income

31.12.2023

31.12.2022

▪ with fixed interest rate

18 131 748

13 528 878

▪ with variable interest rate

3 764 115

2 885 187

Total

21 895 863

16 414 065

132

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

21c. Debt securities at fair value through other comprehensive income by maturity

31.12.2023

31.12.2022

▪ to 1 month

9 977 621

4 405 868

▪ above 1 month to 3 months

22012

▪ above 3 months to 1 year

2 177 193

2 305 894

▪ above 1 year to 5 years

9 406 242

9 031 705

▪ above 5 years

312 795

670 598

Total

21 895 863

16 414 065

21d. Change of financial assets at fair value through other comprehensive income

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Balance at the beginning of the period

16 438 458

17 952 492

Increases (purchase and accrual of interest and discount)

469 769 603

152 066 625

Reductions (sale and redemption)

(464 959 558)

(153 372 234)

Difference from measurement at fair value

676 175

(208 680)

Impairment write-offs

248

Other

(26)

Balance at the end of the period

21 924 652

16 438 458

22. LOANS AND ADVANCES TO CUSTOMERS

22a. Loans and advances to customers mandatorily at fair value through profit or loss

Balance sheet value:

31.12.2023

31.12.2022

Mandatorily at fair value through profit or loss

19 349

97 982

Lans and advances

10 527

23 708

- Individuals

10 527

23 708

Credit cards

8 822

74 274

- Companies

- Individuals

8 753

74 208

At the implementation of IFRS 9 Group separated credit exposures which include, in the interest rate

definition, leverage/multiplier feature and presents aforementioned exposures in these financial

statements as "Non-trading financial assets mandatorily at fair value through profit or loss - Credits

and advances". The provisions of IFRS 9 indicate that the multiplier feature modifies money over time

and causes the need to apply fair value measurement, however the economic sense of the transaction,

i.e. portfolio management not based on fair value and maintaining the portfolio to obtain cash flows

from the contract, constitute characteristics of portfolios valued at amortized cost. In 2021, as a

result of a change in contractual provisions (eliminating the multiplier feature), some of these

exposures began to be re-measured at amortized cost. The change concerned loans where clients

fully repaid their commitment, the interest on which was calculated based on the old formula

containing a multiplier. Exposures recorded after that time under new contractual conditions (without

a multiplier) are measured at amortized cost.

133

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

22b. Loans and advances to customers at fair value through other comprehensive income

Balance sheet value:

31.12.2023

31.12.2022

at fair value through other comprehensive income *

11 799 748

11 221 252

▪ Companies

▪ Individuals

11 799 748

11 221 252

▪ Public sector

Balance sheet value - maturity

31.12.2023

31.12.2022

to 1 month

18 132

14 754

above 1 month to 3 months

33 532

21 983

above 3 months to 1 year

164 838

114 540

above 1 year to 5 years

1 143 687

865 280

above 5 years

10 439 559

10 204 695

Total

11 799 748

11 221 252

22c. Loans and advances to customers valued at amortised cost

31.12.2023

Balance sheet value, gross

Accumulated impairment allowances

Balance

sheet

value, net

Stage 1

Stage 2

Stage 3

Stage 1

Stage 2

Stage 3

Valued at amortised cost

55 099 489

4 700 417

3 085 807

(368 582)

(288 019)

(1 642 763)

60 586 349

Companies

16 114 126

720 324

423 534

(71 384)

(26 255)

(156 777)

17 003 568

Individuals

38 933 615

3 980 089

2 662 273

(297 078)

(261 764)

(1 485 986)

43 531 149

Public sector

51 748

(120)

51 632

31.12.2022

Balance sheet value, gross

Accumulated impairment allowances

Balance

sheet

value, net

Stage 1

Stage 2

Stage 3

Stage 1

Stage 2

Stage 3

Valued at amortised cost

58 305 453

5 404 906

3 068 148

(330 571)

(317 975)

(1 593 590)

64 536 372

Companies

17 329 382

877 603

355 548

(86 060)

(31 819)

(169 016)

18 275 637

Individuals

40 774 383

4 527 301

2 712 600

(244 370)

(286 156)

(1 424 574)

46 059 185

Public sector

201 688

(141)

201 550

The Bank writes down the gross carrying amount of a financial asset when there is no reasonable

probability that it will be fully (total writes off) or partially (partial writes off) recovered. Following

the recorded partial writes off the Bank transferred to off-balance sheet evidence (deducting the

carrying value of gross receivables) penalty interest amounting to PLN 445 million as at 31.12.2023.

134

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

22d. Loans and advances to customers

31.12.2023

31.12.2022

Loans and advances

60 846 292

58 778 633

to companies

17 052 488

12 224 434

to private individuals

43 742 276

46 499 190

to public sector

51 528

55 009

Receivables on account of payment cards

1 209 612

1 034 413

due from companies

13 569

13 974

due from private individuals

1 196 043

1 020 439

Purchased receivables

143 844

6 416 938

from companies

143 844

6 270 448

from public sector

146 490

Guarantees and sureties realised

560

7 203

Debt securities eligible for rediscount at Central Bank

Other

104 560

30 276

Interest

580 845

510 968

Total:

62 885 713

66 778 507

Impairment allowances

(2 299 364)

(2 242 135)

Total balance sheet value

60 586 349

64 536 372

22e. Quality of loans and advances to customers portfolio valued at amortised cost

31.12.2023

31.12.2022

Loans and advances to customers (gross)

62 885 713

66 778 507

impaired

3 085 807

3 068 148

not impaired

59 799 906

63 710 359

Impairment allowances

(2 299 364)

(2 242 135)

for impaired exposures

(1 642 763)

(1 593 590)

for not impaired exposures

(656 601)

(648 545)

Loans and advances to customers (net)

60 586 349

64 536 372

22f. Loans and advances to customers portfolio valued at amortised cost by methodology of

impairment assessment

31.12.2023

31.12.2022

Loans and advances to customers (gross)

62 885 713

66 778 507

case by case analysis

381 751

411 999

collective analysis

62 503 962

66 366 508

Impairment allowances

(2 299 364)

(2 242 135)

on the basis of case by case analysis

(134 507)

(150 983)

on the basis of collective analysis

(2 164 857)

(2 091 152)

Loans and advances to customers (net)

60 586 349

64 536 372

135

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

22g. Loans and advances to customers portfolio valued at amortised cost by customers

31.12.2023

31.12.2022

Loans and advances to customers (gross)

62 885 713

66 778 507

corporate customers

17 309 736

18 764 223

individuals

45 575 977

48 014 284

Impairment allowances

(2 299 364)

(2 242 135)

for receivables from corporate customers

(254 536)

(287 036)

for receivables from private individuals

(2 044 828)

(1 955 099)

Loans and advances to customers (net)

60 586 349

64 536 372

22h. Movements in impairment allowances for loans and advances to customers carried at amortised

cost

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Balance at the beginning of the period

2 242 135

2 210 000

Change in value of provisions:

57 229

32 135

Impairment allowances created in the period

1 214 029

1 343 349

Amounts written off

(165 261)

(226 188)

Impairment allowances released in the period

(885 407)

(933 664)

Sale of receivables

(173 110)

(241 148)

KOIM created in the period(*)

71 261

71 224

Transfer to FVTOCI portfolio

Changes resulting from FX rates differences

(8 016)

19 286

Other

3 733

(724)

Balance at the end of the period

2 299 364

2 242 135

* In accordance with IFRS 9, the Bank calculates interest on the loan portfolio with a recognized impairment based on the net

exposure value. For this purpose, the so-called impaired interest adjustment (“KOIM”) is calculated and recorded as a

reduction of interest income. Aforementioned KOIM adjustment in the balance sheet is presented as an impairment

allowances, and as a consequence the reconciliation of the change in impairment allowances requires consideration of the

KOIM recognized in the interest income.

The Bank records POCI assets in the balance sheet mainly as a result of recognition of impaired loans

after the merger with Euro Bank S.A. and takeover of SKOK Piast. At the time of the merger, the

aforementioned assets were included in the Bank's books at fair value.

136

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The value of POCI assets is as follows:

Gross balance

sheet value

Accumulated

impairment

Net balance sheet

value

31.12.2023

- Companies

23 106

1 200

24 306

- Individuals

93 690

(25 136)

68 554

- Public sector

31.12.2022

- Companies

15 216

(26)

15 190

- Individuals

137 235

(13 150)

124 085

- Public sector

22i. Changes in impairment allowances and gross carrying amount of loans and advances valued at

amortised cost divided into stages and classes:

Companies: impairment allowances

Stage 1

Stage 2

Stage 3

POCI

Total

Balance at the beginning of the period

86 060

31 819

168 990

286 895

Transfers between stages

5 748

(31 259)

25 511

Increase due to granting or purchase

41 306

Changes in credit risk

(51 642)

29 083

17 787

170

(4 602)

Decrease due to derecognition (except

exposures sold and written off)

(11 286)

(2 989)

(37 460)

(51 734)

Sale of loans and advances

(18 448)

Loans and advances written off

(2 794)

KOIM

7 822

7 847

Other (including FX differences)

1 198

(123)

(3 709)

(1 420)

(4 055)

Balance at the end of the period

71 384

26 531

157 700

(1 199)

254 416

Companies: loans and advances balance

sheet value, gross

Stage 1

Stage 2

Stage 3

POCI

Total

Balance at the beginning of the period

17 329 382

877 603

340 331

15 216

18 562 532

Transfers between stages

(426 587)

209 847

216 740

Granted or purchased loans and advances

10 909 052

Repaid loans and advances

(11 410 308)

(353 947)

(118 943)

(2 291)

(11 885 488)

Loans and advances sold

(27 120)

Loans and advances written off

(4 243)

Other (including FX differences)

(287 413)

(13 208)

(6 308)

10 180

(296 749)

Balance at the end of the period

16 114 126

720 295

400 457

23 106

17 257 984

137

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Individuals: impairment allowances

Stage 1

Stage 2

Stage 3

POCI

Total

Balance at the beginning of the period

244 370

337 581

1 359 999

13 150

1 955 100

Transfers between stages

276 396

(452 320)

175 924

Increase due to granting or purchase

181 421

Changes in credit risk

(357 854)

450 310

216 304

43 311

352 071

Decrease due to derecognition (except

exposures sold and written off)

(47 088)

(30 052)

(106 397)

(6 289)

(189 826)

Sale of loans and advances

(140 294)

(14 368)

(154 662)

Loans and advances written off

(150 680)

(11 787)

(162 467)

KOIM

62 356

1 058

63 414

Other (including FX differences)

(168)

(2 583)

2 466

(223)

Balance at the end of the period

297 078

302 936

1 419 678

25 136

2 044 828

Individuals: loans and advances balance

sheet value, gross

Stage 1

Stage 2

Stage 3

POCI

Total

Balance at the beginning of the period

40 774 383

4 510 649

2 592 018

137 235

48 014 284

Transfers between stages

(734 560)

151 736

582 824

Granted or purchased loans and advances

9 025 966

Repaid loans and advances

(8 028 068)

(643 216)

(208 749)

(13 771)

(8 893 804)

Reversal of credit holidays adjustment

487 239

39 361

4 874

531 474

Allocation of legal risk provisions to the

loan portfolio

(2 402 463)

(81 448)

(48 583)

(2 532 494)

Loans and advances sold

(187 711)

(14 887)

(202 599)

Loans and advances written off

(149 430)

(11 588)

(161 018)

Other (including FX differences)

(188 881)

(8 197)

(5 456)

(3 298)

(205 832)

Balance at the end of the period

38 933 616

3 968 886

2 579 786

93 690

45 575 978

Public sector: impairment allowances

Stage 1

Stage 2

Stage 3

POCI

Total

Balance at the beginning of the period

141

Transfers between stages

Increase due to granting or purchase

Changes in credit risk

Decrease due to derecognition (except

exposures sold and written off)

(46)

Other (including FX differences)

(6)

Balance at the end of the period

120

Public sector: loans and advances

balance sheet value, gross

Stage 1

Stage 2

Stage 3

POCI

Total

Balance at the beginning of the period

201 688

201 691

Transfers between stages

(0)

Granted or purchased loans and advances

12 319

12 320

Repaid loans and advances

(162 259)

Loans and advances sold

Loans and advances written off

Other (including FX differences)

(0)

Balance at the end of the period

51 748

51 752

138

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

22j. Loans and advances to customers portfolio valued at amortised cost by maturity

31.12.2023

31.12.2022

Current accounts

3 549 230

3 874 004

to 1 month

7 635 654

1 828 952

above 1 month to 3 months

2 248 593

1 891 670

above 3 months to 1 year

5 794 013

6 959 469

above 1 year to 5 years

19 245 201

24 194 396

above 5 years

21 891 719

25 462 674

past due

1 940 458

2 056 374

Interest

580 845

510 968

Total gross

62 885 713

66 778 507

22k. Loans and advances to customers portfolio valued at amortised cost by currency

31.12.2023

31.12.2022

Balance sheet

value, gross

Impairment

allowances

Balance sheet

value

Balance sheet

value, gross

Impairment

allowances

Balance sheet

value

in Polish currency

55 846 851

(2 106 279)

53 740 572

55 601 404

(1 996 926)

53 604 478

in foreign currencies (after

conversion to PLN)

7 038 862

(193 085)

6 845 777

11 177 103

(245 209)

10 931 894

currency: USD

55 055

(1 333)

53 722

67 654

(1 560)

66 094

currency: EUR

3 840 747

(50 470)

3 790 277

4 078 658

(43 556)

4 035 102

currency: CHF*

3 121 973

(141 009)

2 980 964

7 027 391

(200 072)

6 827 319

other currencies

21 087

(273)

20 814

3 400

(21)

3 379

Total

62 885 713

(2 299 364)

60 586 349

66 778 507

(2 242 135)

64 536 372

* gross carrying amount of mortgage is decreased by the change in expected cash flows resulting from the issue of legal risk of

CHF mortgage loans, the adjustment is presented in note (14).

23. FINANCIAL ASSETS AT AMORTISED COST OTHER THAN LOANS AND

ADVANCES TO CUSTOMERS

23a. Financial assets at amortised cost other than Loans and advances to customers

31.12.2023

Balance sheet value, gross

Accumulated impairment write-offs

Balance

sheet value,

net

Stage 1

Stage 2

Stage 3

Stage 1

Stage 2

Stage 3

Debt securities

18 439 786

(6)

18 439 780

Deposits, loans and

advances to banks and

other monetary

institutions

1 866 848

(160)

1 866 688

Repurchase agreements

1 163 242

139

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

31.12.2022

Balance sheet value, gross

Accumulated impairment write-offs

Balance

sheet value,

net

Stage 1

Stage 2

Stage 3

Stage 1

Stage 2

Stage 3

Debt securities

3 893 218

(6)

3 893 212

Deposits, loans and

advances to banks and

other monetary

institutions

1 410 526

(281)

1 410 245

Repurchase agreements

4 863

23b. Debt securities

31.12.2023

31.12.2022

Banks and other credit institutions

1 716 205

458 624

other companies

public sector

16 723 575

3 434 588

Total

18 439 780

3 893 212

23c. Deposits, loans and advances to banks and other monetary institutions

31.12.2023

31.12.2022

Current accounts

571 479

181 896

Deposits

219 804

548 647

Loans and advances granted

1 073 069

677 001

Interest

2 496

2 982

Total (gross) deposits, loans and advances

1 866 848

1 410 526

Impairment allowances

(160)

(281)

Total (net) deposits, loans and advances

1 866 688

1 410 245

23d. Deposits, loans and advances to banks and other monetary institutions by maturity date

31.12.2023

31.12.2022

Current accounts

571 479

181 896

to 1 month

265 873

498 648

above 1 month to 3 months

10 000

above 3 months to 1 year

20 000

40 000

above 1 year to 5 years

1 007 000

677 000

above 5 years

past due

Interest

2 496

2 982

Total (gross) deposits, loans and advances

1 866 848

1 410 526

140

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

23e. Deposits, loans and advances to banks and other monetary institutions by currency

31.12.2023

31.12.2022

in Polish currency

1 177 932

1 086 166

in foreign currencies (after conversion to PLN)

688 916

324 360

▪ currency: USD

426 214

33 063

▪ currency: EUR

127 401

151 707

▪ currency: CNY

22 741

35 119

▪ currency: CHF

18 203

8 709

▪ currency: GBP

17 951

25 328

▪ currency: JPY

2 792

4 428

▪ other currencies

73 614

66 006

Total

1 866 848

1 410 526

23f. Change of impairment allowances for deposits, loans and advances to banks and other monetary

institutions

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Balance at the beginning of the period

281

239

Impairment allowances created in the period

160

603

Impairment allowances released in the period

(281)

(561)

Balance at the end of the period

160

281

23g. Reverse sale and repurchase agreements

31.12.2023

31.12.2022

credit institutions

1 146 305

other customers

11 553

4 854

interest

5 384

Total

1 163 242

4 863

141

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

24. DERIVATIVES – HEDGE ACCOUNTING

Starting from 1 January 2006 the Bank established first formal hedging relationship against cash flow

volatility.

The Risk Strategy approved in the Bank defines a general rules for hedging of market risk generated

by its commercial activity. External transactions eligible for hedge accounting are pointed in the

Strategy just after the natural economic hedge. The Group applied (as at 31.12.2023) Cash Flow Hedge

relations to eliminate the variability of cash flows:

✓ on FX denominated mortgage loans and financing them PLN deposits,

✓ on PLN denominated financial assets,

✓ due to future income and interest costs denominated in foreign currencies,

attributable to interest rate risk and currency risk in the time horizon limited to maturity of hedging

instruments, presented in note (24b).

In addition, the Bank applied a fair value hedge for a fixed interest rate debt instrument and during

2023, a new relationship was established to hedge the fair value of flows from issued fixed-rate

liabilities denominated in foreign currencies.

The underlying of hedged and hedging items are economically related in a way that they respond in

a similar way to the hedged risk, their fair value will offset in response to the market interest and FX

rates movements. The Bank performs the effectiveness tests on a monthly basis, calculates and

compares the changes in fair value of hedged and hedging positions. Hedge effectiveness is tested

using hypothetical derivative method, hedged items are presented as a hypothetical derivative, for

which changes in the fair value are calculated and compared with changes in fair value of hedging

instruments.

Hedge ineffectiveness can arise from differences in repricing dates of hedged and hedging positions

or from designation as hedging item the existing derivative instrument. The Bank designates hedging

instruments on their trade date and by this eliminates this source of ineffectiveness. Hedge

ineffectiveness reported by the Bank includes amortization of the fair value changes recognized as

effective for derivatives classified on their termination date as hedging.

Detailed information on cash flow hedge relations applied by the Bank, items designated as hedged

and hedging and presentation of the result (as at 31.12.2023) is shown in a table below:

142

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Fair value hedge of a fixed

interest rate debt instrument

Cash flow volatility hedge

due to future income and

interest costs denominated

in foreign currencies

Hedging the fair value of cash

flows from issued fixed-rate

liabilities denominated in

foreign currencies

Description of

hedge

transactions

The Group hedges part of the

interest rate risk associated with

the change in the fair value of a

fixed-rate debt instrument recorded

in other comprehensive income,

resulting from fluctuations in

market interest rate.

The Group hedges the risk of

the volatility of cash flows

generated by income and

interest costs denominated in

foreign currencies. The

volatility of cash flows results

from the currency risk.

The Group hedges part of the

interest rate risk related to

changes in the fair value of cash

flows from issued fixed-rate

liabilities denominated in

foreign currencies, resulting

from the volatility of market

interest rates.

Hedged items

A portfolio of fixed coupon debt

securities classified as financial

assets measured at fair value

through other comprehensive

income denominated in PLN.

Cash flows resulting from

income and interest costs

denominated in foreign

currencies.

Cash flows from issued fixed-

rate liabilities denominated in

foreign currencies

Hedging

instruments

IRS transactions

FX position resulting from

recognized future leasing

liabilities.

IRS transactions

Presentation

of the result

on the hedged

and hedging

transactions

The result on the change in the fair

value measurement of hedged items

in the hedged risk is referred to the

result on hedge accounting. The

remaining part of the change in fair

value measurement is recognized in

other comprehensive income.

Interest on debt securities is

recognized in net interest income.

The change in fair value

measurement of derivative

instruments being a hedge is

presented in the result on hedge

accounting, and interest on these

instruments is recognized in the

interest result.

The effective part of the spot

revaluation of hedging

instruments is recognized in

the revaluation reserve.

The ineffective part of the

valuation of the hedging item

is recognized in the income

statement as a result on

instruments measured at fair

value through profit and loss.

The result from the change in

the fair value measurement of

flows from hedged items in

terms of the hedged risk is

recognized in the result from

hedge accounting. Interest on

debt securities is recognized in

interest income. The change in

the fair value measurement of

derivative instruments

constituting hedging is presented

in the result from hedge

accounting, and interest on

these instruments is recognized

in net interest income.

143

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Hedge of volatility of the cash flows generated

by PLN denominated financial assets

Cash flow volatility hedge for the flows

generated by FX mortgage portfolio and its

underlying PLN liabilities

Description of

hedge transactions

The Group hedges the risk of the volatility of

cash flows generated by PLN denominated

financial assets. The volatility of cash flows

results from interest rate risk.

The Group hedges the risk of the volatility of

cash flows generated by FX mortgages and by

PLN liabilities financially underlying such loans.

The volatility of cash flows results from the

currency risk and interest rate risk.

Hedged items

Cash flows resulting from PLN denominated

financial assets.

Cash flows resulting from the FX mortgage loan

portfolio and PLN deposits together with issued

debt PLN securities funding them.

Hedging

instruments

IRS transactions

CIRS transactions

Presentation of the

result on the

hedged and

hedging

transactions

Effective part of the valuation of hedging

instruments is recognised in revaluation reserve;

interest on both the hedged and the hedging

instruments are recognised in net interest

income.

Ineffective part of the valuation of hedging

instruments is recognized in the income

statement as a result on instruments measured

at fair value through profit and loss.

Effective part of the valuation of hedging

instruments is recognised in revaluation

reserve; interest on both the hedged and the

hedging instruments are recognised in net

interest income; valuation of hedging and

hedged instruments on FX differences is

recognised in Result on exchange differences.

Ineffective part of the valuation of hedging

instruments is recognized in the income

statement as a result on instruments measured

at fair value through profit and loss.

24a. Hedge accounting

31.12.2023

Par value of instruments with future maturity

Fair values

below 3

months

from 3 months

to 1 year

from 1 year

to 5 years

above 5 years

Total

Assets

Liabilities

1. Derivative instruments constituting cash flow hedges related to interest rate and/or exchange rate *

CIRS contracts

3 083 034

203 445

817 400

(150 631)

15 069

165 700

IRS contracts

2 170 000

475 000

(27 964)

27 964

FXS contracts

2. Derivatives used as interest rate hedges related to interest rates

IRS contracts

2 264 000

59 144

3. Total hedging

derivatives

5 253 034

203 445

3 556 400

(119 451)

74 213

193 664

* Notional value for double-currency derivatives constitutes the sum of both transactions expressed in PLN.

31.12.2022

Par value of instruments with future maturity

Fair values

below 3

months

from 3 months

to 1 year

from 1 year

to 5 years

above 5 years

Total

Assets

Liabilities

1. Derivative instruments constituting cash flow hedges related to interest rate and/or exchange rate *

CIRS contracts

1 434 840

6 331 579

4 203 916

(60 707)

135 804

196 511

IRS contracts

1 125 500

1 305 000

2 645 000

(358 033)

358 033

FXS contracts

2. Derivatives used as interest rate hedges related to interest rates

IRS contracts

90 000

3. Total hedging

derivatives

2 560 340

7 636 579

6 938 916

(418 740)

135 804

554 544

* Notional value for double-currency derivatives constitutes the sum of both transactions expressed in PLN.

144

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

24b. Hedge accounting for cash flow volatility

Hedge relationship

Maximum date of occurrence of cash

flows whose value is hedged

Hedge of volatility of the cash flows generated by PLN denominated financial

assets

2025-11-05

Cash flow volatility hedge for the flows generated by FX mortgage portfolio and

its underlying PLN liabilities

2025-01-07

Fair value hedge of a fixed interest rate debt instrument

2026-08-25

Hedge of the volatility of cash flows generated by the portfolio of floating-rate

foreign currency mortgage loans

2030-04-01

Hedging the variability of cash flows due to future interest income and expenses

denominated in foreign currencies

2026-09-18

The inefficient part of the valuation of hedging instruments recognized in the Profit and Loss Account in 2023 amounted to

PLN 1,160 thousand. (in 2022, it was PLN -7,130 thousand, respectively)

The inefficient part of the valuation of hedging instruments recognized in the Profit and loss account

and losses was presented in note (8).

24c. Cash flow hedge – Hedged Instruments

Type of

contract

Balance sheet item

Changes in fair value used in

the calculation of the

ineffectiveness in the period

Balance in cash flow

hedge reserve for

continuing hedges

Balance in cash flow

hedge reserve for

discontinued hedges

- CIRS

Loans and advances to

customers

(69 617)

(4 308)

(221)

- IRS

Loans and advances to

customers

(125 750)

(8 282)

- FX spot

Future interest income

and costs

(16 393)

(4 979)

- IRS

Issued debt securities

- IRS

Debt securities

(140 107)

(36 404)

Total

(351 867)

(53 973)

(221)

24d. Cash flow hedge – Hedging instruments

Type of contract

Changes in fair value used in the

calculation of the ineffectiveness

in the period

Ineffectiveness recognized in P&L

Amounts reclassified

from reserves to

results

- CIRS

71 863

2 246

- IRS

125 750

- FX spot

16 393

- IRS

140 107

Total

354 113

2 246

24e. Fair value hedge – Hedged instruments

Type of contract

Balance sheet item

Changes in the fair value of the

hedged instrument used in the

calculation of the ineffectiveness in

the period

IRS

Debt instruments valued in other comprehensive

income

5 806

IRS

Issued liabilities

(49 305)

Total

(43 499)

145

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

24f. Fair value hedge – Hedging instruments

Type of contract

Changes in the fair value of the hedging

instrument used in the calculation of the

ineffectiveness in the period

Ineffectiveness recognized in P&L

IRS

(6 151)

(346)

IRS

48 564

(740)

Total

42 413

(1 086)

25. INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES

25a. Investments in related entities

31.12.2023

31.12.2022

Investments in subsidiaries

399 223

247 823

25b. Change of investments in related entities

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Balance at the beginning of the period

247 823

208 889

Sale of 80% stake in Millennium Financial Services Sp. z o. o.

(88)

Initial valuation of 20% stake in Europa Millennium Financial Services Sp. z o.o.

52 487

Increase of share in Millennium Financial Services Sp. z o. o.

Increase of share in Millennium Bank Hipoteczny S.A.

99 000

51 000

Takeover of the brokerage activities of the former Millennium Dom Maklerski S.A.

(12 161)

Balance at the end of the period

399 223

247 823

146

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

25c. Investments in related entities as at 31.12.2023

Name

Activity domain

Head office

% of the Bank’s

capital share

% of the Bank’s

voting share

MILLENNIUM BANK

HIPOTECZNY S.A.

Mortgage bank

Warszawa

100

MILLENNIUM LEASING

Sp. z o.o.

leasing services

Warszawa

100

MILLENNIUM CONSULTING

S.A.*

advisory services

Warszawa

100

MILLENNIUM SERVICE

Sp. z o.o.

rental and management of

real estate, insurance and

brokers activity

Warszawa

100

MILLENNIUM GOODIE

Sp. z o.o.

web portals activity

Warszawa

100

MILLENNIUM

TELECOMMUNICATION

SERVICES Sp. z o.o.

financial operations - equity

markets, advisory services

Warszawa

100

EUROPA MILLENNIUM

FINANCIAL SERVICES Sp. z

o.o.

agents' activities

and insurance brokers

Wrocław

PIAST EXPERT

Sp. z o.o. in liquidation

marketing services

Warszawa

100

LUBUSKIE FABRYKI MEBLI

S.A. in liquidation

furniture manufacturer

Świebodzin

50 + 1 share

50 +1 share

* Millennium Consulting S.A., subsidiary of the Bank, is a 100% holder of Millennium TFI S.A. shares

** On March 29, 2023, 80% of shares in Millennium Financial Services sp. z o.o. (currently Europa Millennium Financial Services

sp. z o.o ) were transferred from the Bank 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, respectively, which

is described in more details in note 5 “Result on derecognition of financial assets and liabilities not measured at value fair

through profit or loss” in Chapter 14 “Notes to Consolidated Financial Data”.

Name

Gross value of

shares/ interests

Impairment

allowances

Additional capital

paid in

Assets

Liabilities

Equity

Income

Profit / (Loss)

Relationship

MILLENNIUM BANK

HIPOTECZNY S.A.

270 000

1 324 111

1 078 847

90 000

26 006

9 523

subordinated

MILLENNIUM LEASING

Sp. z o.o.

63 942

7 316 483

7 023 164

48 195

149 695

43 363

subordinated

MILLENNIUM

CONSULTING S.A.*

4 340

50 776

108

4 340

3 301

2 886

subordinated

MILLENNIUM SERVICE

Sp. z o.o.

1 000

64 741

8 442

1 000

37 520

26 616

subordinated

MILLENNIUM GOODIE

Sp. z o.o.

597

1 000

14 571

11 972

500

5 101

1 082

subordinated

MILLENNIUM

TELECOMMUNICATION

SERVICES Sp. z o.o.

491

100

1 468

subordinated

EUROPA MILLENNIUM

FINANCIAL SERVICES

Sp. z o.o.

52 509

54 145

29 557

100

32 271

24 548

associated

PIAST EXPERT Sp. z

o.o. in liquidation

5 737

6 032

105

5 900

121

subordinated

LUBUSKIE FABRYKI

MEBLI S.A. in

liquidation

6 700

(6 700)

company in liquidation

subordinated

TOTAL

404 923

(6 700)

1 000

* Millennium Consulting S.A., subsidiary of the Bank, is a 100% holder of Millennium TFI S.A. shares

147

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

25d. Investments in related entities as at 31.12.2022

Name

Activity domain

Head office

% of the Bank’s

capital share

% of the Bank’s

voting share

MILLENNIUM BANK

HIPOTECZNY S.A.

Mortgage bank

Warszawa

100

MILLENNIUM LEASING

Sp. z o.o.

leasing services

Warszawa

100

MILLENNIUM CONSULTING

S.A.*

brokerage services

Warszawa

100

MILLENNIUM SERVICE

Sp. z o.o.

rental and management of

real estate, insurance and

brokers activity

Warszawa

100

MILLENNIUM GOODIE

Sp. z o.o.

web portals activity

Warszawa

100

MILLENNIUM

TELECOMMUNICATION

SERVICES Sp. z o.o.

financial operations - equity

markets, advisory services

Warszawa

MILLENNIUM FINANCIAL

SERVICES Sp. z o.o.

the company is not yet

operating

Warszawa

100

PIAST EXPERT

Sp. z o.o. in liquidation

marketing services

Tychy

100

LUBUSKIE FABRYKI MEBLI

S.A. in liquidation

furniture manufacturer

Świebodzin

50 + 1 share

* Millennium Consulting S.A., subsidiary of the Bank, is a 100% holder of Millennium TFI S.A. shares

Name

Gross value of

shares/ interests

Impairment

allowances

Additional capital

paid in

Assets

Liabilities

Equity

Income

Profit / (Loss)

Relationship

MILLENNIUM BANK

HIPOTECZNY S.A.

171 000

817 744

681 959

57 000

(21 872)

(29 749)

subordinated

MILLENNIUM LEASING

Sp. z o.o.

63 942

7 513 717

7 263 291

48 195

146 567

42 215

subordinated

MILLENNIUM

CONSULTING S.A.*

4 340

48 008

4 340

36 863

26 051

subordinated

MILLENNIUM SERVICE

Sp. z o.o.

1 000

74 273

15 711

1 000

42 493

28 867

subordinated

MILLENNIUM GOODIE

Sp. z o.o.

597

1 000

14 168

11 770

500

4 017

subordinated

MILLENNIUM

TELECOMMUNICATION

SERVICES Sp. z o.o.

457

100

1 530

subordinated

MILLENNIUM FINANCIAL

SERVICES Sp. z o.o.

109

the company is not yet operating

subordinated

PIAST EXPERT Sp. z

o.o. in liquidation

5 737

6 005

105

5 984

(36)

subordinated

LUBUSKIE FABRYKI

MEBLI S.A. in

liquidation

6 700

(6 700)

company in liquidation

subordinated

TOTAL

253 523

(6 700)

1 000

* Millennium Consulting S.A., subsidiary of the Bank, is a 100% holder of Millennium TFI S.A. shares

148

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

26. TANGIBLE FIXED ASSETS

26a. Property, plant and equipment

31.12.2023

31.12.2022

Land

2 189

2 219

Buildings and premises

95 042

71 055

Machines and equipment

98 534

104 992

Vehicles

19 839

14 208

Other fixed assets

23 507

24 170

Fixed assets under construction

66 226

74 030

Rights to use office space

247 750

266 868

Total

553 087

557 542

149

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

26b. Change of balance of property, plant and equipment (by type groups) in the period 01.01.2023 –

31.12.2023

Land

Buildings

and

premises

Machines

and

equipment

Vehicles

Other

fixed

assets

Fixed

assets

under

construc-

tion

Rights to

use

office

space

TOTAL

a) gross value of property, plant and

equipment at the beginning of the

period

2 219

293 448

264 877

33 824

80 932

74 030

522 938

1 272 268

b) increases (on account of)

37 970

27 893

13 951

8 014

68 033

77 283

233 144

purchase

33 091

transfer from fixed assets under

construction

37 970

27 893

8 014

73 877

financial lease

13 951

77 283

91 234

unpaid investments

34 942

other

c) reductions (on account of)

15 938

13 250

9 165

5 934

75 837

57 527

177 681

sale

3 050

693

3 866

liquidation

12 888

13 139

5 221

57 527

88 775

settlement of fixed assets under

construction

73 909

financial lease

9 165

9 203

other

1 928

d) gross value of property, plant

and equipment at the end of the

period

2 189

315 480

279 520

38 610

83 012

66 226

542 694

1 327 731

e) cumulated depreciation

(amortization) at the beginning of

the period

221 596

159 885

19 616

56 762

256 070

713 929

f) depreciation over the period (on

account of)

(1 955)

21 101

(845)

2 743

38 874

59 918

current write-off (P&L)

11 888

33 932

7 552

8 201

91 873

153 446

reductions on account of sale

(1 702)

(90)

(684)

(2 476)

reductions on account of

liquidation

(12 141)

(12 723)

(4 754)

(52 999)

(82 617)

financial lease

(18)

(8 397)

(20)

(8 435)

other

g) cumulated depreciation

(amortization) at the end of the

period

219 641

180 986

18 771

59 505

294 944

773 847

h) impairment allowances at the

beginning of the period

797

creation of allowances

release of allowances

i) impairment allowances at the end

of the period

797

j) net value of property, plant and

equipment at the end of the period

2 189

95 042

98 534

19 839

23 507

66 226

247 750

553 087

including assets used based on

leasing agreements

1 270

9 745

19 839

247 750

278 654

150

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

26c. Change of balance of property, plant and equipment (by type groups) in the period 01.01.2022 –

31.12.2022

Land

Buildings

and

premises

Machines

and

equipment

Vehicles

Other

fixed

assets

Fixed

assets

under

construc-

tion

Rights to

use

office

space

TOTAL

a) gross value of property, plant and

equipment at the beginning of the

period

2 270

303 754

261 834

27 641

91 624

63 187

490 593

1 240 903

b) increases (on account of)

8 617

52 336

14 680

9 264

76 964

90 924

252 785

purchase

789

49 730

50 519

transfer from fixed assets under

construction

8 617

48 171

9 264

66 052

financial lease

14 680

90 924

105 604

unpaid investments

27 234

other

3 376

c) reductions (on account of)

18 923

49 293

8 497

19 956

66 121

58 579

221 420

sale

3 480

110

764

616

376

5 352

liquidation

12 405

41 373

14 720

58 203

126 795

settlement of fixed assets under

construction

66 051

financial lease

3 038

7 810

7 684

4 620

23 152

other

d) gross value of property, plant

and equipment at the end of the

period

2 219

293 448

264 877

33 824

80 932

74 030

522 938

1 272 268

e) cumulated depreciation

(amortization) at the beginning of

the period

227 344

173 288

20 779

68 440

213 631

703 482

f) depreciation over the period (on

account of)

(5 748)

(13 403)

(1 163)

(11 678)

42 439

10 447

current write-off (P&L)

10 197

32 271

6 518

7 918

92 775

149 679

reductions on account of sale

(1 438)

(110)

(691)

(611)

(376)

(3 226)

reductions on account of

liquidation

(11 742)

(40 902)

(49)

(14 348)

(49 960)

(117 001)

financial lease

(2 765)

(8 038)

(6 941)

(4 637)

(22 381)

other

3 376

g) cumulated depreciation

(amortization) at the end of the

period

221 596

159 885

19 616

56 762

256 070

713 929

h) impairment allowances at the

beginning of the period

8 856

creation of allowances

release of allowances

8 059

i) impairment allowances at the end

of the period

797

j) net value of property, plant and

equipment at the end of the period

2 219

71 055

104 992

14 208

24 170

74 030

266 868

557 542

including assets used based on

leasing agreements

8 003

13 720

14 208

325

266 868

303 174

151

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

27. INTANGIBLE FIXED ASSETS

27a. Intangible fixed assets

31.12.2023

31.12.2022

Goodwill due to merger with Euro Bank S.A.

192 126

Other intangible fixed assets:

289 002

240 694

concessions, patents, licenses, know-how and similar assets

24 157

34 759

computer software

78 921

89 210

other

7 296

9 524

advances for intangible assets

178 628

107 201

Total

481 128

432 820

As a result of the purchase by Bank Millennium of 99.787% of shares of Euro Bank S.A. from SG Financial

Services Holdings, a 100% subsidiary of Société Générale S.A., and the subsequent merger with the

above-mentioned entity in 2019, the difference in the fair value of the acquired assets and liabilities

as at the acquisition date to the purchase price was determined and, in accordance with the provisions

of IFRS 3.32, was recognized as goodwill in intangible assets (assigned to retail activities).

With respect to goodwill, an impairment test is performed at least once a year, regardless of any

indication that impairment may have occurred.

The input data for the goodwill test include the result on retail assets and liabilities allocated to

related activities. To determine the amount of capital, an estimate of risk-weighted assets and a

capital adequacy ratio that meets regulatory minimums for the business were used. The test is

performed by comparing the present value of cash flows generated by the listed assets with the

estimated amount of capital. Cash flow forecasts have been prepared based on management's

assumptions about all the conditions that will occur over the remaining useful lives of the assets. They

are consistent with the medium-term financial plan adopted by the Bank for 2024-2026 and the Bank's

Strategy. Data for subsequent years after 2026 are the result of extrapolation of forecasts assuming

continued changes in the balance sheet and income statement. To discount the flows, the cost of

capital index was used, consisting of the sum of the market rate and the risk premium.

The test, executed as at the end of 2023, showed a surplus of the current value of cash flows over

the net book value of the cash-generating unit and therefore no impairment was found for this unit.

152

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

27b. Change of balance of intangible fixed assets (by type groups) in the period 01.01.2023 –

31.12.2023

concessions,

patents, licenses,

know-how and

similar assets

computer

software

other

advances for

intangible

assets

TOTAL

a) gross value of intangible fixed

assets at the beginning of the period

94 856

301 712

25 021

107 201

528 790

b) increases (on account of)

12 160

18 467

102 021

132 648

purchase

92 067

unpaid investments

9 954

settlement of advances

12 160

18 467

30 627

other

c) reductions (on account of)

144

30 594

30 738

liquidation

144

settlement of advances

30 594

other

d) gross value of intangible fixed

assets at the end of the period

107 016

320 035

25 021

178 628

630 700

e) cumulated depreciation at the

beginning of the period

60 097

212 502

15 497

288 096

f) depreciation over the period (on

account of)

22 762

28 612

2 228

53 602

current write-off (P&L)

22 762

28 753

2 228

53 743

liquidation

(143)

other

g) cumulated depreciation at the

end of the period

82 859

241 114

17 725

341 698

h) impairment allowances at the

beginning of the period

i) impairment allowances at the end

of the period

j) net value of intangible fixed assets

at the end of the period

24 157

78 921

7 296

178 628

289 002

153

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

27c. Change of balance of intangible fixed assets (by type groups) in the period 01.01.2022 –

31.12.2022

concessions,

patents, licenses,

know-how and

similar assets

computer

software

other

advances for

intangible

assets

TOTAL

a) gross value of intangible fixed

assets at the beginning of the period

82 509

382 427

24 760

53 861

543 557

b) increases (on account of)

17 157

33 880

261

100 317

151 615

purchase

87 561

unpaid investments

12 756

settlement of advances

17 157

29 532

261

46 950

other

4 348

c) reductions (on account of)

4 810

114 595

46 977

166 382

liquidation

4 810

114 116

118 926

settlement of advances

46 950

other

479

506

d) gross value of intangible fixed

assets at the end of the period

94 856

301 712

25 021

107 201

528 790

e) cumulated depreciation at the

beginning of the period

47 039

291 551

11 894

350 484

f) depreciation over the period (on

account of)

13 058

(79 049)

3 603

(62 388)

current write-off (P&L)

17 868

31 262

3 603

52 733

liquidation

(4 810)

(114 116)

(118 926)

other

3 805

g) cumulated depreciation at the

end of the period

60 097

212 502

15 497

288 096

h) impairment allowances at the

beginning of the period

i) impairment allowances at the end

of the period

j) net value of intangible fixed assets

at the end of the period

34 759

89 210

9 524

107 201

240 694

154

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

28. DEFERRED INCOME TAX ASSETS

28a. Deferred income tax assets and liability

31.12.2023

31.12.2022

Deferred

income tax

asset

Deferred

income tax

provision

Net deferred

income tax

asset

Deferred

income tax

asset

Deferred

income tax

provision

Net deferred

income tax

asset

Difference between tax and balance

sheet depreciation

128

(1 498)

(1 370)

128

(2 208)

(2 080)

Balance sheet valuation of financial

instruments

1 332

(36 476)

(35 144)

20 322

(47 466)

(27 144)

Unrealised receivables/ liabilities

on account of derivatives

67 024

(67 597)

(573)

73 405

(59 804)

13 601

Interest on deposits and securities

to be paid/ received

122 682

(323 515)

(200 833)

72 317

(290 124)

(217 807)

Interest and discount on loans and

receivables

(113 015)

(108 723)

Income and cost settled at effective

interest rate

60 214

236 022

Impairment of loans presented as

temporary differences

494 879

465 901

Employee benefits

21 984

19 604

Rights to use

4 128

4 719

Provisions for future costs

138 929

79 551

Valuation of investment assets,

loans, cash flows hedge and

actuarial gains (losses) recognized

in other comprehensive income

57 252

(24 567)

32 685

251 607

(54 839)

196 768

Shares valuation

1 273

(33 300)

(32 027)

1 273

(19 420)

(18 147)

Other

144

(1 723)

(1 579)

931

Total

969 970

(601 692)

368 279

1 225 780

(582 584)

643 196

Net deferred income tax asset

22 137

171 658

28b. Change of temporary differences

31.12.2022

Adjustments to

previous years

Changes to

financial result

Changes to

equity

31.12.2023

Difference between tax and balance sheet

depreciation

(2 080)

710

(1 370)

Balance sheet valuation of financial

instruments

(27 144)

(8 000)

(35 144)

Unrealised receivables/ liabilities on

account of derivatives

13 602

(14 174)

(573)

Interest on deposits and securities to be

paid/received

(217 807)

16 975

(200 833)

Interest and discount on loans and

receivables

(108 724)

(4 292)

(113 015)

Income and cost settled at effective

interest rate

236 022

(175 807)

60 214

Impairment of loans presented as

temporary differences

465 900

28 978

494 879

Employee benefits

19 604

2 380

21 984

Rights to use

4 719

(591)

4 128

Provisions for future costs

79 551

59 378

138 929

Valuation of investment assets, loans, cash

flows hedge and actuarial gains (losses)

recognized in other comprehensive income

196 768

(164 083)

32 685

Shares valuation

(18 147)

(13 880)

(32 027)

Other

931

(2 510)

(1 579)

Total

643 196

(110 835)

(164 083)

368 279

155

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

28c. Change of temporary differences

31.12.2021

Adjustments to

previous years

Changes to

financial result

Changes to

equity

31.12.2022

Difference between tax and balance sheet

depreciation

(1 762)

(318)

(2 080)

Balance sheet valuation of financial

instruments

(24 043)

(3 101)

(27 144)

Unrealised receivables/ liabilities on

account of derivatives

(834)

14 435

13 601

Interest on deposits and securities to be

paid/received

(66 544)

(151 263)

(217 807)

Interest and discount on loans and

receivables

(75 737)

(32 986)

(108 723)

Income and cost settled at effective

interest rate

147 394

88 628

236 022

Impairment of loans presented as

temporary differences

398 267

67 634

465 901

Employee benefits

18 687

917

19 604

Rights to use

6 620

(1 901)

4 719

Provisions for future costs

88 584

(9 033)

79 551

Valuation of investment assets, cash flows

hedge and actuarial gains (losses)

recognized in other comprehensive income

151 457

(24)

45 335

196 768

Shares valuation

(35 167)

17 020

(18 147)

Other

1 096

897

(1 062)

931

Total

608 018

873

(11 030)

45 335

643 196

28d. Change of deferred income tax

1.01.2023 -

31.12.2023

1.01.2022 -

31.12.2022

Difference between tax and balance sheet depreciation

710

(318)

Balance sheet valuation of financial instruments

(8 000)

(3 101)

Unrealised receivables/ liabilities on account of derivatives

(14 174)

14 435

Interest on deposits and securities to be paid/ received

16 975

(151 263)

Interest and discount on loans and receivables

(4 292)

(32 986)

Income and cost settled at effective interest rate

(175 807)

88 628

Impairment of loans presented as temporary differences

28 978

67 634

Employee benefits

2 380

917

Rights to use

(591)

(1 901)

Provisions for future costs

59 378

(9 033)

Shares valuation

(13 880)

17 020

Other

(2 510)

(1 062)

Change of deferred income tax recognized in financial result

(110 835)

(11 030)

Valuation of investment assets, loans, cash flows hedge and actuarial gains (losses)

recognized in other comprehensive income

(164 083)

45 335

156

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

28e. Negative temporary differences for which the deferred income tax asset was not recognised in

the balance sheet

Temporary differences expiry year

31.12.2023

31.12.2022

Unlimited

10 009

Total

10 009

The value of negative temporary differences presented in the above table was recalculated with the

valid tax rate.

In accordance with IAS 12, the Bank offset deferred income tax assets with deferred income tax

liabilities.

31.12.2023

31.12.2022

Net deferred income tax assets

368 279

643 196

Net deferred income tax provision

TOTAL

368 279

643 196

29. OTHER ASSETS

31.12.2023

31.12.2022

Expenses to be settled

129 508

114 577

Income to be received

37 719

34 104

Interbank settlements

4 349

Settlements of financial instruments transactions

539

Receivables from sundry debtors, including:

1 197 900

785 105

- receivables due from Société Générale S.A. under an “CHF Portfolio Indemnity and

Guarantee Agreement”

625 100

411 300

- receivables due to legally invalidated foreign currency mortgage loans

325 700

179 600

Public and legal settlements

15 186

14 529

Total other assets (gross)

1 384 706

948 854

Impairment allowances

(24 546)

(25 845)

Total other assets (net)

1 360 160

923 009

▪ including other financial assets*

1 215 466

793 903

▪ including long-term other assets

587

* other financial assets includes all of the remaining other net assets excluding the Expenses to be settled and Public and

legal settlements and Other items

The “CHF Portfolio Indemnity and Guarantee Agreement”, concluded with Société Générale S.A.,

aimed at limiting the risk associated with mortgage loans of the former Euro Bank.

157

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

30. NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD

FOR SALE

As at December 31, 2023 and December 31, 2022, the Bank did not classify any assets to the Non-

current asset held for sale.

31. FINANCIAL LIABILITIES HELD FOR TRADING

31.12.2023

31.12.2022

Negative valuation of derivatives

576 611

380 144

Adjustment due to fair value hedge

Short sale of securities

2 720

4 784

Financial liabilities valued at fair value through profit and loss

579 331

384 928

The division of the negative valuation of derivatives into specific types of instruments is presented in

note (19).

32. LIABILITIES TO BANKS AND OTHER MONETARY INSTITUTIONS

32a. Liabilities to banks and other monetary institutions

31.12.2023

31.12.2022

In current account

27 260

26 262

Term deposits

536 188

589 044

Loans and advances received

5 000

Interest

1 936

4 838

Total

565 384

625 144

32b. Liabilities to banks and other monetary institutions by maturity

31.12.2023

31.12.2022

Current accounts

27 260

26 262

▪ to 1 month

530 573

472 072

▪ above 1 month to 3 months

3 102

69 972

▪ above 3 months to 1 year

2 513

52 000

▪ above 1 year to 5 years

▪ above 5 years

Interest

1 936

4 838

Total

565 384

625 144

158

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

32c. Liabilities to banks and other monetary institutions by currency

31.12.2023

31.12.2022

in Polish currency

261 050

318 111

in foreign currencies (after conversion to PLN)

304 334

307 033

▪ currency: USD

▪ currency: EUR

304 331

307 023

▪ currency: CHF

▪ other currencies

Total

565 384

625 144

33. LIABILITIES TO CUSTOMERS

33a. Structure of liabilities to customers by type

31.12.2023

31.12.2022

Amounts due to private individuals

76 599 831

68 787 007

Balances on current accounts

50 242 523

49 106 928

Term deposits

25 771 736

19 247 973

Other

278 997

248 573

Accrued interest

306 575

183 533

Amounts due to companies

26 605 648

23 842 527

Balances on current accounts

14 803 963

13 379 634

Term deposits

11 267 674

9 996 536

Other

488 536

405 854

Accrued interest

45 475

60 503

Amounts due to public sector

4 300 157

5 635 282

Balances on current accounts

3 318 534

3 195 080

Term deposits

974 507

2 418 727

Other

1 677

8 193

Accrued interest

5 439

13 282

Total

107 505 636

98 264 816

33b. Liabilities to customers by maturity

31.12.2023

31.12.2022

Current accounts

68 365 020

65 681 642

to 1 month

13 701 474

12 975 850

above 1 month to 3 months

11 948 566

7 520 540

above 3 months to 1 year

11 330 805

7 574 732

above 1 year to 5 years

1 766 561

4 213 399

above 5 years

35 721

41 336

Interest

357 489

257 317

Total

107 505 636

98 264 816

159

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

33c. Liabilities to customers by currency

31.12.2023

31.12.2022

in Polish currency

96 237 779

86 587 558

in foreign currencies (after conversion to PLN)

11 267 857

11 677 258

▪ currency: USD

2 550 089

3 015 110

▪ currency: EUR

8 044 025

7 889 980

▪ currency: GBP

383 030

441 197

▪ currency: CHF

242 561

238 002

▪ other currencies

48 152

92 969

Total

107 505 636

98 264 816

34. SALE AND REPURCHASE AGREEMENTS

Liabilities from securities sold with buy-back clause

31.12.2023

31.12.2022

a) to the Central Bank

b) to banks

c) to customers

d) interest

Total

35. DEBT SECURITIES ISSUED

35a. Liabilities from debt securities

31.12.2023

31.12.2022

Bonds

2 903 111

242 500

Valuation of Bank’s bonds designated to fair value hedge

49 304

Interest

75 537

1 253

Total

3 027 952

243 753

35b. Liabilities from debt securities by final legal maturity

31.12.2023

31.12.2022

▪ to 1 month

▪ above 1 month to 3 months

▪ above 3 months to 1 year

▪ above 1 year to 5 years

2 220 915

▪ above 5 years

731 500

242 500

Interest

75 537

1 253

Total

3 027 952

243 753

160

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

35c. Change of debt securities

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Balance at the beginning of the period

243 753

Increases, on account of:

2 825 806

243 753

Issue of bonds

2 660 611

242 500

valuation of Bank’s bonds designated to fair value hedge

49 304

interest accrual

115 891

1 253

Reductions, on account of:

(41 607)

repurchase of bonds

interest payment

(41 607)

Balance at the end of the period

3 027 952

243 753

35d. Debt securities by type

As at 31.12.2023

Balance sheet value

Including

interests

Final legal maturity

Market

Bank Millennium - BMCN_012040

251 341

8 841

2040-01-25

Vienna MTF

Bank Millennium - BMCN_082036

494 106

5 107

2036-08-25

Vienna MTF

Bank Millennium - MILP-2027/09

2 282 505

61 589

2027-09-18

Luxembourg SE

Total

3 027 952

75 537

As at 31.12.2022

Balance sheet value

Final legal maturity)

Market

BMCN_012040

243 753

2040-01-25

Vienna MTF

36. SUBORDINATED DEBT

36a. Subordinated debt

31.12.2023

31.12.2022

Amount of subordinated bonds inn - BKMO_071227R

700 000

Currency

PLN

Interest rate

8,12%

9,70%

Maturity

2027-12-07

Interest

3 738

4 465

Amount of subordinated bonds PLN in PLN - BKMO_300129W

830 000

Currency

PLN

Interest rate

8,94%

9,60%

Maturity

2029-01-30

Interest

31 307

33 618

Balance sheet value of subordinated debt

1 565 045

1 568 083

161

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

36b. Change of subordinated debt

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Balance at the beginning of the period

1 568 083

1 541 144

Increases, on account of:

141 686

110 181

issue of subordinated bonds

interest accrual

141 686

110 181

Reductions, on account of:

(144 724)

(83 242)

redemption of subordinated bonds

interest payment

(144 724)

(83 242)

Balance at the end of the period

1 565 045

1 568 083

During 2023 and 2022 the Bank did not have any delays in the payment of principal and interest

instalments, nor did it infringe any contractual provisions resulting from its subordinated liabilities.

37. PROVISIONS

37a. Provisions

31.12.2023

31.12.2022

Provision for commitments and guarantees given

42 375

40 174

Provision for pending legal issues

1 401 798

975 092

Total

1 444 173

1 015 266

37b. Change of Provision for commitments and guarantees given

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Balance at the beginning of the period

40 174

44 955

Charge of provision

40 336

42 130

Release of provision

(37 916)

(46 984)

FX rates differences

(219)

Balance at the end of the period

42 375

40 174

37c. Change of Provision for pending legal issues

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Balance at the beginning of the period

975 092

549 450

Charge of provision

30 208

27 325

Release of provision

(11 783)

(8 116)

Utilisation of provision

(112 313)

(175)

Creation of provision for legal risk connected with FX mortgage loans*

3 065 380

2 017 320

Allocation to the loans portfolio

(2 544 786)

(1 610 712)

FX rates differences

Balance at the end of the period

1 401 798

975 092

* Creation of provisions for legal risk related to foreign currency mortgage loans is described in more detail in Chapter 12

“Legal risk related to foreign currency mortgage loans”.

162

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

38. OTHER LIABILITIES

38a. Other liabilities

31.12.2023

31.12.2022

Short-term

2 456 966

2 051 796

Accrued costs - bonuses, salaries

49 735

43 689

Accrued costs - other

193 796

163 713

Provisions for return of insurance fees

186 661

271 420

Interbank settlements

745 986

814 674

Provisions for potential return of fees in the event of early repayment of the loan

76 400

78 923

Settlement of transactions on financial instruments

3 338

Other creditors, including:

1 013 454

466 902

- liabilities due to legally invalidated foreign currency mortgage loans

288 253

145 986

- settlements for card transactions

192 141

173 824

- insurance settlements

59 775

34 579

Liabilities due to leases

93 192

95 759

Liabilities to public sector

35 244

42 303

Deferred income

41 551

53 819

Provisions for unused employee holiday

17 089

13 863

Provisions for retirement benefits

3 263

2 832

Other

595

561

Long-term

474 887

498 838

Provisions for retirement benefits

41 964

28 709

Accrued costs

Commitment to pay – BGF*

209 209

Liabilities due to leases

219 518

256 724

Accrued costs

4 196

Total

2 931 853

2 550 634

including other financial liabilities**

2 382 194

1 894 398

* The Bank uses the option of contributing some of the fees paid to the BGF in the form of a payment obligation, which

involves recognizing a commitment to pay and simultaneously recording encumbered assets in the form of debt securities held

on a separate account created for this purpose.

** other financial liabilities includes all of the other liabilities excluding the Liabilities to public sector, Deferred income,

Provisions for return, Commitment to pay – BGF, and other items

38b. Liabilities from lease

31.12.2023

31.12.2022

Liabilities from lease (gross)

342 039

377 749

Unrealised financial costs

(29 329)

(25 266)

Current value of minimum lease instalments

312 710

352 483

Liabilities from lease (gross) by maturity

Under 1 year

105 182

104 883

From 1 year to 5 years

207 517

215 916

Above 5 years

29 340

56 950

Total

342 039

377 749

Liabilities from lease (net) by maturity

Under 1 year

93 192

95 759

From 1 year to 5 years

190 501

200 859

Above 5 years

29 017

55 865

Total

312 710

352 483

163

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

38c. Change of provisions for unused employee holiday

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Balance at the beginning of the period

13 862

13 626

Charge of provisions/ reversal of provisions

3 227

Utilisation of provisions

Takeover of the brokerage activities of the former Millennium Dom Maklerski S.A.

146

Balance at the end of the period

17 089

13 862

38d. Change of provisions for retirement benefits

01.01.2023 -

31.12.2023

01.01.2022 -

31.12.2022

Balance at the beginning of the period

31 541

34 709

Charge of provisions/ reversal of provisions

4 600

5 609

Utilisation of provisions/ reclassification of provision

(1 348)

(1 477)

Actuarial gains (losses)

10 434

(8 367)

Takeover of the brokerage activities of the former Millennium Dom Maklerski S.A.

1 067

Balance at the end of the period

45 227

31 541

39. EQUITY

39a. Capital

The share capital of the Bank Millennium S.A. is PLN 1,213,116,777 divided into 1,213,116,777 shares

of PLN 1 par value each, as presented by the table below.

SHARE CAPITAL

Par value of one share = 1 PLN.

Series/

issue

Share type

Type of

preference

Number of

Value of

series/issue

(PLN)

Manner of

capital

coverage

Registration

date

Right to

dividend

registered founder

x2 as to voting

106 850

cash

30.06.1989

registered ordinary

150 000

cash

13.06.1990

01.01.1990

registered ordinary

150 000

cash

13.12.1990

01.01.1990

bearer ordinary

4 693 150

cash

17.05.1991

01.01.1991

bearer ordinary

1 700 002

cash

31.12.1991

01.01.1992

bearer ordinary

2 611 366

cash

31.01.1992

01.01.1992

bearer ordinary

1 001 500

cash

10.03.1992

01.01.1992

bearer ordinary

6 000 000

cash

28.05.1993

01.01.1992

bearer ordinary

9 372 721

cash

10.12.1993

01.01.1993

bearer ordinary

8 000 000

cash

30.05.1994

01.10.1993

bearer ordinary

7 082 129

cash

24.10.1994

01.10.1994

Increasing of par value of shares from 1 to 4 PLN

122 603 154

surplus

24.11.1994

1:4 split

122 603 154

05.12.1994

bearer ordinary

65 000 000

cash

12.08.1997

01.10.1996

bearer ordinary

196 120 000

capitals of Bank

Gdański S.A.

12.09.1997

01.10.1996

bearer ordinary

424 590 872

cash

31.12.2001

01.01.2001

bearer ordinary

363 935 033

cash

26.02.2010

01.01.2009

Total number of shares

1 213 116 777

Total share capital

1 213 116 777

164

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

In the reporting period a conversions of 128 ordinary registered shares into the bearer shares took

place. As a consequence number of registered shares as of 31.12.2023 amounted to 107,480 of which

61,600 are founders’ shares, privileged so that one share entitles to two votes at the Annual General

Meeting.

According to the information available to the Bank, with respect to shareholders holding more than

5% of votes at the General Meeting, the Bank's shareholders are the following entities

Shareholder 31.12.2023

Number of

% share in

share capital

Number of

votes

% share in

votes at

Shareholders’

Meeting

Banco Comercial Portugues S.A.

607 771 505

50.10

607 771 505

50.10

Nationale-Nederlanden Otwarty Fundusz Emerytalny

107 970 039

8.90

107 970 039

8.90

Allianz Polska Otwarty Fundusz Emerytalny

100 990 351

8.32

100 990 351

8.32

Otwarty Fundusz Emerytalny PZU „Złota Jesień”

65 492 207

5.40

65 492 207

5.40

The data contained in the table has been determined according to the rules described below. With

regard to Banco Comercial Portugues S.A. this data collected in connection with the registration of

shareholders entitled to participate in the Ordinary General Meeting of Shareholders held on March

30, 2023. In the scope of Nationale-Nederlanden Otwarty Fundusz Emerytalny Allianz Polska Otwarty

Fundusz Emerytalny oraz Otwartego Funduszu Emerytalnego PZU „Złota Jesień” the number of shares

and their participation in the share capital of the Bank were calculated on the basis of the annual

structure of assets of the above mentioned Funds as at 29 December 2023 (announced on the websites

respectively: www.nn.pl, www.allianz.pl and www.pzu.pl) In terms of the calculations made on the

basis of the annual structures of the above mentioned funds, the volume-weighted average price

(VWAP) of the Bank's shares was assumed at PLN 8.3321.

Shareholder 31.12.2022

Number of

% share in

share capital

Number of

votes

% share in

votes at

Shareholders

’ Meeting

Banco Comercial Portugues S.A.

607 771 505

50.10

607 771 505

50.10

Nationale-Nederlanden Otwarty Fundusz Emerytalny

107 970 039

8.90

107 970 039

8.90

Allianz Polska OFE + Drugi Allianz Polska OFE (*)

96 792 815(*)

7.98(*)

96 792 815(*)

7.98(*)

Otwarty Fundusz Emerytalny PZU „Złota Jesień”

67 417 542

5.56

67 417 542

5.56

(*) Additionally, PTE Allianz Polska S.A. manages the , Allianz Polska Dobrowolny Fundusz Emerytalny. Pursuant to the

notification of PTE Allianz Polska S.A., published by the Bank in Current Report No. 3/2023, Allianz Polska Dobrowolny Fundusz

Emerytalny, Allianz Polska OFE and Drugi Allianz Polska OFE held jointly 96,810,815 shares in the Bank (7.98% of votes),

including Second Allianz Polska OFE 80,760,035 shares of the Bank (6.66% of votes).

165

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

39b. Accumulated other comprehensive income

Other comprehensive income arises on the recognition of:

▪ effect of valuation (at fair value) of financial assets FVTOCI in the net amount, i.e. after

having accounted for deferred tax. These values (related to debt securities and loans) are

taken off revaluation reserve at the moment of excluding the valued assets from the books of

account - in full or in part or at the moment of recognising impairment (the effect of valuation

is then put through the profit and loss account), the effect on capital instruments valuation

is not transferred to the profit and loss account.

▪ effect of valuation (at fair value) of derivatives hedging cash flows in the net amount, i.e.

having accounted for deferred tax. Revaluation reserve records such part of profits or losses

connected with the derivatives hedging cash flows which is an effective hedge, while the

ineffective part of the profits or losses connected with such hedging instrument is recognised

in the profit and loss account.

▪ actuarial gains (losses) at their net value, i.e. after deferred tax. Aforementioned gains or

losses result from the discounting of future liabilities arising from a provision created for

retirement benefits. Valuation is done using the projected unit cost method. The parameters

that have a significant impact on the amount of current liabilities are: the rate of mobility

(rotation) of employees, the discount rate, the rate of wage growth. These values are not

reclassified to the profit and loss account.

Accumulated other comprehensive income

31.12.2023

31.12.2022

Effect of valuation (gross)

(172 027)

(1 035 621)

Deferred income tax

32 685

196 768

Net effect of valuation

(139 342)

(838 853)

The sources of revaluation reserve are as follows (data in PLN thousand):

Revaluation reserve on FVTOCI assets 1.01.2023 - 31.12.2023

Gross value

Deferred tax

Total

Revaluation reserve at the beginning of the period

(895 116)

170 073

(725 043)

Transfer to income statement of the period as a result of sale

12 353

(2 347)

10 006

Change connected with maturity of securities

70 973

(13 485)

57 488

Profit/loss on revaluation of FVTOCI debt securities, recognized in equity

588 427

(111 801)

476 626

Profit/loss on revaluation of FVTOCI shares, recognized in equity

4 422

(840)

3 582

Revaluation reserve at the end of the period

(218 941)

41 600

(177 341)

Revaluation reserve on FVTOCI assets 1.01.2022 - 31.12.2022

Gross value

Deferred tax

Total

Revaluation reserve at the beginning of the period

(686 675)

130 469

(556 206)

Transfer to income statement of the period as a result of sale

(166)

(134)

Change connected with maturity of securities

41 231

(7 834)

33 397

Profit/loss on revaluation of FVTOCI debt securities, recognized in equity

(245 365)

46 619

(198 746)

Profit/loss on revaluation of FVTOCI shares, recognized in equity

(4 141)

787

(3 354)

Revaluation reserve at the end of the period

(895 116)

170 073

(725 043)

166

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Revaluation reserve on cash flows hedge financial instruments 1.01.2023 - 31.12.2023

Gross value

Deferred tax

Total

Revaluation reserve at the beginning of the period

(406 061)

77 151

(328 910)

Gains or losses on valuation of financial instruments recognized in equity

354 113

(67 281)

286 832

Transfer to income statement during period

(2 246)

427

(1 819)

Revaluation reserve at the end of the period

(54 194)

10 297

(43 897)

Revaluation reserve on cash flows hedge financial instruments 1.01.2022 - 31.12.2022

Gross value

Deferred tax

Total

Revaluation reserve at the beginning of the period

(378 912)

71 993

(306 919)

Gains or losses on valuation of financial instruments recognized in equity

(34 502)

6 555

(27 947)

Transfer to income statement during period

7 353

(1 397)

5 956

Revaluation reserve at the end of the period

(406 061)

77 151

(328 910)

Revaluation reserve due to actuarial gains (losses) 1.01.2023 - 31.12.2023

Gross value

Deferred tax

Total

Revaluation reserve at the beginning of the period

9 732

(1 850)

7 882

Change in the obligations arising from the provision for retirement benefits

(10 434)

1 982

(8 452)

Revaluation reserve at the end of the period

(702)

132

(570)

Revaluation reserve due to actuarial gains (losses) 1.01.2022 - 31.12.2022

Gross value

Deferred tax

Total

Revaluation reserve at the beginning of the period

1 365

(260)

1 105

Change in the obligations arising from the provision for retirement

benefits

8 367

(1 590)

6 777

Revaluation reserve at the end of the period

9 732

(1 850)

7 882

Revaluation reserve on FVTOCI credit portolio 1.01.2023 - 31.12.2023

Gross value

Deferred tax

Total

Revaluation reserve at the beginning of the period

255 824

(48 607)

207 217

Gains or losses on valuation of financial instruments recognized in equity

(145 054)

27 561

(117 493)

Transfer to Profit and loss due to impairment calculation

(8 960)

1 702

(7 258)

Revaluation reserve at the end of the period

101 810

(19 344)

82 466

Revaluation reserve on FVTOCI credit portolio 1.01.2022 - 31.12.2022

Gross value

Deferred tax

Total

Revaluation reserve at the beginning of the period

267 079

(50 745)

216 334

Gains or losses on valuation of financial instruments recognized in

equity

17 208

(3 270)

13 938

Transfer to Profit and loss due to impairment calculation

(28 463)

5 408

(23 055)

Revaluation reserve at the end of the period

255 824

(48 607)

207 217

167

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

39c. Retained earnings

Supplementary

capital

Reserve capital

General banking

risk fund

Retained

earnings

TOTAL

Retained earnings at the beginning of

the period 01.01.2023

374 957

4 309 049

228 902

(1 029 899)

3 883 009

appropriation of profit, including:

cover of loss

(1 029 899)

1 029 899

charge due to transfer of own shares

to employees

net profit/ (loss) of the period

510 259

Retained earnings at the end of the

period 31.12.2023

374 957

3 279 150

228 902

510 259

4 393 268

Supplementary

capital

Reserve capital

General banking

risk fund

Retained

earnings

TOTAL

Retained earnings at the beginning of

the period 01.01.2022

374 957

5 671 124

228 902

(1 357 452)

4 917 531

appropriation of profit, including:

cover of loss

(1 357 452)

1 357 452

charge due to transfer of own shares

to employees

(4 623)

net profit/ (loss) of the period

(1 029 899)

Retained earnings at the end of the

period 31.12.2022

374 957

4 309 049

228 902

(1 029 899)

3 883 009

40. FINANCIAL LIABILITIES BY CONTRACTUAL MATURITY

31.12.2023

Below 1

month

from 1

month to 3

months

from 3

months to

1 year

from 1

year

to 5 years

above

5 years

TOTAL

Deposits from banks

560 856

3 102

2 514

566 472

Deposits from customers

82 204 097

12 164 714

11 612 194

1 776 691

35 721

107 793 417

Liabilities from securities sold

with buy-back clause

Debt securities

8 841

5 106

412 247

3 574 240

1 662 215

5 662 649

Subordinated debt

31 307

134 779

1 170 252

830 000

2 166 338

Liabilities from trading

derivatives - notional value

2 795 970

2 753 193

5 104 452

4 773 421

173 335

15 600 371

Liabilities from hedging

derivatives - notional value

1 708 280

1 945 044

117 070

3 117 280

6 887 674

Commitments granted - financial

12 550 588

Commitments granted -

guarantee

1 713 980

TOTAL

101 542 612

16 902 466

17 383 256

14 411 884

2 701 271

152 941 489

168

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

31.12.2022

Below 1

month

from 1

month to 3

months

from 3

months to

1 year

from 1

year

to 5 years

above

5 years

TOTAL

Deposits from banks

501 555

71 217

54 321

627 093

Deposits from customers

78 774 884

7 662 298

7 838 875

4 235 695

41 336

98 553 088

Liabilities from securities sold

with buy-back clause

Debt securities

52 056

203 215

856 181

1 111 452

Subordinated debt

33 618

118 426

590 320

1 646 005

2 388 369

Liabilities from trading

derivatives - notional value

4 676 237

1 921 948

1 751 535

5 118 184

2 581 157

16 049 061

Liabilities from hedging

derivatives - notional value

1 840 685

4 427 975

4 814 395

11 083 055

Commitments granted - financial

11 610 683

Commitments granted -

guarantee

2 419 611

TOTAL

98 016 588

11 496 148

14 243 188

14 961 809

5 124 679

143 842 412

169

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

14. Supplementary Information

14.1. 2022 DIVIDEND

Bank Millennium has a dividend policy of distribution between 35% and 50% of net profit, taking into

account supervisory recommendations. The Bank recorded a net loss in 2022, mainly as a result of

recognizing the impact of credit holidays and creating provisions for legal risk related to foreign

currency mortgage loans, additionally the Bank continues to realize the Capital Protection Plan hence

there was no basis for the payment of dividends. The Management Board of the Bank presented a

proposal and the Ordinary General Meeting of the Bank, held on March 30, 2023, decided to allocate

the amount of PLN 1,029,898,772.97 from the reserve capital to cover the loss incurred in 2022.

14.2. DATA ABOUT ASSETS, WHICH SECURE LIABILITIES

As at 31 December 2023 following assets of the Bank constituted collateral of liabilities (PLN’000):

No.

Type of assets

Portfolio

Secured liability

Par value

of assets

Balance sheet

value of assets

Treasury Bonds

DS0727

Held to maturity

Securing the Fund for Protection of Funds

Guaranteed as part of the Bank Guarantee Fund

255 000

228 434

Treasury Bonds

DS0726

Held to maturity

Securing the Fund for Protection of Funds

Guaranteed as part of the Bank Guarantee Fund

52 000

48 267

Treasury Bonds

PS0527

Held to maturity

Security of payment obligation to BFG contribution

- guarantee fund

142 000

136 644

Treasury Bonds

DS0726

Held to maturity

Security of payment obligation to BFG contribution

- compulsory resolution fund

135 000

125 307

Treasury Bonds

PS0425

Held to Collect and for

Sale

pledge on the Bank's account related to a

securitization transaction

572 500

544 527

Treasury Bonds

WZ0525

Held to Collect and for

Sale

pledge on the Bank's account related to a

securitization transaction

220 500

221 887

Treasury Bonds

PS0524

Held to Collect and for

Sale

pledge on the Bank's account related to a

securitization transaction

50 000

50 425

Treasury Bonds

PS0527

Held to maturity

financial and registered pledge on the Bank's

account in the brokerage house

64 850

62 404

Treasury Bonds

PS0527

Held to maturity

financial pledge on the Bank's account in the

brokerage house

583 659

561 642

10.

Treasury Bonds

PS0527

Held to maturity

financial pledge on the Bank's account in the

brokerage house

124 000

119 323

11.

Cash

receivables

initial settlement deposit in KDPW CCP (MAGB)

11 000

12.

Cash

receivables

ASO guarantee fund (PAGB)

1 927

13.

Cash

receivables

settlement of concluded transactions

47 909

14.

Deposits placed

Deposits in banks

settlement of concluded transactions

159 804

160 135

TOTAL

2 420 149

2 319 831

170

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

As at 31 December 2023, the Bank did not have concluded transactions of sale of treasury securities

with repurchase agreements.

As at 31 December 2022 following assets of the Bank constituted collateral of liabilities (PLN’000):

No.

Type of assets

Portfolio

Secured liability

Par value of

assets

Balance sheet value

of assets

Treasury bonds OK0423

Held to Collect

and for Sale

Securing the Fund for Protection of

Funds Guaranteed as part of the

Bank Guarantee Fund

314 000

308 160

Treasury bonds OK0423

Held to Collect

and for Sale

Security of payment obligation to

BFG contribution - guarantee fund

134 100

131 606

Treasury bonds OK0423

Held to Collect

and for Sale

Security of payment obligation to

BFG contribution - compulsory

resolution fund

124 000

121 694

Cash

receivables

initial settlement deposit in KDPW

CCP (MAGB)

5 000

Cash

receivables

ASO guarantee fund (PAGB)

172

Cash

receivables

payment to the OTC Guarantee Fund

- KDPW_CCP

304

Cash

receivables

Settlement on transactions

concluded

106 797

Deposits

Deposits in banks

Settlement on transactions

concluded

403 647

TOTAL

1 088 020

1 077 380

As at 31 December 2022, the Bank did not have concluded transactions of sale of treasury securities

with repurchase agreements.

The Bank is also obliged to maintain the obligatory reserve on the current account with the NBP, the

amount of which depends on the average balance of funds of customer deposit accounts and the

reserve rate set by the NBP. From the Bank's point of view, the funds held as part of the obligsatory

reserve constitute restricted assets. The value of the provision maintained at the end of the financial

year is presented in note (18).

14.3. SECURITIES COVERED BY TRANSACTIONS WITH A BUY-BACK CLAUSE

(SBB)

As at 31 December 2023 and 31 December 2023 the Bank did not have any repurchase agreements

(SBB) involving securities presented in the Bank's balance sheet.

171

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

14.4. OFFSETTING OF ASSETS AND LIABILITIES ON THE BASIS OF ISDA

AGREEMENTS

The majority of the Bank's derivatives portfolio arises due to conclusion by the Bank framework ISDA

agreements (International Swaps and Derivatives Agreements). Provisions included in the agreements

define comprehensive procedures in case of infringement (mainly difficulties in payments), and

provide possibility to cancel a deal, making settlements with counterparty base on offset amount of

mutual receivables and liabilities. To date, the Bank has not exercised that option, however, in order

to meet information requirements as described in IFRS 7 the following table presents the fair values

of derivative instruments (both classified as held for trading and dedicated to hedge accounting) as

well as cash collaterals under ISDA framework agreements with a theoretical maximum amount

resulting from the settlement on the basis of compensation.

PLN’000

Amounts to be received

Amounts to be paid

Valuation of derivatives

402 042

226 042

Amount of cash collaterals accepted/granted

(293 544)

(135 370)

Financial assets and liabilities covered by framework ISDA

agreements allowing compensation

108 498

90 672

Theoretical maximum amount of compensation

(108 498)

Financial assets and liabilities covered by framework ISDA

agreements allowing compensation taking into account

theoretical amount of compensation

(17 826)

14.5. ADDITIONAL EXPLANATIONS TO THE CASH FLOW STATEMENT

For the purpose of the cash flow statement the following financial assets are classified by the Bank

as cash or its equivalents:

PLN’000

31.12.2023

31.12.2022

Cash and balances with the Central Bank

5 094 984

9 536 090

Receivables from interbank deposits*

612 467

288 219

Debt securities issued by the State Treasury*

12 688 962

4 406 780

of which FVTOCI and HTC

12 686 172

4 405 868

of which held for trading

2 790

912

Total

18 396 413

14 231 089

* Financial assets with maturity below three months

For the purpose of the cash flow statement the following classification of activity types was adopted:

1. Operating activities – cover the basic scope of operations connected with services provided by the

Bank’s units covering events whose purpose is to earn profit and not being investment or financial

activity,

2. Investment activities cover operations connected with the purchasing and selling of fixed assets,

in particular financial assets not included in the ”for trading” category, shares and shares in

subsidiaries, tangible and intangible fixed assets,

3. Financial activities cover activities connected with raising of funds in the form of capital or

liabilities, as well as servicing sources of funding.

172

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

14.6. INFORMATION ON CUSTODY ACTIVITY

As of 31.12.2023 the Custody Department of Bank Millennium S.A. maintained 13,002 accounts in

which Customers’ assets were kept with the total value of PLN 55.35 billion. Net revenue from the

custody business for 2023 amounted to PLN 4.5 million (including PLN 3.1 million from Capital Group

entities). The Custody Department serves as a depositary bank for 22 mutual funds including 21 of

Millennium TFI S.A.

14.7. SHARE BASED PAYMENTS

In 2012, the Bank implemented a policy specifying the principles of remuneration for persons having

a significant impact on the risk profile of Bank Millennium, as amended.

In accordance with the policy, the Bank's employees who have a significant impact on its risk profile

receive variable remuneration, part of which is paid in the form of financial instruments.

Until 2018, the financial instrument took the form of phantom shares. From 2019, the Bank, by

decision of the General Meeting of Shareholders of the Bank on August 27, 2019, introduced a 3-year

incentive program to reward eligible persons previously identified as having a significant impact on

the risk profile (Risk Taker). As part of it, the Own Shares purchased by the Bank were, in accordance

with the applicable Risk Takers' remuneration policy, intended as a financial instrument for free

acquisition in an appropriate number by designated Risk Takers during the Program Period.

In bonus programs effective from January 1, 2020, financial instruments were awarded to Risk Takers

I - Members of the Management Board of Bank Millennium SA.

In 2023, the Personnel Committee of the Supervisory Board decided to convert own shares granted to

Members of the Management Board in the 2021 program in the form of own shares into phantom

shares. Under the 2022 program, phantom shares were granted as a financial instrument.

173

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

Variable remuneration –

2019

2020

2021

2022

financial instruments for:

Kind of transactions in the light of

IFRS 2

Share-based payment transactions

Cash-settled share-

based payments

Commencement of vesting period

1 January 2019

1 January 2020

1 January 2021

1 January 2022

The date of announcing the program

27 August 2019

1 January 2022

Starting date of the program in

accordance with the definition of

IFRS 2

Date of the Personnel Committee meeting taking place after closing of financial

year

Number of granted instruments

Determined at the grant date of the program in accordance with the definition of

IFRS 2

Maturity date

3 years since the date of granting program

Vesting date*

31 December 2019

31 December 2020

31 December 2021

31 December 2022

Vesting conditions

Employment in the

Bank 2019, results

of the Bank and

individual

performance

Employment in the

Bank 2020, results

of the Bank and

individual

performance

Employment in the

Bank 2021, results

of the Bank and

individual

performance

Employment in the

Bank 2022, results

of the Bank and

individual

performance

Program settlement

Program 2022: On the settlement day, the participant will be paid an amount of cash

constituting the product of the phantom shares held by the participant and the

arithmetic average price of the Bank's shares on the WSE at the closing of 20

consecutive sessions preceding the settlement day. Phantom shares are settled in 5

equal annual installments starting from the date of the Personnel Committee at

which they were allocated.

Programs 2019-2021: On the settlement date of the program, the participant was

granted own shares; a deferred tranche of the program in 2023.

Program valuation

The fair value of the program is determined at each balance sheet date according

to the rules adopted for determining the value of the program on the settlement

date.

* Confirmed by decisions of the Bank's Personnel Committees assessing the work of eligible employee

Financial instruments granted to members of

the Management Board of the Bank, for the

year:

2020

2021

2022

Phantom shares

Date of shares assigning

13.04.2022

03.11.2023

Number of shares

255 982

282 053

granted

0.00

deferred

255 982

282 053

Value as at assigning date (PLN)

1 680 000

1 968 750

granted

0.00

deferred

1 680 000

1 968 750

Fair value as at 31.12.2023 (PLN)

2 138 730

2 356 553

At the publication date of the Annual Report, the Personnel Committee of the Supervisory Board has

not taken a decision on the amount of variable remuneration for the members of the Management

Board for 2023.

174

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

14.8. ADDITIONAL INFORMATION AND OTHER ESSENTIAL EVENTS

BETWEEN THE DATE, FOR WHICH THE FINANCIAL REPORT WAS

PREPARED AND ITS PUBLICATION DATE

REFORM OF BENCHMARKS

1. WIBOR

In May 2022, the Polish government announced that WIBOR would be replaced by a different (lower)

rate from 1 January 2023. In June 2022, a Working Group was established, including commercial

banks, GPW Benchmark (Administrator of WIBOR), KNF.

In July 2022, the National Working Group on Reference Rate Reform (NWG) was established in

connection with the planned reform of reference rates in Poland. The objective of the NGR's work to

introduce a new interest rate benchmark and replace the currently used WIBOR index with it while

ensuring the compliance with BMR, including in particular ensuring credibility, transparency and

reliability in the development and application of the new benchmark.

The National Working Group involves 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 GPW Benchmark, as well as representatives of credit institutions, i.e.

in particular, banks, financial institutions, including investment funds, insurance companies, factoring

and leasing companies, entities that are bond issuers, including corporate and municipal bonds,

clearing houses.

The work of the National Working Group is coordinated and supervised by a Steering Committee

including representatives of key institutions: Financial Supervision Authority, the National Bank of

Poland, the Ministry of Finance, the Bank Guarantee Fund, the Polish Development Fund, as well as

the GPW Benchmark - the administrator of the reference rates - and the Polish Bank Association

(Polish: Związek Banków Polskich).

The NWG's activities are executed in a project formula, where project streams have been identified

and where Bank Millennium representatives are actively contributing to the work.

The National Working Group selected the WIRON index to become the key interest rate benchmark

under the BMR and to be used in financial contracts, financial instruments and as the preferred

alternative benchmark to WIBOR.

In connection with this, Bank Millennium S.A. established, by resolution of the Bank's Management

Board of 24 August 2022, an internal project reporting to the Management Board (Deputy Chairman

of the Management Board - CFO and Member of the Management Board overseeing the areas of retail

and corporate products), in order to duly manage the WIBOR to WIRON transition process and to

implement the work in accordance with the roadmap. This work involves representatives from a

significant number of the Bank's business units, including, in particular, representatives responsible

for product areas and risk management issues, including, in particular, interest rate risk and

operational risk. The structure of the project includes the division into streams covering products and

processes where the WIBOR benchmark is applied, the management of the project by a dedicated

project manager and the periodical reporting of statuses on the individual streams. In the current

phase of the project, work is underway at the Bank to adjust the technological infrastructure, as well

as including the preparation of internal processes and documentation.

175

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

The Bank uses the WIBOR reference rate in the following products (in million PLN):

▪ mortgage loans: 25 179.55 mortgage loans based on WIBOR (excluding 9 962.46 mortgage

loans currently with temporary fixed rate where the clients have the option to switch to

variable rate indexed to WIBOR after the end of such temporary fixed rate initial period);

▪ loan products, factoring and corporate discounting products: 15 988.55;

▪ debt instruments (6 122.50);

o Assets: 3 861.00

o Liabilities: 2 261.50

▪ derivative instruments: 16 394.16

The Bank also applies instruments based on WIBOR benchmarks in hedge accounting, details of the

hedging relationships used by the Group, the items designated as hedged and hedging and the

presentation of the result on these transactions are presented in Note 24 "Derivatives - Hedge

accounting" in Chapter 13 "Notes to the Consolidated Financial Statements.

Bank Millennium S.A. is working on the analysis of the risks and monitors them on a regular basis. In

addition, according to the project of changes of the Roadmap announced by the Steering Committee

of the National Working Group in October 2023, the final moment of conversion would happen by end

of 2027, r. Currently, the Roadmap is being updated to reflect the provisions of the NGR SC with

regard to the revision of the benchmark reform schedule. Therefore, a regulatory event has been

postponed and should occur in Q3/Q4 2026. However, there is currently a) no information regarding

the potential regulatory event referred to in Article 23c(1) of the BMR; b) lack of a regulation of the

Minister of Finance referred to in Article 61c of the Act of 5 August 2015 on macro-prudential

supervision of the financial system and crisis management in the financial system concerning a

replacement or at least a draft of such a regulation and thus information, whether the Minister of

Finance will designate one or several WIBOR replacements; c) lack of information on the amount of

the adjustment spread or the method of calculating this spread, whether there will be corresponding

adjustment changes related to this (and if so, which ones). Therefore given the current stage of the

work of the National Working Group and the planned postponement of the maximum dates for the

implementation of the Roadmap, indicating a final conversion date at the end of 2027, it is currently

not possible to estimate the financial impact of the WIBOR reform.

In March 2023, the Steering Committee of the National Working Group on Benchmark Reform adopted

recommendations on new products, both banking, leasing and factoring, as well as previously

published ones on bonds and derivatives.

In July 2023, the NWG SC adopted a Recommendation on applying a fallback rate for WIBOR

benchmark in interest rate derivatives. The recommendation presents the method of replacing WIBOR

with an Alternative Benchmark in WIBOR-based interest rate derivatives in the event where a Fallback

Trigger of a permanent nature occurs.

In August 2023, The NWG Steering Committee has adopted a Recommendation on the rules and

methods of conversion of WIBOR-based debt instruments. The recommendation was prepared

assuming the occurrence of a Regulatory Event, i.e. an event resulting in the cessation of the

development of the WIBOR benchmark (according to the adopted Roadmap, the readiness to cease

and publish the WIBID and WIBOR Reference Rates should occur in 2025).

2. LIBOR USD

The Bank applies the USD LIBOR benchmark to the following products (in million PLN):

▪ Retail banking/mortgage portfolio: 2.85;

On 3 April 2023, the Financial Conduct Authority supervising ICE Benchmark Administration Limited

announced a decision regarding the future of LIBOR USD 3M and LIBOR USD 6M. FCA indicated that

LIBOR USD 3M and LIBOR USD 6M will continue to be calculated and published after 30 June 2023 using

the revised „synthetic” methodology, most likely until 30 September 2024. Considering the marginal

number of such contracts in the Bank’s portfolio, Bank is taking effort to implement individual

approach to each of these contracts.

176

Annual Financial Report

of the Bank Millennium S.A.

for the 12-month period ending 31

December 2023

This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

CREDIT HOLIDAYS

The Bank is aware of risks connected with a potential extension of the so-called credit holidays for

2024. A legislative proposal was made public but until the moment of publication of these Financial

Statements the proposal was not formally approved by the government and submitted to the

Parliament. If such risk would materialize, it could imply upfront provision for such cost that would

decrease the net interest income and the net result of the Bank/Group.

There were no other significant events affecting the financial statements and future results of the

Group between the date on which the report was prepared and the date of its publication.

Date

Name and surname

Position/Function

Signature

28.02.2024

Joao Bras Jorge

Chairman of

the Management Board

Signed by a qualified

electronic signature

28.02.2024

Fernando Bicho

Deputy Chairman of

the Management Board

Signed by a qualified

electronic signature

28.02.2024

Wojciech Haase

Member of

the Management Board

Signed by a qualified

electronic signature

28.02.2024

Andrzej Gliński

Member of

the Management Board

Signed by a qualified

electronic signature

28.02.2024

Wojciech Rybak

Member of

the Management Board

Signed by a qualified

electronic signature

28.02.2024

Antonio Pinto Junior

Member of

the Management Board

Signed by a qualified

electronic signature

28.02.2024

Jarosław Hermann

Member of

the Management Board

Signed by a qualified

electronic signature