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

 

 

 

 

 

Separate financial statements

of PKO Bank Polski S.A.

for the year ended 31 December 2023

 

SELECTED FINANCIAL DATA RELATING TO THE FINANCIAL STATEMENTS

SELECTED FINANCIAL DATA	PLN million			EUR million
			Change %			Change %
	2023	2022	(A-B)/B	2023	2022	(D-E)/E
	A	B	C	D	E	F
Net interest income	17,215	11,224	53.4%	3,802	2,394	58.8%
Net fee and commission income	3,911	3,818	2.4%	864	814	6.3%
Net expected credit losses and net impairment allowances on non-financial assets	(1,220)	(1,209)	0.9%	(269)	(258)	4.3%
Administrative expenses	(6,678)	(6,925)	(3.6%)	(1,475)	(1,477)	(0.1%)
Profit before tax	7,509	4,562	64.6%	1,658	973	70.4%
Net profit	4,868	3,258	49.4%	1,075	695	54.7%
Earnings per share for the period - basic (in PLN/EUR)	3.89	2.61	49.0%	0.86	0.56	53.6%
Earnings per share for the period - diluted (in PLN/EUR)	3.89	2.61	49.0%	0.86	0.56	53.6%
Net comprehensive income	10,470	299	3,401.6%	2,312	64	3,512.5%
Total net cash flows	240	10,482	(97.7%)	53	2,236	(97.6%)

 

SELECTED FINANCIAL DATA	PLN million			EUR million
	31.12.2023	31.12.2022	Change % (A-B)/B	31.12.2023	31.12.2022	Change % (D-E)/E
	A	B	C	D	E	F
Total assets	474,680	405,168	17.2%	109,172	86,392	26.4%
Total equity	42,954	34,084	26.0%	9,879	7,268	35.9%
Share capital	1,250	1,250	-	287	267	7.5%
Number of shares (in million)	1,250	1,250	-	1,250	1,250	-
Book value per share (in PLN/EUR)	34.36	27.27	26.0%	7.90	5.81	36.0%
Diluted number of shares (in million)	1,250	1,250	-	1,250	1,250	-
Diluted book value per share (in PLN/EUR)	34.36	27.27	26.0%	7.90	5.81	36.0%
Total Capital Ratio (%)	20.84	20.49	1.7%	20.84	20.49	1.7%
Tier 1	39,729	38,105	4.3%	9,137	8,125	12.5%
Tier 2	2,080	2,216	(6.1%)	478	473	1.1%

 

SELECTED FINANCIAL STATEMENT ITEMS HAVE BEEN TRANSLATED INTO EUR AT THE FOLLOWING RATES	2023	2022
arithmetic mean of the NBP exchange rates at the end of a month (income statement, statement of comprehensive income and cash flow statement items)	4.5284	4.6883
	31.12.2023	31.12.2022
NBP mid exchange rates at the date indicated (statement of financial position items)	4.3480	4.6899

 

TABLE OF CONTENTS

SEPARATE INCOME STATEMENT

SEPARATE STATEMENT OF COMPREHENSIVE INCOME

SEPARATE STATEMENT OF FINANCIAL POSITION

SEPARATE STATEMENT OF CHANGES IN EQUITY

SEPARATE STATEMENT OF CASH FLOWS

General information about the bank

1. Business activities of the Bank

2. Changes in the Group companies

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

4. Approval of the financial statements

5. Representation by the Management Board

6. Statement of compliance

7. Going concern

8. The basis for preparation of the financial statements

SIGNIFICANT ACCOUNTING POLICIES

9. Functional currency, presentation currency and foreign currencies

10. Investments in subsidiaries, associates and joint ventures

11. General accounting policies for financial instruments

11.1. Accounting for transactions

11.2. Offsetting financial instruments

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

11.4. The principles for classification of financial instruments

11.5. Financial assets measured at amortized cost

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

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

11.8. Equity instruments

11.9. Reclassification of financial assets

11.10. Modifications – Changes in contractual cash flows

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

11.12. Measurement of financial liabilities

12. Environmental issues

13. Changes in accounting policies applicable from 1 January 2023 and explanation of the differences between previously published financial statements and these financial statements

14. New standards and interpretations and their amendments

SUPPLEMENTARY NOTES TO THE INCOME STATEMENT

15. Interest income and expense

16. Fee and commission income and expenses

17. Fee and commission income by segment

18. Dividend income

19. Gains/(losses) on financial transactions

20. Net foreign exchange gains/ (losses)

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

22. Other operating income and expenses

23. Net allowances for expected credit losses

24. Impairment of non-financial assets

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

26. Administrative expenses

27. Tax on certain financial institutions

28. Income tax

29. Earnings per share

SUPPLEMENTARY NOTES TO THE STATEMENT OF FINANCIAL POSITION – FINANCIAL INSTRUMENTS

30. Cash and balances with the Central Bank

31. Amounts due from banks

32. Hedge accounting and other derivative instruments

32.1. Hedge accounting – financial information

32.2. Other derivative instruments – financial information

33. Securities

34. Loans and advances to customers

35. Amounts due to banks

36. Amounts due to customers

37. Financing received

37.1. Loans and advances received

37.2. Liabilities in respect of debt securities in issue

37.3. Subordinated liabilities

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

38. Intangible assets

39. Property, plant and equipment

40. Assets held for sale

41. Investments in subsidiaries, associates and joint ventures

42. Other assets

43. Other liabilities

44. Provisions

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

46. Legal claims

47. Equity and shareholding structure of the Bank

48. Fair value hierarchy

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

RISK MANAGEMENT IN THE BANK

50. Risk management in the Bank

51. Specific risk management measures undertaken by the Bank in 2023

52. Credit risk management

53. Credit risk – financial information

53.1. Financial assets by stage

53.2. Change in the gross carrying amount

53.3. Changes in allowances for expected credit losses

53.4. Other disclosures

54. Offsetting financial assets and financial liabilities

55. Managing credit concentration risk in the Bank

56. Collateral

57. Exposure to the counterparty credit risk

58. Forbearance practices

59. Information on package sale of receivables

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

61. Interest rate risk management

62. Currency risk management

62.1. Financial assets and liabilities by currency

63. Liquidity risk management

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

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

63.3. Current and non-current assets and liabilities

64. Operational risk management

65. ESG risk management

CAPITAL MANAGEMENT AT THE BANK

66. Capital adequacy

67. Leverage ratio

68. Dividends and distribution of retained earnings

OTHER NOTES

69. Notes to the cash flow statement

70. Transactions with the State Treasury and related entities

71. Benefits for the PKO Bank Polski SA key management

72. Leases

73. Government grants

74. Information on the audit firm authorized to audit the financial statements

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

76. Interest rate benchmarks reform

77. Subsequent events

SEPARATE INCOME STATEMENT

INCOME STATEMENT	Note	2023	2022
Net interest income	15, 17	17,215	11,224
Interest and similar income		28,886	18,524
of which calculated under the effective interest rate method		28,338	17,972
Interest expense		(11,671)	(7,300)
Net fee and commission income	16 17	3,911	3,818
Fee and commission income		5,521	5,317
Fee and commission expense		(1,610)	(1,499)
Net other income		877	758
Dividend income	18	683	488
Gains/(losses) on financial transactions	19	112	356
Net foreign exchange gains/ (losses)	20	81	(108)
Gains/(losses) on derecognition of financial instruments	21	52	(11)
of which measured at amortized cost		22	13
Net other operating income and expense	22	(51)	33
Result on business activities		22,003	15,800
Net allowances for expected credit losses	23	(1,120)	(1,120)
Impairment of non-financial assets	24	(100)	(89)
The cost of legal risk of mortgage loans in convertible currencies	25	(5,430)	(1,914)
Administrative expenses	26	(6,678)	(6,925)
of which net regulatory charges		(572)	(1,826)
Tax on certain financial institutions	27	(1,166)	(1,190)
Profit before tax		7,509	4,562
Income tax expense	28	(2,641)	(1,304)
Net profit		4,868	3,258
Earnings per share	29
– basic earnings per share for the period (PLN)		3.89	2.61
– diluted earnings per share for the period (PLN)		3.89	2.61
Weighted average number of ordinary shares during the period (in million)*		1,250	1,250

* In 2023 and 2022, there were no dilutive instruments. Therefore, the amount of diluted earnings per share is the same as the amount of basic earnings per share.

 

SEPARATE STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF COMPREHENSIVE INCOME	Note	2023	2022
Net profit		4,868	3,258
Other comprehensive income		5,602	(2,959)
Items which may be reclassified to profit or loss		5,605	(2,953)
Cash flow hedges (net)		3,327	(1,326)
Cash flow hedges (gross)	32	4,108	(1,637)
Deferred tax	28,32	(781)	311
Fair value of financial assets measured at fair value through other comprehensive income (net)		2,280	(1,627)
Remeasurement of fair value, gross		2,845	(2,036)
Gains /losses transferred to the profit or loss (on disposal)	21	(30)	24
Deferred tax	28	(535)	385
Currency translation differences on foreign operations		(2)	-
Items which cannot be reclassified to profit or loss		(3)	(6)
Actuarial gains and losses (net)		(3)	(6)
Actuarial gains and losses (gross)	44	(4)	(8)
Deferred tax	28	1	2
Total net comprehensive income		10,470	299

 

SEPARATE STATEMENT OF FINANCIAL POSITION

	Note	31.12.2023	31.12.2022
ASSETS		474,680	405,168
Cash and balances with the Central Bank	30	17,676	15,719
Amounts due from banks	31	16,900	19,442
Hedging derivatives	32	1,084	217
Other derivative instruments	32	8,752	13,745
Securities	33	191,439	130,986
Reverse repo transactions		372	7
Loans and advances to customers	34	223,670	208,918
Property, plant and equipment	39	2,731	2,505
Assets held for sale	40	139	10
Intangible assets	38	3,288	2,933
Investments in subsidiaries	41	3,440	3,560
Investments in associates and joint ventures	41	275	275
Current income tax receivable		-	47
- of the subsidiaries belonging to the Tax Group		-	47
Deferred tax assets	28	3,048	4,694
Other assets	42	1,866	2,110

 

			31.12.2023	31.12.2022
LIABILITIES AND EQUITY			474,680	405,168
Liabilities			431,726	371,084
Amounts due to Central bank			10	9
Amounts due to banks	35		3,250	2,928
Hedging derivatives	32		2,456	6,727
Other derivative instruments	32		9,902	14,002
Amounts due to customers	36		394,551	334,856
Loans and advances received	37		-	726
Liabilities in respect of debt securities in issue			3,421	-
Subordinated liabilities	37		2,774	2,781
Other liabilities	43		10,235	6,480
Current income tax liabilities			1,008	527
- of the Bank			991	379
- of the subsidiaries belonging to the Tax Group			16	148
Provisions	44		4,119	2,048
EQUITY	47		42,954	34,084
Share capital			1,250	1,250
Reserves and accumulated other comprehensive income			27,399	21,768
Unappropriated profits			9,437	7,808
Net profit or loss for the year			4,868	3,258

 

 

SEPARATE STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 December 2023	Share capital	Reserves and accumulated other comprehensive income					Unappropriated profits	Net profit or loss for the period	Total equity
		Reserves			Accumulated other comprehensive income	Total reserves and accumulated other comprehensive income
		Supplementary capital	General banking risk fund	Other reserves
As at the beginning of the period	1,250	22,468	1,070	6,746	(8,516)	21,768	7,808	3,258	34,084
Transfer from retained earnings	-	-	-	-	-	-	3,258	(3,258)	-
Distribution of profit for 2022	-	-	-	1,629	-	1,629	(1,629)	-	-
Interim dividend	-	-	-	(1,600)	-	(1,600)	-	-	(1,600)
Comprehensive income	-	-	-	-	5,602	5,602	-	4,868	10,470
As at the end of the period	1,250	22,468	1,070	6,775	(2,914)	27,399	9,437	4,868	42,954

 

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

 

 

FOR THE YEAR ENDED 31 December 2023	Accumulated other comprehensive income
	Fair value of financial assets measured at fair value through other comprehensive income	Cash flow hedges	Actuarial gains and losses	Currency translation differences on foreign operations	Total
As at the beginning of the period	(3,469)	(5,028)	(19)	-	(8,516)
Total comprehensive income	2,280	3,327	(3)	(2)	5,602
As at the end of the period	(1,189)	(1,701)	(22)	(2)	(2,914)

 

FOR THE YEAR ENDED 31 December 2022	Accumulated other comprehensive income
	Fair value of financial assets measured at fair value through other comprehensive income	Cash flow hedges	Actuarial gains and losses	Total
As at the beginning of the period	(1,842)	(3,702)	(13)	(5,557)
Total comprehensive income	(1,627)	(1,326)	(6)	(2,959)
As at the end of the period	(3,469)	(5,028)	(19)	(8,516)

 

SEPARATE STATEMENT OF CASH FLOWS

	Note		2023	2022
Cash flows from operating activities
Profit before tax			7,509	4,562
Income tax paid			(1,699)	(1,311)
Total adjustments:			37,882	10,390
Depreciation and amortization		26	980	909
(Gains)/losses on investing activities		69	(14)	(14)
Interest and dividends received		69	(6,935)	(4,189)
Interest paid		69	283	342
Change in:
amounts due from banks		69	821	1,027
hedging derivatives			(5,139)	2,213
other derivative instruments			893	(304)
securities		69	(6,471)	(3,613)
loans and advances to customers		69	(15,232)	(3,911)
reverse repo transactions			(364)	(7)
non-current assets held for sale		69	(128)	8
other assets		69	244	(87)
accumulated allowances for expected credit losses		69	377	821
accumulated allowances on non-financial assets and other provisions		69	2,196	332
amounts due to the Central Bank			1	1
amounts due to banks			322	(834)
amounts due to customers			59,695	16,824
repo transactions			-	(49)
loan and advances received		69	(11)	803
liabilities in respect of debt securities in issue		69	(110)	-
subordinated liabilities			(7)	65
other liabilities		69	2,411	1,632
Other adjustments		69	4,070	(1,579)
Net cash from/used in operating activities			43,692	13,641

 

 

 

	Note	2023	2022
Cash flows from investing activities
Inflows from investing activities		784,911	91,385
Redemption of securities measured at fair value through other comprehensive income		773,201	78,672
Interest received on securities measured at fair value through other comprehensive income		4,649	7,758
Redemption of securities measured at amortized cost		4,154	1,883
Interest received on securities measured at amortized cost		2,128	1,719
Proceeds from disposal of intangible assets, property, plant and equipment and assets held for sale		48	51
Other inflows from investing activities including dividends	69	731	1,302
Outflows on investing activities		(830,641)	(86,453)
Purchase of securities measured at fair value through other comprehensive income		(808,531)	(83,145)
Purchase of securities measured at amortized cost		(20,548)	(1,813)
Purchase of intangible assets and property, plant and equipment		(1,562)	(788)
Other outflows on investing activities	69	-	(707)
Net cash from/used in investing activities		(45,730)	4,932

 

	Note	2023	2022
Cash flows from financing activities
Distribution of dividends		-	(2,288)
Proceeds from debt securities in issue		3,531	-
Repayment of loans and advances	69	(715)	(5,219)
Payment of lease liabilities	69	(255)	(242)
Repayment of interest on long-term liabilities	69	(283)	(342)
Net cash from financing activities		2,278	(8,091)
Total net cash flows		240	10,482
of which foreign exchange differences on cash and cash equivalents		(827)	105
Cash and cash equivalents at the beginning of the period		29,611	19,129
Cash and cash equivalents at the end of the period	69	29,851	29,611

 

 

General information about the bank

1.   Business activities of the Bank

Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna (PKO Bank Polski S.A. or the Bank) was established by virtue of a decree signed on 7 February 1919 by the Head of State Józef Piłsudski, Prime Minister Ignacy Paderewski and Hubert Linde, post and telegraph minister and simultaneously the first president, as Pocztowa Kasa Oszczędnościowa. In 1950, the Bank began operating as Powszechna Kasa Oszczędności Bank Państwowy (state-owned bank). Pursuant to the Decree of the Council of Ministers dated 18 January 2000, Powszechna Kasa Oszczędności (a state owned bank) was transformed into a state-owned joint-stock company, Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna with its head office in Warsaw, ul. Puławska 15, 02-515 Warsaw, Poland.

On 12 April 2000, Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna was registered and entered into the Commercial Register maintained by the District Court for the City of Warsaw, Commercial Court, 16th Registration Department. At present, the court with jurisdiction over the Bank’s affairs is the District Court in Warsaw, 13th Commercial Division of the National Court Register. The Bank was registered under the number KRS 0000026438 and was assigned the statistical number REGON 016298263.

According to the Bulletin of the Warsaw Stock Exchange (Ceduła Giełdowa), the Bank is classified under the macro-sector ‘‘Finance’’, in the ‘‘Banks’’ sector.

PKO Bank Polski SA is a universal deposit and credit bank which serves natural persons, legal entities and other entities, both Polish and foreign. The Bank may hold and trade in cash in foreign currencies, as well as conduct foreign exchange and foreign currency transactions, open and maintain bank accounts in banks abroad, and deposit foreign currency in those accounts.

As at 31 December 2023, organizational entities comprising the Bank, through which the Bank conducts its operations, include: the Bank’s head office in Warsaw, Biuro Maklerskie PKO Banku Polskiego S.A. (the Brokerage House), 10 specialist organizational entities, 10 regional retail branches, 7 regional corporate branches, 23 corporate centers and 882 branches. The Bank also conducts operating activities in the Federal Republic of Germany in the form of a branch (the German Branch), the Czech Republic (the Czech Branch), Slovakia (the Slovak Branch) and Romania (the Romanian Branch).

PKO Bank Polski SA is the parent entity of the PKO Bank Polski SA Group and a significant investor for associates and joint ventures of the Bank. Accordingly, PKO Bank Polski SA prepares consolidated financial statements of the Group, which include the financial data of these entities. The consolidated financial statements of the Capital Group are prepared and published at the same time as these separate financial statements of the Bank.

 

 

The PKO Bank Polski S.A. Group consists of the following subsidiaries:

No.	ENTITY NAME	REGISTERED OFFICE	ACTIVITY	OWNERSHIP INTEREST (%)
	DIRECT SUBSIDIARIES			31.12.2023	31.12.2022
1	PKO Bank Hipoteczny S.A.	Warsaw	banking activities	100	100
2	PKO Towarzystwo Funduszy Inwestycyjnych S.A.	Warsaw	investment fund management	100	100
3	PKO Leasing S.A.	Łódź	leasing and lending	100	100
4	PKO BP BANKOWY PTE S.A.	Warsaw	pension fund management	100	100
5	PKO BP Finat sp. z o.o.	Warsaw	services, including transfer agent services and outsourcing of IT specialists	100	100
6	PKO Życie Towarzystwo Ubezpieczeń S.A.	Warsaw	life insurance	100	100
7	PKO Towarzystwo Ubezpieczeń S.A.	Warsaw	other personal insurance and property insurance	100	100
8	PKO Finance AB	Sollentuna, Sweden	financial services	100	100
9	KREDOBANK S.A.	Lviv, Ukraine	banking activities	100	100
10	Merkury - fiz an1	Warsaw	investing funds collected from fund participants	100	100
11	NEPTUN - fizan1	Warsaw		100	100
12	PKO VC - fizan1	Warsaw		100	100

1 PKO Bank Polski S.A. holds investment certificates of the Fund; the percentage of the Fund’s investment certificates held is presented in the item “Share in capital”.

No.	ENTITY NAME	REGISTERED OFFICE	ACTIVITY	OWNERSHIP INTEREST (%)*
	INDIRECT SUBSIDIARIES			31.12.2023	31.12.2022
	PKO Leasing S.A. GROUP
1	PKO Agencja Ubezpieczeniowa sp. z o.o.	Warsaw	intermediation in concluding insurance agreements	100	100
	1.1 PKO Leasing Finanse sp. z o.o.	Warsaw	sale of post-lease assets	100	100
2	PKO Leasing Sverige AB	Stockholm, Sweden	leasing	100	100
3	Prime Car Management S.A.	Gdańsk	leasing, fleet management	100	100
	3.1 Futura Leasing S.A.	Gdańsk	sale of post-lease assets	100	100
	3.2 Masterlease sp. z o.o.	Gdańsk	leasing	100	100
	3.3 MasterRent24 sp. z o.o.	Gdańsk	short-term lease of cars	100	100
4	PKO Faktoring S.A.	Warsaw	factoring	100	100
5	Polish Lease Prime 1 DAC1	Dublin, Ireland	SPV established for securitization of lease receivables	-	-
	PKO Życie Towarzystwo Ubezpieczeń S.A. GROUP
6	Ubezpieczeniowe Usługi Finansowe sp. z o.o.	Warsaw	services	100	100
	KREDOBANK S.A. GROUP
7	“KREDOLEASING” sp. z o.o.	Lviv, Ukraine	leasing	100	100
	Merkury - fiz an
8	“Zarząd Majątkiem Górczewska” sp. z o.o.	Warsaw	property management	100	100
9	Molina sp. z o.o.	Warsaw	general partner in partnerships limited by shares of a fund	100	100
10	Molina spółka z ograniczoną odpowiedzialnością 1 S.K.A.	Warsaw	buying and selling real estate on own account, real estate management	100	100
11	Molina spółka z ograniczoną odpowiedzialnością 2 S.K.A. w likwidacji (in liquidation)	Warsaw		100	100
12	Molina spółka z ograniczoną odpowiedzialnością 4 S.K.A. w likwidacji (in liquidation)	Warsaw		100	100
13	Molina spółka z ograniczoną odpowiedzialnością 6 S.K.A. w likwidacji (in liquidation)	Warsaw		100	100
	NEPTUN - fizan
14	Qualia sp. z o.o.	Warsaw	after-sale services in respect of developer products	100	100
15	Sarnia Dolina sp. z o.o.	Warsaw	development activities	100	100
16	Bankowe Towarzystwo Kapitałowe S.A.	Warsaw	services	100	100
	16.1 „Inter-Risk Ukraina" spółka z dodatkową odpowiedzialnością2	Kyiv, Ukraine	debt collection	99.90	99.90
	16.2 Finansowa Kompania “Prywatne Inwestycje” sp. z o.o.3	Kyiv, Ukraine	financial services	95.4676	95.4676
	16.2.1 Finansowa Kompania “Idea Kapitał” sp. z o.o.	Lviv, Ukraine	services	100	100
17	“Sopot Zdrój" sp. z o.o.	Sopot	property management	72.9769	72.9769

* share of direct parent in the entity’s equity

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

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

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

 

The Group has the following associates and joint ventures:

No.	ENTITY NAME	REGISTERED OFFICE	ACTIVITY	OWNERSHIP INTEREST (%)*
				31.12.2023	31.12.2022
	Joint ventures of PKO Bank Polski S.A.
1	Operator Chmury Krajowej sp. z o.o.	Warsaw	cloud computing services	50	50
2	Centrum Elektronicznych Usług Płatniczych eService sp. z o.o.	Warsaw	financial services support activities, including handling transactions concluded using payment instruments	34	34
	1  EVO Payments International s.r.o.	Prague, the Czech Republic	financial services support activities	100	100
	Joint venture NEPTUN - fizan
	2  “Centrum Obsługi Biznesu” sp. z o.o.	Poznań	property management	41.45	41.45
	Joint venture PKO VC - fizan
	3  BSafer sp. z o.o.	Stalowa Wola	managing marketing consents	35.06	35.06
	Associates of PKO Bank Polski S.A.
1	Bank Pocztowy S.A.	Bydgoszcz	banking activities	25.0001	25.0001
2	Poznański Fundusz Poręczeń Kredytowych sp. z o.o.	Poznań	guarantees	33.33	33.33
3	System Ochrony Banków Komercyjnych S.A.	Warsaw	manager of the security system referred to in Article 130e of the Banking Law	21.11	21.11

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

2.   Changes in the Group companies

In 2023, the following events occurred in the structure of the Bank’s Group.

•        In January 2023, the placing of Molina spółka z ograniczoną odpowiedzialnością 2 S.K.A. w likwidacji (in liquidation) and Molina spółka z ograniczoną odpowiedzialnością 4 S.K.A. w likwidacji (in liquidation) (entities from the Merkury fiz an portfolio) was entered in the National Court Register.

•        In September 2023, the Bank's Management Board approved the merger of the investment funds NEPTUN - fiz an (the acquiring fund) and Mercury - fiz an (the acquired fund) by transferring the assets of the acquired fund to the existing acquiring fund and allocating investment certificates of the acquired fund to a participant of the acquiring fund in exchange for investment certificates of the acquired fund. This merger was effected on 30 January 2024. In the Bank's annual separate financial statements, Mercury - fiz an, in accordance with International Financial Reporting Standard (IFRS) No 5, is reported as an asset held for sale and in the Group's annual consolidated financial statements, the fund and its subsidiaries are included in the consolidation.

•        “KREDOLEASING” sp. z o.o., a subsidiary of KREDOBANK S.A., commenced leasing activities. The company launched operations to a limited extent due to the war in Ukraine, where it is based.

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

Composition of the Bank's Supervisory Board as at 31 December 2023:

•      Robert Pietryszyn – Chair of the Supervisory Board

•      Wojciech Jasiński – Deputy Chair of the Supervisory Board

•      Dominik Kaczmarski – Secretary of the Supervisory Board

•      Mariusz Andrzejewski – Member of the Supervisory Board

•      Andrzej Kisielewicz – Member of the Supervisory Board

•      Rafał Kos – Member of the Supervisory Board

•      Tomasz Kuczur – Member of the Supervisory Board

•      Maciej Łopiński – Member of the Supervisory Board 

•      Bogdan Szafrański – Member of the Supervisory Board

•      Agnieszka Winnik-Kalemba – Member of the Supervisory Board

With effect from 24 March 2023, Mr. Maciej Łopiński resigned as Chair of the Bank's Supervisory Board, while remaining a member of the Bank's Supervisory Board. The Minister of State Assets, acting as an Authorized Shareholder within the meaning of § 11(2) of the Bank's Articles of Association, in consideration of § 35(1) of the Bank's Articles of Association, in accordance with § 12(1) of the Bank's Articles of Association, appointed Mr. Robert Pietryszyn as Chair of the Bank's Supervisory Board as of 24 March 2023.

On 20 December 2023, Mr. Krzysztof Michalski resigned as a member of the Bank's Supervisory Board with immediate effect. 

On 2 February 2024, the Extraordinary General Shareholders' Meeting (EGM) of the Bank recalled the following members from the Bank's Supervisory Board: Mr. Mariusz Andrzejewski, Mr. Wojciech Jasiński, Mr. Dominik Kaczmarski, Mr. Rafał Kos, Mr. Tomasz Kuczur, Mr. Maciej Łopiński, Mr. Robert Pietryszyn, Mr. Bogdan Szafrański. At the same time, the EGM appointed the following persons to the Bank's Supervisory Board:

•        Mr. Maciej Cieślukowski,

•        Ms. Hanna Kuzińska,

•        Mr. Szymon Midera,

•        Mr. Andrzej Oślizło,

•        Mr. Marek Panfil,

•        Mr. Marek Radzikowski,

•        Mr. Paweł Waniowski,

•        Ms. Katarzyna Zimnicka-Jankowska.

The State Treasury as the Eligible Shareholder, pursuant to the Bank’s Articles of Association, appointed:

•      Ms. Katarzyna Zimnicka-Jankowska – for the position of the Chair of the Bank’s Supervisory Board

•      Mr. Paweł Waniowski - for the position of the Deputy Chair of the Bank’s Supervisory Board.

Composition of the Bank's Management Board as at 31 December 2023:

•      Dariusz Szwed – President of the Management Board

•      Maciej Brzozowski – Vice-President of the Management Board

•      Marcin Eckert – Vice-President of the Management Board

•      Paweł Gruza – Vice-President of the Management Board

•      Wojciech Iwanicki – Vice-President of the Management Board

•      Andrzej Kopyrski – Vice-President of the Management Board

•      Artur Kurcweil – Vice-President of the Management Board

•      Piotr Mazur – Vice-President of the Management Board

On 6 April 2023, Mr. Paweł Gruza resigned, effective at the end of 12 April 2023, from heading the Bank's Management Board and from applying for the position of President of the Bank's Management Board. At the same time, Mr. Paweł Gruza did not resign from his membership of the Bank's Management Board or from his position as Vice-President of the Bank's Management Board.

With effect from 13 April 2023, Mr. Mieczysław Król resigned as a member of the Bank's Management Board.

The Bank's Supervisory Board dismissed Mr. Maks Kraczkowski from the Bank's Management Board with effect from 13 April 2023.

The Bank's Supervisory Board resolved to appoint Mr. Dariusz Szwed as Vice-President of the Bank's Management Board, effective 14 April 2023, for the current joint term of office of the Bank's Management Board, which commenced on 3 July 2020, and at the same time appointed Mr. Dariusz Szwed as President of the Bank's Management Board, subject to the approval of the Polish Financial Supervision Authority and as of the date of such approval. Until the approval by the Polish Financial Supervision Authority (“PFSA”), the Supervisory Board has entrusted Mr. Dariusz Szwed with directing the work of the Management Board.

On 31 August 2023, the PFSA unanimously approved the appointment of Dariusz Szwed as President of the Management Board of PKO Bank Polski.

On 7 February 2024, Mr. Dariusz Szwed resigned from the function of the President of the Bank's Management Board as well as from the membership in the Bank's Management Board effective as of 14 February 2024.

On 14 February 2024, the Supervisory Board resolved to recall the following members from the Bank's Management Board:

•      Mr. Andrzej Kopyrski,

•      Mr. Paweł Gruza,

•      Mr. Maciej Brzozowski,

•      Mr. Marcin Eckert,

•      Mr. Wojciech Iwanicki,

•      Mr. Artur Kurcweil.

The resolutions on the aforementioned recalls became effective upon adoption.

The Supervisory Board delegated the following members of the Supervisory Board:

•      Mr. Szymon Midera to temporarily perform the duties of Vice-President of the Management Board from 15 February 2024, with assignment to manage the work of the Management Board,

•      Mr. Maciej Cieślukowski to temporarily perform the duties of Vice-President of the Management Board from 14 February 2024,

•      Mr. Marek Radzikowski to temporarily perform the duties of Vice-President of the Management Board from 14 February 2024.

4.   Approval of the financial statements

These financial statements of the Bank (the financial statements), subject to review by the Audit Committee was approved for publication by the Management Board on 5 March 2024 and adopted by the Bank's Supervisory Board on 6 March 2024.

5.   Representation by the Management Board

The Management Board hereby represents that, to the best of their knowledge, the financial statements and the comparative data have been prepared in accordance with the applicable rules of accounting practice and give a true, fair and clear view of the Bank’s financial position and results of operations.

6.   Statement of compliance

The financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU) as at 31 December 2023, and in the areas not regulated by these standards, in accordance with the requirements of the Accounting Act of 29 September 1994 and the respective secondary legislation issued on its basis, as well as the requirements relating to issuers of securities registered or applying for registration on the stock exchange official listing market.

7.   Going concern

The financial statements have been prepared on the basis of the assumption that the Bank will continue as a going concern for a period of at least 12 months from the date of approval for publication by the Management Board, i.e. from 5 March 2024. As at the date of signing these financial statements, the Bank’s Management Board is not aware of any facts or circumstances that would indicate a threat to the Bank’s ability to continue in operation as a going concern for 12 months following the publication date as a result of any intended or compulsory discontinuation or significant limitation of the Bank’s existing operations.

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

The external business environment covering the macroeconomic environment, the situation on the financial markets, the state of the Polish banking and non-banking sector, the regulatory and legal environment, as well as the factors that will affect future financial results are described in detail in the Management Board Report on the operations of the PKO Bank Polski S.A. Group (note 2 “External business conditions").

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

8.   The basis for preparation of the financial statements

The financial statements cover the year ended 31 December 2023 and include comparative data for the year ended 31 December 2022. The financial data is presented in millions of Polish zlotys (PLN), unless otherwise indicated.

Annual consolidated financial statements of PKO Bank Polski S.A. Group from 1 January 2023 to 31 December 2023 will be published and approved on the same date as the separate financial statements of PKO Bank Polski S.A. The requirement for its preparation and publication is based on legal regulations.

These financial statements have been prepared on a fair value basis in respect of financial assets and liabilities measured at fair value through profit or loss, including derivatives and financial assets measured at fair value through other comprehensive income. The remaining financial assets are disclosed at amortized cost less allowances for expected credit losses. However the remaining financial liabilities are disclosed at amortized cost. Non-current assets are measured at acquisition cost less accumulated depreciation and impairment losses. Non-current assets (or groups of such assets) classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.

While preparing financial statements, the Bank makes estimates and assumptions, which have a direct influence on both the financial statements and enclosed supplementary information. The estimates and assumptions that are used by the Bank in determining the value of assets and liabilities as well as revenues and costs, are made based on historical data and other factors which are available and considered appropriate in the given circumstances. Assumptions regarding the future and the available data are used for assessing the carrying amounts of assets and liabilities which cannot be clearly determined using other sources. In making estimates the Bank takes into consideration the reasons and sources of the uncertainties that are anticipated at the end of the reporting period. Actual results may differ from estimates.

Estimates and assumptions made by the Bank are subject to periodic reviews. Changes in estimates are recognized in the period to which they relate.

SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies and estimates and judgments applied in the preparation of these financial statements are presented in this Chapter and in individual notes further in the financial statements. In all years presented, these accounting policies are applied consistently.

As a result of the entry into force on 1 January 2023 of the amendments to IAS 1 "Presentation of Financial Statements" concerning the introduction of disclosure requirements for significant accounting policies, the Bank, as a result of its analyses and reviews, has modified the information on accounting policies contained in the financial statements with a view to the relevance of the information for users of the financial statements. The Bank was guided by the assumption that information on accounting policies for immaterial transactions should not be disclosed unless the information is material given the nature of the related transactions, other events or conditions, even if the amounts are immaterial. In addition, the Bank has reviewed its accounting policy disclosures taking into account the fact that, in accordance with the interpretation of the amendments to IAS 1, specific information is more useful than disclosures that contain only standard information or duplications or summaries of the requirements of the IFRSs, and information on specific accounting policies is particularly relevant when it relates to an area where the Group exercises its own judgement.

9.   Functional currency, presentation currency and foreign currencies

The financial statements are presented in Polish zlotys (PLN), which are the Bank’s functional and presentation currency. Items of the statement of financial position of the German and Slovak Branches are translated into the presentation currency from the functional currency (EUR) and items of the statement of financial position of the Czech Branch are translated into the presentation currency from the functional currency (CZK) using the mid-exchange rate quoted by the NBP at the end of the reporting period. Items in the Branches’ profit and loss are translated into the presentation currency using the mid-exchange rate quoted at the end of each month of the reporting period. The resulting exchange differences are recognized in other comprehensive income.

•      Transactions and balances in foreign currencies

At the end of each reporting period, the Bank translates:

•        monetary items in foreign currencies – at the closing exchange rate, i.e. the mid-exchange rate quoted by the National Bank of Poland at the end of the reporting period;

•        non-monetary items carried at historical cost in foreign currencies, such as tangible and financial fixed assets, intangible assets – at the average exchange rate quoted by the National Bank of Poland on the transaction date;

•        non-monetary items measured at fair value in a foreign currency, such as equity instruments classified as financial assets, are translated using the average exchange rates quoted by the National Bank of Poland, effective on the date on which the fair value was determined.

EUR/PLN	2023	2022
Foreign exchange rates as at the end of the period	4.3480	4.6899
Arithmetic mean of exchange rates as at the last day of each month in the period	4.5284	4.6883
The highest exchange rate during the period	4.7170	4.8698
The lowest exchange rate during the period	4.3480	4.5756

 

CZK/PLN	2023	2022
Foreign exchange rates as at the end of the period	0.1759	0.1942
Arithmetic mean of exchange rates as at the last day of each month in the period	0.1889	0.1909
The highest exchange rate during the period	0.1999	0.1980
The lowest exchange rate during the period	0.1759	0.1851

 

10.            Investments in subsidiaries, associates and joint ventures

Investments in subsidiaries, associates and joint ventures are measured at cost less impairment losses.

11.            General accounting policies for financial instruments

11.1.        Accounting for transactions

Financial assets and financial liabilities, including forward transactions and regular-way transactions, which carry an obligation or a right to purchase or sell in the future an agreed number of specified financial instruments at a fixed price, are entered into the books of account under the date of the contract, irrespective of the settlement date provided in the contract.

11.2.        Offsetting financial instruments

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

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

Financial assets are derecognized by the Bank from the statement of financial position when contractual rights to the cash flows from the financial asset expire or when the Bank does not have justified prospects for recovering the given financial asset in full or in part, or when the financial asset is transferred by the Bank to another entity.

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

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

The Bank derecognizes a financial liability (or a part of a financial liability) from its statement of financial position when the obligation specified in the contract is discharged or cancelled or expires.

11.4.        The principles for classification of financial instruments

The Bank classifies financial assets into the following categories:

•        measured at amortized cost;

•        measured at fair value through other comprehensive income;

•        measured at fair value through profit or loss.

The Bank classifies financial liabilities into the following categories:

•        measured at amortized cost;

•        measured at fair value through profit or loss.

Classification of financial assets as at the date of acquisition or origination depends on the business model adopted by the Bank for the purposes of managing a particular group of assets and on the characteristics of the contractual cash flows resulting from a single asset or group of assets. The Bank identifies the following business models:

•        the “held to collect” cash flows model, in which financial assets originated or acquired are held in order to collect benefits from contractual cash flows – this model is typical for lending activities;

•        the “held to collect and sell” cash flows model, in which financial assets originated or acquired are held to collect benefits from contractual cash flows, but they may also be sold (frequently and in transactions of a high volume) – this model is typical for liquidity management activities;

•        the residual model – other than the “held to collect” or the “held to collect and sell” cash flows model.

•      business model

The business model is determined by the Bank upon initial recognition of financial assets. The Bank determines the business model at the level of individual groups of assets, in the context of the business area in connection with which the financial assets originated or were acquired, and is based, among other things, on the following factors:

•        the method for assessing and reporting the results of the financial assets portfolio;

•        the method for managing the risk associated with such assets and the principles of remunerating the persons managing such portfolios.

In the “held to collect” business model, the Bank sets out the following classification criteria:

•        insignificant sales (less than 5% of the portfolio), even if frequent,

•        infrequent sales (no more than 1 transaction - understood as 1 sale) - occasional sales transactions during the year, even if of significant value,

•        sales close to maturity (a period of no more than 5% of the remaining period to maturity).

In addition, the Bank uses the criterion of "incidental sales" in the event of an increase in the level of credit risk, a change in laws or regulations - the sales are made in order to maintain the assumed level of regulatory capital, in accordance with the principles described in the strategy for managing such portfolios.

•      Assessment of contractual cash flow characteristics

The assessment of the contractual cash flow characteristics establishes, based on a test of contractual cash flows, whether contractual cash flows are solely payments of principal and interest on the principal amount outstanding (hereinafter “SPPI”). Interest is defined as consideration for the time value of money, credit risk relating to the principal remaining to be repaid within a specified period and other essential risks and costs associated with granting financing, as well as the profit margin.

Contractual cash flow characteristics do not affect the classification of the financial asset if:

•        their effect on the contractual cash flows from that asset could not be significant (de minimis characteristic); In order to confirm the de minimis characteristic, the Bank calculates the percentage change in cash flows for each reporting period separately, as well as cumulatively over the life of the financial instrument. A situation where the percentage change in cash flows does not exceed the materiality threshold of 5% does not constitute a breach of the SPPI test;

•        they are not genuine, i.e. they affect the contractual cash flows from the instrument only in the case of occurrence of a very rare, unusual or very unlikely event (non-genuine characteristic).

In order to make such a determination, the potential impact of the contractual cash flow characteristics in each reporting period and throughout the whole life of the financial instrument is considered.

The SPPI test is performed for each financial asset in the “held to collect” or “held to collect and sell” models upon initial recognition (and for substantial modifications after subsequent recognition of a financial asset).

In the case of financial assets having characteristics associated with sustainable development (green loans, where a customer may benefit from a reduced margin upon presentation of an energy efficiency certificate), the cash flow changes are assessed taking into account the possible impact of the characteristic associated with sustainable development in every reporting period and cumulatively throughout the loan term. It is also considered whether the impact of this characteristic on contractual cash flows is associated with credit risk. If the interest is increased or decreased in consequence of an increase or a decrease in credit risk, which indicates a positive correlation between the credit margin and the credit risk level, the SPPI criteria are met.

The Bank analyses, among others, the following features of financial assets which result in the SPPI test being failed:

•        leverage in the design of interest rate, understood as a multiplier higher than 1;

•        a creditor’s right to participate in the profit – contractual cash flows are not only the repayment of principal and interest on the outstanding principal;

•        limitation of the debtor’s liabilities (resulting in a non-recourse asset);

•        early repayment and extension option contingent on a future economic event which does not relate to the agreement, particularly an event not related to a change in the borrower’s credit risk level;

•        covenants providing for an increase or decrease in interest rate in line with an increase or decrease in credit risk, which reflects a negative relation between the loan margin and the level of credit risk;

•        interest rates unilaterally determined by the Bank (administered interest rates), if they do not approximate variable market rates.

If the qualitative assessment performed as part of the SPPI test is insufficient to determine whether the contractual cash flows are solely payments of principal and interest, a benchmark test (quantitative assessment) is performed to determine the difference between the (non-discounted) contractual cash flows and the (non-discounted) cash flows that would occur should the time value of money remain unchanged (the reference level of cash flows). The Bank performs benchmark tests mainly when there is a mismatch between the frequency of interest rate updates and the interest rate tenor, interest rate updates based on interest rate averaging or interest rate updates based on lagged values (e.g. the value applicable one month before the revaluation date). The materiality criterion for the difference in cash flows between the agreement being tested and the benchmark at a single scenario level was set at 5% for the sum of undiscounted cash flows over the agreement horizon and 5% for the sum of cash flows in the quarterly reporting periods.

11.5.        Financial assets measured at amortized cost

Financial assets (debt financial assets) are measured at amortized cost, provided that both the following conditions are met:

•        a financial asset is “held to collect”;

•        the terms and conditions of an agreement concerning the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding (the SPPI test is passed).

The Bank classifies amounts due from banks, loans and advances to customers and debt securities as financial assets measured at amortized cost.

The carrying amount of this category of assets is determined using the effective interest rate described in the note “Interest income and expenses”, which is used to determine (calculate) the interest income generated by the asset in a given period, adjusting it for expected credit loss allowances.

Assets for which the schedule of future cash flows necessary for calculating the effective interest rate cannot be determined, are not measured at amortized cost. Financial assets recognized in this item are measured at amounts due, including interest on receivables, taking into account allowances for expected credit losses (see note “Net allowances for expected credit losses”). Commissions and fees connected with the arising of or decisive for the financial qualities of such assets should be settled over the period of life of the asset using the straight-line method, and are included in commission income.

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

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

Financial assets (debt financial instruments) are measured at fair value through other comprehensive income if both the following conditions are met:

•        the financial asset is held in accordance with the business model aimed at both receiving contractual cash flows and selling the asset; and

•        the terms and conditions of an agreement concerning the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding (the SPPI test is passed).

The Bank classifies debt securities into the category of financial assets measured at fair value through other comprehensive income

For methods of determining fair value, see note “„Fair value hierarchy”.

Financial assets measured at fair value through other comprehensive income are measured at fair value. The effects of changes in the fair value of such financial assets until derecognition or reclassification are recognized in other comprehensive income, except for income of a similar nature to interest income, net allowances for expected credit losses (see note „Net allowances for expected credit losses”) and foreign exchange gains or losses, which are recognized in profit or loss.

The gain or loss recognized in other comprehensive income constitutes the difference between the fair value of a financial asset as at the measurement date and the value of the asset at amortized cost.

If a financial asset has been derecognized, accumulated gains and losses previously reported in other comprehensive income are reclassified from other comprehensive income to financial profit or loss in the form of a reclassification adjustment.

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

If financial assets do not satisfy any of the aforementioned criteria of measurement at amortized cost or at fair value through other comprehensive income, they are classified as financial assets measured at fair value through profit or loss.

In the financial statements, financial assets measured at fair value through profit or loss are presented as follows:

•          held for trading - financial assets which:

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

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

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

•          financial assets that are not held for trading and must be measured at fair value through profit or loss – financial assets that have not passed the test of contractual cash flow characteristics (irrespective of the business model); or financial assets classified to the residual model;

•          financial assets designated to be measured at fair value through profit or loss at initial recognition (option to measure at fair value through profit or loss).

The Bank classifies derivatives, loans and advances to customers that do not meet the criteria of the SPPI test due to the presence of leverage in the interest rate structure, increasing the volatility of contractual cash flows, debt securities and equity securities into the category of financial asset measurement at fair value through profit or loss.

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

Gains or losses on assets measured at fair value through profit or loss are recognized in profit or loss. Gains or losses on the measurement of the financial asset at fair value comprise the difference between the fair value of the asset and its value at amortized cost determined as at the measurement date.

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

11.8.         Equity instruments

Investments in equity instruments are measured at fair value through profit or loss.

11.9.         Reclassification of financial assets

Financial assets may be reclassified only in the event of a change in the business model relating to an asset or a group of assets resulting from the commencement or discontinuation of a material part of operations. Such changes are very infrequent. Reclassification is presented prospectively, i.e. without changing the effects of fair value measurements, allowances or accrued interest recognized to date.

The Bank has not made any changes to the business model for financial assets in 2023.

11.10.    Modifications – Changes in contractual cash flows

Modification – understood as a change in the contractual cash flows in respect of a financial asset based on an amendment to the contract, may be substantial or non-substantial. A change in the contractual cash flows resulting from execution of the terms of the contract is not a modification.

When the contractual cash flows of a financial asset are renegotiated or otherwise modified based on an amendment to the agreement or by general legislation, and the renegotiation or modification does not result in the derecognition of that financial asset (“Non-substantial modification”), the gross carrying amount of the financial asset is recalculated and gain or loss arising from such modification is recognized in profit or loss (as income or interest expense).

An adjustment of the carrying amount of a financial asset resulting from the modification is recognized in interest income/ expenses over time using the effective interest rate method. The Bank accounts for, among other things, the adjustment to the carrying amount due to recognized credit holidays using the effective interest rate method.

In certain circumstances, renegotiation or modification of contractual cash flows associated with a financial asset may lead to derecognition of the financial asset. If an existing financial asset is derecognized due to its modification, and a modified asset is subsequently recognized, the modified asset is treated as a “new” financial asset (“a substantial modification”). The new asset is recognized at the fair value and a new effective interest rate applicable to the new asset is calculated. If the characteristics of a modified new financial asset (after signing an amendment) comply with the arm’s length conditions, the carrying amount of that financial asset is equal to its fair value.

The assessment whether a given modification of financial assets is a substantial or a non-substantial modification depends on satisfaction of certain quantitative and qualitative criteria.

The following qualitative criteria have been adopted:

•        currency conversion;

•        change of debtor, other than caused by the debtor’s death;

•        introducing or removing a contractual characteristic that adversely affects the test of cash flow characteristics (SPPI test) or removal of these features;

The occurrence of at least one of these criteria results in a substantial modification.

The quantitative criterion consists of a 10% test analyzing the change in the contractual terms of a financial asset resulting in a difference between the amount of future cash flows arising from the changed financial asset discounted using the original effective interest rate and the amount of the future cash flows that would arise from the original financial asset discounted using the same interest rate. The other quantitative criterion is an increase in a debtor’s exposure, which includes an increase in the capital and off-balance sheet liabilities granted of more than 10% in relation to the amount of capital and off-balance sheet liabilities prior to the increase for each individual exposure. The third criterion is the extension of the original term of cash loans, corporate loans serviced in branch by more than 1 year and by more than double the residual term; cash loans, business loans handled by collection units by more than 1 year; housing loans serviced in branch and handled by collection units by more than 4 years.

In the event of the occurrence of a quantitative criterion (a difference) of more than 10%, the modification is considered substantial, whereas a quantitative criterion of 10% or less means that the modification is considered non-substantial.

Derecognition of financial instruments measured at fair value through other comprehensive income or at amortized cost typically relates to a sale or a substantial modification of such assets.

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

Purchased or originated credit-impaired assets (“POCI”) assets comprise debt financial assets measured at amortized cost and measured at fair value through other comprehensive income, i.e. loans and debt securities.

In the Bank, POCI assets arise mainly as a result of a restructuring process, i.e. an extension of the agreement term and a significant modification of the agreement terms, resulting in the derecognition of the asset and the re-recognition of the "new" impaired asset.

Such assets are initially recognized at the net carrying amount (net of allowances), which corresponds to their fair value. Interest income on POCI assets is calculated based on the net carrying amount using the effective interest rate adjusted for credit risk recognized over the life of the asset. The credit-adjusted effective interest rate is calculated taking into account future cash flows adjusted for the effect of credit risk recognized over the life of the asset. The change in estimates of future recoveries in further reporting periods is recognized as a gain or loss on expected credit losses.

11.12.    Measurement of financial liabilities

Liabilities in respect of a short position in securities are measured at fair value through profit or loss.

Other financial liabilities are measured at amortized cost using the effective interest rate method. In the case of financial liabilities for which it is not possible to estimate the schedule of future cash flows and the effective interest rate, they are measured at the amount due.

12.            Environmental issues

Due to the nature of its business activities, the Bank’s direct impact on the natural environment is limited to the consumption of natural resources. Indirect environmental impact involves the Bank's provision of financing the Bank's product offering. The Bank mitigates its direct impact on the environment and adjusts its lending policies addressed to the various sectors of the economy in order to also motivate its customers to mitigate their environmental impact.

The issues associated with the Bank’s environmental impact and its pro-environmental initiatives are described in the Directors’ Report of the PKO Bank Polski S.A. Group for 2023 in the following sections:

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

•        13.5 “Key non-financial performance indicators”,

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

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

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

•      Sources of uncertainty of estimates, significant judgments and the ability to continue as a going concern

The Bank is exposed to climate risk, including:

•        physical risk (e.g. risk arising from more frequent/serious weather phenomena); and

•        economic transformation and climate change risk (e.g. risk associated with transition to less polluting, low-emission economy, extremization of the seasons).

The climate risk may potentially affect the estimates and assessments of the Bank (including those used in the calculation of allowances for expected credit losses).

As detailed below, there were no material estimates or judgments associated with climate factors that would have a significant effect on the amounts recognized in these financial statements.

Climate-related issues do not present a threat to the Bank’s ability to continue in operation as a going concern in the period of 12 months after the of approval of these financial statements by the Management Board for publication.

•      classification and measurement of financial instruments at fair value

The climate risk may affect the expected cash flows from loans granted and, therefore, expose the Bank to credit losses. The borrower-specific attributes, physical risk and transition risk may (individually or in combination) affect the expected cash flows, as well as the potential future economic scenarios which are taken into account in the measurement of expected credit losses.

The impact of climate-related risk factors on the expected credit losses will vary depending on the severity and duration of the anticipated climate threats, their direct and indirect impact on the borrower and the lender’s loan portfolio, and the loan portfolio duration.

The impact of climate-related risk factors on the Bank’s expected credit losses is potentially limited, as the Bank, in view of the relatively short-term duration of many bank loan portfolios, expects the most significant effects of climate change to appear in the mid- and long-term perspective. At the same time, it is important to monitor the rate and scale of such changes and their possible effect on the measurement of the allowances for expected credit losses. In the lending process for corporate Customers and SME Customers evaluated with the use of the rating method, the Bank each time assesses the impact of environmental, social and governance factors (ESG factors) on the Customer’s creditworthiness, and identifies credit transactions with an increased financial leverage (levered transactions). The Bank also examines the impact of credit transactions on ESG and classifies them to four categories, from transactions with a positive impact on ESG to those with material negative impact. When assessing the ESG factors, the Bank takes into account such factors as the risk of climate change and its impact on the customer’s operations, potential influence of the customer on climate, factors related to human capital or health and safety, and governance factors (including the corporate culture and internal audit).

In the fair value measurement of financial instruments classified to level 3 of fair value the Bank does not use unobservable data relating to climate risk:

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

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

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

•      Property, plant and equipment, intangible assets

Climate-related issues do not affect depreciation and amortization recognized by the Bank as at 31 December 2023 and 2022. Moreover, climate-related factors did not cause any indications of impairment of non-financial assets and did not affect their recoverable value as at 31 December 2023 and 2022.

•      Inventories – Climate-related issues do not affect the carrying amount of inventories held by the Bank as at 31 December 2023 and 2022.

•      Taxes – Climate-related issues do not affect deferred income tax assets recognized by the Bank as at 31 December 2023 and 2022.

•      provisions and litigation –  As at 31 December 2023 and at 31 December 2022, there were no proceedings involving any climate or environmental issues at the Bank. In 2023-2022, there were no administrative proceedings relating to violations of environmental regulations or the Bank’s impact on climate that would lead to any fines being imposed on the Bank.

13.         Changes in accounting policies applicable from 1 January 2023 and explanation of the differences between previously published financial statements and these financial statements

The Bank has not changed its presentation in 2023 and therefore no changes have been made to the comparative figures for 2022. In 2023 the Bank implemented amendments to IAS 12 Income Taxes, whose impact was only of a presentational nature, i.e. the recognition of deferred tax on leasing transactions in, respectively, deferred tax assets and deferred tax liabilities (see note Income tax).

The Group made no other changes to accounting policies or presentation in 2023.

14.            New standards and interpretations and their amendments

•        standards and interpretations and their amendments effective from 1 January 2023

Standards and interpretations *	Description of changes and impact
IFRS 17 “Insurance contracts” (1.01.2023/ 19.11. 2021) and amendments to IFRS 17 (1.01.2023/ 8.09.2022)	IFRS 17 replaced IFRS 4 “Insurance Contracts”, which enabled entities to recognize insurance contracts according to the accounting principles based on the national standards. The aim of the new standard was to introduce new uniform rules for the measurement of insurance and reinsurance contracts, ensuring greater comparability of reporting between providers of insurance products, and to provide a number of new disclosures for the use of financial statement users. The Bank analyzed the products, i.e. performance guarantees, to identify links with the requirements of IFRS 17. The analysis confirmed that these products do not meet the definition of an insurance contract in accordance with IFRS 17, due to the fact that in this type of contracts there is no insurance risk, but credit risk related to failure to receive a refund from customers. Due to the above, the Bank recognizes and measures performance bonds in accordance with IFRS 9.
Amendments to IAS 1 “Presentation of financial statements” and IAS 8 “Accounting policies, changes in accounting estimates and errors” (1.01.2023/2.03.2022))	Amendments to IAS 1 contain guidelines on the application of the term “material” in disclosures of the accounting policies. Instead of significant accounting policies, the amendments require disclosure of material information about accounting policies, with explanations and examples of how an entity can identify material information about accounting policies. The amendments to IAS 8 introduce a new definition of accounting estimates. Under the new definition, accounting estimates are monetary amounts in the financial statements that are subject to measurement uncertainty. The introduction of the definition of accounting estimates and other amendments to IAS 8 are intended to help entities distinguish between changes in accounting policies and changes in accounting estimates. These amendments affect the scope of information presented in the Bank's annual financial statements for 2023. For details, see note “The basis for preparation of the financial statements”
amendments to IAS 1 - classification of liabilities (1.01.2024/19.12.2023)	The changes relate to the classification of liabilities in the statement of financial position as short-term or long-term. They clarify that the classification of liabilities as short-term or long-term should take into account, as at the classification date, the existence of a debt extension, regardless of the entity's intention to use it for a period longer than 12 months, and should take into account the fulfillment of the conditions of such extension as at the date of assessment, if it is conditional.  The Bank does not have any agreements containing the aforementioned provisions and therefore the Bank is not affected by the amendment.
Amendments to IAS 12 “Income taxes” (1.01.2023/11.08.2022)	Amendments to IAS 12 require that the entities recognize in the financial statements deferred tax assets and liabilities resulting from transactions, other than business combinations, in which equal amounts of deductible and taxable temporary differences arise on initial recognition. The amendment is presentational in nature. For details, see note: “Income taxes”
Amendments to IAS 12 “Income taxes” (1.01.2023/8.11.2023)	The amendments apply to entities for which OECD Pillar 2 tax regulations apply, i.e. the introduction of global minimum taxation for the largest groups earning profits in different tax jurisdictions (“Pillar”). Among other things, the amendments introduce an exception to the requirements of IAS 12, whereby entities do not recognize and disclose deferred income tax assets and liabilities related to the Pillar. The application of the exception must be disclosed by entities. In addition, the amendments also introduce, among other things, a requirement for separate disclosure of current tax expense related to the Pillar. The provisions for a global minimum tax have not yet been implemented in Poland. From 2024 onwards, they will apply in tax jurisdictions where the Bank operates in the form of foreign branches (Germany, Czech Republic, Slovakia, Romania). The Bank is in the process of estimating the future impact on its separate financial statements.
Amendment to IFRS 16 “Leases” (1.01.2024/20.11.2023)	The amendments clarify how a seller-lessee should measure sale and leaseback transactions that meet the requirements of IFRS 15 to recognize an asset as a sale. The amendments concern cases where the instalments payable under a leaseback agreement are variable, i.e. other than based on a rate or index. The amendments require the seller-lessee to measure the lease liability in such a way that it should not take into account the gains and losses associated with the retained right of use. A retrospective approach applies to these amendments. The Bank does not currently have sale and leaseback transactions with variable lease instalments other than those based on a rate or index, and therefore the Bank is not affected by the amendment.

*(the entry into force date in the EU / date of endorsement by the EU is provided in parentheses)

•           New standards and interpretations, and amendments thereto, which have been published but have not been endorsed by the European Union

Standards and interpretations *

Description of changes and impact

Amendments to IAS 7 “Statement of Cash Flows” and amendments to IFRS 7 “Financial Instruments: Disclosures” (1.01.2024/ NO DATA)

The amendments require additional disclosures for reverse factoring agreements. Entities will be required to disclose information in financial statements to enable users of financial statements: •        an assessment of how the aforementioned agreements affect the entity's liabilities and cash flows; and •        understanding the impact of the aforementioned agreements on the entity's exposure to liquidity risk and the impact when the agreements expire. In addition, the amendments complement the current IFRS requirements by adding additional disclosure requirements to IAS 7 on, among other things: •        terms and conditions of reverse factoring agreements; •        disclosures at the beginning and end of the reporting period of the carrying amount of the aforementioned liabilities, the value of liabilities paid, the timing of payments. The IASB has decided that, in most cases, entities can present aggregated information on the above matters. The Bank does not currently have any reverse factoring transactions relating to the above amendments and therefore the Bank should not be affected by the amendment.

*(the entry into force date in the EU / date of endorsement by the EU is provided in parentheses)

SUPPLEMENTARY NOTES TO THE INCOME STATEMENT

15.            Interest income and expense

Accounting policies

Interest income and expenses comprise interest, including premiums and discounts in respect of financial instruments measured at amortized cost and instruments measured at fair value through other comprehensive income, as well as income similar in nature to interest on instruments measured at fair value through profit or loss, including interest income and expense on derivative hedging instruments. Interest income and expenses also include fees and commissions received and paid, which are deferred using the effective interest rate and which are taken into account in the measurement of the financial instrument, including costs of remuneration of agents and intermediaries for the sale of the financial instrument, costs of employee bonuses to the extent that relate directly to selling credit products.

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

Interest income and expense are recognized using the effective interest rate method, except for:

•        POCI financial assets. Interest income on these assets is calculated on the net carrying amount using the effective interest rate, adjusted for the credit risk recognized for the entire life of the asset, with the calculation of interest income being made based on the net carrying amount calculated using the previous month's net-to-gross ratio;

•        non-POCI financial assets that subsequently became POCI assets. Interest income on these assets is calculated on the net carrying amount using the original effective interest rate from the moment of recognizing premises for impairment of the asset, with the calculation of interest income for stage 3 being made based on the net carrying amount calculated using the previous month's net-to-gross ratio.

Interest income also includes:

•        the impact of the European Union Court of Justice's ruling on consumer rights to reduce the cost of loans repaid before maturity by deducting interest income, as the estimated difference between the outstanding commission at the effective interest rate at the date of the expected early repayment of the loan and the commission that would have been accounted for on a straight-line basis, according to which the Bank reimburses the commission. The estimates are based on historical early repayment periods and their probability;

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

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

•        Income and expenses resulting from sales of insurance products linked to loans and advances

Due to the fact that the Bank offers insurance products along with loans and advances and it is impossible to purchase an insurance product from the Bank that is identical as to legal form, conditions and economic content without purchasing a loan or an advance, the payments received by the Bank for the insurance products sold are treated as an integral part of the remuneration for the financial instruments offered.

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

Remuneration is divided into the commission portion and the interest portion based on the proportion of the fair value of the financial instrument and the fair value of the intermediation service to the sum of these two values, in accordance with the relative fair value model comprising a range of different parameters, including the average effective interest rate on the financial instrument, the average contractual and economic (actual) loan or lease term, the average insurance premium amount, the term of the insurance policy, the independent insurance agent’s commission.

The fair value of a financial instrument is measured according to the income-based approach, involving the conversion of future cash flows to their present value using a discount rate consisting of a risk-free rate determined in relation to the average yield on 5-year and 10-year bonds in the past year, the risk premium determined in relation to the annual costs of credit risk and exceeding the credit risk premium, which reflects all other factors that the market participants would take into account in the fair value measurement under the current circumstances.

On the other hand, measurement of the fair value of the insurance intermediation service is based on the market approach, which consists in referring to prices and other information on identical or similar comparable market transactions.

Costs directly attributable to selling insurance products are accounted for in the same manner as the revenue, i.e. as a component of the amortized cost of a financial instrument or on a one-off basis.

The Bank makes periodical estimations of the remuneration amount that will be recoverable in the future due to the early termination of the insurance contract based on historical data on premiums collected and refunds made. The provision for future returns, according to the relative fair value model, is allocated to the financial instrument and recognized as a deduction from its gross carrying amount and to the insurance service – recognized under provisions.

The Bank reviews the correctness of the adopted parameters used in the relative fair value model and the ratio of provisions for refunds whenever the Bank becomes aware of significant changes in this respect, at least once a year.

Financial information

INTEREST AND SIMILAR INCOME	2023	2022
Loans and other amounts due from banks and the Central Bank1	1,905	1,401
Debt securities2:	6,609	3,684
measured at amortized cost	2,198	1,497
measured at fair value through other comprehensive income	4,371	2,158
measured at fair value through profit or loss	40	29
Loans and advances to customers²	20,372	13,410
measured at amortized cost	18,882	12,004
measured at fair value through other comprehensive income	982	883
measured at fair value through profit or loss	508	523
Amounts due to customers (excluding loans and advances received)	-	29
Total	28,886	18,524
of which: interest income on impaired financial instruments	528	368
Interest income calculated using the effective interest rate method on financial instruments measured:	28,338	17,972
at amortized cost	22,985	14,931
at fair value through other comprehensive income	5,353	3,041
Income similar to interest income on instruments measured at fair value through profit or loss	548	552
Total	28,886	18,524

1 Under loans and other amounts due from banks, the Bank recognized interest income on funds in call accounts (central clearing through a clearing broker) of PLN 205 million as at 31 December 2023 (PLN 297 million as at 31 December 2022) and interest income on funds in the current account with the NBP of PLN 762 million (PLN 560 million as at 31 December 2022).

2  The increase in interest income is mainly due to the higher level of market interest rates, increase in the securities portfolio and a change in the structure of the average volume of the loan portfolio (increase in the share of corporate and consumer loans at the expense of the share of housing loans in foreign currencies and PLN. The interest income from loans and advances to customers in the 12 months ended 31 December 2022 includes the effect of the Act on crowdfunding for business ventures and assistance for borrowers (so-called "credit holidays") in the amount of PLN 2,443 million (note “Loans and advances to customers”).

INTEREST EXPENSE	2023	2022
Hedging derivatives1	(3,404)	(3,142)
Amounts due to banks	(86)	(134)
Interbank deposits	-	(6)
Loans and advances received	(39)	(198)
Leases	(30)	(14)
Amounts due to customers2	(7,705)	(3,642)
Issues of securities	(180)	-
Subordinated liabilities	(227)	(164)
Total	(11,671)	(7,300)

1 The increase in interest expense related to hedging derivatives of PLN 262 million relates mainly to IRS transactions (payments made at a floating rate exceed those received at a fixed rate).

2  The increase in costs by PLN 4,063 million is mainly related to an increase in average interest rates on deposits associated with increases in PLN interest rates following the MPC's decisions and changes in the term structure involving an increase in the share of term deposits bearing interest at higher rates.

 

	31.12.2023	31.12.2022
Interest on funds in the mandatory reserve account	5.75%	6.75%

 

During the course of a working day, the Bank may use funds from the mandatory reserve accounts for ongoing payments, on the basis of an instruction submitted to the National Bank of Poland (NBP). However, the Bank must ensure that the average monthly balance on this account complies with the requirements set in the mandatory reserve declaration.

16.            Fee and commission income and expenses

Accounting policies

The Bank recognizes fee and commission income that is not accounted for using the effective interest rate in such a manner so as to reflect the transfer of the goods or services promised to a customer in an amount reflecting the consideration to which – in accordance with the Bank’s expectations – it will be entitled in return for the goods or services in accordance with the five stage model for recognizing revenue.

Fee and commission income includes one-off amounts charged by the Bank for services not related directly to the creation of financial assets, as well as amounts charged by the Bank for services performed, which are recognized on a straight-line basis. Fee and commission income also includes fees and commissions recognized on a straight- line basis, received on loans and advances granted with an unspecified schedule of future cash flows for which the effective interest rate cannot be determined.

Upon concluding a contract, the Bank assesses whether it will be capable of fulfilling the commitment to perform over time or at a point in time.

The accounting policies for recognizing commission income on sales of insurance products linked to loans and advances are described in note “Interest income and expenses”.

The foreign exchange margin included in the exchange rates offered to the Bank’s customers when providing foreign currency purchase/sale services is presented under commission income in the line “margin on foreign exchange transactions”. The exchange rate margin in customer transactions is calculated as the difference between the exchange rate at which the foreign exchange transaction was executed (the buy/sell rate from the bank's table of exchange rates, the negotiated rate, the rate from Table C of the National Bank of Poland) and the averaged current day buy and sell rate from the bank's table of exchange rates, with the exception of exchange office transactions and spot foreign exchange transactions, for which the exchange rate margin is calculated as the difference between the rate at which the foreign exchange position is closed and the transaction rate determined upon conclusion of the transaction.

Financial information

FEE AND COMMISSION INCOME	2023	2022
Loans and insurance	1,032	965
lending	803	758
offering insurance products	229	207
Investment funds, pension funds and brokerage activities	370	407
servicing investment funds and OFE (including management fees)	12	17
servicing and selling investment and insurance products	6	6
brokerage activities	352	384
Cards	2,151	1,958
Margins on foreign exchange transactions	669	727
Bank accounts and other	1,299	1,260
servicing bank accounts	945	951
cash operations	100	82
servicing foreign mass transactions	136	112
customer orders	54	63
fiduciary services	9	9
Other	55	43
Total, of which:	5,521	5,317
income from financial instruments not measured at fair value through profit or loss	5,416	5,208

Fiduciary activities

The Bank is a direct participant in the Central Securities Depository of Poland (Krajowy Depozyt Papierów Wartościowych) and the Securities Register (at the National Bank of Poland). The Parent Company maintains securities accounts and handles transactions on the domestic and foreign markets, provides fiduciary services and performs a depositary role for pension and investment funds. Assets held by the Parent Company as part of providing fiduciary services have not been disclosed in these financial statements since they do not meet the definition of the Parent Company’s assets. Revenue from the provision of these services is recognized in commission income, line "fiduciary services".

FEE AND COMMISSION EXPENSE	2023	2022
Loans and insurance	(109)	(88)
commission paid to external entities for product sales	(30)	(22)
cost of construction project supervision and property appraisal	(41)	(27)
fees to Biuro Informacji Kredytowej	(23)	(22)
loan handling	(15)	(17)
Investment funds, pension funds and brokerage activities	(30)	(29)
Cards	(1,271)	(1,234)
Bank accounts and other	(200)	(148)
clearing services	(59)	(53)
commissions for operating services provided by banks	(12)	(13)
sending short text messages (SMS)	(55)	(50)
selling banking products	(1)	(1)
servicing foreign mass transactions	(22)	(22)
Other1	(51)	(9)
Total	(1,610)	(1,499)

1 The item "other" includes costs for the guarantee agreement entered into by the Bank on 27 February 2023 (see the note "Contingent liabilities and off-balance sheet liabilities received and granted” for details).

 

17.            Fee and commission income by segment

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

Financial information

INTEREST INCOME BY SEGMENT	2023
	Retail segment	Corporate and investment segment	Transfer center and other	Total
Loans and other amounts due from banks and the Central Bank	-	1,143	762	1,905
Debt securities	-	4,377	2,232	6,609
Loans and advances to customers	14,339	6,033	-	20,372
Total	14,339	11,553	2,994	28,886

 

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

 

FEE AND COMMISSION INCOME BY SEGMENT	2023
	Retail segment	Corporate and investment segment	Transfer center and other	Total
Loans and insurance	691	341	-	1,032
lending	462	341	-	803
offering insurance products	229	-	-	229
Investment funds, pension funds and brokerage activities	249	121	-	370
servicing investment funds and OFE (including management fees)	6	6	-	12
servicing and selling investment and insurance products	6	-	-	6
brokerage activities	237	115	-	352
Cards	2,118	33	-	2,151
Margins on foreign exchange transactions	489	180	-	669
Bank accounts and other	994	305	-	1,299
servicing bank accounts	797	148	-	945
cash operations	52	48	-	100
servicing foreign mass transactions	86	50	-	136
customer orders	16	38	-	54
fiduciary services	-	9	-	9
Other	43	12	-	55
Total	4,541	980	-	5,521

 

FEE AND COMMISSION INCOME BY SEGMENT	2022
	Retail segment	Corporate and investment segment	Transfer center and other	Total
Loans and insurance	673	292	-	965
lending	466	292	-	758
offering insurance products	207	-	-	207
Investment funds, pension funds and brokerage activities	283	124	-	407
servicing investment funds and OFE (including management fees)	9	8	-	17
servicing and selling investment and insurance products	6	-	-	6
brokerage activities	268	116	-	384
Cards	1,906	52	-	1,958
Margins on foreign exchange transactions	521	206	-	727
Bank accounts and other	970	290	-	1,260
servicing bank accounts	801	150	-	951
cash operations	37	45	-	82
servicing foreign mass transactions	69	43	-	112
customer orders	27	36	-	63
fiduciary services	-	9	-	9
Other	36	7	-	43
Total	4,353	964	-	5,317

 

18.            Dividend income

Accounting policies:

Dividend income is recognized on the date when the shareholders’ rights to its receipt is determined, if the Bank is entitled to dividend.

Financial information

DIVIDEND INCOME	2023	2022
from subsidiaries	611	423
from associates and joint ventures	57	52
from financial assets held for trading	2	1
from financial instruments not held for trading, measured at fair value through profit or loss	13	12
Total	683	488

19.            Gains/(losses) on financial transactions

Accounting policies:

The net gain/(loss) on financial transactions includes gains and losses arising from disposal of financial instruments designated as financial assets / liabilities measured at fair value through profit or loss and the effect of their measurement at fair value. This item also includes the ineffective portion of cash flow hedges in the case of hedging strategies in which IRS contracts are the hedging instrument, as well as gains and losses on the hedging instrument and hedged item relating to the hedged risk (fair value hedges).

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

 

Financial information

GAINS/(LOSSES) ON FINANCIAL TRANSACTIONS	2023	2022
Financial instruments held for trading, of which:	76	399
Derivatives¹	55	399
Equity instruments	4	(2)
Debt securities	16	2
Other	1	-
Financial instruments not held for trading, measured at fair value through profit or loss, of which:	46	(26)
Equity instruments	81	13
Debt securities	12	6
Loans and advances to customers	(47)	(45)
Hedge accounting	(10)	(17)
Total	112	356

1 Of which due to share options and stock exchange indices PLN 86 million (in the corresponding period of 2022 - PLN 212 million) and IRS: PLN - 66 million (in the corresponding period of 2022 - PLN 145 million).

20.            Net foreign exchange gains/ (losses)

Accounting policies:

Net foreign exchange gains/(losses) comprise foreign exchange gains and losses, both realized and unrealized, resulting from valuation of assets and liabilities denominated in foreign currencies and from the fair value measurement of foreign currency derivatives (FX forward, FX swap, CIRS and foreign exchange options). In the case of the hedging strategies in which CIRS contracts are the hedging instrument, this item also includes the ineffective portion of cash flow hedges (for details, please see the note “Hedge accounting and other derivative instruments”).

Allowances for expected credit losses in respect of loans, advances and other foreign currency-denominated receivables, which are recorded in PLN, are revalued when the measurement of the underlying foreign currency-denominated assets changes. The effect of such remeasurement due to foreign exchange differences is recognized in net foreign exchange gains/(losses).

Financial information

An increase in net foreign exchange gains/(losses) mainly from an improvement in the net income on currency derivatives.

	2023	2022
Net foreign exchange gains/ (losses)	81	(108)

 

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

Accounting policies: Derecognition of financial instruments measured at fair value through other comprehensive income or at amortized cost typically relates to a sale or a substantial modification of such assets “Modifications – Changes in contractual cash flows”.

related notes: „Statement of comprehensive income”

Financial information

GAINS/(LOSSES) ON DERECOGNITION OF FINANCIAL INSTRUMENTS	2023	2022
measured at fair value through other comprehensive income	30	(24)
measured at amortized cost	22	13
Total	52	(11)

22.            Other operating income and expenses

Accounting policies:

Other operating income comprises income not directly related to banking activities. Other operating income mainly includes gains on sale/scrapping of property, plant and equipment, intangible assets and assets for sale, irrecoverable receivables collected, legal damages, fines and penalties received, and income from lease/rental of properties. Other income also includes reversed provisions for legal claims, excluding legal claims relating to mortgage loans in foreign currencies and income in respect of the valuation and sale of CO2 emission allowances.

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

Other operating expenses also include provisions recognized for legal claims, excluding legal claims relating to mortgage loans in foreign currencies and income and costs in respect of the valuation and sale of CO2 emission allowances.

The Bank enters into purchase and sale transactions for commodity forward contracts for CO2 emission allowances. The result from the measurement at fair value and the result from the realization of these derivative transactions are presented in the result on financial transactions. These contracts are settled through the physical delivery of a commodity, i.e. the transfer of CO2 allowances between the account of the transferor and the account of the buyer in the EU Registry in exchange for a cash consideration. CO2 emission allowances purchased by the Bank, as a tradable commodity for resale, are included in inventory and are measured at fair value. The results of the valuation of these assets between the date of acquisition and the date of sale, as well as the result of their sale, are recognized in other operating income and expenses.

Financial information

OTHER OPERATING INCOME	2023	2022
Gains on sale or scrapping of property, plant and equipment, intangible assets and assets held for sale	17	17
Damages, compensation and penalties received	12	15
Ancillary income	32	33
Recovery of receivables expired, forgiven or written off	7	1
Reversal of provision for future payments	4	-
Reversal of provision recognized for legal claims excluding legal claims relating to repaid mortgage loans in convertible currencies	3	3
Income from sale of CO2 emission allowances	17	43
Other1	65	76
Total	157	188

1 including revenue from the sale of coins for collectors' purposes of PLN 4 million (PLN 10 million in 2022).

 

OTHER OPERATING EXPENSES	2023	2022
Losses on sale or scrapping of property, plant and equipment, intangible assets and assets held for sale	(3)	(3)
Damages, compensation and penalties paid	(5)	(1)
Donations made	(27)	(51)
Sundry expenses	(19)	(15)
Recognition of provision for potential refunds of fees and commission to customers	-	(13)
Recognition of provision for future payments	(1)	(2)
Recognition of provision for legal claims excluding legal claims relating to repaid mortgage loans in convertible currencies	(15)	(7)
Costs from sale of CO2 emission allowances	(44)	(25)
Other1	(94)	(38)
Total	(208)	(155)

1 including costs of external services incurred in connection with debt collection in the amount of PLN 26 million (in 2022 - PLN 20 million), litigation costs, including legal representation, reimbursed to borrowers under settlements concerning loans granted in CHF in the amount of PLN 29 million (in 2022 - PLN 0 million).

23.            Net allowances for expected credit losses

Accounting policies:

The allowance for expected credit losses is recognized in the financial statements in the following manner:

•        Financial assets measured at amortized cost: the allowance reduces the gross carrying amount of the financial asset (adjusted for adjustments to the gross carrying amount for legal risk of mortgage loans in convertible currencies, statutory credit holidays and for potential reimbursements to customers for the expected early repayment of consumer and mortgage loans); changes in the allowances amount are recognized in the income statement;

•        Off-balance sheet liabilities of a financial nature and financial guarantees: the allowance is presented as a provision under liabilities; changes in the provisions amount are recognized in the income statement;

•        Financial instruments measured at fair value through other comprehensive income: the carrying amount of assets recognized at fair value is not additionally decreased by the allowances; however, each change in the measurement is divided into the impairment component, which is recognized in the income statement, and the component relating to other changes in the fair value measurement, which is recognized in other comprehensive income;

Estimates and judgments:

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

•      measurement and assessment of credit risk: expected credit losses

With regard to impairment, the Bank applies the concept of expected losses.

The impairment model is applicable to financial assets that are not measured at fair value through profit or loss, comprising:

•        debt financial instruments comprising credit exposures and securities;

•        other financial assets;

•        off-balance sheet financial and guarantee liabilities.

Impairment allowances for exposure reflect 12-month or lifetime expected credit losses on such exposures for a given financial asset.

The time horizon of an expected loss depends on whether a significant increase in credit risk occurred since the moment of initial recognition. Based on this criterion, financial assets are allocated to 3 stages:

•        Stage 1 – exposures in which the credit risk is not significantly higher than upon initial recognition and no evidence of impairment is found;

•        Stage 2 – exposures in which the credit risk is significantly higher than upon initial recognition, but no evidence of impairment is found;

•        Stage 3 –assets in respect of which evidence of impairment is recognized, including assets granted or purchased with evidence of impairment recognized (upon being granted or purchased).

•      Significant increase in credit risk

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

•        Mortgage and other retail exposures

The Bank uses a model based on a marginal PD calculation, i.e. the probability of default in a given month, to assess a significant increase in credit risk for mortgage exposures and other retail exposures. This probability depends on the time that has passed from originating the exposure. This enables reflecting the differences in credit quality that are typical of exposures to natural persons over the lifetime of the exposure. The marginal PD curves were determined on the basis of historic data at the level of homogeneous portfolios, which are separated according to the type of product, the year of their origination, the loan currency and the credit quality at the time of origination. The marginal PD is attributed to individual exposures by scaling the curve at the level of the portfolio to the individual assessment of the exposure / Customer using application models (using data from loan applications) and behavioral models. The Bank identifies the premise of a significant increase in credit risk for a given exposure by comparing individual PD curves over the exposure horizon as at the date of initial recognition and as at the reporting date. Only the parts of the original and current PD curves which correspond to the period from the reporting date to the date of maturity of the exposure are compared as at each reporting date. The comparison is based on the average probability of default over the life of the loan in the period under review adjusted for current and forecast macroeconomic indicators.

The result of this comparison, referred to as α statistics, is referred to the threshold value above which an increase in credit risk is considered significant. The threshold value is determined on the basis of the historical relationship between the values of the α statistics and the default arising. In this process the following probabilities are minimized:

•           classification into a set of credit exposures with a significant increase in the level of credit risk (based on the α statistic), for which no event of default took place during the audited period (type I error)

•           non-classification into the set of credit exposures with a significant increase in the level of credit risk (based on the statistics) for which an event of default occurred during the audited period (type II error).

According to data that is applicable at the end of 2023, an increase in the PD parameter by at least 2.5 compared to the value at the time of its recognition in the Bank’s accounts in respect of all exposures.

With respect to credit exposures for which the current risk of default does not exceed the level provided for in the price of the loan, the results of the comparison of the probability of default curves as at the date of initial recognition and as at the reporting date do not signify a significant increase in credit risk.

•        Exposures to institutional customers

In order to assess the significant increase in credit risk for institutional customers the Bank applies the model based on the Markov chains. Historical data is used to build matrices of probabilities of Customers migrating between individual categories of risk that are determined on the basis of the Bank’s rating and scoring models. These migrations are determined within homogeneous portfolios, classified using, inter alia, customer and customer segment assessment methodologies.

An individual highest acceptable value of the probability of default is set for each category of risk and portfolio on the date of the initial recognition of the credit exposure, which, if exceeded, is identified as a significant increase in credit risk. This value is set on the basis of the average probability of default for categories of risk worse than that at initial recognition of the exposure, weighted by the probability of transition to those categories of risk in the given time horizon.

In accordance with the data as at the end of 2023, the minimum deterioration in the category of risk which constitutes a premise of a significant increase in credit risk compared to the current category of risk were as follows:

Risk category	PD range	Minimum range of the risk category deterioration indicating a significant increase in credit risk1
A-B	0.0 – 0.90%	2 categories
C	0.90 – 1.78%	2 categories
D	1.78 – 3.55%	2 categories
E	3.55-7.07%	2 categories
F	7.07-14.07%	1 category
G	14.07-99.99%	not applicable 2

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

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

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

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

•        restructuring measures introducing forbearance for a debtor in financial difficulties;

•        delays in repayment of a material amount of principal or interest (understood as an amount exceeding PLN 400 for retail exposures or PLN 2,000 for other credit exposures and 1% of the debtor's total cumulative loan exposure to the Bank and the other entities of the Bank's Group) exceeding 30 days;

•        identified early warning signals as part of the monitoring process, suggesting a material increase in credit risk (including changes in collateral, modifications of the terms of agreement with the customer, in particular relating to the schedule of loan utilization or repayment, reduction of the Bank’s exposure to the customer);

•        significant increase in the LTV ratio;

•        quarantine for Stage 2 exposures, which have not shown premises for impairment in the previous 3 months.

•        filing for consumer bankruptcy by any of the joint borrowers;

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

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

•      Impaired loans and definition of default

The premise for the impairment of a credit exposure is, in particular:

•        delays in repayment of a material amount of principal or interest (understood as an amount exceeding PLN 400 for retail exposures or PLN 2,000 for other credit exposures and 1% of the debtor's total cumulative loan exposure to the Bank and the other entities of the Bank's Group) exceeding 90 days;

•        a deterioration in the debtor’s economic and financial position during the loan term or a risk to the completion of the investment project financed, expressed by the classification into a rating class or risk category suggesting a material risk of default (rating H);

•        the conclusion of a restructuring agreement or the application of relief in debt repayment, which is forced by economic or legal reasons arising from the customer’s financial difficulties (until the claim is recognized as remedied);

•        filing a motion for the debtor’s bankruptcy, placing the debtor into liquidation or the opening of enforcement proceedings with respect to the debtor;

•        declaration of consumer bankruptcy by any of the joint borrowers;

•        information on death of all borrowers who are natural persons or entrepreneurs running individual business activity or a civil partnership (unless such business activity is continued by a successor);

•        the occurrence of other events indicating the debtor's inability to repay his total liability under the agreement.

In accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms (“CRR”), the Bank defines a state of default if it assesses that the debtor is unable to repay the loan liability without resorting to exercising the collateral or if the exposure is overdue more than 90 days. The premises of default are identical to the premises for impairment of the exposure.

Both the process of assessing a material increase in credit risk and the process of calculating the expected loss are conducted monthly at the level of individual exposures. They use a dedicated computing environment that allows for the distribution of the results to the Bank’s internal units.

The Bank has separated the portfolio of financial assets with low credit risk by classifying financial instruments for which the average long-term default rate does not exceed the probability of default specified by the rating agency for the worst class investment rating. This portfolio includes, in particular, exposures to banks, governments, local authority units and housing cooperatives and communities.

•      Calculation of the expected credit loss

The model for the calculation of the expected credit loss is based on applying detailed segmentation to the credit portfolio, taking into account the following characteristics at product and customer level:

•        type of credit product;

•        currency of the product;

•        year of granting;

•        assessment of risk of the customer’s default;

•        the customer’s business segment;

•        method of assessing the customer risk.

The Bank uses the calculated expected credit losses on an individual and on a portfolio basis.

The individual basis is used in respect of individually significant exposures. The expected credit loss from the exposure is determined as the difference between its gross carrying amount (in the case of an off-balance sheet credit exposure – the value of its balance sheet equivalent) and the present value of the expected future cash flows, established by taking into account the possible scenarios regarding the performance of the contract and the management of credit exposure, weighted by the probability of their realization.

The portfolio method is applied to exposures that are not individually significant and in the event of a failure to identify premises of impairment.

In the portfolio method, the expected loss is calculated as the product of the credit risk parameters: the probability of default (PD), the loss given default (LGD) and the value of the exposure at default (EAD); each of these parameters assumes the form of a vector representing the number of months covering the horizon of estimation of the credit loss.

The Bank sets this horizon for retail exposures without a repayment schedule on the basis of behavioral data from historical observations. The loss expected both in the entire duration of the exposure and in a period of 12 months is the sum of expected losses in the individual periods discounted using the effective interest rate. The Bank adjusts the parameter specifying the level of exposure at the time of default by the future repayments arising from the schedule and potential overpayments and underpayments to specify the value of the asset at the time of default in a given period.

In the calculations of expected credit losses the estimates concerning future macroeconomic conditions are taken into account. In terms of portfolio analysis, the impact of macroeconomic scenarios is taken into account in the amount of the individual risk parameters. The methodology for calculating the risk parameters includes the study of the dependencies of these parameters on the macroeconomic conditions based on historical data. Three macroeconomic scenarios based on the Bank’s own projections are used for calculating the expected loss:

•        a baseline scenario with a probability of 75%

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

The scope of the projected indicators includes:

•        GDP growth rate,

•        unemployment rate,

•        WIBOR 3M rate,

•        SARON 3M rate,

•        CHF/PLN exchange rate,

•        property price index

•        NBP reference rate.

The final expected loss is the weighted average probability of scenarios from expected losses corresponding to individual scenarios.

The Bank assures compliance of the macroeconomic scenarios used for the calculation of the risk parameters with macroeconomic scenarios used for the credit risk budgeting processes.

The baseline scenario uses the base macroeconomic projections. The projections are prepared on the basis of the quantitative models, taking into account adjustments for the presence of one-off events.

The extreme scenarios apply to cases of so-called internal shock, as a result of which the so-called external variables (foreign interest rates) do not change with respect to the baseline scenario. The extreme scenarios are developed on the basis of a statistical and econometric analysis, i.e. they do not reflect the events described, but the projected path. Two scenarios are identified, optimistic and pessimistic.

The share of the scenarios for the GDP path (GDP growth rate) that falls between the optimistic and the pessimistic scenario is referred to as the probability of the baseline scenario. Such an assumption is used to project GDP growth, using a potential rate of growth of the Polish economy that varies over time, calculated with the use of quarterly data provided by the Central Statistical Office.

The values of other macroeconomic variables used in the scenarios (rate of unemployment, property price index) are estimated after the extreme paths of GDP growth are defined.

The rate of unemployment is calculated on the basis of the quantified dependence on the difference between GDP growth and the potential rate of economic growth. The result is adjusted for significant structural changes taking place in the Polish economy, which are not encompassed by the quantitative model, in particular:

•        the ageing of the Polish population (and the appearance of unsatisfied demand for labor, which will limit the scale of increase in the rate of unemployment in a situation in an economic downturn);

•        the Polish labor market is nearing full employment (restrictions of supply mean that there is increasingly less space for a further decline in the rate of unemployment);

•        the inflow of immigrants (only partly included in the official statistics).

The level of the property price index is set on the basis of changes in GDP, taking into account the conditions of supply and demand on the market based on the data and trends presented by the NBP in the publication “Information on housing prices and the situation on the residential and commercial property market in Poland” and the Bank’s own analyses.

The projections for deposit rates are mainly prepared on the basis of assumptions regarding central bank interest rates.

The CHF/PLN exchange rate is a cross rate of the EUR/PLN and EUR/CHF exchange rates. Its projections are a combination of projections for these two rates. The EUR/PLN and EUR/CHF projections are prepared on the basis of a macroeconomic analysis (current and historical) based on econometric methods, as well as on a technical analysis of the financial markets.

In 2023, the macroeconomic model incorporates factors to reflect current domestic and global events: the impact of the current macroeconomic situation (high inflation) on customers’ ability to settle their obligations, as well as the impact of Russia’s invasion of Ukraine on fuel prices and, consequently, on the health of companies. Additional factors in the model include: 

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

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

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

The applied approach to the impact of macroeconomic forecasts on risk parameters describes the situation simultaneously in all branches of the economy and may not take into account the problems of individual industries caused by the pandemic, which is why the Bank has conducted additional analyses of the loan portfolio. These analyses, carried out by risk experts, mainly included an assessment of the impact of specific macroeconomic conditions not taken into account in the portfolio approach and helped identify clients and industries particularly affected by the current economic situation. This is particularly the case in the construction, automotive, office and retail rental sectors, organic fertiliser production and energy-intensive industries. Exposures with highest PD values (D rating or worse) belonging to identified industries were marked with the indication of "significant increase in credit risk" and covered by increased write-downs. In 2023, as a result of the above measures, the Bank increased the write-downs for expected credit losses by PLN 272 million, which represents approx. 16% of the value of write-downs on the entire portfolio of corporate loans classified as Stage 2.

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

scenario as at 31.12.2023	Baseline			optimistic			pessimistic
probability	75%			5%			20%
	2024	2025	2026	2024	2025	2026	2024	2025	2026
GDP growth y/y	3.9	3.8	3.2	9.4	8.8	4.7	(1.7)	(1.7)	1.3
Unemployment rate	2.7	2.7	2.5	2.4	2.5	2.7	4.3	4.4	3.0
Property price index	107.7	115.4	118.3	115.1	130.7	134.0	100.6	101.6	104.2
WIBOR 3M (%)	5.6	5.0	3.7	6.6	5.7	3.9	4.3	2.5	2.8
CHF/PLN	4.4	4.1	3.9	4.1	3.8	3.6	5.1	4.9	4.5

 

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

 

The table below presents the estimated sensitivity of the level of allowances for expected credit losses to macroeconomic conditions, calculated as the change in the level of allowances for expected credit losses in respect of not impaired exposures resulting from the materialization of particular macroeconomic scenarios as at 31 December 2023 and 31 December 2022.

estimated change in the level of allowances for expected credit losses for not impaired exposures due to the materialization of particular macroeconomic scenarios	31.12.2023		31.12.2022
	optimistic	pessimistic	optimistic	pessimistic
in million	(690)	614	(290)	527

 

The table below presents the estimated sensitivity of the level of allowances for expected losses as a result of scenarios of deterioration or improvement in risk parameters as at 31 December 2023 and 31 December 2022.

ESTIMATED CHANGE IN THE LEVEL OF IMPAIRMENT ALLOWANCE RESULTING FROM MATERIALIZATION OF A SCENARIO OF THE RISK PARAMETERS, THE DETERIORATION OR IMPROVEMENT, OF WHICH:1	scenario +10%	scenario (10%)	scenario +10%	scenario (10%)
	31.12.2023		31.12.2022
Changes in the present value of estimated cash flows for the portfolio assessed on an individual basis
SECURITIES	-	-	(37)	49
Stage 1	-	-	-	12
Stage 3	-	-	(37)	37
LOANS AND ADVANCES TO CUSTOMERS	(71)	107	(92)	138
Stage 3	(71)	107	(92)	138
Changes in the probability of default
SECURITIES	9	(9)	9	(9)
Stage 1	8	(8)	8	(8)
Stage 2	1	(1)	1	(1)
LOANS AND ADVANCES TO CUSTOMERS	233	(256)	201	(237)
Stage 1	116	(116)	101	(107)
Stage 2	117	(140)	100	(130)
Changes in recovery rates
SECURITIES	(9)	9	(9)	9
Stage 1	(7)	7	(8)	8
Stage 2	(2)	2	(1)	1
LOANS AND ADVANCES TO CUSTOMERS	(570)	571	(546)	546
Stage 1	(168)	168	(163)	163
Stage 2	(215)	215	(215)	216
Stage 3	(187)	188	(167)	167

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

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

Financial information

NET ALLOWANCES FOR EXPECTED CREDIT LOSSES	2023	2022
Amounts due from banks	(8)	(2)
Debt securities	(2)	27
- measured at fair value through other comprehensive income	1	41
- measured at amortized cost	(3)	(14)
Loans and advances to customers	(1,176)	(977)
- measured at fair value through other comprehensive income	(26)	(20)
real estate loans	(26)	(20)
- measured at amortized cost	(1,150)	(957)
real estate loans	(120)	(71)
corporate loans	(344)	(290)
consumer loans	(686)	(596)
Other financial assets	(7)	(13)
Provisions for financial liabilities and guarantees granted	73	(155)
Total	(1,120)	(1,120)

24.            Impairment of non-financial assets

Estimates and judgments:

At the end of each reporting period the Bank assesses whether there are any indications of impairment of any non-financial non-current assets, right-of-use assets (or cash-generating units).

If any such indications occur and annually in the case of intangible assets which are not amortized, as well as intangible assets not yet placed in service and goodwill, the Bank estimates the recoverable amount being the higher of the fair value less costs to sell or the value in use of a non-current asset (or a cash-generating unit), and, if the carrying amount of an asset exceeds its recoverable amount, the Bank recognizes an impairment loss in the income statement. In order to estimate these amounts it is necessary to adopt assumptions concerning, among other things, the projected future cash flows that the Bank may obtain from further use or sale of a given non-current asset (or a cash-generating unit). Adopting different assumptions concerning the valuation of future cash flows could affect the carrying amount of certain non-current assets.

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

Financial information

IMPAIRMENT OF NON-FINANCIAL ASSETS	2023	2022
Property, plant and equipment1	(41)	(3)
Assets held for sale	(1)	-
Intangible assets	(1)	-
Investments in subsidiaries2	-	(52)
Other non-financial assets3	(57)	(34)
Total	(100)	(89)

1 of which PLN 38 million in 2023 relates to the allowance recognized on the Bank's property.   

2 in 2022, the Bank has recognized an allowance for the Bank's investment in KREDOBANK S.A (for details, see note “Impact of the geopolitical situation in Ukraine on PKO Bank Polski S.A.)

3 Other non-financial assets include, among others, allowances for customer-related costs recognized on customer receivables in the amount of PLN 32 million (in 2022 - PLN 21 million) and allowances for shortages and damages and other receivables in the amount of PLN 20 million (in 2022 - PLN 21 million).

 

CHANGE IN ACCUMULATED IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS	Opening balance	Impairment of non-financial assets	Other	Closing balance
2023
Property, plant and equipment	(94)	(41)	7	(128)
Non-current assets held for sale	(1)	(1)	2	-
Intangible assets	(132)	(1)	-	(133)
Investments in subsidiaries	(882)	-	-	(882)
Investments in associates and joint ventures	(186)	-	-	(186)
Other non-financial assets	(268)	(57)	47	(278)
Total	(1,563)	(100)	56	(1,607)

 

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

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

Accounting policies and estimates and judgments:

In connection with the current legal disputes regarding loans in convertible currencies, the Bank has identified a risk that the cash flows on the portfolio of mortgage loans denominated in and indexed to foreign currencies planned on the basis of schedules may not be fully recoverable and/or a liability resulting in a future outflow of funds may arise. Following the revisions to cash flow estimates, the Bank reduces the gross carrying amount of mortgage loans denominated in and indexed to foreign currencies in accordance with the requirements of IFRS 9 Financial Instruments, paragraph B5.4.6, and/or recognises provisions for legal risk in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The cost of legal risk was estimated taking into account a number of assumptions which have a significant effect on the amount of the estimates recognized in the Bank’s financial statements.

The Bank recognizes as the decrease of the gross carrying amount of mortgage loans the effect of legal risk related to potential litigation and settlements for the portfolio of mortgage loans in convertible currencies and existing legal claims related to loan exposures recognized as at the balance sheet date in the statement of financial position. If the estimated loss due to legal risk exceeds the gross value of the loan and for repaid loans, the Bank recognizes provisions for legal risk as a liability of the Bank, in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. In accordance with IAS 37, the amount of the provision should reflect the most appropriate estimate of the expenditure required to meet the present obligation at the balance sheet date.

The costs of legal risk related to mortgage loans in convertible currencies were estimated using a statistical method taking into account the effect of customer characteristics as the sum of the products of: 

•        probabilities of specific outcomes of legal disputes and the amount of loss in the event of various dispute outcome scenarios, taking into account the current and expected number of court cases throughout the period of the Bank's exposure to such risk; and

•        probability of the customer reaching a settlement and the amount of loss from the settlement. 

In view of the judgment of the Court of Justice of the European Union (CJEU) in Case C-520/21 of 15 June 2023 concerning the possibility for consumers and banks to claim beyond the consideration provided under a loan agreement that has been declared invalid by the Court (for details see note “LEGAL CLAIMS”) and the associated additional uncertainty regarding the choice of course of action by the bank's customers, the expected future number of disputes was statistically modelled with the introduction of expert elements reflecting the fact that the impact of the aforementioned non-recurring event will be observed only in subsequent periods.

The Bank also estimates the probabilities of adverse outcomes for the actual and potential claims. In the evaluation of such probabilities, the Bank uses the support of third party law firms. In the Bank’s opinion, the level of estimated costs of legal risk is also affected by such factors as: duration of legal proceedings and high costs which must be incurred to initiate and conduct legal proceedings.

The Bank has also taken into account, as an impact on the probability of settlements, the tax preferences of customers falling within the scope of the Regulation of the Minister of Finance of 11 March 2022 on suspending the collection of income tax on certain types of income (revenue) related to a mortgage loan granted for residential purposes, as amended by the Regulation of 20 December 2022, which is in force until 31 December 2024.

Given the significant uncertainty as to the assumptions made, the methodology of assessing losses in respect of the legal risk is periodically reviewed in the subsequent reporting periods. Uncertainty of estimates relates both to the number of future lawsuits, the court decisions in this respect and to the expected number of settlements, which can be affected in particular by changes in the judicial decisions concerning mortgage loans denominated in or indexed to foreign currencies, a change in base interest rates or a change in the PLN/CHF exchange rate.

In its judgment in Case C-520/21, the CJEU indicated, among other things, that the EU rules preclude a judicial construction of national law whereby a credit institution is entitled to demand compensation from a consumer that goes beyond the reimbursement of the principal paid for the performance of that agreement and beyond the payment of statutory penalty interest from the date of the call for payment. In this respect, the model's parameters have been adjusted in line with the judgment. 

In the judgment referred to above, the CJEU also indicated that, as regards analogous claims by consumers against banks, the provisions of the Directive do not preclude consumers from bringing such claims against banks, provided that the objectives of Directive 93/13 and the principle of proportionality are respected. In the Bank's opinion, on the grounds of national legislation and the principle of proportionality, the customers cannot make additional claims against the Bank, primarily because they have not provided the Bank with a financial service consisting in the provision of capital. Nor is it reasonable to conclude that the Bank has enriched itself at the expense of the customer and the consumer has been impoverished. With the funds obtained, the customer met its housing needs and the Bank bore the costs of raising the funds, making them available and servicing the loan over the years.

The Bank assesses that, at this stage, the likelihood of outcomes that are favorable to consumers, including a claim for additional compensation, generating a material adverse financial impact is difficult to estimate and, in addition, there are uncertainties as to how the level of such compensation to the customer should be calculated. This approach is supported by the fact that there have been no adverse court decisions for the Bank relating to this issue.

The Bank regularly, on a quarterly basis, monitors the model’s adequacy by comparing the actual key model parameters with the calculated values. In addition, new empirical data (more accurate or resulting from a longer observation) gradually modify or replace previous assumptions. The model is being adapted to the current settlement offer and changes made in this respect. During 2023, the Bank updated the probability of signing a settlement or filing a lawsuit based on empirical data.

At the end of 2023, there were 3,599 pending court proceedings relating to loans in CHF for which the customer's obligations to the Bank had been repaid before the date of the lawsuit (representing approximately 4% of borrowers with repaid loans). The Bank monitors the level of inflow of applications for repaid loans on an ongoing basis and models the level of expected loss for legal risk for these customers. Potential litigation settlement scenarios and their probability values for each litigation case are considered in the first instance. In doing so, the Bank has conservatively assumed the highest probabilities for the scenario that the loan agreement is declared invalid. To the indicated population of repaid customers, the Bank makes a settlement offer in each case. The expected levels of conversion from lawsuit to settlement are included in the legal risk provision calculation model and adjusted on an ongoing basis to reflect the current situation.

In 2023, the Bank recognized the cost of legal risk of PLN 5,430 million.

The Bank has analyzed the model’s sensitivity to changes in key parameters:

ANALYSIS OF THE MODEL'S SENSITIVITY TO CHANGES IN KEY PARAMETERS	Increase/decrease of the cost of legal risk of mortgage loans in convertible currencies
	31.12.2023	31.12.2022
1 p.p. decrease in the likelihood of the Bank winning in court (instead of a 1 p.p. increase in the probability of declaring an agreement invalid)	101	63
1 p.p. decrease in the number of settlements	25	22
1 p.p. increase in the number of lawsuits for the active portfolio (at the cost of inactive customers)	46	64
1 p.p. increase in the lawsuit to settlement conversion ratio	(71)	(26)
1 p.p. increase in the number of lawsuits for the repaid portfolio	34	35
extension of the period for accrual of statutory interest by 90 days	204	-

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

financial information

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

pcs	31.12.2023	31.12.2022
Number of mediation applications registered	57,036	37,500
Total number of settlements concluded, including those concluded	36,822	20,396
- in mediation proceedings	35,154	19,786
- in court proceedings	1,668	610

In 2023, the Bank continued to encourage customers to join the program:

IMPACT OF LEGAL RISK OF MORTGAGE LOANS IN CONVERTIBLE CURRENCIES	Gross carrying amount of mortgage loans in convertible currencies net of the cost of legal risk of mortgage loans in convertible currencies	The accumulated cost of legal risk of mortgage loans in convertible currencies	Gross carrying amount of mortgage loans in convertible currencies including the cost of legal risk of mortgage loans in convertible currencies
as at 31.12.2023
Loans and advances to customers/adjustment reducing the carrying amount of loans	14,944	8,306	6,638
- related to the portfolio of mortgage loans in CHF	13,096	8,306	4,790
Provisions		3,001
Total		11,307
as at 31.12.2022
Loans and advances to customers/adjustment reducing the carrying amount of loans	19,015	7,378	11,637
- related to the portfolio of mortgage loans in CHF	16,731	7,378	9,353
Provisions		851
Adjustment to the gross carrying amount of other assets		94
Total		8,323

 

Change in the accumulated cost of legal risk of mortgage loans in convertible currencies during the period	2023	2022
Carrying amount at the beginning of the period	(8,323)	(7,023)
revaluation of loss for the period	195	(864)
offset of settlements and judgments for the period against accumulated losses*	2,251	1,478
increase in adjustment to gross carrying amount of loans and advances to customers and other assets, increase in provisions for legal risk	(5,430)	(1,914)
Carrying amount at the end of the period	(11,307)	(8,323)

* The item also includes the effects of final judgments invalidating loan agreements, which for the year ended 31 December 2023 amount to PLN 717 million, including PLN 264 million in relation to the derecognition of receivables from the cost of use of capital (in the year ended 31 December 2022: PLN 151 million)

Revaluation of the loss in respect of the legal risk is associated with the effect of changes in foreign exchange rates on the part of the loss which is recognized in the convertible currency as adjustment to the gross carrying amount of loans.

26.            Administrative expenses

Accounting policies:

Employee benefits

Employee benefits comprise wages and salaries and social insurance (including provisions for retirement and disability benefits, which are discussed in detail in the note “Provisions”), as well as costs of the employee pension scheme constituting a defined contribution scheme and the program of variable remuneration components for persons occupying managerial positions, a portion of which is recorded as a liability in respect of share-based payments settled in cash, in accordance with IFRS 2 Share-based payments (the program of variable remuneration components is discussed in detail in the note “Remuneration of the PKO Bank Polski S.A. key management”).

Moreover, as part of wages and salaries the Bank recognizes a provision for future liabilities in respect of compensation and severance bonuses paid out to employees with whom the employment relationship is terminated for reasons not related to the employees; and accruals related to costs attributable to the current period, which will be incurred in the following period, including bonuses and holiday pay, taking account of all unused holiday.

For additional information, see also the note “Provisions” 

overheads – Overheads include the costs of maintaining fixed assets, IT and telecommunications services costs, costs of administration, promotion and advertising, property protection and training.

Lease payments under short-term and low-value leases are recognized in the income statement as an expense on a straight-line basis over the lease term.

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

Depreciation of property, plant and equipment, amortization of intangible assets and depreciation of investment properties begins on the first day of the month following the month in which the asset has been placed in service, with the exception of right-of-use assets, for which depreciation begins in the same month in which they were placed in service, and ends no later than at the time when:

•        the amount of depreciation or amortization charges becomes equal to the initial cost of the asset, or

•        the lease period ends, or

•        the asset is designated for scrapping, or

•        the asset is sold; or

•        the asset is found to be missing, or

•        it is found – as a result of verification – that the expected residual value of the asset exceeds its (net) carrying amount, taking into account the expected residual value of the asset upon scrapping, i.e. the net amount that the Bank expects to obtain at the end of the useful life of the asset, net of its expected costs to sell.

For non-financial non-current assets it is assumed that the residual value is nil, unless there is an obligation by a third party to buy back the asset, or if there is an active market which will continue to exist at the end of the asset’s period of use and it is possible to determine the value of the asset on this market.

Costs relating to the purchase or construction of buildings are allocated to significant parts of the building (components) when such components have different useful lives or when each of the components generates benefits for the Bank in a different manner. Each component of a building is depreciated separately. Intangible assets with indefinite useful lives, which are subject to an annual impairment test, are not amortized.

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

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

•         contributions and payments to the BGF – According to IFRIC 21 “Levies” – fees paid by the Bank to the Bank Guarantee Fund are recognized in profit or loss upon the occurrence of the obligating event. The Bank makes contributions to the banks’ guarantee fund (quarterly) and the banks’ compulsory resolution (annually). Contributions to the guarantee fund and the mandatory restructuring fund are not tax-deductible.

•         Fees to the PFSA – In accordance with IFRIC 21 "Levies", fees paid by the Bank to the Polish Financial Supervision Authority are recognized in profit or loss upon the occurrence of the obligating event. Both fees (to cover the cost of banking supervision and to cover the costs of supervision over the capital market) are paid once a year. Fees paid to the Polish Financial Supervision Authority are tax deductible.

•         Flat-rate income tax – The Act of 23 October 2018 on amendments to, among other things, the acts on income taxes, introduced a possibility of an alternative to taxation with WHT, namely a 3% tax on certain interest paid to non-residents. Therefore, on 29 March 2019 the Bank filed a notification on the election of the 3% taxation option with the tax office in respect of:

•        interest on loans which is paid by the Bank to PKO Finance AB with its registered office in Sweden (pursuant to the Act, the election of the taxation option relates to the years 2014 -2022) and

•        interest on Eurobonds issued by the Bank before 1 January 2019.

•         Other taxes and fees – flat-rate income tax, property tax, payments made to the State Fund for the Rehabilitation of Disabled Persons, motor vehicle tax, excise duty, court and stamp duties, fees related to mediation at the PFSA, a contribution to finance the activities of the Financial Ombudsman and their Office, as well as municipal and administrative fees.

Estimates and judgments:

In estimating useful lives of particular types of property, plant and equipment, intangible assets and investment properties, the following factors are considered:

•        expected physical wear and tear estimated based on the average periods of use recorded to date, reflecting the rate of wear and tear, intensity of use etc.;

•        technical or market obsolescence;

•        legal and other limitations of the asset’s use;

•        expected usage of the asset;

•        climate-related issues, i.e. the climate factors potentially affecting the useful lives of assets (e.g. ageing, legal limitations or unavailability of assets).

When the period of use of a given asset results from a contract term, the useful life of such an asset corresponds to the period defined in the contract. If the estimated useful life is shorter than the period defined in the contract, the estimated useful life is applied. The amortization/depreciation method and useful life are verified at least once a year.

Depreciation /amortization periods applied by the Bank:

Fixed assets	Useful lives
Buildings, premises, cooperative rights to premises (including investment real estate)	from 25 to 60 years
Leasehold improvements (buildings, premises)	from 1 to 11 years (or the lease term, if shorter)
Machines, technical devices, tools and instruments	from 2 to 15 years
Computer units	from 2 to 10 years
Vehicles	from 3 to 5 years
Intangible assets	Useful lives
Software	from 1 to 24 years
Other intangible assets	from 2 to 20 years

The impact of changes in the useful lives of depreciated assets classified as land and buildings is presented in the table below:

CHANGE IN THE USEFUL LIVES OF DEPRECIATED ASSETS CLASSIFIED AS LAND AND BUILDINGS	31.12.2023		31.12.2022
	scenario +10 years	scenario -10 years	scenario +10 years	scenario -10 years
Depreciation costs	(27)	145	(29)	163

Related notes: Intangible assets, Property, plant and equipment; Provisions; Benefits for the PKO Bank Polski S.A. key management ., Leases.

Financial information

ADMINISTRATIVE EXPENSES	2023	2022
Employee benefits	(3,578)	(2,933)
Overheads, of which:	(1,548)	(1,257)
rent	(109)	(89)
IT	(383)	(338)
Depreciation and amortization	(980)	(909)
property, plant and equipment, of which:	(473)	(467)
IT	(105)	(103)
right-of-use assets	(233)	(218)
intangible assets, of which:	(507)	(442)
IT	(504)	(439)
Costs of regulatory charges	(572)	(1,826)
Total	(6,678)	(6,925)

 

 

EMPLOYEE BENEFITS	2023	2022
Wages and salaries, including:	(2,976)	(2,449)
costs of contributions to the employee pension plan	(81)	(69)
Social security, of which:	(504)	(411)
contributions for disability and retirement benefits	(428)	(355)
Other employee benefits	(98)	(73)
Total	(3,578)	(2,933)

 

COSTS OF REGULATORY CHARGES	2023	2022
Contribution and payments to the Bank Guarantee Fund, of which:	(262)	(382)
to the Resolution Fund	(262)	(264)
to the Bank Guarantee Fund	-	(118)
Fees to PFSA	(48)	(41)
Fee for the assistance fund operated by SOBK	-	(956)
Borrower Support Fund	-	(307)
Flat rate income tax	-	(5)
Other taxes and fees	(262)	(135)
Total	(572)	(1,826)

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

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

The aim of the protection system is to ensure the liquidity and solvency of the Participating Banks on the terms and conditions and to the extent specified in the protection system agreement, as well as to support the resolution regime carried out by the Bank Guarantee Fund (BGF). The Participating Banks formed the company System Ochrony Banków Komercyjnych S.A. as the system’s Management Entity. SOBK established an assistance fund to provide funds for the financing of the protection system’s tasks. The fund is financed by contributions from participating banks.In total, the Bank paid PLN 956 million to the aid fund in 2022.

•        Fee for the borrower support fund:

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

•        at least one of the borrowers is unemployed;

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

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

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

27.            Tax on certain financial institutions

accounting policies:

As of 1 February 2016, the Act of 15 January 2016 on tax on certain financial institutions came into force, which covered, among other things, banks. The tax is charged on the surplus of a Bank’s total assets above PLN 4 billion, based on the trial balance as at the end of each month. Banks are entitled to reduce the tax base by deducting, among other things, own funds and the value of Treasury securities held. Additionally, banks reduce the tax base by the value of assets acquired from the NBP, constituting collateral of a refinancing loan granted by the NBP. As a result of the amendment to the Act on tax on certain financial institutions, effective from 7 May 2022, banks may reduce the tax base by the value of bonds purchased and loans or advances, respectively, issued or granted by the Bank Guarantee Fund or an asset management entity referred to in the Act of 10 June 2016 on the Bank Guarantee Fund, Deposit Guarantee Scheme and Resolution. Act of 16 November 2022 amending the Act on tax on certain financial institutions and certain other acts expanded the catalogue of items by which a bank may reduce the tax base, including, in particular, the value of treasury securities covered by a statutory guarantee of the State Treasury (the amendments entered into force on 1 January 2023).

The tax rate for all taxpayers is 0.0366% per month, and the tax is paid monthly by the 25th day of the month following the month to which it relates.

The tax paid is not tax-deductible for corporate income tax purposes.

Financial information

TAX ON CERTAIN FINANCIAL INSTITUTIONS	2023	2022
Total	(1,166)	(1,190)

The decrease in the value of the tax on certain financial institutions in 2023 compared to 2022, despite the increase in total assets, is attributable to the amendment of the Act on the tax on certain financial institutions effective from 1 January 2023 (Act of 16 November 2022).

28.            Income tax

accounting policies:

Corporate income tax is recognized as current tax and deferred tax. The current income tax is recognized in the income statement. Deferred income tax, depending on the source of temporary differences, is recorded in the income statement or in other comprehensive income.

•        Current tax

Current income tax is calculated on the basis of gross accounting profit adjusted by non-taxable income, taxable income that does not constitute accounting income, non-tax deductible expenses and tax-deductible costs which are not accounting costs, in accordance with tax regulations.

The main categories permanently recognized as non-deductible costs include the tax on certain financial institutions, contributions and payments to the BGF and the Borrower Support Fund, allowances for expected credit losses on credit exposures and securities, as well as the State Fund for the Rehabilitation of the Disabled (PFRON).

In addition, the Bank does not recognize in the tax account the cost of legal risk of mortgage loans in convertible currencies subject to the inclusion in the discontinuation of the amounts of capital forgiven resulting from the settlements in accordance with the Regulation of the Minister of Finance of 11 March 2022 on suspending the collection of income tax on certain types of income (revenue) related to a mortgage loan granted for residential purposes, as amended by the Regulation of 20 December 2022, which is in force until 31 December 2024 (for details, see note:  reconciliation of the effective tax rate).

Pursuant to the principles governing the statute of limitations for tax liabilities, the correctness of income tax settlements may be audited within five years of the end of the year in which the deadline for the submission of the respective tax returns passed.

•        Deferred income tax

Deferred tax is recognized in the amount of the difference between the tax base of assets and liabilities and their carrying amounts for the purpose of financial reporting.

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

Deferred tax assets and deferred tax liabilities are offset against each other if, and only if, the Bank has a legally enforceable right to set off current income tax assets against current income tax liabilities and the deferred income tax is attributable to the same taxable entity and the same taxation authority.

The Bank took into account the right to recognize deferred tax assets in connection with the right to apply the tax preference in respect of the settlements covered by the Regulation of the Minister of Finance of 11 March 2022 on suspending the collection of income tax on certain types of income (revenues) associated with mortgage loans granted for housing purposes, as amended by the Regulation of 20 December 2022, which is effective until 31 December 2024, and from the entitlement to adjust tax revenues in connection with judgments invalidating loan agreements.

Financial information

•        tax expense

	2023	2022
Income tax expense recognized in the income statement	(2,641)	(1,304)
Current income tax expense	(2,309)	(1,701)
Deferred income tax on temporary differences	(332)	397
Income tax expense recognized in other comprehensive income in respect of temporary differences	(1,315)	698
Total	(3,956)	(606)

 

•        reconciliation of the effective tax rate

RECONCILIATION OF THE EFFECTIVE TAX RATE	2023	2022
Profit or loss before tax	7,509	4,562
Tax at the statutory rate in force in Poland (19%)	(1,427)	(867)
Effect of permanent differences between profit before income tax and taxable income, including:	(1,214)	(437)
cost of the legal risk of mortgage loans in convertible currencies	(993)	(143)
tax on certain financial institutions	(222)	(226)
contributions and payments to the Bank Guarantee Fund	(50)	(72)
dividend income	130	92
non-deductible impairment losses on investments in subordinates	-	(10)
non-deductible allowances for expected credit losses on credit exposures	(14)	(25)
reversal of assets from reclassification of temporary differences to permanent differences	(37)	-
payment to the Borrower Support Fund	-	(58)
interest on foreign exchange gains in Sweden	-	4
other permanent differences	(28)	1
Income tax expense recognized in the income statement	(2,641)	(1,304)
Effective tax rate	35.17	28.58

 

•        net deferred tax assets

DEFERRED TAX LIABILITIES AND ASSET 2023	31.12.2022	EFFECT OF CHANGES IAS 12	01.01. 2023 INCLUDING AMENDMENTS TO IAS 12	INCOME STATEMENT	OTHER COMPREHENSIVE INCOME	AS AT THE END OF THE PERIOD
Interest accrued on receivables (loans)	338	-	338	2	-	340
Interest on securities	216	-	216	10	-	226
Difference between carrying amount and tax base of property, plant and equipment and intangible assets, including leased assets*	208	163	371	45	-	416
Taxable income on the reversal of IBNR allowance, which was previously tax deductible, on implementation of IFRS 9	26	-	26	(13)	-	13
Deferred tax liabilities, gross	788	163	951	44	-	995
Interest accrued on liabilities	185	-	185	149	-	334
Valuation of derivative financial instruments	1,324	-	1,324	6	(781)	549
Valuation of securities	979	-	979	(85)	(539)	355
Provision for employee benefits	90	-	90	15	1	106
Allowances for expected credit losses	1,349	-	1,349	90	-	1,439
Fair value measurement of loans	169	-	169	32	4	205
Commissions to be settled in time using the straight-line valuation method and effective interest rate	987	-	987	(305)	-	682
Other deductible temporary differences	29	-	29	(9)	-	20
Provision for costs to be incurred	49	-	49	(1)	-	48
Effect legal risk of mortgage loans in convertible currencies	321	-	321	(212)	-	109
Difference between carrying amount and tax base of property, plant and equipment and intangible assets, including leased assets*	-	163	163	33	-	196
Deferred tax asset, gross	5,482	163	5,645	(287)	(1,315)	4,043
Total effect of temporary differences	4,694	4,694	4,694	(331)	(1,315)	3,048
Deferred tax assets (presented in the statement of financial position)	4,694	4,694	4,694	(331)	(1,315)	3,048

* The opening balance was adjusted due to the entry into force on 1 January 2023 of the amendments to IAS 12 "Income Taxes" introducing the requirement to recognize assets and liabilities for temporary differences in the financial statements also for transactions other than business combinations.

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

•        Tax Group

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

A tax group is an institution of the tax law stipulated in the provisions of the Corporate Income Tax Act. Its creation means that the income of the Tax Group companies will be consolidated for corporate income tax purposes and that certain solutions will be available facilitating the application of specific regulations of the Corporate Income Tax Act, dedicated specifically to tax groups.

PKO Bank Polski S.A. is the parent of PGK PKO Banku Polskiego S.A. PGK PKO Banku Polskiego S.A. was established for three tax years. Current income tax settlements are presented broken down into receivables and liabilities of PKO Bank Polski S.A. and receivables and liabilities of subsidiaries included in the Tax Group.

•        Tax policy

The Bank has a Tax Strategy for PKO Bank Polski S.A. in place, adopted by resolution of the Management Board No 392/C/2021 of 5 October 2021, approved by resolution of the Supervisory Board no. 154/2021 of 14 October 2021. On 17 December 2021, the Strategy was published on the Bank’s website at: https://www.pkobp.pl/grupa-pko-banku-polskiego/pko-bank-polski/strategia-podatkowa/.

In the execution of its statutory annual obligations resulting from Article 27c of the Corporate Income Tax Act, the Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna Tax Group prepared in 2023 the Information on the tax strategy implemented in 2022, which is available on the Bank’s website at https://www.pkobp.pl/grupa-pko-banku-polskiego/pko-bank-polski/strategia-podatkowa/ or: https://www.pkobp.pl/informacja-o-realizowanej-strategii-podatkowej/. On 19 December 2023, the Bank notified the head of the competent tax office of the address of the webpage on which the Information is available.

Corporate income tax on the income earned by PKO Bank Polski S.A. in the years 2023 and 2022 by tax jurisdiction:

CORPORATE INCOME TAX	2023	2022
PKO Bank Polski S.A	2,309	1,507
- Poland	2,294	1,507
- Germany	9	-
- Czech Republic	6	-

 

29.            Earnings per share

	2023	2022
Profit attributable to ordinary shareholders (in PLN thousand)	4,868	3,258
Weighted average number of ordinary shares during the period (in million)	1,250	1,250
Earnings per share (in PLN per share)	3.89	2.61

In the years 2023 and 2022, there were no dilutive instruments.

SUPPLEMENTARY NOTES TO THE STATEMENT OF FINANCIAL POSITION – FINANCIAL INSTRUMENTS

30.            Cash and balances with the Central Bank

Accounting policies:

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

Financial information

CASH AND BALANCES WITH THE CENTRAL BANK	31.12.2023	31.12.2022
Current account with the Central Bank	9,679	7,690
Cash	4,245	4,078
Deposits with the Central Bank	3,752	3,951
Total	17,676	15,719

As at 31 December 2023, the value of the mandatory reserve was PLN 12,566 million (31 December 2022: PLN 11,482 million).

31.            Amounts due from banks

Accounting policies

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

Financial information

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

AMOUNTS DUE FROM BANKS	31.12.2023	31.12.2022
Measured at amortized cost	16,924	19,458
Deposits with banks	11,736	13,098
Current accounts	571	865
Loans and advances granted	4,617	5,495
Gross carrying amount	16,924	19,458
Allowances for expected credit losses	(24)	(16)
Net carrying amount	16,900	19,442

 

AMOUNTS DUE FROM BANKS BY MATURITY	31.12.2023	31.12.2022
up to 1 month	12,213	13,819
1 to 3 months	40	100
3 months to 1 year	89	55
1 to 5 years	4,558	5,368
more than 5 years	-	100
Total	16,900	19,442

 

32.            Hedge accounting and other derivative instruments

Accounting policies:

The Bank uses derivative financial instruments for risk management purposes related to the Bank’s operations.

The Bank most often uses the following derivative instruments: IRS, CIRS, FX Swap, options, commodity swap, FRA, Forward and Futures. Derivative financial instruments are stated at fair value from the transaction date.

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

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

The Bank applies hedge accounting to hedge its interest rate risk and foreign exchange risk. The hedging transactions are concluded to mitigate the risk of incurring losses as a result of unfavorable changes in foreign currency exchange rates and interest rates. Cash flows related to the transactions performed and the fair value of assets and liabilities held are hedged.

Interest rate risk includes in particular:

•        the risk related to the repricing (change in interest rates) frequency and dates mismatch of the assets and liabilities, and of off-balance sheet items (repricing date mismatch risk);

•        the risk following from the change in the angle of inclination and shape of the yield curve (yield curve risk);

•        the risk resulting from an imperfect match between the reference rates used in respect of banking products and the changes in the market rates, or from imperfect transmission systems of changes in market interest rates on those products (base risk);

•        risks resulting from options, including embedded options, e.g. restrictions on interests on loans (option risk).

The Bank’s foreign exchange risk arises as a result of transactions performed as part of:

•        core business activities;

•        trading activities;

•        contracts concluded which generate foreign exchange risk.

The Bank has a system of threshold values and limits attributed to particular interest rate and foreign exchange risks, aimed at determining the maximum allowable risk level which ensures that the strategic tolerance limits are not exceeded.

The Bank decided to further apply the provisions of IAS 39 and did not apply IFRS 9 to hedge accounting.

•        Cash flow hedges

Changes in the fair value of a derivative financial instrument designated as a cash flow hedge are recognized directly in other comprehensive income in respect of the portion constituting the effective portion of the hedge.

Amounts transferred directly to other comprehensive income are transferred to the income statement in the same period or periods in which the hedged planned transaction affects the income statement. Interest and foreign exchange gains/losses are presented in the income statement in “Net interest income” and “Net foreign exchange gains (losses)”, respectively.

The Bank hedges both assets that generate interest income and liabilities that generate interest expense using IRS or CIRS transactions.

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

The effectiveness tests comprise the measurement of hedging transactions net of interest accrued and foreign exchange gains (losses) on the nominal value of the hedging transactions (in the case of CIRS transactions).

Hedge effectiveness is verified through the use of prospective and retrospective effectiveness tests. The tests are performed on a monthly basis.

The ineffective portion of the gain or loss on the hedging instrument is recognized in profit or loss:

a) if the hedging instrument is a CIRS, the ineffectiveness is recognized in net foreign exchange gains/(losses),

b) if the hedging instrument is an IRS, ineffectiveness is recognized in net gain/(loss) on financial instruments measured at fair value through profit or loss,

c) if the hedging instrument is a CIRS and an IRS, ineffectiveness is recognized in, respectively, foreign exchange gains/losses and in net gain/(loss) on financial instruments measured at fair value through profit or loss.

In the event of artificial inefficiency (efficiency outside the range [80%,125%]), its result is recognized in net foreign exchange gains/(losses). Artificial ineffectiveness arises from the construction of the retrospective test as a quotient of changes in the valuation of hedged and hedging instruments. Where valuation changes on one side of a hedging relationship (CIRS or IRS) are relatively small, the assessment of effectiveness may show artificial ineffectiveness, i.e. one that occurs despite the high compatibility of the terms of the hedged and hedging instruments.

•        Fair value hedges

Changes in the fair value of a derivative hedging instrument designated as fair value hedge are recognized in “Net gain or loss on financial instruments” or “Net foreign exchange gains/(losses)”, net of the interest component. The interest component is presented in the same line item as interest income on the hedged item, i.e. in “Net interest income”.

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

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

The part of the fair value adjustment which is not hedged is recognized:

•        for a hedged item which is a financial asset or a financial liability classified as measured at fair value through profit or loss – as income or costs, as appropriate, in gains/(losses) on financial transactions;

•        for a hedged item which is a financial asset measured at fair value through other comprehensive income – in other comprehensive income, where the change in the fair value of financial instruments measured at fair value through other comprehensive is presented.

The effectiveness tests comprise the measurement of hedging transactions net of accrued interest.

Hedge effectiveness is verified through the use of prospective and retrospective effectiveness tests. The tests are performed on a monthly basis.

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

Estimates and judgments

The fair value of derivative instruments other than options is designated using the valuation models that base on discounted cash flows which may be obtained from a given financial instrument. The measurement techniques for financial instruments other than options are based on yield curves constructed on the basis of available market data (deposit rates on the interbank market, quotations of IRS transactions). Options are valued using option valuation models. The variables and assumptions used in a valuation include, where available, data derived from observable markets.

The fair value of derivative instruments accounts for DVA (debit value adjustment), and CVA (credit value adjustment). The process of calculating CVA and DVA adjustments covers the selection of the method for designating the counterparty’s or the Bank’s credit risk spread (e.g. the market based measurement based on liquid quotations of prices of debt instruments issued by the counterparty, the implied spread from Credit Default Swap contracts), estimating the probability of the counterparty’s or the Bank’s default and the recovery rate, as well as the calculation of CVA and DVA adjustments.

The Bank made simulations aimed at determining the possible impact of the changes in the yield curve on the measurement of the transactions.

 

ESTIMATED CHANGE IN VALUATION OF HEDGING DERIVATIVES OTHER THAN OPTIONS FOLLOWING A PARALLEL SHIFT IN YIELD CURVES:	31.12.2023		31.12.2022
	+50bp scenario	-50bp scenario	+50bp scenario	-50bp scenario
IRS	(570)	580	(760)	774
CIRS	1	(1)	21	(21)
other instruments	(4)	4	(5)	5
Total	(573)	583	(744)	758

 

ESTIMATED CHANGE IN VALUATION OF DERIVATIVES OTHER THAN OPTIONS FOLLOWING A PARALLEL SHIFT IN YIELD CURVES:	31.12.2023		31.12.2022
	+50bp scenario	-50bp scenario	+50bp scenario	-50bp scenario
IRS	(564)	573	(757)	771
CIRS	1	(1)	22	(22)
other instruments	(4)	4	(7)	7
Total	(567)	576	(742)	756

 

32.1.        Hedge accounting – financial information

types of hedging strategies used by the Bank

As at 31 December 2023, the Bank had active relationships as part of:

•        5 strategies for hedging cash flow volatility;

•        5 strategies for hedging fair value volatility.

In 2023, the Bank terminated the hedging relationship as part of the hedging strategy “Hedging fair value volatility of fixed-interest-rate security measured at fair value through other comprehensive income in convertible currencies resulting from interest rate risk, using IRS transactions”, due to failure to meet the prospective effectiveness test. The effect of discontinuing hedge accounting in the above relationships on profit or loss was PLN 8.3 million.

In 2023, the Bank implemented a new hedging strategy “Hedges against fluctuations in cash flows on variable interest PLN loans, resulting from interest rate risk, and hedging against fluctuations in cash flows on a fixed-rate financial liability in a convertible currency resulting from foreign currency risk, using a CIRS transaction”.

No changes were made to other hedging strategies in 2023. In 2022, the Bank introduced two new hedging strategies to hedge fair value volatility.

 

The table below summarizes the types of strategies applied by the Bank.

Type of hedging strategy	Cash flow hedges (strategy No: 1, 4,5,6,7,8,9, 15,19)
Risk hedged	foreign exchange risk and interest rate risk
Hedging instrument	float – float CIRSs fixed – float CIRSs
Hedged item	• the portfolio of floating interest loans in foreign currencies and • the portfolio of short-term negotiated deposits in PLN, including their future renewals. In designating the hedged item, the Group used the IAS39 AG 99C in the version adopted by the European Union, or • fixed interest rate financial liability denominated in foreign currency or • the portfolio of floating interest rate regular savings products in PLN or • a financial liability in foreign currencies
sources of hedge ineffectiveness	• margin on the hedging instrument • differences in discount on the hedged item and the hedging instrument • CVA/DVA adjustment of the hedging instrument
The period in which cash flows are expected to occur and affect the financial results	January 2024 – February 2025
Strategy No	Strategy Name
1	Hedges against fluctuations in cash flows on variable interest CHF loans, resulting from interest rate risk and currency risk, and hedging against fluctuations in cash flows on negotiated deposits in PLN, resulting from interest rate risk, using CIRS transactions (inactive)
4	Hedges against fluctuations in cash flows on variable interest loans in convertible currencies, resulting from interest rate risk and currency risk, and hedging against fluctuations in cash flows on a fixed-rate financial liability in a convertible currency resulting from foreign currency risk, using CIRS transactions.
5	Hedges against fluctuations in cash flows on variable interest loans in convertible currencies other than CHF, resulting from interest rate risk and currency risk, and hedging against fluctuations in cash flows on negotiated deposits in PLN, resulting from interest rate risk, using CIRS transactions (inactive)
6	Hedges against fluctuations in cash flows on variable interest loans in convertible currencies, resulting from interest rate risk and currency risk, and hedging against fluctuations in cash flows on negotiated deposits in PLN, resulting from interest rate risk, using two transactions: IRS and CIRS-EP.
7	Hedges against fluctuations in cash flows on variable interest loans in convertible currencies, resulting from interest rate risk and currency risk, and hedging against fluctuations in cash flows on negotiated deposits in PLN, resulting from interest rate risk, using two transactions: CIRS and CIRS-EP. (inactive)
8	Hedges against fluctuations in cash flows on variable interest loans in convertible currencies, resulting from interest rate risk and currency risk, and hedging against fluctuations in cash flows on regular savings bank products in PLN, resulting from interest rate risk, using CIRS transactions (inactive)
9	Hedges against fluctuations in cash flows on variable interest loans in convertible currencies, resulting from interest rate risk and currency risk, and hedging against fluctuations in cash flows on regular savings bank products in PLN, resulting from interest rate risk, using two transactions: CIRS and CIRS-EP. (inactive)
15	Hedges against fluctuations in cash flows on variable interest PLN loans, resulting from interest rate risk, and hedging against fluctuations in cash flows on financial liabilities in a convertible currency resulting from foreign currency risk, using two CIRS transactions (inactive)
19	Hedges against fluctuations in cash flows on variable interest PLN loans, resulting from interest rate risk, and hedging against fluctuations in cash flows on a fixed-rate financial liability in a convertible currency resulting from foreign currency risk, using CIRS transactions.

 

Type of hedging strategy	Cash flow hedges (Strategy No: 2,3,16)
Risk hedged	interest rate risk
Hedging instrument	fixed - float IRSs
Hedged item	the portfolio of loans in PLN or foreign currencies indexed to a floating interest rate
sources of hedge ineffectiveness	• change in market parameters between the moment of determining the terms and conditions relating to the hedged item and the moment of concluding the hedge • differences in discount on the hedged item and the hedging instrument • CVA/DVA adjustment of the hedging instrument
The period in which cash flows are expected to occur and affect the financial results:	January 2024 – June 2032
Strategy No	Strategy Name
2	Hedges against fluctuations in cash flows from variable interest loans in PLN, resulting from interest rate risk, using IRS transactions.
3	Hedges against fluctuations in cash flows from variable interest loans in convertible currencies, resulting from interest rate risk, using IRS transactions.
16	Hedges against fluctuations in cash flows on deposits in PLN, resulting from interest rate risk, using IRS transactions

 

Type of hedging strategy	Fair value volatility hedges (strategy No: 10,11,12,13,14,17,18)
Risk hedged	interest rate risk
Hedging instrument	fixed - float IRSs
Hedged item	interest rate risk component relating to a fixed interest rate loan or security in a foreign currency or in PLN, which corresponds to the market IRS rate interest rate risk component of a portfolio of financial liabilities replicated by a portfolio of fixed-rate instruments measured at amortized cost, corresponding to the market IRS ate
sources of hedge ineffectiveness	•      change in market parameters between the moment of determining the terms and conditions relating to the hedged item and the moment of concluding the hedge •      CVA/DVA adjustment of the hedging instrument •      difference between the present value of the floating leg of IRS and the present value of the nominal value of a security
Strategy No	Strategy Name
10	Hedges against fair value volatility of fixed-interest-rate loans in convertible currencies resulting from interest rate risk, using IRS transactions.
11	Hedges against fair value volatility of fixed-interest-rate security in convertible currencies measured at amortized cost, resulting from interest rate risk, using IRS transactions.
12	Hedges against fair value volatility of fixed-interest-rate security measured at fair value through other comprehensive income in convertible currencies resulting from interest rate risk, using IRS transactions.
13	Hedges against fair value volatility of fixed-interest-rate FVOCI security in PLN resulting from interest rate risk, using IRS transactions
14	Hedges against fluctuations in the fair value of shares in a foreign entity whose functional currency is a foreign currency, measured in the separate financial statements of PKO Bank Polski S.A. by the acquisition accounting method less impairment losses, resulting from exchange rate risk which will materialize upon a potential future disposal of the shares, using forward or NDF transactions (inactive)
17	Hedges against fluctuations in the fair value of a portfolio of financial liabilities in PLN measured at amortized cost, resulting from interest rate risk, using IRS transactions
18	Hedges against fluctuations in the fair value of a portfolio of financial liabilities in convertible currencies measured at amortized cost, resulting from interest rate risk, using IRS transactions

 

•        carrying amount of hedging instruments

CARRYING AMOUNT OF HEDGING INSTRUMENTS	31.12.2023		31.12.2022
	Assets	Liabilities	Assets	Liabilities
Cash flow hedges	384	2,436	64	6,595
interest rate risk – IRS	190	2,184	44	6,557
IRS PLN (strategy 2)	154	2,144	44	6,381
IRS EUR (strategy 3)	36	40	-	176
foreign exchange risk and interest rate risk – CIRS	194	252	20	38
CIRS CHF/USD (strategy 4)	-	46	-	33
CIRS – EP EUR/PLN (strategy 6)	194	-	20	5
CIRS PLN/EUR (strategy 19)	-	206	-	-
Fair value hedges	700	20	153	132
interest rate risk – IRS	700	20	153	132
IRS EUR (strategy 10,11,12,18)	92	19	75	91
IRS USD (strategy 12,18)	4	1	14	-
IRS PLN (strategy 13,17)	604		64	41
Total	1,084	2,456	217	6,727

•        Cash flow hedges

CHANGE IN OTHER COMPREHENSIVE INCOME RELATING TO CASH FLOW HEDGES AND AN INEFFECTIVE PORTION OF CASH FLOW HEDGES	2023	2022
Accumulated other comprehensive income at the beginning of the period, net	(5,028)	(3,702)
Impact on other comprehensive income during the period, gross	4,108	(1,637)
Gains/losses recognized in other comprehensive income during the period	1,085	(5,501)
Amounts transferred from other comprehensive income to the income statement, of which:	3,023	3,864
- net interest income	3,345	3,150
- net foreign exchange gains/ (losses)	(322)	714
Tax effect	(781)	311
Accumulated other comprehensive income at the end of the period, net	(1,701)	(5,028)

 

INEFFECTIVE PORTION OF CASH FLOW HEDGES	2023	2022
Ineffective portion of cash flow hedges recognized in the income statements, including in:	-	(6)
Net foreign exchange gains/ (losses)	2	(4)
CIRS CHF/USD (strategy 4)	2	-
CIRS PLN/CHF (strategy 15)	-	(4)
Gains/(losses) on financial transactions	(2)	(2)
IRS PLN (strategy 2)	(3)	-
IRS EUR (strategy 3)	1	(2)

 

•        Fair value hedges

INTEREST RATE AND FOREIGN EXCHANGE RISK HEDGES	31.12.2023	31.12.2022
Fair value measurement of the hedging derivative instrument	681	20
Interest rate risk hedge – fixed - float IRSs	681	20
Fair value adjustment of the hedged instrument attributable to the hedged risk	(461)	(51)
Interest rate risk hedge	(461)	(51)
Securities	(21)	(30)
Loans and advances to customers	(2)	(8)
Fair value adjustment recognized in OCI	(26)	(69)
Amounts due to customers	(412)	56

 

FAIR VALUE ADJUSTMENT OF THE HEDGED INSTRUMENT ATTRIBUTABLE TO THE HEDGED RISK BY TYPE OF HEDGING INSTRUMENT	31.12.2023	31.12.2022
IRS EUR (strategy 10,11,12,18)	(41)	25
IRS USD (strategy 10,12)	(4)	(18)
IRS PLN (strategy 13,17)	(416)	(58)
Total	(461)	(51)

 

•        nominal value of hedging instruments by maturity

Strategy No	Hedging derivative	up to 1 month	1 to 3 months	3 months to 1 year	1 to 5 years	More than 5 years	Total	Change in the fair value since designation	Nominal-weighted average margin / Nominal-weighted average fixed interest rate
	31.12.2023
	Hedge type: Cash flow hedges
	Hedged risk: interest rate risk
2	PLN fixed - float IRSs	705	4,950	6,801	32,381	1,493	46,330	(2,045)	3.5513%
3	EUR fixed – float IRSs	-	630	130	4,944	222	5,926	(46)	2.0611%
	Risk hedged: foreign exchange and interest rate risks
4	CIRS fixed USD/float CHF
	fixed USD	153	-	307	-	-	460	(43)	0.4142%
	float CHF	164	-	328	-	-	492		-
19	Float PLN/fixed EUR CIRSs
	float PLN	-	-	-	2,595	-	2,595	(226)	-
	fixed EUR	-	-	-	2,391	-	2,391		1.8935%
6	CIRS EP float PLN/fixed EUR
	float PLN	-	109	-	2,348	-	2,457	213	-
	fixed EUR	-	109	-	2,174	-	2,283		6.8028%
	Hedge type: Fair value hedges
	Hedged risk: interest rate risk
13.17	PLN fixed – float IRSs	-	-	-	5,960	2,091	8,051	386	5.9261%
12.18	USD fixed – float IRSs	319	-	-	236	-	555	1	2.6551%
10,11,12,18	EUR fixed – float IRSs	-	152	696	3,404	548	4,800	9	2.2604%

 

Strategy No	Hedging derivative	up to 1 month	1 to 3 months	3 months to 1 year	1 to 5 years	More than 5 years	Total	Change in the fair value since designation	Nominal-weighted average margin / Nominal-weighted average fixed interest rate
	31.12.2022
	Hedge type: Cash flow hedges
	Hedged risk: interest rate risk
2.16	PLN fixed - float IRSs	-	1,501	29,674	43,498	2,287	76,960	(5,973)	3.1717%
3	EUR fixed – float IRSs	-	-	703	5,206	253	6,162	(115)	1.6952%
	Risk hedged: foreign exchange and interest rate risks
4	CIRS fixed USD/float CHF
	fixed USD	-	-	585	511	-	1,096	(21)	0.3871%
	float CHF	-	-	572	501	-	1,073		-
6	CIRS EP float PLN/fixed EUR
	float PLN	-	-	-	2,457	-	2,457	31	-
	fixed EUR	-	-	-	2,462	-	2,462		8.0307%
	Hedge type: Fair value hedges
	Hedged risk: interest rate risk
13.17	PLN fixed – float IRSs	-	-	-	-	2,841	2,841	30	6.2990%
10.12	USD fixed – float IRSs	-	-	-	357	-	357	3	1.5128%
10,11,12,18	EUR fixed – float IRSs	-	-	469	3,508	591	4,568	(6)	1.5789%

•        financial information on hedged items (in original currencies)

HEDGED ITEM	CARRYING AMOUNT OF THE HEDGED ITEM	ITEM OF THE STATEMENT OF FINANCIAL POSITION	CHANGE IN THE FAIR VALUE OF THE HEDGED ITEM	STRATEGY NO
31.12.2023
Cash flow hedges
Loans in PLN	46,330	Loans and advances to customers	2,058	2
Loans in EUR	838	Loans and advances to customers	7	3
Loans in CHF	105	Loans and advances to customers	43	4
Financial liability in USD	116	Amounts due to customers
Loans in EUR	525	Loans and advances to customers	(175)	6
Negotiated deposits in PLN	2,457	Amounts due to customers
Loans in PLN	2,595	Amounts due to customers	228	19
Financial liability in EUR	550	Liabilities in respect of debt securities in issue
Fair value hedges
Loans in EUR	11	Loans and advances to customers	(1)	10
Security in EUR	30	Securities measured at amortized cost	(5)	11
Security in EUR	62	Securities measured at fair value through other comprehensive income	(2)	12
Security in USD	81	Securities measured at fair value through other comprehensive income	-	12
Security in PLN	-	Securities measured at fair value through other comprehensive income	(15)	13
Portfolio of financial liabilities in PLN	8,051	Amounts due to customers	(402)	17
Portfolio of financial liabilities in EUR	1,001	Amounts due to customers	(2)	18
Portfolio of financial liabilities in USD	60	Amounts due to customers	(1)	18

 

HEDGED ITEM	CARRYING AMOUNT OF THE HEDGED ITEM	ITEM OF THE STATEMENT OF FINANCIAL POSITION	CHANGE IN THE FAIR VALUE OF THE HEDGED ITEM	STRATEGY NO
31.12.2022
Cash flow hedges
Loans in CHF	225	Loans and advances to customers	19	4
Financial liability in USD	249	Amounts due to customers
Loans in PLN	76,959	Loans and advances to customers	6,013	2
Loans in EUR	525	Loans and advances to customers	56	6
Negotiated deposits in PLN	2,457	Amounts due to customers
Loans in EUR	789	Loans and advances to customers	27	3
Fair value hedges
Security in EUR	30	Securities measured at amortized cost	(6)	11
Security in EUR	202	Securities measured at fair value through other comprehensive income	(8)	12
Security in USD	81	Securities measured at fair value through other comprehensive income	(3)	12
Loans in EUR	13	Loans and advances to customers	(1)	10
Security in PLN	-	Securities measured at fair value through other comprehensive income	(21)	13
Shares in Kredobank S.A.	-	Investments in subsidiaries	-	14
Portfolio of financial liabilities in PLN	2,841	Amounts due to customers	(38)	17
Portfolio of financial liabilities in EUR	729	Amounts due to customers	20	18
Total			6,058

 

32.2.        Other derivative instruments – financial information

OTHER DERIVATIVE INSTRUMENTS - BY TYPE	31.12.2023		31.12.2022
	Assets	Liabilities	Assets	Liabilities
IRS	4,402	5,157	8,275	8,101
CIRS	389	656	991	1,374
FX Swap	1,647	1,942	1,245	1,039
Options	952	1,051	842	926
Commodity swap1	167	157	1,380	1,384
FRA	31	30	24	24
Forward	930	695	577	799
Commodity Forward2	234	213	404	355
Other	-	1	7	-
Total	8,752	9,902	13,745	14,002

1 The item includes valuation of gas market participation contracts: assets of PLN 84 million (PLN 1,229 million as at 31 December 2022 ) – and liabilities of PLN 81 million (PLN 1,237 million as at 31 December 2022 ).

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

 

	31.12.2023	31.12.2022
CVA and CDA adjustments	3	153

 

 

NOMINAL AMOUNTS OF UNDERLYING INSTRUMENTS (BUY AND SELL TOGETHER) other derivative instruments
31.12.2023	up to 1 month	1 to 3 months	3 months to 1 year	1 to 5 years	more than 5 years	Total
IRS	5,294	21,658	86,536	211,662	41,798	366,948
Purchase	2,647	10,829	43,268	105,831	20,899	183,474
Sale	2,647	10,829	43,268	105,831	20,899	183,474
CIRS	8,546	-	14,297	6,726	2,044	31,613
Purchase	4,273	-	7,007	3,368	1,022	15,670
Sale	4,273	-	7,290	3,358	1,022	15,943
FX Swap	34,259	23,842	26,557	15,460	-	100,118
Purchase of currencies	17,160	11,834	13,138	7,694	-	49,826
Sale of currencies	17,099	12,008	13,419	7,766	-	50,292
Options	25,382	18,646	51,054	17,100	1,053	113,235
Purchase	12,751	9,362	25,591	8,339	525	56,568
Sale	12,631	9,284	25,463	8,761	528	56,667
FRA	-	-	32,463	10,079	-	42,542
Purchase	-	-	16,697	5,191	-	21,888
Sale	-	-	15,766	4,888	-	20,654
Forward	8,531	14,466	19,033	7,239	-	49,269
Purchase of currencies	4,248	7,368	9,540	3,664	-	24,820
Sale of currencies	4,283	7,098	9,493	3,575	-	24,449
Other, including commodity swap, commodity forward and futures	980	3,067	3,366	466	-	7,879
Purchase	494	1,591	1,636	234	-	3,955
Sale	486	1,476	1,730	232	-	3,924
Total	82,992	81,679	233,306	268,732	44,895	711,604

 

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

 

33.            Securities

Accounting policies

Securities are classified and valued in accordance with the principles of selecting the business model and assessing the characteristics of contractual cash flows referred to in the note “General accounting policies for financial instruments”.

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

Financial information

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

SECURITIES	held for trading	not held for trading, measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
31.12.2023
Debt securities	574	342	104,421	85,755	191,092
NBP money bills	-	-	28,974	-	28,974
treasury bonds (in PLN)	472	-	49,756	58,803	109,031
treasury bonds (in foreign currencies)	1	295	3,738	-	4,034
corporate bonds (in PLN) secured with the State Treasury guarantees	9	-	10,180	13,619	23,808
municipal bonds (in PLN)	12	-	5,097	8,658	13,767
corporate bonds (in PLN)	52	47	2,609	2,413	5,121
corporate bonds (in foreign currencies)	-	-	4,067	2,262	6,329
mortgage covered bonds	28	-	-	-	28
Equity securities	32	336	-	-	368
shares in other entities - not listed	-	312	-	-	312
shares in other entities - listed	30	24	-	-	54
participation units in investment funds, investment certificates, rights to shares, pre-emptive rights	2	-	-	-	2
Total (excluding adjustment relating to fair value hedge accounting)	606	678	104,421	85,755	191,460
Adjustment relating to fair value hedge accounting (note “Hedge accounting and other derivative instruments”)	-	-	-	(21)	(21)
Total	606	678	104,421	85,734	191,439

1 The item includes bonds of international financial organizations of PLN 3,658 million

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

1 The item includes bonds of international financial organizations of PLN 3,550 million

Treasury bonds (in foreign currencies)	31.12.2023	31.12.2022
- Polish Treasury bonds	1,279	2,136
- US Treasury bonds	2,757	2,164
Total	4,034	4,300

 

	31.12.2023	31.12.2022
allowance not reducing the fair value of securities measured at fair value through other comprehensive income	34	37

 

SECURITIES BY MATURITY (excluding adjustments relating to fair value hedge accounting)	held for trading	not held for trading, measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
31.12.2023
without a stated maturity – equity securities	32	336	-	-	368
up to 1 month	61	-	34,789	-	34,850
1 to 3 months	-	-	4,343	7	4,350
3 months to 1 year	256	-	10,621	14,067	24,944
1 to 5 years	212	255	38,527	39,890	78,884
more than 5 years	45	87	16,141	31,791	48,064
Total	606	678	104,421	85,755	191,460

 

SECURITIES BY MATURITY (excluding adjustments relating to fair value hedge accounting)	held for trading	not held for trading, measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
31.12.2022
without a stated maturity – equity securities	28	344	-	-	372
up to 1 month	20	-	3,142	1,513	4,675
1 to 3 months	-	-	223	7	230
3 months to 1 year	17	-	3,455	751	4,223
1 to 5 years	110	366	35,771	37,702	73,949
more than 5 years	24	-	19,695	27,848	47,567
Total	199	710	62,286	67,821	131,016

 

34.            Loans and advances to customers

Accounting policies

Loans and advances to customers are classified in the individual measurement categories in accordance with the principles for selecting the business model and evaluating the characteristics of contractual cash flows referred to in the note “General accounting policies for financial instruments”.

Loans and advances to customers include receivables in respect of loans and advances granted. The category of loans and advances to customers measured at fair value through profit or loss includes the following products: cash loans, credit cards and revolving loans, whose contractual formula for interest calculation includes a multiplier.

The Bank adjusts the gross carrying amount of housing loans measured at amortized cost by recognizing the effect of:

•        legal risk related to potential litigation for the portfolio of mortgage loans in convertible currencies and existing legal claims related to loan exposures recognized as at the balance sheet date in the statement of financial position (see “Cost of legal risk of mortgage loans in convertible currencies”)

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

The statutory credit holidays  were introduced by the Act of 7 July 2022 on the crowdfunding of business ventures and on assistance for borrowers of 14 July 2022 (hereinafter: the “Act”), containing a package of assistance for mortgage borrowers. According to the Act, statutory credit holidays applied to mortgage loans granted in Polish zloty and provided the possibility to suspend loan repayment for up to 8 months between 2022 and 2023 – two months in each of Q3 and Q4 of 2022 and one month in each of the four quarters of 2023. The loan repayment suspension could be used by the customer if the agreement was concluded before 1 July 2022 and the loan term ended after 31 December 2022. Credit holidays could only be used for one loan. The repayment schedule of loan instalments was extended by the number of credit holiday months used.

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

Accordingly, in the second half of 2022, the Bank adjusted the gross carrying amount of mortgage loans by deducting interest income. The value of the adjustment was determined as the difference between the present value of the estimated cash flows resulting from the loan agreements, taking into account the suspension of instalment payments, and the present gross carrying amount of the loan portfolio. The loss calculation was based on the assumption that approximately 63% of customers holding a PLN-denominated mortgage loan would choose to benefit from credit holidays (customer participation rate).

By the end of December 2023, 229 thousand of the Bank's customers applied for a suspension of mortgage repayment, representing 53% of the total number of loans and 62% of the gross carrying amount of total loans eligible for credit holidays. The total number of suspensions applied for as at 31 December 2023 was 1,609 thousand, representing 46% of the maximum number of instalments to be suspended for all eligible customers.

In the fourth quarter of 2023, the Bank estimated the actual level of the credit holiday loss, taking into account, among other things, empirical data on the participation rate of customers' use of credit holidays and early repayments made by customers throughout the period of the statutory credit holiday program.

Based on the outcome of the aforementioned analysis, in the fourth quarter of 2023 the Bank has partially reversed the credit holiday loss and reduced, proportionally, the amortization of this loss to date. The total effect recognized in the Bank's accounting books on this account amounted to PLN 83 million (including a reduction in the loss recognized in July 2022 of PLN 103 million and a proportional reduction in amortization to date of PLN 20 million) - which translated into an increase in net interest income and a decrease in the adjustment of the gross carrying amount of loans. The realized loss on statutory credit holidays, excluding the effect of amortization, was, in the opinion of the Bank, PLN 2,340 million compared to PLN 2,443 million recognized in July 2022.

Work is currently underway in the Polish Parliament to agree amendments to the Act of 7 July 2022 on the crowdfunding of business ventures and on assistance for borrowers, which would provide borrowers with the opportunity to take advantage of the statutory credit holidays also in 2024. Should the amended legislation come into force, depending on the solutions adopted, it could have a significant impact on the Bank's financial performance in 2024. In line with established practice, the Bank believes that the customers' entitlement to benefit from the suspension of loan repayments for subsequent periods will be a statutory cash flow modification that will take place on the day the President signs the amendments to the Act.

At the same time, since fair value is the price that would be received for the sale of an asset in a transaction between independent, knowledgeable and willing market participants, carried out under normal conditions as at the valuation date, i.e. 31 December 2023, the Bank has included the effect of credit holidays in the valuation of the loan portfolio measured at fair value through other comprehensive income. As at 31 December 2023, given the status of the legislative process and the statements in the public sphere by legislative process participants and market supervisors, the Bank's calculation was based on the expert assumption that market participants assumed a 40% probability of the Act coming into force as published in the draft. The percentage of customers who will suspend instalment repayments included in the estimate, assumed by market participants, was set by experts at 79%. The fair value adjustment on this account amounted to PLN 40.1 million and was estimated according to the assumptions valid as at the valuation date.

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

The item “Loans and advances to customers” also includes an adjustment relating to fair value hedge accounting for loans representing hedged items (see the note “Hedge accounting and other derivative instruments”).

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

Financial information

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

LOANS AND ADVANCES TO CUSTOMERS	31.12.2023	31.12.2022
real estate	94,248	89,672
consumer	31,361	29,677
business	98,063	89,577
Loans and advances to customers (excluding adjustment relating to fair value hedge accounting)	223,672	208,926
Adjustment relating to fair value hedge accounting (note “Hedge accounting and other derivative instruments”)	(2)	(8)
Total	223,670	208,918

 

LOANS AND ADVANCES TO CUSTOMERS 31.12.2023	not held for trading, measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
retail and private banking	2,777	10,751	106,899	120,427
real estate	1	10,751	78,314	89,066
consumer	2,776	-	28,585	31,361
companies and enterprises	54	-	16,660	16,714
real estate	-	-	5,056	5,056
business	54	-	11,604	11,658
corporate	27	-	86,504	86,531
real estate	-	-	126	126
business	27	-	86,378	86,405
Loans and advances to customers (excluding adjustment relating to fair value hedge accounting)	2,858	10,751	210,063	223,672
Adjustment relating to fair value hedge accounting note “Hedge accounting and other derivative instruments”	-	-	(2)	(2)
Total	2,858	10,751	210,061	223,670

 

 

LOANS AND ADVANCES TO CUSTOMERS 31.12.2022	not held for trading, measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
retail and private banking	3,480	11,895	98,475	113,850
real estate	4	11,895	72,274	84,173
consumer	3,476	-	26,201	29,677
companies and enterprises	44	-	17,011	17,055
real estate	-	-	5,381	5,381
business	44	-	11,630	11,674
corporate	41	-	77,980	78,021
real estate	-	-	118	118
business	41	-	77,862	77,903
Loans and advances to customers (excluding adjustment relating to fair value hedge accounting)	3,565	11,895	193,466	208,926
Adjustment relating to fair value hedge accounting note “Hedge accounting and other derivative instruments”	-	-	(8)	(8)
Total	3,565	11,895	193,458	208,918

 

LOANS AND ADVANCES TO CUSTOMERS BY MATURITY (excluding adjustments relating to fair value hedge accounting)	not held for trading, mandatorily measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
31.12.2023
up to 1 month	724	87	9,297	10,108
1 to 3 months	376	45	6,931	7,352
3 months to 1 year	1,442	201	36,185	37,828
1 to 5 years	315	1,228	80,266	81,809
more than 5 years	1	9,190	77,384	86,575
Total	2,858	10,751	210,063	223,672

 

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

35.            Amounts due to banks

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

Financial information

AMOUNTS DUE TO BANKS	31.12.2023	31.12.2022
Measured at fair value through profit or loss:	25	2
Liabilities in respect of a short position in securities	25	2
Measured at amortized cost	3,225	2,926
Deposits from banks	1,120	1,936
Current accounts	2,068	974
Other monetary market deposits	37	16
Total	3,250	2,928

 

AMOUNTS DUE TO BANKS BY MATURITY	31.12.2023	31.12.2022
Measured at fair value through profit or loss:	25	2
up to 1 month	25	2
Measured at amortized cost:	3,225	2,926
up to 1 month	3,220	2,880
1 to 3 months	-	31
3 months to 1 year	5	15
Total	3,250	2,928

 

36.            Amounts due to customers

Accounting policies:

Valuation and classification into categories is carried out in accordance with the principles for determining the business model and assessing the characteristics of contractual cash flows referred to in note “General accounting policies for financial instruments”. The item “Amounts due to customers” also includes an adjustment relating to fair value hedge accounting for amounts due to customers representing hedged items (note “Hedge accounting and other derivative instruments”).

Financial information

AMOUNTS DUE TO CUSTOMERS 31.12.2023	Amounts due to households	Amounts due to business entities	Amounts due to public sector	Total
Measured at fair value through profit or loss (liabilities in respect of a short position in securities)	-	277	-	277
Measured at amortized cost	304,152	74,193	15,517	393,862
Cash on current accounts and overnight deposits of which	199,638	53,436	14,551	267,625
savings accounts and other interest-bearing assets	49,650	17,840	9,956	77,446
Term deposits	104,013	20,105	927	125,045
Other liabilities	501	652	39	1,192
Amounts due to customers (excluding adjustment relating to fair value hedge accounting)	304,152	74,470	15,517	394,139
Adjustment relating to fair value hedge accounting (note “Hedge accounting and other derivative instruments”)	412	-	-	412
Total	304,564	74,470	15,517	394,551

 

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

 

AMOUNTS DUE TO CUSTOMERS BY MATURITY (excluding adjustment relating to fair value hedge accounting)	31.12.2023	31.12.2022
Measured at fair value through profit or loss:	277	5
up to 1 month	277	5
Measured at amortized cost:	393,862	334,907
up to 1 month	305,187	268,980
1 to 3 months	35,541	29,026
3 months to 1 year	38,915	10,177
1 to 5 years	8,509	21,385
more than 5 years	5,710	5,339
Total	394,139	334,912

 

AMOUNTS DUE TO CUSTOMERS BY SEGMENT	31.12.2023	31.12.2022
Amounts due to customers (excluding adjustment relating to fair value hedge accounting)	394,139	334,912
retail and private banking	273,811	232,858
corporate	68,472	55,115
companies and enterprises	51,856	46,939
Adjustment relating to fair value hedge accounting (note “Hedge accounting and other derivative instruments”)	412	(56)
Total	394,551	334,856

 

37.            Financing received

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

Financial information

FINANCING RECEIVED	31.12.2023	31.12.2022
Loans and advances received from international financial organizations	-	726
Liabilities in respect of debt securities in issue – bonds issued by PKO Bank Polski S.A.	3,421	-
Subordinated liabilities	2,774	2,781
Total	6,195	3,507

 

37.1. Loans and advances received

LOANS AND ADVANCES RECEIVED BY MATURITY	31.12.2023	31.12.2022
3 months to 1 year	-	726
Total	-	726

 

Date of receipt of loans and advances by the Bank from international financial institutions	Value (nominal)	Currency	Maturity	Carrying amount at 31.12.2023	Carrying amount at 31.12.2022
25.09.2013	75	EUR	25.09.2023	-	70
23.10.2018	646	PLN	23.10.2023	-	656
Total				-	726

 

In 2023 and 2022, PKO Bank Polski S.A. did not receive any loans or advances from banks or other financial institutions.

37.2. Liabilities in respect of debt securities in issue

LIABILITIES IN RESPECT OF DEBT SECURITIES IN ISSUE BY MATURITY	31.12.2023	31.12.2022
Measured at amortized cost:
1 to 5 years	3,421	-
Total	3,421	-

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

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

On 20 December 2022, the Prospectus for the EMTN Program was approved by the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg. On 20 January 2023, the CSSF approved the first Supplement to the prospectus for the EMTN Program.

On 1 February 2023, the Bank, as part of its inaugural EMTN issue allowing it to cover the senior portion of the requirement (being the difference between the MREL requirements denominated on a consolidated basis and the MREL on a stand-alone basis), issued 3-year Senior Preferred Notes with a total value of EUR 750 million, with the possibility of early redemption two years after the issue. The coupon of the issue is fixed, at 5.625%, payable annually until the early redemption date, and variable thereafter, with quarterly payments. Moody’s Investors Service has assigned a rating of A3 to the issue. The bonds were admitted to trading on a regulated market on the Luxembourg Stock Exchange and the Warsaw Stock Exchange.

37.3. Subordinated liabilities

Type of liability	Type of interest rate	Notional amount	Currency	Period	Carrying amount
					31.12.2023	31.12.2022
Subordinated bonds	6M WIBOR +0.0155	1,700	PLN	28.08.2017 - 28.08.2027	1,748	1,752
Subordinated bonds	6M WIBOR +0.0150	1,000	PLN	05.03.2018 - 06.03.2028	1,026	1,029
TOTAL					2,774	2,781

 

The subordinated bonds were designated for increasing the Bank’s supplementary funds upon the approval of the Polish Financial Supervision Authority (Tier 2). Due to unfavorable market circumstances, a decision was made on 1 August 2022 to abandon the early redemption of the series OP0827 subordinated bonds issued by the Bank on 28 August 2017.

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

38.            Intangible assets

Accounting policies:

Software - Acquired computer software licenses are recognized in the amount of costs incurred on the purchase and preparation of the software for use, taking into consideration accumulated amortization and impairment losses.

Goodwill – The Bank recognizes (since the legal merger with a subsidiary) goodwill related to the acquisition of this entity as intangible assets. Goodwill was recognized in the amount of excess of consideration paid over the value of the identifiable assets acquired and liabilities assumed, measured at fair value as at the acquisition date. Subsequent to the initial recognition goodwill is measured at the amount initially recognized less any accumulated impairment losses.

Customer relations – As a result of the settlement of purchase transactions, customer relations were identified which are amortized using the reducing balance method based on the rate of economic benefits consumption arising from their use.

Other intangible assets – Other intangible assets acquired by the Bank are recognized at the cost of purchase or manufacture, less accumulated amortization and impairment losses.

Development costs – The costs of completed development projects are classified as intangible assets in connection with the expected economic benefits to be obtained and meeting specific terms and conditions, i.e. if there is a possibility and intention to complete and use the internally generated intangible asset, there are appropriate technical and financial resources to complete the development and to use the asset and it is possible to reliably measure the expenditure incurred during its development which can be directly attributed to generating the intangible asset.

capital expenditure – The carrying amount of property, plant and equipment items is increased by additional capital expenditure incurred during their use, provided that they satisfy the criteria for classification to fixed assets.

Right-of-use assets are presented in the same items in which the underlying assets would be presented, if they were owned by the Bank.

The Bank uses cloud-based software. In each case, the Bank assesses the possession of real control over this asset, including the fulfilment of the following conditions: having a contractual right to take ownership of the software during the period of use in the cloud without incurring significant penalties, i.e.:

•        the possibility of purchasing from a software supplier without incurring significant costs, and

•        the ability to use the software independently without significantly reducing the usefulness or value of the software,

•        the possibility of running the software on own hardware or entering into an agreement with another party not related to the supplier to use the software.

Based on the above criteria, the Bank classifies part of the software as an intangible asset and part as a service, with the costs recognized in operating expenses.

Related notes:

•        Useful lives – note “Administrative expenses”;

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

Financial information

INTANGIBLE ASSETS	Software	Goodwill	Future profit on concluded insurance contracts	Customer relations		Other, including capital expenditure	of which: software		Total
2023
Gross carrying amount at the beginning of the period	6,074	872	-	87	659		602	7,692
Purchase	-	-	-	-	796		796	796
Transfers from capital expenditure	812	-	-	-	(813)		(814)	(1)
Scrapping and sale	(19)	-	-	-	-		-	(19)
Other	26	-	-	(1)	44		44	69
Gross carrying amount at the end of the period	6,893	872	-	86	686		628	8,537
Accumulated amortization as at the beginning of the period	(4,490)	-	-	(84)	(53)		-	(4,627)
Amortization charge for the period	(504)	-	-	(2)	(1)		-	(507)
Scrapping and sale	18	-	-	-	-		-	18
Other	(1)	-	-	1	-		-	-
Accumulated amortization as at the end of the period	(4,977)	-	-	(85)	(54)		-	(5,116)
Impairment losses as at the beginning of the period	(15)	(117)	-	-	-		-	(132)
Recognized during the period	(1)	-	-	-	-		-	(1)
Impairment losses as at the end of the period	(16)	(117)	-	-		-	-		(133)
Carrying amount as at the beginning of the period, net	1,569	755	-	3		606	602		2,933
Carrying amount as at the end of the period, net	1,900	755	-	1		632	628		3,288

 

 

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

From the Bank’s perspective, expenditure incurred on the Integrated Information System (IIS) is a significant item of intangible assets. The total capital expenditure incurred on the IIS in 2007–2023 was PLN 1,272 million (PLN 1,392 million in 2006-2022).

The net carrying amount of the Integrated Information System (IIS) as at 31 December 2023 was PLN 624 million (PLN 651 million as at 31 December 2022). The expected useful life of the system is 24 years. As at 31 December 2023, its remaining useful life is 7 years.

•      Goodwill

Net goodwill	31.12.2023	31.12.2022
Nordea Bank Polska S.A.	747	747
Assets taken over from CFP sp. z o.o.	8	8
TOTAL	755	755

 

The Bank performs impairment tests of goodwill on acquisition of Nordea Bank Polska S.A. based on a discounted dividend model, by comparing the carrying amount of cash-generating units (‘CGUs”) with their recoverable value.

The residual value of a retail CGU has been calculated by extrapolating the cash flow projections beyond the projection period using the growth rate adopted at a level of 3.7%. Cash flow projections used in the impairment test covered a period of 10 years and are based on the assumptions included in the financial plan of the Bank for 2024. A discount rate of 12.48%, taking into account the risk-free rate and risk premium, was used for the discounting of the future cash flows.

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

As at 31 December 2023, the Bank performed an impairment test in respect of goodwill on the acquisition of Nordea Bank Polska S.A. assigned to the retail CGU (see note “Intangible assets, property, plant and equipment”). The test did not identify impairment.

39.            Property, plant and equipment

Accounting policies:

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

investment properties – are measured according to the accounting policies applied to property, plant and equipment.

capital expenditure – The carrying amount of property, plant and equipment items is increased by additional capital expenditure incurred during their use, provided that they satisfy the criteria for classification to fixed assets.

Right-of-use assets are presented in the same items in which the underlying assets would be presented, if they were owned by the Bank.

Related notes:

•        Useful lives – note “Administrative expenses”;

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

Financial information

PROPERTY, PLANT AND EQUIPMENT	Land and buildings	Machinery and equipment, including computer hardware	Fixed assets under construction	Other, including vehicles	Total
2023
Gross carrying amount at the beginning of the period	3,827	1,620	155	674	6,276
Purchase, including modifications	414	-	338	14	766
Transfers from capital expenditure	38	137	(205)	30	-
Scrapping and sale	(37)	(55)	-	(25)	(117)
Other	(47)	(5)	(2)	4	(50)
Gross carrying amount at the end of the period	4,195	1,697	286	697	6,875
Accumulated amortization as at the beginning of the period	(1,941)	(1,254)	-	(482)	(3,677)
Amortization charge for the period	(288)	(136)	-	(49)	(473)
Scrapping and sale	28	55	-	25	108
Other	22	6	-	(2)	26
Accumulated amortization as at the end of the period	(2,179)	(1,329)	-	(508)	(4,016)
Impairment losses as at the beginning of the period	(93)	(1)	-	-	(94)
Recognized during the period	(38)	(4)	-	-	(42)
Reversed during the period	1	-	-	-	1
Other	6	1	-	-	7
Impairment losses as at the end of the period	(124)	(4)	-	-	(128)
Carrying amount as at the beginning of the period, net	1,793	365	155	192	2,505
Carrying amount as at the end of the period, net	1,892	364	286	189	2,731

 

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

The Bank identifies investment properties with a net carrying amount of PLN 1.5 million as at 31 December 2023 (PLN 332 thousand as at 31 December 2022).

The result from the rental of investment properties is presented in the note "Other operating income and expenses". The Bank presents rental income from investment properties under the heading "Other operating income", in the line "Ancillary income".

Repairs and maintenance costs incurred in connection with the operation of an investment property that generated rental income during the period are presented by the Bank under "Other operating expenses", in the line "Ancillary expenses".

40.            Assets held for sale

Accounting policies:

Assets held for sale are recognized at the lower of their carrying amount and fair value less costs to sell. Impairment losses on assets held for sale are recognized in the income statement for the period in which the losses were recognized.

Related notes:  Useful lives – nota “Administrative expenses” and impairment losses – note “Net impairment allowances on non-financial assets”

Financial information

ASSETS HELD FOR SALE	31.12.2023	31.12.2022
Land and buildings	19	11
Investments in subsidiaries, associates and joint ventures*	120	-
Total gross	139	11
Impairment losses	-	(1)
Total	139	10

*in 2023, the Bank reclassified the investment in Mercury fiz-an as assets held for sale (see note “Changes in the Group companies”.

 

Assets held for sale - CHANGES IN IMPAIRMENT LOSSES	31.12.2023	31.12.2022
As at the beginning of the period	(1)	(1)
Recognized during the period	(2)	-
Reversed during the period	1	-
Other	2	-
As at the end of the period	-	(1)

 

41.            Investments in subsidiaries, associates and joint ventures

Financial information

31.12.2023	Gross carrying amount	Impairment	Net carrying amount
SUBSIDIARIES
PKO Bank Hipoteczny SA	1,650	-	1,650
KREDOBANK S.A.	1,072	(845)	227
PKO Leasing SA	496	-	496
PKO Życie Towarzystwo Ubezpieczeń SA	241	-	241
PKO Towarzystwo Funduszy Inwestycyjnych SA	225	-	225
PKO VC - fizan1	200	-	200
PKO BP BANKOWY PTE SA	151	(37)	114
NEPTUN - fizan1	132	-	132
PKO Towarzystwo Ubezpieczeń SA	110	-	110
PKO Finance AB	24	-	24
PKO BP Finat sp. z o.o.	21	-	21
JOINT VENTURES
Centrum Elektronicznych Usług Płatniczych eService sp. z o.o.	197	-	197
Operator Chmury Krajowej sp. z o.o.	78	-	78
ASSOCIATES
Bank Pocztowy S.A.	184	(184)	-
“Poznański Fundusz Poręczeń Kredytowych" sp. z o.o.	2	(2)	-
Total	4,783	(1,068)	3,715

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

31.12.2022	Gross carrying amount	Impairment	Net carrying amount
SUBSIDIARIES
PKO Bank Hipoteczny SA	1,650	-	1,650
KREDOBANK S.A.	1,072	(845)	227
PKO Leasing SA	496	-	496
PKO Życie Towarzystwo Ubezpieczeń SA	241	-	241
PKO Towarzystwo Funduszy Inwestycyjnych SA	225	-	225
PKO VC - fizan1	200	-	200
PKO BP BANKOWY PTE SA	151	(37)	114
NEPTUN - fizan1	132	-	132
Merkury - fiz an1	120	-	120
PKO Towarzystwo Ubezpieczeń SA	110	-	110
PKO Finance AB	24	-	24
PKO BP Finat sp. z o.o.	21	-	21
JOINT VENTURES
Centrum Elektronicznych Usług Płatniczych eService sp. z o.o.	197	-	197
Operator Chmury Krajowej sp. z o.o.	78	-	78
ASSOCIATES
Bank Pocztowy S.A.	184	(184)	-
“Poznański Fundusz Poręczeń Kredytowych" sp. z o.o.	2	(2)	-
Total	4,903	(1,068)	3,835

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

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

The impairment test performed as at 31 December 2023 and 31 December 2022 did not identify a need to change the existing impairment loss and the carrying amount of Bank Pocztowy recognized in the Bank’s books as at 31 December 2023 and 31 December 2022 was the same as previously, i.e. PLN 0.

42.            Other assets

Accounting policies:

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

Other financial assets recognized in this item are stated at amounts due, comprising also potential interest on such assets, taking into consideration provisions for expected credit losses.

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

Financial information

For more information on other financial assets in terms of credit risk exposure, see note “Credit risk – financial information”.

OTHER ASSETS	31.12.2023	31.12.2022
Other financial assets	1,309	1,654
Settlements in respect of card transactions	480	620
Settlement of financial instruments	143	134
Receivables in respect of cash settlements	407	340
Receivables and settlements in respect of trading in securities	28	24
Dividends receivable and contributions to subsidiaries	30	-
Sale of foreign currencies	-	118
Trade receivables	149	97
Other	72	321
Other non-financial assets	557	456
Inventories	19	19
Receivables from subsidiaries belonging to the Tax Group	34	-
Assets for sale	59	31
Prepayments and deferred costs	111	81
Receivables from the State Budget in respect of flat-rate income tax	-	12
Receivables from customers for whom the agreements have been legally declared invalid in respect of the principal originally disbursed to these customers.	217	186
Other	117	127
Total	1,866	2,110

•        Other non-financial assets

OTHER NON-FINANCIAL ASSETS	31.12.2023	31.12.2022
Gross amount	835	724
Impairment losses	(278)	(268)
Net carrying amount	557	456

 

Other non-financial assets – CHANGES IN IMPAIRMENT LOSSES	2023	2022
As at the beginning of the period	(268)	(264)
Recognized during the period	(69)	(58)
Derecognition of assets and settlements	52	36
Reversed during the period	12	24
Other	(5)	(6)
As at the end of the period	(278)	(268)

•      Management of foreclosed collateral – item “assets for sale”

Foreclosed collaterals as a result of restructuring or debt collection activities are either designated for sale or used by the Bank for internal purposes. Details of the foreclosed assets are analyzed in order to determine whether they can be used by the Bank for internal purposes. All of the assets foreclosed as a result of restructuring and debt collection activities in the years ended 31 December 2023 and 31 December 2022, respectively, were designated as held for sale. Activities undertaken by the Bank are aimed at selling assets as soon as possible. The primary procedure for the sale of assets is an open tender. In justified cases, the sale follows a different procedure depending on the specifics of the sold property.

43.            Other liabilities

Accounting policies:

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

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

Other non-financial liabilities are measured in accordance with the measurement policies binding for particular types of liabilities recognized in this item.

Financial information

OTHER LIABILITIES	31.12.2023	31.12.2022
Other financial liabilities	5,689	4,176
Costs to be paid	611	538
Interbank settlements	1,011	868
Liabilities arising from investing activities and internal operations	395	134
Amounts due to suppliers	93	71
Liabilities and settlements in respect of trading in securities	744	354
Settlement of financial instruments	69	41
Liabilities in respect of foreign exchange activities	721	761
Costs of financial support to a subsidiary	-	190
Liabilities in respect of payment cards	979	314
Lease liabilities	1,034	864
Other	32	41
Other non-financial liabilities	4,546	2,304
Deferred income	669	596
Dividend payable to shareholders	1,600	-
Liabilities from subsidiaries belonging to the Tax Group	18	83
Liability in respect of tax on certain financial institutions	105	100
Liabilities in respect of a contribution to the Bank Guarantee Fund maintained in the form of payment obligations	818	818
to the Resolution Fund	432	432
to the Bank Guarantee Fund	386	386
Liabilities under the public law	992	460
Commitments relating to the reimbursement of principal and interest instalments paid by customers on invalidated mortgage loan agreements in convertible currencies	165	132
Other	179	115
Total	10,235	6,480

 

The item “Liabilities in respect of contributions to the Bank Guarantee Fund” includes an obligation to pay contributions to the BGF (see note “Assets pledged to secure liabilities and financial assets transferred”).

44.            Provisions

Accounting policies:

•      provisions for financial liabilities and guarantees granted

The provision for financial liabilities and guarantees is established at the amount of the expected credit losses (for details please see the note “Net expected credit losses”).

In the portfolio analysis, when determining provisions, portfolio parameters estimated using statistical methods are used, based on historical observations of exposures with the same characteristics, the parameters which define a marginal probability of evidence of impairment, the average utilization of an off-balance sheet liability and the level of anticipated loss in the event of impairment in subsequent months in the period from the reporting date to the horizon of the calculation of the anticipated loss.

With regard to exposures which are material on an individual basis, and are subject to assessment, the provision is determined on a case by case basis – as the difference between the expected amount of the balance sheet exposure which will arise as a result of an off-balance sheet liability at the date of overdue amounts arising treated as evidence of impairment, and the present value of the expected future cash flows obtained from the exposure.

•      provisions for legal claims, excluding legal claims relating to mortgage loans in convertible currencies

The provisions for legal claims include disputes with counterparties, customers and external institutions (e.g. UOKiK), and are created based on an evaluation of the probability of a court case being lost by the Bank and the expected amount of payment (litigation pending has been discussed in the detail in the note “Legal claims”). 

Provisions for legal claims are recognized in the amount of expected outflow of economic benefits.

•      Provisions for potential legal claims against the bank relating to mortgage loans in convertible currencies

The provisions are described in the note “Cost of the legal risk of mortgage loans in convertible currencies”.

•      Provisions for refunds of costs to the customers on early repayment of consumer loans

The amount of the provision for refunds of costs to customers on early repayment of consumer loans is affected by the percentage of prepaid consumer loans, expected amount of consumer claims referring to refunds of loan costs prepaid before the balance sheet data and the average amount of the refund. The expected amount of consumer claims and the average amount of the refund are based on the historical data relating to the number of claims filed and the average amounts of the refunds to customers.

•      provision for pensions and other defined post-employment benefits

The provision for retirement and disability benefits resulting from the Labor Code is recognized individually for each employee on the basis of an actuarial valuation. The provision for employee benefits is determined on the basis of the Group’s internal regulations.

Valuation of the provision for employee benefits is performed using actuarial techniques and assumptions. The calculation of the provision includes all retirement and pension benefits expected to be paid in the future. The provision was recognized on the basis of a list of persons with all necessary employee information, in particular the length of their service, age and gender. The provisions calculated are equal to discounted future payments, taking into account staff turnover.

•      provision for accrued holiday entitlements

The provision for accrued holiday entitlements is recognized at the amount of expected inflows of cash, excluding discounting, based on the number of days of holiday remaining to be utilized by the Bank’s employees and average monthly salary.

•      other provisions

Other provisions mainly include provisions for potential claims on the sale of impaired loans portfolios, details of which have been presented in the note “Sale of impaired loan portfolios”.

Provisions for future payments are measured at reliably estimated, justified amounts necessary to meet the present obligation as at the end of the reporting period. All provisions are recognized in the profit and loss account, excluding actuarial gains and losses recognized in other comprehensive income.

If the effect of the time value of money is material, the amount of the provision is determined by discounting the estimated future cash flows to their present value, using the discount rate before tax which reflects the current market assessments of the time value of money and the potential risk related to a given obligation.

estimates and judgments:

The Bank updated its estimates of provisions for pensions and other liabilities in respect of defined post-employment benefit plans as at 31 December 2023 using an external independent actuary’s calculations. The provisions calculated are equal to discounted future payments, taking into account staff turnover.

COMPONENTS AFFECTING THE PROVISION AMOUNT:	31.12.2023	31.12.2022
financial discount rate adopted	5.20	6.80
weighted average ratio of employee mobility	9.33	9.46
average remaining period of service in years	7.45	7.40
10-year average assumed annual increase in the basis calculation of retirement benefits	2.83	3.55

The impact of the increase/decrease in the financial discount rate and of the planned increases of 1 p.p. in the provision base on the decrease/increase in the value of the provision for retirement and other defined benefit post- employment plans as at 31 December 2023 and as at 31 December 2022 is presented in the tables below: 

ESTIMATED CHANGE IN PROVISION for pensions and other liabilities in respect of defined post-employment benefits	31.12.2023			31.12.2022
	+1pp scenario		-1pp scenario	+1pp scenario		-1pp scenario
Discount rate	(4)	5		(4)	5
Planned increases in base amounts	6	(5)		6	(4)

The Bank performed a sensitivity analysis of the provision for reimbursement for customers on early repayments of consumer and mortgage loans before the balance sheet date as at 31 December 2023 and 31 December 2022 due to changes in the number of claims and average value of a refund.

ESTIMATED CHANGE IN PROVISION	Change in the number of claims		Change in the average amount of reimbursement
	-10%	10%	-10%	10%
31.12.2023	(1)	1	(1)	1
31.12.2022	(1)	1	(1)	1

 

Financial information

FOR THE YEAR ENDED 31.12.2023	Provisions for financial liabilities and guarantees granted¹	Provisions for legal claims, excluding legal claims relating to repaid mortgage loans in convertible currencies	Provisions for legal claims against the bank relating to mortgage loans in convertible currencies	Provisions for refunds of costs to customers on early repayment of consumer and mortgage loans	Provisions for pensions and other defined post-employment benefits	Restructuring	Provision for accrued holiday entitlements	Other provisions, including provisions for employee disputed claims	Total
As at the beginning of the period	829	97	851	17	64	35	97	58	2,048
Increases, including increases of existing provisions	-	15	2,384	-	13	-	25	27	2,464
Utilized amounts	-	(2)	(234)	(9)	(6)	(6)	(6)	(39)	(302)
Unused provisions reversed during the period	(73)	(3)	-	-	(2)	-	-	(4)	(82)
Other changes and reclassifications	(8)	-	-	-	-	-	(1)	-	(9)
As at the end of the period	748	107	3,001	8	69	29	115	42	4,119
Short-term provisions	592	-	-	8	13	29	115	-	757
Long-term provisions	156	107	3,001	-	56	-	-	42	3,362

1 See note “Credit risk – financial information”

 

FOR THE YEAR ENDED 31.12.2022	Provisions for financial liabilities and guarantees granted	Provisions for legal claims, excluding legal claims relating to mortgage loans in convertible currencies	Provisions for legal claims against the bank relating to mortgage loans in convertible currencies	Provisions for refunds of costs to customers on early repayment of consumer and mortgage loans	Provisions for pensions and other defined post-employment benefits	Restructuring	Provision for accrued holiday entitlements	Other provisions, including provisions for employee disputed claims	Total
As at the beginning of the period	672	99	595	15	55	47	91	42	1,616
Increases, including increases of existing provisions	155	7	383	13	15	-	25	50	648
Utilized amounts	-	(7)	(127)	(12)	(5)	(12)	(8)	(34)	(205)
Unused provisions reversed during the period	-	(3)	-	-	(1)	-	(11)	-	(15)
Other changes and reclassifications	2	1	-	1	-	-	-	-	4
As at the end of the period	829	97	851	17	64	35	97	58	2,048
Short-term provisions	684	-	-	17	10	35	97	-	843
Long-term provisions	145	97	851	-	54	-	-	58	1,205