▪ Fair value of financial instruments
Fair value of financial instruments not quoted on active markets is determined with use of
measurement techniques consistent with the Bank’s accounting policy. With respect to non-option
derivatives and debt securities use is made of models based on discounted cash flows. Option pricing
models are applied to option instruments. All models are approved prior to use and also calibrated to
ensure that attained results reflect the actual fair value of the measured instruments. If possible,
only observable data from the active market are used in the models.
In case of lack of measurement parameters coming from the active market, fair value is determined
on the basis of application of measurement techniques using estimated input parameters.
The Bank measures financial instruments using the measurement methods below in the following
hierarchical order:
▪ Prices quoted on the active market for identical instruments for following financial instruments:
Treasury fixed-coupon, zero-coupon debt securities and floating interest debt securities;
▪ Techniques of measurement based on parameters coming from the market for following financial
instruments:
Treasury floating interest debt securities,
Derivatives:
▪ FRA, IRS, CIRS,
▪ FX Swap, FX Forward,
▪ Embedded derivatives,
Bills issued by the Central Bank;
▪ Techniques of measurement with use of significant parameters not coming from the market:
Debt securities of other issuers (e.g. municipalities),
Shares of VISA Incorporation,
Loans and advances mandatorily at fair value through profit or loss,
Derivatives:
▪ FX Options acquired by the Bank,
▪ Indexes options acquired/placed by the Bank.
In order to determine the fair value of VISA preferred shares, the time value of money and the
time line for conversion of preferred stock in common stock of VISA were taken into account.
To estimate the fair value of loans, due to the lack of availability of the market value, an internal
valuation model was used, taking into account the assumption that at the time of granting the
loan the fair value is equal to transaction price.
The fair value of loans without recognized impairment is equal to the sum of future expected cash
flows discounted at the balance sheet date. The discounting rate is the sum of: the cost of risk,
the cost of financing, the value of the expected return.
The fair value of impaired loans is equal to the sum of future expected recoveries discounted using
the effective interest rate, recognizing that the average expected recoveries fully take into
account the element of credit risk.
For derivative financial instruments valuation the Bank applies the component of credit risk taking
into account both: counterparty risk (credit value adjustment – CVA) and own Bank’s risk (debit
value adjustment - DVA). The Bank assesses that unobservable inputs related to applying this
component used for fair value measurement are not significant.
▪ Impairment of other non-current assets
The Bank assesses the existence of any indications that a non-current asset may be impaired at each
balance sheet date. If such indications exist, the Bank performs an estimation of recoverable amount.
Estimation of value-in-use of a non-current asset (or cash generating units) requires assumptions to
be adopted, regarding, among others, amounts and timing of future cash flows, which the Bank may
obtain from the given non-current asset (or cash generating unit). The Bank performs an estimation
of the fair value less costs to sell on the basis of available market data regarding this subject or
estimations made by external parties.