FINANCIAL HIGHLIGHTS	PLN k		EUR k
		31.12.2024	31.12.2023	31.12.2024	31.12.2023
Separate financial statement
I	Net interest income	11 917 462	11 439 587	2 768 798	2 526 187
II	Net fee and commission income	2 552 480	2 385 799	593 021	526 853
III	Profit before tax	7 029 586	6 396 302	1 633 192	1 412 486
IV	Profit for the period	5 197 480	4 672 978	1 207 537	1 031 927
V	Total net cash flows	(4 976 720)	(791 936)	(1 156 247)	(174 882)
VI	Total assets	276 090 920	252 401 201	64 612 900	58 049 954
VII	Deposits from banks	3 050 432	2 668 293	713 885	613 683
VIII	Deposits from customers	215 776 367	195 365 937	50 497 629	44 932 368
IX	Total liabilities	245 863 553	222 915 704	57 538 861	51 268 561
X	Total equity	30 227 367	29 485 497	7 074 039	6 781 393
XI	Number of shares	102 189 314	102 189 314
XII	Net book value per share in PLN/EUR	295,80	288,54	69,23	66,36
XIII	Capital ratio	19,74%	21,37%*
XIV	Profit per share in PLN/EUR	50,86	45,73	11,82	10,10
XV	Diluted earnings per share in PLN/EUR	50,86	45,73	11,82	10,10
XVI	Declared or paid dividend per share in PLN/EUR**	44,63**	23,25	10,37	5,13

*The data includes profits included in own funds, taking into account the applicable EBA guidelines

**Detailed information are described in Note 54.

The following rates were applied to determine the key EUR amounts for selected financial statements line items:

·         for balance sheet items – average NBP exchange rate as at 31.12.2024: EUR 1 = PLN 4,2730  and as at 31.12.2023: EUR 1 = PLN 4,3480

·         for profit and loss items – as at 31.12.2024 - the rate is calculated as the average of NBP exchange rates prevailing as at the last day of each month in 2024: EUR 1 =  PLN 4,3042 ; as at 31.12.2023 - the rate is calculated as the average of NBP exchange rates prevailing as at the last day of each month in 2023: EUR 1 = PLN 4,5284

As at 31.12.2024, FX denominated balance sheet positions were converted into PLN in line with the NBP FX table no. 252/A/NBP/2024  dd. 31.12.2024

I.    Separate income statement66

II.   Separate statement of comprehensive income77

III.  Separate statement of financial position88

IV.  Separate statement of changes in equity99

V.   Separate statement of cash flows1010

VI.  Additional notes to financial statements1111

1.      General information about issuer  1111

2.      Basis of preparation of financial statements  1212

3.      Risk management 3737

4.      Capital management 6464

5.      Net interest income  6868

6.      Net fee and commission income  6969

7.      Dividend income  6969

8.      Net trading income and revaluation  7070

9.      Gains (losses) from other financial securities  7070

10.    Other operating income  7070

11.    Impairment allowances for expected credit losses  7171

12.    Employee costs  7171

13.    General and administrative expenses  7272

14.    Other operating expenses  7272

15.    Corporate income tax  7272

16.    Earnings per share  7373

17.    Cash and balances with central banks  7373

18.    Loans and advances to banks  7474

19.    Financial assets and liabilities held for trading  7575

20.    Hedging derivatives  7676

21.    Loans and advances to customers  7777

22.    Securitisation of assets  8484

23.    Investment securities  8686

24.    Investments in subsidiaries and associates  8787

25.    Intangible assets  9090

26.    Goodwill 9090

27.    Property, plant and equipment 9292

28.    Right of use assets  9393

29.    Deferred tax assets  9494

30.    Other assets  9595

31.    Deposits from banks  9696

32.    Deposits from customers  9696

33.    Subordinated liabilities  9797

34.    Debt securities in issue  9797

35.    Provisions for financial liabilities and guarantees granted  9898

36.    Other provisions  9999

37.    Other liabilities  100100

38.    Share capital 100100

39.    Other reserve capital 101101

40.    Revaluation reserve  102102

41.    Hedge accounting  103103

42.    Sale and reverse sale and repurchase agreements  110110

43.    Offsetting financial assets and financial liabilities  111111

44.    Fair value  112112

45.    Legal risk connected with CHF mortgage loans  117117

46.    Contingent liabilities and litigation and claims  123123

47.    Assets and liabilities pledged as collateral 124124

48.    Information about leases  125125

49.    Statement of cash flows - additional information  126126

50.    Related parties  126126

51.    Acquisitions and disposals of investments in subsidiaries and associates  130130

52.    Employee benefits  130130

53.    Share based incentive scheme  131131

54.    Dividend per share  134134

55.    Operating segments reporting  135135

56.    Events which occurred subsequently to the end of the reporting period  135135

        

I.                   Separate income statement

for the period		1.01.2024-31.12.2024	1.01.2023-31.12.2023
Interest income and income similar to interest		16 103 254	15 604 018
Interest income on financial assets measured at amortised cost		14 173 256	13 240 163
Interest income on financial assets measured at fair value through other comprehensive income		1 875 462	2 300 743
Income similar to interest on financial assets measured at fair value through profit or loss		54 536	63 112
Interest expense		(4 185 792)	(4 164 431)
Net interest income	Note 5	11 917 462	11 439 587
Fee and commission income		3 028 193	2 829 144
Fee and commission expense		(475 713)	(443 345)
Net fee and commission income	Note 6	2 552 480	2 385 799
Dividend income	Note 7	212 332	241 567
Net trading income and revaluation	Note 8	189 422	298 573
Gains (losses) from other financial securities	Note 9	23 419	(12 363)
Gain/loss on derecognition of financial instruments measured at amortised cost	Note 45	(65 278)	(316 773)
Other operating income	Note 10	74 891	74 836
Allowances for expected credit losses	Note 11	(637 924)	(945 710)
Cost of legal risk associated with foreign currency mortgage loans	Note 45	(2 252 561)	(2 081 557)
Operating expenses incl.:		(4 206 672)	(3 936 495)
-Staff, operating expenses and management costs	Note 12 and 13	(3 566 752)	(3 309 013)
-Amortisation of property, plant and equipment and intangible assets		(387 713)	(350 702)
-Amortisation of right of use asset		(131 037)	(126 784)
-Other operating expenses	Note 14	(121 170)	(149 996)
Tax on financial institutions		(777 985)	(751 162)
Profit before tax		7 029 586	6 396 302
Corporate income tax	Note 15	(1 832 106)	(1 723 324)
Profit for the period		5 197 480	4 672 978
Net earnings per share	Note 16
Basic earnings per share (PLN/share)		50,86	45,73
Diluted earnings per share (PLN/share)		50,86	45,73

II.                Separate statement of comprehensive income

	for the period:	1.01.2024-31.12.2024	1.01.2023-31.12.2023
Net profit for the period		5 197 480	4 672 978
Items that will be reclassified subsequently to profit or loss:		(73 304)	2 347 063
Revaluation and sales of debt financial assets measured at fair value through other comprehensive income, gross	Note 23,40	495 822	1 832 301
Deferred tax		(94 206)	(348 137)
Revaluation of cash flow hedging instruments, gross	Note 40,41	(586 321)	1 065 307
Deferred tax		111 401	(202 408)
Items that will not be reclassified subsequently to profit or loss:		150 567	46 076
Revaluation of equity financial assets measured at fair value through other comprehensive income, gross	Note 23,40	188 399	72 166
Deferred and current tax		(35 796)	(13 712)
Provision for retirement benefits – actuarial gains/losses, gross	Note 40,52	(2 514)	(15 282)
Deferred tax		478	2 904
Total other comprehensive income, net		77 263	2 393 139
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD		5 274 743	7 066 117

III.             Separate statement of financial position

	as at:	31.12.2024	31.12.2023
ASSETS
Cash and balances with central banks	Note 17	10 240 316	8 275 110
Loans and advances to banks	Note 18	9 002 974	9 048 400
Financial assets held for trading	Note 19	9 366 581	8 941 960
Hedging derivatives	Note 20	1 363 319	1 559 374
Loans and advances to customers incl.:	Note 21	152 257 402	140 903 101
- measured at amortised cost		147 965 869	138 093 756
- measured at fair value through other comprehensive income		4 289 996	2 798 234
- measured at fair value through profit and loss		1 537	11 111
Reverse sale and repurchase agreements	Note 42	12 126 356	12 676 594
Investment securities incl.:	Note 23	71 820 996	62 952 586
- debt securities measured at fair value through other comprehensive income		38 130 920	44 814 032
- debt investment securities measured at amortised cost		33 227 759	17 866 218
- equity securities measured at fair value through other comprehensive income		462 317	272 336
Assets pledged as collateral	Note 47	1 198 845	271 933
Investments in subsidiaries and associates	Note 24	2 330 907	2 377 407
Intangible assets	Note 25	826 533	730 461
Goodwill	Note 26	1 688 516	1 688 516
Property, plant and equipment	Note 27	415 295	472 100
Right of use asset	Note 28	449 693	449 610
Deferred tax assets	Note 29	674 692	986 915
Non-current assets classified as held for sale		4 308	4 308
Other assets	Note 30	2 324 187	1 062 826
Total assets		276 090 920	252 401 201
LIABILITIES AND EQUITY
Deposits from banks	Note 31	3 050 432	2 668 293
Hedging derivatives	Note 20	600 071	829 565
Financial liabilities held for trading	Note 19	9 926 216	8 834 034
Deposits from customers	Note 32	215 776 367	195 365 937
Sale and repurchase agreements	Note 42	1 198 455	273 547
Subordinated liabilities	Note 33	2 127 985	2 585 476
Debt securities in issue	Note 34	7 514 380	5 929 056
Lease liabilities	Note 48	475 622	484 012
Current income tax liabilities		673 956	1 127 618
Provisions for financial liabilities and guarantees granted	Note 35	170 350	151 294
Other provisions	Note 36	1 580 516	741 677
Other liabilities	Note 37	2 769 203	3 925 195
Total liabilities		245 863 553	222 915 704
Equity
Share capital	Note 38	1 021 893	1 021 893
Other reserve capital	Note 39	22 427 789	23 369 548
Revaluation reserve	Note 40	(197 903)	(275 166)
Retained earnings		1 778 108	696 244
Profit for the period		5 197 480	4 672 978
Total equity		30 227 367	29 485 497
Total liabilities and equity		276 090 920	252 401 201

IV.            Separate statement of changes in equity

Statement of changes in equity 1.01.2024 - 31.12.2024	Share capital	Own shares	Other reserve capital	Revaluation reserve	Retained earnings and profit for the period	Total
Note	38		39	40
As at the beginning of the period	1 021 893	-	23 369 548	(275 166)	5 369 222	29 485 497
Total comprehensive income	-	-	-	77 263	5 197 480	5 274 743
Profit for the period	-	-	-	-	5 197 480	5 197 480
Other comprehensive income	-	-	-	77 263	-	77 263
Share-based incentive scheme	-	-	100 192	-	-	100 192
Purchase of own shares	-	(72 334)	-	-	-	(72 334)
Settlements under share-based incentive scheme	-	72 334	(72 592)	-	-	(258)
Profit allocation to other reserve capital	-	-	87 042	-	(87 042)	-
Profit allocation to dividends	-	-	(1 056 637)	-	(3 504 072)	(4 560 709)
Other changes	-	-	236	-	-	236
As at the end of the period	1 021 893	-	22 427 789	(197 903)	6 975 588	30 227 367

Statement of changes in equity 1.01.2023 - 31.12.2023	Share capital	Own shares	Other reserve capital	Revaluation reserve	Retained earnings and profit for the period	Total
Note	38		39	40
As at the beginning of the period	1 021 893	-	22 305 509	(2 668 305)	3 986 173	24 645 270
Total comprehensive income	-	-	-	2 393 139	4 672 978	7 066 117
Profit for the period	-	-	-	-	4 672 978	4 672 978
Other comprehensive income	-	-	-	2 393 139	-	2 393 139
Share-based incentive scheme	-	-	198 912	-	-	198 912
Purchase of own shares	-	(48 884)	-	-	-	(48 884)
Settlements under share-based incentive scheme	-	48 884	(48 249)	-	-	635
Profit allocation to other reserve capital	-	-	3 289 929	-	(3 289 929)	-
Interim dividend	-	-	(2 375 902)	-	-	(2 375 902)
Other changes	-	-	(651)	-	-	(651)
As at the end of the period	1 021 893	-	23 369 548	(275 166)	5 369 222	29 485 497

V.               Separate statement of cash flows

	for the period	1.01.2024-31.12.2024	1.01.2023-31.12.2023
Cash flows from operating activities
Profit before tax		7 029 586	6 396 302
Adjustments for:
Depreciation/amortisation		518 750	477 486
Net gains on investing activities		(6 037)	6 769
Interest accrued excluded from operating activities		(2 176 110)	(2 011 345)
Dividends		(207 145)	(240 269)
Impairment losses (reversal)		14 304	4 390
Changes in:
Provisions		857 895	355 302
Financial assets / liabilities held for trading		673 731	(416 804)
Assets pledged as collateral		(1 088 492)	(110 353)
Hedging derivatives		329 435	(1 285 031)
Loans and advances to banks		(4 686 721)	1 644 598
Loans and advances to customers		(22 961 885)	(17 751 486)
Deposits from banks		501 649	524 521
Deposits from customers		23 383 643	13 301 911
Buy-sell/ Sell-buy-back transactions		(1 915 324)	(3 976 188)
Other assets and liabilities		(3 266 121)	1 269 265
Interest received on operating activities		12 731 737	12 438 286
Interests paid on operating activities		(3 302 076)	(4 101 274)
Paid income tax		(1 991 668)	(511 093)
Net cash flows from operating activities		4 439 151	6 014 987
Cash flows from investing activities
Inflows		15 767 756	14 663 141
Sale of investments in subsidiaries		46 500	-
Sale/maturity of investment securities		12 827 421	12 259 146
Sale of intangible assets and property, plant and equipment		1 234	13 048
Dividends received		207 145	240 269
Interest received		2 685 456	2 150 678
Outflows		(20 885 862)	(18 883 143)
Purchase of investment securities		(20 439 604)	(18 433 175)
Purchase of intangible assets and property, plant and equipment		(446 258)	(449 968)
Net cash flows from investing activities		(5 118 106)	(4 220 002)
Cash flows from financing activities
Inflows		4 534 224	6 032 802
Debt securities issued		4 350 000	5 865 760
Drawing of loans		184 224	167 042
Outflows		(8 831 989)	(8 619 723)
Debt securities buy out		(2 787 443)	(5 605 700)
Repayment of loans and advances		(617 713)	(87 560)
Repayment of lease liabilities		(147 307)	(154 407)
Dividends to shareholders		(4 560 709)	(2 375 902)
Purchase of own shares		(72 334)	(48 884)
Interest paid		(646 483)	(347 270)
Net cash flows from financing activities		(4 297 765)	(2 586 921)
Total net cash flows		(4 976 720)	(791 936)
Cash and cash equivalents at the beginning of the accounting period		33 698 888	34 490 824
Cash and cash equivalents at the end of the accounting period		28 722 168	33 698 888

Information regarding liabilities arising from financing activities relating to loans received, subordinated liabilities and the issue of debt securities were presented respectively in notes 31-34.

VI.            Additional notes to financial statements

1.     General information about issuer

Santander Bank Polska SA is a bank located in Poland, 00-854 Warszawa, al. Jana Pawła II 17, National Court Registry identification number is 0000008723, TIN os 896-000-56-73, National Official Business Register number (REGON) is 930041341.

On 7.09.2018, the District Court for Wrocław-Fabryczna in Wrocław, VI Economic Unit of the National Court Register, entered into the register of entrepreneurs changes in the Bank’s statute resulting in, among others, the change of the Bank's name from the Bank Zachodni WBK SA to Santander Bank Polska SA.

The immediate and ultimate parent entity of Santander Bank Polska SA is Banco Santander, having its registered office in Santander, Spain.

Santander Bank Polska SA offers a wide range of banking services to individual and business customers and operates in domestic and interbank foreign markets. It also offers the following services:

·         intermediation in trading in securities,

·         leasing,

·         factoring,

·         asset/ fund management,

·         insurance distribution services,

·         trading in shares of commercial companies,

·         brokerage services.

2.     Basis of preparation of financial statements

2.1. Statement of compliance

These standalone financial statements of Santander Bank Polska S.A. were prepared in accordance with the International Financial Reporting Standards (IFRS)  as adopted by the European Union, which are applied on a consistent basis, as at 31 December 2024, and  in the case of matters not governed by the above Standards, in accordance with the provisions of the Accounting Act of 29 September 1994 (consolidated text: Journal of Law 2023, item 120) and related implementing acts as well as the requirements imposed on issuers whose securities are admitted to trading on regulated markets or issuers who have applied to have securities admitted to trading on regulated markets outlined in the Act of 29 July 2005 on Public Offering, on Conditions for the Introduction of Financial Instruments to the Organized Trading System and on Public Companies.

These standalone financial statements have been approved for publication by the Management Board of Santander Bank Polska S.A. on 24 February 2025.

2.2 Basis of preparation of financial statements

These standalone financial statements have been prepared on the assumption that the Bank will continue as going concern in the foreseeable future, i.e. for a period of at least 12 months from the date on which these financial statements were prepared.

Standalone financial statements are presented in PLN, rounded to the nearest thousand.

These financial statements of Santander Bank Polska S.A. have been prepared in accordance with the International Financial Reporting Standards (IFRS) adopted by the European Union and in accordance with following measurement rules:

Item	Balance sheet valuation rules
Held-for-trading financial instruments	Fair value through profit or loss
Loans and advances to customers which meet the contractual cash flows test	Amortized cost
Loans and advances to customers which do not meet the contractual cash flows test	Fair value through profit or loss
Financial instruments measured at fair value through other comprehensive income	Fair value through other comprehensive income
Share-based payment transactions	According to IFRS 2 "Share-based payment" requirements
Equity investment financial assets	Fair value through other comprehensive income – an option
Equity financial assets-trading	Fair value through profit or loss
Debt securities measured at fair value through profit or loss	Fair value through profit or loss
Non-current assets	The purchase price or production cost reduced by total depreciation charges and total impairment losses
Right of use assets ( IFRS 16)	Initial measurement reduced by total depreciation charges and total impairment losses
Non-current assets held for sale and groups of non-current assets designated as held for sale	Are recognised at the lower of their carrying amount and their fair value less costs of disposal.

The same accounting principles were applied as in the case of the standalone financial statements for the period ending 31 December 2023, except for changes in accounting standards p. 2.4.

2.3 New standards and interpretations or changes to existing standards or interpretations which can be applicable to Santander Bank Polska S.A. and are not yet effective and have not been early adopted

.

IFRS	Nature of changes	Effective from	Influence on Santander Bank Polska S.A.
Amendments to IAS 21: Lack of Exchangeability	Amendments require disclosure of information that enables users of financial statements to understand the impact of a currency not being exchangeable.	1 January 2025	The amendment will not have a significant impact on financial statements.
Amendments to the Classification and Measurement of Financial Instruments (Amendments to IFRS 9 and IFRS 7)	Amendments regarding classification and measurement of financial instruments clarify derecognition of a financial liability settled through electronic transfer, present examples of contractual terms that are consistent with a basic lending arrangement,clarify characteristics of non-recourse features and contractually linked instruments and specify new disclosures.	1 January 2026	The amendment may have impact on classification, cash in transits and some of the disclosures in financial statements.*
Annual Improvements to IFRS Accounting Standards	Collection of amendments to IFRS Accounting Standards that will not be a part of any other project and adress necessary, but non-urgent, minor updates. Amendments concern IFRS 7, IFRS 9, IFRS 10, IAS 7.	1 January 2026	The amendment will not have a significant impact on financial statements.*
Amendments to IFRS 9 and IFRS 7: Contracts Referencing Nature-dependent Electricity	The amendments made to IFRS 9 include detail on which power purchase agreements (PPAs) contracts can be used in hedge accounting, and the specific conditions allowed in such hedge relationships. The amendments made to IFRS 7 introduce some new disclosure requirements for contracts referencing naturedependent electricity as defined in the amendments to IFRS 9.	1 January 2026	The amendment will not have a significant impact on financial statements.*
IFRS 18 Presentation and Disclosure in Financial Statements	IFRS 18 includes requirements for all entities applying IFRS for the presentation and disclosure of information in financial statements.The amendments made to IFRS 7 introduce some new disclosure requirements for contracts referencing nature dependent electricity as defined in the amendments to IFRS 9	1 January 2027	The amendment may have impact on cash flow statement, some of the disclosures and income statement in financial statements.*
IFRS 19 Subsidiaries without Public Accountability: Disclosures	IFRS 19 specifies reduced disclosure requirements that an eligible entity is permitted to apply instead of the disclosure requirements in other IFRS Accounting Standards.	1 January 2027	The amendment will not have an impact on financial statements.*

*New standards and amendments to the existing standards issued by the IASB, but not yet adopted by EU.

2.4. Standards and interpretations or changes to existing standards or interpretations which were applied for the first time in the accounting year 2024

IFRS	Nature of changes	Effective from	Influence on Santander Bank Polska S.A.
Amendments to IAS 1	The amendments affect requirements for the presentation of liabilities. Specifically, they clarify one of the criteria for classifying a liability as non-current.	1 January 2024	The amendment doesn`t have a significant impact on financial statements.
Amendments to IFRS 16	Clarification on the calculation of the leasing liability in sales and leaseback transactions with variable fees.	1 January 2024	The amendment doesn`t not have a significant impact on financial statements.
Amendments to IAS 7/IFRS 7: Supplier Finance Agreements	Amendments require an entity to disclose qualitative and quantitative information about its supplier finance programs, such as terms and conditions – including, for example, extended payment terms and security or guarantees provided.	1 January 2024	The amendment doesn`t have a significant impact on financial statements.

esentation of the item "Cash and cash equivalents" in the statement of financial position

2.5 Use of estimates

Preparation of financial statement in accordance with the IFRS requires the management to make subjective judgements and assumptions, which affects the applied accounting principles as well as presented assets, liabilities, revenues and expenses.

The estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying amounts of assets and liabilities that are not readily apparent from other sources.

The estimates and assumptions are reviewed on an ongoing basis. Changes to estimates are recognised in the period in which the estimate is changed if the change affects only that period, or in the period of the change and future periods if the change affects both current and future periods.

Key accounting estimates made by Santander Bank Polska S.A.

Key estimates include:

·     Allowances for expected credit losses

·     Fair value of financial instruments

·     Estimates of provisions for legal claims

·     Estimates  of risk arising from mortgage loans in foreign currencies

Allowances for expected credit losses in respect of financial assets

The IFRS 9 approach is based on estimation of the expected credit loss (ECL). ECL allowances reflect an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes, the time value of money; and reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. ECL allowances are measured at an amount equal to a 12-month ECL or the lifetime ECL, when it is deemed there has been a significant increase in credit risk since initial recognition (Stage 2) or impairment (Stage 3). Accordingly, the ECL model gives rise to measurement uncertainty, especially in relation to:

·     measurement of a 12-month ECL or the lifetime ECL;

·     determination of whether/when a significant increase in credit risk occurred;

·     determination of any forward-looking information reflected in ECL estimation, and their likelihood.

As a result, ECL allowances are estimated using the adopted model developed using many inputs and statistical techniques. Structure of the models that are used for the purpose of ECL estimation consider models for the following parameters:

·       PD - Probability of Default, i.e. the estimate of the likelihood of default over a given time horizon (12-month or lifetime);

·       LGD - Loss Given Default, i.e. the part of the exposure amount that would be lost in the event of default;

·       EAD – Exposure at Default, i.e. expectation for the amount of exposure in case of default event in a given horizon 12-month or lifetime.

Changes in these estimates and the structure of the models may have a significant impact on ECL allowances.

In accordance with IFRS 9, the recognition of expected credit losses depends on changes in credit risk level which occur after initial recognition of the exposure. The standard defines three main stages for recognising expected credit losses:

·       Stage 1 – exposures with no significant increase in credit risk since initial recognition, i.e. the likelihood of the exposure being downgraded to the impaired portfolio (Stage 3 exposures) has not increased. For such exposures, 12-month expected credit losses are recognised.

·       Stage 2 – exposures with a significant increase in credit risk since initial recognition, but with no objective evidence of impairment. For such exposures, lifetime expected credit losses are recognised.

·       Stage 3: exposures for which the risk of default has materialised (objective evidence of impairment has been identified). For such exposures, lifetime expected credit losses are recognised.

For the purpose of the collective evaluation of ECL, financial assets are grouped on the basis of similar credit risk characteristics that indicate the debtors' ability to pay all amounts due according to the contractual terms (for example, on the basis of the Bank’s credit risk evaluation or the rating process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). The characteristics chosen are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors' ability to pay all amounts due according to the contractual terms of the assets being evaluated. The rating/scoring systems have been internally developed and are continually being enhanced, e.g through external analysis that helps to underpin the aforementioned factors which determine the estimates of impairment charges.

In the individual approach, the ECL charge was determined based on the calculation of the total probability-weighted impairment charges estimated for all the possible recovery scenarios, depending on the recovery strategy currently expected for the customer.

In the scenario analysis, the key strategies / scenarios used were as follows:

·       Recovery from the operating cash flows / refinancing / capital support;

·       Recovery through the voluntary liquidation of collateral;

·       Recovery through debt enforcement;

·       Recovery through systemic bankruptcy/recovery proceeding/liquidation bankruptcy;

·       Recovery by take-over of the debt / assets / sale of receivables

·       Recovery as part of legal restructuring.

In addition, for exposures classified as POCI (purchased or originated credit impaired) - i.e. purchased or orginated financial assets that are impaired due to credit risk upon initial recognition, expected credit losses are recognized over the remaining life horizon. Such an asset is created when impaired assets are initially recognized and the POCI classification is maintained over the life of the asset.

A credit-impaired assets

Credit-impaired assets are classified as Stage 3 or POCI.  A financial asset or a group of financial assets are impaired if, and only if, there was objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset or asset was recognized as POCI and that impairment event (or events) had an impact on the estimated future cash flows of the financial asset or group of financial assets that could be reliably estimated. It may not be possible to identify a single event that caused the impairment, rather the combined effect of several events may have caused the impairment. Objective evidence that a financial asset or group of assets was impaired includes observable data:

·     significant financial difficulty of the issuer or debtor;

·     a breach of contract, e.g. delay in repayment of interest or principal over 90 days in an amount exceeding the materiality threshold (PLN 400 for individual and small and medium-sized enterprises and PLN 2,000 for business and corporate clients) and at the same time relative thresholds (above 1% of the amount past due in relation to the balance sheet amount);

·     the Santander Bank Polska S.A., for economic or legal reasons relating to the debtor's financial difficulty, granting to the debtor a concession that the Santander Bank Polska S.A. would not otherwise consider, which fulfil below criteria:

(1)     restructuring transactions classified in the Stage 3 category (before restructuring decision),

(2)     transactions restructured in the contingency period that meet the criteria for reclassification to the Stage 3 (quantitative and/or qualitative),

(3)     transactions restructured during the contingency period previously classified as non-performing due to observed customer financial difficulties, have been restructured again or are more than 30 days past due,

(4)     restructured transactions, where contractual clauses have been applied that defer payments through a grace period for repayment of the principal for a period longer than two years,

(5)     restructured transactions including debt write-off, interest grace periods or repaid in installments without contractual interest,

(6)     restructured transactions, where there was a decrease in the net present value of cash flows (NPV) of at least 1% compared to the NPV before the application of the forbearance measures,

(7)     transactions where there is a repeated failure to comply with the established payment plan of previous forbearances that has led to successive forbearances of the same exposure (transaction),

(8)     transactions where:

·       inadequate repayment schedules were applied, which are related to, inter alia, repeated situations of non-compliance with the schedule, changes in the repayment schedule in order to avoid situations of non-compliance with it,or

·       a repayment schedule that is based on expectations, unsupported by macroeconomic forecasts or credible assumptions about the borrower's ability or willingness to repay was applied,

(9)     transactions for which the Bank has reasonable doubts as to the probability of payment by the customer.

·     it becoming probable that the debtor will enter bankruptcy, recovery proceedings, arrangement or other financial reorganisation;

·     the disappearance of an active market for that financial asset because of financial difficulties;

Impaired exposures (Stage 3) can be reclassified to Stage 2 or Stage 1 if the reasons for their classification to Stage 3 have ceased to apply (particularly if the borrower’s economic and financial standing has improved) and a probation period has been completed (i.e. a period of good payment behaviour meaning the lack of arrears above 30 days), subject to the following:

·       In the case of individual customers, the probation period is 180 days.

·       In the case of SME customers, the probation period is 180 days, and assessment of the customer’s financial standing and repayment capacity is required in some cases. However, the exposure cannot be reclassified to Stage 1 or 2 in the case of fraud, client`s death, discontinuation of business, bankruptcy, or pending restructuring/ liquidation proceedings.

·       In the case of business and corporate customers, the probation period is 92 days, and positive assessment of the financial standing is required (the Bank assesses all remaining payments as likely to be repaid as scheduled in the agreement). The exposure cannot be reclassified to Stage 1 or 2 in the case of fraud, discontinuation of business, or pending restructuring/ insolvency/ liquidation proceedings.

Additionally, if the customer is in Stage 3 and subject to the forbearance process, they may be reclassified to Stage 2 not earlier than after 365 days (from the start of forbearance or from the downgrade to the NPL portfolio, whichever is later) of regular payments, repayment by the client of the amount previously overdue / written off (if any) and after finding that there are no concerns as to the further repayment of the entire debt in accordance with the agreed terms of restructuring.

A significant increases in credit risk

One of the key elements of IFRS 9 is the identification of a significant increase in credit risk which determines the classification to Stage 2. The Bank has developed detailed criteria for the definition of a significant increase in credit risk based on the following main assumptions:

·   Qualitative assumptions:

·   Implementing dedicated monitoring strategies for the customer following the identification of early warning signals that indicate a significant increase in credit risk

·   Restructuring actions connected with making concessions to the customers as a result of their difficult financial standing

·   Delay in payment as defined by the applicable standard, i.e. 30 days past due combined with the materiality threshold

·   Quantitative assumptions:

·   A risk buffer method based on the comparison of curves illustrating the probability of default over the currently remaining lifetime of the exposure based on the risk level assessment at exposure recognition and at reporting date. Risk buffer is set in relative terms for every single exposure based on its risk assessment resulting from internal models and other parameters of exposure impacting assessment of the Bank whether the increase might have significantly increased since initial recognition of the exposure  (such parameters considered types of the products, term structure as well as profitability). Risk buffer methodology was prepared internally and is based on the information gathered in the course of the decision process as well as in the process of transactions structuring.

·   Absolute threshold criterion - a significant increase in risk is considered to have occurred when, over the horizon of the current remaining life of the exposure, the annualised PD at the reporting date exceeds the corresponding PD at the time the exposure was recognised by an amount greater than the threshold.

·   In addition, the Bank applies the threefold risk criterion. It is met when, over the horizon of the current remaining life of the exposure, the annualised PD as at the reporting date exceeds three times the corresponding PD at the time the exposure was recognised.

New criteria for a significant increase in risk (absolute threshold and a condition verifying at least a threefold increase in PD) were introduced in 2024 for all credit portfolios. As a result of the changes introduced, credit exposure amounting to PLN 8,107,493 k was reclassified to Stage 2 and the estimated level of loan impairments was changed in the amount of PLN 130,842 k (increase, which charged the current year's result).

The fact that the exposure is supported by the Borrowers' Support Fund is reported as a forborne and a significant increase in credit risk (Stage 2), and in justified cases (previously identified impairment, a delay in repayment over 30 days, subsequent forbearance, no possibility to service the debt according to the current schedule) exposure is classified in Stage 3.

As of 31.12.2024 the thresholds (determining the maximum permissible value of the probability of default (PD) as at the reporting date after the change in relation to the PD value at the moment of initial recognition) for classification into stage 2 are specified individually for each exposure. The table presents the average annual values ​​of the PD thresholds, taking into account the time to maturity of the exposure.

Average threshold (annualized) of the probability of default
mortgage loans				3.16%
consumer loans				13.06%
Bussines loans				6.56%

Bank independently verifies the fulfillment of other quantitative thresholds (the absolute threshold criterion and the threefold risk increase criterion).

In the corporate client segment, Bank identifies exposures with low credit risk in accordance with the rules derived from IFRS 9, which allows for the recognition of expected 12-month losses even with a significant increase in credit risk since initial recognition. As of December 31, 2024, this portfolio was immaterial and constituted 0,0063% of the portfolio classified into stage 1 or 2 in Santander Bank Polska S.A.

Exposure in Stage 2 may be re-classified into Stage 1 without probation period as soon as significant increase in credit risk indicators after its initial recognition end e.g. when the following conditions are met: client`s current situation does not require constant monitoring, no restructuring actions towards exposure are taken, exposure has no payment delay over 30 days for significant amounts, no suspension of the contact due to Shield 4.0, and according to risk buffer method no risk increase occurs. 

ECL measurement

Another key feature required by IFRS 9 is the approach to the estimation of risk parameters. For the purpose of estimating allowances for expected losses, Santander Bank Polska S.A. uses its own estimates of risk parameters that are based on internal models. Expected credit losses are the sum of individual products for each exposure of the estimated values ​​of PD, LGD and EAD parameters in particular periods (depending on the stage either in the horizon of 12 months or in lifetime) discounted using the effective interest rate.

The estimated parameters are adjusted for macroeconomic scenarios in accordance with the assumptions of IFRS 9. To this end, the Bank determines the factors which affect individual asset classes to estimate an appropriate evolution of risk parameters. The Bank uses scenarios developed internally by the analytical team, which are updated on a monthly basis at least every six months.

The models and parameters generated for the needs of IFRS 9 are subject to model management process and periodic calibration and validation. These tools are also used in the financial planning process.

Determination of forward-looking information and their likelihood

Forward-looking events are reflected both in the process of estimating ECL and when determining a significant increase in credit risk, by

 developing appropriate macroeconomic scenarios and then reflecting them in the estimation of parameters for each scenario. The final parameter value and the ECL is the weighted average of the parameters weighted by the likelihood of each scenario. Bank uses three scenario types: the baseline scenario and two alternative scenarios, which reflect the probable alternative options of the baseline scenario: upside and downside scenario. Scenario weights are determined using the expected GDP path and the confidence intervals for this forecast in such a way that the weights reflect the uncertainty about the future development of this factor.

The Bank's models most often indicate the dependence of the quality of loan portfolios on the market situation in terms of the level of deposits, loans, as well as the levels of measures related to interest rates.

Baseline scenario

The scenario predicts GDP of polish economy to grow by 3.5% in 2025 and 3.2% in 2026. 2024 growth was primarily driven by strong private consumption, supported by robust labour market, high indexation of social benefits and strong consumer confidence. Investment will grow stronger in 2025, fuelled by EU funds, after a lull in 2024. Inflation was forecast to go up towards 5% early 2025, mainly on the back of higher energy prices, before sliding back towards target in late 2026. CPI is expected to average 3.7% in 2024, 4.6% in 2025 and 3.4% in 2026.

2023-24 were election years in Poland and this was supportive for a more expansive fiscal policy, with a rich indexation of the social benefits and introduction of new ones. Against this backdrop, a strong labour market, and a moderate rise in inflation, the central bank was expected to be normalising the monetary policy slowly, delivering 125bp of rate cuts in 2025, bringing the NBP reference rate to 4.50% at the end of 2025 (interest rate expectations were based on market pricing from 10th October 2024) and 4.25% at the end of 2026.

There is some short-term appreciation potential for the zloty, given the expected strong inflow of EU funds and slower expected monetary policy easing in Poland than in other countries. In the longer run, however, geopolitical risks as well as purchasing parity are likely to bring EURPLN exchange rate higher, towards 4.40.

The rebounding economy, interest rate cuts delivered in 2023 and state-sponsored mortgage loans benefits have revived the loan market, and this recovery is expected to continue in the upcoming quarters. Deposit growth recorded a high momentum, driven by an uptick in banking sectors’ net foreign assets, but is expected to converge towards growth rate of loans.

Best case scenario

The optimistic scenario was built assuming a quick disbursement of EU funds, strong private consumption and a strong inflow of workers into the economy, which will allow it to record higher long-term growth rates.

The economy was expected to accelerate to 5.7% in 2025 and 5.1% in 2026. Higher growth was expected to contribute to higher CPI inflation, averaging to 5.2% in 2025, and 3.6% in 2026.

Strong economic growth and an increased CPI was expected to decrease the MPC’s willingness to cut rates, with NBP rate falling to 5.00% in 2025.The Polish currency is expected to appreciate in the coming quarters, but the pace of appreciation will be limited by high inflation in Poland. The euro exchange rate is expected to fall to 4.10-4.25 in the coming years.

Accelerating economic activity will have a positive impact on the demand for loans in the banking system, which will also support money creation and the growth of deposits

Worst case scenario

The pessimistic scenario was built assuming a deterioration in consumer confidence, leading to a decline in private consumption in the short term, accompanied by poor use of EU funds, which translates into lower investment outlays in the economy, as well as a weaker inflow of foreign workers, which will weaken the long-term growth potential in Poland.

In the negative scenario, the economy is expected to grow by 1.6% in 2025 and 1.7% in 2026. Slower growth will translate into somewhat faster disinflation, with CPI amounting to 4.0% in 2025 and 3.1% in 2026.

Weaker growth prospects will encourage the NBP to reduce interest rates and will cause the NBP reference rate to drop to 3.50% by the end of 2025 and remain unchanged in 2026.

Less optimistic economic results and low NBP interest rates will weaken the zloty, and the euro exchange rate will increase towards 4.45.

Lower economic activity will negatively impact demand for loans in the banking system, especially in the household sector, as businesses may need liquidity loans.

The tables below present the key economic indicators arising from the respective scenarios.

Scenario as at 31.12.2024			baseline		best case		worst case
likelihood			60%		20%		20%
			2025	average, next 3 years	2025	average, next 3 years	2025	average, next 3 years
GDP		YoY	3.5%	3.1%	5.7%	5.1%	1.6%	1.7%
WIBOR 3M		average	5.2%	4.5%	5.6%	5.3%	3.9%	3.7%
unemployment rate		% active	2.9%	2.9%	2.7%	2.3%	3.2%	3.7%
CPI		YoY	4.6%	2.8%	5.2%	3.1%	4.0%	2.4%
EURPLN		period-end	4,35	4,37	4,24	4,26	4,43	4,46

Scenario as at 31.12.2023			baseline		best case		worst case
likelihood			60%		20%		20%
			2024	average, next 3 years	2024	average, next 3 years	2024	average, next 3 years
GDP		YoY	3,3%	3,3%	5,7%	5,7%	1,1%	1,1%
WIBOR 3M		average	4,5%	4,0%	6,5%	6,1%	2,9%	1,7%
unemployment rate		% active	3,5%	3,3%	3,3%	2,8%	3,7%	3,8%
CPI		YoY	7,3%	3,6%	8,5%	5,1%	6,2%	2,3%
EURPLN		period-end	4,54	4,51	4,42	4,4	4,63	4,61

Management ECL overlays

In 2024, in addition to the ECL resulting from the complex calculation model implemented in the system, Santander Banka Polska S.A.  reviewed management overlays, updating the risk level with current and expected future events, which resulted in:

·         The management overlay has been released in the amount of PLN 19 600 k for the portfolio of retail loans secured by mortgages, the risk of which might have increased after the cessation of aid measures – payment holidays in force in 2022 and 2023,

·         The management overlay for the corporate portfolio, which was created to cover the underestimation of the LGD parameter due to the earlier implementation of the new model in the amount of PLN 15 340 k.

Potential variability of ECL

Significant volatility for the income statement may be reclassifications to Stage 2 from Stage 1. The theoretical reclassification of given percentage of exposures from Stage 1 with the highest risk level to Stage 2 for each type of exposure would result in an increase in allowances according to below table. The above estimates show expected variability of loss allowances as a result of transfers between Stage 1 and Stage 2, resulting in significant changes in the degree to which exposures are covered with allowances in respect of different ECL horizons.

	additional expected credit loss (PLN m)
reclassification from stage 1 to stage 2	individual	mortgage loans	business	Total 31.12.2024	Total 31.12.2023
1%	7,2	3,6	3,7	14,4	20,5
5%	29,6	12,7	22,8	65,1	97,9
10%	50,5	20,7	47,9	119,1	172,7

Changes in forecasts of macroeconomic indicators may result in significant effects affecting the level of created provisions. Adoption of macroeconomic parameter estimates at only one scenario level (pessimistic or optimistic) will result in a one-off change in ECL at the level below.

in PLN m		change in ECL level
scenario					31.12.2024	31.12.2023
	individuals	housing loans	business		Total	Total
pessimistic	39,7	9,5	30,0		79,2	60,4
optimistic	(41,4)	(9,8)	(29,8)		(81,0)	(65,6)

Based on the GDP indicator as the main factor determining the economic condition, Santander Bank Polska S.A. estimates that a reduction in the target level of gross domestic product by 1b.p. in 2025 would translate into an increase in expected credit losses of PLN 40,161 k PLN. This analysis was conducted assuming the maintenance of the relationship between macroeconomic factors.

Fair value of financial instruments, including instruments which do not meet the contractual cash flows test

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Santander Bank Polska S.A. applies a methodology for measuring the fair value of credit exposures and debt instruments. 

In the case of the instruments with distinguishable on-balance sheet and off-balance sheet components, the extent of fair value measurement will depend on the nature of the underlying exposure, and:

·    the on-balance sheet portion always will be measured at fair value;

·    the off-balance sheet portion will be measured at fair value only if at least one of the following conditions is met:

·     condition 1: the exposure has been designated as measured at fair value (option) or

·     condition 2: the exposure may be settled net in cash or through another instrument or

·     condition 3: Santander Bank Polska S.A. sells the obligation immediately after its granting  or

·     condition 4: the obligation was granted below the market conditions.

The fair value is measured with the use of valuation techniques appropriate in the circumstances and for which sufficient data are available, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

 The Bank applies following valuation techniques:

·       market approach – uses prices and other relevant information generated by market transactions involving identical or comparable (similar) assets, liabilities, or a group of assets and liabilities (e.g. a business unit)

·       income approach – converts future amounts (cash flows or income and expenses) to a single current (discounted) date. When the income approach is used, the fair value measurement reflects the current market expectations as to the future amounts.

Santander Bank Polska S.A. uses the income approach for fair value measurement relating to debt financial instruments which do not meet contractual cash flows test.

In the case of credit exposures and debt instruments, the present value method within income approach is typically used. In this method, the expected future cash flows are estimated and discounted using a relevant interest rate. In the case of the present value method, Santander Bank Polska S.A. uses the following elements in the valuation:

·    expectations as to the future cash flows;

·    expectations as to potential changes in cash flow amounts and timing (uncertainties are inherent in cash flow estimates);

·    the time value of money, estimated using risk-free market rates;

·    the price of uncertainty risk inherent in cash flows (risk premium) and

·    other factors that market participants would take into account in the circumstances.

The present value measurement approach used by Santander Bank Polska S.A. is based on the following key assumptions:

·    cash flows and discount rates reflect the assumptions that market participants would adopt in the measurement of an asset;

·    cash flows and discount rates reflect only the factors allocated to the asset which was subject to measurement;

·    discount rates reflect the assumptions which are in line with the cash flow assumptions;

·    discount rates are consistent with the key economic factors relating to the currency in which the cash flows are denominated.

The fair value determination methodology developed by Santander Bank Polska S.A. provides for adaptation of the fair value measurement model to the characteristics of the financial asset subject to measurement. When determining the need for adaptation of the model to the features of the asset subject to measurement, Santander Bank Polska S.A. takes into account the following factors:

·    approach to the measurement (individual/collective) given the characteristics of the instrument subject to measurement;

·    whether a schedule of payments is available; 

·    whether the asset subject to measurement is still offered by Santander Bank Polska S.A. and whether the products recently provided to customers can be a reference group for that asset. 

Other significant groups of financial instruments measured at fair value are all derivatives, financial assets held within a residual business model, debt investment financial assets held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and equity investment financial assets. These financial instruments are either measured with reference to a quoted market price for that instrument or by using a respective measurement model.

Where the fair value is calculated using financial-markets pricing models, the methodology is to calculate the expected cash flows under the terms of each specific contract and then discount these values back to a present value. These models use as their basis independently sourced market parameters including, for example, interest rate yield curves, securities and commodities prices, option volatilities and currency rates. Most market parameters are either directly observable or are implied from instrument prices.

In justified cases, for financial instruments whose carrying amount is based on current prices or valuation models, Santander Bank Polska S.A. takes into account the need to identify additional adjustments to the fair value of the counterparty credit risk.

The fair value measurement models are reviewed periodically.

A summary of the carrying amounts and fair values of the individual groups of assets and liabilities is presented in Note 44.

Estimates for legal claims

Santander Bank Polska S.A. raises provisions for legal claims in accordance with IAS 37. The provisions have been estimated considering the likelihood of unfavourable verdict and amount to be paid, and their impact is presented in other operating income and cost.

Details on the value of the provisions and the assumptions made for their calculation are provided in Notes 35, 45 and 46.

Due to their specific nature, estimates related to legal claims of mortgage loans in foreign currencies are described below.

Estimates of risk arising from mortgage loans in foreign currencies

Due to the revolving legal situation related to mortgage loans portfolio denominated  and indexed to foreign currencies, and inability to  recover all contractual cash flows risk materialisation, Bank estimates impact of legal risk on future cash flows.

Gross book value adjustment resulting from legal risk is estimated based on a number of assumptions, taking into account:a specific time horizon and a number of probabilities such as:

·         the probability of possible settlements and

·         the probability of submitting claims by borrowers,and

·         the probability in terms of the number of disputes

which are described in more details in Note 45.

In mid-2022, the Bank prepared a settlement scenario which reflects the level of losses for future settlements.

Legal risk is estimated individually for each exposure in the event of litigation and in terms of portfolio in the absence of such.

As explained in the accounting policies, Santander Bank Polska S.A. accounts for the impact of legal risk as an adjustment to the gross book value of the mortgage loans portfolio. If there is no credit exposure or its value is insufficient, the impact of legal risk is presented as a provision according to IAS 37.

The result on legal risk is presented in a separate position in income statement “Cost of legal risk associated with foreign currency mortgage loans” and “Gain/loss on derecognition of financial instruments measured at amortised cost”.

In 2024, the Bank recognized PLN (2,252,561)k as cost of legal risk related to mortgage loans in foreign currencies and PLN (69,220) k as a cost of signed settlements.

Santander Bank Polska S.A. will continue to monitor this risk in subsequent reporting periods.

Details presenting the impact of the above-mentioned risk on financial statement, assumptions adopted for their calculation, 


scenario description and sensitivity analysis are contained in notes 45 and 46, respectively.

2.6 Judgements that may significantly affect the amounts recognized in the financial statements

When applying the accounting principles, the management of Santander Bank Polska S.A. makes various judgements that may significantly affect the amounts recognized in financial statements.

Assessment whether contractual cash flows are solely payments of principal and interest

The key issue for Santander Bank Polska S.A.'s business, is to assess whether the contractual terms of  financial assets indicate the existence of certain cash flow dates, which are only the repayment of the nominal value and interest on the outstanding nominal value.

For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition and ‘interest’ is defined as consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, Santander Bank Polska S.A. considers the contractual terms of the instrument. This includes assessing whether the financial assets contain a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In  making the assessment the Santander Bank Polska S.A. considers:

·       contingent events that would change the amount and timing of cash flows,

·       leverage features,

·       prepayment and extension terms,

·       terms that limit Santander Bank Polska S.A.’s claim to cash flows from specified assets (e.g. non-recourse asset arrangements),

·       features that modify consideration for the time value of money.

A prepayment feature is consistent with the SPPI criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination of the contract.

In addition, a prepayment feature is treated as consistent with this criterion if a financial asset is acquired or originated at a premium or discount to its contractual par amount, the prepayment amount substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable compensation for early termination), and the fair value of the prepayment feature is insignificant on initial recognition.

Business Model Assessment

Business models at Santander Bank Polska S.A. are determined at a level that reflects how groups of financial assets are managed together to achieve a particular business objective. The business model does not depend on the intentions of the Santander Bank Polska S.A. management regarding a particular instrument, which is why the model is assessed at a higher level of aggregation.

All business models, quantitative and qualitative criteria used for business model assessment are described in p.2.7 regarding financial asset classification.

2.7 Material accounting policy information

With the exception of the changes described in point 2.3, the Santander Bank Polska S.A. consistently applied the adopted accounting principles both for the reporting period for which the statement is prepared and for the comparative period.

Foreign currency

Foreign currency transactions

The Polish zloty (PLN) is the functional currency of Santander Bank Polska S.A.

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Resulting from these transactions monetary assets and liabilities denominated in foreign currencies, are translated at the foreign exchange rate ruling at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated at the foreign exchange rate ruling at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to the reporting currency at the foreign exchange rates ruling at the dates that the fair values were determined. Foreign exchange differences arising on translation are recognised in profit or loss except for differences arising on retranslation of instruments of other entities measured at fair value through other comprehensive income, which are recognised in other comprehensive income.

Financial assets and liabilities

Recognition and derecognition

Initial recognition

Santander Bank Polska S.A. recognises a financial asset or a financial liability in its statement of financial position when, and only when, it becomes bound by contractual provisions of the instrument.

A regular way purchase or sale of financial assets is recognised and derecognised, as applicable, at the settlement date.

Derecognition of financial assets

Santander Bank Polska S.A. derecognises a financial asset when and only when, if:

·       contractual rights to the cash flows from that financial asset have expired, or

·       Santander Bank Polska S.A. transfers a financial asset, and such operation meets the derecognition criteria.

The Bank excludes financial assets from the statement of financial position, inter alia, if they are invalidated, settled, written off, overdue, materially modified or uncollectible as a result of a final court judgment. The above-mentioned components are excluded from the statement of financial position as a result of the provisions recognised for them for expected credit losses or losses due to legal risk (in the case of cancellations of CHF loans).

Derecognition of financial liabilities

Santander Bank Polska S.A. shall remove a financial liability (or a part of a financial liability) from its statement of financial position when, and only when, it is extinguished — i.e. when the obligation specified in the contract is discharged or cancelled or expires.

Classification of financial assets and financial liabilities

Classification of financial assets

Classification of financial assets which are not equity instruments

Santander Bank Polska S.A. classifies financial asset that are not an equity instrument as subsequently measured at amortised cost or at fair value through other comprehensive income or fair value through profit or loss on the basis of both:

·       the business model of Santander Bank Polska S.A. for managing the financial assets and

·       the contractual cash flow characteristics of the financial asset (described in point 2.7).

A financial asset is measured at amortised cost if both of the following conditions are fulfilled:

·       the financial asset is held in a business model whose purpose is to hold financial assets to collect contractual cash flows, and

·       the contractual terms of a financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A financial asset is measured at fair value through other comprehensive income if both of the following conditions are fulfilled:

·       the financial asset is held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and

·       the contractual terms of a financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

If a financial asset is not measured at amortised cost or at fair value through other comprehensive income, it is measured at fair value through profit or loss.  

Classification of financial assets which are equity instruments

Santander Bank Polska S.A. measures the financial asset that is an equity instrument at fair value through  profit or loss, unless Santander Bank Polska S.A. made an irrevocable election at initial recognition for particular investments in equity instruments to present subsequent changes in fair value in other comprehensive income.

Business models

Business models at Santander Bank Polska S.A. are determined at a level that reflects how groups of financial assets are managed together to achieve a particular business objective. The business model does not depend on the intentions of the Santander Bank Polska S.A. key management regarding a particular instrument.

The business model refers to how Santander Bank Polska S.A. manages its financial assets in order to generate cash flows. That is, the business model determines whether cash flows will result from:

·    collecting contractual cash flows

·    selling financial assets

·    or both.

Consequently, the business model assessment is not performed on the basis of scenarios that Santander Bank Polska S.A. does not reasonably expect to occur, such as so-called “worst case” or “stress case” scenarios.

Santander Bank Polska S.A. determines the business model on the basis of the assessment of qualitative and quantitative criteria.

The qualitative criteria include, m.in, how the risks associated with these assets are managed and the principles of remunerating the persons managing these portfolios.

The quantitative criteria are intended to determine whether the sale of financial assets during the analysed period does not exceed the threshold values set in the internal regulations set in percentage terms. The frequency, value, timing of the sale of assets and reasons for the sale are analysed.

Business model types

The analysis of qualitative and quantitative criteria makes it possible to identify three basic business models applied in the operations of Santander Bank Polska S.A.:

·       the business model whose objective is to hold assets in order to collect contractual cash flows (hold to collect),

·       the business model whose objective is achieved by both collecting contractual cash flows and selling financial assets (hold to collect and sell),

·       the other/ residual business model (the business model whose objective is achieved by selling assets).

The predominant business model in the Santander Bank Polska S.A.  is a business model that involves holding assets for the purpose of generating contractual cash flows, with the exception of:

·    debt instruments measured at fair value through other comprehensive income held in the ALM segment and loans and advances subject to the underwriting process described below, for which a business model has been established, the purpose of which is achieved both by generating cash flows arising from the agreement, as well as through the sale of financial assets,

·       instruments held for trading, including debt instruments and derivatives, for which hedge accounting is not used – the appropriate business model is a different/residual business model.

A business model whose objective is to hold assets in order to collect contractual cash flows

In the hold-to-maturity model, incidental sales are possible. Such sales are each time analyzed in terms of frequency, value and distribution of sales in earlier periods, reasons for these sales and expectations as to future sales operations.

A business model whose objective is to hold assets in order to collect contractual cash flows spans the entire spectrum of credit activity, including but not limited to corporate loans, mortgage and consumer loans, credit cards, loans granted and debt instruments (e.g. treasury bonds, corporate bonds), which are not held for liquidity management purposes. Financial assets on account of trading settlements are substantially also recognised under this model. Such assets are recognised in the books of Santander Bank Polska S.A. on the basis of an invoice issued payable within maximum one year.

A business model whose objective is achieved by both collecting contractual cash flows and selling financial assets

A business model whose objective is achieved by both collecting contractual cash flows and selling financial assets includes:

·       financial assets acquired for the purpose of liquidity management, such as State Treasury bonds or NBP bond and

·       loans and advances subject to underwriting, i.e. portion of credit exposures that are planned to be sold before maturity for reasons other than increase in credit risk.

Other/ residual business model

Other, residual, model is used for classifying assets held by Santander Bank Polska S.A. but not covered by the first or second category of the business model. They include assets from the “held for trading” category in the financial statements, such as listed equity instruments, commercial bonds acquired for trading purposes and derivatives (e.g. options, IRS, FRA, CIRS, FX Swap contracts) which are not embedded derivatives.

Changing the business model

Santander Bank Polska S.A. reclassifies all affected financial assets when, and only when, it changes its business model for managing financial assets.

If Santander Bank Polska S.A. reclassifies a financial asset, it applies the reclassification prospectively from the reclassification date.

Classification of financial liabilities

Santander Bank Polska S.A. classifies all financial liabilities as subsequently measured at amortised cost, except for: 

·       financial liabilities measured at fair value through profit or loss. Such liabilities, including derivatives that are liabilities, shall be subsequently measured at fair value.

·       financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies;

·       financial guarantee contracts. After initial recognition , the issuer shall measure contract at the higher of:

(1)     amount of the expected credit loss allowance,

(2)     initial recognised amount, less respective accumulated income recognised as per IFRS 15;

·       commitments to provide a loan at a below-market interest rate. If the liability is not measured at fair value through profit or loss, the issuer shall subsequently measure  it at the higher of:

(1)      amount of the expected credit loss allowance,

(2)     initial recognised amount, less respective accumulated income recognised as per IFRS 15;

·       contingent consideration recognised by the acquire under the business combination arrangement governed by IFRS 3. Such contingent consideration shall subsequently be measured at fair value with changes recognised in profit or loss.

Embedded derivatives

For financial assets, that meet the definition of hybrid contracts with an embedded derivative, a derivative that is a component of such a contract is not separated from the host contract which is not a derivative, the entire contract is assessed in terms of the contractual cash flow characteristics.

Measurement of financial assets and financial liabilities

Initial measurement

At initial recognition, Santander Bank Polska S.A. measures a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.

However, if the fair value of the financial asset or financial liability at initial recognition differs from the transaction price, Santander Bank Polska S.A. recognises this instrument on that date as follows:

·       when the fair value is evidenced by a quoted price in an active market for an identical asset or liability (i.e. a Level 1 input) or based on a valuation technique that uses only data from observable markets, then Santander Bank Polska S.A. recognises the difference between the transaction price and the fair value at initial recognition as a gain or loss.

·       in all other cases, at the measurement adjusted to defer the difference between the fair value at initial recognition and the transaction price. After initial recognition, Santander Bank Polska S.A. recognises that deferred difference as a gain or loss only to the extent that it arises from a change in a factor (including time) that market participants would take into account when pricing the asset or liability.

At initial recognition, Santander Bank Polska S.A. shall measure trade receivables that do not have a significant financing component (determined in accordance with IFRS 15) at their transaction price (as defined in IFRS 15).

Subsequent measurement of financial assets

After initial recognition, Santander Bank Polska S.A. recognises a financial asset:

·    at amortised cost, or

·    fair value through other comprehensive income, or

·    at fair value through profit or loss.

Allowances for expected credit losses  are not calculated for financial assets measured at fair value through profit or loss.

Subsequent measurement of financial liabilities

After initial recognition, Santander Bank Polska S.A. recognises a financial liability:

·    at amortised cost, or

·    at fair value through profit or loss.

Liabilities measured at amortised costs include: deposits from banks, deposits from customers, liabilities due to repo transactions, loans and advances obtained, issued debt instruments and subordinated liabilities.

Liabilities are recognised as subordinated liabilities  which in the event of liquidation or bankruptcy of Santander Bank Polska S.A. are repaid after satisfaction of claims of all other Santander Bank Polska S.A.’s creditors. Financial liabilities are classified as subordinated liabilities by the decision of the Polish Financial Supervision Authority issued at the request of Santander Bank Polska S.A..  

Amortised cost measurement

Financial assets

Effective interest method

Interest revenue is calculated by applying the effective interest rate to the gross carrying amount of financial assets and presented in “Net interest income”, except for credit-impaired financial assets. At the time a financial asset or a group of similar financial assets is reclassified to stage 3, interest revenue is calculated on the basis of a net value of a financial asset and presented at the interest rate used for the purpose of discounting the future cash flows for the purpose of measurement of impairment.

This does not apply to POCI assets, in the case of which the interest revenue is calculated on the basis of the net carrying amount, applying the effective interest rate adjusted for credit risk over the lifetime of the asset. The credit-adjusted effective interest rate is calculated by taking into account the future cash flows adjusted for the effect of credit risk over the lifetime of the asset.

The gross carrying amount of a financial asset is its amortised cost, before adjusting for any expected credit loss allowances.

Purchased or originated credit-impaired assets (POCI)

Santander Bank Polska S.A. distinguished the category of purchased or originated credit-risk assets. POCI are assets that are credit-impaired on initial recognition. Financial asset that were classified as POCI at initial recognition should be treated as POCI in all subsequent periods until they are derecognized.

At initial recognition, POCI assets are recognized at their fair value. After initial recognition POCI assets are measured  at amortized costs.

Valuation of POCI assets is based on the  effective interest rate  adjusted for the effect of credit risk .

For POCI assets (purchased or originated credit impaired) expected credit losses are recognised over the lifetime of the asset.

Portfolio of mortgage loans denominated/indexed to foreign currencies

Santander Bank Polska S.A. reduces the gross carrying amount of mortgage loans denominated/indexed to foreign currencies in accordance with IFRS 9 by the impact of legal risk for potential and existing disputes. In the absence of gross carrying amount or its insufficient value to cover, it records a provision in accordance with IAS 37.

Modification of contractual cash flows

The concept of modification

Changes to the contractual cash flows in respect of the financial asset are regarded by Santander Bank Polska S.A. as modification if made in the form of an annex. Changes to the contractual cash flows arising from performance of the contractual obligations are not considered to be a modification.

If the terms of the financial asset agreement change, the Santander Bank Polska S.A. assesses whether the cash flows generated by the modified asset differ significantly from cash flows generated by financial asset before modification of the terms of the asset agreement.

Modification criteria

When assessing whether a modification is substantial or minor, Santander Bank Polska S.A. takes into account both quantitative and qualitative criteria. Both criteria groups are each time analyzed together.

Quantitative criteria

To determine the significance of the impact of modifications, the so-called "10% test" is carried out which is based on a comparison of discounted cash flows of the modified financial instrument (using the original effective interest rate) with discounted (also with the original effective interest rate) cash flows of the financial instrument before modification, whose value should correspond to the value of undue capital, increased by the value of undue interest and adjusted for the amount of unsettled commission.

Qualitative criteria

During the qualitative analysis, Santander Bank Polska S.A. takes into account the following aspects:

·    adding / removing a feature that violates the contractual cash flow test result,

·    currency conversion - except for currency conversions resulting from the transfer of the contract for collection,

·    change of the main debtor - change of the contractor results in a significant modification of contractual terms and

·    consolidation of several exposures into one under an annex.

Substantial modification

Identification of substantial modification resulting in the exclusion of a financial instrument from the statement of financial position is based on qualitative and quantitative criteria described above.

The occurrence of at least one of these quality criteria results in a significant modification. In the case of quantitative criteria, exceeding the "10% test" also indicates a significant

As a result of a significant modification, the existing financial instrument is derecognized. The new instrument is recognized at fair value.

Minor modification

If neither the qualitative criteria, not the quantitative are met ( eg. “10% test” exceeded), the modification is regarded by Santander Bank Polska S.A. as insignificant.

The change in the gross carrying amount is recognized in interest income/expense as a modification gain or loss.

Write-off

Santander Bank Polska S.A. directly reduces the gross carrying amount of a financial asset when the entity has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. A write-off constitutes a derecognition event. Financial asset can be written off partially or in its entirety.

Santander Bank Polska S.A. writes off financial assets if at least one of the following conditions apply:

·       Santander Bank Polska S.A. has documented the irrecoverability of the debt ;

·       there are no reasonable expectations of recovering the financial asset in full or in part;

·       the debt is due and payable in its entirety and the value of the credit loss allowance corresponds to the gross value of the exposure, while the expected debt recovery proceeds are nil; 

·       the asset originated as a result of a crime and the perpetrators have not been identified or

·       Santander Bank Polska S.A. has received:

·       a decision on discontinuation of debt enforcement proceedings due to irrecoverability of the debt (in relation to all obligors), issued by a relevant enforcement authority pursuant to Article 824 § 1 (3) of the Polish Code of Civil Procedure, which is recognised by the creditor (Santander Bank Polska S.A.) as corresponding to the facts; or

·       a court decision:

-     dismissing a bankruptcy petition, if the insolvent debtor's assets are insufficient to cover the cost of the proceedings or suffice to cover this cost only; or

-     discontinuing the bankruptcy proceedings or

-     closing the bankruptcy proceedings.

Financial assets written off are then recorded off balance sheet.

Impairment

General approach

Santander Bank Polska S.A. recognises allowances for expected credit losses on in respect of:

·    financial assets measured at amortised cost or at fair value through other comprehensive income;

·    lease receivables;

·    contract assets, i.e. the consideration to which Santander Bank Polska S.A. is entitled in exchange for the goods or services transferred to the customer in accordance with IFRS 15 Revenue from Contracts with Customers;

·    loan commitments and

·    off-balance sheet credit liabilities and financial guarantees.

Details regarding the calculation are described in point 2.6 "Allowances for expected credit losses"

Santander Bank Polska S.A. recognises in profit or loss, as an impairment gain or loss, the amount of expected credit losses that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognised.

Santander Bank Polska S.A. charges interest on exposures classified in Stage 3 on the net exposure value .

Simplified approach for trade receivables and contract assets

In the case of trade receivables and contract assets, Santander Bank Polska S.A. always measures the loss allowance at an amount equal to lifetime expected credit losses for trade receivables or contract assets that result from transactions that are within the scope of IFRS 15, and that do not contain a significant financing component.

Contingent liabilities

Santander Bank Polska S.A. creates provisions for impairment risk-bearing irrevocable contingent liabilities (irrevocable credit lines, financial guarantees, letters of credit, etc.). The value of the provision is determined as the difference between the estimated amount of available contingent exposure set using the Credit Conversion Factor (CCF) and the current value of expected future cash flows under this exposure.

Santander Bank Polska S.A. raises provisions for off-balance sheet liabilities subject to credit risk, broken down into 3 stages.

Gains and losses

Financial instruments in amortized cost

A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship is recognised in profit or loss through the amortisation process or in order to recognise impairment gains or losses. A gain or loss on a financial liability that is measured at amortised cost and is not part of a hedging relationship is recognised in profit or loss when the financial liability is derecognised and through the amortisation process.  

With regard to the financial assets recognised by Santander Bank Polska S.A. at the settlement date, any change in the fair value of the asset to be received during the period between the trade date and the settlement date is not recognised for assets measured at amortised cost. For assets measured at fair value, however, the change in fair value is recognised in profit or loss or in other comprehensive income. The trade date means the date of initial recognition for the purposes of applying the impairment requirements.

Instruments valued at fair value

A gain or loss on a financial asset or liability measured at fair value is recognised in profit or loss unless the asset or liability is:

·       a part of a hedging relationship,

·       an investment into an equity instrument and Santander Bank Polska S.A. has decided to present gains and losses on that investment in other comprehensive income,

·       a financial liability designated as measured at fair value through profit or loss and Santander Bank Polska S.A. is required to present the effects of changes in the liability's credit risk in other comprehensive income; or

·       is a financial asset measured at fair value through other comprehensive income and Santander Bank Polska S.A. is required to recognise some changes in fair value in other comprehensive income.

Investments in equity instruments

Investments in equity instruments are measured at fair value through profit or loss unless at their initial recognition Santander Bank Polska S.A. makes an irrevocable election to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument within the scope of this policy that is no held for trading.

If Santander Bank Polska S.A. has elected to measure equity instruments at fair value through other comprehensive income , dividends from that investment are recognised in profit or loss.

Liabilities designated as measured at fair value through profit or loss

Santander Bank Polska S.A. presents a gain or loss on a financial liability that is designated as measured at fair value through profit or loss as follows:

·       the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, and

·       the remaining amount of change in the fair value of the liability is presented in profit or loss unless the treatment of the effects of changes in the liability's credit risk described in (a) would create or enlarge an accounting mismatch in the profit or loss of Santander Bank Polska S.A..

If the requirements specified above would create or enlarge an accounting mismatch in the profit or loss of Santander Bank Polska S.A., Santander Bank Polska S.A. presents all gains or losses on that liability (including the effects of changes in the credit risk of that liability) in profit or loss.

Santander Bank Polska S.A. presents in profit or loss all gains and losses on loan commitments and financial guarantee contracts that are designated as measured at fair value through profit or loss.

Assets measured at fair value through other comprehensive income

A gain or loss on a financial asset measured at fair value through other comprehensive income is recognised in other comprehensive income, except for impairment gains or losses and foreign exchange gains and losses, until the financial asset is derecognized.  If the financial asset is derecognised, Santander Bank Polska S.A. accounts for the cumulative gain or loss that was previously recognised in other comprehensive income in profit or loss. Interest calculated using the effective interest method is recognised in profit or loss.

Financial instruments held for trading

Derivative financial instruments are recognised at fair value without any deduction for transactions costs to be incurred on sale. The best evidence of the fair value of a financial instrument at initial recognition is the transaction price i.e. the fair value of the consideration given or received.

If a hybrid contract contains a host contract that is not an asset within the scope of this IFRS 9, Santander Bank Polska S.A. separates the embedded derivative from the host contract and accounts for it as other derivatives if the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract and the host contract is not carried at fair value through profit or loss. Embedded derivatives are measured at fair value with changes recognised in the profit and loss account.

Hedge accounting

Pursuant to paragraph 7.2.21 of IFRS 9, Santander Bank Polska S.A. chose to continue to apply the hedge accounting requirements and hedging relationships arising from IAS 39.

The Santander Bank Polska S.A. uses derivative financial instruments among others to hedge its exposure to interest rate risks arising from Santander Bank Polska S.A. operational, financing and investment activities.

The Santander Bank Polska S.A. discontinues hedge accounting when:

·         it is determined that a derivative is not, or has ceased to be, highly effective as a hedge;

·         the derivative expires, or is sold, terminated, or exercised;

·         the hedged item matures or is sold, or repaid,

·         the hedging relationship ceases.

Fair value hedge

A fair value hedge is accounted for as follows: the gain or loss from remeasuring the hedging instrument at fair value (for a derivative hedging instrument) shall be recognised in profit or loss; and the gain or loss on the hedged item attributable to the hedged risk shall adjust the carrying amount of the hedged item and be recognised in profit or loss. This rule applies if the hedged item is otherwise measured at amortised cost or is a financial asset measured at fair value through other comprehensive income.

Cash flow hedge

A cash flow hedge is accounted for as follows: the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge shall be recognised directly in other comprehensive income and the ineffective portion of the gain or loss on the hedging instrument shall be recognised in income statement.

Interest income and expenses on hedged and hedging instruments are recognised as net interest income.

Amounts recognised in ‘Other comprehensive income’ are reclassified to profit or loss during the period of time in which the hedged item affects the income statement.

If the hedging instrument expires or is sold or the hedge accounting relationship is terminated, Santander Bank Polska S.A. discontinues hedge accounting. All profits or losses on the hedging instrument pertaining to the effective hedge recognised in other comprehensive income remains an element of equity until the forecast transaction occurs, when it is recognised in income statement.

If the transaction is no longer expected to occur, the cumulative gain or loss relating to the hedging instrument recognised in other comprehensive income is reclassified to profit or loss.

Repurchase and reverse repurchase transactions

The Santander Bank Polska S.A. also generates/invests funds by selling/purchasing financial instruments under repurchase/reverse repurchase agreements whereby the instruments must be repurchased/resold at the previously agreed price.

Securities sold subject to repurchase agreements (“repo and sell-buy-back transaction”) are not derecognised from the statement of financial position at the end of the reporting period. The difference between sale and repurchase price is treated as interest cost and accrued over the life of the agreement.

Securities purchased subject to resale agreements (“reverse repo and buy-sell-back transactions”) are not recognised in the statement of financial position at the end of the reporting period. The difference between purchase and resale price is treated as interest income and accrued over the life of the agreement.

The principles described above are also applied by Santander Bank Polska  S.A.  to transaction concluded as separate transaction of sale and repurchase of financial instruments but having the economic nature of repurchased and reverse repurchase transactions.

Property, plant and equipment

Owned fixed assets

Property, plant and equipment including those under operating leases, are stated at cost or deemed cost less accumulated depreciation and impairment losses.

Subsequent expenditure

Santander Bank Polska S.A. recognises in the carrying amount of property, plant and equipment the cost of replacing part of such an asset when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to Santander Bank Polska S.A. and the cost of the item can be measured reliably. All other costs are recognised in the income statement as an expense as incurred.

Depreciation

Depreciation is charged to the income statement on a straight-line basis over the estimated economic useful lives of each part of an item of property, plant and equipment.

The estimated economic useful lives are as follows:

·    buildings: 22-40 years

·    IT equipment: 3-5 years

·    transportation means: 3-4 years

·    other fixed assets: 3-14 years.

Right-of-use assets are depreciated on a straight basis overt the assets’s useful life.

Depreciation rates are verified annually. On the basis of this verification, depreciation periods might be changed.

Goodwill and Intangible assets

Goodwill

Goodwill as of the acquisition date measured as the excess of the consideration transferred over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities, contingent liabilities less impairment. Goodwill value is tested for impairment annually.

Licenses, patents, concessions and similar assets

Acquired computer software licenses are recognized on the basis of the costs incurred to acquire and bring to use the specific software.

Expenditures that are directly associated with the production of identifiable and unique software products controlled by Santander Bank Polska S.A., and that will probably generate economic benefits exceeding expenditures beyond one year, are recognised as intangible assets.

Amortisation

Amortisation is charged to the income statement on a straight-line or degressive method (for intangible assets resulting from business combinations) over the estimated economic useful lives of intangible assets, which for the majority of intangibles equals to three years.

Amortisation rates are verified annually. On the basis of this verification, amortisation periods might be changed.

Leasing

Separating elements of the leasing contract

Lessee

Santander Bank Polska S.A. (the lessee) does not separate non-lease components from lease components, and instead accounts for each lease component and any associated non-lease components as a single lease component for each underlying asset class where it is not possible and where the share of non-lease components is not significant compared to total net lease payments.

Lease term

Santander Bank Polska S.A. determines the lease term as the non-cancellable period of a lease, together with both:

·       periods covered by an option to extend the lease if the Santander Bank Polska S.A. (the lessee) is reasonably certain to exercise that option; and

·       periods covered by an option to terminate the lease if the Santander Bank Polska S.A.  (the lessee) is reasonably certain not to exercise that option.

The lease term is updated upon the occurrence of either a significant event or a significant change in circumstances.

Santander Bank Polska S.A.as the lessee

Recognition

At the commencement date, Santander Bank Polska S.A. (the lessee) recognises a right-of-use asset and a lease liability.

Recognition exemptions

Santander Bank Polska S.A. (the lessee) does not apply the recognition and measurement requirements arising from the accounting policy to:

·    leases that have a leasing period of no more than 12 months at the start date; and

·    leases for which the underlying asset is of low value (i.e. if the net value of a new asset is lower or equal to PLN 20,000).

In the case of short-term leases or leases for which the underlying asset is of low value, the Santander Bank Polska S.A. (the lessee)  recognises the lease payments associated with those leases as an expense on  a straight-line basis over the lease term.

Other items of the statement of financial position

Other trade and other receivables

Trade receivables and other receivables payable within 12 months from the origination are measured at the initial recognition at par due to the immaterial effect of discounting. Trade receivables and other receivables payable within 12 months are at the balance sheet day recognised in the amount of the required payment less impairment loss.

Trade payables and other liabilities

Other liabilities payable within 12 months from the initial recognition are measured at par due to the immaterial effect of discounting. Like other liabilities payable within 12 months, trade payables are recognised at the balance sheet day in the amount of the payment due.

Equity

Equity comprises capital and funds created in accordance with applicable law, acts and the Articles of Association. Equity also includes retained earnings and prior year losses carried forward.

Share capital is stated at its nominal value in accordance with the Articles of Association and the entry in the court register.

Supplementary capital is created from profit allocations and share issue premiums.

Reserve capital is created from profit allocations and may be earmarked for covering balance sheet losses or dividend payment.

The result of valuation of management share-based incentive program is included in reserve capital (IFRS 2.53).

The supplementary, reserve, general banking risk fund and share premium  are presented jointly under category “Other reserve funds”.

Revaluation reserve is comprised of adjustments relating to the valuation of financial assets measured at fair value through other comprehensive income and adjustments relating to the valuation of effective cash flow hedges taking into account deferred tax and actuarial gains from estimating provision for retirement. The revaluation reserve is not distributable.

Except for own equity, non-controlling interests are also recognised in Santander Bank Polska S.A. capital.

On derecognition of all or part of financial assets measured at fair value through other comprehensive income the total effects of periodical change in the fair value reflected in the revaluation reserve are reversed. The value of a given financial asset measured at fair value through other comprehensive income is increased or decreased by the whole amount or an adequate portion of the impairment allowance made previously. The effects of the fair value changes are removed from the revaluation reserve with a corresponding change in the income statement.

The net financial result for the accounting year is the profit disclosed in the income statement of the current year adjusted by the corporate income tax charge.

Custody services

Income from custody services is an element of the fee and commission income. The corresponding customer assets do not form part of Santander Bank Polska S.A.’s assets and as such are not disclosed in the standalone statement of financial position.

Capital payments (Dividends)

Own dividends for a particular year, which have been approved by the General Meeting of Shareholders but not paid at the at the end of the reporting period are recognised as dividend liabilities in “other liabilities” item.

Provisions

A provision is recognised when Santander Bank Polska S.A. has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the amount is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

Santander Bank Polska S.A. recognizes provisions for legal risk in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, where the estimated legal risk loss exceeds the gross value of the loan, and for settled loans,

Income statement

Net interest income

Santander Bank Polska S.A. presents the interest income recognised at the effective interest rate and credit-adjusted effective interest rate in separate lines of the income statement: “Interest income from financial assets measured at amortised cost” and “Interest income from assets measured at fair value through other comprehensive income”.

In turn, the interest income from financial assets which do not meet the contractual cash flows test is presented in line “Income similar to interest - financial assets measured at fair value through profit or loss”.

Net fee and commission income

Santander Bank Polska S.A. recognizes the 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 it will be entitled in return for the goods or services in accordance with the 5 -stage model for recognizing income .

The Bank identifies separate obligations to perform the service to which it assigns a transaction price. If the amount of remuneration is variable, the transaction price includes part or all of the variable remuneration to the extent that there is a high probability that there will be no refund of previously recognized revenues. Revenues equal to the transaction price are recognized when the service is performed or when it is performed by providing the customer with the promised good or service.The costs leading to the conclusion of the contract and the costs of performing the contract are activated and then systematically depreciated by the Bank taking into account the period of transferring goods or services to the customer.

The significant commission income of the Santander Bank Polska S.A. includes:

1.  Fee and commission income from loans includes fees charged by Santander Bank Polska S.A. in respect of reminders, certificates, guarantees, debt collection activities as well as  commitment fees. Due to its nature, the majority of such income is taken to profit or loss on a  one-off basis, i.e. when a specific operation is performed for a customer. Other income, such as a guarantee fee, is settled over time during the term of an agreement with a customer.

2.  Fee and commission income from credit cards includes fees in respect of card issuance, ATM withdrawals, issuance of a new card, generation of a credit card statement or activation of optional credit card-related services. The vast majority of income is recognised at a specific point in time, i.e. when a specific operation is performed for a customer. Fees in respect of additional services related to credit cards are recognised over time.

3.  Income from asset management is recognised in accordance with a 5-step model based on the value of assets provided to Santander Bank Polska S.A. for management. Pursuant to the agreements in place, Santander Bank Polska S.A. does not receive any upfront fees or additional commissions calculated after the end of the accounting year on the basis of factors beyond the Santander Bank Polska S.A.’s control.

Gain/loss on derecognition of financial instruments measured at amortised cost

In the event of derecognition of an asset measured at amortized cost, Santander Bank Polska S.A. in this position presents the difference in value between financial instruments. The value of this item for 2024 relates almost entirely to settlements concluded for the portfolio of mortgage loans in foreign currencies. Upon concluding a settlement with a customer, the Bank loses its rights to the foreign currency instrument and a new PLN instrument is created. In addition to settlements for the mortgage portfolio, this item presents significant modifications to other instruments like individual and corporate loans.